[1975] 45 COMP. CAS. 1 (BOM)
HIGH COURT OF
v.
Govt. of
VIMADALAL, J.
JANUARY
19, 1974
P.R. Mridul for the
Petitioner.
K.S. Cooper for the
Respondent.
Vimadalal, J.—this is a petition under section 17 of the Companies Act,
1956, for alteration of the memorandum so as to change the place of the
registered office of the petitioner-company from the State of Maharashtra to
the State of
In paragraph 7 of the
petition, it is stated that the Mysore State Financial Corporation Ltd.,
Bangalore, had advanced to the company a loan of Rs. 20 lakhs, and one of the
conditions for the grant of the said loan was that the company would take steps
to shift its registered office from the State of Maharashtra to the State of
Mysore in which its mills were situated. It was further stated in the said
paragraph that it was desirable to have the company's mills as well as its
registered office at one and the same place, viz., Bangalore, in the State of
Mysore, as the same would be helpful in carrying on its activities more
economically and efficiently, and that the National Industrial Development
Corporation Ltd. who were one of the secured creditors of the company had
informed it that they had no objection to the transfer of the registered office
from Bombay to Bangalore.
By an order dated 19th
October, 1971, issued by the Government of India in exercise of the powers
conferred upon it by section 18A of the Industries (Development and Regulation)
Act, 1951, the Center Government authorised the National Textile Corporation
Ltd. to take over the management of the whole of the undertaking of the
petitioner-company as the authorised controller of the said undertaking for a
period of five years from the date of the publication of the said order in the
Official Gazette. Pursuant to the said notified order, the management of the
entire undertaking of the petitioner-company was taken over by the said
corporation as the authorised controller thereof, and the petitioner-company
has since been under the management of the said authorised controller appointed
by the Central Government.
The company has filed the
present petition for the confirmation of the court that is required under
sub-section (2) of section 17 of the Companies Act, 1956, to the alteration of
the memorandum relating to the shifting of its registered office from the State
of
The first question to which
I must address myself is, on what grounds is a State
entitled to oppose the shifting of the registered office of a company from its
territory to the territory of another State within the country. The answer to
that question would depend on the further question as to in what cases notice
should be given to the State from which the registered office is sought to be
transferred to another State. In that connection, I must first refer to the
relevant provisions of the Companies Act, 1956, as well as the Industries
(Development and Regulation) Act, 1951. Sub-section (1) of section 17, inter alia,
provides that a company may, by special resolution, alter the provisions of its
memorandum so as to change the place of its registered office from one State to
another. Subsection (2) of that section, however, lays
down that such alteration is not to take effect until, and except in so far as,
it is confirmed by the court on petition. Sub-sections (3) and (4) of the said
section which are material for the purpose of the question I am now
considering, are in the following terms :
" (3) Before
confirming the alteration, the court must be satisfied—
(a) that sufficient notice has been given to every holder of
the debentures of the company, and to every other person or class of persons
whose interests will, in the opinion of the court, be affected by the
alteration; and
(b) that, with respect to every creditor who, in the opinion of
the court, is entitled to object to the alteration, and who signifies his
objection in the manner directed by the court, either his consent to the
alteration has been obtained or his debt or claim has been discharged or has
deter mined, or has been secured to the satisfaction of the court
:
Provided that the court may in the case of any
person or class of persons for special reasons, dispense with the notice required
by clause (a).
(4) The court shall cause notice of the petition
for confirmation of the alteration to be served on the Registrar who shall also
be given a reasonable opportunity to appear before the court and state his
objections and suggestions, if any, with respect to the confirmation of the
alteration."
Sub-section (5) of section
17 enacts that the court can make an order confirming the alteration either
wholly or in part, and on such terms and conditions, if any, as it thinks fit,
and sub-section (6) lays down that, in exercising its powers under the said
section, the court must have regard to the rights and interests of the members
of the company and of every class of them, as well as to the rights and
interests of the creditors of the company and of every class of them.
Sub-section (3) of section 18 of the Companies Act provides for the filing of
the court's order with the Registrars of Companies of the two States concerned
who would register the same in their records, and section 19 enacts that the
alteration of the memorandum in question is not to take effect until it has
been so registered.
Section 18A of the
Industries (Development and Regulation) Act, 1951, empowers the Central
Government to authorise any person or body of persons to take over the
management of an industrial undertaking, inter alia, on the ground that it was
being managed in a manner highly detrimental to public interest, that being the
ground on which the management of the company in the present case was taken
over by the Central Government by a notified order issued under the said
section. Section 18B of the said Act provides that on the issue of such a
notified order, all persons in charge of the management, including persons
holding office as managers or directors, are to be deemed to have vacated their
office, and any subsisting contract of management between the industrial
undertaking and any managing agent or any director is to be deemed to have been
terminated. Section 18C empowers the authorised person who has taken over the
management of such an industrial undertaking to apply to the court for
cancellation of any subsisting contract or agreement. Then comes
section 18E with which I am concerned in the present case. It is in the
following terms :
"18E. (1)
Where the management of an industrial undertaking, being a company as defined
in the Indian Companies Act, 1913, is taken over by the Central Government,
then, notwithstanding anything contained in the said Act or in the memorandum
or articles of association of such undertaking,—
(a) it shall not be lawful for the
shareholders of such undertaking or any other person to nominate or appoint any
person to be a director of the undertaking;
(b) no resolution passed at any
meeting of the shareholders of such undertaking shall be given effect to unless
approved by the Central Government;
(c) no proceeding for the winding up
of such undertaking or for the appointment of a receiver in respect thereof
shall lie in any court except with the consent of the Central Government.
(2) Subject to the provisions contained in
sub-section (1), and to the other provisions contained in this Act and subject
to such other exceptions, restrictions and limitations, if any, as the Central
Government may, by notification in the Official Gazette, specify in this
behalf, the Indian Companies Act, 1913, shall continue to apply to such
undertaking in the same manner as it applied thereto before the issue of the
notified order under section 18 A."
There is one other
provision of the Act to which I must refer, though it was not pointed out to me
by the learned counsel on either side in the course of their arguments before
me, and that is the provision to be found in section 13(1)(e) that no owner of
an industrial undertaking, other than the Central Government, can change the
location of the whole or any part of an "industrial undertaking"
which has been registered under the said Act, it being not disputed that the
present company was so registered. Reference may be made to the definition of
the expression "industrial undertaking" in section 3(d) of the Act.
The said expression has been defined as meaning any undertaking pertaining to a scheduled
industry carried on in one or more factories
by any person or authority including Government. These are all the statutory
provisions to which I need refer for the purpose of this judgment.
A perusal of the above
statutory provisions shows that there is no express provision of the Companies
Act which requires that notice of a petition to shift the registered office of
a company from one State to another must be given to the former State. The only
persons to whom such a notice must, by reason by the provisions of sub-sections
(3) and (4) of section 17 of the Companies Act, be given are
:
(a) debenture-holders and every other person or class of persons
whose interests would be affected by the proposed alteration, and
(b) the Registrar of Companies.
Even so, the court has
undoubtedly the power to direct notice of a petition to be given to any other person.
No exception can, therefore, be taken, and indeed none was taken to the
direction given by Nain J. to serve a notice of this petition on the State of
This view which I have
taken on a plain reading of the relevant statutory provisions is borne out by the
decision of a Division Bench of the Calcutta High Court in the case of Rank
Film Distributors v. Registrar of Companies
with which I am in complete agreement. The facts of that case were that the
company carried on the business of film distributors and its registered office
was situate at
As against the said
decision of the Calcutta High Court, reliance was sought to be placed by Mr.
Cooper on two decisions of single judges of the Orissa High Court in the cases
of Orient Paper Mills Ltd. v. State
and In re Orissa
Chemicals and Distilleries Private Ltd..
Both those decisions of the Orissa High Court have
been considered and in effect dissented from by the Division Bench of the
Calcutta High Court in its judgment in the case of Rank Film Distributors
already discussed above. In those decisions, the Orissa High Court has taken
the view that where by a change of registered office of a company, the State
from which the office was sought to be transferred would suffer a substantial
reduction of revenue from Income-tax and sales tax,
the court should take that fact into consideration and refuse to confirm such a
resolution. For the reasons already stated by me earlier in the judgment, I do
not agree with that view. I prefer the view taken by the Calcutta High Court on
that point in the Rank Film Distributors' case
discussed above. Moreover, the Orissa High Court has, in both the cases cited
above, refused to confirm the proposed change of the registered office on the
ground that it was not bona fide, having regard to the facts of those cases. In
view of the fact that, in the present case, the shifting of the registered
office is proposed in order to implement an assurance given to the Mysore State
Financial Corporation, it cannot possibly be said that the application is not
bona fide. On the contrary, since that Corporation advanced a loan of as large
an amount as Rs. 20 lakhs, rightly or wrongly on the faith of that assurance,
it would have been dishonest on the part of the company not to have made the
present application. Reference was also made by Mr. Cooper to the decision of a
Division Banch of this court in the case of D.P. Kelkar v. Ambadas Keshav
in which, after considering the scheme of the Industries (Development and
Regulation) Act, 1951, it was stated that, although the Companies Act continued
to apply to an undertaking the management of which was taken over under the
former Act, the conditions and limitations with which the operation of the
Companies Act was circumscribed were so numerous and drastic as to make the
provisions of sub-section (2) of section 18E that the Companies Act would
continue to apply "more or less chimerical", that what was left with
the company after it was notified under the Industries (Development and
Regulation) Act, 1951, was "the mere outward shell of incorporation",
and that every vestige of power to manage and control was taken away from the
directors and shareholders. The actual question which arose before this court
in Kelkar's case
was quite different and I do not see how those general observations can be of
any assistance to me for the purpose of deciding an application under section
17(1) of the Companies Act for the confirmation of a special resolution for the
transfer of the registered office from this State to another State.
Having construed the
relevant statutory provisions and considered the authorities, I must now
proceed to deal with the specific contentions that were advanced before me by
Mr. Cooper on behalf of the State of
(1) The special resolution for the transfer of the registered
office from this State was a stale resolution passed as far back as the 29th of
July, 1969, and I should refuse to sanction the same, as the shareholders who
passed that resolution as well as the circumstance then prevailing had changed.
(2) It is not in the interest of the company, or of the State of
(3) In view of the provisions of section 18E(1)(b) of the
Industries (Development and Regulation) Act, 1951, the special resolution of
the shareholders in the present case which has not yet been given effect to has
become inoperative, since it has not been approved by the Central Government.
(4) The sanctioning of the said special resolution would affect
adversely the general economy of the State of
In addition to the above
four contentions advanced by Mr. Cooper, I pointed out to the learned counsel
on both sides the provisions contained in section 13(1)(e)
of the said Act, viz., The Industries (Development and Regulation) Act, 1951,
which barred the owner of an industrial undertaking from changing the location
of the whole or any part of an "industrial undertaking" which had
been registered under the said Act, as the company in the present case
undoubtedly is.
I shall now proceed to deal
with each of these contentions in the light of the legal position discussed
above.
As far as the first
contention of Mr. Cooper is concerned, the fact that the special resolution is
four years old is not a proper consideration on which sanction should be
refused in the present case, having regard to the ground on which the
shareholders had, at the annual general meeting held on the 29th of July, 1969,
resolved to shift the registered office from Bombay to Bangalore. That ground,
as appearing in the minutes of the said meeting, a copy of which has been
annexed to the affidavit in support of the petition and marked "B",
was that a loan of as large an amount as Rs. 20 lakhs had been obtained by the
company from the Mysore State Financial Corporation on condition that the
registered office would be shifted from the State of Maharashtra to that State.
Whether the imposition of such a condition was proper or not is immaterial. The
company having taken the benefit of the said loan in order to survive, it would
not be fair or proper that the present application for sanctioning the
necessary confirmation of the memorandum of the company for shifting the
registered office in order to comply with that condition should be rejected
merely on the ground that the company had not moved earlier, as it should
realty have done in this matter. The fact that the mills of the company have at
all times been situate in
As far as the second
contention of Mr. Cooper is concerned, as observed by me earlier in this
judgment and by the Calcutta High Court in the Rank Film Distributors' case,
the shareholders are the best judges of what is good for the company and the
State cannot assume to itself the role of a guardian of their interests, or
interfere in the management of the business of the company which is a matter
entirely for the company itself. As far as the interests of the State of
That brings me to the third
contention of Mr. Cooper which is based on the provisions of section 18E(1)(b) of the Industries (Development and Regulation)
Act, 1951. Strictly speaking, it is the Central Government that is concerned
with the contention which Mr. Cooper based on that statutory provision, and not
the State of
That leaves for my
consideration only the point in regard to the bar of section 13(1)(e) which was pointed out by me to the learned counsel on
each side in the course of the argument of this petition. What section 13(1)(e) prohibits is, however, the change of the location of
the whole or any part of an "industrial undertaking", an expression
which has been defined in section 3(4) of the Act itself. According to that
definition the said expression means any undertaking pertaining to a scheduled
industry carried on in one or more factories. The word "undertaking"
simpliciter occurs in section 293(1)(a) of the Companies Act, but it is
significant to note that the expression used in the Industries (Development and
Regulation) Act, 1951, is "industrial undertaking" which would, in my
opinion, emphasise that the bar of the said section applies only if the part of
the undertaking in which the industry itself is carried on, which in the
present case would mean the factory of the company which is already located at
Bangalore is shifted. Whether the registered office, or the head office, or one
or more of the branch office of the company is shifted or not, unless the
industrial unit of the company is also shifted, the bar of section 13(1)(e) would not be attracted. This ground, therefore, also
fails.
It is an admitted position
that the State of
[1962] 32 COMP. CAS. 341 (ORI.)
S.
BARMAN J.
MARCH
30, 1960
This is an
application by the orissa Chemicals and Distilleries Private Ltd. (hereinafter referred
to as to company) for change of its registered office from jharsuguda in the
State of
The company
was incorporated in March, 1950, one of the objects of the company being, as
appears from the memorandum and articles of association, o purchase,
manufacture, produce, boil, refine, prepare, import, export, sell and generally
to deal in sugar, sugar-candy, jaggery sugar-beet, sugar-cane, molasses,
syrups, melada, alcohol, sprits and all products or by -products thereof and
food products generally and in connection therewith to acquire, construct and
operate sugar and other refineries, buildings, mills factories, distilleries
and other works. On January 24, 1959, the shareholders of the company appear to
have passed a resolution at an extraordinary general meeting held at the
masulipatam office of the company to the effect that the registered office of
the company be changed worth immediate effect from Jharsuguda (Orissa) to
Masulipatam (Andhra Pradesh) and to locate it in 14/98, Edepalli, Masulipatam.
The present application is for confirmation by this court of the said
resolution as required by section 17 of the Companies Act, 1956.
Necessary
notice was duly served on the Registrar of companies Orissa, and there was also
due publication of the notice in th local newspapers
as directed by this court. Notice was also issued to the State of orissa, who
alone is opposing the proposed change of the registered office from Orissa to
Andhra Pradesh.
The points for
consideration are whether the application is maintainable; whether the State of
The main
ground for the purposed change is that the company can thereby facilitate more
direct and economic administration of the affairs. The company, however, does
not give any particulars as to how this can be effected
by change of the registered office from Orissa to Andhra Pradesh. In paragraph
3 of a subsequent affidavit, filed on behalf of the company dated September,
17, 1959 it is stated that as all the shareholder and directors are residents
of the State of Andhra Pradesh, it would be more convenient, economical and
efficient to hold meetings and carry out other provisions of the Companies Act
from there; that under the present arrangement, the directors who are the only
shareholders have to come down to Jharsuguda in Orissa for meetings and other
purpose at great loss of time an money without any corresponding benefit either
to the company or to others. It thus appears that the alleged convenience for
holding meetings is the only ground for which the company proposes to change
the registered office from Orissa to Andhra Pradesh. A petition was filed on
behalf of the State of Orissa wherein various objections were taken for the
proposed change on the grounds, inter alia, that the proposed alteration will
seriously affect the State of Orissa and deprive it of a considerable source of
revenue by way of income-tax and sales-tax etc.; that there will be serious
practical difficulties in working out and enforcing the provision of the local
Sales-tax Act, Excise Act, Municipal Act and Factories Act and various about
and industrial laws.
Mr. Muralidar
Mohanty, learned counsel appearing for the company, argued at length on the
various aspects of the question, the gist of which is this: that consideration
of income-tax, etc., are not relevant for deciding an application under section
17, that when the registered office of a company is allowed to be transferred
from one State to another, such transfer may necessarily involve loss if any,
to a State due to such alteration; that if such consideration is allowed to
prevail as a valid objection, section 17 of the Companies Act will be rendered
nugatory although that section contains categorical provisions allowing a
company to alter its registered office to enable if to achieve its objects
specified under section 17(1); the confirmation by the High Court should
therefore be based on consideration of those objects only specified in clauses
(a) to (g) of section 17(1); and other considerations should not be allowed to
prevail; that the location of the registered office is relevant only for the
purpose of the Companies Act; and for all other purposes in a case in which
there is a factory and other unit of production, as in the present case, the
local office of such factory or other unit of production is sufficient and in
competent. With particular reference to income-tax, the learned counsel,
relying on section 4A of the Income-tax Act, contended that the company is a
resident in a taxable territory, if the control and management is situated
wholly in he taxable territory, during the year in
question. If, therefore, a company is so situated that its control is situate
in one State and management in another, then the authorities are stated to be
unanimous that the taxable territory should be the place where the real control
is exercised. With regard to sales-tax, the company appears to take the stand
that the sale of liquor is not subject to sales-tax and that sales-tax is
determined by reference to locus, nexus, place of consumption, etc. and
accordingly sales-tax position will not be altered by the proposed change.
The learned
Advocate-General, Mr. Banchhanidhi Mohapatra, questioned the very
maintainability of the application of the group that notice was not served on
all the persons interested. It appear that in the case
of one deceased shareholder, Sri Mool Lachminarayanaswamy, he is stated to have
been represented by his son-in-law. There is however no evidence that the
son-in-law is the legal representative of the deceased shareholder. The absence
of proper legal representative affects the validity of the resolution itself.
The law requires that notice must be gin to all the shareholders. In the
present case, out of three shareholders, only tow passed the resolution and
accordingly the resolution is not in order. I do not propose to express any
opinion and leave open the question of maintainability, in vies of my decision
herein on merits.
Then as
regards the locus standi of the State of Orissa appearing in the present
application, which is challenged on behalf of the company, it is clear from
section 17(3)(a) that the State of Orissa is a person whose interests will, in
the opinion of the court, be affected by the alteration, This question has been
decided by a division bench of this court in Orient Paper Mills Ltd. v. State,
which was followed by a later decision of the division bench of this court
(unreported) in Bonai Industrial Co. Ltd. v. State of Orissa. The learned
Advocate-General drew my attention to article 270 of th
Constitution providing for distribution, appearing o be for Orissa 3.50 per
cent. It is also to be noticed that under section 4B of the Income-tax Act, a
company is ordinarily resident in the taxable territories. As regards the place
of assessment, section 64 of the Income-tax Act provides that where assessee
carries on business, etc., in more places than one, he shall assessed by the
Income-tax officer or the areas in which the principal place of the business in
situate. Section 5(7A) provides that the Commissioner of Income- tax may
transfer any case from one Income-tax Officer subordinate to him to another and
the Central Board of Revenue may transfer any case from any Income-tax officer
to another.
The company
takes the stand that the question of any loss to the State of Orissa on the
basis of subventions of income-tax does not arise because the Commissioner of Income-tax,
Bihar and Orissa Circle, has transferred the assessment files of the company
from his own circles to Andhra Pradesh Circle where it is said the company is
being assessed to income-tax for its total annual income. Apart from a
statement made to this effect in an affidavit filed on behalf of the company,
there does not appear to be any other evidence or material on record. However,
I do not attach any importance to the transfer, of any, in deciding this case.
The fact, however, remains that the question of the loss of revenue on
income-tax in involved and this position, by itself, is a relevant
consideration which should with in the present case.
Coming to the
sale-tax similar consideration arise, as fully, discussed in the cases of
orient Paper Mills v. State and Bonai Industrial Co. Ltd. v. "State of
With regard to
labour and industrial legislation, there can be reasonably no denying the
position that the change of the registered office of the company from Orissa
will create serious practical difficulties in giving effect to the various laws
connected with industrial and about disputes. This aspect was also fully dealt
with in the earlier decisions of this court cited about which, with great
respect, i follow in deciding this case.
In the
ultimate analysis, I am satisfied that the location of the registered office is
not a matter to be lightly dealt with, having regard to the intention of the
legislature and the spirit of the law. Section 146 of the Indian Companies Act,1956, provides that company shall have a registered office
to which all communications and notices may be addressed. The importance of the
location of the registered office is evident from sub-section (2) of section
146 in that the notice of the situation of the registered office and every
change therein shall be given within 28 days after the date of incorporation of
the company or after the date of the change, as the case may, be, to the
Registrar, who shall record the same. Then again, the provision to sub-
section(2) of section 146 makes it clear that except on the authority of a
special resolution passed by the company, the registered office of the company
shall not be removed as provided in classes (a) and (b) of the said proviso. It
is further stressed in sub-section (3) of section 146 that the inclusion in the
annual return of the company of statement as to the address of its registered
office shall not be taken to satisfy the obligation imposed by sub-section (2).
It is also significant that there is a penal clause attached to all these
provisions in sub-section (4) of section 146 in that if default is made in
complying with the requirements of this section, the company and every officer
of the company who is in default shall be punishable with fine which may extend
to Rs. 50 for every day during which the default continues. Furthermore,
section 166(2) requires that every annual general meeting of the company shall
be held either at the registered office of the company or at some other place
within the city, town or village, in which the registered office of the company
is situate. All these provisions, among other, clearly show the importance of
the location of the registered office. It is thus by reason of long experience
and practice based on sound principle that the English law requires a company
to state in its memorandum of association, in what part of the United Kingdom
the office of the proposed company is to be situate; and this, one declared,
becomes unalterable condition of the company's constitution, which nothing
short of re-registration can change. In
As to the bona
files of this application, the learned Advocate- General drew my attention to
the position that although holding of meetings at Masulipatam is alleged to be
the only ground for which the company proposes to change the registered office
from Jharsuguda to Masulipatam, it is apparent that there is no substance in
the contention because this very special resolution itself, for change of the
registered office, was passed at masulipatam office of the company. Therefore,
the position is that either the special resolution is bad in law because it was
not held at the registered office of the company or if it is a valid resolution
then it is open to the company to hold meetings at Masulipatam even now when
the registered office is at Jharsuguda. Thus, there does not appear to be any
alleged necessity for change in the location of the registered office of the
company for holding such meetings. It is, therefore, legitimately commented
that there is some ulterior motive in the company proposing to change the
location of the registered office from Orissa to Andhra Pradesh. The company
relies on section 17(1)(a) for the change of the registered
office on the ground of more direct and economic administration. The company
has, however the administration from masulipatam can be more direct while its
factory or unit of production is at Jharsuguda. Therefore, on the facts and
circumstances of the case, I am no satisfied as to the bona fides of the
company's application for the proposed change of its registered office outside
the State of
In this view of ;the matter, this application is dismissed with costs.
Hearing fee Rs. 100.
Application
dismissed.
[1973]
43 Comp. Cas. 162 (
HIGH COURT OF CALCUTA
Bharat Commerce & Industries
Ltd., In re
RAMENDRA MOHAN DATTA, J.
NOVEMBER 16, 1971
S.C.
Sen for the petitioner
P.C. Sen for the employees
Ramendra Mohan Datta, J.—This is an application for the confirmation by the court of
the special resolution passed by the above named company relating to the
proposed change of its registered office from
It is urged on behalf of
the petitioner that the powers conferred on court under section 17 of the
Companies Act, 1956, in respect of change of the registered office from one
State to another are of a limited nature. Once the court is satisfied that the
special resolution has been duly passed and the necessary formalities regarding
the service of the notice on the Registrar or on the other parties interested,
have been complied with as provided by section 17 of the Companies Act, 1956,
the court after hearing the parties will have no other consideration but to
confirm the said special resolution as a matter of course. It is urged
following the well-established principle that the shareholders are the best
persons to decide the questions relating to the internal management and affairs
of the company, and that their decision should not be interfered with by the
court if the formalities have been so complied with by
the company in passing its special resolution. All that the court is to
consider in confirming the special resolution is whether the formalities
prescribed by the Companies Act, 1956, have been complied with or not.
Section 17 can be divided
into two parts. The first part relates to the change of the place of its
registered office from one State to another and the second part relates to the
alteration of the provisions of its memorandum with respect to the objects of
the company. Both the parts relate to the alteration of the provisions of the
company's memorandum of association. In this case, this court is concerned only
with the first part of section 17 of the Companies Act, 1956.
It is significant to note
that in the matter of shifting the registered office of a company within the
same State the statute does not require any confirmation of such special
resolution by the court (see section 146 of the Companies Act, 1956). The court
has been given special powers under section 17 to consider whether such a
special resolution should be confirmed or not. The court has to be moved on
petition for the said purpose. Such a special resolution shall not take effect
until and except in so far as the same is confirmed by the court. Sub-section
(3) and clauses (a) and (b) thereof provide:
"(3) Before
confirming the alteration, the court must be satisfied—
(a) that sufficient notice has been given to every holder of
the debentures of the company, and to every other person or class of persons
whose interests will, in the opinion of the court, be affected by the
alteration; and
(b) that, with respect to every creditor who, in the opinion of
the court, is entitled to object to the alteration, and who signifies his
objection in the manner directed by the court, either his consent to the
alteration has been obtained or his debt or claim has been discharged or has been
determined or has secured to the satisfaction of the court:
Provided that the court may, in the case of any
person or class of persons, for special reasons, dispense with the notice
required by clause (a)".
The above provision, to my
mind, clearly indicates that the persons whose interests might be affected by
the alteration should be given notice so that the court might be in a position
to consider whether such persons' interest would be required to be protected
before the court would decide to confirm the said special resolution. Once such
a person or persons who might be affected by such special resolution objects to
the same being confirmed and if, in the opinion of the court, the interests of
such a person or persons are likely to suffer the court has to go into the
merits of such special resolution in order to satisfy itself about the bona
fides of the company or its shareholders to pass such a resolution.
Sub-section (4) of section
17 provides that after the petition is presented notice thereof would be caused
to be served on the Registrar whose objection and suggestion would be
considered by the court before making an order on the application.
Sub-sections (5) and (6) of
section 17 indicate that the court's power is not limited to the extent as
contended for on behalf of the petitioner but the court would be in a position
to consider the whole aspect of the matter. The order to be made by the court
under this section is discretionary. Such discretion has to be exercised by
taking into consideration the facts and circumstances of each case in the
matter of exercising its discretion. The court is required to take into
consideration the rights and interests of the members of the company and of
every class of them as well as the rights and interests of the creditors of the
company and of every class of them. These safeguards have been specially
provided so that the persons dealing with the company and the persons who are
interested in the company as ex-members thereof might not suffer any prejudice
by reason of the confirmation of the alteration. In making the order it is
incumbent upon the court to consider such rights of the above persons or class
of them but this does not mean that the court shall not consider the rights of
any other person or persons whose interests might suffer prejudice by reason of
such change of the registered office. As stated above, every case has to be
judged on its own merits and for that purpose the court has been given wide
powers to confirm the alteration either wholly or in part in the manner it
thinks best or to refuse the same if the facts justify such refusal.
The English law on this
branch relating to the change of the registered office is not similar to the
Indian law because in
In my opinion once the
objection is made by the person concerned whose interests might suffer
prejudice by reason of such change the court would be justified in requiring
the company to satisfy the court about the bona fides of its passing such
resolution. Under such circumstances, the court would examine the reasons set
out in the petition for such change of the registered office in order to find
out whether the resolution has been passed in good faith or mala fide. The
court would satisfy itself from the facts placed before it that it would be
just, fair and equitable that the special resolution should be confirmed. To my
mind the principle that the shareholders are the best persons to decide matters
relating to the internal management of the company has to be considered subject
to the question of good faith which the court would in such circumstances
consider. The court would refuse to confirm such a resolution if it would be
found to be unfair or unjust or inequitable.
Rule 38 of the Companies
(Court) Rules, 1959, require that the petition must contain the reasons for the
alteration of the memorandum and in Form No. 11 thereof a form has been set out
which requires that the reasons for such alteration have to be set out and the
petition must also contain an averment as follows;
"No one will be
prejudiced by the proposed alteration of the memorandum of association of the
said company, and it is just and equitable that the alteration should be
confirmed by the court".
Accordingly, in my opinion,
the question of bona fides is a material consideration for the court in
confirming or refusing to confirm a special resolution of the company in an
application under section 17 of the Companies Act, 1956. Under those
circumstances, it is necessary to examine the reasons set out in the petition
herein.
The facts leading to this
application are that the company has its registered office at
Before holding the
extraordinary general meeting the company gave a notice to the shareholders.
The said notice contained an explanatory statement. The relevant portion
dealing with the unlawful activities of the employees of the company ran as
follows:
"Recently the company
has been faced with unprecedented disturbances led by just two or three
employees of the companies and some outside elements in its registered office
with the result that the management of the different units scattered all over
The extraordinary general meeting
was held on May 30, 1970. Twenty-one shareholders were present in person and by
proxy. None opposed either on behalf of the shareholders or on behalf of the
creditors of the company.
On the basis of the said
special resolution, the company made the application for confirmation thereof
by this court. Notice was caused to be issued on the Registrar. The State of
Besides the Registrar of
Companies, the other party who opposes this application is an employees union
by the name of "Birla Brothers and its Allied Concerns Employees
Union". One Rajendra Nath Chatterjee is the secretary of the said
employees' union. He has affirmed an affidavit-in-opposition to the petition
herein on July 24, 1970. It appears from the said affidavit that the said union
is a trade union registered under the Indian Trade Unions Act. The said union
was formed by the employees of the several Birla concerns in
It is not necessary to go
into the details of the agitations made by the employees in that connection but
it is sufficient to mention for the purpose of this application that disputes
and differences by and between the employees and the management in respect of
the various concerns including the petitioner-company cropped up and the same
were at all material times placed before the Labour Directorate of the
Government of West Bengal. In paragraph 27 of the said affidavit it is alleged
that the union representing the employees in the said industrial disputes will
be seriously prejudiced in the pending conciliation/adjudication proceedings on
the said dispute if the said special resolution would be confirmed by this
court because such an order of this court if made is likely to make the said
conciliation/adjudication proceedings infructuous. It is also alleged in the
said affidavit that the services of the employees of the petitioner-company are
not transferable and that the decision to shift its registered office from
Calcutta to New Delhi was mala fide, illegal and was taken with the object of
causing harassment and/or hardship and/or inconvenience to its employees and
staff; because once the confirmation is made, the same would involve automatic
transfer of employees from Calcutta to New Delhi which could not be done by the
company directly. It is further contended on behalf of the said employees'
union that, save and except the said object of victimising the employees of the
petitioner-company, there was no other reason which might be called just or
reasonable or legitimate for shifting the registered office.
Furthermore, the fact that
the petitioner-company declared a closure of its registered office and stopped
payment of the salary to its employees since February 23, 1970, has been
totally suppressed in the petition. It is significant that such vital facts
which prompted the directors and the persons who are in the management of the
company to take action to shift the registered office have been suppressed even
from the shareholders as would be revealed from the explanatory statement to
the said notice dated April 29, 1970. The said explanatory statement is
completely silent about the same and did not give any indication whatsoever
about the closure of the registered office and of the fact of the non-payment
of salary of its employees employed at the registered office at the date of the
said notice. This is clear proof of want of bona fides on the part of the
management in respect of the passing of the said special resolution. The other
grounds which have been mentioned in the said notice and in the petition herein
by themselves could not be of much substance for the
purpose of shifting the registered office at the date of the said notice. Those
grounds had all along been there but in spite thereof, the company never
thought of shifting its registered office from West Bengal to
As stated above, the said
employees' union filed an affidavit-in- opposition to the petition and has
taken several points to contest this application. It is urged that the effect
of the shifting of the registered office of the company to
Petition No. 225 of 1964 (
On behalf of the Registrar
of Companies the said points have also been agitated. In any event, I am bound
by the Division Bench judgment of this court delivered in Rank Film
Distributors of India Ltd. v. Registrar of Companie, and, accordingly, I reject
the said contentions raised on behalf of the Registrar of Companies and by the
said employees' union.
On the question as to
whether the said employees' union have any locus standi to come and to agitate
before this court that the proposed transfer of the registered office would
prejudicially affect the interests of its members in this application, I am
satisfied that the employees' union which is a registered body and which
represents quite a number of the employees employed at the registered office of
the company, has the right to appear and to oppose this application on the
ground that their interests would be likely to be prejudicially affected if
such special resolution would be confirmed by this court. It is always open to
the employees concerned to bring it to the notice of the court through their
union or even individually, if the company in passing such resolution did not
act bona fide so as to enable the court to examine the reasons set out in the
petition to consider whether it would be just and equitable to confirm such a
resolution.
In the petition it is
admitted that due to unprecedented disturbances at the registered office
instigated by 2 or 3 employees of the company at the instance of the outside
elements it had become impossible to manage the business and affairs of the
company from Calcutta and that there had been no change in the situation.
It is urged on behalf of
the petitioner-company that 15 out of the 18 employees have already filed
affidavits signifying their consent to the transfer. Accordingly, there could
be no reason to doubt that the interests of the employees would be affected or
prejudiced by reason of such change of the registered office. On behalf of the
said employees' union it is contended that altogether there are 33 employees
including the employees of Bharat Airways who are members of the employees' union. Accordingly, the employees' union should be deemed to
be representing the remaining employees who are members of the union.
Mr. P.C. Sen appearing on
behalf of the employees' union has referred to the Supreme Court case of State
of
Mr. S.C. Sen appearing on
behalf of the petitioner-company admitted in the course of his arguments that
the petitioner was not denying the fact that the said agitation by the
employees was the main ground for effecting transfer of the registered office
from
"Recently the company
was faced with unprecedented disturbances at the registered office instigated
by 2 or 3 employees of the company at the instance of outside elements. The
employees of the company in general did not approve of or participate in this
disturbance and have, in fact, joined the company's present head office at No.
10, Ring Road, Lajpatnagar,
It is difficult to appreciate
why the registered office of the company has to be shifted from
Mr. S.C. Sen on behalf of
the company has admitted that the other grounds mentioned in the petition were
subsidiary grounds and the same were added because they were also considered
relevant by and on behalf of the company when the company thought of changing
the registered office due to the main ground of disturbances created by the
said employees. In other words, the additional grounds were added to strengthen
the main ground of transfer.
I have searched in vain to
find out a genuine ground at this stage for shifting the registered office from
West Bengal to
It is not necessary for
this court to go into the details of the agitation by the employees concerned.
This court cannot go into such question as to whether the employees were
behaving in the manner permitted by law or not vis-a-vis the directors or the
management of the company. These are matters for the industrial tribunal if the
same would be referred thereto. All that this court is concerned with is to
take notice of the fact that the disputes, which the employees called
industrial disputes, still exist. This court also takes into consideration the
fact that there was closure of the registered office of the company since in or
about March, 1970, and that the employees who were unwilling to work in the
Delhi office and who did not act in accordance with the wishes of the
management were not paid their salary since February 23, 1970. As to whether
the management of the petitioner-company was justified in taking such action or
not is not for this court to consider or to decide. This court also takes into
consideration the fact that the shareholders were kept completely in the dark
about the fact of the said closure and of the non-payment of the salaries to
the employees as will be evident from the said notice and the explanatory
statement thereof. This court also takes into consideration the fact that
immediately after the passing of the resolution and before obtaining the order
of confirmation of this court the special resolution has been given effect to
and the registered office has already been shifted from 10,
In paragraph 13 of the
petition the company admits that at least 2 or 3 employees may not agree to
work in any other unit or office of the company except at its
Mr. P.C. Sen appearing on
behalf of the employees' union contends that the company has not only stopped
payment of the salary of the 19 employees who were employed in the registered
office at No. 10, Camac Street, Calcutta, but has also stopped payment of the
salary of the 10 or 11 other employees who were employed with Bharat Airways
which is a branch organisation of this company. All these said 29 employees
including the employees of the Bharat Airways are members of the employees'
union. Even assuming that 18 of these employees voluntarily affirmed affidavits
in favour of the company and are agreeable to the transfer of the registered
office of the company the remaining employees who are represented by the
employees' union are likely to suffer great hardship, harassment and
inconvenience by reason of such transfer. It is contended by the learned
counsel that by punishing the said employees and by transferring the registered
office from this State to the Union Territory of Delhi the company intends to
thwart the lawful trade union activities of these employees of the employees'
union. It is admitted by and on behalf of both the parties that those employees
who have since joined the
In my opinion Mr. P.C.
Sen's contention that the disputes pending before the conciliation officer are
likely to be prejudiced if the registered office is transferred at this stage,
has great force. Such pending disputes would undoubtedly be rendered
infructuous if the registered office would not remain in
In my opinion no valid,
bona fide or substantial ground has been made out on behalf of the petitioner
to enable this court to confirm the special resolution passed by the company in
its extraordinary general meeting.
The next point that was
urged on behalf of the said employees' union was that the petitioner-company
had no power to call the extraordinary general meeting herein for the purpose
of passing of the said special resolution because the provisions of section 169
of the Companies Act, 1956, and of article 76 of the articles of association of
the company were not complied with. Sub-section (2) of section 169 provides
that the requisition shall be signed by the requisitionists and shall be
deposited at the registered office of the company. It is urged that the
registered office being closed the requisition was not deposited at the registered
office. The said sub-section has been made mandatory and that would appear from
the explanation to the said section whereby it is provided that the said
meeting for passing the said special resolution would not be deemed to have
been duly convened if notices were not given as is required by sub-section (2)
of section 189.
On behalf of the Registrar
of Companies this application was strenuously contested. It is urged on behalf
of the Registrar of Companies that the special resolution was not passed at the
properly held meeting because the special resolution could be passed only in an
extraordinary general meeting which could be convened only at the registered
office of the company. The notice itself provided that the meeting would be
held at No. 10, Ring Road, Lajpatnagar IV, New Delhi-24. It is urged that the
meeting held at the said office instead of at the registered office was invalid
and the petitioner-company had no jurisdiction or right or authority to hold
its general meeting at the said address at
The only other point which
remains to be considered and which has been raised on behalf of the
petitioner-company is that for each of the grievances raised by the employees'
union there is a remedy provided in the Industrial Disputes Act. If the
transfer would be held to be illegal or invalid then the industrial court could
provide for adequate compensation for the same. If the change
of the registered place would involve retrenchment of any of the employees that
also could be remedied by allowing compensation. Even in case of
non-payment of salary the industrial court could order compensation to be paid
to the aggrieved worker. I have already indicated that I have not decided nor
have I intended to decide any of the said questions but I have considered the
question of bona fides and mala fides in the manner I have indicated above and
I am satisfied that the special resolution has not been passed bona fide. Under
those circumstances, in my opinion, this application should not be allowed.
Accordingly, I make an
order dismissing this application with costs. Certified for two counsel.
[1973] 43 COMP. CAS. 275 (
HIGH COURT of
Bharat Commerce & Industries
Ltd.
v.
Registrar of Companies
S.K. MUKHERJEA AND S.C. GHOSH,
JJ.
APRIL 28, 1972
S.B. Mukherjee for the appellant.
Ashim Ghosh for the Registrar of Joint Stock Companies.
Prabir
Sen for the employees’ union.
Ghose, J.—This appeal is directed against
the judgment and order dated November 16, 1971, passed by the court of first
instance (see [1973] 43 Comp. Cas. 162), refusing to confirm a special
resolution passed by the petitioner-company at an extraordinary general meeting
of the members of the petitioner-company held on May 30, 1970, at No. 10, Ring
Road, Lajpat Nagar IV, New Delhi-24, resolving to remove the registered office
of the company from No. 10, Camac Street, Calcutta, to the said No. 10, Ring
Road, New Delhi, under section 17 of the Companies Act, 1956.
The
petitioner, Bharat Commerce & Industries Ltd., hereinafter referred to as
the company, was originally incorporated under the name of Bharat Airways Ltd.
on or about August 11, 1945. Upon the nationalisation of the scheduled
passenger traffic by air, the name of the company was changed to Bharat
Commerce & Industries Ltd. with effect from January 4, 1956. The present
registered office of the company is situated at No. 10,
The
authorised share capital of the company is Rs. 5,00,00,000
divided into 25,00,000 equity shares of Rs. 10 each and 2,50,000 preference
shares of Rs. 100 each. The issued and subscribed share capital of the company
is Rs. 1,50,00,000 divided into 10,00,000 equity shares of Rs. 10 each, 30,000
9% redeemable cumulative preference shares of Rs. 100 each and 20,000 9.3%
second redeemable cumulative preference shares of Rs. 100 each. All the
aforesaid shares are fully paid up.
The
objects of the company will appear from its memorandum of association. The
company now carries on, inter alia, the business of manufacturing yarn and
textile goods. After the nationalisation of the scheduled passenger flight by
air, the company diversified its activities and established mills for
manufacturing yarn and textile goods at Nagda in the State of Madhya Pradesh,
Thana in the State of Maharashtra, Nanjangud in the State of Mysore and and
Rajpura in the State of Punjab.
The
distance between different mills or factories belonging to the company and the
registered office at
Due
to various disturbances at the registered office of the company in recent years
it is stated in the petition that the management of the business and the
affairs of the company situated at different places became impossible to carry
on from
In
the premises, the directors and shareholders of the company contemplated and in
fact decided to remove the registered office of the company from No. 10, Camac
Street, Calcutta, to No. 10, Ring Road, New Delhi, in order to carry on the
business of the company more efficiently and economically. The company issued
notice for holding of an extraordinary general meeting of its members to consider
and to resolve, if thought fit, to remove the registered office of the company
from No. 10,
The
company has not issued any debenture and in fact has no creditor save and
except the usual trade creditors in the course of its business. No creditor or
shareholder of the company has opposed this application. The court of first
instance granted leave to Birla Brothers and its allied concerns’ employees’
union, of which the employees of this company are also members, to intervene in
the proceedings.
For
the appellant Mr. S.B. Mukherjee submits that the shareholders of the company
after due deliberation unanimously resolved to transfer the registered office
from
Mr.
Ashim Ghosh, appearing on behalf of the Registrar of Joint Stock Companies,
relied on articles 75 and 76 of the articles of association of the company and
submitted that no extraordinary general meeting can be called except upon the
requisition of the requisite number of members. That meeting has to be called
at the office, i.e., the registered office of the company. Mr. Ghosh relied on
article 92 of the articles of association of the company. Mr. Ghosh submitted
that by reason of the premises the meeting held at No. 10,
Mr.
Prabir Sen, appearing on behalf of the employees’ union, submitted that section
17 of the Companies Act confers power upon the court to control the decision of
the domestic forum of the company in regard to some of its internal management
and affairs as mentioned in the said section. According to Mr. Sen, employees
are persons within the meaning of sub-section (4) of the said section whose
interests are likely to be prejudiced by the proposed transfer if carried into
effect and thus the court of first instance was right in granting leave to the
union to intervene. Mr, Sen further contended that the question of bona fides
of the company in removing the registered office can be and in fact has to be
gone into in such an application. The facts of closure of the registered office
and nonpayment of the salaries of the employees have been suppressed in the
petition, which, according to Mr. Sen, shows the mala fides on the part of the
company. Further, there was no genuine ground, according to Mr. Sen, for
transferring the registered office of the company. The proposed transfer, if effected, will certainly prejudicially affect the interest
of workers. Mr. Sen relied on cases, Rank Film Distributors of India Ltd. v.
Registrar of Companies , In
re Westburn Sugar Refineries Ltd., In
re Jewish Colonial Bank Ltd., In
re Indian Aluminium Co. Ltd., In
re Indian Iron & Steel Co. Ltd.,
Orient Paper Mills Ltd. v. State and In re Orissa Chemicals & Distilleries
Private Ltd.
Mr. Sen relied on the
provisions of the Companies Act indicated in sections 94 and 323 thereof and
emphasised on the difference between the provisions of the said sections and
section 17 of the said Act. The former sections did not require the sanction of
the court whereas section 17 required the sanction of the court as condition
precedent. Mr. Sen further contended that proceedings are pending before the
conciliation officer in regard to the disputes between the company and its
employees and thus the transfer should not be sanctioned in the instant case.
Section 17 of the Act
empowers a company to alter the provisions contained in its memorandum by a
special resolution in order to remove its registered office from one State to
another; the said section also empowers a company in the like manner to change
any of its objects clauses contained in its memorandum for the reasons
mentioned in clauses (a) to (g) of sub-section (1) of section 17 of the Act.
The section enjoins upon the court to be satisfied before confirming the
alteration that notice has been given to the debenture holders of the company
and to every person or class of persons “whose interests would be affected by
the alteration and to see that the debt or claim of a creditor who objects to
the alteration is discharged or determined or secured to the satisfaction of
the court”. Sub-section (6) to the said section imposes upon the court in
exercising its discretion under the said section, the obligation to have regard
to the rights and interests o£ the members of the company and every class of
them including adjournment of the proceedings in order to enable the parties to
arrive at arrangements for the purchase of the interests of the dissentient
members of the company without reducing the share capital of the company. The
court has to give notice, under subsection (4) to the section, of the petition
for confirmation of the alteration to the Registrar of Companies in order to
enable him to appear before the court and state his suggestion in regard to
confirmation of the alteration. Sub-section (4) to the said section was
introduced by way of amendment in 1965 by Act LXV of 1965 to empower the
Registrar to appear before the court and point out any irregularity in an
alteration proposed by a company to its memorandum.
Under the English law
confirmation by court is not necessary in order to alter the memorandum by a
company. The members of the company can do so by means of a special resolution
and that comes into effect at once. If 15 per cent. or more of the members of the company object to the
alteration they may apply to the court for nullifying the effect of the special
resolution. But in our country the alteration proposed by a company by a
special resolution of its members to the memorandum of the company cannot take
effect until scrutinised and confirmed by the court. Under the section the
court has discretionary power to confirm the alteration wholly or in part
and/or on such terms and conditions as it may think fit.
As noted earlier, only
three of the employees of the company did not agree to the proposed transfer of
the registered office. Mr. Samaren Sen, leading Mr. S.B. Mukherjee for the
company, stated before us that the company would not retrench any of its
employees because of the transfer of the registered office of the company from
In view of the aforesaid
statement which has been recorded, we do not think that there is any substance
any more in the contention that the company’s proposed act is mala fide and
that the company is seeking to transfer the registered office in order to
stifle the proceedings between the employees of the company and the company
pending before the conciliation officer. We do not, however, express any view
as to whether the question of bona fides of a company in transferring its
registered office from one State to another can be germane in an application
for confirmation of the alteration of the memorandum by removing its registered
office from one State to another. In the instant application it is not
necessary and indeed irrelevant for us to express any opinion on the said
question. The learned judge in the instant case granted leave to the union
mentioned above to intervene in the proceedings and upheld the contention of
the union and refused to confirm the proposed alteration. In Rank Film
Distributors’ case it
was held by a Division Bench of this court that the State had no legal right to
the issue and service of notice under section 17(3A) and that the loss of
revenue to or employment to the citizens of a State are not relevant factors
for consideration in an application for sanction to alter the memorandum of a
company by removing its registered office from one State to another. The case
of the Westburn Sugar Refineries was considered by the Division Bench in that
case and the observations of Lord Macnaghten as explained by Lord Radcliffe in
regard to the meaning of the words “general public” by limiting the words “to
persons who may in the future have dealing with the company and may be minded
to invest in its securities” was approved of. It should be noted in this
connection that the case of
In the instant case it
appears to us that the resolution was not illegal nor ultra vires nor injurious
to any of the members or creditors of the company nor even to its employees who
chose to oppose the application for confirmation of the alteration, in view of
the statement made by Mr. Sen in this court in regard to them. In the instant
case, it is submitted by Mr. Prabir Sen that the fact of closure of the
registered office of the company in
Mr.
Ashim Ghosh’s contention that an extraordinary general meeting can be called
and held only on the requisition of the requisite number of members mentioned
in article 76 cannot be accepted. Article 75 of the company empowers the board
of the company to call general meeting. But, then all general meetings except
the annual general meetings of a company are extraordinary general meetings.
Hence, the meeting in the instant case to consider the proposed resolution for
alteration of the memorandum was rightly called, in our opinion, by the board
under article 75 of the company. Thus the said meeting need not have been held
only at the registered office of the company and on the said ground the meeting
was not bad nor the resolution passed at the said
meeting could or can be said to be bad or void. All the aforesaid contentions of
Mr. Ghosh must fail.
In
view of the aforesaid we do not think it necessary to deal with the other cases
cited at the Bar.
For
the reasons stated above we are of the opinion that this appeal must succeed.
The appeal is allowed. There shall be order in terms of prayer (a) of the
petition. In the facts and circumstances of this case we, however, direct that
each party shall pay and bear his or its costs of this appeal.
[1975]
45 COMP CAS 157 (PAT)
HIGH COURT OF
Parikh Engg. & Body Building
Co. Ltd., In re
MADAN MOHAN PRASAD, J.
APRIL 26, 1974
K.D. Chatterjee and Vijay Bhagat for the Petitioner.
Ashwini
Kumar Sinha for the Registrar Companies.
JUDGMENT
Madan
Mohan Prasad, J.—This
is an application under section 17 of the Companies Act, 1956, for confirmation
of a special resolution passed by the petitioner-company changing its
registered office from the State of Bihar to the State of West Bengal and a
consequent alteration in the memorandum of association.
The petitioner (hereinafter
called "the company") was registered under the provisions of the
Companies Act, 1956, on the 22nd day of November, 1971. The registered office
of this company is situate at
"(a) That the registered office of the
company be shifted from the State of
(b) That the words 'State of Bihar' appearing under article 2 of
the memorandum of association should be deleted and substituted by the words '
State of West Bengal.' "
The present application has
been filed for the confirmation of these resolutions.
The Registrar of Companies
filed an application objecting to the confirmation aforesaid on the ground that
twenty-one days' notice as required by section 171(1) of the Companies Act,
1956 (hereinafter "the Act"), had not been given to the shareholders
and further because the company had not filed the consent of the members to
show that the resolutions could be passed with a shorter notice. The
resolutions were, therefore, said to be invalid and on that ground it was said
that they could not be confirmed.
Thereafter the company
filed a supplementary affidavit to the effect that it had issued to all the
equity shareholders a notice requesting them to waive the necessity of twenty-one
days' notice and give their consent to shorter notice and ratify the special
resolutions passed at the meeting on the 8th of May, 1973. It is said that the
company has 277 equity shareholders having voting power and 226 out of them
have waived twenty-one days' notice and accepted and ratified the aforesaid
resolutions. It is further said that the aforesaid consenting shareholders hold
one lakh eighty-two thousand two hundred and fifty equity shares representing
more than ninety-five per cent. of the total, viz.,
one lakh and ninety thousand equity shares. A further supplementary affidavit
was filed wherein it has been stated that the company had not received any
single objection from any of the shareholders to whom the aforesaid notice had
been sent.
The questions thus arise,
(1) whether the post-consent given by members of the company alleged to be
holding not less than ninety-five per cent. of the
paid up share capital could validate the resolutions passed without the
required notice of twenty-one days, and (2) whether this court should confirm
the resolutions.
In respect of the first
point, the relevant provisions which need be noticed are the following.
Sub-section (1) of section 17 of the Act provides that:
"A company may, by special
resolution, alter the provisions of its memorandum so as to change the place of
its registered office from one State to another.........."
Sub-section (2) thereof
provides that:
"The alteration shall
not take effect until, and except in so far as, it is confirmed by the court on
petition."
Sub-section (2) of section
189 of the Act provides as follows :
"(2) A resolution
shall be a special resolution when—
(a) the intention to propose the resolution as a special
resolution has been duly specified in the notice calling the general meeting or
other intimation given to the members of the resolution ;
(b) the notice required under this
Act has been duly given of the general meeting ; and
(c) the votes cast in favour of the resolution whether on a
show of hands, or on a poll, as the case may be, by members who, being entitled
so to do, vote in person, or where proxies are allowed, by proxy, are not less
than three times the number of the votes, if any, cast against the resolu tion
by members so entitled and voting."
Sub-section (1) of section
170 provides as follows :
"(1) The provisions of sections 171 to 186—
(i) shall, notwithstanding anything to the contrary in the
articles of the company, apply with respect to general meetings of a public
company, and of a private company which is a subsidiary of a public company;
and
(ii) shall, unless otherwise specified
therein or unless the articles of the company otherwise provide, apply with
respect to general meetings of a private company which is not a subsidiary of a
public company."
Section 171 provides as follows :
"(1) A general
meeting of a company may be called by giving not less than twenty-one days'
notice in writing.
(2) A general meeting may be called after giving shorter notice
than that specified in sub-section (1), if consent is accorded thereto—
(i) in the case of an annual general meeting,
by all the members entitled to vote thereat; and
(ii) in the case of any other meeting, by
members of the company (a) holding, if the company has a share capital, not
less than 95 per cent. of such part of the paid-up
share capital of the company as gives a right to vote at the meeting, or (b)
having, if the company has no share capital, not less than 95 per cent. of the total voting power exercisable at that meeting:
Provided that where any
members of a company are entitled to vote only on some resolution or
resolutions to be moved at a meeting and not on the others, those members shall
be taken into account for the purposes of this sub-section in respect of the
former resolution or resolutions and not in respect of the latter."
It will appear from a
reading of these sections that a special resolution for amendment of the
memorandum, of association in respect of its registered office can be passed
validly only when the requirements of the aforesaid provisions are complied
with.
In the present case
admittedly the notice for an extraordinary meeting was given on the 20th of
April, 1973, and the meeting itself had been convened on the 8th of May, 1973.
Obviously, therefore, there was not twenty-one days' clear notice. It is also
admitted that prior to the meeting the members of the company representing not
less than 95 per cent. of such part of the paid up
share capital as gave them a right to vote had not consented to the aforesaid
meeting being convened on a shorter notice. It appears, however, that
subsequent to the meeting, 226 shareholders holding 1,82,250 equity shares out
of the total number of 277 shareholders holding equity shares worth Rs.
1,90,000 have consented to waive the requirement of due notice and accepted and
ratified the resolutions aforesaid.
Mr.
Ashwini Kumar Sinha, appearing for the Registrar of Companies, has, however,
urged that it appeals that notices were not given to the holders of six
thousand cumulative preference shares. It has been urged that in view of
section 87 the preference shareholders also had a right to vote at the meeting
aforesaid and in view of section 171(2)(ii) the
general meeting could be called on a shorter notice if consent had been
accorded by members of the company holding "not less than 95 per cent. of such paid up share capital of the company as gives a
right to vote at the meeting................."
The
question thus arises whether the preference shareholders had any right to vote
at the meeting for the alteration of the memorandum of association in respect
of the registered office. It will be relevant to refer to a few provisions of
the Act in this connection. Section 86 provides that there shall be two kinds
of share capital (a) equity share capital, and (b) preference share capital.
Section 87 provides for voting right to such shareholders. It may usefully be reproduced :
"87.
(I) Subject to the provisions of section 89 and sub-section (2) of section 92—
(a) every member of a company limited by
shares and holding any equity share capital therein shall have a right to vote,
in respect of such capital, on every resolution placed before the company ; and
(b) his voting
right on a poll shall be in proportion to his share of the paid up equity
capital of the company.
(2) (a) Subject as aforesaid and save as provided in
clause (b) of this sub-section, every member of a company limited by shares and
holding any preference share capital therein shall, in respect of such capital,
have a right to vote only on resolutions placed before the company which
directly affect the rights attached to his preference shares.
Explanation.—Any resolution for winding up the company or for the
repayment or reduction of its share capital shall be deemed directly to affect
the rights attached to preference shares within the meaning of this clause.
(b) Subject
as aforesaid, every member of a company limited by shares and holding any
preference share capital therein shall, in respect of such capital, be entitled
to vote on every resolution placed before the company at any meeting, if the
dividend due on such capital or any part of such dividend has remained unpaid—
(i) in the case of cumulative preference shares,
in respect of an aggregate period of not less than two years preceding the date
of commencement of the meeting; and
(ii) in the case of non-cumulative preference
shares, either in respect of a period of not less than two years ending with
the expiry of the financial year immediately preceding the commencement of the
meeting or in respect of an aggregate period of not less than three years
comprised in the six years ending with the expiry of the financial year
aforesaid.
Explanation.—For
the purposes of this clause, dividend shall be deemed to be due on preference
shares in respect of any period, whether a dividend has been declared by the
company on such shares for such period or not,—
(a) on the last
day specified for the payment of such dividend for such period, in the articles
or other instrument executed by the company in that behalf ; or
(b) incase no day is so specified, on the day immediately
following such period.
(c) Where the holder of any preference
share has a right to vote on any resolution in accordance with the provisions
of this sub-section, his voting right on a poll, as the holder of such share,
shall, subject to the provisions of section 89 and sub-section (2) of section
92, be in the same proportion as the capital paid up in respect of the
preference share bears to the total paid up equity capital of the
company."
Section
89 deals with the termination of disproportionately excessive voting rights in
existing companies. It provides that if at the commencement of the Act any
shares of any existing company limited by shares carry voting rights in excess
of the voting rights attaching under subsection (1) of section 87 to equity
shares in respect of which the same amount of capital has been paid up, the
company shall, within a period of one year from the commencement of the Act,
reduce the voting rights in respect of the shares first mentioned so as to
bring them into conformity with the voting rights attached to such equity
shares under sub-section (1) of section 87. Then it makes other provisions in
this behalf which are not relevant to the present discussion. Section 92 deals
with the power of the company to accept from any member unpaid share capital
although not called up and sub-section (2) thereof provides that the member
shall not be entitled to any voting rights in respect of the money so paid by
him until the same would become presently payable.
From
a reading of sub-section (2) of section 87, it is obvious that the holders of
preference share capital have a right to vote only on resolutions which
directly affect the rights attached to their preference shares. The Explanation
makes it clear that a resolution for winding up or for repayment or reduction
of the share capital is deemed directly to affect his rights, Clause (b) of
sub-section (2), however, gives the preference shareholder a right to vote on
every resolution in case the dividend due on such capital has remained unpaid,
in the case of cumulative preference shares in respect of a total period of not
less than two years.
In the present case the six
thousand shares are cumulative preference shares. This company, as stated
earlier, was registered only in November of the year 1971 and a meeting at
which the special resolution was passed was held in April, 1973. In the
circumstances of the present case, therefore, there could not have been any
dividend unpaid for two years or more before the date of the meeting. Thus, the
preference shareholders in the present case had no right to vote at the
aforesaid meeting. There is nothing on record to show that the aforesaid
resolution directly affects the rights attached to the preference shares. In
fact this point was not raised in the petition filed by the Registrar and thus
no facts have been stated to show that the resolution did directly affect their
rights. There is thus no substance in the contentions put forward.
It appears that in the
present case out of 277 members holding 1,90,000
equity shares, 226 members holding 1,82,250 shares have given post-consent to
the resolution aforesaid and waived the requirement of notice. It is obvious
that the consenting members represent more than 99 per cent. of
the total of equity shares. If such members had accorded their consent and
waived the requirement of twenty-one days' notice prior to the meeting, the
meeting could have been convened in view of sub-section (2) of section 171 of
the Act and the resolution could have been valid and legal. The question,
however, arises whether a waiver made after the meeting and its consent given subsequently
could validate the resolution passed at the meeting.
In this connection Mr. K.D.
Chatterji appearing for the company has placed reliance on a few decisions of
the English courts and one decision of the Madras High Court in support of the
proposition that post consent given by members to a resolution passed at a
meeting without proper notice would validate the same. In In re Pearce Duff
& Co. Ltd.,
the question came up for decision. In that case the company had issued a notice
of a special resolution to be passed at an extraordinary general meeting for
the reduction of capital but the statutory period of twenty-one days' notice
had not been observed. The directors later wished to propose a second
resolution for the payment of premium to the holders of preference shares and
appreciating that they could not give the statutory period of notice for the
second resolution, requested the shareholders at the meeting to sign a consent to the second resolution being passed. The consent
was signed by shareholders being a majority altogether holding more than 95 per
cent. in nominal value of the shares. Subsequently,
the company obtained the written consent of every shareholder to both
resolutions being treated as valid special resolutions. On the footing of this
written consent of every shareholder to treat the resolutions as valid, the
company filed a petition for confirmation. Section 141(2) of the Companies Act,
1948 (11 & 12 Geo. 6 c. 38) which was the subject-matter of interpretation
is as follows :
"A resolution shall be
a special resolution when it has been passed by such a majority as is required
for the passing of an extraordinary resolution and at a general meeting of
which not less than twenty-one days' notice, specifying the intention to
propose the resolution as a special resolution, has been duly given :
Provided that, if it is so
agreed by a majority in number of the members having the right to attend and
vote at any such meeting, being a majority together holding not less than
ninety-five per cent. in nominal value of the shares
giving that right, or, in the case of a company not having a share capital,
together representing not less than ninety-five per cent. of
the total voting rights at that meeting of all the members, a resolution may be
proposed and passed as a special resolution at a meeting of which less than
twenty-one days' notice has been given."
Buckley J., on the facts of
the case, held that the shareholders who signed the consent did not have it in
their mind at all that the initial notice was defective and so their consent
did not cure the matter. The learned judge, however, relied on the subsequent
consent obtained to those resolutions and held them to be valid. His Lordship
referred to the decisions
in In re Oxted Motor Co. Ltd.
and Parker and Cooper Ltd. v.
"Those cases, I think,
relate to a rather different subject-matter from that which I have to consider,
because, as I see it, I have to consider not whether these resolutions bound
the company as special resolutions but whether any shareholder could now say
that the resolutions were not properly passed as valid special resolutions.
Having regard to the 100 per cent. consent which has been obtained to the
resolutions being treated as valid and to the fact that the petition has been
presented upon that footing, I do not think that this court ought to hear any
of the shareholders to say that those resolutions were not validly
passed."
In the case of Parker and
Cooper Ltd. the question was whether certain resolutions
passed irregularly in respect of debentures and appointment of directors and a receiver
could be treated as valid in view of subsequent ratification thereof by all the
shareholders. Astbury J. held:
"..............where
the transaction is intra vires and honest, and especially if it is for the
benefit of the company, it cannot be upset if the assent of all the corporators
is given to it."
In In re
Oxted Motor Co.
the only two shareholders of the company had passed a
resolution to wind up the company voluntarily and to appoint a liquidator. No
notice of intention to propose this resolution as required by section 69 of the
Companies (Consolidation) Act, 1908, had been previously given to the
shareholders. The question turned round the validity of this resolution. It was
held that it was competent for the shareholders to waive the formalities in
respect of notice and since all the shareholders had passed the resolution it
was valid as an extraordinary resolution. The learned judge placed reliance on
the decision in the case of In re Express Engineering Works Ltd.
as "an authority in support of the view that the
statutory requirements as to notice can be waived". In the last mentioned
case there were five shareholders of the company. At a meeting these five
shareholders appointed themselves directors and thereafter they resolved to
issue debentures. This meeting was, however, described as a meeting of the board
of directors. The question was whether the resolution was valid. The Court of
Appeal held that if the resolution was in a matter intra vires the members of
the company and there was no fraud the shareholders were able to waive all
formalities as regards notice and that the resolution was valid. Lord
Warrington, Lord Justice said :
"It was competent to
them to waive all formalities as regards notice of meetings, etc., and to
resolve themselves into a meeting of shareholders and unanimously pass the resolution
in question."
Lord Sterndale M. R. said :
"..............the
case came within the meaning of what was said by Lord Davey in Salomon v.
Salomon & Co.
'I think it an inevitable
inference from the circumstances of the case that every member of the company
assented to the purchase, and the company is bound in a matter intra vires by
the unanimous agreement of its members'."
Younger L.J. also rested
his conclusion upon what was said by Lord Davey.
The only case from Indian
reports which has been cited before me is Self Help Private Industrial Estate
Private Ltd., In re ,
in which case a special resolution sanctioning the reduction of share capital
was passed without giving twenty-one days' notice as required by section 171 of
the Companies Act, 1956. Subsequently, the company had obtained consent letters
from all the shareholders, except one whose whereabouts were not known,
agreeing to a shorter notice. A petition was filed for confirmation of the
resolution and an objection was raised by the Registrar of Companies regarding
the resolution being invalid on account of shorter notice. The learned judge relying upon the
cases referred to above held that the post-consent given by all the
shareholders except one validated the resolution.
Learned
counsel for the Registrar of Companies has, however, urged that the provision
of section 171(2) of the Act being mandatory the resolution cannot be treated
as valid by subsequent consent obtained. In support of his argument he has
placed reliance on decisions in the cases of Homi Cawasji Bharucha v. Arjun
Prasad and N.V.R. Nagappa Chettiar v. Madras Race Club .
In the case of Homi Cawasji Bharucha the resolution passed was with respect to
reduction of share capital but notice of twenty-one days as required by section
81(2) of the Companies Act of 1913 had not been given. The learned judges held
that the meeting was illegal because of the failure to comply with the
statutory provision of notice as required under section 81. In the case of
N.V.R. Nagappa Chettiar a suit had been brought for a declaration,
inter alia, that the meeting of the general body of the members held on a
particular date was invalid, and that the amendments of the articles of
association were not duly passed. It was alleged that twenty-one days' notice
as required by section 81(2) of the Companies Act of 1913 had not been given.
In respect of the last point the learned judges formulated the question
"whether in view of the imperative provisions regarding the notice in
section 81(2) it is open to the plaintiffs to waive their right to object to an
illegality..." and referred to section 117(2) of the English Act of 1929
and the decision in Oxted Motor Co. and said as follows:
"...
The Indian Companies (Amending) Act of 1936 introduced a similar proviso in
section 81(2). Under this proviso it would be seen that the requirement as to
21 days' notice may be dispensed with by an agreement of all the members
'entitled to attend and vote' and not merely of all the members 'entitled to
vote and present in person or proxy at the meeting'. It requires, therefore, an
agreement of all the members of the club in order to dispense with the
requirement of 21 days' notice. The proviso in other words indicates the
intention on the part of the legislature that the provision in sub-section (2)
is mandatory and that it can be dispensed with only by the agreement of all the
members. It is not enough that the members present at the meeting indicated
either expressly or impliedly that they consented to or acquiesced in
shortening the period of notice. An express consent of all the members to waive
the notice has not been established in this case. Even if the members present
agreed to waive the defect in the notice the meeting would not be a valid
meeting. The plaintiffs, therefore, are not precluded from raising the
contention that the notice contravened the provisions of sub-section (2) of
section 81."
It
will be useful to quote the provisions of sub-sections (1) and (2) of section
81 of the Companies Act of 1913 and refer to the relevant corresponding
provisions of the present Act of 1956 for the purpose of comparison. Sub-sections
(1) and (2) of section 81 of the Act of 1913 areas follows :
"(1)A resolution shall be an
extraordinary resolution when it has been passed by a majority of not less than
three-fourths of such members entitled to vote as are present in person or by
proxy where proxies are allowed at a general meeting of which notice specifying
the intention to propose the resolution as an extraordinary resolution has been
duly given.
(2) A resolution
shall be a special resolution when it has been passed by such a majority as is
required for the passing of an extraordinary resolution and at a general
meeting of which not less than twenty-one days' notice specifying the intention
to propose the resolution as special resolution has been duly given :
Provided
that, if all the members entitled to attend and vote at any such meeting so
agree, a resolution may be proposed and passed as a special resolution at a
meeting of which less than twenty-one days' notice has been given."
Sub-section
(2) of section 189 of the present Act quoted earlier provides that a resolution
shall be a special resolution when the notice required under this Act has been
duly given of the general meeting ; and the provision regarding notice of
meeting is to be found in section 171 of the present Act which has been quoted
earlier and which provides that a general meeting of a company may be called by
giving not less than twenty-one days' notice in writing ; and that it may be
called after giving shorter notice, if consent is accorded thereto—in the case
of an annual general meeting, by all the members entitled to vote thereat; and
in the case of any other meeting, by members of the company (a) holding, if the
company has a share capital, not less than 95 per cent. of such part of the
paid up share capital of the company as gives a right to vote at the meeting,
or (b) having, if the company has no share capital, not less than 95 per cent. of the total voting power exercisable at that meeting.
It
is thus apparent that in view of the proviso to sub-section (2) of section 81
of the Act of 1913 a special resolution could be passed at a meeting held on
shorter notice only "if all the members entitled to attend and vote at any
such meeting" so agreed. It was in this view of the law as it stood then
that the case of N.V.R. Nagappa Chettiar was decided. In that case all the shareholders
had not consented to the resolution being treated as valid. It will also be
noticed that the corresponding provision in section 117(2) of the English
Companies Act of 1929 was in the same terms as section 81(2) of the Indian
Companies Act of 1913 as it stood after an amendment in the year 1936. The
aforesaid section 117(2) was as follows:
"A
resolution shall be a special resolution when it has been passed by such a
majority as is required for the passing of an extraordinary resolution and at a
general meeting of which not less than twenty-one days' notice specifying the
intention to propose the resolution as a special resolution, has been duly
given :
Provided
that, if all the members entitled to attend and vote at any such meeting so
agree, a resolution may be proposed and passed as a special resolution at a
meeting of which less than twenty-one days' notice has been given."
This
is the reason why in the English cases the learned judges have considered as to
whether consent in respect of resolution passed on shorter notice had been
given by all the shareholders entitled to attend and vote.
It
appears that in the Companies Act of 1948 (11 & 12 Geo. 6 c. 38) there is
another provision in respect of length of notice for calling meetings, namely,
section 133, which is as follows :
"133. (1)Any provision of a company's articles shall
be void in so far as it provides for the calling of a meeting of the company
other than an adjourned meeting by a shorter notice than—
(a) in the case of
the annual general meeting, twenty-one days' notice in writing ; and
(b) in the case of a meeting other than an
annual general meeting or a meeting for the passing of a special resolution,
fourteen days' notice in writing in the case of a company other than an
unlimited company and seven days' notice in writing in the case of an unlimited
company.
(2)
Save in so far as the articles of a company make other provisions in that
behalf (not being a provision avoided by the foregoing sub-section) a meeting
of the company (other than an adjourned meeting) may be called—
(a) in the case
of the annual general meeting, by twenty-one days' notice in writing, and
(b) in the case of a meeting other than an
annual general meeting or a meeting for the passing of a special resolution, by
fourteen days' notice in writing in the case of a company other than an
unlimited company and by seven days' notice in writing in the case of an
unlimited company.
(3) A meeting of a company shall, notwithstanding that it
is called by shorter notice than that specified in the last foregoing
sub-section or in the company's articles, as the case may be, be deemed to have
been duly called if it is so agreed—
(a) in the case of a meeting called as the
annual general meeting, by all the members entitled to attend and vote thereat;
and
(b) in the case of any other meeting, by a
majority in number of the members having a right to attend and vote at the
meeting, being a majority together holding not less than ninety-five per cent. in nominal value of the shares giving a right to attend and
vote at the meeting, or, in the case of a company not having a share capital,
together representing not less than ninety-five per cent. of
the total voting rights at that meeting of all the members."
It
will thus appear that, according to sub-section (2) of section 133, twenty-one
days' notice is required for an annual general meeting and in the case of a
meeting other than an annual general meeting or a meeting for the passing of a
special resolution fourteen days' notice is required. Sub-section (3) thereof
provides that notwithstanding that the meeting is called by a shorter notice it
will be deemed to be duly called if it is so agreed, in the case of an annual
general meeting, by all the members entitled to attend and vote thereat, and in
the case of any other meeting by a majority in number of the members having a
right to attend and vote at the meeting, being a majority together holding not
less than 95 per cent. in nominal value of the shares
giving a right to attend and vote at the meeting. It will be noticed that the
provision of sub-section (3) is similar to the provision of sub-section (2) of
section 171 of the present Indian Act which also requires consent of all the
members entitled to vote thereat in the case of an annual general meeting and
the consent, in the case of any other meeting, of members of the company
holding not less than 95 per cent. of such part of the
paid up share capital as gives a right to vote.
It
will appear next that section 141 of the English Companies Act of 1948 deals
with extraordinary and special resolutions. Sub-section (2) thereof quoted
earlier provides that a resolution shall be a special resolution when it has
been passed at a general meeting of which not less than twenty-one days' notice
has been duly given. It also contains a proviso that if it is so agreed by a
majority in number of the members having the right to
attend and vote at any such meeting, being a majority together holding not less
than ninety-five per cent. in nominal value of the
shares giving that right, a resolution may be proposed and passed as a special resolution
at a meeting of which less than twenty-one days' notice has been given. It will
appear that the proviso to this sub-section contains a provision similar to
that provided in clause (b) of sub-section (3) of section 133 of the English
Companies Act of 1948. In the Indian Companies Act, 1956, however, section
189(2) does not reproduce the provision already contained in sub-section (2) of
section 171. The reason is that clause (b) of sub-section
(2) of section 189 of the present Act provides that the notice required under
this Act must have been given and section 171 provides for the notice of
twenty-one days and it provides for shorter notice in sub-section (2) of
section 171.
An analysis of the English
decisions aforesaid thus brings out that even though consent of shareholders to
shorter notice for the meeting at which a special resolution has been passed is
not obtained prior to the meeting, consent obtained thereafter would validate
the resolution. In the case of Homi Caieasji Bharucha the learned judges did not have to consider
the question of any consent given subsequent to the meeting. In the case of
N.V.R. Nagappa Chettiar also it had been found that the consent of all
the members had not been given in view of section 81(2) of the Indian Companies
Act of 1913. These two decisions are, therefore, of no assistance for the
decision of the point before me. The decision in the only Indian case, Self Help Private
Industrial Estate Private Ltd.,
is in favour of the view that a post-consent
given validates a special resolution passed without proper notice. In view of a
number of English decisions cited earlier I find myself in respectful agreement
with the view taken by the learned judge in this case.
In the
present case majority of the members of the company holding more than 95 per
cent. of such
part of the paid up share capital as gave them a right to vote at the meeting,
have given their consent subsequent to the meeting to a shorter notice and have
ratified and accepted the special resolutions passed at the meeting. As I have
held earlier, there were in all 277 members out of which 226 have given their
consent. It may be mentioned that letters of request were sent by the company
to each and every such member but a number of them do not appear to have
answered the letter. It is thus obvious that none of the members of the company
thought it fit to raise any objection to the validity of the special
resolutions passed. The company has stated on affidavit that not a single
objection was received from any of the other members. In these circumstances it
will not be unreasonable to assume that no member of the company wanted to
object to the special resolutions aforesaid. In view of the law as laid down
earlier, a consent given subsequently validates a resolution passed at a
meeting on shorter notice. In the circumstances of this case, therefore, I am
inclined to take the view that in view of the subsequent consent obtained by
the company from its members who form a majority and hold more than 95 per
cent. of the paid up share capital which gives them a
right to vote, the resolutions must be deemed to be valid.
The question which next
comes up is whether the court should confirm these resolutions. As stated
earlier, the company finds that it will be more economical and convenient that
the company's registered office should be situated in the city of
In the result, I would
confirm the special resolutions aforesaid subject to the condition precedent
that the petitioner-company discharges the debts of all its creditors or
secures them to the satisfaction of this court within a period of two months
from today and files in this court an affidavit to that effect.
Sections 18
and 19
Alteration
to be registered within three months
[1978] 48 COMP. CAS. 89 (
HIGH COURT OF
Shri Amba Motors Agencies Pvt.
Ltd.
v.
Registrar of Companies
DALIP K. KAPUR J.
COMPANY APPLICATION NO. 480 OF 1976.
OCTOBER 18, 1976
M.G. Ramachandran for the Petitioner.
H.S. Bhatia for the Registrar of Companies.
Dalip
K. Kapur J.—This
application under section 19 of the Companies Act, 1956, has been moved in
July, 1976, in relation to an order passed by this court on 5th March, 1976, in
Company Petition No. 21 of 1975. The order was passed by myself
on 5th March, 1976, confirming an alteration in the memorandum of association.
The provisions of section 18 of the Companies Act, 1956, required the order to
be filed within three months from the date of the order together with a printed
copy of the memorandum as altered. The petitioner failed to file the documents
within the requisite time. The effect of failure to file the documents within
time is specifically provided for in section 19 of the Act which states that if the documents are not filed, then the proceedings
connected with the same shall become void and inoperative. Consequently, the
order ceased to have effect on 26th June, 1976, as stated in the application.
There is a proviso to section 19, which enables the court to revive the order
within a further period of one month. Assuming that the facts stated in the
application are correct, it is meant that the court could revive the order even
though it had become void, within one month from 26th June, 1976. I shall
presently refer to this section again on account of the question of jurisdiction
that has arisen as a result of the passing of the Companies (Amendment) Act,
1974 (41 of 1974).
The Amendment Act of 1974
substituted the Company Law Board as the authority competent to act in relation
to sections 17, 18 and 19 of the Companies Act, 1956, in the place of the
court. Consequently, after that Act came into force, the jurisdiction to pass
the order confirming an alteration in the memorandum of a company vested in the
Company Law Board in the place of the court. The Act came into force on 1st
February, 1975. After that date, this court would have no jurisdiction to act
under section 17, 18 or 19 of the Companies Act, 1956. The question for
consideration is: Whether, in the circumstances of this case, the court still
retains jurisdiction to revive its own order which lapsed on 26th June, 1976 ?
The particular contingency
which has arisen is provided for by section 5(2) of the Amendment Act, 1974.
That provision reads:
"Nothing contained in
sub-section (1) shall apply to any proceedings under section 17, or under
sub-section (4) of section 18, which is pending at the commencement of the
Companies (Amendment) Act, 1974, before any court or to any alteration of the
memorandum of a company which has been confirmed, before such commencement, by
any court".
The consequence of this
saving clause is to protect proceedings which are already pending before the
court or which have been already decided by the court. As it happens, the order
passed in Company Petition No. 21 of 1975 by me on 5th March, 1976, was passed
after 1st February, 1975. As there is no dispute that the said order was passed
with jurisdiction, I presume that the proceedings in Company Petition No. 21 of
1975 were pending in this court before the Amendment Act came into force. This
means that nothing in the Amendment Act is to apply to those proceedings. If
nothing in the Amendment Act is to apply to those proceedings, naturally, it
would follow that sections 18 and 19, as standing prior to the Amendment Act
would also be applicable to the case. This is one way in which this matter may
be dealt with.
Assuming, I am not right in
coming to the conclusion that sections 18 and 19 have to be read as unamended
in the present proceedings, there would be a lacuna in the Act as a result of
its amendment. To illustrate this, it is necessary to read section 19(2) as it
stood and as it stands now. The previous provisions of section 19(2) were as
follows:
"If the documents
required to be filed with the Registrar under section 18 are not filed within
the time allowed under that section, such alteration and the order of the court
made under sub-section (5) of section 17 and all proceedings connected
therewith, shall, at the expiry of such period, become void and inoperative:
Provided that the court
may, on sufficient cause shown, revive the order on application made within a
further period of one month".
The amended provision reads
as follows:
"If the documents
required to be filed with the Registrar under section 18 are not filed within
the time allowed under that section, such alteration and the order of the
Company Law Board made under sub-section (5) of section 17 and all proceedings
connected therewith, shall, at the expiry of such period, become void and inoperative;
Provided that the Company
Law Board may, on sufficient cause shown, revive the order on application made
within a further period of one month".
Now, if the amended section
19 applies to the present case, the consequence would be that there would be no
default and the order would not become void, as the amended section only states
that the order of the Company Law Board will become void. This would mean that
in spite of the intention of the law, the order of the court would remain as it
is. I do not think that this was the intention of the legislature. The
consequence, in my view, would still be the same as if the Act had not been
amended. This means that the unamended section 19 would have to apply to the
order passed on 5th March, 1976, and it would become void after passage of the
requisite period of three months. After that, the only way in which the
proceedings could be revived would be either by making an application under
section 18(4) which is a provision by which the court could extend the time for
filing the documents, or by making an application under section 19, which is
the provision enabling the court to revive the order on sufficient cause shown.
I do not for a moment think that the Company Law Board has been given the power
to revive the court's order. Conversely, the court has no jurisdiction in
relation to the Company Law Board's order.
On this analysis, I come to
the conclusion that the application for revival does lie to this court and does
not lie to the Company Law Board. In fact, I read section 5(2) of the Companies
(Amendment) Act, 1974, to mean that the jurisdiction of the court is to
continue in respect of proceedings pending at the time of the coming into force
of the Amendment Act not only for the purpose of confirming the memorandum but
also for extending the time for filing documents as well as for passing an
order under section 19. The same argument would apply to a case
in which the confirmation has already been made prior to 1st February, 1975.
The provisions of section 5(2) are wide enough to apply to all cases in which
either the confirmation has already been made or to cases in which the
proceedings are pending in relation to the confirmation.
Now, it remains to be seen
whether the present application has been moved within the time specified by
section 19. It may be seen that the application for revival is to be made
within a period of one month after the expiry of three months. The date of the
passing of the order was 5th March, 1976. Therefore, the period of three months
expired on 4th June, 1976. The application should have been made by 4th July,
1976. In fact, it has been filed on 22nd July, 1976, which would make the
application 18 days late. Learned counsel for the applicant/petitioner states
that the period of three months provided for in section 18 and also mentioned
in section 19(2) does not only mean the expiry of three months from the date of
the order, but also the copying days have to be allowed, i.e., the time
required in obtaining a copy of the order for filing before the Registrar of
Companies, has also to be allowed. There is a specific section in the Act of
1956, viz., section 640A, providing that where orders of the court have to be
filed with the Registrar, the time taken in obtaining a copy thereof is to be
excluded. This means that in computing the period of three months in which the
order had to be filed with the Registrar, the time taken in obtaining the copy
has to be excluded. The learned counsel for the applicant has shown me the
certified copy of the order proposed to be filed. This was applied for on 1st
April, 1976, and the copy was ready on 21st April, 1976. This would mean that
an additional 22 days have to be allowed for filing the copy with the
Registrar. Recomputing the period in this manner, it means that the order dated
5th March, 1976, could be filed with the Registrar by 26th June, 1976, which is the statement made in the application itself. The
certified copy of the order and other documents having not been filed with the
Registrar by 26th June, 1976, the order lapsed by reason of section 19(2). Now,
the application is for revival of the same and the application has been moved
within one month calculated from 26th June, 1976, having been filed on 22nd
July, 1976.
The proviso to section
19(2) states that the court may revive the order on sufficient cause shown. The
only cause shown in the application is that the certified copy of the order was
lost and, therefore, it could not be filed with the Registrar. I do not think
that the section should be too strictly construed. The order was applied for
well within time as appears from the dates mentioned on the certified copy. The
construction of the term "sufficient cause" under the Limitation Act
is that every day's delay must be explained. I do not think that it is
desirable that such a construction should be placed on section 19(2) because an
order of the court has already been passed after due enquiry and the company should
not be penalised for the default of the advocate, who had misplaced the copy of
the order as stated in the affidavit. I accordingly think that, in the
particular circumstances of this case, the cause shown is sufficient for this
purpose.
I accordingly revive the
order, but the applicant/petitioner must pay the Registrar's costs. The costs
are computed at Rs. 100, which should be paid within one month from today. The
effect of the present order is that it revives the previous order. As a
consequence of reviving the same, I have to pass an order under section 18(4)
extending the time so that it can be filed with the Registrar. This is
necessary as the original time allowed by law expired on 26th June, 1976. I
extend the time for filing the requisite documents under section 18(4) to 20th
November, 1976.
[1964] 34 COMP. CAS. 333 (MAD.)
HIGH COURT OF
v.
VEERASWAMI,
J.
O.P. NO. 40 OF 1958
APPLICATION NO. 118 OF 1962
JULY
6, 1962
JUDGMENT
This is an
application under section 18(4) of the Companies Act, 1956, as amended in 1960,
for condoning the delay and extending the time for filing the required
documents with the Registrar for purposes of registration of the alteration
confirmed by this court by its order dated July 25, 1959, in O.P. No. 40 of
1958. Sub-section (1) of section 18 gives the petitioner a period of three
months from the date of the order within which to file the documents with the
Registrar. Actually, the petitioner is stated to have filed the documents only
on April 30, 1959, while the time prescribed had expired earlier on October 25,
1958 . This petition was taken out as late as January
15, 1962.
Learned
Government Pleader for the Registrar of Companies raises a preliminary objects
to the maintainability of the application on the ground that there is no power
under section 18(4) to condone the delay and extend the time. To decide this question , it is necessary to notice in better detail
sections 18 and 19 of the Act as amended in 1960. Section 17 relates to special
resolution and confirmation by court of proposed alteration of a memorandum.
Section 18 provides for registration of the alteration within a prescribed
period. For this purpose sub-section (1) of that section states that a
certified copy of the order of the court made under sub-section (5) of section
17 confirming the alteration, together with a printed copy of the memorandum as
altered, shall within three months form the date of the order, be filed by the
company with the Registrar. The same sub-section proceeds to say that the
Registrar shall register the alteration and certify the registration under his
hand within one month from the date of the filing of such documents.
Sub-sections (2) and (3), which deal with the effect of registration, are not
relevant for present purposes. Sub-section (4) confers power upon the court to
extend the time for filing of documents or for registration of the alteration
to such period as it thinks proper. If this sub-section stood alone, something
could have been said in favour of the petitioner, for, by its own terms , it does not appear that the power of the court to
condone delay and extend time is restricted. But ,
such a restriction, says, the Registrar of Companies, should be read into
sub-section (4) because of section 19, which deals with the effect of failure
to register. Sub-section (1) of this section states that not such alteration as
is referred to in section 17 shall have any effect until it has been duly
registered in accordance with the provisions of section 18. Sub-section (2)
with its proviso, which is material, reads :
" If the
documents required to be filed with the Registrar under section 18 are not
filed within the time allowed under that section, such alteration and the order
of the court made under sub-section (5) of section 17 and all proceedings
connected therewith, shall, at the expiry of such period, become void and
inoperative :
Provided that the Court may, on sufficient cause
shown, revive the order on application made within a further period of one
month."
This
sub-section is as altered in 1960. Before the amendment, sub-section (2) read thus :
" If the
registration is not effected within three months next after the date of the
order of the court confirming the alteration , or within such further time as
may be allowed by the court under sub-section (4) of section 18, such
alteration and order and all proceedings connected therewith shall, at the
expiry of such period of three months or of such further time, as the case may
be, become void :
Provided that
the court may, on sufficient cause shown, revive the order on application made
within a further period of one month."
The amendment
in 1960 does not, as it seems to me, effect material change so far as the
effect of a failure to file the documents with the Registrar within the
prescribed time is concerned.
The argument
on behalf of the petitioner is that sub-section (4) of section 18, as it
stands, confers unrestricted power upon the court to condone delay and extend
time as it thinks proper and that nothing in sub-section (2) of section 19 or
the proviso thereto limits or cuts down the wide ambit of sub-section (4) of
section 18. I am unable to accept this construction. As I said, sub-section (4)
of section 18 does not stand alone. For a proper understanding of the real
scope of sections 18 and 19 they must be read together, and so read, it is
clear that the power conferred by sub-section (4) of section 18 is controlled
by sub-section (2) of section 19, particularly by the proviso thereto.
Sub-section
(2) of section 19 makes it explicit that the order of the court will become
void and inoperative in the event of failure to file the required documents
with the Registrar within the prescribed time. This itself
would indicate that an application to extend time should be made before the
order becomes void and inoperative. Normally , when an
order becomes void and inoperative, there is no question of reviving it, unless
the statute provides and enabling power. That is what the proviso does. The
proviso states that notwithstanding the effect, provided and application for
extension of time is made within a period of one month from the expiry of the
period of three months contemplated by sub-section (1) of section 18, the court
may, for sufficient cause shown, extend the time after reviving the order. This
proviso resolves any possible doubt and makes it crystal clear that normally
there is no power to extend time unless an application therefore is made before
the order becomes void and inoperative, and that the proviso is an exception to
that rule enabling the court to nevertheless extend the time only if and when
the application is made within a period of one month from the expiry of the
period of three months.
On this view
of the scope of sections 18(1) and 19(2) with the proviso, I uphold the
objection of the Registrar of Companies and rule that there is not power to
condone the delay and extend the time since the application has been made
beyond the time provided by the proviso to sub- section (2) of section 19.
Sri Raghavan
contends that this court in Application No. 2514 of 1958 made an order
condoning the delay and extending the time, although and application was made
beyond the time contemplated by the proviso to sub-section (2) of section 19.
It is further pointed out by the learned counsel that the Registrar himself, on
that occasion, had no objection. But the order of this court does not show that
the precise scope of section 18(4) read in the light of sub-section (2) of
section 19 with its proviso had been considered. It was not considered
obviously for the reason, as Sri Raghavan himself says, the Registrar did not
raise the objection.
The petition
is dismissed , but , in the circumstances ,with no order
as to costs.
Petition
dismissed.
[1967] 37 COMP. CAS. 566 (MAD)
V.
RAMAPRASADA
RAO, J.
COMPANY
PETITION NO.13 OF 1966
MARCH
10,1967
JUDGMENT
The above
petition is under section 19 of the Companies Act read with the relevant rules
of the Companies Court Rules, 1959, for excusing the delay in filing the
certified copy of the order of this court dated September 1, 1966, made in
Company Petition No. 13 of 1966 together with the enclosures as required under
law with the Registrar of Companies. The prayer in the judge's summons
indicates that the applications is under section 18(4) of the Act well. Company
Petition No. 13 of 1966 itself was one for amendment of its memorandum by
changing the registered office of the petitioner-company from one State to
another State. This was ordered by this court by its order dated September 1,
1966. Under section 18(3) of the Companies Act,1956,if
the alteration of the memorandum involves a transfer of the registered office
from one state to another, a certified copy of the order confirming the
alteration shall be filed by the company with the Registrar of each of the
States concerned and the Registrar of each State shall register the same and
shall certify under his hand the registration thereof. Section 18(1) provides
as follows:
"18.
Alteration to be registered within three months - (1) A certified copy of the
order of the court made under sub-section (5) of section 17 confirming the
alteration, together with a printed copy of the memorandum as altered, shall,
within three months from the date of the order, be filed by the company with
Registrar who shall register the same and certify the registration under his
hand within one month from the date of the filing of such documents."
Section 640A
of the Act reads as follows:
"640A.
Exclusion of time required in obtaining copies of orders of court.- Except as expressly provided in this behalf elsewhere in
this Act, where by any provision of this Act, any order of the court is
required to be filed with the Registrar, or a company or any other person
within a period specified therein, then in computing that period, the time
taken in drawing up the order and in obtaining a copy thereof shall be
excluded."
Thus the order of the court and the documents as annexures thereto have
to be filed before the Registrar of Companies within three months from the date
of the order. The order of this court having been made on September 1,1966,ordinarily, the certified copy of the order and the
annexures ought to have been filed by December 1,1966. I have perused the
records and found that it was only on September 24,1966,
that the applicant secured a certified copy of the order from this court. It
is,however, contended by the learned counsel appearing for the Registrar of
Companies that the applicant made an application for issue of the certified
copy of the order only on September 7,1966, and, therefore, the time taken
between September 1,1966, and September 7, 1966, ought not to be excluded under
section 640 A of the Companies Act. On a perusal of the records, I find that
the order was drafted only one September 8,1966. It
has therefore to be considered whether the time taken by the office of this
court in drafting this order has to be excluded while computing the period
prescribed by a statute in the performance of any act or application as
required under law. I have been referred to a decision of this court in Saroja
Mills Ltd.v.Registrar of Companies,
"Sections
18 and 19 of the Companies Act, so far as the time factor is concerned, have to
be read and understood in the light of section 640A, which permits the
exclusion of the time taken in drawing up the order to be filed with the
Registrar and in obtaining a copy thereof. Section 18(1), read in the light of
section 640A, means that the period of three months from the date of the order
would be counted excluding the time taken for drawing up the order. The period
should also be counted further excluding copy of the order. A second copy
application filed within a period of three months of the drawing up of the
order would there be in time, and would entitle the applicant to exclude
besides the time taken by the court for supplying a copy of the order, and, if
filed with the Registrar on receipt of the copy, it would be in time."
In this case
the applicant secured the certified copy on September 24, 1966. He ought to
have therefore filed the papers with the Registrar within three months from
that date. But for a sufficient cause disclosed in the affidavit in support of
this application, which appears to me to be acceptable, the order copy with the
enclosures were not filed before the Registrar of Companies,
Section 20
Companies
not to be registered with undesirable name
[1985] 57 COMP .CAS. 443 (BOM.)
HIGH COURT OF
Executive Board of the
v.
Union of
MRS. SUJATA V. MANOHAR, J.
WRIT PETITION
NO. 1096 OF 1980.
SEPTEMBER 10, 1984
H.J. Thakkar and H. B. Gandhi for the petitioners.
K. R. Bulchandani and V.G. Mehta
for the Respondent.
Sujata V. Manohar J.—The Methodist Church is a well-established religious organisation.
The Methodist Episcopal Church began its work in
Originally the central conference of the United
Methodist Church, USA, consisting of about 1,000 elected delegates from all
over the world governed the
In 1980, the central conference decided to reorganise
the
On January 7, 1981, the central conference of the
Methodist Church in Southern Asia further resolved that the executive board of
the Methodist Church in Southern Asia shall hold the properties of the
Methodist Church in India upon trust till such time as the central conference
of the Methodist Church in India legally appoints its own trust association for
holding the said properties upon trust for the benefit of the Methodist Church
in India.
As a result, the executive board of the
The formation of a trust company for holding the
properties of the
With reference to their application for renewal in
August, 1980, however, the petitioners received a letter dated August 23, 1980,
from the Registrar of Companies, Tamil Nadu, setting out that their name
closely resembles an already existing company, viz., Methodist Church in
Northern India Trust Association P. Ltd.,
as also a company registered in Hyderabad, viz., Methodist Church of
India, Hyderabad. The petitioner was asked to obtain a "no objection"
certificate from these two companies.
It seems that on February 4, 1980, seven persons
applied for registration of a company limited by guarantee to be known as
"Methodist Church of India". Their application appears to have been
promptly attended to. On February 11, 1980, respondents Nos. 1 to 3 granted the
application. On June 30, 1980, the fourth respondent were also granted licence
under s. 25 of the Companies Act to dispense with the words "Limited"
or "Private Limited", in their name. On July 26, 1980, the fourth
respondent company was incorporated at
Under section 20 of the Companies Act:
"(1) No
company shall be registered by a name which, in the opinion of the Central
Government, is undesirable.
(2) Without
prejudice to the generality of the foregoing power, a name which is identical
with, or too nearly resembles, the name by which a company in existence has
been previously registered, may be deemed to be undesirable by the Central
Government within the meaning of subsection (1)".
The Department of Company Law Administration has
formulated certain guiding instructions for deciding cases of making a name
available for registration under the Companies Act, 1956. Under these
instructions, a name which falls under certain specified categories will not
generally be made available. Instruction No. 13 refers to a case where a
company's name is identical with or too nearly resembles the name by which a
company in existence has been previously registered. (There are certain
exceptions when the proposed company is under the same management or group,
etc., which are not relevant for present purposes). It further provides that
even in the case of unregistered companies or firms which have built up a reputation
over a considerable period, the same principle should be observed as far as
practicable, even though the company or firm is not previously registered. The
case of a foreign company of repute should also be similarly treated even if
there are no branches of such a company in
Under instruction No. 18, the use of a name may be
considered undesirable if it is intended or is likely to produce a misleading
impression regarding the scope or scale of the activities which would be beyond
the. resources at the company's disposal, e.g., words
like "International" may be allowed only if the scale and scope of
business of the proposed company justified the use of such a word.
In the present case, the name, the "Methodist
Church of India", denotes an institution which has been set up officially
by a resolution of the central conference in 1981, and which is organised and
functions in accordance with the prescribed rules and regulations. It would be
highly misleading to allow the use of such a name to an organisation which is
in no way connected with the official organisation and is set up by seven
private individuals. Such a name, if it is allowed to be used by any company
simply because there is no previously registered company under the Companies
Act bearing such a name, would cause not only confusion in the minds of the
members of the Methodist Church, but also it can mislead the general public.
Moreover, the
In the present case, my attention has also been drawn
to a letter dated August 10, 1984, addressed by Rev. T. S. Kamble to Bishop E.A.
Mitchell, of the Methodist Church at Bombay in which he has pointed out that a
certain property at Hingoli which was purchased for the Methodist Church in
1965 has been claimed by one of the signatories to the application made for the
registration of respondent No. 4. This letter is annexed to the affidavit of
Rev. Stanley E. Downes, the secretary of the first petitioner dated August 23,
1984.
In the "objects" clause of the memorandum
of association of the fourth respondent-company, the first object mentioned is
as follows:
"1. To take over and
assume the complete charge of administration with entire finances, property,
rights, undertakings and managements of the incorporated or not incorporated
body or bodies known as the Methodist Church in Southern Asia and its
institutions and organisations, with all assets and liabilities thereof under
its executive board and regional bodies which are otherwise called the annual
conferences, in India, as a going establishment and institution, to regularise,
reorganise, manage and conduct the affairs of the Methodist Church of India, in
accordance with the laws of the country".
This clearly indicates that the fourth
respondent-company has been formed in order, inter alia, to take complete
charge of the properties of the
The fourth respondent has, as its members, the seven
signatories to the memorandum of association. Their names are set out in
paragraph 20 of the petition. They are Methodists and belong to the
It is the case of the petitioners that there are only
seven members of the fourth respondent-company. Learned advocate for respondent
No. 4 is unable to give any information on this point. In their
affidavit-in-reply, the fourth respondent has stated that they are enrolling
more members. No particulars, however, are given about membership. It would
thus be seen that the membership of the fourth respondent is, to put it mildly,
extremely limited and the fourth respondent, in these circumstances, cannot be
allowed to use the name "Methodist Church of India".
In Halsbury's Laws of England,
fourth edition, Volume 7, para. 130, it is stated as follows:
"If in the opinion of the department, the name
by which a company is registered gives so misleading an indication of the
nature of its activities as to be likely to cause harm to the public, the
department may direct it to change its name..............A company registered
under the Companies Act, 1948, is not entitled to carry on its business in such
a way or under such a name, as to represent that its business is the business
of any other company or firm or person; and the absence of fraud is immaterial.
In such cases, the old company or firm can apply to the court for an
injunction, and the principles then apply which apply to individuals trading
under identical or similar names".
In the case
of La Societe Anonyme des Anciens Establishments Panhard et
Levassor v. Panhard Levassor Motor Co. Ltd. [1900-3] All ER Rep. 477; [1901]
2 Ch 513, the plaintiffs were a reputed firm of manufacturers of motor cars in
In the present case, respondents Nos. 1 to 3 ought
not to have allowed the fourth respondent-company to be registered with the
name "the Methodist Church of India". There are instructions to guide
respondents Nos. 1 to 3 in the exercise of their discretion under s. 20 of the
Companies Act. They ought to have considered whether the name given by the
fourth respondent was likely to mislead or deceive, especially when the
"objectives" clause provides for taking over all the properties of
the
Respondents Nos. 1 to 3 were not right in insisting
that the petitioners should obtain a no objection letter from a company which
had no right to use their name. Apart from respondent No. 4, the only other
company registered in
The only other point which requires consideration is
the point relating to jurisdiction. The application for registration was made
by the petitioners before the Registrar of Companies at
A similar view was taken by the Bombay High Court in
an earlier case of Joshi v. State of Bombay, AIR 1959 Bom 363. In view of the
ratio laid down by these decisions, the cause of action can be said to have
arisen in part at least in
In these circumstances, the petition is allowed and
the rule is made absolute in terms of prayer (a). Accordingly respondents Nos.
1 to 3 are directed to remove the name of respondent No. 4 from the register.
Respondent No. 4 is restrained from using the words "
The rule is made absolute accordingly.
The respondents will pay to the petitioners
costs of this petition.
[1939] 9 COMP. CAS. 208 (MAD.)
HIGH COURT OF
The Asiatic Government Security
Life Assurance Company, Ltd.
v.
The New Asiatic Insurance Company, Ltd.
MOCKETT, J.
SEPTEMBER, 8, 1938
Nugent
Grant and V. Rajagopalachari, for the Plaintiffs.
K. Rajah Ayyar and C. Venugopalachari, for the Defendants.
JUDGMENT
Mockett, J.—The plaintiffs, the Asiatic
Government Security Life Assurance Co., Ltd., sue the defendants, the New
Asiatic Life Insurance Co., Ltd., claiming an injunction restraining the
defendants from carrying on business etc., under the name of 'The New Asiatic
Life Assurance Co., Ltd.' or any other name which includes the word 'Asiatic'
which is likely to deceive or mislead the public into the belief that the
defendants' company is the same as the plaintiffs' Company. In paragraph 3 of
the plaint the plaintiffs allege that their name, and particularly the word
'Asiatic', had come to be associated with the plaintiffs' Company in the minds
of the public. I emphasise 'the public'. In paragraph 4 they allege that the
defendants' name substantially is the same as that of the plaintiffs' company
and is a colourable imitation of the plaintiffs' company's name. In paragraph 5
plaintiffs allege that the defendants must have known of the plaintiffs'
company's existence and designation and that
the action of the defendants in choosing and coining for themselves a name
substantially similar to that of the plaintiffs is deliberate and is not bona
fide. In paragraph 7 they allege that the defendants' name is calculated to
deceive the public and that considerable confusion is likely to be caused by
similarity of the names. I observed that in the plaint-title the plaintiffs have
wrongly described the defendants as an Assurance Co., whereas the correct
description is Insurance Co., and I directed the plaint to be amended
accordingly so as correctly to describe the defendant Company.
The defendants in their written statement, paragraph 13,
pleaded that, by reason of the plaintiffs' Company being incorporated in
This suit has been tried before me in August 1938. The
plaint was filed on the 19th October 1934, nearly four years ago. The delay has
therefore been deplorable and has been the subject of an investigation not
relevant to the decision of the case, but the fact of the delay must be
emphasised for two reasons: firstly, because the defendants say that during all
this interval of time the Court did not grant an injunction and secondly,
because owing to passing of time the actual development of the business of
these two companies is known, and I am now in a different position from that in
which I should have been in 1934 when the developments in the future would
naturally be matters of conjecture. I should however say a word about the
absence of an application for an interim injunction. It seems to me to be
common ground that at the time, it was agreed that an interim injunction need
not be sought and that a speedy trial should be had. I draw the inference from
the records that neither side was specially concerned
at the speedy trial not materialising; but it is well to say that the case
appeared in the list an immense number of times. It may be for this reason that
the question of the interim injunction disappeared. However, the suit now comes
before me for trial under the above circumstances.
I propose first of all to examine the facts and later to
consider the law in relation to the facts as I find them.
(His Lordship then discussed the evidence in the case.)
I have endeavoured to summarise the evidence before me and
have given a finding with regard to one aspect of the case—the conduct of the
defendants' company. I must now turn to what is really the crux of the matter
viz., whether the similarity in the names of the two companies taken with the
evidence satisfies me that the defendants' company's name is calculated to
deceive the public and to divert business from the plaintiffs to the defendants
or to cause confusion between the two companies. A comparison of the two names
is therefore important. The plaintiffs name is The Asiatic Government Security
Life Assurance Co., Ltd., the Defendants' is The New
Asiatic Life Insurance
In Hendriks v. Montague James, L.J. states what the Court
has to decide in these matters in the form of a question at page 645:
"Now, is there such a similarity between those names as that the one is,
in the ordinary course of human affairs, likely to be confounded with the
other? Are persons likely who have heard of the 'Universal' to be misled into
going to the 'Universe'?"
In that case the plaintiff represented". The Universal Life Assurance Co., and the defendant, "The
Universe Life Assurance Association." James L.J. proceeds: "I
should think, speaking for myself, very likely indeed. Many people do not care
to bear in mind exactly the very letters of everything that, they have heard
of, and we have had a great body of evidence before us of persons, whose
business it is to be acquainted with these Life Assurance Companies, all of whom
concur in deposing in the strongest possible terms that nothing is more
calculated to injure an old society of this kind than having a new society
established which has got a name so similar to that of the other that it is
likely to be mistaken for it."
Mr. Grant relies very strongly on this case. I would
respectfully say that it seems to me clear that the name of the defendant
company in that case must have misled and confused persons with regard to the
plaintiff company. But, apart from that, there was, I observe, a great deal of
affirmative evidence on the point. There is none before me. A further
circumstance is that at its inception, there was included in the defendants'
advertisements a statement that its temporary offices were at Mansion House buildings,
only about 300 yards from plaintiff company's premises. The Guardian Fire and Life Assurance Co. v.
Guardian and General Insurance Co., Ltd., is a
decision of Jessel M.R. The plaintiff company was
incorporated in 1921 and carried on its business at 31, Lombard Street, and the
defendant company carried on business at 31, Lombard Street, and it had been
formed to takeover the goodwill of the Guardian Horse and Vehicle Insurance Association Ltd., which was registered under the description of the Guardian
and General Insurance Co., Ltd. There was evidence in that case about the
misdirection of letters and the learned Judge took the view that the plaintiff
company was known to the public as "Guardian Assurance" or
"Guardian company." He also took the view that the change of the name
was deliberate and found the defendant guilty of ' legal fraud'. That again
seems to be a very strong case. Mr. Grant relies on it and says, 'here is a
case of a company known by a shortened name'—a fact which appears to have been
established; but I do not think it has been established in this case that the
plaintiff company was known to the public by its shortened name, however much
its title may have been abbreviated in the Official publications. After all
this interval of time, I have virtually no evidence before me to show that the
public thought that the plaintiff company was known by the name 'Asiatic' and,
as I have indicated, none of them have come forward to say that they were
misled.
Turton v. Turton and Tussaud v. Tussaud were cited, but
those cases do not assist me as they are directed towards establishing the
proposition that a man cannot be deprived of the use of his own name. Manchester
Brewery Company Ltd. v.
The National Bank of
The learned Judge comments on the fact that the defendant
company did not put the word 'Disease' first in its name. "It might" he observes, as well have called
itself by the words "Disease, Accident and General Insurance
Corporation" or "put the word 'General' first." In the form in
which it did come into existence he considers there was a probability of
deception and that the plaintiffs were entitled to succeed. In the case before
me, the defendant does not begin its name with the word 'Asiatic' but puts the
word 'New' first.
Mr. Grant naturally relied on the judgment of FLETCHER, J.,
in Oriental Government Security Life Assurance Co., Ltd. v. Oriental Assurance
Co., Ltd., which, on the face of it, would seem very near to this case, because
FLETCHER, J., held that as the word 'Oriental' has become identified with the
plaintiff company the defendant company would be restrained from using the word
'Oriental' in its name; by which I understand the learned Judge to mean that
the word 'Oriental' could not be used at all. The plaintiffs relied very
strongly on that case, but there the defendant Company was known as "The
Oriental" or "The Oriental Assurance Company", and I would respectfully
agree with FLETCHER, J., in holding that the "Oriental Assurance Co."
would almost inevitably be confused with another beginning with the word
'Oriental' and ending with 'Insurance Co.' But if this is a decision that the
use of the word 'Oriental' at all is prohibited, I would record my respectful
doubt as to that part and that part only. The above cases are relied on by Mr.
Grant.
Mr. Rajah Iyer has also referred to certain authorities.
Society of Motor Manufacturers and Traders v. Motor Manufacturers' etc.,
Insurance Co., is a decision of Lawrence, J., as he then was I do not think
that case assists me. As observed by Lawrance, J. at page 685: "It is
important to bear in mind first, that this is not a case of fraud secondly,
that the business of the defendant company is altogether different from and in
no way competes with the business of the plaintiff society; and, thirdly, that
the name of the plaintiff society is descriptive and consists entirely of words
in ordinary use in the English language."
He considers that the addition in the defendant's name of
"Mutual Insurance Co." and the absence of the words "Society
of" are sufficient to distinguish the two companies. The short judgment of
SARGANT, L.J., at page 692, I respectfully suggest, differentiates, that case
from this case. Saunders (The Sun Life Assurance Society) v. Sun Life Assurance
Company of
The learned Judge had previously found that the plaintiffs'
stone and the defendants' stone were the same and that the defendants were
entitled to sell their stone under that name, bat it will be seen at page 625;
he observes, that confusion would probably arise if the defendants carried on
business or formed a company under or with the title of which the word
"Hopton" is the first word. And it will be seen that the learned
Judge took the view that by prefixing the word 'New' all difficulties would be
avoided. This is of great interest, because both the learned Counsel in this
case have been unable to refer me to any case like the case I have to decide—a
case where a company with an established name sued another company with the
same or a similar name but with the word 'New' added at the beginning of the
latter's name. It is appropriate at this stage to say—and these matters must be
surely matters of impression—that the word 'New' to my mind, differentiated the
defendant company from the plaintiff company even without the other difference
which is in the title; and it is interesting in deciding matters of this sort
which, except in the most flagrant cases, must always be of difficulty to find
that so distinguished a Judge as LORD PARKER, sitting then as a Judge of first
instance, should have taken what seems to be a similar view, and it is some
satisfaction to me in arriving at this result, to know that my impression was
formed before the above decision had been brought to my notice. In the vast
number of law suits authorities cited are generally relevant to questions of
law but in this case the authorities are virtually decisions on questions of
fact and indicate how questions of fact impress the minds of the Judges by whom
the cases are tried. Mr. Rajah Ayyar referred to the following cases: Colonial
Life Assurance Co. v. Home and Colonial Assurance Co., where ROMILLY M.R.,
repelled the claim of the plaintiff company to obtain what he described as the
monopoly of the use of the word 'Colonial'. In the case before me the plaintiffs
are claiming the sole use of the word 'Asiatic' because they claim that that is
the sign mark of their company. It seems to me that that is an untenable
position and that they must succeed, if they succeed, not on that basis but on
the basis of similarity of names. In The London and Provincial Law Assurance
Society v.
So much for some of the cases which have been cited. As I said at an early stage it seems to me that, as the
case law is so well established, the decision must rest on the facts. Putting
the names side by side and comparing them I can only say that it does not seem
to me that the defendant company's name was likely to mislead the public, that
the word 'New' at the beginning was a decisive difference and, added to that
there are the following circumstances, all of which should be taken into
account. The plaintiff company has the words 'Government Security' which the
defendant company has not. The plaintiff Company is a Mysore Company and must
have the description 'registered in
[2001] 106 COMP. CAS.
558 (
HIGH COURT OF
v.
Union Of
SATYABRATA SINHA AND ANSARI AND JJ.
G.A.
No. 1012 of 1998
And
A.P.O. No. 355 of 1998
JANUARY 4, 2000
JUDGMENT
SATYABRATA SINHA, J. - This appeal is directed against a judgment and order dated February 18, 1998, passed by a learned single judge of this court whereby and whereunder the writ application filed by the appellant herein questioning an order dated June 30, 1997, as contained in annexure A to the writ application was dismissed.
The basic fact of the matter is not in dispute. The writ petitioner carries on business under the name and style of Kalpana Polytec India Ltd. Santilal Dugar one of the directors of the appellant was also at one point of time connected with Kalpana Industries Ltd., respondent No. 4 herein and/or respondents Nos. 5 and 6. A proprietorship firm was started by one Mahendra Kumar Surana which was later on converted into a partnership firm in the year 1978 wherein one Ashok Kumar Baid and others became partners. However, during the continuance of the said partnership firm, another firm was floated known as Kalpana Plastics Pvt. Ltd. which was later on changed to Kalpana Promoters Pvt. Ltd. Differences and disputes arose between the two groups in the partnership firm, namely, the Baids and the Suranas. After the writ petitioner got itself registered in terms of the provisions of the Companies Act, an application dated November 15, 1996, was filed by the said respondents purporting to be under section 22 of the Companies Act.
By reason of the order dated June 30, 1997, the Regional Director, Department of Company Affairs, Government of India, a delegatee of the Central Government in terms of the provisions of the Indian Companies Act upon considering the said application held :
"Whereas the Regional Director, Eastern Region, Department of Company Affairs, Calcutta, has considered the reply/representation of the respondent-company which appears to be not satisfactory and the using of applicant's brand name Kalpana by the respondent for its products appears to derive advantage and goodwill established by the applicant-company (which was incorporated on September 3, 1985), and as such the incorporation of the respondent-company with the word "Kalpana" prefixed to its name is undesirable and too closely resembles the existing name of the appellant-company which is likely to be confused by the public."
Pursuant whereto the following directions were issued :
"Now, therefore, I, the Regional Director, E.R. Department of Company Affairs, Government of India, Calcutta, in exercise of the powers vested under section 22 of the Companies Act, 1956 (1 of 1956) read with Government of India, Ministry of Industry, Department of Company Affairs, Notification No. 506(E), dated June 24, 1985, direct M/s. Kalpana Polytec India Ltd., the respondent-company to change its name by deleting the word "Kalpana" prefixed to its name so as to reflect a clear distinction with the name of the existing complainant's company's name within three months from the date of this direction. M/s. Kalpana Polytec India Ltd. shall make an application to the Registrar of Companies, West Bengal, Calcutta, within the said period of three months for availability of the new name and shall also have its present name changed by the Registrar of Companies, West Bengal, Calcutta, within six months from the date on which the Registrar of Companies, West Bengal, shall make the new name available to it."
The main thrust of submission advanced before us as also before the learned trial judge on behalf of the writ petitioner-appellant was that the second respondent herein committed an error on the face of the record in so far as :
(a) he misinterpreted and misconstrued section 22 of the Companies Act;
(b) committed an illegality in so far as he took into consideration the facts that both the companies are involved in similar nature of business and brand name Kalpana is pending registration before the appropriate authority;
(c) That by using the name "Kalpana" the writ petitioner has derived advantage and goodwill established by respondent No. 4 and the word "Kalpana" is undesirable and too closely resembles the existing name of the respondent which is likely to be confused by the public.
Mr. Ghosh, learned counsel appearing on behalf of the
appellant, inter alia, submitted that the learned trial judge while passing the
impugned judgment did not consider any of the aforementioned submissions.
According to learned counsel, section 22 of the Companies Act has a limited
application and, in any event, the word "otherwise" must be read
ejusdem generis with the word "inadvertence". In support of the said
contention, learned counsel strongly relied upon Asiatic Government Security
Life Assurance Company Ltd. v. New Asiatic Insurance Company Ltd. [1939] 9 Comp
Cas 208 (Mad) and Narayanan Nambiar (M.) v. State of
It is not in dispute that in relation to the self-same subject-matter, a suit has been filed by respondent No. 4 which is pending before this court. The learned trial judge upon considering the submissions made on behalf of the parties hereto, inter alia, held that they may agitate the disputed questions in the civil court. However, the learned trial judge was of the opinion that the Regional Director had the requisite jurisdiction to pass an order under section 22 of the Companies Act and no illegality and/or error apparent on the face of the order had been committed by the said authority.
Nobody has appeared on behalf of the respondents herein. Having considered the submissions made on behalf of the writ petitioner-appellant, we are of the opinion that in the facts and circumstances of the case it was fit and proper for the learned trial judge to consider the submissions made on behalf of the writ petitioner in detail. Section 22 of the Companies Act has a limited application and the said section must be read along with section 20 of the application. In terms of the later provisions a company may not be registered if in the opinion of the Central Government the name by which a company in existence has been previously registered is identical with or too nearly resembles the name of the applicant. In such an event, refusal to register the name of the company on the part of the Central Government would come within the purview of the element of undesirableness to register the company in such name. Section 22 of the said Act, however, is applicable where such registration has already been made. Thus at the first instance, a company which has already been registered cannot be said to be undesirable for the purposes of registration within the meaning of section 20 of the Act. By reason of section 22, however, the Central Government has been authorised to rectify its mistake which might have been committed by it by way of inadvertence or otherwise.
The question as to whether, the grievances raised by respondents Nos. 4, 5 and 6 in the suit pending before this court are identical with the grievances raised before the Regional Director of Companies or not should have been examined by the learned trial judge in some detail keeping in view the salutary principle that two proceedings should not be permitted to be continued simultaneously before two forums. Furthermore, any decision made by the Central Government and/or its delegate may also be subject to any judgment of the civil court to be passed in a suit filed by a person aggrieved thereby.
The learned trial judge in our considered opinion should have also considered the question as to whether the Regional Director of Companies had the competence to exercise his jurisdiction under section 22 of the Companies Act to go into the aforementioned disputed question. Jurisdictional error, as is well known, is no longer confined to lack of inherent jurisdiction but also is extended to such jurisdictional errors which may be committed while exercising the jurisdiction. The scope and purport of the power of the court under article 226 of the Constitution of India is a wide one in view of the decision in Anisminic Ltd. v. Foreign Compensation Commission [1969] 1 All ER 208 (HL).
The Regional Director was a statutory authority. His jurisdiction was, therefore, confined to the four corners of section 22 of the Act. A statutory authority, as is well known, must act within the four corners of the statute or not at all. From the order dated June 30, 1997, it does not appear that he has arrived at a conclusion to the effect that the order of registration of the appellant-company in terms of the provisions of section 20 of the Companies Act read with section 34 thereof warranted revocation in terms of section 22 of the Act. The words "or otherwise" in our considered view must therefore be considered in the context of the word "inadvertence". In other words, the word "otherwise" must be read ejusdem generis. Furthermore, the jurisdiction of a Regional Director in terms of section 22 of the Indian Companies Act and the jurisdiction of a civil court while adjudicating upon a passing-off action are not the same. If the reasoning of the second respondent herein is correct, we of the opinion that respondents Nos. 5 and 6 also could not have continued to be registered in the same name, as all the companies bear the name "Kalpana", unless a finding of fact was arrived at that respondents Nos. 4 to 6 constituted a group of companies. Furthermore, we are of the opinion that the second respondent herein has committed an error apparent on the face of the record as while passing the impugned order he has exercised the jurisdiction of a civil court in a passing-off action in so far as he took into consideration various irrelevant factors as noticed hereinbefore which were not germane for exercising his jurisdiction under section 22 of the Act. It is now a well-settled principle of law that the words "error apparent on the face of the record" include exercise of jurisdiction by an authority which he did not have upon taking into consideration irrelevant factors and/or refusing to take into consideration the relevant factors.
