Mahima Datla Vs Dr. Renuka Datla (Supreme Court of India)
The Duomatic Principle can be briefly stated as ‘anything the members of a company can do by formal resolution in a general meeting, they can also do informally, if all of them assent to it.’
This Principle was derived from the decision In Re: Duomatic Ltd., [1969] 2 Ch. 365, wherein Buckley, J. held as under: “where it can be shown that all shareholders who have a right to attend and vote at a general meeting of the company assent to some matter which a general meeting of the company could carry into effect, that assent is as binding as a resolution in general meeting would be.”
The enunciation of the aforesaid principle, in the abovementioned case can be traced back to the decision of Lord Devey in Salmon v. Salmon Co. Ltd., [1897] AC 22, (hereinafter referred as “Salmon’s case”) wherein it was held that “a company is bound in a matter intra vires by the unanimous agreement of its members”.
The aforesaid Principle emanating from Salmon’ Case (supra) has found its utility across various aspects of company law such as Duomatic Principle, Doctrine of Indoor Management, etc. This Principle having its origin in common law, is applicable even in the Indian context.
It is, in this context, we must note that application of Duomatic Principle is only applicable in those cases wherein bona fide transactions are involved. Fraud is a clear exception to application of these principles, be it Duomatic Principle or Doctrine of Indoor Management.
In the case at hand, the respondent No. 1 has not proved that the transfer of shares based on the Will dated 14.02.2005 was a fraud played on her as well as the Company. From the narration of the circumstances, wherein appellant Mahima Datla was groomed by her father to carry the operations of the Company clearly points out to his intention to make such Will. In light of the fact that no allegation of fraud or dishonesty is noticeable in this case, there is no way to ignore the application of this well settled principle.
The thrust of the Duomatic Principle is that strict adherence to a statutory requirement may be dispensed with if it is demonstrated otherwise on facts, if the same is consented by all members. In this case at hand, there is overwhelming evidence to show that respondent No. 1 had accepted Mr. G.V. Rao back into the Board and her conduct clearly shows that the resignation dated 06.04.2013 was clearly not accepted.
The High Court has clearly fallen into error by not considering the aspect of application of Duomatic Principle. The interpretation ascribed by the High Court to Article 129 of the Articles of Association of the Company is too formalistic and does not take into consideration inclusion of such well settled common law principles. There is no scope left for equitable considerations to be read into the aforesaid provision, which, in our view, is a patent illegality committed by the High Court without taking into considerations aforesaid principles. We, therefore, hold that G.V. Rao never seized to be a Director of the Company in view of the acquiescence by respondent No. 1, and he had withdrawn his resignation prior to its acceptance.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
Leave granted.
2. These Civil Appeals have been preferred against the judgment dated 17.11.2017, passed by the High Court of Judicature at Hyderabad for the State of Telangana and Andhra Pradesh in Company Appeal No.14 of 2016, whereby the appeal filed by respondent Nos. 1 to 3 against the order dated 30.5.2006 passed by Company Law Board (hereinafter to be referred to as ‘CLB’) was allowed.
3. A brief narration of facts necessary for disposal of these appeals are that the dispute in question relates to a family feud between mother on one side and her three daughters on the other, concerning respondent No. 4Company ((Biological E. Ltd.) (hereinafter to be referred to as “the Company”) which was established by G.A. Narasimha ( father of respondent No. 1) in 1953. Dr. Vijay Kumar Datla (father of the appellantMahima Datla) was inducted in the Company on 01.05.1972 and later appointed as the Chairman and Managing Director of the said Company. In the year 1998, the appellantMahima Datla joined the Company as a management trainee with her father with the intent to be groomed her as his successor. Through the years, she has acclimatized and grown with the aforesaid Company and in 2004, she was promoted as Senior Vice President (Biotechnology and Projects).
4. There is no gainsaying that on 14.02.2005, a Will was executed by (Late) Dr. Vijay Kumar Datla bequeathing his entire shareholdings in favour of appellantMahima Datla. On 20.03.2013, Dr. Vijay Kumar Datla died leaving behind respondent No. 1 and three daughters Ms. Mahima Datla, Ms. Purnima Manthena, and Dr. Indira P. Raju as his heirs. At the time of his demise, the shareholding pattern of the Company was as under:
