Sections 184 and 185
SCRUTINEERS AT POLL/MANNER OF
TAKING POLL
[1982] 52 COMP. CAS. 271
(ALL)
v.
Dehradun Tea Company Ltd.
A. N. VERMA, J.
CIVIL REVISION NO. 3428 OF
1978.
APRIL 12, 1979.
L.P. Naithani for the Applicant.
Ravi Kant for the Respondent.
A.N. Verma, J.—This is a plaintiff's application in revision directed against concurrent orders passed by the courts below refusing to grant a temporary injunction sought by the plaintiff-applicant in a suit instituted by him against the defendant-opposite parties for an injunction restraining them from declaring the result of the elections held at an annual general meeting of the above-named company on June 6, 1977, for electing two directors of the company including the applicant who was retiring on June 6, 1977. The temporary injunction was sought also for restraining the defendant from taking into account the proxies rejected on June 4, 1977.
Facts relevant for the disposal of the revision are these : Dehradun Tea Co. Ltd., opposite party No. 1, is a public limited company having an authorised capital of Rs. 50,00,000 divided into 50,000 equity (ordinary) shares of Rs. 100 and the issued capital of the company is Rs. 8,78,000 divided into 8,780 equity (ordinary) shares of Rs. 100 each. Under the articles of association of the company, the number of directors is limited to six. It is provided in the articles of association that one-third of the directors shall retire every year by rotation at the annual general meeting. The applicant and one Sri Kirti Prasad Manglik were due to retire on June 6, 1977. An annual general meeting was called for that purpose. The election was to be decided by poll. A meeting of the board of directors was held on June 4, 1977. The company received 117 proxies. The secretary of the company put up a note before the board rejecting five proxies of the shareholders, namely, Mrs. D. B. Thomas, Mr. J. R. Hollander, the principal of Christian College, Lucknow, and Sri. Amal Dutta. The proxy of Shrimati Santra Devi was, however, accepted as valid by the secretary. It may be noted here that Mr. J. R. Hollander and the principal of the Christian college had each sent 3 and 2 proxies respectively bearing different dates. From the facts found by the court below, it appears that the board of directors itself did not pass any resolution accepting or rejecting any proxies.
The annual general meeting was held on June 6, 1977, for the election of directors in place of the abovementioned retiring directors under the chairmanship of Sri. K. P. Manglik. The shareholders and the proxies present at the meeting cast their votes. However, as some dispute appeared to have arisen at the meeting with regard to the rejection of the abovementioned proxies, the matter relating to the abovementioned proxies of the abovementioned shareholders was referred by the general body to a sub-committee consisting of three persons, namely, Sri Jai Narain Gupta, Sri. Mulk Raj Batra and Dr. Jai Hari Har, who were incidentally also the scrutineers appointed by the chairman of the meeting. The sub-committee was authorised to obtain the opinion of the Company Law Bond, failing which that of Sri K. L. Gosain, a former judge of a High Court, on the validity or otherwise of the disputed proxies and thereafter to announce the result of the election. It has been found by the courts below that the disputed proxies did not cast their votes at the meeting held on June 6, 1977.
It appears that the Company Law Board declined to give any opinion on the validity of the proxies whereupon the abovementioned sub-committee obtained the opinion of Sri K. L. Gosain. Sri. K. L. Gosain gave his opinion to the effect that the last of the proxies sent by the abovementioned shareholders were the valid ones. Sri K. L. Gosain gave his opinion on the validity or otherwise of the proxies sent to him for his opinion. After the opinion of Sri K. L. Gosain had been obtained, the sub-committee invited, by means of letters, the proxies adjudged valid to indicate the candidates in whose favour they wished to vote. At this stage, it is pertinent to mention that under the resolution by which the sub-committee was authorised to obtain the opinion of the Company Law Board, Sri K. L. Gosain, and thereafter to announce the result of the election, the petitioner and Sri K. P. Manglik were also permitted to continue as directors till the results were announced by the sub-committee. It is not disputed that the plaintiff-applicant has been continuing to function as a director under that resolution though he was due to retire on June 6, 1977, in accordance with the articles of association. Immediately after the sub-committee proceeded to obtain the votes of proxies adjudged valid, the plaintiff-applicant filed the present suit for the following reliefs :
1. An injunction restraining the sub-committee from announcing the result ;
2. An injunction restraining the sub-committee from taking into account the votes of the proxies rejected by the secretary of the company on June 4, 1977.
Along with the suit, an application for a temporary injunction in the same terms as the reliefs claimed in the suit was moved by the plaintiff. This was contested by defendants Nos. 1 to 3, defendant No. 1 being the company and defendants Nos. 2 and 3 being the rival candidates for the election of the office of directors.
The trial court rejected the application of the plaintiff-applicant on the following findings :
1 The plaintiff-applicant had no prima facie case for restraining the sub-committee from announcing the result. The sub-committee was prima facie acting within the ambit of its powers conferred upon it under the abovementioned resolution.
2 The rejection of the proxies by the secretary of the company on June 4, 1977, was illegal and unauthorised and consequently the plaintiff has no prima facie case for the grant of an injunction restraining the sub committee from taking into consideration these proxies. The rejected proxies were in any case adjudged valid by the sub-committee appointed specifically to go into that question and consequently the injunction could not be granted to the applicant in any case ;
3 The balance of convenience was not in favour of the plaintiff-applicant, The term of office of a director was three years ; the applicant has already acted as director under the resolution, the validity of which he was now challenging and under the circumstances the plaintiff could not be permitted to approbate and reprobate, taking advantage of one part of the resolution and challenging that part which was inconvenient to him.
4 It was not a fit case for the grant of a temporary injunction.
Aggrieved, the plaintiff-applicant filed an appeal. The appellate court has endorsed the above findings of the trial court and hence this revision.
Learned counsel for the applicant has mainly concentrated his argument on attacking the correctness and legality of the finding recorded by the courts below to the effect that the plaintiff-applicant did not have a prima facie case. On the question of balance of convenience, the learned counsel for the applicant urged that as a director and shareholder of the company, he had a fundamental right in the management of the company and the findings of the court below that the balance of convenience was not in favour of the plaintiff-applicant was incorrect.
Learned counsel for the opposite party on the other hand urged that the findings of the court below on the question whether the plaintiff-applicant had a prima facie case or not is not open to question in a revision under s. 115 of the CPC. Learned counsel contended that this court is not exercising the powers of an appellate court and consequently the orders of the court below could not be set aside merely on the ground that this court might come to a different conclusion on the question whether the plaintiff-applicant had a prima facie case or not. Learned counsel urged that all that this court had to satisfy is that the court below should have applied the correct test for the grant or refusal of a temporary injunction, and if this court came to the conclusion that the courts below have refused temporary injunction to the plaintiff-applicant after applying the established judicial principles applicable to the grant or refusal of temporary injunction there would be no scope for interference under s. 115 of the CPC. Learned counsel for the opposite party further urged that the concurrent findings of the courts below to the effect that it was not a fit case in which the sub-committee should be restrained from announcing the result, and that the balance of convenience was not in favour of the plaintiff-applicant were sufficient to non-suit the plaintiff-applicant so far as this court is concerned, and having regard to the nature of the jurisdiction conferred on it under s. 115, CPC, it is not open to a High Court to correct errors of fact, however gross or even errors of law unless the said error have relation to the jurisdiction of the court to try the suit itself.
Learned counsel lastly urged that the plaintiff-applicant ought not to be permitted to challenge the correctness of a part of the resolution under another part of which he is continuing as a director even though he was due to retire on June 6, 1977. Learned counsel for the opposite party also urged that the finding of the court below even on the question whether the plaintiff-applicant had a prima facie case were perfectly correct in law and were not liable to be set aside.
Having heard learned counsel for the parties, I am in full agreement with the submissions of the learned counsel for the opposite parties. I am clearly of the view that this revision has no substance and it must be dismissed. It has been repeatedly held by their Lordships of the Supreme Court and this court that a revision under s. 115, CPC, is not directed against the conclusions of law or fact in which a question of jurisdiction is not involved. Their Lordships of the Supreme Court have further held that while exercising the jurisdiction under s. 115, CPC, it is not open to a High Court to correct errors of fact, however gross or even errors of law unless the said errors have relation to the jurisdiction of the court to try the suit itself. Even under cl. (c) of s. 115, CPC, their Lordships have interpreted the words "illegality" and "with material irregularity" as used in that clause and held that these do not cover errors of fact or law which are not relatable to the jurisdiction of the court or the procedure adopted at the trial of the cause. In D. L. F. Housing and Construction Co. (P) Ltd. v. Samp Singh AIR 1971 SC 2324, their Lordships of the Supreme Court set aside an order passed by the High Court under s. 115, CPC, by which the High Court had set aside the orders passed by the courts below refusing to grant a temporary injunction on this very ground, namely, that it was not permissible for the High Court to interfere with the orders passed by the lower courts merely because the High Court differed from the courts below on the question whether an injunction should be granted or not. This view of their Lordships of the Supreme Court has been reiterated in Hindustan Aeronautics Ltd. v. Ajit Prasad, AIR 1973 SC 76, and again in State of Orissa v. Pyarimohan Samantary-AIR 1976 SC 2617. Their Lordships of the Supreme Court have, therefore, made the position of law abundantly clear that it is not permissible for a High Court exercising jurisdiction under s. 115, CPC, to set aside orders passed by the courts subordinate to it merely on the ground that the High Court chooses to take a different view in regard to the issues involved in the case where the issues do not relate to the jurisdiction or procedure adopted by the courts subordinate to the High Court.
In view of the law laid down by the Supreme Court and in view of the fact that both the courts below have upon a full consideration of the material on the record arrived at the conclusion that the plaintiff-applicant has neither a prima facie case, nor is the balance of convenience in his favour, this revision is liable to be dismissed on the ground that the case does not fall under any of the three clauses of s. 11 5, CPC.
The grant of a temporary injunction is an equitable relief. The courts below have refused to grant the same on legitimate grounds. Learned counsel for the plaintiff-applicant sought to challenge the findings of the court below on the question of balance of convenience on the ground that the plaintiff-applicant had a fundamental right as a shareholder in the management of the company. In my view, it is equally the fundamental right of the entire body of shareholders to choose their own management and that the result of the election held as far back as June, 1977, should not be withheld at the instance of a single individual particularly when that individual is a direct beneficiary of the resolution, the validity of which he has challenged in so far as it goes against him. In my view, the applicant was a party to the resolution by which the sub-committee was authorised to announce the result and by the same resolution, the plaintiff-applicant was authorised to continue as a director till the results were announced. The plaintiff did not choose to challenge that resolution immediately. On the other hand, he has undisputedly been functioning as a director under that resolution and it was only after the sub-committee was on the point of announcing the result after it had obtained the opinion of Sri K. L. Gosain that he has chosen to stall the announcement of the result. This aspect of the case has greatly weighed with the court below, and in my view quite rightly so.
Learned counsel for the applicant urged that he was continuing as a director not only under the resolution but. also under art. 62 of the articles of association of the company. The argument is fallacious. Article 62 of the articles of association reads :
"The continuing directors may act notwithstanding any vacancy in their body, but if the number falls below the minimum above fixed, the directors shall not, except for the purpose of filling up vacancies or convening a general meeting of the company, act so long as the number is below the minimum."
In my view, article 62 has nothing whatsoever to do with the continuance of a director who has retired. Article 62 speaks only about the continuance of the directors not retiring as provided under the articles of association of the company. I have perused the articles of association and I do not find any provision whereunder a retiring director is empowered to continue till the results are announced. Learned counsel for the applicant also placed reliance in this connection on arts. 46, 47, 49 and 52 of the articles of association which too have no bearing on the question. These articles do not authorise or provide for the continuance of a retiring director till the results of the poll held for the election of directors in place of the retiring directors are announced. It is, therefore, clear that the applicant is continuing as a director only under the resolution, and the courts below have rightly held that the plaintiff-applicant ought not to be allowed to approbate and reprobate. I am clearly of the opinion that, being an equitable relief, this was a legitimate consideration for the court below to refuse to grant an injunction to the plaintiff-applicant. Learned counsel for the applicant, however, urged that the sub-committee is attempting to exceed its powers in inviting the proxies adjudged valid to cast their votes. Learned counsel contended that the sub-committee was empowered under the resolution only to determine the validity or otherwise of the disputed proxies and to declare the result. Learned counsel urged that it was open to the plaintiff-applicant to contend that the sub-committee was exceeding its power. He submitted that such an objection is not barred by any principle of estoppel. Both the courts below have repelled this contention and have held that the sub-committee was authorised under the resolution to call upon the proxies adjudged valid to cast their votes. In order to appreciate this argument, it will be necessary to reproduce here the relevant portion of the resolution passed at the meeting of 6th June, 1977 :
"Resolved that the committee of the shareholders consisting of M/s. Jai Narain Gupta, Mulk Raj Batra and Jai Hari Har Lal be and hereby appointed. This committee will refer the cases of the rejected proxies of Mr.J. R. Hollander of U. K. Christian College, Lucknow, and R. P. Mission, Roorkee, Mrs. D. B. Thomas and of Amal Datta to the Company Law Board, for their adjudication. In case the Company Law Board is unable to adjudicate in the matter, the Committee is empowered to refer the case to an eminent lawyer of their choice.
Further resolved that the election of the directors be proceeded with and the poll ballots and the proxies received for this meeting be sealed and kept in the safe custody of the Allahabad Bank in the joint names of the committee members.
This committee will give the election results after they have obtained the ruling of the Company Law Board and/or the lawyer consulted by them, on the above-mentioned proxies and the votes cast at the poll for the election of directors today. The decision of this committee will be final and binding on all the candidates contesting for the post of directors. Till then all the present six directors will continue on the board of directors and function as such. All the expenses incurred by this committee will be borne by the company."
In my view, when the sub-committee was being authorised to adjudicate upon the validity of the disputed proxies and thereafter to declare the result after taking into consideration the votes cast at the poll and further when the decision of the sub-committee was to be regarded as final and binding on all the contesting candidates, it followed by necessary implication that the sub-committee was also authorised to allow the proxies adjudged valid to cast their votes. For otherwise the question of going into the validity of the proxies who had not been allowed to vote at the meeting of June 6, 1977, would not have arisen and it would become totally meaningless. The courts below were, therefore, right in holding that the sub-committee was acting within its powers to call upon the proxies, which were held to be valid by it, to cast their votes.
There is, therefore, no force in the above contention of the learned counsel for the applicant. The above discussion is sufficient for disposing of the revision inasmuch as I have come to the conclusion on its basis that the courts below have committed no error of jurisdiction in refusing to grant injunction to the plaintiff-applicant. As, however, considerable arguments were addressed by the learned counsel for the applicant on the correctness of the findings of the court below on the question whether the plaintiff-applicant had a prima facie case, I may deal with that aspect of the matter as well.
Briefly stated the submission of the learned counsel on the merits of the findings of the courts below was that the proxies had to vote only at the poll and the poll could not be held piecemeal. According to the learned counsel, the poll concluded on June 6, 1977, itself, and consequently the proxies could not be permitted to vote after the meeting had concluded on June 6, 1977. Elaborating his argument, learned counsel submitted that the proxies could cast their votes only at a meeting and in person, and not otherwise. The courts below have repelled this contention relying, inter alia, on a decision in the case of M. K. Srinivasan v. Watrap S. Subrahmanya Ayyar [1932] 2 Comp Cas 147 ; AIR 1932 Mad 100. In that case, it has been held that the actual process of holding the poll is not a meeting at all. I am inclined, prima facie, to agree with the view of the courts below. In my view, the poll had not concluded on June 6, 1977, and neither had the meeting. For the purpose of the poll, the original meeting would be deemed to be continuing till the results are announced. In my opinion, learned counsel for the applicant is wrong in assuming that meeting and poll are synonymous terms. Disputed proxies had not been permitted to vote at the meeting of June 6, 1977, and as the sub-committee upon the opinion given by Mr. K. L. Gosain came to the conclusion that the proxies sent by Mr. Hollander and the principal of the Christian College alone were valid, it became necessary to ask those proxies to cast their votes. Further, as the poll had not concluded on June 6, 1977, it was permissible for the oommittee to invite the proxies to cast their votes, even after June 6, 1977. It has been held in the case of Queen v. Wimbledon Local Board [1882] 8 QBD 459 (CA) that the taking of a poll is very much different from holding a meeting and that a poll is nothing but a mode of ascertaining the sense of the electorate. It is, therefore, not correct to say that it was not open to the sub-committee to try and obtain the votes of the proxies after June 6, 1977, as, in my view, the poll had not concluded on that date.
Learned counsel next contended that legally proxies could cast their votes only in a meeting, and that too in person, and not through postal ballots. For this proposition, learned counsel cited the following passage from Halsbury's Laws of England, IV Edn., para. 496, which runs as follows:
"A person voting as proxy for an elector must do so in person at the elector's polling station except in so far as a proxy is entitled to vote by post."
This enunciation is based upon and has been made in the context of the provisions of the Representation of the People Act, 1949 (of England) and is of no assistance in dealing with the present case which is governed by the specific provisions of the Companies Act. Even in the aforesaid passage, it has been observed that a proxy may in certain cases be permitted to vote by post.
On the other hand, learned counsel for the opposite-party placed reliance upon the provisions of s. 185 of the Companies Act and urged that in India, there is a statutory provision which is wide enough to allow casting of vote by proxy even by post. Section 185 of the Companies Act is as follows :
"185 (1) Subject to the provisions of this Act, the chairman of the meeting shall have power to regulate the manner in which a poll shall be taken.
(2) The result of the poll shall be deemed to be the decision of the meeting on the resolution on which the poll was taken. "
The provisions of s. 185 of the Act are wide enough to permit casting of votes by proxies by post. The resolution empowering the sub-committee to declare the result after determining the validity of the disputed proxies necessarily included within it the power to obtain the votes of such proxies even by post. At any rate, there was nothing in the resolution to bar this procedure.
Learned counsel for the applicant also quoted a passage from Corpus Juris Secundum, Vol. 29, para 118, at p. 3031, which is as follows :
"When permitted by statute, absentee may vote for a primary election. However, the statutory requisites must be complied with, at least as to matters to which compliance is mandatory."
In my view, this passage is of no relevance for the determination of the question with which we are concerned. As mentioned above, the provisions of s. 185 of the Companies Act are wide in amplitude, and it is permissible for the chairman to regulate the manner of taking poll as a result thereof. The manner which was prescribed by the resolution is by no means inconsistent with or in derogation of any provision of the Companies Act. Prima facie, therefore, the view taken by the courts below that the plaintiff-applicant does not have a prima facie case cannot be said to be unsustainable in law or perverse. I may add that at best the question raised by the learned counsel for the applicant can be said to be a debatable one and the view taken by the courts below is a possible view based on some legal authorities and the provisions of law.
The upshot of the above discussion is that the courts below have not committed any error of jurisdiction in refusing to grant injunction to the plaintiff-applicant and that the view of the courts below that the plaintiff does not have a prima facie case cannot be said to be a view which is not possible or which is perverse.
In the result, the revision fails and is dismissed with costs. The interim orders passed by this court are vacated hereby.
Section 186
Power of Company Law Board to
order meeting to be called
[1977]
47 COMP. CAS. 283 (PUNJ&HAR)
HIGH COURT OF PUNJAB AND HARYANA
Edward Ganj Public Welfare Association Ltd., In re
BAL
RAJ TULI J.
CIVIL
ORIGINAL NO. 78 OF 1972.
Vijay Kumar Jhanji for the Petitioners.
R.C. Dogra for the Respondents.
Bal Raj Tuli J.—This petition, as originally filed, was under section 397 and section 186 of the Companies Act, 1956, for quashing the election of respondents Nos. 2 to 9 as directors of the company and for a further direction to respondent No. 1 to call a meeting of the members for holding fresh elections. When this petition came up for motion hearing before R.S. Narula J., the learned counsel for the petitioners stated that he did not press the petition under section 397 of the Companies Act and confined himself to the petition under section 186 of the said Act.
Written statement was filed opposing the petition and on January 18, 1973, I framed the following issue :
"1. Is the petition under section 186 of the Companies Act maintainable ?"
Arguments have been heard. Section 186 of the Companies Act is in the following terms :
"186. Power of court to order meeting to be called.—(1) If for any reason it is impracticable to call a meeting of a company, other than an annual general meeting, in any manner in which meetings of the company may be called, or to hold or conduct the meeting of the company in the manner prescribed by this Act or the articles, the court may, either of its own motion or on the application of any director of the company, or of any member of the company who would be entitled to vote at the meeting,—
(a) order a meeting of the company to be called, held and conducted
in such manner as the court thinks fit; and
(b) give such ancillary or consequential directions as the court
thinks expedient, including directions modifying or supplementing in relation
to the calling, holding and conducting of the meeting, the operation of the
provisions of this Act and of the company's articles.
Explanation.—The directions that may be given under this sub-section may include a direction that one member of the company present in person or by proxy shall be deemed to constitute a meeting,
2. Any meeting called, held and conducted in accordance with any such order shall, for all purposes, be deemed to be a meeting of the company duly called, held and conducted".
In the petition, not a word has been said that it is for any reason impracticable to call, hold or conduct a meeting of the company. All that has been stated is that a meeting of the members held on September 3, 1972, was not valid because of the following reasons :
1. The meeting was summoned for 11 a.m. but the members who collected
till 5 p.m. were allowed to vote. Doors were closed at 5 p.m. and the voting
time was extended to 7 p.m.
2. Respondent No. 2 was a tenant of a shop of the company at the rate
of Rs. 193.77 per annum, and was not qualified to become or remain a member of
the managing committee.
3. Six persons were
allowed to vote although they had no right to do so.
4. Eleven persons mentioned in para. 8(v) of the petition had ceased to
be members of the company more than a year prior to the holding of the meeting,
but still they were allowed to vote.
5. The names of Bhim Sain and Sohan Lal did not exist in the voters
lists supplied to the petitioners but they were allowed to vote.
6. Om Parkash, son of Banwari Lal, is a student at Jamshedpur who was
not present at the time of poll on September 3, 1972, and somebody else
exercised the right of vote in his place.
7. Baldev Krishan, son of Atma Ram, and Kashmiri Lal, son of Kessar
Chand, did not own any properties and, therefore, could not become members of
the company. They have been illegally allowed to vote at the election.
8. The signatures of Master Mewa Ram, Krishan Lal and Gurdial exist
against their names as members at the time of taking ballot papers but they did
not exercise the right of vote. Likewise, Hari Singh and Natha Singh were
supplied with ballot papers and some other interested persons filled those
ballot papers and voted.
9. Teja Singh, Palwa Ram, Paro Bai, Uttar Singh, Pala Singh and Bhola
Singh are illiterate and did not vote themselves, but some other interested
persons voted for them.
It is quite clear from the nature of the objections raised to the conduct of the meeting that it is not a matter for decision under section 186 of the Companies Act. Under that section, this court can call a meeting of the shareholders of the company other than an annual general meeting, if it is satisfied that, for any reason, it is impracticable for the company to call, hold or conduct a meeting. No such allegation has been made by the petitioners. In my opinion, therefore, this petition is incompetent. It is dismissed with costs.
[1974] 44 COMP. CAS. 228
(DELHI)
v.
Delhi Flour Mills Co. Ltd.
S. RANGARAJAN, J.
C.P. NO. 96 OF 1972
B. K. Shivcharan Singh, A. L. Kapur and Deepak Chaudhri for the petitioner.
Ved Vyas, A. N. Khanna, A. N. Khanna and C. S. Duggal for the respondent.
Satish Chandra for a shareholder of the company.
P. A. Behl for the general manager and secretary of the company.
Rangarajan, J.—This order will also dispose of Company Petition Nos. 1 and 2 of 1973, which have been filed by the husband of the petitioner and another shareholder, respectively, of the Delhi Flour Mills Co Ltd. (hereafter referred to as "the company") for calling a meeting of the company (the calling of which "otherwise" has become "impracticable"), and for certain other directions (which are not uniform in all the three petitions) without which the petitioner's purpose in calling such a meeting may not be served. Under section 186 of the Companies Act of 1956 (hereafter called "the Act"), the court has been given power to call a meeting other than an annual general meeting; section 167 of the Act enables general meeting. To the details of these I shall revert later. It is necessary, to start with, to notice briefly the facts which have led to these petitions.
The company was registered in the year 1916 as a public limited company, but is stated to have been controlled by the husband of the petitioner, R. K. Jain (petitioner in C. P. No. 1 of 1973) and some of their family members; Oudhbir Prasad (petitioner in C. P. No. 2 of 1973) who holds 63 ordinary shares of Rs. 10 each, is the son-in-law of the petitioner and was also a senior executive of the company. The petitioner and her husband had no male issue and had, therefore, adopted R. P. Jain, the brother-in-law of Sheel Chandra. Yogesh C. Gupta is said to be a friend of Sheel Chandra and R. P. Jain. There seems to have been considerable animosity between the petitioner and her husband on one side and their adopted son, R. P. Jain, as well as Sheel Chandra and Yogesh C. Gupta on the other.
The articles of association of the company (article 96) provide for eight directors, but there were actually three i (1) R. K. Jain, (2) Sheel Chandra, and (3) Yogesh C. Gupta. It is common ground that R. K. Jain had been appointed a managing director of the company for five years under an agreement to take effect from October 5, 1967, i.e. , till October 4, 1972. Nonetheless, he had also been in fact re-elected at least once in 1969 as a director, even subsequent to the said agreement. Sheel Chandra, who had retired by rotation was re-elected on April 30, 1968. Yogesh C. Gupta who had to retire by rotation next, according to the petitioner, was not in fact re-elected and had to retire at the farthest when the annual general meeting had to be held, namely, April 30, 1971. The accounting year of the company ends on the 31st October of each year. The accounts for the year ending October 31, 1969, were passed at the annual general meeting held on April 30, 1970. There has been no annual general meeting thereafter.
Article 106 provides for the continuing directors acting notwithstanding any vacancy in their body; the interpretation article (article 2) says that words importing the singular number include, where the context administers or requires, the plural number and vice versa. Article 115 provides for a quorum of three directors; but this is seen to be contrary to section 287 of the Act, which provides for one-third the number or two, whichever is higher; this section does not permit any article provision to the contrary, as some other sections of the Act seem to permit. The retirement of directors by rotation is provided by sections 255 and 256 of the Act and articles 109-112. To these details also I shall revert later.
Before the impugned right shares under section 81 of the Act were issued and allotted (on December 4, 1972), the petitioner held about 46% of the shares out of a total of Rs. 8,06,380 units of shares, the claim by the contesting respondents being that by the impugned issue and allotments the shares were increased to Rs. 12,27,100 thus reducing the proportion of the petitioner's holdings to about 25%. It would be sufficient to notice this broad feature but not the details of the holdings. The decision to increase the share capital (under section 81) is said to have been taken at a meeting of the board at which R. K. Jain is said to have been present, but R. K. Jain denies that he was present then. The validity of the said meeting is also denied. More importantly, a notice is said to have been given by the company to the petitioner (and others) concerning the issue of right shares (on November 17, 1972). There is some controversy as to whether an application for allotting right shares was in fact made and even whether one is necessary to be made in writing; it is, however, asserted for the petitioner that a sum of Rs. 2,12,540 was deposited in the company's bank by the petitioner on December 4, 1972 (3rd December being a Sunday), when she came to know of the issue from Bombay through some other source. The money is said to have been either loaned or arranged by Bk. Shivcharan Singh, learned counsel for the petitioner. According to the contesting respondents, the petitioners knew and were also informed in time about the issue of right shares, but they made no application because they did not raise the money and the money which was paid only on the afternoon of the 4th (after the allotments of the shares on the 4th morning) represents the money which R. K. Jain had secreted from out of the company's funds during his management. Applications Nos. 725 of 1972 and 73 of 1973 were filed for the petitioner, her husband, etc., being cross-examined on the said matters.
To complete the narrative it may also be noticed at this stage that S. L. Verma, yet another shareholder, a stranger, holding 3,054 ordinary shares, had applied to this court (in C.A. 481/72 in C.P. 71/72) for an order restraining the company from issuing right shares and Bk. Shivcharan Singh, appearing himself for the company, an order was passed restraining the issue of such shares. It is stated for the petitioners that in view of this restraint order, passed on 5th December, 1972, the contesting respondents have been put to a Hobson's choice, as it were, of either taking the allotments later, in violation of the restraint order, or land themselves in another difficulty by having to assert that the shares had been allotted even on the 4th December, 1972 (it is contended for the petitioner that this was short of the requisite period of notice under section 81). SL. Verma has since filed a suit in this court (No. 23 of 1972) making all the parties in this proceeding also as parties to that suit, alleging that in a petition under section 186 of the Act (these three petitions) the question of the validity of these allotments could not be gone into and asking for a declaration that the issue and allotment of 42,070 right shares (of Rs. 10 each) were illegal, that there was no legally constituted board after 30th April, 1971, that the directors who now purport to function (Sheel Chandra, Yogesh C. Gupta, Balbir Singh and Pritam Singh—the last two being co-opted on 9th and 4th of December, 1972, respectively) are not the directors and that they should be restrained from acting as such.
It was not found necessary to record evidence or allow the request made as aforesaid for cross-examining Mr. and Mrs. R. K. Jain in particular, because Bk. Shivcharan Singh stated that he was willing to argue these applications on facts which were admitted and the legal consequences arising therefrom.
Both sides, however, covered very wide ground touching various aspects in controversy between the parties.
Before discussing at least the important among them it is necessary to read section 186 of the Act:
"186. (1) If for any reason it is impracticable to call a meeting of a company other than an annual general meeting, in any manner in which meetings of the company may be called, or to hold or conduct the meeting of the company in the manner prescribed by this Act or the articles, the court may, either of its own motion or on the application of any director of the company, or of any member of the company who would be entitled to vote at the meeting,—
(a) order a meeting of the company to be called, held and conducted in such manner as the court thinks fit; and
(b) give such ancillary or consequential directions as the court thinks expedient, including directions modifying or supplementing in relation to the calling, holding and conducting of the meeting, the operation of the provisions of this Act and of the company's articles.
Explanation.—The directions that may be given under this sub-section may include a direction that one member of the company present in person or by proxy shall be deemed to constitute a meeting.
(2) Any meeting called, held and conducted in accordance with any such order shall, for all purposes, be deemed to be a meeting of the company duly called, held and conducted".
Section 79(3) of the Act of 1913 enabled the court to order even an annual general meeting of the company. The present provision (section 186) only enables the court to call a meeting of the company, other than annual general meeting. The English Companies Act of 1929 provided (section 112(3)) that the court may call a general meeting of the company. But there was an amendment of the English Companies Act as a result of the report of a committee headed by Justice Cohen in the year 1945 recommending that it would save expense if the power of calling an annual general meeting should be transferred from the court to a Board of Trade. It was this later position that was made applicable to India by section 186 of the Act of 1956 which restricted the court's power in the matter of Calling an annual general meeting, the same being vested in the Central Government alone.
Every company shall hold every year, in addition to any other meeting, a general meeting. It is called the annual general meeting. Not more than 15 months shall elapse between the date of the general meeting and the next; the first general meeting of the company has to be held within 18 months after incorporation (section 166). At the annual general meeting the following items of business (which shall be deemed to be special) have to be put on the agenda :
(1) consideration of accounts, balance-sheet and reports of the board of directors and auditors;
(2) declaration of dividend;
(3) appointment of directors in the place of those retiring;
(4) appointment and fixing the remuneration of auditors (section 173).
The above items are within the exclusive domain of the annual general meetings.
Section 257 enables a person to stand for directorship at any general meeting, which may be held, and not necessarily only at an annual general meeting. So long as the company is not having the maximum number of directors fixed by its articles, additional directors may be appointed at general meetings up to the maximum limit. The only effect of introducing sub-section (1A) to section 257 seems to be that no one other than a director can stand as a candidate for appointment unless not less than 14 days' notice is given to the company, the company not having the power to waive such notice.
Concerning the retirement of directors by rotation section 255 of the Act provides that, unless the articles provide for 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 of 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 the Act, be appointed by the company at its general meeting. The remaining directors in the case of any such 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.
Section 256 deals with ascertainment of rotational retirement of directors at annual general meetings; one-third of the directors of a public limited company retire at every annual general meeting.
There is a conflict of judicial opinion on the question whether those directors who have to retire by rotation also vacate their offices by reason of their own failure to call a general meeting. Venkatarama Aiyar J. (as his Lordship then was), speaking for the Division- Bench of the Madras High Court in A. Ananthalakshmi Ammal v. Indian Trades and Investments Ltd. held that they must be deemed to have vacated their offices. That case arose under sections 76 and 79 of the Act of 1913. This view was followed by a Division Bench of the Bombay High Court in Krishna Prasad v. Colaba Land and Mills Co. Ltd. and by a single judge in In re Hindustan Co-operative Insurance Society Ltd. The single judge of the Calcutta High Court had not noticed an earlier Division Bench decision of the same High Court in Kailash Chandra Dutt v. Jogesh Chandra Majumdar , which had taken a contrary view. The Bombay decision did not specifically discuss the effect of, though it did notice, section 256(4) of the Act, which reads as follows :
"256. (4) (a) [f 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 re-appointed at the adjourned meeting, unless—
(i) at that meeting or at the previous meeting a resolution for the re-appointment 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 re-appointed;
(iii) he is not qualified or is disqualified for appointment;
(iv) a resolution, whether special or ordinary, is required for his appointment or re-appointment in virtue of any provisions of this Act; or
(v) the proviso to sub-section (2) of section 263 is applicable to the case.
Explanation.—In this section and in section 257, the expression ' retiring director ' means a director retiring by rotation".
In a later decision in Lalchand Mengraj v. Shree Ram Mills Ltd., Vimadalal J. discussed the above-said newly added provision from an unusual angle, namely, the impact of the order of the Companies Tribunal (as it then was) restraining the company from considering an item on the agenda relating to the offer by the director retiring by rotation for re-election, but allowing the said item to be adjourned pending further orders of the Tribunal. Vimadalal J. held that there was nothing in subsection (4)(b) of section 256 to lead to the conclusion that the deeming provision was to apply only when a company had the choice of fulfilling its conditions or not. Reliance was placed on Grundt v. Great Boulder Proprietary Mines Ltd. concerning an article provision somewhat similar to section 256(4)(b)(i). The concerned article provision in that case reads as follows:
"If at any general meeting at which an election of directors ought to take place the place of any director retiring by rotation is not filled up, he shall, if willing, continue in office until the ordinary meeting in the next year, and so on from year to year until his place is filled up, unless it shall be determined at any such meeting on due notice to reduce the number of directors in office".
At the annual general meeting held in July, 1947, Grundt retired by rotation but a resolution for re-electing him was lost by show of hands. There was no resolution, however, to reduce the number of directors. It was held that despite what happened Grundt continued in office in terms of the above-mentioned article provision. Lord Greene M. R. was not led to come to a different result merely on account of the absurdity of deeming Grundt to be re-elected despite his re-election having been lost by show of hands "Absurdity", observed Lord Greene M. R., "I cannot help thinking, like public policy, is a very unruly horse". What is of greater significance is that a previous decision in Robert Batcheller & Sons Ltd. v. Batcheller, which came to an opposite conclusion in identical circumstances, was disapproved. In Robert also the articles contained a similar provision and the retiring directors were not re-elected on a show of hands. A poll was demanded and the meeting was adjourned to take the poll, but due notice was not given as required by the articles for the adjourned meeting. At the illegally convened meeting the shareholders purported to elect other directors. Romer J. held that the retiring directors could not be deemed to have been re-elected thus enforcing what was exactly the opposite of what had in fact happened. Cohen L.J., with whom Lord Greene M. R. concurred in Grundt, disapproved of Robert as not being consistent with still an earlier decision by Maugham J. in Holt v. Catterall. The decision in Grundt was nullified by a change made in the Companies Act of 1948 (Schedule I, Table A, article 92) providing that the deeming provision would not apply in a case where a resolution for the re-election of such director had been put to the meeting and lost. Vimadalal J. observed that any statutory change made in England would not affect the validity of Grundt in the matter of interpreting an article of association. Ananthalakshmi Ammal having been a decision rendered under the Act of 1913, did not have to concern itself with section 256(4). Without referring to the same, which was a Division Bench decision, a single judge of the Madras High Court held a contrary view in V. Selvaraj v. Mylapore Hindu Permanent Fund Ltd. and observed that the directors retired at the annual general meeting which was convened but the meeting had not commenced at all owing to the confusion which prevailed; it was held that the previous directors must be deemed to continue in office. The contrary holdings of each of the two High Courts, Madras and Calcutta, introduce an additional element of uncertainty about the true legal position. In the view I take of this petition it seems unnecessary to express an opinion on this rather difficult question which may require fuller consideration when it arises.
The Indian decisions which hold that a retiring director vacates office if he fails to hold the annual general meeting seem to be based upon the view taken by the English court in In re Consolidated Nickel Mines Ltd. and the statement in Buckley on the Companies Acts (12th edition, page 882). Probably the decision of the House of Lords in Morris v. Kanssen is also material. In that case the question was whether the allotment of shares by some who purported to act as directors was valid when it was found that there was no appointment at all, the observations were expressly applicable to the case of there being no appointment at all or the original appointment itself being fraudulent. In Consolidated Nickel Mines Ltd. the question for consideration was whether the two directors were entitled to remuneration in spite of the obligation laid down on them by section 497 of the Act that the directors had to summon a general meeting every year and the articles of association providing that all the directors retire from office at the ordinary meeting.
Shri Ved Vyas, learned counsel for the respondent-company, referred to the uncertainty regarding the legal position in support of his contention that in the circumstances it could not be stated that the directors who were at least functioning de facto had notice of any defect in their appointment and for that reason the allotment of the right shares issued by them could not be questioned on the ground of their lacking the necessary authority to do so.
The articles of association of this company provide that at the second ordinary general meeting and at every succeeding ordinary general meeting, two of the directors, exclusive of the ex-officio directors and the debenture director (if any), shall retire from office; the provisions of this article are subject to the terms of any agreement between the company and a director (article 109). Articles 110 to 112 are also material and they read as follows:
"110. The directors to retire at the second ordinary general meeting shall, unless the directors concerned agree among themselves, be determined by lot, in every subsequent year the directors to retire shall be those who have been longest in office. As between directors who have been in office for an equal length of time, the directors to retire shall be determined by lot. The length of time a director has been in office shall be computed from his last election or appointment where he has previously vacated office. A retiring director shall be eligible for re-election.
111. The company at any general meeting at which any directors retire in manner aforesaid shall fill up the vacated offices by electing a like number of persons to be directors; provided that it shall not be obligatory upon the company to fill up any vacancy or vacancies not necessary to be filled up in order to make up the minimum number of directors required under article 96.
112. If at any general meeting at which an election of directors ought to take place, the place of any retiring director is not filled up, such director shall, if willing to continue in office, be deemed to have been re-elected at such meeting, unless it shall be determined at such meeting to reduce the number of directors, or to leave any vacancy unfilled".
It may be recalled that article 106 provides that the continuing directors may act notwithstanding any vacancy in their body and that article 2 (interpretation clause) states that " words importing the plural number also include the singular number".
Venkatarama Aiyar J. in A. Ananthalakshmi Ammal quoted the observations of Swinfen Eady L.J. in Channel Collieries Trust Ltd. v. Dover, St. Margaret's and Martin Mill Light Railway Co.:
"I think that the context requires that the word ' remaining directors ' should include the case of a remaining director..........and so long as there is any remaining director he may proceed to fill up the board by appointing persons when casual vacancies occur".
Venkatarama Aiyar J. applied those principles and held that the power to co-opt directors can be exercised even though the strength of the directors falls below the minimum and even when there was only one director capable of acting. Where there was at least one director he was capable of co-opting other directors. Pritam Singh and Balbir Singh are stated to have been co-opted on December 4, 1972, by Sheel Chandra and Yogesh C. Gupta. R. K. Jain (husband of the petitioner) retired in 1969, and he was re-elected despite the agreement according to which he was to be a managing director till October 4, 1972 (five years from October 4, 1967). That agreement does not expressly say that R. K. Jain did not have to retire as a director. In none of the model forms which have been suggested by Palmer's Company Precedents is there any particular form to suggest that by reason of an agreement alone the director could be a managing director for a period of 5 years without his also having to continue as director. It seems reasonable that the agreement would be operative if the person concerned was a director throughout the period mentioned in the agreement; in other words, if he ceased to be a director earlier than that period he may not by virtue of that agreement alone claim to be a managing director. As a fact, however, he seems to have been taken as continuing.
In the view that out of a total of three directors, Sheel Chandra and Yogesh C. Gupta alone continued as directors, article 109 would be relevant. It provides that at the second ordinary general meeting of the company and at every succeeding ordinary general meeting two of the directors, exclusive of the ex-officio director and debenture directors (if any), shall retire from office, but the provisions of this article are subject to an agreement between the company and the director. The expression in article 109 "two of the directors" itself suggests that the retirement by rotation of directors would take place only when there are more than two directors, that is to say, only if there are more than two directors, two, out of them, can retire by rotation. It is instructive to refer to In re David Moseley and Sons Ltd., where the concerned article provided for one-third of the directors retiring and also that, if the number is not a multiple of three, then the number nearer to but " not exceeding one-third" to retire from office. At the material date there were only two directors. Simonds J. observed (at page 723) as follows :
"The article, in my judgment, does not provide for the retirement of a director unless one of two conditions is satisfied : either there must be a number which is one-third of the directors, or there must be a number which is nearer to, but does not exceed, one-third. Here it is clear that neither of those conditions is satisfied. There are two directors and, therefore, you cannot find a number which is one-third. There are two directors and, therefore, you cannot find a number which is nearer to but does not exceed, one-third".
This case was referred to and distinguished by Venkatarama Aiyar J. in B. N. Viswanathan v. Tiffin's Barytes, Asbestos and Paints Ltd. on the basis of the language employed in David Moseley and the absence of analogous language in Viswanathan; it was held that even one of two directors should retire at the meeting. The language of article 109 is analogous to that employed in David Moseley.
Even if this view is not correct, Sheel Chandra must be taken to have retired not earlier than July 31, 1971, the last annual general meeting having been held on April 30, 1970 (there can be an interval of 15 months between two general meetings). Then, Yogesh C. Gupta, having become a director later than Sheel Chandra, he could continue as director till the next day on which the annual general meeting was to be held and in this sense did have the potentiality, according to Shri Veda Vyas, of co-opting other directors. I have referred to these aspects which may possibly have to be considered not for the purpose of deciding them but only for the purpose of indicating that these extremely difficult and complex questions cannot be satisfactorily and properly decided, collaterally, for the purpose of finding out whether it is "impracticable" for the company to conduct a meeting.
The expression "impracticable" is not, however, to be construed as "impossible". Sinha J. observed in Lothian Jute Mills Co. Ltd. that section 79(3) of the Companies Act of 1913 contemplated that the court should exercise its powers where it cannot say with reasonable approach to certainty, or even prima facie, that the meeting called in exercise of the powers contained in the regulations will be valid. This was to ensure that the shareholders should not be exposed to uncertainty flowing from the situation and the consequent litigation. Banerjee J. also held in In re Malhati Tea Syndicate that the word "impracticable" means "impracticable from a reasonable point of view". The court must take a "common-sense view" of the matter and must act as a prudent person of business. Following the observations of the Judicial Committee in Commissioner, Lucknow Division v. Deputy Commissioner of Pratabgarh, Banerjee J. observed in In re Malhati Tea Syndicate Ltd. that when there is doubt as to the existence of a board of validly appointed directors and there is possibility of interminable troubles and prejudice to the interest of the company if a meeting is held otherwise than under the direction of the court, it will be expedient for the court to call a meeting of the company. The observations of the same court in Indian Spinning Mills Ltd. v. His Excellency Lt. General Madan Shumshere Jang Bahadur . An appeal against an order of Mooker jee J. calling a meeting was dismissed by the Division Bench, to which Banerjee J. also was a party, when it was felt that the calling of a meeting by the requisitionists would lead to endless litigation and where matters may arise for debate and decision which were already the subject-matter of suits. The Division Bench had no difficulty in holding in such circumstances that a meeting of the company would be " impracticable". In a still later decision of the same High Court in Bengal and Assam Investors Ltd. v. J. K. Eastern Industries P. Ltd., P. B. Mukharji J. (as he then was) reviewed the case law in question and agreed with the principles decided by the aforesaid cases but still declined to order a meeting in that case. He observed that a discretion granted under section 186 should be sparingly used and with great caution so that the court does not become either a shareholder or a director of the company trying to participate in internecine squabbles of a company. In a still later case before the same High Court S. P. Mitra J. reviewed all the authorities in United Breweries Ltd. v. Ruttonjee & Co. Ltd. and summarised the principles to be borne in mind in an application under section 186. It seems to me that the following principles were re-stated :
(1) the court would not ordinarily interfere with the domestic management of a company which should be conducted in accordance with the articles;
(2) the discretion granted under section 186 should be used sparingly and with caution so that the court does not become either a share holder or a director of the company; in other words, the court will ordinarily keep itself aloof and not participate in quarrels of rival groups of directors or companies;
(3) the word " impracticable " has to be construed from a practical point of view;
(4) but where the meeting can be called only by the directors and there are serious doubts and controversies as to who are directors or there is a possibility that one or two or both the meetings called by rival groups have been invalid, the court ought not to expose the shareholders to un certainty and should hold that a position has arisen which makes it "impracticable" to convene a meeting in any manner in which the meeting may be called;
(5) the court should exercise its powers under section 186 when on considering all the facts and circumstances of a case it can with reasonable approach to certainty and even prima facie say that the manner in which meetings are previously called under the Act and/or under the articles would be invalid;
(6) before exercising discretion under section 186 the court must be satisfied that a director or a member moved an application bona fide in the larger interests of the company for removing a deadlock which is otherwise irremovable.
Mitra J., referred to In re El Sombrero Ltd., which was a somewhat extraordinary case. The applicant held 90% of the shares of a private company and each of the two directors held 5%. According to the company's articles of association, the quorum for the general meeting was 2, present in person or by proxy; if within half an hour from the time appointed for a meeting the quorum was not present, the meeting, if convened on the requisition of members, would stand dissolved. No general meeting of the company had ever been held. On March 11, 1958, the applicant requisitioned an extraordinary general meeting under section 132 of the Companies Act, 1948, for the purpose of passing resolutions removing the two directors and appointing two other persons as directors. The directors having failed to comply with the requisition the applicant himself convened an extraordinary general meeting for April 21, 1958. The directors did not attend the meeting either in person or by proxy; the quorum not being there the meeting stood dissolved. On April 29, 1958, the applicant served a special notice under section 142 of the Act of 1948 of his intention to move the same resolutions at the next extraordinary general meeting; on the same day he took summons asking for a meeting to be called by the court under section 135(1) of the Act of 1948 for the purpose of passing the resolutions, and for a direction that one member of the company should be deemed to constitute a quorum at such meeting. The application was opposed by the directors. An order directing a meeting to be held and that one member present should constitute a quorum was made in the circumstances. This case illustrates the exercise of such power in order to suit the exigency of each situation. It is also of interest to note that there was no reference here to the previous decision of the English Court of Appeal in MacDougall v. Gardiner. It was held in that case that where by the articles of association of a company, the directors, and in the alternative, a certain portion of the shareholders can summon a meeting of the company, the court will not order the directors to summon a meeting for the general purposes of the company.
Reliance was placed by the petitioner upon a Full Bench decision of the Allahabad High Court in Balkrishna Maheshwari v. Uma Shankar Mehrotra, a case arising under the old sections 76 and 79 of the Companies Act of 1913. The District Judge of Kanpur had passed an ex parte order directing an annual general meeting of the company which was later on confirmed. The dispute related to the annual general meeting of the company for the year 1946, the last one having taken place on February 3, 1945, According to the articles of association the annual general meeting of the company for the year 1946 had to be called on some date before 31st March of that year. The management of the affairs of the company lay in the hands of a council of 21 members, including a president and a vice president; the duty of calling the annual general meeting of the company in every calendar year lay upon that council. It was contended on one side that 14 days' clear notice had been given for the meeting in 1945, It was contended, on the other hand, that though a notice was directed to issue fixing a date, no notice had been issued and posted with the result that there could be no clear 14 days' notice as required. An objection had been raised by one of the members to whom a notice had been sent that the notice had been invalid. The District Judge had held that a meeting of some sort was held on March 28, 1946, though it was without a clear margin of 14 days' and was invalid. The Full Bench of the Allahabad High Court observed that the District Judge should also have held that he had the competence to find out whether there had been a previous valid meeting as a necessary step in the matter of calling the meeting sought for under section 186 of the Act. Mootham J., speaking for the Full Bench, observed :
"It was strenuously contended by learned counsel that the determination of such an issue might often involve the decision of complicated questions of fact and law and it must, therefore, be inferred that the law did not contemplate the determination of such a question in a miscellaneous proceeding under section 79(3). We are not impressed at all by this argument because we do not think that in the large majority of cases any complicated questions of law and fact will arise for consideration. The question of the validity or otherwise of a meeting will, in a vast majority of cases, turn upon the interpretation of the company's articles of association and some general provisions of the law".
The Full Bench decision is, therefore, of no assistance to the petitioner; this is not a simple case, free from complexity.
Shri Ved Vyas, on the other hand, contended that the present petitions not having been brought in the name of the company they are not maintainable according to the well-known rule in Foss v. Harbottle. As an important facet of the principle of majority rule, it was held that if a wrong has been done to a company only the company could sue. To this rule itself there are exceptions like the act or resolution complained of being itself illegal or ultra vires, the controllers of the company acting in breach of the articles of association and fraud on the minority being committed. This case was followed in a number of cases including Mozley v. Alston, where two shareholders in their individual capacity brought proceedings against the company and members of the board of directors seeking to restrain the directors from acting as such until four of their members had retired by rotation, as required by the company's constitution, and four new directors had been elected in their place. The action failed in the view that if injury was not one personally to the plaintiffs but to the company—an usurpation of the office of directors—being an invasion of the rights of the corporation; yet no reason had been assigned why the corporation had not put itself in motion to seek the remedy. The "pre-eminently procedural character" as described by Palmer (vide Company Law, 21st edition, page 503) of this rule was explained by Jenkins L.J. in Edwards v. Halliwell, as follows :
"The rule in Foss v. Harbottle, as I understand it, comes to no more than this. First, the proper plaintiff in an action in respect of a wrong alleged to be done to a company or association of persons is prima facie the company or the association of persons itself. Secondly, where the alleged wrong is a transaction which might be made binding on the company or association and on all its members by a simple majority of the members, no individual member of the company is allowed to maintain an action in respect of that matter for the simple reason that, if a mere majority of the members of the company or association is in favour of what has been done, then cadit quaestio, no wrong had been done to the company or association and there is nothing in respect of which any one can sue. If, on the other hand, a simple majority of members of the company or association is against what has been done, then there is no valid reason why the company or association itself should not sue. In my judgment, it is implicit in the rule that the matter relied on as constituting the cause of action should be a cause of action properly belonging to the general body of cooperators or members of the company or association as opposed to a cause of action which some individual member can assert in his own right".
In Edwards v. Halliwell two members of a trade union successfully sued two members of the executive committee of a trade union and the union itself for a declaration of illegality regarding a resolution passed by a delegate meeting of the union, without taking a ballot, increasing the contributions of members contrary to the constitution of the union—that it was not to be altered until a ballot of the members had been taken and a two-thirds majority obtained.
The submission of Shri Ved Vyas in this regard is seen to be without much force in so far as a petition under section 186 need not be on behalf of the company for the very language of that section even permits the court suo motu to call a meeting of the company if it has become impracticable to call a meeting, other than an annual general meeting. But the submission of Shri Ved Vyas may have force if this petition, under section 186, is sought to be used mainly for obtaining reliefs pertaining to the alleged usurpation of office by directors. However, an action need not be in the name of the company for actions concerning injuries personal to the petitioner. There is also one other aspect of the rule in Foss v. Harbottle, and the line of cases following it, namely, that the English court of equity had constantly and consistently refused to interfere on behalf of share holders until they have done their best to set right the matter of which they complain, by calling general meetings (vide Lindley L. J. in Isle of Wight Railway Company v. Tahourdin).
The ground has now been prepared for discussing some of the even more important aspects of this case.
The English cases pertaining to what is known as the rule in Royal British Bank v. Turquand, have been described by Gower as "Something of a jungle of irreconcilable decisions" (Principles of Modern Company Law, 3rd edition, page 158). The question which arose in that case, whether a third party dealing with a company is bound to ensure that all the internal regulations of the company have in fact been complied with as regards the exercise and delegation of authority was answered in the negative. In other words, third parties need not enquire into regularity of indoor proceedings and may assume that everything was validly done. Despite this rule having been laid down in such simple terms, as Gower (page 158) points out, the tendency during the last thirty years has been "to whittle it away notwithstanding the vigorous opposition by judges more familiar with company practice". It is most confusing to go into the English cases which have either applied the said rule in Royal British Bank v. Turquand, or did not apply it. Another standard author, Palmer (Company Law, list edition, pages 249-50) thinks that there is an exception to the said rule, namely, where the persons concerned have knowledge of the irregularity or even when those persons are put on enquiry. The effort not to apply the said rule is really based on the theory of protecting the shareholders; the further question, however, is whether there can be any unwarrantable protection given to the shareholders where the interests of the whole community is made to suffer ? It does not appear to be necessary to go into these difficult and nice questions in the present case because counsel for both sides did not endeavour to go into them.
Shri Ved Vyas relied upon section 290 of the Indian Act in support of his contention that the directors who were functioning in this case, even in the view contended for by the petitioner that they were not de jure directors, were at least de facto directors who functioned without any knowledge of the defect in their continuance or functioning as directors. To appreciate this contention it would be necessary in the first instance to read section 290:
"290. Acts done by a person as a director shall be valid, notwithstanding that it may afterwards be discovered that his appointment was invalid by reason of any defect or disqualification or had terminated by virtue of any provision contained in this Act or in the articles :
Provided that nothing in this section shall be deemed to give validity to acts done by a director after his appointment has been shown to the company to be invalid or to have terminated".
The corresponding section of the Indian Act of 1913 was section 86 and of the English Act section 180. The principle obviously is that there should be no vacuum in the affairs of a company and that all acts done bona fide should be fully protected not only between third parties and the company but also between the company and its members and between members and members.
While considering an article providing for the validity of acts of directors, notwithstanding the discovery later of some defect in the appointment of such directors, Chitty L.J. observed as follows in Dawson v. African Consolidated Land and Trading Co. :
"It is not framed so as to render valid a
resolution passed by any persons who without a shadow of title assume to act as
directors of a company .... The clause is addressed..........to cases of
defective appointment or disqualification".
Dawson was followed in British Asbestos Co. v. Boyd. Until Dawson the object of such article and the concerned provision of the Act was understood as only protecting honest acts of de facto directors in relation to outsiders bat not as between members of the company and the company. In British Asbestos Co. Ltd. v. Boyd, Farwell J. had held that the above view of law to be incorrect; bona fide acts of de facto directors were also good between members of the company inter se and members of the company and the company. The same principle was reiterated in Channel Collieries Trust Ltd. v. Dover, St. Margaret's and Martin Mill Light Railway Co. It was pointed out by Lord Cozens Hardy M.R., when dismissing the appeal against the judgment of Sargant J. that the concerned statutory provision, which had to be construed broadly not only between the company and outsiders but also between the company and the members, validated the bona fide allotment of the shares in question. The view of Farwell J. in Dawson , that the subsequent discovery of a defect did not merely mean the discovery of facts but of the defect itself, was approved. Swinfen Eady L.J. referred to the defects not being present in the minds of the parties who so acted.
The said principle was affirmed by the House of Lords in Morris v. Kanssen also but the observations were confined to acts of defective appointment but not extending to cases of no appointment at all or a fraudulent usurpation of authority from the outset.
This distinction between discovery of facts and discovery of defects was also made by Dua J. (as he then was), speaking for a Division Bench of the Punjab High Court in Karnal Distillery Co. Ltd. v. Ladli Parshad Jaiswal . There is a full discussion of this aspect by Mallick J. in Albert Judah Judah v. Rampada Gupta. Referring not only to standard text writers but also to Indian cases, Mallick J. observed at pages 735-36 as follows:
"In all the authorities, however, cited before me and noticed before the term de facto directors has been restricted to directors with defective appointment. No case has been cited in which the court has upheld the act of a ' pretended director ' without any appointment. In other words, in no case the term de facto director has been applied to a mere usurper without any appointment whatsoever".
To the same effect is also the decision of a Division Bench of the Allahabad High Court in Shiromani Sugar Mills Ltd. v. Debi Prasad, where Desai J., speaking for the Division Bench, considered some of the cases and held that the actions of de facto directors are protected when brought to their minds. A similar view was also taken by Chopra J. in Fateh Chand Kad v. Hindsons (Patiala) Ltd.
Without recording evidence it is hardly proper to go into the facts bearing on this contention. The materials on record do not show any consciousness on the part of those concerned, before the controversies arose, that all or any of the retiring (?) directors could not legally continue. When by letter dated 6th December, 1972 (annexure "C" to the petition), Yogesh C. Gupta informed Bk. Shivcharan Singh (in reply to his letter of the 5th informing the company of the restraint order (annexure "B" to the petition) that the allotment of right shares had been made on 4th December, 1972, Bk. Shivcharan Singh wrote a long letter on 9th December, 1972 (annexure "D"), informing Yogesh C. Gupta about his various legal contentions, also citing some decisions in support. My attention has not been drawn to any communication prior to 4th December, 1972, drawing the attention of the company to the fact that the right shares could not be issued on the ground that there was no validly constituted Board. For this reason alone it does not seem possible for the petitioner, without bringing in more evidence if the same is available on this question to contend that the directors, if they were only de facto, did have notice of the alleged defects, and could not have validly allotted those right shares. Probably realising this difficulty Bk. Shivcharan Singh mounted his attack upon the invalidity pertaining to the decision to issue right shares and to the illegality of the notice issued in this behalf.
The invalidity of the decision to issue the right shares is only a part of the general question, discussed already, whether there were de jure or de facto directors and even if they were only de facto, they had notice of the alleged defects. Any other attack, on how the meeting, at which the decision to increase the capital was taken, was conducted would be possible only if detailed evidence is led on this question. In these circumstances Bk. Shivcharan Singh vigorously concentrated on the sufficiency of the notice that was issued to the petitioner (and others) concerning the issue of right shares.
According to article 10 of the articles of association :
"Where the board of directors of a company decides to increase the subscribed capital of the company by allotment of further shares, then unless the requirements of sub-section (1 A) of section 81 of the said Act are complied with, (a) such further shares shall be offered to the persons who, at the date of the offer, are holders of the equity shares of the company, in proportion as nearly as circumstances admit, to the capital paid up on those shares at the date; (b) the offer aforesaid shall be made by notice specifying the number of shares offered and limiting a time, not being less than fifteen days from the date of offer, within which the offer, if not accepted, will be deemed to have been declined".
The notice is said to have been issued on November 17, 1972, and on the date of receipt the petitioner and her husband should have 15 clear days which would take us to December 3, 1972, but the issue in this case is stated to have been made on December 4, 1972; December 3, 1972, was a Sunday.
Section 81 of the Act provides for the issue of further capital; such further shares shall be offered to the persons who, at the date of the offer, are holders of the equity shares of the company in proportion, as nearly as circumstances admit, to the capital paid up on those shares at that date. This offer should be made by notice specifying the number of shares offered and limiting the time "not being less than fifteen days" from the date of the offer within which the offer, if not accepted, will be deemed to have been declined. In construing the expression "not less than 15 days" it is urged by the petitioner that the date of issuing the notice and receiving the notice must be excluded. It is at par with the expression "7 clear days' notice", which was interpreted in King v. Turner as exclusive of the dates of dispatch and receipt. The same was followed in In re Hector Whaling Ltd as exclusive of the date of service of the notice and exclusive of the day on which the meeting is to be held. The same view was taken by a Division Bench of the Madras High Court in N. V. R. Nagappa Chettiar v. Madras Race Club, where a number of English decisions were also considered. A Division Bench of this court consisting of P. N. Khanna and Prakash Narain JJ. in Bharat Kumar Dilwali v. Bharat Carbon and Ribbon Manufacturing Co. Ltd., interpreted the expression "not less than 21 days' notice" used in section 171 of the Act as notice of 21 whole or clear days. Part of the day, after the hour at which the notice is deemed to have been served, cannot be combined with the part of the day before the time of the meeting on the day of the meeting, to form one day.
The offer of right shares is stated to have been made by a letter dated November 17, 1972. The right shares are said to have been allotted on December 4, 1972; December 3, 1972, was a Sunday. 17 days notice inclusive of the date of issue and date of receipt of the letter will take us to December 3, 1972. Notice of not less than 15 days alone is necessary to be given; that will take us to December 3, 1972, alone exclusive of the day of the despatch and day of receipt of letter. A letter posted in Delhi ordinarily reaches another in Delhi the next day. It is contended that the notice asked the offeree to accept the notice "within 17 days from the date of this offer" and, therefore, there is an extension of time for that reason beyond what the statute prescribes. 17 days "from the date of offer", namely, November 17, 1972, will not take it beyond December 3, 1972. Prima facie the notice does not appear to be shorter than what is required by section 81. Even assuming that the notice was short a declaration cannot be granted against the allottees of those shares in their absence. This would be plainly opposed to the rule of natural justice. It will be sufficient to cite the latest decision of the Supreme Court on this question, i e., Smt. fatan Kanwar Golcha v. Golcha Properties Pvt. Ltd. in which both the official liquidator and the company court were held to be bound by the rules of natural justice. Even an application for the rectification of the share register could not be disposed of without notice to the parties affected. The court may even decline to grant rectification on an application made under section 155 if it involves any complicated questions and the parties could properly be referred to a suit in such a case. The following passage from Halsbury's Laws of England, third edition, page 218, may be usefully referred to :
"If the court thinks that the case, by reason of its complexity or on the ground that there are matters requiring investigation or otherwise, could more satisfactorily be dealt with by an action, the court will decline to make an order on a motion, without prejudice to the right of the applicant to institute an action for rectification".
A similar approach has been adopted by the Indian courts also (vide In re Dhelakhat Tea Co. Ltd., and Mahendra Kumar Jain v. Federal Chemical Works Ltd.). There is also great force in the contention that a suit having been filed, though not by the petitioner but by S. L. Verma (another shareholder) to which the petitioner and her husband are parties, specifically raising the question of the invalidity of the allotment of the right shares and rectification of the register of members concerning the entries made on the basis of the said allotments, it would not be proper to adjudicate on this question summarily.
A right of a shareholder of a company to vote is a right to property, vide Lord Maugham in Carruth v. Imperial Chemical Industries Ltd. . It has been repeatedly held by the Supreme Court that when civil consequences are involved an order having such consequences should comply with the rules of natural justice. The Supreme Court has recently pointed out in Smt. Jatan Kanwar Golcha v. Golcha Properties Private Ltd. that the company court will not pass orders affecting the rights of parties without notice to them; this is nothing but a rule of natural justice. It is instructive to also refer to In re Greater Britain Insurance Corporation Ltd.: ex parte Brockdorff. The Court of Appeal dismissed the appeal against an order passed by Russel J. throwing out an action praying for rectification of the register of members of the company on the ground that the interests of third parties were concerned and that it was not for the court to exercise jurisdiction conferred upon it by article 32 of the Companies (Consolidation) Act, 1908, in the absence of a party affected, even if satisfied, and that it must be enforced in an action to which affected persons are parties.
It remains to notice one other contention of Shri Ved Vyas that article 115, fixing the quorum for the meeting of the board of directors at three, is ultra vires in view of section 287(2), prescribing the maximum as two, not permitting an article provision to the contrary. It is true that there are some provisions contrary to what has been laid down (section 174 is one such) and that section 9 provides that save as otherwise expressly provided in the Act the provisions of the Act shall have effect notwithstanding anything to the contrary in the memorandum or articles of association. I wonder whether it has any relevance here. I have also not been referred to any decided case where such an article provision as the present (though it seems to be common enough) was ever questioned merely on the ground that it provides for a greater quorum than what the Act insists—it may be another matter if the articles provide for less. It seems unnecessary to express an opinion on this question also. Even if the decision to issue right shares was invalid a declaration concerning its invalidity cannot be granted in the absence of those who would be affected by it.
Bk. Shivcharan Singh drew my attention to In re Sly, Spink & Co. where rectification of register of members was granted when the shares were allotted by directors who were less than the quorum. (This argument subsumes that Pritam Singh and Balbir Singh were not properly co-opted and that even if Sheel Chandra and Yogesh C. Gupta were validly continuing as directors they could not by themselves (two of them alone) decide to raise the capital of the company. But then R.K. Jain is said to have been present at a meeting when such a decision was taken; R. K. Jain disputes this and this leads to a controversy concerning facts also). Assuming that everything contended for by Bk. Shivcharan Singh is true and valid we are confronted here with a somewhat extraordinary request to cancel the allotment of right shares without even an application to rectify the register of members, without even having all those who would be affected by that decision as parties before the court and when a suit for such a relief is pending in this very court. Perhaps the greatest difficulty faced by the petitioner is on the above score.
Bk. Shivcharan Singh wanted the sympathy of the court for the petitioner in the view that the adopted son was trying to displace his adoptive parents supported by his own brother-in-law and friends. But sympathy by itself would be hardly enough. The petitioner would have at least to show that there is no other option than to apply under section 186. Even this has not been done. Shri Ved Vyas contends, and with some force, that the members themselves may apply for an extraordinary general meeting under section, 169 and articles 64 to 66; if that were so it would not be for this court to call such a meeting. The petitioner can also apply to the Central Government to convene an annual general meeting under section 167. The petitioner has not obviously considered it sufficient to apply under section 167 to the Central Government because no relief in regard to the issue of right shares could be obtained. That is why these petitions have been filed for getting a declaration concerning the invalidity of the issue and allotment of right shares under the guise of the court having to give directions pertaining to who should vote at such a meeting if one is to be called by this court. I have endeavoured to study myself the reported decisions on this subject and I have not been able to come across a single case—none has been cited to me—where the court went to the extent of rectifying the register of members for the purpose of giving directions as to who should vote.
There was an exceptional situation arising out of the register of members and other records, maintained under the Building Societies Act, 1874, being destroyed due to enemy action, when Vaisey J. (in Payne v. Coe) gave a direction to hold a meeting in accordance with the rules for ascertaining the names and addresses of the members by means of public advertisement. No question of rectifying the register of members for the purpose of giving such directions arose in that case.
Krishnaswamy Nayudu J. of the Madras High Court had given a direction that those whose names appeared in the register of members on a certain date would vote at the meeting called under the old section 39(3), before the present section 186 was placed on the statute book. Venkatarama Aiyar J. in Viswanathan v. Tiffin's Barytes, Asbestos and Paints Ltd. has referred to this direction by Krishnaswamy Nayudu J. as follows : "to this course the company could have no objection". In the case on hand, however, there are several objections (they have been already noticed) to a direction being given that there should be no voting on the basis of the right shares. The petitioner's purpose would not be served if such a direction is not given. What was originally 46% had been reduced to about 25% after the said issue; even if the petitioner is supported by the other two petitioners and S.L. Verma it would be of no avail.
The circumstances discussed at length do not justify the court using its discretion under section 186 of the Act to call a meeting as prayed for.
C. A. Nos. 725 of 1972 and 73 of 1973 are accordingly dismissed. The separate application filed (C.A. No. 119 of 1973) to dismiss the main petition on the admissions contained therein has also become unnecessary. It is also needless to be detained by the question who is the proper person to represent the company, a point raised in C.A. No. 700 of 1972. All these interlocutory applications as well as the main petition (C.P. No. 96 of 1972) are dismissed. There will be no order as to costs in any of them in the circumstances.
[1992] 73 COMP. CAS. 275
(KER)
HIGH COURT of
KERALA
Sree Rama
Vilas Press & Publications (P.) Ltd., In re
K. JOHN MATHEW J.
Application
No. 253 of 1990 in C.P. No. 28 of 1984
M. Ramanatha Pillai for the applicant.
N. Raghava Kurup
and K. Moni for the Respondent.
A.T. James Commissioner.
K. John Mathew J.—This is an application for declaring that the election of directors and managing director of Sreerama Vilas Press and Publications (P.) Ltd. (hereinafter referred to as "the company") held on March 10, 1990, is illegal, void and inoperative. The applicant is a shareholder of the company. The company was ordered to be wound up by order dated November 4, 1976. Subsequently, by an order dated March 19,1985, this court approved a scheme for the revival of the company. As per the said order, the board of directors as on the date of the winding up petition was revived. Subsequent to that order, a general body meeting of the company was held on April 19, 1985, in which a new board of directors was elected. Subsequently, another general body meeting of the company was held on February 25, 1986, in which meeting a resolution was passed removing one of the directors, N. Madhavan Nair, who was the managing director of the company. Thereupon, he filed Application No. 63 of 1986 before this court on February 25, 1986, for a declaration that the resolution removing him was invalid. He also filed another petition for stay of operation of the said resolution, as Application No. 64 of 1986. An order of interim stay was passed on March 3, 1986.
By the time those petitions came up for hearing, the period of appointment of the managing director and board of directors of the company had expired. Therefore, this court, without going into the merits of those applications, directed a fresh election to the post of managing director and members of the board of directors. This court appointed advocate Shri V.A. Mohammed as the chairman to convene a general body meeting of the company for the purpose of conducting the elections. The court-appointed chairman convened a meeting on June 30,1986, in which the said N. Madhavan Nair was again elected as the managing director.
Meanwhile, a misfeasance application was filed as Application No. 59 of 1986 against the said N. Madhavan Nair. By order dated January 13, 1989, this court directed him to pay to the company a total amount of Rs. 44,550. Against that order, an appeal, M.F.A. No. 174 of 1989, and a cross-appeal are pending.
After the meeting convened by the court appointed chairman, Shri V.A. Mohammed, in which the said Madhavan Nair was elected for a second time as managing director, only one meeting of the board of directors was held. The last date for convening the next meeting was January 29, 1988. Two of the shareholders of the company sent a requisition to the board of directors under section 169 of the Companies Act, on December 31, 1988, requesting to convene an extraordinary general body meeting of the company. However, the managing director did not convene any meeting. Another director of the company filed a suit as O.S. No. 394 of 1989 praying for an injunction restraining the requisitionists from holding an extraordinary general body meeting. Although an interim order of injunction was passed by the Munsiff Court, that order was stayed by the district judge in C.M.A. No. 22 of 1989. That order was again challenged before this court in C.R.P. No. 861 of 1989.
The extraordinary general body meeting convened as per the requisition elected 5 directors. They authorised two of the directors to look after the day-to-day administration and management of the company. A report to that effect was filed in the company court on April 6, 1989. An application was also moved before this court to allow the newly elected board of directors to function.
When these matters came up for hearing, this court suggested that the disputes can be settled by convening a general body meeting so that further steps for revival of the company can be speeded up. One of the directors, R. Narayanan Nair, agreed that, for the time being, he will meet the expenses of the meeting. Thereafter, this court, as per order dated October 30, 1989, appointed Sri A.T. James, an advocate of this court as Chairman/Commissioner to convene a general body meeting of the company for the purpose of electing a managing director and members of the board of directors. By another order dated January 24, 1990, this court ordered that the general body meeting may be held at Hotel Shaw International at Kollam on March 10, 1990, and fixed the number of directors to be elected as four. When notices of the meeting were issued, the former managing director submitted an application as Application No. 187 of 1990 to stop the convening of the meeting. That application was dismissed by this court.
The meeting was held on March 10, 1990. Out of the shareholders of the company, six were present in person and three by proxy at the general body meeting. Those nine members together held 2,630 shares out of 4,689 shares held by the present total number of members, viz., 15. Originally, there were 17 members of whom two persons died. But those shares are not assigned to any member. In the meeting, the managing director and other directors were elected. A report to that effect was filed in court on March 22, 1990, by the court-appointed chairman. On this application, this court directed the impleadment of the newly elected directors. Another application was filed as Application No. 254 of 1990 for an order of stay of further proceedings pursuant to the election, till the disposal of Application No. 253 of 1990. That was dismissed by this court. The appeal filed against the order as M.F.A. No. 322 of 1990 was dismissed on June 18, 1990, with certain directions.
In Application No. 253 of 1990, five grounds are raised, viz., (1) the explanatory statement as contemplated under section 173(2) of the Companies Act was not annexed to the notice convening the meeting, (2) along with the notice, the names of the candidates for election were not furnished, (3) since individual notices to the members of the company regarding the candidature of a person were not sent, section 257(1A) of the Companies Act is violated, (4) this court has no jurisdiction to convene an extraordinary general body meeting, and (5) the petitioner reliably understood that the meeting was not held as notified in the notice.
Thus, the points to be decided are : (1) Whether the election of the directors is liable to be set aside since no proper explanatory statement was annexed to the notice ? (2) Whether the election is liable to be set aside on the ground that the names of the candidates were not furnished along with the notice? (3) Is the meeting liable to be held invalid since the provisions of section 2 5 7(1A) of the Companies Act were violated ? (4) Has the court jurisdiction to convene an extraordinary general body meeting of the company ? (5) Is the contention that the meeting was not held as notified true ?
Point No. 1 : According to the petitioner, the notice was not proper since no explanatory statement was annexed to the notice as required under section 173(2) of the Companies Act. It is well-settled that if an explanatory statement was liable to be annexed to the notice and it was not annexed, the meeting will be a nullity (see Firestone Tyre and Rubber Co. v. Synthetics and Chemicals Ltd. [1971] 41 Comp Cas 377, 435.
The chairman appointed by this court filed report No. 1 dated November 10, 1989, seeking certain directions. By order dated November 15, 1989, this court directed that the meeting was to be held at Hotel Shaw International, Quilon, on Saturday January 13, 1990, at 1 p. m. Among other directions, there was a direction to the then managing director to furnish a list of members, articles of association and other necessary records to the chairman in order that he may issue proper notices to all the shareholders. When the chairman issued notice of the meeting to be held on March 10,1990, the former managing director, N. Madhavan Nair, filed Application No. 187 of 1990 to stop the convening of the meeting on March 10, 1990. In the affidavit in support of that application, it was contended that the notice was violative of the provisions of sections 171, 173 and 257(1A) of the Companies Act. This court, by order dated March 8, 1990, held that, in view of clause 8 of the articles of the company, sections 171 and 173 will not apply in this case. The other objections were also overruled. This court also held that there was no infir mity in the notice issued by the chairman and the application was dismissed. The appeal in M.F.A. No. 333 of 1990 against the order in Application No. 187 of 1990 was dismissed by a Division Bench of this court observing that "it will be open to the appellant to urge various contentions including the contention regarding the order in Company Application No. 187 of 1990 in the course of trial of the main Application No. 253 of 1990". It may be observed that he has not, thereafter, challenged the validity of the notice. He was not impleaded as a respondent in this application (Application No. 253 of 1990).
Even so, the contention raised by the applicant in Application No. 253 of 1990 may be examined. According to the applicant, the notice was bad for not annexing a proper explanatory statement. The notice is as follows :
"Notice of general body meeting for the purpose of conducting elec tion to the board of directors and the managing director of Sree Rama Vilasam Press and Publications (P.) Ltd., with its Registered Office, Main Road, Quilon-1, issued by Advocate Commissioner, A.T. James.
The Honourable High Court of Kerala, as per its order dated October 30, 1989, in C.P. No. 28 of 1984, has directed me to hold a general body meeting for the purpose of conducting an election to the board of directors and the managing director of Sree Rama Vilasam Press and Publications P. Ltd., Quilon. I am appointed as the chairman of the said meeting. The Honourable High Court, by its order dated November 15, 1989, in commission report No. 1 in C.P. No. 28 of 1984, further directed that the meeting is to be held for the above said purpose at Hotel Shaw International, Quilon, on Saturday January 13, 1990, at 1 p.m.
You, as a shareholder of the company, are hereby notified that the meeting of the shareholders of the company, Sree Rama Vilasam Press and Publications P. Ltd., will be held at Hotel Shaw International, Quilon, on Sat urday January 13, 1990, at 1 p.m. for the said purpose. You are also requested to bring the necessary documents to prove your shareholding in the company for verification.
A.T. James (Advocate commissioner Chairman)
Neethi Nikethan Warriam
Road
Cochin-16".
Clause 8 of the articles of association is as
follows :
"Proceedings at general meetings :—
8. Fourteen days' notice at least, specifying the place, the day and the hour of the general meeting and, in case of special business, the general nature of such business, shall be given to the members in the manner herein after mentioned or in such other manner as may be prescribed by the company in general meeting, but accidental omission to give such notice to, or non-receipt of such notice by, any member shall not invalidate the proceedings of the general meeting. A general meeting may, with the consent of all the members, be called on a shorter notice and, in such manner as the members think fit".
The company is a private limited company. It is not a subsidiary of a public company. Under sub-section 1(ii) of section 170 of the Companies Act, the provisions of sections 171 to 186 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. Article 8 of the articles provides for the period of notice required as well as the matters to be specified in the notice. It is also provided in article 8 that, in case of special business, "the general nature of such business shall be given to the members in the manner hereinafter mentioned, or in such other manner as may be prescribed by the company in general meeting". Therefore, there is a specific provision in that article regarding the notice of a general meeting where a special business is to be transacted. Since there is such a provision, section 173, among other sections mentioned in section 170, will not apply to this company. Moreover, the notice contains all material facts concerning the business that was to be transacted in the meeting, viz., election of managing director and other directors. The order to convene the meeting was passed after hearing all parties and the notice itself was approved by this court. The meeting was convened by the chairman appointed by this court and not by the company. Section 173 of the Companies Act is enacted for the protection of the shareholders so that the shareholders may not be duped by the management. In Life Insurance Corporation of India v. Escorts Ltd. [1986] 59 Comp Cas 548, 636 ; AIR 1986 SC 1370, at page 1423, para 100, the Supreme Court held that the Life Insurance Corporation of India which was only a shareholder was not bound to disclose its reasons for moving the resolutions and that the duty was only on the management to disclose those facts.
The Calcutta High Court in Sitaram Jaipuria v. Banwarilal Jaipuria [1972] AIR 1972 Cal 105, held that provisions like section 173(2) should not be construed in a rigid manner and that the interpretation should not be made so as to hamper the conduct of business. It was also held that the notice must be understood in a commonsense business way and so long as that standard was satisfied, the court should not be astute to find legal and technical points to defeat the notice and the explanatory statement.
Points Nos. 2 and 3. - Names of the candidates not furnished along with the notice : No provision either in the Companies Act or in the articles of the company was brought to my notice requiring a candidate who proposes to stand for election as a director to intimate the company about it before the holding of the meeting. There is also no provision requiring the company to intimate the names of the candidates to the shareholders. In para 25 of the counter-affidavit filed by the third respondent, it is stated that all the 15 shareholders of the company belonged to the same family and are known to each other.
Learned counsel for the applicant submitted that, under section 257(1A), the company was bound to inform its members of the names of the persons who propose to stand for the election to the Board. Section 257 of the Companies Act is as follows :
"257. Right of persons other than retiring directors to stand for director ship.—(1) A person who is not a retiring director shall, subject to the provisions of this Act, be eligible for appointment to the office of director at any general meeting, if he or some member intending to propose him has, not less than fourteen days before the meeting, left at the office of the company a notice in writing under his hand signifying his candidature for the office of director or the intention of such member to propose him as a candidate for that office, as the case may be.
(1A) The company shall inform its members of the candidature of a person for the office of director or the intention of a member to propose such person as a candidate for that office, by serving individual notices on the members not less than seven days before the meeting :
Provided that it shall not be necessary for the company to serve individual notices upon the members as aforesaid if the company advertises such candidature or intention not less than seven days before the meeting in at least two newspapers circulating in the place where the registered office of the company is located, of which one is published in the English language and the other in the regional language of that place.
(2) Sub-section (1) shall not apply to a private company unless it is a subsidiary of a public company".
Sub-section (1A) refers to the "company". That can only mean the company mentioned in sub-section (1). Sub-section (1) shall not apply to a private company unless it is a subsidiary of a public company. Sub-section (1A) was incorporated in the Companies Act by Amendment Act 65 of 1960. That sub-section applies only to "the company" mentioned in sub-section (1). Thus, sub-section (1A) is really a proviso to sub-section (1) of section 257. It has no independent existence. Therefore, the provision in sub-section (2) to the effect that sub-section (1) shall not apply to a private company applies to both sub sections (1) and (1A). (See also the observation made in the Companies Act by A. Ramaiya, 11th edition, page 783 to the effect that sub-section (1A) has to be read as a continuation of sub-section (1)). Thus, there is no merit in this contention also.
Point No. 4.—According to learned counsel for the applicant, the court has no jurisdiction to convene an extraordinary general meeting of a com pany. Such a contention is raised on the basis of section 186 of the Companies Act. Section 186 as it originally stood empowered the court to order a meeting to be called. By section 14 of Act 41 of 1974, the word "court" was substituted by the words "Company Law Board" with effect from February 1, 1975. It is highly doubtful whether the power of the court to exercise control over any extraordinary general meeting of a company in respect of which a proceeding is pending in the court is taken away by this amendment. The High Court of Delhi in Dinekar Rai D. Desai v. R.P. Bhasin [1986] 60 Comp Cas 14, held that the court had such power. I am in respectful agreement with this view. In this case, the court is supervising a scheme approved by this court by order dated March 19, 1985, for the revival of the company. In any view of the case, the power of a court supervising a scheme sanctioned under section 392(1) to call a general meeting of the company is not taken away by section 186 of the Companies Act (see Indian Hardware Industries Ltd. v. S.K. Gupta [1981] 51 Comp Cas 51). Under section 392, the court has power to supervise the carrying out of the revival scheme. Therefore, in the course of implementation of the scheme, if the court is of the view that an extraordinary general meeting of the company is to be held in order to elect a new board of directors, the court has the power to do so. That power under section 392 is not in any way affected or circumscribed by section 186 of the Companies Act. In this case, on an earlier occasion, an extraordinary general meeting of the company was held on June 30, 1986, as ordered by this court under the chairmanship of an advocate-chairman appointed by this court. As stated above, in the general body meeting of the company held on February 25, 1986, a resolution was passed removing the managing director of the company, N. Madhavan Nair. He filed Application No. 63 of 1986 for a declaration that the resolution removing him was invalid. By the time that petition came up for hearing, his term had expired. Therefore, this court, without going into the merits of that application, directed a fresh election by holding a general body meeting under the chairmanship of a court-appointed chairman. It was under those circum stances that the meeting of June 30, 1986, of the company was held. There was a Misfeasance Application No. 59 of 1986 against the managing director, N. Madhavan Nair. On December 31, 1988, two of the shareholders of the company sent a requisition to the board of directors under section 169 of the Companies Act requesting it to convene an extraordinary general body meeting. The managing director did not convene any such meeting. One of the directors filed a suit, O.S. No. 394 of 1989, for an injunction to restrain the requisitionist's from holding such a meeting. Even though an order of interim injunction was granted by the trial court, that was stayed in appeal and the extraordinary general body meeting was held in which five directors were elected. An application was also moved before this court to allow the newly elected board of directors to function. When all these matters came up before this court, the court suggested that the disputes can be settled by convening another general body meeting so that further steps for revival of the company can be speeded up. It was under those circumstances that this court passed an order dated December 30,1989, appointing an advocate-chairman to convene a general body meeting of the company for the purpose of electing a managing director and members of the board of directors. From this, it is quite clear that this court was exercising its power under section 392 of the Companies Act to enforce the revival scheme. The court had jurisdiction to convene the meeting.
Point No. 5.—The contention that the meeting was not held as notified is without any merit. In fact, such a contention was not urged at the time of arguments. The records show that the meeting was actually held as notified.
It may also be observed that the newly elected board of directors have taken charge as per the directions of this court. Learned counsel for the additional third respondent has raised several other grounds also in the counter-affidavit filed in this application. I do not think that it is necessary to go into the other contentions, although they had been also urged before this court at the time of arguments.
There is no merit in this application. It is, accordingly, dismissed.
DELHI HIGH COURT
[2003] 42 scl 85 (delhi)
High Court of Delhi
v.
Union of India
Manmohan Sarin, J.
C.M. No. 8803 of 2002
August 27, 2002
Section 169,
read with section 186, of the Companies Act, 1956 - Meetings and proceedings -
Extraordinary general meeting - Petitioner sent a requisition under section 169
requiring certain issues to be listed in agenda of extraordinary general
meeting - Same were not listed in agenda by AEPC on ground that they fell
within domain of Central Government, which had formulated garment policy -
Whether respondent was justified in not including issues as desired by
petitioner - Held, yes - Whether, however, petitioner could avail of
alternative remedy under section 186 - Held, yes
Facts
The petitioner sent a requisition under section 169 requiring certain issues to be listed in the agenda of the extraordinary general meeting. The items were not listed by AEPC. The petitioner filed writ petition for quashing of the notice issued by the respondent on the ground that it did not conform to section 169 and did not cover the agenda for which the extraordinary general body meeting was called. The respondent raised preliminary objection that the petitioner would avail of the alternative remedy under section 186. On the question of justification for declining the issues, which were sought to be raised in the agenda, the respondent submitted that these fell strictly within the domain of the Central Government, which had formulated the garment policy under the Import Export Regulations and that AEPC would not have the jurisdiction to either consider or pass a resolution, which is contrary to the provisions of the garment policy. However, if the members had any suggestions, the same could be considered by the Executive Committee on the administrative side and a representation made to the Government for suitable amendments.
On writ petition :
Held
The petitioner had an alternate remedy under
section 186. The provisions of section 186 permit ‘any member’ and there is no
bar. Secondly simply because the member is a requisitionist under section 169,
he does not cease to be a member. The provisions of section 186 will still be
available. The respondent had adequately explained and justified the
non-inclusion of the issues as desired by the petitioner. The issues, which
were sought to be raised were those, which would impinge upon the statutory
provisions of the garment policy and any such change or deviation in the policy
as desired could be considered on the administrative side by the Executive
Committee and representation made to the Government in that regard.
Writ petition was, accordingly, dismissed.
A. Maitri for the Petitioner. G.L. Rawal and Kuljit Rawal for the Respondent.
Judgment
Manmohan Sarin, J. - The petitioner has filed this writ petition for quashing of the notice dated August 2, 2002, issued by respondent No. 2 on the ground that it does not conform to section 169 of the Companies Act, 1956, and does not cover the agenda for which the extraordinary general body meeting was called.
The grievance of the petitioner is that the petitioners had sent a requisition under section 169 of the Companies Act (‘the Act’), requiring certain issues, which are listed in para 27. The same is reproduced as under :
(i) Issue pertaining to the BG/EMC refunds pending since several years be settled immediately :
“Resolved that the outstanding BG/EMC cases pending with the AEPC and the Textile Ministry be cleared within one month. The BG/EMC collected is in violation of the Garment Export Entitlement Policy and the same must be refunded in full to the garment exporter failing which an alternative scheme on the lines of Samadhan be prepared wherein 100 per cent relief may be given where the performance is 50 per cent and where the performance is below 50 per cent a pro rata relief too be given.”
2. Issues pertaining the registration-cum-membership fees which have been increased 2-3 folds :
“Resolved that the registration-cum-membership fee reduced for the year, 2002, and onwards as follows. Registered member existing fees Rs. 6,000 proposed to be reduced to Rs. 2,500 and for Member Export existing fees which is Rs. 7,000 be reduced to Rs. 2,500 as it was previously.”
3. Issues pertaining the Quota transfer Fee of 5 paise per garment to be withdrawn with immediate effect :
“Resolved that the quota transfer fee at p. 05 paise for piece imposed as per circular No. 02/2A dated January 1, 2002, be withdrawn immediately.”
4. Single membership to be introduced :
“Resolved that since all then rules and regulations are applicable to all the members both registered Exporter and Member Exporter therefore there should be only one type of membership and such members will be called a ‘Member Exporter’. Those exporters turnover exceeds Rs......lakhs shall automatically be deemed to have become ‘Member Exporter’ without having to apply and all these members should have equal rights in all respect.”
5. Issues pertaining to flagging of Exports by Apparel Export Promotion Council :
“Resolved that the system of Flagging be stopped with immediate effect since the object of the Council is for Promotion of Exports and this system of flagging goes against its principal objectives.”
Learned counsel for the petitioner submits that the action of the Apparel Export Promotion Council, i.e., AEPC in not listing these items in the agenda of the extraordinary general meeting scheduled for August 29, 2002, was arbitrary and illegal. When this petition had first come up for admission before the Bench on August 20, 2002, learned counsel for the parties were required to address the court on whether the petitioner could not avail of the alternative efficacious remedy under section 186 of the Companies Act.
I have heard learned counsel for the parties. Mr. A. Maitri, counsel for the petitioner, submits that section 186 of the Companies Act would not operate as a bar firstly because the petitioners being requisitionists under section 169, they would not be covered under the provisions of section 186 of the Companies Act. Secondly he submits that it is only when it is impracticable to hold a meeting that section 186 can be invoked. The Company Law Board then assumes the position of the board of directors. He submits that once the meeting has been requisitioned under section 169, the provisions of section 186 of the Companies Act will not be available and there would be a bar under section 169(6). Counsel submits that the respondents are evading the discussion on the issues, which are vital and burning issues. The voice of a sizeable number of the exporters is sought to be scuttled in a high-handed manner.
Mr. G.L. Rawal, learned senior counsel for respondent No. 2 submits that the petitioner has the available remedy under section 186 of the Companies Act. The provisions of section 186 permit “any member” and there is no bar. Secondly simply because the member is a requisitionist under section 169, he does not cease to be a member. The provisions of section 186 will still be available. There is merit in this submission.
On the question of the justification for declining the issues, which were sought to be raised in the agenda, Mr. Rawal submits that it is a handful of persons, who are bent upon frustrating the working of the AEPC. He has taken me through the five issues, which have been reproduced earlier. He submits that as far as issue relating to the refund of bank guarantee, earnest money deposit is concerned, the Executive Committee of AEPC has already made a representation and has passed a resolution for sending the same to the Ministry of Textiles for an early disposal of the pending refund cases of bank guarantee and EMD. Counsel states that AEPC shall vigorously pursue the same on the administrative side. As regards issue No. 2, relating to registration of membership, this falls within the domain of AEPC. He submits that this item has already been included in the agenda of extraordinary general meeting. Issue No. 3 relating to the quota transfer fee, has been accepted and the said quota fee stands withdrawn. As regards issue Nos. 4 and 5, he submits that these fall strictly within the domain of the Central Government, which has formulated the garment policy under the Import Export Regulations. He submits that AEPC would not have the jurisdiction to either consider or pass a resolution, which is contrary to the provisions of the garment policy. However, if the members have any suggestions, the same can be considered by the Executive Committee on the administrative side and a representation made to the Government for suitable amendments. Similar is the position with regard to the system of flagging required to be stopped. This is being done as a part of the garment policy formulated by the Government. The respondents in my view have adequately explained and justified the non-inclusion of the issues as desired by the petitioner.
Learned counsel for the respondent further submitted that in any case the annual general meeting is scheduled to be held any time between September and December this year and it would be open for the members to send any requisition to be considered in accordance with law for the annual general meeting and such issues as are within the ambit, functioning and power of AEPC can be discussed.
In view of the foregoing, I find that the petitioner has an alternate remedy and consequently the issues, which are sought to be raised are really those, which would impinge upon the statutory provisions of the garment policy and there is considerable merit in the argument of learned counsel for the respondent that any such change or deviation in the policy as desired can be considered on the administrative side by the Executive Committee and representation made to the Government in that regard.
Writ petition is accordingly dismissed.
[1957] 27 COMP. CAS. 86 (CAL.)
HIGH COURT OF CALCUTTA
V.
J.K.Eastern
Industires Private Limited.
MUKHARJI, J.
JULY 9, 1956
P.B.MUKHARJI J. - This is an application by Bengal and Assam Investors Limited under section 186 of the Companies Act of 1956. It seeks an order that the extraordinary general meeting of the respondent company, J.K. Eastern Industries Private Limited, required by the petitioner to be called in pursuance of requisition dated the 5th June, 1956, be called and held and conducted in such manner as this court thinks fit and proper and that for the purposes of the same such ancillary and consequential directions be given as this court may think necessary or expedient including directions regarding the date, time and place of the meeting to be held, appointment of an independent chairman for the meeting, deposit of proxies with such chairman and all such other directions modifying or supplementing the operation of the provisions of the Companies Act and of the company's articles relating to the calling, holding or conducting of the meeting. The applicant also seeks for an order that at the meeting the resolutions mentioned in the requisition notice annexed to the petition marked "B" be considered and if thought fit be passed with or without modifications. The further order sought by the applicant is that the respondent company must be directed to comply with the provisions of sub-sections (3) and (4) of section 284 of the Companies Act, 1956.
Before I discuss the implications of an application under section 186 of the Companies Act, 1956, it would be necessary to state a few facts for the better appreciation of the actual point involved. The dispute is fundamentally between two rival groups of shareholders, one called the Jatia group and the other called the Singhnia group. In 1954 the Jatia directors appointed K.L. Jatia as chairman of the board of directors. On the 25th May, 1954, there was a requisition for an extraordinary general meeting by the present applicant. On the 25th August, 1954, an extraordinary general meeting was held at which K.L. Jatia acted as chairman and refused to permit the resolutions under the articles of association of the company and under the Companies Act then prevailing. Upon that the present applicant applied on the 30th August, 1954, for holding a meeting of the company under the supervision of the court under the then Companies Act. Thereafter on the 16th December, 1954, a suit was filed being suit No. 3603 of 1954, for setting aside the alteration of articles alleged to have been done on the 2nd August, 1954. There was also another suit on the 16th December, 1954, being suit No. 3604 of 1954.
The point of dispute is that although the Jatia group is in minority so far as the shareholding is concerned, they, with only about 45 per cent of the total shares, have maneuvered themselves into a position of control over the Singhania group who have a majority of share-holding of about 55 percent. This, therefore, is not the usual case where the minority alleges to be oppressed by the majority but a case where the majority alleges to be oppressed by the minority.
Now the two suits that I have mentioned are still pending. The allegation that the present applicant makes in the petition is that the Jatias are attempting to delay the hearing of suit No. 3603 of 1954, as long as possible. The applicant is a shareholder holding 400 ordinary shares in J.K. Eastern Private Limited.
The resolutions that are intended to be passed at the meeting demanded by the requisionists are set out in the notice itself. The resolutions that the applicant wants to be passed are to the following effect :
(1) That K.L.Jatia be removed from the office of the director and that Lakshimat Singhnia be appointed in his place.
(2) That G.D.Jatia be removed from the office of the director and Hari Shankar Singhania be appointed in his place.
(3) That M.P.Jatia, director of the company, be removed from the office of director and Krishna Prasad Khaitan be appointed in his place.
(4) That D.N.Jatia be removed from the office of director and Nalini Ranjan Hazra be appointed in his place.
(5) That Pratap Singh Nawalakha, Lakshman Parsad Maitin and Ramkrishandas Gupta be appointed additional directors of J.K.Eastern Industries Private Limited.
Section 186 of the Companies Act introduces new principles of company management. It is an innovation introduced by the Act of 1956. It provides power for the court to order company meetings. The conditions under which such power of the court to order company meetings should be exercised require analysis. It is expressly stated in that statutory provision that "if for any reason it is impractible to call a meeting of the company, other than an annual general meeting, in any manner in which meetings of the company may be called, or to hold or conduct the meeting of the company in the manner prescribed by this Act or the articles, the court may, either of its own motion or on the application of an director of the company, or of any member of the company who would be entitled to vote at the meeting, -
(a) order a meeting of the company to be called, held and conducted in such manner as the court thinks fit ; and
(b) give such ancillary or consequential directions as the court thinks expedient, including directions modifying or supplementing in relation to the calling, holding and conducting of the meeting the operation of the provisions of this Act and of the company's articles."
Now the first essential condition is that the court must have reason to be satisfied that it is impracticable to call a meeting of the company or to hold or conduct the meeting of the company in the manner prescribed by this Act or the articles. That is the primary condition which must exist before the court can assume powers of calling, holding and conducting meetings of companies and thereby supersede and override the right of the shareholders and their representatives, the directors, to call, hold and conduct company meetings, which ordinarily belongs to them. The second feature of this statutory provision is that the court's power under section 186 of the Companies Act of 1956 is discretionary. It is not a power which the court must exercise. It is not a mandatory obligation upon the court. It is an alternative remedy to be applied only when the normal machinery of company management fails and the court must find first that it is impracticable to call a meeting and secondly that to leave the parties to follow their own remedies and rights will put the company in jeopardy.
Now it is clear on the facts of this case that it is not impracticable at all to call a meeting of the company or even to hold a meeting of the company within the meaning of section 186 of the Act. The very first condition of this section is not satisfied. In fact a notice has already been issued calling the meeting and notifying that the meeting will be held at the registered office of the company on the 14th July, 1956, at 11 a.m. That notice clearly sets out what resolutions the requisitionists want to be passed at the meeting. Therefore there is no impracticability in the matter of calling a meeting or in the matter of holding a meeting. In fact it has been called.
What, however, is suggested by the applicant is that I must hold that it is impracticable to conduct the meeting of the company in the manner prescribed by this Act or articles within the meaning of section 186 of the Companies Act. I am unable to come to that conclusion. I do not find any reason to hold that it is impracticable to conduct the meeting notified to be held on the 14th July, 1956, in the manner prescribed by the Act and the articles of the company. I shall state my reasons briefly. Before I do so, I shall state the argument of the applicant on this point. It is argued by Mr. H.N. Sanyal, learned counsel appearing on behalf of the applicant, that the chairman of the board of directors is K.L. Jatia whose conduct will be under criticism and whose removal the resolutions demand. Mr. Sanyal's argument is that a chairman of a meeting cannot be a judge in his own cause and for that purpose he relied upon the case of N.V.R.Nagappa Chettiar v. Madras Race Club. There the well-settled principle is reiterated that no man can preside at his own election and return himself, and that in the case of a chairman of a meeting whose function is to decide as to the validity of certain nominations such chairman should not decide the validity of his own nomination.
In my judgment there are many answers to this argument.
The court under section 186 of the Companies Act of 1956 must have a good reason to hold that it is impracticable to conduct the meeting of the company in the manner prescribed by the Act or the articles of the company. It is, therefore, not the purpose of this section as I read it that this court should intervene to conduct a company meeting not in the manner prescribed by the Act or by the articles of the company and to override the express provisions thereof. Naturally enough when the court directs a meeting to be held under section 186 of this Act it must necessarily modify or supplement the articles or the Act and that is why express provision is made for the same under section 186(1)(b) of the Act. But that provision for modifying or supplementing the articles or the Act is only with a view to enable the court to call, hold and conduct the meeting under section 186 of the Act which normally it cannot without contravening the articles and the Act. no one for amoment disputes that a person cannot be a judge in his own cause, but the chairman of the board of directors who under the articles of the company is supposed to be the chairman of this extraordinary general meeting of the shareholders called for the 14th July, 1956, will not be a judge in his own cause. Unlike a Judge's decision K.L.Jatia will not decide on the validity of his own nomination at the meeting of the shareholders. It will be for the shareholders to vote for the removal of K.L.Jatia from the office of director and not for K.L.Jatia to decide it. The doctrine, therefore, that a man cannot be a judge in his own cause cannot be applied in this context at all. The facts of this case are entirely different from the facts of the Madras decision on which Mr. Sanyal relied and with whose principle there is no quarrel.
It was then contended by Mr. Sanyal that K.L.Jatia, chairman of the meeting, might behave with partiality and partisanship in so conducting the meeting as to throw out the majority of the applicant. I am afraid I cannot anticipate that Mr. Jatia would act illegally and acting on that anticipation supplant the articles of the company and give directions for the conduct of the meeting under section 186 of the Companies Act. Should K.L.Jatia commit any illegality at the meeting then there is ample remedy open to the applicant. In fact some of the very grounds, it not all, in this application are already the subject of pending litigation and proceedings in this court.
Besides, I do not see that so far as the applicant is concerned there is anything more than his own apprehension that K.L.Jatia would act illegally at the first meeting that is going to be held on the 14th July, 1956. I am satisfied that K.L.Jatia cannot decide on the resolutions proposed in that meeting because the resolutions will have to be voted by the shareholders. It is the shareholders who will be in control of the meeting. If the applicant has in its side 55percent of the votes of the shareholders, I do not see why they should be at all frightened. The chairman's power is very limited. He has a vote as a shareholder and director. That gives him no special position to control the meeting. He has, in the event of an equality of votes between two rival groups, a casting vote. But on the applicant's own showing there is no question of equality of votes in this case because the applicant's group is much larger than the respondent's group. Therefore, even the possibility of casting vote is remote. The only other scope of intervention by the chairman is in the matter of poll. But even a poll may be demanded under article 118 by any member if not more than 7 members are personally present, and if more than 7 members are present then by any two members, so that even in the matter of poll the chairman cannot exclude a poll. All that the chairman can do under article 102 is that if a poll is demanded, the chairman will direct it to be taken either at once or after an interval or adjournment or otherwise and shall determine the time and place and the manner in which it shall be taken. it is only in case of a dispute as to the admission or rejection of a vote that the chairman is given power under article 102 to determine the same. But then such determination in order to be conclusive under article 102 of the articles of the company has to be in good faith. Therefore, whatever is not done in good faith will be open to challenge. The same is again true with regard to proxies or admission of proxies. If the chairman does something which is illegal in this respect, the Companies Act provides ample remedies to the applicant. But the applicant under section 186 cannot anticipate that the chairman will act illegally. Lastly, article 97 provides that the chairman of the board of directors shall be entitled to take the chair at every general meeting. But if he is unwilling to act, the members present shall choose another director. It may also be that by convention the chairman of the board of directors will not participate in the vote. That is the usual rule and the practice followed in company matters.
I see no reason whatever to hold that it is impracticable to conduct a meeting of the company on the manner prescribed by the Act or the articles of the company.
Were I to accede to a request that this court should call or hold and conduct company meetings because one set of shareholders or directors are quarrelling with another set of shareholders or directors, then I shall be opening the easy door for every kind of officious intervention because then the easiest way for any one, be he of the majority or of the minority in the company, will be to make an allegation against any of the existing directors in an application under section 186 of the Companies Act asking this court to call, hold and conduct such meetings. I do not think that that was the intention of the Act, and I am also satisfied that that is not the construction of the expressions appearing in section 186 of the Companies Act.
The word "impracticable" appearing in that section must certainly be given a practical meaning. It must be understood to be impracticable from the business point of view. It must not be held impracticable on the slightest excuse that the directors cannot agree. Section 186 of the Companies Act, 1956, has not made this court a director or shareholder of every company. My interpretation is that in spite of section 186 of the Companies Act, this court will not easily intervene in any company meetings either in holding or calling or in conducting such meetings. This section is a piece of incongruous paternalism of an outside agency, the court in, the self-government of joint stock companies whose main principle is management by their own directors and shareholders who are the most interested and responsible persons in the good government of companies. It is an extraordinary power in the historical context of the evolution of company law when one recalls the ordinary principle of company law that where a company cannot carry on its own management and there is a deadlock, the traditional course is to wind up the company. This new power is also unsuited to the court because its substance is a purely executive function of calling, holding and conducting a meeting. The court can discharge that function only victoriously through a chairman or president whom it appoints. Judicial work of court through a delegate is never an efficient innovation in jurisprudence. Section 186 of the Companies Act 1956 introduces this power which is also by its nature irresponsible. It is an irresponsible power because even after the court has called, held and conducted meetings, it is not made responsible for the consequences that follow in the sense that it is left with no standing machinery to see to their proper working. As the power is great, unsuitable and irresponsible, the discretion granted under section 186 of the Companies Act must be very sparingly used and it should be used with great caution, so that this court does not become either a shareholder or a director of the company trying to participate in the internecine squabbles of the company.
On the question of what is "impracticable", Mr. Snayal relied on two decisions of this court, one being In re Lothian Jute Mills and Company and the other being In re Malhati Tea Syndicate Limited. The latter decision lays down the obvious principle that the word "impracticable" means "impracticable from the reasonable point of view" and the court should take a common sense view of the matter and must act as a prudent man of business. I respectfully agree with that principle. I should have thought that the word "practicable" or "impracticable" always means that. But a prudent person of business has not a sensitive, officious view of intervention in case of every rivalry between two groups of directors. I should have thought prudence demands that this court should ordinarily keep itself aloof from participating in such squabbles. In In re Malhati Tea Syndicate Limited, there was doubt as to the existence of the board of directors validly appointed. That case, therefore, on that ground is distinguishable from the present case.
The application must, therefore, fail and is dismissed with costs.
[1962] 32 COMP. CAS.
896 (MP)
SHIV DAYAL J.
OCTOBER 31, 1960
This is a petition under section 186 of the Companies Act made by Radheylal Khaitan praying that this court may order an extraordinary meeting of the Pasari Flour Mills Ltd., Bhilsa, to be held under the directions of this court. The Pasari Flour Mills Ltd. (hereinafter called the company) is a public limited company which was incorporated on November 16, 1937, under the Gwalior State Companies Act of Samvat 1963. The registered office of the company is at Vidisha (Bhilsa) in the erstwhile Gwalior State, now in the State of Madhya Pradesh. The authorised share capital of the company is Rs. 5 lakhs divided into 5,000 ordinary shares of the face value of Rs. 100 each. The petitioner is a shareholder. The company is now governed by the provisions of the Companies Act, 1956 (hereinafter called the “Act”).
It is stated in the petition that Messrs. Ram Narain Prem Sukh and Sons (consisting of Birmadutt Premsukh and Keshavdeo Premsukh) were appointed managing agents of the company for a period of 31 years from the date of the incorporation by virtue of an agreement in writing dated September 3, 1938. The managing agents were entitled to appoint and remove and re-appoint from time to time two persons as directors (ex officio). They were also given power to appoint an ex officio chairman of the board of directors.
The ex officio directors nominated by the managing agents were to hold office until retired by the managing agents; they were not bound to retire by rotation. In 1940, the managing agents appointed Birmadutt as an ex officio director and Seth Pratap Seth alias Motilal Manik Chand as the ex officio chairman. Motilal Manik Chand resigned whereupon Shri Umadutt Nemani was appointed ex officio chairman. In or about 1956, the managing agents intimated to the company that with effect from April 30, 1956, Birmadutt alone would be the sole ex officio director of the company.
The seventeenth ordinary general meeting of the company, being the ordinary general meeting for the year ending June 30, 1954, was held on April 7, 1956. Thereafter, no ordinary or extraordinary general meeting has been called or held.
Birmadutt has filed a written statement which virtually supports the petition and, inter alia, it is admitted that no annual general meeting of the company was held after April, 1956, as alleged by the petitioner. He has also filed here a copy of the plaint of the suit (together with its annexures) instituted in the court of the Additional District Judge, Vidisha (Civil Suit No. 7 of 1960), against Keshavdeo, Sajjankumar and Kedar Nath.
Keshavdeo has filed objections challenging the petition as mala fide and actuated by collusion with Birmadutt. This fact is, however, admitted that no annual general meeting has been held after April 7, 1956, but has fastened the blame on Birmadutt for the default. He has also stated that the board of directors were “taking steps to call an annual general meeting for 7th November, 1960”. Allegations and counter allegations have been made by Birmadutt and Keshavdeo against each other.
Kedarnath has filed objections praying that the petition be dismissed on the ground, inter alia, that an application under section 186 of the Companies Act is not maintainable.
No one else has filed any written statement or objection.
As a preliminary objection, Shri K. L. Mishra contends that Radheylal has no right to file this petition inasmuch as he holds only one share and, further, he owes the company a sum of Rs. 700. Reliance is placed on articles 63, 96 and 97 of the articles of association of the company. Radheylal has stated on oath that his accounts have been adjusted and he owes nothing to the company, and that, on the contrary, when accounts will further be taken as regards the service rendered by him to the company it will be the company which will be found liable to pay him something. It is unnecessary to go into the details of those allegations because even if Radheylal is indebted to the company, I do not see how he is not a member of the company today. Article 63 gives the company a first and paramount lien upon the shares of a member for his debts, liabilities and engagements. Lien granted, membership is not lost. Article 63 does not debar a shareholder from being present or voting at a meeting. Article 96 deprives a member from voting or to be present at any general meeting whilst any money due from him “in respect of any share or shares in the company” remains unpaid. It is clear to me that article 96 is irrelevant here. There is no allegation that there is any outstanding money in respect of his share. Article 97 of the company no doubt entitles only those shareholders to be present and to vote at a meeting who hold at least 5 shares in the company. But this article must be held to be inoperative as it is in conflict with section 182 of the Act. It is enacted in that section that a company shall not prohibit any member from exercising his voting right on any ground except on the grounds set out in section 181. And section 181 enables the company to provide in its articles that no member shall exercise any voting rights in respect of any shares registered in his name on which any loans or other sums presently payable by him have not been paid or in regard to which the company has or will exercise any right or lien. Section 181 does not allow any restriction to be imposed on the basis of the number of the shares. As such, the mandatory provisions in section 181 render article 97 inoperative. The preliminary objection must, therefore, be overruled.
It is conceded by everybody that there has been a non-compliance with the provisions of section 166. Now, it is enacted in section 166 of the Companies Act, that every company must hold a general meeting to be styled its annual general meeting within 9 months after the expiry of each financial year and not more than 15 months shall elapse between the date of one annual general meeting and that of the next. For that reason it is urged by Shri Gupta that this is a clear case where this court should exercise its powers under section 186 of the Companies Act and order a meeting of the company to be called, held and conducted in an appropriate manner.
From the statements made in the petition and in the affidavits of Keshavdeo and Birmadutt, it appears quite clear that there are serious disputes between them. They are step-brothers and seem to be at daggers drawn. A civil suit has also been instituted in the court of the Additional District Judge, Vidisha, for a declaration that Birmadutt continues to be the validly appointed ex officio director of the company; that Mahavir Prasad, Radhakishen and Sitaram are validly appointed directors and these four are the only validly appointed directors at present; that Keshavdeo has ceased to be a director of the company from and after April 7, 1956, and that his appointment as also the appointment of Sajjan Kumar and Kedar Nath is illegal and ultra vires. Ancillary reliefs have also been prayed for. It is also said that Keshavdeo has transferred some of his shares. It is alleged by Keshavdeo that Birmadutt went away to Bombay in the year 1958; the books of the company up to that year are with him; on the appointment of new directors (himself, Sajjan Kumar and Kedar Nath) they are running the mills and with profit.
Before a meeting can be ordered to be held under section 186 of the Companies Act the court must find that it has become “impracticable” to call a meeting in the ordinary manner. It is quite unnecessary to consider in this petition which of the parties is responsible for the disputes and who is acting in a high-handed manner. The fact remains that there are factions. Birmadutt and Keshavdeo, step-brothers, have formed two groups. Each of them has at least two more persons with himself who claimed to be the rightful directors.
“Impracticable” and “impossible” are not the same. This distinction was considered in In re El Sombrero Ltd. at page 4 and it was observed :
“Examine the circumstances of the particular case and answer the question whether, as a practical matter, the desired meeting of the company can be conducted, there being no doubt, of course, that it can be convened and held.”
It is undoubted that here all the parties have themselves made out a clear case of “impracticability”. In re Lothian Jute Mills Co. Ltd., Indian Spinning Mills Ltd. v. Madan Shumshere Jang Bahadur and Bal Krishna v. Uma Shankar may also be seen. Shri K. L. Mishra candidly admits that having regard to the circumstances of this case, no one can reasonably object to a meeting of the company being called.
This brings me to the question whether a meeting, if held by an order under section 186 of the Act, will serve any useful purpose. When 1 read sections 167 and 186 side by side, there is no doubt that in the present Act there is a clear bifurcation of the power to call the different kinds of meetings of a company. Section 79 of the Indian Companies Act, 1913, gave power to the court to call any and every kind of meeting contemplated under the Companies Act, so that the court could call an annual general meeting as well. Under the 1956 Act, it is only the Central Government which is empowered to call or direct the calling of 6an annual general meeting.
Sub-section (2) of section 167 makes it clear that such a meeting would be deemed to be an annual general meeting of the company. Section 167 of our Act is analogous to section 131 (2) of the English Companies Act(11 and 12 Geo. VI, c. 38 of 1948) which provides that if default is made in holding the annual general meeting, a member may apply to the Board of Trade to call or direct the calling of such meeting and on such application the board has power to call a meeting and to give such directions as appear to it expedient in relation to the calling, holding and convening of the meeting.
In section 186 of the 1956 Act, which empowers the court to call meetings, an annual general meeting is excepted. It comes to this that this court has power to call or direct the calling of only an extraordinary general meeting of a company, but not an annual general meeting.
The main object for which the petitioner wants the meeting to be called is that the new directors may be elected. If this can be done only at an annual general meeting but not at an extraordinary general meeting, an order under section 186 will bear no fruit in this case; but if that business can be transacted at a meeting other than an annual general meeting, the result would be different.
Shri Gupta seeks aid from section 173 of the Act. I clearly see that it affords no solution for the problem. Clause (a) of section 173(I) categorises all business into two broad heads : (1) special and (2) other than special. In the case of an annual general meeting, four things numbered (i), (ii), (iii) and (iv) are not included in the expression “special”, so that at an annual general meeting, those four things will constitute “ordinary business” (if I may coin that expression for “business which is not special”). All other business to be transacted at the annual general meeting is deemed to be special. For special business, a longer notice is required and it has to fulfil certain formalities. In the case of an extraordinary general meeting all business, irrespective of the categories, is deemed special. In other words, whatever business is transacted at an extraordinary general meeting is “special” and requires the aforesaid preliminaries. But it is altogether a different question what business can be transacted at an extraordinary general meeting and, in particular, whether directors can be appointed at an extraordinary general meeting. This has to be determined from the relevant provisions in the Act and in the articles of the company.
Shri K. L. Mishra calls attention to sections 210, 224 and 256. Under section 210, the board of directors of a company is required to lay before the company a balance-sheet and a profit and loss account at “every annual general meeting”. Section 224 requires every company to appoint an auditor at an annual general meeting. Section 256 deals with the ascertainment of the directors retiring by rotation and the filling of vacancies. The argument is that a director who is liable to retire by rotation can retire only at an annual general meeting and the vacancy so created can also be filled up only at the annual general meeting by reappointing the retired director or by appointing some other person. Emphasis is on the words “the” and “annual”.
The expression “annual general meeting” in section 256 refers to a meeting which is to be held annually under the mandatory provisions contained in section 166 of the Act. But where an annual meeting is not held at the scheduled time, is retirement automatic and do they cease to hold the office with effect from the last day on which the annual general meeting should have been held ? In In re Consolidated Nickel Mines Ltd., the question was whether the two directors, Steel and Philips, were entitled to remuneration as directors. Article 101 of the company provided that all directors were to retire from the office at the ordinary meeting. Section 49 of the Companies Act provided that the directors were bound to summon a general meeting of the company once in every calendar year. However, no meeting was held after 1905 and the two directors continued to act. It was held that they vacated the office in December 31, 1906, that is, the last day on which the annual meeting should have been held. They were disentitled to remuneration after that date. In Kanssen v. Rialto (West End) Ltd., the point for decision was whether the allotment of shares made at a directors’ meeting held on March 30, 1942, was valid. The allotment was made by Cromie and Strelitz, who purported to act as directors. The latter claimed to have been appointed a director at a meeting held on February 1, 1940. It was found that there was no meeting or appointment. Cromie was one of the original directors, but he was to retire at the annual meeting and the last date on which such a meeting should have been held was December 31, 1941. It was held by the Court of Appeal, relying on the case of In re Consolidated Nickel Mines Ltd. “ Neither Mr. Cromie nor Mr. Strelitz was then (on March 30, 1942) a, director of the company. Mr. Cromie had been a director, but he had vacated office on December 31, 1941, by reason of article 73 of the company’s articles of association.” This decision was affirmed by the House of Lords in Morris v. Kanssen where it was held that since no general meeting had been held in 1941 by the effect of article 73 of Table “A” as varied by article 22 Of the company’s articles of association, there were thereafter no de jure directors. It is stated in Buckley on Companies Act (12th edition, page 882) : “.... if in any calendar year an annual meeting is not held under an article in this form, those directors who would have retired at the meeting had the same been held will vacate office on the last day of the year.” The dictum laid down in the above authorities was followed by Rajamannar C.J. and Venkatarama Iyer J. in Anantalakshmi Ammal v. Indian Trades and Investments Ltd.. The Madras decision has recently been followed in Krishna Prasad Jwaladutt Pilani v. Colaba Land and Mills Co. Ltd.. In that case the annual general meeting for the year 1955 of the Colaba Land and Mills Co. Ltd. was held on March 20, 1956. The annual general meeting for the year 1956 was not called although the time for holding that meeting was extended by the Registrar up to March 31, 1958. Two directors (Jaintilal Patel and Solomon Moses) would have retired if a meeting was held in 1957. It was contended before the Bombay High Court that despite the non-compliance with the provisions of section 166 they continued to be directors of the company and were entitled to act as such until an annual general meeting of the company was held. It was declared that both Jaintilal Patel and Solomon Moses had ceased to be the directors of the company on the last date on which the annual general meeting for the year 1956 should have been held. The High Court posed a question : “Whether the tenure of the elected directors can continue after the expiry of the statutory period laid down for the calling of an annual general meeting.” This was answered with reference to the various provisions of the 1956 Act thus :
In our judgment it (section 256) speaks of directors who till the date of the actual calling of the meeting continued to be directors in accordance with the provisions of law. A person who is to cease to be a director by retirement at the expiry of a stated time cannot claim to have escaped such retirement simply because an annual general meeting has not been called as required by law within that time. Section 256 does not include those who vacated their office. It only applies to directors who had not already vacated their office or ceased to be directors by operation of any provision of law. It has nothing to do with the tenure of the office of a director in the proper sense of that expression. The marginal note of section 256, which we may look at for the purpose of seeing the trend of the section, speaks of ascertainment of directors retiring by rotation and filling of vacancies. It does not lay down any substantive rule as to the tenure of the office of a director. It is not the only section which has to be considered. We have to ascertain the tenure of the office of an elected director not merely from that section but from the language of sections 166, 255 and 256 read together.” There is a Calcutta decision which takes a contrary view : Kailash Chandra v. Jogesh Chandra (A.I.R. 1928 Cal. 868.). It was urged in that case by the learned counsel for the respondent that the directors could hold office only for one year from the date of their appointment and if no general meeting was held at the lapse of one year the directors automatically vacated their office. The learned judge who decided the case rejected the said contentions in these words : “I am unable to accept this contention of the learned advocate as it seems to me that it would be unreasonable to hold that this is the true meaning of the articles of association.” The Bombay High Court has dissented from this view.
In the Indian Companies Act, 1913, under which the Madras case was decided, there was no provision corresponding to section 256 of the 1956 Act but regulation 78 of Table A read with section 17(2) of that Act laid down substantially the same law. In that case, however, the High Court was not considering the question of appointment of directors. Nor did that question arise in the Bombay case. In the case before me the question precisely is whether I can order the appointment of new directors on the assumption that there are vacancies in the board of directors because of the automatic retirement of the former directors. Section 255 provides that not less than two-thirds of the total number of directors of a public company shall be persons whose period of office is liable to terminate by retirement or rotation. Such directors are to be appointed in a general meeting, save as otherwise provided in the Act. The remaining one-third of the total number of directors shall be appointed in general meeting, subject to the articles of the company. No tenure of office has been fixed in the Act during which a director shall act. But section 256 provides that one-third of the directors who are liable to retire by rotation, shall retire from office at the first and at every subsequent annual general meeting. The directors to retire shall be those who have been longest in office. Vacancies so created at the general meeting at which some of the directors retire as above shall be filled up by reappointing the retiring directors or by appointing fresh directors. The places so vacated are to be filled up in the same meeting and if not so filled up an adjourned meeting is to be held on the same day of the next week. If at the adjourned meeting also fresh directors are not appointed as provided in sub-section (4), the retiring directors shall be deemed to have been re-appointed at the adjourned meeting. There are five exceptions to this deeming provision none of which is applicable here. I think these provisions in our Companies Act of 1956 were made in order to resolve controversies which arose in a number of English decisions. In the case of Robert Batcheller and Sons Ltd. v. Batcheller, the articles of the company provided :
“ Save as hereinafter provided if at any meeting at which an election of directors ought to take place, the places of the retiring directors or some of them are not filled up, the retiring directors or such of them as have not had their place filled up, shall, if willing to act, be deemed to have been re-elected.” A similar view was taken in Spencer v. Kennedy. Article 124 of this company is almost in identical terms. It runs thus :
“ If at any ordinary general meeting at which an election of directors ought to take place, the place of any retiring director is not filled up, such retiring director as has not had his place filled up, shall, if willing, continue in office until the first ordinary meeting in the next year and so on from year to year until his place is filled up, unless it shall be determined at such meeting on due notice to reduce the number of directors or leave any vacancy unfilled.” What exactly is the nature of the contingency under which alone such an article would operate has been a matter of controversy in England. In In re Great Northern Salt and Chemical Works it was held that the true meaning of such an article only is that if for any reason either the first meeting or the adjourned meeting does not proceed to fill up the places of the vacating directors, then they are to continue in office.
Astbury J. in Spencer’s case ([1926] Ch. 25.) made a passing observation suggesting that such an article applies only where the retirement of a director by rotation and the necessity of his re-election or replacement has been entirely lost sight of at the annual meeting. But this view was not acceptable to Maugham J. in Holt v. Catterall. However, in Batcheller’ case Romer J. was inclined to agree that the I operation of such article was confined to cases of accidental omission to fill up vacancies of retiring directors. Romer J. dealt in detail with the word “deem” in his judgment. In view of the clear provisions contained in section 256 of our new Companies Act no such problem arises here. Whatever may be the reason for omission to elect fresh directors in place of those who retire, either there must be an election at the same annual general meeting or at the adjourned meeting which is to be held on the same day in the next week, otherwise the retiring directors shall be deemed to be re-elected. In the present case indeed there has been no retirement of directors strictly under the provisions of section 256(1) because an annual general meeting has not been held for the last four years. If the dictum of the Madras and the Bombay decisions is applied and it is held that during the last three years all the directors who were liable to retire (that is to say, apart from ex officio directors) have retired by rotation (one-third in each of the three years), it has also to be held that under the deeming provision contained in section 256(4) they were reappointed as directors. Article 124 of the articles of the company clinches the issue. That article is not in conflict with any provision of the Companies Act. By virtue of that article, the directors whose retirement is overdue are continuing in office and shall so continue from year to year until their places are filled up. Unless an ordinary general meeting is held their places cannot be filled and unless their places are filled they continue in office. The two things are interdependent.
From whatever angle this point is examined it must be held that the directors continue in their office whether because they have not retired at an annual general meeting, or because of the deeming provision contained in sub-section (4) of section 256 - and shall continue to remain in office unless there is an election at an annual general meeting Therefore, the only remedy is that an ordinary meeting of the company should be convened and held. The Companies Act of 1913 presented no difficulty as the court was competent to call or direct the calling of any and every kind of meeting of a company. Under the Companies Act of 1956, however, there has been a bifurcation of the power to call an annual general meeting and the power to call any meeting other than an annual general meeting and the two powers having been separately given to two different authorities (the former to the Central Government and the latter to the court) they must be exercised in water-tight compartments. All this leads me to say that I am prepared to call an extraordinary general meeting of the company for which this court is empowered under section 186, yet I cannot direct the appointment of directors nor an appointment of an auditor nor the laying of balance- sheets or profit and loss accounts. And if the above business cannot be transacted it will be futile and merely ceremonial to hold a meeting of the company, When no meeting has been held for the last four years, no accounts have been asked by the shareholders, serious disputes have arisen regarding directorship and transfer of shares and in a word the whole thing has been in a mess. The chief object of this petition is that an extraordinary general meeting of the company be convened and called “to elect and appoint a board of directors of the company”. That relief I am unable to give to the petitioner as discussed above. Then it is prayed that I should direct the meeting “to transact such other business as may be determined by this court”. This prayer is too vague to be allowed. At the hearing Shri Gupta did not address me as to what other business the petitioner wanted to be transacted. Since I have reached the conclusion that I have to deny the petitioner the main and substantial relief which he wanted but which I cannot give him, the question of granting ancillary and incidental reliefs does not arise. The prayer that I should direct a meeting to transact such other business as may be determined by this court is too vague to be made the subject of a direction.
For these reasons the petition is dismissed. In the circumstances of the case all the parties are left to bear their own costs.
[1958] 28 COMP. CAS. 619 (CD)
WYNN-PARRY J.
WYNN-PARRY J. stated the facts and continued : The first point of law which arises involves the construction of section 135(1) of the Companies Act, 1948, the examination being directed to consider the scope of the phrase “If for any reason it is impracticable to call meeting of a company in any manner in which meetings of that company may be called, or to conduct the meeting of the company in manner prescribed by the articles or this Act....” It is to be observed that the section open with the words “If for any reason,” and therefore it follows that the section is intended to have, and indeed has by reason of its language, a necessarily wide scope. The next words are”....it is impracticable to call a meeting of a company....” The question then conceded that the word “impracticable” is more limited than the word “impossible”; and it appears to me that the question necessarily raised by the introduction of that word “impracticable” is merely this : Examine the circumstances of the particular case and answer the question whether as a practical matter, the desired meeting of the company can be conducted there being no doubt, of course that it can be convened and held. Upon the face of the section there is no express limitation which would operates to give those words “is impracticable” any less meaning than that which I have stated, and I can find no good reason in the argument which have been addressed to me on behalf of the respondents for qualifying in any way the force of that word “impracticable” or the interpretation which i have placed upon it, and therefore upon that point I am in favour of the applicant.
It was contended that the court could not or ought not to direct a meeting under this section where there was, as there is here, opposition, and indeed, strong opposition and in the course of his judgment the registrar said:”So far as I am aware there has never been a case where the court has made an order under section 135 in the face of opposition of such an order....” It will be observed that the registrar is careful not to go so far as to say as a conclusion that the court has no jurisdiction to make an order under the section in the face of opposition. There is nothing I can find in the language of the section which would even indicate that he jurisdiction can only be invoked if, at least there is no opposition, and I hold that, on the true construction of the section, there is nothing to prevent the court intervening in a proper case and where the application before it is opposed by other shareholders.
It is interesting to see that the registrar, having made the observation which I have quoted as to the absence of any authority for the proposition that an order could be made under the section in face of opposition goes on to say:”....and I do not consider that under the circumstances of this case the court ought to exercise its discretion by making such an order.” What, as I read his judgment, really operated in his mind as this, that the two respondents had the power to prevent the desired meeting being held and, as he puts it in one passage of his judgment, having considered the Scottish case of Edinburgh Workmen’s Houses Improvement Co. Ltd. “That case affords me some guidance as to the meaning of `impracticable’ in section 135 in relation to the quorum provisions of articles and perhaps would justify me in holding that it is impracticable in the circumstances of the present case to conduct a meeting of the company in the manner prescribed by the articles for the purpose of passing the resolutions mentioned in the schedule to the originating summon since the personal respondents will see to it that a quorum is never present at a meeting convened for that purpose; but beyond that the case does not assist me for it is clearly distinguishable from the facts of the present case in that there the court made an order in relation to t public company to enable resolutions to be passed which an overwhelming majority of the shareholders in number and value wanted passed, to which no member had expressed dissent and in circumstance’s in which the three non- assenting shareholders with their 48 shares would still have an opportunity if so minded of coming before the court to express their view and oppose any order which would render the resolutions effective. Whereas in the present case I am asked to make an order in relation to a private company at the request of one member (the applicant) in the face of strenuous opposition from the other two (the personal respondents) to enable the one to remove the other two from their directorships, notwithstanding that under the terms of the contract by which their respective rights are governed the two respondents are entitled to prevent the application from removing them at a meeting requisitioned by him.’
Later, referring to an argument which had been put before him by Mr. Cohen on behalf of the applicant, namely, that the applicant, as a majority shareholder, is entitled to remove the personal respondents from the board under section 184 and that the court would be stultifying the applicant’s statutory powers if he refused to make the order which was asked for, the registrar said this :”I cannot accept that proposition as correct. His power of removing a director under section 184 is limited to doing so b ordinary resolution and under the terms of his contract with the respondents they have power to prevent him from passing such a resolution if they wish to do so. I do not consider that the court ought to exercise its powers under section 135 in such a way as to deprive the respondents against their will of that power.”
With all respect to the register, i think those passage proceed upon a misconception. it was conceded by Mr. Lindner, and, in my view very properly conceded, that it was not possible to say that the respondents, by virtue of the articles, had such right as is implicit in the use of word “entitled” by the registrar to prevent the applicant from holding and conducting the meeting. They have, it is true, a power to prevent him from doing so, but that power is not derived from the articles; it is derived from the accidental distribution of the shareholding in this company, and that, to my mind explains the whole difficulty which has arisen.
I therefore arrive at this stage where I hold that I have jurisdiction in this case, and there is nothing to prevent me exercising the discretion which is given under the section if I choose the exercise it. It is true that I ma sitting as an appellant court, but I am entitled to the registrar has misdirected himself, on a question of law. In my judgment, this is eminently a case in which the court ought to exercise its discretion, first, because if the court were to refuse the application it would be depriving the applicant of a statutory right, which through the company, he his entitled to exercise under section 184(1)m, to remove the respondents as directors; secondly (and I think this is a proper matter to take into accounts as part of the reasons for deciding to exercise my discretion), the evidence disclosed that the respondents are failing to perform their statutory duty to call an annual general meeting. The period within which they should have held an annual general meting explored at some date in October, 1957. their execute in the evidence is that there would be no use in convening and holding an annual general meeting, because the accounts for the first period of the company’s history are not yet available. I have read the evidence with care, and I do not accept it as bona fide evidence. There is a clear statutory duty on the directors to call the meeting whether or not the accounts, the consideration of which is only one of the matters to bee dealt with at an annual general meeting is because the respondents refuse to call an annual general meeting is because the inevitable result of convening and holding that meeting would be that they would find that they had ceased to be directors. Reference was made to other proceedings between the parties and to a motion for the committal of the applicant for the alleged offence of endeavoring to procure that one of the respondents should to be present in court. It appears to me that I cannot properly take those other matters into account; I have no knowledge of them at all, and were I in any way to take them into account, I would be, at any rate to some extent, prejudging the issues between the parties one way or the other.