As the learned trial judge has not considered this aspect of the matter at all, we are of the opinion that the impugned judgment cannot be sustained. It is set aside accordingly. The appeal is therefore allowed and the impugned order dated June 30, 1997, passed by the second respondent and as contained in annexure A hereto is set aside with liberty to the parties to agitate their respective contentions in the suit pending before this court.
In the facts and circumstances of this case there will be no order as to costs.
M. H. S. ANSARI J. - I agree.
[2003]
43 scl 666 (Guj.)
High Court of
v.
Bisazza
India Ltd.
Jayant Patel, J.
Spl. Civil Appln. No. 13099 of 2000
April 1, 2002
Section
22 of the Companies Act, 1956 - Company - Rectification of name of - Whether in
exercise of power under section 22, since final order passed results into civil
consequences, order must be passed by observing principles of natural justice -
Held, yes - Whether when registration is granted and when question is of change
or giving direction to company to change name, it can also be said that
direction to company under section 22 is in nature of quasi judicial power and,
therefore, authority taking decision must record reasons so that grounds on
which order is passed are known - Held, yes
The petitioner-company filed a petition
against the order passed by the respondent Regional Director. The petitioner
submitted that powers under section 22 are in the nature of quasi-judicial
powers and, therefore, it was obligatory on the part of the Director to record
the reasons for passing the final order. However, the respondent Director
submitted that the order spoke for itself and, that upon the representation made
by the respondent, the order had been passed.
The respondent Regional Director only recorded
the submissions of the rival sides and no reasons whatsoever were recorded
saying as to how and in what manner he had accepted the submissions of either
party for passing the order under section 22(1)(b).
In the matter of exercise of powers under
section 22, since final order passed under section 22 results into civil
consequences, the order must be passed by observing the principles of natural
justice, but in the instant case, the order was only a non-speaking order.
Furthermore, when the Registrar had granted registration, and when the question
is of change or giving direction to the company to change the name, it can also
be said that the direction to the company under section 22 is in the nature of
quasi-judicial power, and, therefore, the authority taking decision must record
the reasons so that all concerned can come to know that on what ground the
order is passed. In the instant case, since no reasons whatsoever
had been recorded, it could be assailed by the petitioner on the ground that
the order was without proper application of mind. [
In the result, the order was quashed and set
aside only on the ground that the same did not record reasons for passing final
order. [
Ashok L. Shah for the Petitioner. Paresh M. Dave and Ms.
P.J. Davawala for the Respondent.
1. Rule. Mr. P.M.
Dave for respondent No. 1, Ms. Davawala for respondent No. 2 waive
service of rule. With the consent of learned advocates for the parties matter
is taken up for final hearing.
2. The present
petition is filed by the petitioner against the order dated 26-9-2000 passed by
the Regional Director, Western Region, Ministry of Law, Justice and Company Affairs,
Bombay, Govt. of India, the respondent No. 2 herein.
3. Heard
Mr. A.L. Shah for the petitioner, Mr. P.M. Dave for respondent No. 1 and Ms.
Davawala for respondent No. 2.
4. Mr. Shah for
the petitioner submits that the powers under section 22 of the Companies Act,
1956 (hereinafter referred to as “the Act”) are in the nature of quasi-judicial
powers and, therefore, it is obligatory on the part of respondent No. 2 to
record the reasons for passing the final order. Mr. Dave for the respondent No.
2 submits that the order speaks for itself and, in his submission,
it is true that upon the representation made by respondent No. 1 the order has
been passed. Ms. Davawala for respondent No. 2 has supported the order.
5. Considering the
facts and circumstances of the case, it is apparent that up to the last
paragraph of the operative portion, the respondent No. 2 has only recorded the
submissions of the rival sides and no reasons, whatsoever, are recorded saying
as to how and in what manner he is accepting the submissions of either party
for passing the order under section 22(1)(b) of the
Act. In the matter of exercise of powers under section 22 of the Act, I am of
the view that since final order passed under section 22 of the Act results into
civil consequences, the order must be passed by observing the principles of
natural justice, but in the present case the order is only a non-speaking
order. Furthermore, when the Registrar had granted registration and when the
question is of change or giving direction to the Company to change the name it
can also be said that the direction to the company under section 22 of the Act
is in the nature of quasi-judicial power, and therefore, the authority taking
decision must record the reasons so that all concerned can come to know that on
what ground the order is passed. In the instant case, since no reasons,
whatsoever, have been recorded it can be assailed by the petitioner on the
ground that the order is without proper application of mind.
6. In the result,
the order dated 26-9-2000 is quashed and set aside only on the ground that the
same does not record reasons for passing final order with further clarification
that it will be open to the respondent No. 1 to move the respondent No. 2 for
reconsidering the matter afresh after giving opportunity of hearing to the
petitioner and it will also be open for respondent No. 2 to record reasons for
passing the order and then pass final order under section 22 of the Act.
7. Rule is made absolute to the aforesaid extent
with no order as to costs.
Order accordingly.
Sections 21 to
24
Change
of name by company
[1985] 58 COMP. CAS. 6 (GUJ.)
HIGH COURT OF
B.K. MEHTA, J.
FEBRUARY 8, 23, 1983
J.M. Thakore, Rakes Gupta, Kamal Trivedi, S.L Nanavati and
Makal Trivedi for the Petitioner.
S.R. Shah for the Regional Director.
J.J.
Yagnik, P.C. Shah, J.P. Bakriwala, Shareholder.
Metha,
J.—By the group
of these two petitions, this court has been moved to accord its sanction under
s. 391(2) read with s. 394 of the Companies Act, 1956, to the scheme of
amalgamation of Maneklal Harilal Spg. & Mfg. Co. Ltd. (hereinafter referred
to as "the transferor company") with the Bihari Mills Ltd.
(hereinafter referred to as "the transferee company"). At the outset,
it should be noted that this is not the usual amalgamation of a sick unit which
is non-viable with a healthy or prosperous unit. This is a case which is
precisely the reverse of it which is an instance of "takeover by reverse
bid". This is a scheme whereby the entire undertaking of the transferor
company is to be merged and vested in the transferee company. I will consider
at the appropriate places as to whether this peculiar feature of the scheme has
any bearing on the larger question as to whether the court should or should not
accord its sanction to the scheme in question. It would be profitable to
briefly advert to certain particulars of the transferor company and the
transferee company so as to appreciate the relevant and material aspects which
have a bearing on the question of according sanction to the scheme in question.
The transferor company was
incorporated on September 5, 1888, as a company limited by shares under s. 36
of the Indian Companies Act, 1882. The original name under which the transferor
company was incorporated was "Tricomlal Harilal Spg. & Mfg. Co.
Ltd." which was subsequently changed to its present name, that is,
"Maneklal Harilal Spg. & Mfg. Co. Ltd.". The registered office of
the transferor company is situate in the area known as
Saraspur within the City of
The transferee company was
incorparated on August 8, 1931, under the Indian Companies Act, 1913, having
its registered office in the locality known as Mithipur in Khokhra-Mehmedabad
within the City of
It appears that at the
respective meetings of the board of directors of the transferor company and the
transferee company held on August 17, and August 18, 1982, respectively, it was
resolved to evolve and approve a scheme of amalgamation whereby the entire
undertaking of the transferor company is to be transferred and be vested in the
transferee company. The circumstances that have necessitated the proposed
scheme of amalgamation are, broadly stated, as under:
(1) The transferee company is a subsidiary of the transferor
company, inasmuch as the transferor company holds 4,303 shares out of 5,600
equity shares issued by the transferee company.
(2) The transferee company is a sick unit in the sense that it has
been incurring losses since last about 7 to 8 years except the accounting year
1978, and the debit balance of the company as on December 31, 1982, is Rs.
1,48,60,252, and its current liability is to the tune of Rs. 2,22,50,560 and
has also raised loans against security and otherwise to the extent of Rs.
2,22,19,802, as against its assets and properties of about Rs. 2,40,00,000.
(3) The transferor company is not only a healthy and a prosperous
company but has a strong financial base and resources.
(4) The amalgamation of the transferor company with the transferee
company will have a twin advantage. In the first place, the transferee company
will attain viability and regain its health so as to maintain and develop
production and employment. Secondly, it will provide an opportunity to the
transferor company for its future expansion and development since it will have
an advantage of the excess available vacant land of the transferee company
admeasuring about 56,427 sq. metres.
(5) Apart from the aforesaid twin advantage, the usual benefits of
amalgamation, namely, reduction in the cost of production, stabilisation of
business, economy resulting from expansion, and the tax benefits will also be
available.
The accounting year of the
transferor company as well as of the transferee company is ending on December
31, and the audited balance-sheet and profit and loss accounts of both the
companies for the accounting year 1981, together with the auditors' reports,
have been annexed to the petitions.
Neither the transferor
company nor the transferee company is within the purview of the MRTP Act.
Briefly stated, the gist of
the scheme is as under: The undertaking of the transferor company on the
transfer date will be transferred to and vested in the transferee company
subject to all encumbrances, if any, and the liabilities, contingent or
crystallised, as the case may be. All transactions or proceedings already
concluded by the transferor company on and after the transfer date will be
binding on the transferee company and will be executed by it on behalf of the
transferor company. Till the sanction of this court to the proposed scheme, the
transferor company shall stand possessed of all their properties to be
transferred, and shall carry on the business for and on behalf of the
transferee company. All contracts, deeds, bonds and agreements and other
instruments to which the transferor company is a party and subsisting, shall
remain in force and effect against or in favour of the transferee company and
may be in force as if for all intents and purposes, the transferee company was
a party thereto. On the scheme being sanctioned, the transferee company shall,
without further application, allot to every member of the transferor company
one equity share of Rs. 200 each fully paid up in the transferee company for
one equity share of Rs. 200 each held by such member in the transferor company,
and all the members of the transferor company shall accept the shares so allotted
in the transferee company in lieu of their shareholding and for that purpose
surrender to the transferee company for cancellation of their share
certificates in respect of their holding in the transferor company, so as to
enable the transferee company to issue necessary certificates for the shares so
allotted in the transferee company, and all such shares to be issued and
allotted as aforesaid by the transferee company shall rank pari passu in all
respects with the existing shares in the transferee company. All the shares
held by the transferor company in the transferee company shall stand cancelled.
There will be no break in the services of the employees in the employment of
the transferor company and their services would be taken over with all their
rights and liabilities intact by the transferee company. The provision
pertaining to the change of name of the new company after amalgamation has some
bearing since some objections have been raised on behalf of the Regional
Director of Western Region, Company Law Board. The relevant provision contained
in cl. 7, Part II of the proposed scheme, is as undet:
"7.
On sanctioning the scheme of amalgamation, the name of the Bihari Mills Ltd.
will be changed to the Maneklal Harilal Mills Ltd., or
such other name as may be approved by the board of directors of the Bihari
Mills Ltd."
The
transfer date has been defined to mean January 1, 1982. This is, in short, the
gist of the scheme.
By
the order of this court of August 27, 1982, in Company Applications Nos. 179 of
1982 and 178 of 1982, moved by the transferor company and the transferee
company, respectively, it was directed to hold separate meetings of different
interests concerned on September 30, 1982, and October 1, 1982, for purposes of
considering, and, if thought fit, approving, with or without modification, the
said scheme of amalgamation. The meetings were held accordingly under the
chairmanship of Shri L.G. Baria, Assistant Registrar of this court. According
to the separate reports of the chairman, it appears that the different
interests of the transferor company have unanimously approved the scheme
without any modification. However, so far as the different interests of the
transferee company were concerned, the scheme was approved and adopted without
any modification unanimously in the meetings of both the classes of preference
shareholders, while it was approved and adopted without any modification by the
substantial majority of about 99.60% of the equity shareholders of the value of
Rs. 9,53,200 and only two shareholders holding 15 shares had opposed the scheme
and voted against it without submitting any written or oral objections in that
behalf in the meeting. The transferor company and the transferee company have,
therefore, by Company Petitions Nos. 163 and 162 of 1982, respectively, moved
this court for according sanction to the scheme of amalgamation.
Notices
as required under s. 394 of the Companies Act, 1956, of these two petitions
have gone to the Central Government through the Regional Director, Company Law
Board, Western Region. The official liquidator attached to this court was also
directed to make a report under the second proviso to s. 394 of the Companies
Act, 1956, which has been accordingly submitted by him on December 13, 1982, in
connection with the affairs of the transferor company.
At
the time of hearing of these two petitions, Mr. J. J. Yagnik, learned advocate,
has filed his appearance on behalf of Shri P. C. Shah, a shareholder, who had
opposed the scheme in the meeting of the equity shareholders of the transferee
company. Another shareholder of the transferee company, Shri J. P. Bakriwala,
who had opposed the scheme, has appeared in person. The Regional Director has
been represented by the learned advocate, Shri S. R. Shah. Since the present
scheme of amalgamation with which I am concerned is slightly of an unusual
type, inasmuch as the transferor company which is a prosperous and healthy unit
has decided to merge itself in the transferee company which is a sick and a
non-viable unit, the entire matter was examined from the relevant angles.
What is the periphery
jurisdiction of the company court in the matter of according sanction under s.
394(2) of the Companies Act, 1956, has been examined by this court as well as
other courts, particularly in the context where a scheme of amalgamation has
been adopted either unanimously or on the substantial unanimity of the
interests concerned. In exercise of its discretion under s. 394 of the
Companies Act, the company court has, besides its satisfaction to be arrived at
on the report of the chairman of the meetings as to the compliance of the
prescribed formalities in the section, particularly about the scheme being
approved by the requisite statutory majority of the members present and voting,
and also on investigation as to whether there was a fair representation of the
different interests in their respective meetings directed to be convened, has
to be further satisfied whether the majority of these interests was acting bona
fide and the proposed scheme is such as a man of business would reasonably
approve : vide Bank
of Baroda Ltd. v. Mahindra Ugine Steel Co. Ltd. [1976] 46
Comp Cas 227
(Guj). Though the court has jurisdiction to
examine the reasonableness and justification of the scheme, and not merely
accept the prescribed majority opinion of the interests concerned in the
approval of the scheme, the following rider is also to be borne in mind which
has been digested in Buckley on the Companies Acts, Vol. 1, 14th edition, at
page 474:
"The court does not
sit merely to see that the majority are acting bona fide and thereupon to
register the decision of the meeting; but at the same time, the court will be
slow to differ from the meeting, unless either the class has not been properly
consulted, or the meeting has not considered the matter with a view to the
interests of the class which it is empowered to bind, or some blot is found in
the scheme."
In Wood Polymer Ltd., In re
[1977] 47 Comp Cas 597, this court has, in the background of the peculiar fact
situation where through the instrumentality of the transferor company, a
valuable asset was sought to be acquired by the transferee company with a view
to defeat the tax liability arising as a sequel to ordinary transfer of such
immovable properties, examined what is the concept of public interest in the
second proviso to s. 394(1), and held that the said expression takes its colour
and content in the peculiar statutory context, and in order to determine in a
given case whether the proprosed scheme is in the public interest or not, the
court may embark on an inquiry as to why the transferor cempany had come into
existence, for what purpose it was set up, who were its promoters, who were
controlling it and what was the precise object which was sought to be achieved
through promotion of the transferor company, and why was it being dissolved by
merging it with the transferee company. The court thus examined in Wood
Polymer's case [1977] 47 Comp Cas 597 (Guj), the different factual aspects and having regard to the totality of the
circumstances including the report of the official liquidator that the
transferor company appeared to have been created solely to facilitate the
transfer of the building to the transferee company without attracting the
liability to pay capital gains tax, refused to accord sanction to the scheme.
The approach of the court, therefore, is not conditional as it is in the
proceedings where the courts or the tribunals proceed on advisory basis, but it
has inquisitorial and supervisory role to play requiring it to form an
independent and informed judgment as indicated by this court in Mahindra Ugine
Steel Co.'s case [1976] 46 Comp Cas 227 (Guj). Shortly stated, the approach of
the court is to see for itself whether the scheme is reasonable, just and fair
to all the interests concerned: vide Carron Tea Co. Ltd., In re [1966] 2 Comp
LJ 278 (Cal). It is in view of this settled legal position that I have to
examine whether the sanction should be accorded to the present scheme.
At the outset it should be
noted that two shareholders, namely, S/Shri P.C. Shah and Dr. J.P. Bakariwala,
who had voted against the scheme in the meeting of the equity shareholders of
the transferee company, and who have appeared before me for opposing the grant
of sanction, have, for reasons best known to them, though fit to withdraw their
objections and they have filed affidavits in this court stating accordingly,
and that they have now thought fit to lend their support on the avowed ground
of the larger interest of the shareholders. Apart from their objections, the
court has to consider on its own as to whether the proposed scheme is just,
fair and reasonable, besides the satisfaction of the statutory requirements
before the sanction can be accorded.
Broadly stated, two
questions arise. Firstly, whether the decision of the
transferor company to merge itself in the transferee company, admittedly a sick
unit, which apparently seems to be unusual, is warranted in the peculiar facts
and circumstances of the transferor company. There is an incidental
aspect of this larger question of according sanction, viz., whether the scheme
offends any statutory provision and, therefore, against the public policy.
Secondly, whether the scheme is just and fair to all the interests concerned
and, therefore, is one which a prudent businessman would evolve and implement.
The decision of the
transferor company to merge itself with the transferee company, which is
admittedly a sick unit, is, as stated above, one of the typical instances of
take-over by reverse bid. Before I set out as to what is
precisely the implications of such a take-over by reverse bid, it would
be profitable to shortly point out the distinction between a take-over and a
merger. A transaction or a series of transactions by which a person acquires
control over the assets of a company is generally known as a
"take-over" of
the company. On the other hand, an arrangement whereby the assets of of two
companies vest in one is known as a "merger" (vide Take-overs and
Mergers, fourth edition, by Weinberge and Blank, paras, s. 103 and 104 at pp. 3
and 4). The distinction between these two types of arrangement has been
succinctly pointed out in the aforesaid classical book in para. 105 at p. 4 in
the following terms:
"The
distinction between a take-over and a merger is that in a takeover the direct
or indirect control over the assets of the acquired company passes to the
acquirer; in a merger the shareholding in the combined enterprise will be
spread between the shareholders of the two companies. Often the distinction is
a question of degree; if the dominant company (M. Co.) makes a share-for-share
exchange offer for a target company (S. Co.), a company of roughly the same size,
the former shareholders of S. Co. will finish up holding roughly 50 per cent,
of the share capital of H. Co. and the operation ought undoubtedly to be called
a merger. If H. Co. is many times the size of S. Co., the operation ought
generally to be regarded as a take over of S. Co. by H. Co., although even in
such a case, the result might be, if the shareholding in H. Co. was far more
widely dispersed than in S. Co., that H. Co. comes under the joint effective
control of the former controllers of H. Co. and the former controllers of S.
Co., or even under the sole effective control of the former controllers of S.
Co."
This
last alternative is known as taking over by reverse bid. In paragraph 612, at
page 80 of the aforesaid book, we find the discussion pertaining to take over
by reverse bid;
"612:
Where H. Co. wishes to acquire complete control of a smaller company, S. Co. on
a share-for-share basis, and the directors of S. Co. approve the proposal, it
may be considered desirable to effect the take-over by way of a ' reverse bid'
instead of a straight forward share-for-share bid by H. Co. for the capital of
S. Co. In a reverse bid, S. Co. (at the instigation of the controllers of H.
Co.) makes a share-for-share bid for the whole of the equity capital of H. Co.,
the procedure being the same as that described in paragraphs 603-606. If the
bid is accepted by the holders of at least 90 per cent, in value of each class
of equity capital of H. Co., and compulsory acquisition of any outstanding
minority shares is carried out, the former shareholders of H. Co. will finish
up as the majority shareholders in the enlarged capital of S. Co. and the
pre-existing shareholders of S. Co. will hold a minority interest in S. Co.: H.
Co. will be a wholly-owned subsidiary of S. Co. It will be observed that the
position will be identical, in economic effect, with the position which would
have been reached if H. Co. had made a share-for-share bid for the capital of
S. Co. In either event, the original shareholders of the two companies will
finish up holding the shares of the one company in roughly the proportion which the value of
the net assets of the one company bears to the value of the net assets of the
other company or which the earnings of one bear to the earnings of the other
(or a mixture of the two) and the other company will be the wholly-owned
subsidiary of the company in which the two groups of shareholders hold
shares."
What
tests should be fulfilled before an arrangement can be termed as a reverse
take-over are specified in para. 618 at p. 83 of the
said book in the following terms:
"618......transaction
will be a reverse take-over if it
fulfills any one of a number of tests; if the value of the assets of H. Co.
exceeds the value of the assets of S. Co.; if the net profits (after deducting
all charges except taxation and excluding extraordinary items) attributable to
the assets of H. Co. exceed those of S. Co.; if the aggregate value of the
consideration being issued by S. Co. exceeds the value of the net assets of H.
Co.; if the equity capital to be issued by S. Co. as consideration for the
acquisition exceeds the amount of the equity share capital of S. Co. in issue
prior to the acquisition ; or if the issue of shares in S. Co. would result in
a change in control of S. Co. through the introduction of a minority holder or
group of holders."
The
above is, therefore, a precise and brief discussion of what is known as take
over by reverse bid. Judging the present arrangement by diverse tests, which
have been indicated for purposes of finding out whether an arrangement is in
the nature of reverse take-over, it is manifestly clear that the three tests,
viz., (i) the assets of the transferor company being greater than the
transferee company, (ii) equity capital to be issued by the transferee company
pursuant to the acquisition exceeding its original issued capital, and (iii)
the change of control in the transferee company, clearly indicate that the
present arrangement is an arrangement which is a typical illustration of take-over
by reverse bid.
The
motives which may operate behind the decision of take-over or merger are
broadly classified into four main classes by the learned authors of the above
book on Take-overs and Mergers, and Chapter 3 indicates the classes of
take-overs and mergers. One of the classes of such motives need be referred to
since it is relevant for the present purposes. In paragraph 303 at page 24, the
learned authors have pointed out the advantage, or what is known in American
business literature as "Synergy", as one of the inducing factors for
such take-overs or mergers. The meaning of the terms, "Synergy" can
be shortly stated as a favourable effect on the overall earnings of merger or
take-over. In para. 303 at p. 24, one of the classes of motives relevant for the point at discussion is stated in the following terms:
"(C) Because there is a trade advantage or
element of synergy in bringing the two companies under a single control, which
is believed will result in the combined enterprise producing greater or more
certain earnings than the sum of earnings of the two companies. The factors
leading to this improvement in earnings could include:
(a) economies of scale;
(b) an accelerated learning process ;
(c) ensuring raw materials or sales ;
(d) financial advantages ;
(e) marketing advantages;
(f) acquisition of a competitor;
(g) diversification and reduction of earnings volatility; or
(h) purchasing management.
This class of motive is more generally associated with
a merger, although it could well give rise to a take-over."
Some of the factors likely
to result in improving the earnings have been relied upon in the present
petition which, inter alia, include economies of scale and marketing advantages
to which I will refer to in detail presently.
There can be a number of
legitimate reasons for reverse take-over and which have been illustratively set
out in paras. 613 and 614, at p. 80 of the aforesaid book,
Take-overs and Mergers. The reasons which have been
given in paras. 613 and 614 are obviously illustrative and not
exhaustive. It will have to be examined in each case as to which reasons have
prompted the decision for take-over by reverse bid; and whether they are
legitimate or otherwise. I shall presently refer to the reasons which prompted the
present arrangement under consideration. Suffice it to say for the time being
that the legitimate reasons underlying the decision of reverse take-over may be
as illustrated in paras. 613 and 614, which include, inter alia, as to where
the transferee company has large undistributed profits which it is desired to
keep unfrozen or the advantage of the continuation of the listing which the
transferee company enjoys at the stock exchange, or where the transferee
company has the benefit of active management pursuing a dynamic policy of
acquisition or where the directors of the transferee company and the transferor
company take the decision having regard to the attitude of their respective
shareholders.
So far as the first
question is concerned, I am of the opinion that having regard to the following
facts and circumstances, the decision of the transferor company to merge itself
into the transferee company is justified. The
reasons need not be elaborately discussed since there is no worthwhile
opposition to the proposed scheme. Notwithstanding the absence of such
objections, I have myself examined the question about the justness of the
decision of the transferor company to merge itself into the transferee company
from different angles. It should be recalled that the transferee company is a
subsidiary of the transferor company, since as many as 4,303 equity shares out
of 5,600 equity shares issued by the transferee company are held by the
transferor company. In other words, more than 75% of the equity shares issued
by the transferee company are held by the transferor company. Apart from this
fact of large holding and consequent stake in the financial working of the
transferee company, there are other important additional motives justifying the
decision of take-over by reverse bid. The economies of scale, trade advantage
in the nature of favourable effect on the overall earnings resulting from the
amalgamation which will reduce the cost of production and stabilise the
business by ensuring the supply of raw materials and the advantage of a common
sales organisation need not require to be emphasised. They are inherent in a
properly conceived scheme of amalgamation. The tax benefits which will be
available to the new unit on amalgamation of the transferor company with the
transferee company, which is a sick unit in the sense that it has accumulated
losses to the tune of Rs. 1,48,60,252 and unabsorbed
depreciation of about Rs. 1,46,00,000 will have a salutary effect of
neutralising the deadening effect of such accumulated losses and unabsorbed
depreciation on the financial results on the life of the new unit. Another
important additional ground which should be emphasised is the stake of transferor company in the transferee company. It should be
recalled that the transferor company has made a very large advance to the
transferee company and as on November 13, 1982, the total amount due at the
foot of the account of the transferee company in the trading books of the
transferor company is to the tune of Rs. 67.72 lakhs excluding interest as
might have accrued due from time to time on the said amount during the period
of advance. In other words, the transferor company is a creditor of the
transferee company and its outstandings would be in the vicinity of about 14%
to 15% of the total value of the liabilities. This circumstance has been noted
by the auditors appointed by the official liquidator for purposes of
investigating the affairs of the transferor company in order to submit a report
to this court as to whether the affairs of the transferor company were managed
in the interest of the shareholders or not. If, therefore, the transferor
company has decided for a scheme of amalgamation of the two companies, it
cannot be said that it has been done with any ulterior purpose or with a view
to secure some unfair advantages to its shareholders. Having regard,
therefore, to the percentage of its shareholding in, and the extent of advances to, the
transferee company, the transferor company was well advised to have a scheme of
amalgamation, since the total failure of the undertaking of the transferee
company may have adverse consequences and far-reaching repercussions on the
fortunes of the transferor company as well. It should be recalled that the
transferor company and the transferee company are in the same line and they
have the standing of about 94 years and 52 years, respectively. Both the
companies are carrying on business in manufacturing textiles. The transferor
company got hold of the transferee company when it purchased in about three
parts, the entire block of shares aggregating to 4,303 in the month of August,
1982. The decision of the transferor company to purchase the equity shares of
the transferee company appears also to be justilied, since having regard to the
book value of the block of the company of Rs. 1,99,30,850 and the depreciated
value of Rs. 58,24,657, the deal was really in the interest of the transferor
company. The resources position of the transferor company as disclosed from the
valuation report of M/s. Talati and Talati, chartered accountants, who were
retained for purposes of submitting their valuation of the transferor company
as well as the transferee company indicates that the transferor company is in a
position to provide necessary financial help and wherewithal for rehabilitation
of the sick unit of the transferee company. The financial working of the
transferor company has been summed up in para. 6(b) and (c) of the valuation
report as under:
"6(b)
The company has as per its last published accounts:—
|
|
Rs. |
|
General reserve |
3,00,00,000 |
|
Statutory development rebate reserve |
29,35,000 |
|
Investment allowance reserve |
20,00,000 |
|
Investment allowance reserve utilised account |
94,25,000 |
|
Balance of profit and loss a/c. |
32,843 |
(c) We have
seen the balance-sheet of the company for the last three years. The company has
been working at excellent profit as can be seen below:
|
|
In |
In |
In |
|
|
1981 |
1980 |
1979 |
|
|
–––––––– |
——— |
——— |
|
|
Rs. |
Rs. |
Rs. |
|
Profit
before tax |
47,14,761 |
81,86,400 |
1,30,70,182 |
|
Profit
after tax |
40,64,761 |
56,36,400 |
70,17,136 |
The
company has declared a dividend for the year ending:
|
|
Rs. |
|
|
1981 |
25 |
|
|
1980 |
25 |
|
|
1979 |
25 |
|
|
1978 |
30 |
|
|
|
Rs. |
|
|
The
gross block of the company |
11,44,50,160 |
|
|
The
net block of the company |
6,43,75,969 |
|
|
The
investments |
4,18,624 |
|
|
Current
assets, loans and advances |
13,90,16,590 |
|
|
Current
liabilities and provisions |
6,48,64,786 |
|
|
Loans
fund |
8,47,28,499." |
|
|
|
|
|
There is an additional circumstance which must
be also referred to while determining whether the decision of the transferor
company to merge itself with the transferee company is justified. The
transferor company has got a plot of land admeasuring about 61,600 sq. metres
which according to the transferor compeny is not sufficient for its expansion
programme. While on the other hand, the transferee company has got a plot of
land admeasuring about 85,264 sq. metres out of which, I am told, the built up
area is 28,837 sq. metres with the available vacant land of 56,427 sq. metres,
and as per the municipal bye-laws, the land which will be available for further
construtcion will be about 50% thereof, that is, 27,590 sq. metres. The
transferor company, therefore, would have also an advantage of undertaking the
development of the textile unit of the transferee company. In these
circumstances, therefore, I do not think that the decision of the transferor
company to merge itself into the transferee company can be said to be
unjustified.
In
the course of discussion of this larger question, it was also examined as to
whether the decision of the transferor company to merge itself with the
transferee company offends or violates any statutory provision. Since the
transferor company will have after the merger with the transferee company the
benefit, inter alia, of claiming set off of all the accumulated losses and
unabsorbed depreciation against future profits of the transferee company. This
aspect was required to be examined, since the formalities prescribed under s.
72A of the I.T. Act, 1961, providing for the carrying forward or set off of
accumulated losses and unabsorbed depreciation allowance in the present case of
amalgamation would not be required to be gone through. It cannot be said by any
stretch of imagination, and without violence to the language, that the
amalgamation is only feasible when the sick unit is taken over and could
exclude the cases where the prosperous units decide to merge into sick units as
has been in the present case. The only short question which was examined was,
whether the scheme of amalgamation and merger
of the prosperous and healthy unit into the sick unit would offend s. 72A of
the I.T. Act. Prima facie, the present scheme cannot be said to be offending or
violating the spirit of the provisions of s. 72A since the object underlying
insertion of this provision in the I.T. Act, 1961, is to facilitate the merger
of sick industrial units with sound ones and unless some incentives are given
to the prosperous units for taking over of the sick units, such mergers would
not be feasible, and it is with that end in view that the benefit of set off of
the accumulated losses and unabsorbed depreciation against the future profits
which would not have been available to the subsisting unit have been sought to
be extended by this amended provisions, provided the conditions mentioned in
the section are satisfied. It is no doubt true that whether the transferee
company in which the transferor company will be merged will continue to enjoy
the benefit of setting off of accumulated losses and unabsorbed depreciation
since the unit continues is a question apart but there is no question of
carrying 'out the exercise which is required to be carried out under s. 72A. It
would not be tantamount to saying that the scheme, therefore, offends the
provision contained in s. 72A of the I.T. Act, 1961, for the obvious reason
that the question whether the new company after the merger will be entitled to
claim the benefit of set off of accumulated losses and unabsorbed depreciation
against the future profits will be determined in the assessment proceedings
themselves. This question, therefore, need not detain me.
The second question which
arises is whether the scheme is fair and just. The answer to this question
depends mainly on what is the exchange ratio which has been prescribed in the
scheme, and having regard to the totality of the circumstances, the exchange
ratio is just and fair to the members of the transferor company. The relevant
provision about the exchange ratio is to be found in cl. 5 of the scheme.
Clause 5 of the scheme provides as under:
"5. Upon the scheme
being sanctioned by Honourable High Court at Ahmedabad and transfers taking
place as stipulated under clause 1 hereof;
(a) Bihari shall without further application allot to every
member of M.H. one equity share of Rs. 200 each fully paid-up in Bihari for
every one equity share of Rs. 200 each held by such member in M.H. All the
members shall accept the aforesaid shares to be:allotted
as aforesaid in lieu of their shareholdings in M.H.
(b) Every member of M.H. shall surrender to Bihari for
cancellation of his share certificate(s) in respect of shares held by him in M.H.
and take all steps to obtain from Bihari a certificate for shares in Bihari to
which he may be
entitled under sub-clause (a) hereof, and all the shares to be issued and
allotted shall rank pari passu in all respects to the existing shares in
Bihari.
(c) All
the shares in Bihari held by M.H. shall stand cancelled."
In order to decide
about the reasonableness of the exchange ratio, it is necessary to refer to, in
the first instance, as to the price of the shares quoted on the stock exchange
of the respective scrips of the transferor company and the transferee company
at the relevant time. It should be recalled that the effective date as
prescribed under the scheme is January 1, 1982. The prices quoted at the stock
exchange for the period of two months immediately preceding the effective date
and for the entire calendar year 1982 have been annexed to the additional
affidavits of S/Shri Radha-krishan Kabra dated February 14, 1983, and S. R.
Sanghvi of even date, who happen to the director and secretary, respectively,
in the transferor company and the transferee company. The prices of the scrips
of the transferee company in the relevant period commencing from the end of
October, 1981, to the end of December, 1982, range between Rs. 430 to Rs. 445.
On the other hand, the price of the shares of the transferor
company for the same period range between Rs. 335 to Rs. 457. The
exchange ratio which has been prescribed in the scheme is sought to be
justified on the valuation of the respective scrips as estimated by M/s. Talati
and Talati, a firm of leading chartered accountants, which has been annexed to
the affidavit of Shri S. R. Sanghvi, secretary of the transferor company, filed
in Company Petition No. 163 of 1982. The said auditors have, in their report,
after setting out the various diverse relevant particulars showing the
financial workings of the two companies from their respective balance-sheets,
submitted their opinion about the respective values of the shares in paragraph
8 of their report. The said paragraph reads as under:
"......For
determining the assets for the value of the shares a break up value of the
shares on the basis of book figures of Maneklal Harilal Spg. & Mfg. Co.
Ltd. is considered. The paid-up capital is Rs. 96,00,000,
reserve surplus is Rs. 4,43,92,898, totalling to Rs. 5,39,92,898. As on 48,000
equity shares the break-up value would come to Rs. 1,125. In the case of Bihari
Mills Ltd., there is a total debit balance in profit and loss account of Rs. 1,48,60,252. The general reserve is Rs. 29,29,771
leaving a debit balance in the profit and loss account of Rs. 1,19,30,477, as
against the total paid-up capital of Rs. 96,00,000. As there is a debit
balance, the book value of share would come to nil. The profit for the year
1978 of Bihari Mills Ltd. was Rs. 19,77,848."
In other words, the value
of the shares as estimated by the said auditors of the transferor company is
Rs. 1,125 per share while that of the transferee company is nil. This opinion
is corroborated by the auditors assisting the official liquidator for the
purpose of reporting to this court as to whether the affairs of the transferor
company have been managed in a manner prejudicial to the interest of the
shareholders or public interest. The auditors appointed by the official liquidator
to assist him, namely, M/s. Mehta Lodha and Co., have, in their report to the
official liquidator, inter alia, stated to the effect that taking the paid-up
capital and reserves together, the book value of the shares of the transferor
company as per the balance-sheet as on December 31, 1981, would come to Rs.
1,125 while in the case of the transferee company, namely, Bihari Mills Ltd.,
it would be Rs. 1,921. It is no doubt true that both the auditors have opined
as above about their estimate of the valuation of the shares of the respective
companies on the application of break-up value method. In determining the
break-up value of the shares, one has to ascertain the value of the company's
physical assets and deduct therefrom the company's current liabilities and
prior charge capital. Broadly speaking, the break-up value of shares means the
difference between the assets and the liabilities of the company, vide CWT v.
Rajendra Singh Singhi [1969] 72 ITR 245 (Cal). In Diamond on Death Duties, 14th
edition, p. 578, it is observed that the break-up value is the amount which the
shareholder would receive in the event of liquidation. It is no doubt correct
that the break-up value of the shares is to be ascertained where the company is
ripe for winding up, vide CWT v. Mahadeo Jalan [1972]
86 ITR 621 (SC). Notwithstanding, that the break-up value method is one of the
well known and recognised methods of valuation of shares, the courts have often
said that amongst the different methods of valuation of shares, the break-up
method can be resorted to only in exceptional cases: vide CIT v. Swadeshi
Mining & Mfg. Co. Ltd. [1979] 116 ITR 259 (Cal). The mode or method of
valuation, just like the content or meaning of the word "value",
varies a good deal according to the purpose for which valuation is required
(vide Sampath Iyengar on the Three New Taxes, 5th edition, p. 447) and the
perspective of a given question and the context of the purpose of valuation
would necessarily play a significant role in selecting the method of valuation.
The principles which would be relevant for a fixation of the fair market value
in the context of the Land Acquisition Act, would not conclusively operate in
the field of evaluating the fair market value in the context of the acquisition
proceedings under the Income-tax Act, vide CIT v. Smt. Vimlaben Bhagwandas
Patel [1979] 118 ITR 134 (Guj). In Mahadeo Jalan's case [1972] 86 ITR 621 (SC),
the Supreme Court examined the question of the valuation of shares in the
context of s. 7 of the W.T. Act. The court, speaking through Jaganmohan Reddy J., ruled that
for the purposes of wealth-tax, the valuation of the shares would ultimately
depend on the facts and circumstances of the case, the nature of the business
of the company and the prospects of profitability and such other
considerations. The Supreme Court indicated broadly the principles which should
govern the question of valuation of shares for the purpose of the W.T. Act. The
first principle, which has been recognised by the court
is in the following terms:
"Where
the shares are of a public company and are quoted on the stock exchange and
there are dealings in them, the price prevailing on the valuation date is the
value of the shares."
The
court further pointed out that in cases of public companies whose shares are
not quoted on the stock exchange, the value may be determined by reference to
the dividends, or on the application of yield method. It is in this background
that I have to determine whether the auditors were justified in arriving at the
valuation of the shares of both the transferor company and the transferee
company on application of the break-up value method.
It
is no doubt true that so far as the question of valuation of shares in mergers
and take-overs is concerned, the transferor company is not to be wound up but
none the less it is to be dissolved without formal winding up. If, therefore,
in such a context an attempt is made to evaluate the break-up value of the
transferor company, it cannot be said that the approach is unjustified. If
once, therefore, in relation to the transferor company the break-up value has
been arrived at, it would be reasonable to find out the break-up value of the
transferee company. I do not mean to say that if the stock exchange prices are
higher than the break-up value or on the basis of yield method or dividend
method, the higher valuation is not justified, and the company seeking to
evolve the arrangement of merger or take-over should adopt the best valuation
by applying the break-up method, or any other method which is convenient for
purposes of obtaining lesser valuation unless there are valid and compelling
reasons which may justify lower valuation. I have, therefore, called for the
valuation of the shares of the transferor company on application of that
alternative recognised method of yield value. It should be noted again that in
the present facts and circumstances, the transferee company was making losses
during the last five years, except in the year 1978, and, therefore, also the
evaluation of its shares on the break-up method was justified. If, therefore,
the break-up method has been adopted in case of one company, namely, the
transferee company in the present case for purposes of finding out whether the
exchange ratio is proper or not, the same method should generally be applied for the valuation of
the shares of the transferor company also. If
the break-up valuation of the transferor company and the transferee company is
taken into consideration, the exchange ratio which has been prescribed is
unexceptionable. I have also called for for the purpose of finding out whether
the prescribed exchange ratio is justified or not, the valuation of the new
shares which the transferee company would be required to issue after merger.
The statement of computation for determining the estimated value of one equity
share of Rs. 200 which shall have to be issued on the amalgamation of the
transferor company and the transferee company is annexed to the affidavit of
February 9, 1983, of Shri Radhakrishan Kabra, who happens to be the director of
the transferee company. In the said statement of computation, the loss of the
transferee company which shall have to be adjusted against the reserves of the
transferor company as well as the value of the open land which would be
available after the amalgamation with the transferee company is taken into
consideration and the figure of the revised reserves as a result of the
amalgamation has been arrived at. The break-up value of the new shares which
shall have to be issued after the amalgamation comes to about Rs. 1,173. In
that view of the matter also, no exception can be taken to the exchange ratio
particularly because the break-up value of the transferor company as on
December 31, 1981, is Rs. 1,125. In order to find out as to what is the value
of the shares of the transferor company on yield basis, further particulars and
estimation were called for. The statement of computation has been furnished
along with the affidavit of Shri S. R. Sanghvi, secretary of the transferor
company. The average profits for the years 1977 to 1981 have been taken into
consideration so as to have a long time view. The valuation is also made on the
alternative basis of four years and three years average of the profits, and
according to the estimation, the value per share on five years, four years and
three years average profit basis comes to Rs. 868, Rs. 985 and Rs. 972,
respectively. The intrinsic value of the shares which will be issued on
amalgamation is much higher than the value estimated on the yield basis as
above. The relevant factors which are to be taken into account in determining
the final share exchange ratio have been enumerated in the Weinberg and Blank's
classical Treatise, paras. 2052 to 2060 at pp. 519 to 522. Shortly stated,
these factors are as under:
1. The stock exchange prices of the shares of the two companies
before the commencement of negotiations or the announcement of the bid.
2. The dividends
presently paid on the shares of the two companies.
3. The relative
growth prospects of the two companies.
4. The cover for
the present dividends of the two companies.
5. The relative
gearing of the shares of the two companies.
6. The
values of the net assets of the two companies.
7. The
voting strength in the merged enterprise of the shareholders of the two
companies.
8. The
past history of the prices of the shares of the two companies.
It
should be noted that almost all these factors, except the relative gearing of
the shares, have been considered by me in examining whether the exchange ratio
is just and reasonable. It is no doubt true that the break-up value of the new
shares which will be issued is only slightly higher than the original break-up
value of the shares of the transferor company. But it is well recognised that
the premium element in the arrangement of take over or merger is slight. In para. 2052 in Weinberg and Blank's Treatise, this
principle is recognised as under:
"While
the essence of a bid for cash is that it must in normal circumstances represent
a premium over the pre-bid market price so as to attract acceptances from
shareholders who are not willing to sell in the market at current prices, in a
merger (and in theory in a share-for-share takeover as well) the 'premium' element
in the arrangement or bid ought to be small, since the offeree shareholders are
to become shareholders in the combined enterprise and the combined enterprise
is generally expected to produce better results than the two enterprises
separately."
The
proposed arrangement of takeover by reverse bid in the present case would not
affect the right of control with the existing controllers of the transferor
company. In para. 641, at p. 93, in the aforesaid book
of Take-overs and Mergers, the following observation is instructive:
"641.
Where H. Co. acquires the undertaking of S. Co. for shares and the shares in H.
Co. issued as consideration are retained by
For
the aforesaid reasons, I am of the opinion that examining the question of
exchange ratio from any angle and particularly in the context of take-over by
reverse bid in the present arrangement cannot be opposed on the ground that it
is not just and fair, and that a prudent and reasonable businessman will never
accept. All the relevant aspects necessary to be borne in mind while
considering the question of grant of sanction to a scheme of arrangement are,
in my opinion, satisfied and, therefore, the consent should be accorded to the proposed scheme under s.
394 of the Companies Act.
A
short question remains to be dealt with. An objection has been raised on behalf
of the Regional Director of Company Law Board, Western Region. The objection
which has been sought to be raised on behalf of the Regional Director is that
since cl. 7 of the proposed scheme postulates a change in the name of the
company after amalgamation, the court should not make any observation in that
behalf since the power of granting sanction to a change in the name of the
company is with the Central Govt. No doubt s. 21 of the Companies Act enables a
company to change its name by making appropriate special resolution in that
behalf with the approval of the Central Govt. However, this power under s. 29
to grant approval of the Central Govt. has been delegated to the Regional Directors
of Company Law Board,
For
the reasons aforesaid, therefore, the scheme of amalgamation of the transferor
company and the transferee-company, as approved and adopted by the interests
concerned of both the companies which is annex. "A" to both the
petitions, is sanctioned subject to the transferee company making an
application for approval to the change of the name under s. 21 of the Companies
Act latest by 30th April, 1983, and all the reliefs as prayed for in the
petitions should be granted.
Rule
in each petition is made absolute accordingly.
The
costs of the learned advocate for the Regional Director,
Mehta,
J. (21-3-1983.)—This
note has been for speaking to minutes on behalf of the applicant-company for
purposes of clarification as to whether the transferee company can use the new name prescribed
under the scheme of amalgamation of the two companies, viz., the Bihari Mills
Ltd. and Maneklal Harilal Spg. & Mfg. Co. Ltd., (described as
"transferee company" and "transferor company",
respectively, in the order according sanction to the scheme). The clarification
is required since while granting sanction to the amalgamation of the aforesaid
company by the order of this court of February 8, 23, 1983, the following
direction has been given:
"For
the reasons aforesaid, therefore, the scheme of amalgamation of the transferor
company and the transferee company, as approved and adopted by the interests
concerned of both the companies which is annexure "A" to both the
petitions, is sanctioned subject to the transferee company making an
application for approval to the change of the name under s. 21 of the Companies
Act latest by April 30, 1983, and all the reliefs as prayed for in the
petitions should be granted." (emphasis supplied)
This conditional accord of sanction has caused some apprehensions in the matter of use of the new name by the transferee company since the use of the name of the transferee company may create some difficulties in the matter of licences, quota, etc., held by the transferor company and the sale of the products of the transferor company in the market, etc. It should be noted that this court has, in its order, held that the approval envisaged in s. 21 can be ex post facto since the legislative intent does not appear to be of obtaining previous approval before the change can be made effective. This position is clear having regard to the requirement of the previous approval of the Central Govt. under s. 22 which provides for a rectification of the name of the company, if through inadvertence or otherwise, a company on its first registration or on its registration by a new name, is registered in a name which, in the opinion of the Central Govt., is identical with, or too nearly resembles, the name by which a company in existence has been previously registered, whether under the Companies Act, 1956, or under the previous companies law. In the same group of sections providing for the change of name necessitated by the decision of the shareholders as expressed in special resolution (vide s. 21) or by the direction of the Central Govt. under the circumstances as specified in s. 22, the Legislature has prescribed previous approval so far as the rectification of name is concerned under s. 22 while under s. 21 it has prescribed only the approval and, therefore, the legislative intent appears to be clear enough that so far as the change of the name under s. 21 is concerned, no previous approval is required. However, for obtaining the approval which can be ex post facto for effecting the change of name under s. 21, the requisite condition about the special resolution is to be satisfied and, thereafter, necessary application can be made. It is in these circumstances that while according the sanction to the scheme of amalgamation, this court directed that the sanction is accorded subject to the transferee company making an application latest by April 30, 1983. Till this application is made, the new scheme will not be effective and, therefore, the continuance of the transferor company for purposes of day-to-day business and the operation of the licences, quota, sale of products, etc., shall not be affected. On the special resolution being passed and a proper application being made by the said date, or the extended date, if necessary, the scheme will come into operation. The Central Govt. and, for that matter, the Regional Director, Company Law Board (Western Region), Bombay, will have to consider it and grant the formal sanction within the terms of the guidelines prescribed by the Central Govt. in this behalf and on such sanction being granted, the transferee company has to obtain appropriate certificate from the Registrar of Companies under s. 23. Subject to the clarification made in this order, the note for speaking to minutes is disposed of.
companies act
[2004]
49 SCL 618 (
HIGH COURT OF
Sen & Pandit Electronics (P.) Ltd.
v.
Union of
M.H.S. ANSARI, J.
W.P.
NO. 10639(W) OF 1998
APRIL 23, 1999
Section
22 of the Companies Act, 1956 - Name of company - Rectification of - Respondent
No. 3-company was registered on 4-1-1996 - Petitioner-company lodged complaint
with respondent Nos. 1 and 2 and sought for rectification of name of respondent
No. 3 on ground of same being similar to its name - Meanwhile, on a petition by
respondent No. 3, an interim order was granted on 18-5-1996 by sub-Judge
restraining petitioner from taking any steps in matter of complaint -
Injunction order continued until stay thereof was granted by District Judge on
12-9-1996 - Thereafter, by impugned order, dated 15-9-1997, Regional Director
conveyed that no action could be taken as period prescribed for rectification
of name had elapsed - Whether period covered by order of injunction is liable
to be excluded while computing period of 12 months - Held, yes - Whether, even
after said exclusion, period within which power could have been invoked expired
well before impugned order was passed - Held, - yes - Whether, therefore, no
direction could be granted to respondent authority to invoke powers under
section 22 or initiate action by virtue thereof - Held yes
Facts
The
petitioner-company lodged a complaint with respondent Nos. 1 and 2 seeking
rectification of the name of the respondent No. 3-company, which was registered
on 4-1-1996. The respondent No. 3 filed a petition for grant of ad interim
injunction, praying to restrain the petitioner from taking steps in any court
for interfering or cancelling its registration as per the complaint and
publishing any notice against its business. The first sub-Judge issued an ex
parte interim order of status quo on 18-5-1996 and later on confirmed the same.
However, on an appeal by the petitioner against the said order, the operation
of the same was stayed on 12-9-1996 and subsequently, the order was set aside.
Thereafter, the petitioner requested respondent No. 2 (Regional Director) to
take prompt action. The Regional Director by impugned letter dated 15-9-1997
informed the petitioner that the period stipulated under section 22 having
elapsed, no action could be taken for rectification of the name of the
respondent No. 3 based upon the complaint.
On writ:
Held
If through inadvertence or
otherwise, a company is registered by a name, which is identical with or too
nearly resembles the name by which a company in existence has been previously registered,
the Central Government is conferred with the power, within twelve months of the
company’s first registration, to direct it to change its name. Section 22,
thus, provides a procedure as regards rectification of the name of a company
and also confers power on the Central Government to compel a change of name and
enforce compliance with its direction by penalising the company in default. The
powers under section 22, it appears, have been delegated to the Regional
Directors by the Central Government. [
There can be no dispute that
the Central Government and/or the Regional Director, Company Affairs, is not a
court though while exercising the powers conferred upon them under section 22,
they perform a quasi-judicial function. [
It could not be disputed, much
less by respondent No. 3, that during the period the injunction order of the
court was in operation, the respondent Nos. 1 and 2 (repository of the power
under section 22) could not invoke the power thereby vested in them under section
22. [
It is a well-established
principle of judicial procedure that where any proceedings are stayed by an
order of a court or by an injunction issued by any court, that period shall be
excluded in computing the period of limitation prescribed by the statute. [
The period covered by the
order of injunction is liable to be excluded while computing the period of 12
months as laid down in section 22(1)(b). [
Even if the said period was
excluded, as it had to be, then also the said period within which the power
would have been invoked expired in April, 1997. The impugned order was dated
15-9-1997, and, therefore, no direction as prayed for could be granted to the
respondent-authority to invoke the powers or initiate any action by virtue
thereof. [
The petitioner submitted that
when the provisions of a statute relate to the performance of a duty and the
authority acts in neglecting of that duty to the detriment of, and thereby
causing loss to a person who has no control over those who are entrusted with
the said duty, the writ Court is not without jurisdiction or power and can
compel such authority by a writ of mandamus to perform its duty in a lawful
manner in order to prevent injustice. [
The above submission would
have merited consideration, if it was a case of statutory duty imposed under
section 22. A distinction has and needs to be drawn between a statutory ‘duty’
and statutory ‘power’. Where a public officer is directed by a statute to
perform a duty within a specified time, the cases have established that
provisions as to time are only directory.
However, if the statutory
provision as to time is a condition for the exercise of a statutory power as
distinguished from a duty, the prescription as to time has been construed as
mandatory. [
What is conferred by section
22 is a discretion to be exercised by the repository
of the power on the formation of an opinion. The said power may be exercised
suo motu and may be upon an application by an aggrieved person. [
For all the aforesaid reasons,
the relief as prayed for could not be granted, the period prescribed for the
exercise of the power including the extended period having elapsed. [
In the result, the writ
petition was to be dismissed. [
Cases
referred to
Sidhvi Constructions
Gautam Chakraborty, S.N. Mukherjee and Soumen Sen for
the Petitioner. M. Chatterjee and Dr. D.P. Pal, Ramchandra
Prasad and Shilchandra Prasad for the Respondent.
Judgment
1. This writ petition is
filed questioning the order dated September 15, 1997, being annexure Q to the
writ application, of the Regional Director, Department of Company Affairs,
informing the petitioner that no action can be taken under section 22 of the
Companies Act, 1956 (‘the Act’) as the period stipulated for the same under the
said provisions of section 22 has elapsed.
2. The facts leading to
filing of the above writ petition, briefly stated, are that the
petitioner-company (Sen and Pandit Electronics Pvt. Ltd.) was incorporated on
December 4, 1984, and is carrying on a business of manufacturing and sale of
voltage stabiliser, invertor, emergency light, constant voltage transformer and
other electronic products.
3. Respondent No. 3 (Sen
and Pandit Equipment Pvt. Ltd.) company was incorporated on January 4, 1996.
The petitioner lodged a complaint on February 20, 1996, before respondent Nos.
1 and 2 for rectification of the name of the new company (respondent No. 3).
4. On May 17, 1996,
respondent No. 3 on coming to know about the filing of the said complaint filed
a Title Suit No. 193 of 1996 and also filed a petition for ad interim
injunction praying to restrain the defendant from taking steps in any court
from interfering, cancelling the registration of the plaintiffs as per the
complaint and from publishing any notice against the business of the plaintiff
in any paper. By order dated May 18, 1996, the learned First Sub-Judge,
5. Aggrieved by the same,
the petitioner preferred an appeal against the said order dated August 8, 1996,
before the learned District Judge,
6. The petitioners requested
the Regional Director, to take prompt action in the matter of their complaint,
consequent on the order passed by the District Judge,
7. By letter dated March
18, 1997, from the office of the Regional Director, the petitioners were
required to satisfy him that the period of injunction, i.e., from May 17, 1996,
to September 11, 1996, can be excluded for the purpose of computation of 12
months’ time as stipulated in section 22(1)(b) of the
Act. The petitioners responded to the same by their letter dated April 22,
1997, enclosing therewith copies of the orders passed in the title suit and the
appeal and also enclosing a legal opinion on the subject to exclusion of time
covered by the injunction orders.
8. The Directorate appears to have issued notice to respondent No.
3 asking it to appear before it on May 30, 1997, in the matter of rectification
of name. Thereafter, by letter dated June 25, 1997, respondent No. 3 was
informed that personal hearing has been refixed on June 30, 1997. Thereafter,
the impugned letter dated September 15, 1997, (annexure Q) was issued by the
Regional Director.
9. In effect by the
impugned letter dated September 15, 1997, the Regional Director has informed
the petitioner that the period stipulated in section 22 having elapsed, no
action could be taken by him for rectification of the name of respondent No. 3
company based upon their complaint.
10. No
affidavit-in-opposition has been filed on behalf of respondent Nos. 1 and 2.
Learned counsel on behalf of the said respondents, however, made oral
submissions.
11. Affidavit-in-opposition
has been filed on behalf of respondent No. 3. It is denied that respondent No.
3 has been registered with the name identical and/or too nearly resembling with
the name of the petitioner-company. Action as in the impugned letter (annexure
Q) has been supported by respondent No. 3 and it is stated that the aforesaid
action is bona fide and in due compliance with the mandate of the provisions of
section 22 of the Companies Act. Various other averments have been made in the
affidavit-in-opposition which are not necessary or
relevant for the purpose of the present enquiry.
12. The short question for
determination is whether the impugned order is valid in law and whether any
directions can at all be issued to the Regional Director when the periods
stipulated in section 22 of the Act have elapsed. The further question is that
when the period of limitation as prescribed in section 22 elapsed and whether
the same can be extended or enlarged.
13. The submissions of Mr.
Goutam Chakraborty, learned senior counsel appearing for the petitioners are
that respondent Nos. 1 and 2 in purporting to act as they did,
are guilty of non-application of mind and failure to appreciate the statutory
rights available to the petitioners under section 22 of the Act. No.
explanation has been offered by respondent Nos. 1 and 2 for their inaction
within the period stipulated under section 22 of the Act and for the said inaction
and default, the petitioners’ legal rights cannot be allowed to be either
violated or the provision of section 22 rendered otiose.
14 Lastly, it was submitted
that in any event, the period covered by the orders of injunction issued by the
court are liable to be excluded and respondent No. 3 having filed suits and
obtained injunction, cannot be heard to say that the period of limitation
having elapsed, no action can be taken under section 22 of the Act.
15. On behalf of respondent
No. 3, Dr. Debi Prasad Pal, learned senior counsel submitted that the
limitation prescribed under section 22 of the Companies Act having elapsed,
powers vested in the authority under section 22 cannot be invoked thereafter.
It was further submitted that the court can issue a writ of mandamus to an
authority compelling it to perform its duties in accordance with the statute
and not in derogation thereof. The authority vested with the power cannot be
compelled to invoke the said powers when the period prescribed therefor has
statutorily expired. It is not within the province of this court either to
extend or to enlarge the period of limitation, which has been statutorily
prescribed under section 22 of the Act, it was contended.
16. Before we deal with the
contention of the respective learned senior counsel, it may be appropriate to
look at the relevant sections 20 and 22 of the Companies Act which read as under :
“20.
Companies not to be registered with undesirable names.—(1) No company shall be
registered by a name which, in the opinion of the Central Government, is
undesirable.
(2)
Without prejudice to the generality of the foregoing power, name which is
identical with, or too nearly resembles, the name by which a company in
existence has been previously registered, may be deemed to be undesirable by
the Central Government within the meaning of sub-section (1).
22.
Rectification of name of company.—(1) If, through inadvertance, or otherwise, a
company on its first registration or on its registration by new name, is
registered by a name which, in the opinion of the Central Government, is
identical with, or too nearly resembles, the name by which a company in
existence has been previously registered, whether under this Act or any
previous company laws, the first mentioned company—
(a) may, by
ordinary resolution and with the previous approval of the Central Government
signified in writing, change its name or new name; and
(b) shall, if the Central Government so
directs within twelve months of its first registration or registration by its
new name, as the case may be, or within twelve months of the commencement of
this Act, whichever is later, by ordinary resolution and with the previous
approval of the Central Government signified in writing, change its name or new
name within a period of three months from the date of the direction or such
longer period as the Central Government may think fit to allow:
** ** **
(2)
If a company makes default in complying with any direction given under clause
(b) of sub-section (1), the company, and every officer who is in default, shall
be punishable with fine which may extend to one hundred rupees for everyday
during which the default continues.”
17. A bare perusal of the
provisions of section 20 shows that if in the opinion of the Central
Government, it is undesirable to register a company with the proposed name, it shall not be so registered. In sub-section (2)
thereof, it has been stated that the name which is identical with or too nearly
resembles, the name by which a company in existence has been previously
registered, may be deemed to be undesirable by the Central Government within
the meaning of sub-section (1).
18. If, through inadvertance
or otherwise, a company is registered by name, which is identical with or too
nearly resembles the name by which a company in existence has been previously
registered, the Central Government is conferred with the power within twelve
months of the company’s first registration to direct it to change its name.
This section 22 thus provides a procedure as regards rectification of the name
of a company and also confers power on the Central Government to compel a
change of name and enforcing compliance with its direction by penalising the
company in default. The powers under section 22 of the Act, it appears, have
been delegated to the Regional Directors by the Central Government.
19. In the instant case,
respondent No. 3 company was registered on January 4, 1996. The petitioner
lodged their complaint with respondent Nos. 1 and 2 and sought for
rectification of the name by an application dated February 20, 1996. The period
of twelve months prescribed in section 22(1)(b)
expired on January 3, 1997. Meanwhile, however, interim order was granted on
May 18, 1996, by the learned sub-judge which continued until the stay thereof
was granted by the learned District Judge, Patna, by order dated September 12,
1996, and the appeal itself was disposed of by the learned District Judge on
January 25, 1997, setting aside the order of the learned Sub-Judge, Patna.
20. There can be no dispute
with the proposition, as contended by Dr. Pal that the Central Government
and/or the Regional Director, Company Affairs, is not a court though while
exercising the powers conferred upon them under section 22 of the Act, they
performed a quasi-judicial function.
21. It was contended by Dr.
Pal and as held by the learned Single Judge of the Andhra Pradesh High Court in
Sidhvi Constructions India (P.) Ltd. v. Registrar of Companies [1997] 90 Comp. Cas. 299 that when the limitation prescribed by the statute
has expired, it would not be open for the writ court to extend the same by
exercising the powers under article 226 of the Constitution and that the court
cannot compel the statutory authorities to pass orders in violation of provisions
which has the effect of extending the period of limitation under the Act.
22. The actual decision in
Sidhvi Constructions India (P.) Ltd.’s case (supra) though is not in point, I
am in respectful agreement with the observations as noted supra and made by
Justice B. Vikshapathy of the Andhra Pradesh High Court.
23. The distinguishing feature being that in Sidhvi Constructions India (P.) Ltd.’s
case (supra) the application of the petitioner therein before the competent
authority was made after the expiry of the period of limitation prescribed in
section 22(1)(b). In the instant case, though the
application was made well within time (February 20, 1996), i.e., within one
month from the date of registration of respondent No. 3 company, no action was
taken thereon by the respondent authorities. Meanwhile, by virtue of the
interim injunction order dated May 17, 1996, no action could be taken until
September 12, 1996, when the injunction was vacated by the learned District
Judge,
24. It cannot be disputed
much less by respondent No. 3 herein (plaintiff in Title Suit No. 193 of 1996) that
during the period the injunction order of the court was in operation,
respondent Nos. 1 and 2 (repository of the power under section 22) could not
invoke the power thereby vested in them under section 22.
25. The question, therefore,
that arises, is whether during the period the injunction order was in
operation, the period covered thereby is liable to be excluded or not for the
purpose of computing the period of twelve months’ time stipulated in section
22(1)(b) of the Act.
26. It is a well-established
principle of judicial procedure that where any proceedings are stayed by an
order of a court or by an injunction issued by any court, that period should be
excluded in computing any period of limitation prescribed by the statute.
27. Dr. Pal,
learned senior counsel for respondent No. 3, however, sought to contend that
the said principle would apply only where a provision has been specifically
made in the statute and not otherwise. It was the submission of Dr. Pal that
under the Companies Act there is no such provision for excluding the period of
stay.
28. Mr. Goutam Chakraborty, learned senior counsel for the petitioners
countered the above submission by submitting that non-existence of a provision
in the Companies Act providing for exclusion of time covered by any
injunction/stay order of court would not militate against the efficacy of the
principle noted above. Even if there was such a provision in the Companies Act
providing for exclusion of time covered by injunction/stay order of a court,
the same would be superfluous. Mr. Chakraborty referred to and relied upon the
Supreme Court judgment in Director of Inspection of Income-tax (Investigation)
v. Pooran Mal & Sons [1974] 96 ITR 390, wherein it was held as follows:
“It was also argued based on Explanation (1) to
section 132 and similar provision in certain other sections which lay down that
in computing the period of limitation any period during which any proceeding is
stayed by an order or injunction of any court shall be excluded, that where it
is intended that the period of limitation prescribed by any of the provisions
of the Income-tax Act, should not be strictly enforced the law itself makes a
specific provision. It is a well-established principle of judicial procedure
that where any proceedings are stayed by an order of a Court or by an
injunction issued by any court that period should be excluded in computing any
period of limitation laid down by law. Especially after the Limitation Act,
1963, the provisions of which are now applicable to all proceedings, a
provision like Explanation 1 to section 132 is superfluous and no argument can
be based on it.” (p. 396)
29. In view of the above, it
must be held that the period covered by the order of injunction is liable to be
excluded while computing the period of 12 months laid down in section 22(1)(b) of the Companies Act. The contention of Dr. Pal to the
contra has therefore, to be rejected.
30. Even if the said period
is excluded, as it has to be, then also the said period within which the power
would have been invoked expired in April, 1997. The impugned order is dated
September 15, 1997, and, therefore, no direction as prayed for can be granted
to the respondent authority to invoke the powers or initiate any action by
virtue thereof.
31. True, as contended by
Mr. Chakraborty, learned senior counsel for the writ petitioner respondent No.
2 authority is solely responsible for the delay and default in not taking
action within the prescribed period or thereafter, when the injunction order
was no longer in operation.
32. It was Mr. Chakraborty’s
submissions that when the provisions of the statute relate to the performance
of a duty and the authority acts in neglect of this duty to the detriment of
and thereby causing to a person who has no control over these who are entrusted
with the said duty, the writ court is not without jurisdiction or power and can
compel such authority by a writ of mandamus to perform its duty in a lawful
manner in order to prevent injustice.
33. The above submissions
would have merited consideration, if it was a case of statutory duty imposed
under section 22 of the Act. A distinction has and needs to be drawn between a
statutory “duty” and statutory “power”. Where a public officer is directed by a
statute to perform a duty within a specified time, the cases established that
provisions as to time are only directory. However, if the statutory provision
as to time is condition for exercise of a statutory power as distinguished from
a duty, the prescription as to time has been construed as mandatory.
34. In my judgment, what is
conferred by section 22 of the Act is a discretion to
be exercised by the repository of the power on the formation of an opinion. The
said power may be exercised suo motu and may be upon an application by an aggrieved
person.
35. For all the aforesaid
reasons, the relief as prayed for cannot be granted, the period prescribed for
the exercise of the power including the extended period having elapsed.
36. In the result, the writ
petition must fail and is accordingly dismissed, however without any order as
to costs.
37. It must, however, be
clarified that nothing contained in this judgment and order shall be construed
as decision on the merits of the main controversy.
nn
[1986] 60 COMP. CAS. 707 (
Pioneer Protective Glass Fibre P.
Ltd.
v.
Fibre Glass Pilkington Ltd.
DIPAK KUMAR SEN AND SUHAS CHANDRA
SEN JJ.
APPEAL NO. NIL OF 1984 IN SUIT NO.
874 OF 1982
SEPTEMBER 5, 1984
JUDGMENT
Dipak Kumar Sen J.—Fibre Glass Pilkington Ltd., the respondent in this
appeal, is a company incorporated under the Companies Act, 1956. By a
special resolution, passed prior to April 15, 1982, the respondent changed its
name to F.G.P. Ltd. The change was duly approved by the Central Government. This
was recorded in a letter of the Regional Director, Company Law Board, Western
Region,
On or about November 22,
1982, the respondent filed a suit in this court marked Suit No. 874 of 1982
against Pioneer Protective Glass Fibre P. Ltd., the appellant, for price of
goods sold and delivered to the appellant claiming, inter alia, Rs. l,40,098.32
; Rs. 75,654 on account of interest accrued ; further interest and costs. In
the cause title of the plaint filed in the suit, the respondent was described
in its previous name, viz., Fibre Glass Pilkington Limited.
After the appellant entered
appearance in the suit, the respondent on April 4, 1983, applied under Chapter
XIIIA of the Rules of the Original Side of this court for final judgment.
The appellant filed an
affidavit-in-opposition to the said application contending, inter alia, that
the suit was not maintainable inasmuch as Fibre Glass Pilkington Ltd. was not
an existing company on the date the suit was filed. A new company, viz., F.G.P.
Ltd., having been incorporated with effect from April 15, 1982, it was contended
that Fibre Glass Pilkington Ltd. stood dissolved and there was no company by
that name on the date when the suit was filed. It was contended that the suit
should be dismissed with costs.
Thereafter, on July 19,
1983, the respondent made an application in the suit for amendment of the cause
title of the plaint, the register of the suit and other pleadings for
describing the plaintiff as F.G.P. Limited and for leave to reverify the
plaint. The said application was opposed.
On September 8, 1983, an order
was passed by the first court on the application for amendment as follows :
"There will be no
order on this application. This order, however, will not prejudice the right of
the petitioner to file a suit against the defendant on the same cause of action
as contained in the plaint.... Operation of this order is stayed for a
fortnight from date."
Subsequently, it was
directed that the application would again appear in the list on November 22,
1983, and that the said order dated September 8, 1983, should not be drawn up
in the meantime.
The said application was
further heard on June 12, 1984, and June 19, 1984. On June 19, 1984, an order
was passed by the first court allowing the amendments as prayed for without
prejudice, however, to the appellants' contention that the suit was not
maintainable.
Leave to file the present
appeal from the said order dated June 19, 1984, was given on July 3, 1984. The
respondent has waived service of the notice of appeal. By consent of the
parties, filing of the paper book has been dispensed with and the undertaking
to do so has been directed to stand discharged. By consent, the appeal was
treated as in the day's list and has been heard along with the application for
leave to file the appeal.
Learned counsel for the
appellant submitted that the amendments prayed for by the respondent
ought not to have been allowed inasmuch as the suit at its inception was not
maintainable having been instituted in the name of a non-existent person. It
was submitted that the plaint was incurably defective and the respondent was
not entitled to amend the same.
It was contended that the
Companies Act, 1956, provided that a change of the name of an existing company
was to be registered afresh and a new certificate of incorporation was to be issued
by the Registrar, from the date of which, the change of name would be
effective. It followed that from the date of the change of its name, a new
company under a new name had come into existence. The rights and liabilities of
the old company vested in the new company under the statute which further
provided that any proceeding which had been commenced or continued by the
company in its old name could be continued by the company in such name even
after the change of name. No right, however, was conferred on the company to
commence a new proceeding in its old name.
Learned counsel drew our
attention to the relevant provisions of the Companies Act, 1956, which may be
noted:
"Section
21. A company may, by special
resolution and with the approval of the Central Government signified in
writing, change its name..."
"Section
23(1). Where a company changes its name
in pursuance of section 21 or section 22, the Registrar shall enter the new
name on the register in the place of the former name and shall issue a fresh
certificate of incorporation with the necessary alterations embodied therein ; and the change of name shall be complete and
effective only on the issue of such a certificate.
(1A)
Where the change in the name of a Government company consists only in the
deletion of the word ' private ' therefrom, that Government company shall, not
later than three months from the date thereof, inform the Registrar of the
aforesaid change and thereupon the Registrar shall delete the word 'private'
before the word 'Limited' in the name of the company upon the register and
shall also make the necessary alteration in the certificate of incorporation
issued to the company.
(2) The Registrar shall also make the necessary
alteration in the memorandum of association of the company.
(3) The change of name shall not affect any
rights or obligations of the company, or render defective any legal proceedings
by or against it ; and any legal proceedings which
might have been continued or commenced by or against the company by its former
name may be continued by or against the company by its new name."
Learned counsel for the
respondent contended on the other hand that a change of the name of a company
did not bring into existence a new entity. The company remained the same and
continued under a new name. In the instant case, the company had been
misdescribed in the cause title of the plaint by its previous name and the
previous suit had not been filed in the name of a non-existent person. He
submitted that the amendments have been rightly allowed.
In support of the
respective contentions of the parties, several decisions were cited at the Bar
which are considered hereafter.
(a)D. Srinivasaiah v.
Vellore Varalakshmi Bank Ltd. [1954] 24 Comp Cas 55
(Mad). A decree-holder applied for amending the cause title of the pleadings in
the execution proceedings initiated by it by substituting its new name, viz.,
Varalakshmi Fund Vellore Ltd. The change in the name of the bank had been
effected by a special resolution and a certificate under the Indian Companies
Act, 1913, had been issued. A Division Bench of the Madras High Court
considered section 11(6) of the Indian Companies Act, 1913, which is more or
less similar to section 23 of the later statute of 1956, and held that the
object of the said section was to provide that notwithstanding the change in
the name, there would be no alteration in the legal status of the company as
its incorporation was not in any manner affected by the mere change of name. It
continued to possess the same rights and remained subject to the same
obligations as before the change.
(b)Kalipada
Sinha v. Mahalaxmi Bank Ltd., AIR 1966 Cal 585. In this case, Mahalaxmi
Bank Ltd., which was under a moratorium, changed its name to Mahalaxmi Loan and
Trading Co. Ltd. under section 21 of the Companies Act, 1956. The change was
registered and a certificate of incorporation of the new name was issued under
section 23 of the said Act. There after, in a pending execution case, the bank,
which was the decreeholder, applied for amendment of its petition for execution
by altering its name from the old to the new. The application was allowed. On a
revision, a Division Bench of this court affirmed the amendment and observed as
follows (at p. 586):
"Section 21 enables a
company to change its name by a given method, viz., by a special resolution and
with the approval of the Central Government signified in writing. It does not
provide for altering the entity but only the name. This is also made quite
clear by the provisions of section 23. Sub-section (1) of section 23 states
that where a company changes its name in pursuance of section 21 or section 22,
the Registrar shall enter the new name on the register in the place of the
former name, and shall issue a fresh certificate of incorporation with the
necessary alterations embodied therein and the change of name shall be complete
and effective only on the issue of such a certificate. It would be observed
that the emphasis is on the expression ' change of name'. Sub-section (3) lays
down that the change of name shall not affect any rights or obligations of the
company or render defective any legal proceedings by or against it; and any
legal proceedings which might have been continued or commenced by or against
the company by its former name may be continued by or against the company by
its new name."
(c)Jai
Jai Ram Manohar Lal v.
"In our view, there is
no rule that unless in an application for amendment of
the plaint, it is expressly averred that the error, omission or mis-description
is due to a bona fide mistake, the court has no power to grant leave to amend
the plaint. The power to grant amendment of the pleadings is intended to serve
the ends of justice and is not governed by any such narrow or technical
limitations.
Since the name in which the action was instituted was
merely a mis-description of the original plaintiff, no question of limitation
arises ; the plaint must be deemed on amendment to have been instituted in the
name of the real plaintiff on the date on which it was originally instituted.
"
The Supreme Court reiterated the principles
laid down earlier by it in Purushottam Umedbhai and Co. v. Manilal and Sons, AIR 1961 SC 325
and quoted the following observations from the
judgment in that case (at p. 330) :
"... a plaint filed in a
court in
(d)Malhati
Tea Syndicate Ltd. v. Revenue Officer, Jalpaiguri, [1973] 43 Comp Cas 337 (
The
company applied in the appeal for amendment of the pleadings in the original
preceedings as also pleadings in the appeal for substituting its new name.
After
considering and disposing of the appeal on merits, a Division Bench of this court
held that on the day the appeal was filed, there was no company in the register
in the name Malhati Tea Syndicate Ltd. which was no longer in existence within
the meaning of the Companies Act, 1956, and, as such, the appeal was
incompetent. There is no indication in the judgment as to how the application
for amendment was disposed of.
In
construing section 23 of the Companies Act, 1956, the Division Bench observed
as follows (at p. 340):
"The
first part of the sub-section protects the rights and obligations of the
company, already acquired before the change of its name and also protects legal
proceedings by or against it. The second part of the subsection authorises the
continuation of a pending legal proceeding which was commenced by the company
in its former name. The second part provides that legal proceedings commenced
by the company in its former name may be continued by the company after the
change of its name. Nothing in this sub-section authorised the company to
commence a legal proceeding in its former name at a time when it had acquired
its new name which has been put on the register of the joint stock
companies."
(e)Shanti
Kumar R, Canji v. Home Insurance Co. of
"Where an amendment
takes away from the defendant the defence of immunity from any liability by
reason of limitation, it is a "judgment" within clause 15. It is a
decision affecting the merits of the question between the parties by
determining the right or liability based on limitation. It is the final
decision as far as the trial court is concerned. "
(f)Patel Roadways P. Ltd. v. Bata Shoe Co. P. Ltd. [1979] 2 Cal HN
273. Here, the Bata Shoe Co. P. Ltd. instituted a suit in the
(g)Shree
Choudhary Cold Storage (1972) v. Ruby General Insurance Co. Ltd., AIR 1982
Thereafter, a suit was
filed describing the defendant in the cause title of the plaint as follows (at
p. 640) :
"Ruby General
Insurance Company Limited of which the management is vested in the Government
of India by the provisions of the General Insurance (Emergency Provisions) Act
17 of 1971..."
National Insurance Company
Ltd. applied under Order 7, rule 11 of the Code of Civil Procedure and
succeeded in obtaining an order for dismissal of the suit on the ground that
the same had been filed against a dissolved company and was thus incompetent.
On appeal, a Division Bench of this court held, inter alia, that as Ruby
General Insurance Company Ltd. had been dissolved and a new company, namely,
National Insurance Company Ltd., had come into existence, it was not a case of
mere misdescription. The order of dismissal of the suit was affirmed.
The question before us is
whether the suit in the instant case is by an entity which is not in existence
or by an entity in existence which has been misdescribed in the plaint.
On a consideration of the
relevant sections of the Companies Act, 1956, relating to change of name of
existing companies, noted earlier, it does not appear to us that a change of
the name of the company results in its dissolution and incorporation of a new
company under a new name. Section 21 of the statute permits a company to change
its name in the manner as prescribed and nothing else. Ex facie, the section
indicates that the company continues in a new name.
Section 23 of the Act
appears mainly to be a ministerial section and lays down the procedure for
recording of the change of name. A fresh certificate of incorporation is no
doubt issued, but the same is only for the purpose of recording the alteration
in the name. The effect of the issue of the new certificate as provided in
sub-section (1) of section 23 is to render the change of name complete and
effective and nothing more. The section does not provide or imply that on the
issue of the new certificate, the company as it existed will stand dissolved
and a new company will come into existence.
Sub-section (3) of section
23 provides that change of name will not affect any right or obligation of the
company and that legal proceedings in the old name
will not be rendered defective but will be continued by or against the company
in its new name. The expression used in the section is "the company"
and not "old company", or "new company", or "dissolved
company". There are further indications that in spite of a change of name,
the entity continues.
For the above reasons, we
hold that on a change of its name, a company does not stand dissolved nor any
new company comes into existence. It follows that after change of its name, if
any legal proceeding is commenced or instituted by a company in its old name,
it would be a case of mere misdescription and not a case of initiation of a
proceeding by a person not in existence.
A similar question came up
before a Division Bench of this court in Economic Investment Corporation Ltd. v. CIT [1970] 75 ITR
233 (Cal). In that case, a company changed its
name under section 11(5) of the Indian Companies Act, 1913. The change was duly
intimated to the Income-tax Officer concerned. In spite of such intimation, the
Income-tax Officer assessed the company in its old name and initiated
certificate proceedings. During the pendency of the proceedings, the Income-tax
Officer requested the certificate officer to substitute the old name of the
company by its new name. The company appeared and objected. The certificate
originally issued against the company was cancelled and a fresh notice under
section 46(5A) of the Indian Income-tax Act, 1922, was issued to the company in
its new name. The said notice was challenged under article 226 of the
Constitution where it was contended that proceedings against the company could not
be continued without fresh assessment being made in the new name of the
company. The contention was negatived both by the first court and in appeal by
a Division Bench which construed section 23(3) of the Companies Act, 1956, and
observed as follows (at p. 235)!
"It is clear from
sub-section (3) that by the change of name, the constitution of the old company
is not changed. The only thing that is changed is its name and all the rights
and obligations under the law of the old company pass to the new company. It is
not similar to the reconsti-tution of a partnership, which, in law, means the
creation of a new legal entity altogether."
In Malhati Tea Syndicate
Ltd.'s case [1973] 43 Comp Cas 337 (Cal) it was held that an appeal filed in
the old name of the company after a change of its name was commencement of a
proceeding and was, therefore, incompetent. An earlier decision of the Supreme
Court in Garikapati Veerrayya v. N. Suhbiah Choudhry, AIR 1957 SC 540, was not
cited or considered in that case. The majority judgment of the Supreme Court
laid down the following proposition (headnote).
"The legal pursuit of
a remedy, suit, appeal and second appeal are really but steps in a series of
proceedings all connected by an intrinsic unity and are to be regarded as one
legal proceeding."
The decision of this court
in Malhati Tea Syndicate Ltd.'s case [1973] 43 Comp Cas
337, is, therefore, distinguishable. In any event, Malhati Tea Syndicate Ltd.'s
case is not an authority for the proposition that commencement of proceeding by
a company in its old name after a change would be a proceeding by a person not
in existence.
The facts in Shree
Choudhari Cold Storage's case [1983] 54 Comp Cas 639
(Cal) are entirely different from the facts of the case before us. There, a
company had been dissolved by operation of a statute and a new company had
taken over the assets and management of the dissolved company. The suit having
been filed against the dissolved company was held to be incompetent. We agree
with the said decision with respect.
The decision of the Supreme
Court in Purshottam Umedbhai & Co.'s case, AIR 1961 SC 325, though not
directly on the point, supports the view that a suit filed in the wrong name
would be a case of misdescription and not a suit by a non-existent person. This
is also the view of the two other Division Benches of this court in the
decisions noted earlier.
For the above reasons, the
appeal fails and is dismissed with costs.
The operation of the
judgment is stayed for a fortnight from date but there will be an interim order
directing stay of further proceedings in the suit during the said period.
Suhas Chandra Sen J.—I
agree.
[1973]
43 Comp. Cas. 337 (
HIGH COURT of
v.
Revenue Officer, Jalpaiguri,
P.B.
Mukherji C.J. and B.C. Mitra J.
February 21, 1972
P.N. Mitter, Pritish Chandra Roy and Uma Prasad Mukherjee for the appellant.
Manindra
Chandra Chakrabarty for the respondent.
B.C. Mitra J.—The arguments in support of the
appeal and the cross-objection concluded on February 16, 1972. Immediately
after the conclusion of the arguments, an application was moved on behalf of
the appellant for an order that the cause title of the writ petition (Civil
Revision No. 2549 (W) of 1967) and the cause title of the memorandum of appeal
being F.M.A.T. No. 2684 of 1970 and the body of the writ petition as well as
the body of memorandum of appeal, be amended and that the name of the
petitioner in the application be substituted for the name of the original
petitioner, with liberty to continue or proceed or pursue the writ petition and
the appeal preferred from the judgment dated July 3, 1970, and that the records
and proceedings of the writ petition and the appeal be amended accordingly.
There are also certain other prayers for consequential orders. The petition in
support of this application is by Malhati Tea and Industries Ltd. (formerly
known as Malihati Tea Syndicate Ltd.). In this petition, it is stated that on
January 9, 1968, Malhati Tea Syndicate Ltd. made an application before this
court for alteration of the memorandum of association of the said company, and
that a special resolution of the company was passed in accordance with section
189 of the Companies Act, 1956, at an extraordinary general meeting of the said
company, held on September 30, 1967. By the special resolution, three new
sub-clauses were added to clause 3 of the memorandum of association of the said
company. The substance of the alteration is that the company could engage in
the business of the electrical and mechanical engineers, manufacturers,
producers, designers, importers, etc., of pallet, platform trucks, switch-gears
and power alternators, isolators and other electrical equipments. The second
group of new objects is to establish, maintain, develop, laboratories,
test-houses for conducting researches. The third group authorised the company
to purchase or acquire and protect, prolong and renew in India, patent rights,
trade marks, licences, designs, etc., which may appear likely to be
advantageous or useful to the company. Another special resolution was passed
for changing the name of the company, subject to the approval of the Central
Government, from the Malhati Tea Syndicate Ltd., to Malhati Tea and Industries
Ltd.
It is stated in the
petition that an order was made by Ghosh J. on February 12, 1968, confirming
the alteration of memorandum of association of the said company. This order
also provided that subject to the approval of the Central Government under
section 21 of the Companies Act, 1956, the name of the
company should be changed from Malhati Tea Syndicate Ltd. to Malhati Tea and
Industries Ltd. It appears from annexure "B" to the petition that the
Registrar of Joint Stock Companies issued a certificate on May 3, 1968, that
the name of the company be changed from Malhati Tea Syndicate Ltd. to Malhati
Tea and Industries Ltd. It is stated in this certificate that the approval of
the Central Government has been accorded to this change. It is therefore clear
that as from May 3, 1968, Malhati Tea Syndicate Ltd. ceased to be on the
register of the joint stock companies and Malhati Tea and Industries Ltd. came
into existence, and was placed on the register of the joint stock companies
from that date. The trial court delivered the judgment under appeal on July 3,
1970, and therefore long before that date, the company with its new name of
Malhati Tea and Industries Ltd., mentioned above, came into existence. The
memorandum of appeal was filed on February 10, 1971, but this memorandum of
appeal was not filed by the company which was then on the register of the joint
stock companies, namely, Malhati Tea and Industries Ltd., but had been
purported to be filed by Malhati Tea Syndicate Ltd., a name which had been removed
from the register of joint stock companies as early as May 3, 1968.
There can be no doubt that
on the day on which the appeal was filed, there was no company in existence by
the name of Malhati Tea Syndicate Ltd., and the appeal purported to have been filed
by a company which was not on the register of joint stock companies, and had
therefore no existence in accordance with the provisions of the Companies Act,
1956, cannot but be held to be incompetent. Learned advocate for the applicant
contended that the appeal was competent by reason of the provisions in
sub-section (3) of section 23 of the Companies Act, 1956. That sub-section runs
as follows :
"The change of name shall not affect any rights
or obligations of the company, or render defective any legal proceedings by or
against it; and any legal proceedings which might have been continued or
commenced by or against the company by its former name may be continued by or
against the company by its new name".
We are unable to accept this
contention on behalf of the applicant. The first part of the sub-section
protects the rights and obligations of the company, already acquired before the
change of its name and also protects legal proceedings by or against it. The
second part of the sub-section authorises the continuation of a pending legal
proceeding which was commenced by the company in its former name. The second
part provides that legal proceedings commenced by the company in its former
name may be continued by the company after the change of its name. Nothing in
this sub-section authorised the company to commence a legal proceeding in its
former name at a time when it had acquired its new name which has been put on
the register of the joint stock companies. In this case, the memorandum of
appeal had been filed by the company in its former name, namely, Malhati Tea
Syndicate Ltd., which was no longer on the register of the joint stock
companies. We are, therefore, of the view that the appeal itself is
incompetent, as it has been purported to be filed in a name which is no longer
there on the register of the joint stock companies.
In support of his
contention, learned advocate for the applicant relied upon a decision of the
Madras High Court in D. Srinivasaiah v. Vellore Varalakshmi Bank Ltd. In
that case the question was whether execution proceedings could be conducted by
a company in its new name in a case where, the decree was obtained by the
company in its former name. This decision is of no assistance to the appellant
in this case, inasmuch as, the commencement of the
proceeding in this case has been made in a name which was not on the register
of the joint stock companies.
In our view, the company
could not commence the appeal in its former name at a time when such name has
ceased to be on the register of the joint stock companies, and a new name had
been put on the register. We do not see any reason or justification for not
filing the memorandum of appeal in the name which was put on the register of
the joint stock companies long before the appeal was filed. This appeal by the
company in a name which has been removed from the register of the joint stock
companies at the time when the appeal was filed is, in our view, incompetent.
Learned advocate for the
respondent contended that although the appeal is incompetent, the
cross-objection should be treated to be competent and dealt with by this court
accordingly. We are unable to accept this contention either. This is not a case
of dismissal of appeal for default, nor a case of withdrawal of the appeal. The
appeal itself being incompetent the cross-objection arising out of the same
must also fail.
For the reasons mentioned
above, the appeal and the cross-objection fail and both are dismissed. There
will be no order as to costs.
P.B. Mukherji C.J.—I agree.
[1954]
24 Comp Cas 55 (MAD.)
High
Court of
v.
Vellore Varalakshmi Bank Ltd.
Satyanarayana Rao and Rajagopalan, JJ.
A.A.O. No. 89 of 1953
September 23, 1953
N.R. Raghavachariar for the appellant.
B.C. Seshachala Aiyar and J Nagarajan for the respondent.
judgment
Satyanarayana Rao J. —This is an appeal against the order of the learned Subordinate Judge in E.A. No. 201 of 1952 in E.P. No. 213 of 1951. The application was by the degree holder in O.S. No. 27 of 1950, which was the Vellore Varalakshmi Bank Ltd. The object of the application was for leave to amend the long and short cause title in E.P. No. 213 of 1951 by substituting for the description of the degree-holder, the Vellore Varalakshmi Bank Ltd., the new name, "the Varalakshmi Fund Vellore Ltd." In pursuance of a special resolution of the banking company, the name of the company was altered, and under Section 11(4) and (5) of the Indian Companies Act, 1913, the company obtained a certificate in respect of the change of the name. The application was opposed by the judgment debtor on the sole ground that the object of the petitioner was to substitute one legal person for another, and that such a change could be effected only under Order XXI, rule 16, of the Civil Procedure Code. The substance of the contention therefore was that by the alteration of the name of the company, in pursuance of the special resolution, which was sanctioned by the Registrar of Joint Stock Companies a different legal persona or a different company came into existence, totally different from the old company, and that therefore the application for amendment should not be granted. In view of the language of Section 11(6) of the Indian Companies Act, the trial Judge had no difficulty in overruling the objection and in granting the permission sought for.
In this appeal it was argued that under Section 11(6) of the Companies Act while it was permissible to continue legal proceedings started against the company by its former name, in its new name, it was not permissible for the company to continue proceedings started by it in its former name in its new name, as there is no specific provision for it in the section. Section 11(6) of the Companies Act is as follows:
"The change of name shall not affect any rights or obligations of the company, or render defective any legal proceedings by or against the company; and any legal proceedings that might have been continued or commenced against it by its former name may be continued or commenced against it by its new name."
The object of this sub-section undoubtedly is to provide that notwithstanding the change in the name, there is no alteration in the legal status of the company, as its incorporation is not in any manner affected by the mere change in name. It continues to possess the same rights and will be subject to the same obligations as before the change of the name, which implies therefore that if it has power to execute a decree in its old name, it has got a right even after the change of the name to execute the decree in the new name. Even if the proceedings were initiated by or against it in its former name, the fact that the alteration in the name was not brought to the notice of the court would not in any manner render those proceedings defective or irregular. The third part of the sub-section is a permissive one, and is intended to provide for the continuance of the proceedings initiated in its former name against the company, by its new name. It does not imply that so far as proceedings initiated by the company in its former name are concerned they could not be continued in the new name. We are unable to read any such prohibition in the latter part of the subjection, as was contended for on behalf of the appellant. Notwithstanding the alteration in the name the company continues its legal status as before, and the mere change in the name would not, in any manner, affect its constitution. The view taken, therefore, by the lower court is, in our opinion, correct.
Learned advocate for the appellant also attempted to argue that when he made an endeavour in the trial court to establish that there was a change in the constitution of the company, and that it was altogether a different legal entity from the former company, he was not given an opportunity by the lower court. For this we find no justification either in the order of the lower court or in the grounds of appeal filed in this court. There is not even an affidavit by the appellant to substantiate such a plea. The contention must therefore be overruled.
The decision of the lower court is confirmed and the appeal is dismissed with costs.
[1955] 25 COMP CAS 143 (ALL.)
HIGH COURT OF
v.
AGARWALA AND SAHAI, JJ.
EXECUTION
FIRST APPEAL NO. 329 OF 1954.
NOVEMBER 16, 1954
V.K.S. Chaudhary,
for the Appellant.
Agarwala J.—This
is a judgment-debtor's appeal arising out of execution proceedings. A suit was
filed by Manindra Banking Corporation Ltd., and it was decreed in that name.
During the pendency of the suit, however, Manindra Banking Corporation Ltd.
changed its name to
After the decree, the company wanted to
file an application for execution of the decree by stating its name as
"Manindra Banking Corporation Ltd., now known as
Two points have been raised before us. The first point was the same as was raised in the court below, namely, that the new name not having been entered in the decree, execution could not be carried out in the new name. This objection has no substance.
Sub-section (6) of section 11 of the Companies Act states:
"(6)The change of name shall not affect any rights or obligations of the company, or render defective any legal proceedings by or against the company, and any legal proceedings that might have been continued or commenced against it by its former name may be continued or commenced against it by its new name."
The change of name does not, therefore, affect the rights of the company. The decree in its former name can be executed in the new name which has already been incorporated.
The second point raised was that the company did not obtain the approval of the Central Government to change its name as provided by sub-section (4) of section 11 of the Companies Act. This is a question of fact and it was not raised in the court below as there is no mention of it in the judgment. Learned counsel is unable to say whether in fact the approval of the Central Government was or was not obtained, but in the circumstances we cannot allow this objection to be raised at this stage.
There is no force in this appeal and we dismiss it under Order XLI, rule 11, of the Civil Procedure Code.
[1970] 40 COMP. CAS. 1 (
HIGH COURT OF
Economic Investment Corporation Ltd.
v.
Commissioner of Income-Tax,
D. BASU AND A.K. BASU, JJ.
JULY 10, 1969
Dr. D. Pal, Sunil Mukherjee pnd S. Bhattacharyya for the
appellant.
N. L. Pal and 5. C. Bose for the respondent.
D.
Basu, J.—The question involved in this appeal is a short one of law
on which much light is not available from reported decisions. The Meghlibundh
Tea Company was liable for income-tax for a certain period. It first sold its
tea garden assets to a third party and thereafter on September 23, 1947, it changed its name to the Economic Investment
Corporation Ltd. under section 11(5) of the Indian Companies Act, 1913. Though
the Economic Investment Corporation, that is to say, the appellant before us,
duly intimated the Income-tax Officer of the aforesaid change in the name of
the company, the Income-tax Officer (respondent No. 3) made his assessment for
the relevant period (1946-47) on the Meghlibundh Tea Company. Thereafter, a
certificate proceeding under the Public Demands Kecovery Act was started on the
allegation that a sum of Rs. 25,000 and odd was due on account of income-tax
from the Meghlibundh Tea Company. At a later stage of the certificate proceedings,
the Income-tax Officer requested the Certificate Officer that the name of the
Economic Investment Corporation be substituted in place of the Meghlibundh Tea
Company. Notice having been served under section 7 of the Public Demands
Recovery Act upon the Corporation, that is, the appellant, objection was raised
thereto and the certificate against the appellant was cancelled (vide page 46
of the paper book). Thereafter, a notice under section 46(5A) of the Income-tax
Act, 1922, was issued for the said demand upon the manager of the Allahabad
Bank Ltd., vide page 50 of the paper book, to the following effect:
"A
sum of Rs. 25,91.1.81is due from Messrs. Economic Investment Corporation Ltd.
on account of income-tax........ I am to request you, under section 46(5A) of
the Income-tax Act, 1 922, to pay to me forthwith any amount due from you to,
or held by you for, or on account of the said company of 12, Mysore Road,
Calcutta-26, up to the amount of arrears shown above........."
Towards
the end of this notice issued by the Income-tax Officer, it is stated:
"Further
if you fail to make payment in pursuance of this notice to me as Income-tax
Officer, further proceedings may be taken by and before the Collector on the
footing that this notice has the same effect as an attachment by the Collector
in exercise of his powers under the proviso to subsection (2) of section
46."
It
is upon the service of the above notice upon the bank that the appellant
brought his application under article 226 of the Constitution on the 12th of
June, 1959 (pages 8 to 60 of the paper book), and, on contest, the rule was
discharged by the judgment of Banerjee J., (at pages 86-97).
Before
Banerjee J. two points were taken at the hearing : (1)
That the petitioner as a company could not be proceeded against as the
successor of the Meghlibundh Tea Company without assessment proceedings having
been taken against the petitioner-company and (2) that the demand under section
46(5A) could not be made from the petitioner-company in view of the bar under section
46(7) of the Act. Before us, on appeal, it is only the first ground which has
been pressed by Dr. Pal, on behalf of the appellant.
At
the outset, it must be pointed out that by issuing a notice under section
46(5A), the Income-tax Officer is not seeking to proceed against the
petitioner-company as a "successor" of the Meghlibundh Tea Company as
has been assumed but is seeking to realise the income-tax demand from the bank
who holds money on behalf of the Meghlibundh Tea Company, whose name has since been
changed into that of the appellant. Section 46(5A) runs as follows:
"The
Income-Tax Officer may at any time or from time to time, by notice in writing
(a copy of which shall be forwarded to the assessee at his last address known
to the Income-tax Officer) require any person from whom money is due or may
become due to the assessee or any person who holds or may subsequently hold
money for or on account of the assessee to pay to the Income-tax Officer"
The
failure to comply with this notice is given in the 5th paragraph of that
sub-section as follows :
"If
the person to whom a notice under this sub-section is sent fails to make
payment in pursuance thereof to the Income-tax Officer, further proceedings may
be taken by and before the Collector on the footing that the Income-tax
Officer's notice has the same effect as an attachment by the Collector in
exercise of his powers under the proviso to sub-section (2) of section
46."
When
read with the said proviso, the meaning of this would be that if the person upon
whom the notice under section 46(5A) has been served fails to comply with the
notice, the moneys specified in that notice may be recovered from such person
either by resorting to the proceedings under the Revenue Recovery Act, 1890, or
as an attachment in a civil proceeding under the Code of Civil Procedure. The
only question, therefore, which arises in this context is does the Allahabad
Bank hold any money for or on account of the Meghlibundh Tea Company, who was
the assessee for the demand in question ? For an answer to that question, we
must turn to the provision in section 11(5) under which the change in name
stated at the outset took place. In the corresponding provisions of the
Companies Act, 1956, it is provided in section 21, that a company may, by
special resolution and with the approval of the Central Government signified in
writing, change its name. In section 23(1), it is stated that:
"Where
a company changes its name in pursuance of section 21, or 22, the Registrar
shall enter the new name on the register in the place of the former name, and
shall issue a fresh certificate of incorporation with the necessary alterations
embodied therein"
Sub-section
(3) of section 23 thereafter says:
"The
change of name shall not affect any rights or obligations of the company, or
render defective any legal proceedings by or against it; and any legal
proceedings which might have been continued or commenced by or against the
company by its former name may be continued by or against the company by its
new name."
It
is clear from sub-section (3) that by the change of name, the constitution of
the old company is not changed. The only thing that is changed is its name and
all the rights and obligations under the law of the old company pass to the new
company. It is not similar to the reconstitution of a partnership, which, in
law, means the creation of a new legal entity altogether. If, therefore, under
sub-section (3), all the rights and obligations of the company pass on to the
new one, it follows that the assets of the old company which were being held by
the Allahabad Bank Ltd. are still being held on their behalf. Of course, in the
notice under section 46(5A), it is curiously stated that money is due from the new
company, the Economic Investment Corporation ; even then that does not make any
difference in law because the new company holds the assets and all the property
belonging to the old company under a new label and not only the rights but also
the obligations, including the obligation to pay income-tax belonging to the
old company, have passed on to the new company under the provisions of section
11(3) of the Companies Act.
It
was of course pointed out on behalf of the respondents that in the return of
income submitted by the old company (vide page 64 of the paper book), the name
of the assessee was given as "Meghlibundh Tea Company Ltd. (now Economic
Investment Corporation Ltd.)" and, therefore, the Economic Investment
Corporation was already there in the records of the Income-tax Officer. To
this, however, it has been contended on behalf of the appellant that the return
was submitted not by the appellant but by the old company. Here again is
another quibble, which has no substance in law, because the new company is
nothing but the old company with a new label, as has already been stated ; there has been no change in position and no change
in legal status. It was further pointed out that subsequent to the assessment,
on 24th September, 1949, it is the appellant who asked for time to pay the
aforesaid tax and on different dates in 1949-50, the appellant-company paid up
part of the assessed money to the extent of Rs. 22,000. Here again, Dr. Pal
submits that, so far as the substantive liability to pay is concerned, the
appellant does not deny it and cannot deny, in view of the provisions under
section 11(3) of the Companies Act. The grievance of the petitioner is that the
Income-tax Officer, even though informed of the change of name, did not
substitute the name of the appellant-company in place of the old one in his
assessment records. This confusion has taken place in view of the reference to
the provisions in section 26 of the Inccme-tax Act, 1922, in the proceedings
leading up to the appeal. That section has no application to the instant case.
So far as sub-section (1) of section 26 is concerned, it deals only with the
situation arising from a reconstitution of a partnership firm, which is not the
case here. Sub-section (2), on the other hand, speaks of legal succession by
one person to another in the same capacity, which is also not the case here,
because as has been stated at the beginning, there has been no legal
succession, because the juristic entity is the same, namely, the old company
under a new name. Sub-section (2) of section 26, therefore, is not attracted
either. Upon this, however, Dr. Pal based his argument that there is no
provision in law as to what would happen under the law of income-tax when there
is a change of name of a company under the provisions of section, 11(3) of the
Companies Act, 1913. The answer to that is simple, namely, that no such
question does arise in law just as it arises in the case of a legal succession
under sub-section (2) and in the case of a reconstitution of a partnership firm
under sub-section (1) of section 26. In both these cases, there is a
substitution or succession of one legal person by another legal person. To our
mind, there has been no substitution or succession of one legal person by
another legal person in the instant case. There has, to reiterate again, been
only a change in name. It is only for that reason that no special provision has
been considered necessary to meet that situation like the instant one in the
Income-tax Act. From whatever angle of vision the problem is viewed at, we have
no doubt that there has been no irregularity or illegality in demanding the
money from the Allahabad Bank Ltd., which undoubtedly holds the assets of the
Meghlibundh Tea Company, which assets are now in the hands of the appellant-company.
Before concluding, however, we. should point out that this court
does not view with any amount of indulgence the indifference and carelessness
which has been shown by the Income-tax Officer who made the assessment on
August 29, 1949, without caring for the letter which was addressed by the
appellant-company to the Income-tax Officer on February 4, 1948 (vide page 85
of the paper book). This very Income-tax Officer, in the certificate
proceedings, applied for substitution of the name of the certificate debtor
(vide page 34 of the paper book). It is not clear to us why he rose from his
slumber so late. The higher authorities of the income-tax department, who are
very keen to stop evasions of payment of income-tax, should be keener to manage
their own house and put it in order. It is these drain-pipes through which
leakage occurs and, we believe, proper enquiry would be made in this matter
when a copy of this judgment is forwarded by the Registrar of this court to the
respondent No. 1.
The
appeal is accordingly dismissed but, in the circumstances of the case, we would
make no order as to costs.
Appeal dismissed.
[1966] 36 COMP.CAS. 53 (
V.
A.
A. N. RAY, J.
AWARD
CASE NO. 209 OF 1964
SEPTEMBER
1, 1965
JUDGMENT
This is an
application for an order that the notice dated April 2, 1965, issued under
section 14(2) of the Arbitration Act, 1940, be set aside and also for an order that
the service of the notice under section 14(2) of the Arbitration Act be
declared to be bad and ineffective. The other reliefs asked for are that the
arbitration agreement dated February 1, 1961, be declared to be void and of no
effect and that it be declared that the award purported to be dated October 1,
1962, was not made or signed on October 1, 1962, and did not exist on October
1, 1962, and that the award be set aside.
The award is
made by the Bengal Chamber of Commerce and Industry and bears the date October
1, 1962. The award is as follows:
"That
Lachminarain Kanoria & Co. shall pay to victory Jute Mills in full
settlement of their claim herein, the sum of Rs.32,875 (Rupees thirty-two
thousand eight hundred and seventy-five) together with interest thereon at the
rate of 6 per cent. per annum from 1st August, 1961,
to the date of this award.
That
Lachminarain Kanoria & Co. shall pay to Victory Jute Mills the costs of
this arbitration which we fix at Rs.304.50 nP. and
which are to be recovered by the Tribunal from the deposit made by the
latter."
Lachminarain
Kanoria & Co. is the petitioner and Victory Jute Mills, the respondent, is
alleged to be a sole proprietary concern of Tolaram India Ltd. carrying on
business at No.68,
There was a
contract as will appear in annexure "A" to the petition. Under that
contract Victory Jute Mills agreed to sell and deliver to the petitioner
certain quantities of hessian cloth. There was an arbitration clause.
Counsel for
the petitioner impeached the award on two grounds. First, that Victory Jute
Mills is not a legal entity and therefore there cannot be a contract between
Victory Jute Mills and the petitioner and consequently there cannot be any
award pursuant to such agreement. Secondly, it is contended that the award is
perverse inasmuch as the arbitrator did not have any evidence as to delivery
orders and delivery orders were not produced.
The first
contention is amplified to mean that Victory Jute Mills not being a legal
entity any contract made in the name of Victory Jute Mills is void and
therefore the award pursuant to such void contract is invalid. It is said on
behalf of the petitioner that under the memorandum of association of Tolaram
(India) Ltd., and in particular clause 99(17) the directors shall have power to
enter into all such negotiations and contracts and rescind and vary all such
contracts and execute and do all such acts, deeds and things in the name and on
behalf of the company as they may consider expedient for or in relation to any
of the matters aforesaid or otherwise for the purpose of the company.
Extracting this clause from the memorandum counsel on behalf of the petitioner
contends that the company can enter into contract only in the name of the
company and in no other name. Reference is made to sections 13 and 14 of the
companies Act in support of the contention that the memorandum of every company
shall state the name of the company and a company can carry on business only in
accordance with the provisions of the memorandum and as long as the memorandum
is not changed the company must carry on business in its registered name.
Counsel for the petitioner relied on the decision in King v.
The Inhabitants of Haughley (1 Neville and Manning 525) in support of the contention
that a company cannot enter into a contract in any name other than its
registered name. In that case a special authority was delegated by a local Act
to the directors and guardians of the poor of a district incorporated for the
government of the poor. The name of the corporation was "Guardians of the
poor within the hundred of
The question
in the present case is whether a company can be a proprietor of a business and
can enter into a contract in that business name. The contract in the present
case was made between Lachminarain Kanoria & Co. on the one hand and
victory jute mills on the other. The reference to arbitration was made by
Tolaram (
In the case of
Pearks, Gunston and Tee Ltd. v. Thompson Talmey & Co. ([1901] 18 R.P.C.
185), a person named A. Talmey, having carried on business as Talmey & Co.,
assigned the premises and goodwill to "G", who assigned them to a
limited company of whose registered name "Talmey" formed no part. The
company continued to carry on the business as Talmey & Co. although their
own name was placed over the door of the premises. The defendants having
commenced to trade as Thomson, Talmey & Co., the company commenced
proceedings against them to restrain them from using the name Talmey without
clearly distinguishing their business from the plaintiff's business and for
other reliefs. The defendant's allegation that the plaintiff having used the
name Talmey & Co., without their registered name on their bills and
customers' weekly books precluded from suing, contravened section 41 of the
Companies Act, 1862, constituted no defence. An injunction was granted.
In the case of
Employers' Liability Assurance Corporation v. Sedgwick, Collins & Co. Ltd.
([1927] A.C. 95), there is an observation of Lord Blanesburgh at page 119 that
a limited company may acquire a right to protection of a trade name used
separately from its corporate name although such user is in contravention of
section 63, which requires every such company to paint or affix its name on the
outside of every office or place. In Palmer's Company Precedents, 17th edition,
Part I, it is stated at page 262 that where a company purchases a goodwill of
an existing business, it has, in the absence of agreement to the contrary, a
right to carry on business under the trade name previously used in connection
with such business; for the goodwill includes the right to use the name. A
company carrying on business under a name other than its registered name has to
register under the Registration of Business Names Act, 1916, in
In the light
of the decisions and principles stated above the rival contentions appear to
resolve into the question as to whether a company is prohibited from carrying
on any business in a name other than its registered name though the company is
itself the proprietor of such business. In law there is no statutory bar. In
Counsel for
the respondent contended that it was not open to the petitioner to raise the
question that the company could not own and carry on the business of Victory
Jute Mills. Reliance was placed on the decision of Arbn. Jupiter
General Insurance Co. v. Corporation of
The other
contention on behalf of the petitioner is in my opinion unacceptable. Parties
adduced evidence. The assessment of evidence is a matter within the province of
arbitrators. Whether the arbitrators preferred one form of evidence to the
other is a matter which cannot be agitated by the petitioner in an application
for determining the validity of an agreement or an award. Further, counsel for
the respondent contended that the grounds urged by the petitioner that delivery
order was not produced were gone into by the arbitrators and parties led
evidence as to why delivery orders were or were not produced. In my opinion
these questions do not fall to be considered in an application for setting
aside an award. For these reasons I am unable to accept either of the two
contentions advanced on behalf of the petitioner. This application is,
therefore, dismissed with costs I hold the arbitration agreement and the award
to be valid and binding.
[1969]
39 Comp. Cas. 193 (All)
HIGH COURT OF
(Full bench)
Rajendra Prasad Oil Mills,
v.
Smt. Chunni Devi
B. D. GUPTA, S. N. KATJU AND SATISH CHANDRA JJ.
April 4, 1968
J. Swaroop, K.B. Asthana, and V. Swaroop for the
Appellants.
S.N. Verma, N.P. Asthana, S.N. Kakker, Sridhar and R.N.
Bhalla for the Respondents.
B.D.
Gupta J.—The following question has been referred for being answered:
"Whether
a limited company falls within the meaning of the expression 'person' as used
in rule 10 of Order 30 of the Code of Civil Procedure?"
The
circumstances in which this question arose have been set forward in the order
of reference dated the 17th August, 1967, passed by a Division Bench of which I
was a member, but may again be briefly summarised as follows:
Murli
Dhar Varma, the predecessor-in-interest of the respondents to this appeal,
instituted the suit giving rise to this appeal for recovery of money as damages
and- interest. The sole defendant to the suit, as originally filed, was
described as follows :
"Rajendra
Prasad Oil Mills,
As
a result of an application for amendment, which was allowed, the description of
the defendant was modified as follows:
"Rajendra
Prasad Oil Mills,
(1) Bishan
Dayal, son of L. Kishori Lal,
(2) Rameshwar
Prasad, son of Lala Kishori Lal, and
(3) Sunder
Lal, son of L. Ram Bilas......directors of the said mills".
Only
one written statement was filed, which, according to the heading, was the
written statement of Rameshw4ar Prasad. At the very beginning thereof stands
recorded what has been described therein as the preliminary objection that
"Rajendra Prasad Oil Mills, Kanpur, belonged to N.K. Industries Ltd.,
Kanpur, a limited company registered under the Indian Companies Act, of which
Lala Rameshwar Prasad was the managing director, and the frame of the suit was
bad as it was liable to be dismissed on this ground alone. This objection gave
rise to the first issue which was as follows :
"Has
the suit been badly framed?"
The
learned civil judge took the view that the suit was not badly framed and, after
recording his findings on the other issues, which related to the merits of the
controversy between the parties, decreed the suit for Rs. 23,743-1-0
"against the defendant" together with proportionate costs and
pendente lite and future interest.
Rajendra
Prasad Oil Mills and Rameshwar Prasad thereupon filed this first appeal praying
that the decree of the court below be set aside and the plaintiff's suit be
dismissed. When the appeal came up for hearing the first contention raised by
Mr. Jagdish Swaroop, for the appellants, was that no suit could be filed
against “Rajendra Prasad Oil Mills" by reason of the fact that “Rajendra
Prasad Oil Mills" was not a legal entity. Keeping in view the arguments
raised in support of the above contention, the Bench framed the question which
is before us.
Rule
10 of Order 30, Civil Procedure Code, runs as follows:
"Any
person carrying on business in a name or style other than his own name may be
sued in such name or style as if it were a firm name, and, so far as the nature
of the case will permit, all rules under this order shall apply".
There
has been no controversy that Rajendra Prasad Oil Mills was an undertaking owned
by Messrs. N.K. Industries, a limited company functioning under the Indian Companies
Act. The learned civil judge appears to have relied on the provision quoted
above in support of his view that since Rajendra Prasad Oil Mills had entered
into the disputed contract with Murli Dhar Varma and all dealings relating to
the said contract had taken place between Murli Dhar Varma and Rajendra Prasad
Oil Mills, there was no legal bar against the plaintiff instituting the suit
against Rajendra Prasad Oil Mills.
The
contention on behalf of the appellants, however, is that, on a correct interpretation
of the provisions contained in rule 10 of Order 30, Civil Procedure Code, the
case of a limited company must be excluded from its purview and that,
notwithstanding that the fact that such a company may be carrying on business
in a name or style other than its own, recourse cannot be had to the provisions
contained in the aforesaid rule with the result that, in view of the fact that
Rajendra Prasad Oil Mills was arrayed as the sole defendant, the suit must be
dismissed as not maintainable. There is no controversy that Rajendra Prasad Oil
Mills is not a legal entity and that, unless the provisions contained in rule
10 of Order 30, Civil Procedure Code, may be availed of as applicable, the suit
which has given rise to this appeal was not maintainable. The contention on
behalf of the appellants is that, though a limited company falls within the
definition of the expression "person" as embodied in the General
Clauses Act, it cannot be held to fall within the purview of the expression
“person" in rule 10 of Order 30 of the Code of Civil Procedure by reason
of the limitation contained in the definition itself, viz., " unless there
is anything repugnant in the subject or context".
Reference
has been made to the Companies Act and it has been urged that the provisions
contained in section 147 of that Act are repugnant to the notion of a limited
company carrying on business in a name or style other than its own name.
Section 147 of the Companies Act need not be reproduced. Suffice it to say that
the provisions contained therein provide for the mode in which the name of a
company along with the address of its registered office is required to be
published in all matters connected with the business carried on by that company
either at the registered office or elsewhere. The provisions also declare that
failure to comply with the above requirements, as incorporated in clause (1),
would constitute an offence and also lay down the penalty for the commission of
such offences. It would, therefore, appear that the provisions contained in the
Companies Act do not permit a limited company to carry on business in a name or
style other than its own name. The said Act further declares that if a company
does so, it would constitute an offence punishable with penalty laid down by
the Act itself.
The
relevant part of section 3 of the General Clauses Act (X of 1897) runs as
follows:
"In
this Act and in all Central Acts and Regulations made after the commencement of
this Act, unless there is anything repugnant in the subject or context,—
(42)
'person' shall include any company or association or body of individuals,
whether incorporated or not.”
Keeping
in view the above definition, the question which, to my mind, is pertinent is
as to whether the Code of Civil Procedure contains anything in the subject or
context which is repugnant to the notion of a limited company falling within
the purview of the expression "person " in
rule 10 of Order 30 of the Code of Civil Procedure. No such thing has been
pointed out so far as the Code of Civil Procedure is concerned. Even if, as a
result of the provisions contained in section 147 of the Companies Act, such a
notion were held to be repugnant to the provisions contained in that Act, I do
not consider it as having any bearing on the question about the meaning to be
assigned to the expression “person" occurring in the Code of Civil
Procedure.
Learned
counsel for the appellants relied upon the decision of the Supreme Court in the
case of Dulichand Laxminarayan v. Commissioner of Income-tax1 in
which it was held that the definition of the word “person" in the General
Clauses Act could not be imported in construing that expression in section 4 of
the Indian Partnership Act because doing so would be totally repugnant to the
subject of partnership law. This decision recognises the principle that, in
interpreting the use of the expression “person" in an Act, the definition
of that expression in the General Clauses Act would not apply in case it was
repugnant to the content of that Act. It may, therefore, follow that, in
construing the expression “person" wherever used in the provisions
contained in the Companies Act, Rajendra Prasad Oil Mills may have to be
excluded from the purview of the expression by reason of the fact that the
provisions contained in section 147 of the Companies Act make out that it is
not permissible for a company to carry on business in a name or style
other than its own name but it does not follow that, even though the Civil
Procedure Code contains nothing to indicate the aforesaid repugnancy, the case
of a company carrying on business in a name or style other than its own, must
be held to be excluded from the purview of the expression “person" in rule
10 of Order 30 of that Code.
The
decision of the Supreme Court in the case of Dulichand Laxminarayan v.
Commissioner of Income-tax thus lends no assistance to the contention of the
learned counsel for the appellants. It does not appear to be the law that the
result of the provisions contained in Companies Act, whereby limited companies
are prohibited from carrying on business in any name or style other than their
own, is that the expression “person" wherever used in the Code of Civil
Procedure must be construed as excluding the case of a company carrying on
business in a name or style other than its own. Rule 10 embodies a beneficent
provision providing for enforcement of claims against parties which, instead of
carrying on business in their own name, may be carrying on business in an
assumed name, and there appears no good reason to exclude a limited company
from the purview of that rule and deprive a party, which may have dealt with a
company which carried on business in an assumed name, of the right of enforcing
its claim by a suit in which the defendant is described under the assumed name
which was used by the real party in its business dealings with the plaintiff of
the suit.
Significance
must be attached to the fact, firstly, that the expression “person" has
not been defined in the Code of Civil Procedure and, secondly, that the
expression “any" qualifies the expression “person" in rule 10 of
Order 30 of that Code. It appears obvious that the legislature did not intend
to stultify the powers of a court to grant relief against a party by refusing
to treat a claim as maintainable on the ground merely that the suit had been
brought against an assumed name, even though that party had been carrying on
business in that assumed name.
At
the time the appeal was heard by the Division Bench which referred the question
which is before us today, it was stated by learned counsel for the parties that
they had been unable to find any reported decision recorded by any court in
India or any court in England on the parallel provision contained in Order 48A,
rule 1 in, of the Supreme Court Rules, directly bearing on the question whether
or not the case of a limited company was excluded from, or included in, the
provisions contained in rule 10 of Order 30 of the Code of Civil Procedure. At
the hearing before this Full Bench, however, quite a few cases have been
brought to our notice which support the view taken by the learned civil judge,
as also the decision of a learned single judge of this court, holding that a
limited company would be included within the meaning of the expression
"person" used in rule 10 of Order 30 of the Code of Civil Procedure.
