Rajahmundry Electric Supply Corporation Ltd. v. A. Nageswara Rao

Facts

Shareholders of the Rajahmundry Electric Supply Corporation alleged gross mismanagement by the vice-chairman, who was in de facto control, including misappropriation of company funds and large amounts due from directors. They petitioned for relief, and an administrator was appointed. A question arose over whether the requisite number of consenting members supported the petition after some sought to withdraw consent.

Issues

• Were the affairs of the company being conducted in a manner amounting to mismanagement warranting relief?
• Whether the requisite member support for the petition is judged at the time of presentation, and whether members can withdraw consent given on a misapprehension?

Arguments

The petitioners argued that the company's affairs were grossly mismanaged by those in control, justifying judicial intervention. The respondents contested the maintainability, arguing the required statutory number of supporting members was not maintained because some had withdrawn their consent.

Held

The Supreme Court upheld the grant of relief, finding clear mismanagement and misapplication of funds by those in control. It held that the validity of a petition is to be judged on the facts as they existed at the time of presentation, so subsequent withdrawal of consent does not affect maintainability. Consent obtained on a mistaken impression could be reconsidered, but the petition having been properly constituted at the outset, the proceedings could continue and an administrator was rightly appointed.

Ratio decidendi

Where those in control mismanage and misapply company funds, the court may grant relief; the maintainability of a petition is determined at the date of presentation and is not defeated by later withdrawal of supporting members' consent.

Significance

One of the earliest Supreme Court decisions on the mismanagement remedy, clarifying that member support is assessed at presentation and affirming judicial power to intervene against entrenched mismanagement, qualifying the majority rule. Frequently cited on maintainability of oppression and mismanagement petitions.

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