For these reasons, therefore, I propose to accede to this application and to direct a meeting of the company to be held under the power given my by section 135 of the Companies Act, 1948.
[After a discussion it was agreed that the order should direct that one member of the company present in person or by proxy should be deemed to constitute a quorum and that the meeting should be held at the offices of the applicant’s solicitors.]
v.
RAGHAVA RAO, J.
Second
Appeal No. 599 of 1950
K. Bhashyam and S.V. Venugopalachari, for the appellant.
R. Gopalaswami Aiyangar, for the respondents.
JUDGMENT
There are in the main two interesting questions of company law involved in this case: (1) whether the suit out of which this second appeal arises is maintainable; and (2) whether a resolution of the shareholders of a company known as Vel Brothers Ltd. (hereinafter to be referred to as the company) of the 3rd November, 1948, removing the plaintiff from its managing directorship and appointing the first defendant as managing director instead, is invalid or illegal. The facts which require to be stated for appreciating the point arising for decision are these. The first and the second defendants called upon the managing director, the plaintiff, by letter dated 28th September, 1948, to convene a meeting for electing a new managing director in place of the plaintiff. The reply of 27th October, 1948,that was given to it by the plaintiff was that since the general meeting was anyhow going to be held on 30th December, 1948, the matter might be considered at that juncture. Finding that the plaintiff did not take action on their letter within 21 days the re-quisitionists sent notices to all the members of a meeting proposed to be held on 3rd November, 1948, at the registered office of the company at 5 p.m. The subject, it was said, was the election of a managing director in place of the plaintiff. It may also be stated that in a letter written by the plaintiff, Ex. B. 11 of the 27th October, 1948, he himself had expressed an intention to move a resolution at the meeting to be held on 3rd November, 1948, that the company be wound up voluntarily. On 3rd November, 1948, it appears however that the meeting could not be held at the premises of the registered office at the time fixed because the premises were locked. As the lower appellate court has found, the shareholders who were assembled at the registered office for the purpose of the meeting accordingly moved on to the premises at No. 286, Kallukatti East Street, which is only a few yards off the registered office and there held a meeting at which a resolution removing the plaintiff from managing directorship was passed. The validity of the meeting so held and of the resolution so passed is the subject matter of the present action. The plaintiff complains that the meeting and the resolution are altogether invalid and illegal. The answer of the defendants is firstly that a suit of this character is not maintainable and secondly that the meeting and the resolution are perfectly legal and valid.
The suit was disposed of by the learned District Munsif of Devakottai on the basis of a certain admission made by the pleader for the plaintiff on the plaint which is to the following effect:—
"I admit for the purpose of this suit that the registered office of the Vel Brothers Ltd., Karaikudi, was not available for the meeting to be held at 5 p.m. on 3rd November, 1948, and that a meeting was held at 5-15 p.m. on 3rd November, 1948, in the premises of door No. 286 Kallukatti East Street, and the resolutions complained of by the plaintiff were passed at that meeting."
No evidence was taken by the learned District Munsif who proceeded on the basis of this admission to deal with the merits of the case after finding the suit to be maintainable as not being a matter of mere internal management or a mere domestic matter on which the court should not interfere. On appeal taken to the court of the Subordinate Judge of Devakottai the judgment of the learned District Munsif has been reversed on both the points. The plaintiff accordingly files this second appeal against the decision of the lower appellate court.
As regards the maintainability of the suit the learned Subordinate Judge has applied what he calls the well known rule in Foss v. Harbottle which he defines as being that a court will not interfere with the ordinary management of a company acting within its powers and has no jurisdiction to do so at the instance of the shareholders. He has quoted James, L.J., from Mac Dougall v. Gardiner, at pages 21 and 25 to this effect:—
"I think it is of the utmost importance in all these companies that the rule which is well known in this court as the rule in Mozley v. Alston and Lord v. Copper Miners (Governor & Co. of) and Foss v. Harbottle, should always be adhered to; that is to say, that nothing connected with internal disputes between the shareholders is to be made the subject of a bill by some one shareholder on behalf of himself and others, unless there be something-illegal, oppressive or fraudulent, unless there is something ultra vires on the part of the company qua company or on the part of the majority of the company, so that they are not fit persons to determine it; but that every litigation must be in the name of the company, if the company really desire it.
In my opinion if the thing complained of is a thing which in substance the majority of the company are entitled to do or if something has been done irregularly which the majority of the company are entitled to do regularly, or if something has been done illegally which the majority of the company are entitled to do legally, there can be no use in having a litigation about it, the ultimate end of which is only that a meeting has to be called and then ultimately the majority gets its wishes."
The respondents before me have reiterated the reliance upon this statement of the law before me. Mr. Gopalaswami Aiyangar has also drawn my attention to the fact that the resolution passed on 3rd November, 1948, was later on confirmed by a resolution of a general body meeting held on 30th December, 1948.
The rule in Foss v. Harbottle has been considered by this court in Nagappa Chettiar v. Madras Race Club, and has been, with its limitations and exceptions, set forth in detail in Palmer's Company Law, 19th edition, by A.F. Topham, K.C., at pages 228 to 230. I have considered the matter carefully and have come to the conclusion that what we are concerned with here is not really either the rule or any exception thereto. The question which arises here is indeed a different matter and is governed not by the rule in Foss v. Harbottle but by what has been said by Sir George Jesse], M.R., in Pulbrook v. Richmond Consolidated Mining Co. The ruling of Sir George Jessel, M.R., has been considered in very close detail by Beasley, J., as he then was in Subramania Aiyer v. The United India Life Assurance Co. Ltd. The case before the learned Judge related to the United India Life Insurance Co. Ltd., Madras. There the articles of association provided for the election or appointment of two directors by the policy holders of the company, the directors so elected or appointed to be known as "policy holders' directors ". Two persons alleging themselves to have been validly elected "policy holders' directors" sued the company and its directors for a declaration of the validity of their election as such directors and of their right to act as such and also an injunction restraining the other directors from interfering with their right to act as such directors. On objection taken by the defendants that individually the plaintiffs had no cause of action and that the suit should have been instituted by the policy holders as a body, the objection was overruled by the learned Judge who held that the plaintiffs alone could maintain the suit and that no other policy holders on their behalf could have maintained it, and that the directors of the company had properly been impleaded as defendants. Referring to the decision of Sir George Jessel, M.R., in Pulbrook v. Richmond Consolidated Mining Co., the learned Judge observes at page 398 that that decision "seems to be authority both for the statement that a director who has been excluded from acting as a director by the directors of a company can sustain an action in his own name on the ground of individual injury to himself and for the statement that such an action can be sustained against the other directors." The learned Judge quotes the following from Sir George Jessel, M.R.'s decision:—
"In this case a man is necessarily a shareholder in order to be a director, and as a director, he is entitled to fees and remuneration for his services, and it might be a question whether he would be entitled to the fees if he did not attend meetings of the board. He has been excluded. Now, it appears to me that this is an individual wrong, or a wrong that has been done to an individual. It is a deprivation of his legal rights for which the directors are personally and individually liable. He has a right by the constitution of the company to take a part in its management, to be present, and to vote at the meetings of the board of directors. He has a perfect right to know what is going on at these meetings."
Reference may be made in this connection also to a Bench ruling of this Court (of Curgenven and Cornish, JJ.) in Srinivasan v. Watrap Subramania Aiyar, where after pointing out the distinction between the class of cases illustrated by Pulbrook v. Richmond Mining Co. on the one hand and the class of cases illustrated by Foss v. Harbottle on the other the learned Judges ruled that "The Court has jurisdiction to entertain a suit by shareholders against the company in respect of an infringement of their individual rights as shareholders when the interests of justice so require and a suit in substance to establish and enforce the right of a shareholder to exercise his vote is therefore maintainable at the instance of a single shareholder."
It is perfectly clear to my mind that in the case before me the plaintiff is suing in respect of an individual wrong and not a wrong in which all the shareholders generally and as a body, only are interested. He is asking it to be declared—and that is principally a matter of concern for him—that he has not ceased to be the managing director and that the first defendant has not become that in his place. The question of the maintainability of the suit must therefore be answered in favour of the appellant before me.
Turning to the other question arising for determination I must state that the lower appellate court's finding as to what happened on 3rd November, 1948, is contained in paragraph 16 of its judgment which I may as well quote:—
"There is no evidence as to what actually happened, as to whether the requisitionists and other members assembled for the meeting at the registered office and finding it locked adjourned to 236, Kallukatti East Street, and there held the meeting. But it was admitted that the meeting was actually held there at 5-15 p.m. It is not disputed that 286, Kallukatti East Street, is a residential place of the parties, who are close relations, within a few yards from the registered office of the company, Only appellants 1, 2 and 4 attended the meeting and the first respondent did not attend it. It is not suggested that any other member turned up at the registered office and went away or was prevented from attending the mating held at 286, Kallukatti East Street, for want of notice. In view of the first respondent's volte face at the trial and in view of his admission the appellants did not adduce any oral evidence. In the circumstances, in view of the pleadings and the admissions made by the first respondent at the trial, it is quite likely that appellants 1, 2 and 4 assembled at the registered office for the meeting but the first respondent locked up the premises and made the registered office not available for the meeting to be held there at 5 p. m. and did not give them any facilities for holding the meeting and that consequently they adjourned to 286, Kallukatti East Street, a few yards away and held the meeting there at 5-15 p.m. and passed the resolutions complained of there at that meeting to the knowledge of the first respondent. This could reasonably be presumed under Section 114 of the Evidence Act, having regard to the common course of natural events, human conduct, and public and private business, in their relation to the facts of this particular case."
This, it is said, by Mr. Bhashyam, the learned advocate for the appellant, is not a finding of fact which I should accept; it is a mere surmise and speculation which should never be regarded as an effective substitute for proof. I am not prepared to accept the argument. It seems to me rather that what the learned Judge has recorded in paragraph 16 is an inference of fact from the admitted circumstances of the case gleanable from the endorsement on the plaint, the contents of the minutes book and the probabilities of the case.
Accepting this view of the lower appellate court for the purpose of his argument Mr. Bhashyam urges (1) that the meeting actually held at No. 286, Kallukatti East Street was not the outcome of an adjournment of a meeting fixed for one place to another place so that the proceedings at the latter place may be regarded as a continuation of the meeting initiated earlier at the former place, and (2) that if on account of the plaintiff's conduct it became impracticable for the requisitionists to conduct the meeting of the company at its registered office the proper remedy to be pursued was either to take steps for a fresh meeting under the Indian Companies Act or to move the court under Section 79(3) of the Act to order the meeting to be held and conducted in such manner as the court may think fit. Against the latter contention Mr. Gopalaswami Aiyangar has urged that Section 79(3) of the Act applies only to cases where for any reason it is impracticable to call for a meeting of a company or to conduct it and not to cases in which it is impracticable to hold it. Learned counsel seeks to make a distinction between the holding of a meeting which according to him applies to the stage preliminary to the choice of the chairman and the conducting of a meeting which applies to the stage thereafter. I am not satisfied that this distinction which is undoubtedly subtle is at all sound. In my opinion the expression "to conduct" in the provision of the statute includes the stage prior to the choice of the chairman, and the impracticability in the conducting of the meeting did none the less exist in the present case because in the matter of the assembling of the shareholders at the premises of the registered office there was no difficulty. The fact that the words "held" and "conducted" are both to be found used in the provision of the statute in relation to the order to be made by the court if the impracticability contemplated by it arises, affords no ground in support of the contention of counsel. It became impracticable in the circumstances of this case to conduct the meeting of the company in the registered office. Whatever the reason for it might be, sub-section (3) of Section 79 says that it would be open for the court either on its own motion or on the application of any director of the company or of any member of the company entitled to vote at the meeting to order a meeting of the company to be called, held and conducted in such manner as the court thinks fit. The restricted interpretation sought to be put upon the statutory provision by learned counsel for the respondents must accordingly be repelled.
The contention of the learned counsel for the appellant that there was no adjournment from the registered office to No. 286, Kallukatti East Street, arises on the presupposition that the adjournment must be after a regular meeting is first held with a chairman. Regulation 55 of Table A of the Indian Companies Act is referred to in this connection. That provides:—
"The Chairman may with the consent of any meeting at which a quorum is present (and shall if so directed by the meeting), adjourn the meeting from time to time and from place to place".
It is said that the place of meeting is very important and only the chairman of the meeting has the privilege of adjourning it. As against this submission for the appellant Mr. Gopalaswami Aiyangar urges that the right to adjourn which is expressed through the chairman where one exists is always a thing inherent in an assembly which can be exercised by it where none exists. In support of their respective contentions learned counsel on both sides have relied upon the case in Subramania v. The United India Life Insurance Co. Ltd., one relying upon what is to be found at page 400 where a reference is made to "the power of the meeting to adjourn itself", the ether relying upon what is to be found said at page 402 with reference to Lord Harwicke, C.J.'s pronouncement in the case of Stroughton v. Reynolds. In this last case it was held that the adjournment of a vestry meeting was a common right vested in the parishioners at large and not in the vicar, unless by law or by custom it was shown that the vicar himself had power to adjourn the meeting. I am on the whole of opinion that the reference to “the power of the meeting to adjourn itself" at page 400 of the report does not involve and imply that there must in every case be a meeting held under a chairman at one place before an adjournment can be said to take place by the actual holding and conducting of a meeting at another place.
In any case I am not satisfied that if there was a violation of law in the present case by reason of the people assembled at the registered office of the company moving on to a place hard by and holding their meeting there in view of the difficulty of the locking up of the registered office with which they were confronted when they were assembled there, the violation is to be regarded as anything more than an irregularity. It does not seem to my mind that the validity of the meeting actually held at No. 286, Kallukatti East Street, must necessarily and ipso facto be pronounced against in the absence of any proof that a different result would have necessarily followed on a fresh meeting.
One other point which has been debated before me is whether by reason of his conduct in making the premises of the registered office of the company unavailable for the meeting to be held the plaintiff is precluded from complaining of the invalidity of the meeting actually held at 286, Kallukatti East Street. As to this, it is observed by the learned Subordinate Judge in paragraph 20 of his judgment as follows:
"It is urged for the first respondent that there is no evidence to show that he was aware of the meeting held at 286, Kallukatti East Street, or of the resolution passed at that meeting and if notice were issued for a fresh meeting to all the members it could not be said that the same result could have followed, i.e., the same resolutions could have been passed at such a fresh meeting. But it is quite probable on the pleadings and the admissions of the first respondent that he was aware of the meeting held at 286, Kallukatti East Street, and no fresh notice was necessary therefor and he could not be allowed to make the registered office unavailable for such a meeting to be held there and then contend that the consequent change of venue of the meeting invalidated the meeting and the resolutions passed at the meeting for want of notice. He came to Court with the case that he was waiting for the meeting to be held at the registered office at 5 p.m. anxious to preside at it and take part in it, but nobody came and nothing happened and no meeting was held that day at all either at 286, Kallukatti East Street, or anywhere else. But he gave it up as untrue and admitted that a meeting was actually held at 286, Kallukatti East Street, and the resolutions complained of were actually passed. It could little avail him to contend that the resolution was invalid for want of fresh notice of meeting."
In support of the view of the learned Judge thus expressed Mr. Gopalaswami Aiyangar relies upon a passage in Broom's Legal Maxims, 8th edition, page 233, and a passage in the judgment in Subramania Aiyar v. The United India Life Insurance Co. Ltd., In the case in Subramania Aiyar v. The United India Life Insurance Co. Ltd. the venue of the meeting of the company had to be changed from its registered office to the Mahajana Saba Hall on account of the failure of the company to give those facilities which had been promised by the seventh defendant on behalf of the company. What happened was that after the seventh defendant had said that the company would give all facilities for the meeting, as a matter of fact the company proceeded to appoint its own directors in haste. Having done so, as the learned Judge observes, "……..It is clear that it refused to give the facilities for the meeting being held in its office and the other facilities which the policy holders desired; in fact, it clearly and definitely declined to allow the office to be used for the purpose of the adjourned meeting. The policy holders therefore selected the Mahajana Saba Hall. It was the deliberate act of the defendants that caused this change of venue and Mr. Alladi Krishnaswami Aiyar has argued with great force that it does not lie in the mouth of any one who has by his own act prevented something taking place afterwards to take exception to that state of affairs and to use that state of affairs for his own benefit. I think that that argument is a perfectly sound one. It seems to me that it would be a travesty of the law if a person who has deliberately brought about a state of affairs should be allowed to take exception to that state of affairs and use that changed state for his own advantage."
The learned Judge then proceeds to discuss the two English cases, New Zealand Shipping Co. v. Societe des Ateliers et Chantiers de France and Quesnel Forks Gold Minning Co., Ltd. v. Ward and Others, and winds up thus: "I think that the defendants cannot be heard to say that the change of venue was an irregularity such as to make the meeting of the 5th May invalid."
The passage in Broom's Legal Maxims relied upon before me is part of the discussion of the maxim "nullus commodum capere potest de injuria sua propria"—No man can take advantage of his own wrong—to be found at pages 191 to 200 of the tenth and latest edition of the work. There the rule and its limitations are pointed out in a very exhaustive treatment. The maxim which is based on elementary principles, as is said in that work, is fully recognised in courts of law and equity and, indeed, admits of illustration from every branch of legal procedure. It is therefore a sound principle, as observed at page 193 that "he who prevents a thing from being done shall not avail himself of the non-performance he has occasioned." Then as observed at page 195, the maxim applies also with peculiar force to that extensive class of cases in which fraud has been committed by one party to a transaction, and is relied upon as a defence by the other. It is pointed out at page 197 citing the Latin maxim "allegans contraria non est audiendus" that "a person who has expressly made a verbal representation, on the faith of which another has acted, shall not afterwards be allowed to contradict his former statement, in order to profit by that conduct which it has induced." Finally, it is said at page 199: "In Hooper v. Lane, which strikingly illustrates the rule that 'no man shall take advantage of his own wrong', various instances were put by Bramwell, B., showing that the rule 'only applies to the extent of undoing the advantage gained, where that can be done, and not to the extent of taking away a right previously possessed."
It is argued by Mr. Bhashyam that the case in Subramania Aiyar v. The United India Life Insurance Co. Ltd. was one in which there was a separate meeting held in the changed venue after the earlier meeting had become frustrated, and that therefore it cannot be applied as being of sufficient parity of facts, to the case on hand. It is urged therefore that except that his client cannot dispute the necessity for the meeting which came to be actually held at 5-15 p.m. on 3rd November, 1948, in other premises he is not estopped from relying upon the invalidity of that meeting in order to invalidate the resolution passed at it. Mr. Bhashyam also urges that at best his client's conduct might be a matter for consideration on a question of costs and would not preclude an argument of the kind which has been advanced by learned counsel against the validity of the meeting held at door No. 286, Kallukatti East Street, and of the resolution passed at it, removing his client from the office of managing director and appointing the first defendant in his place. I have carefully considered the matter and have come to the conclusion that the way in which Mr. Bhashyam seeks to get over the point of estoppel is not sound. The facts with reference to which he distinguishes the case in Subramania Aiyar v. The United India Life Insurance Co. Ltd. do not in the least affect the principle which really falls to be applied to this class of case. There is no reason why that principle which is so fully discussed in Subramania Aiyar v. The United India Life Insurance Co. Ltd. with reference to the English cases and which is of very extensive application in a variety of cases as pointed out in Broom should not be actually held applicable to the case on hand, as it was held applicable to the case in Subramania Aiyar v. The United India Life Insurance Co. Ltd. The differentiation attempted by learned counsel between that case and this is on an accident of fact and not on an essential of legal principle.
In the result the second appeal fails and is dismissed with costs. No leave.
[1947] 17 COMP. CAS. 216
(ALL.)
HIGH COURT OF ALLAHABAD
v.
MULLA, MALIK AND MOOTHAM, JJ.
CIVIL REVISION NO. 278 OF 1946
JUDGMENT
This reference to a Full Bench arises out of a petition in revision under Section 115 of the Civil Procedure Code presented by one Bal Krishna Maheshwari, a member of the Merchant's Chamber of U.P. which is a company limited by guarantee duly incorporated and registered under Section 26 of the Indian Companies Act (VII of 1913). The petitioner challenged the validity of an order passed by the learned District Judge of Cawnpore on 26th April, 1946, confirming a previous exparte order passed by him on 28th March, 1946, directing the calling of the annual general meeting of the Company on 27th April, 1946. The challenge was made on the ground that the said order of the learned District Judge of Cawnpore was beyond his jurisdiction and on that basis the petitioner claimed the relief that the said order and the annual general meeting of the company held in pursuance thereof should be declared to be null and void. The matter came up for consideration before a Bench of this Court and from the argument addressed by the parties two questions having an important bearing on the administration of the company law arose for determination. In view of the importance of those questions, and the fact that they were not covered by any precedent of this Court or of any other High Court the Bench seized of the matter made the present reference with the object of having those questions fully considered and finally decided by an authoritative pronouncement of this Court.
The material facts of the case and the points raised in the course of the argument have been set out at great length in the order of reference made by the Bench and we think it would be an obvious waste of time and labour to cover the whole ground again in the present judgment. As already stated, there are but two points of law which arise for consideration and we consider it necessary to state a few facts in order to bring out those points. Article 46 of the Articles of Association of the company provides that an annual general meeting of the company shall be held in every calendar year before 31st of March. The dispute in the present case relates to the annual general meeting of the company for the year 1946. It is an admitted fact that the last preceding annual general meeting of the company had taken place on 3rd February, 1945. According to the Articles of Association of the company referred to above, the annual general meeting of the company for the year 1946 had to be called on some date before 31st March, in that year. The management of the affairs of the company lies in the hands of a Council of twenty-one members, including a President and a Vice-President, and the duty of calling the annual general meeting of the company in every calendar year falls upon that Council. On behalf of the petitioner it is alleged that in accordance with the Articles of Association of the company a clear fourteen days' notice for the annual general meeting in 1946 was issued and posted in due course on 13th March, 1946, fixing 28th March, 1946, as the date of the meeting. It is contended on the other side that though a notice was directed to be issued fixing that date, yet in fact no notice was issued and posted to any member of the company until 15th March, 1946, so that there could be no clear fourteen days' notice of the meeting as required by Article 49 of the company's Articles of Association. It is further alleged that a member of the company, who received a notice of the meeting to be held on 28th March, 1946, actually raised an objection that the notice was invalid and sent a written communication to that effect to the President of the Council who thereupon proceeded to cancel the meeting on 25th March, 1946, and on 28th March, made an application to the learned District Judge, Cawnpore, invoking his jurisdiction under Section 79 (3) of the Indian Companies Act to call the annual general meeting. The two points of law which have to be determined in the present case turn upon the true interpretation of Section 79 (3) of the Indian Companies Act and it is, therefore, necessary to set out its terms in extenso The section runs as follows:—
"If for any reason it is impracticable to call a meeting of a company in any manner in which meetings of that company may be called or to conduct the meeting of the company in manner prescribed by the articles or this Act, the Court may, either of its own motion or on the application of any director of the company or of any member of the company who would be entitled to vote at the meeting order a meeting, of the company to be called, held and conducted in such manner as the Court thinks fit, and where any such order is given may give such ancillary or consequential directions as it thinks expedient, and any meeting called, held and conducted in accordance with any such order shall for all purposes be deemed to be a meeting of the company duly called, held and conducted."
For the purposes of appreciating the points raised before us in the argument on behalf of the petitioner it is necessary also to set out here the terms of Section 76 of the Indian Companies Act which runs as follows:—
"76. (1) A general meeting of every company shall be held within eighteen months from the date of its incorporation and thereafter once at least in every calendar year and not more than fifteen months after the holding of the last preceding general meeting.
(2) If default is made in holding a meeting in accordance with the provisions of this section, the company and every director or manager of the company: who is knowingly and wilfully a party to the default shall be liable to a fine not exceeding five hundred rupees.
(3) If default is made as aforesaid, the Court may, on the application of any member of the company, call or direct the calling of a general meeting of the company."
We may also mention here that the learned District Judge has found as a fact upon the evidence produced before him by the parties that though a meeting of some sort was held on 28th March, 1946, yet the notice calling a meeting on that date was not actually issued and posted until 15th or 16th March, 1946, so that it did not leave a clear margin of fourteen days before 28th March, 1946. Having arrived at that finding, the learned District Judge proceeded to hold that the meeting of some sort which had taken place on 28th March, 1946, was not a valid meeting in the eye of the law and had consequently to be disregarded altogether. He thus arrived at the conclusion that the calling of a valid meeting in the manner prescribed by the company's Articles of Association had become impracticable and he consequently proceeded on 26th April, 1946, to confirm his previous ex parte order of 28th March, 1946, calling a general meeting of the company on 27 April, 1946. The petition before us challenges the validity of this order and consequently of the meeting held in pursuance thereof on the ground that it was beyond the jurisdiction of the learned District Judge.
It is not permissible in revision to go behind the finding of fact recorded by the learned District Judge and the argument before us has, therefore, proceeded on the assumption that though a meeting of some sort was held on 28th March, 1946, yet there was no clear fourteen days' notice for that meeting as required by the company's Articles of Association. In view of the clear language of Section 79 (3), it is evident that there is a condition precedent to the exercise of the jurisdiction conferred by it and that is that it must be found that for some reason it has become impracticable to call a meeting of a company in any manner in which meetings of that company may be called. So far there is and can be no contest. On behalf of the petitioner the challenge against the jurisdiction of the learned District Judge is sought to be supported on two grounds and they give rise to the two points of law which we have to determine. The first ground is that the question of the impracticability or otherwise of calling an annual general meeting must be decided not only in the light of the company's Articles of Association, but also of the general provision contained in Section 76(1) which has been cited above. It is contended on that basis that in the circumstances of the present case, the calling of the annual general meeting of the company had not become impracticable, inasmuch as though the time-limit prescribed by the company's Articles of Association had expired, yet the wider limit laid down by Section 76(1) was still available and having regard to the fact that the last preceding annual general meeting had taken place on 3rd February, 1945, the annual general meeting for the year 1946 could validly be called at any time before 3rd May, 1946. It has been very strenuously argued on behalf of the petitioner that in the present case a conflict had arisen between the general provision contained in Section 76(1) and the Articles of Association of the company and the former must prevail over the latter. In support of his argument learned counsel for the petitioner further contended that in Section 79 (3) the phrase "in manner prescribed by the articles or this Act" must be applied to both the clauses that precede it and it must, therefore, be held that the impracticability or otherwise of calling a meeting has to be determined not only by reference to the Articles of Association of a company, but also to the general provisions of the Act. Upon a careful analysis of the language of Section 79(3) and of the general provision contained in Section76, we are unable to accept this contention. In our judgment there are two distinct and separate clauses which precede the phrase "in manner prescribed by the articles or this Act" in Section 79 (3) and it follows, therefore, that upon a plain grammatical construction of the language of the section the phrase is applicable only to the clause which immediately precedes it. Section 79(3) provides for two separate matters : firstly, the impracticability of calling a meeting of a company in any manner in which meetings of that company may be called and secondly, conducting the meeting of the company "in manner prescribed by the articles or this Act." It is worthy of note that the words "in any manner" occur in the first clause and upon the reading suggested by the learned counsel for the petitioner the words "in manner" have to be repeated if the phrase "in manner prescribed by the articles or this Act" is applied to both the clauses that precede it. Upon a plain reading of the languages of the section, we are of the opinion that the question of the impracticability or otherwise of calling a meeting has to be decided primarily in the light of the company's Articles of Association. We may here point out that the words "that company" in the first clause are very significant. They clearly show that the clause refers to a particular company and not to all companies; whereas the provision contained in Section 76(1) applies to every company. It has, however, to be borne in mind that there may be cases in which the Articles of Association either fail to make any provision for a matter which is governed by the general provisions of the Act or make a provision which is in direct conflict with some mandatory provision of the Act applicable to all companies. In the former case it would obviously be necessary to refer to the Act when deciding the question of the impracticability or otherwise of calling a meeting. In the latter case the mandatory provision of the Act will prevail and the provision contained in the Articles of Association will have to be disregarded. Apart from these exceptional cases, the question of the impracticability or otherwise of calling a meeting must be decided only by reference to the company's Articles of Association. We find further that in the circumstances of the case before us no conflict could really arise between the general provision contained in Section 76 and the company's Articles of Association. Section 76 in sub-section (1) lays down two mandatory provisions of general application to all companies relating to the calling of the annual general meeting ; firstly, that the meeting shall be held once at least in every calendar year and secondly, that it shall be held not more than fifteen months after the holding of the last preceding general meeting. This sub-section does not prohibit any company from prescribing any time-limit for the holding of its annual general meeting so long as the two mandatory conditions mentioned above are fulfilled. In the case before us the company laid down in Article 49 of its Articles of Association that "there shall be an annual general meeting of the Chamber which shall be held before 31st of March, at such time and place, as the Council for the time being may determine." This provision did not contravene any one of the two conditions prescribed by Section 76(1) and hence no question of any conflict between Section 76(1) and the company's Articles of Association arises at all. In prescribing a time-limit for the holding of its annual general meeting in each calender year the company did not infringe any provision of the Companies Act. It is not one of the exceptional cases referred to above and it follows, therefore, that the question of the impracticability of calling the annual general meeting in 1946 had to be determined only by reference to the company's Articles of Association. The argument on behalf of the petitioner proceeds on the assumption that Section 76 enables the calling of an annual general meeting at any time after the expiry of the time-limit fixed by a company's Articles of Association and before the expiry of the wider time-limit given by Section 76(1). Upon a plain reading of the language of Section 76, we find that this assumption is not correct. An annual general meeting of a company may be called under sub-section (3) of Section 76 on the application of any of its members, but the condition precedent is that a default must have taken place in holding the general meeting in accordance with the provisions of the section. It follows, therefore, that Section 76 can never operate for the purposes of calling an annual general meeting at any time within the limit prescribed by sub-section (1). From this again it is clear that in the present case there could be no conflict between Section 76 on the one hand and the company's Articles of Association on the other. Learned counsel for the petitioner contended that if the directors of the company had called and held the annual general meeting at any time after 31st March, 1946, and before 3rd May, 1946, the validity of such a meeting could not possibly be challenged in view of Section 76(1). It may have been possible for the directors of the company to call and hold such a meeting and that meeting may have been valid, but it could not be a meeting called and held either in accordance with the company's Articles of Association or the provisions of Section 76. The meeting could be called and held with the consent of all the members, but the possibility of such a meeting being called and held cannot be taken into account for the purpose of deciding the question whether the calling of the annual general meeting had or had not become impracticable on the date on which the jurisdiction of the learned District Judge under Section 79(3) was invoked. We are, therefore, of the opinion that the general provisions contained in Section 76 of the Act have no application to the period intervening between the time-limit for calling and holding an annual general meeting fixed by a company's Articles of Association and the wider time-limit for calling and holding such a meeting prescribed by Section 76(1). At any time before the expiry of the wider limit prescribed by Section 76(1) the jurisdiction conferred upon the Court by Section 79(3) comes into operation and it can be invoked by a director or a member of any company for calling the annual general meeting. We find further that the jurisdiction of the learned District Judge was rightly invoked in the present case by the President of the Council in charge of the management of the company's affairs.
The second ground on which the jurisdiction of the learned District Judge has been assailed is that Section 79(3) is only a procedural provision which does not confer any judicial power on the District Judge to enter into and decide the question of the validity or otherwise of a meeting alleged to have been held. It is contended that where the jurisdiction of the Court is invoked under Section 79(3) of the Act for the purpose of calling a meeting and an objection is raised that a meeting has in fact already been called and held, all that lies in the power of the Court to do in the exercise of its jurisdiction is to decide the question of fact and if it finds that the fact of a meeting having been held has been established, it must immediately stay its hand and has no jurisdiction to proceed further to decide whether the meeting was valid or invalid. It was strenuously argued that as soon as the issue of the validity or otherwise of a meeting is raised, the Court acting under Section 79(3) of the Act must declare that it has no jurisdiction to proceed any further and must leave the parties to pursue their remedy in the civil Court. At one stage of the argument learned counsel for the petitioner tried to maintain that the Court acting under Section 79(3) ceased to have any jurisdiction as soon as on objection was raised before it that a meeting has actually been held. The claim that the jurisdiction of a Court can be ousted merely by an allegation is obviously extravagant and it was not, therefore, pressed but the learned counsel laid great emphasis on the fact that an order passed by the Court in the exercise of its jurisdiction under Section 79(3) of the Act is not open to any appeal even though the order might affect valuable rights and on this ground we were asked to infer that the law could not possibly have intended to confer upon the Court the jurisdiction to determine the validity or otherwise of a meeting. In our judgment, the position taken on behalf of the petitioner is untenable. It is conceded that there are no express words in the statute which place the suggested limit on the jurisdiction of the Court under Section 79(3), but it is contended that the lack of jurisdiction to decide the question of the validity or otherwise of a meeting must necessarily be inferred from the fact that no appeal has been provided from an order made by the Court in the exercise of its jurisdiction under that section. In dealing with this question we must first of all point out that all jurisdiction under the Indian Companies Act has been conferred by Section 3(1) in the first instance upon "the High Court having jurisdiction in the place at which the registered office of the company is situate." We do not think that it can be argued with any force or reason that the High Court has no jurisdiction to enter into and decide the question of the validity or otherwise of a meeting. There is further provision in the same section that the Central Government may, by notification in the official gazette and subject to such restrictions and conditions as it thinks fit, empower any District Court to exercise all or any of the jurisdiction by this Act conferred upon the Court, and in that case such District Court shall, as regards the jurisdiction so conferred, be the Court in respect of all companies having their registered offices in the district.
The District Judge at Cawnpore exercises jurisdiction under the Indian Companies Act in accordance with this provision and it has not been suggested that the Central Government has placed any restrictions upon his jurisdiction. It follows, therefore, that the District Judge at Cawnpore possesses the same jurisdiction which has been conferred upon the High Court by Section 3(1) of the Act. Now, when the Court empowered under Section 3(1) proceeds to exercise the jurisdiction conferred upon it by Section 79(3), the very first question which it has to decide is whether the calling of a meeting has become impracticable. It is open to any party to challenge the exercise of that jurisdiction and for that purpose it may be alleged as in the present case that a meeting has actually been called and held and hence the basic condition on which the Court can proceed to exercise its jurisdiction for calling a meeting does not exist at all. Such an allegation must necessarily amount to assertion that the meeting alleged to have been held fulfils all the requirements of the law. No objector can be allowed to ask the Court to stay its hand merely with the allegation that a meeting has in fact been called and held, though it was not a valid meeting. When such an allegation is made, the issue which immediately arises for decision is: Has a valid meeting been in fact called and held? The Court must proceed to find not only whether a meeting of some sort has been held but that the said meeting fulfilled the requirements of the law before it can refuse to exercise its jurisdiction. The Court may find that a meeting of say nine persons was held, though the quorum required by the law was ten and the question is whether upon such a finding the Court must stay its hand and declare that it has no further jurisdiction in the matter. In our judgment the answer is obviously in the negative. The Court cannot shut its eyes to the fact that the meeting actually held was not a meeting in the eye of the law and if it takes that fact into account, it must proceed to hold that the calling of a meeting has become impracticable provided that the time-limit fixed for the calling of such a meeting by the company's Articles of Association has expired or the calling of the meeting within that time-limit in the manner prescribed by the Articles of Association has become impossible. We see no reason at all why such an issue should not be determined by the Court. There is nothing in the language of Section 79 (3) upon which the contention of the learned counsel for the petitioner can be founded. It was strenuously contended by learned counsel that the determination of such an issue might often involve the decision of complicated questions of fact and law and it must, therefore, be inferred that the law did not contemplate the determination of such a question in a miscellaneous proceeding under Section 79(3). We are not impressed at all by this argument because we do not think that in the large majority of cases any complicated questions of law and fact will arise for consideration. The question of the validity or otherwise of a meeting will in a vast majo rity of cases turn upon the interpretation of the company's Articles of Association and some general provisions of the law. We see no reason for holding that the Court acting under Section 79(3) is for any reason less competent to try and decide such questions than the civil Court to which learned counsel for the petitioner seems to attach a peculiar sanctity. It has to be borne in mind that the District Court empowered under Section 3(1) of the Indian Companies Act possesses unlimited jurisdiction for trying civil suits when acting as a civil Court and we see no justification in law for placing any fetters upon it when acting in the exercise of its jurisdiction under Section 79(3). Nor are we impressed by the argument that the law could not have intended to afford such a wide jurisdiction upon the Court acting under Section 79(3) because it did not provide for any appeal from an order passed in the exercise of that jurisdiction and also because it is always open to a party to move the civil Court for the determination of the validity or otherwise of a meeting. These considerations do not in our judgment justify the contention that the jurisdiction of the Court under Section 79(3) must be of a very limited character. We may also point out that it may be said on the other hand, and perhaps with greater reason, that the law might well have presumed that the members of a company would be anxious to prevent the normal running of their business from being brought to a standstill by protracted litigation in the civil Court and to have any disputes calculated to interfere with that business speedily settled by resorting to the Court upon which jurisdiction has especially been conferred under the Companies Act. It may be open to any party to seek relief from the civil Court, but that is no reason for holding that the jurisdiction of the Court especially empowered to deal with company matters is in any respect fetterred or limited. We, therefore, hold that where upon the jurisdiction of the Court under Section 79(3) being invoked by a party a question is raised as to the validity or otherwise of a meeting, the Court has jurisdiction to determine that question. It follows, therefore, that the order passed by the learned District Judge at Cawnpore on 26th April, 1946, confirming the previous ex parte order passed by him on 28th March, 1946, in pursuance of which the annual general meeting of the company was called and held on 27th April, 1946, was entirely within his jurisdiction and the petitioner is not entitled to any relief. The petition in revision is accordingly dismissed with costs.
[1952] 22 COMP CAS 162 (CAL.)
HIGH
COURT OF CALCUTTA
v.
Madan
Shuimshere Jang Bahadur
HARRIES, C.J.
AND BANERJI, J.
Appeal from Original
Order No. 132 of 1950
S.K. Basu and B.C. Butt, for the appellant.
R. Chaudhuri and S. Bose, for the respondents.
Harries, C.J.—This is an appeal from an order of Mookerjee, J., dated September 22, 1950, directing that an extraordinary general meeting of the company should be held.
The application was made to Mookeejee, J., under Section 79(3) of the Indian Companies Act. It was alleged that owing to disputes which had arisen between the shareholders and the directors of the company in question it was impracticable to hold an extraordinary general meeting and therefore application was made to the court for the convening of such a meeting under the directions of the court. The learned Judge having considered the whole of the matter came to the conclusion that it was impracticable to call a meeting of the company in any manner in which the meetings of that company might be called in accordance with the articles or the Companies Act.
The paid up capital of this company is Rs. 4,59,420 of which the contesting respondents hold Rs. 3,66,000.
The last annual general meeting of the company was held on December 23,1949, and, thereafter the board of directors consisted of Gopal Chandra Saha, Monoj Mohan Ray, S.K. Mukherjee, N.N. Bose and A.C. Roy Chowdhury. The latter was the nominee of the contesting respondents who are referred to by the learned Judge as the Nepal group. This Nepal group holds roughly 3/4ths of the paid up share capital.
Mr. Roy Chowdhury had been elected chairman of the board of directors. But disputes arose and eventually the other directors challenged his position on the board. Mr. Roy Chowdhury originally only held one share and the qualification of a director was the holding of 250 shares. The contesting respondents arranged to transfer the necessary number of shares to Mr. Roy Chowdhury to qualify him for the post of a director. But it is said on behalf of the appellants that the transfer was bad. On July 12,1950, the board noted in their proceedings that the transfer of 250 shares in the name of Mr, Roy Chowdhury on the strength of which he had been acting as a director was defective. The following resolution was accordingly passed:—
"It is therefore resolved that in view of irregular transfer which does not confer on Mr. Roy Chowdhury title to the share he be requested to vacate from the board of directors of the company till the transfer is regularised when he will be co-opted."
Mr. Roy Chowdhury thereafter was excluded from the board. Another shareholder was co-opted in his stead and a new chairman appointed.
The contesting respondents contend that the whole of these proceedings of the board of directors were illegal and of no effect. According to them Mr. Roy Chowdhury held the necessary qualification and therefore was a director and could not be excluded by his co-directors and no one could be appointed in his stead.
The position of Mr. Roy Chowdhury has now become the subject-matter of two suits. Certain members of the Nepal group and Mr. Roy Chowdhury filed on August 30, 1950, Suit No. 3559 of 1950 on the Original Side of this court in which they claimed a declaration that Mr. Roy Chowdhury had at all material times been and was still a director of the company and was entitled to act as such. They further claimed that the resolution of the board dated July 12 was illegal and ultra vires and they asked for an injunction restraining the other directors from excluding Mr. Roy Chowdhury from the meetings of the directors. They further asked for a declaration that all the resolutions passed by the directors during the time when Mr. Roy Chowdhury was excluded were invalid and inoperative.
Another suit was filed by one Jotish Chandra Pal alone with another shareholder and in that suit a prayer was made for a declaration that an extraordinary general meeting which had been called for September 9, 1950, was improperly convened, and further that any directors appointed at that meeting should be declared to have been invalidly appointed.
The cause of this latter suit was the requisitioning of an extraordinary general meeting by the respondents.
It is suggested that the respondents had been endeavouring to have an extraordinary general meeting called from June, 1950. Requisitions, it is said, had been sent to the directors, but nothing had been done. According to the respondents a requisition for an extraordinary general meeting was sent to the company on July 12, 1950. The company admit receiving this requisition, but state that the received it on August 2. Be that as it may, no meeting was called within twenty-one days of August 2, and it is quite clear that the directors did not wish to have a meeting. Mr. I.P. Mukherjee, who appeared for the directors before the court below, stated quite frankly that the directors did not propose to call a meeting as the general meeting of the company would be held in December 1950.
As the directors did not call a meeting, the respondents who were entitled to requisition such a meeting gave notice to all the shareholders for an extraordinary general meeting to be held at the registered office of the company on September 9. It was this meeting that the suit of Jotish Chandra Pal was intended to defeat. It may be added that the respondents claim that a large number of shareholders came to the registered office to attend this meeting, but they found the office locked. The case for the directors is that no one came to the office to attend the meeting, though the place was kept open for half an hour after the scheduled time of the meeting. However, it is clear that no meeting was held and an application was made to the court to summon an extraordinary general meeting under the provisions of Section 79(3) of the Companies Act.
Section 79(3) in so far as it is material is in these terms:
"If for any reason it is impracticable to call a meeting of a company in any manner in which meeting of that company may be called or to conduct the meeting of the company in manner prescribed by the articles or this Act, the court may, either of its own motion or on the application of any director of the company or of any member of the company who would be entitled to vote at the meeting, order a meeting of the company to be called, held and conducted in such manner as the Court thinks fit"
The case for the respondents was that having regard to the disputes that had arisen between the directors and the shareholders it was impracticable to hold a meeting of the company and accordingly an application was made to the court.
Mr. Bankim Dutt on behalf of the appellants has urged that it was quite practicable to hold a meeting. He pointed out that if the directors refused to convene a meeting, then by reason of Section 78 the shareholders could convene an extraordinary general meeting. According to him there was nothing to prevent the respondents, who, as I have said, held practically 3/4ths of the paid up share capital, calling a meeting and it could not be said that the calling of such a meeting was impracticable.
Mr. Chaudhuri, on the other hand, has pointed out that it could well be argued that by reason of Section 78(3) of the Companies Act no meeting could be called by the shareholders. That sub-section deals with the right of shareholders to requisition an extraordinary general meeting and the sub-section is in these terms:—
"If the directors do not proceed within twenty-one days from the date of the requisition being so deposited to cause a meeting to be called, the requisitionists, or a majority of them in value, may themselves call the meeting, but in either case any meeting so called shall be held within three months from the date of the deposit of the requisition."
This sub-section gives the shareholders a right to call a meeting if the directors do not proceed within twenty-one days of receiving a requisition to call such a meeting. Mr. Chaudhuri has pointed out that one of the serious disputes in this case is whether at the time an application was made to the court there existed a board of directors. If Mr. Roy Chowdhury, as suggested by the respondents, had been illegally excluded from the board, then (without him) there was no valid board of directors. Therefore there was no valid board of directors who could order an extraordinary general meeting if one was requisitioned. Therefore, Mr. Chaudhuri contends that if there was no valid board of directors, there could be no question of directors not proceeding within twenty-one days to call a meeting and it is only when directors do not proceed to call a meeting that the requisitionists may call such a meeting. In short, Mr. Chaudhuri has contended that the right of the requisitionists to call a meeting only arises if the directors refuse or neglect to call such a meeting. Where there are no competent board of directors there can be no question of the refusal or neglect and therefore he contends that the right to call a meeting under Section 78(3) would not arise.
The learned Judge rightly refused to decide the matters which are in issue in the suit and I do not think it will be right for us to express any opinion upon these matters. However, it is clear that there is a serious dispute between the parties as to whether Mr. Roy Chowdhury was qualified to act as a director and whether or not he was wrongly excluded from the board. If it transpired in the suit that he was Wrongly excluded from the board difficulties might arise concerning any meeting which the requisitionists might call under Section 78(3). In fact it seems fairly clear that if such a meeting was called it would be the cause of considerable litigation.
If the meeting was called difficulties would undoubtedly arise as to the conduct of the meeting. In an extraordinary general meeting the parties might elect their own chairman, but the probabilities are that objection would at once be taken to Mr. Roy Chowdhury either acting as chairman or even voting or being concerned in the proceedings at all. It seems to me that if the requisitionists were allowed to conduct this meeting endless difficulties would arise and therefore I think the learned Judge was right in holding that it was impracticable to hold such a meeting.
The meaning of the word ''impracticable" as used in this section has been considered by my learned brother in the case of In re Malhati Tea Syndicate Ltd. He, following some observations in a decision of the Privy Council, held that the term implies that it is impracticable from a reasonable point of view. The court must take a common sense view of the matter and must act as a prudent person of business.
Where the calling of a meeting by requisitionists would lead to endless litigation and where matters might arise for debate and decision which were already the subject-matter of suits, it appears to me that the holding of a meeting would be impracticable. It would be most unlikely to lead to any result and would inevitably cause more litigation and confusion and further embitter the feelings between the parties. That being so, the learned Judge, I think, was right in coming to the conclusion that the court should order such a meeting.
The directors did summon a general meeting of this company in December 1950. But it appears that before that meeting was held, the meeting ordered by the court was held when an entirely new set of directors were appointed. Mr. Bankim Chandra Dutt contended that the meeting ordered by the court should not have been held by reason of a stay order issued by this Bench. It is true that this Bench did issue an order staying the order of Mookerjee, J., but it was thought that the meeting which had been ordered to be held had not been held. It now transpires that the meeting ordered by Mookerjee, J., had been held and therefore the stay order which this Bench issued was wholly infructuous. The stay order issued by this Bench was ultimately vacated, and in any event it never was effective. What effect the meeting ordered by the court will have upon the subsequent meeting in December is a matter on which we express no opinion.
A point was taken as a preliminary point that no appeal lay in this case. I do not think it is necessary to discuss that matter, but I wish to make it clear that we do not hold that an appeal does lie. However as there are no merits in the appeal it is unnecessary to consider that preliminary point, because even if an appeal lay it would fail.
In the result therefore this appeal must be dismissed with costs. Certified for one counsel.
Banerjee, J.—I agree.
[1974] 44 COMP. CAS. 298
(DELHI)
high court of
delhi
Motion Pictures Association, In Re
S. RANGARAJAN J.
COMPANY APPLICATION NO. 565
OF 1972
IN COMPANY APPLICATION NO.
496 OF 1972
K. K. Mehra for the petitioners.
Ved Vyas, A. N. Khanna, Satish Chandra. S. L. Bhatia, P. K. Seth and M. M. N. Pombra for the respondents.
Rangarajan, J.—It would be necessary to state the facts leading to the present application.
An application had been made (C.A. No. 496 of 1972) under section 186 of the Companies Act, 1956 (hereinafter called "the Act"), for calling a meeting of M/s. Motion Pictures Association, Delhi (hereafter called "the company"), a company registered under the Companies Act, 1913. The company had no share capital and the payment of dividend to its members was prohibited. The company was formed with the object of promoting the interest of its members engaged in the trade of exhibition, distribution and exploitation of motion pictures in the Union Territory of Delhi and Uttar Pradesh. Any person wanting to indulge in these business activities relating to motion pictures in this area has to become a member of this company. The accounts of the company are closed at the end of December of every year. The last annual general meeting of the company was held on May 3, 1969. Subsequently no such meeting was held. In the result no election of office bearers could be held.
A member of the company (G. S. Maya Wala) had filed a suit (No. 476 of 1970) against the company in which there was also an application for restraining the company from holding its annual general meeting till the decision of the suit. The company appeared voluntarily in that suit and undertook not to hold any annual general meeting till the dispute was decided. Ultimately, there was a compromise.
Subsequent to the compromise, on July 29, 1972, a requisition had been left at the office of the company signed by 134 members demanding the holding of an extraordinary general meeting of the company for consideration and adoption of certain resolutions incorporated in the said requisition. But the executive committee of the company allegedly found that 43 signatures out of 134 were invalid, that 38 had been withdrawn by means of separate letters addressed to the association and that only 53 members had validly signed the same, thus falling short of the 74 signatures, being 10% of the total membership strength of the company. A body of 11 persons, purporting to be the executive committee, is said to have taken steps to hold an extraordinary general meeting of the company on October 7, 1972, in order to amend certain articles of association in terms of the compromise as a preliminary to holding the annual general meeting. This was sought to be done because the effect of not holding the extraordinary general meeting would be to revive the suit which had been compromised and until the suit was finally decided it would be impossible to hold elections. A circular letter in the name of the company had also been issued by the hony. general secretary (B. N. Gupta) on September 16, 1972, setting out all these facts. While certain persons asserted that they had full faith in the said body (executive committee) there were some others who did not have faith in it; this led to a piquant situation. It was in these circumstances that C.A. No. 496 of 1972 was filed invoking this court's powers to call a meeting under section 186 of the Act.
When C.A. No. 496 of 1972 came up for admission on September 20, 1972, notice, returnable by September 26, 1972, was ordered. With the consent of all those who appeared and who had been made parties to the said application, the extraordinary general meeting of the company which had been called for September 30, 1972, was adjourned to take place on October 7, 1972, under the chairmanship of Shri Daljit Singh, advocate, appointed by the court to consider, inter alia, the question of the number of office bearers pursuant to a framed resolution fixing the number as 16. The existing article (No. 23) of the articles of association provided for not less than eight and not more than 18 executive committee members being elected. The framed resolution (by court) fixing the number at 16 was to be moved as a special resolution.
All the parties being unanimously of the opinion—this being clear even otherwise—that it was not practicable in the circumstances prevailing to call a general meeting for electing executive committee members in the ordinary manner, a general meeting of the company was ordered to take place on October 21, 1972 (in C.A. No. 496 of 1972), for electing office bearers, their number having to be resolved upon at the meeting to be held on October 7, 1972, under the chairmanship of Shri Daljit Singh. For the meeting to be held on October 21, 1972, Shri P. A. Behl, advocate, was appointed as chairman to conduct the said meeting and also supervise the election of the directors, which was to take place at that meeting.
Since only 11 directors of the company were said to be functioning at the date of the said order five more persons (to make up the number 16) were also appointed to constitute an interim board of management with effect from October 7, 1972 (after the meeting which was fixed to take place on that date). Shri Daljit Singh filed a report, dated October 18, 1972, in this court stating that, instead of the resolution as proposed by this court pertaining to article 23, an amended resolution, fixing the members of the executive committee as 18, had been passed. I shall revert to this again later.
Shri P.A. Behl, the chairman of the meeting directed to take place on October 21, 1972, submitted his report, dated October 24, 1972, stating that he held and conducted the meeting at which 18 members of the executive committee were elected.
The present application (C.A. No. 565 of 1972) was filed on October 23, 1972, supported by an affidavit of Joginder Singh Sood, who unsuccessfully contested the election, making allegations of fraud also. But these allegations were not persisted in. In particular, he stated that more ballot papers were issued than the members present at the meeting; 347 persons had signed the meeting register whereas ballot papers were issued to 442 persons; no record was kept to whom ballot papers were issued and no check was made to verify whether the eligible persons voted.
It is needless to set out the details of how the said application was contested and evidence was partly recorded because a statement was ultimately made by all the counsel appearing for the concerned parties. The following order was made on December 13, 1972 :
"Counsel for both sides stated yesterday that they wanted little more time to think over the extent to which the oral evidence could be obviated and have to-day expressed their agreement that no oral evidence need be recorded in view of the following, on account of their agreement regarding the mode in which both the objections to the election held on 21st October, 1972, are to be disposed of. They state as follows:
(1) All the affidavits of Mr. J. S. Sood excepting the affidavit filed in support of his objection application dated 23rd October, 1972, are treated as withdrawn.
(2) The evidence on oath of Shri J. S. Sood which has been recorded thus far will also be not read as evidence. This course is adopted in order to save farther cross-examination of Mr. Sood.
Mr. Mehra states that he will rely only on the following documents which are already before the court:
(a) The attendance register of the company showing the attendance at the meeting on 21st October, 1972.
(b) The memorandum and articles of association.
(c) The chairman's report.
(d) Requisition for ballot slips and ballot pipers.
(d) Cyclostyled list of members of the association showing the proprietors of the various concerns and their representatives.
Mr. Ved Vyas says that he will also be relying upon documents showing authorisation of companies and firms regarding representation of which he will give inspection to Mr. Mehra.
Mr. Mehra requests that Mr. Ved Vyas may, at the adjourned date, make a statement concerning the following matters :
(1) Whether the cyclostyled list of members already filed is a complete list of all the members of the association and if it is not, who are the other members ?
(2) That it may be clarified as to who among those mentioned in the said cyclostyled list are members or representatives ?
Daring the hearing of the application certain subsequent events were brought to this court's notice by means of an application (C.A. No. 675 of 1972). 17 out of 18 persons said to be elected as members of the executive committee on October 21, 1972, issued notices, on November 22, 1972, convening what was called the "26th annual general meeting" of the company for 16th of December, 1972, stating that the above meeting was being convened only for the purpose of adopting the income and expenditure account and the balance-sheet for the year ending December 31, 1969. But two days before the said meeting was about to be held, the concerned persons appear to have realised that, if an annual general meeting was held according to the article provision as well as section 166 of the Act, all the members would automatically retire and not having offered themselves for re-election would not also be re-elected. The said meeting was, however, cancelled. This cancellation, two days prior to the meeting, is said to be illegal and unauthorised. (A contention also seems to have been raised that all the members were not served with the said notice issued on November 22, 1972). 18 (other) members are none-the-less alleged to have been elected on December 16, 1972, in pursuance of the said notice which announced an annual general meeting on that date. Out of the said 18 persons one of them has filed a suit (No. 81 of 1973) on the file of this court claiming that he and 17 others are the properly elected directors and that those who were elected on October 21, 1972, had also ceased to be directors by reason of the annual general meeting having been called. This suit, which is resisted is pending.
The scope of section 186 of the Act has been discussed by me at length in the judgment pronounced by me on May 10, 1973, Shrimati Jain v. Delhi Flour Mills Co. Ltd. (C.P. No. 96 of 1972). There is no need to repeat here the entire discussion or refer again to all the decided cases noticed therein. It will be sufficient to refer to the aspects which alone matter for the present controversy.
Section 186 reads:
"186. (1) If for any reason it is impracticable to call a meeting of a company, other an than annual general meeting, in any manner in which meetings of the company may be called, or to hold or conduct the meeting of the company in the manner prescribed by this Act or the articles, the court may, either of its own motion or on the application of any director of the company, or of any member of the company who would be entitled to vote at the meeting,—
(a) order a meeting of the company to be called, held and conducted in such manner as the court thinks fit; and
(b) give such ancillary or consequential directions as the court thinks expedient, including directions modifying or supplementing in relation to the calling, holding and conducting of the meeting, the operation of the provisions of this Act and of the company's articles.
Explanation.—The directions that may be given under this sub-section may include a direction that one member of the company present in person or by proxy shall be deemed to constitute a meeting.
(2) Any meeting called, held and conducted in accordance with any such order shall, for all purposes, be deemed to be a meeting of the company duly called, held and conducted".
Only a meeting other than an annual general meeting could be called by the court in exercise of this power. The power to call an annual general meeting has, under the Act of 1956, been vested in the Central Government under section 167. The Act of 1913 had (vide section 79(3)) given the power to call such an annual general meeting to the court. This change in India followed the change which was made in England where following the recommendation of a committee headed by Mr. Justice Cohen the power to convene an annual general meeting was taken away from the court and vested in the Board of Trade in order " to save expense".
At the annual general meeting the following items of business (which shall be deemed to be special) have to be set out on the agenda :
(1) Consideration of accounts, balance-sheet and report of the board of directors and auditors;
(2) declaration of dividend;
(3) appointment of directors in the place of those retiring;
(4) appointment and fixing the remuneration of auditors (section 173).
The above items are within the purview of the annual general meetings.
Section 257 enables a person to stand for directorship at any general meeting, which may be held, and not necessarily only at an annual general meeting. So long as the company is not having the maximum number of directors fixed by its articles, additional directors may be appointed at general meetings up to the maximum limit. The only effect of introducing sub-section (1-A) to section 257 seems to be that no one other than a director can stand as a candidate for appointment unless not less than 14 days' notice is given to the company, the company not having the power to waive such notice. There does not appear to be any impediment, therefore, in directors being elected at a general meeting of the company even other than the annual general meeting.
The expression "impracticable" is not to be considered as "impossible" (vide In re Lothian Jute Co. Ltd.) but has to be understood from a "reasonable point of view" in In re Malhati Tea Syndicate. When there is doubt as to the existence of a board of validly appointed directors and there is possibility of interminable troubles and prejudice to the interest of the company if a meeting is held otherwise than under the directions of the court, it will be expedient for the court to call a meeting of the company.
The principles to be borne in mind while dealing with an application under section 186 were summarised by S. P. Mitra J., in United Breweries Ltd. v. Ruttonjee & Co. Ltd. These principles have also been re-stated by me in Delhi Flour Mills . Not only was the meeting not held and conducted under the chairmanship of Shri P. A. Behl on October 21, 1972, as directed by this court and, therefore, could not be deemed to be a meeting of the company, but even their continuance in office has itself become doubtful at least subsequent to December 16, 1972. A suit having been filed by those 18 persons who claim to have been elected at the meeting held on December 16, 1972, there is bound to be interminable litigation affecting the well-being of the company, which is engaged in the trade of exhibition, distribution and exploitation of the motion pictures in such a vast area as the Union Territory of Delhi and Uttar Pradesh. For this additional reason also it has become necessary to call a meeting of the company under section 186. Though the court will not convert itself into a shareholder of the company or be concerned with the internecine squables of the company it is none-the-less the duty of the court, even of its own motion, to call a meeting of the company when it is impracticable to call such a meeting. In this view by order dated March 8, 1973, I directed the issue of notice to those persons who claimed to have been elected as members at the meeting said to have taken place on December 16, 1972 (who are parties to suit No. 81 of 1973) as well as to the persons who are said to have been elected as members of the executive committee at the meeting dated October 21, 1972 (except Shri Desai, among them, who was impleaded earlier on his own application) for March 27, 1973. Notices were accordingly served upon all of them and they were duly represented by their counsel who also filed their representations in writing. Their counsel were also heard.
The contention that the original order calling a general meeting of the company for October 21, 1972, was itself one without jurisdiction in the sense that it had not become impracticable to call a meeting and that a general meeting could not be called for the purpose of electing directors does not seem to deserve serious consideration. The facts, which are not disputed, noticed above clearly show that not only was it impracticable to call a meeting of the company, but there was no other way of resolving the deadlock concerning the management of the company's affairs (an annual meeting not having been held for a period of nearly 3 years) except by calling a meeting under section 186. It was also seen that even though the court cannot call an annual general meeting there is no impediment whatever in the way of calling a general meeting of the company; according to section 257 the directors could also be elected at such a meeting. Once a meeting is called under section 186 there does not appear to be any need for what happens at the general meeting being confirmed by the court as Shri K. K. Mehra, learned counsel for the applicant, contended but only to start with. Nor does there appear to be any need for an application to actually set aside the proceedings of the meeting called by the court in cases where such a meeting is not conducted according to the court's directions. But for sub-section (2) of section 186, the meeting called by the court under section 186 could not become a meeting of the company. Only a meeting called, held and conducted in accordance with the directions of the court could be deemed to be a meeting called, held and conducted, by the company.
In the light of the above what happened from and after October 7, 1972, may now be examined.
Article 23 (existing at the time of filing C.A. No. 496 of 1972) read as follows:
"Unless and until otherwise determined by a general meeting, the number of the executive committee members shall not be less than 8 nor more than 18, including the co-opted members as hereinafter provided".
The extraordinary general meeting which has already been convened for September 30, 1972, had been adjourned to October 7, 1972, with a direction that the following resolution be moved as a special resolution:
"Resolved that article 23 of the articles of
association be deleted and a new article reading as under be substituted :
Unless and until otherwise determined by a general meeting, the number of the executive committee members shall be 16".
This was done as preliminary to calling, holding and conducting a meeting, under section 186 of the Act, on October 21, 1972, for the purpose of electing such number of office bearers to the executive committee as may be resolved upon. Without this direction being strictly complied with there could not be, as I shall explain presently, a meeting of the company and consequently there could be no valid election either.
It is seen from the report of Shri Daljit Singh, who presided at the said meeting held on October 7, 1972, that B. R. Kundra moved a resolution as directed by me, and that the same was seconded by O. P. Verma. An amendment was moved at the meeting by Jogindar Singh without any prior notice as required for a special resolution, that instead of 16 the number of members of the executive committee should be 18. This amendment was accepted by B. R. Kundra and carried unanimously. It is worth recalling that what had been directed to be considered at the said meeting was the resolution fixing the number of directors as 16 and that the same had been directed to be considered as a special resolution of the company. This was the only resolution on the agenda for the meeting on October 7, 1972, pertaining to article 23. If any other amendment had to be moved it had to be moved by way of a special resolution after giving the requisite notice which was admittedly not done. On this ground alone the amended resolution, though passed unanimously, is seen to be illegal.
The same result may follow even if a somewhat different approach is adopted. While ordering a meeting to be called, held and conducted on October 21, 1972, a direction had been given that the number of office bearers to be elected would be as resolved at the meeting held on October 7, 1972, in pursuance of the resolution framed by the court with a further direction that it be moved as a special resolution. It seems worth repeating that the fact of a meeting being called by court under section 186(1) would not make that meeting one called, held and conducted by the company, but for section 186(2). The deeming provision incorporated in section 186(2) provides the vinculum juris by reason of which a meeting ordered by the court becomes the meeting of the company. A deeming provision can be invoked only when the conditions which are prescribed for giving rise to it are present, but not where the factual situation is different from what is necessary for applying the deeming provision. In the case of a meeting called by court there cannot be variation of or deviation from the directions given by it even if the variation or deviation is unanimously agreed to by all the parties concerned, though at a meeting which the members themselves call unanimity of opinion or of even that of the majority will prevail unless the same is ultra vires of the articles of the company. It is worth emphasizing that the only means in law as enacted by sub-section (2) by which such a meeting can be deemed to be a meeting of the company would be by complying with the directions given by the court in the matter of calling, holding and conducting the meeting. The fact, therefore, that the amendment was proposed by one who, ironically speaking, happens to be the one who was defeated in the elections and yet complains about the way in which the meeting (when the election) was held on October 21,1972, or even that the amendment was accepted by the mover of the resolution (as directed by this court) could not make that meeting one conducted in accordance with the directions of the court by reason of the deeming provision, namely, section 186(2). It was Jogindar Singh, strangely enough, who made an application (C.A. No. 150 of 1973) bringing the above fact to the court's notice; he urged that there was no valid resolution supporting the election of 18 office bearers and hence the meeting (and the election) held on October 21, 1972, was not legally effective. Shri Ved Vyas filed a reply on behalf of those who were then contesting (the present application) on the ground that this was an entirely new plea which was not taken earlier and that it could not, therefore, be allowed to be raised; it was also asserted that the resolution passed at the meeting held on October 7, 1972, pertaining to article 23 was valid. The persons who were newly added by my order dated March 8, 1973, had not even referred to this aspect, but Jogindar Singh had again referred to this aspect in the rejoinder which he filed to the reply to the representations made by the newly added parties. No attempt was made before me to justify the deviation from the court's directions concerning the resolution pertaining to article 23 passed at the meeting held on October 7, 1972. I take it that no justification has even been attempted for the reason that no justification seems possible.
I am conscious that it may in a sense be somewhat absurd to regard the resolution pertaining to article 23 passed unanimously at the meeting held on October 7, 1972, as invalid (the said resolution had been proposed at the meeting without prior notice, by way of amendment) at the instance of the party who is now calling the validity of the resolution in question. I can only recall the observation of Lord Greene M. R. in Grundt v. Great Boulder Proprietary Mines, Ltd. :
"Absurdity, I cannot help thinking, like public policy, is a very unruly horse".