In
the case of H.E. Randall Ltd. v. British and American Shoe Co. it was held
that, even though the user of a trade name, different from the corporate name,
was in contravention of sections 41 and 42 of the English Companies Act, 1852,
the limited company using such corporate name may acquire a right to the
protection of that name. The limited company in the above case was H. E.
Randall, Limited. This company started the trade of selling American shoes
under the name, The American Shoe Company. This trade was carried on at a
number of shops in a manner which contravened provisions contained in the
English Companies Act parallel to those contained in section 147 of the Indian
Companies Act. This business, carried on under the name of. The American Shoe Company, acquired a large reputation. The defendants to the
suit, which culminated in the above decision, opened a shop in a name which
resembled the name of The American Shoe Company. H.E. Randall Limited thereupon
brought an action to restrain the defendants from using a name resembling the
name of The American Shoe Company on the assertion that the resemblance was
such as to represent or lead to the belief that the defendants' business was a
branch of or connected with that of the plaintiffs. The defence, inter alia,
was that, since the business which ,the plaintiffs
carried on under the name, The American Shoe Company, which was different from
the plaintiff's corporate name, was in contravention of the provisions contained
in the Companies Act, the plaintiffs were precluded from acquiring any right to
the protection of that name, viz., The American Shoe Company. It was held that,
though the Companies Act imposed certain penalties on a company for
non-compliance with its provisions which prohibited it from carrying on
business in a name other than its corporate name, the additional penalty of
forfeiting its goodwill to any dishonest person who chooses to steal it had not
been imposed by the statute.
The
principle laid down by the House of Lords in Wright v. Horton
was held to govern the
case and the decision of Farwell J. in Perks Gunston & Tea Ltd. v. Thompson
Talmev & Co. was followed. Be it noted that the relief claimed in the case
which gave rise to the decision in H.E. Randall Limited was a relief in the
discretion of the court, yet the court granted the relief notwithstanding the
fact that the carrying on of a business by Messrs. H. E. Randall Limited in the
name of The American Shoe Company was in contravention of the provisions
contained in the Companies Act involving liability to penal action. The case of
the plaintiff-respondents to the present appeal stands on a much stronger
footing.
In
Wright v. Horton the validity of debentures issued to a director of a company,
which had not been registered in accordance with the requirements of section 43
of the Act, came up for consideration before the House of Lords. Lord Halsbury,
in his judgment, observed that the statute (Companies Act), for very obvious
reasons, in constituting a code for the regulation of trading companies, had
enacted that they shall keep an account of mortgages and charges specifically
affecting their property and had provided for a pecuniary penalty for the
non-performance of the statutory duty when that duty was knowingly and wilfully
committed, but the validity of the mortgage or charge was not made to depend
upon compliance with that duty. It appears useful to quote what the learned
judge ultimately observed :
"If
the principle is supposed to be that no director can be allowed to derive any
benefit from a debenture which he has obtained by lending money to the Company
of which he is a director, because he has disobeyed or permitted to be
disobeyed the provisions of the Companies Act in some respect or another, the
proposition is so wide as to become on the face of it absurd. If, on the other
hand, it amounts to this, that the non-registration of his debenture by a
director is a continuous representation to every other shareholder and creditor
that such a debenture does not exist, it assumes a construction of the section
to which I cannot assent; and I know of no authority which this or any other
court has to add additional penalties to that which the legislature has
specifically enacted".
It
was held that the mere omission to register the debentures, without
concealment, did not invalidate the debentures. This decision clearly makes out
that the effect of the prohibitions contained in the Companies Act must be held
to be limited to the penalties provided for a breach of those prohibitions. The
claim of a director of the company who had advanced money to the company was
upheld notwithstanding the fact that the debentures issued on the basis of that
advance had not been registered in accordance with the requirements of the law
which provided for a penalty for nonregistration.
Reference
may next be made to certain observations of Lindley L.J. in Maclver v. Burns.
Rule 11 of Order 48A, of the Rules of the Supreme Court (1883), ran as follows :
"Any
person carrying on business within the jurisdiction in a name or style other
than his own name may be sued in such name or style as if it were a firm name.”
The
object of the above rule has been stated by Lindley L.J. (at page 635 of the
report) as follows :
"It
is to authorise the suing persons in the name in which they carry on
business—to facilitate the carrying on of actions against persons who conceal
their names, and for that purpose the rules relating to actions against firms
are to be applied as far as possible ; but they cannot
be applied to a case not within the reason of the rule. If a man contracts
debts with his baker or butcher in his own name, and carries on business under
a name not his own, the baker or the butcher cannot sue him under the name not
his own. Why should he ? The reason of the rule does
not apply to the case. The words in rule 11,' may be sued in such name or style
as if it were a firm name, 'furnish the key to the whole difficulty. I do not
say the rule expressly states, but it involves this :
that you can only sue a man in his firm name in respect of matters which are
connected with the business which he carries on under that name.”
The
business transactions which gave rise to the suit out of which this appeal
arises had been entered into under the name, Rajendra Prasad Oil Mills, and it
appears to me clear that, in these circumstances, the plaintiff-respondents
must be held to be authorised by the provisions contained in rule 10 of Order
30 of the Code of Civil Procedure to bring a suit against Rajendra Prasad Oil
Mills which is the name in which N.K. Industries Limited, Kanpur, carried on
the business in the course of which the transactions are alleged to have taken
place.
One
of the questions which arose for consideration in British India Corporation
Ltd. v. State of Uttar Pradesh, Civil Misc. Writ No. 7871 of 1951, decided by
Hon. V. Bhargava J., on February 16, 1955, was whether a reference by which a
dispute had been referred for adjudication to the State Industrial Tribunal was
incompetent by reason of the fact that one of the opposite parties was
described in the notification by which the dispute was referred as Kanpur
Woollen Mills, Kanpur, which was not a legal entity. The contention was that
the Kanpur Woollen Mills,
"This
contention has no force in view of the fact that the petitioner- company has
itself chosen to carry on business in the name and style of the Kanpur Woollen
Mills, Kanpur, and, secondly, any mention of the Kanpur Woollen Mills, Kanpur,
has to be read as referring to the petitioner-company on the principle laid
down in rule 10, Order 30, of the Code of Civil Procedure.........".
After
quoting rule 10, the learned judge observed further as follows:
"Consequently,
even if a regular suit has to be filed, the petitioner-company could have been
sued in the name of the Kanpur Woollen Mills,
The
above decision is a direct authority on the question which has been referred
and, if I may say so with respect to the learned judge who has recorded the
opinion quoted above, I see no reason to take a different view.
I
may add that in the case of Arjun Prasad v. Shanti Lal Shankerlal Shah, the
Supreme Court has, in paragraph 8 of the said report, observed that " whenever the word 'person' is used in any statute a
company would be included thereunder".
It
was contended that rule 10 applied only to cases where a single individual
carried on business in an assumed name. I am unable to accept this contention.
Reference may be made to the decision of a Division Bench of the Calcutta High
Court in the case of Jamunadhar Poddar Firm v. Jamunaram Bhakat in which it was held that Order 30,
rule 10, applies not only to a single individual carrying on business under a
firm name or an assumed name but also to a number of individuals carrying on
business either under a firm name or in an assumed name when those individuals
do not in law constitute a partnership resting on contract. It may also be
mentioned that the learned judges, who decided the above case, relied, among
other cases, on the principle laid down by a Division
Bench of this court in the case of MewaRam v. Ram Gopal. I fail to see any
reason to draw any distinction in this matter between a limited company and a
joint Hindu family.
Another
contention raised by learned counsel for the appellants was that, since the
plaintiff knew that the business carried on under the name, Rajendra Prasad Oil
Mills,
I
would like now to refer to another circumstance which appears to me to be
conclusive of the matter. Provisions parallel to those contained in section 147
of the Companies Act are to be found in sections 65 and 66 of the Indian
Companies Act (VI of 1882) which was in force at the time the General Clauses
Act, 1897, was brought on the statute book. Though the question which has
arisen for consideration by us relates to the meaning to be assigned to the expression
“person" in rule 10 of Order 30 of the Code of Civil Procedure, the
contention of learned counsel for the appellants amounts, in substance, to this
that, by reason of the provisions contained in section 147 of the Companies
Act, it must be held that the expression “person", whenever and wherever
used in any statute, must be construed as excluding a limited company from the
purview of that expression. Keeping in view the Tact that provisions parallel
to those contained in section 147 of the Companies Act formed part of the
provisions of the Indian Companies Act, 1882, which was in force at the time
the General Clauses Act was brought on the statute book, the acceptance of this
contention would result in attributing to the legislature, which enacted the
General Clauses Act, an intention which cannot be attributed on any principle
of interpretation, because the definition of the expression “person" in
clause (42), section 3, of the General Clauses Act, in so far as an
incorporated company has been specifically included in that definition, would,
if the interpretation contended for was accepted, be rendered not only
meaningless and redundant but manifestly misleading. It is, therefore,
impossible to accept the contention that an incorporated company, which has
been specifically included in the definition of the expression “person" in
the General Clauses Act, must nevertheless be construed as excluded from the
purview of the expression “person" in rule 10 of Order 30 of the Code of
Civil Procedure, even though there is nothing in the subject or context of the
Code of Civil Procedure to make out any repugnancy.
For
all these reasons I would answer the question referred to us in the
affirmative.
S.N.
Katju J.—I agree with the opinion of my brother Gupta J.
Satish
Chandra J.—A Division Bench of this court has referred the following question
to the Full Bench :
"Whether
a limited company falls within the meaning of the expression ' person ' as used
in rule 10 of Order 30 of the Code of Civil Procedure ?
"
The
question arises in this way. N. K. Industries Limited was a company at
The
trial court held that the evidence proved that the disputed contract had taken
place between Murlidhar Verma, the plaintiff, and Rajendra Prasad Oil Mills and
not between the plaintiff and N.K. Industries Ltd. Though it was admitted that
Rajendra Prasad Oil Mills was owned by N.K. Industries, and was itself not a
legal entity, but, since the contract was taken up with the mills, it was not
necessary for the plaintiff to institute a suit against N. K. Industries. There
was no allegation in the plaint nor did the civil judge find that the plaintiff
had no knowledge that N.K. Industries Ltd. was carrying on the business or that
the name or style of Rajendra Prasad Oil Mills was an assumed name of some one else ; or that three persons, through whom the mills was
being sued, were competent to represent the company. On the merits, the claim
was held proved. The suit was decreed for Rs. 23,743-1-0. Rajendra Prasad Oil
Mills and Rameshwar Prasad came to this court.
At
the hearing of the appeal reliance appears to have been placed on Order 30,
rule 10, Civil Procedure Code, to sustain the competence of the suit. The Bench
hearing the appeal seems to have proceeded on the basis that N. K. Industries
Ltd. was carrying on the business in the name and style of Rajendra Prasad Oil
Mills. On that basis it referred the question if a company could be a person
covered by Order 30, rule 10, Civil Procedure Code. Order 30, rale 10, Civil
Procedure Code, runs as follows:
"Any
person carrying on business in a name or style other than his own name may be
sued in such name or style as if it were a firm name ;
and, so far as the nature of the case will permit, all the rules under this
Order shall apply".
There
was no comparable provision in the Code of Civil Procedure, 1882. It was
introduced for the first time in the Code of Civil Procedure, 1908. Rule 10 is
a verbatim reproduction of rule 11 of Order 48-A of the Rules of the Supreme
Court of England.
The
question is whether the term "any person" in rule 10 includes a
juristic person. The Code of Civil Procedure does not define this term. The
General Clauses Act, which is applicable to the interpretation of the Code of
Civil Procedure, by section 3(39) defines the word “person" to include any
company or association or body of individuals whether incorporated or not. That
definition is applicable unless there is anything repugnant in the subject or
context. Under this definition an incorporated body would be a person within
the meaning of a statute unless there is anything repugnant in the subject or
context. According to Raghubar Dayal J. in Kundan Sugar Mills v. Indian Sugar
Syndicate 10.
"The
context is not to indicate that the word 'person' should have the meaning of a
juridical person, but it should indicate that the word 'person' should not have
such a meaning. It is only then that the context would create such a repugnancy
as would make non-applicable the definition of the word 'person' in the General
Clauses Act".
The
proper approach has to be whether the context or the subject presents a
repugnancy. If so, of what nature, character or extent.
It was urged that rule 10 refers to the person who carries on business by the
word "his". "His" could properly refer to a human being. It
could not be used for a juristic personality. Taken literally, the word
"his" would refer to a male human and not a female. The excluding of a
female would make no sense. Obviously, the word "his" has been used
in a descriptive rather than in a restrictive sense. Order 33,
rule 1, Civil Procedure Code, defines a pauper with reference to a person who,
inter alia, possesses wearing apparel. In Kundan Sugar Mills case, mentioned
above, the Full Bench declared that, though a company does not possess a
wearing apparel, it would nevertheless be a person within the meaning of that
rule and could take its benefit.
It
was then urged that the last part of rule 10 provides that all other rules of
Order 30 would apply to a case covered by rule 10. Rules 1 to 9 could not apply
to a company. Assuming, without conceding, that that is so, it is hardly
relevant. Rule 10 itself says that all rules under
this order shall apply so far as the nature of the case will permit. The last
clause provides the procedural consequence of suing under rule 10. It does not
go to supply the object or the context of the operative part of rule 10.
The
explanation to Order 33, rule 1, Civil Procedure Code, explained who a pauper
is. Under it a person is a pauper when he is not possessed of sufficient means
to enable him to pay the fee prescribed by law for the plaint in such suit, or
where no such fee is prescribed, when he is not entitled to property worth one
hundred rupees other than his necessary wearing apparel and the subject-matter
of the suit. The question was whether this provision applied to companies. In
Perumal Koundan v. Tirumalrayapuram Jananukoola Dhanasekhara Sanka Nidhi Ltd it
was held that it would be wrong to construe the provision to mean that only
persons who possess wearing apparel can sue as paupers. This view was upheld by
the Supreme Court in Nagpur Electric Light and Power Co. v. Shreepathirao. The
Supreme Court referred to the observations of Bayley J. in Cortis v. Kent Water
Works Co. In that case the appeal clause in an Act gave a right of
appeal to any person or persons aggrieved, but that clause required the person
or persons appealing to enter into a recognizance. The submission that, since
corporations could not enter into recognizance, they would not be persons
within the meaning of the appeal clause, was repelled
by Bayley J. He observed :
"But
assuming that they cannot enter into a recognizance, yet if they are persons
capable of being aggrieved by, and appealing, against a rate, I should say that
that part of the clause which gives rise to the appeal applies to all persons
capable of appealing and that the other part of the clause which requires a
recognizance to be entered into applies only to those persons who are capable
of entering into a recognizance, but is inapplicable to those who are
not".
Similarly,
the operative part of rule 10 would apply even though the consequences were not
fully attracted. For the appellants Mr. Jagdish Swaroop relied upon the Supreme
Court decision in Dulichand Laxminarayan v. Commissioner of Incoms-tax. In that
case it was held that the word "person" in section 4 of the
Partnership Act contemplates only natural or artificial persons and a firm
would not be a person within it. The definition of the word "person",
occurring in the General Clauses Act, would not wholly apply, because the
concept of the firm would be completely repugnant to the subject of partnership
law. According to this case, therefore, the enquiry has to be whether the
definition in the General Clauses Act or any part of it is repugnant to the
subject of the entity sought to be included in the meaning of the word 'person'
in any enactment. One relevant question hence would be :
is there anything in the law relating to companies which is repugnant to the
general definition of the word "person "?
Section
147 of the Companies Act, 1956, relates to the publication of name by the
company. It corresponds to sections 73 and 74 of the Companies Act, 1913, and
section 108 of the English Companies Law, 1948. Sub-section (1) thereof reads:
"147.
Publication of name by company.—(1) Every company—
(a)shall paint or
affix its name, and the address of its registered office, and keep the same
painted or affixed, on the outside of every office or place in which its
business is carried on, in a conspicuous position, in letters easily legible ;
and if the characters employed there for are not those of the language, or of
one of the languages, in general use in that locality, also in the characters
of that language or of one of those languages ;
(b)shall have its name engraven in legible characters on its
seal; and.....".
Sub-section
(2) provides that if a company does not paint or affix its name and the address
of its registered office, or keep the same painted or affixed in the manner
directed by clause (a) of sub-section (1), the company, (1) [1956] 29 I.T.R. 535; [1956]
S.C.R. 154. and every officer of the company, who is in default, shall be
punishable with fine which may extend to five hundred rupees for not so
painting or affixing its name and the address of its registered office.
Sub-section (3) provides that if a company fails to comply with clause (a) or
clause (b) of sub-section (1) the company shall be punishable with fine which
may extend to five hundred rupees. Sub-section (4) provides for punishments of
fine for defaults " mentioned in it and also provides that every officer
of a company who commits the above mentioned defaults shall further be
personally liable to the holder of the bill of exchange, hundi, etc., cheques
or order for money or goods, unless it is duly paid by the company.
The
object of this provision is to compel the publication of its name to the
business world which deals with the company. The provisions nowhere state that
the company must carry on business only in its registered name or that it
cannot use any other name howsoever valuable or useful the goodwill of any
other name or style may be. This provision would be completely satisfied in a
case where a company carries on business in an assumed name or style if it
publishes or affixes its name in the signboards, seal, business letters,
notices, official publications, bills of exchange, etc., etc., mentioned in
sub-section (1). This provision, therefore, does not prohibit a company from
carrying on business in an assumed name. It compels it to publish its identity
in all its business dealings in the manner provided for in this section. If the
provisions of section 147 are complied with, it could not be said that the
company was concealing its identity in its dealings, even though it was
carrying it on in an assumed name or style.
In
H. E. Randall Ltd. v. British American Shoe Co Randall was carrying on the business
in the name of The American Shoe Company with the corporate name painted and
printed as required by the provisions. The defendant started business in shoes
under the name of The London American Shoe Company, which was ultimately
changed into The British American Shoe Company. The plaintiff brought the
action for an injunction against the defendants restraining them from using
either of those names, or any other similar name, on the ground that they were
stealing the goodwill of the plaintiff's business name. It was urged that the
plaintiff was carrying on business in breach of sections 41 and 42 of the Act,
inasmuch as they had, for some time in the past, not painted and published
their corporate name as required by sections 41 and 42. It was held that
sections 41 and 42 of the Companies Act, 1862, imposed certain penalties on a
company for non-compliance with its provisions but the additional penalty of
forfeiting its goodwill to any dishonest person who chooses to steal it is not
imposed by the statute. The suit was decreed.
This
case shows that even where a company carried on business in an assumed name in
non-compliance of the statutory provisions as to publication of its corporate name, it would be recognised and given the benefit of its
business name. These provisions of the Companies Act, therefore, could not be
held to be intended to prohibit a company from carrying on a business in an
assumed name at all. It could do so but by disclosing its identity in the
prescribed manner. Section 147 aims at prohibiting a company from carrying on
business in an assumed name or style by concealing its true identity.
Companies
carrying on business in accordance with section 147 would be deemed to be
carrying on business in their own corporate name but with the aid and
assistance of some other name or style which may have a goodwill or value.
Would such a company be also within the purview of the word “person" as
used in Order 30, rule 10, Civil Procedure Code. That
will depend on the subject and the context of the provision.
It
was suggested that there was nothing in the language of Order 30, rule 10,
Civil Procedure Code, to confine its operation to only such companies as
carried on business in an assumed name by concealing their identity. True, the
words are wide. Any person carrying on a business in an assumed name or style
is within the literal ambit of the section. But, Venkatarama Ayyar J., in
Chamarbaugwala v. Union of India ‑, in paragraph 6, said that the literal
meaning had only a prima facie preference in a court; but to arrive at the real
meaning it is always necessary to get an exact conception of the aim, and the
scope and object of the whole Act. Viscount Simonds in Attorney-General v.
Prince Earnest Augustus observed that words took their colour and content from
their context; context includes other enacting provisions, the preamble, the
existing state of the law and the mischief which, by legitimate means, the
court can find that the statute was designed to remove. To appreciate the
context or the subject of a law it is always necessary to examine its aim or
aspiration or object. Article 31A of the Constitution protected laws providing
for, inter alia, the acquisition by the State of any estate from being void on
the ground that they were inconsistent with articles 14, 19 or 31.
In
Kochunni v. State of Madras, Subba Rao J., speaking for the court, held that,
in view of the object behind the article as obtainable from its statement of
objects and reasons, a law protected by article 31A would be such alone as
related to agrarian reforms. The operation of the generality of the language of
the article was confined to the true intent and object of the law. Mr. Justice
Holmes once said : " We must think things and not
words" (per Hidayatullah J. in L. C-Golaknath v. State of
As seen above rule 10 of Order 30 is based upon rule 11 of
Order 48A of the Rules of the Supreme Court of England. The English rule came up for
interpretation in Maclver v. G. & J. Burns. Lindley L. J. observed at page
635 that the object of the rule is to authorise suing persons in the name in
which they carry on business, the underlying principle being to facilitate the
carrying on of actions against those who conceal their names. He further held
that, for carrying on of actions against persons who conceal their names', the
rules relating to actions against firms are to be applied as far as possible.
But he held that those rules cannot be applied to a case not within the reason
of the rule. The rule involved that you can only sue a man in his firm name in
respect of matters which are connected with the business which he carries on
under that name. So, the underlying principles were emphasised. The rule would
apply where a business was carried on in an assumed name by concealment of the
true name of the person who carried on the business, and, secondly, it would
apply only in relation to matters arising out of such a business. If a company carries
on business in an assumed name but without concealing its own identity, that is
to say, by publishing its corporate name as well, such a company would not be
within the reason of Order 30, rule 10. It would not be a person of the
character for whom rule 10 was enacted.
In
Jamunadhar Poddar Firm v. Jamunaram Bhakar, a Division Bench dealing with the
object of rule 10 of Order 30, Civil Procedure Code, observed that an
individual who carries on a business under a firm name or an assumed name
cannot sue as plaintiff in that assumed name : vide
Neogi Ghose & Co. v. Nehal Singh, Bhagvan Mamaji Marwadi v. Hiraji Premaji
Marwadi, Samrathrai Khetsidas v. Kasturbhai Jagabhat, but Order 30, rule 10,
enables a person to sue him as defendant in that assumed name. This distinction
which has been made in Order 30 itself has been made in the interest of
commerce. The Bench continued :
"There
is no inconvenience or injustice, if a person carrying on business under a firm
name or any other assumed name is made to sue in his real name, but different
and weighty considerations would apply when he is sued by another person in the
assumed name in which he carries on or has carried on business. Business may be
carried on by correspondence and orders may be, and are usually, placed from
one part of the world to another through post and goods may be supplied on
credit on such orders. A producer or merchant living in one part of the globe
cannot be expected to know or to make enquiries and in some cases it is not
possible for him to know or to make enquiries as to who is the owner of the
business that is being carried on in an assumed name, and in most cases he
would only know the name of the real owner after he had brought his suit, for
the defendant must then appear in his own name. (Order 30, rule 6). If it were
to be held that a decree obtained by sucli a producer or merchant in a suit
instituted against the assumed name is a void decree, it would lead to manifest
hardship, would open up a wide door to fraud and would sap the credit on which
commercial dealings largely rest. In our judgment, Order 30, rule 10, Civil
Procedure Code, rests on these considerations and they must be kept in view in
construing that rule."
The
aim and aspiration of rule it was to suppress fraud and mitigate hardship and
to advance the interest of commerce by preventing a person, who conceals his
identity and is carrying on business in a firm name or in an assumed name, from
getting away from his business obligations. Lack of knowledge of the true identity
was the real reason for the enactment of this provision. Rule 10 seeks to
circumvent the effect of concealment.
This
being the true intent and object, the rule would apply to only such companies
as carried on business by concealing their identity. They would he persons
within rule 10 properly so called. Companies which did not conceal their true
identity or name, even though carrying on business in an assumed name or style,
would not be persons as intended to be involved within rule 10.
Under
rule 10 the suit is filed against the real person who carried on the business
and incurred the obligation. It does not provide for merely suing the business
name. The real person must be alive. In Ram Prasad Chimonlal v. Anundji and
Co., it was held that if the sole proprietor of a business who carried on
business in an assumed name dies and no steps are taken to record his death and
his legal representatives are not brought on the record within time, the suit
abates. In Hari Bandhu Pal v. Hari Mohan, it was further held that, if the
legal representatives are not substituted, then the decree is made against a
dead man having a different name and in that case the decree becomes an
absolute nullity.
In
Habib Bux v. Samuel Fitz and Co. Ltd, it was held that a suit cannot, be
instituted under Order 30, rule 10, after the death of the person who carried
on business in a firm name, unless, after the death of the sole proprietor, the
firm carries on business which justifies a presumption that his heirs are its
partners. That rule will only apply when the business is being carried on at
the time when the suit is instituted. If business is not being carried on in
that name at the time of the suit and the business has ceased to exist then all
persons who are interested in the assets ought to be impleaded.
In
Ramanathan v. Palaniappa, it was held that rule 10 of Order 30 simply justifies
the introduction of the assumed name instead of the real name of the defendant,
but does not absolve the plaintiff from his liability to propose a proper
guardian, if the defendant-represented by such a name is really a minor. Where
no proper guardian is appointed for the minor, the decree is a nullity and
cannot be enforced against him. In St. Gobain, Chauny and Cirey Co. v.
Hoyermann's Agency, Lord Esher M. R. held that rule 11 of Order 48A did not
apply to a foreigner resident out of the jurisdiction of the court even though
he carried on business within the jurisdiction in the name or style other than
his own name.
It
was observed :
"The words 'any
person' are of course large enough to include a foreigner, and a foreigner who
is resident abroad, and to include one who has never been in England in his
life, and has never had what has been called the protection of the English law,
and merely carries on business in England by his agents. But the question is, ought the court to give an interpretation to the words
which would include such a person?"
He
ruled that the words should not be construed so as to bring within the
jurisdiction persons who neither by nationality, nor by residence, are capable
of being made subject to the jurisdiction.
There
is nothing in the language of Order 30, rule 10, Civil Procedure Code, to
expressly suggest that the person must be alive, not dead, not a minor and not
a foreigner or that the business must not cease to exist. But all these
restrictions have been deduced from the object and real reason of the rule; and
the operation of the rule has been so confined as to
exclude such classes of cases. So, to be in accord with the underlying context
and subject of Order 30, rule 10, the word "person" occurring therein
ought to be confined to those who conceal their identity while carrying on
business. Subject to this condition all those individuals or entities mentioned
in the definition of the word "person" in the General Clauses Act
would be within the purview of Order 30, rule 10. Before a plaintiff can
successfully sue another in the assumed name under Order 30, rule 10, he will
have to allege and establish that because of concealment he was unaware of the
true name or identity of the person carrying on the business in the assumed
name or style. The policy of the law is that persons can themselves be made
liable for their business obligations. Order 30, rule 10, is an exception. It
applies where there is concealment and the plaintiff is unaware of the true
identity of the businessman. Such a businessman alone, whether a human or
juristic entity, is "person" within the meaning of Order 30,rule 10, Civil Procedure Code.
My
answer to the question referred to this Bench is that a limited company alleged
and established to be carrying on business in an assumed name by concealment of
its own corporate name is a person within the meaning of Order 30, rule 10,
Civil Procedure Code.
By
the court
The
answer to the question referred to the Full Bench is as follows: "A
limited company falls within the meaning of the expression 'person' as used in
rule 10, Order 30, of the Code of Civil Procedure. This would be so, even
though the limited company may have been carrying on business in a name or
style other than its own without any attempt to conceal its own corporate name
and this fact was known to the party suing."
[2004] 52 scl 460 (mad.)
High
Court of
v.
Regional Director, Government of
D.
Murugesan, J.
W.P. No. 4823 of 2001
April 22,
2003
Section 22 of the Companies Act, 1956 -
Rectification of name of company - Whether direction given by Regional Director
to writ petitioner to delete name ‘sholay’ and change said name to some other
prefix, would certainly affect right accrued to petitioner by virtue of
incorporation of company and, consequently, its trade - Held, yes - Whether in
absence of a reasonable opportunity to defend application filed by second
respondent seeking for said direction under section 22, impugned order was
liable to be set aside on ground of violation of principles of natural justice
- Held, yes
Facts
The second
respondent-company applied to the first respondent-Regional Director, Southern
Range, for issuance, of directions under section 22 to the petitioner-company
to change its name on ground that the name ‘sholay’ forming part of the
petitioner-company was identical to the trade name ‘sholay’ of the second
respondent-company and that the name of the petitioner-company was likely to
mislead the members of the public and business community about its possible
association with the second respondent-company. The said application was
allowed by the first respondent with a direction to the petitioner-company to
delete the word ‘sholay’ from its existing name and change to some other prefix
within a period of three months from the date of the order.
On writ
petition, the petitioner-company raised a preliminary issue that before the
impugned order was passed, it was not given any opportunity by the first
respondent to put forth its case, and, therefore, the impugned order was liable
to be set aside on the ground of violation of the principles of natural
justice. On the other hand, according to the second respondent, a person who
did not avail of the opportunity of hearing by refraining from participating in
the enquiry could not later on complain that the order was passed without any
opportunity and behind his back.
Held
From the letter
dated 20-12-2000 of the writ petitioner coupled with the absence of
acknowledgement of the letters dated 23-10-2000 and 4-12-2000 of the
respondent’ it could be held that the notice said to have been despatched by
the first respondent on 4-12-2000 was, in fact, received by the petitioner on
19-12-2000 only. Immediately on the next day, i.e., on 20-12-2000, the
petitioner had sent the above letter both by fax and by speed post seeking for
time. The first respondent however, on noticing that the petitioner did not
appear on 18-12-2000 had passed orders on 20-12-2000. [
The first
respondent decided to dispose of the matter on 20-12-2000, as the last date to
adjudicate the matter under section 22 was fast approaching. Except the said
reason, even in the impugned order, it was not stated as to whether the notice
dated 4-12-2000, was either served or acknowledged by the petitioner. Merely
because the last date was fast approaching and the first respondent should
dispose of the application within the stipulated period, that
did not mean that the right to a fair and reasonable opportunity to the
petitioner could be denied. It is well-settled law that before depriving of a
right accrued to a person, that person must be given an opportunity to put
forth his case. [
The petitioner
had registered its name as ‘Sholay.Com’ as early as on 21-12-1999. A direction
had been given by the impugned order to the writ petitioner to delete the name
‘sholay’ and change the said name to some other prefix. Such a direction would
certainly affect the right accrued to the petitioner, by virtue of the
incorporation of the company and, consequently, its trade. [
Hence, in the
absence of a reasonable opportunity to defend the application filed by the
second respondent seeking for a direction under section 22, the impugned order
was liable to be set aside solely on the ground of violation of the principles
of natural justice. The first respondent should hold the enquiry on the specified
date and pass orders on the merit of the case after hearing the parties. In
view of above observation, the impugned order was set aside and the writ
petition was allowed. [
Judgment
1. This writ petition,
challenging the order of the first respondent, the Regional Director, Southern
Region, Chennai, dated December 20, 2000, arises under the following circumstances :
“(1) M/s. Sippy Films Private Limited, the second
respondent-company is registered with the Registrar of Companies, Mumbai. The
main object of the second respondent-company is to make, distribute and deal in
movies apart from others which are identical. The second respondent-company
produced a Hindi movie titled as ‘Sholay’. That was released on August 15,
1975. According to the second respondent, though it had produced some of the
most memorable movies in Indian Cinema like ‘Shaan, Brahmachari, Andaz,
Saagar’, etc., and even a famous television serial by name ‘Buniyad’, the film
‘Sholay’ is a major blockbuster motion picture, which was turned to become one
of the most successful and renowned Indian films ever. It earns the
international name not only in cine field but also other fields like trades. The
name ‘Sholay’ is unique and thereby the second respondent has come to be
distinctly identified with the popular name ‘Sholay’ on account of its
popularity, revenue, goodwill and fame. Hence, the second respondent-company
applied for registration of the title ‘Sholay’ as a trade mark for perfumes,
non-medicated cosmetics such as shampoos, soaps, etc., video films, tapes,
cassettes, etc., clocks, wrist watches, costumes, jewellery, etc., and in
marketing various by-products.
The second respondent incorporated a company
by name ‘Sholay Media and Entertainment’ on September 11, 2000. While that
being so, the second respondent-company came to know that that petitioner
incorporated a company in the name of ‘Sholay.Com Private Limited’ on December
21, 1999, with the main object to carry on the business of designing,
developing, manufacturing computer software and to undertake and execute any
contract involving computer information systems and to buy, sell and deal in
all kinds of and description of communication software and hardware. Hence, the
second respondent applied to the first respondent on June 21, 2000, for
issuance of directions under section 22 of the Companies Act, 1956, to the
petitioner-company to change its name on the ground that the name ‘Sholay’ forming
part of the petitioner-company is identical to the trade name ‘Sholay’ of the
second respondent-company and that the name of the petitioner-company is likely
to mislead the members of the public and business community about its possible
association with the second respondent-company. The said application was
allowed by the first respondent by order dated December 20, 2000, with further
direction to the petitioner-company to delete the word ‘Sholay’ from its
existing name and change to some other prefix within a period of three months
from the date of the order.”
The above order
of the first respondent is challenged in this writ petition. Though both
learned counsel for the petitioner and the respondents elaborately argued on
the merits of the case as to whether the second respondent, who has not
registered the name ‘Sholay’ as a company, could maintain an application before
the first respondent, seeking for a direction to delete the name and cited
several authorities on this aspect, I am not inclined to go into those
submissions as the writ petition could be disposed of on the preliminary issue,
namely, whether the petitioner was given sufficient opportunity before the
impugned order was passed.
2. Mr. C.A. Theagarajan,
learned counsel appearing for the petitioner, would submit that before the
impugned order was passed, the petitioner was not given any opportunity by the
first respondent to put forth its case. Hence, learned counsel submits that the
impugned order is liable to be set aside on the ground of violation of the
principles of natural justice. However, Mr. T.S. Sivagnanam, learned counsel
appearing for the first respondent, by producing the files, contended that the
petitioner was given notice before the impugned order was passed and the petitioner
did not appear for enquiry. Hence, the question of violation of the principles
of natural justice does not arise in this case and that too, when the
petitioner himself failed to appear before the first respondent for enquiry.
3. Supporting the stand of
the first respondent, Mr. Sivathanu, learned counsel appearing for the second
respondent, would submit that a person who did not avail of the opportunity of
hearing by refraining from participating in the enquiry, cannot later on
complain that the order was passed without any opportunity, and behind his
back.
4. In view of the above
submissions, it would be proper for this court to find out as to whether the
impugned order was passed by the first respondent after giving due opportunity
to the petitioner.
5. In the affidavit filed
in support of the petition, it is specifically stated that the
petitioner-company was incorporated in the name and style of “Sholay.Com Pvt.
Limited” on December 21, 1999, on which date the name “Sholay” was not
registered by the second respondent. Even as on date, only applications are
pending with the Registrar of Companies from the second respondent to register
the name “Sholay”. By virtue of the incorporation, the petitioner is doing the
business under the said registered name in designing, developing and
manufacturing computer software and also marketing the same in
6. No counter is filed by
the first respondent controverting the above averments. However, files were
produced to contend that the notice dated December 4, 2000, was duly served and
the petitioner evaded the enquiry. I perused the files. Pursuant to the
application from the second respondent dated June 21, 2000, the second
respondent in his letter dated July 5, 2000, advised the Registrar of Companies
to furnish full details of the writ petitioner-company as well a report of the
application made by the second respondent in this writ petition. Such report
was received, vide letter of the Registrar of Companies dated August 26, 2000.
The first respondent again in its letter dated October 4, 2000, advised the
Registrar of Companies to furnish the address of the registered office and the
directors of the writ petitioner-company, together with the object for which
the said company was incorporated. The reply dated October 11, 2000, was also
received from the Registrar of Companies. Thereafter, only, the first
respondent claims to have communicated a copy of the application to the writ
petitioner on October 23, 2000. Though such a copy is found at page 192 of the
file and the seal for despatch of the said letter is also made, I do not find
any corresponding acknowledgement of the said letter from the writ petitioner.
Subsequently, it is the claim of the first respondent that notice for
appearance was issued on December 4, 2000. Here again, I do not find any acknowledgement
of the said notice from the writ petitioner. At page 187 of the file, along
with the copy of the notice dated December 4, 2000, I find only a transmission
report evidencing of the posting of the said letter on December 5, 2000. Except
the above, I do not find any material or record to show that either letter
dated October 23, 2000, or the notice dated December 4, 2000, send by the first
respondent was either served or acknowledged by the writ petitioner. I also
find that the notice dated December 4, 2000, was despatched again on December
21, 2000, as could be seen from page 19 of the file where the seal of the
office of Regional Director, Department of Company Affairs, dated December 21,
2000, in No. 0-3347 is found. In these set of facts, the letter of the writ
petitioner dated December 20, 2000, assumes importance. The said letter finds
place at page 18 of the file and it reads as follows :
“Date : 20th December, 2000
To
The Regional Director,
Govt. of
Ministry of Law, Justice and Company Affairs,
Deptt. of Company Affairs,
Shastri Bhavan, 26,
Chennai.
Kind Attn : Mr. V.
Sreenivasa Rao.
Respected Sir,
Sub : Application
u/s. 22 of Companies Act, 1956 by M/s. Sippy Films Pvt. Ltd. against M/s.
Sholay.Com Pvt. Ltd.
Ref : Your
letter No. 4/22/B-6/2000 dated 4 December, 2000 received by us on 19 December,
2000 at 18.45 hrs.
With regard to the above subject and vide the
above referred letter your kind self had required us to appear before you on
18-12-2000 at 12 Noon, either in person or through authorized representative
but unfortunately the subject referred letter was received by us only on
19-12-2000 at 18:45 Hrs. as such we were not able to comply with your
requisition.
Therefore, without prejudice to our rights we
kindly request you to fix an appropriate date and intimate us in advance and
further request you to provide us with necessary material/papers if any have
been submitted by the applicant i.e., M/s. Sippy Films Pvt. Ltd. enabling us to
appear before you with necessary papers in support of our case.
Thanking you,
Yours
truly,
for Sholay.Com Pvt. Ltd.
(
Director.”
7. From the above letter
and the stand taken by the petitioner coupled with the absence of acknowledgement
of the letter dated October 23, 2000, and December 4, 2000, of the respondent,
I have no hesitation to hold that the notice said to have despatched by the
first respondent on December 4, 2000, was in fact received by the petitioner on
December 19, 2000, at 18.45 hours only. Immediately on the next day, i.e., on
December 20, 2000 the petitioner had sent the above letter both by fax and by
speed post seeking for time. The first respondent, however, on noticing that
the petitioner did not appear on December, 18, 2000, has passed orders on
December 20, 2000.
8. From the impugned
order, it is seen that the first respondent decided to dispose of the matter on
December 20, 2000, as the last date to adjudicate the matter under section 22
of the Companies Act was fast approaching. Except the said reason, even in the
impugned order, it is not stated as to whether the notice dated December 4,
2000, was either served or acknowledged by the petitioner. Merely because the
last date was fast approaching and the first respondent should dispose of the
application within the stipulated period, that does not mean the right to a
fair and reasonable opportunity to the petitioner could be denied. It is
well-settled law that before depriving a right accrued on a person, that person
must be given opportunity to put forth his case.
9. It is not in dispute
that the petitioner has registered its name as “Sholay.Com” as early as on
December 21, 1999. A direction has been given in the impugned order to the writ
petitioner to delete the name “Sholay” and change the said name to some other
prefix. Such a direction would certainly affect the right accrued on the
petitioner, by virtue of the incorporation of the company and consequentially
its trade.
10. Hence, in my considered
view, in the absence of a reasonable opportunity to defend the application
filed by the second respondent seeking for a direction under section 22 of the
Companies Act, the impugned order is liable to be set aside. Accordingly, the
impugned order is set aside solely on the ground of violation of the principles
of natural justice. The first respondent is directed to hold the enquiry on May
5, 2003, commencing from 10.00 a.m. and if necessary on a further date fixed by
him, duly intimate to either parties and pass orders
on the merits of the case after hearing both the petitioner and the second
respondent. I make it clear that I have not expressed any opinion on the merits
of the rival claims.
11. With the above
observation, the impugned order is set aside and the writ and petition is
allowed. No costs.
Section 25
Charitable companies
[1956] 26 COMP.
CAS. 229
(MAD.)
V.
BALAKRISHNA AYYAR, J.
FEBRUARY
14, 1956
BALAKRISHNA AYYAR, J.-The
"Any
person, firm, association, company or corporation engaged or interested in
Kirana trade desirous of joining the association shall be eligible for membership
subject to the rules and regulations hereof."
Article 7
requires that:
"A
candidate for election as a member...shall be proposed by one and seconded by
another committee member and may be elected by the committee."
Sub-paragraph
to article 7 lays down that unless and until the candidate is selected by the
committee he shall not be treated as a member of the association merely because
he has made an application for membership and made the requisite payment.
Article 9 runs as follows:
"Any original
member may withdraw from the association by giving not less than six months'
notice in writing to the Secretary of his intention to do so and upon the
expiration of the notice such member shall cease to be a member and in the case
of other ordinary members one calendar month's notice shall be
sufficient."
The firm of
Hazarimal and Company was in 1951 a member of this association. On 25th July,
1951, Hazarimal and Company sent a telegram (Exhibit P.1) to the association
which runs as follows:
"
The following
day Hazarimal and company confirmed its telegram in a letter (Exhibit P.2)
which reads:
"I write
to confirm my telegram of the 25th night tendering my resignation of membership
in the Kirana Merchants' Association in which there seems to be much of
partiality, goondaism and rough behaviors and it does not seem to be a suitable
place for honest businessmen."
The following
day the Joint Honorary Secretary of the Association wrote to Hazarimal and
Company acknowledging receipt of the telegram and the letter. The letter
(Exhibit P.3) continues:
"In this
connection please refer to article 9 of the articles of association under which
a month's notice is required for the withdrawal from membership of the
Association. Your letter will however be placed before the management committee
and I shall revert later."
It was stated
at the Bar that sometime before 2nd January, 1952, there was a change in the
membership of the managing committee of the association. Apparently as a result
of it the President of the association wrote to Hazarimal and Company on 2nd
January, 1952, as follows:
"I refer
to your letter of resignation dated the 26th July, 1951, and intimate that so
far the association has not taken action on the same. So, if you desire to
continue as member I am directed to request you to please withdraw your letter
of resignation within three days from your receipt hereof.
Otherwise I
will have to bring it to the notice of the management committee again for
finally deciding about the same." (Exhibit P.4).
Hazarimal and
Company promptly accepted the invitation and replied as follows:
"In
consequence of the atrocious behaviour of the ex- managing committee we were
forced to cease our connections then.
So long that
committee has been completely re-shuffled we thank you for your kind offer as
we wish to continue our membership now. We hereby withdraw our resignation of
the 26th July, 1951." (Exhibit P.5).
On 11th March,
1952, Sha Hindumull Dhalichand wrote to the Honorary Secretary of the Madras
Kirana Merchants' Association stating that in their view Hazarimal and Company
had ceased to be a member of the association and that in consequence all the
transactions entered into by that firm subsequent to the termination of its
membership were null and void. The letter, (Exhibit P.6) continued:
"In the
circumstances, I content myself with drawing your attention to the above facts
and an immediate reply is solicited as regards the correctness of the fact set
out by me so that I may consider my position with reference to business I have
done with him subsequent to his ceasing to be a member of the association. May
I further request you to notify the above facts immediately also to all the
members."
On 13th March,
1952, Sha Hindumull Dhalichand wrote to the Secretary of the Association asking
for certified copies of the telegram and the correspondence between the
association and Hazarimal and Company. No reply having been received, Sha
Hindumull Dhalichand again wrote to the association on 17th March, 1952,
stating that since no reply had been received they would presume that the facts
set out in their letter were true.
On 21st March,
1952, the Association wrote a letter, (Exhibit P.9), to Sha Hindumull
Dhalichand as follows:
"With
reference to your letters of the 12th, 13th and 17th instant we have to inform
you as follows: It is true on 26th July, 1951, Messrs. J. Hazarimull & Co.,
sent a letter tendering resignation of the membership but that his resignation
was not immediately accepted by the management committee who wanted a month's
notice. Thereafter on 2nd January, 1952, the President of the Association on
being instructed by the management committee wrote to Messrs. J. Hazarimull
& Co., whether they desire to continue as member and if so a formal
withdrawal of their resignation might be made. On the same day they replied
withdrawing formally their resignation of the 26th July, 1951, with the result
that he continues to be a member of the association."
On 3rd April,
1952, Sha Hindumull Dhalichand and some others wrote to the Secretary of the
Association stating that in their view Hazarimull & Co.,
had ceased to be a member of the association. The letter concluded,
"Under
the article in question they having ceased to be members at the expiry of one
month, their name should not be on the register of members and we hereby
request you to have the same removed within 24 hours from the receipt hereof and
intimate to us failing which we shall be obliged to take appropriate
proceedings as advised."
The name of
Hazarimull & Co. not having been removed from the register of members Sha
Hindumull Dhalichand and Gomraj have filed this petition under section 38 of
the Indian Companies Act for the rectification of the register of members of
the association by removing the name of Hazarimull & Co., from it.
The facts set
out so far are not in controversy. Learned counsel for the respondents,
however, took several objections. One was that section 38 of the Companies Act
has no application to "associations not for profit" and that as the
Madras Kirana Merchants' Association is an "association not for
profit" the petition is incompetent. It was pointed out that section 38
occurs in Part III of the Act of which the heading is,
"Share
capital, registration of unlimited company as limited,
and unlimited liability of directors."
The
sub-heading of the chapter under which section 38 is included reads "Distribution
of share capital". The Madras Kirana Merchants' Association has no share
capital and therefore it does not come within the scope of section 38.
Reference was
then made to the definition of "company" occurring in section 2(2) of
the Act and which runs as follows:
"`Company'
means a company formed and registered under this Act or an existing
company."
It was argued
that the Madras Kirana Merchants' Association is only an association and not a
company within the meaning of the Act. It was said that this argument derives
strength from section 4 of the Act which begins,
"No
company, association or partnership consisting of more than ten
persons"...etc.,
thereby
suggesting that the Act itself makes a distinction between a company and an
association. It was also pointed out that section 26 occurs under the heading
"Associations not for profit" and is thus distinguished from
"Companies". It was finally stated that an association registered
under section 26(1) of the Act is not a company at all.
I am unable to
accept this reasoning. So far as chapter headings and sub-headings are
concerned it is well to bear in mind the rules set out on page 50 of Maxwell on
the Interpretation of Statutes, 10th edition:
"The
headings prefixed to sections or sets of sections in some modern statutes are
regarded as preambles to those sections. They cannot control the plain words of
the statute but they may explain ambiguous words.
A
cross-heading in an Act can probably be used as giving the key to the
interpretation of the section unless the wording of the section is inconsistent
with such interpretation.
`While,
however, the court is entitled to look at the headings in an Act of Parliament
to resolve any doubt they may have as to ambiguous words, the law is clear that
those headings cannot be used to give a different effect to clear words in the
section, where there cannot be any doubt as to the ordinary meaning of the
words.'"
The argument
that section 38 cannot be invoked in the present case because it occurs under
the sub-heading "distribution of share capital" and the Madras Kirana
Merchants' Association has no share capital, will be seen to be fallacious when
we make an examination of some of the sections that are grouped under that
sub-heading. Section 28(1), which occurs under the same sub-heading, speaks of
"the shares or other interest of any member in a company"- words
which imply that the section is intended to cover cases where the company has
no share capital. Section 30 is wide enough to take in companies which have a
share capital and also those which have not. Under section 30(1) the
subscribers of the memorandum of a company shall be deemed to have agreed to
become members of the company, and on its registration shall be entered as
members in its register of members. Under sub-section (2),
"Every
other person who agrees to become a member of a company -(the
section does not say that he should have required any share or shares)-and
whose name is entered in its register of members, shall be a member of the
company."
Section 31(1)
requires every company to keep in one or more books a register of its members
where various particulars have to be entered. In every case the names and
addresses and occupations of the members have to be entered. In the case of a
company having a share capital a statement of the shares held by each member
and other particulars relating thereto have to be entered. From this it is
clear that section 31(1) applies both to companies with a share capital and
those without a share capital.
Nor am I able
to accept the view that the word "company" as defined in the Act
excludes bodies which have been given a corporate life by reason of a licence
granted under section 26 of the Act. There is nothing in the definition of the
word "company" to warrant such a construction. That definition does
not say that a company means a company formed and registered under the Act
otherwise than under section 26(1) of the Act. An association can be given a
corporate life in various ways. Associations which seek profit may get
registered and acquire a corporate life by complying with sections 5 to 9 of
the Act and certain other sections. Where the association does not seek a
profit, a different mode by which it can be given a corporate life is provided
for by section 26 of the Act. That an association not for profit acquires a
corporate life by reason of a licence granted under section 26(1) of the Act
does not make it any the less a company within the meaning of the Act. This is
made clear by sub-section (3) of section 26 which runs as follows:
"The
association shall on registration enjoy all the privileges of limited
companies, and be subject to all their obligations, except those of using the
word `limited' as any part of its name, and of publishing its name, and of
sending lists of members to the Registrar."
The
sub-section means that on registration an association will have all the
privileges and all the liabilities of an ordinary company except in three
respects:
(a) it shall not use the word "limited" as any part of
its name,
(b) it is not required to publish its name, and,
(c) it is not required to send a list of its members to the
Registrar.
Except as
regards these three matters an association registered under section 26(1) of
the Act is for every other purpose of the Act on the same plane as an
association registered under the other sections of the Act.
Section 4 of
the Act does not lend any support to the argument of the learned counsel for
the respondents. It will be further noticed that in various places of the Act
the word "company" is used in two different senses. In some places it
is used to indicate the company as a corporate body and in certain other places
it is used to denote the body of individuals before they have acquired a
corporate life. I would therefore overrule the objection that section 38(1) of
the Act cannot be invoked. I find that in Application No.3550 of 1954,
RAMASWAMI GOUNDER J. has taken a similar view.
Learned
counsel for the respondents then raised another point. Admittedly, it was said,
the association does not exist for profit. So, no member of the association has
a pecuniary interest in the fact that the name of some one else is or is not on
the list of members of the company. He is therefore not entitled to invoke the
jurisdiction of the Court. The fallacy of the argument is manifest. A citizen
is entitled to invoke the jurisdiction of the court not merely in matters
affecting him financially. The right to stand for an election or the right to vote in an election are not, for instance, matters
which the law will recognise as having a pecuniary value. Nevertheless disputes
relating thereto are entertained and disposed of by the Civil Courts. Besides
under section 38(1)(b) any member of a company has a
right to invoke the jurisdiction of the court under that section.
It was next
said that there is no case on the merits for rectifying the register. The
telegram and the letter, Exhibits P.1 and P.2, which Hazarimull and Co. sent to
the association purports to be a resignation and a resignation can take effect
only if it is accepted by the party to whom it is addressed or by someone else
who has authority to accept the resignation. In the present case the
resignation has not been accepted, and, in any case, it has been withdrawn. The
difficulty in giving effect to this reasoning lies in article 9, an article
which has already been quoted above. It is common ground that Hazarimull and
Co. was not an original member of the association but only an ordinary member. Now, by virtue of article 9, on the expiration but only an ordinary
member. Now, by virtue of article 9, on the expiration of one month from
the date of notice of withdrawal it automatically and without more took effect:
there never was or could be any question of anybody accepting the resignation.
Now, faced with this difficulty the explanation was offered that neither the
telegram, Exhibit P.1, nor the letter Exhibit P.2 can be treated as a notice of
withdrawal by Hazarimull and Co. Both the documents purport to be resignations
and resignations have no place in the scheme of the articles of association.
Hazarimull and Co. therefore continued to be members of the association.
This line of
reasoning, it seems to me, ignores the plain intention of the words used in
Exhibits P.1 and P.2. They make it clear that Hazarimull and Company did not
want to continue to be a member of the association. Whatever may be said about
Exhibit P.1, Exhibit P.2 gives no room for doubt or argument. In that letter
Hazarimull and Company accuses the association of partiality and hooliganism.
That letter ends with the words,
"It does
not seem to be a suitable place for honest businessmen."
In this letter
Hazarimull and Company said as plainly as words can do it that it did not want
to have anything to do with the association and that it was quitting it. To say
that it is only a letter of resignation and not a letter of withdrawal is
merely to play or words.
It was next
argued on behalf of the respondents that we may consider that Hazarimull and
Company had been re-elected as a member of the association. The answer to that
is that it is manifest that they have not been re-elected in the manner
required by the articles of association which provide that there should be an
application for membership, that it should be proposed by one member of the
committee and seconded by another member of the committee and thereafter
approved by the committee. It may be that if Hazarimull and Company had tried
to get re-elected they might have succeeded, but then, it may well be that
members of the association who knew of Exhibit P.2 might have taken exception
and made their representations and lodged their protest with the members of the
committee who might in consequence have refused to elect Hazarimull and Company.
If Hazarimull and Company ceased to be a member of the association at the
expiry of one month from the date of Exhibits P.1 and P.2 it has not been
properly admitted to the membership of the association.
The final argument
was that under section 38 the court has a discretion
in the matter of rectifying the register and that this is not a proper case in
which there should be an order to rectify the register. No doubt under section
38(2) the court may either refuse an application or may order rectification of
the register. But, this discretion is not an arbitrary discretion. When facts
have been made out which show that the applicant is entitled to the relief he
seeks, the court will not be normally justified in refusing to grant him that
relief.
In the result,
the petition is allowed with costs.
Petition
allowed.
[1986]
59 Comp. Cas. 312 (
HIGH COURT OF
B.C.RAY, J.
April 19, 1983
A.K. Dutt and P.L. Shome for the
Petitioners.
Saktinath
Mukherji and Sadananda Ganguli for the Respondent.
This
application is only at the instance of two petitioners of whom petitioner No. 1
is the authorised representative of M/s. Metal Smelting Co and petitioner No. 2 is the authorised representative of
M/s. Hindustan Lead Alloys, who have challenged in this writ application the
second set of nomination papers that has been filed or attempted to be filed on
behalf of the outgoing managing committee and also for a declaration that the
nomination papers that have been filed, namely, for the post of four office
bearers and twenty ordinary members, should be declared as ipso facto elected
to the executive committee of the Bengal National Chamber of Commerce. There
was a further prayer for the issuance of an order or writ or direction in the
nature of mandamus directing the respondent to hold the annual general meeting
of the Bengal Chamber of Commerce declaring the four office-bearers and twenty
ordinary members, as mentioned in this petition, as duly elected to the
executive committee in terms of article 34(i) and (ii) of the articles of the
Chamber.
It has been submitted in
support of this application by Mr. Dutt, learned advocate appearing on behalf
of the petitioners, that this Chamber of Commerce is a local authority and a
State within the meaning of article 12 of the Constitution inasmuch as it has
been granted a licence under section 25 of the Companies Act, 1956, and the
activities in which it is engaged are non-profit-making activities. It has
further been submitted that this Bengal Chamber of Commerce also is an
autonomous body and in para 11 of the petition it has been stated that it has
been authorised to send its representatives to the Central and Bengal
Legislatures under the previous Government of India Act, 1919, as well as the
Government of India Act, 1935, and it continued to have the right of electing
two representatives on the Bengal Legislative Assembly, up to the date of the
enforcement of the Constitution of India in 1950. It has also been stated, in
para 12 of the petition, that the Chamber achieved a position of eminence in
the commercial, industrial as well as particularly in the economic field of the
country much beyond the direct interest of its group of members. As such, it is
a State, being one of the other authorities within the meaning of article 12 of
the Constitution.
This
submission of Mr. Dutt, after examination closely, cannot be accepted for the
reasons stated hereinbelow. Article 12
of the Constitution does not define the word "State"but it gives an
inclusive definition, namely, the State includes Government, Parliament of
India and the Government and Legislature of each of the States and all local
and other authorities within the
"The dictionary
meaning of the word 'authority' is a public administrative agency or
corporation having quasi-governmental powers and authorised to administer a
revenue-producing public enterprise. This dictionary meaning of the word
'authority' is clearly wide enough to include all bodies created by a statute
on which powers are conferred to carry out governmental or quasi-governmental
functions. The expression 'other authorities' is thus wide enough to include
within it every authority created by a statute and functioning within the
territory of India, or under the control of the Government of India, and there
is no reason to narrow down this meaning in the context in which the words
'other authorities' are used in article 12 of the Constitution."
A company brought into being
under the Companies Act, as in the present case the Bengal Chamber of Commerce,
which has been granted licence under section 25 of the Companies Act, cannot
under any circumstances be treated as a local authority, whatever may be its
autonomous position and whatever may be the background, viz., that it was
getting privilege to send representatives to the Legislative Assembly, because
under no circumstances it can be conceived that it is a public administrative
agency or a Corporation having been vested with quasi-governmental powers and
authorised to administer revenue-producing public enterprise. In that view of
the matter, I am unable to accept the contention tried to be advanced by Mr.
Dutt.
In these circumstances, as
the petitioners are challenging the action of the Bengal Chamber of Commerce,
such a challenge is not maintainable in this forum as I have already held that
the Bengal Chamber of Commerce is not a State within the meaning of article 12
of the Constitution. In that view of the matter, this application is summarily
dismissed on the ground as not maintainable in this forum. There will be no
order as to costs.
[2003] 46 scL 659 (Bom.)
High
Court of
v.
Garware Club House
D.G.
Karnik, J.
Appeal from Order No. 436 of 2002
In Notice of Motion No. 5215 of 1998
In S.C. Suit No. 5988 of 1998
February
14, 2003
Section 255, read with sections 87 and 25, of
the Companies Act, 1956 - Directors - Appointment of and proportion of those
who are to retire by rotation - Defendant-company was registered under section
25 - It was incorporated to take over as going concern unincorporated
association and enrol its members of all categories as members of company -
Article 41 of articles of association provided that election for office of
directors would be held only once in five years - Whether as long as names of
members of unincorporated association were entered in register of members under
section 41, they would have right to vote under section 87 and restrictions, if
any, on their rights as members of unincorporated association would not haunt
their rights as members of company - Held, yes - Whether when Central
Government had granted licence under section 25 after reading memorandum of
association and articles of association including clause C of article 41, it
amounted to grant of exemption from application of section 255 and, therefore,
it was not necessary for company to follow provisions of sections 255 and 256
regarding election of all directors at every general meeting, or providing for
retirement of one-third of its directors at each annual general meeting - Held,
yes
Facts
The appellants were members of the defendant-company registered under
section 25. Company was incorporated to take over as going concern, the then
unincorporated association and enrol its members of all categories as members
of company. The management of company vested in its board of directors. Article 41 of the articles of association provided that election
for the office of directors would be held only once in five years. The
company held first election to the post of directors. The appellants contested
the election contending that in unincorporated association certain members were
enrolled pursuant to interim order of the Court in a suit, that status and
rights of such members were subject to the result of the suit and that since
the suit was still pending, such members had no right to vote in election of
directors of the company. The appellants further submitted that in any event,
the continuation of the respondents as the members of the managing committee
was contrary to section 255 and the Court should, therefore, grant an
injunction preventing them from usurping the office and acting as members of
the managing committee of the company. The appellants, therefore, filed a suit.
