Desai and Others v Greyridge Investments (Pty) Ltd

• Jurisdiction: South Africa
• Judge: Ogilvie Thompson CJ, Holmes JA, Wessels JA, Trollip JA and Muller JA
• Judgment Date: 13 November 1973
• Citation: 1974 (1) SA 509 (A)
• Hearing Date: 24 September 1973
• Court: Appellate Division

Trollip, J.A.:

This appeal concerns a preliminary skirmish in the dispute that has arisen between the parties. The Court a quo (MILLER, J., sitting in the Durban and Coast Local Division) refused to grant an interim interdict sought by the appellants against the respondents. The issue raised on appeal A is whether or not the interdict ought to have been granted. The present contestants are the shareholders and certain directors of a private company, Effingham Heights Development Co. (Pty.) Ltd., herein referred to as "the company" or, where necessary, "the Effingham company". Second and fourth appellants are shareholders of the company. (The former is a B partnership, but in the affairs of the company it has throughout been treated as a registered company). They are represented on the company's board of directors by their nominees, the first and third appellants respectively. The latter are herein referred to as Desai and Bhoola for the sake of brevity and clarity. The two sets of appellants were separately represented by counsel in the lower Court and on C appeal. The respondents are the remaining shareholders. The company's authorised and fully paid-up capital is R120 000 divided into 120 000 shares of R1 each. Each of the 12 shareholders holds an equal number of shares, i.e., 10 000. The respondents thus constitute the majority shareholders. They allege that about mid - 1972 Desai and Bhoola were guilty of a D breach of their fiduciary duty as directors of the company in connection with a certain property transaction (to be referred to presently). In consequence of their alleged conduct, and because, despite respondents' requests, they have failed to justify or explain it satisfactorily or at all or to resign as E directors, the respondents have requisitioned, as they are entitled to do, the calling of an extraordinary general meeting of shareholders of the company. The purpose is to consider the resolution proposed in the requisition, namely, that Desai and Bhoola should be removed as directors in terms of art. 91 of the company's articles of association and sec. 69 ter (1) of the Companies Act, 46 of 1926, as amended.

F It can be safely inferred that, if the meeting is held, all the respondents would probably vote for the proposed resolution, which would, therefore, be passed. The appellants consequently launched these proceedings. They claimed an interim interdict restraining each of the respondents from G voting in favour of any resolution of shareholders to remove Desai and Bhoola as directors pending the final determination of an action they intend instituting for a declaration of rights. The respondents opposed the application. It should also be added here that the question of the company's suing Desai and Bhoola for restitution or compensation for their alleged H breach of fiduciary duty as directorsis under consideration by the majority directors representing the respondents.

As these proceedings are only the opening salvoes fired in what might develop into an acrimonious, litigious battle between the contestants, it is inadvisable at this stage to say more than is absolutely necessary about the merits of the factual issues involved. Hence, for a brief historical account of the course of the dispute, it suffices merely to

Trollip JA

say the following. (It is culled mainly from the correspondence and minutes of meetings).

The company was registered on 23rd April, 1968, in pursuance of two written agreements concluded by or on behalf of all the prospective shareholders in February and March, 1968, herein A referred to as "the shareholders' agreement". It was formed to acquire, and it did in due course acquire, certain immovable property at Effingham, Natal, approximately 285 acres in extent, for the purpose of developing it as a township for members of the Indian Group. Desai was the animating spirit in the company's formation and its acquisition of this property B for that purpose. On the company's registration he became a director, representing the second appellant, and was appointed chairman of the board. Since its incorporation it has also acquired and similarly developed and exploited other land and its business seems to have prospered.

In about May, 1972, to the knowledge of Desai and one Mehta, another director, certain land in Isipingo (actually two C properties, Orient Hills and Isipingo Hills) had become available for purchase. On 17th May, 1972, the executive committee of the board of directors, including Desai, its chairman, decided that he, with the assistance of Bhoola and Mehta, should continue his negotiations with the owners of the D land with a view to its possible acquisition by the company. At an executive committee meeting on 21st June, Desai reported the result of his negotiations: the company could purchase the land for R1.2 million of which R400 000 had to be paid in cash and the balance over three years, free of interest, but its reply to the sellers had to be given by Monday, 26th June. The meeting decided that the feasibility of the company purchasing E at that price and its cash resources should first be investigated (which was later done); it was also agreed that, in order to effect the purchase, outside parties would have to be brought in. The next day, 22nd June, the executive committee met again and the results of the investigation were reported, namely, that the purchase at R1,2m. would be a viable F proposition but the company could only provide vide 25 per cent of the purchase price. It was thus agreed that outside parties should be asked to participate in the purchase, since the company could not manage it on its own. The methods of promoting a scheme along those lines were discussed. Desai reminded the meeting that a reply had to be given to the sellers by 26th June at the latest. Despite that, it was agreed G by those present, including Desai and Bhoola, that the matter be referred to a meeting of the full board of directors to be held on 28th June, at which the promoters of the scheme should provide a letter setting out the basis on which they proposed that they and the company could finance the purchase. At the directors' meeting on 28th June, attended by all the directors H except one, it was revealed by Desai, Bhoola and one Y. G. H. Mayat that a company, Quizmir Group (Pty.) Ltd., had in the meantime purchased the Isipingo land for itself in order to develop and exploit it as a residential, business, and industrial township; that to finance the enterprise this company (Quizmir) had promoted a scheme of offering "units" in the enterprise (totalling 196 of them) for sale at R8 100 each; that by Saturday, 24th June, the scheme had already been oversubscribed except for 14 units, which had been expressly withheld and were now offered for purchase by the

Trollip JA

Effingham company "out of sentiment"; and that the directors of the Quizmir company were Desai, Bhoola, Y. G. H. Mayat, and Paruk. (These four men were also all directors of the Effingham company). Prior to this meeting the other directors of the Effingham company were not aware or informed of those facts. A Understandably the disclosure evoked much acrimony on the part of the latter directors, some of whom stigmatised the former directors' conduct in purchasing the property themselves without first bringing the matter before the full board meeting as being "immoral", "unethical", and "scandalous", and, in effect, accused them of a breach of their fiduciary duty as directors of the Effingham company. The offer of the 14 units B was rejected in a secret ballot at the meeting by 7 to 4 votes with one abstention.

Subsequently, at the annual general meeting of the Effingham company held on 29th August, 1972, it was resolved that the above-mentioned activities of the four allegedly errant directors should be discussed and considered at an C extraordinary general meeting to be called for the purpose. This meeting was convened for 7th October, 1972. In the meantime six of the offended directors had...