The question that had to be considered in that case was whether the retiring directors could be deemed to be re-elected at an annual general meeting which had by show of hands rejected their claim to be re-elected. It was held that the deeming provision concerning the re-election could not be invoked as a matter of statutory construction and the argument of absurdity could not, in the circumstances, prevail.
Even if it is possible to regard the election of 18 members to the executive committee as being within the purview of article 23, as it originally stood, before the amendment made on the 7tb, difficulty would still arise by reason of not being able to deem the meeting (and the election) held on 21st as that of the company within the meaning of section 186(2) for there was no compliance with the direction of the court, which was that the resolution fixing the number of members of the executive committee as sixteen should have been moved as a special resolution at the meeting on 7th and the further meeting (and election) to take place on 21st should have been on the basis of the voting on the resolution framed by the court. This resolution was no doubt duly proposed and seconded at the meeting held on 7th, but was not put to vote; on the other hand the amended resolution which had been proposed at the meeting itself, even without the requisite notice for a special resolution, was put to vote. In the view explained at length that only a meeting which is conducted according to the direction given by the court while calling a meeting under section 186(1) could attract the deeming provision under sub-section (2) it does not seem possible to deem the meeting (and the election) held and conducted on 21st as that of the company.
If it became necessary on the part of those to deviate from the directions given by the court in the matter of holding or conducting such a meeting the only appropriate course would have been to apply to the court itself to alter the directions or give such further directions as may be considered necessary. The members of their own accord, once a meeting is called under section 186, cannot choose to even agree among themselves regarding how the meeting should be conducted other than by way of carrying out the directions given by the court.
I am free to state, however, that what happened at the meeting on October 7, 1972, seems to have been done perfectly bona fide, but it seems obvious that what happened on October 7, 1972, does not conform to the requirements of law and/or the directions of the court. There can be no question of estoppel either, for there can be no estoppel against statute or law or against the directions given by the court.
What is the course, then, that has to be adopted in these circumstances ?
Section 186 has been worded so widely and such extensive powers also have been given to the court. The court, even of its own motion, can direct a meeting to be called under section 186. The directions can go to the extent of even departing from the provisions of the statute and the articles to meet the exigencies of any situation; section 186 itself, for instance, provides for the court fixing the quorum of the meeting as one.
One of the principles stated by S. P. Mitra J. in United Breweries Ltd., with which I concurred in Delhi Flour Mills Ltd., is that where a meeting can be called only by the directors of a company and there are serious doubts and controversies as to who are the directors or there is a possibility that one or two or both the meetings called by the rival groups have been invalid the court ought not to expose the shareholders to uncertainty and should hold that a position has arisen which makes it impracticable to convene a meeting in any manner in which the meeting may be called. In such a situation when considering all the facts and circumstances the court can with reasonable approach to certainty and even prima facie say that the manner in which meetings previously called under the Act and/or under the articles would be invalid, it would not hesitate to call a meeting under section 186. That a meeting has been previously called by the court under section 186 may not be a reason by itself to refuse to call another meeting when a meeting was not conducted according to the directions given. If the meeting held on October 21, 1972, was not properly conducted then the elections conducted at the said meeting, for which purpose the meeting was called, would also fail for that very reason.
Much of the opposition to the calling of a fresh meeting for electing office bearers of the company has been only on the ground that the elections were fairly and properly conducted and hence could not be challenged. Once the elections are seen to have been not conducted according to the direction given by the court then there would not be any need to go into the question of whether the election was conducted properly or not. Nonetheless, it seems desirable to go into the said question, at least broadly for two reasons:
Firstly, that a fresh election would have to be ordered even for the sole reason that the declared result is not acceptable to the court for the reason that the election itself was not properly conducted;
Secondly, that the mistakes committed may not be repeated and the precautions not taken may be taken.
Analysing the voting that is stated to have taken place it is seen that there is discrepancy between the number of members who have signed the register in token of their having been present at the meeting and the number of requisition slips issued: while 442 requisition slips appear to have been issued only 347 have signed the register. This is explained by Shri Ved Vyas as being possibly due to the considerable interval of time between the meeting and the voting. The meeting commenced at 10'30 a.m.; it was presided over by Shri P. A. Behl. According to his report he read out to the members present the list of the names of the candidates whose nominations had been received in the association's office in time and obtained the consent of the concerned candidates. The scrutineers, to whom no one objected, were appointed. It was announced at the meeting (at 12 noon) that voting would commence at 2 p.m. and that the members could have lunch during the interval. The list of the candidates contesting the election was finally drawn up and sent for cyclostyling. A copy of the list was also issued to whoever wanted it and also attached with the ballot paper. Since the ballot papers were not ready the actual voting commenced only at 2.30 p.m.; it was announced that voting would come to an end at 7 p.m. Though the chairman says that he had directed that the ballot papers should be issued by the scrutineers to each of the members on his/her presenting a requisition slip duly signed by the member and after his/her membership being checked and scrutinised with the roll of members placed at the table, the scrutiny or check does not appear to have been adequate. By 7 p.m., 442 ballot papers were issued. A few members (it is not stated how many) who had left their requisition slips with the scrutineers, did not turn up to collect their ballot papers. The voting was finally announced to be closed at 7.02 p.m. The rest of the report relates to the manner in which the counting took place, about which both parties had practically nothing to say before me. The chairman has arranged, in alphabetical order, the names of the 32 candidates along with the votes secured by them and he has underlined in red pencil the number of votes secured by each of them. Joginder Singh Sood is seen to have got 198 votes and K. K. Khanna the next higher number of votes, namely, 205. While K. K. Khanna was declared elected, J. S. Sood was not declared elected; he is seen to have secured 7 votes less than those secured by K. K. Khanna; Wazir Singh Chachaji secured 208, D. N. Pancholi and Lakhmi Chand Sethi 211 each, B. M. Shah 219, Saranjit Singh Wadalia 234, Wishwa Nath Sahni (Sahni Enterprises) 235 and M.B. Mathur 239 votes, etc.
442 requisition slips are stated to have been issued, the number of ballot papers issued was 442. There are signatures only in respect of 347 members in the attendance register. Out of these 347,13 are conceded to be duplicated. Therefore, only 334 members had signed as against 442 requisition slips issued, which means that 101 requisition slips were issued to those who did not sign the attendance register. Deducting 435 (334+101) from 442 (ballot papers issued) the difference is seen to be 7; Shri Ved Vyas had to concede even on this basis that at least 7 unauthorised persons had voted. This by itself is something which calls for strict explanation and serious scrutiny of the entire voting. In the absence of any explanation it has to be taken that the control exercised in the matter of seeing that only authorised persons recorded their votes was not adequate. The requisition slips for ballot papers do not appear to have been signed by many voters. The ballot papers were handed over to the voters without getting their signatures on the requisition slips. Not much effort appears to have been made to ensure that every voter signed the requisition slip after signing the attendance register as well; it was not possible, therefore, to make checks in order to find out whether the particular person who voted on behalf of the concerned member had authority to do so in cases where the member did not vote in person. In the case of firms, which are members, duly written authorisations bad to be obtained from the firm to enable the person who turned up to vote on behalf of the concerned firm.
Shri K. K. Mehra submitted a list of 33 limited companies who are members but had recorded their votes without producing authenticated copies of resolutions passed under section 187 of the Act to enable them to vote on behalf of these companies.
In the result at least thirty-three votes, cast by members which were limited companies, have not been shown to have been properly cast in the sense no resolution (or authenticated copy thereof) under section 187 had been filed. The arguments went on for several days in this case; Mr. Ved Vyas was content to take the stand that this point had not been specifically taken by Joginder Singh who questioned the election; even those who were subsequently added in pursuance of my order dated March 8, 1973, did not do any better. Lists had been furnished by Shri K. K. Mehra pointing out the above as well as other defects. The commissioner has not filed any such resolutions or authenticated copies of them, nor has he even made a reference to the same having been filed with or shown to him. The commissioner had also stated that some persons who had signed requisition slips and to whom ballot papers had been issued had not turned up; there was no statement therein about the precise number who had done so. Even among the requisition slips (for ballot papers) we find at least 26 such slips have been left unsigned. This throws further light on the absence of proper checks. In addition to these, Shri K. K. Mehra filed a list culling out forty instances where unauthorised persons had signed the meeting (attendance) register. A further question may arise regarding how many among them did exercise their franchise and how many among them were not authorised to vote on behalf of the members. There seems to be no need to burden this order with those details in the view I am taking of the question of not regarding the meeting (and election) held on the 21st as that of the company. The other facts noticed, even by themselves, concerning the manner in which the election was held, prevent the court from regarding the election as a proper election. When the court directs an election to be held and calls a meeting for that purpose under section 186 it is implicit that it will be held and conducted by taking all necessary safeguards; if it appears even prima facie that the election, by reason of the manner in which it was conducted especially in the context of the closeness of voting materially affects the result of the election, a fresh meeting, for holding the election, will have to be ordered. Otherwise the purpose of the court in ordering a meeting, for election of office bearers to take place, would be frustrated. This is not to say, however, that the election has to be set aside, in the narrow sense in which elections are ordinarily set aside on petitions being filed to set them aside.
This court having called a meeting of the company under section 186 to take place on October 21, 1972, the correctness or legality of which has not even been seriously called in question until recently, this court is under a duty to call another meeting of the company when it is not possible to resolve the deadlock concerning the affairs of the company in any other manner by reason of the manner in which it was conducted. The company is seen to deal with so many motion picture distributors and exhibitors in this vast area, who cannot carry on their business except by becoming members of this important organisation. A situation which was thought on all hands to be capable of being resolved by the simple process of calling a meeting of the company under section 186 has for various reasons—most of which were not even anticipated—failed to resolve the conflicts and tensions which prevailed previously; I am afraid, it has even made matters worse. This evil result, I am satisfied, was not due to the meeting itself being called by the court—which was and still is seen to be the only way out of the difficulty—but by reason of the necessary checks not being exercised and precautions not taken in the matter of conducting the meeting (and the elections). The only way of putting the company on a normal footing and thus enabling it to function smoothly seems to be by way of calling another meeting where the office bearers would be elected and by giving sufficient directions in this regard.
In the light of past experience, however, I propose to give the following detailed directions :
The meeting will be in two stages :
First stage :
The general meeting of the company will be held at the premises of the company, i.e., F-27, Darya Ganj, Delhi, on Saturday the 18th August, 1973, at 10 a.m. Shri Prithvi Raj Sachdev, advocate, will be the chairman of the meeting and Shri A. L. Joshi, advocate, will be the alternate chairman. I direct that the following resolution will be moved at the said meeting :
"Resolved that the previously existing article 23 (both prior to October 7, 1972, and as amended on October 7, 1972) will be deleted".
In place of existing article 23 a new article 23 will be substituted as follows:
"Unless and until otherwise determined by a general meeting the number of executive members shall be 18".
Even though no difficulty is apprehended in the matter of the resolution being passed as it is now framed to-day it seems necessary also to make a provision out of abundant caution for the eventuality of the said resolution, as framed, not being passed at the meeting at all. In that eventuality I direct that even if the said resolution is not passed at the meeting on August 18, 1973, 18 office bearers would be elected; it is worth recalling that article 23, as it stood prior to October 7, 1972, permitted the maximum of 18 office bearers.
Second stage:
The general meeting of the company will be held at the aforesaid premises of the company on Saturday, the 13th October, 1973, at 9 a.m. and will not be adjourned except for a lunch break between 1 and 2 p.m.
The following procedure will be adopted at the meeting to be held on October 13, 1973 :
(1) All the firms and limited companies, which are members of the company (association) will send written authorizations and duly authenticated copies of authorizations of needed resolutions, respectively to reach the secretary of the company at least three days in advance of the date of the meeting, indicating who will vote at the meeting and what his position is in the firm or company, as the case may be.
(2) No member of the company, which is a firm or limited liability company, will be entitled to vote unless such written authorizations or authenticated copies of resolutions, as the case may be, are sent by the companies or firms concerned and received by the secretary of the company within the afore-said time. In the case of partnership-firms the authorizations will be confined to one of the partners. If the same person is a partner in more than one member-firm he can on being authorised by the concerned firm or firms vote for the firm or firms concerned. In such cases, (i.e.), where the person concerned is representing more than one member-firm
when signing the attendance register at the meeting he will indicate therein the firm/firms which he is representing.
(3) All proprietary concerns can vote only in person, subject to identity and membership being verified.
(4) The nominations along with the consent of the person nominated in the case of those wishing to be elected as office bearers will reach the secretary of the company on or before 5 p.m. on 27th September, 1973. The nominations will be scrutinised by the chairman. The last date of receipt of objections to nominations will be on or before 5 p.m. on September 29, 1973. The chairman will go into the objections, scrutinise the nomination papers and make his decision concerning them. For this purpose he will attend the aforesaid premises of the company on October 1, 1973, at 3 p.m. The list of valid nominations will be despatched, under certificate of posting, by the secretary of the company to all the members not later than the 4th October, 1973.
(5) Members attending the meeting will not be permitted to sign the attendance register after 12 noon. In other words, if any member does not sign the meeting register by 12 noon that member will not be entitled to vote.
(6) The requisition slips for the ballot papers will be actually signed by the person who has to record the vote on behalf of the concerned member; they (requisition slips) will not be issued to any one else. A register will be maintained concerning the issue of requisition slips and the signature of the person concerned will be taken in token of his having received the requisition slip. When the ballot paper is issued in pursuance of the requisition slip the signature of the person concerned will be taken on the requisition slip itself in token of his having received the ballot paper.
(7) No ballot paper will be issued after 5 p.m. At 5 p.m. the chairman will announce the time beyond which no person will be allowed to record his vote; this decision will be made by him in the light of the time that is likely to be taken by those to whom ballot papers have been issued but are yet to record their votes.
(8) The chairman will exclude from the premises where the meeting and voting take place any person who has not to record his vote.
(9) The following four scrutineers are appointed to help the chairman.
1. Shri B. Mohan, advocate.
2. Shri R. N. Dikshit, advocate.
3. Shri Rishi Kesh, advocate.
4. Shri K. L. Budhiraja, advocate.
(10) The scrutineers themselves will under the guidance and help of chairman/alternate chairman count the votes.
(11) As soon as the voting is over the counting of votes will commence and the result will be announced that night itself.
(12) After the election is over the chairman will submit a report to this court concerning the meeting along with the requisition slips, ballot papers, the attendance register, nominations, authorisations and any other document that may be considered relevant by the chairman, all in sealed container, within a week after the meeting.
(13) Only the contesting candidates will be allowed to be present inside the premises when the polling and counting take place; no other person on his behalf to help the candidates will be allowed to be present. The chairman will not allow the staff of the company to participate in the matter of conducting the election.
(14) Any application for new membership from to-day onwards will be put up before the chairman and his initials obtained thereon before a new member is admitted.
(15) The chairman (Shri Prithvi Raj Sachdev) will be paid a remunera tion of Rs. 2,000, the alternate chairman (Shri A.L. Joshi) Rs. 1,000 and the four scrutineers (Sarvashri B. Mohan, R. N. Dikshit, Rishi Kesh and K. L. Budhiraja) Rs. 500 each, by the company.
A copy of this order will be caused to be cyclostyled or printed by the secretary of the company (association) and the same sent, under certificate of posting, to all the members within three weeks.
The chairman will have the necessary authority to visit the aforesaid premises of the company, as often as he may wish, to see that all the directions given herein are implemented by the secretary of the company.
The application is ordered in the above terms. There will be no order as to costs.
[1951] 21 COMP. CAS. 290 (CAL.)
HIGH COURT OF
CALCUTTA
Lothian Jute Mills Co. Ltd., In re.
SINHA, J.
SUIT NO. 22 OF 1950
H.M. Sanyal and G.P. Kar, for
the Applicants.
S. Chowdhuri and G.K Mitter, for
the Respondents.
This application was presented on 30th January, 1950, for
an order that a meeting of the members of the company be called to consider and
if thought fit to pass with or without amendment or modification the resolution
set out in Annexure 'B' of the petition. The application is made under the
provisions of Section 79(3) of the Indian Companies Act which is in these
terms: "If for any reason it is impracticable to call a meeting of a
company in any manner in which meetings of that company may be called or to
conduct the meeting of the company in manner prescribed by the Articles or this
Act, the court may, either of its own motion or on the application of any
director of the company or of any member of the company who would be entitled
to vote at the meeting, order a meeting of the company to be called, held and
conducted in such manner as the court thinks fit, and where any such order is
given may give such ancillary or consequential directions as it thinks
expedient and any meeting called, held and conducted in accordance with any
such order shall for all purposes be deemed to be a meeting of the company duly
called, held and conducted."
The position at the present moment is that there is a
serious controversy as to who are the present directors of the company, in
spite of the fact that the Judicial Committee have held that the resolution of
3rd January, 1945, increasing the number of directors and appointing the seven
persons as directors was good.
It is convenient at this stage to refer to certain Articles
of Association of the company to which reference was made. Article 121 provides
for retirement from office, at the first ordinary meeting to be held in every
year, of one-third of the total number of directors. Article 122 provides that
those directors who have been longest in office since their last election shall
retire. Article 123 provides that the retiring directors shall be eligible for
re-election. Article 124 provides that the general meeting at which a director
retires may fill up the vacated officer by electing a person thereto.
Article 125 provides that if the places of retiring
directors are not filled up at the meeting, it shall stand adjourned till the
same day in the next week and if at the adjourned meeting the places of
directors are not filled up, the directors whose places have not been filled up
shall be deemed to be re-elected. Article 144 provides that all acts done by
any meeting of the directors shall be valid even though it may be afterwards
discovered that there was some defect in the appointment of such directors or
that they were or any of them was disqualified.
It is contened by the Andrew Yule group of directors that in spite of the judgment of the Privy Council, having regard to the regulations of the company, and the events which have happened, those seven directors are no longer directors of the company and they challenge the right of the other group of directors to attend any meetings of the board. It is, on the other hand, asserted by the other group (hereinafter referred to as the Bajoria group) that they are still the directors in spite of the articles for rotation of directors (Article 121) because they should be deemed to have retired and to have been re-elected in accordance with the provisions of Article 125. If the contention of the Bajoria group of directors is correct, the proceedings of the extraordinary general meeting fixed for 6th April, 1950, would be open to serious challenge, as it was called by directors who were not entitled to act as such. If the contention of the Andrew Yule group of directors be correct, the meeting fixed for 8th February, 1950, would be open to question. It is not disputed that the alleged directors having called the extraordinary general meeting the requisitionists are not competent to call an extraordinary general meeting.
The shareholders want an extraordinary general meeting to
be held at which they can express their views and bring to an end the
controversy between the two rival groups of directors so that the business of
the company can be carried on by a board of directors whose right or authority
would not be open to serious challenge, and so that the unfortunate controversy
between rival sets of directors which must prejudicially affect the business of
the company, can be set at rest. It is true that meetings have been convened by
both the groups of directors but there is a serious question as to which of the
meetings and whether any of the meetings would be a valid meeting. If those
meetings are held and contrary resolutions are passed at the two meetings,
another series of litigation will commence which will take years to finally
dispose of. Having regard to these circumstances it is urged that the Court should
exercise its powers under Section 79(3) and call a meeting the validity of
which would be beyond question.
If on the materials before me I could even prima facie hold who are the present
directors of the company, I would have held that it is not impracticable to
call a meeting of the company in accordance with its Articles of Association.
In fact, learned counsel for the petitioners agreed that that would be so.
Learned counsel for the respondent however submitted that I should not attempt
to decide the question on the materials before me and specially as suits are
pending where that question along with other questions will have to be decided.
The position, therefore, is that the shareholders do not
know nor can I say on the materials before me, who are the present directors of
the company. Can I in those circumstances say that it is practicable to call a
meeting according to the Articles of the company? Under Article 84 only the
directors can call such meeting and though both the groups have called meetings
it is extremely doubtful whether they are, or either of them is, competent to
call the meeting and who can call such meeting in the events which have
happened?
Learned counsel for the respondents submitted that it may
be that if the court does not call any meeting it may lead to inconvenient
results, but he contended that that was no reason why I should hold that it was
impracticable to call the meeting. It is contended on the other hand that from
a business point of view and having regard to the object and purpose of the
meeting, the calling of the meeting has become impracticable. It is also
submitted that Section 79(3) contemplates that the Court should step in when it
is impracticable to call a valid meeting according to the Articles of the
company. The validity of the meeting called by the different groups of
directors would be open to serious question having regard to the uncertainty as
to who are the present directors of the company. A tangle has arisen which
should be solved by the court stepping in and exercising its powers under
Section 79(3).
It is true that the powers under Section 79(3) should be
exercised with caution and only when it is not practicable to call a valid
meeting in exercise of the powers given by the articles. The court would not
ordinarily interfere in the domestic management of the company which must be
conducted in accordance with the powers contained in the regulations of the
company. But, where, as here, the meeting can be called only by the directors
and there is serious doubt and controversy as to who are the directors and
where there is possibility that one or other or both the meetings called by the
quarrelling groups of directors may be invalid, the shareholders should not be
exposed to the uncertainties flowing from the situation and the consequent
litigation and it should be held that a position has arisen which makes it
"impracticable" for the meeting being called in accordance with the
articles. It is true that the "impracticability" contemplated in the
section is as to the calling of a meeting. It appears to me however that the
section also contemplates that the court should exercise its powers where it
cannot say with reasonable approach to certainty, or even prima facie, that the meeting called
in exercise of the powers contained in the regulations will be valid.
I think, therefore, that in the circumstances of this case
I have the power to call the meeting and if I have the power I have no
hesitation in exercising it in order to resolve the conflict and uncertainty which
has arisen as the result of the quarrel between the two sets of directors.
[1951] 21 COMP CAS
323 (CAL.)
HIGH COURT OF
CALCUTTA
Malhati Tea Syndicate Ltd., In re
BANERJEE, J.
MATTER NO. 202 OF
1950
H.N. Sanyal and S. Chaudhuri, for the Company.
G.P. Kar and R. Chaudhuri, for the Petitioners.
This is an application under Section 79 (3) of the Indian Companies Act for an order of the Court that a meeting of the company be called, held and conducted in such manner as the court thinks fit.
The petitioners who are two of the shareholders of the company allege that it is impracticable to call a meeting of the company in the manner in which meetings of that company may be called or to conduct the meeting of the company in the manner prescribed by the articles of the company or the Companies Act.
The facts are shortly these. Debesh, Birendra, Tejesh and Bhakta, all brothers, and the majority shareholders have quarrelled. As a resut of the quarrel, several suits have been filed in this court as also in the Jalpaiguri Court. One of the questions raised relates to the validity of the appointment of some of the directors; for example, in Suit No. 220 O.C. of 1949 filed in the Court of the Munsiff at Jalpaiguri, Akhil Bandhu Sarkar and Tejesh Chandra Ghose as plaintiff's claim a declaration that they were duly elected directors at the general meeting of the company held on 26th September, 1949, and that defendant Bhakta is not a director. There is no dispute that on that date the directors were Debesh, Birendra and one Jacques. On 22nd October, Jacques resigned and his resignation has been accepted.
The managing agent of the company was a firm of the name of Ghose and Sons consisting of two partners, the above named Birendra and Debesh. There is no dispute that the managing agency firm has been dissolved. A suit for dissolution of the firm and accounts has been filed in the Jalpaiguri Court (No. 52 of 1949) and another suit for the same purpose in this court. It is contended on behalf of the petitioners that it is necessary for properly carrying on the business of the company that a meeting should be called under direction of the court to pass certain resolutions.
There is no doubt that a meeting is necessary. It appears from a printed copy of a notice, dated 19th April, 1950 that Birendra as "Director-member, Managing Committee, Malhati Tea Syndicate Ltd., Jalpaiguri gave notice to the shareholders that an extraordinary general meeting of the company would be held in pursuance of a resolution signed by certain shareholders—
(1) To consider the situation arising out of the dissolution of the firm of Messrs. Ghose & Sons, the managing agents of the company and the consequent vacation of office of the managing agents and to consider the situation arising out of litigation between rival claimants for the office of directors and to pass necessary resolutions for the proper management of the business of the company.
(2) To appoint managing agents of the company under Article 122 of the articles of association and to fix their remuneration and their term of office.
(3) To increase the number of directors from 5 to 9.
(4) To elect and/or appoint one or more directors as may be found necessary and expedient.
(5) To consider and decide where the registered office of the company should be maintained or located.
That is the notice of Birendra himself. It does not lie in the mouth of Birendra who is opposing this application to say that there is no necessity of a meeting being called.
The question is whether the court should hold that in the circumstances that have happened it is impracticable to call a meeting in the manner in which meetings of that company may be called.
In Commissioner, Lucknow Division v. The Deputy Commissioner of Pratabgarh, their Lordships of the Judicial Committee said that the word "impracticable" meant impracticable from a reasonable point of view. The Court takes a commonsense view of the matter and acts as a prudent person of business.
It is admitted in this case that the managing agent connot convene a meeting in terms of Articles 59 to 62 of the articles of the company, because there is no managing agent. The firm is dissolved; the partners have fallen out.
Mr. R. Chaudhuri in opposition, however, argues that the directors can call a meeting and relies on Articles 94 and 95, which define the powers of the directors which, among others, is to do all acts, matters and things which the managing agents are by the articles of the company for the time being particularly authorised to do. Mr. Chaudhuri's contention is that there is a board of directors which can call a meeting in like manner as the managing agent, if it existed, could do. He refers to Article 194 and contends, reading, under the interpretation clause, the word "directors" in Article 104 for "director", that Birendra was the director for the time being in Jalpaiguri, so a requisition signed by Birendra was valid and effectual for calling a directors' meeting; such a meeting was called and at that meeting one Satish Chandra Lahiri has been co-opted as a director; two directors of this company form a quorum ; so there is a board which can call a share, holders' meeting. Accordingly it is not impracticable to call a meeting. There is dispute as to whether Satish was co-opted on the date alleged. Mr. Chaudhuri offered to produce the minute book to satisfy me that the co-option took place on that date. I would have given Mr. Chaudhuri time to produce the minute book, but having regard to the other facts of the case, it is not necessary to do so. It is clear that if Akhil and Tejesh were also directors of the company as they claim to be, then Birendra was not the "director for the time being at Jalpaiguri" within the meaning of Article 104. There the requisition in writing signed by him for a meeting for the purpose of co-opting a director was insufficient. Lahiri was not validly co-opted.
It is difficult for me on this application and it would be inexpedient having regard to the pending suits, to decide which of the directors have been validly appointed. I am not satisfied on the facts of this case that there is a board of directors who can call a meeting in the manner in which a meeting of the company may be called. Meetings held otherwise than under direction of the court under Section 79 in the circumstances of this case, would lead to interminable troubles and prejudice the interests of the company.
Mr. Chaudhuri contended that the court should not interfere with the internal management of the company by directing a meeting to be called, and referred me to Mac Dougall v. Gardiner in which at page 609, Mellish, L.J., said that the court had no power to take the management of the company out of the hands of the directors, at any rate, whilst the question was still in litigation, whether they were properly directors or not.
In this case, if I had taken the view that there was a board of directors who could call a meeting, I would not have made the order under Section 79 (3). But as I have said Akhil and Tejesh claim to be directors and they are at Jalpaiguri. If they have been validly appointed, then Birendra cannot act alone under Article 104. So Lahiri's co-option is bad and there is no board which can call a meeting. This is a view of the matter which I cannot ignore.
There is no dispute among the parties that a meeting has to be called. The question is whether it should be a meeting under Section 79 (3) of the Indian Companies Act or otherwise.
In the circumstances of this case, and on the considerations aforesaid, I think that it is expedient to make an order under Section 79 (3) for calling a meeting of the company.
[1932] 2 COMP CAS
147 (MAD.)
HIGH COURT OF
MADRAS
v.
W.S. Subrahmanya Ayyar
CURGENVEN AND
CORNISH, JJ.
C.S. NO. 491 OF 1930
JANUARY 29, 1931
V.V. Srinivasa Ayyangar and K. Venkataramani, for the Appellant.
T.R. Venkatarama Sastri, K. Narasimha Ayyar, N.S. Rangaswami Ayyangar, T.R. Srinivasa U. Rama-chandran, V.C. Gopalaratnam, K.S. Rajagopala Ayyangar, R.V. Raghava Thathachari and S. Panchapakesa Sastri, for the Respondent.
JUDGMENT
Curgenven, J.—The suit out of which this appeal arises relates to a Company known as the United India Life Assurance Co., and the circumstances which gave rise to the dispute are briefly these. The Directorate of the company is composed of two policy-holders' Directors, elected by the policy-holders, and of a certain number of shareholders' Directors. The ordinary General Meeting for the election of share-holders' Directors was fixed for the 13th October, 1930. The Articles of Association had contained a provision that the number of share-holders' Directors should be six and that two should retire in rotation their places being filled by election at the meeting. But this number had been by amendment of the Articles reduced to five, and it was provided, as a special case, that at the General meeting of 1930 the six Directors should vacate office and that not more than five should be elected in place of them. At the meeting the 3rd defendant, who was at the time the Chairman of Directors, took the chair, and, it being decided to fill all five vacancies, a vote was taken by show of hands, and five persons were declared elected. A poll was then demanded, and the Chairman directed that it should be held at the Company's Office on Monday, the 20th October, between the hours of 4 and 6 p.m., and appointed the Company's Manager, Mr. Church, Returning Officer for purpose of taking it. In thus allowing a week to elapse before the poll was taken, the Chairman incurred the disapproval of the 1st plaintiff, one of the share-holders, who addressed to him on the 15th, a letter protesting against his action, and pointing out that, since all the share-holders' Directors had retired on the 13th, the share-holders must during the interval remain wholly unrepresented, and the operations of the Company come to a standstill, because the two policy-holders' Directors were below the minimun number authorised to transact business. This letter was certainly most provocative in tone, and perhaps explains, though it may not justify, what happened next. On the 16th, the two Policy-holder's Directors appointed two other persons—the Chairman himself and the 4th defendant—thus bringing the number of Directors up to four, the minimum number required by Art. 88 to act in the name of the Company. It will be for consideration whether this action was within their powers. It evoked from the 1st plaintiff another letter, written the day before the date fixed for the poll, condemning this procedure and expressing the apprehension that advantage was intended to be taken of it to hold a poll only in respect of the three remaining vacancies. What happened—whether by accident or design we are not now concerned to inquire—more than justified his misgivings. On the 20th, at the appointed time, a number of share-holders assembled at the office of the Company, but neither did the Returning Officer appear, nor were any other arrangements made for holding the poll. They waited there and eventually dispersed. The explanation given is, that Mr. Church was unable to attend through sudden illness, and that a message which he sent to Chairman in the course of the afternoon was not delivered as the Chairman had shortly before left Madras on a visit to a sick relative. No further attempt was made to take a poll, and indeed, whether rightly or wrongly, the four persons at that time claiming to be Directors—defendants 1 to 4 —two days later took the line best calculated to demonstrate their refusal to adopt that course by 'co-opting' three more Directors, defendants 5 to 7 thereby bringing their number up to the maximum. The four plaintiffs as share-holders, filed their suit on the 24th October, praying inter alia that these appointments might be declared illegal and invalid, and that the Court should direct a poll to be taken to elect five share-holders' Directors to the existing vacancies.
The learned Judge who tried the suit, Waller, J., has dismissed it upon a preliminary issue. He finds indeed that the co-optation, in two stages, of the five share-holders' Directors was ultra vires, but that, assuming it to have been so, the Company, and not individual share-holders, should have been the plaintiffs. Further, he considers that the Articles of Association provided the share-holders with an alternative remedy, and that at least until that had proved infructuous the Court should not intervene. All the plaintiffs appeal against this decision, which is supported in varying ways by the several defendants, whose points of view may be gathered from the contents of their written statements. The 1st and 2nd defendants, the two policy holders' Directors, endeavour to justify their action in co-opting the 3rd and 4th defendants, and then, with these defendants, co-opting the defendants 5 to 7. The Chairman (3rd Defendant) contends that even if this procedure was not legal, those of the new Directors who were previously in Office—all except the 4th Defendant—may be deemed to have continued by virtue of the terms of Art. 68 (g). The 4th Defendant, the sole new comer to the Office has—perhaps to give scope to this alternative—since resigned. The 5th and 6th Defendants denounce the act of co-opting them as unlawful, but claim to be still in office under Art. 68 (g).
It has become clear to me that the crucial questions of law upon the answers to which a correct decision depends in this case are, firstly, what determines the duration of an ordinary general meeting for the election of Directors, and, secondly, what is the nature of the process known as taking a poll. The rules governing these matters are not, I think, in any respect peculiar to this Company. Art. 37 gives the Directors, power to fix the annual Ordinary General Meeting, and Art. 42 provides for the election of Directors at it. Such election is to be, in the first instance, by show of hands. If at least three members demand a poll, the Chairman shall grant it. Art. 49 empowers the Chairman to take it and runs as follows:
"If a poll is demanded as aforesaid it shall be taken in such manner, and at such time and place as the Chairman of the meeting directs, and either at once or after an interval or adjournment, or otherwise, and the result of the poll shall be deemed to be the resolution of the meeting at which the poll was demanded. The demand for a poll may be withdrawn."
Put shortly, the view pressed upon us by Mr. T.R. Venkatarama Sastri on behalf of the respondents is that the process of holding the poll is a detached portion of the general meeting, or is at any rate a 'meeting' within the meaning of the Articles of Association, and that when that 'meeting' comes to an end, whether or not the poll has been taken, the general meeting also terminates, and there exists no power to revive it, either on the part of the Chairman or of the Directors; and if for some reason the poll has not been taken and no Directors elected, there exists no further power to do these things. It will be at once evident—indeed no better illustration is needed than the present case—how completely subversive these 'doctrines would be of the rights of election possessed by the share-holders. Fortunately they appear to be based upon fundamentally erroneous conceptions. The original meeting in law continues until the Chairman has carried out the direction given to him by the share-holders to take a poll. It is a national meeting, not dependent for its existence and continuity upon the share-holders being actually in session, and business being transacted. The actual process of holding the poll is not a 'meeting' at all. It differs in several of its features from any meeting of share-holders. For example, the articles provide that every such meeting shall be held at the Office of the Company, whereas Art. 49, reproduced above, empowers the Chairman to take the poll at such place as he may direct. The person appointed to conduct the poll, unlike the Chairman of a meeting, need not be, and indeed in the present instance was not, a share-holder of the Company. His functions in no way resemble those of a chairman of a meeting, and are, as has been pointed out in Harben v. Phillips purely ministerial. The operation of taking a ballot, too, has little resemblance to such a meeting—each share-holder may come at any time between the hours fixed, record his vote, and go away. It is only the result of the poll which forms part of the meeting at which the poll was demanded by being deemed to be a resolution passed on it. 'The taking of a poll,' said Brett, L. J., in The Queen v. Wimbledon Local Board 'is a mere enlargement of the meeting at which it was demanded.' In the same case Cotton, L.J., observes:
"A poll is not a new meeting, but it is a mode of ascertaining the sense of the meeting which is continued for that purpose. The meeting of rate-payers did not come to an end, for the poll which was demanded has never been held."
In Shaw v. Tati Concessions, Limited, Swinfen Eady, J., after remarking that the taking of a poll is not a meeting, continues: 'The true legal position is this. This is no adjourned meeting but the original meeting continues for the purpose of taking the poll until the poll is closed.' For the principle that the poll is not complete, and therefore, the general meeting endures until the shareholders have had an opportunity of voting, I may refer to the Queen v. The Vestrymen, etc., of St. Pancras. The position was defined with clearness by Russell, J., in Spiller v. Mayo Development Co., Ltd. in settling a question of the validity of certain proxies. 'It was well settled,' he said, 'that the taking of a poll was not a meeting of the company in the strict sense, but was in law a mere continuation of the meeting at which the poll was directed to be taken.' No authority has been cited to us for the position which the respondents assume, which requires that the taking of the poll is in law a meeting convened by the Chairman, from which the inference sought to be drawn is that if the Chairman makes default in holding the meeting, the shareholders' only remedy is to take the poll themselves, unless they resolve to adjourn the meeting to some other day. I doubt whether in face of the wide powers delegated in this respect to the Chairman, the shareholders would be legally competent to do this. But it is unnecessary to decide that point, especially in the present case, where it appears to have been almost physically impossible for them to adopt this course. Ballot papers had indeed been printed, but they were locked up in the Manager's safe, and the key was not accessible. The assembled shareholders had no official record of the names of the eleven candidates standing for election. It would probably appear, had the case been fully heard, that there were other obstacles. They took the only course apparent to them, and dispersed without recording their votes. Even on the theory that a gathering of shareholders recording their votes is a meeting, it is difficult to contend that any meeting took place here. When and by virtue of what act did it begin, and when terminate? Having brought matters to this impasse by the break-down of the arrangements which it was his duty to render effectual, the Chairman would now ask the Court to dismiss the claim of these persons on the ground that, as matters fell out, their only course was to assume his functions and proceed with the election, failing which they must suffer disenfranchisement until the time should arrive for another annual general meeting. The alternative view, more commendable alike to the terms of the Articles and the common sense, is that the Chairman having been enjoined by the shareholders to hold a poll and having under Art. 49 ample power to carry out their wishes, should have persisted in his attempts to do so until they were successful. I have heard no argument which, upon the true theory underlying these proceedings, encourages me to hold that when the first attempt broke down he was functus officio.
Let us now see by what machinery it is proposed to carry on the business of the Company in the meanwhile. It is sought to justify the action of the two policy holders' Directors in the first place, and of themselves and their two co-opted directors in the second, in filling up the places upon the directorate, by recourse to the provision of Art. 68 (h), which enables Directors to appoint any duly qualified member as Director either to fill a casual vacancy or as an addition to the Board. Alternatively the powers conferred by Arts. 86 and 88 are invoked, though a perusal of those Articles will show that they do not enlarge the powers derivable from Art. 68 (h). The contesting defendants in their written statements justified the action taken upon one or other of these grounds, but before us such a position has been virtually abandoned and is obviously untenable. A casual vacancy means in general any vacancy occurring by death, resignation or bankruptcy and not by effluxion of time (Palmer's Company Precedents, 13th edn. Part 1, page 720, York Tramways Company v. Willows and Munster v. Cammell Company. Art. 69 defines the different modes in which such a vacancy arises. The occasion for appointing a Director 'as addition to the Board' will only arise when the share-holders have abstained from filling one or more of the sanctioned posts of Director. The rule has no application to the present circumstances. The Article upon which reliance is now placed is No. 68 (g), which runs thus:
"If at any ordinary general meeting which an election of Directors ought to take place, the place of any retiring Director is not filled up, such Director shall, if willing to continue in Office, be deemed to have been re-elected at such meeting unless it shall be determined at such meeting to leave the vacancy or vacancies unfilled."
I leave on one side the argument, special to the circumstances of this case, that since six Directors retired and only five posts were sanctioned for the future, no one retiring Director could be said to have a 'place' into which he could be deemed to be re-elected. The claim may, I think, be disallowed upon more general grounds. Nor is it necessary to point out that, to declare these so-called co-optations valid by virtue of this provision, a perversion of it to a use that can never have been in contemplation would have to be countenanced. It is a necessary condition of its application that the ordinary general meeting should have come to an end without an election of directors ; indeed, it was with the object in view of rendering its application possible that the arguments to which I have already referred were with some strenuousness advanced. So long as the meeting exists, it appears that under the Articles, as they now stand, the Directors' posts remain vacant. It was to save any inconvenience arising from this that a provision existed in the Articles before amendment that the outgoing Directors should continue until their successors were elected (See old Art. 64), but whether by inadvertance or intention this has not been reproduced. If, as. I hold, the General Meeting has never been closed, this provision for automatic re-election admittedly can have no application, and the five Directors' places may still be filled up by election.
The remainder of the arguments addressed to us represent an attempt to prevent the Court from interfering. It would seem that in a case where the share-holders have, through no fault of their own, been deprived of their fundamental privilege of choosing their own management, and where that management has passed into the hands of persons with no legal title to enjoy it, if ever there were a case for the Court's interposition it must be this. Since however the learned trial Judge has taken a different view, and since the question has been elaborately argued before us, it is advisable that we justify the course we propose to take by reference to authority. The questions raised are, firstly, can an individual share-holder sue for the reliefs asked for by the plaintiffs, and, if so, secondly, ought the Court to interfere, having regard to such other remedies as may be available? It is worthwhile to repeat here the nature of the reliefs asked for. The plaintiffs sue for a declaration that they and the other share-holders are entitled to elect five share-holder's Directors, and for a direction that a proper election by poll be ordered; as a necessary preliminary they ask also that it may be declared that the appointment of persons to fill the vacancies by co-optation is illegal and invalid. In substance, therefore, the suit is one to establish and enforce the right of a share-holder to exercise his vote. Now on examining the authorities, it will be found that the cases may be grouped according as the injury complained of is an injury to the share-holder, by infringing his individual rights, or only an injury to the company in which the share-holder holds an interest. Cases falling within the former category may again be divided into those which relate to an injury to one or some only of the shareholders, and those which have arisen from a breach of duty towards all the share-holders; for it does not necessarily follow that, where all the share-holders (except those of them who contrive the injury) are affected, an individual share-holder is precluded from suing. The test depends upon the nature of the wrong alleged. An instance of a case where some only of the share-holders were denied their legal rights is Pender v. Lushington which arose irom a poll at which the Chairman ruled out certain votes which should have been included. Jessel M.R., in deciding that the action could be maintained by the single share-holder who brought it, observed: 'He is a member of the Company, and where he votes with the majority or the minority, he is entitled to his vote recorded, an individual right in respect of which he has a right to sue.' Other cases which fall within the same class are Pulbrook v. Richmond Consolidated Mining Company and Henderson v. Bank of Australasia. The class which concerns us here, however, relates to acts in derogation of the rights of all the share-holders, and is represented by a number of instances of suits brought by individual share-holders. In Moseley v. Koffyfontein Mines, Ltd., the plaintiff sued the company and Directors on behalf of himself and the other share-holders to restrain the unauthorised issue of capital. It was a matter affecting the share-holders as a body, but the plaintiff was allowed to sue because, as Fletcher Moulton, L.J., put it, 'it must be the right of a shareholder by reason of his being a share-holder to bring an action to stop such a proceeding.' It is to be observed that in such a case the Company itself, by resolution of its members, could also have sued to restrain the Directors from such an act. Another case involving a breach of duty by the Directors towards the whole body of share-holders is Alexander v. Automatic Telephone Company. Lindley, M.R., decided that it was not a matter of mere internal management—a description which it has been sought to apply to the conduct of the defendants in the present case—and that a suit by some of the share-holders was unobjectionable in form. Baillie v. Oriental Telephone and Electric Co., Ltd. related to failure on the part of the Directors to make a frank disclosure to the share-holders of the circumstances in which they claimed extra remuneration. It was argued that the plaintiff, a share-holder, was not entitled to sue to impeach the validity of a special resolution, but the Court of Appeal disallowed the objection on the ground, expressed by Swinfen Eady, J., that even a majority of the share-holders could not legalise an invalid act and prevent action being taken to set it aside. This case bears upon the further question we have to decide—the remedy, if any, open to the plaintiffs at the hands of the Company. In Hoole v. Great Western Railway Co., the power of the railway company to issue additional shares was in dispute. The question of the proper parties to the action was raised, and Sir John Rolt, L.J., saw no reason why any single share-holder should not be at liberty to file a bill to restrain the Company from exceeding its powers. 'If one individual having an interest complains of an act of the whole Company, or the executive of the whole Company, as being illegal, there is, as a general rule, no necessity for any other share-holders being present.
The other line of cases, in which it has been held that the Company, not the share-holder, is the party to complain, opens with Foss v. Harbottle, decided by the Court of Chancery in 1843. This was a suit brought by two share-holders against the Directors and some others alleging that the Directors, as Directors, had bought for an excessive price certain lands from themselves as private individuals, and, to find money for the purchase had mortgaged the Company's property in a manner unauthorised by the Act of Incorporation. Objection was taken that an individual share-holder could not sue, and the learned Vice-Chancellor, while conceding that in certain circumstances a suit might properly be so framed, agreed that this was not such a case. The injury alleged was an injury to the Corporation as a whole, inflicted upon it, as a. cestui que trust, by its trustees, and it was for the Corporation to deal with it. The purchase was not void, but only voidable, and if the Corporation should choose to ratify it no individual shareholder could resist such action. 'The very fact that the governing body of proprietors assembled at the special general meeting may so bind even a reluctant minority is decisive to shew that the frame of this suit cannot be maintained whilst that body retains it functions.' It might be that the mortgages were void, as ultra vires, but that would not in the circumstances dispose of the question, because, since the money received was expended in the manner stated, if the Corporation approved the Directors' action in making the purchases it could not complain of the manner in which they raised the money. The principles on which this case was decided were thus that there was no infringement of the individual rights of a share-holder, only a possible injury to the Company as a corporate body; and secondly, since it would lie with the Company to ratify it must also lie with it to challenge, whether by suit or otherwise. The same principles were applied by Lord Cottenham, L.C. in Mozley v. Alston where two share-holders complained of the omission of the twelve Directors to ballot out four of their number in order that four others might be elected in their stead. This case does certainly in some respects resemble the case now before us; but it is perhaps permissible to surmise that since 1847, when Mozely v. Alston was decided, some modification of the attitude then take up by the Court of Chancery has taken place, in the same way as Lord Cottenham himself recognizes that a relaxation was apparent in his own day "to meet the exigencies of modern times." The observations of Swinfen Eady, L.J., upon this case in Baillie v. Oriental Telephone and Electric Company, Ltd., suggest that the stringency of the rule laid down in these two earlier cases has been relaxed in more modern times. The remaining case of this class cited to us, MacDougall, v. Gardiner, dealt with what was at the most an irregularity and not an illegality, James, L.J., expressly excluding illegal, oppressive or fraudulent acts from the scope of the principles on which he acted. Even therefore, adopting the position assumed by these earlier Chancery cases in all its rigour, I do not find reasons in them to nonsuit the plaintiffs here.
Nor do I think, that the contesting respondents are on any better ground in contending that the plaintiffs should have availed themselves of facilities for rectifying the position afforded by the Articles of the Company. The learned trial Judge considered that it was open to the share-holders by special resolution to remove the so-called Directors from office, a course dependent upon securing a three-fourths majority. The reasonableness of referring the plaintiffs to such a procedure has not been pressed upon us in appeal, and indeed it hardly seems right to tell a share-holder who complains of acts committed in defiance of the Articles of Association that the enforcement of his legal rights is dependent upon securing such a majority. Mr. T.R. Venkatarama Sastri prefers to adopt the position that a mere majority of share-holders would be able to validate the acts performed ultra vires by the Chairman and his party, but here again, I think, that he bases his arguments upon a fallacy. It is no doubt, true that if the Directors of a Company act ultra vires, and if what they have done would be within the power of the Company, acting with its Memorandum and Articles of Association, to do, the Company can ratify the action taken. It cannot so ratify it by a simple majority if by a general resolution it could not sanction such a course. The effect of the cases cited to us has been thus summed up by Lindley (6th Edn., Vol. 1, page 769):
"……..if Directors or share-holders have done or are about to do that which is a fraud upon the minority, or is wrong, even if sanctioned by a majority, then an action by some of the members on behalf of themselves and others, or by a member suing alone, may be sustained, for otherwise the dissentients would be without redress."
It is surely enough to point out that even a majority cannot act in breach of rules which they have agreed shall regulate their actions. "The articles", observed Swinfen Eady, J., in Boschoeck Proprietary Company, Limited v. Fuke, "until altered, bound the share-holders in general meeting as much as the board", the case being one of an attempted confirmation of a Director not possessing the necessary qualifications. The Indian Companies Act gives statutory force to this principle by providing in Sect. 21 that the Memorandum and Articles shall bind the Company or the members thereof to the same extent as if they respectively had been signed by each member and contained a covenant on the part of each to observe all their provisions. Accordingly to say that the course taken in the present case could have been ratified by the vote of the majority is equivalent to saying that the Articles permit the election of Directors to be made otherwise than at the Ordinary General Meeting, as Art. 68 (f) provides,' and otherwise than by submission of the name of all eligible candidates to the choice of the voters. It is evident, that a resolution proposing that certain five persons be appointed Directors is not only unauthorised by the Articles, but would be a departure not only in form but in effect from the accepted procedure.
I have come to the conclusion, therefore that, the only course compatible with enforcing the rights to which the plaintiffs are entitled under the Articles of Association is to declare that the so-called co-optation of defendants 3 to 7 to the vacant post of Directors is illegal, and that the share-holders are entitled to elect five of their number to those vacancies. The 3rd defendant, as Chairman, will be directed to proceed with the operation of election, and to take a poll after due notice to all share-holders, and within ten days of the date of this judgment. Defendants 1-3 and 7 will pay the plaintiffs' costs here and below, and each defendant will pay his own costs. In view of the importance of the case we fix the advocate's fee for the appeal at Rs. 1,000. The actual cost of printing will also be included in the costs.
Cornish, J.—I agree that the co-option of Defendants 3 and 4 on the 16th October, and of Defendants 5 ,6 and 7 on the 23rd October as Directors cannot be justified under Arts. 68 (h) or 86 of the Articles of Association and was ultra vires. Defendant 4 filed a written statement claiming to be of the directorate by reason of his co-option by defendants and 2, but we are told that he has since withdrawn from that body.
Defendants 5 and 6 by their written statements have repudiated their supposed co-option. They claim that as retiring Directors they continue in office till their successors are actually elected, or that by virtue of provision of Art. 68 (g), they are to be deemed to have been re-elected. These two defendants together with Defendants 3, 7 and 8 are five of the six shareholders' Directors who under the Articles of Association were due to retire at the Ordinary General Meeting on the 13th October. Defendants 3 and 7 also rely on Article 68 (g). Defendant 8 has not put in a written statement. The learned Counsel for Defendants 5 and 6 has not pressed the first part of his clients' contention, and I think it is untenable. "A Director," said Sargant, J., in In re Consolidated Nickel Mines Ltd. "does not ordinarily step into an office which is pepetual unless terminated by some act, but into an office the holding of which is limited by the terms of the Articles." By Art. 63 the six share-holders' Directors vacated office at the Annual General Meeting on the 13th October. Having vacated their office, at that meeting, there could be no question of their still continuing in the office when a poll was pending to fill up the vacancies caused by their retirement. The provisions of Art. 68 (g) then have to be considered. This says: "If at any ordinary general meeting at which an election of Directors ought to take place, the place of any retiring Director is not filled up, such Director shall, if willing to continue in office, be deemed to have been re-elected at such meeting, unless it shall be determined at such meeting to leave the vacancies unfilled." It has been suggested that Art. 68 (g) can have no application, because there were six Directors due to retire, but under the amended Articles only five vacancies to be filled. But admittedly one of these gentlemen had written to the Chairman on the 13th October stating that for reasons of health he was not standing for election, and I do not see how a person who has withdrawn his candidature for election could be regarded as capable of being deemed to have been re-elected under the provisions of Act. 68 (g). There would, therefore, be no objection on that ground to the five retiring Directors, who were seeking re-election, having the benefit of this article.
The question is, whether, in view of what happened on the 20th October, there has been such a failure to elect Directors as will entitle Defendants 3, 5, 6, 7, and 8 to claim to have been re-elected in pursuance of Art. 68 (g). In other words, has the meeting at which the election of Directors ought to have taken place terminated without the vacancies being filled up? Now it is beyond dispute that when the share-holders arrived at the Company's premises for the poll, which had been fixed by 3rd defendant, the Chairman, to be held there between the hours of 4 and 6 p. m., it was not until 5-20 p.m., that they learned that the Returning Officer appointed to take the poll was unable to attend. No arrangements had been made for any other person to conduct the poll. The Assistant Manager who was on the premises reported that he had no instructions in the matter; and it is admitted by the Returning Officer that the proxies and voting papers for the poll were locked in a safe of which he had the key, and were not available because the 3rd defendant, to whom he sent the keys when he reported his inability to attend, was absent from Madras and did not get his message until 6-45 p.m., that evening. In has been contended that, in spite of all this, the assembled share-holders had the remedy in their own hands; that under Art. 44 they might have chosen one of their number of he Chairman in the absence of the 3rd defendant and have proceeded with the business of the poll, using such pieces of paper for the purpose of voting papers as might have been available; or that under Art. 46 they might have resolved to adjourn the meeting to some other date for the taking of the poll. Articles 44 and 46 in terms apply to ordinary general meetings. In my opinion, an assembly of share-holders for the purpose of recording their votes at a poll has no power to fix some other date than that already fixed for the holding of the poll. The position, when a poll has been demanded and directed to be taken at a future date, is that the meeting subsists in contemplation of law until the poll has been taken; or, as Lord Justice Brett expressed it, "the taking of the poll is a mere enlargement of the meeting at which it was demanded.": The Queen v. Wimbledon Local Board . See also Shaw v. Tati Concessions Ltd. and Spiller v. Mayo Development Co. Ltd.. In the last mentioned case Russel, J., said:—"It was well settled that the taking of the poll was not a meeting of the company in the strict sense, but was in law a continuation of the meeting at which the poll was directed to be taken." Article 49 regards the taking of the poll in the same sense; for it says, "the result of the poll shall be deemed to be the resolution of the meeting at which the poll was demanded." The conclusion upon these authorities is, the legal conception of the meeting being that it continues for the purpose of taking the poll, that the meeting continues for that purpose only and for no other purpose or business.
The last question, therefore, resolves itself into this—has the breakdown of the arrangements for the poll on the 20th October put an end to the taking of a poll? I do not think so. In my opinion, the words in Art. 68 (g) "If at any Ordinary General Meeting at which an election of Directors ought to take place", imply that it must be possible for the poll to be taken at the appointed time and place. There must at least be a reasonable opportunity to the voters and to the candidates of having the poll taken: see Reg v. Lambeth. In the present case it is to be observed that there were eleven candidates for the five vacancies. And if unforeseen circumstances have arisen to prevent the poll being taken, then I think that, not only has there been no termination of the election but, that it became the duty of the Chairman, the 3rd defendant, (and he had the power under the articles) to appoint some other time for the talking of the poll. The rule is, that a poll is demanded it must be taken, and this is so even though the Chairman refuses to grant the poll: The Queen v. Wimbledon Local Board. Art- 49 is equally emphatic. It says: "if a poll is demanded as aforesaid (i.e., at the General Meeting) it shall be taken"; and it goes on to provide that it is to be taken "in such manner, and at such time and place as the Chairman of the meeting directs and either at once, or after an interval or adjournment, or otherwise." The language of the article leaves no doubt in my mind that it was open to the 3rd defendant as Chairman, and indeed obligatory upon him, when he learned that the poll could not be held on the 20th, to appoint another date for it.
Finally, it has been objected that the matter being one of internal management of the Company's affairs the Court has no jurisdiction to interfere, and that the plaintiff's suit is unsustainable. It was upon this objection that the learned trial Judge dismissed the suit. A number of authorities have been cited to us. I do not think it necessary to refer to them in detail, because the law upon the subject has been compendiously stated by Lawrence, L.J., in Cotter v. National Union of Seamen, as follows:—
"If an act is intra vires the corporation, and therefore one which could be sanctioned by the majority of the corporators properly assembled in general meeting, the Court will not entertain any proceedings to restrain the doing of the act resolved upon, unless such proceedings are brought by the majority of the corporators and in the name of the corporation itself."
It has been contended that, assuming Defendants, 3, 5, 6, 7 and 8 have usurped the office of share-holders' Directors, this was a matter capable of confirmation by the Company in General Meeting—though no meeting of the Company has in fact sanctioned it. In other words, the argument is that the Company, which means, of course, a majority of the general body of shareholders, could by a resolution override the Articles which require Directors to be elected, and resolve that these five gentlemen, who have contrived to step back into office without an election should remain there. I do not think that this would be intra vires a general meeting of the share-holders, for the articles until altered (and this, according to Sect. 20, Indian Companies Act, can only be done by special resolution), bind the shareholders in General Meeting as much as the board: see Boschoeck Proprietary Co., Ltd. v. Fuke. It seems to me that the principle of that case governs this case where five gentlemen have been installed as Directors in contravention of the articles. Such a mode of constituting directors would be equally ultra vires the Board and the Company to sanction. This being the case, and there being no adequate remedy open to the plaintiffs under the articles, I think it falls within the rule that the Court has jurisdiction to entertain a suit by share-holders against the Company in respect of an infringement of their individual rights as share-holders when the interests of justice so require : Baillie v. Oriental Telephone and Electric Co., Ltd..
For these reasons, I agree that there should be a declaration that defendants 3, 5, 6, 7 and 8 are not Directors of the Company, and with the order directing the 3rd defendant as Chairman to take the poll.
[1974] 44 COMP. CAS. 228
(DELHI)
v.
Delhi Flour Mills Co. Ltd.
S. RANGARAJAN, J.
B. K. Shivcharan Singh, A. L. Kapur and Deepak Chaudhri for the petitioner.
Ved Vyas, A. N. Khanna, A. N. Khanna and C. S. Duggal for the respondent.
Satish Chandra for a shareholder of the company.
P. A. Behl for the general manager and secretary of the company.
Rangarajan, J.—This order will also dispose of Company Petition Nos. 1 and 2 of 1973, which have been filed by the husband of the petitioner and another shareholder, respectively, of the Delhi Flour Mills Co Ltd. (hereafter referred to as "the company") for calling a meeting of the company (the calling of which "otherwise" has become "impracticable"), and for certain other directions (which are not uniform in all the three petitions) without which the petitioner's purpose in calling such a meeting may not be served. Under section 186 of the Companies Act of 1956 (hereafter called "the Act"), the court has been given power to call a meeting other than an annual general meeting; section 167 of the Act enables general meeting. To the details of these I shall revert later. It is necessary, to start with, to notice briefly the facts which have led to these petitions.
The company was registered in the year 1916 as a public limited company, but is stated to have been controlled by the husband of the petitioner, R. K. Jain (petitioner in C. P. No. 1 of 1973) and some of their family members; Oudhbir Prasad (petitioner in C. P. No. 2 of 1973) who holds 63 ordinary shares of Rs. 10 each, is the son-in-law of the petitioner and was also a senior executive of the company. The petitioner and her husband had no male issue and had, therefore, adopted R. P. Jain, the brother-in-law of Sheel Chandra. Yogesh C. Gupta is said to be a friend of Sheel Chandra and R. P. Jain. There seems to have been considerable animosity between the petitioner and her husband on one side and their adopted son, R. P. Jain, as well as Sheel Chandra and Yogesh C. Gupta on the other.
The articles of association of the company (article 96) provide for eight directors, but there were actually three i (1) R. K. Jain, (2) Sheel Chandra, and (3) Yogesh C. Gupta. It is common ground that R. K. Jain had been appointed a managing director of the company for five years under an agreement to take effect from October 5, 1967, i.e. , till October 4, 1972. Nonetheless, he had also been in fact re-elected at least once in 1969 as a director, even subsequent to the said agreement. Sheel Chandra, who had retired by rotation was re-elected on April 30, 1968. Yogesh C. Gupta who had to retire by rotation next, according to the petitioner, was not in fact re-elected and had to retire at the farthest when the annual general meeting had to be held, namely, April 30, 1971. The accounting year of the company ends on the 31st October of each year. The accounts for the year ending October 31, 1969, were passed at the annual general meeting held on April 30, 1970. There has been no annual general meeting thereafter.
Article 106 provides for the continuing directors acting notwithstanding any vacancy in their body; the interpretation article (article 2) says that words importing the singular number include, where the context administers or requires, the plural number and vice versa. Article 115 provides for a quorum of three directors; but this is seen to be contrary to section 287 of the Act, which provides for one-third the number or two, whichever is higher; this section does not permit any article provision to the contrary, as some other sections of the Act seem to permit. The retirement of directors by rotation is provided by sections 255 and 256 of the Act and articles 109-112. To these details also I shall revert later.
Before the impugned right shares under section 81 of the Act were issued and allotted (on December 4, 1972), the petitioner held about 46% of the shares out of a total of Rs. 8,06,380 units of shares, the claim by the contesting respondents being that by the impugned issue and allotments the shares were increased to Rs. 12,27,100 thus reducing the proportion of the petitioner's holdings to about 25%. It would be sufficient to notice this broad feature but not the details of the holdings. The decision to increase the share capital (under section 81) is said to have been taken at a meeting of the board at which R. K. Jain is said to have been present, but R. K. Jain denies that he was present then. The validity of the said meeting is also denied. More importantly, a notice is said to have been given by the company to the petitioner (and others) concerning the issue of right shares (on November 17, 1972). There is some controversy as to whether an application for allotting right shares was in fact made and even whether one is necessary to be made in writing; it is, however, asserted for the petitioner that a sum of Rs. 2,12,540 was deposited in the company's bank by the petitioner on December 4, 1972 (3rd December being a Sunday), when she came to know of the issue from Bombay through some other source. The money is said to have been either loaned or arranged by Bk. Shivcharan Singh, learned counsel for the petitioner. According to the contesting respondents, the petitioners knew and were also informed in time about the issue of right shares, but they made no application because they did not raise the money and the money which was paid only on the afternoon of the 4th (after the allotments of the shares on the 4th morning) represents the money which R. K. Jain had secreted from out of the company's funds during his management. Applications Nos. 725 of 1972 and 73 of 1973 were filed for the petitioner, her husband, etc., being cross-examined on the said matters.
To complete the narrative it may also be noticed at this stage that S. L. Verma, yet another shareholder, a stranger, holding 3,054 ordinary shares, had applied to this court (in C.A. 481/72 in C.P. 71/72) for an order restraining the company from issuing right shares and Bk. Shivcharan Singh, appearing himself for the company, an order was passed restraining the issue of such shares. It is stated for the petitioners that in view of this restraint order, passed on 5th December, 1972, the contesting respondents have been put to a Hobson's choice, as it were, of either taking the allotments later, in violation of the restraint order, or land themselves in another difficulty by having to assert that the shares had been allotted even on the 4th December, 1972 (it is contended for the petitioner that this was short of the requisite period of notice under section 81). SL. Verma has since filed a suit in this court (No. 23 of 1972) making all the parties in this proceeding also as parties to that suit, alleging that in a petition under section 186 of the Act (these three petitions) the question of the validity of these allotments could not be gone into and asking for a declaration that the issue and allotment of 42,070 right shares (of Rs. 10 each) were illegal, that there was no legally constituted board after 30th April, 1971, that the directors who now purport to function (Sheel Chandra, Yogesh C. Gupta, Balbir Singh and Pritam Singh—the last two being co-opted on 9th and 4th of December, 1972, respectively) are not the directors and that they should be restrained from acting as such.
It was not found necessary to record evidence or allow the request made as aforesaid for cross-examining Mr. and Mrs. R. K. Jain in particular, because Bk. Shivcharan Singh stated that he was willing to argue these applications on facts which were admitted and the legal consequences arising therefrom.
Both sides, however, covered very wide ground touching various aspects in controversy between the parties.
Before discussing at least the important among them it is necessary to read section 186 of the Act:
"186. (1) If for any reason it is impracticable to call a meeting of a company other than an annual general meeting, in any manner in which meetings of the company may be called, or to hold or conduct the meeting of the company in the manner prescribed by this Act or the articles, the court may, either of its own motion or on the application of any director of the company, or of any member of the company who would be entitled to vote at the meeting,—
(a) order a meeting of the company to be called, held and conducted in such manner as the court thinks fit; and
(b) give such ancillary or consequential directions as the court thinks expedient, including directions modifying or supplementing in relation to the calling, holding and conducting of the meeting, the operation of the provisions of this Act and of the company's articles.
Explanation.—The directions that may be given under this sub-section may include a direction that one member of the company present in person or by proxy shall be deemed to constitute a meeting.
(2) Any meeting called, held and conducted in accordance with any such order shall, for all purposes, be deemed to be a meeting of the company duly called, held and conducted".
Section 79(3) of the Act of 1913 enabled the court to order even an annual general meeting of the company. The present provision (section 186) only enables the court to call a meeting of the company, other than annual general meeting. The English Companies Act of 1929 provided (section 112(3)) that the court may call a general meeting of the company. But there was an amendment of the English Companies Act as a result of the report of a committee headed by Justice Cohen in the year 1945 recommending that it would save expense if the power of calling an annual general meeting should be transferred from the court to a Board of Trade. It was this later position that was made applicable to India by section 186 of the Act of 1956 which restricted the court's power in the matter of Calling an annual general meeting, the same being vested in the Central Government alone.
Every company shall hold every year, in addition to any other meeting, a general meeting. It is called the annual general meeting. Not more than 15 months shall elapse between the date of the general meeting and the next; the first general meeting of the company has to be held within 18 months after incorporation (section 166). At the annual general meeting the following items of business (which shall be deemed to be special) have to be put on the agenda :
(1) consideration of accounts, balance-sheet and reports of the board of directors and auditors;
(2) declaration of dividend;
(3) appointment of directors in the place of those retiring;
(4) appointment and fixing the remuneration of auditors (section 173).
The above items are within the exclusive domain of the annual general meetings.