The defendant relied upon section 263A and contended that the provisions of
sections 177, 255, 256 and 263 would not apply to the company as it was a club
which did not carry on business for profit and the articles of association
prohibited payment of dividend to the members. The Civil Judge dismissed the
petition.
On appeal :
Held
During the pendency of the suit in case of
unincorporated association, the defendant No. 1 company was incorporated and registered
under section 25. The members of the unincorporated association were taken as
members of the company. On incorporation, the rights and liabilities of the
members of the company would be governed by the provisions of the Act, and the
articles of association of the company. The restrictions, if any, on their
rights as members of the unincorporated association would not haunt their
rights as members of the company which were governed by its articles and the
Act. As long as their names were entered in the register of members maintained
under section 41, they would have a right to vote under section 87. That right
was not in any way abridged by the order of the High Court. There was no order
of any Court restricting their right to vote as members of that unincorporated
association much less of the defendant No. 1 company. Therefore, the
appellant’s contention that such members had no right to vote was to be
rejected. [
Following propositions emerge from a reading
of sections 255, 256 and 263. In respect of a public company or a private
company which is subsidiary of a public company :
(i) Not more than 1/3rd of the total number of directors can be
the directors who may not be liable for retirement (like directors who are
appointed under an agreement as nominee directors of financial institutions who
have lent money to the company). The remaining directors (hereinafter referred
to as the elected directors) have to be elected in the general meeting.
(ii) Articles may provide for retirement of
all the elected directors at every annual general meeting.
(iii) Unless articles provide for retirement of
all the elected directors at every annual general meeting, 1/3rd of the elected
directors or where number is not divisible by 3, then the number nearest to 1/3rd, shall retire by rotation. The elected directors who
have been longest in office since their last appointment shall retire earlier
than others and as between the elected directors appointed on the same day, in
default of agreement, the retirement will be determined by lots.
(iv) The vacancy caused by retirement of the elected
directors may be filled in by appointment of the retiring directors or any
other directors in their place. The elected directors shall, subject to the
articles, be appointed only at the general meeting of the company.
(v) The resolution regarding appointment of
each of the elected directors shall be moved separately for each elected
director unless the company has earlier unanimously resolved to move the
resolution for appointment of two or more elected directors jointly. [
The articles of association of the
company did not provide for retirement of all the directors every year and,
therefore, 1/3rd of the directors should have retired in the annual general
meeting held in the year 1999, 1/3rd of the directors should have retired in
the annual general meeting held in the year 2000 and 1/3rd of the directors
should have retired in the annual general meeting held in the year 2001.
Therefore, none of the directors
had a right to continue as a director after the annual general meeting of 2001.
[
Section 263A only protects the
provisions in the articles of association of company for the election of all
its directors by ballot. The normal rules that resolution for appointment of
each director should be put to vote individually and that the voting should be
initially by show of hands unless poll is demanded under section 179, are only
permitted to be relaxed by a suitable provision in the articles of association
of a company which does not carry on business for profits or prohibits the
payment of a dividend to its members. It is possible for such a company to
provide by its articles that election of directors shall take place by ballot
and not by show of hands and that the resolution for appointment of each
director need not be moved individually. This is the only concession available
under section 263A. Section 263A cannot mean that all other provisions of
sections 255 and 256 relating to the appointment and retirement of directors
would not also be applied to such a company. [
However, the articles of
association of the defendant No. 1 were not only approved by the Government of
India, but such approval was incorporated in terms of the licence itself.
Furthermore, no amendment to the articles of association was permitted unless a
prior permission of the Central Government was obtained. [
The Central Government had
meticulously read the memorandum of association and articles of association and
after reading all the conditions including article 41, had granted licence
under section 25.
The memorandum of association and the articles
of association of the company had been referred to and approved in the licence
itself. Approval to clause (c) of article 41 of the articles of association, by
necessary implication, amounted to grant of exemption from application of
section 255 to the extent of repugnancy between the two. It is not disputed
that under sub-section (6) of section 25, the Central Government has the power to
grant such exemption. In view of that, it was not necessary for the defendant
No. 1 company to follow the provisions of sections 255 and 256 regarding
electing all directors at every general meeting, or to provide for retirement
of 1/3rd of its directors at each annual general meeting. [
Section 25(6) does not per se exempt a company
licenced under section 25 from the provisions of the Act in general or sections
255 and 256 in particular. In the normal circumstances, the exemption from any
of the provisions of the Act, must be stated expressly
in the terms of the licence. The normal rule is that the Act would override
contrary provisions in the memorandum of association or articles of association
and would apply to cases of repugnancy between the Act and the Memorandum of
Association or the Articles of Association. The provisions in the memorandum of
association or articles of association of a company which are contrary to any
provisions of the Act would to the extent of repugnancy be void. However, it is
permissible for the Central Government to grant exemption either generally or
specifically to a particular company from one or more of the provisions of the
Act under sub-section (6) of section 25. Such exemption should normally be
express. The Courts would not be inclined to cull out the implied exemption. In
the instant case, the defendant No. 1 company was placed with such a situation
that if it followed section 255, it would be committing a breach of article
41(c) and, consequently, breach of the conditions of licence granted to it and
if it followed article 41(c), it would be violating sections 255 and 256.
Therefore, in the instant case, it would have to be held that the company had
been exempted from the application of sections 255 and 256 (to the extent of
holding election of all or 1/3rd of the directors every year) by necessary
implication. [
The appeal was disposed of accordingly.
Krishnaprasad Jwaladutt
Pilani v. Colaba Land & Mills Co. Ltd. AIR 1960 Bom. 312 (para 11).
A.V. Bajaj and Utpal Joshi for the Appellant. Ashok Desai, Jai Chinai,
Harsh A. Desai, C.D. Mehta, Janak Dwarkadas and Ms. N.T. Dutia for
the Respondent.
Judgment
1. Heard the learned counsel for the parties.
2. The
appellants are the members of the Garware Club House - an association
registered as a company on April 6, 1993 after obtaining a licence under
section 25 of the Companies Act, 1956. (for short ‘the
Act’). The company is permitted not to add the word “Limited” at the end of its
name. The main objects as enumerated in clause No. III
of the Memorandum of Association of the Garware Club House - the defendant No.
1 (hereinafter referred to as the company) inter alia are (i) to acquire, and
take over as a going concern the effects, assets and liabilities of the then
unincorporated association known as B.C.A. Garware Club House at Wankhede
Stadium, D Road, Churchgate, Mumbai - 400 020 and enrol its present members of
all categories as members of the company and to run and manage the said B.C.A.
Garware Club House and (ii) to promote, encourage, organise, manage or assist
in the promotion, organisation or management of all forms of athletics, sports,
past timers and recreations, sporting events, entertainments, exhibitions,
display tour and tournaments.
3. The management
of the company vests in its Board of Directors which is called as the Managing
Committee. The directors are called as “the members of the managing committee”
or simply “the Committee members.” The names of the first committee members
were mentioned in clause (b) of Article 25 of the Articles of Association of
the company and their term was for a period of five years commencing from the
date of incorporation. First election to the post of directors (committee
members) was held on 25th September, 1998. The Plaintiff Nos. 1,3,4,5 and 6 in
the Suit No. 5988 of 1998 contested the election. Plaintiff No. 1 was elected
as an Honorary Secretary while plaintiff Nos. 3,4,5
and 6 lost the elections. Thereafter, the suit giving rise to the present
appeal, bearing S.C. Suit No. 5998 of 1998, was filed by the plaintiffs in the
Court of the City Civil Judge, Mumbai for a declaration that the election
conducted by the first defendant company on 25th September, 1998 and/or the
result thereof was illegal, null and void and for a direction to the defendant
No. 1 to hold fresh elections. The grounds for setting aside the election urged
in the suit are :
(i) Bye-laws for election framed by the managing committee were not
approved by the Annual General Meeting. The elections were not as per law and
therefore void;
(ii) Only the members of B.C.A. Garware Club House who were the
members as on 4th December, 1989 were entitled to vote and those who were
subsequently admitted as members of B.C.A. Garware Club House and consequently
became members of the company on its incorporation had no right to vote,
because, they were admitted in pursuance of an interim order dated 4th
December, 1989 passed by this Court (Coram: V.P. Tipnis, J in Civil Application
No. 4347 of 1989 in Appeal from Order No. 1037 of 1987) which restricted their
rights.
(iii) There were malpractices in the elections.
4. By the Notice
of Motion No. 5215 of 1998, the plaintiffs applied for an interim relief restraining
the defendant Nos. 4 to 15 who were elected as directors from acting as the
members of the Managing Committee and prayed for the appointment of an
Administrator in their place. By an order dated 9th October, 2001, the learned
City Civil Judge dismissed the motion. That order is challenged in this appeal.
5. In this court,
the learned counsel for the appellants did not press the third ground of
challenge mentioned above and it is therefore not necessary to consider the
same.
6. There
were some disputes between Bombay Cricket Association (a society registered
under the Societies Registration Act) and B.C.A. Garware Club House (an
unregistered association represented by its office bearers) culminating into a
suit bearing No. 5198 of 1986 being filed in the City Civil Court, Mumbai. In
Civil Application No. 4737 of 1989 in appeals bearing Assessing Officer No.
1057 of 1987 with Assessing Officer No. 1035 of 1987, arising out of an interim
order passed in that suit, this court passed the following order
:
“Heard Mr. Zaiwala for the respondents and Shri Madon for the
Petitioners. The earlier interim order dated 14-12-1987 is modified as under :—
The respondent
or B.C.A. Garware Club House will be at liberty to enrol new members, so as to
increase the total number of members only to 10,500. However, the status and
rights and liabilities of such new members will be subject to the result of the
appeal. No equity or right will be created in their favour by mere fact that
they are made members. This will be clearly made known to the new members
before they are enrolled.”
In pursuance of this order several persons
were enrolled as the members of B.C.A. Garware Club House subject to the final
result of the suit. While deciding the appeals finally, this court directed
that this interim order shall continue to operate during pendency of the suit
in the
7. During the
pendency of Suit No. 5198 of 1986, the defendant No. 1 company was incorporated
and registered under section 25 of the Act. The members of the B.C.A. Garware
Club House were taken as members of the company. On incorporation, the rights
and liabilities of the members of the company would be governed by the
provisions of the Act, and the articles of association of the company. The
restrictions, if any, on their rights as members of B.C.A. Garware Club House
the unincorporated Association - would not haunt their rights as members of the
company which are governed by its articles and the Act. As long as their names
are entered in the register of members maintained under section 41, of the Act,
they would have a right to vote under section 87 of the Act. That right is not
in any way abridged by the order of this Court passed in Assessing Officer Nos.
1057 of 1987 with Assessing Officer No. 1035 of 1987 or the Civil Application
therein. There is no order of any court restricting their right to vote as members
of that unincorporated association (B.C.A. Garware Club House) much less of the
defendant No. 1 company. In the circumstances, the second contention of the
appellants is rejected.
8. The appellants
who were the original plaintiffs have alleged that election bye-laws were
framed by the managing committee without the approval of the General Body. They
have also alleged that the election of the office bearers was illegal, null and
void and have further prayed for injunction restraining the defendants from continuing
as directors/members of the managing committee. Learned counsel for the
appellants submitted that in any event, the continuation of the respondent Nos.
4 to 15 (Original defendant Nos. 4 to 15) as the members of the managing
committee even today, is contrary to section 255 of the Act, and the court
should therefore, grant an injunction preventing them from usurping the office
and acting as members of the managing committee of the company. The learned
counsel for the company and defendant Nos. 4 to 14 submitted that this
challenge to the continuation in office of the respondent Nos. 4 to 15 by
virtue of section 255 of the Companies Act, 1956 was not raised in the suit and
hence cannot be allowed to be raised in the appeal. The issue whether the respondent
Nos. 4 to 15 are today entitled to act as members of managing committee arises
on account of subsequent event viz., passage of time. All the facts which are
necessary for the purpose of considering whether the continuation of the
respondent Nos. 4 to 15 in the office is illegal and invalid are on record.
After this point was raised, the respondents took time to file additional
affidavit and have filed an affidavit dated 11th February, 2003 specifically
dealing with that contention and have also tendered two compilations of
relevant papers. The affidavit and the compilations contain all the necessary
facts. The respondents thus had the full opportunity to meet the contention of
the appellants. In view of this, the objection of the respondents for considering
the submission of the appellants is overruled.
9. Sections 255 and 256 of
the Act, read as under :—
255.
Appointment of directors and proportion of those who are to retire by
rotation.—(1) Unless the articles provide for the retirement of all directors
at every annual general meeting, not less than two-thirds of the total number
of directors of a public company, or a private company which is a subsidiary of
a public company shall,—
(a) be
persons whose period of office is liable to determination by retirement of
directors by rotation; and
(b) save as otherwise expressly provided
in this Act, be appointed by the company in general meeting.
(2) The remaining directors in
the case of any such company, and the directors generally in the case of a private
company which is not a subsidiary of a public company, shall, in default of and
subject to any regulations in the articles of the company, also be appointed by the company in general meeting.
256. Ascertainment of directors
retiring by rotation and filling of vacancies.—(1) At the first annual general
meeting of a public company, or a private company which is a subsidiary of a
public company held next after the date of the general meeting at which the
first directors are appointed in accordance with section 255 and at every
subsequent annual general meeting, one-third of such of the directors for the
time being as are liable to retire by rotation, or if their number is not three
or a multiple of three, then, the number nearest to one-third, shall retire
from office.
(2) The directors to retire by
rotation at every annual general meeting shall be those who have been longest
in office since their last appointment, but as between persons who became
directors on the same day, those who are to retire shall, in default of and
subject to any agreement among themselves, be determined by lot.
(3) At the annual general meeting
at which a director retires as aforesaid, the company may fill up the vacancy
by appointing the retiring director or some other person thereto.
(a) If the place of the
retiring director is not so filled up and the meeting has not expressly
resolved not to fill the vacancy, the meeting shall stand adjourned till the
same day in the next week at the same time and place or if that day is a public
holiday till the next succeeding day which is not a public holiday, at the same
time and place.
(b) If at the adjourned
meeting also, the place of the retiring director is not filled up and that
meeting also has not expressly resolved not to fill the vacancy, the retiring
director shall be deemed to have been reappointed at the adjourned meeting,
unless—
(i) at
that meeting or at the previous meeting a resolution for the reappointment of
such director has been put to the meeting and lost;
(ii) the
retiring director has by a notice in writing addressed to the company or its
board of directors, expressed his unwillingness to be so reappointed;
(iii) he is not qualified or is
disqualified for appointment;
(iv) a
resolution, whether special or ordinary, is required for his appointment or
reappointment in virtue of any provisions of this Act; or
(v) the proviso to sub-section (2) of
section 263 is applicable to the case.
10. Following
propositions emerge from reading sections 255 and 256 and 263. In respect of a
public company or a private company which is subsidiary of a public company.
(i) Not more than 1/3rd of the total number of directors can be
the directors who may not be liable for retirement (like directors who are
appointed under an agreement as nominee directors of financial institutions who
have lent money to the company). The remaining directors (hereinafter referred
to as the elected directors) have to be elected in the general meeting.
(ii) Articles may provide for retirement of all the elected
directors at every Annual General Meeting (for short A.G.M.)
(iii) Unless articles provide for retirement of all the elected
directors at every A.G.M. 1/3rd of the elected directors (or where number is
not divisible by 3, then the number nearest to 1/3rd shall retire by rotation.
The elected directors who have been longest in office since their last
appointment shall retire earlier than others and as between the elected
directors appointed on the same day, in default of agreement, the retirement
will be determined by lots.
(iv) The vacancy caused by retirement of the elected directors may be filled in
by appointment of the retiring directors or any other directors in their place.
The elected directors shall subject to the articles, be appointed only at the
general meeting of the company.
(v) The resolution regarding appointment of each of the elected
directors shall be moved separately for each elected director unless the
company has earlier unanimously resolved to move the resolution for appointment
of two or more elected directors jointly.
11. The articles of
association of the respondent No. 1 company do not provide for retirement of
all the directors every year and, therefore, 1/3rd of the directors should have
retired in the Annual General Meeting held in the year 1999, 1/3rd of the
directors should have retired in the Annual General Meeting held in the year
2000 and 1/3rd of the directors should have retired in the Annual General
Meeting held in the year 2001. In Krishnaprasad Jwaladutt Pilani v. Colaba Land
& Mills Co. Ltd. AIR 1960 Bom. 312, this Court held that the director shall
be deemed to have vacated his office on the latest day on which the Annual
General Meeting in which he was to be re-elected should have been held.
One-third of the number of directors of the company were liable for retirement
every year and thus all the directors should have retired latest by the Annual
General Meeting held in 2001 and therefore, none of the directors have a right
to continue as a director after the Annual General Meeting of 2001.
12.The respondents referred to and relied upon section 263A of the Act and
contended that the provisions of sections 177, 255, 256 and 263 of the Act
would not apply to the respondent No. 1 company as it is a club which does not
carry on business for profit and the Articles of Association prohibit payment
of dividend to the members. Section 263A of the Act reads as under
:
“Sections 177,
255, 256 and 263 not to apply in relation to companies not carrying business for
profit, etc.—Nothing contained in sections 177, 255, 256 and 263 shall affect
any provision in the articles of a company for the election by ballot of all
its directors at each annual general meeting if such company does not carry on
business for profit or prohibits the payment of a dividend to its members.”
13. Reliance was
placed emphatically on the marginal note of section 263A which apparently says
that sections 177, 255, 256 and 263 shall not apply in relation to the
Companies which do not carry on business for profit or prohibit payment of
dividend to its members. It is a well-settled principle of law that marginal
note does not govern the interpretation of the section and cannot be looked
into when the meaning of the section is clear, albeit there is some difference
of opinion as to whether the marginal note can be looked into when the
interpretation of the section is not clear. It is however, not necessary to
look to the marginal note as the wording of section 263A is clear and there is
no ambiguity in its meaning. Section 263A only protects the provisions in the
Articles of Association of a company for the election of all its directors by
ballot. The normal rules that resolution for appointment of each director
should be put to vote individually (See section 263) and that the voting should
be initially by show of hands (See section 177) unless poll is demanded under
section 179 are only permitted to be relaxed by a suitable provision in the
Articles of Association of a company which does not carry on business for
profits or prohibits the payment of a dividend to its members. It is possible
for such a company to provide by its Articles that election of directors shall
take place by ballot and not by show of hands and that the resolution for
appointment of each director need not be moved individually. This is the only
concession available under section 263A of the Act. Section 263A cannot mean
that all other provisions of sections 255 and 256 of the Act relating to the
appointment and retirement of directors would also be not apply
to such a company.
14. Mr. Desai,
learned Counsel for the respondents however, invited my attention to
sub-section (6) of section 25 of the Companies Act, 1956 which reads thus :—
“(6) It shall
not be necessary for a body to which a licence is so granted to use the word
‘Limited’ or the words ‘Private Limited’ as any part of its name and unless its
articles otherwise provide, such body shall, if the Central Government by
general or special order so directs and to the extent specified in the
directions, be exempt from such of the provisions of this Act as may be
specified therein.”
15. It was contended
that the defendant No. 1 company was exempted by the Central Government from
the provisions of sections 255 and 256 of the Act to the extent of holding
elections of all or 1/3rd of the total number of directors every year. My
attention was invited to Clause (c) of Article 41 of the Articles of
Association which reads as :
41. “Business
at Annual General Meeting :
(a) & (b) ** ** **
(c) once in five years to
elect a President, Vice-President, Hon., Treasurer and eight members of the
Committee.” [Emphasis supplied]
16. Clause (c) of
Article 41 specifically provides that elections for the office of directors are
not to be held every year but are to be held only once in five years. Shri
Desai submitted that since these Articles were approved by the Regional
Director exercising the powers of the Government of India, the company has been
exempted from the provisions of sections 255 and 256 of Act to the extent to
which contrary provision is made in Clause (c) of clause 41 of the Articles of
Association of the company.
17. The promoters of
the respondent No. 1 company before its incorporation made an application on
4th/18th December, 1992 to the Regional Director exercising the powers of the
Central Government, for a licence to register a company, under section 25 of
the Act. Along with the application, they submitted copies of the draft
Memorandum of Association and draft Articles of Association of the proposed
company. After exchange of correspondence, by a letter dated 19th March, 1993,
the Regional Director directed the defendant No. 1 company to make certain
modifications in the Articles of Association submitted by the company and further
informed that the application for the licence under section 25 of the Act shall
be processed further on receipt of duly corrected copies of the Memorandum of
Association and Articles of Association of the proposed company. The company
did carry out the amendments as directed. Thereafter, the Regional Director
exercising the powers of the Government of India vide his letter/order dated
1st April, 1993 granted the licence to the defendant No. 1 company permitting
it to register under section 25 of the Companies Act. Clause No. 7 of the said
letter/order is material and reads as under:—
“(7) that no
alternation shall be made to the Memorandum of Association or to the Articles
of Association of the company, which are for the time being in force, unless
the alteration had been previously submitted to and approved by the Central
Government.”
18. It is thus, clear
that the Articles of Association of the defendant No. 1 were not only approved
by the Government of India but, such approval was incorporated in the terms of
the licence itself. Furthermore, no amendment to the Articles of Association
was permitted unless a prior permission of the Central Government was obtained.
19. The company did intend
to amend its Articles of Association regarding the strength of its Board. The
company therefore, by a letter dated 16th October, 1997 requested for
permission of the Central Government for the amendment. It proposed to amend
the strength of the managing committee by adding one more member (director).
The Regional Director exercising the powers of the Central Government by his
letter dated 2nd February, 1998 granted approval to the Articles subject to two
conditions. On request by the company made by letter dated 11th April, 1998 and
after a long correspondence, by a letter dated 16th October, 1996 the Regional
Director deleted the two conditions subject to which the approval was granted.
This shows that the Central Government had meticulously read the Memorandum of
Association and Articles of Association and after reading all the conditions
including Article 41 and had granted licence under section 25. Even at the time
of modification, the Government was careful to impose certain conditions which
were deleted when it was convinced that the conditions were unnecessary. The
Memorandum of Association and the Articles of Association of the company have
been referred to and approved in the licence itself. Approval to clause No. 41
(c) of the Articles of Association, by necessary implication, amounts to grant
of exemption from application of section 255 of the Companies Act, to the
extent of repugnancy between the two. It is not disputed that under sub-section
6 of section 25 of the Act, the Central Government has the power to grant such
exemption. In view of this, it was not necessary for the defendant No. 1
company to follow the provisions of sections 255 and 256 of the Act regarding
electing all directors at every General Meeting, or to provide for retirement
of 1/3rd of its directors at each Annual General Meeting.
20. It must be
clarified that section 25 (6) of the Act, 1956 does not per se exempt a company
licenced under section 25 from the provisions of the Act, in general or
sections 255 and 256 in particular. In the normal circumstances, the exemption
from any of the provisions of the Act, must be stated
expressly in the terms of the licence. The normal rule that the Act, would
override any contrary provisions in the Memorandum of Association or Articles
of Association would apply to cases of repugnancy between the Act and the
Memorandum of Association or the Articles of Association. The provisions in the
Memorandum of Association or Articles of Association of a company which are
contrary to any provisions of the Act would to the extent of repugnancy be
void. However, it is permissible for the Central Government to grant exemption
either generally or specifically to a particular company from one or more of
the provisions of the Act under sub-section (6) of section 25 of the Act. Such
exemption as stated earlier should normally be express. Courts would not be
inclined to cull out the implied exemption. In rare cases, however, exemption
would be required to be inferred by necessary implication. For example where
any provision in the Memorandum of Association or Articles of Association of a
company is so repugnant to the Act, that the two cannot co-exist and where the
terms of the licence granted under section 25 of the Act specifically require
the company to follow the Memorandum of Association or Articles of Association
as sanctioned by the Government and further prohibits any modifications thereof
without previous approval of the Government then the company would be in
difficulty for, if it follows the Act it would violate its Memorandum of
Association or Articles of Association and if it follows the Memorandum of
Association and the Articles of Association it would violate the provisions of
the Act. In the present case, the defendant No. 1 company is placed with such a
situation that if it followed section 255 of the Act, it would be committing a
breach of Article 41(C) and consequently breach the conditions of licence
granted to it and if it follows Article 41(C), it would be violating sections
255 and 256 of the Act. Therefore, in the present case, it will have to be held
that the respondent No. 1 company has been exempted from the application of
sections 255 and 256 of the Act (to the extent of holding election of all or
1/3rd of the directors every year) by necessary implication. Hence, the first
contention of the learned Counsel for the appellant is also rejected.
21. The learned
Counsel for the appellant did not point out any other illegality in the
election of the directors/members of the managing committee of the company. No
other point was canvassed by the appellant’s counsel. Appeal is therefore
dismissed, but in the circumstances of the case without any order as to costs.
[1993] 76 COMP. CAS. 376 (BOM)
HIGH COURT OF
Walvis Flour Mills Co. Pvt. Ltd., In re
G.D.
KAMAT J.
COMPANY PETITION NO. 1 WOF 1992.
SEPTEMBER
18, 1992.
S. Cooper and A.N.S. Nadkarni for
the Petitioner.
R.M.S. Khandeparkar for the Regional Director.
G.D.
Kamat J.—This petition seeks sanction under sections 391 to 394 of
the Companies Act, 1956, for a scheme of amalgamation of five companies. The
petitioner-company is styled as Walvis Flour Mills Co. Pvt. Ltd. It may be made
clear at this stage itself that Prosperity Holdings Private Limited., Messrs.
Alsales Private Limited, Messrs. Resourceful Investments Private Limited and
Messrs. Invaluable Investments Private Limited have been already amalgamated
with Messrs. Sir Mathuradas Vissanji Foundation as transferee company by virtue
of the order dated June 11, 1992, by a learned single judge at Bombay, in
Company Petition No. 708 of 1991, connected with Company Application No. 347 of
1991. The fifth company, namely, Messrs. Walvis Flour Mills Company Private
Limited, could not join in that petition at
This
aspect of the matter is also reflected in the judgment delivered by the learned
single judge dated June 11, 1992. Individual notices to the creditors were
dispensed with by the order made by this court on January 20, 1992, and it was
directed that the petition be fixed for hearing on March 6, 1992.
After
due compliance with the orders and service to the Registrar of Companies, Goa,
and the Regional Director of Company Affairs,
Shri
Cooper, learned counsel appearing for the petitioner company, contended that
the same Regional Director had raised similar objection by an affidavit on
record in Company Petition No. 708 of 1991 disposed of by the learned single
judge on June 11, 1992, in respect of this very scheme for amalgamation and,
that being so, the question of denying any sanction in the present case cannot
arise. According to him, the only reason for instituting the present petition
was that Messrs. Walvis Flour Mills Company Private Limited had its registered
office within the State of
Shri
Khandeparkar, learned counsel opposing this petition, mentions that as it is
the Department is contemplating to prefer an appeal against the order dated
June 11, 1992, sanctioning the scheme of amalgamation. In any case, according
to him, this court ought not to follow the judgment in the other case at
He
relies on the decision of Coimbatore Cotton Mills Ltd. and Lakshmi Mills Co.
Ltd., In re [1980] 50 Comp Cas 623. According to him,
it has been clearly laid down in this authority that the court should normally
be satisfied of four factors before granting any scheme for amalgamation.
Referring to factor No. 3, according to him, while exercising discretion under
sections 391 and 394 of the Companies Act, the court is not acting as a rubber
stamp and that it is the duty of the court to see that the scheme as a whole is
to be adjudged as a reasonable one having regard to the general conditions,
background and the object of the scheme. He now urges that inasmuch as the
order dated June 11, 1992, in the earlier cited company case at
The
learned single judge, while disposing of the case relating to the scheme for
amalgamation of four companies earlier referred to, held that objections raised
by the Regional Director, Bombay, are misconceived and unfounded and that too
by assigning reasons and after having looked into a few authorities as
mentioned therein, reached the conclusion that the objections raised cannot be
sustained. The question as to there being no provision for amalgamation in the
objects clause of the memorandum of association was also considered and it was
held that even in the absence thereof, sanction can be obtained from the court
for a scheme of amalgamation and that such scheme can yet be granted provided
the court is satisfied about the reasonableness of the scheme. In my view,
there can be no doubt that if the transferee company does not carry on business
strictly in accordance with the terms of its memorandum of association and/or
the terms of the licence issued by the Government under the relevant provisions
of the Companies Act, such a contravention can be taken care of and needless to
say it is open to the authorities under the Companies Act to take appropriate
action including the revocation of the licence. Once I come to this position, I
find no difficulty in sanctioning the scheme as prayed for. The transferee
company is directed to file an undertaking that it shall carry on its
activities strictly in accordance with the terms of its own memorandum of
association.
In
addition to this I would say that there is no point in denying sanction in this
case as on similar objections the scheme for amalgamation of the four other
companies with the transferee company has already been sanctioned by a
co-ordinate court at Bombay and it will not be in consonance that this court
should frustrate the scheme in relation to one company, namely, Messrs. Walvis
Flour Mills Company Private Limited, merely because the present petition had to
be filed in Goa where that company has its registered office. This being so,
the petition is allowed and the rule accordingly made absolute with costs of
Rs. 300 to the Department.
Sections 26 to
31
Articles
of association
SCOPE OF ARTICLES IN RELATION TO MEMORANDUM
[1934] 4 COMP. CAS. 1 (PC)
PRIVY COUNCIL
v.
Albert Kerr
LORD MERRIVALE, LORD ALNESS
AND SIR GEORGE LOWNDES
MAY 25, 1933
A. F. Topham,
K. C., and Cecil W. Turner, for the Appellant.
Sir Gerald Hurst, K. C., and R. H.
Hodge, for the Respondents.
Sir George Lowndes.—This
appeal arises out of an originating summons taken out in the Supreme Court of
Trinidad and
When it first came on for hearing before the Board,
only the company appeared, and it was adjourned in order that the preference
shareholders might be represented, as is now the case. It will be convenient to
refer to them in this judgment as the respondents. The interests of the
ordinary shareholders, whose special representative does not appear, are
identical with those of the appellants.
Three questions were submitted for the determination
of the Court, of which the third is alone the subject of the appeal. It is in
the following terms:—
"(3) (a)Is it intra vires
of the Directors of the Company to use and dispose of the said Reserve Fund of
£50,000 for all or any of the purposes set out in sub-section (14) of Clause
119 of the Articles of Association of the Company ?
(b)If yes, is the Company under any
obligation to make up any deficiency arising from such user and disposal ?"
The reserve fund in question was constituted under
Clause 5 of the memorandum of association, which is set out below:
"The share capital of the Company is £170,000,
divided into 85,000 Participating Preference shares of £1 each, and 85,000 Ordinary shares of £1 each. Subject as
hereinafter provided, the rights following shall be attached to the
Participating Preference shares aforesaid :—
(1) The holders of the said Participating
Preference shares shall be entitled to a fixed cumulative preferential dividend
at the rate of eight per cent. per annum on the
capital for the time being paid up thereon, and after payment of such dividend
10 per cent. of the profits of each year shall be set
aside and accumulated as a Reserve Fund until it amounts to .£50,000 and after
setting aside such 10 per cent. and after the holders
of the Ordinary shares shall have received a non-cumulative dividend of 8 per
cent. per annum on the amount for the time being paid
up on their Ordinary shares the holders of the Preference shares shall be
entitled to participate equally with the holders of the Ordinary shares in any
surplus divisible profits of the year until the dividend on the Preference
shares for such year amounts to 10 per cent. per annum
and the holders of the Ordinary shares shall then be entitled to the remainder
of such profits.
(2) The holders of the said Participating
Preference shares shall in a winding-up have priority as to return of capital
over all other shares in the capital for the time being of the Company but shall
not have any further right to participate in profits or assets.
(3) Any Reserve Fund formed under the provisions
herein before contained shall be invested outside the Company's business.
(4) The right hereby attached to the said
Participating Preference shares (including the provisions hereinbefore
contained as to the Reserve Fund) may be modified in accordance with Clause 54
of the accompanying Articles of Association but not otherwise and that clause
and also Clause 155 of the said Articles shall be deemed to be incorporated
herein and have effect accordingly.
(5) Subject at aforesaid shares created upon an
increase of capital may be divided into different classes and may have attached
thereto respectively such preferential and qualified deferred or special
rights, privileges and conditions as may be determined."
The company
was incorporated under the Companies Ordinance, 1913-1914, of
The provision
of a reserve fund is not one of the statutory requirements of a company's
memorandum, and it is, no doubt, unusual to find such prominence given to it.
The only reason for this, in their Lordship's opinion, is that the framers
intended it to be regarded as part of the charter of the company, and as
holding out special attractions to the subscribers of preference shares.
The summons
was heard by the Chief Justice, whose answer to Question 3(a) was in the
negative. No answer therefore was required to 3(b). The company has appealed to
His Majesty in Council and seeks to have the decision of the Chief Justice on
this question reversed.
It is not disputed
before the Board that the constitution of this special reserve fund was part of
the rights of the respondents, but it is said that the memorandum is silent as
to the purposes to which the fund is to be applied :
that this is provided for by Article 119(14) of the articles of association :
and that reading the two together it should be held that the company has the
powers which it claims.
Article
119(14) empowers the Directors of the Company
"to set
aside out of the profits of the Company such sums (in addition to the sums
provided by Article 5, sub-section (1) of the Memorandum of Association to be
set aside as the Reserve Fund therein mentioned) as they think proper as a
Reserve Fund to meet contingencies or for special dividends on for repairing, improving
and maintaining any of the property of the Company and for such other purposes
as the Directors shall in their absolute discretion think conducive to the
interests of the Company ; and to invest the several sums so set aside both
under Article 5, sub-section (1) of the Memorandum of Association and under
this Article upon such investments (other than shares of the Company) as they
may think fit, and from time to time to vary such investments. The Reserve Fund
to be set aside under Article 5, sub-section (1) of the Memorandum of
Association shall be kept invested outside the business until required for any
of the above purposes."
The words relied on by the appellants in support of
the above contentions are "until
required for any of the above purposes," which, it is said, should
be read as providing that the fund in question may be applied to any of the
purposes mentioned.
The learned Chief Justice though it clear upon the terms of the memorandum that this fund was to
be created for the benefit and security of the respondents, and that to accede
to the contention of the appellants would be wholly destructive of this object.
Under these circumstances he held it to be in accordance with a
well-established principle that the memorandum must prevail.
Before their Lordships it has been argued that there
is no such principle, and that, except in respect of such matters as must by
statute be provided for by the memorandum, it is not to be regarded as the
dominant document, but is to be read in conjunction with the articles
:
They find themselves, however, in agreement with the
learned Chief Justice as to the object for which this special reserve fund was
to be created, namely, for the benefit and protection of the respondents, and
they think that this object would be nullified if the fund could be applied,
like any ordinary reserve fund, for the benefit of the company generally. There
is not, in their Lordships' view, any ambiguity in the terms of Clause 5 of the
memorandum which requires explanation, nor any lacuna which requires filling
in, and it is clear by sub-clause (4) that the provisions with regard to this
fund can only be modified by the particular procedure there referred to.
Under these
circumstances, their Lordships are unable to read the two documents as
giving the appellants the power they claim. What exactly the reference in
Article 119(14) to some time when this special fund may be "required for
any of the above purposes" means, it is not easy to say. It may
contemplate some modification of the provisions of the memorandum, to be made
in the authorised way, which would allow of the application of the fund to some
one or other of the purposes referred to; it may have been thought by the
draftsman—their Lordships do not say rightly—that it could be utilized in a
lean year for payment of the preference dividend; or the words may have crept
in per incuriam. Whatever the true explanation may be, their Lordships are
unable to hold, in view of the terms of Clause 5 of the memorandum, that the
company has the wide powers which are claimed for it in respect of the fund,
and they think that Question 3(a) was rightly answered in the Supreme Court.
They will therefore humbly advise His Majesty that this appeal should be
dismissed. In view of the arrangement made between the parties, no order as to
costs will be necessary.
[1992] 73 COMP. CAS. 201(SC)
SUPREME COURT OF
v.
P.B.
SAWANT AND B.P. JEEVAN REDDY JJ
NOVEMBER
28, 1991
K Parasarmi, K.N.
Bhatt and T.K. Seshadri, D.N. Mishra for the appellant.
T.S. Krishnamurthi Iyer, R.N.
Keshwani, K. Ram Kumar, Ms. A.Anjani, A.T. Sampath, Mrs. J.Ramachandra and Sri
Narain for the respondents.
Sawant J.—These two appeals, Civil Appeal No. 1946 of 1980, filed by
defendant No. 1 and Civil Appeal No. 1947 of 1980, filed by defendants Nos. 4
to 6, are against the decision dated February 8, 1980, of the Madras High
Court. The main question that falls for consideration in both the appeals is
whether the shareholders cannot among themselves enter into an agreement which
is contrary to or inconsistent with the articles of association of the company.
The third defendant is a
private limited company which all along had a total shareholding of 50. Before
the joint family of the plaintiffs and defendants came to hold all the 50
shares of the company, the family was a minority shareholder holding 13 shares, the rest 37
shares being held by outsiders. In course of time, the family acquired the rest
37 shares and became the sole shareholder of the company. The family consisted
of Baluswamy Naidu and Guruviah Naidu who were brothers, and each of the
brothers held 25 shares in the company. The plaintiffs and defendants Nos. 1
and 2 and one Selvaraj are the sons of Baluswamy Naidu and defendants Nos. 4 to
6 are the sons of Guruviah Naidu. Baluswamy Naidu died on February 5, 1963, and
Guruviah Naidu died on January 10, 1970. The plaintiffs alleged that in 1951
there was an oral agreement between Baluswamy Naidu and Guruviah Naidu that
each of the branches of the family would always continue to hold an equal
number of shares, viz., 25 and that if any member in either of the branches
wished to sell his share/shares, he would give the first option of purchase to
the members of that branch and only if the offer so made was not accepted, the
shares would be sold to others. Although on behalf of the defendants, it was
disputed that there was any such agreement entered into between the two
brothers, the finding recorded by all the courts below is against the
defendants. It is not in dispute that the articles of association of the
company were not amended to bring them in conformity with the said agreement.
Contrary
to the said agreement, the first defendant, i.e , son of Baluswamy Naidu, sold the shares to
defendants Nos. 4 to 6 who are the sons of Guruviah Naidu. Hence, the
plaintiffs who are Baluswamy's sons filed the present suit for (i) a
declaration that the said sale was void and not binding upon the plaintiffs and
the second defendant (who is also the son of Baluswamy Naidu but was joined as
a pro forma defendant) and for (ii) an order directing defendants Nos. 1 and 4
to 6 to transfer the said shares to the plaintiffs and the second defendant and
for (iii) a permanent injunction restraining defendants Nos. 4 to 6 from
applying for registering the said shares in their names and from acting
adversely to the interests of the plaintiffs and the second defendant on the
basis of the transfer of the said shares.
The
trial court decreed the suit by holding that the sale of the said shares was
invalid and not binding on the plaintiffs and the second defendant and directed
both the first defendant and defendants Nos. 4 to 6 to transfer the said shares
to the plaintiffs, and granted a permanent injunction as prayed for. The
appeals filed by the first defendant and defendants Nos. 4 to 6 were dismissed.
In the second appeals filed by them the High Court held that the courts below
had proceeded on a wrong basis. According to the High Court, the suit was in
effect one to enforce the agreement providing for pre-emption and the court was
entitled to mould the reliefs on the facts proved in the case and, accordingly,
the High Court modified the decree by directing substitution of the plaintiffs as shareholders in place of defendants
Nos. 4 to 6. In other words, the High Court in terms held that (i) the sale of
the shares by the first defendant in favour of defendants Nos. 4 to 6 was
invalid and hence the plaintiffs and the second defendant became entitled to
purchase the said shares, (ii) the agreement was binding on the company, and
(iii) the company was bound in law to register the said shares in the
plaintiffs' names.
Shri Parasaran appearing
for defendants Nos. 4 to 6 in C.A. No. 1946 of 1980 contended that the
agreement in effect imposed an additional restriction on the right to transfer
the shares. The restriction was not envisaged by any of the articles of
association. Hence, it was not binding on any shareholder or a vendee of the
shares from the shareholders. It was also unenforceable at law and, therefore,
not binding on the company. Hence, the sale of the shares by the first
defendant to defendants Nos. 4 to 6 was not invalid and the High Court was
wrong in directing the. transfer of shares in favour
of the plaintiffs. Shri Bhatt appearing for the first defendant (appellant in
C.A. No. 1946 of 1980) contended that assuming that the sale of shares by the
first defendant to defendants Nos. 4 to 6 was invalid in view of the agreement,
the High Court could only have declared that the sale was invalid and it could
not have further directed the transfer of shares in favour of the plaintiffs.
The first defendant could not be forced to sell the shares to the plaintiffs.
Shri Krishnamurthy, on the other hand, contended that (i) the shareholders were
bound by the agreement of 1951 ; (ii) the agreement was entered into to
maintain the ownership of the company in the family and to ensure that the two
branches of the family had an equal share in the management and profits and
losses of the company ; (iii) there was nothing in the articles of association
which prohibited such agreement ; and (iv) the two branches of the family being
parties to the agreement, it was enforceable against them, and the courts have
done nothing more than to enforce the agreement.
The basis of the judgment
and decree of the High Court and of the judgments and decrees of the courts
below is the alleged invalidity of the sale of the shares. It is, therefore,
necessary to understand the true position of law in this behalf. Section 3(iii)
of the Companies Act (hereinafter referred to as 'the Act') defines a private
company to mean a company which by its articles, restricts the right to
transfer its shares, if any, and limits the number of its shares to 50
(excepting employees and ex-employees who were and are members of the company)
and prohibits any invitation to the public to subscribe for any shares in, or
debentures of, the company. Section 26 of the Act provides that in the case of
a private company limited by shares, such as the third defendant-company, there shall be
registered with the memorandum, articles of association signed by the subscribers of the memorandum
prescribing regulations for the company. Section 28 provides that the articles
of association of a company limited by shares may adopt all or any of the
regulations contained in Table A in Schedule I to the
Act. Section 31 provides for alteration of the articles by a special resolution
of the company. Section 36 states that when the memorandum and articles of
association are registered, they bind the company and the members thereof.
Section 39 provides for supply of copies of the memorandum and articles of
association to a member. Section 40 makes it mandatory to incorporate any
changes in the articles of association in every copy of the articles of
association. Section 82 defines the nature of shares and states that the shares
or other interests of any member in a company shall be movable property
transferable in the manner provided by the articles of association of the
company.
These
provisions of the Act make it clear that the articles of association are the
regulations of the company binding on the company and on its shareholders and
that the shares are movable property and their transfer is regulated by the
articles of association of the company.
Whether
under the Companies Act or the Transfer of Property Act, the shares are,
therefore, transferable like any other movable property. The only restriction
on the transfer of the shares of a company is as laid down in its articles, if
any. a restriction which is not specified in the
articles is, therefore, not binding either on the company or on the
shareholders. The vendee of the shares cannot be denied registration of the
shares purchased by him on a ground other than that stated in the articles.
We
may refer to certain authorities which reinforce the above proposition.
In
Shanti Prasad v. Kalinga Tubes Ltd. [1965] 35 Comp Cas 351 ; [1965] 2 SCR 720,
it was also a case of a battle between two groups of shareholders led by P/L as
they were named in the decision. In July, 1954, these two groups who held an
equal number of shares of the value of Rs. 21 lakhs, out of a total share
capital of Rs. 25 lakhs, in the company which was then a private company,
entered into an agreement with the appellant who was a third party and certain
terms were agreed to. Various resolutions were passed by the company to
implement the agreement. However, neither the articles of association were
changed to embody the terms of the agreement nor the resolutions passed
referred to the agreement. In 1956-57, the company desired to raise a loan from
the Industrial Finance Corporation and as per the requirement of the
Corporation, in January, 1957, the company was converted into a public company
and appropriate amendments for the purpose were made in the articles. However, even on this occasion, the
agreement of July, 1954, was not incorporated in the articles. Disputes having
arisen, the matter reached the court. The appellant claimed the benefit of the
agreement of July, 1954. It was held by this court that the said agreement was
not binding even on the private company and much less so on the public company
when it came into existence in 1957. It was an agreement between a non-member
and two members of the company and although for some time the agreement was in
the main carried out, some of its terms could .not be put in the articles of
association of the public company. As the company was not bound by the
agreement, it was not enforceable.
In Swaledale Cleaners Ltd.,
In re [1968] 1 All ER 1132, it was held that it is well-established that a
share in a company is an item of property freely alienable in the absence of
express restrictions under the articles. This view is reiterated in Teit v.
Phoenix Property and Investment Co. Ltd. [1986] 2 BCC 99, 140.
In Chapter 16 of
Gore-Browne on Companies, 43rd edition, while dealing with transfer of shares,
it is stated that subject to certain limited restrictions imposed by law, a
shareholder has prima facie the right to transfer his shares when and to whom
he pleases. This freedom to transfer may, however, be
significantly curtailed by provisions in the articles. In determining the
extent of any restriction on transfer contained in the articles, a strict
construction is adopted. The restriction must be set out expressly or must
arise by necessary implication and any ambiguous provision is construed in
favour of the shareholder wishing to transfer.
In Palmer's Company Law,
24th edition, dealing with the "transfer of shares", it is stated at
page 608-9 that it is well settled that unless the articles otherwise provide,
the shareholder has a free right to transfer to whom he wills. It is not
necessary to seek in the articles for a power to transfer, for the Act (the
English Act of 1980) itself gives such a power. It is only necessary to look to
the articles to ascertain the restrictions, if any, upon it. Thus a member has
a right to transfer his share/shares to another person unless this right is
clearly taken away by the articles.
In Halsbury's Laws of
England, 4th edition, para 359, dealing with "attributes of shares"
it is stated that "a share is a right to a specified amount of the share
capital of a company carrying with it certain rights and liabilities while the
company is a going concern and in its winding up. The shares or other interests
of any member in a company are personal estate transferable in the manner
provided by its articles and are not of the nature of real estate".
Dealing
with "restrictions on transfer of shares" in Pennington's Company
Law, 6th edition, at page 753, it is stated that shares are presumed to be
freely transferable and restrictions on their transfer are construed strictly
and so when a restriction is capable of two meanings, the less restrictive
interpretation will be adopted by the court. It is also made clear that these
restrictions have to be embodied in the articles of association.
Against
the background of the aforesaid legal position, we may now examine the articles
of association of the third defendant-company. It is not disputed before us
that the only article of the articles of association of the company which
places a restriction on the transfer of shares is article 13. The article reads
as follows :
"13.
No new member shall be admitted except with the consent of the majority of the
members. On the death of any member his heir or heirs or nominee, shall be
admitted as member. If such heir, heirs or nominee is/are unwilling to become a
member, such share capital shall be distributed at par among the members equally
or transferred to any new member with the consent of the majority of the
members".
The
aforesaid article in effect consists of three parts. The first part states that
no new member shall be admitted except with the consent of the majority of the
members. The second part states that on the death of any member, his heir or
heirs or nominee/s shall be admitted as member(s). The third part states that
if such heir or heirs or nominee/s is/are unwilling to become member(s), the
share capital of the deceased member shall be distributed among the existing
members equally or transferred to any new member with the consent of the
majority of the members. It is, therefore, clear that even a new member can be
admitted provided the majority of the members are agreeable to do so. It also
appears from the word "nominee" that a living member has a right to
nominate even a third party to succeed him as a member on his death. Further,
the restriction on transfer by way of a right of pre-emption which is incorporated
in the third part of the article is only in respect of the shareholding of the
deceased member and not of a living member. Whereas the heirs/nominees are as a
matter of right entitled to become members if they are willing to do so, the
restriction on the transfer of shares steps in only when they are unwilling to
become members. The restriction states that in the latter event the shares of
the deceased member shall be first distributed among the existing members
equally and if they are to be transferred to any new member, it would be done
so with the consent of the majority of the existing members. It may be noticed
from this restriction, that firstly there is no limitation on the transfer of
his shares by a living member either to the existing member or to a new member.
The only condition is that when the transfer
is made to a new member, it will have to be approved by the majority of the
members. The transfer may be to any existing member whether he belongs to one
or the other branch of the family and in such case there is no need for consent
of the majority of the members. The article in fact envisages the distribution
of the shareholding of the deceased member (and not of the living member)
equally among the members of both branches of the family and not of any one of
the branches only. Even the shares of the deceased member can be transferred to
any new member when his heirs/ nominees are net willing to become members.
However, this can be done only with the consent of the majority of the members.
Hence, the private
agreement which is relied upon by the plaintiffs whereunder there is a
restriction on a living member to transfer his shareholding only to the branch
of family to which he belongs in terms imposes two restrictions which are not
stipulated in the article. Firstly, it imposes a restriction on a living member
to transfer the shares only to the existing members and secondly the transfer
has to be only to a member belonging to the same branch of family. The
agreement obviously, therefore, imposes additional restrictions on the member's
right to transfer his shares which are contrary to the provisions of article
13. They are, therefore, not binding either on the shareholders or on the
company. In view of this legal position, the finding recorded by the courts
below that the sale by the first defendant of his shares to defendants Nos. 4
to 6 is invalid as it is in breach of the agreement, is erroneous in law. In
view of our above finding, it is unnecessary to go into the question whether
the High Court was justified in directing the transfer of shares by defendants
Nos. 4 to 6 to the plaintiffs even if its finding that
the sale was invalid was correct.
In the circumstances, the
appeals are allowed, the decree of the High Court is set aside and the
plaintiffs' suit is dismissed with costs.
[1988] 64 COMP. CAS. 425 (MAD.)
HIGH COURT OF
Ramakrishna Industries (P.)
Ltd.
v.
JULY 9, 1985
JUDGMENT
V. Ramaswami, J.—O.S.A. No. 128 of 1981 is against the order dated August
19, 1981, in Company Application No. 844 of 1981 and 0. S. A. No. 189 of 1981
is against the order dated December 7, 1981, in Company Application No. 843 of
1981. Both these applications were filed pending Company Petition No. 30 of
1981, which is a petition filed under sections 433(e) and (f), 434 and
439(1)(b), (c) and (d) of the Companies Act, 1956, for winding up of a company
by name Ramakrishna Industries Private Ltd. Company Application No. 843 of 1981
is for the appointment of a provisional liquidator pending disposal of the main
company petition and C.A. No. 844 of 1981 is an application filed under rule 11
of the Companies (Court) Rules, 1959, read with Order 39, rule 1, Civil
Procedure Code, for an order of injunction restraining the appellants herein
from borrowing any moneys from banks, financial institutions or others without
the prior permission of the court and from alienating and/or creating any
charge or encumbrance over any of the assets of the company in its various
enterprises, pending disposal of the winding-up petition.
On July 13, 1981, the
company petition and also the two
"In
the result, there will be an injunction restraining respondents Nos. 1 to 6
from borrowing any moneys from banks, financial institutions or others and from
alienating and/or creating any charge or encumbrances over any of the assets of
the first respondent company in its various enterprises except that the first
respondent company is entitled to honour any pending contracts entered into by
the company with third parties before the presentation of this application, all
its existing commitments vis-a-vis its staff and labourers, electric charges,
central excise duty, LIC premium, payments due to employees' co-operative
stores, telephone bills and sales tax due, availing of the existing bank
facilities with any of its bankers subject to the condition that the
particulars for all these payments and the source from which such payments were
to be met, are furnished in detail in the applications. It is made clear that
the company is always at liberty to approach the court for further directions
and that the applicants' right to impugn any such transaction under section
536(2) is left untouched"
Against
this order, O.S.A. No. 128 of 1981 has been filed. By another order dated
December 7, 1981, in C.A. No. 843 of 1981, the learned judge appointed the
official liquidator as the provisional liquidator pending the winding-up
petition. Against this order, O.S.A. No. 189 of 1981 has been filed.
Both
before the learned single judge and before us, learned counsel for the
appellants questioned the maintainability of the application for injunction.
This was on the ground that the main winding-up petition was not set for hearing
on that date and that, therefore, section 443 of the Companies Act cannot be
invoked by the applicants and that the applications cannot also be sustained
either under Order 39, rule 1, of the Civil Procedure Code or rule IX of the
Companies (Court) R0ules, 1959.
The
relevant portion of section 443(1) reads:
"(1)
On hearing a winding-up petition, the court may—
(a) dismiss it, with or without costs; or
(b) adjourn the hearing conditionally or unconditionally; or
(c) make an interim order that it thinks fit; or
(d) make an order
for winding up the company with or without costs, or any other order that it
thinks fit".
The argument of learned
counsel for the appellants is that on July 13, 1981, the learned judge has
ordered notice for the hearing of the company petition on August 11, 1981, and
only when the company petition was to be taken up for hearing on August 11,
1981, the court would get jurisdiction to make any interim order and not on the
date when the company petition was admitted and notice of hearing was ordered.
We are of the view that the hearing of the winding-up petition starts even on. the day when the winding-up petition is admitted and
entertained and the order of notice for the hearing to the respondents after
deciding to entertain would amount to a hearing of the winding-up petition
itself. The words "on hearing a winding-up petition" would cover the
entire period from the date of entertainment and issuing of notice till an
actual order of winding-up is made or the winding-up petition is dismissed.
"Hearing" does not mean hearing the respondent to the company
petition. Hearing of the petitioner for the purpose of admitting the petition
and issuing notice is also part of the hearing of the winding-up petition. In
fact, the Supreme Court in Hind Overseas (P)Ltd.v.
Raghunath Prasad Jhunjhunwalla [1976] 46 Comp Cas 91 held (at page 105):
"A prima facie case
has to be made out before the court can take any action in the matter. Even
admission of a petition which will lead to advertisement of the winding-up
proceedings is likely to cause immense injury to the company if ultimately the
application has to be dismissed. The interest of the applicant alone is not of
predominant consideration. The interests of the shareholders of the company as
a whole apart from those of other interests have to be kept in mind at the time
of consideration as to whether the application should be admitted on the
allegations mentioned in the petition".
Again, section 441(2)
specifically states that the winding-up of a company by the court shall be
deemed to commence at the time of the prosecution of the petition for
winding-up and, therefore, from the date of presentation of the winding-up
petition, the court gets jurisdiction. Section 450 also makes this very clear.
Sub-sections (1) and (2) of this section provide that at any time after the
presentation of the winding-up petition and before the making of the winding-up
order, the court may, for special reasons to be recorded in writing, dispense
with the notice to the company and appoint a provisional liquidator
straightway. These provisions clearly establish that the court's jurisdiction
to make interim orders is not postponed till the date set for hearing of the
company petition after notice to respondents. In fact, this point is concluded
by a Bench decision of this court in Ramakrishna Industries P. Ltd. v. P. R.
Ramakrishnan [1983] II MLJ 227. It may be mentioned that case also related to
the same company. On the same day along with CA Nos. 843 and 844 of 1981, the respondents
herein also filed CA No. 845 of 1981, for the appointment of a Court
Commissioner to take an inventory of the assets and accounts of the company.
That application also came up for orders along with these applications which
are the subject-matter of the appeals and by an ex parte interim order made on
July 13, 1981, the learned company court judge appointed a Commissioner and
that was questioned in the appeal. One of the objections of the appellants was
that the learned judge had no jurisdiction to pass an interim order under
section 443(1)(c) at the stage of admission of the winding-up petition and that
only at the time of the hearing of the winding up petition the company court
can make interim orders. While rejecting this contention, the Bench has
observed (at page 233):
"In our judgment, the
investiture of the court with the winding up jurisdiction, as of other powers,
must be interpreted as adding to the gamut of the court's existing jurisdiction.
It would be a mistake to interpret the statute as stripping the court of all
its powers first, and then conferring on it only such powers as are permitted,
say by section 443(1) and other related provisions. We are satisfied that
having regard to the scheme of the Companies Act, we cannot read any provision
in the statute which relates to jurisdiction of courts, as being in derogation
of the full plenitude of the court's powers under the common law, unless we can
find in it a clearly expressed, or equally clearly implicit, bar of restriction
of the court's jurisdiction.
We think it necessary for
courts to construe statutes, such as the Companies Act, according to the wisdom
of Parliament and not according to the folly of the draftsman. Section 443(1)
is a case in point. The section sets about enumerating the different ways in
which the court can tackle a winding-up petition when it comes before it for
hearing. The section, in this context, enumerates the court's powers. But there
are certain things which go without saying or ought to. Adjournment, for
instance, is one of them; you cannot regard it as a remarkable aspect of
judicial power. And yet, clause (b) of section 443(1) very seriously mentions
adjournment as one of the ways in which the court can give a disposal to the
petition on the day of the hearing. This is quite an insane provision. Even
without it, nobody would contend and certainly not practising lawyers, that a
winding-up court has no power to adjourn the petition, but must get on with it
even at the first hearing. Nor, for that matter, would any one argue that
because of clause (b), the court has lost its power, to grant adjournments on
other occasions. So too is the case with clause (c) of section 443(1) which
refers to the passing of interim orders. The presence of this clause in section
443(1) cannot mean that, but for it, the court will have no power to pass any
interim orders at any time, or, because of its presence in section 443(1), its
existence or exercise on other occasions must be ruled out. Courts and lawyers
should read Acts of Parliament sensibly. They should not match the denseness of
the draftsman with a dithering denseness on their part. We are satisfied that
section 443(1)(c) has not the hidden meaning which Mr. Biksheswaran attributes
to it, namely, that no interim order can be passed by a winding-up court at the
time of admission of the winding-up application"
In
National Conduits P. Ltd. v. S. S. Arora [1967] 37 Comp Cas
786 the Supreme Court was considering the question
whether a petition for winding-up cannot be placed for hearing before the court
unless the petition is advertised. In that case, a director of the company
presented a petition in the High Court of Delhi under sections 433 and 439 of
the Companies Act for an order of compulsory winding-up of the company. Notice
of the petition was ordered to the company. The company filed an application
that the winding-up petition filed by the director be dismissed and that the
petition in the meantime not be advertised. The
company petition was dismissed without advertisement on the ground that the
proper remedy of the petitioner on the allegations of mismanagement of the
affairs of the company and oppression of the minority shareholders was to file
a petition under sections 397 and 398 of the Companies Act and the petition was
instituted with a view to unfairly prejudice the interests of the shareholders
of the company. After referring to rules 24 and 96 of the Companies (Court)
Rules, 1959, the Supreme Court observed (at page 788):
"A petition for
winding-up cannot be placed for hearing before the court, unless the petition
is advertised; that is clear from the terms of rule 24(2). But that is not to
say that as soon as the petition is admitted, it must be advertised. In answer
to a notice to show cause why a petition for
winding-up be not admitted, the company may show cause and contend that the
filing of the petition amounts to an abuse of the process of the court. If the
petition is admitted, it is still open to the company to move the court that in
the interest of justice or to prevent abuse of the process of the court, the
petition be not advertised. Such an application may be made where the court has
issued notice under the last clause of rule 96, and even when there is
unconditional admission of the petition for winding-up. The power to entertain
such an application of the company is inherent in the court, and rule 9 of the
Companies (Court) Rules, 1959, which reads: Nothing in these rules shall be
deemed to limit or otherwise affect the inherent powers of the court to give
such directions or pass such orders as may be necessary for the ends of justice
or to prevent abuse of the process of the court' ".
These are clear authorities
for the position that even at the stage of admitting the winding-up petition,
or entertaining the winding-up petition, the court has also an inherent power
to do that which is necessary to prevent the abuse of the process of the court
or to advance the cause of justice or make such orders which are necessary to
meet the ends of justice. That inherent power of the court is not taken away or
in any way restricted by section 443(1) of the Companies Act. We are,
therefore, unable to agree with the contention of learned counsel for the
appellants that till the date set for hearing of the petition, the hearing of
the company petition had not commenced and that the court had no jurisdiction
to pass any interim orders.
We may also point out that
in this case, the facts actually show that the hearing of the company petition
had, in fact, commenced on July 13, 1981. When the applications were moved
before the learned judge and the learned judge ordered notice of four weeks for
hearing in C. P. No. 30 of 1981, Miss Bhanumathi, an advocate of this court,
represented that she has instructions to appear and undertook to file vakalat
for the appellants herein and that they oppose the application and that time
might be granted to enable them to file their counter. It is admitted by
learned counsel for the appellants that such a practice of taking notice on
behalf of the respondents is in vogue and the courts have been adopting such a
practice. Therefore, when the learned advocate took notice and undertook to
appear for the appellants herein, it only means that the company, had appeared
before the court and the hearing of the winding-up petition itself had
commenced. In fact, the company had given a vakalat on July 14, 1981, and
counsel appeared for the hearing of the applications on the adjourned date on
July 27, 1981. In fact, that the appellants herein were represented by a
counsel and took notice of the applications and time was taken for filing
counter was never denied and, in fact, especially admitted in paragraph 4 of
the affidavit filed in support of CMP No. 7342 of 1981 in OSA No. 97 of 1981
and also in ground No. 4 of the grounds in that OSA. Therefore, it is clear
that the company had appeared before the court on July 13, 1981, and objected
to any order being made without giving them time for filing a counter and that,
therefore, in any case the hearing of the winding-up petition shall be deemed
to have commenced. We are, therefore, unable to accept the contention of
learned counsel for the appellants that the applications were not maintainable
under section 443 of the Companies Act.
The learned judge gave a
finding that the company is out and out a domestic one, that the shareholding
by each of the two branches of the founder's sons, namely, one belonging to
appellants Nos. 2 to 5 and respondent No. 6 and the other represented by
respondents Nos. 1 to 5, was almost equal, that the two brothers, namely, the
third appellant and the first respondent, have the right of equal participation
in the management and in the affairs of the company and that the right of equal
participation by the two branches represented by the third appellant on the one
hand and the first respondent on the other is guaranteed under the constitution
of the company. The learned judge was also of the view that the substratum of
the company is based on the cordiality and mutual trust and confidence expected
of both the brothers and when such cordiality and co-ordination anxiously
intended to be preserved by the constitution of the company is completely
undermined, there is complete and irrevocable deadlock in the company on
account of lack of probity. The learned judge further held that the company is
in reality a partnership concern under the garb of a corporate veil. He then
referred to article 38 of the articles of association and held that this
article enables any member to apply for immediate winding-up of the company
should there be any disagreement between the two brothers and, in fact, it is
the only solution contemplated. In view of the open differences and complete
deadlock and the virtual exclusion of the first respondent by the appellants in
the management, the learned judge was of the further view that the balance of
convenience is in favour of grant of an injunction and accordingly made the
injunction order as stated above. The learned judge also held that the
appellants are guilty of mismanagement of the affairs of the company and
diversion of the funds of the company to their personal use as also
manipulating the books of account and that by the appointment of a provisional liquidator
there will be a successful prevention of fraudulent preference and appointed
the official liquidator as provisional liquidator.
Learned counsel for the
appellants seems to have contended before the learned single judge that it
cannot be said that the shareholding by the third appellant's branch on the one
hand and the branch of the first respondent on the other was equal and that if
the shareholding was not equal there is no room for the contention that the
respondents had an equal right in the management of and participation in the
affairs of the company. This contention seems to have baen raised on the basis
that the third appellant got transferred to himself as managing trustee 300
shares held by V. Rangaswami Naidu Educational Trust and if that is taken into
account the respondents would be holding only 38.12 per cent of the issued
capital and the appellants' family would be holding 59.02 per cent. Learned
counsel seemed to have further placed reliance on the amended articles 30 and
31 of the articles of association also in support of the contention that it is
not possible to hold that the two branches have the right of equal management
of and participation in the affairs of the company.
The third appellant and the
first respondent are shown as the promoters of the company, though there is no
dispute that their father is the founder of the company. The nominal capital of
the company is Rs. 20,00,000 divided into 2,000 equity
shares of Rs. 1,000 each. The issued, subscribed and paid-up capital is Rs. 15,95,000 divided into 1,595 equity shares of Rs. 1,000 each.
The family of the first respondent is holding 608 equity shares of the face
value of Rs. 1,000 each. The family of the third appellant is holding 642
shares of Rs. 1,000 each. A trust by name V. Rangasvvami Naidu Educational
Trust was holding 300 shares of Rs. 1,000 each. The trust was founded by the
father of the third appellant and the first respondent. The third appellant,
the first respondent and their father, V. Rangaswami Naidu, were the founder-trustees
for life. The father is now dead and the third appellant and the first
respondent are now the family trustees for life. It was contended on behalf of
the appellants that the third respondent got transferred to himself as
management trustee the 300 shares held by the trust by virtue of a resolution
passed through circulation to the members of the company. The allegation of
transfer was disputed by the respondents herein.
The learned judge after
going into this question factually found that the appellants have failed to
establish that there was a transfer of 300 shares of the trust in favour of the
third appellant. This finding of fact is not canvassed before us and no
reliable evidence was also produced before us evidencing such tranfer. In the
circumstances, therefore, we have no hesitation in holding that the shares held
by the two branches are almost equal.
Articles 30 and 31 of the
articles of association before they were amended in 1971 in the extraordinary
general meeting of the company held on September 25, 1971, read as follows:
"30. The general management of the affairs of
the company shall vest in the two life directors. The two life directors, their
successors and nominees shall alone exercise all the powers and be entitled to
manage the affairs of the company.
31. Mr. P. R. Ramakrishnan shall be styled
as the managing director of the company and he shall be paid a remuneration of
not less than Rs. 1,000 a month during the tenure of his office".;
The amended articles 30 and
31 read as follows:
"30. The general management and administration
of the affairs and matters of the company shall vest in two life directors who
may be appointed from time to time.
31. Sri V. Raj Kumar shall be the managing
director of the company and he shall be paid such remuneration as may be fixed
by the board of directors from time to time".
On the basis of these
amendments, learned counsel for the appellants seems to have urged before the
learned single judge that the management of the company vested in the sets of
directors, namely, two life directors and a resident director. After a
consideration of the arguments, the learned judge rejected the contention of
the appellants, that equality in participation which was provided in the
unamended articles 30 and 31 is destroyed by the amendment. The learned judge
also did not accept the contention that articles 20, 21 and 24 ruled out the
possibility of equal participation in the management of the affairs of the
company between the two life directors. We have to point out that this finding
of the learned judge was also not canvassed by counsel for the appellants
before us. In the light of these facts, we confirm the finding that the first
appellant company is out and out a domestic one, that the management of the company
vested in the life directors and continued to vest even after them in their
successors in interest and nominees, that the right of equal participation by
the two branches each represented by the first respondent on the one hand and
the third appellant on the other was guaranteed under the constitution of the
company and that the shareholding by each was almost equal.
Learned counsel for the
appellants contended that article 30 of the articles of association which was
heavily relied on by the learned judge in support of his finding that a prima
facie case has been made out for winding up the company under section 433(f),
is void under section 9 of the Companies Act on the ground that it is opposed
to the provisions of section 433(f) and also on the ground that it is opposed
to public policy. The learned judge has overruled this objection holding that
article 38 does not run counter to section 9 of the Act or the provisions of
section 433(f). Article 38 of the articles of association reads as follows:
"In the event of
disagreement between the directors at any time prejudicially affecting the
emoluments or the interests of any member of the board, then the aggrieved
party may either sell his shares to the other members at a fair value or
purchase the share of the other members at a fair price, thus settling the
matter between them. In case any member fails to agree to the method above said
to end the deadlock, then the company shall be wound up forthwith, and for the
purpose of realisation of assets, the assets may either be sold for monetary
consideration or may be distributed among the members in specie provided all
the debts and liabilities due by the company shall entirely be discharged. For
the purpose of the special resolution, every member shall vote in favour of the
resolution for winding up when such contingencies arise".
It is well-settled that the
articles of association will have a contractual force between the company and
its members as also between members inter se in relation to their rights as
such members. Therefore, the parties are bound by such contractual obligations.
Section 9 of the Companies Act provides that save as otherwise expressly
provided in the Act, the provisions of this Act shall have effect
notwithstanding anything to the contrary contained in the memorandum or
articles of a company and that any provision contained in the memorandum and
articles shall, to the extent to which it is repugnant to the provisions of the
Act, become void. It was contended, on behalf of the appellant, that the
provisions of article 38 are void in so far as they enabled the company to be
wound upon a ground which is not specified under section 433 of the Companies
Act. We are unable to agree with learned counsel that article 38 adds any ground for winding up other than those specified in
section 433. As may be seen from the last sentence in that article, the company
passes a special resolution for winding up when such a contingency arises.
Section 433(a) contemplates the company resolving by a special resolution that
it may be wound up by the court. It is this resolution for voluntary
liquidation that is provided under article 38 also and, therefore, it could not
be contended that it adds any new ground to section 433. It is also not
contrary to and does not in any way affect the power of the court to order a
company to be wound up when it is of opinion that it is just and equitable. The
court may consider that in a case where article 38 is applicable, it will be
just and equitable to wind up. The power of the court is not in any way
fettered in considering whether to pass an order of winding up or not in
exercise of its power under section 433(f). Necessarily, the court may while
considering the question whether it is just and equitable that the company
should be wound up (sic). But it cannot be contended that it is in any way
derogatory to the powers of the court under section 433(f) We
are, therefore, of the view that article 38 is valid and binding on the company
and its members.
It was then contended by
learned counsel for the appellants that till the provision in the first limb of
article 38 is complied with, the second limb will not come into operation, that
the conditions specified in the first limb of article 38 have not been complied
with by the respondents and that since it is the respondents who complained that the
appellants have acted detrimentally to their interests they should have offered
to sell the shares to the appellants, that the appellants have a right to
purchase the shares at a fair price to be fixed in conformity with the articles
and, that it is only when the appellants fail to agree to purchase the shares
at a fair value to be fixed that the contingency, namely, that the company
should be wound up would arise. In the instant case since there had been no
offer at all by the respondents to sell the shares, they are not entitled to
invoke to their aid the second limb of article 38. Learned counsel for the
appellants also contended that the learned judge erred in construing article 38
in isolation. The learned judge has overruled this contention of the appellants
and held that it was unnecessary to claim the relief under the second limb of
article 38 to go through the farce of the offer of selling the shares and
awaiting the rejection thereof. It is the disagreement that would matter. The
learned judge also held that the disagreement within the meaning of article 38
relates to the "method" as such but not to the several processes
involved in the said method such as a member offering his share for sale and
the other member refusing to purchase the share at the fair value to be fixed
in conformity with the articles. Since the respondents herein have stated that
they are not willing to adopt the method provided for in the first part of
article 38, automatically they are entitled to proceed on that basis and claim
that the company should be wound up forthwith.
We
are in agreement with the learned judge that the two limbs of article 38
provide for two different methods of settling the deadlock. It is open to the
party aggrieved to choose either of the methods to end the deadlock. If he
chooses the first method, he has to offer his shares to the other members at a
fair value or offer to purchase the share of the other members at a fair price.
If the other party agrees to sell or purchase, the deadlock is ended by such
settlement. This part uses the words that the aggrieved party may either sell
his shares or purchase the shares of the others and thus settle the matter. The
right is thus to purchase the others' shares or sell his shares. The word
"may" here cannot also be read as "shall"; if the word
"may" cannot be read as "shall",
it is obvious that the first part also deals with the method of settlement and
not a condition for invoking the second limb of article 38. If the member does
not want to get the matter settled by the process contemplated in the first
part, then he is entitled to invoke the method provided for in the second part.
It
may also be seen that the words "any member" in the second limb of
article 38 are wide enough to include any member who may or may not be an aggrieved party. The aggrieved party may
refuse to sell or purchase or it may be the other party who refuses to purchase
or sell at a fair price. The only condition is that he should be a person who
is not willing to follow the procedure prescribed in the first limb. In this
case, the respondents have stated that they are not willing to adopt the method
provided for in the first limb. They are entitled to state that they are not
willing to agree to the methods provided therein to end the deadlock. In fact,
the learned judge has referred to the wide and open differences between the
respondents' group and the appellants' group and has also catalogued the
complaints of the respondents against the appellants. In the light of those
circumstances there can be no doubt that it would be asking for the moon to
expect the parties to agree to the method contemplated under the first limb of
article 38. We also agree with the learned judge that it is unnecessary in
order to claim the relief under the second limb of article 38 to go through the
farce of offering to sell or purchase the shares and that it is the disagreement
that mattered. We may also point out that the respondents have expressed that
the appellants would not have the fair value fixed, when they have the majority
in the meeting and it would be a futile exercise to go through the formality.
In the light of the mutual distrust and lack of confidence among the two
warring groups, we are also satisfied that it is highly improbable that there
would be any agreement between the parties to settle their disputes.
In consonance with the
right of equal participation in the management and in the affairs of the
company, article 38 also guarantees that should there be any disagreement
between the two brothers, the only solution is to have
the company wound up. The object and purpose of article 38 also seem to us to
be to guarantee against any undue advantage to any one branch and to ensure,
under the threat of losing the entire business itself, that better sense would
prevail and the brothers would co-ordinate with each other and that one does
not exclude the other from active participation in the management and affairs
of the company. In the circumstances, therefore, we entirely agree with the
learned judge that the substratum of the company is based on the cordiality and
mutual trust and confidence expected of both the brothers in the smooth running
of the company. When such cordiality and co-ordination is completely undermined
as found by the learned judge with which we agree,
there could be no doubt that there is a complete and irresolvable deadlock in
the company on account of lack of probity and there is no hope or possibility
of smooth and efficient continuance of the company as a commercial concern.
The
Supreme Court in Hind Overseas (P.)
Ltd. v. Raghunath Prasad Jhunjhunwalla[1976]46 Comp
Cas 91 (at page 104), observed that:
"...when shareholding
is more or less equal and there is a case of complete deadlock in the company
on account of lack of probity in the management of the company and there is no hope
or possibility of smooth and efficient continuance of the company as a
commercial concern, there may arise a case for winding-up on the just and
equitable ground".
There could, therefore, be
no doubt that a prima facie case for winding-up under section 433(f) has been
made out.
The amendment to article 15
has in no way affected the scope or interpretation of article 38. Under article
15, as it originally stood, there was an embargo on selling the shares to an
outsider under any circumstances. The amended provision only enables the
selling of the shares to an outsider in certain circumstances.
Learned counsel for the
appellants then contended that no grounds have been made out in the common
affidavit, filed in support of C. A. Nos. 843 and 844 of 1981 and also in the
affidavit filed in support of the company petition itself for the appointment
of a provisional liquidator, that the application for such appointment of a
provisional liquidator should have been disposed of on the averments made in
those affidavits only and the court should not have taken into consideration
the subsequent events. The subsequent event, by itself, cannot be a ground for
appointment of a provisional liquidator; and, in the instant case, the learned
judge has not relied on any ground in the affidavit, but only on an alleged
subsequent event of diversion of funds of the company for personal benefit. In
support of this contention, learned counsel placed before us the following
decisions: Rajahmundry Electric Supply Corporation Ltd. v. A.Nageswara Rao
[1956] 26 Comp Cas 91 (SC), Vidhyasagar Cotton Mills Ltd. v. Nazmunnisa Begum
[1964] 68 CWN 782 and Mohta Brothers P. Ltd. v. Calcutta Landing and Shipping
Co. Ltd. [1970] 40 Comp Cas 119 (Cal). In Rajahmundry Electric Supply
Corporation Ltd. v. A. Nages-wara Rao [1956] 26 Comp Cas
91 (SC), the Supreme Court held that (at page 95):
"The validity of a
petition must be judged on the facts as they were at the time of its
presentation, and a petition which was valid when presented cannot, in the
absence of a provision to that effect in the statute, cease to be maintainable
by reason of events subsequent to its presentation".
In that case, what happened
was that an application was filed for the winding up of a company. The
petitioner had stated that he had obtained the consent of 80 shareholders,
which was more than one-tenth of the total number of members, and had thus
satisfied the condition laid down in section 153C of the Indian Companies Act,
1913. Certain shareholders who had given their consent to the filing of the
application had subsequently withdrawn that consent and the number of persons
who had consented was reduced to 52. It was, therefore, contended that the
condition laid down in section 153C was not satisfied. It is with reference to
this point the Supreme Court made the above observation.
The decision in Vidhyasagar
Cotton Mills v.Nazmunnessa Begum [l964] 68 CWN 702; AIR 1964
It may be seen from the
decision that on the date when the application was filed, there was no default
or unnecessary delay in the rectification of the register within the meaning of
section 155(1)(b). However, the subsequent facts
disclosed there was default or unnecessary delay which was relied on in support
of the application for rectification of the order.
In Mohia Bros. P. Ltd. v.
Calcutta Landing and Shipping Co. Ltd. [1970] 40 Comp Cas
119 (Cal), a Division Bench of the
"In our view, this
question is well settled, namely, that, in a petition under sections 397 and
398 of the Companies Act, 1956, the court must confine itself to the case as
made out in the petition and to the allegations in the petition itself and
supporting affidavits, if any, and not look at other evidence with regard to
events that might have happened subsequent to the petition".
But this is not the whole
statement of the law as may be seen from the latest judgment of the Supreme
Court in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51
Comp Cas 743 (SC). In that case the Supreme
Court did take into account facts which came into existence after the company
petition was filed. The Supreme Court observed on the facts there (at page
797):
"It is true that in
saying this, we have partly taken into account facts which came into existence
after the company petition was filed. But those facts do not reflect a new
trend or a new thinking on the part of Coats, generated by success in the
litigation. Finding that they had succeeded in the High Court, Coats took
courage to pursue relentlessly their old attitude with the added vigour which
success brings"
The ratio of these
decisions, therefore, is that normally the court dealing with an application
should confine itself to the allegations in the petition itself and not embark
on a rambling enquiry into indefinite charges. However, there is no prohibition
to either rely on the subsequent events as pieces of evidence to sustain the
grounds already alleged or where having regard to the question to be decided if
the court considers it necessary to base a decision on the altered
circumstances in order to shorten the litigation or to do complete justice
between the parties.
In the instant case, though
the learned judge has relied on a subsequent diversion of substantial money of
the company to the personal benefit of the appellants, the learned judge
himself had stated that in the catalogue of charges contained in the main
petition itself, the respondents have charged applicants Nos. 2 and 3 with
diversion of the funds of the company to their personal benefit, but only
adduced events which had taken place subsequent to the filing of the petition
also as evidence thereof and, therefore, it is not contrary to law. The learned
judge has, after setting out briefly the charges in the petition filed for
winding up concentrated his attention on the charge of diversion of the funds
of the company by appellants Nos. 2 and 3. After referring to the evidence
available and the contention of the parties, the learned judge held that the
respondents have established that large funds of Rs. 11,10,000
are diverted elsewhere by the appellants and not utilised for the benefit of
the company. We may point out that except making the legal submission, learned
counsel for the appellants did not canvass the finding of the learned judge on
facts relating to this diversion, though learned counsel for the respondents
referred to many documents supporting the finding of the learned judge. We do
not think it necessary, in the circumstances, to again trace all the evidence
available which shows the diversion of the funds of the company. We may also
state that learned counsel for the appellants is not fully correct instating
that the learned judge has relied only on this diversion of the company funds
in support of the claim for appointment of a provisional liquidator. The
learned judge has referred to the manipulation of records, particularly the
minutes books relating to the meeting of the board of directors, by making false
entries in the minutes book relating to the meeting, taking advantage of the
custody of minutes books in their hands, collusive transfer of share held by
the company in Radhakrishna Mills Ltd. to Sri Kanchanlal Hiralal Nanvathi and
another at the instance of Vysya Bank Ltd., making false entries in the general
body minutes book, transferring 300 shares held by the trust in favour of the
third appellant fraudulently and in illegal manner in order to gain superiority
in the strength of the shareholding, making feverish attempts to dispose of
some of the valuable assets of the company as could be seen from the resolution
dated September 25, 1979, and some other facts. We must also point out that
though C. A. Nos. 843 and 844 of 1981 were filed with a common affidavit in
support of the same, they came to be disposed of on two different dates and in
C. A. No. 844 of 1981, which is for an injunction, the learned judge had made
the order on August 19, 1981, in which he had dealt with the question of
mismanagement, manipulation of accounts, etc., in detail and it was in those
circumstances the learned judge said that he is giving his supplemental or
additional justifications in this order for holding that appellants Nos. 2 and
3 are guilty of mismanagement of the affairs of the company and diversion of
funds of the company to their personal use as also of manipulating the books of
account. The learned judge also held that, in order to prevent the fraudulent
preferences and malpractices, it is necessary to appoint a provisional
liquidator. We are in entire agreement with this view of the learned judge.
On the above findings there
is no scope for the contention that the respondents have an alternative remedy
of resorting to the provisions of sections 397 and 398 of the Companies Act and
the other argument that the applications for injunction and for the appointment
of a provisional liquidator would amount to interfering in matters of internal
administration of the company. There is also no substance in the contention of
the appellants that by reason of the institution of certain suits in civil
courts, the respondents should be deemed to have availed of the alternative
remedy in the form of suits and that consequently they cannot file the petition
for winding up. As pointed out by the learned judge, the relief sought for in
this court could not have been obtained in the suits instituted by the
respondents and, therefore, no question of election could arise.
For the foregoing reasons,
both the appeals are dismissed with costs.
[1990]
69 COMP. CAS. 145 (KER)
HIGH
COURT OF KERALA
v.
Tekoy (
V. SIVARAMAN NAIR AND M.M. PAREED PILLAY JJ.
APRIL
10, 1987
Mani
J. Meenattoor for the Appellant.
Pathrose
Mathai for the Respondent.
V. Sivaraman Nair,
J.—These ten appeals arise out of a common order of the learned
single judge (M.P. Menon, J.) dismissing the applications filed by the
appellants under section 155 of the Companies Act, 1956. All these appeals
involve common questions. That was why the applications were dealt with by a
common judgment by the learned company judge. We propose to deal with all these
appeals in the same manner. Counsel on both sides agreed that this may be so.
The facts which are
necessary are only just a few. The first respondent is a company limited by
shares. Regulation 24 of the articles of association of the company provides that :
"The board of
directors may, in their absolute discretion and without assigning any reason,
decline to register,
(a) the transfer of shares to a person of
whom they do not approve, ..".
The authorised
capital of the company is Rs. 16,00,000 made up of
60,000 cumulative preference shares of Rs. 10 and one lakh equity shares of Rs.
10 each. The company is listed in the Madras Stock Exchange and its shares are
quoted. The appellants, who were applicants before the company judge, purchased
equity shares of the company at prevailing market rates. They forwarded such
share certificates to the company along with share transfer deeds duly executed
by the transferors for registration of the transfer. By letter dated August 14,
1979, the company informed the transferees that the board of directors had
declined to register the transfer. The share certificates were returned along
with that letter. But the share transfer deeds were kept back.
The transferees filed
applications under section 155 of the Companies Act, alleging that the refusal
to register the transfer of shares was arbitrary, malicious, capricious, oppressive and without regard to the interests of the
company or its shareholders. The directors of the company were said to have
been purchasing shares in their names and in the names of their relatives and
nominees at the same time. The refusal to register the transfers in the names
of the appellants was said to be due to an anxiety of the directors to purchase
the same shares from the original transferors at a lower rate. Regulation 24 of
the articles of association of the company was said to be contrary to the right
of the shareholders to freely deal with the shares and an unreasonable
restraint of trade. It was also asserted that there was no personal reason why
the directors should disapprove of anyone of the transferee-appellants.
The first respondent
company resisted the application. The company maintained that the directors had
only exercised their discretion under regulation 24 of the articles of
association in the interests of the company and the shareholders, and they did
not act on wrong principles or for collateral purposes or with oblique motives,
that the directors knew the applicants for a long time and they bona fide
believed that the transferees were persons who could not be approved of. It was
also stated that some of the transfer deeds were incomplete and defective, and
that they were rightly rejected. The concerned share transfer deeds were
rightly produced in evidence as exhibits A-1 to A-10. Copies of the annual
returns of the first respondent company made up to September 14, 1974, and
September 29, 1979, were produced as exhibits A-12 and A-11, respectively.
Exhibits A-13 and A-14 were resolutions of the company dated May 10, 1979, and
September 25, 1979, respectively. Respondents produced exhibit B-1, copy of the
memorandum and articles of association of the company and exhibit B-2
resolution regarding transfer of shares passed on August 14, 1978. Two of the
transferees/appellants were examined as PW-1 and PW-2. The office manager of
the first respondent company was examined as PW-1. On an examination of all the
materials available before him, the learned company judge held that the
directors had exercised their discretion properly, that they were not obliged
to give reasons for their refusal to register transfer of shares because of the
terms of regulation 24 of the articles of association of the company which
bound the company as much as the transferor members, that the refusal to
register the transfer of shares was not arbitrary or capricious or malicious or
oppressive or against the interest of the company or its shareholders and that
the transferees had significantly failed in making out their case against the
refusal by the board of directors by absolute proof or positive evidence. The
appellants assail the above orders of the company judge.
Mr. Jagadischandran
Nair, counsel appearing for the appellants, submitted that substantial
questions of law arising for consideration in the appeal ought to have been
formulated earlier because of the requirements of section 155(4) of the
Companies Act, read with section 100 of the Code of Civil Procedure. He has now
formulated such substantial questions of law in C. M. P. No. 1362 of 1987 and
similar petitions seeking amendment of the memorandum of appeal. Those
questions are the following :
"(1) Whether regulation 24 of the articles of
association (exhibit B-1) is void being in contravention of section 82 of the
Companies Act, 1956 ?
(2) Whether companies listed on a stock exchange, which have
entered into agreements with the stock exchange, are legally bound to dispose
of applications for transfer of shares within a period of one month of
lodgement in accordance with rule 19(3)(e) of the
Securities Contracts (Regulation) Rules, 1957, notwithstanding the period of
two months provided in section 111 of the Companies Act, 1956?
(3) Whether the listing agreement and the Securities Contracts
(Regulation) Rules, 1957, supersede the articles of association regarding power
to refuse registration of transfer of shares in case of listed companies ? If not, how is the conflict, if any, to be
resolved?
(4) Whether it is open to the company court to direct the
company to disclose the reasons for refusal to register transfer of shares ?"
In its counter-affidavit in the above CMP, the
company maintained that the applications for amendment seeking to formulate the
questions of law were not entertainable, that the questions sought to be raised
were not substantial questions of law nor did they arise from the judgment of
the learned company judge and that, in any case, questions Nos. 2 and 3 were
new points which were never urged in the earlier proceedings.
We have searched in vain to find whether
questions Nos. 2 and 3 sought to be raised by the appellants were even
mentioned in the course of the proceedings before the company judge. The
detailed facts necessary to enable the appellants to urge these points are not
seen to have been made out in the fairly lengthy trial before the company
judge. In the absence of factual details, it is not possible for us now to
permit the appellants to raise these new points of law. We did not restrain
counsel from making his submissions on all points which he thought were
relevant. On a closer examination of the factual details, we find that it will
be absolutely unfair to go into the questions of law which may require a lot of
factual information for a satisfactory determination of the points sought to be
made out by the petitioner.
The assumption which the appellants made to justify
the application for amendment was that by reason of the provisions contained in
section 155(4) of the Companies Act, read with section 100 of the Code of Civil
Procedure, an appeal may be incompetent if substantial questions of law were
not formulated by the appellants at the time of filing the appeal. We do not
think that the language of section 155(4) of the Companies Act can lend itself
to this extreme position. Section 155(4) of the Companies Act reads as follows :
"(4) From any order passed by the court on the
application, or on any issue raised therein and tried separately, an appeal
shall lie on the grounds mentioned in section 100 of the Code of Civil
Procedure, 1908,—
(a) if the order be passed by a District
Court, to the High Court ;
(b) if the orders
be passed by a single judge of a High Court consisting of three or more judges,
to a Bench of that High Court".
To us it appears that
as per the requirements of section 155(4) of the Act, an appeal will be
confined to the grounds mentioned in section 100 of the Code of Civil
Procedure. That provision does not incorporate the entire body of section 100
of the Civil Procedure Code into section 155(4). It only indicates the nature
of the grounds on which an appeal may be entertained. It does not prescribe the
procedural formalities applicable to a second appeal under the Code of Civil
Procedure to appeals under section 155(4) of the Companies Act. Absence of
formulation of substantial questions of law does not appear to us to be a
defect in the memorandum of appeal. The only requirement of that provision
seems to us to be that an appeal on facts is totally precluded. So is an appeal
on question of law which is not substantial. In this view, it is not necessary
for us to entertain or allow the application for amendment. CMP No. 1362 of
1987 is, therefore, dismissed. Such dismissal will not, however, preclude the
appellant from raising the substantial questions of law arising out of the
judgment of the company court. We have, therefore, heard Sri Jagadischandran
Nair, counsel for the appellant, at length on what he urges as substantial
questions of law arising out of the judgment, viz., whether regulation 24 of
the articles of association contravenes section 82 of the Companies Act, 1956,
and whether it is open to the company court to direct the company to disclose
the reasons for refusal to register the transfer of shares.
Both these questions
have been dealt with in very great detail by our learned brother while
disposing of the applications. He has referred to the historical background and
philosophical justification for entrusting a fairly wide area of discretion
with the board of directors of voluntary trade organisations like companies in
the matter of admitting and entertaining members on their rolls. The
development of the English law based on the principle laissez faire has been
sketched out in illuminating detail. The need or the desirability for adapting
these notions to the transformations in a socialistic society where individual
proprietorship is sought to be abolished, and where greater emphasis on social
control of means of production is sought to be achieved has also been adverted
to. Notwithstanding such desirability, the learned judge has emphasised that as
long as voluntary trade organisations like companies continue, a large amount
of discretion for such organisations to choose their members without impairing
the interest of the company or its shareholders or general public interest has
to be recognised as a fact of life. We need only add that if the interest of the company or the shareholders or public interest are
not affected, we have to go strictly by the terms of the articles of
association to evaluate the right of the board of directors in the matter of
admission of members, registration of transfers and other like matters. We have
also to bear in mind that the articles of association is a contract of
incorporation. The internal discipline for a voluntary organisation is a matter
to be preserved by the organisation itself by insisting upon strict adherence
to the terms of that contract. Courts may have power to review the working of
such terms of the contract when a complaint is raised before it, that the power
is being exercised in a malicious or arbitrary or oppressive or capricious
manner or in a manner contrary to the interests of the company or its
shareholders. It is elementary that when such a complaint is made, it has to be
established by absolute proof and by positive evidence. An averment, an
allegation or an assertion will not amount to absolute proof by positive
evidence. Unless we reach that degree of proof of oblique motives or collateral
purposes vitiating the action of a voluntary trade organisation in the matter
of enlistment and admission of members, the court shall not ordinarily
intervene. This, we understand, is a basic reasoning adopted over the centuries
by English common law and which has been scrupulously followed in Indian
decisions under the Companies Act. Justice Menon, in the decision under appeal,
has traced the genesis and growth of this principle through centuries of
development in English law and the course of evolution in Indian law. The
appellants can succeed only if they are able to make out that the conclusions
drawn on this legal position by the company judge was a
misdirection in law.
Sri Jagadischandran
placed before us a very ingenious argument that this may not be the position in
law after the amendment of section 111 by incorporation of sub-section (5A) in
the said provision. What he submits is that in a case of refusal to register
transfer of shares in a company, two alternative remedies are available to the
person concerned. Under section 111 of the Act, an appeal lies from refusal to
register transfer of shares, to the Central Government. Sub-section (5) of
section 111 now provides that :
"(5) The Central Government shall, after causing
reasonable notice to be given to the company and also to the transferor and the
transferee or, as the case may require, to the person giving intimation of the
transmission by operation of law and the previous owner, if any, and giving
them a reasonable opportunity to make their representations, if any, in
writing, by order, direct either that the transfer or transmission shall be
registered by the company or that it need not be registered by it ; and in the
former case, the company shall give effect to the decision within ten days of
the receipt of the order".
Sub-section (5A)
which was incorporated by the Companies (Amendment) Act, 1960 provides that :
"(5A)Before making an order under sub-section (5) on an appeal
against any refusal of the company to register any transfer or transmission,
the Central Government may require the company to disclose to it the reasons
for such refusal, and on the failure or refusal of the company to disclose such
reasons, that Government may, notwithstanding anything contained in the
articles of the company, presume that the disclosure, if made, would be
unfavourable to the company".
The argument proceeds
that in case an unsuccessful applicant for registration of transfer of shares
files an appeal under section 111(3) of the Companies Act, the appellate
authority can compel disclosure of reasons for refusal to register transfer or
transmission of shares and draw adverse inferences against the company if such
disclosure of reasons is not made. But if the same person filed an application
under section 155 of the Act for rectification of the register of members, he
cannot now compel such disclosure or draw upon such inference. This, according
to counsel, is an absolutely anomalous situation. According to him, the power
of the court under section 155(4) and that of the Government under section
111(3) to section 111(5) is as much judicial. The refusal complained against in
these alternative proceedings may be the same. Before the administrative
appellate authority, he can seek a direction from the authority to compel the
company to disclose the reasons for refusal. In that event, it must be equally
possible for a company court under section 155(4) to direct the company to
disclose the reasons and examine the propriety of the same or draw an inference
adverse to the company if such disclosure is not made. It shall not be as if a
quasi-judicial administrative tribunal can compel disclosure of reasons, but
not a regular court in an appeal, so proceeds the
argument.
We have prefaced that
this is a very ingenious argument. But there is only one difficulty in
accepting the same. In a statutory appeal under section 111(3) of the Companies
Act, sub-section (5A) had to be incorporated by a specific amendment enabling
the unsuccessful applicant to require the appellate authority to compel the
company to disclose the reasons for refusal. It cannot be controverted that but
for sub-section (5A), the Government of India would not have had that power. A
similar amendment was not simultaneously made in section 155 of the Companies
Act. This must be obviously because the law-makers did not want to confer a
power similar to section 111(5A) on the company court. If a power is not
conferred on the court, but was specifically conferred on a corresponding
appellate authority, it is not easy to assume that such power is granted to the
court as well, however alluring it may be to accept that submission Far more
logical would be the conclusion that the position of the company court under
section 155(4) remains as it was under section 111 of the Act before
incorporation of sub-section (5A). In other words, the company court has no
such power as to compel disclosure of reasons in the absence of such enabling
provision in section 155 of the Companies Act similar to that of section 111
(5A) of that Act. We shall ordinarily interpret and apply the law and shall not
add to or subtract from enacted law on the basis of our assumptions as to what
the law should be. We are, therefore, not persuaded to accept the submission
urged by counsel for the appellant that we shall assume the power granted to
the appellate board under section 111 (5A) of the Companies Act.
Yet another argument
urged by counsel for the appellant was that refusal to register the transfer of
shares was contrary to the provisions of section 111(2) of the Companies Act.
He submits that the period of two months provided in that sub-section, within
which refusal to register should be communicated, is the outer limit of time.
It is also his submission that the board of directors is not entitled to wait
till the outer limit, except in exceptional cases, and the present is not one
such. To understand this submission, we have to read section 111(2) of the Act,
which is in the following terms :
"If a company
refuses, whether in pursuance of any power under its articles or otherwise, to
register any such transfer or transmission of right, it shall, within two
months from the date on which the instrument of transfer, or the intimation of
such transmission, as the case may be, was delivered to the company, send
notice of the refusal to the transferee and the transferor or to the person
giving intimation of such transmission, as the case may be.
If default is made in
complying with this sub-section, the company, and every officer of the company
who is in default, shall be punishable with fine which may extend to fifty
rupees for every day during which the default continues".
We did not hear
counsel for the appellant submitting that the notice of refusal was sent to the
transferee and transferor beyond the period of two months, which is fixed by
the above provision. What he submits is that the outer limit of time applies
only to extraordinary cases ; and ordinarily, the
refusal should have been communicated within a reasonable time, which shall be
less than the maximum time. We are not persuaded to agree that reasonable time
shall invariably be less than the time specified under section 111(2) of the
Act. It may as well, in most cases, be the same as the specified time. Counsel
submitted that such reasonable period shall be a period of one month in view of
rule 19(3)(e) of the Securities Contracts (Regulation) Rules, 1957, which
provides, that—
"A company
applying for listing shall, as a condition precedent, undertake, inter alia ...
(e) to issue
certificates in respect of shares or debentures lodged for transfer within a
period of one month of the date of lodgment or transfer and to issue balance
certificates within the same period where the transfer is accompanied by a
larger certificate".
This argument was not
specifically raised before the company court. We are not persuaded to hold that
rule 19(3)(e) of the above Rules has the effect of
superseding or modifying section 111 (2) of the Act.
Counsel for the
appellant was at pains to point out that the decision of a Division Bench of
this court in South Indian Bank's case [1978] 48 Comp Cas 368, authorises this court,
in a petition under section 155 of the Companies Act, to review the refusal to
register transfers. One of the appellants herein was the respondent in that
appeal. Regulation 42 of the articles of the company concerned was almost
identical to article -24 in the present case. However, the resolution of the
company refusing to register the transfer of shares did contain reasons,
notwithstanding the absence of any obligation on the part of the company to
state any reason at all. In other words, the company had abandoned its absolute
discretion to refuse to register the shares without mentioning any reasons at
all. The correctness of the reasons mentioned for refusal to register
constituted the subject-matter of the appeal. This court found that the three reasons
so stated were : (a) it was an attempt at cornering of
the shares of the company ; (b) it was an attempt to circumvent the provisions
of section 12(2) of the Banking Regulation Act, 1949 ; and (c) it was in
contravention of the policy of the Reserve Bank of
"Cornering of
shares or an attempted cornering of shares is not a reason personal to the
transferee, and it is not a legitimate reason coming within regulation 42. The
same is the position in regard to the other reasons mentioned in exhibit R-1.
It is, therefore, manifest that the directors exceeded their authority under
the articles and consequently their refusal to register the transfer of shares
was ultra vires their power and is of no effect".
That decision is not
an authority for the proposition that even in the case of absolute discretion
conferred on the board of directors to refuse to register transfer of shares
without stating any reason, the company court shall
compel disclosure of such reasons in proceedings under section 155 of the
Companies Act.
Reliance was sought to be placed on the
decision in Harinagar Sugar Mills Ltd. v. Shyam Sunder Jhunjhunwala [1961] 31
Comp Cas 387 ; AIR 1961 SC 1669. It was observed in that decision that
proceedings under section 111(3) or section 155 of the Act are two alternative
remedies available to a person whose application for transfer of shares was
refused by the company ; and that the court shall, in
exercise of its power under section 155, adjudicate upon the right exercised by
the directors in the light of the powers conferred upon them by the articles of
association. We do not find anything in that decision which lends support to
the proposition advanced by counsel for the appellant, that in all cases of
refusal to register applications for transfer, the company court is bound to
compel disclosure of all reasons leading to the refusal and adjudicate upon the
propriety of such reasons. On the other hand, it was definitely held that the
court may have such power to order transfer which the directors, in their
discretion, had refused, "only if it is satisfied that the exercise of the
discretion is mala fide, arbitrary or capricious and that it is in the interest
of the company that the transfer should be registered". We understand the
above decision to mean that the discretion exercised by the directors in terms
of the articles of association of the company is entitled to considerable
weight, and that this inference of bona fides in exercising the discretion can
be off-set only by proof of its absence or proof of arbitrariness,
capri-ciousness, or contrary to the interests of the company.
The same question was considered by the Supreme
Court of India in Bajaj Auto Ltd. v. N.K. Firodia [1971] 41 Comp Cas 1, 6 ; AIR
1971 SC 321, and this was what the court had to observe :
"If the articles permit the directors to
decline to register transfer of shares without stating the reasons, the court
would not draw unfavourable inferences against the directors because they did
not give reasons. In other words, the court will assume that the directors
acted reasonably and bona fide and those who allege to the contrary would have
to prove and establish the same by evidence. Where, however, the directors gave
reasons, the court would consider whether they were legitimate and whether the
directors proceeded on a right or wrong principle".
On a scrutiny of evidence, we do not find
anything which renders improper the finding of the learned company judge, that
none of these vitiating factors were proved by positive evidence.
The effect of the decision of the Calcutta High
Court reported in B. Choukhani v. Western India Theatres Ltd. [1958] 28 Comp
Cas 565 ; AIR 1957 Cal 709, is not any the different from the decision of the
Supreme Court referred to above. It was observed by P.B. Mukharji J., speaking
on behalf of the Bench (at page 574 of 28 Comp Cas) :
"The directors
may at their absolute and uncontrolled discretion decline to register or
(acknowledge any transfer of shares and shall not be bound to give any reason
for such refusal. That is the first part of article 52. It is, subject to the
discretion having been exercised, absolute and uncontrolled. The latter part of
the article is only illustrative of the grounds on which the directors could
decline to register but not exhaustive. It does not control the absolute and
uncontrolled discretion given in the first part of article 52 ... Even in a
case where the articles of association give uncontrolled and absolute
discretion to the directors to decline to register transfer of shares and also
gives them power to withhold reasons for such refusal, if it is shown that
there has been no exercise of any discretion but an exercise of a whim or a
caprice, then such purported exercise of power under such an article can be
examined by the court".
Here again, a closer
scrutiny by the court could be attracted only if it was positively proved that
there had been no exercise of discretion but only an exercise of a whim or caprice,
or the decision of the directors was oppressive, capricious, or mala fide or
not in the interests of the company at all.
Counsel for the
appellants sought to rely on clauses 3(c) and 12(a) of the Listing Agreement
Form (Appendix B to regulation 2), to make out that the company was obliged to
register the transfer within one month from the date of lodgement of transfer,
and in case of refusal, was obliged to take the president of the stock exchange
into confidence, when so required, as to the reasons for such rejection. We do
not propose to consider the submissions made on this aspect, because no such
contention was apparently raised before the learned company judge.
Counsel for the
appellant raised a contention with specific reference to exhibits A-11 and
A-12, annual returns of the company made up to September 29, 1979, and
September 14, 1974, respectively. He took us through the details of those two
returns and pointed out various instances where shares were transferred in the
names allegedly of relatives of the directors of the company. On the basis of
these facts, it was submitted that there was a consistent attempt at cornering
shares of the company and in refusing to transfer shares in the names of
outsiders. The evidence of PW-2 was to the effect that he was not aware of the
price at which such shares were purchased. Nor could he deny that they were
purchased at the rate of over Rs. 30 per share. The allegation which was made
by PW-1 to the effect that those in management of the company were attempting
to reduce the value of shares and acquire them in the names of their relatives
could not, therefore, be made out from the mere fact that the transfer of
shares was in favour of others, some of whom were related to some of the
directors of the company and the alleged transfers were effected on November 30, 1978, September 7, 1979, and June 9, 1979. We
are of the opinion that the learned company judge was right in holding that the
appellants had not succeeded in proving by positive evidence that the directors
acted arbitrarily, capriciously or corruptly.
The appellants, admittedly, are members of the
same family. Admittedly, the directors of the first respondent company belong
to or are closely related to Kottukapally family and many of the directors are
residing in the same town. It is not disputed that they knew each other fairly
well for some considerable time. In these circumstances if the directors
thought that the appellant-transferees could not be approved of, the exercise
of discretion in that regard cannot be considered as totally arbitrary,
capricious, whimsical or oppressive or against the interests of the company.
None of these factors, the existence of which alone will justify a further
probe by the company court, was made out on evidence by the appellants. The
reason for refusal to register the shares in the names of the transferees was
obviously personal to them. A further disclosure of reasons cannot be compelled
in view of the specific terms of clause 24 of the articles of association of
the company. We are in entire agreement with the findings of the learned
company judge that the appellants were not entitled to seek a direction from
the company court to compel disclosure of reasons in any greater detail than
was contained in the resolution of the board of directors.
In this view, the appeals have to fail. They are dismissed in affirmance of the common judgment of the learned company judge. The appellants will pay the costs of the respondents in these appeals.
[1957] 27 COMP. CAS. 255 (BOM.)
v.
Bansidhar Jagannath.
GAJENDRAGADKAR AND GOKALE, JJ.
SEPTEMBER
16, 1955
GAJENDRAGADKAR
J. - On 26th April, 1951, the
appellant had applied to the
Both the
appellant and the respondent were and are members of the East India Chamber of
Commerce. It appears that this association had established a market or exchange
for effecting forward transactions inter alia in silver pieces. Consistently
with the articles of association, bye-laws were framed to regulate the
transactions effected by members of the association in the said exchange in
respect of several commodities including silver pieces. In about January, 1945,
a syndicate of five persons was formed for dealing in silver pieces. On or
about 5th February, 1948, according to the respondent one Lawjibai as
representing the said syndicate had instructed the respondent to purchase 6,615
tukdas of silver from the market and accordingly the respondent did make the
said purchase for and on behalf and as an agent of the said syndicate.
Thereafter one Chandulal Ravjibhai and one Kishan Gopal Bagdi instructed the
respondent to allot and assign the said 6,615 pieces of silver to four parties
in the proportion mentioned by them. 3,000 pieces were allotted to Messrs.
Radhakishan Shivkisan ; 1,298 pieces to Messrs. Jotram
Kedarnath ; 1,817 pieces to Messrs. M. Gulamali Abdullusein ; and 500 pieces to
the appellant. The rate at which these 500 pieces were allotted to the
appellant was Rs. 160-14-6 per 100 tolas. It would appear that on 7th February,
1948, an emergency was declared by the authorities of the association and on
10th February, 1948, the board of directors issued instructions for squaring up
all transactions at Rs. 154 per 100 tola. In respect of this transaction the
respondent claimed from the appellant Rs. 24,226-9-0 and on 15th April, 1948,
the respondent applied for reference of this dispute to arbitration under the
relevant articles of association and bye-laws. The Lavad Committee to whom this
dispute was referred by the association held several meetings and in the end on
20th September, 1950, the committee made an award. It may be mentioned at this
state that in the meanwhile three Lavad Committees came to be appointed, as
under the articles of association the life of a Lavad Committee appointed by
the association is only a year. The first Lavad Committee was appointed on 24th
October, 1947, the second on 27th October, 1948, and the third on 24th October,
1949. It was the third Lavad Committee that made the award in the present
dispute. The award was filed on 27th February, 1951, and the appellant was
given notice of the filing of the award on 3rd April, 1951. Thereafter the
appellant filed his petition to set aside the award and his petition was
followed by the respondent’s petition for extention of time to make the award.
Ultimately the appellant’s petition was dismissed and the respondent’s petition
was allowed.
The learned
Judge before whom the consolidated applications were heard has held that on the
facts of this case it was necessary in the interests of justices that time for
making the award should be extended. He has also held that the relevant
articles of association read in the light of the association’s bye-laws
constitute an agreement in writing to refer the dispute to arbitration and that
the said articles and bye-laws dispute. He was disposed to take the view that,
though the appellant disputed the existence of the contract itself,
that did not oust the jurisdiction of the Lavad Committee. According to
him, it was within the competence of the Lavad Committee to adjudicate even
upon this dispute. It was urged before the learned Judge by the appellant that
the proceedings before the Lavad Committee were affected by many irregularities ; but the learned Judge was not impressed by
this argument. He relied upon the conduct of the appellant in that he appeared
before the Lavad Committees for more than two years,
took a chance of the decision of the Lavad Committee going in his favour, and
when he found that the award was passed against him, he chose to raise these
technical objections. In the opinion of the learned Judge, this conduct showed
acquiescence on the part of the appellant and it was not,
therefore, open to him to raise these technicalities against the validity of
the award at that stage. That is why the learned Judge rejected the appellant’s
prayer for setting aside the award.
In the present
appeal Mr. K.T. Desai, for the appellant, has argued that even a superficial
examination of the irregular procedure adopted by the Lavad Committees in
dealing with the dispute would show that the committees were guilty of enormous
delay and he contended, that, if ever there was a case where a request for
extension of time should not be granted, it would be in the present case. It is
true that the proceedings before the arbitrators have taken place in a very
leisurely manner ; and the constitution of the
committees were fluctuating bodies. It appears that under the bye-laws of the
association two Lavad Committees are nominated from year to year and pending
disputes are assigned to these two committees respectively. Mr. K.T. Desai has
taken us through the details of the several meetings held by the Lavad Committees
and has emphasized the fact that the members of the committee have changed from
time to time. But the change of personnel of the Lavad Committees is inevitable
and unless the bye-laws framed by the association in regard to the constitution
of the Lavad Committee are themselves invalid or ultra vires, no serious or
valid grievance can be made against the changing constitution of the Lavad
Committees themselves. At on stage Mr. K.T. Desai seemed to suggest that the
quorum of two members prescribed by the bye-laws was itself not satisfied ; but he conceded that this argument was based
upon a misconception and that the rule as to quorum has been complied with in
all the meetings held by the Lavad Committees in dealing with the present
dispute. Whether or not the bye-laws prescribing the constitution of the Lavad
Committees and their procedure are ultra vires, the contention that extension
of time should not have been allowed by the learned Judge cannot, in our
opinion, be made by the appellant because under section 39 of the Arbitration
Act, an order passed by the trial Judge extending time is not appealable. The
Legislature has clearly contemplated that the question as to whether time
should be extended should be left entirely to the discretion of the trial Judge
and the order that the trial Judge may pass in the exercise of his discretion
should be regarded as final. It is true that the application made by the
respondent for extending time was consolidated with the appellant’s application
for setting aside the award. But this consolidation cannot give the appellant a
right to challenge an order which, under the law, is not appealable. Therefore,
in our opinion, it is unnecessary for us to consider whether the learned Judge
was right or not in extending time for making the award.
Mr. K.T. Desai
has then argued that the learned Judge was in error in holding that the
articles of association could, in law, constitute an agreement in writing to
refer the dispute to arbitration within the meaning of section 2 of the
Arbitration Act. Section 2 of the Arbitration Act requires that the arbitration
agreement must be made in writing. If the contract which gives rise to a
dispute between the parties is itself reduced to writing and it includes an
arbitration agreement, there is no difficulty in holding that the requirements
of section 2 of the Arbitration Act are complied with. If the contract between
the parties is reduced to writing and makes the terms of the contract subject
to the provisions of the articles of association, there is no difficulty in
holding that the articles of association themselves are thereby made part of
the contract, and if the articles provide for an arbitration agreement, the
dispute between the parties arising from such a contract must be referred to
arbitration. This position also cannot be disputed. In the present case,
however, the alleged contract was not reduced to writing and the case for the
respondent is that, though the contract is oral, it is nevertheless subject to
the articles of association because under section 21 of the Companies Act, the
articles of association must be taken to constitute an agreement in writing
between the appellant and the respondent inter se as they are both members of
the said association. Since the articles of association represent a contract
between the appellant and the respondent inter se, any contract, entered into
between them subsequent to their joining the said association must inevitably
be subject to the provisions of the said articles of association and a dispute
like the present arising between them has to be referred to arbitration of the
Lavad Committee appointed under the bye-laws of the association. This view has
been accepted by the learned Judge and Mr. K.T.Desai for the appellant disputes
the validity and the correctness of this view. It may be mentioned at this
stage that the point thus raised by Mr. K.T.Desai is a vexed point of law on
which sharp difference of opinion has been expressed in judicial decisions.
In the
alternative, it has been urged for the appellant that even if the articles of
association are held to constitute an arbitration agreement between the
appellant and the respondent within the meaning of section 2 of the Arbitration
Act, in fact on a fair and reasonable construction, the relevant and material
articles do not confer jurisdiction on the Lavad Committee to deal with the
dispute as to the existence of the contract itself. In other words, if the
existence of the contract had been admitted by the appellant, it may have been
open to the respondent to refer the dispute to the arbitration of the Lavad
Committee. But since the appellant has disputed the very existence of the
contract even under the articles of association, the Lavad Committee had no
jurisdiction to deal with this part of the dispute. The decision of this point
would depend upon a fair and reasonable construction of the material articles
of association and bye-laws made by the association. It is necessary to
remember that this point has been raised alternatively on the assumption that
the articles of association can in law constitute a valid arbitration agreement
as a result of the provisions of section 21 of the Companies Act.
It would, we
think, be convenient to deal with this latter argument first and that would
naturally take is to the relevant articles of association and bye-laws framed
by the East India Chamber of Commerce. At the hearing of this appeal before us,
learned counsel for both the appellant and the respondent argued the matter on
the translation of the relevant articles of association and bye-laws which were
produced before the learned trial Judge. At the fag end of the hearing,
however, Mr. M. V. Desai, for the respondent invited our attention to the fact
that the articles of association which have been filed with the Registrar of
Societies appear to have been adopted in English and he sought to base his
argument on the words used in the relevant articles of association in a copy of
the said articles of association. In dealing with this point, we will refer
both to the English translation supplied to the learned Judge below and to the
English version on which Mr. M. V. Desai relied at the end of the hearing of
the appeal. But in doing so, it is necessary to remember that the arbitration
agreement must, even on the case of the respondent, primarily reside in the
articles of association.
It is true
that under article 91 the board had been given power to frame and pass such
bye-laws as they consider in the interest of and conducive to the objects of
the chamber or any of them, “and they may at any time and from time to time
rescind, alter or add to any of the bye-laws”. But the bye-laws must be
consistent with the articles of association and cannot validly alter or modify
the said articles. If, on a fair construction of the material articles of
association, it appears that the dispute as to the existence of the contract
itself was not intended to be referred to the Lavad Committee, no bye-law can
validly confer jurisdiction to entertain such disputes on the Lavad Committee.
It may be
conceded that, in construing the relevant articles of association, the court
may, before accepting any specific construction, take into account all the
relevant articles together with the bye-laws. If the words used in the relevant
articles are ambiguous attempt should be made to adopt such a construction of
the said words as would avoid a conflict between the articles and the bye-
laws. But if the words used are clear and unambiguous and they irresistibly
lead to the inference that jurisdiction to deal with the dispute as to the
existence of the contract itself was not intended to be conferred on the Lavad
Committee, then that meaning cannot be extended merely because words of wider
denotation may have been used in some of the bye-laws. In the very nature of
things, bye-laws are subordinate to the articles of association, and indeed
they are framed in order to carry out the provisions contained in the articles
themselves. As Halsbury says :
“A bye-law
must not be opposed to the constitution of the particular corporation nor can
it be made the means of remedying a defect therein..... A bye-law cannot
explain a charter, and although it may lessen or enforce the powers given to
the corporation, it cannot increase them.” (Halsbury, Vol. 9,
para. 82).
It is the
light of this legal position that we must now proceed to consider the material
articles and bye-laws.
The main
article on which reliance was placed before the learned Judge below is article
20(a). It was translated before the learned Judge in this way
:
“It shall be
obligatory on every member with reference to all the claims and disputes
arising out of or incidental to all the dealings or transactions entered into
by him with any other members in regard to gold, silver, wheat, money lending
business and hundis and chithis, that he shall, subject to the bye-laws that
may be framed from time to time and which may be in force and in case no such
bye-laws are there then subject to rules that the board may from time to time lay
down, get the same settled first by arbitration without resorting to a court of
law.”
The English
version of the articles of association, which, according to Mr. M. V. Desai,
has been filed with the Registrar of Societies, sets out article 20(a) as follows :
“It shall be
compulsory for every member in the first instance to have all claims and
disputes arising out of in course of all dealings and transactions in gold,
silver, seeds, wheat, sarafi business and hundi chithis between himself and any
other member settled by artbitration and without recourse to law subject to the
bye-laws such rules as the board from time to time prescribe.”
In construing
this article Mr. M. V. Desai has asked us to bear in mind one of the objects
for which the East India Chamber of Commerce Ltd. has been established. Clause
3(a) of the memorandum of association provides that one of the objects for
which the chamber has been established was to “remove all clauses of friction
between merchants inter se and between them and their constituents.” Clause
3(g) likewise provides :
“In case of mutual disputes arising between merchants in the aforesaid
business to act as mediators or arbitrators between the members of the chamber
and their constituents in all sales and purchases and in all matters of
difference or disputes arising between the members of the chamber and between
such members and their constituents.”
It may be
conceded that the objects on which Mr. M. V. Desai relies are no doubt stated in
wide terms. But do we find the objects underlying the use of these wide words
effectively reproduced in the material articles of association
? It may be useful at this stage to consider the scheme of the relevant
articles of association.
Article 1 defines
the material terms used in the articles. Article 2 provides that the chamber
should be declared to consist of 500 members, unless the general meeting of the
chamber by resolution increases the number of its members. Articles
4 and 5 deal with the classification and rights of members. The method
of admission is dealt with in articles 6 to 9. The rights and liabilities of
members are indicated in articles 10 to 20. Articles 20(a) and 21(a) deal with
arbitration. The subsequent articles deal with borrowing powers, general
meetings, board of directors, powers and duties of office- bearers, the vice
president, the secretary, the joint secretary and the treasurers, the powers of
directors, the accounts and the provident fund. It would thus be noticed that,
so far as the question of arbitration is concerned, the only articles which are
relevant are articles 20(a), 21(a) and 21(b).