Section 257 enables a person to stand for directorship at any general meeting, which may be held, and not necessarily only at an annual general meeting. So long as the company is not having the maximum number of directors fixed by its articles, additional directors may be appointed at general meetings up to the maximum limit. The only effect of introducing sub-section (1A) to section 257 seems to be that no one other than a director can stand as a candidate for appointment unless not less than 14 days' notice is given to the company, the company not having the power to waive such notice.
Concerning the retirement of directors by rotation section 255 of the Act provides that, unless the articles provide for 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 of 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 the Act, be appointed by the company at its general meeting. The remaining directors in the case of any such 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.
Section 256 deals with ascertainment of rotational retirement of directors at annual general meetings; one-third of the directors of a public limited company retire at every annual general meeting.
There is a conflict of judicial opinion on the question whether those directors who have to retire by rotation also vacate their offices by reason of their own failure to call a general meeting. Venkatarama Aiyar J. (as his Lordship then was), speaking for the Division- Bench of the Madras High Court in A. Ananthalakshmi Ammal v. Indian Trades and Investments Ltd. held that they must be deemed to have vacated their offices. That case arose under sections 76 and 79 of the Act of 1913. This view was followed by a Division Bench of the Bombay High Court in Krishna Prasad v. Colaba Land and Mills Co. Ltd. and by a single judge in In re Hindustan Co-operative Insurance Society Ltd. The single judge of the Calcutta High Court had not noticed an earlier Division Bench decision of the same High Court in Kailash Chandra Dutt v. Jogesh Chandra Majumdar , which had taken a contrary view. The Bombay decision did not specifically discuss the effect of, though it did notice, section 256(4) of the Act, which reads as follows :
"256. (4) (a) [f 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 re-appointed at the adjourned meeting, unless—
(i) at that meeting or at the previous meeting a resolution for the re-appointment 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 re-appointed;
(iii) he is not qualified or is disqualified for appointment;
(iv) a resolution, whether special or ordinary, is required for his appointment or re-appointment in virtue of any provisions of this Act; or
(v) the proviso to sub-section (2) of section 263 is applicable to the case.
Explanation.—In this section and in section 257, the expression ' retiring director ' means a director retiring by rotation".
In a later decision in Lalchand Mengraj v. Shree Ram Mills Ltd., Vimadalal J. discussed the above-said newly added provision from an unusual angle, namely, the impact of the order of the Companies Tribunal (as it then was) restraining the company from considering an item on the agenda relating to the offer by the director retiring by rotation for re-election, but allowing the said item to be adjourned pending further orders of the Tribunal. Vimadalal J. held that there was nothing in subsection (4)(b) of section 256 to lead to the conclusion that the deeming provision was to apply only when a company had the choice of fulfilling its conditions or not. Reliance was placed on Grundt v. Great Boulder Proprietary Mines Ltd. concerning an article provision somewhat similar to section 256(4)(b)(i). The concerned article provision in that case reads as follows:
"If at any general meeting at which an election of directors ought to take place the place of any director retiring by rotation is not filled up, he shall, if willing, continue in office until the ordinary meeting in the next year, and so on from year to year until his place is filled up, unless it shall be determined at any such meeting on due notice to reduce the number of directors in office".
At the annual general meeting held in July, 1947, Grundt retired by rotation but a resolution for re-electing him was lost by show of hands. There was no resolution, however, to reduce the number of directors. It was held that despite what happened Grundt continued in office in terms of the above-mentioned article provision. Lord Greene M. R. was not led to come to a different result merely on account of the absurdity of deeming Grundt to be re-elected despite his re-election having been lost by show of hands "Absurdity", observed Lord Greene M. R., "I cannot help thinking, like public policy, is a very unruly horse". What is of greater significance is that a previous decision in Robert Batcheller & Sons Ltd. v. Batcheller, which came to an opposite conclusion in identical circumstances, was disapproved. In Robert also the articles contained a similar provision and the retiring directors were not re-elected on a show of hands. A poll was demanded and the meeting was adjourned to take the poll, but due notice was not given as required by the articles for the adjourned meeting. At the illegally convened meeting the shareholders purported to elect other directors. Romer J. held that the retiring directors could not be deemed to have been re-elected thus enforcing what was exactly the opposite of what had in fact happened. Cohen L.J., with whom Lord Greene M. R. concurred in Grundt, disapproved of Robert as not being consistent with still an earlier decision by Maugham J. in Holt v. Catterall. The decision in Grundt was nullified by a change made in the Companies Act of 1948 (Schedule I, Table A, article 92) providing that the deeming provision would not apply in a case where a resolution for the re-election of such director had been put to the meeting and lost. Vimadalal J. observed that any statutory change made in England would not affect the validity of Grundt in the matter of interpreting an article of association. Ananthalakshmi Ammal having been a decision rendered under the Act of 1913, did not have to concern itself with section 256(4). Without referring to the same, which was a Division Bench decision, a single judge of the Madras High Court held a contrary view in V. Selvaraj v. Mylapore Hindu Permanent Fund Ltd. and observed that the directors retired at the annual general meeting which was convened but the meeting had not commenced at all owing to the confusion which prevailed; it was held that the previous directors must be deemed to continue in office. The contrary holdings of each of the two High Courts, Madras and Calcutta, introduce an additional element of uncertainty about the true legal position. In the view I take of this petition it seems unnecessary to express an opinion on this rather difficult question which may require fuller consideration when it arises.
The Indian decisions which hold that a retiring director vacates office if he fails to hold the annual general meeting seem to be based upon the view taken by the English court in In re Consolidated Nickel Mines Ltd. and the statement in Buckley on the Companies Acts (12th edition, page 882). Probably the decision of the House of Lords in Morris v. Kanssen is also material. In that case the question was whether the allotment of shares by some who purported to act as directors was valid when it was found that there was no appointment at all, the observations were expressly applicable to the case of there being no appointment at all or the original appointment itself being fraudulent. In Consolidated Nickel Mines Ltd. the question for consideration was whether the two directors were entitled to remuneration in spite of the obligation laid down on them by section 497 of the Act that the directors had to summon a general meeting every year and the articles of association providing that all the directors retire from office at the ordinary meeting.
Shri Ved Vyas, learned counsel for the respondent-company, referred to the uncertainty regarding the legal position in support of his contention that in the circumstances it could not be stated that the directors who were at least functioning de facto had notice of any defect in their appointment and for that reason the allotment of the right shares issued by them could not be questioned on the ground of their lacking the necessary authority to do so.
The articles of association of this company provide that at the second ordinary general meeting and at every succeeding ordinary general meeting, two of the directors, exclusive of the ex-officio directors and the debenture director (if any), shall retire from office; the provisions of this article are subject to the terms of any agreement between the company and a director (article 109). Articles 110 to 112 are also material and they read as follows:
"110. The directors to retire at the second ordinary general meeting shall, unless the directors concerned agree among themselves, be determined by lot, in every subsequent year the directors to retire shall be those who have been longest in office. As between directors who have been in office for an equal length of time, the directors to retire shall be determined by lot. The length of time a director has been in office shall be computed from his last election or appointment where he has previously vacated office. A retiring director shall be eligible for re-election.
111. The company at any general meeting at which any directors retire in manner aforesaid shall fill up the vacated offices by electing a like number of persons to be directors; provided that it shall not be obligatory upon the company to fill up any vacancy or vacancies not necessary to be filled up in order to make up the minimum number of directors required under article 96.
112. If at any general meeting at which an election of directors ought to take place, the place of any retiring director is not filled up, such director shall, if willing to continue in office, be deemed to have been re-elected at such meeting, unless it shall be determined at such meeting to reduce the number of directors, or to leave any vacancy unfilled".
It may be recalled that article 106 provides that the continuing directors may act notwithstanding any vacancy in their body and that article 2 (interpretation clause) states that " words importing the plural number also include the singular number".
Venkatarama Aiyar J. in A. Ananthalakshmi Ammal quoted the observations of Swinfen Eady L.J. in Channel Collieries Trust Ltd. v. Dover, St. Margaret's and Martin Mill Light Railway Co.:
"I think that the context requires that the word ' remaining directors ' should include the case of a remaining director..........and so long as there is any remaining director he may proceed to fill up the board by appointing persons when casual vacancies occur".
Venkatarama Aiyar J. applied those principles and held that the power to co-opt directors can be exercised even though the strength of the directors falls below the minimum and even when there was only one director capable of acting. Where there was at least one director he was capable of co-opting other directors. Pritam Singh and Balbir Singh are stated to have been co-opted on December 4, 1972, by Sheel Chandra and Yogesh C. Gupta. R. K. Jain (husband of the petitioner) retired in 1969, and he was re-elected despite the agreement according to which he was to be a managing director till October 4, 1972 (five years from October 4, 1967). That agreement does not expressly say that R. K. Jain did not have to retire as a director. In none of the model forms which have been suggested by Palmer's Company Precedents is there any particular form to suggest that by reason of an agreement alone the director could be a managing director for a period of 5 years without his also having to continue as director. It seems reasonable that the agreement would be operative if the person concerned was a director throughout the period mentioned in the agreement; in other words, if he ceased to be a director earlier than that period he may not by virtue of that agreement alone claim to be a managing director. As a fact, however, he seems to have been taken as continuing.
In the view that out of a total of three directors, Sheel Chandra and Yogesh C. Gupta alone continued as directors, article 109 would be relevant. It provides that at the second ordinary general meeting of the company and at every succeeding ordinary general meeting two of the directors, exclusive of the ex-officio director and debenture directors (if any), shall retire from office, but the provisions of this article are subject to an agreement between the company and the director. The expression in article 109 "two of the directors" itself suggests that the retirement by rotation of directors would take place only when there are more than two directors, that is to say, only if there are more than two directors, two, out of them, can retire by rotation. It is instructive to refer to In re David Moseley and Sons Ltd., where the concerned article provided for one-third of the directors retiring and also that, if the number is not a multiple of three, then the number nearer to but " not exceeding one-third" to retire from office. At the material date there were only two directors. Simonds J. observed (at page 723) as follows :
"The article, in my judgment, does not provide for the retirement of a director unless one of two conditions is satisfied : either there must be a number which is one-third of the directors, or there must be a number which is nearer to, but does not exceed, one-third. Here it is clear that neither of those conditions is satisfied. There are two directors and, therefore, you cannot find a number which is one-third. There are two directors and, therefore, you cannot find a number which is nearer to but does not exceed, one-third".
This case was referred to and distinguished by Venkatarama Aiyar J. in B. N. Viswanathan v. Tiffin's Barytes, Asbestos and Paints Ltd. on the basis of the language employed in David Moseley and the absence of analogous language in Viswanathan; it was held that even one of two directors should retire at the meeting. The language of article 109 is analogous to that employed in David Moseley.
Even if this view is not correct, Sheel Chandra must be taken to have retired not earlier than July 31, 1971, the last annual general meeting having been held on April 30, 1970 (there can be an interval of 15 months between two general meetings). Then, Yogesh C. Gupta, having become a director later than Sheel Chandra, he could continue as director till the next day on which the annual general meeting was to be held and in this sense did have the potentiality, according to Shri Veda Vyas, of co-opting other directors. I have referred to these aspects which may possibly have to be considered not for the purpose of deciding them but only for the purpose of indicating that these extremely difficult and complex questions cannot be satisfactorily and properly decided, collaterally, for the purpose of finding out whether it is "impracticable" for the company to conduct a meeting.
The expression "impracticable" is not, however, to be construed as "impossible". Sinha J. observed in Lothian Jute Mills Co. Ltd. that section 79(3) of the Companies Act of 1913 contemplated that the court should exercise its powers where it cannot say with reasonable approach to certainty, or even prima facie, that the meeting called in exercise of the powers contained in the regulations will be valid. This was to ensure that the shareholders should not be exposed to uncertainty flowing from the situation and the consequent litigation. Banerjee J. also held in In re Malhati Tea Syndicate that the word "impracticable" means "impracticable from a reasonable point of view". The court must take a "common-sense view" of the matter and must act as a prudent person of business. Following the observations of the Judicial Committee in Commissioner, Lucknow Division v. Deputy Commissioner of Pratabgarh, Banerjee J. observed in In re Malhati Tea Syndicate Ltd. that when there is doubt as to the existence of a board of validly appointed directors and there is possibility of interminable troubles and prejudice to the interest of the company if a meeting is held otherwise than under the direction of the court, it will be expedient for the court to call a meeting of the company. The observations of the same court in Indian Spinning Mills Ltd. v. His Excellency Lt. General Madan Shumshere Jang Bahadur . An appeal against an order of Mooker jee J. calling a meeting was dismissed by the Division Bench, to which Banerjee J. also was a party, when it was felt that the calling of a meeting by the requisitionists would lead to endless litigation and where matters may arise for debate and decision which were already the subject-matter of suits. The Division Bench had no difficulty in holding in such circumstances that a meeting of the company would be " impracticable". In a still later decision of the same High Court in Bengal and Assam Investors Ltd. v. J. K. Eastern Industries P. Ltd., P. B. Mukharji J. (as he then was) reviewed the case law in question and agreed with the principles decided by the aforesaid cases but still declined to order a meeting in that case. He observed that a discretion granted under section 186 should be sparingly used and with great caution so that the court does not become either a shareholder or a director of the company trying to participate in internecine squabbles of a company. In a still later case before the same High Court S. P. Mitra J. reviewed all the authorities in United Breweries Ltd. v. Ruttonjee & Co. Ltd. and summarised the principles to be borne in mind in an application under section 186. It seems to me that the following principles were re-stated :
(1) the court would not ordinarily interfere with the domestic management of a company which should be conducted in accordance with the articles;
(2) the discretion granted under section 186 should be used sparingly and with caution so that the court does not become either a share holder or a director of the company; in other words, the court will ordinarily keep itself aloof and not participate in quarrels of rival groups of directors or companies;
(3) the word " impracticable " has to be construed from a practical point of view;
(4) but where the meeting can be called only by the directors and there are serious doubts and controversies as to who are directors or there is a possibility that one or two or both the meetings called by rival groups have been invalid, the court ought not to expose the shareholders to un certainty and should hold that a position has arisen which makes it "impracticable" to convene a meeting in any manner in which the meeting may be called;
(5) the court should exercise its powers under section 186 when on considering all the facts and circumstances of a case it can with reasonable approach to certainty and even prima facie say that the manner in which meetings are previously called under the Act and/or under the articles would be invalid;
(6) before exercising discretion under section 186 the court must be satisfied that a director or a member moved an application bona fide in the larger interests of the company for removing a deadlock which is otherwise irremovable.
Mitra J., referred to In re El Sombrero Ltd., which was a somewhat extraordinary case. The applicant held 90% of the shares of a private company and each of the two directors held 5%. According to the company's articles of association, the quorum for the general meeting was 2, present in person or by proxy; if within half an hour from the time appointed for a meeting the quorum was not present, the meeting, if convened on the requisition of members, would stand dissolved. No general meeting of the company had ever been held. On March 11, 1958, the applicant requisitioned an extraordinary general meeting under section 132 of the Companies Act, 1948, for the purpose of passing resolutions removing the two directors and appointing two other persons as directors. The directors having failed to comply with the requisition the applicant himself convened an extraordinary general meeting for April 21, 1958. The directors did not attend the meeting either in person or by proxy; the quorum not being there the meeting stood dissolved. On April 29, 1958, the applicant served a special notice under section 142 of the Act of 1948 of his intention to move the same resolutions at the next extraordinary general meeting; on the same day he took summons asking for a meeting to be called by the court under section 135(1) of the Act of 1948 for the purpose of passing the resolutions, and for a direction that one member of the company should be deemed to constitute a quorum at such meeting. The application was opposed by the directors. An order directing a meeting to be held and that one member present should constitute a quorum was made in the circumstances. This case illustrates the exercise of such power in order to suit the exigency of each situation. It is also of interest to note that there was no reference here to the previous decision of the English Court of Appeal in MacDougall v. Gardiner. It was held in that case that where by the articles of association of a company, the directors, and in the alternative, a certain portion of the shareholders can summon a meeting of the company, the court will not order the directors to summon a meeting for the general purposes of the company.
Reliance was placed by the petitioner upon a Full Bench decision of the Allahabad High Court in Balkrishna Maheshwari v. Uma Shankar Mehrotra, a case arising under the old sections 76 and 79 of the Companies Act of 1913. The District Judge of Kanpur had passed an ex parte order directing an annual general meeting of the company which was later on confirmed. The dispute related to the annual general meeting of the company for the year 1946, the last one having taken place on February 3, 1945, According to the articles of association the annual general meeting of the company for the year 1946 had to be called on some date before 31st March of that year. The management of the affairs of the company lay in the hands of a council of 21 members, including a president and a vice president; the duty of calling the annual general meeting of the company in every calendar year lay upon that council. It was contended on one side that 14 days' clear notice had been given for the meeting in 1945, It was contended, on the other hand, that though a notice was directed to issue fixing a date, no notice had been issued and posted with the result that there could be no clear 14 days' notice as required. An objection had been raised by one of the members to whom a notice had been sent that the notice had been invalid. The District Judge had held that a meeting of some sort was held on March 28, 1946, though it was without a clear margin of 14 days' and was invalid. The Full Bench of the Allahabad High Court observed that the District Judge should also have held that he had the competence to find out whether there had been a previous valid meeting as a necessary step in the matter of calling the meeting sought for under section 186 of the Act. Mootham J., speaking for the Full Bench, observed :
"It was strenuously contended by learned counsel that the determination of such an issue might often involve the decision of complicated questions of fact and law and it must, therefore, be inferred that the law did not contemplate the determination of such a question in a miscellaneous proceeding under section 79(3). We are not impressed at all by this argument because we do not think that in the large majority of cases any complicated questions of law and fact will arise for consideration. The question of the validity or otherwise of a meeting will, in a vast majority of cases, turn upon the interpretation of the company's articles of association and some general provisions of the law".
The Full Bench decision is, therefore, of no assistance to the petitioner; this is not a simple case, free from complexity.
Shri Ved Vyas, on the other hand, contended that the present petitions not having been brought in the name of the company they are not maintainable according to the well-known rule in Foss v. Harbottle. As an important facet of the principle of majority rule, it was held that if a wrong has been done to a company only the company could sue. To this rule itself there are exceptions like the act or resolution complained of being itself illegal or ultra vires, the controllers of the company acting in breach of the articles of association and fraud on the minority being committed. This case was followed in a number of cases including Mozley v. Alston, where two shareholders in their individual capacity brought proceedings against the company and members of the board of directors seeking to restrain the directors from acting as such until four of their members had retired by rotation, as required by the company's constitution, and four new directors had been elected in their place. The action failed in the view that if injury was not one personally to the plaintiffs but to the company—an usurpation of the office of directors—being an invasion of the rights of the corporation; yet no reason had been assigned why the corporation had not put itself in motion to seek the remedy. The "pre-eminently procedural character" as described by Palmer (vide Company Law, 21st edition, page 503) of this rule was explained by Jenkins L.J. in Edwards v. Halliwell, as follows :
"The rule in Foss v. Harbottle, as I understand it, comes to no more than this. First, the proper plaintiff in an action in respect of a wrong alleged to be done to a company or association of persons is prima facie the company or the association of persons itself. Secondly, where the alleged wrong is a transaction which might be made binding on the company or association and on all its members by a simple majority of the members, no individual member of the company is allowed to maintain an action in respect of that matter for the simple reason that, if a mere majority of the members of the company or association is in favour of what has been done, then cadit quaestio, no wrong had been done to the company or association and there is nothing in respect of which any one can sue. If, on the other hand, a simple majority of members of the company or association is against what has been done, then there is no valid reason why the company or association itself should not sue. In my judgment, it is implicit in the rule that the matter relied on as constituting the cause of action should be a cause of action properly belonging to the general body of cooperators or members of the company or association as opposed to a cause of action which some individual member can assert in his own right".
In Edwards v. Halliwell two members of a trade union successfully sued two members of the executive committee of a trade union and the union itself for a declaration of illegality regarding a resolution passed by a delegate meeting of the union, without taking a ballot, increasing the contributions of members contrary to the constitution of the union—that it was not to be altered until a ballot of the members had been taken and a two-thirds majority obtained.
The submission of Shri Ved Vyas in this regard is seen to be without much force in so far as a petition under section 186 need not be on behalf of the company for the very language of that section even permits the court suo motu to call a meeting of the company if it has become impracticable to call a meeting, other than an annual general meeting. But the submission of Shri Ved Vyas may have force if this petition, under section 186, is sought to be used mainly for obtaining reliefs pertaining to the alleged usurpation of office by directors. However, an action need not be in the name of the company for actions concerning injuries personal to the petitioner. There is also one other aspect of the rule in Foss v. Harbottle, and the line of cases following it, namely, that the English court of equity had constantly and consistently refused to interfere on behalf of share holders until they have done their best to set right the matter of which they complain, by calling general meetings (vide Lindley L. J. in Isle of Wight Railway Company v. Tahourdin).
The ground has now been prepared for discussing some of the even more important aspects of this case.
The English cases pertaining to what is known as the rule in Royal British Bank v. Turquand, have been described by Gower as "Something of a jungle of irreconcilable decisions" (Principles of Modern Company Law, 3rd edition, page 158). The question which arose in that case, whether a third party dealing with a company is bound to ensure that all the internal regulations of the company have in fact been complied with as regards the exercise and delegation of authority was answered in the negative. In other words, third parties need not enquire into regularity of indoor proceedings and may assume that everything was validly done. Despite this rule having been laid down in such simple terms, as Gower (page 158) points out, the tendency during the last thirty years has been "to whittle it away notwithstanding the vigorous opposition by judges more familiar with company practice". It is most confusing to go into the English cases which have either applied the said rule in Royal British Bank v. Turquand, or did not apply it. Another standard author, Palmer (Company Law, list edition, pages 249-50) thinks that there is an exception to the said rule, namely, where the persons concerned have knowledge of the irregularity or even when those persons are put on enquiry. The effort not to apply the said rule is really based on the theory of protecting the shareholders; the further question, however, is whether there can be any unwarrantable protection given to the shareholders where the interests of the whole community is made to suffer ? It does not appear to be necessary to go into these difficult and nice questions in the present case because counsel for both sides did not endeavour to go into them.
Shri Ved Vyas relied upon section 290 of the Indian Act in support of his contention that the directors who were functioning in this case, even in the view contended for by the petitioner that they were not de jure directors, were at least de facto directors who functioned without any knowledge of the defect in their continuance or functioning as directors. To appreciate this contention it would be necessary in the first instance to read section 290:
"290. Acts done by a person as a director shall be valid, notwithstanding that it may afterwards be discovered that his appointment was invalid by reason of any defect or disqualification or had terminated by virtue of any provision contained in this Act or in the articles :
Provided that nothing in this section shall be deemed to give validity to acts done by a director after his appointment has been shown to the company to be invalid or to have terminated".
The corresponding section of the Indian Act of 1913 was section 86 and of the English Act section 180. The principle obviously is that there should be no vacuum in the affairs of a company and that all acts done bona fide should be fully protected not only between third parties and the company but also between the company and its members and between members and members.
While considering an article providing for the validity of acts of directors, notwithstanding the discovery later of some defect in the appointment of such directors, Chitty L.J. observed as follows in Dawson v. African Consolidated Land and Trading Co. :
"It is not framed so as to render valid a
resolution passed by any persons who without a shadow of title assume to act as
directors of a company .... The clause is addressed..........to cases of
defective appointment or disqualification".
Dawson was followed in British Asbestos Co. v. Boyd. Until Dawson the object of such article and the concerned provision of the Act was understood as only protecting honest acts of de facto directors in relation to outsiders bat not as between members of the company and the company. In British Asbestos Co. Ltd. v. Boyd, Farwell J. had held that the above view of law to be incorrect; bona fide acts of de facto directors were also good between members of the company inter se and members of the company and the company. The same principle was reiterated in Channel Collieries Trust Ltd. v. Dover, St. Margaret's and Martin Mill Light Railway Co. It was pointed out by Lord Cozens Hardy M.R., when dismissing the appeal against the judgment of Sargant J. that the concerned statutory provision, which had to be construed broadly not only between the company and outsiders but also between the company and the members, validated the bona fide allotment of the shares in question. The view of Farwell J. in Dawson , that the subsequent discovery of a defect did not merely mean the discovery of facts but of the defect itself, was approved. Swinfen Eady L.J. referred to the defects not being present in the minds of the parties who so acted.
The said principle was affirmed by the House of Lords in Morris v. Kanssen also but the observations were confined to acts of defective appointment but not extending to cases of no appointment at all or a fraudulent usurpation of authority from the outset.
This distinction between discovery of facts and discovery of defects was also made by Dua J. (as he then was), speaking for a Division Bench of the Punjab High Court in Karnal Distillery Co. Ltd. v. Ladli Parshad Jaiswal . There is a full discussion of this aspect by Mallick J. in Albert Judah Judah v. Rampada Gupta. Referring not only to standard text writers but also to Indian cases, Mallick J. observed at pages 735-36 as follows:
"In all the authorities, however, cited before me and noticed before the term de facto directors has been restricted to directors with defective appointment. No case has been cited in which the court has upheld the act of a ' pretended director ' without any appointment. In other words, in no case the term de facto director has been applied to a mere usurper without any appointment whatsoever".
To the same effect is also the decision of a Division Bench of the Allahabad High Court in Shiromani Sugar Mills Ltd. v. Debi Prasad, where Desai J., speaking for the Division Bench, considered some of the cases and held that the actions of de facto directors are protected when brought to their minds. A similar view was also taken by Chopra J. in Fateh Chand Kad v. Hindsons (Patiala) Ltd.
Without recording evidence it is hardly proper to go into the facts bearing on this contention. The materials on record do not show any consciousness on the part of those concerned, before the controversies arose, that all or any of the retiring (?) directors could not legally continue. When by letter dated 6th December, 1972 (annexure "C" to the petition), Yogesh C. Gupta informed Bk. Shivcharan Singh (in reply to his letter of the 5th informing the company of the restraint order (annexure "B" to the petition) that the allotment of right shares had been made on 4th December, 1972, Bk. Shivcharan Singh wrote a long letter on 9th December, 1972 (annexure "D"), informing Yogesh C. Gupta about his various legal contentions, also citing some decisions in support. My attention has not been drawn to any communication prior to 4th December, 1972, drawing the attention of the company to the fact that the right shares could not be issued on the ground that there was no validly constituted Board. For this reason alone it does not seem possible for the petitioner, without bringing in more evidence if the same is available on this question to contend that the directors, if they were only de facto, did have notice of the alleged defects, and could not have validly allotted those right shares. Probably realising this difficulty Bk. Shivcharan Singh mounted his attack upon the invalidity pertaining to the decision to issue right shares and to the illegality of the notice issued in this behalf.
The invalidity of the decision to issue the right shares is only a part of the general question, discussed already, whether there were de jure or de facto directors and even if they were only de facto, they had notice of the alleged defects. Any other attack, on how the meeting, at which the decision to increase the capital was taken, was conducted would be possible only if detailed evidence is led on this question. In these circumstances Bk. Shivcharan Singh vigorously concentrated on the sufficiency of the notice that was issued to the petitioner (and others) concerning the issue of right shares.
According to article 10 of the articles of association :
"Where the board of directors of a company decides to increase the subscribed capital of the company by allotment of further shares, then unless the requirements of sub-section (1 A) of section 81 of the said Act are complied with, (a) such further shares shall be offered to the persons who, at the date of the offer, are holders of the equity shares of the company, in proportion as nearly as circumstances admit, to the capital paid up on those shares at the date; (b) the offer aforesaid shall be made by notice specifying the number of shares offered and limiting a time, not being less than fifteen days from the date of offer, within which the offer, if not accepted, will be deemed to have been declined".
The notice is said to have been issued on November 17, 1972, and on the date of receipt the petitioner and her husband should have 15 clear days which would take us to December 3, 1972, but the issue in this case is stated to have been made on December 4, 1972; December 3, 1972, was a Sunday.
Section 81 of the Act provides for the issue of further capital; such further shares shall be offered to the persons who, at the date of the offer, are holders of the equity shares of the company in proportion, as nearly as circumstances admit, to the capital paid up on those shares at that date. This offer should be made by notice specifying the number of shares offered and limiting the time "not being less than fifteen days" from the date of the offer within which the offer, if not accepted, will be deemed to have been declined. In construing the expression "not less than 15 days" it is urged by the petitioner that the date of issuing the notice and receiving the notice must be excluded. It is at par with the expression "7 clear days' notice", which was interpreted in King v. Turner as exclusive of the dates of dispatch and receipt. The same was followed in In re Hector Whaling Ltd as exclusive of the date of service of the notice and exclusive of the day on which the meeting is to be held. The same view was taken by a Division Bench of the Madras High Court in N. V. R. Nagappa Chettiar v. Madras Race Club, where a number of English decisions were also considered. A Division Bench of this court consisting of P. N. Khanna and Prakash Narain JJ. in Bharat Kumar Dilwali v. Bharat Carbon and Ribbon Manufacturing Co. Ltd., interpreted the expression "not less than 21 days' notice" used in section 171 of the Act as notice of 21 whole or clear days. Part of the day, after the hour at which the notice is deemed to have been served, cannot be combined with the part of the day before the time of the meeting on the day of the meeting, to form one day.
The offer of right shares is stated to have been made by a letter dated November 17, 1972. The right shares are said to have been allotted on December 4, 1972; December 3, 1972, was a Sunday. 17 days notice inclusive of the date of issue and date of receipt of the letter will take us to December 3, 1972. Notice of not less than 15 days alone is necessary to be given; that will take us to December 3, 1972, alone exclusive of the day of the despatch and day of receipt of letter. A letter posted in Delhi ordinarily reaches another in Delhi the next day. It is contended that the notice asked the offeree to accept the notice "within 17 days from the date of this offer" and, therefore, there is an extension of time for that reason beyond what the statute prescribes. 17 days "from the date of offer", namely, November 17, 1972, will not take it beyond December 3, 1972. Prima facie the notice does not appear to be shorter than what is required by section 81. Even assuming that the notice was short a declaration cannot be granted against the allottees of those shares in their absence. This would be plainly opposed to the rule of natural justice. It will be sufficient to cite the latest decision of the Supreme Court on this question, i e., Smt. fatan Kanwar Golcha v. Golcha Properties Pvt. Ltd. in which both the official liquidator and the company court were held to be bound by the rules of natural justice. Even an application for the rectification of the share register could not be disposed of without notice to the parties affected. The court may even decline to grant rectification on an application made under section 155 if it involves any complicated questions and the parties could properly be referred to a suit in such a case. The following passage from Halsbury's Laws of England, third edition, page 218, may be usefully referred to :
"If the court thinks that the case, by reason of its complexity or on the ground that there are matters requiring investigation or otherwise, could more satisfactorily be dealt with by an action, the court will decline to make an order on a motion, without prejudice to the right of the applicant to institute an action for rectification".
A similar approach has been adopted by the Indian courts also (vide In re Dhelakhat Tea Co. Ltd., and Mahendra Kumar Jain v. Federal Chemical Works Ltd.). There is also great force in the contention that a suit having been filed, though not by the petitioner but by S. L. Verma (another shareholder) to which the petitioner and her husband are parties, specifically raising the question of the invalidity of the allotment of the right shares and rectification of the register of members concerning the entries made on the basis of the said allotments, it would not be proper to adjudicate on this question summarily.
A right of a shareholder of a company to vote is a right to property, vide Lord Maugham in Carruth v. Imperial Chemical Industries Ltd. . It has been repeatedly held by the Supreme Court that when civil consequences are involved an order having such consequences should comply with the rules of natural justice. The Supreme Court has recently pointed out in Smt. Jatan Kanwar Golcha v. Golcha Properties Private Ltd. that the company court will not pass orders affecting the rights of parties without notice to them; this is nothing but a rule of natural justice. It is instructive to also refer to In re Greater Britain Insurance Corporation Ltd.: ex parte Brockdorff. The Court of Appeal dismissed the appeal against an order passed by Russel J. throwing out an action praying for rectification of the register of members of the company on the ground that the interests of third parties were concerned and that it was not for the court to exercise jurisdiction conferred upon it by article 32 of the Companies (Consolidation) Act, 1908, in the absence of a party affected, even if satisfied, and that it must be enforced in an action to which affected persons are parties.
It remains to notice one other contention of Shri Ved Vyas that article 115, fixing the quorum for the meeting of the board of directors at three, is ultra vires in view of section 287(2), prescribing the maximum as two, not permitting an article provision to the contrary. It is true that there are some provisions contrary to what has been laid down (section 174 is one such) and that section 9 provides that save as otherwise expressly provided in the Act the provisions of the Act shall have effect notwithstanding anything to the contrary in the memorandum or articles of association. I wonder whether it has any relevance here. I have also not been referred to any decided case where such an article provision as the present (though it seems to be common enough) was ever questioned merely on the ground that it provides for a greater quorum than what the Act insists—it may be another matter if the articles provide for less. It seems unnecessary to express an opinion on this question also. Even if the decision to issue right shares was invalid a declaration concerning its invalidity cannot be granted in the absence of those who would be affected by it.
Bk. Shivcharan Singh drew my attention to In re Sly, Spink & Co. where rectification of register of members was granted when the shares were allotted by directors who were less than the quorum. (This argument subsumes that Pritam Singh and Balbir Singh were not properly co-opted and that even if Sheel Chandra and Yogesh C. Gupta were validly continuing as directors they could not by themselves (two of them alone) decide to raise the capital of the company. But then R.K. Jain is said to have been present at a meeting when such a decision was taken; R. K. Jain disputes this and this leads to a controversy concerning facts also). Assuming that everything contended for by Bk. Shivcharan Singh is true and valid we are confronted here with a somewhat extraordinary request to cancel the allotment of right shares without even an application to rectify the register of members, without even having all those who would be affected by that decision as parties before the court and when a suit for such a relief is pending in this very court. Perhaps the greatest difficulty faced by the petitioner is on the above score.
Bk. Shivcharan Singh wanted the sympathy of the court for the petitioner in the view that the adopted son was trying to displace his adoptive parents supported by his own brother-in-law and friends. But sympathy by itself would be hardly enough. The petitioner would have at least to show that there is no other option than to apply under section 186. Even this has not been done. Shri Ved Vyas contends, and with some force, that the members themselves may apply for an extraordinary general meeting under section, 169 and articles 64 to 66; if that were so it would not be for this court to call such a meeting. The petitioner can also apply to the Central Government to convene an annual general meeting under section 167. The petitioner has not obviously considered it sufficient to apply under section 167 to the Central Government because no relief in regard to the issue of right shares could be obtained. That is why these petitions have been filed for getting a declaration concerning the invalidity of the issue and allotment of right shares under the guise of the court having to give directions pertaining to who should vote at such a meeting if one is to be called by this court. I have endeavoured to study myself the reported decisions on this subject and I have not been able to come across a single case—none has been cited to me—where the court went to the extent of rectifying the register of members for the purpose of giving directions as to who should vote.
There was an exceptional situation arising out of the register of members and other records, maintained under the Building Societies Act, 1874, being destroyed due to enemy action, when Vaisey J. (in Payne v. Coe) gave a direction to hold a meeting in accordance with the rules for ascertaining the names and addresses of the members by means of public advertisement. No question of rectifying the register of members for the purpose of giving such directions arose in that case.
Krishnaswamy Nayudu J. of the Madras High Court had given a direction that those whose names appeared in the register of members on a certain date would vote at the meeting called under the old section 39(3), before the present section 186 was placed on the statute book. Venkatarama Aiyar J. in Viswanathan v. Tiffin's Barytes, Asbestos and Paints Ltd. has referred to this direction by Krishnaswamy Nayudu J. as follows : "to this course the company could have no objection". In the case on hand, however, there are several objections (they have been already noticed) to a direction being given that there should be no voting on the basis of the right shares. The petitioner's purpose would not be served if such a direction is not given. What was originally 46% had been reduced to about 25% after the said issue; even if the petitioner is supported by the other two petitioners and S.L. Verma it would be of no avail.
The circumstances discussed at length do not justify the court using its discretion under section 186 of the Act to call a meeting as prayed for.
C. A. Nos. 725 of 1972 and 73 of 1973 are accordingly dismissed. The separate application filed (C.A. No. 119 of 1973) to dismiss the main petition on the admissions contained therein has also become unnecessary. It is also needless to be detained by the question who is the proper person to represent the company, a point raised in C.A. No. 700 of 1972. All these interlocutory applications as well as the main petition (C.P. No. 96 of 1972) are dismissed. There will be no order as to costs in any of them in the circumstances.
[1961] 31 COMP. CAS.
301 (CAL.)
Murarka Paint And Varnish Works
(P.) Ltd.
v.
Mohanlal Murarka
A.N. RAY, J.
SUIT NO. 426 OF 1960
AUGUST 1, 1960
A.N. RAY, J. - This suit has been instituted by Murarka Paint and Varnish Works (Private) Ltd. against Mohanlal Murarka, Chunilal Murarka, Purushottamlal Murarka, Beharilal Murarka, Radheylal Murarka, Kunjalal Murarka and Hiralal Murarka. The plaintiff has its registered office at 4E, Dalhousie Square, East Calcutta. The plaintiff uses the said office in common with five other limited companies. At the last annual general meeting of the plaintiff company, Sohanlal Murarka, Kissenlal Murarka, Shankarlal Murarka and Mohanlal Murarka were appointed directors.
Article 111 of the company states that every director shall vacate his office, inter alia, on his being requested in writing by all his co- directors to resign. On or about February 24, 1960, Sohanlal Murarka, Kissenlal Murarka and Shankarlal Murarka acting under article 111 requested Mohanlal Murarka in writing to resign. The plaintiff’s case is that Mohanlal Murarka immediately thereafter ceased to be director of the plaintiff. On or about February 25, 1960, the board of directors of the plaintiff at a meeting held by it on the same day appointed in accordance with the articles one Mahabir Prasad Murarka in place and stead of Mohanlal Murarka. The plaintiff alleges that in the premises on and from February 25, 1960, the lawful directors of the plaintiff were and are : Sohanlal Murarka, Kissenlal Murarka, Shankarlal Murarka and Mahabir Prasad Murarka.
On or about February 25, 1960, the plaintiff, through its solicitors, Messrs. Khaitan and Co., issued notices in various newspapers to the effect that all power and authority of the defendant, Mohanlal Murarka, as a director had been terminated. The defendants, Chunilal Murarka, Radheylal Murarka, Beharilal Murarka, Hiralal Murarka and Kunjalal Murarka, it is alleged, are not registered shareholders of the plaintiff. The defendant, Mohanlal, is the joint registered owner of 6,250 ordinary shares in the plaintiff company along with the defendants Purushottamlal Murarka and Shankarlal Murarka.
On or about March 23, 1960, at about 2 p.m., it is alleged, the defendants, Mohanlal Murarka, Chunilal Murarka, Purushottamlal Murarka and Beharilal Murarka accompanied by about 25 unknown persons and police officers forcibly entered in to the office of the plaintiff and attempted wrongfully and illegally to take possession and charge of the affairs and properties of the plaintiff including its books of accounts, papers, documents and moneys, etc. The plaintiff, on March 23, 1960, lodged a complaint at Hare Street Police Station in Calcutta. On March 24, 1960, an application was made before the Chief Presidency Magistrate, Calcutta, praying for the issue of process against the defendants, Chunilal Murarka, Mohanlal Murarka, Purushottamalal Murarka and Beharilal Murarka. A report was called for by the Chief Presidency Magistrate by April 9, 1960. After the passing of the order, it is alleged, the defendants with the help of unknown persons started dismantling almirahs, fixtures, etc., situate in the office of the plaintiff. Another application was made before the Chief Presidency Magistrate for an order under section 144 of the Criminal Procedure Code. Another report was called for by the Chief Presidency Magistrate by March 26, 1960, and it was directed that there was to be no breach of peace meanwhile.
The plaintiff’s solicitors received a letter dated March 23, 1960, from Radheylal Murarka whereby Radheylal Murarka purporting to act as a director of the plaintiff informed the plaintiff’s solicitors that Sohanlal Murarka, Kissenlal Murarka and Shankarlal Murarka had been removed from the board of directors of the plaintiff.
It is further alleged in the plaint that, on March 24, 1960, the plaintiff’s law agent went to the office of the plaintiff company when it was discovered that Kunjalal Murarka was asserting that he and his father Hiralal Murarka were directors. The plaintiff’s law agent further discovered almirahs to be broken and tampered with, cash moneys having been forcibly taken away by Mohanlal Murarka and Chunilal Murarka, and that several unknown persons were sitting and/or standing in the office room.
The plaintiff alleges that none of the defendants could be validly or at all appointed director and that the defendants acted illegally and without any authority or jurisdiction. It is alleged that the only persons entitled to manage the affairs of the business and properties in accordance with the memorandance and articles of association and the provisions of the Companies Act are the present board of directors as mentioned in paragraph 9 of the plaint. It is further alleged that the defendants trespassed into the office and interfered with the management of the affairs, business and properties.
The plaintiff company asks for a permanent injunction restraining the defendants, their servants, nominees and/or agents from occupying the office of the plaintiff and from interfering with the management and control of the plaintiff and also injunction restraining the defendants from usurping the management and control of the affairs, business and properties of the plaintiff and further injunction restraining the defendants, their servants, nominees and/or agents from in any way acting as directors of the plaintiff and reliefs regarding books, furniture and cash moneys.
Defendants Nos.1 to 6 filed a joint written statement. One of the points taken in the written statement is that the suit has been instituted without the authority of the board of directors and against the decision of the shareholders. As present it is not necessary to deal with other defenses in this suit.
This suit came up before me on June 3, 1960. None of the counsel on behalf of the plaintiff and the defendants was present in court. Only the plaintiff’s solicitor and the defendants’ solicitor were present in court. The solicitor for the defendants suggested that a meeting be convened to ascertain the wishes of the shareholders as to whether they wished to continue the suit. The solicitor for the plaintiff was unable to show any reason as to why that should not be done. I made an order to that effect.
A couple of days thereafter counsel on behalf of the plaintiff expressed regret that they were not present when the suit was called on and prayed for rehearing of the matter. Counsel for the defendant also stated that the matter could be heard under those circumstances.
Counsel on behalf of the plaintiff contended that there were groups of shareholders on the side of the defendants and some of such shareholders had no title to the shares. To illustrate, it was contended that Mohanlal Murarka who was shown to be holding 12,500 shares was restrained by orders of this court from asserting rights in respect of such shares. These 12,500 ordinary shares standing in the name of Mohanlal Murarka originally belonged to Radheylal Murarka and Chunilal Murarka and were forfeited in exercise of lien and were allotted to Mohanlal Murarka. Two suits were filed by Radheylal Murarka and Chunilal Murarka, Nos.3264 of 1947 and 3265 of 1947 respectively. In those suits it was ordered that the defendants to the suit were prohibited and restrained until the determination of the suit or until further orders of this court from in any way interfering with the rights of the plaintiff as registered shareholder in respect of the shares. The suits are still pending. Under these circumstances counsel of the plaintiff contended that no rights could be asserted in respect of those shares by Mohanlal Murarka. Counsel for the defendants submitted that Chunilal and Radheylal Murarka were supporting the defendants and, therefore, those shares were in any event in support of the defendants. These suits are still pending decision.
Counsel for the defendants similarly contended that 6,250 shares standing in the name of Maniklal Murarka and others jointly were registered in violation of the provision contained in article 14. Maniklal Murarka and others are supporting the plaintiff. These 6,250 shares are in the names of Maniklal Murarka, Lachmiprasad Murarka, Ajit Prasad Murarka, Iswari Prasad, Narayan Prasad and Mani Bai. Article 14 states that shares may be registered in the names of any limited company but not in the name of a minor nor usually more than four persons be registered as joint holders of any share. Counsel for the plaintiff contended that article 14 referred to allotment of shares but did not relate to transmission of shares on death et cetera It was contended on behalf of the plaintiff that under article 47 there could be no limitation upon the number of heirs to be registered in respect of any share.
It was also contended on behalf of the plaintiff that 6,250 shares which were shown to be standing in the name of Beharilal Murarka and which were alleged to be transferred on Marh 24, 1960, were so done wrongfully. Similarly it was contended that 2,750 shares standing in the name of Kunjalal Murarka were purported to be transferred wrongfully. Beharilal Murarka and Kunjalal Murarka are supporting the defendants. It was contended on behalf of the plaintiff that article 84 did not apply to cases where persons claimed share by inheritance and that article 84 was confined to transmission of shares under article 48. It was contended on behalf of the plaintiff that article 47 related to transmission of shares of deceased persons. It was further contended that only executors or administrators of the deceased could apply under article 47. Beharilal Murarka and Kunjalal Murarka who claim shares on the death of Laloola Murarka, it was contended by counsel for the plaintiff, had further to satisfy the directors under article 84 of the right to act in that capacity. It was contended by counsel for the plaintiff that there was no evidence that Beharilal Murarka or Kunjalal Murarka satisfied the directors of their right to act in that capacity.
Counsel on behalf of the defendants contended that Beharilal Murarka was entitled to vote and, whether the shares in the name of Laloolal Murarka belonged to a joint family or were held individually, Beharilal Murarka would be entitled to vote in consequence of the death of Laloolal Murarka.
It is manifest under these circumstances that the shareholding bristles with disputes as to rights and counsel for the plaintiff, in my view, rightly characterised such disputes relating to title to the shares as containing seeds of litigation concerning the shares and assertion of rights in respect thereof. Counsel for the defendants contended that if a general meeting were ordered it would not be relevant at this stage to take any notice as to disputes to title of the shares.
I am unable to accept the contention of counsel for the defendants. I cannot allow a meeting to be held without deciding who the shareholders are and who will vote. I am extremely doubtful it I can inquire into these questions either in this suit or at this stage.
Counsel for the defendants contended first that it was specifically pleaded in the written statement that the suit was bad being in the name of the plaintiff company and that there was no resolution disclosed by the plaintiff showing the authority of the plaintiff to institute the suit. It was secondly contended that even if the initiation of the suit was good the company might discontinue and equally if initiation were bad the company might continue the suit by ratification. A general meeting would be necessary to find out if the suit is to be continued or discontinued. It was thirdly contended that the dispute in the present case related purely to the internal management and, therefore, the court would not interfere.
As to the first point, namely, the use of the name of the company by the plaintiff, counsel for the plaintiff contended that it was not open to the defendants to take that objection as a defence to the suit and that they should have proceeded by way of motion to stay the suit. On behalf of the defendants counsel contended that it was not an absolute rule that the objection should be by way of motion to stay the suit but that it could be brought to the notice of the court that the plaintiff was not authorised to sue in the name of the company. Reliance was placed by the defendants on the decision of La Company de Mayville v. Whitley [1896] 1 Ch.788, Daimler Co.Ltd. v. Continental Tyre and Rubber Co. (Great Britain) Ltd., Danish Mercantile Co.Ltd. v. Beaumont [1951] 1 Ch.680. It is well settled that if authority is wanted to use the name of the company, it must be authority got from the proper quarter, either from the directors or from the shareholders convened for the purpose. In the Daimler Company case it was found that no authority was conferred upon the secretary to institute the action and it was under these circumstances ordered to be struck out. It was contended in that case that the objection should have been raised by a motion to strike out the writ but LORDS PARKER and PARMOUR said that the action was altogether irregular and that no steps necessary to confer authority on the secretary had been taken. In the Danish Mercantile Company case there was an application to stay the proceedings. The managing director under an agreement was to manage and conduct the affairs. He instructed the solicitor to start an action in the name of the company. The action was approved neither by the company in general meeting nor by the board of directors before it was started. In the meantime liquidation commenced. The defendants thereafter applied by motion to strike out the name of the plaintiff. It was held that the liquidator had ratified the bringing of the action. In that case reference was made to the decision in London and Blackwall Railway Co. v. Cross, where a distinction was drawn between an application for an injunction restraining the unauthorised use of the company’s name in certain proceedings and an application in an action to stay the proceedings or strike out the plaintiff’s name on the ground that the proceedings were brought without the plaintiff’s authority. The principle established there is that if a person without authority brings an action in the name of another it is an abuse of the process of the court, and the court can stop it. Counsel for the defendants thus contended that the court had power, whether there was a motion to stay the suit or not, to stop the proceedings when it was unauthorised use of the name of the company.
Counsel for the plaintiff relied on the decision of Russian Commercial and Industrial Bank v. Computer d’Escompte de Mulhouse. One of the disputes there was as to whether it was open to the defendants to raise by way of defence to the action the objection that the London branch manager had no authority to bring the action in the name of the plaintiff. Dealing with the contention VISCOUNT CAVE said : “.......I do not think that it is open to the defendants to raise this question by way of defence to the action. If the defendants desired to dispute the authority of Mr. Jones to commence these proceedings in the name of the plaintiff company their proper course was to move at an early stage of the action to have the name of the company struck out as plaintiff and so to bring the proceedings to an end.” Again in the case of John Shaw and Sons (Salford) Ltd. v. Shaw a question arose as to whether a suit was properly instituted in the name of the company. In the trial court no objection was taken that the court could not decide the question of the authority of the directors to commence the action as a defence to the suit but only on a motion to stay the action. On appeal, GREER, L.J., held that where the power to commence an action is vested by the articles in the permanent directors then an ordinary resolution of the company would not control their exercise of that power. SLESSER, L.J., held otherwise. ROCHE, L.J., held that the onus was on the defendant to prove that the action was unauthorised and that the defendant failed to discharge the onus and failed to produce material information. It was indicated that the minute books should have been produced and information should have been given to the court whether before the meeting at which action was decided upon the permanent directors had conferred any, and, if so, what power upon the ordinary directors. Information should also have been available as to whether the meeting purported to be the meeting of the directors and appeared as such in the minute book or whether it was in form as well as in fact a meeting of the directors on a matter within a class of matters previously excluded by them from the purview of the ordinary directors.
In the present case counsel for the plaintiff opposed any right of the defendants to contend as a defence to the suit that it was an unauthorised suit. The plaintiff insisted that there should have been a motion to stay the action. Counsel for the defendants submitted that not much time had elapsed since the institution of the suit and that, since the plaintiff did not disclose any resolution authorising the institution of the suit, it should be stopped. I am unable to accept the contentions of the defendants. To my mind the majority of the decisions shows that an objection as to the user of the name of the company by the plaintiff cannot be raised as a defence but should be on a motion to stay the action. Furthermore, the defendants have not furnished the necessary information to discharge the onus that there is no resolution. The plaintiff contends that the directors are empowered under the articles to institute an action and that there is also a resolution to that effect. There is no conclusive evidence that the plaintiff has not the right to proceed in the name of the company or that the suit has been instituted without authority in the name of the company. On the contrary the directors are empowered by the articles to institute suits but the defendants contend that the exercise of such powers by the directors is subject to the control of the members.
As to the contentions of the defendants that the court will not interfere in disputes as to internal management or that the court will allow a general meeting to be convened for the purpose of continuing or discontinuing the suit counsel for the plaintiff contended that articles 121 and 122(6) confer sufficient authority on the board to commence the suit and such power conferred on the board could not be taken away by any general meeting. It was contended that the only way by which the management in the hands of the board could be controlled was by virtue of the provisions in the Act or provisions in the articles and by alterations of the articles. Under article 121 it is stated that the management of the business of the company shall be vested in the managing agents or directors, who, in addition to the powers and authorities by these presents or otherwise conferred upon them, may exercise all such powers and do all such acts and things as may be exercised or done by the company as are not hereby or by statutes expressly directed or required to be exercised or done by the company in general meeting but subject nevertheless to the provisions of the statute and all these presents and to any regulations from time to time made by the company in general meeting. Counsel for the defendants laid emphasis on the words “any regulations from time to time made by the company in general meeting” as empowering the shareholders by a general meeting to continue or discontinue the suit. Counsel for the plaintiff on the other hand contended that the word “regulations” was synonymous with “articles” and that the shareholders could control the acts of the directors only by alteration of the articles.
The directors and the shareholders in general meeting are the primary organs of the company between whom the company’s powers are divided. The general meeting retains ultimate control, but only through its powers to amend the articles, to take away powers from the directors and to remove the directors and to substitute others to the taste of the shareholders. Until one or other of the aforesaid steps be taken, the directors, under the articles, according to the contention of the plaintiff, can disregard the wishes of the members and that the general meeting cannot restrain the directors from conducting actions in the name of the company.
In the case of Isle of Wight Railway Company v. Tahourdin the court refused an application by the directors of a statutory company for an injunction to restrain the holding of a general meeting. COTTON, L.J., said :”It is a very strong thing indeed to prevent shareholders from holding a meeting of the company, when such a meeting is the only way in which they can interfere, if the majority of them think that the course taken by the directors, in a matter which is intra vires of the directors, is not for the benefit of the company.” In Automatic Self-cleansing Filter Syndicate Co.Ltd. v. Cuninghame. The directors of a registered company refused to carry out a sale agreement resolved upon in general meeting. The powers of management in that case were entrusted to the board under article 96 comparable to article 121 in the present case. Under article 96 there the management in the hands of the directors was subject to “such regulations, not being inconsistent with these presents as may from time to time be made by extraordinary resolutions.” It was, therefore, held that the general meeting would be a nullity inasmuch as article 96 contemplated extraordinary resolution. It was thus held to be incompetent for the majority of the shareholders in an ordinary meeting to affect or alter the powers originally given to the directors. In the case of Marshall’s Valve Gear Co. Ltd. v. Manning Wardle & Co. Ltd. the management was vested in the directors under article 55 which was similar to article 121 in the present case. A and three other persons were the four directors of the company and they held substantially the whole of the subscribed share capital of the company. A held a majority but not a three-fourth majority of the shares. Disputes arose at a meeting between A and the other three directors who were interested in a patent vested in the N company which, so A was advised, infringed the M company’s patent and was admittedly a competing patent. The three directors bona fide declined to sanction any proceedings against the N company in the name of the M company to restrain the alleged infringement. Thereupon the three directors moved in the name and on behalf of the M company to strike out the name of that company as plaintiff and to dismiss the action on the ground that the name of the M company had been used without authority. It was held that under article 55 in Marchall’s case [1909] 1 Ch.267 the majority of the shareholders in the company at a general meeting had a right to control the action of the directors so long as they did not affect to control any direction contrary to any of the provisions of the article which bound the company.
In the case of Salmon v. Quin & Axtens Ltd. the Court of Appeal followed Cuninghame’s case and the House of Lords upheld the decision as will appear in Quin & Axtens Ltd. v. Salmon. In Salmon’s case under article 75 the business of the company was to be managed by the board subject to the provisions of any Act of Parliament or of the articles and to such regulations as might be prescribed by the company in general meeting. Article 80 in that case regulated that no resolution of a meeting of the directors having the object of borrowing money, the acquisition by purchase, lease or otherwise was to be valid or binding unless not less than 24 hours’ notice in writing by letter or telegram specifying the business proposed to be transacted thereat had been given to each of the managing directors. A and B, the managing directors, held the bulk of the ordinary shares in the company. Resolutions were passed by the directors for the acquisition of certain premises and for the letting of certain other premises, but B dissented from each of these resolutions in accordance with the articles. At a general meeting of the company resolutions to the same effect were passed by a simple majority of the shareholders. It was contended that the resolutions were of no effect. The resolutions were held to be inconsistent with article 80 as an attempt to alter the terms of contract between the parties by a simple resolution instead of by a special resolution. FARWELL, L.J., said that the directors were not servants to obey directions given by the shareholders as individuals, but that they were persons entrusted by the regulations with the control of the business and could be dispossessed from that control only by the statutory majority which could alter the articles. In the two recent decisions of John Shaw & Sons (Salford) Ltd. v. Shaw and Scott v. Scott the modern doctrine is that a resolution of the members disapproving the commencing of an action by the directors would be a nullity, for, if powers of management are vested in the directors they and they alone can exercise these powers. GREER, L.J., said (in Shaw’s case : “The only way in which the general body of the shareholders can control the exercise of the powers vested by the articles in the directors is by altering the articles, or, if opportunity arises, under the articles by refusing to re-elect the directors of whose action they disapprove. They cannot themselves usurp the powers which by articles are vested in the directors, nor the directors can usurp the powers vested by the articles in the general body of the shareholders.” Similarly, in the case of Scott v. Scott [1943] 1 All E.R. 582 it was held that when powers had been delegated to the directors the members at the general meeting could not interfere with their exercise until they were taken away by the amendment of articles.
The law as laid down in Halsbury’s Laws of England, 3rd edition, volume VI, at page 445, is as follows : “As regards litigation by an incorporated company, the directors are, as a rule, the persons who have authority to act for the company; but, in the absence of any contract to the contrary in the articles of association, the majority of the members of the company are entitled to decide, even to the extent of overruling the directors, whether an action in the name of the company should be commenced or allowed to proceed.” The pre-eminent question, therefore, is as to whether the directors under the articles in the present case can be controlled by a general meeting with regard either to the commencement or to the continuance of this suit. Counsel for the defendants contended that in the absence of any contract to the contrary in the articles the majority of shareholders are entitled to decide the course of action and that in the present case there is no contract to the contrary. The words “subject to any regulation from time to time made by the company in general meeting” occurring in article 121 in the present case cannot, in my opinion, overrule the directors’ powers by prescribing a regulation or passing a resolution inconsistent with the articles. In Gramophone & Typewriter Co.Ltd. v. Stanley BUCKLEY, L.J., said that even a resolution of numerical majority at a general meeting of he company could not impose its will upon the directors when the articles had confided to them the control of the company’s affairs. As I have already indicated, the law is that directors can be denuded of their powers of control and management either by alteration of the articles or by their removal. Marchall’s case is the only one on which counsel for the defendants laid considerable emphasis. Marshall’s case appears not to have been approved by the House of Lords in Quin & Axtens Ltd. v. Salmon. Furthermore, the view expressed in Palmer’s Company Precedents, 17th edition, volume I, at pages 543 to 545, is that where it is desired to give the general meeting more effective control the articles should be so framed that the exercise of such powers should be subject to the control and regulation of a general meeting specially convancesed for the purpose. Such an article will have the effect of being construed as a “contract to the contrary” of the powers of the directors. Furthermore, Marshall’s case [1909] 1 Ch.267 seems to suggest that the general meeting can commerce proceedings on behalf of the company if the directors failed to do so. Ordinarily, the appropriate authority to start an action on the company’s behalf is the board of directors to whom this power is delegated as an incident to the management of the company. If the directors cannot or will not start proceedings in the company’s name the power to do so reverts to the general meeting.
In the present case, I am of opinion, that the power of management is vested under the articles in the board. This power is subject to alteration of the articles. The word “regulation” in article 121 in the present case is, in my opinion, synonymous with “articles” and the result is that the powers of management can be challenged only by alteration of the articles. In my opinion, there is a contract providing for management by the board and such a contract is contrary to regulation of the exercise of the powers of directors by the general meeting.
Counsel for the defendants contended that under section 284 of the Companies Act, the directors could be got rid of at a general meeting and, therefore, if a general meeting were convened, it would appeal whether the shareholders wireless accept that acts of the directors. Under section 284 of the Companies Act it is provided that a company may by ordinary resolution remove a director before the expiry of his period of office. A special notice is contemplated under that section of any resolution to remove a director or to appoint somebody instead of a director so removed. It is further contemplated in that section that on receipt of a notice of a resolution the company is to send a copy thereof to the directors concerned and the director shall be entitled to be heard on the resolution at the meeting. Counsel for the plaintiff, in my view, rightly contended that no general meeting should be allowed to be convened in the present suit for obtaining any relief under section 284 of the Act. I am of opinion that no meeting convened for the purpose of ascertaining the wishes of the shareholders as to whether a suit should be allowed to proceed or not should be converted for another indirect purpose of removal of the directors.
Counsel for the plaintiff relied on Dhanuka’s case. In that case there was an ordinary resolution at a requisitioned general meeting and several persons were appointed directors in addition to the four existing directors. There was an action on behalf of the shareholders and others alleging that the resolution was invalid on the ground that under the article it should have been passed only by a special resolution. A question arose as to whether the court would interfere in the internal management of the company. Dealing with that contention their Lordships’ opinion was that, to treat the resolution as effective would mean that the company could terminate the appointment of managing agents by ordinary resolution contrary to the articles which required an extraordinary resolution. In other words, an infraction of the article was not permitted. Counsel for the plaintiff on the authority of Dhanuka’s case [1950] 20 Comp.Cas.133 contended that to allow a general meeting and to get rid of directors under section 284 of the Companies Act would be to allow by ordinary resolution what had to be done only after observing formalities contemplated in section 284. It is true that the directors can be removed in a general meeting but any proposed resolution for such removal of directors is conditional upon certain prior notice. In the present case there has been no such notice. I am of opinion that the defendants cannot resort to the purpose of removal of directors under the garb of a general meeting to be convened to ascertain the wishes of shareholders as to the continuance of a suit. Counsel for the plaintiff further contended relying on the decision of Cook v. Deeks that to allow the holding of a meeting in the present case would be to allow an alleged exercise of tyranny over the minority. Under these circumstances it will not be a case of internal management but an infraction of the article, for the majority would get hold of the company and get rid of the management, which is being exercised by the present board under the articles. Such use of voting power would be to allow the members to usurp powers of management which are entrusted to the board by the articles.
Counsel for the defendants made a distinction between a general and particular delegation of powers to directors. As to particular delegation of powers counsel conceded that they could not be taken away from the directors without amendment of articles. Instances of such particular delegation were illustrated with reference to articles 20, 26 and 45 which related to calls on shares, forfeiture of shares and transfer of shares. Counsel for the defendants contended that articles 121 and 122 were instances of general delegation and related to the general management. Counsel for the defendants contended on the authority of Burland v. Early that the court would not interfere with the internal management. The two principles laid down in that case are, first, that the court would not interfere with the internal management of the company acting within their powers and, secondly, that in order to redress a wrong done to the company or to recover money or damage alleged to be due to the company, the action would prima facie be brought by the company itself. The doctrine of supremacy of shareholders would apply, provided, first, it is within their powers and, secondly, that the acts of the shareholders are to cure mere informality and irregularity as opposed to the infraction of articles or statutes. In the present case the directors have instituted the suit against persons who have invaded the powers of directors and/or their management. The acts complained of by the directors are an infraction of articles. Such acts are impeached by the company as violation of the articles by persons described as trespassing upon the powers of the board.
I am of opinion, first, that it is not open to the defendants as a defence to the suit to object to the use of the name of the company by the plaintiff. Secondly, there is no conclusive evidence showing that the plaintiff is not authorised to institute the suit. Thirdly, the articles confer sufficient powers on the plaintiff to maintain this suit. Fourthly, no general meeting should be held to deprive the directors of their powers under the articles.
For these reasons I am of opinion that no general meeting in the present case should be allowed to be held. I recall the order which I made on June 3, 1960. The suit will appear in the list on August 25, 1960, subject to any part heard suit. Costs cost in the cause. Certified for two counsel.
[1957] 27 COMP. CAS. 86 (CAL.)
HIGH COURT OF CALCUTTA
V.
J.K.Eastern
Industires Private Limited.
MUKHARJI, J.
JULY 9, 1956
P.B.MUKHARJI J. - This is an application by Bengal and Assam Investors Limited under section 186 of the Companies Act of 1956. It seeks an order that the extraordinary general meeting of the respondent company, J.K. Eastern Industries Private Limited, required by the petitioner to be called in pursuance of requisition dated the 5th June, 1956, be called and held and conducted in such manner as this court thinks fit and proper and that for the purposes of the same such ancillary and consequential directions be given as this court may think necessary or expedient including directions regarding the date, time and place of the meeting to be held, appointment of an independent chairman for the meeting, deposit of proxies with such chairman and all such other directions modifying or supplementing the operation of the provisions of the Companies Act and of the company's articles relating to the calling, holding or conducting of the meeting. The applicant also seeks for an order that at the meeting the resolutions mentioned in the requisition notice annexed to the petition marked "B" be considered and if thought fit be passed with or without modifications. The further order sought by the applicant is that the respondent company must be directed to comply with the provisions of sub-sections (3) and (4) of section 284 of the Companies Act, 1956.
Before I discuss the implications of an application under section 186 of the Companies Act, 1956, it would be necessary to state a few facts for the better appreciation of the actual point involved. The dispute is fundamentally between two rival groups of shareholders, one called the Jatia group and the other called the Singhnia group. In 1954 the Jatia directors appointed K.L. Jatia as chairman of the board of directors. On the 25th May, 1954, there was a requisition for an extraordinary general meeting by the present applicant. On the 25th August, 1954, an extraordinary general meeting was held at which K.L. Jatia acted as chairman and refused to permit the resolutions under the articles of association of the company and under the Companies Act then prevailing. Upon that the present applicant applied on the 30th August, 1954, for holding a meeting of the company under the supervision of the court under the then Companies Act. Thereafter on the 16th December, 1954, a suit was filed being suit No. 3603 of 1954, for setting aside the alteration of articles alleged to have been done on the 2nd August, 1954. There was also another suit on the 16th December, 1954, being suit No. 3604 of 1954.
The point of dispute is that although the Jatia group is in minority so far as the shareholding is concerned, they, with only about 45 per cent of the total shares, have maneuvered themselves into a position of control over the Singhania group who have a majority of share-holding of about 55 percent. This, therefore, is not the usual case where the minority alleges to be oppressed by the majority but a case where the majority alleges to be oppressed by the minority.
Now the two suits that I have mentioned are still pending. The allegation that the present applicant makes in the petition is that the Jatias are attempting to delay the hearing of suit No. 3603 of 1954, as long as possible. The applicant is a shareholder holding 400 ordinary shares in J.K. Eastern Private Limited.
The resolutions that are intended to be passed at the meeting demanded by the requisionists are set out in the notice itself. The resolutions that the applicant wants to be passed are to the following effect :
(1) That K.L.Jatia be removed from the office of the director and that Lakshimat Singhnia be appointed in his place.
(2) That G.D.Jatia be removed from the office of the director and Hari Shankar Singhania be appointed in his place.
(3) That M.P.Jatia, director of the company, be removed from the office of director and Krishna Prasad Khaitan be appointed in his place.
(4) That D.N.Jatia be removed from the office of director and Nalini Ranjan Hazra be appointed in his place.
(5) That Pratap Singh Nawalakha, Lakshman Parsad Maitin and Ramkrishandas Gupta be appointed additional directors of J.K.Eastern Industries Private Limited.
Section 186 of the Companies Act introduces new principles of company management. It is an innovation introduced by the Act of 1956. It provides power for the court to order company meetings. The conditions under which such power of the court to order company meetings should be exercised require analysis. It is expressly stated in that statutory provision that "if for any reason it is impractible to call a meeting of the company, other than an annual general meeting, in any manner in which meetings of the company may be called, or to hold or conduct the meeting of the company in the manner prescribed by this Act or the articles, the court may, either of its own motion or on the application of an director of the company, or of any member of the company who would be entitled to vote at the meeting, -
(a) order a meeting of the company to be called, held and conducted in such manner as the court thinks fit ; and
(b) give such ancillary or consequential directions as the court thinks expedient, including directions modifying or supplementing in relation to the calling, holding and conducting of the meeting the operation of the provisions of this Act and of the company's articles."
Now the first essential condition is that the court must have reason to be satisfied that it is impracticable to call a meeting of the company or to hold or conduct the meeting of the company in the manner prescribed by this Act or the articles. That is the primary condition which must exist before the court can assume powers of calling, holding and conducting meetings of companies and thereby supersede and override the right of the shareholders and their representatives, the directors, to call, hold and conduct company meetings, which ordinarily belongs to them. The second feature of this statutory provision is that the court's power under section 186 of the Companies Act of 1956 is discretionary. It is not a power which the court must exercise. It is not a mandatory obligation upon the court. It is an alternative remedy to be applied only when the normal machinery of company management fails and the court must find first that it is impracticable to call a meeting and secondly that to leave the parties to follow their own remedies and rights will put the company in jeopardy.
Now it is clear on the facts of this case that it is not impracticable at all to call a meeting of the company or even to hold a meeting of the company within the meaning of section 186 of the Act. The very first condition of this section is not satisfied. In fact a notice has already been issued calling the meeting and notifying that the meeting will be held at the registered office of the company on the 14th July, 1956, at 11 a.m. That notice clearly sets out what resolutions the requisitionists want to be passed at the meeting. Therefore there is no impracticability in the matter of calling a meeting or in the matter of holding a meeting. In fact it has been called.
What, however, is suggested by the applicant is that I must hold that it is impracticable to conduct the meeting of the company in the manner prescribed by this Act or articles within the meaning of section 186 of the Companies Act. I am unable to come to that conclusion. I do not find any reason to hold that it is impracticable to conduct the meeting notified to be held on the 14th July, 1956, in the manner prescribed by the Act and the articles of the company. I shall state my reasons briefly. Before I do so, I shall state the argument of the applicant on this point. It is argued by Mr. H.N. Sanyal, learned counsel appearing on behalf of the applicant, that the chairman of the board of directors is K.L. Jatia whose conduct will be under criticism and whose removal the resolutions demand. Mr. Sanyal's argument is that a chairman of a meeting cannot be a judge in his own cause and for that purpose he relied upon the case of N.V.R.Nagappa Chettiar v. Madras Race Club. There the well-settled principle is reiterated that no man can preside at his own election and return himself, and that in the case of a chairman of a meeting whose function is to decide as to the validity of certain nominations such chairman should not decide the validity of his own nomination.
In my judgment there are many answers to this argument.
The court under section 186 of the Companies Act of 1956 must have a good reason to hold that it is impracticable to conduct the meeting of the company in the manner prescribed by the Act or the articles of the company. It is, therefore, not the purpose of this section as I read it that this court should intervene to conduct a company meeting not in the manner prescribed by the Act or by the articles of the company and to override the express provisions thereof. Naturally enough when the court directs a meeting to be held under section 186 of this Act it must necessarily modify or supplement the articles or the Act and that is why express provision is made for the same under section 186(1)(b) of the Act. But that provision for modifying or supplementing the articles or the Act is only with a view to enable the court to call, hold and conduct the meeting under section 186 of the Act which normally it cannot without contravening the articles and the Act. no one for amoment disputes that a person cannot be a judge in his own cause, but the chairman of the board of directors who under the articles of the company is supposed to be the chairman of this extraordinary general meeting of the shareholders called for the 14th July, 1956, will not be a judge in his own cause. Unlike a Judge's decision K.L.Jatia will not decide on the validity of his own nomination at the meeting of the shareholders. It will be for the shareholders to vote for the removal of K.L.Jatia from the office of director and not for K.L.Jatia to decide it. The doctrine, therefore, that a man cannot be a judge in his own cause cannot be applied in this context at all. The facts of this case are entirely different from the facts of the Madras decision on which Mr. Sanyal relied and with whose principle there is no quarrel.
It was then contended by Mr. Sanyal that K.L.Jatia, chairman of the meeting, might behave with partiality and partisanship in so conducting the meeting as to throw out the majority of the applicant. I am afraid I cannot anticipate that Mr. Jatia would act illegally and acting on that anticipation supplant the articles of the company and give directions for the conduct of the meeting under section 186 of the Companies Act. Should K.L.Jatia commit any illegality at the meeting then there is ample remedy open to the applicant. In fact some of the very grounds, it not all, in this application are already the subject of pending litigation and proceedings in this court.
Besides, I do not see that so far as the applicant is concerned there is anything more than his own apprehension that K.L.Jatia would act illegally at the first meeting that is going to be held on the 14th July, 1956. I am satisfied that K.L.Jatia cannot decide on the resolutions proposed in that meeting because the resolutions will have to be voted by the shareholders. It is the shareholders who will be in control of the meeting. If the applicant has in its side 55percent of the votes of the shareholders, I do not see why they should be at all frightened. The chairman's power is very limited. He has a vote as a shareholder and director. That gives him no special position to control the meeting. He has, in the event of an equality of votes between two rival groups, a casting vote. But on the applicant's own showing there is no question of equality of votes in this case because the applicant's group is much larger than the respondent's group. Therefore, even the possibility of casting vote is remote. The only other scope of intervention by the chairman is in the matter of poll. But even a poll may be demanded under article 118 by any member if not more than 7 members are personally present, and if more than 7 members are present then by any two members, so that even in the matter of poll the chairman cannot exclude a poll. All that the chairman can do under article 102 is that if a poll is demanded, the chairman will direct it to be taken either at once or after an interval or adjournment or otherwise and shall determine the time and place and the manner in which it shall be taken. it is only in case of a dispute as to the admission or rejection of a vote that the chairman is given power under article 102 to determine the same. But then such determination in order to be conclusive under article 102 of the articles of the company has to be in good faith. Therefore, whatever is not done in good faith will be open to challenge. The same is again true with regard to proxies or admission of proxies. If the chairman does something which is illegal in this respect, the Companies Act provides ample remedies to the applicant. But the applicant under section 186 cannot anticipate that the chairman will act illegally. Lastly, article 97 provides that the chairman of the board of directors shall be entitled to take the chair at every general meeting. But if he is unwilling to act, the members present shall choose another director. It may also be that by convention the chairman of the board of directors will not participate in the vote. That is the usual rule and the practice followed in company matters.
I see no reason whatever to hold that it is impracticable to conduct a meeting of the company on the manner prescribed by the Act or the articles of the company.
Were I to accede to a request that this court should call or hold and conduct company meetings because one set of shareholders or directors are quarrelling with another set of shareholders or directors, then I shall be opening the easy door for every kind of officious intervention because then the easiest way for any one, be he of the majority or of the minority in the company, will be to make an allegation against any of the existing directors in an application under section 186 of the Companies Act asking this court to call, hold and conduct such meetings. I do not think that that was the intention of the Act, and I am also satisfied that that is not the construction of the expressions appearing in section 186 of the Companies Act.
The word "impracticable" appearing in that section must certainly be given a practical meaning. It must be understood to be impracticable from the business point of view. It must not be held impracticable on the slightest excuse that the directors cannot agree. Section 186 of the Companies Act, 1956, has not made this court a director or shareholder of every company. My interpretation is that in spite of section 186 of the Companies Act, this court will not easily intervene in any company meetings either in holding or calling or in conducting such meetings. This section is a piece of incongruous paternalism of an outside agency, the court in, the self-government of joint stock companies whose main principle is management by their own directors and shareholders who are the most interested and responsible persons in the good government of companies. It is an extraordinary power in the historical context of the evolution of company law when one recalls the ordinary principle of company law that where a company cannot carry on its own management and there is a deadlock, the traditional course is to wind up the company. This new power is also unsuited to the court because its substance is a purely executive function of calling, holding and conducting a meeting. The court can discharge that function only victoriously through a chairman or president whom it appoints. Judicial work of court through a delegate is never an efficient innovation in jurisprudence. Section 186 of the Companies Act 1956 introduces this power which is also by its nature irresponsible. It is an irresponsible power because even after the court has called, held and conducted meetings, it is not made responsible for the consequences that follow in the sense that it is left with no standing machinery to see to their proper working. As the power is great, unsuitable and irresponsible, the discretion granted under section 186 of the Companies Act must be very sparingly used and it should be used with great caution, so that this court does not become either a shareholder or a director of the company trying to participate in the internecine squabbles of the company.
On the question of what is "impracticable", Mr. Snayal relied on two decisions of this court, one being In re Lothian Jute Mills and Company and the other being In re Malhati Tea Syndicate Limited. The latter decision lays down the obvious principle that the word "impracticable" means "impracticable from the reasonable point of view" and the court should take a common sense view of the matter and must act as a prudent man of business. I respectfully agree with that principle. I should have thought that the word "practicable" or "impracticable" always means that. But a prudent person of business has not a sensitive, officious view of intervention in case of every rivalry between two groups of directors. I should have thought prudence demands that this court should ordinarily keep itself aloof from participating in such squabbles. In In re Malhati Tea Syndicate Limited, there was doubt as to the existence of the board of directors validly appointed. That case, therefore, on that ground is distinguishable from the present case.
The application must, therefore, fail and is dismissed with costs.
[1974] 44 COMP. CAS. 298
(DELHI)
high court of
delhi
Motion Pictures Association, In Re
S. RANGARAJAN J.
COMPANY APPLICATION NO. 565
OF 1972
IN COMPANY APPLICATION NO.
496 OF 1972
K. K. Mehra for the petitioners.
Ved Vyas, A. N. Khanna, Satish Chandra. S. L. Bhatia, P. K. Seth and M. M. N. Pombra for the respondents.
Rangarajan, J.—It would be necessary to state the facts leading to the present application.
An application had been made (C.A. No. 496 of 1972) under section 186 of the Companies Act, 1956 (hereinafter called "the Act"), for calling a meeting of M/s. Motion Pictures Association, Delhi (hereafter called "the company"), a company registered under the Companies Act, 1913. The company had no share capital and the payment of dividend to its members was prohibited. The company was formed with the object of promoting the interest of its members engaged in the trade of exhibition, distribution and exploitation of motion pictures in the Union Territory of Delhi and Uttar Pradesh. Any person wanting to indulge in these business activities relating to motion pictures in this area has to become a member of this company. The accounts of the company are closed at the end of December of every year. The last annual general meeting of the company was held on May 3, 1969. Subsequently no such meeting was held. In the result no election of office bearers could be held.
A member of the company (G. S. Maya Wala) had filed a suit (No. 476 of 1970) against the company in which there was also an application for restraining the company from holding its annual general meeting till the decision of the suit. The company appeared voluntarily in that suit and undertook not to hold any annual general meeting till the dispute was decided. Ultimately, there was a compromise.
Subsequent to the compromise, on July 29, 1972, a requisition had been left at the office of the company signed by 134 members demanding the holding of an extraordinary general meeting of the company for consideration and adoption of certain resolutions incorporated in the said requisition. But the executive committee of the company allegedly found that 43 signatures out of 134 were invalid, that 38 had been withdrawn by means of separate letters addressed to the association and that only 53 members had validly signed the same, thus falling short of the 74 signatures, being 10% of the total membership strength of the company. A body of 11 persons, purporting to be the executive committee, is said to have taken steps to hold an extraordinary general meeting of the company on October 7, 1972, in order to amend certain articles of association in terms of the compromise as a preliminary to holding the annual general meeting. This was sought to be done because the effect of not holding the extraordinary general meeting would be to revive the suit which had been compromised and until the suit was finally decided it would be impossible to hold elections. A circular letter in the name of the company had also been issued by the hony. general secretary (B. N. Gupta) on September 16, 1972, setting out all these facts. While certain persons asserted that they had full faith in the said body (executive committee) there were some others who did not have faith in it; this led to a piquant situation. It was in these circumstances that C.A. No. 496 of 1972 was filed invoking this court's powers to call a meeting under section 186 of the Act.
When C.A. No. 496 of 1972 came up for admission on September 20, 1972, notice, returnable by September 26, 1972, was ordered. With the consent of all those who appeared and who had been made parties to the said application, the extraordinary general meeting of the company which had been called for September 30, 1972, was adjourned to take place on October 7, 1972, under the chairmanship of Shri Daljit Singh, advocate, appointed by the court to consider, inter alia, the question of the number of office bearers pursuant to a framed resolution fixing the number as 16. The existing article (No. 23) of the articles of association provided for not less than eight and not more than 18 executive committee members being elected. The framed resolution (by court) fixing the number at 16 was to be moved as a special resolution.
All the parties being unanimously of the opinion—this being clear even otherwise—that it was not practicable in the circumstances prevailing to call a general meeting for electing executive committee members in the ordinary manner, a general meeting of the company was ordered to take place on October 21, 1972 (in C.A. No. 496 of 1972), for electing office bearers, their number having to be resolved upon at the meeting to be held on October 7, 1972, under the chairmanship of Shri Daljit Singh. For the meeting to be held on October 21, 1972, Shri P. A. Behl, advocate, was appointed as chairman to conduct the said meeting and also supervise the election of the directors, which was to take place at that meeting.
Since only 11 directors of the company were said to be functioning at the date of the said order five more persons (to make up the number 16) were also appointed to constitute an interim board of management with effect from October 7, 1972 (after the meeting which was fixed to take place on that date). Shri Daljit Singh filed a report, dated October 18, 1972, in this court stating that, instead of the resolution as proposed by this court pertaining to article 23, an amended resolution, fixing the members of the executive committee as 18, had been passed. I shall revert to this again later.
Shri P.A. Behl, the chairman of the meeting directed to take place on October 21, 1972, submitted his report, dated October 24, 1972, stating that he held and conducted the meeting at which 18 members of the executive committee were elected.
The present application (C.A. No. 565 of 1972) was filed on October 23, 1972, supported by an affidavit of Joginder Singh Sood, who unsuccessfully contested the election, making allegations of fraud also. But these allegations were not persisted in. In particular, he stated that more ballot papers were issued than the members present at the meeting; 347 persons had signed the meeting register whereas ballot papers were issued to 442 persons; no record was kept to whom ballot papers were issued and no check was made to verify whether the eligible persons voted.
It is needless to set out the details of how the said application was contested and evidence was partly recorded because a statement was ultimately made by all the counsel appearing for the concerned parties. The following order was made on December 13, 1972 :
"Counsel for both sides stated yesterday that they wanted little more time to think over the extent to which the oral evidence could be obviated and have to-day expressed their agreement that no oral evidence need be recorded in view of the following, on account of their agreement regarding the mode in which both the objections to the election held on 21st October, 1972, are to be disposed of. They state as follows:
(1) All the affidavits of Mr. J. S. Sood excepting the affidavit filed in support of his objection application dated 23rd October, 1972, are treated as withdrawn.
(2) The evidence on oath of Shri J. S. Sood which has been recorded thus far will also be not read as evidence. This course is adopted in order to save farther cross-examination of Mr. Sood.
Mr. Mehra states that he will rely only on the following documents which are already before the court:
(a) The attendance register of the company showing the attendance at the meeting on 21st October, 1972.
(b) The memorandum and articles of association.
(c) The chairman's report.
(d) Requisition for ballot slips and ballot pipers.
(d) Cyclostyled list of members of the association showing the proprietors of the various concerns and their representatives.
Mr. Ved Vyas says that he will also be relying upon documents showing authorisation of companies and firms regarding representation of which he will give inspection to Mr. Mehra.
Mr. Mehra requests that Mr. Ved Vyas may, at the adjourned date, make a statement concerning the following matters :
(1) Whether the cyclostyled list of members already filed is a complete list of all the members of the association and if it is not, who are the other members ?
(2) That it may be clarified as to who among those mentioned in the said cyclostyled list are members or representatives ?
Daring the hearing of the application certain subsequent events were brought to this court's notice by means of an application (C.A. No. 675 of 1972). 17 out of 18 persons said to be elected as members of the executive committee on October 21, 1972, issued notices, on November 22, 1972, convening what was called the "26th annual general meeting" of the company for 16th of December, 1972, stating that the above meeting was being convened only for the purpose of adopting the income and expenditure account and the balance-sheet for the year ending December 31, 1969. But two days before the said meeting was about to be held, the concerned persons appear to have realised that, if an annual general meeting was held according to the article provision as well as section 166 of the Act, all the members would automatically retire and not having offered themselves for re-election would not also be re-elected. The said meeting was, however, cancelled. This cancellation, two days prior to the meeting, is said to be illegal and unauthorised. (A contention also seems to have been raised that all the members were not served with the said notice issued on November 22, 1972). 18 (other) members are none-the-less alleged to have been elected on December 16, 1972, in pursuance of the said notice which announced an annual general meeting on that date. Out of the said 18 persons one of them has filed a suit (No. 81 of 1973) on the file of this court claiming that he and 17 others are the properly elected directors and that those who were elected on October 21, 1972, had also ceased to be directors by reason of the annual general meeting having been called. This suit, which is resisted is pending.
The scope of section 186 of the Act has been discussed by me at length in the judgment pronounced by me on May 10, 1973, Shrimati Jain v. Delhi Flour Mills Co. Ltd. (C.P. No. 96 of 1972). There is no need to repeat here the entire discussion or refer again to all the decided cases noticed therein. It will be sufficient to refer to the aspects which alone matter for the present controversy.
Section 186 reads:
"186. (1) If for any reason it is impracticable to call a meeting of a company, other an than annual general meeting, in any manner in which meetings of the company may be called, or to hold or conduct the meeting of the company in the manner prescribed by this Act or the articles, the court may, either of its own motion or on the application of any director of the company, or of any member of the company who would be entitled to vote at the meeting,—
(a) order a meeting of the company to be called, held and conducted in such manner as the court thinks fit; and
(b) give such ancillary or consequential directions as the court thinks expedient, including directions modifying or supplementing in relation to the calling, holding and conducting of the meeting, the operation of the provisions of this Act and of the company's articles.
Explanation.—The directions that may be given under this sub-section may include a direction that one member of the company present in person or by proxy shall be deemed to constitute a meeting.
(2) Any meeting called, held and conducted in accordance with any such order shall, for all purposes, be deemed to be a meeting of the company duly called, held and conducted".
Only a meeting other than an annual general meeting could be called by the court in exercise of this power. The power to call an annual general meeting has, under the Act of 1956, been vested in the Central Government under section 167. The Act of 1913 had (vide section 79(3)) given the power to call such an annual general meeting to the court. This change in India followed the change which was made in England where following the recommendation of a committee headed by Mr. Justice Cohen the power to convene an annual general meeting was taken away from the court and vested in the Board of Trade in order " to save expense".
At the annual general meeting the following items of business (which shall be deemed to be special) have to be set out on the agenda :
(1) Consideration of accounts, balance-sheet and report of the board of directors and auditors;
(2) declaration of dividend;
(3) appointment of directors in the place of those retiring;
(4) appointment and fixing the remuneration of auditors (section 173).
The above items are within the purview of the annual general meetings.
Section 257 enables a person to stand for directorship at any general meeting, which may be held, and not necessarily only at an annual general meeting. So long as the company is not having the maximum number of directors fixed by its articles, additional directors may be appointed at general meetings up to the maximum limit. The only effect of introducing sub-section (1-A) to section 257 seems to be that no one other than a director can stand as a candidate for appointment unless not less than 14 days' notice is given to the company, the company not having the power to waive such notice. There does not appear to be any impediment, therefore, in directors being elected at a general meeting of the company even other than the annual general meeting.
The expression "impracticable" is not to be considered as "impossible" (vide In re Lothian Jute Co. Ltd.) but has to be understood from a "reasonable point of view" in In re Malhati Tea Syndicate. When there is doubt as to the existence of a board of validly appointed directors and there is possibility of interminable troubles and prejudice to the interest of the company if a meeting is held otherwise than under the directions of the court, it will be expedient for the court to call a meeting of the company.
The principles to be borne in mind while dealing with an application under section 186 were summarised by S. P. Mitra J., in United Breweries Ltd. v. Ruttonjee & Co. Ltd. These principles have also been re-stated by me in Delhi Flour Mills . Not only was the meeting not held and conducted under the chairmanship of Shri P. A. Behl on October 21, 1972, as directed by this court and, therefore, could not be deemed to be a meeting of the company, but even their continuance in office has itself become doubtful at least subsequent to December 16, 1972. A suit having been filed by those 18 persons who claim to have been elected at the meeting held on December 16, 1972, there is bound to be interminable litigation affecting the well-being of the company, which is engaged in the trade of exhibition, distribution and exploitation of the motion pictures in such a vast area as the Union Territory of Delhi and Uttar Pradesh. For this additional reason also it has become necessary to call a meeting of the company under section 186. Though the court will not convert itself into a shareholder of the company or be concerned with the internecine squables of the company it is none-the-less the duty of the court, even of its own motion, to call a meeting of the company when it is impracticable to call such a meeting. In this view by order dated March 8, 1973, I directed the issue of notice to those persons who claimed to have been elected as members at the meeting said to have taken place on December 16, 1972 (who are parties to suit No. 81 of 1973) as well as to the persons who are said to have been elected as members of the executive committee at the meeting dated October 21, 1972 (except Shri Desai, among them, who was impleaded earlier on his own application) for March 27, 1973. Notices were accordingly served upon all of them and they were duly represented by their counsel who also filed their representations in writing. Their counsel were also heard.
The contention that the original order calling a general meeting of the company for October 21, 1972, was itself one without jurisdiction in the sense that it had not become impracticable to call a meeting and that a general meeting could not be called for the purpose of electing directors does not seem to deserve serious consideration. The facts, which are not disputed, noticed above clearly show that not only was it impracticable to call a meeting of the company, but there was no other way of resolving the deadlock concerning the management of the company's affairs (an annual meeting not having been held for a period of nearly 3 years) except by calling a meeting under section 186. It was also seen that even though the court cannot call an annual general meeting there is no impediment whatever in the way of calling a general meeting of the company; according to section 257 the directors could also be elected at such a meeting. Once a meeting is called under section 186 there does not appear to be any need for what happens at the general meeting being confirmed by the court as Shri K. K. Mehra, learned counsel for the applicant, contended but only to start with. Nor does there appear to be any need for an application to actually set aside the proceedings of the meeting called by the court in cases where such a meeting is not conducted according to the court's directions. But for sub-section (2) of section 186, the meeting called by the court under section 186 could not become a meeting of the company. Only a meeting called, held and conducted in accordance with the directions of the court could be deemed to be a meeting called, held and conducted, by the company.
In the light of the above what happened from and after October 7, 1972, may now be examined.
Article 23 (existing at the time of filing C.A. No. 496 of 1972) read as follows:
"Unless and until otherwise determined by a general meeting, the number of the executive committee members shall not be less than 8 nor more than 18, including the co-opted members as hereinafter provided".
The extraordinary general meeting which has already been convened for September 30, 1972, had been adjourned to October 7, 1972, with a direction that the following resolution be moved as a special resolution:
"Resolved that article 23 of the articles
of association be deleted and a new article reading as under be substituted :
Unless and until otherwise determined by a general meeting, the number of the executive committee members shall be 16".
This was done as preliminary to calling, holding and conducting a meeting, under section 186 of the Act, on October 21, 1972, for the purpose of electing such number of office bearers to the executive committee as may be resolved upon. Without this direction being strictly complied with there could not be, as I shall explain presently, a meeting of the company and consequently there could be no valid election either.
It is seen from the report of Shri Daljit Singh, who presided at the said meeting held on October 7, 1972, that B. R. Kundra moved a resolution as directed by me, and that the same was seconded by O. P. Verma. An amendment was moved at the meeting by Jogindar Singh without any prior notice as required for a special resolution, that instead of 16 the number of members of the executive committee should be 18. This amendment was accepted by B. R. Kundra and carried unanimously. It is worth recalling that what had been directed to be considered at the said meeting was the resolution fixing the number of directors as 16 and that the same had been directed to be considered as a special resolution of the company. This was the only resolution on the agenda for the meeting on October 7, 1972, pertaining to article 23. If any other amendment had to be moved it had to be moved by way of a special resolution after giving the requisite notice which was admittedly not done. On this ground alone the amended resolution, though passed unanimously, is seen to be illegal.
The same result may follow even if a somewhat different approach is adopted. While ordering a meeting to be called, held and conducted on October 21, 1972, a direction had been given that the number of office bearers to be elected would be as resolved at the meeting held on October 7, 1972, in pursuance of the resolution framed by the court with a further direction that it be moved as a special resolution. It seems worth repeating that the fact of a meeting being called by court under section 186(1) would not make that meeting one called, held and conducted by the company, but for section 186(2). The deeming provision incorporated in section 186(2) provides the vinculum juris by reason of which a meeting ordered by the court becomes the meeting of the company. A deeming provision can be invoked only when the conditions which are prescribed for giving rise to it are present, but not where the factual situation is different from what is necessary for applying the deeming provision. In the case of a meeting called by court there cannot be variation of or deviation from the directions given by it even if the variation or deviation is unanimously agreed to by all the parties concerned, though at a meeting which the members themselves call unanimity of opinion or of even that of the majority will prevail unless the same is ultra vires of the articles of the company. It is worth emphasizing that the only means in law as enacted by sub-section (2) by which such a meeting can be deemed to be a meeting of the company would be by complying with the directions given by the court in the matter of calling, holding and conducting the meeting. The fact, therefore, that the amendment was proposed by one who, ironically speaking, happens to be the one who was defeated in the elections and yet complains about the way in which the meeting (when the election) was held on October 21,1972, or even that the amendment was accepted by the mover of the resolution (as directed by this court) could not make that meeting one conducted in accordance with the directions of the court by reason of the deeming provision, namely, section 186(2). It was Jogindar Singh, strangely enough, who made an application (C.A. No. 150 of 1973) bringing the above fact to the court's notice; he urged that there was no valid resolution supporting the election of 18 office bearers and hence the meeting (and the election) held on October 21, 1972, was not legally effective. Shri Ved Vyas filed a reply on behalf of those who were then contesting (the present application) on the ground that this was an entirely new plea which was not taken earlier and that it could not, therefore, be allowed to be raised; it was also asserted that the resolution passed at the meeting held on October 7, 1972, pertaining to article 23 was valid. The persons who were newly added by my order dated March 8, 1973, had not even referred to this aspect, but Jogindar Singh had again referred to this aspect in the rejoinder which he filed to the reply to the representations made by the newly added parties. No attempt was made before me to justify the deviation from the court's directions concerning the resolution pertaining to article 23 passed at the meeting held on October 7, 1972. I take it that no justification has even been attempted for the reason that no justification seems possible.
I am conscious that it may in a sense be somewhat absurd to regard the resolution pertaining to article 23 passed unanimously at the meeting held on October 7, 1972, as invalid (the said resolution had been proposed at the meeting without prior notice, by way of amendment) at the instance of the party who is now calling the validity of the resolution in question. I can only recall the observation of Lord Greene M. R. in Grundt v. Great Boulder Proprietary Mines, Ltd. :
"Absurdity, I cannot help thinking, like public policy, is a very unruly horse".
The question that had to be considered in that case was whether the retiring directors could be deemed to be re-elected at an annual general meeting which had by show of hands rejected their claim to be re-elected. It was held that the deeming provision concerning the re-election could not be invoked as a matter of statutory construction and the argument of absurdity could not, in the circumstances, prevail.
Even if it is possible to regard the election of 18 members to the executive committee as being within the purview of article 23, as it originally stood, before the amendment made on the 7tb, difficulty would still arise by reason of not being able to deem the meeting (and the election) held on 21st as that of the company within the meaning of section 186(2) for there was no compliance with the direction of the court, which was that the resolution fixing the number of members of the executive committee as sixteen should have been moved as a special resolution at the meeting on 7th and the further meeting (and election) to take place on 21st should have been on the basis of the voting on the resolution framed by the court. This resolution was no doubt duly proposed and seconded at the meeting held on 7th, but was not put to vote; on the other hand the amended resolution which had been proposed at the meeting itself, even without the requisite notice for a special resolution, was put to vote. In the view explained at length that only a meeting which is conducted according to the direction given by the court while calling a meeting under section 186(1) could attract the deeming provision under sub-section (2) it does not seem possible to deem the meeting (and the election) held and conducted on 21st as that of the company.
If it became necessary on the part of those to deviate from the directions given by the court in the matter of holding or conducting such a meeting the only appropriate course would have been to apply to the court itself to alter the directions or give such further directions as may be considered necessary. The members of their own accord, once a meeting is called under section 186, cannot choose to even agree among themselves regarding how the meeting should be conducted other than by way of carrying out the directions given by the court.
I am free to state, however, that what happened at the meeting on October 7, 1972, seems to have been done perfectly bona fide, but it seems obvious that what happened on October 7, 1972, does not conform to the requirements of law and/or the directions of the court. There can be no question of estoppel either, for there can be no estoppel against statute or law or against the directions given by the court.
What is the course, then, that has to be adopted in these circumstances ?
Section 186 has been worded so widely and such extensive powers also have been given to the court. The court, even of its own motion, can direct a meeting to be called under section 186. The directions can go to the extent of even departing from the provisions of the statute and the articles to meet the exigencies of any situation; section 186 itself, for instance, provides for the court fixing the quorum of the meeting as one.
One of the principles stated by S. P. Mitra J. in United Breweries Ltd., with which I concurred in Delhi Flour Mills Ltd., is that where a meeting can be called only by the directors of a company and there are serious doubts and controversies as to who are the directors or there is a possibility that one or two or both the meetings called by the rival groups have been invalid the court ought not to expose the shareholders to uncertainty and should hold that a position has arisen which makes it impracticable to convene a meeting in any manner in which the meeting may be called. In such a situation when considering all the facts and circumstances the court can with reasonable approach to certainty and even prima facie say that the manner in which meetings previously called under the Act and/or under the articles would be invalid, it would not hesitate to call a meeting under section 186. That a meeting has been previously called by the court under section 186 may not be a reason by itself to refuse to call another meeting when a meeting was not conducted according to the directions given. If the meeting held on October 21, 1972, was not properly conducted then the elections conducted at the said meeting, for which purpose the meeting was called, would also fail for that very reason.
Much of the opposition to the calling of a fresh meeting for electing office bearers of the company has been only on the ground that the elections were fairly and properly conducted and hence could not be challenged. Once the elections are seen to have been not conducted according to the direction given by the court then there would not be any need to go into the question of whether the election was conducted properly or not. Nonetheless, it seems desirable to go into the said question, at least broadly for two reasons:
Firstly, that a fresh election would have to be ordered even for the sole reason that the declared result is not acceptable to the court for the reason that the election itself was not properly conducted;
Secondly, that the mistakes committed may not be repeated and the precautions not taken may be taken.
Analysing the voting that is stated to have taken place it is seen that there is discrepancy between the number of members who have signed the register in token of their having been present at the meeting and the number of requisition slips issued: while 442 requisition slips appear to have been issued only 347 have signed the register. This is explained by Shri Ved Vyas as being possibly due to the considerable interval of time between the meeting and the voting. The meeting commenced at 10'30 a.m.; it was presided over by Shri P. A. Behl. According to his report he read out to the members present the list of the names of the candidates whose nominations had been received in the association's office in time and obtained the consent of the concerned candidates. The scrutineers, to whom no one objected, were appointed. It was announced at the meeting (at 12 noon) that voting would commence at 2 p.m. and that the members could have lunch during the interval. The list of the candidates contesting the election was finally drawn up and sent for cyclostyling. A copy of the list was also issued to whoever wanted it and also attached with the ballot paper. Since the ballot papers were not ready the actual voting commenced only at 2.30 p.m.; it was announced that voting would come to an end at 7 p.m. Though the chairman says that he had directed that the ballot papers should be issued by the scrutineers to each of the members on his/her presenting a requisition slip duly signed by the member and after his/her membership being checked and scrutinised with the roll of members placed at the table, the scrutiny or check does not appear to have been adequate. By 7 p.m., 442 ballot papers were issued. A few members (it is not stated how many) who had left their requisition slips with the scrutineers, did not turn up to collect their ballot papers. The voting was finally announced to be closed at 7.02 p.m. The rest of the report relates to the manner in which the counting took place, about which both parties had practically nothing to say before me. The chairman has arranged, in alphabetical order, the names of the 32 candidates along with the votes secured by them and he has underlined in red pencil the number of votes secured by each of them. Joginder Singh Sood is seen to have got 198 votes and K. K. Khanna the next higher number of votes, namely, 205. While K. K. Khanna was declared elected, J. S. Sood was not declared elected; he is seen to have secured 7 votes less than those secured by K. K. Khanna; Wazir Singh Chachaji secured 208, D. N. Pancholi and Lakhmi Chand Sethi 211 each, B. M. Shah 219, Saranjit Singh Wadalia 234, Wishwa Nath Sahni (Sahni Enterprises) 235 and M.B. Mathur 239 votes, etc.
442 requisition slips are stated to have been issued, the number of ballot papers issued was 442. There are signatures only in respect of 347 members in the attendance register. Out of these 347,13 are conceded to be duplicated. Therefore, only 334 members had signed as against 442 requisition slips issued, which means that 101 requisition slips were issued to those who did not sign the attendance register. Deducting 435 (334+101) from 442 (ballot papers issued) the difference is seen to be 7; Shri Ved Vyas had to concede even on this basis that at least 7 unauthorised persons had voted. This by itself is something which calls for strict explanation and serious scrutiny of the entire voting. In the absence of any explanation it has to be taken that the control exercised in the matter of seeing that only authorised persons recorded their votes was not adequate. The requisition slips for ballot papers do not appear to have been signed by many voters. The ballot papers were handed over to the voters without getting their signatures on the requisition slips. Not much effort appears to have been made to ensure that every voter signed the requisition slip after signing the attendance register as well; it was not possible, therefore, to make checks in order to find out whether the particular person who voted on behalf of the concerned member had authority to do so in cases where the member did not vote in person. In the case of firms, which are members, duly written authorisations bad to be obtained from the firm to enable the person who turned up to vote on behalf of the concerned firm.
Shri K. K. Mehra submitted a list of 33 limited companies who are members but had recorded their votes without producing authenticated copies of resolutions passed under section 187 of the Act to enable them to vote on behalf of these companies.
In the result at least thirty-three votes, cast by members which were limited companies, have not been shown to have been properly cast in the sense no resolution (or authenticated copy thereof) under section 187 had been filed. The arguments went on for several days in this case; Mr. Ved Vyas was content to take the stand that this point had not been specifically taken by Joginder Singh who questioned the election; even those who were subsequently added in pursuance of my order dated March 8, 1973, did not do any better. Lists had been furnished by Shri K. K. Mehra pointing out the above as well as other defects. The commissioner has not filed any such resolutions or authenticated copies of them, nor has he even made a reference to the same having been filed with or shown to him. The commissioner had also stated that some persons who had signed requisition slips and to whom ballot papers had been issued had not turned up; there was no statement therein about the precise number who had done so. Even among the requisition slips (for ballot papers) we find at least 26 such slips have been left unsigned. This throws further light on the absence of proper checks. In addition to these, Shri K. K. Mehra filed a list culling out forty instances where unauthorised persons had signed the meeting (attendance) register. A further question may arise regarding how many among them did exercise their franchise and how many among them were not authorised to vote on behalf of the members. There seems to be no need to burden this order with those details in the view I am taking of the question of not regarding the meeting (and election) held on the 21st as that of the company. The other facts noticed, even by themselves, concerning the manner in which the election was held, prevent the court from regarding the election as a proper election. When the court directs an election to be held and calls a meeting for that purpose under section 186 it is implicit that it will be held and conducted by taking all necessary safeguards; if it appears even prima facie that the election, by reason of the manner in which it was conducted especially in the context of the closeness of voting materially affects the result of the election, a fresh meeting, for holding the election, will have to be ordered. Otherwise the purpose of the court in ordering a meeting, for election of office bearers to take place, would be frustrated. This is not to say, however, that the election has to be set aside, in the narrow sense in which elections are ordinarily set aside on petitions being filed to set them aside.
This court having called a meeting of the company under section 186 to take place on October 21, 1972, the correctness or legality of which has not even been seriously called in question until recently, this court is under a duty to call another meeting of the company when it is not possible to resolve the deadlock concerning the affairs of the company in any other manner by reason of the manner in which it was conducted. The company is seen to deal with so many motion picture distributors and exhibitors in this vast area, who cannot carry on their business except by becoming members of this important organisation. A situation which was thought on all hands to be capable of being resolved by the simple process of calling a meeting of the company under section 186 has for various reasons—most of which were not even anticipated—failed to resolve the conflicts and tensions which prevailed previously; I am afraid, it has even made matters worse. This evil result, I am satisfied, was not due to the meeting itself being called by the court—which was and still is seen to be the only way out of the difficulty—but by reason of the necessary checks not being exercised and precautions not taken in the matter of conducting the meeting (and the elections). The only way of putting the company on a normal footing and thus enabling it to function smoothly seems to be by way of calling another meeting where the office bearers would be elected and by giving sufficient directions in this regard.
In the light of past experience, however, I propose to give the following detailed directions :
The meeting will be in two stages :
First stage :
The general meeting of the company will be held at the premises of the company, i.e., F-27, Darya Ganj, Delhi, on Saturday the 18th August, 1973, at 10 a.m. Shri Prithvi Raj Sachdev, advocate, will be the chairman of the meeting and Shri A. L. Joshi, advocate, will be the alternate chairman. I direct that the following resolution will be moved at the said meeting :
"Resolved that the previously existing article 23 (both prior to October 7, 1972, and as amended on October 7, 1972) will be deleted".
In place of existing article 23 a new article 23 will be substituted as follows:
"Unless and until otherwise determined by a general meeting the number of executive members shall be 18".
Even though no difficulty is apprehended in the matter of the resolution being passed as it is now framed to-day it seems necessary also to make a provision out of abundant caution for the eventuality of the said resolution, as framed, not being passed at the meeting at all. In that eventuality I direct that even if the said resolution is not passed at the meeting on August 18, 1973, 18 office bearers would be elected; it is worth recalling that article 23, as it stood prior to October 7, 1972, permitted the maximum of 18 office bearers.
Second stage:
The general meeting of the company will be held at the aforesaid premises of the company on Saturday, the 13th October, 1973, at 9 a.m. and will not be adjourned except for a lunch break between 1 and 2 p.m.
The following procedure will be adopted at the meeting to be held on October 13, 1973 :
(1) All the firms and limited companies, which are members of the company (association) will send written authorizations and duly authenticated copies of authorizations of needed resolutions, respectively to reach the secretary of the company at least three days in advance of the date of the meeting, indicating who will vote at the meeting and what his position is in the firm or company, as the case may be.
(2) No member of the company, which is a firm or limited liability company, will be entitled to vote unless such written authorizations or authenticated copies of resolutions, as the case may be, are sent by the companies or firms concerned and received by the secretary of the company within the afore-said time. In the case of partnership-firms the authorizations will be confined to one of the partners. If the same person is a partner in more than one member-firm he can on being authorised by the concerned firm or firms vote for the firm or firms concerned. In such cases, (i.e.), where the person concerned is representing more than one member-firm
when signing the attendance register at the meeting he will indicate therein the firm/firms which he is representing.
(3) All proprietary concerns can vote only in person, subject to identity and membership being verified.
(4) The nominations along with the consent of the person nominated in the case of those wishing to be elected as office bearers will reach the secretary of the company on or before 5 p.m. on 27th September, 1973. The nominations will be scrutinised by the chairman. The last date of receipt of objections to nominations will be on or before 5 p.m. on September 29, 1973. The chairman will go into the objections, scrutinise the nomination papers and make his decision concerning them. For this purpose he will attend the aforesaid premises of the company on October 1, 1973, at 3 p.m. The list of valid nominations will be despatched, under certificate of posting, by the secretary of the company to all the members not later than the 4th October, 1973.
(5) Members attending the meeting will not be permitted to sign the attendance register after 12 noon. In other words, if any member does not sign the meeting register by 12 noon that member will not be entitled to vote.
(6) The requisition slips for the ballot papers will be actually signed by the person who has to record the vote on behalf of the concerned member; they (requisition slips) will not be issued to any one else. A register will be maintained concerning the issue of requisition slips and the signature of the person concerned will be taken in token of his having received the requisition slip. When the ballot paper is issued in pursuance of the requisition slip the signature of the person concerned will be taken on the requisition slip itself in token of his having received the ballot paper.
(7) No ballot paper will be issued after 5 p.m. At 5 p.m. the chairman will announce the time beyond which no person will be allowed to record his vote; this decision will be made by him in the light of the time that is likely to be taken by those to whom ballot papers have been issued but are yet to record their votes.
(8) The chairman will exclude from the premises where the meeting and voting take place any person who has not to record his vote.
(9) The following four scrutineers are appointed to help the chairman.
1. Shri B. Mohan, advocate.
2. Shri R. N. Dikshit, advocate.
3. Shri Rishi Kesh, advocate.
4. Shri K. L. Budhiraja, advocate.
(10) The scrutineers themselves will under the guidance and help of chairman/alternate chairman count the votes.
(11) As soon as the voting is over the counting of votes will commence and the result will be announced that night itself.
(12) After the election is over the chairman will submit a report to this court concerning the meeting along with the requisition slips, ballot papers, the attendance register, nominations, authorisations and any other document that may be considered relevant by the chairman, all in sealed container, within a week after the meeting.
(13) Only the contesting candidates will be allowed to be present inside the premises when the polling and counting take place; no other person on his behalf to help the candidates will be allowed to be present. The chairman will not allow the staff of the company to participate in the matter of conducting the election.
(14) Any application for new membership from to-day onwards will be put up before the chairman and his initials obtained thereon before a new member is admitted.
(15) The chairman (Shri Prithvi Raj Sachdev) will be paid a remunera tion of Rs. 2,000, the alternate chairman (Shri A.L. Joshi) Rs. 1,000 and the four scrutineers (Sarvashri B. Mohan, R. N. Dikshit, Rishi Kesh and K. L. Budhiraja) Rs. 500 each, by the company.
A copy of this order will be caused to be cyclostyled or printed by the secretary of the company (association) and the same sent, under certificate of posting, to all the members within three weeks.
The chairman will have the necessary authority to visit the aforesaid premises of the company, as often as he may wish, to see that all the directions given herein are implemented by the secretary of the company.
The application is ordered in the above terms. There will be no order as to costs.
[1974] 44 COMP. CAS. 298
(DELHI)
high court of
delhi
Motion Pictures Association, In Re
S. RANGARAJAN J.
COMPANY APPLICATION NO. 565
OF 1972
IN COMPANY APPLICATION NO.
496 OF 1972
K. K. Mehra for the petitioners.
Ved Vyas, A. N. Khanna, Satish Chandra. S. L. Bhatia, P. K. Seth and M. M. N. Pombra for the respondents.
Rangarajan, J.—It would be necessary to state the facts leading to the present application.
An application had been made (C.A. No. 496 of 1972) under section 186 of the Companies Act, 1956 (hereinafter called "the Act"), for calling a meeting of M/s. Motion Pictures Association, Delhi (hereafter called "the company"), a company registered under the Companies Act, 1913. The company had no share capital and the payment of dividend to its members was prohibited. The company was formed with the object of promoting the interest of its members engaged in the trade of exhibition, distribution and exploitation of motion pictures in the Union Territory of Delhi and Uttar Pradesh. Any person wanting to indulge in these business activities relating to motion pictures in this area has to become a member of this company. The accounts of the company are closed at the end of December of every year. The last annual general meeting of the company was held on May 3, 1969. Subsequently no such meeting was held. In the result no election of office bearers could be held.
A member of the company (G. S. Maya Wala) had filed a suit (No. 476 of 1970) against the company in which there was also an application for restraining the company from holding its annual general meeting till the decision of the suit. The company appeared voluntarily in that suit and undertook not to hold any annual general meeting till the dispute was decided. Ultimately, there was a compromise.
Subsequent to the compromise, on July 29, 1972, a requisition had been left at the office of the company signed by 134 members demanding the holding of an extraordinary general meeting of the company for consideration and adoption of certain resolutions incorporated in the said requisition. But the executive committee of the company allegedly found that 43 signatures out of 134 were invalid, that 38 had been withdrawn by means of separate letters addressed to the association and that only 53 members had validly signed the same, thus falling short of the 74 signatures, being 10% of the total membership strength of the company. A body of 11 persons, purporting to be the executive committee, is said to have taken steps to hold an extraordinary general meeting of the company on October 7, 1972, in order to amend certain articles of association in terms of the compromise as a preliminary to holding the annual general meeting. This was sought to be done because the effect of not holding the extraordinary general meeting would be to revive the suit which had been compromised and until the suit was finally decided it would be impossible to hold elections. A circular letter in the name of the company had also been issued by the hony. general secretary (B. N. Gupta) on September 16, 1972, setting out all these facts. While certain persons asserted that they had full faith in the said body (executive committee) there were some others who did not have faith in it; this led to a piquant situation. It was in these circumstances that C.A. No. 496 of 1972 was filed invoking this court's powers to call a meeting under section 186 of the Act.
When C.A. No. 496 of 1972 came up for admission on September 20, 1972, notice, returnable by September 26, 1972, was ordered. With the consent of all those who appeared and who had been made parties to the said application, the extraordinary general meeting of the company which had been called for September 30, 1972, was adjourned to take place on October 7, 1972, under the chairmanship of Shri Daljit Singh, advocate, appointed by the court to consider, inter alia, the question of the number of office bearers pursuant to a framed resolution fixing the number as 16. The existing article (No. 23) of the articles of association provided for not less than eight and not more than 18 executive committee members being elected. The framed resolution (by court) fixing the number at 16 was to be moved as a special resolution.
All the parties being unanimously of the opinion—this being clear even otherwise—that it was not practicable in the circumstances prevailing to call a general meeting for electing executive committee members in the ordinary manner, a general meeting of the company was ordered to take place on October 21, 1972 (in C.A. No. 496 of 1972), for electing office bearers, their number having to be resolved upon at the meeting to be held on October 7, 1972, under the chairmanship of Shri Daljit Singh. For the meeting to be held on October 21, 1972, Shri P. A. Behl, advocate, was appointed as chairman to conduct the said meeting and also supervise the election of the directors, which was to take place at that meeting.
Since only 11 directors of the company were said to be functioning at the date of the said order five more persons (to make up the number 16) were also appointed to constitute an interim board of management with effect from October 7, 1972 (after the meeting which was fixed to take place on that date). Shri Daljit Singh filed a report, dated October 18, 1972, in this court stating that, instead of the resolution as proposed by this court pertaining to article 23, an amended resolution, fixing the members of the executive committee as 18, had been passed. I shall revert to this again later.
Shri P.A. Behl, the chairman of the meeting directed to take place on October 21, 1972, submitted his report, dated October 24, 1972, stating that he held and conducted the meeting at which 18 members of the executive committee were elected.
The present application (C.A. No. 565 of 1972) was filed on October 23, 1972, supported by an affidavit of Joginder Singh Sood, who unsuccessfully contested the election, making allegations of fraud also. But these allegations were not persisted in. In particular, he stated that more ballot papers were issued than the members present at the meeting; 347 persons had signed the meeting register whereas ballot papers were issued to 442 persons; no record was kept to whom ballot papers were issued and no check was made to verify whether the eligible persons voted.
It is needless to set out the details of how the said application was contested and evidence was partly recorded because a statement was ultimately made by all the counsel appearing for the concerned parties. The following order was made on December 13, 1972 :
"Counsel for both sides stated yesterday that they wanted little more time to think over the extent to which the oral evidence could be obviated and have to-day expressed their agreement that no oral evidence need be recorded in view of the following, on account of their agreement regarding the mode in which both the objections to the election held on 21st October, 1972, are to be disposed of. They state as follows:
(1) All the affidavits of Mr. J. S. Sood excepting the affidavit filed in support of his objection application dated 23rd October, 1972, are treated as withdrawn.
(2) The evidence on oath of Shri J. S. Sood which has been recorded thus far will also be not read as evidence. This course is adopted in order to save farther cross-examination of Mr. Sood.
Mr. Mehra states that he will rely only on the following documents which are already before the court:
(a) The attendance register of the company showing the attendance at the meeting on 21st October, 1972.
(b) The memorandum and articles of association.
(c) The chairman's report.
(d) Requisition for ballot slips and ballot pipers.
(d) Cyclostyled list of members of the association showing the proprietors of the various concerns and their representatives.
Mr. Ved Vyas says that he will also be relying upon documents showing authorisation of companies and firms regarding representation of which he will give inspection to Mr. Mehra.
Mr. Mehra requests that Mr. Ved Vyas may, at the adjourned date, make a statement concerning the following matters :
(1) Whether the cyclostyled list of members already filed is a complete list of all the members of the association and if it is not, who are the other members ?
(2) That it may be clarified as to who among those mentioned in the said cyclostyled list are members or representatives ?
Daring the hearing of the application certain subsequent events were brought to this court's notice by means of an application (C.A. No. 675 of 1972). 17 out of 18 persons said to be elected as members of the executive committee on October 21, 1972, issued notices, on November 22, 1972, convening what was called the "26th annual general meeting" of the company for 16th of December, 1972, stating that the above meeting was being convened only for the purpose of adopting the income and expenditure account and the balance-sheet for the year ending December 31, 1969. But two days before the said meeting was about to be held, the concerned persons appear to have realised that, if an annual general meeting was held according to the article provision as well as section 166 of the Act, all the members would automatically retire and not having offered themselves for re-election would not also be re-elected. The said meeting was, however, cancelled. This cancellation, two days prior to the meeting, is said to be illegal and unauthorised. (A contention also seems to have been raised that all the members were not served with the said notice issued on November 22, 1972). 18 (other) members are none-the-less alleged to have been elected on December 16, 1972, in pursuance of the said notice which announced an annual general meeting on that date. Out of the said 18 persons one of them has filed a suit (No. 81 of 1973) on the file of this court claiming that he and 17 others are the properly elected directors and that those who were elected on October 21, 1972, had also ceased to be directors by reason of the annual general meeting having been called. This suit, which is resisted is pending.
The scope of section 186 of the Act has been discussed by me at length in the judgment pronounced by me on May 10, 1973, Shrimati Jain v. Delhi Flour Mills Co. Ltd. (C.P. No. 96 of 1972). There is no need to repeat here the entire discussion or refer again to all the decided cases noticed therein. It will be sufficient to refer to the aspects which alone matter for the present controversy.
Section 186 reads:
"186. (1) If for any reason it is impracticable to call a meeting of a company, other an than annual general meeting, in any manner in which meetings of the company may be called, or to hold or conduct the meeting of the company in the manner prescribed by this Act or the articles, the court may, either of its own motion or on the application of any director of the company, or of any member of the company who would be entitled to vote at the meeting,—
(a) order a meeting of the company to be called, held and conducted in such manner as the court thinks fit; and
(b) give such ancillary or consequential directions as the court thinks expedient, including directions modifying or supplementing in relation to the calling, holding and conducting of the meeting, the operation of the provisions of this Act and of the company's articles.
Explanation.—The directions that may be given under this sub-section may include a direction that one member of the company present in person or by proxy shall be deemed to constitute a meeting.
(2) Any meeting called, held and conducted in accordance with any such order shall, for all purposes, be deemed to be a meeting of the company duly called, held and conducted".
Only a meeting other than an annual general meeting could be called by the court in exercise of this power. The power to call an annual general meeting has, under the Act of 1956, been vested in the Central Government under section 167. The Act of 1913 had (vide section 79(3)) given the power to call such an annual general meeting to the court. This change in India followed the change which was made in England where following the recommendation of a committee headed by Mr. Justice Cohen the power to convene an annual general meeting was taken away from the court and vested in the Board of Trade in order " to save expense".
At the annual general meeting the following items of business (which shall be deemed to be special) have to be set out on the agenda :
(1) Consideration of accounts, balance-sheet and report of the board of directors and auditors;
(2) declaration of dividend;
(3) appointment of directors in the place of those retiring;
(4) appointment and fixing the remuneration of auditors (section 173).
The above items are within the purview of the annual general meetings.
Section 257 enables a person to stand for directorship at any general meeting, which may be held, and not necessarily only at an annual general meeting. So long as the company is not having the maximum number of directors fixed by its articles, additional directors may be appointed at general meetings up to the maximum limit. The only effect of introducing sub-section (1-A) to section 257 seems to be that no one other than a director can stand as a candidate for appointment unless not less than 14 days' notice is given to the company, the company not having the power to waive such notice. There does not appear to be any impediment, therefore, in directors being elected at a general meeting of the company even other than the annual general meeting.
The expression "impracticable" is not to be considered as "impossible" (vide In re Lothian Jute Co. Ltd.) but has to be understood from a "reasonable point of view" in In re Malhati Tea Syndicate. When there is doubt as to the existence of a board of validly appointed directors and there is possibility of interminable troubles and prejudice to the interest of the company if a meeting is held otherwise than under the directions of the court, it will be expedient for the court to call a meeting of the company.
The principles to be borne in mind while dealing with an application under section 186 were summarised by S. P. Mitra J., in United Breweries Ltd. v. Ruttonjee & Co. Ltd. These principles have also been re-stated by me in Delhi Flour Mills . Not only was the meeting not held and conducted under the chairmanship of Shri P. A. Behl on October 21, 1972, as directed by this court and, therefore, could not be deemed to be a meeting of the company, but even their continuance in office has itself become doubtful at least subsequent to December 16, 1972. A suit having been filed by those 18 persons who claim to have been elected at the meeting held on December 16, 1972, there is bound to be interminable litigation affecting the well-being of the company, which is engaged in the trade of exhibition, distribution and exploitation of the motion pictures in such a vast area as the Union Territory of Delhi and Uttar Pradesh. For this additional reason also it has become necessary to call a meeting of the company under section 186. Though the court will not convert itself into a shareholder of the company or be concerned with the internecine squables of the company it is none-the-less the duty of the court, even of its own motion, to call a meeting of the company when it is impracticable to call such a meeting. In this view by order dated March 8, 1973, I directed the issue of notice to those persons who claimed to have been elected as members at the meeting said to have taken place on December 16, 1972 (who are parties to suit No. 81 of 1973) as well as to the persons who are said to have been elected as members of the executive committee at the meeting dated October 21, 1972 (except Shri Desai, among them, who was impleaded earlier on his own application) for March 27, 1973. Notices were accordingly served upon all of them and they were duly represented by their counsel who also filed their representations in writing. Their counsel were also heard.
The contention that the original order calling a general meeting of the company for October 21, 1972, was itself one without jurisdiction in the sense that it had not become impracticable to call a meeting and that a general meeting could not be called for the purpose of electing directors does not seem to deserve serious consideration. The facts, which are not disputed, noticed above clearly show that not only was it impracticable to call a meeting of the company, but there was no other way of resolving the deadlock concerning the management of the company's affairs (an annual meeting not having been held for a period of nearly 3 years) except by calling a meeting under section 186. It was also seen that even though the court cannot call an annual general meeting there is no impediment whatever in the way of calling a general meeting of the company; according to section 257 the directors could also be elected at such a meeting. Once a meeting is called under section 186 there does not appear to be any need for what happens at the general meeting being confirmed by the court as Shri K. K. Mehra, learned counsel for the applicant, contended but only to start with. Nor does there appear to be any need for an application to actually set aside the proceedings of the meeting called by the court in cases where such a meeting is not conducted according to the court's directions. But for sub-section (2) of section 186, the meeting called by the court under section 186 could not become a meeting of the company. Only a meeting called, held and conducted in accordance with the directions of the court could be deemed to be a meeting called, held and conducted, by the company.
In the light of the above what happened from and after October 7, 1972, may now be examined.
Article 23 (existing at the time of filing C.A. No. 496 of 1972) read as follows:
"Unless and until otherwise determined by a general meeting, the number of the executive committee members shall not be less than 8 nor more than 18, including the co-opted members as hereinafter provided".
The extraordinary general meeting which has already been convened for September 30, 1972, had been adjourned to October 7, 1972, with a direction that the following resolution be moved as a special resolution:
"Resolved that article 23 of the articles
of association be deleted and a new article reading as under be substituted :
Unless and until otherwise determined by a general meeting, the number of the executive committee members shall be 16".
This was done as preliminary to calling, holding and conducting a meeting, under section 186 of the Act, on October 21, 1972, for the purpose of electing such number of office bearers to the executive committee as may be resolved upon. Without this direction being strictly complied with there could not be, as I shall explain presently, a meeting of the company and consequently there could be no valid election either.
It is seen from the report of Shri Daljit Singh, who presided at the said meeting held on October 7, 1972, that B. R. Kundra moved a resolution as directed by me, and that the same was seconded by O. P. Verma. An amendment was moved at the meeting by Jogindar Singh without any prior notice as required for a special resolution, that instead of 16 the number of members of the executive committee should be 18. This amendment was accepted by B. R. Kundra and carried unanimously. It is worth recalling that what had been directed to be considered at the said meeting was the resolution fixing the number of directors as 16 and that the same had been directed to be considered as a special resolution of the company. This was the only resolution on the agenda for the meeting on October 7, 1972, pertaining to article 23. If any other amendment had to be moved it had to be moved by way of a special resolution after giving the requisite notice which was admittedly not done. On this ground alone the amended resolution, though passed unanimously, is seen to be illegal.
The same result may follow even if a somewhat different approach is adopted. While ordering a meeting to be called, held and conducted on October 21, 1972, a direction had been given that the number of office bearers to be elected would be as resolved at the meeting held on October 7, 1972, in pursuance of the resolution framed by the court with a further direction that it be moved as a special resolution. It seems worth repeating that the fact of a meeting being called by court under section 186(1) would not make that meeting one called, held and conducted by the company, but for section 186(2). The deeming provision incorporated in section 186(2) provides the vinculum juris by reason of which a meeting ordered by the court becomes the meeting of the company. A deeming provision can be invoked only when the conditions which are prescribed for giving rise to it are present, but not where the factual situation is different from what is necessary for applying the deeming provision. In the case of a meeting called by court there cannot be variation of or deviation from the directions given by it even if the variation or deviation is unanimously agreed to by all the parties concerned, though at a meeting which the members themselves call unanimity of opinion or of even that of the majority will prevail unless the same is ultra vires of the articles of the company. It is worth emphasizing that the only means in law as enacted by sub-section (2) by which such a meeting can be deemed to be a meeting of the company would be by complying with the directions given by the court in the matter of calling, holding and conducting the meeting. The fact, therefore, that the amendment was proposed by one who, ironically speaking, happens to be the one who was defeated in the elections and yet complains about the way in which the meeting (when the election) was held on October 21,1972, or even that the amendment was accepted by the mover of the resolution (as directed by this court) could not make that meeting one conducted in accordance with the directions of the court by reason of the deeming provision, namely, section 186(2). It was Jogindar Singh, strangely enough, who made an application (C.A. No. 150 of 1973) bringing the above fact to the court's notice; he urged that there was no valid resolution supporting the election of 18 office bearers and hence the meeting (and the election) held on October 21, 1972, was not legally effective. Shri Ved Vyas filed a reply on behalf of those who were then contesting (the present application) on the ground that this was an entirely new plea which was not taken earlier and that it could not, therefore, be allowed to be raised; it was also asserted that the resolution passed at the meeting held on October 7, 1972, pertaining to article 23 was valid. The persons who were newly added by my order dated March 8, 1973, had not even referred to this aspect, but Jogindar Singh had again referred to this aspect in the rejoinder which he filed to the reply to the representations made by the newly added parties. No attempt was made before me to justify the deviation from the court's directions concerning the resolution pertaining to article 23 passed at the meeting held on October 7, 1972. I take it that no justification has even been attempted for the reason that no justification seems possible.
I am conscious that it may in a sense be somewhat absurd to regard the resolution pertaining to article 23 passed unanimously at the meeting held on October 7, 1972, as invalid (the said resolution had been proposed at the meeting without prior notice, by way of amendment) at the instance of the party who is now calling the validity of the resolution in question. I can only recall the observation of Lord Greene M. R. in Grundt v. Great Boulder Proprietary Mines, Ltd. :
"Absurdity, I cannot help thinking, like public policy, is a very unruly horse".
The question that had to be considered in that case was whether the retiring directors could be deemed to be re-elected at an annual general meeting which had by show of hands rejected their claim to be re-elected. It was held that the deeming provision concerning the re-election could not be invoked as a matter of statutory construction and the argument of absurdity could not, in the circumstances, prevail.
Even if it is possible to regard the election of 18 members to the executive committee as being within the purview of article 23, as it originally stood, before the amendment made on the 7tb, difficulty would still arise by reason of not being able to deem the meeting (and the election) held on 21st as that of the company within the meaning of section 186(2) for there was no compliance with the direction of the court, which was that the resolution fixing the number of members of the executive committee as sixteen should have been moved as a special resolution at the meeting on 7th and the further meeting (and election) to take place on 21st should have been on the basis of the voting on the resolution framed by the court. This resolution was no doubt duly proposed and seconded at the meeting held on 7th, but was not put to vote; on the other hand the amended resolution which had been proposed at the meeting itself, even without the requisite notice for a special resolution, was put to vote. In the view explained at length that only a meeting which is conducted according to the direction given by the court while calling a meeting under section 186(1) could attract the deeming provision under sub-section (2) it does not seem possible to deem the meeting (and the election) held and conducted on 21st as that of the company.
If it became necessary on the part of those to deviate from the directions given by the court in the matter of holding or conducting such a meeting the only appropriate course would have been to apply to the court itself to alter the directions or give such further directions as may be considered necessary. The members of their own accord, once a meeting is called under section 186, cannot choose to even agree among themselves regarding how the meeting should be conducted other than by way of carrying out the directions given by the court.
I am free to state, however, that what happened at the meeting on October 7, 1972, seems to have been done perfectly bona fide, but it seems obvious that what happened on October 7, 1972, does not conform to the requirements of law and/or the directions of the court. There can be no question of estoppel either, for there can be no estoppel against statute or law or against the directions given by the court.
What is the course, then, that has to be adopted in these circumstances ?
Section 186 has been worded so widely and such extensive powers also have been given to the court. The court, even of its own motion, can direct a meeting to be called under section 186. The directions can go to the extent of even departing from the provisions of the statute and the articles to meet the exigencies of any situation; section 186 itself, for instance, provides for the court fixing the quorum of the meeting as one.
One of the principles stated by S. P. Mitra J. in United Breweries Ltd., with which I concurred in Delhi Flour Mills Ltd., is that where a meeting can be called only by the directors of a company and there are serious doubts and controversies as to who are the directors or there is a possibility that one or two or both the meetings called by the rival groups have been invalid the court ought not to expose the shareholders to uncertainty and should hold that a position has arisen which makes it impracticable to convene a meeting in any manner in which the meeting may be called. In such a situation when considering all the facts and circumstances the court can with reasonable approach to certainty and even prima facie say that the manner in which meetings previously called under the Act and/or under the articles would be invalid, it would not hesitate to call a meeting under section 186. That a meeting has been previously called by the court under section 186 may not be a reason by itself to refuse to call another meeting when a meeting was not conducted according to the directions given. If the meeting held on October 21, 1972, was not properly conducted then the elections conducted at the said meeting, for which purpose the meeting was called, would also fail for that very reason.
Much of the opposition to the calling of a fresh meeting for electing office bearers of the company has been only on the ground that the elections were fairly and properly conducted and hence could not be challenged. Once the elections are seen to have been not conducted according to the direction given by the court then there would not be any need to go into the question of whether the election was conducted properly or not. Nonetheless, it seems desirable to go into the said question, at least broadly for two reasons:
Firstly, that a fresh election would have to be ordered even for the sole reason that the declared result is not acceptable to the court for the reason that the election itself was not properly conducted;
Secondly, that the mistakes committed may not be repeated and the precautions not taken may be taken.