Article 21(a) deals with the arbitration committee and article 21(b)
provides that disputes
shall be settled by arbitration as provided in the material articles and
bye-laws. Article 21(a) as contained in the English version which has been
filed before the Registrar of Societies reads thus :
“The
arbitration committee shall consist of 7 members. This committee shall dispose
of all disputes and differences arising between members or members and their
customers with respect to any transaction or rates or dues or anything out of a
transaction or in respect to any liability arising from any transaction.”
Article 21(b)
reads thus :
“All disputes
between members of the chamber shall be settled by arbitration as provided in
these articles and the bye-laws and rules made hereunder and no member shall
institute any legal proceedings against any other member of the chamber for
settlement of such disputes.”
Looking at
articles (20) (a), 21(a) and 21(b), it would be noticed that the obligation to
refer all disputes to arbitration is imposed by article 20(a). Article 21(a)
deals with the composition of the Lavad Committee and defines its powers, and
article 21(b) contains a general admonition to members of the association not
to take legal proceedings against any other member for settlement of disputes
which under the relevant articles of association and bye-laws have to be
referred to arbitration.
Before the
learned Judge below, reliance has been placed by the respondent only on article
20(a), and we think, rightly. An arbitration agreement as required by section 2
of the Arbitration Act can be said to reside only in article 20(a) which deals
with the obligation of members. It cannot be said to reside in either article
21(a) or in article 21(b) because the topic which these two articles are
intended to cover is not one of the obligations of members at all. It is,
therefore, necessary to consider carefully the terms of article 20(a). Under
this article, all claims and disputes arising out of or in course of all
dealings and transactions between one member and another shall be settled by
arbitration and without recourse to law. In the official translation, the
disputes which have to be referred to arbitration are mentioned as those
arising out of or incidental to all the dealings or transactions entered into
by one member with any other member.
Now, the short
point which this article raises for our decision is whether the expression
“disputes arising out of or in course of all the dealings and transactions
between members” includes a dispute as to the existence of the dealings or
transactions themselves. It is very difficult to hold that a dispute as to the
existence of the contract itself arises out of the contract or arises in course
of the contract.
A dispute as
to the existence of the contract itself is outside the contract altogether and
the decision of this dispute as an essential preliminary before dealing with
the disputes arising out of or in course of the said contract. Where a party
challenges the basic allegation made against him that he has entered into a
transaction with another member, the first point in limine which arises for
decision is whether a contract had taken place between the members or not. It
is only if an after it is held that the alleged contract had taken place
between the parties that claims and disputes arising out of the said
transaction or arising in course of the said transaction can fall to be
considered. Wherever arbitration agreements are intended to cover even disputes
in respect of the existence of contracts, appropriate words are used to make
the meaning clear.
We have enough
come across articles of association which in terms provide for the compulsory
arbitration of all disputes in regards to the existence or validity of a
contract and claims arising out of or incidental to the said contract. In
construing article 20(a), it may be relevant, as Mr. M. V. Desai has contended,
to remember that the objects mentioned in the memorandum of association are
very wide. But on the other hand, we cannot overlook the fact that an agreement
as to compulsory arbitration takes away a party’s right to have his dispute
with another member decided by a court of ordinary civil jurisdiction. Even so,
if the words used in article 20(a) are capable of two constructions, we may be
justified in adopting the construction that helps reference to arbitration of a
domestic tribunal appointed by the association.
But having
carefully considered article 20(a), we are unable to hold that the relevant
words used in this article can reasonably yield the meaning which has been
assigned to it by the learned Judge below. In our opinion, so far as this article
is concerned, a dispute as to the existence of the transaction or dealing
itself is not covered by it and no obligation has been imposed upon any member
to refer such a dispute to the arbitration of the Lavad Committee provided for
by the bye-laws.
It may be
useful at this stage to refer to some judicial decisions in cases where a
similar question has been considered. Heyman v. Darwins Ltd.,
is the first decision to which we propose to refer. In this case, an
arbitration clause in a contract which referred to differences or disputes “in
respect of” or “with regard to” or “under the contract” was construed by the
House of Lords. The question which was raised for decision before the House of
Lords was whether a plea that the contract had been frustrated could be said to
fall within the purview of the arbitration clause. In deciding this question,
VISCOUNT SIMON L.C. has referred to the relevant decisions which had construed
similar arbitration clauses and has observed in his speech that it was of most
practical importance that the law should be quite plain as to the scope of an
arbitration clause in a contract where the clause is framed in wide and general
terms and he added that he trusted that the decision of the House in the appeal
before them might be useful for this purpose and would remove any
misunderstanding which had arisen out of the previous decisions to which he had
referred. Then the learned Law lord stated what in his opinion was the effect
of a true and reasonable construction of such a clause :
“If the
dispute is whether the contract which contains the clause has ever been entered
into at all, that issue cannot go to arbitration under the clause, for the
party who denies that he has ever entered into the contract is thereby denying
that he has ever joined in the submission. Similarly, if one party to the
alleged contract is contending that it is void ab initio (because for example,
the making of such a contract is illegal), the
arbitration clause cannot operate, for on this view the clause itself also is
void.
But, in a
situation where the parties are at one in asserting that they entered into a
binding contract, but a difference has arisen between them whether there has
been a breach by one side or the other, or whether circumstances have arisen
which have discharged one or both parties from further performance, such
differences should be regarded as differences, which have arisen ‘in respect
of’, or ‘with regard to’, or ‘under’ the contract, and an arbitration clause
which uses these, or similar, expressions should be construed accordingly.”
It would thus
appear that the observations made by VISCOUNT SIMON support the view which we
feel disposed to take about the effect of the material articles of association
in the present case.
We may now,
refer to three reported decisions of this court. In Mahomed Haji Hamid v.
Pirojshaw R. Vekharia and Co. Mr. Justice WADIA had occasion to construe a
bye-law which referred to disputes arising out of or in relation to contracts.
The bye-law in question was bye- law No. 82 adopted by the East India Cotton
Association Ltd. “What the exact distinction, if any,” observed the learned
Judge, “there is between the words ‘arising out of’ and the words ‘in relation
to’ in that bye-law it is not easy to make out, but in my opinion disputes
between parties in relation to a contract the very factum of which is denied
are not disputes which the arbitrators have jurisdiction to decide. In other
words, the arbitrators have no jurisdiction to device whether in fact the contracts
were or were not entered into.”
It is
significant that the question as to the jurisdiction of arbitrators was raised
before Mr. Justice WADIA by reference to the words used in a bye-law of the
East India Cotton Association Ltd. and Mr. Justice Wadia held that the material
words used in the said bye- law did not confer any jurisdiction on the
arbitrators to deal with and decide the dispute as to the factum of the
contract itself.
In Shriram
Hanutram v. Mohanlal and Co., Mr. Justice KANIA had to decide a similar
question arising on a contract between two parties, and in discussing the point
Mr. Justice KANIA has cited with approval the observations of Mr. Justice WADIA
to which I have just referred.
In Ghelabhai
Mahasukhram v. Keshavdev Madanlal, CHAGLA C.J. and COYAJEE J. have held that
where a rule of an association is made a term of the contract between the
parties, and the term is neither against public policy nor illegal nor immoral,
the rule is binding upon the parties, even if it is
subsequently attacked as being ultra vires. In the course of his judgment the
learned Chief Justice has referred to the judgments of Mr. Justice WADIA and
Mr. Justice KHANNA which have been cited by us above, and he appears to have
expressed his concurrence with the conclusion that under an article like the
one before us it would not be competent to the arbitrators to decide the
question as to whether the contract itself had taken place between the parties.
The dispute as to the existence of the contract is a collateral dispute and it
is only after it is decided in favour of the existence of the contract that the
jurisdiction of the arbitrators to consider the other disputes arising between
the parties under the said contract can arise.
To the same
effect are the observations made by SIR SHADI LAL, C.J., and CAMPBELL J. in Jai
Narain Babu Lal v. Narain Das Jaini Mal, and GIVINDA MENON and CHANDRA REDDI.
J.J., in Dinasari Ltd. v. Hussain Ali, have also
accepted the same view. These decisions, in our opinion, support the view which
we are disposed to take about the true effect of the provisions contained in
article 20(a) in the case before us.
Mr. M.V.Desai,
however, preferred to put his case before us more on articles 21(a) and 21(b)
than on article 20(a) itself. He argued that the former articles used wider
words and they confer jurisdiction on the arbitration committee to deal even
with a dispute as to the factum of the contract itself. The arbitration
committee is authorised under article 21(a) to dispose of all disputes and
differences arising between members and members or members and their customers
with respect to any transaction or rates or dues or anything out of a
transaction or in respect to any liability arising from any transaction. Here
again, what the arbitration committee is authorised to deal with are disputes
and differences arising between members in respect of any transaction and that
seems to postulate the existence of an admitted transaction between the
parties. Besides, even if article 21(a) was capable of the wider construction
for which Mr. M.V.Desai contends, that, in our opinion, cannot be said to
constitute an arbitration agreement within the meaning of section 2 of the
Arbitration Act. Article 21 (a) clearly does not purport to impose an obligation
on the members. The obligation has already been imposed by article 20(a) and
article 21(a) proceeds to take the subsequent step of defining and describing
the powers of the arbitration committee. If in describing the powers of the
arbitration committee, words are wider denotation are used, they cannot, in our
opinion, widen the scope of article 20(a) itself. An obligation to refer a
dispute even in regard to the existence or factum of a contract itself cannot,
in our opinion, be legitimately imposed upon a member in this indirect way and
by implication. That is why we are not impressed by the argument urged before
us by Mr. M. V. Desai that article 21(a) should be held to construe an
arbitration agreement between the parties and it should be so construed as to
include even a dispute as to the existence of the contract itself. What we have
said about article 21(a) applies with greater force to article 21(b). This
article mentions that all disputes shall be settled by arbitration as provided
in the articles and bye-laws and it enjoins upon members not to institute legal
proceedings for settlement of such disputes. This article must clearly apply to
disputes in respect of which an obligation has been imposed under article
20(a). It merely says that disputes which are required to be referred to
arbitration should be dealt with by the arbitration committee and should not be
dragged to a civil court. There is nothing in article 21(b) which can
legitimately help the construction of the material clause in article 20(a).
That takes us
to the bye-laws on which Mr. M. V. Desai has relied. The relevant bye-laws are
Nos. 83, 84(a), 88 and 92(a). Bye-law 83 deals with the constitution and quorum
of the Lavad Committee. Bye-law 84(a) deals with the hearing of disputes and
differences by the Lavad Committee. It provides that the arbitration committee
shall decide any disputes or differences that may have arisen with reference to
any transaction which may have been entered into subject to the rules of the
institution or any difference in rates in respect thereof between members and
members or between members and non-members with reference to a purchase or sale
arising out of the transaction entered into.”
This bye-law
does not help the respondent because the dispute that is referred to in this
bye-law is one which has arisen with reference to a transaction which may have
been entered into “subject to the rules of this institution.” Mr. M. V. Desai
argues that the nature and categories of differences are indicated in this bye-law
and he suggests that, since a dispute as to rates has been specifically
mentioned in the latter part of the bye-law, the first part of the bye-law
should be taken to cover the dispute as to the existence of the contract
itself. We are not impressed by this argument. In our opinion, this bye-law
seems to postulate the existence of an admitted contract and that in our
opinion would be consistent with article 20(a) itself.
Bye-law 88
refers to the adjournment of meetings and the floating character of the Lavad
Committee. Its official translation reads thus:
“88. Disputes
such as the following, that the meeting which was convened for hearing the
disputes or for hearing the appeal was adjourned from time to time or that the
hearing was not finished or that the appeal was not finally heard at one
meeting, or that the very same members of the arbitration committee or of the
board were not present at all the meetings or that the members of the
arbitration committee or of the board who had given the final award were not
present at all meetings in which the hearing of the said dispute was taken up
or the appeal heard, shall not be allowed to be raised against the decision of
the arbitration committee or the board.”
This bye-law
has no material bearing on the question with which we are dealing at this
stage. The last bye-law on which Mr. M. V. Desai has laid considerable emphasis
is bye-law 922 which prohibit the hearing of certain disputes. There was some
dispute about the correctness of the translation of this bye-law, but
ultimately both the learned counsel agreed to the translation of the material
bye-law 92(b) as it is reproduced below. The whole bye-law 92 reads as follows :
“92. (a) Disputes relating to
souda which have been effected after the bazaar has
been closed will not be heard.
(b) Disputes
in connection with a souda having been effected, or with regard to difference
in rates, or in the matter of havalas, complaints as regards such disputes
which have arisen will not be heard two months after the date of the disputes
arising.
(c) Complaints as regards the
outstandings to be paid will not be heard 6 months after the date of the said
calan.
(d) If a dispute arises with
regard to moneys paid at the valan without signature taken, complaints as
regards such disputes will not be heard.”
The whole of
Mr. M. V. Desai’s argument has centred on bye-law 92(b). It may be assumed in
favour of Mr. M. V. Desai that bye-law 92(b) seems to imply that, if a dispute
with regard to the existence of a souda arises between members within two
months after the date of the souda it may be tried by the Lavad Committee.
This, at the highest, can be said to be implicit in the provisions of the
bye-law. In fact, the bye-law prohibits the hearing of a dispute as to the
existence of a souda of it is raised more than two months after the date of the
souda. But can the implication arising out of the words used in this bye-law be
said to govern the construction of article 20(a). In our opinion, the answer to
the question must be in the negative. It is possible that this bye-law may have
in view cases where a difference arises between members as to the existence of
a contract and the members agree that even this dispute should be referred to
the arbitration committee. Bye-law 92(b) provides that, if such a dispute is
intended to be referred to the arbitration committee, it must be brought before
the committee within two months from the date of the alleged transaction. On
the other hand, Mr. M. V. Desai is entitled to contend that the more natural
implication of this bye-law is that the framers of the bye-law thought that
disputes even as to the existence of a contract were within the competence of
the arbitration committee and they purported to prescribe a period of two
month’s limitation for taking such disputes before the arbitration committee.
But the difficulty is accepting the respondent’s argument is that, even if this
bye-law is construed according to his version, it cannot in law widen the scope
of article 20(a). If the words used in article 20(a) has
been ambiguous, perhaps the existence of this bye-law might have strengthened
the respondent’s case in urging the acceptance of the wider construction of
article 20(a). But since the words used in article 20(a) do not appear to us to
be ambiguous and on a fair and reasonable construction they seem to yield only
one meaning it is impossible to hold that they should be given a wider meaning
because bye-law 92(b) seems to be based on the said wider construction of
article 20(a). It is for the court to construe article 20(a), and if the court
comes to the conclusion that article 20(a) does not impose an obligation on
members to refer their disputes as to the existence of the alleged contract
itself to arbitration, then it would be valid argument to urge that the framers
of bye-law 92(b) seem to have adopted a different construction of article
20(a). That is why it may perhaps be necessary to construe bye-law 92(b) by
assuming that the limitation of two months which has been prescribed has
reference to cases where by independent mutual agreement between members a
dispute as to the existence of a contract is intended by them to be taken to
the Lavad Committee and in such a case this bye-law provides that such a
dispute should be taken to the Lavad Committee within two months after the
dispute arises.
The position,
therefore, is that, in our opinion, the material article which has to be
construed is article 20(a). The words used in this article are not ambiguous or
doubtful and so it is unnecessary to take the assistance of any other article
or bye-law in construing the said words. it is by this
article alone that an obligation has been imposed upon members to refer
specific disputes to arbitration and a dispute as to the existence of a
contract is not one of the disputes specified in this article. That is why we
must hold that the learned judge below was in error in taking the view that
article 20(a) conferred jurisdiction on the Lavad Committee to deal with the
preliminary dispute as to whether the contract had been entered into between
the appellant and the respondent or not.
In this
connection, we would like to add that, though bye-laws 84(a) and 92(b) were
cited before the learned Judge, his ultimate conclusion was based upon a
construction of article 20(a). He thought that “the wording of article 20(a) is
wide enough to cover all disputes arising out of the transactions and contracts
between the members of the Chamber of Commerce.” With this view we are unable
to concur. If the relevant articles of association did not constitute an
arbitration agreement in respect of a dispute as to the existence of the
contract itself, then the award made by the arbitrators has to be set aside.
The jurisdiction of the arbitrators is and can be derived only from an
arbitration agreement. Without an arbitration
agreement there would be no jurisdiction in the Lavad Committee to deal with
the dispute as to the existence of the contract. A plea of acquiescence cannot
be raised in respect of such jurisdictional points. The jurisdiction of the
Lavad Committee being conditioned upon the existence of a prior arbitration
agreement, all proceedings before the Lavad Committee must be held to be
invalid notwithstanding the fact that the appellant appeared before the Lavad
Committee.
It is well
settled that parties cannot confer jurisdiction on a tribunal by consent.
Jurisdiction is conferred on arbitrators by the provisions of the Indian
Arbitration Act on condition that there is a written arbitration agreement
between the parties in respect of the dispute referred to the arbitrators. If
the condition precedent is found to be absent there is no scope for holding
that the proceedings before the Arbitration Committee are with jurisdiction.
If that be the
true position, the order passed by the learned Judge below must be set aside on
this ground alone. An award has been made by a committee which had no
jurisdiction to deal with an essential part of the dispute between the parties,
and so the whole of the award must be set aside. In this view of the matter, it
would really not be necessary to consider the larger question of law as to
whether an arbitration agreement as required by section 2 of the Arbitration
Act, can reside in the articles of association. However, since this question
has been argued before us at some length, we propose to indicate very briefly
the nature and extent of the difference of judicial views expressed on this
point and our own conclusion on it.
Under section
2 of the Arbitration Act an arbitration agreement is
defined as meaning a written agreement to submit present or future differences
to arbitration, whether an arbitrator is named therein or not. The substantive
provisions of the Arbitration Act cannot be invoked and a dispute between two
parties cannot be taken to arbitration unless the said dispute is governed by
an arbitration agreement thus defined.
The appellant
and the respondent are members of the East India Chamber of Commerce Ltd. and
the respondent’s argument is that the articles of association which have been
registered constitute an arbitration agreement between all the members of the
association. This argument is based on the provisions of section 21 of the
Companies Act. Sub-section (I) of the section provides that the memorandum and
articles shall when registered bind the company and the members thereof to the
same extent as if they respectively had been signed by each member and
contained a convenant on the part of each member, his heirs, and legal
representatives, to observe all the provisions of the Act. The effect of this
sub-section is that, after the articles are registered, they not only
constitute a contract between the association or company on the one hand and
its constituent members on the other, but they also constitute a contract
between the members inter se. Since this sub-section provides that the article
can be deemed to have been signed by each member and contained a convenant on
the part of each one of them, his heirs and legal representatives, it supports
the view that these articles constitute a contract between the members inter
se.
So far the
problem does not present any difficulty. But when we reach the next stage of
considering the scope nature and extent of the rights and liabilities of the
members inter se under the articles of association, the problem gives rise to
two conflicting views. If the statement that the articles of association
constitute a contract between the members inter se is liberally construed, it
would mean that all the clauses contained in the articles virtually amount to
clauses contained in a contract between one member and another, and the
application of these clauses can be extended not only to the disputes arising
between the members as members of the association in respect of the business of
the association but also in respect of contracts separately and privately
entered into between them. In other words, the articles represent a general
omnibus contract between members inter se and the result of the material
article of association which provides for compulsory arbitration would, on this
view, be that, even if the members enter into a commercial transaction between
themselves, all disputes arising between them in respect of such commercial
dealings must be referred to arbitration. Both of them have agreed that all
disputes arising in respect of transactions between them shall be referred to
arbitration and this agreement would govern all transactions between them,
whether or not at the time of entering into them they specifically referred to
this arbitration agreement.
On the other
hand, if in construing the provisions of section 21, sub- section (1), we bear
in mind the scheme of the Act and the purpose which the said section is
directly intended to serve, it may become relevant to give effect to the last
clause in section 21,sub-section (1), which provides
that the covenant between the members inter se is to observe all the provisions
of the memorandum and of the articles and nothing more. On this alternative
view, the articles of association cannot be said to constitute a contract
between members inter se in respect of their rights outside what may be
regarded as their company relationship, and as such they cannot0t purport to
regulate their rights arising out of commercial transactions with which the
company or other members of the company would not be concerned. On this
construction of the clause, if two members of an association enter into a
private commercial transaction between themselves and disputes arise between
them in respect of such a commercial transaction, the arbitration clause
contained in the articles of association could not be invoked unless the
commercial transaction has been made expressly subject to the said clause or otherwise
expressly imports an arbitration agreement.
The first
construction has received the approval of Mr. Justice BHAGWATI in Mohanlal
Chhaganlal v. Bissessarlar Chirawala, whereas the second construction has been
accepted by Mr. Justice S.R.Das in Khusiram v. Hanutmal .
Mr.Justice BHAGWATI’S view has the support of the earlier decision of the
On the plain
construction of section 21,sub-section (1),there does not appear to be any
difficulty in reaching the conclusion that the articles of association do
constitute a contract, not only between the company and its members, but even
between members inter se though as I have just stated difficulties arise in
determining the scope, nature and extent of the rights and obligations flowing
from such articles of association in respect of the private transactions of
members of the association.
In Radhakison
Gopikison v.Balnukund Ramchandra BEAUMONT C.J. has observed that section 21,
sub-section (1),of the Companies Act, has been taken from the English Act and
that “it is quite clear under that section that the articles are a contract
between the company and the members, and between the members inter se, but they
do not bind outside parties.” The same view has been taken by the court of
appeal in the Calcutta High Court in Ramkissendas v.Satya Charan.
Mr.Justice
GENTLE has compared the position arising from the provisions of section
21,sub-section (1), in respect of articles of association with that of an
agreement signed by several executors containing the term that each will carry
out and observe the stipulations in the agreement and he has added that, where
there are mutual promises between parties to an agreement which amount to
consideration moving from each to others, the terms in the document can be enforced
by and against each party. It is true that in this particular case the dispute
had arisen in respect of the business of the company. But the observations made
by Mr. Justice GENTLE seem to suggest that, when section 21, sub-section (1),constitutes the articles into a contract between members
inter se, that contract is supported by the consideration of mutual promises
made by one member to the other and as such all the terms in the contract can
be enforced by and against each party. That is the view which Mr. Justice
BHAGWATI took in Mohanlal’s case. The learned judge held that in commercial
transactions entered into between members of an association whose articles of
association provide for compulsory arbitration of disputes between them in
respect of such transactions, it would not be open to any member to contend
that any particular transaction between him and another member is not governed
by the arbitration clause in the articles of association undoubtedly indicates
the anxiety of the association that disputes arising out of any transactions
covered by the clause should be speedily disposed of by a domestic tribunal and
should not be subjected to the formal process of adjudication in ordinary
courts of law.
So far as we
have been able to ascertain, it appears to be the general practice in
commercial chambers or association in Bombay that have adopted similar articles
of association to assume that even private oral contracts made by one member
with another are subject to the general arbitration agreement contained in the
articles of association and the practice which has thus been adopted by
commercial associations or chambers was approved by Mr. Justice BHAGWATI and no
dissenting voice has been effectively raised against this practice at any time
in this court. That is why in Gordhandas Purshottam’s case,though Mr. Justice
SHAH was apparently inclined to doubt the correctness of Mr. Justice BHAGWATI’S
view, he had ultimately accepted and followed the said view because, as he
observed (and we think, rightly),on a question of the nature raised before him,
uniformity of judicial opinion contrary to opinions previously expressed upon
it.
It is
obviously difficult to express] preference for one view rather than another
with any emphasis on a point which has given rise to a sharp conflict, and
eminent Judges have delivered opinions which it is by no means easy to
reconcile. However, we are impressed by the plea made before us that the
practice in this court has been consistently in favour of the view taken Mr.
Justice BHAGWATI, and, if we may add, the said practice appears to be based on
valid and important practical considerations.
In the present
case, the transaction which has given rise to the dispute was in respect of a
commodity in which the chamber deals. The transaction is alleged to have taken
place between the two parties as members of the chamber and both the members
knew that the articles of association required that, in case any dispute arose
between them in respect of any of their transactions, that dispute would have
to be referred to arbitration. We do not find any difficulty in assuming that,
where members of an association like the parties before us enter into
contracts, may be oral, in respect of commodities like silver which are within
the purview of the chamber itself, they do so with the full knowledge and
consciousness that the contracts are made subject to the terms of the articles
of association. The fact that the contract is made orally and no reference to
the articles of association is expressly made at the time of such a contract
would not, in our opinion, justify the inference that the members had agreed
that the articles of association should not govern the said contracts.
Besides, on
the alternative view that the articles constitute a contract between the
members, but the rights and obligations from such a contract are confined only
to disputes arising between them from their company relationship as such, it
would not be easy to imagine cases of any dispute between members to which the
articles can apply. All the private transactions between the members inter se
would be excluded from the operation of the articles on this view and disputes
between members inter se to which the articles can apply would be very few, if
any at all. In other words, it may, it respect, be pointed on that the main
object of including an arbitration agreement in the articles of association may
be frustrated if the said agreement is not held to apply to the commercial
dealings between the members inter se. In a sense, it would even be permissible
to take the view that the enforcement of the arbitration agreement in respect
of private commercial dealing between members inter se is a matter in which the
association as such is interested.
One of the
objects mentioned in the memorandum of association of the East India Chamber of
Commerce is to avoid recourse to ordinary courts of law for settling disputes
arising between members and it would not be unreasonable to hold that the said
object prima facie covers all disputes arising between the members in respect
of transactions which fall within the purview of the association or chamber
itself.
It is true
that, if the two persons who are members of the association but as private
citizens, and the transaction is in respect of
commodities not within the purview of the association but outside it, then
there would be no justification for invoking the application of the articles of
association to such a transaction. But, in the present case, the transaction is
in respect of a commodity in which the Chamber was dealing and the transaction
has been entered into between the two parties as members of the Chamber. As
such, it would, in all other respects, be governed by the articles and bye-laws
of the Chamber. That is why, on the whole, we prefer to accept, with respect
the view taken by Mr. Justice BHAGWATI in Mohanlal’s case.
If the
provision of section 21, sub-section (1), of the Companies Act are literally construed
and it is held that a contract resulting from the articles of association
between members inter se is not subject to any artificial limitation that its
application is confined only to the company relationship subsisting between the
members or to disputes in respect of the management of the association as such,
then it would be possible to hold that it is a general agreement containing
several clauses between one member and another and the article providing for
compulsory arbitration is a general arbitration agreement which would govern
all the dealings which have been entered into between one member and another in
respect of a commodity falling within the purview of the association. On this
view, the articles of association would constitute a general contract
containing an arbitration clause and all contracts of the kind just described
would attract the provisions of such arbitration clause. The position in
respect of oral contracts made between one member and another would, on this
view not be materially different from the position of contracts which are made
expressly subject to the articles of association.
What is
expressly mentioned in this latter class of contracts can be said to be
included in all similar contracts by necessary implication having regard to the
articles of association which constitute a general contract between one member
and another.
Though we have
reached this conclusion, we must confess to a feeling of diffidence because the
question involved is not free from difficulties and the answers given to this
question by eminent judges are, as I have already mentioned, not easy to
reconcile. I would now refer to some of the English decisions bearing on this
point.
Section 20 of
the English Companies Act in general corresponds to section 21 of the Indian
Companies Act. In Pritchard’s case, MELLISH L.J. has taken the view that in
themselves the articles of association are simply a contract as between the
shareholders inter se in respect of their rights as shareholders.
In Wood v.
Odessa Waterworks Co., one of the shareholders has used the company on behalf
of all the shareholders for an injunction restraining the company from giving
effect to a resolution by which the shareholders were given debenture bonds,
bearing interest and redeemable at par by annual drawing instead of paying
dividends in cash. The argument for the plaintiff was that the resolution in
question contravened the articles of association. STERLING J., in delivering an
interlocutory judgment, observed that the articles of association constitute a
contract not merely between the shareholders and the company, but between each
individual shareholder and every other.
The next case to which reference may be made in Welton v. Saffery. In this case, a limited company had issued
shares at a discount or by way of bonus and this action was authorised by the
articles of association. On a question as to whether the holders of shares so
issued were thereby relieved from all liability in the winding up the House of
Lords, by a majority judgment held that they were not relieved from their
liability to calls for the amounts unpaid on their shares for the adjustment of
the rights of contributories inter se, as well as for the payment of the
company’s debts and the costs of winding up. The majority judgment of the House
of Lords agreed with the decision of the Court of Appeal that the articles of
association which had authorised the issue of the shares in question on the
terms mentioned were ultra vires of the limited company. LORD HERSCHELL,
however, did not agree with the view expressed by his colleagues and delivered
a dissenting judgment. “It is quite true, “ observed
LORD HERSCHELL, “that the articles constitute a contract between each member
and the company, and that there is no contract in terms between the individual
members of the company ; but the articles do not any the less, in my opinion,
regulate their rights inter se.” He, however, added that such rights can truly
be enforced by or against a member through the company or through the
liquidator representing the company. “I think” said LORD HERSCHELL,” that no
member has, as between himself and another member, any right beyond that which
the contract with the company gives.” LORD MACNAGHTEN, who had delivered a
separate judgment did into accept this view. “If
directors, being duly authorized in that behalf,” observed LORD MACNAGHTEN,
“invite persons to take shares on certain terms varying the rights of members
inter se, acceptance of the invitation must, I think, establish a contractual
relation between the members themselves.” The position, therefore, is that the
view taken by LORD HERSCHELL, under which articles of association do not confer
upon a member any right as between himself any member beyond that which the
contract with the company gives, was not shares by LORD HERSCHELL’S other
colleagues, and by necessary implication it has been dissented from in the
majority decision.
In Salmon v.
Quin & Axtens Ltd. FARWELL L.J. expressed his concurrence with the view
taken by STIRLING J. in Wood v. Odessa Waterworks Co. but he added that the
statement of the law set out by STIRLING J. was accurate “subject to his
observation, that it may well be that the court would enforce the covenant as
between individual shareholder in most cases.”
In Hickman v.
Kent or Romney Marsh Sheep Breeders’ Association, ASTBURY J. had occasion to
deal with the same point. The learned Judge referred to the several decisions
cited before him and observed that it was difficult to reconcile the two
classes of decisions and the judicial opinions therein expressed, but that he
thought this much to be clear : “first that no articles can constitute a
contract between the company and third person ; secondly, that no right merely
purporting to be given by an article to a person, whether a member or not, in
capacity other that of a member as, for instance, as solicitor, promoter,
director, can be enforced against the company ; and, thirdly, that articles
regulating the rights and obligations of the members generally as such do
create and obligations between them and the company respectively.”
In Beattie v.
Beattie Ltd., the learned Judges had to consider articles 133 of the company’s
articles and the same point was raised for their decision. SIR WILFRID GREENE,
Master of the Rolls, referred to the fact that the question as to the precise
effect of section 20 of the English Companies Act had been the subject of
considerable difficulty in the past, and that it may well be that there would
be considerable controversy about it in future. But he added that it appeared
to him that this much, at any rate, was good law ;
“that the contractual force given to the articles of association by the section
is limited to such provisions of the articles as apply to the relationship of
the members in their capacity as members.” The learned Master of the Rolls then
proceeded to observe that the real matter which was being litigated in the case
before them was a dispute between the company and the appellant in his capacity
as a director, and so, when the appellant, relying on the arbitration clause,
sought to have that dispute referred to arbitration, it was that dispute and
none other which he was seeking to have referred and, by seeking to have it
referred, it was not, in the judgment of the learned Judge, seeking to enforce
a right which was common to himself and all other members. In other words, the
appellant in that case was seeking to enforce quite a different right and so
the arbitration agreement would not agree.
The last case
which may be cited is the decision in London Sack & Bag Co., Ltd. v. Lugton
Ltd. where the dispute had arisen from a contract of sale of Rs. 5,000 cotton
flour bagas by the defendant to the plaintiff. Both the parties were members of
the United Kingdom Jute Goods Association Ltd. The arbitration agreement on
which stay was claimed was based on one of the rules of the association which
had provided that all disputes arising out of transaction connected with the
trade shall be referred to arbitration. On the face of it, the transaction
which had given rise to the dispute was not connected with the trade of the
association at all and that really was enough to dispose of the matter. Indeed
MACKINNON L.J. based his decision on two grounds :
first, that the two parties were not members although each had a director, who
was a member of the association, and, secondly, that the contract, being for
cotton bags, was not connected with jute goods. SCOTT L.J., however, purported
to put the decision on a larger ground. Referring to the rule providing for
compulsory arbitration the learned Judge observed that “It may well be even as
between ordinary members of a company who are also in the nominal way
shareholders, that section 20 adjusts their legal relations inter se in the same
way as a contract in a single document would if signed by all ; and yet the
statutory result may not be to constitute a contract between them about rights
of action created entirely outside the company relationship, such as trading
transactions between members.” Then the learned Judge proceeded to deal with
the two points on which MACKINNON L.J. had based his decision, and he agreed
with the view taken by MACKINNON L.J.
It would thus
be seen that the views expressed by eminent English Judges on the point with
which we are concerned are conflicting. That is why SIR WILFRID GREENE M.R.
almost in despair, made the observations to which I have already referred.
Incidentally, it may be pointed out, with very great respect, that the
observations of LORD HERSCHELL are embodied in a minority judgment and the
remarks of SCOTT L.J. appear to be obiter.
It now remains
to refer to the opinion expressed to text-book writers on this point ; and it must be conceded that the opinion expressed
by the text-book writers is, on the whole, in favour of the narrow and limited
construction which had found favour with Mr. Justice S.R. Das in Khusiram v.
Honutmal. This is what Halsbury says on this point :
“While the
articles regulate the rights of the members, inter se, they do not, it would
seem constitute a contract between the members, inter se, but only between the
company and its members and, therefore, the rights and liabilities of members
as members under the articles can only be enforced by or against the members
through the company.” (Volume 6, paragraph 269, page 129).
In foot-note
(f) attached to this paragraph, Halsbury has added that doubt as to whether an
arbitration clause in the articles constitutes a written agreement for
submission to arbitration within the Arbitration Act, 1950, section4(1),
as between the parties concerned justifies the court in refusing to stay an
action, and this statement is sought to be supported by the observations of
SCOTT L.J. to which i have already referred.
Palmer, in his
Company Law, has referred to both the views expressed in relevant judicial
decisions, but on the whole the learned author appears to have indicated his
preference for the view taken by LORD HERSCHELL. The observations of LORD
HERSCHELL in Welton v. Saffery, are cited in the book and comment is made that
the view thus expressed by LORD HERSCHELL accords with the well-established
principle that it is for the company, save in exceptional cases, to sue for a
breach of the articles (page 29).
Buckley, in
his Companies Acts, has observed :
“As regards
the rights of members inter se, if the articles do constitute a contract
between them, the rights arising out of such contract can ordinarily only be
enforced through the company ; and the correct view is ; semble, that stated by
LORD HERSCHELL in Welton v. Saffery, namely, the articles, constitute a
contract between each member and the company, and there is no contract in terms
between the individual members of the company ‘ but the articles do not, any
the less, in my opinion, regulate their rights inter se.
Such rights
can only be enforced by or against a member through the company or though the
liquidators representing the company ; but I think
that no member has, as between himself and another member, any rights beyond
that which the contract with the company gives. (page
53).
Thus it would
be seen that the view which we have taken is inconsistent with the view
expressed by eminent text-writers. We would only conclude with the observation
that we have reached our decision on this point with some hesitation and not
without diffidence.
That leaves
only one point which was raised before us by Mr. K.T. Desai on behalf of the
appellant. He argues that the award was invalid because the dispute was heard
by a floating body of members and there has been no fair trial at all in the
present proceedings. I have already mentioned that, during the pendency of this
dispute before the Lavad Committee, three committees were formed and it is true
that on several days when the dispute was heard the same set of arbitrators
were naturally not present. But bye-law 88 of the chamber has specifically
provided that objections such as the one raised before us by Mr. K.T. Desai
shall not invalidate the award. Under this bye-law, it would not be open to a
party to challenge the validity of the award on the ground that the dispute was
not finally decided at one sitting or that the very same members of the
arbitration committee or of the board were not present at all the meetings or
that members of the arbitration committee or of the board who had given the
final award were not present at all the meetings in which the hearing of the
said dispute was taken up or the appeal heard. Mr. K.T. Desai argued that this
bye-law is ultra vires because it is opposed to natural justice, and in support
of his argument he invited out attention to two reported support of this
argument he invited our attention to two reported decisions of this court. In
Fazalally v. Khimji, RANGNEKAR J. had held that as the composition of the board
of directors had changed from time to time since the appeal went on before the
board, and when the award was given some of those who were present at the
earlier meetings were absent and did not form part of the board which made the
award, the award was not legal and could not be accepted and should be set
aside. This question arose before Mr. Justice RANGNEKAR under bye-laws 38 and
39 of the East India Cotton Association Ltd. But in two placed the learned
Judge has pointedly referred to the fact that the existence of a fluctuating
body of arbitrators was not justified by any provision contained in the
bye-laws themselves. In other words, the judgment shows that, if a bye-law or
rule made by the association had specifically authorised a fluctuating body of
arbitrators to deal with the dispute, then the learned Judge may have taken a
different view.
In Patel Bros.
v. Shree Meenakshi Mills Ltd., BEAUMONT C.J., who delivered the judgment of the
Bench, agreed with RANGNEKAR J.’s observations in Fazallally’s case, and held
that the parties would normally be entitled to the united judgment of the
board, and if a dispute was entertained by a fluctuating body of the board that
introduced a serious infirmity in the decision. But it would be noticed that in
stating his conclusion the learned Chief Justice has observed
: “In the absence of consent, I think, the rule is that the tribunal,
which has commenced the appeal, must continue, and if any member is obliged to
withdraw, and the parties are not willing to go on before the remaining
members, then a fresh board must be constituted.” In other words, if there is a
rule or a bye-law of the association specifically providing for the hearing of
the dispute by a fluctuating body of arbitrators then the plea that the same
arbitrators have not heard the dispute would not invalidate the award.
We must,
therefore, hold that infirmity in the award on which Mr. K.T. Desai relied
cannot invalidate the award because bye-law 88 expressly precludes the
appellant from raising such a contention. Nor can the bye-law be regarded as
ultra vires for the reason that it is opposed to natural justice. Indeed, the
hearing of a suit by one Judge and its decision by his successor is authorised
even under Order XVIII, rule 15, of the Civil Procedure Code.
However, it is
not necessary to pursue this point any further since Mr. K.T. Desai, did not
seriously contend that this bye-law was ultra vires. Besides, the decision on
this point would be a matter of academic importance in view of our conclusion
that the dispute as to the existence of the contract itself is not covered by
the arbitration agreement in the present case and the award made by the
arbitrators is invalid for that reason.
In the result,
the appeal must be followed, the order passed by the City Civil Court Judge
reversed, and the award made against the appellant set aside with costs
throughout.
Rule absolute
in Civil Application No. 1464 of 1955. No order as to costs.
Appeal
allowed.
[1968] 38 Comp. Cas. 187 (Mad)
High Court OF
v.
Perfect Castings Private Ltd.
RAMAPRASADA
RAO, J.
AUGUST
11, 1967
M. V. Ganapathi for the Petitioner.
V.
Shanmugam for the Respondent.
V.
Suresham for the Registrar of Companies.
This
is a petition filed by one S.S. Rajkumar under section 433(f) and 439 of the
Companies Act (I of 1956), for winding up the company known as "Perfect
Castings Private Limited". The petitioner is a holder of 14 fully paid
equity shares and he also claims to be a creditor arbitrator. Besides the
petitioner, his two brothers hold amongst themselves 11 shares. According to
the petitioner, the holding of 25 shares as between himself and his two
brothers do constitute one group of the shareholders. The other group of
shareholders, according to the petitioner, consists of N. Subbiah Asari, who is
the managing director, his wife, his brother and his brother's wife, who held
amongst themselves 42 shares, which, along with the 25 shares held by the
petitioner and his group, are the only paid up shares of the company. There is
thus a totality shareholding of 67 paid up shares. The latter 42 shares held by
Subbiah Asari and his group are characterised by the petitioner as the other group of shareholders. The petitioner's
case is that he was induced to join the company by Subbiah Asari, who was
unable to find the working capital necessary for the running of the firm. At
the instance of Subbiah Asari, the petitioner is reported to have joined the
company. His complaint is that, though he was on the board till March 31, 1965,
he was not served with any notice of the annual general meeting held in June,
1965, and his further case is that himself and his
brothers were eliminated from the directorate at the said annual general
meeting. He also alleges that Subbiah Asari is bent upon completely and totally
ignoring the interest of the petitioner's group and is conducting the affairs
of the company in a manner totally incompatible with the normal functioning of
the company. The petitioner has alleged that the directors were taking salaries
contrary to the practice and law, Subbiah Asari's group are unable to do real
business and that the company is working at a loss. He would also state that
the machinery has become unserviceable and the company is unable to pay its
debts. The petitioner is apprehensive that all tangible assets of the company
would disappear and that his investment would be completely lost. He alleges
that he has lost faith in the commercial integrity of Subbiah Asari and in view
of the alleged fraudulent misapplication of the company's funds and as the
substratum of the company has already gone, it is a
fit case that the company should be wound up.
The
petitioner alleges that at the time when he associated himself with Subbiah
Asari, and therefore with the company, Subbiah Asari held out a promise that
the petitioner and his brothers would be associated with Subbiah Asari in the
nature of a partnership, so that at all material times the management of the
company, its business and affairs would be with Subbiah Asari and his group of
shareholders as also that of the petitioner and his group. After June, 1965,
when the petitioner and his group were eliminated from the board of directors,
it is alleged by the petitioner that there is wanton of breach of the promise
held out by Subbiah Asari at the time he joined the company and therefore on
the principle that a dissolution of partnership should be made when there is no
confidence inter se between the partners, this company also should be wound up.
Subbiah
Asari expressly denies that he held out any promise to
the petitioner as stated by him, nor did he induce him to become a member of
the company. On the other hand, the case of Subbiah Asari, who happens to be
the managing director, is that the petitioner voluntarily offered to become a
member of the company by purchasing shares, that he also made his brothers
shareholders contemporaneously along with him and purchased shares for Rs.
15,000 in the first instance. Thereafter, he secured a transfer of certain
shares which were available of the value of Rs. 10,000 and that therefore the
allegation that the petitioner was induced by Subbiah Asari to join the company
is baseless. It is further alleged that salaries were paid in accordance with
the resolutions of the board of directors in which the petitioner and his
brothers participated and they cannot therefore complain that such salaries
were paid irregularly and improperly. The counter petitioner also alleges that
the business of the company is run on normal lines and that he was able to
secure certain important contracts after the petitioner and his group of
shareholders left the board of management and that he has substantially brought
down the mortgage debt of the company and that at no time there was any effort
on his part to deliberately keep out the petitioner and his group of
shareholders from acquainting themselves with the affairs of the company. In
fact, his complaint is that the petitioner and his group of shareholders did
not attend the annual general meeting held in June, 1965, and in their absence
nothing more could be done than what actually happened on that date in that
meeting. He alleged that he at no time entertained any malice against them and
that at no time did he do any act so as to prevent them from knowing the
affairs of the company. Subbiah Asari contends that he was in management of the
company under article 12, as he, as the managing director, was the only person
who was to be in control and charge of the affairs of the company. He has also
filed a supplemental affidavit and a supporting affidavit from a third party,
who is the mortgagee over the fixed assets of the company. In his supplemental
affidavit, he reiterates that the company is working normally and has secured
profits for the year 1965-66. This third party mortgagee also supports Subbiah
Asari and says that the company is doing lucrative business and is making
steady progress. He affirms that his debt has been considerably reduced and as
on the date he swore to the affidavit, namely, July 9, 1966, there was only a
sum of Rs. 10,500 due and outstanding to him on the mortgage. It may also be
noted at this stage that Subbiah Asari denied that there was any express
understanding that the petitioner should be in joint management of the affairs
of the company and that he held out a promise to that effect. He denied that
the understanding was as if between the two partners in a partnership and that
there has been a breach of such understanding resulting in loss of trust
between themselves on the foot of their being partners in the company. A reply
affidavit has been filed by the petitioner wherein he reiterates the earlier
stand taken by him. In particular, he affirms that he was induced by Subbiah
Asari to take the shareholdings, that there was an understanding as is usual
between partners that he should also be in joint management of the company and
that there having been a breach of such understanding between the two groups of
shareholders the company ought not to be allowed to run hereafter and it should
be wound up. Several other allegations have been made in the affidavits. It is
not necessary for me to set them in detail. The Registrar of Companies who had
notice of this proceeding, filed an affidavit stating that there was an annual
meeting on June 3, 1965, and that the directors, who are the other defendants,
were re-elected to the board and that the petitioner and his two brothers were
not re-elected to the board. He also states that the auditors have filed an
unqualified report as regards the working of the firm.
When
the case was opened by Mr. M.V. Ganapathi, learned counsel for the petitioner,
he asked for permission to let in oral evidence since the petitioner wanted to
establish an understanding between him and Subbiah Asari, the managing
director, that the petitioner would always be consulted in the management of
the affairs of the company and that the petitioner and his brothers are always
assured of seats in the board of directors of the company. Though there is no
infallible rule of law which guides the company court in the matter of
accepting oral evidence as is available in the common law courts of our
country, yet it is desirable in a given case to permit such oral evidence if
the circumstances and propriety of the case require. Such a procedure is adopted only to foster justice and right a wrong. As pointed
out by a Division Bench of this court, in Veeramackineni Seethiah v. Venkatasubbiah.
"There
is no inflexible rule or practice prohibiting the adducing of oral evidence, or
the cross-examination of the deponents of affidavits in winding up
applications. Where necessity suggests or expediency requires it is open to the
judge trying winding-up proceedings to allow oral evidence."
P.W.
1 the petitioner examined himself. It is the accepted case of the petitioner
that he and his two brothers served on the board till March 31, 1965. In fact,
it has been brought out in his examination that notices of meetings were
received either by one of the brothers who was a shareholder or even by one of
their employees. The petitioner's case is that, contrary to the promise made by
the managing director, he was designedly excluded from the affairs of the
company from March 31, 1965, and that he is prejudiced thereby. He denies
having had notice of the annual general meeting held on June 3, 1965. He also
alleges that the managing director and his group are calculated to work against
the interests of the petitioner and his group and therefore it is a fit case
for the company being wound up. Mr. Ganapathi took me through the material
portions of the pleadings and evidence in detail. His case is that, though
Subbiah Asari was a casual acquaintance of the petitioner, the petitioner and
his brothers took shares worth Rs. 25,000 out of a paid up capital of Rs.
67,000 because they were assured of participation in the management. On and
after March 31, 1965, they were deliberately kept out of management. Such an exclusion tantamounts to a breach of undertaking on the
part of Subbiah Asari, the managing director, who has taken his own people into
the directorate. It is seen that the meeting fixed for June 3,1965, was
not attended at all by the petitioner even though notices were served as usual
(vide exhibit R-3(c)). P.W. 1 could not explain properly as to why he did not
attend the meeting. He would initially deny that notices were properly served
on him. But when confronted with the practice of serving such notices on one of
the brothers, or sometimes even on his employees (exhibit R-3(b)) he had no
proper answer to the specific query posed to him as to why he refrained from
attending the meeting on June 3, 1965. It is in this meeting that the old body
of directors was re-elected. But yet, the petitioner's case is that he and his
group have been deliberately kept out from the board and from the management of
the affairs of the company. Under article 12 of the articles of the company
(exhibit R-4), the management of the company is vested in the managing
director. The articles of association of a company is
its Magna Carta. Each shareholder is irrefutably attributed with notice of the
purport and content of such articles. Even if disputed, the shareholder
concerned is presumed to have constructive knowledge of the same. Articles of
association of a company, being a business document, has to be interpreted
strictly, unless there are compelling circumstances to import into it a meaning
other than normal. The articles thus regulating the domestic
management of a company and particularly a private limited company, as in this
case, creates certain rights and obligations between its members and the
company. The right of management having been exclusively vested in the managing
director, it does not lie in the mouth of the petitioner to contend that there
was an independent contract, de hors the articles in question, which
contemplated joint management. This would be re-writing the articles and
importing into it something which it does not mean. If the petitioner wanted an
amendment of the article in question, he could have sought the relief through
an appropriate process. He cannot press into service a contract which cannot
fit in with the. accepted and accredited contract as
disclosed in the articles. The petitioner therefore cannot avail himself of the
alleged understanding between him and the managing director, and complain that
he has been ousted from management.
Even
if the petitioner could avail himself of such a gentleman's understanding, has
it been proved in this case? The sheet anchor of the argument of the learned
counsel for the petitioner is that there is no evidence contra to that spoken
to by the petitioner and therefore the arrangement is proved. Let us examine
the evidence. P.W. 1 would say that the promise made by the managing director
was that himself (P.W. 1) and his two brothers would
be taken on the board of directors and one of them has to manage the affairs of
the company along with the managing director. P.W. 1 admits that his brothers
just finished their education and were unemployed when they became members of
the company. The reasonable conclusion is that they were not experienced as
well. The petitioner himself was admittedly employed in Industrial Chemicals
Limited as a store keeper. Normally it is difficult to believe that there was
such an understanding when the petitioner and his brothers associated
themselves with the company. P.W. 1 practically would have it that Subbiah
Asari, the managing director, was a casual acquaintance. It is surprising that
P.W. 1 who knows about the working of companies, as to what articles of
association mean and being a shareholder and director of a few companies, would
gullibly take what Subbiah Asari said when he is said to have invited him to
join the company. In fact, only Rs. 15,000 was invested in the first instance.
P.W. 1 obtained a transfer of shares of others to the tune of Rs. 10,000. As
between P.W. 1 and his two brothers the shareholding is divided. Therefore it
is not possible to believe P.W. 1 when he says that Subbiah Asari induced him
to become a member on the promise of an alleged partnership in the management.
In fact, P.W. 1 and his two brothers were elected as directors. In any event,
P.W. 1 was actively participating in the affairs of the company till March 31,
1965. He concedes that the sum of Rs. 25,000 invested by him was utilised for
the purposes of the company. He also answered to a question put by me that he
never complained in writing to the company that the alleged promise was not
implemented. Though long drawn affidavits were filed, learned counsel referred
to me only some material portions therein. Even on a fair reading of the
affidavits filed, it is seen that till March 31, 1965, the petitioner and his
brothers were having their say in the board meetings. In fact, they recommended
on March 31, 1965, that the company may apply for State aid. There was
therefore participation by the petitioner and his brothers in the affairs of
the company. The telltale story of P.W. 1 in his affidavit and in the witness
box is purely self-serving and appears to be an afterthought as if they were
excluded from the board at a meeting held on June 3, 1965, which they never
cared to attend. What would have happened, if they had attended, nobody can
conjecture; From the prevaricating answers P.W. 1 gave in the matter of
attending board meetings, service of notices of such and other meetings and on
other relevant facts, I do not believe that P.W. 1 and his brothers did not
receive the notice of the annual general meeting held in June, 1965, when
directors were re-elected. As a matter of fact, P.W. 1 and his brothers were
participating in the affairs of the company, receiving the agreed remuneration
for having discharged their duties as directors, and in fact the petitioner's
brothers had to file a suit for the recovery of such money due to them. They
having received what according to them was "salary" it would be a
paradox if the petitioner's contention that they were excluded, is accepted. It
is only after they were not re-elected to the board, the petitioner and his
brothers, in a fit of frustration, have set up a case of partnership in the
management and a breach of an undertaking on the part of the managing director
to deliberately avoid them.
Apart
from the allegation as to exclusion from management the petitioner has
not established any act of misfeasance or malfeasance on the part of the
managing director. As a matter of fact, the balance-sheet of the company
discloses that for the year 1965-66, the company secured profits. Prior to
March 3, 1965, the company was incurring a loss. The mortgage debt of the
company has been substantially reduced. The mortgagee has filed an affidavit
stating that the company is doing lucrative business and is making steady
progress. The assets of the company are enough and more to meet the
liabilities. There is no proof of any malversation of the funds of the company
by the managing director or his group. Even the present active group of directors were on the board, before the petitioner
joined the company, and continued to be so, when the petitioner and his
brothers were on the board. The company is normally functioning. The Registrar
of Companies, in his affidavit, refers to the annual general meeting of the
company held on June 3, 1965, and the auditors of the company have furnished
unqualified reports of the working of the company. It is reported that the company
has improved its contacts and has received and is expected to receive bulk
orders from leading concerns. It is thus seen that there is absolutely no
warrant for the petitioner's apprehensions about the management or working of
the company.
Mr. Ganapathi, however, laid stress on the
principle applicable in actions for dissolution of partnership and argued that
once there is lack of mutual confidence and the breach of a solemn undertaking
to take the petitioner in joint management, the company has to be wound up.
Section
433(f) of the Companies Act, 1956", reads that a company may be wound up
by the court if the court is of the opinion, that it is just and equitable that
the company should be wound up. No doubt, this is a private company. I have
already held that there could have been no arrangement between the managing
director and the petitioner regarding joint management, as it violates the
articles of the company, and even factually, there is not enough material to
support the contention. The "just and equitable" rule, though no
doubt wide, has yet its own circumspection. It is true that clause (f) of
section 433 is not to be read ejusdem genens with the other clauses (a) to (e)
of the said section. Clause (f) or the "just and equitable" clause as
it is commonly referred to, operates independently and has a precise import and
content of its own. Justice, equity and good conscience is a salutary rule in
jurisprudence which prompts company courts to act in real and compelling
circumstances particularly because it relates to the winding up of a company.
Existence of factions amongst shareholders, bickerings at between one group and
another group of members, vague allegations against the quality of management
by the person in charge of the company, and mere exclusion from management, as
in the instant case, cannot by themselves be a ground for winding up of a
company. Proved malversation and conversion of funds, deliberate and wanton
oppression by the management in power, of the minority shareholders with a view
to make personal illegal gains, indulging in subversive activities so as to
jeopardise the substratum of the company, a justifiable lack of confidence in
the conduct and management of the company's affairs due to lack of probity on
the part of those in management, where there is open mismanagement and there is
no panacea to remedy the evil, such are instances, though not exhaustive, when
the courts exercise their jurisdiction under the "just and equitable"
rule to wind up companies.
In
the instant case, the cumulative effect of the facts and circumstances do not
disclose such necessary circumstances to shake the conscience of the court, and
direct the winding up of the company. The contention of Mr. Ganapathi that the
principle applicable to actions of dissolution of partnership has to apply to
cases of winding up of companies, is, in my opinion,
an extreme contention. Apart from the fact that there is no acceptable proof of
the existence of the arrangement as pleaded by the petitioner, it cannot be
said that by reason of the exclusion from management, a case to close the
company has been made out. Though originally as laid down by Lord Cozens-Hardy
M.R. in Yenidje Tobacco Company Limited the rule was
that the principle applying in case of dissolution of partnership has to be
applied to a company where there was in substance a partnership in the guise of
a private company, this rule has been considerably whittled down in later years
and the following observations of Plowman J. in Expanded Plugs Ltd., In re considerably
mellows the force of the proposition as applied by Lord Cozens-Hardy M.R.:
"I am concerned here with a company not with a
partnership, and while it is true that the partnership analogy may be of
assistance in certain circumstances in considering whether it is just and
equitable to wind a company up, the analogy must not be pressed too
far..."
Even
otherwise, Lord Cozens-Hardy M.R. was obliged to consider a case where
factually one party refused to meet the other group of shareholders, there was
continuous quarrelling, and there was a state of animosity which could not be
reconciled. In the instant case, no such circumstance appears. On the other
hand, the managing director and his board are conducting the affairs of the
company in accordance with the statute and the articles. Even the Registrar of
Companies impliedly vouchsafes to such a state of affairs. There is no evidence
in this case that the managing director "has purported by means of
irregularities to acquire complete control of the company and to exclude the
other directors from the management of it." The decision cited by Mr.
Ganapathi reported in In re Lundie Brothers Ltd. cannot take his case farther. That was a case where though
no element of probity or fair dealing to the petitioner in his capacity as
shareholder in the company had been established, yet it was found as a fact
that blows were exchanged between the two groups of parties, there was
incompatibility of temperament between them and the employment of one of the
petitioners therein as working director was unlawfully terminated, which almost
was equated to deliberate ouster from management. No such telling circumstance
appears in the instant case. There is no proof either that this company was
formed on the basis of a quasi partnership. Lord Clyde, Lord President of the
Court of Session, in Baird v. Lees says:
"I
have no intention of attempting a definition of the circumstances which amount
to a 'just and equitable' cause. But I think I may say this. A shareholder puts
his money into a company on certain conditions. The first of them is that the
business in which he invests shall be limited to certain definite objects. The
second is that it shall be carried on by certain persons elected in a specified
way. And the third is that the business shall be conducted in accordance with
certain principles of commercial administration defined in the statute, which
provide some guarantee of commercial probity and efficiency. If shareholders
find that these conditions or some of them are deliberatly and consistently
violated and set aside by the action of a member and official of the company
who wields an overwhelming voting power, and if the result of that is that, for
the extrication of their rights as shareholders, they are deprived of the
ordinary facilities which compliance with the Companies Acts would provide them
with, then there does arise, in my opinion, a situation in which it may be just
and equitable for the court to wind up the company."
This
rule has been more forcibly and effectively put by their Lordships of the Privy
Council in
"It
is undoubtedly true that at the foundation of applications for winding up, on
the 'just and equitable' rule, there must lie a
justifiable lack of confidence in the conduct and management of the company's
affairs. But this lack of confidence must be grounded on conduct of the
directors, not in regard to their private life or affairs, but in regard to the
company's business. Further more the lack of confidence must spring not from
dissatisfaction at being outvoted on the business affairs or on what is called
the domestic policy of the company. On the other hand, wherever the lack of
confidence is rested on a lack of probity in the conduct of the company's
affairs, then the former is justified by the latter, and it is under the
statute just and equitable that the company be wound up."
The
Supreme Court of India, quoting with approval the above rule in Rajahmundry
Electric Supply Corporation Ltd. v. Nageswara Rao, added that
where nothing more is established than that the directors have misappropriated
the funds of the company, an order for winding up cannot be made. In the case
under consideration , not even a whisper to that
effect has been made.
The
company is working on fairly a sound basis. After the petitioner and his brothers
left, the company has made profits. It has liquidated a considerable portion of
its secured debts. Even a third party creditor is satisfied about the working
of the company. Merely because the petitioner and his group have been outvoted
and are necessarily bound by the majority shareholders, this is not a
sufficient ground to wind up the firm under section433(f).
As pointed out by Govinda Menon J., speaking for the Bench, in Veeramachineni
Seethiah v. Venkatasubbiah, the (just
and equitable) clause should not be invoked in cases where the only difficulty
is the difference of view between the majority directorate and those
representing the minority. The petitioner has alternative remedies available in
law to redress such grievance, which are not only adequate but efficacious. The
conspectus of the facts and circumstances attendant upon this
case do not persuade, me to exercise my discretion and to direct a
winding-up of a running company. The company petition is therefore dismissed
with costs. Counsel's fee Rs. 250.