Analysing the voting that is stated to have taken place it is seen that there is discrepancy between the number of members who have signed the register in token of their having been present at the meeting and the number of requisition slips issued: while 442 requisition slips appear to have been issued only 347 have signed the register. This is explained by Shri Ved Vyas as being possibly due to the considerable interval of time between the meeting and the voting. The meeting commenced at 10'30 a.m.; it was presided over by Shri P. A. Behl. According to his report he read out to the members present the list of the names of the candidates whose nominations had been received in the association's office in time and obtained the consent of the concerned candidates. The scrutineers, to whom no one objected, were appointed. It was announced at the meeting (at 12 noon) that voting would commence at 2 p.m. and that the members could have lunch during the interval. The list of the candidates contesting the election was finally drawn up and sent for cyclostyling. A copy of the list was also issued to whoever wanted it and also attached with the ballot paper. Since the ballot papers were not ready the actual voting commenced only at 2.30 p.m.; it was announced that voting would come to an end at 7 p.m. Though the chairman says that he had directed that the ballot papers should be issued by the scrutineers to each of the members on his/her presenting a requisition slip duly signed by the member and after his/her membership being checked and scrutinised with the roll of members placed at the table, the scrutiny or check does not appear to have been adequate. By 7 p.m., 442 ballot papers were issued. A few members (it is not stated how many) who had left their requisition slips with the scrutineers, did not turn up to collect their ballot papers. The voting was finally announced to be closed at 7.02 p.m. The rest of the report relates to the manner in which the counting took place, about which both parties had practically nothing to say before me. The chairman has arranged, in alphabetical order, the names of the 32 candidates along with the votes secured by them and he has underlined in red pencil the number of votes secured by each of them. Joginder Singh Sood is seen to have got 198 votes and K. K. Khanna the next higher number of votes, namely, 205. While K. K. Khanna was declared elected, J. S. Sood was not declared elected; he is seen to have secured 7 votes less than those secured by K. K. Khanna; Wazir Singh Chachaji secured 208, D. N. Pancholi and Lakhmi Chand Sethi 211 each, B. M. Shah 219, Saranjit Singh Wadalia 234, Wishwa Nath Sahni (Sahni Enterprises) 235 and M.B. Mathur 239 votes, etc.
442 requisition slips are stated to have been issued, the number of ballot papers issued was 442. There are signatures only in respect of 347 members in the attendance register. Out of these 347,13 are conceded to be duplicated. Therefore, only 334 members had signed as against 442 requisition slips issued, which means that 101 requisition slips were issued to those who did not sign the attendance register. Deducting 435 (334+101) from 442 (ballot papers issued) the difference is seen to be 7; Shri Ved Vyas had to concede even on this basis that at least 7 unauthorised persons had voted. This by itself is something which calls for strict explanation and serious scrutiny of the entire voting. In the absence of any explanation it has to be taken that the control exercised in the matter of seeing that only authorised persons recorded their votes was not adequate. The requisition slips for ballot papers do not appear to have been signed by many voters. The ballot papers were handed over to the voters without getting their signatures on the requisition slips. Not much effort appears to have been made to ensure that every voter signed the requisition slip after signing the attendance register as well; it was not possible, therefore, to make checks in order to find out whether the particular person who voted on behalf of the concerned member had authority to do so in cases where the member did not vote in person. In the case of firms, which are members, duly written authorisations bad to be obtained from the firm to enable the person who turned up to vote on behalf of the concerned firm.
Shri K. K. Mehra submitted a list of 33 limited companies who are members but had recorded their votes without producing authenticated copies of resolutions passed under section 187 of the Act to enable them to vote on behalf of these companies.
In the result at least thirty-three votes, cast by members which were limited companies, have not been shown to have been properly cast in the sense no resolution (or authenticated copy thereof) under section 187 had been filed. The arguments went on for several days in this case; Mr. Ved Vyas was content to take the stand that this point had not been specifically taken by Joginder Singh who questioned the election; even those who were subsequently added in pursuance of my order dated March 8, 1973, did not do any better. Lists had been furnished by Shri K. K. Mehra pointing out the above as well as other defects. The commissioner has not filed any such resolutions or authenticated copies of them, nor has he even made a reference to the same having been filed with or shown to him. The commissioner had also stated that some persons who had signed requisition slips and to whom ballot papers had been issued had not turned up; there was no statement therein about the precise number who had done so. Even among the requisition slips (for ballot papers) we find at least 26 such slips have been left unsigned. This throws further light on the absence of proper checks. In addition to these, Shri K. K. Mehra filed a list culling out forty instances where unauthorised persons had signed the meeting (attendance) register. A further question may arise regarding how many among them did exercise their franchise and how many among them were not authorised to vote on behalf of the members. There seems to be no need to burden this order with those details in the view I am taking of the question of not regarding the meeting (and election) held on the 21st as that of the company. The other facts noticed, even by themselves, concerning the manner in which the election was held, prevent the court from regarding the election as a proper election. When the court directs an election to be held and calls a meeting for that purpose under section 186 it is implicit that it will be held and conducted by taking all necessary safeguards; if it appears even prima facie that the election, by reason of the manner in which it was conducted especially in the context of the closeness of voting materially affects the result of the election, a fresh meeting, for holding the election, will have to be ordered. Otherwise the purpose of the court in ordering a meeting, for election of office bearers to take place, would be frustrated. This is not to say, however, that the election has to be set aside, in the narrow sense in which elections are ordinarily set aside on petitions being filed to set them aside.
This court having called a meeting of the company under section 186 to take place on October 21, 1972, the correctness or legality of which has not even been seriously called in question until recently, this court is under a duty to call another meeting of the company when it is not possible to resolve the deadlock concerning the affairs of the company in any other manner by reason of the manner in which it was conducted. The company is seen to deal with so many motion picture distributors and exhibitors in this vast area, who cannot carry on their business except by becoming members of this important organisation. A situation which was thought on all hands to be capable of being resolved by the simple process of calling a meeting of the company under section 186 has for various reasons—most of which were not even anticipated—failed to resolve the conflicts and tensions which prevailed previously; I am afraid, it has even made matters worse. This evil result, I am satisfied, was not due to the meeting itself being called by the court—which was and still is seen to be the only way out of the difficulty—but by reason of the necessary checks not being exercised and precautions not taken in the matter of conducting the meeting (and the elections). The only way of putting the company on a normal footing and thus enabling it to function smoothly seems to be by way of calling another meeting where the office bearers would be elected and by giving sufficient directions in this regard.
In the light of past experience, however, I propose to give the following detailed directions :
The meeting will be in two stages :
First stage :
The general meeting of the company will be held at the premises of the company, i.e., F-27, Darya Ganj, Delhi, on Saturday the 18th August, 1973, at 10 a.m. Shri Prithvi Raj Sachdev, advocate, will be the chairman of the meeting and Shri A. L. Joshi, advocate, will be the alternate chairman. I direct that the following resolution will be moved at the said meeting :
"Resolved that the previously existing article 23 (both prior to October 7, 1972, and as amended on October 7, 1972) will be deleted".
In place of existing article 23 a new article 23 will be substituted as follows:
"Unless and until otherwise determined by a general meeting the number of executive members shall be 18".
Even though no difficulty is apprehended in the matter of the resolution being passed as it is now framed to-day it seems necessary also to make a provision out of abundant caution for the eventuality of the said resolution, as framed, not being passed at the meeting at all. In that eventuality I direct that even if the said resolution is not passed at the meeting on August 18, 1973, 18 office bearers would be elected; it is worth recalling that article 23, as it stood prior to October 7, 1972, permitted the maximum of 18 office bearers.
Second stage:
The general meeting of the company will be held at the aforesaid premises of the company on Saturday, the 13th October, 1973, at 9 a.m. and will not be adjourned except for a lunch break between 1 and 2 p.m.
The following procedure will be adopted at the meeting to be held on October 13, 1973 :
(1) All the firms and limited companies, which are members of the company (association) will send written authorizations and duly authenticated copies of authorizations of needed resolutions, respectively to reach the secretary of the company at least three days in advance of the date of the meeting, indicating who will vote at the meeting and what his position is in the firm or company, as the case may be.
(2) No member of the company, which is a firm or limited liability company, will be entitled to vote unless such written authorizations or authenticated copies of resolutions, as the case may be, are sent by the companies or firms concerned and received by the secretary of the company within the afore-said time. In the case of partnership-firms the authorizations will be confined to one of the partners. If the same person is a partner in more than one member-firm he can on being authorised by the concerned firm or firms vote for the firm or firms concerned. In such cases, (i.e.), where the person concerned is representing more than one member-firm
when signing the attendance register at the meeting he will indicate therein the firm/firms which he is representing.
(3) All proprietary concerns can vote only in person, subject to identity and membership being verified.
(4) The nominations along with the consent of the person nominated in the case of those wishing to be elected as office bearers will reach the secretary of the company on or before 5 p.m. on 27th September, 1973. The nominations will be scrutinised by the chairman. The last date of receipt of objections to nominations will be on or before 5 p.m. on September 29, 1973. The chairman will go into the objections, scrutinise the nomination papers and make his decision concerning them. For this purpose he will attend the aforesaid premises of the company on October 1, 1973, at 3 p.m. The list of valid nominations will be despatched, under certificate of posting, by the secretary of the company to all the members not later than the 4th October, 1973.
(5) Members attending the meeting will not be permitted to sign the attendance register after 12 noon. In other words, if any member does not sign the meeting register by 12 noon that member will not be entitled to vote.
(6) The requisition slips for the ballot papers will be actually signed by the person who has to record the vote on behalf of the concerned member; they (requisition slips) will not be issued to any one else. A register will be maintained concerning the issue of requisition slips and the signature of the person concerned will be taken in token of his having received the requisition slip. When the ballot paper is issued in pursuance of the requisition slip the signature of the person concerned will be taken on the requisition slip itself in token of his having received the ballot paper.
(7) No ballot paper will be issued after 5 p.m. At 5 p.m. the chairman will announce the time beyond which no person will be allowed to record his vote; this decision will be made by him in the light of the time that is likely to be taken by those to whom ballot papers have been issued but are yet to record their votes.
(8) The chairman will exclude from the premises where the meeting and voting take place any person who has not to record his vote.
(9) The following four scrutineers are appointed to help the chairman.
1. Shri B. Mohan, advocate.
2. Shri R. N. Dikshit, advocate.
3. Shri Rishi Kesh, advocate.
4. Shri K. L. Budhiraja, advocate.
(10) The scrutineers themselves will under the guidance and help of chairman/alternate chairman count the votes.
(11) As soon as the voting is over the counting of votes will commence and the result will be announced that night itself.
(12) After the election is over the chairman will submit a report to this court concerning the meeting along with the requisition slips, ballot papers, the attendance register, nominations, authorisations and any other document that may be considered relevant by the chairman, all in sealed container, within a week after the meeting.
(13) Only the contesting candidates will be allowed to be present inside the premises when the polling and counting take place; no other person on his behalf to help the candidates will be allowed to be present. The chairman will not allow the staff of the company to participate in the matter of conducting the election.
(14) Any application for new membership from to-day onwards will be put up before the chairman and his initials obtained thereon before a new member is admitted.
(15) The chairman (Shri Prithvi Raj Sachdev) will be paid a remunera tion of Rs. 2,000, the alternate chairman (Shri A.L. Joshi) Rs. 1,000 and the four scrutineers (Sarvashri B. Mohan, R. N. Dikshit, Rishi Kesh and K. L. Budhiraja) Rs. 500 each, by the company.
A copy of this order will be caused to be cyclostyled or printed by the secretary of the company (association) and the same sent, under certificate of posting, to all the members within three weeks.
The chairman will have the necessary authority to visit the aforesaid premises of the company, as often as he may wish, to see that all the directions given herein are implemented by the secretary of the company.
The application is ordered in the above terms. There will be no order as to costs.
[1975] 45 COMP. CAS. 641 (SC)
SUPREME COURT OF INDIA
v.
A.
ALAGRISWAMI, P.K. GOSWAMI AND N.L. UNTWALIA, JJ.
CIVIL
APPEAL NO. 1136 OF 1975
S.V. Gupte, and Mrs. S. Bhandare for the Appellant.
S. Govind Swaminathan, T. Raghavan, R. Chandrasekhar, K. Jayaram, M. C. Bhandare, A.T.M. Sampath and M.M.L. Srivastava for the Respondent No. 3.
Untwalia, J.—The question which falls for our determination in this appeal by special leave is as to what is the meaning and scope of section 186 of the Companies Act, 1956, hereinafter called the Act. For the determination of the said question it will suffice to state only a few facts from the judgment of the Madras High Court. There were two managing directors of Century Flour Mills Ltd., respondent No. 3. Their names are S/Shri P. Govindaswamy and S.P. Sithambaram. Both of them had been duly appointed as such in the year 1972. They subsequently fell out. In August, 1974, certain shareholders of the company including respondents 1 and 2 lodged a requisition under section 169 of the Act for the calling of an extraordinary general meeting of the company for removal of Govindaswamy. Certain other shareholders lodged a similar requisition for removal of Sithambaram from the post of managing director. Both the requisitions were considered by the board of directors in their meeting held on August 19, 1974. As per the requisitions, they called an extraordinary general meeting of the company to be held on September 14, 1974. The meeting was directed to be held at the residence of one of the shareholders of the company instead of its registered office. The shareholders were divided into two factions belonging to the two groups of the managing directors. Apprehending very many difficulties and troubles in the holding and the conduct of the meeting on September 14, 1974. Respondents 1 and 2 filed an application under section 186 of the Act, Company Petition No. 85/1974, in the Madras High Court. They prayed to the court to appoint an Advocate-Commissioner as Chairman of the meeting to be held on September 14, 1974, so that the proceedings may be conducted in a regular manner. The only respondent impleaded in the said petition was the company which filed a counter-affidavit to resist the prayer of respondents 1 and 2. A learned single judge of the High Court took the view that power under section 186 of the Act could be exercised even where a meeting had already been called, but it was impracticable to hold or conduct the meeting. In other words, the learned judge was of the opinion that the court even without ordering a meeting of the company to be called could appoint a person to be the chairman of the meeting. But on appreciation of the facts of the case in the light of certain decisions of the High Courts, he came to the conclusion that it was not impracticable to hold or conduct the meeting and hence dismissed the application filed by respondents 1 and 2.
O.S. Appeal No. 64/1974 was filed in the High Court under clause 15 of the Letters Patent against the order dated September 11, 1974, of the learned single judge. By an order made on September 12, 1974, a Bench of the High Court stayed the convening of the meeting called to be held on September 14, 1974. It appears that in spite of the service of the order dated September 12, 1974, on September 13, the meeting was held on September 14, 1974. CMP No. 10935/1974 was taken out in the form of a judge's summons under rule 9 of the Companies Court Rules, 1959, to declare the meeting held on September 14, 1974, as void and the resolutions passed therein as illegal and inoperative. The said appeal and the CMP along with other CMPs which are not necessary to be referred to in this judgment were heard by a Bench of the High Court presided over by the learned Chief Justice. The Bench allowed CMP No. 10935/1974, put back the parties in the same position as they stood immediately prior to the service of the order dated September 12, 1974, and declared that the meeting held on September 14, 1974, and the resolutions passed thereunder would have no effect whatsoever. By a separate judgment, Appeal No. 64/1974 was also allowed by the Division Bench. It agreed with the single judge as regards the meaning and scope of section 186 of the Act but differed from him on the merits of the case. They appointed an advocate of the court as the advocate-chairman to hold and conduct the meeting and directed that the meeting would take place at the premises of the registered office of the company.
The sole appellant in this appeal is a shareholder of the company. Feeling aggrieved by the orders of the Division Bench of the High Court in CMP No. 10935/1974 and in OS Appeal No. 64/1974, he filed special leave applications in this court seeking leave to file appeals in both the matters. By order dated August 29, 1975, a Bench of this court dismissed as withdrawn SLP No. 1156/1975, arising from the judgment and order dated March 11, 1975, of the High Court in CMP No. 10935/1974. Special leave was granted from the judgment and order dated March 17, 1975, of the High Court passed in OS Appeal No. 64/1974.
Mr. S.V. Gupte, learned counsel for the appellant, urged the following three points in support of the appeal:
(1) That power under section 186 of the Act could not be exercised until it was found that it was impracticable to call a meeting of the company other than an annual general meeting and to hold and conduct the meeting in the manner prescribed by the Act or the articles of the company. The court had no jurisdiction merely to appoint a chairman of the meeting without an order for the calling of the meeting.
(2) That the High Court was wrong in holding that it was
impracticable to hold or conduct the meeting of the company which had already
been called.
(3) That during the pendency of the appeal in the High Court,
the Company Law Amendment Act of 1974 came into force on Feburary 1, 1975. The
powers and jurisdiction of the court under section 186 stood transferred to the
Company Law Board by the said amendment. The court, therefore, had no power to
make an order under section 186 on March 17, 1975.
Since in our opinion the first point urged on behalf of the appellant is well-founded and has to be accepted as correct, neither of the other two points need any determination or answer and we express no opinion in respect of them.
Section 186 of the Act, as it stood at the relevant time, reads as follows:
"Power of court to order meeting to be called.—(1) If for any reason it is impracticable to call a meeting of a company, other than an annual general meeting, in any manner in which meetings of the company may be called, or to hold or conduct the meeting of the company in the manner prescribed by this Act or the articles, the court may, either of its own motion or on the application of any director of the company, or of any member of the company who would be entitled to vote at the meeting,—
(a) order a meeting of
the company to be called, held and conducted in such manner as the court thinks
fit; and
(b) give such ancillary
or consequential directions as the court thinks expedient, including directions
modifying or supplementing in relation to the calling, holding and conducting
of the meeting, the operation of the provisions of this Act and of the
company's articles.
Explanation.—The directions that may be given under this sub-section may include a direction that one member of the company present in person or by proxy shall be deemed to constitute a meeting.
(2) Any meeting called, held and conducted in accordance with any such order shall, for all purposes, be deemed to be a meeting of the company duly called, held and conducted."
It corresponds with slight variation to section 79(3) of the Companies Act, 1913, and section 135 of the English Companies Act, 1948. The plain meaning of section 186 is that the court may order a meeting of the company to be called, held and conducted in such manner as the court thinks fit in any one or more of the following contingencies :
(i) If for any reason it is impracticable to call a meeting of the company other than an annual general meeting.
(ii) If for any reason it is impracticable to hold the meeting of the company in the manner prescribed by the Act or the articles.
(iii) If for any reason it is impracticable to conduct the meeting of the company in the same manner.
On the occurring of any one or more of the said contingencies the court has to order the calling of a meeting of the company and its holding and conducting in such manner as the court thinks fit. The use of the word "and" between the words "held" and "conducted" in clause (a) of sub-section (1) clearly shows that the court has no power to make any order regarding the holding and conducting of any meeting which has already been called without ordering a meeting of the company to be called in place of the meeting already called. If an order under clause (a) has been made such ancillary or consequential directions as the court thinks expedient could be given under clause (b), including a direction within the meaning of the explanation appended thereto. The language of sub-section (2) further fortifies the above interpretation of sub-section (1) and makes any meeting called, held and conducted in accordance with an order under sub-section (1) to be a meeting of the company duly called, held and conducted. The use of the word "or" in the first part of sub-section (1) may be disjunctive or conjunctive in the manner we have interpreted above. But, undoubtedly, the order under clause (a) has got to be for all the three purposes and not merely for holding or conducting of the meeting.
In Company Petition No. 85/1974, no prayer was made to the court for an order for the calling of a meeting of the company nor has any such order been made by the High Court in appeal. In our opinion, therefore, the application as presented in the court under section 186 of the Act was not maintainable. No prayer was ever made to the court for an order that a meeting of the company be called. A fresh application, it goes without saying, if necessary, can be made under section 186 of the Act. But then it will have to be made to the authority mentioned in the amended section.
For the reasons stated above, we allow this appeal, set aside the judgment and order of the High Court passed in O.S. Appeal No. 64/1974, and dismiss Company Petition No. 85/1974 as being not maintainable. We shall direct the parties to bear their own costs throughout.
[1957] 27 COMP. CAS. 86 (CAL.)
HIGH COURT OF CALCUTTA
V.
J.K.Eastern
Industires Private Limited.
MUKHARJI, J.
JULY 9, 1956
P.B.MUKHARJI J. - This is an application by Bengal and Assam Investors Limited under section 186 of the Companies Act of 1956. It seeks an order that the extraordinary general meeting of the respondent company, J.K. Eastern Industries Private Limited, required by the petitioner to be called in pursuance of requisition dated the 5th June, 1956, be called and held and conducted in such manner as this court thinks fit and proper and that for the purposes of the same such ancillary and consequential directions be given as this court may think necessary or expedient including directions regarding the date, time and place of the meeting to be held, appointment of an independent chairman for the meeting, deposit of proxies with such chairman and all such other directions modifying or supplementing the operation of the provisions of the Companies Act and of the company's articles relating to the calling, holding or conducting of the meeting. The applicant also seeks for an order that at the meeting the resolutions mentioned in the requisition notice annexed to the petition marked "B" be considered and if thought fit be passed with or without modifications. The further order sought by the applicant is that the respondent company must be directed to comply with the provisions of sub-sections (3) and (4) of section 284 of the Companies Act, 1956.
Before I discuss the implications of an application under section 186 of the Companies Act, 1956, it would be necessary to state a few facts for the better appreciation of the actual point involved. The dispute is fundamentally between two rival groups of shareholders, one called the Jatia group and the other called the Singhnia group. In 1954 the Jatia directors appointed K.L. Jatia as chairman of the board of directors. On the 25th May, 1954, there was a requisition for an extraordinary general meeting by the present applicant. On the 25th August, 1954, an extraordinary general meeting was held at which K.L. Jatia acted as chairman and refused to permit the resolutions under the articles of association of the company and under the Companies Act then prevailing. Upon that the present applicant applied on the 30th August, 1954, for holding a meeting of the company under the supervision of the court under the then Companies Act. Thereafter on the 16th December, 1954, a suit was filed being suit No. 3603 of 1954, for setting aside the alteration of articles alleged to have been done on the 2nd August, 1954. There was also another suit on the 16th December, 1954, being suit No. 3604 of 1954.
The point of dispute is that although the Jatia group is in minority so far as the shareholding is concerned, they, with only about 45 per cent of the total shares, have maneuvered themselves into a position of control over the Singhania group who have a majority of share-holding of about 55 percent. This, therefore, is not the usual case where the minority alleges to be oppressed by the majority but a case where the majority alleges to be oppressed by the minority.
Now the two suits that I have mentioned are still pending. The allegation that the present applicant makes in the petition is that the Jatias are attempting to delay the hearing of suit No. 3603 of 1954, as long as possible. The applicant is a shareholder holding 400 ordinary shares in J.K. Eastern Private Limited.
The resolutions that are intended to be passed at the meeting demanded by the requisionists are set out in the notice itself. The resolutions that the applicant wants to be passed are to the following effect :
(1) That K.L.Jatia be removed from the office of the director and that Lakshimat Singhnia be appointed in his place.
(2) That G.D.Jatia be removed from the office of the director and Hari Shankar Singhania be appointed in his place.
(3) That M.P.Jatia, director of the company, be removed from the office of director and Krishna Prasad Khaitan be appointed in his place.
(4) That D.N.Jatia be removed from the office of director and Nalini Ranjan Hazra be appointed in his place.
(5) That Pratap Singh Nawalakha, Lakshman Parsad Maitin and Ramkrishandas Gupta be appointed additional directors of J.K.Eastern Industries Private Limited.
Section 186 of the Companies Act introduces new principles of company management. It is an innovation introduced by the Act of 1956. It provides power for the court to order company meetings. The conditions under which such power of the court to order company meetings should be exercised require analysis. It is expressly stated in that statutory provision that "if for any reason it is impractible to call a meeting of the company, other than an annual general meeting, in any manner in which meetings of the company may be called, or to hold or conduct the meeting of the company in the manner prescribed by this Act or the articles, the court may, either of its own motion or on the application of an director of the company, or of any member of the company who would be entitled to vote at the meeting, -
(a) order a meeting of the company to be called, held and conducted in such manner as the court thinks fit ; and
(b) give such ancillary or consequential directions as the court thinks expedient, including directions modifying or supplementing in relation to the calling, holding and conducting of the meeting the operation of the provisions of this Act and of the company's articles."
Now the first essential condition is that the court must have reason to be satisfied that it is impracticable to call a meeting of the company or to hold or conduct the meeting of the company in the manner prescribed by this Act or the articles. That is the primary condition which must exist before the court can assume powers of calling, holding and conducting meetings of companies and thereby supersede and override the right of the shareholders and their representatives, the directors, to call, hold and conduct company meetings, which ordinarily belongs to them. The second feature of this statutory provision is that the court's power under section 186 of the Companies Act of 1956 is discretionary. It is not a power which the court must exercise. It is not a mandatory obligation upon the court. It is an alternative remedy to be applied only when the normal machinery of company management fails and the court must find first that it is impracticable to call a meeting and secondly that to leave the parties to follow their own remedies and rights will put the company in jeopardy.
Now it is clear on the facts of this case that it is not impracticable at all to call a meeting of the company or even to hold a meeting of the company within the meaning of section 186 of the Act. The very first condition of this section is not satisfied. In fact a notice has already been issued calling the meeting and notifying that the meeting will be held at the registered office of the company on the 14th July, 1956, at 11 a.m. That notice clearly sets out what resolutions the requisitionists want to be passed at the meeting. Therefore there is no impracticability in the matter of calling a meeting or in the matter of holding a meeting. In fact it has been called.
What, however, is suggested by the applicant is that I must hold that it is impracticable to conduct the meeting of the company in the manner prescribed by this Act or articles within the meaning of section 186 of the Companies Act. I am unable to come to that conclusion. I do not find any reason to hold that it is impracticable to conduct the meeting notified to be held on the 14th July, 1956, in the manner prescribed by the Act and the articles of the company. I shall state my reasons briefly. Before I do so, I shall state the argument of the applicant on this point. It is argued by Mr. H.N. Sanyal, learned counsel appearing on behalf of the applicant, that the chairman of the board of directors is K.L. Jatia whose conduct will be under criticism and whose removal the resolutions demand. Mr. Sanyal's argument is that a chairman of a meeting cannot be a judge in his own cause and for that purpose he relied upon the case of N.V.R.Nagappa Chettiar v. Madras Race Club. There the well-settled principle is reiterated that no man can preside at his own election and return himself, and that in the case of a chairman of a meeting whose function is to decide as to the validity of certain nominations such chairman should not decide the validity of his own nomination.
In my judgment there are many answers to this argument.
The court under section 186 of the Companies Act of 1956 must have a good reason to hold that it is impracticable to conduct the meeting of the company in the manner prescribed by the Act or the articles of the company. It is, therefore, not the purpose of this section as I read it that this court should intervene to conduct a company meeting not in the manner prescribed by the Act or by the articles of the company and to override the express provisions thereof. Naturally enough when the court directs a meeting to be held under section 186 of this Act it must necessarily modify or supplement the articles or the Act and that is why express provision is made for the same under section 186(1)(b) of the Act. But that provision for modifying or supplementing the articles or the Act is only with a view to enable the court to call, hold and conduct the meeting under section 186 of the Act which normally it cannot without contravening the articles and the Act. no one for amoment disputes that a person cannot be a judge in his own cause, but the chairman of the board of directors who under the articles of the company is supposed to be the chairman of this extraordinary general meeting of the shareholders called for the 14th July, 1956, will not be a judge in his own cause. Unlike a Judge's decision K.L.Jatia will not decide on the validity of his own nomination at the meeting of the shareholders. It will be for the shareholders to vote for the removal of K.L.Jatia from the office of director and not for K.L.Jatia to decide it. The doctrine, therefore, that a man cannot be a judge in his own cause cannot be applied in this context at all. The facts of this case are entirely different from the facts of the Madras decision on which Mr. Sanyal relied and with whose principle there is no quarrel.
It was then contended by Mr. Sanyal that K.L.Jatia, chairman of the meeting, might behave with partiality and partisanship in so conducting the meeting as to throw out the majority of the applicant. I am afraid I cannot anticipate that Mr. Jatia would act illegally and acting on that anticipation supplant the articles of the company and give directions for the conduct of the meeting under section 186 of the Companies Act. Should K.L.Jatia commit any illegality at the meeting then there is ample remedy open to the applicant. In fact some of the very grounds, it not all, in this application are already the subject of pending litigation and proceedings in this court.
Besides, I do not see that so far as the applicant is concerned there is anything more than his own apprehension that K.L.Jatia would act illegally at the first meeting that is going to be held on the 14th July, 1956. I am satisfied that K.L.Jatia cannot decide on the resolutions proposed in that meeting because the resolutions will have to be voted by the shareholders. It is the shareholders who will be in control of the meeting. If the applicant has in its side 55percent of the votes of the shareholders, I do not see why they should be at all frightened. The chairman's power is very limited. He has a vote as a shareholder and director. That gives him no special position to control the meeting. He has, in the event of an equality of votes between two rival groups, a casting vote. But on the applicant's own showing there is no question of equality of votes in this case because the applicant's group is much larger than the respondent's group. Therefore, even the possibility of casting vote is remote. The only other scope of intervention by the chairman is in the matter of poll. But even a poll may be demanded under article 118 by any member if not more than 7 members are personally present, and if more than 7 members are present then by any two members, so that even in the matter of poll the chairman cannot exclude a poll. All that the chairman can do under article 102 is that if a poll is demanded, the chairman will direct it to be taken either at once or after an interval or adjournment or otherwise and shall determine the time and place and the manner in which it shall be taken. it is only in case of a dispute as to the admission or rejection of a vote that the chairman is given power under article 102 to determine the same. But then such determination in order to be conclusive under article 102 of the articles of the company has to be in good faith. Therefore, whatever is not done in good faith will be open to challenge. The same is again true with regard to proxies or admission of proxies. If the chairman does something which is illegal in this respect, the Companies Act provides ample remedies to the applicant. But the applicant under section 186 cannot anticipate that the chairman will act illegally. Lastly, article 97 provides that the chairman of the board of directors shall be entitled to take the chair at every general meeting. But if he is unwilling to act, the members present shall choose another director. It may also be that by convention the chairman of the board of directors will not participate in the vote. That is the usual rule and the practice followed in company matters.
I see no reason whatever to hold that it is impracticable to conduct a meeting of the company on the manner prescribed by the Act or the articles of the company.
Were I to accede to a request that this court should call or hold and conduct company meetings because one set of shareholders or directors are quarrelling with another set of shareholders or directors, then I shall be opening the easy door for every kind of officious intervention because then the easiest way for any one, be he of the majority or of the minority in the company, will be to make an allegation against any of the existing directors in an application under section 186 of the Companies Act asking this court to call, hold and conduct such meetings. I do not think that that was the intention of the Act, and I am also satisfied that that is not the construction of the expressions appearing in section 186 of the Companies Act.
The word "impracticable" appearing in that section must certainly be given a practical meaning. It must be understood to be impracticable from the business point of view. It must not be held impracticable on the slightest excuse that the directors cannot agree. Section 186 of the Companies Act, 1956, has not made this court a director or shareholder of every company. My interpretation is that in spite of section 186 of the Companies Act, this court will not easily intervene in any company meetings either in holding or calling or in conducting such meetings. This section is a piece of incongruous paternalism of an outside agency, the court in, the self-government of joint stock companies whose main principle is management by their own directors and shareholders who are the most interested and responsible persons in the good government of companies. It is an extraordinary power in the historical context of the evolution of company law when one recalls the ordinary principle of company law that where a company cannot carry on its own management and there is a deadlock, the traditional course is to wind up the company. This new power is also unsuited to the court because its substance is a purely executive function of calling, holding and conducting a meeting. The court can discharge that function only victoriously through a chairman or president whom it appoints. Judicial work of court through a delegate is never an efficient innovation in jurisprudence. Section 186 of the Companies Act 1956 introduces this power which is also by its nature irresponsible. It is an irresponsible power because even after the court has called, held and conducted meetings, it is not made responsible for the consequences that follow in the sense that it is left with no standing machinery to see to their proper working. As the power is great, unsuitable and irresponsible, the discretion granted under section 186 of the Companies Act must be very sparingly used and it should be used with great caution, so that this court does not become either a shareholder or a director of the company trying to participate in the internecine squabbles of the company.
On the question of what is "impracticable", Mr. Snayal relied on two decisions of this court, one being In re Lothian Jute Mills and Company and the other being In re Malhati Tea Syndicate Limited. The latter decision lays down the obvious principle that the word "impracticable" means "impracticable from the reasonable point of view" and the court should take a common sense view of the matter and must act as a prudent man of business. I respectfully agree with that principle. I should have thought that the word "practicable" or "impracticable" always means that. But a prudent person of business has not a sensitive, officious view of intervention in case of every rivalry between two groups of directors. I should have thought prudence demands that this court should ordinarily keep itself aloof from participating in such squabbles. In In re Malhati Tea Syndicate Limited, there was doubt as to the existence of the board of directors validly appointed. That case, therefore, on that ground is distinguishable from the present case.
The application must, therefore, fail and is dismissed with costs.
[1957] 27 COMP. CAS. 86 (CAL.)
HIGH COURT OF CALCUTTA
V.
J.K.Eastern
Industires Private Limited.
MUKHARJI, J.
JULY 9, 1956
P.B.MUKHARJI J. - This is an application by Bengal and Assam Investors Limited under section 186 of the Companies Act of 1956. It seeks an order that the extraordinary general meeting of the respondent company, J.K. Eastern Industries Private Limited, required by the petitioner to be called in pursuance of requisition dated the 5th June, 1956, be called and held and conducted in such manner as this court thinks fit and proper and that for the purposes of the same such ancillary and consequential directions be given as this court may think necessary or expedient including directions regarding the date, time and place of the meeting to be held, appointment of an independent chairman for the meeting, deposit of proxies with such chairman and all such other directions modifying or supplementing the operation of the provisions of the Companies Act and of the company's articles relating to the calling, holding or conducting of the meeting. The applicant also seeks for an order that at the meeting the resolutions mentioned in the requisition notice annexed to the petition marked "B" be considered and if thought fit be passed with or without modifications. The further order sought by the applicant is that the respondent company must be directed to comply with the provisions of sub-sections (3) and (4) of section 284 of the Companies Act, 1956.
Before I discuss the implications of an application under section 186 of the Companies Act, 1956, it would be necessary to state a few facts for the better appreciation of the actual point involved. The dispute is fundamentally between two rival groups of shareholders, one called the Jatia group and the other called the Singhnia group. In 1954 the Jatia directors appointed K.L. Jatia as chairman of the board of directors. On the 25th May, 1954, there was a requisition for an extraordinary general meeting by the present applicant. On the 25th August, 1954, an extraordinary general meeting was held at which K.L. Jatia acted as chairman and refused to permit the resolutions under the articles of association of the company and under the Companies Act then prevailing. Upon that the present applicant applied on the 30th August, 1954, for holding a meeting of the company under the supervision of the court under the then Companies Act. Thereafter on the 16th December, 1954, a suit was filed being suit No. 3603 of 1954, for setting aside the alteration of articles alleged to have been done on the 2nd August, 1954. There was also another suit on the 16th December, 1954, being suit No. 3604 of 1954.
The point of dispute is that although the Jatia group is in minority so far as the shareholding is concerned, they, with only about 45 per cent of the total shares, have maneuvered themselves into a position of control over the Singhania group who have a majority of share-holding of about 55 percent. This, therefore, is not the usual case where the minority alleges to be oppressed by the majority but a case where the majority alleges to be oppressed by the minority.
Now the two suits that I have mentioned are still pending. The allegation that the present applicant makes in the petition is that the Jatias are attempting to delay the hearing of suit No. 3603 of 1954, as long as possible. The applicant is a shareholder holding 400 ordinary shares in J.K. Eastern Private Limited.
The resolutions that are intended to be passed at the meeting demanded by the requisionists are set out in the notice itself. The resolutions that the applicant wants to be passed are to the following effect :
(1) That K.L.Jatia be removed from the office of the director and that Lakshimat Singhnia be appointed in his place.
(2) That G.D.Jatia be removed from the office of the director and Hari Shankar Singhania be appointed in his place.
(3) That M.P.Jatia, director of the company, be removed from the office of director and Krishna Prasad Khaitan be appointed in his place.
(4) That D.N.Jatia be removed from the office of director and Nalini Ranjan Hazra be appointed in his place.
(5) That Pratap Singh Nawalakha, Lakshman Parsad Maitin and Ramkrishandas Gupta be appointed additional directors of J.K.Eastern Industries Private Limited.
Section 186 of the Companies Act introduces new principles of company management. It is an innovation introduced by the Act of 1956. It provides power for the court to order company meetings. The conditions under which such power of the court to order company meetings should be exercised require analysis. It is expressly stated in that statutory provision that "if for any reason it is impractible to call a meeting of the company, other than an annual general meeting, in any manner in which meetings of the company may be called, or to hold or conduct the meeting of the company in the manner prescribed by this Act or the articles, the court may, either of its own motion or on the application of an director of the company, or of any member of the company who would be entitled to vote at the meeting, -
(a) order a meeting of the company to be called, held and conducted in such manner as the court thinks fit ; and
(b) give such ancillary or consequential directions as the court thinks expedient, including directions modifying or supplementing in relation to the calling, holding and conducting of the meeting the operation of the provisions of this Act and of the company's articles."
Now the first essential condition is that the court must have reason to be satisfied that it is impracticable to call a meeting of the company or to hold or conduct the meeting of the company in the manner prescribed by this Act or the articles. That is the primary condition which must exist before the court can assume powers of calling, holding and conducting meetings of companies and thereby supersede and override the right of the shareholders and their representatives, the directors, to call, hold and conduct company meetings, which ordinarily belongs to them. The second feature of this statutory provision is that the court's power under section 186 of the Companies Act of 1956 is discretionary. It is not a power which the court must exercise. It is not a mandatory obligation upon the court. It is an alternative remedy to be applied only when the normal machinery of company management fails and the court must find first that it is impracticable to call a meeting and secondly that to leave the parties to follow their own remedies and rights will put the company in jeopardy.
Now it is clear on the facts of this case that it is not impracticable at all to call a meeting of the company or even to hold a meeting of the company within the meaning of section 186 of the Act. The very first condition of this section is not satisfied. In fact a notice has already been issued calling the meeting and notifying that the meeting will be held at the registered office of the company on the 14th July, 1956, at 11 a.m. That notice clearly sets out what resolutions the requisitionists want to be passed at the meeting. Therefore there is no impracticability in the matter of calling a meeting or in the matter of holding a meeting. In fact it has been called.
What, however, is suggested by the applicant is that I must hold that it is impracticable to conduct the meeting of the company in the manner prescribed by this Act or articles within the meaning of section 186 of the Companies Act. I am unable to come to that conclusion. I do not find any reason to hold that it is impracticable to conduct the meeting notified to be held on the 14th July, 1956, in the manner prescribed by the Act and the articles of the company. I shall state my reasons briefly. Before I do so, I shall state the argument of the applicant on this point. It is argued by Mr. H.N. Sanyal, learned counsel appearing on behalf of the applicant, that the chairman of the board of directors is K.L. Jatia whose conduct will be under criticism and whose removal the resolutions demand. Mr. Sanyal's argument is that a chairman of a meeting cannot be a judge in his own cause and for that purpose he relied upon the case of N.V.R.Nagappa Chettiar v. Madras Race Club. There the well-settled principle is reiterated that no man can preside at his own election and return himself, and that in the case of a chairman of a meeting whose function is to decide as to the validity of certain nominations such chairman should not decide the validity of his own nomination.
In my judgment there are many answers to this argument.
The court under section 186 of the Companies Act of 1956 must have a good reason to hold that it is impracticable to conduct the meeting of the company in the manner prescribed by the Act or the articles of the company. It is, therefore, not the purpose of this section as I read it that this court should intervene to conduct a company meeting not in the manner prescribed by the Act or by the articles of the company and to override the express provisions thereof. Naturally enough when the court directs a meeting to be held under section 186 of this Act it must necessarily modify or supplement the articles or the Act and that is why express provision is made for the same under section 186(1)(b) of the Act. But that provision for modifying or supplementing the articles or the Act is only with a view to enable the court to call, hold and conduct the meeting under section 186 of the Act which normally it cannot without contravening the articles and the Act. no one for amoment disputes that a person cannot be a judge in his own cause, but the chairman of the board of directors who under the articles of the company is supposed to be the chairman of this extraordinary general meeting of the shareholders called for the 14th July, 1956, will not be a judge in his own cause. Unlike a Judge's decision K.L.Jatia will not decide on the validity of his own nomination at the meeting of the shareholders. It will be for the shareholders to vote for the removal of K.L.Jatia from the office of director and not for K.L.Jatia to decide it. The doctrine, therefore, that a man cannot be a judge in his own cause cannot be applied in this context at all. The facts of this case are entirely different from the facts of the Madras decision on which Mr. Sanyal relied and with whose principle there is no quarrel.
It was then contended by Mr. Sanyal that K.L.Jatia, chairman of the meeting, might behave with partiality and partisanship in so conducting the meeting as to throw out the majority of the applicant. I am afraid I cannot anticipate that Mr. Jatia would act illegally and acting on that anticipation supplant the articles of the company and give directions for the conduct of the meeting under section 186 of the Companies Act. Should K.L.Jatia commit any illegality at the meeting then there is ample remedy open to the applicant. In fact some of the very grounds, it not all, in this application are already the subject of pending litigation and proceedings in this court.
Besides, I do not see that so far as the applicant is concerned there is anything more than his own apprehension that K.L.Jatia would act illegally at the first meeting that is going to be held on the 14th July, 1956. I am satisfied that K.L.Jatia cannot decide on the resolutions proposed in that meeting because the resolutions will have to be voted by the shareholders. It is the shareholders who will be in control of the meeting. If the applicant has in its side 55percent of the votes of the shareholders, I do not see why they should be at all frightened. The chairman's power is very limited. He has a vote as a shareholder and director. That gives him no special position to control the meeting. He has, in the event of an equality of votes between two rival groups, a casting vote. But on the applicant's own showing there is no question of equality of votes in this case because the applicant's group is much larger than the respondent's group. Therefore, even the possibility of casting vote is remote. The only other scope of intervention by the chairman is in the matter of poll. But even a poll may be demanded under article 118 by any member if not more than 7 members are personally present, and if more than 7 members are present then by any two members, so that even in the matter of poll the chairman cannot exclude a poll. All that the chairman can do under article 102 is that if a poll is demanded, the chairman will direct it to be taken either at once or after an interval or adjournment or otherwise and shall determine the time and place and the manner in which it shall be taken. it is only in case of a dispute as to the admission or rejection of a vote that the chairman is given power under article 102 to determine the same. But then such determination in order to be conclusive under article 102 of the articles of the company has to be in good faith. Therefore, whatever is not done in good faith will be open to challenge. The same is again true with regard to proxies or admission of proxies. If the chairman does something which is illegal in this respect, the Companies Act provides ample remedies to the applicant. But the applicant under section 186 cannot anticipate that the chairman will act illegally. Lastly, article 97 provides that the chairman of the board of directors shall be entitled to take the chair at every general meeting. But if he is unwilling to act, the members present shall choose another director. It may also be that by convention the chairman of the board of directors will not participate in the vote. That is the usual rule and the practice followed in company matters.
I see no reason whatever to hold that it is impracticable to conduct a meeting of the company on the manner prescribed by the Act or the articles of the company.
Were I to accede to a request that this court should call or hold and conduct company meetings because one set of shareholders or directors are quarrelling with another set of shareholders or directors, then I shall be opening the easy door for every kind of officious intervention because then the easiest way for any one, be he of the majority or of the minority in the company, will be to make an allegation against any of the existing directors in an application under section 186 of the Companies Act asking this court to call, hold and conduct such meetings. I do not think that that was the intention of the Act, and I am also satisfied that that is not the construction of the expressions appearing in section 186 of the Companies Act.
The word "impracticable" appearing in that section must certainly be given a practical meaning. It must be understood to be impracticable from the business point of view. It must not be held impracticable on the slightest excuse that the directors cannot agree. Section 186 of the Companies Act, 1956, has not made this court a director or shareholder of every company. My interpretation is that in spite of section 186 of the Companies Act, this court will not easily intervene in any company meetings either in holding or calling or in conducting such meetings. This section is a piece of incongruous paternalism of an outside agency, the court in, the self-government of joint stock companies whose main principle is management by their own directors and shareholders who are the most interested and responsible persons in the good government of companies. It is an extraordinary power in the historical context of the evolution of company law when one recalls the ordinary principle of company law that where a company cannot carry on its own management and there is a deadlock, the traditional course is to wind up the company. This new power is also unsuited to the court because its substance is a purely executive function of calling, holding and conducting a meeting. The court can discharge that function only victoriously through a chairman or president whom it appoints. Judicial work of court through a delegate is never an efficient innovation in jurisprudence. Section 186 of the Companies Act 1956 introduces this power which is also by its nature irresponsible. It is an irresponsible power because even after the court has called, held and conducted meetings, it is not made responsible for the consequences that follow in the sense that it is left with no standing machinery to see to their proper working. As the power is great, unsuitable and irresponsible, the discretion granted under section 186 of the Companies Act must be very sparingly used and it should be used with great caution, so that this court does not become either a shareholder or a director of the company trying to participate in the internecine squabbles of the company.
On the question of what is "impracticable", Mr. Snayal relied on two decisions of this court, one being In re Lothian Jute Mills and Company and the other being In re Malhati Tea Syndicate Limited. The latter decision lays down the obvious principle that the word "impracticable" means "impracticable from the reasonable point of view" and the court should take a common sense view of the matter and must act as a prudent man of business. I respectfully agree with that principle. I should have thought that the word "practicable" or "impracticable" always means that. But a prudent person of business has not a sensitive, officious view of intervention in case of every rivalry between two groups of directors. I should have thought prudence demands that this court should ordinarily keep itself aloof from participating in such squabbles. In In re Malhati Tea Syndicate Limited, there was doubt as to the existence of the board of directors validly appointed. That case, therefore, on that ground is distinguishable from the present case.
The application must, therefore, fail and is dismissed with costs.
[1992] 73 COMP. CAS. 275
(KER)
HIGH COURT of
KERALA
Sree Rama
Vilas Press & Publications (P.) Ltd., In re
K. JOHN MATHEW J.
Application
No. 253 of 1990 in C.P. No. 28 of 1984
M. Ramanatha Pillai for the applicant.
N. Raghava Kurup
and K. Moni for the Respondent.
A.T. James Commissioner.
K. John Mathew J.—This is an application for declaring that the election of directors and managing director of Sreerama Vilas Press and Publications (P.) Ltd. (hereinafter referred to as "the company") held on March 10, 1990, is illegal, void and inoperative. The applicant is a shareholder of the company. The company was ordered to be wound up by order dated November 4, 1976. Subsequently, by an order dated March 19,1985, this court approved a scheme for the revival of the company. As per the said order, the board of directors as on the date of the winding up petition was revived. Subsequent to that order, a general body meeting of the company was held on April 19, 1985, in which a new board of directors was elected. Subsequently, another general body meeting of the company was held on February 25, 1986, in which meeting a resolution was passed removing one of the directors, N. Madhavan Nair, who was the managing director of the company. Thereupon, he filed Application No. 63 of 1986 before this court on February 25, 1986, for a declaration that the resolution removing him was invalid. He also filed another petition for stay of operation of the said resolution, as Application No. 64 of 1986. An order of interim stay was passed on March 3, 1986.
By the time those petitions came up for hearing, the period of appointment of the managing director and board of directors of the company had expired. Therefore, this court, without going into the merits of those applications, directed a fresh election to the post of managing director and members of the board of directors. This court appointed advocate Shri V.A. Mohammed as the chairman to convene a general body meeting of the company for the purpose of conducting the elections. The court-appointed chairman convened a meeting on June 30,1986, in which the said N. Madhavan Nair was again elected as the managing director.
Meanwhile, a misfeasance application was filed as Application No. 59 of 1986 against the said N. Madhavan Nair. By order dated January 13, 1989, this court directed him to pay to the company a total amount of Rs. 44,550. Against that order, an appeal, M.F.A. No. 174 of 1989, and a cross-appeal are pending.
After the meeting convened by the court appointed chairman, Shri V.A. Mohammed, in which the said Madhavan Nair was elected for a second time as managing director, only one meeting of the board of directors was held. The last date for convening the next meeting was January 29, 1988. Two of the shareholders of the company sent a requisition to the board of directors under section 169 of the Companies Act, on December 31, 1988, requesting to convene an extraordinary general body meeting of the company. However, the managing director did not convene any meeting. Another director of the company filed a suit as O.S. No. 394 of 1989 praying for an injunction restraining the requisitionists from holding an extraordinary general body meeting. Although an interim order of injunction was passed by the Munsiff Court, that order was stayed by the district judge in C.M.A. No. 22 of 1989. That order was again challenged before this court in C.R.P. No. 861 of 1989.
The extraordinary general body meeting convened as per the requisition elected 5 directors. They authorised two of the directors to look after the day-to-day administration and management of the company. A report to that effect was filed in the company court on April 6, 1989. An application was also moved before this court to allow the newly elected board of directors to function.
When these matters came up for hearing, this court suggested that the disputes can be settled by convening a general body meeting so that further steps for revival of the company can be speeded up. One of the directors, R. Narayanan Nair, agreed that, for the time being, he will meet the expenses of the meeting. Thereafter, this court, as per order dated October 30, 1989, appointed Sri A.T. James, an advocate of this court as Chairman/Commissioner to convene a general body meeting of the company for the purpose of electing a managing director and members of the board of directors. By another order dated January 24, 1990, this court ordered that the general body meeting may be held at Hotel Shaw International at Kollam on March 10, 1990, and fixed the number of directors to be elected as four. When notices of the meeting were issued, the former managing director submitted an application as Application No. 187 of 1990 to stop the convening of the meeting. That application was dismissed by this court.
The meeting was held on March 10, 1990. Out of the shareholders of the company, six were present in person and three by proxy at the general body meeting. Those nine members together held 2,630 shares out of 4,689 shares held by the present total number of members, viz., 15. Originally, there were 17 members of whom two persons died. But those shares are not assigned to any member. In the meeting, the managing director and other directors were elected. A report to that effect was filed in court on March 22, 1990, by the court-appointed chairman. On this application, this court directed the impleadment of the newly elected directors. Another application was filed as Application No. 254 of 1990 for an order of stay of further proceedings pursuant to the election, till the disposal of Application No. 253 of 1990. That was dismissed by this court. The appeal filed against the order as M.F.A. No. 322 of 1990 was dismissed on June 18, 1990, with certain directions.
In Application No. 253 of 1990, five grounds are raised, viz., (1) the explanatory statement as contemplated under section 173(2) of the Companies Act was not annexed to the notice convening the meeting, (2) along with the notice, the names of the candidates for election were not furnished, (3) since individual notices to the members of the company regarding the candidature of a person were not sent, section 257(1A) of the Companies Act is violated, (4) this court has no jurisdiction to convene an extraordinary general body meeting, and (5) the petitioner reliably understood that the meeting was not held as notified in the notice.
Thus, the points to be decided are : (1) Whether the election of the directors is liable to be set aside since no proper explanatory statement was annexed to the notice ? (2) Whether the election is liable to be set aside on the ground that the names of the candidates were not furnished along with the notice? (3) Is the meeting liable to be held invalid since the provisions of section 2 5 7(1A) of the Companies Act were violated ? (4) Has the court jurisdiction to convene an extraordinary general body meeting of the company ? (5) Is the contention that the meeting was not held as notified true ?
Point No. 1 : According to the petitioner, the notice was not proper since no explanatory statement was annexed to the notice as required under section 173(2) of the Companies Act. It is well-settled that if an explanatory statement was liable to be annexed to the notice and it was not annexed, the meeting will be a nullity (see Firestone Tyre and Rubber Co. v. Synthetics and Chemicals Ltd. [1971] 41 Comp Cas 377, 435.
The chairman appointed by this court filed report No. 1 dated November 10, 1989, seeking certain directions. By order dated November 15, 1989, this court directed that the meeting was to be held at Hotel Shaw International, Quilon, on Saturday January 13, 1990, at 1 p. m. Among other directions, there was a direction to the then managing director to furnish a list of members, articles of association and other necessary records to the chairman in order that he may issue proper notices to all the shareholders. When the chairman issued notice of the meeting to be held on March 10,1990, the former managing director, N. Madhavan Nair, filed Application No. 187 of 1990 to stop the convening of the meeting on March 10, 1990. In the affidavit in support of that application, it was contended that the notice was violative of the provisions of sections 171, 173 and 257(1A) of the Companies Act. This court, by order dated March 8, 1990, held that, in view of clause 8 of the articles of the company, sections 171 and 173 will not apply in this case. The other objections were also overruled. This court also held that there was no infir mity in the notice issued by the chairman and the application was dismissed. The appeal in M.F.A. No. 333 of 1990 against the order in Application No. 187 of 1990 was dismissed by a Division Bench of this court observing that "it will be open to the appellant to urge various contentions including the contention regarding the order in Company Application No. 187 of 1990 in the course of trial of the main Application No. 253 of 1990". It may be observed that he has not, thereafter, challenged the validity of the notice. He was not impleaded as a respondent in this application (Application No. 253 of 1990).
Even so, the contention raised by the applicant in Application No. 253 of 1990 may be examined. According to the applicant, the notice was bad for not annexing a proper explanatory statement. The notice is as follows :
"Notice of general body meeting for the purpose of conducting elec tion to the board of directors and the managing director of Sree Rama Vilasam Press and Publications (P.) Ltd., with its Registered Office, Main Road, Quilon-1, issued by Advocate Commissioner, A.T. James.
The Honourable High Court of Kerala, as per its order dated October 30, 1989, in C.P. No. 28 of 1984, has directed me to hold a general body meeting for the purpose of conducting an election to the board of directors and the managing director of Sree Rama Vilasam Press and Publications P. Ltd., Quilon. I am appointed as the chairman of the said meeting. The Honourable High Court, by its order dated November 15, 1989, in commission report No. 1 in C.P. No. 28 of 1984, further directed that the meeting is to be held for the above said purpose at Hotel Shaw International, Quilon, on Saturday January 13, 1990, at 1 p.m.
You, as a shareholder of the company, are hereby notified that the meeting of the shareholders of the company, Sree Rama Vilasam Press and Publications P. Ltd., will be held at Hotel Shaw International, Quilon, on Sat urday January 13, 1990, at 1 p.m. for the said purpose. You are also requested to bring the necessary documents to prove your shareholding in the company for verification.
A.T. James (Advocate commissioner Chairman)
Neethi Nikethan Warriam
Road
Cochin-16".
Clause 8 of the articles of association is as
follows :
"Proceedings at general meetings :—
8. Fourteen days' notice at least, specifying the place, the day and the hour of the general meeting and, in case of special business, the general nature of such business, shall be given to the members in the manner herein after mentioned or in such other manner as may be prescribed by the company in general meeting, but accidental omission to give such notice to, or non-receipt of such notice by, any member shall not invalidate the proceedings of the general meeting. A general meeting may, with the consent of all the members, be called on a shorter notice and, in such manner as the members think fit".
The company is a private limited company. It is not a subsidiary of a public company. Under sub-section 1(ii) of section 170 of the Companies Act, the provisions of sections 171 to 186 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. Article 8 of the articles provides for the period of notice required as well as the matters to be specified in the notice. It is also provided in article 8 that, in case of special business, "the general nature of such business shall be given to the members in the manner hereinafter mentioned, or in such other manner as may be prescribed by the company in general meeting". Therefore, there is a specific provision in that article regarding the notice of a general meeting where a special business is to be transacted. Since there is such a provision, section 173, among other sections mentioned in section 170, will not apply to this company. Moreover, the notice contains all material facts concerning the business that was to be transacted in the meeting, viz., election of managing director and other directors. The order to convene the meeting was passed after hearing all parties and the notice itself was approved by this court. The meeting was convened by the chairman appointed by this court and not by the company. Section 173 of the Companies Act is enacted for the protection of the shareholders so that the shareholders may not be duped by the management. In Life Insurance Corporation of India v. Escorts Ltd. [1986] 59 Comp Cas 548, 636 ; AIR 1986 SC 1370, at page 1423, para 100, the Supreme Court held that the Life Insurance Corporation of India which was only a shareholder was not bound to disclose its reasons for moving the resolutions and that the duty was only on the management to disclose those facts.
The Calcutta High Court in Sitaram Jaipuria v. Banwarilal Jaipuria [1972] AIR 1972 Cal 105, held that provisions like section 173(2) should not be construed in a rigid manner and that the interpretation should not be made so as to hamper the conduct of business. It was also held that the notice must be understood in a commonsense business way and so long as that standard was satisfied, the court should not be astute to find legal and technical points to defeat the notice and the explanatory statement.
Points Nos. 2 and 3. - Names of the candidates not furnished along with the notice : No provision either in the Companies Act or in the articles of the company was brought to my notice requiring a candidate who proposes to stand for election as a director to intimate the company about it before the holding of the meeting. There is also no provision requiring the company to intimate the names of the candidates to the shareholders. In para 25 of the counter-affidavit filed by the third respondent, it is stated that all the 15 shareholders of the company belonged to the same family and are known to each other.
Learned counsel for the applicant submitted that, under section 257(1A), the company was bound to inform its members of the names of the persons who propose to stand for the election to the Board. Section 257 of the Companies Act is as follows :
"257. Right of persons other than retiring directors to stand for director ship.—(1) A person who is not a retiring director shall, subject to the provisions of this Act, be eligible for appointment to the office of director at any general meeting, if he or some member intending to propose him has, not less than fourteen days before the meeting, left at the office of the company a notice in writing under his hand signifying his candidature for the office of director or the intention of such member to propose him as a candidate for that office, as the case may be.
(1A) The company shall inform its members of the candidature of a person for the office of director or the intention of a member to propose such person as a candidate for that office, by serving individual notices on the members not less than seven days before the meeting :
Provided that it shall not be necessary for the company to serve individual notices upon the members as aforesaid if the company advertises such candidature or intention not less than seven days before the meeting in at least two newspapers circulating in the place where the registered office of the company is located, of which one is published in the English language and the other in the regional language of that place.
(2) Sub-section (1) shall not apply to a private company unless it is a subsidiary of a public company".
Sub-section (1A) refers to the "company". That can only mean the company mentioned in sub-section (1). Sub-section (1) shall not apply to a private company unless it is a subsidiary of a public company. Sub-section (1A) was incorporated in the Companies Act by Amendment Act 65 of 1960. That sub-section applies only to "the company" mentioned in sub-section (1). Thus, sub-section (1A) is really a proviso to sub-section (1) of section 257. It has no independent existence. Therefore, the provision in sub-section (2) to the effect that sub-section (1) shall not apply to a private company applies to both sub sections (1) and (1A). (See also the observation made in the Companies Act by A. Ramaiya, 11th edition, page 783 to the effect that sub-section (1A) has to be read as a continuation of sub-section (1)). Thus, there is no merit in this contention also.
Point No. 4.—According to learned counsel for the applicant, the court has no jurisdiction to convene an extraordinary general meeting of a com pany. Such a contention is raised on the basis of section 186 of the Companies Act. Section 186 as it originally stood empowered the court to order a meeting to be called. By section 14 of Act 41 of 1974, the word "court" was substituted by the words "Company Law Board" with effect from February 1, 1975. It is highly doubtful whether the power of the court to exercise control over any extraordinary general meeting of a company in respect of which a proceeding is pending in the court is taken away by this amendment. The High Court of Delhi in Dinekar Rai D. Desai v. R.P. Bhasin [1986] 60 Comp Cas 14, held that the court had such power. I am in respectful agreement with this view. In this case, the court is supervising a scheme approved by this court by order dated March 19, 1985, for the revival of the company. In any view of the case, the power of a court supervising a scheme sanctioned under section 392(1) to call a general meeting of the company is not taken away by section 186 of the Companies Act (see Indian Hardware Industries Ltd. v. S.K. Gupta [1981] 51 Comp Cas 51). Under section 392, the court has power to supervise the carrying out of the revival scheme. Therefore, in the course of implementation of the scheme, if the court is of the view that an extraordinary general meeting of the company is to be held in order to elect a new board of directors, the court has the power to do so. That power under section 392 is not in any way affected or circumscribed by section 186 of the Companies Act. In this case, on an earlier occasion, an extraordinary general meeting of the company was held on June 30, 1986, as ordered by this court under the chairmanship of an advocate-chairman appointed by this court. As stated above, in the general body meeting of the company held on February 25, 1986, a resolution was passed removing the managing director of the company, N. Madhavan Nair. He filed Application No. 63 of 1986 for a declaration that the resolution removing him was invalid. By the time that petition came up for hearing, his term had expired. Therefore, this court, without going into the merits of that application, directed a fresh election by holding a general body meeting under the chairmanship of a court-appointed chairman. It was under those circum stances that the meeting of June 30, 1986, of the company was held. There was a Misfeasance Application No. 59 of 1986 against the managing director, N. Madhavan Nair. On December 31, 1988, two of the shareholders of the company sent a requisition to the board of directors under section 169 of the Companies Act requesting it to convene an extraordinary general body meeting. The managing director did not convene any such meeting. One of the directors filed a suit, O.S. No. 394 of 1989, for an injunction to restrain the requisitionist's from holding such a meeting. Even though an order of interim injunction was granted by the trial court, that was stayed in appeal and the extraordinary general body meeting was held in which five directors were elected. An application was also moved before this court to allow the newly elected board of directors to function. When all these matters came up before this court, the court suggested that the disputes can be settled by convening another general body meeting so that further steps for revival of the company can be speeded up. It was under those circumstances that this court passed an order dated December 30,1989, appointing an advocate-chairman to convene a general body meeting of the company for the purpose of electing a managing director and members of the board of directors. From this, it is quite clear that this court was exercising its power under section 392 of the Companies Act to enforce the revival scheme. The court had jurisdiction to convene the meeting.
Point No. 5.—The contention that the meeting was not held as notified is without any merit. In fact, such a contention was not urged at the time of arguments. The records show that the meeting was actually held as notified.
It may also be observed that the newly elected board of directors have taken charge as per the directions of this court. Learned counsel for the additional third respondent has raised several other grounds also in the counter-affidavit filed in this application. I do not think that it is necessary to go into the other contentions, although they had been also urged before this court at the time of arguments.
There is no merit in this application. It is, accordingly, dismissed.
JHARKHAND HIGH COURT
[2004] 50 SCL 729 (Jharkhand)
High Court of Jharkhand
v.
Bihar Foundry
& Castings Ltd.
S.J. Mukhopadhaya, J.
Company Appeal No. 6 of 1999
(R)
February 13, 2003
Section 186,
read with section 169, of the Companies Act, 1956 - Meetings and proceedings -
Power of CLB to order meeting to be called - Respondent No. 2, director of
respondent No. 1-company, served upon company requisition notice under section
169 for convening extraordinary general meeting for considering and passing of
resolution to remove appellant from directorship of company - At meeting of
board of directors, objections made by appellant for passing such resolution or
holding extraordinary general meeting and because of his threat to disturb
extraordinary general meeting by use of physical force, no subsequent date of
meeting was fixed nor held - CLB directed to convene board meeting and to fix
date for such extraordinary general meeting to transact business as per special
notice - Whether CLB was justified - Held, yes
Facts
The applicant/respondent No. 2, director of the company, purchased equity shares of the company from the appellant and his family members by paying the entire consideration and became full and absolute beneficiary of the said equity shares. However, the appellant continued to be a director of the company and started acting wrongfully and illegally to the prejudice and detriment of the company. He failed or neglected to hand over the share certificates and to execute the transfer deeds in respect of the said equity shares in favour of the applicant. The applicant served upon the company a requisition under section 169 to pass a resolution for removal of the appellant from the directorship of the company. A notice was served by the company on the appellant and the other directors for a meeting proposed to be held. At the meeting of board of directors held on the proposed date, the appellant represented and asked the board of directors of the company not to hold extraordinary general meeting but when the board proceeded to hold such extraordinary general meeting, the appellant proposed to adjourn the meeting and asked to hand over the minutes book of the board. The appellant also threatened to disturb the extraordinary general meeting with the help of outsiders by using physical force and threatened to physically prevent the members of the company from voting at the extraordinary general meeting. The facts were recorded in the minutes of the meeting of the board of directors, but the appellant refused to sign the minutes. Because of such threat of the appellant, no subsequent date of meeting was fixed nor held. The CLB directed to convene a board meeting and to fix date for such extra-ordinary general meeting to transact business as per special notice.
On appeal:
Held
It is a settled law that the Court
ordinarily does not interfere with the domestic management of the company, if
it is conducted in accordance with the articles. The discretion granted to the
CLB under section 186 is used sparingly with caution so that it does not become
a party—either a shareholder or a director of the company; but it is supposed
to act as a prudent man of the business. The only question to determine in a
petition under section 186 is whether the director or the member, who has moved
the application, is bona fide
and is in the larger interest of the company or not—if the deadlock is not
removed, then it will go against the interest of the company. Such decisions
are to be given upon consideration of all the relevant facts and circumstances
of a case and there is no straitjacket formula. [Para 5]
In the instant case, the CLB took into
consideration the maintainability of the application. The application having
been preferred by one of the directors of the company was accepted. Otherwise
also, if the CLB by impugned order directed to convene a board meeting and to
fix date for such extraordinary general meeting to transact the business as per
special notice and had passed other consequential order, it could not be held to
be illegal. It was well within the jurisdiction of the CLB who had passed order
on an application preferred by a director, who had locus standi to prefer such application under section
186. [Para 6]
The appeal had no merit and was,
accordingly, to be dismissed.
M.M. Banerjee and T. Kabiraj for the Appellant. Jishnu Salha, Devyani Asura and Ajoy Poddar for the Respondent.
Order
S.J. Mukhopadhaya, J. - This appeal under section 10F of the Companies Act, 1956 has been preferred by appellant-Devendra Kumar Budhia against the judgment and order dated 3rd September, 1999 passed by the Company Law Board, Calcutta (C.L.B. for short), under section 186 of the Companies Act, 1956 in Company Application No. 16(186)/ERB/99, communicated vide letter dated 30th September, 1999.
2. The 2nd respondent, Dr. Hari Krishan Budhia was the applicant, who filed a petition under section 186 of the Companies Act, 1956 seeking directions against 1st respondent, M/s. Bihar Foundry and Castings Limited (hereinafter referred to as “the Company”) to convene an Extraordinary General Meeting for the purpose of proposed resolution dated 12th March, 1999. Other consequential direction, such as appointment of a Chairman for the purpose of holding and conducting meeting was also sought for.
3. The case of the applicant (2nd respondent) before C.L.B. was that the Company was incorporated on 11th November, 1971 and registered with the Registrar of Companies, Bihar, having authorised capital of Rs. 50,00,000 divided into 5,00,000 equity shares of Rs. 10 each. It issued subscribed and paid-up capital of the Company was Rs. 45,00,000 divided into 4,50,000 equity shares of Rs. 10 each. It is engaged in the business of manufacturing steel ingots and (sic) M/s. Rounds Ferro-alloys and the Directors of the Company are Dr. Hari Krishan Budhia (2nd respondent), Smt. Aruna Budhia (3rd respondent), Shri Sanwarmal Lath (4th respondent) and Shri Devendra Kumar Budhia (appellant herein).
After incorporation, the Company was filing its balance sheet and Profit and Loss Account regularly with the Registrar of Companies, Bihar. The applicant (2nd respondent) was Director of the Company since 1971. The other respondents herein are jointly registered holders and absolute owners of 2,44,350 fully paid-up equity shares of the Company which represents 54.30% of the issues, subscribes and paid-up capital of the Company. The applicant (2nd respondent) also claimed to have purchase 72,550 equity shares of the Company from the appellant, Devendra Kumar Budhia and his family members, namely. S/Shri R.P. Budhia, Hemendra Kumar Budhia, Smt. Bhagirati Devi Budhia and Smt. Bela Budhia by paying the entire consideration of Rs. 7,25,500 and he became the full and absolute beneficiary of 72,550 equity shares of appellant, Devendra Kumar Budhia and his family members.
Further case of the applicant (2nd respondent) was that in spite of the fact that the appellant, Devendra Kumar Budhia sold his and his family members’ shares, he continued to be a Director of the Company and started acting wrongfully and illegally to the prejudice and detriment of the Company. While on the one hand he failed or neglected to handover the share certificates and to execute the transfer deeds in respect of 72,550 equity shares in favour of applicant (2nd respondent), started making and publishing false statements with regard to the applicant (2nd respondent) and other Directors of the Company and its management to various authorities including the bankers of the company with mala fide intention and object of injuring the Company and its business as also the Directors of the Company.
The applicant (2nd respondent) served upon the Company a requisition under section 169 of the Act on 12th March, 1999 to pass a resolution for removal of appellant, Devendra Kumar Budhia from the Directorship of the Company with immediate effect. Notice was served by Company on the appellant, Devendra Kumar Budhia and other Directors for a meeting proposed to be held on 20th March, 1999. At the meeting of the Board of Directors held on 20th March, 1999, the appellant, Devendra Kumar Budhia represented and asked the Board of Directors of the Company not to hold extraordinary general meeting but when the Board of Directors of the Company proceeded to hold such extraordinary meeting, the appellant, Devendra Kumar Budhia proposed to adjourn the meeting at least for 15 days and asked to hand over the Minutes Book of the Board.
Further case of the applicant (2nd respondent) before the C.L.B. was that the appellant, Devendra Kumar Budhia threatened to disturb the extraordinary general meeting, if necessary, with the help of outsiders by using physical force and threatened to physically prevent the members of the Company from voting at such extraordinary general meeting. The facts were recorded in the minutes of the meeting of the Board of Directors held on 20th March, 1999 but the appellant, Devendra Kumar Budhia refused to sign the minutes. It was alleged by applicant (2nd respondent) that because of such threat of appellant, Devendra Kumar Budhia, no subsequent date of meeting was fixed, nor held.
4. The appellant, Devendra Kumar Budhia was the 4th respondent before C.L.B. He controverted all the allegations. According to him, there were three Directors of the Company till 27th September, 1996, namely, Shri Pyarelal Chopra, Dr. Hari Krishan Budhia and Shri Devendra Kumar Budhia. After resignation of Shri Pyarelal Chopra, there was no Board duly constituted. The appellant, Devendra Kumar Budhia had been pursuing the matter with the applicant (2nd respondent) and had written letters to him but no response was received. From the records of Registrar of the Companies, Bihar, the appellant, Devendra Kumar Budhia could understand that Smt. Aruna Budhia and Shri Sanwarmal Lath were inducted as Directors of the Company on 30th July, 1996 though no Board meeting was held by the Company and not notice was given to any of the Directors.
The appellant, Devendra Kumar Budhia further took plea before C.L.B. that the consideration amount of Rs. 7,25,500 was not paid for acquisition of 72,550 shares. For the said reason, the share certificates were not handed over to the applicant (2nd respondent). Other allegations were also made.
5. It is not necessary to discuss all the other facts as were pleaded before C.L.B. as no such issue is required to be determined in this appeal.
It is a settled law that the Court ordinarily do not interfere with the domestic management of the Company, if it is conducted in accordance with articles. The discretion granted to the C.L.B. under section 186 of the Companies Act is used sparingly with caution so that it does not become a party either a shareholder or the Director of the Company but it is supposed to act as a prudent man of the business.
The only question to determine in a petition under section 186 of the Companies Act is whether the Director or the member, who has moved the application is bona fide and is in the larger interest of the company or not. If the deadlock is not removed, then it will go against the interest of the Company. Such decisions are to be given upon consideration of all the relevant facts and circumstances of a case and there is no straitjacket formula.
6. In the present case, the C.L.B. took into consideration the maintainability of the application. The application having been preferred by one of the Director of the Company, it was accepted. Taking into consideration the other relevant facts and circumstances of the case that the applicant (2nd respondent) was a registered shareholder having holding 1,90,050 fully paid-up equity shares represents 42.23% of the paid-up share capital; said Director had served the Company requisition notice dated 12th March, 1999 under section 169 of the Act for convening the extraordinary general meeting for the purpose of considering and passing a resolution to remove the appellant, Devendra Kumar Budhia from the Directorship of the Company, the Board of Directors convened meeting on 20th March, 1999 but because of opposition made by appellant, Devendra Kumar Budhia for passing such resolution or holding extraordinary general meeting with threat to disturb the meeting (sic). Otherwise, if the C.L.B. by impugned order dated 3rd Sept., 1999 directed to convene a Board meeting and to fix a date for such extraordinary general meeting to transact the business as per special notice and has passed other consequential order, it cannot be held to be illegal. It is well within the jurisdiction of the C.L.B., who has passed order on an application preferred by a Director, who had locus standi to prefer such application under section 186 of the Companies Act, 1956.
7. There being no merit, this appeal is, accordingly, dismissed.
However, in the facts and circumstances of the case, there shall be no order as to costs.
[1970] 40 Comp. Cas. 491 (Cal)
SANKAR
PRASAD MITRA, J.
COMPANY
PETITION NO. 213 OF 1965
A. K. Basu and S. Chatterjee for the petitioner.
S.C. Sen and G. Bysack for the respondent.
Sankar Prasad Mitra, J.—This is an application of the United Breweries Ltd., under section 186 of the Companies Act, 1956, inter alia, for a direction for calling an extraordinary general meeting of Ruttonjee & Co. Ltd. The petitioner holds 3,52,800 equity shares (out of 40,00,000 equity shares) of Ruttonjee & Co. Ltd. Section 186 of the Act runs thus:
"186. Power of court to order meeting to be called.—(1) If for any reason it is impracticable to call a meeting of a company, other than an annual general meeting, in any manner in which meetings of the company may be called, or to hold or conduct the meeting of the company in the manner prescribed by this Act or the articles, the court may, either of its own motion or on the application of any director of the company, or of any member of the company who would be entitled to vote at the meeting,—
(a) order a meeting of
the company to be called, held and conducted in such manner as the court thinks
fit; and
(b) give such ancillary or consequential directions as the court thinks expedient, including directions modifying or supplementing in relation to the calling, holding and conducting of the meeting, the operation of the provisions of this Act and of the company's articles.
Explanation.—The directions that may be given under this sub-section may include a direction that one member of the company present in person or by proxy shall be deemed to constitute a meeting.
(2) Any meeting called, held and conducted in accordance with any such order shall, for all purposes, be deemed to be a meeting of the company duly called, held and conducted."
It is to be observed at the outset that under section 186 the court in the exercise of its discretion calls a meeting of the company. Secondly, the court must be satisfied that it is for any reason "impracticable" to call a meeting in any manner in which meetings of the company may be called. Thirdly, the court has no power to call an annual general meeting. Bearing these principles in mind we have first to consider the facts of this case. On the 12th March, 1958, the Government of West Bengal gave permission to a partnership firm called Ruttonjee & Co. to start a brewery in West Bengal. About a year later on January 5, 1959, the Commissioner of Excise wrote to the Director of Industries regarding grant of permission to the said firm to establish a brewery. On the 17th January, 1959, the Government of India wrote to the firm enclosing the terms and conditions which were usually attached to a licence granted under the Industries (Development and Regulation) Act, 1931, and asking if the firm was agreeable to the terms. Thereafter, the West Bengal Government granted to the firm a piece of land at Kalyani.
On the 4th July, 1959, there was a tentative agreement between the firm and Phipson & Co. (Private) Ltd. The relevant terms of the agreement were: (a) a company called Ruttonjee & Co. (Private) Ltd. would be formed as a subsidiary of Phipson & Co. (Private) Ltd., (b) the articles of association of Ruttonjee & Co. (Private) Ltd. would provide that H. Bhesania and F.R. Bhesania of Ruttonjee & Co. would be permanent directors out of the total of six directors of Ruttonjee & Co. Private Ltd.; (c) the firm will have the right to appoint one more director of Ruttonjee & Co. (Private) Ltd.; and (d) the firm and its nominees would purchase 2,000 shares in Phipson & Co. (Private) Ltd., at the rate of Rs. 150 per share and another 1,000 shares would be kept reserved for them till the 31st August, 1959.
In January, 1960, the
Government of India issued a manufacturing licence to this firm. On the 22nd
February, 1963, H.R. Bhesania and F.R. Bhesania formed and incorporated
Ruttonjee & Co. (Private) Ltd. They became permanent directors. On the 1st
March, 1960, the certificate of incorporation was issued to the company. Thereafter,
the Government of West Bengal made actual allotment of the land at Kalyani to
the firm.
Some time after incorporation one B.K. Roy also became a director of Ruttonjee & Co. (Private) Ltd. On the 23rd November, 1960, one lakh shares of the company were allotted. A further allotment of three lakhs shares was made on the 16th November, 1961. On September 20, 1961, Vittal Mallya became a director of the company. In the same year Phipson & Co. (Private) Ltd. as well as Ruttonjee & Co. (Private) Ltd. became public companies and the shares of Ruttonjee & Co. (Private) Ltd., due to be taken by Phipson & Co. (Private) Ltd., were allotted to the present petitioner, the United Breweries Ltd.
In 1962, with the consent of the said partnership firm (which was the allottee of the land at Kalyani), Ruttonjee & Co. Ltd. became the lessee thereof. Between 1961 and 1964 the company's factory was constructed and its machinery was installed. In 1962, there was cash credit arrangement between the Bank of India and Ruttonjee & Co. Ltd. for Rs. 21,00,000. The guarantors were the United Breweries Ltd., H.R. Bhesania and F.R. Bhesania. The facility for the entire sum of Rs. 21,00,000 was taken by the company. That is why in 1963 another arrangement was entered into between the bank and the company for a cash credit facility of Rs. 5,00,000 with F. Bhesania, H. Bhesania and Vittal Mallya as guarantors. (In this second account a sum of Rs. 4,76,809.92 was due by the company to the bank on the 20th October, 1965).
On the 23rd August, 1963, Dali Ruttonjee, a director of R.D. & Sons (Private) Ltd., holding 7,000 shares in Ruttonjee & Co. Ltd., was appointed a director of Ruttonjee & Co. Ltd. In 1964, F.M. Bhesania and Sookamal Kanti Ghose became directors of the company; on the 10th August, 1964, Vittal Mallya ceased to be a director.
It appears from the above facts that the Bhesanias through their partnership firm were trying originally to set up a brewery in West Bengal. They succeeded in obtaining the necessary permission both from the Government of India and the Government of West Bengal. They even secured a plot of land. Apparently they did not have the requisite financial resources and they had to approach Phipson & Co. (Private) Ltd. for raising the necessary funds. Ultimately, the company, with which we are concerned in this application, came into existence but the Bhesanias made it a condition that two of them shall be permanent directors of the company. The financial interest of the Bhesanias in the company was not large; but the parties agreed that they would have substantial control over the management of the company, presumably because they were instrumental in securing governmental sanction for starting a brewery and making preliminary arrangements therefore. Up to August, 1964, all the projects undertaken by the two groups, namely, the Bhesania group and the other group principally represented by Vittal Mallya, were going on smoothly. In December, 1964, Vittal Mallya sent to Dali Ruttonjee and F.R. Bhesania a draft agreement between Ruttonjee & Co. Ltd. and R.D. & Sons (Private) Ltd. I do not intend to discuss the terms of the agreement. It is enough to observe for our purposes that the draft was rejected.
Then, on the 27th March, 1965, Vittal Mallya wrote to Dali Ruttonjee suggesting, inter alia, payment of royalty by Ruttonjee & Co. Ltd. to the United Breweries Ltd., in respect of the labels of the latter which the former would be using on bottles of beer that would be marketed by Ruttonjee 6c Co. Ltd. The differences of opinion between the two groups started with this suggestion.
In April, 1965, the Commissioner of Excise, West Bengal, allowed the company's brewery to start manufacturing beer under an ad hoc permission granted in favour of the firm of Ruttonjee & Co. in whose name the original Government permission to start the brewery stood. Pursuant to this ad hoc permission the manufacture of beer commenced.
On the 24th June, 1965, Vittal Mallya, on behalf of the United Breweries Ltd., wrote to F.R. Bhesania suggesting certain terms for manufacture of beer. It was suggested for instance that Ruttonjee & Co. Ltd. will be given one-third of the production up to 24,000 dozen per month and one-fourth of the production in excess of 24,000 dozen per month and supplies would be made under the "Blue Label Export Lager" and "Beer Brand Lager Labels". The price structures of different varieties of beer or Lager was also suggested.
On the 5th July, 1965, F.R. Bhesania replied to Vittal Mallya's letter of the 24th June accepting some of Mallya's terms and suggesting modifications of certain other terms said to be in the common interest of all concerned.
The next important date
is the 24th July, 1965, when the Government of West Bengal gave its approval to
the grant of a brewery licence at Kalyani jointly in favour of "the
partnership known as M/s. Ruttonjee & Co. and the public limited company
known as M/s. Ruttonjee & Co. Ltd." On the 29th July, 1965, H.
Bhesania as director of Ruttonjee & Co. Ltd. circulated a proposed
resolution amongst the other directors suggesting, inter alia, approval of the
draft application to the Additional District Magistrate, Nadia, for grant of
the joint licence. The resolution was eventually signed by H. Bhesania, F.R.
Bhesania, F.M. Bhesania, B.K. Roy, Sookamal Kanti Ghose and Dali Rattonjee who
were admittedly the directors of the company on that date. This resolution also
suggested that B.K. Roy and F.M. Bhesania, two of the directors of the company,
shall apply for the licence along with the said partnership firm and they would
represent the company before the excise authorities in all matters connected
with the licence.
The application for the joint licence was made on the 29th July, 1965. H. Bhesania and F.M. Bhesania signed this application as partners of Ruttonjee & Co. and F.R. Bhesania and B. K. Roy signed as directors of the company. The Government granted the joint licence on the 3rd August, 1965, and three days later beer was released.
On the 20th August, 1965, the United Breweries Ltd. gave a notice under section 257 of the Companies Act, 1956, that they intended to propose the appointment of A.K. Thakur as a director of the company at the next annual general meeting which was to be held on or before September 30, 1965, for the year ended March 31, 1965.
On the 30th August, 1965, notice was given for the 5th annual general meeting of the company to be held at its registered office at P-19, Ganesh Chandra Avenue, Calcutta-13, at 4-30 p.m. on the 28th September, 1965.
On the 28th September,
1965, the annual general meeting, according to the Bhesanias, could not be held
due to lack of quorum: the required minimum of five shareholders in person were
not present. It is common case that the attendance on this date was as follows:
Shareholders present:
1. H. R. Bhesania
2. United Breweries Ltd.
by their representative, H. P. Bhagat.
3. R. D. & Sons Pvt. Ltd. by their representative, D. Ruttonjee. Present by proxy:
1. Vittal Mallya—by his
proxy, A. K. Thakur.
2. Jagannath Muchhal—by
his proxy, P. Y. Navalkar
Directors
present:
1. B.K.Roy
2. Sookamal Kanti Ghose.
Now, under section 174(4) of the Companies Act, 1956, if in an annual general meeting within half an hour from the time appointed for holding the meeting, a quorum is not present, the meeting shall be adjourned to the same day in the next week, at the same time and place, or to such other day and at such other time and place as the board may determine. The Bhesanias say (vide paragraph 5 (P) of the affidavit-in-opposition of Dali Ruttonjee affirmed on the 10th December, 1965), that since the annual general meeting could not be held on the 28th September, 1965, for lack of quorum, it was decided that the adjourned meeting would be held at such time, date and place as the directors might determine.
On the 29th September, 1965, a notice was issued for a meeting of the board of directors on the 30th September, 1965. Sookamal Kanti Ghose, one of the admitted directors, wrote to H. Bhesania on the 6th October, 1965, complaining that this notice of the board's meeting was not in accordance with article 101 of the company's articles which requires ten days' notice. He says: "I had hardly any time left to attend the meeting."
According to the Bhesanias this meeting of the board of directors was held on the 30th September, 1965, and it was decided that as Tuesday, the 5th October, 1965 (which was the date on which the adjourned annual general meeting should have been held under section 174(4) unless the directors determined otherwise), was the Vijaya Dasami day, that is, a public holiday, the adjourned annual general meeting would be held on Saturday, the 6th November, 1965, at 12-30 p.m. at the company's registered office at P-19 (26), Ganesh Chandra Avenue; and notices dated the 30th September, 1965, were accordingly issued to the shareholders on or about the 1st October, 1965: vide paragraph 5(P) of the said affidavit-in-opposition.
According to the Mallya group the adjourned 5th annual general meeting was held at the company's registered office in accordance with the provisions of section 174(4) on October 5, 1965, and was adjourned till the next day at the residence of Sookamal Kanti Ghose. The Mallya group says that on the 6th October, 1965, at the residence of Mr. Ghose, B. K. Roy retired from directorship and A. K. Thakur was elected a director in his place and the other usual business of an annual general meeting was transacted. On behalf of the Bhesania group a contention is raised that, assuming that the meetings of the 5th and 6th October were validly held, A. K. Thakur could not have been elected a director at the residence of Sookamal Kanti Ghose: the election should have taken place at the registered office of the company where the meeting which failed for want of quorum was called.
On the 12th October, 1965, H. Bhesania replies to Sookamal Kanti Ghose's letter of the 6th October, 1965. In this reply Bhesania explains why the board's meeting was called on short notice on the 30th September, 1965, and adds: "In view of the objection stated in your letter regarding such short notice, a meeting of the board of directors would be held on Tuesday, the 26th October, at 5-30 p.m. at the registered office of the company………A copy of the notice dated the 12th October, 1965, is being forwarded to you separately."
On the basis of this letter it is contended before me on behalf of the petitioner that admittedly there was no proper meeting of the board of directors on the 30th September, 1965. The annual general meeting called for the 6th November, 1965, was not, therefore, validly convened.
The Mallya group asserts that the board of directors was duly reconstituted at the annual general meeting held on the 5th and 6th October, 1965, as aforesaid. And at a meeting of the board on the 18th October, 1965, Sukumar Roy was co-opted as a director pursuant to article 95 of the company's articles read with section 260 of the Companies Act, 1956.
On the 19th October, 1965, Sookamal Kanti Ghose replied to H. Bhesania's letter of the 12th October, 1965. In this letter Ghose upholds the validity of the annual general meeting and the proceedings thereof held on the 5th and the 6th October, 1965. He contends that no directors' meeting could be held on the 30th September, 1965, pursuant to the notice of the 29th September, 1965, and if any such meeting was held, the same was bad in law and any proceedings thereat were void and inoperative. His further contention is that H. Bhesania, F. R. Bhesania, F. M. Bhesania and Dali Rattonjee have all ceased to be directors of the company with effect from the 17th June, 1965, for contravention of section 295 of the Companies Act, 1956. We shall examine this last contention of Sookamal Kanti Ghose in detail later in this judgment.
On the same date, namely, the 19th October, 1965, Vittal Mallya, as a director of the United Breweries Ltd., addressed a letter to the manager of the Bank of India Ltd. In this letter he informs the bank that the Bhesanias (incidentally, Dali Ruttonjee is also a Bhesania) have vacated their respective offices as directors with effect from the 17th June, 1965, owing to contravention of section 295 of the Companies Act, 1956. Mallya states that on the date of this letter there were three directors of this company, namely, Sookamal Kanti Ghose, A. K. Thakur and Sukumar Roy. He states further that the registered office of the company has been shifted to premises No. 6, Old Court House Street. The Bank of India on the 20th October, 1965, forwarded to Ruttonjee & Co. Ltd. at its Ganesh Chandra Avenue address a copy of Mallya's letter of the 19th October.
On the 23rd October, 1965, H. Bhesania, F. R. Bhesania and B. K. Roy describing themselves as directors of Ruttonjee & Co. Ltd. wrote to the manager of the Bank of India Ltd. disputing all the statements in Mallya's said letter of the 19th October and stating that the annual general meeting of the 5th and 6th October was illegal and void.
The next interesting event occurred on the 3rd November, 1965: a suit was instituted in the name of the company against H. R. Bhesania, F. R. Bhesania, F. M. Bhesania and Dali Rattonjee, inter alia, for a declaration that these defendants have ceased to be directors of the company from June 17, 1965, or in any event from July 31, 1965; the plaint in the suit was verified by A. K. Thakur.
On the same day the interlocutory court was moved and an interim order was obtained in the said suit prohibiting the holding of any general meeting or meeting of directors of the company till the disposal of the application.
On the 6th November, 1965, the Commissioner of Excise, West Bengal, addressed a letter to Ruttonjee & Co. Ltd. of 26, Ganesh Chandra Avenue. In this letter the Commissioner says that one P. Y. Navalkar, describing himself as a constituted attorney of the company, had written to him, inter alia, that the name of Messrs. Ruttonjee & Co. (i.e., the partnership firm) should be deleted from the aforesaid joint licence granted to the firm and the company. The Commissioner wanted to see the documents of authorisation to Navalkar. On the 11th November, 1965, a reply was sent to the Commissioner that Navalkar's power-of-attorney stood revoked and he was never the holder of any office mentioned in the Excise Rules.
On the 9th November, 1965, F. R. Bhesania and Dali Rattonjee made an application in the said suit for certain orders and the interlocutory court directed on that application that the company's minute books would be kept with the Registrar for safe custody.
On the 15th November, 1965, the court reopened after the long vacation and the present application was moved on the following day. Certain interim orders were obtained on the application on the 17th November, 1965, which are not material for our purposes at present. On the 8th December, 1965, the learned interlocutory judge vacated the interim injunction in the suit and directed that board meetings of the company might be held; but no effect was to be given to the board's resolutions until the disposal of the present application. The company has been functioning since then under interim arrangements made by orders of this court obtained from time to time.
It is clear from the
facts set out above that the company was initially started at the initiative of
the Bhesanias with the financial backing of the Mallya group. For some time the
company was functioning smoothly as the two groups were working in cohesion.
From August/September, 1965, disputes and differences between the two groups
started arising on various matters including payment of royalties to the United
Breweries Ltd. These disputes and differences were not settled through
dialogues or negotiations and the breach gradually appeared to be final. The
annual general meeting that was to be held on the 28th September, 1965, failed,
due to want of quorum. It is not alleged, however, that any one deliberately
kept himself away from the meeting with a view to create any difficulties.
Thereafter the two groups wanted to have their annual general meetings in their
own ways and the present position is that the Mallya group is contending that
the Bhesanias have ceased to be directors and the Bhesania group says that A.
K. Thakur and Sukumar Roy are not duly elected directors. Sookamal Kanti Ghose
has, it is alleged, in paragraph 17 of the petition, tendered his resignation
on the 9th November, 1965.
It is against this background that the petitioner invites this court to exercise its powers under section 186 of the Companies Act and to call a general meeting with the following agenda—
1. Removing all existing directors and/or persons claiming to be directors, namely:
(a) Mr. H. R. Bhesania.
(b) Mr. F. R. Bhesania.
(c) Mr. F. M. Bhesania.
(d) Mr. Dali Ruttonjee.
(e) Mr. A. K. Thakur.
(f) Mr. Sukumar Roy.
2. Accepting the
resignation tendered by Sookamal Kanti Ghose by his letter dated November 9,
1965.
3. Electing and
appointing new directors.
4. To consider the
situation arising out of the litigation between rival claimants for the office
of the directors of the company and to pass necessary resolution for the proper
management of the business of the company.
5. To consider and decide
where the registered office of the company should be maintained or located.
Obviously, the court before it exercises its discretion has to enquire into the
petitioner's motive. The court also has to examine the respective contentions
aforesaid of the two groups as to who the present directors of the company are
with a view to ascertain whether it is, in fact, "impracticable" to
call a meeting of the company. It was conceded by learned counsel for both the
parties that if the court came to the conclusion that any of the rival
contentions aforesaid is unacceptable or there are some persons who are still
directors of the company, the power under section 186 should not be exercised.
We have seen above that the very first agenda which is suggested for the general meeting this court has been invited to call under section 186 is:
"Removing all existing directors and/or persons claiming to be directors……."
Learned counsel for the petitioner has urged that under article 87 of the company's articles read with section 284 of the Companies Act, 1956, a resolution for removal of all the directors would be a perfectly valid resolution. Learned counsel argues further that in view of the disputes between the Mallya group and the Bhesania group the only course open for a proper functioning of this company is to remove all its directors and elect a new set of directors and the court should accede to this request to solve the deadlock which exists.
Now, article 87 of the company's articles provides:
The number of directors
shall not be less than two or more than six. The first directors shall be the
promoters of the company, namely:—
1. Mr. F. Bhesania.
2. Mr. H. Bhesania.
These directors are permanent directors and not liable to removal unless they are otherwise disqualified from continuing as directors under the provisions of the law.
Mr. Basu, learned counsel for the company, says that there is no difficulty in removing these permanent directors. He relies on section 284 of the Act. Under this section a company may, by ordinary resolution, remove a director before the expiry of his period of office.
Assuming that by virtue of section 284 even permanent directors may be removed, it is to be observed that the power which is given to a company under this section is not an absolute or an unrestricted power. The legislature has provided for adequate safeguards against arbitrary or unreasonable exercise of this power. Sub-section (2) of section 284 provides that special notice shall be required of any resolution to remove a director under this section or to appoint somebody instead of a director so removed at the meeting at which he is removed. Sub-section (3) of section 284 says that on receipt of notice of a resolution to remove a director under this section, the company shall forthwith send a copy thereof to the director concerned, and the director (whether or not he is a member of the company) shall be entitled to be heard on the resolution at the meeting. Sub-section (4) of section 284 prescribes that where notice is given of a resolution to remove a director under this section and the director concerned makes with respect thereto representations in writing to the company (not exceeding a reasonable length) and requests their notification to members of the company, the company shall, unless the representations are received by it too late for it to do so: (a) in any notice of the resolution given to members of the company, state the fact of the representations having been made; and (b) send a copy of the representations to every member of the company to whom notice of the meeting is sent (whether before or after receipt of the representations by the company); and if a copy of the representations is not sent as aforesaid because they are received too late or because of the company's default, the director may (without prejudice to his right to be heard orally) require that the representations shall be read out at the meeting; provided that copies of the representations need not be sent out and the representations need not be read out at the meeting if, on the application either of the company or of any other person who claims to be aggrieved, the court is satisfied that the rights conferred by this sub-section are being abused to secure needless publicity for defamatory matter, and the court may order the company's costs on the application to be paid in whole or in part by the director notwithstanding that he is not a party to it.
I have elaborately set out the above provisions just to show that to remove a director under section 284 certain essential requirements are to be fulfilled. The director concerned must be given a reasonable opportunity to make representations against the proposal for his removal and the shareholders of the company should also have adequate opportunities of being acquainted with such representations before they subscribed to a resolution for removal. That is precisely why in clause (b) of the prayers in the present petition directions have been asked for dispensing with the giving of the special notice and the circulation thereof. The point is whether the court should go to this exent on the facts of this case.
It is manifest that the Mallya group wants to eliminate the Bhesania group from the board altogether although at the inception it was solemnly agreed that two of the Bhesanias would be permanent directors. It may be that, if the two permanent directors were indulging in activities injurious or prejudicial to the interests of the company, there was no reason why they should be retained on the board: but before a court is asked to exercise its powers under section 186 and to dispense with the special notice provided for in section 284, the court should at least be told what the specific charges against these two permanent directors are. I have gone through the petition but have not discovered any such charges against them, apart from the statement that some persons are contending that they have ceased to be directors for contravention of section 295 of the Companies Act, 1956. We shall consider the charge of contravention later; but the court should not, in my opinion, be a party to removal of permanent directors (or of any director) of a company by exercising its discretion under section 186 and dispensing with the said special notice in the absence of concrete, precise and specific charges against these directors with relevant evidence in support thereof. I have said that the motive of a petitioner is an important factor for the court's consideration in using the discretion under section 186. The manner in which the petitioner has asked the court to remove the permanent directors does not, in my opinion, reveal a laudable motive. I would have occasion to discuss the petitioner's motive again later in this judgment. Mr. Basu, arguing for the petitioner, referred to In re El Sombrero Ltd in which the court exercised its powers under section 135(1) of the English Act, which was similar to section 186 of our Act; but it was proved that the directors were neither calling annual general meetings nor were they complying with requisitions for general meetings. The facts, to my mind, were entirely different.
The next argument of the
petitioner's counsel is based on paragraph 5(k) of the affidavit-in-opposition of Dali Ruttonjee. Learned
counsel contends that the averments in this sub-paragraph should convince me
that the four Bhesanias who are all directors of the company, are anxious for a
joint licence in the name of the company and the partnership firm of which
admittedly two of the Bhesanias are partners and the two others are the
partners' brothers. These are not persons, according to the petitioner's
counsel, who can be said to have a real concern for the company's welfare and
an attempt at their removal cannot be stamped with bad motive.
It is embarrassing for me to examine this contention as this point has not been taken in the petition. I find from the facts, however, that the excise authorities, presumably upon considering all the facts of this case, had granted a joint licence to the partnership firm and the company. And the Mallya group accepted that position. I have been told by counsel for the respondents (who were not contradicted by the petitioner's counsel) that after the present dispute had started an attempt was made to obtain the licence in the name of the company alone; the then Excise Minister of West Bengal was approached; and the Government passed an order for issue of the licence only to the company. The order was challenged under article 226 of the Constitution and D. Basu J. had set it aside. The company thereupon represented by A. K. Thakur preferred an appeal against the judgment of Basu J. The State Government also preferred a separate appeal. I understand that the company's appeal has been withdrawn and the State Government's appeal is pending. In these premises it would not be proper for me to infer that the Bhesanias have a mala fide intention as suggested by the petitioner's counsel especially in the face of a judgment of this court (which has not yet been reversed on appeal) that a licence only to the company, on the facts of this case, should not have been granted.
Learned counsel for the petitioner then argued that the Bhesanias have taken up an obstructive attitude making it impossible for the company's board of directors to function under the articles inasmuch as they do not want to pay any royalty to the United Breweries Ltd. for (a) the use of their (that is, the United Breweries Ltd.) label and trade mark of Sunagar and King Fisher, and (b) for surrendering territories for sale of 24,000 bottles per month. It is submitted that these are reasonable demands particularly having regard to the sacrifices the shareholders of the United Breweries Ltd. have made for Ruttonjee & Co. Ltd. It is stated that the United Breweries Ltd. has purchased 3,52,800 shares out of 4,00,000 equity shares of the company by paying Rs. 600 per each share; it has also agreed that its label and trade mark with respect to the two varieties of beer mentioned above would be used by Ruttonjee & Co. Ltd.; and unless this royalty is realised the directors of United Breweries Ltd. would not be able to justify their conduct before their own shareholders.
This is a matter concerning the internal management of the company. The court ought not to express any views on it except in so far as it is necessary to do so to determine the impracticability of calling a general meeting. With this end in view I intend to look into the case of the Bhesanias on this question of payment of royalty to the United Breweries Ltd. Dali Ruttonjee in his said affidavit-in-opposition says that Vittal Mallya by his letter dated the 21st August, 1965, addressed to F. R. Bhesania (a copy whereof was sent to Dali Ruttonjee) again raised the question of royalty: vide paragraph 5(o). He says further that Vittal Mallya is anxious that the company should pay a royalty to the petitioner; but if such royalty is paid, the total amount would come up to about Rs. 16,00,000 a year on the basis that the brewery works in one shift only. (Mallya in paragraph 7 of his affidavit-in-reply affirmed on the 17th January, 1966, states that the royalty would come up to Rs. 13 lakhs approximately). According to Dali Ruttonjee the result will be that the company will never be able to pay off its debts or to give any dividend to its shareholders. He charges that in order to achieve this object Vittal Mallya is anxious to have a board of directors of his own choice and to remove the Bhesanias: vide paragraph 6.
In the board of directors of a company it is not at all unlikely that there would be differences of opinion on various matters between two individual directors or two sets of directors. These differences may be settled by mutual discussions or majority of votes. They may, by adopting the appropriate procedure, be also brought before the shareholders for a decision; but I do not think that on this application I can hold that the Mallya group is justified in asking for a royalty or the Bhesania group is unreasonably objecting to it. It is possible that the Bhesania group honestly considers that payment of a huge sum as royalty every year to the petitioner is not in the interest of the company and its future prospects would be seriously affected if such an arrangement be agreed to. The forum for settlement of this dispute is, in my opinion, not this court trying an application under section 186 of the Companies Act, 1956. I do not think that the court should either be a party to or instrumental in the removal of all the Bhesanias from the company's board of directors simply because they do not want to pay royalties to the petitioner. I am of the view that section 186 of the Companies Act was not introduced into the statute book to help the majority of shareholders to achieve objects of this kind.
Let us now examine the contention that the Bhesanias have ceased to be directors under section 295 of the Companies Act, 1956. Section 295, inter alia, provides that no company (hereinafter called the lending company) without obtaining the previous approval of the Central Government in that behalf shall, directly or indirectly, make any loan to, (a) any director of the lending company or any partner or relative of any such director; and (b) to any firm in which any such director or relative is a partner.
[Then after discussing the facts of the case, his Lordship proceeded:]
On these slender materials I cannot assume that the Bhesanias have ceased to be directors. I wish to make it clear that I am not. expressing any views on the merits of the suit now pending before this court. On proper evidence to be adduced in the suit the court may come to a different conclusion; but at the moment for the purpose of the present application the materials available to me do not justify the conclusion that there has been in the instant case a contravention of section 295 of the Companies Act, 1956. It naturally follows, therefore, that unless the court is satisfied that there are no directors who are capable of functioning legally or there is reasonable doubt as to who the directors are the court would find it difficult to hold that it is "impracticable" to call a general meeting of the company.
Learned counsel for the petitioner has contended before me that if there is a prima facie case for loan the directors concerned, that is, all the Bhesanias, have vacated the office under section 295 read with section 283(h) of the Companies Act, 1956. To my mind even a prima facie case requires better materials to be placed before the court. How the merits of the dispute would be decided in the suit is not my concern; but prima facie I must be satisfied that the Bhesanias are no longer directors and they are not in a position to call a general meeting.
It is true that there are serious disputes between the parties as to whether the adjourned annual general meeting of the company was held on the 5th and 6th October, 1965. If this meeting has been held then A. K. Thakur and Sukumar Roy are now directors of the company; and B. K. Roy is no longer a director. If the meeting has not been validly held, B. K. Roy is still a director and neither A. K. Thakur nor Sukumar Roy can claim to be directors. As regards the resignation of Sookamal Kanti Ghose also, there is a dispute. The Bhesanias group says that Ghose's letter of resignation was addressed to a non-existent secretary of the company and is of no effect.
In the context of these
facts we have to consider the "impracticability" of calling a general
meeting to bring the case within the scope of section 186 of the Companies Act.
Learned counsel for the petitioner refers to annexure "E" to the affidavit-in-reply of Hari
Prem Bhagat affirmed on the 14th January, 1966. This is a copy of a letter
dated the 12th October, 1965, which H. Bhesania addressed to Sookamal Kanti
Ghose "for Ruttonjee & Co. Ltd." and as a director thereof. In
this letter, as we have already observed, Bhesania has explained why notice for
an emergency meeting of the board of directors to be held on the 30th
September, 1965, was issued on the 29th September, 1965. Then Bhesania goes on
to say that:"
“In view of the objection stated in your letter
regarding such short notice, a meeting of the board of directors would be held
on Tuesday, the 26th October, at 5-30 p.m. at the registered office of the
company at P-19, Ganesh Chandra Avenue, Calcutta-13. A copy of the notice dated
the 12th October, 1965, is being forwarded to you separately."
The petitioner's counsel contends that from this letter of H. Bhesania it is clear that a fresh annual general meeting has to be called by the board of directors. In the alternative, a requisitioned meeting under section 169 of the Companies Act has to be called. In that event a requisition has to be addressed to the board of directors so that the requisitionists may call such meeting in case of failure to do so on the part of the board. According to the petitioner's counsel there are no directors to whom the requisition can be addressed. In any event, there is no certainty as to the persons who constitute the board as the matter depends on (a) whether the Bhesanias have vacated office and (b) whether the 5th annual general meeting was validly held on the 5th and 6th October, 1965.
I have already held that there is no prima facie case that H.R. Bhesania, F.R. Bhesania, F.M. Bhesania and Dali Ruttonjee have ceased to be directors of the company. I can understand that the positions of B.K. Roy, Sookamal Kanti Ghose, A.K. Thakur and Sukumar Roy are disputed; but with regard to the four Bhesanias, I cannot hold on the averments in the petition and in the affidavits before me that they are no longer directors of the company. The company's articles provide that the number of directors shall not be less than two or more than six and the quorum for meetings of the board of directors shall be one-third of its total strength (any fraction contained in that one-third being rounded off as one) or two directors, whichever is higher: vide articles 87 and 102. In these circumstances, I am not satisfied that a requisition meant for the four Bhesanias (who according to the contesting respondents are admittedly directors of the company) shall be an invalid requisition. Moreover, on the facts of the instant case, the court cannot also ignore the provisions of section 167 of the Companies Act, 1956. This section is as follows:
"167. Power of Central Government to call annual
general meeting.—(1) If default is made in holding an annual general
meeting in accordance with section 166, the Central Government may,
notwithstanding anything in this Act or in the articles of the company, on the
application of any member of the company, call, or direct the calling of, a
general meeting of the company and give such ancillary or consequential
directions as the Central Government thinks expedient in relation to the
calling, holding and conducting of the meeting.
Explanation.—The directions that may be given under this sub-section may include a direction that one member of the company present in person or by proxy shall be deemed to constitute a meeting.
(2) A general meeting held in pursuance of sub-section (1) shall, subject to any directions of the Central Government, be deemed to be an annual general meeting of the company."
In the present case there is a dispute as to whether the 5th annual general meeting has been validly held and admittedly no annual general meeting has been held thereafter. Under the Companies Act, 1956, the Central Government appears to be a competent authority to call an annual general meeting in cases of default. Section 186 gives power to the court to call a meeting of the company other than an annual general meeting. I am told that no attempt has yet been made by any member of the company to approach the Central Government. If the result of that attempt had been known, it would perhaps have been easier for me to entertain this application under section 186.
Let us again go back to the practicability of requisitioning a meeting. Learned counsel for the petitioner has urged that in this application the court should not enter into the controversy relating to the Bhesanias' vacating office under section 295 as that is the subject-matter of the suit. I do not accept this contention. The court cannot be expected to exercise its discretionary powers under section 186 without even ascertaining whether there is a prima facie case against the Bhesanias. A mere allegation that certain persons are not directors of a company does not create a ground for an application under section 186. I do not think that is or can be the object of the section. The court, to my mind, must test the basis of the allegation before it decides upon calling a meeting under section 186.
The next contention of the petitioner's counsel is that there appears to be two registered offices of the company, one at the office of the partnership at No. 26, Ganesh Chandra Avenue, and the other at No. 6, Old Court House Street, Calcutta. Under section 169 a requisition has to be deposited at the company's registered office; but in view of the contentions of the parties herein, it is not at all certain where the registered office is.
From a letter of A. K.
Thakur to Messrs. Fowler & Co. dated October 20, 1965 (a copy whereof has
been annexed to Mallya's affidavit-in-reply) it appears that according to the
Mallya group or the Thakur group the registered office of the company was
transferred from 26, Ganesh Chandra Avenue to 6, Old Court House Street,
Calcutta-1, "from October 19, 1965". The case of the petitioner is
that on the 18th October, 1965, a meeting of the company's board of directors
was held. At this meeting Sukumar Roy was co-opted as a director and it was
decided that the company's registered office would be transferred as aforesaid.
The Bhesania group, in my view, rightly contends on the facts placed before me
that the decision to transfer the registerd office is of no effect inasmuch as
no notice of the meeting of the board was sent to or received by any of the
Bhesanias. Article 101 of the company's articles clearly provides that 10 days'
notice of every meeting of the board of directors shall be given in writing to
every director for the time being in India and at his usual address in India to
every other director, provided that a meeting of the board may be called at
less than 10 days' notice with the consent of all the directors.
There is no prima facie case that the Bhesanias have ceased to be directors. In the premises a meeting of the board of directors could not be convened without notice to the Bhesanias. If a meeting was held without such notice and in that meeting it was resolved that the registered office should be transferred, the resolution, to my mind, on the facts at present available, is of no effect. Moreover, admittedly, this meeting of the board was not held at the company's then registered office at No. 26, Ganesh Chandra Avenue, Calcutta. The registered office of the company, therefore, still continues to be at 26, Ganesh Chandra Avenue.
Learned counsel for the petitioner then says that it is also not clear to whom the notice of the requisition is to be given. It is common case that before the disputes started H.R. Bhesania was the chairman of the company's board of directors. The notice of the requisition may be addressed to him at No. 26, Ganesh Chandra Avenue, and after getting this notice if the board fails to convene the requisitioned meeting, the consequences prescribed by section 169 of the Companies Act would, in my opinion, follow. Learned counsel appearing for all the contesting respondents have repeatedly assured me in the course of the hearing upon instructions that a notice of requisition addressed as aforesaid to H.R. Bhesania would be duly received.
The next argument of the petitioner's counsel is that by reason of section 174 of the Companies Act a requisitioned meeting would fail for want of quorum if the Bhesanias do not attend the meeting. This is a hypothetical problem and the court cannot be expected to solve it at the moment.
On these facts the position appears to be that unless the result of an attempt to convene a requisitioned meeting is known, I do not think it would be proper for the court in the exercise of its discretion to call a meeting under section 186. My view is that to reach the conclusion that "it is impracticable to call a meeting of the company…….in any manner in which meetings of the company may be called" as contemplated by section 186, it is necessary for the court to know, on the facts of this case, that the shareholders made an attempt to call a requisitioned meeting but that attempt had failed.
The petitioner's counsel has also invited me to take into consideration certain other facts of this case. He says that if the 5th annual general meeting of the company has not been validly held there may be prosecutions. Secondly, another year has ended on the 31st March, 1966, which means that the 6th annual general meeting should have been called by the 30th September, 1966. Thirdly, no balance-sheet can be prepared unless the auditors are asked to do so by a resolution of the board: no dividend can be declared or paid; and a young company which has started production for about a year only cannot be killed by the greed of only 12% of the shareholders. Learned counsel submits that in circumstances such as these the only remedy is to have an annual general meeting under orders of the court.
It is true that the 6th annual general meeting has not been called; but in view of the interim orders of this court I have already mentioned, I do not think any prosecution ought to succeed. Secondly, if there are serious difficulties in holding the annual general meeting or default is made in holding it, the Central Government may be approached under section 167 to solve the problem, but up-till now no such attempt has been made. I am not impressed by the argument that the greed of a minority of shareholders is holding back the normal functioning of this company. The minority group tells me in rebuttal of this allegation that the trouble has arisen owing to the greed of 88% of the shareholders headed by Vittal Mallya who claims a royalty of Rs. 16,00,000 a year according to Dali Ruttonjee (paragraphs 5(o) and 6 of Dali Ruttonjee's affidavit-in-opposition) and about Rs. 13,00,000 a year according to Vittal Mallya (paragraph 7 of Mallya's affidavit-in-reply). I have said, I would not enter into the merits of the dispute and pronounce my opinion as to which group is justified in taking up its attitude; but on the materials at present available to me, I am reluctant to accept the proposition that a meeting should be called by this court because a minority of shareholders is unreasonably causing obstructions.
Learned counsel for the petitioner argued further that the deadlock has reached such a stage that, if Sukumar Roy and A.K. Thakur called a meeting, the Bhesania group would file suits. If, on the other hand, the Bhesania group called a meeting, the Thakur group would file suits. The pending suits, says the petitioner's counsel, would be taken up on appeal; from the suits that may be filed there would be appeals; and it is exactly to prevent such a situation that the court assists the shareholders in expressing their wishes at a meeting called by the court.
I am not saying that this point is altogether without substance; but one should also consider that suits and appeals could be filed as a matter of right whether there was any foundation for them or not; but when pending suits or appeals and the possibility of further suits and appeals form the basis of an application under section 186, the court, to my mind, has a duty to see if there is a prima facie case. In the present application I can see that there are disputes which are not perhaps frivolous regarding the positions of B.K. Roy, Anil Thakur, Sukumar Roy and Sookamal Kanti Ghose vis-a-vis the board of directors of the company; but I have not found a prima facie case against H.R. Bhesania, the chairman of the board of directors, F.R. Bhesania, F.M. Bhesania and Dali Ruttonjee that they have ceased to be directors. I do not want to repeat what I have said earlier on this point. This company requires a minimum of two directors only to constitute a Board. And there are at least 4 directors against whom, in my opinion, no prima facie case exists at this moment. If I could come to the conclusion on the facts stated before me that there were doubts as to whether the Bhesanias also were still the directors of the company, I might have been inclined to exercise my powers under section 186; but no materials have been placed before me to reach that conclusion except that certain persons are contending that they have ceased to be directors. Contentions alone would not do if the facts stated by Dali Ruttonjee in paragraph 5(k) of his affidavit-in-opposition go practically unchallenged.
In concluding my views on the facts of this case, I intend to reiterate that from the relevant paragraphs in the petition and the various affidavits in these proceedings, it seems to me that the Mallya group is determined to throw out the Bhesania group who took the initiative in bringing this company into existence without any positive complaint against them or without giving them an opportunity to answer the charges, if any, against them by a brute majority of votes in the general meeting. The court has a discretion under section 186 and that discretion, in my opinion, should not be used in favour of the petitioner with these facts in the background.
Numerous decisions were cited at the Bar. I need not refer to all of them. I would only discuss the cases decided by our court and an English case in which the facts leading to impracticability of calling a general meeting were considered.
In re Lothian Jute Mills Co. Ltd. Sinha J., as he then was, had to consider the provisions of section 79(3) of the Companies Act, 1913, which were the same as in section 186 of the new Act. There were disputes between two rival groups of directors. His Lordship has laid down certain general principles to be observed in applying section 79(3). These principles are as follows:
"The court would not ordinarily interfere in the domestic management of the company which must be conducted in accordance with the powers contained in the regulations of the company.
But where the meeting can be called only by the directors and there are serious doubts and controversy as to who are the directors and where there is possibility that one or other or both the meetings called by the quarrelling groups of directors may be invalid, the shareholders should not be exposed to the uncertainties flowing from the situation and the consequent litigation and it should be held that a position has arisen which makes it 'impracticable' for the meeting being called in accordance with the articles.
The court should exercise its powers where it cannot say with reasonable approach to certainty, or even prima facie that the meeting called in exercise of the powers contained in the regulations will be valid."
This is the first case of this court cited before me. Sinha J., on the facts of the case, upon considering the disputes raised by the rival groups, did exercise his powers under section 79(3) "in order to resolve the conflict and uncertainty" which had arisen. With respect, I agree with the broad principles enunciated by the learned judge; but by applying those principles to the instant case, I am finding it difficult to invoke my powers under section 186. I cannot with reasonable approach to certainty or even prima facie say that a meeting called in accordance with the articles of this company will not be valid. There is no challenge here to the appointment of directors ab initio. So far as the Bhesanias are concerned, the allegation is that by reason of some specific act after a valid appointment they have ceased to be directors. Such an allegation has to be examined to see if there is a prima facie case. The Bhesania group's contention before me is that money was received for the specific purpose of payment of excise duty; it was received entirely for the benefit of the company; it would be realised by the company out of the sale proceeds; and it was not repayable by any of the directors at all. As a matter of fact up till now no suit has been filed for the recovery of any alleged loan. It is also stated that the money did not belong to the company at all; it was paid in cash by someone else as the company had no money. On these facts I cannot prima facie hold that the four Bhesanias have ceased to be directors; and then draw the conclusion that it is"impracticable" to call a general meeting in the ordinary way.
The next case to which my attention was invited was the case of Malhati Tea Syndicate Ltd. Here also there were disputes as to whether there was a valid board of directors. At page 655, Banerjee J. observed:
"It is difficult for me on this application
and it would be inexpedient having regard to the pending suits to decide which
of the directors have been validly appointed. I am not satisfied on the facts
of this case that there is a board of directors who can call a meeting in the
manner in which a meeting of the company may be called. Meetings held otherwise
than under the direction of the court under section 79 in the circumstances of
this case would lead to interminable troubles and prejudice the interests of
the company."
On the same grounds which I have advanced in discussing the Lothian Jute Mills Co. Ltd.'s case the judgment of Banerjee J. is also distinguishable.
We next come to the case of Indian Spinning Mills Ltd. v. M. S. J. Bahadur Rana . This is a judgment of the appellate court by Harries C. J. sitting with Banerjee J. The question there arose as to whether it was impracticable to hold an extraordinary general meeting. The trial court made an order calling a meeting under section 79(3) of the 1913 Act. One A.C. Roy Chowdhury had been elected chairman of the board of directors but disputes arose and eventually the other directors challenged his position on the board and he was requested "to vacate from the board of directors………" Roy Chowdhury was thereafter excluded from the board and another shareholder was co-opted in his stead and a new chairman was appointed. The contesting respondents contended that the entire proceedings excluding Roy Chowdhury and appointing a new chairman were illegal and of no effect. The position of Roy Chowdhury also became the subject-matter of two suits in which the contestants aforesaid tried to assert their respective positions. In one of the suits there was a prayer for a declaration that an extraordinary general meeting which had been called on September 9, 1950, was improperly convened, and further that any directors appointed at that meeting should be declared to have been invalidly appointed. It appears that a requisition was served on the directors to call an extraordinary general meeting but they did not comply with the requisition and when the requisitionists themselves proceeded to call the meeting, the suit was filed to defeat it.
The facts of this case clearly point to the impracticability of calling a general meeting in the usual way and the appellate court affirmed the decision of the trial court calling a meeting under section 79(3). Harries C. J. observed in paragraph 18 at page 356:
"The learned judge rightly refused to decide the matters which are in issue in the suit and I do not think it will be right for us to express any opinion upon these matters. However, it is clear that there is a serious dispute between the parties as to whether Mr. Roy Chowdhury was qualified to act as a director and whether or not he was wrongly excluded from the board. If it transpired in the suit that he was wrongly excluded from the board, difficulties might arise concerning any meeting which the requisitionists might call under section 78(3). In fact it seems fairly clear that if such a meeting was called it would be the cause of considerable litigation."
In paragraph 19, at page 357, Harries C. J. says:
"If the meeting was called, difficulties would undoubtedly arise as to the conduct of the meeting. In an extraordinary general meeting the parties might elect their own chairman, but the probabilities are that objection would at once be taken to Mr. Roy Chowdhury either acting as chairman or even voting or being concurred in the proceedings at all. It seems to me that if the requisitionists were allowed to conduct this meeting endless difficulties would arise and, therefore, I think the learned judge was right in holding that it was impracticable to hold such a meeting.”
Harries C. J. supports the meaning of the word "impracticable" given by Banerjee J. in the case of Malhati Tea Syndicate Ltd. Banerjee J. adopted the meaning which the Judicial Committee gave to the word "impracticable" in Commissioner, Lucknow Division v. Deputy Commissioner of Partabgarh According to the Privy Council "impracticable" means impracticable from a reasonable point of view and Banerjee J. has added in the case of Malhati Tea Syndicate Ltd, 6 that "the court takes a common-sense view of the matter and acts as a prudent person of business".
I have discussed this judgment of the appellate court slightly in detail with a view to point out the meaning that should be given to the word "impracticable" in section 186 of the Companies Act, 1956. The court in every case has to look at the facts from a reasonable commonsense point of view and act as a prudent person of business to decide whether it has become "impracticable" to call a general meeting. That is one of the reasons why I have been saying that a prima facie case against the Bhesanias should have been established in the instant case to enable the court to decide upon the impracticability of convening a general meeting in the ordinary manner.
I would now come to a case recently decided in England. It is the case of El Sombrero Ltd. The provisions of section 135(1) of the English Companies Act, 1948, are similar to those of section 186 of our Act. The applicant in this case held 90 per cent, of the shares of a private company incorporated in March, 1956. There were two directors and each of them held 5 per cent. of the shares. The quorum for general meetings was two members present in person or by proxy, and, if within half an hour from the time appointed for a meeting a quorum was not present, the meeting, if convened on the requisition of members, was dissolved. No general meeting of the company had ever been held. On March 11, 1958, the applicant requisitioned an extraordinary general meeting for the purpose of passing resolutions removing the two directors and appointing two other persons as directors. The existing directors failed to comply with the requisition. The applicant himself convened an extraordinary general meeting for April 21, 1958. The directors deliberately did not attend the meeting either in person or by proxy and, as a quorum was not present, the meeting was dissolved. On April 29, 1950, the applicant served a special notice, under section 142 of the Act of 1948 of his intention to move the same resolutions, under section 142 and section 184, at the next extraordinary general meeting of the company. On the same day he took out an originating summons asking for a meeting to be called by the court, under section 135(1), for the purpose of passing the resolutions and for a direction that one member of the company should be deemed to constitute a quorum at such meeting. The directors opposed the application. Wynn-Parry J. has held:
(i) as a practical matter, the desired meeting of the company could not be conducted in accordance with the articles of association and the court had jurisdiction under section 135(1) of the Companies Act, 1948, to order a meeting to be held notwithstanding opposition by the shareholders other than the applicant, and
(ii) an order for meeting to be held and that one member present should constitute a quorum would be made because—
(a) to refuse the
application would be to deprive the applicant of his statutory right under
section 184 to remove the directors by means of an ordinary resolution, and
(b) the
respondent-directors had failed to perform their statutory duty to call an
annual general meeting for the reason that, if they had convened a general
meeting, they would have ceased to be directors.
It is apparent that the facts of the case before Wynn-Parry J. were much stronger than the facts here. In the English case the facts established that there was an impracticability to which the directors themselves had contributed. In our case it cannot be said that the directors have failed to call any annual general meeting. In our case there has been no requisition as yet which the directors have not complied with and it is also not yet in evidence that the Bhesania group has deliberately refrained from attending any extraordinary meeting so that the quorum may not be present. I do not think that the decision of Wynn-Parry J. can be applied to the facts of the present case.
Reliance was also placed on Stroud's Judicial Dictionary, third edition, volume 2, at page 1377. It says:
"The words ' impracticable to conduct a meeting ' in section 115(2) of the Companies Act, 1929…….see now Companies Act, 1948, section 135……..covers the case where it is impracticable owing to the terms of the articles and the state of shareholding in the company to get a quorum present: In re Edinburgh Workmen's Housing Improvement Co. "
Learned counsel for the petitioner has urged that having regard to the state of the shareholding in this company it is impracticable to get a quorum. I have already said that on the facts of the case the proposition at present appears to be hypothetical. In the case of El Sombrero Ltd. , as we have seen, the dissenting group deliberately chose not to attend the meeting to frustrate the purpose of the meeting due to lack of quorum. We do not yet know what the Bhesania group is going to do if an extraordinary general meeting is requisitioned. Until that is known I do not see how the court, in the exercise of its judicial discretion, can call a meeting under section 186.
I would now come to the case of Bengal and Assam Investors Ltd. v. J. K. Eastern Industries Private Ltd. P. B. Mukharji J. refused to call a general meeting in this case under section 186. The facts, inter alia, were that a notice had already been issued calling an extraordinary general meeting of the company. The learned judge, in paragraph 5, at page 660, observed:
"The resolutions that are intended to be passed at the meeting demanded by the requisitionists are set out in the notice itself."
The learned judge thought that there was, therefore, no impracticability in the matter of calling the meeting. The ground on which the assistance of the court was sought, was that one K. L. Jatia, the chairman of the board of directors, might not act impartially because his removal was sought in one of the proposed resolutions for the extraordinary meeting. P.B. Mukharji J., in paragraph 13, at page 661, says:
"I am satisfied that K.L. Jatia cannot decide on the resolutions proposed in that meeting because the resolutions will have to be voted by the shareholders. It is the shareholders who will be in control of the meeting.
If the applicant has on its side 55 per cent. of the votes of the shareholders, I do not see why they should be at all frightened. The chairman's power is very limited. He has a vote as a shareholder and director. That gives him no special position to control the meeting. He has, in the event of an equality of votes between two rival groups, a casting vote. But on the applicant's own showing there is no question of equality of votes in this case because the applicant's group is much larger than the respondent's group."
It is no doubt true, as the petitioner's counsel has contended, that the facts in this case were entirely different from the facts we have to deal with. And this case does not give us much assistance in deciding whether this application should be refused; but P.B. Mukharji J., in paragraphs 17 and 18 of his judgment, has discussed certain general principles that are to be applied to section 186 of the Companies Act. The petitioner's counsel says that these observations are in the nature of obiter; but, to my mind, they are useful observations and some of them lay down the basic principles that are to be followed by the courts while considering an application under section 186. P.B. Mukharji J. has expressed his concurrence with the meaning given to the word "impracticable" by Banerjee J. in the case of Malhati Tea Syndicate Ltd. (Banerjee J.’s view, as we have already seen, has also been accepted by the appellate court), and has developed the point still further in the case of Bengal and Assam Investors Ltd.
Upon considering the relevant authorities on this subject and examining the language of the statute the main principles involved in trying an application under section 186 are, to my mind, as follows:
1. The
court would not ordinarily interfere with the domestic management of a company
which should be conducted in accordance with its articles.
2. The discretion granted under section 186 should be used sparingly
and with caution so that the court does not become either a shareholder or a
director of the company trying to participate in the internecine squabbles of
the company.
3. The word "impracticable" means impracticable from a
reasonable point of view.
4. The court should take a commonsense view of the matter and must act
as a prudent man of business.
5. A prudent man of business has not a sensitive, officious view of intervention in case of every rivalry between two groups of directors; prudence demands that the court ordinarily keep itself aloof from participating in quarrels of rival groups of directors or shareholders.
6. But where the meeting can be called only by the directors and there
are serious doubts and controversy as to who are the directors or where there
is a possibility that one or other or both the meetings called by the rival
groups of directors may be invalid, the court ought not to expose the
shareholders to uncertainties and should hold that a position has arisen which
makes it "impracticable" to convene a meeting in any manner in which
meetings of the company may be called.
7. The court should exercise its powers under section 186, when, upon considering all the facts and circumstances of a case, it can say with a reasonable approach to certainty or even prima facie that a meeting called in the manner in which meetings are ordinarily called under the Act or under the articles, would be invalid.
8. Before the court exercises its discretion under section 186 the court must be satisfied, when a director or a member moves an application, that it has been made bona fide in the larger interests of the company for removing a deadlock otherwise irremovable.
When I apply the principles enunciated above to the facts of this case it seems to me that this is not a case which falls for the court's interference under section 186 of the Companies Act, 1956.
Numerous other points have been urged before me. Mr. S. C. Sen, learned counsel for one of the contesting respondents, has also dealt with the history of company jurisprudence in relation to the provisions of section 186; but having regard to the conclusions I have already reached, I do not think it necessary to consider any other point raised in this application.
The result is that this application is dismissed. The petitioner will pay to the respondents one set of costs. Certified for counsel.
[1958] 28 COMP. CAS. 68 (PUNJ.)
V.
C R E Wood & Co
(Private) Ltd.
CHOPRA J.
MARCH 25, 1957
CHOPRA J. - The respondent has applied for the interim order dated 12th March, 1957, to be vacated or suitably modified. Mr. Dua, in the first place, contends that this court has no power to make any such interim order in a petition under section 186 of the Companies Act (1 of 1956). It is submitted that under section 186(1) the court may give only such ancillary or consequential directions as may be deemed expedient in relation to the calling, holding and conducting of the meetings and for no other purpose. In my opinion, the contention has no force. The section simply clarifies the nature of directions that may be given for calling, holding or conducting the meeting and thus for the disposal of the petition itself. It does in no way abridge or limit the general or inherent powers of the court to make such interlocutory orders as may be deemed necessary in order to prevent the ends of justice from being defeated or the petition itself being made infructuous. In the petition, it was alleged that the managing agent of the company, for the reasons stated, ought to be deemed to have vacated his office and that there was no properly constituted board to carry on the business of the company or to look after its affair. It was, therefore, prayed that till the meeting was held and till such time as the newly elected board started functioning, the person illegally in charge of the company be restrained from disposing of the assets of the company. If the allegations were true, it was incumbent on the court to issue directions for the proper management of the company during the pendency of the proceedings. Section 141 of the Civil Procedure Code lays down that the procedure provided in the Code in regard to suits shall be followed, as far as it can be made applicable, in all proceedings in any court of civil jurisdiction. Obviously the section would be applicable to such like proceedings under the Companies Act. Section 94 of the Civil Procedure Code sums up the general powers of the courts in regard to the various kinds of interlocutory orders that may be made with a view to do substantial justice to the parties to a proceeding or to prevent the ends of justice being defeated. Section 151 of the Civil Procedure Code recognises the inherent powers which the judicial courts always have to make such orders as may be necessary for the ends of justice or to prevent abuse of the process of the court.
It is next submitted that the company had entered into agreements with the Punjab Government and the Railway Administration for the supply of a large number of electric meters within a specified time and that the meters had already been imported and they were to be paid for. The company stands to suffer a great loss if the agreements are not carried out and the meters supplies within the specified period.
In view of the facts stated in the application, I think the interim order deserves to be modified to the extent that the company be allowed to complete the agreements that have already been entered into and make payments in respect thereof. I order accordingly.
Order
accordingly.
[1987]
62 COMP. CAS. 865 (KER)
HIGH COURT OF KERALA
v.
Majestic Kuries and Loans (P.) Ltd.
C.R.P.
NOS. 1285 AND 1286 OF 1987
P.K.
Balasubramonyam for the Petitioner.
K.
A. Nair for the Respondent.
JUDGMENT
S. Padmanabhan, J.—Plaintiffs are the revision petitioners. The two revision
petitions arise from O. S. No. 728 of 1986 on the file of the Subordinate
Judge, Trichur, and O. S. No. 2510 of 1986 on the file of the Munsiff, Trichur.
Order in I. A. No. 1842 of 1986 in O. S. No. 728 of 1986 gave rise to C. M. A.
No. 92 of 1986 before the District Judge, Trichur. Order in I. A. No. 3732 of
1986 in 0. S. No. 2510 of 1986 gave rise to C. M. A. No. 127 of 1986. Both the
CM.As. were disposed of by the District Judge, Trichur, by a common judgment.
C. R. P. No. 1285 of 1987 is against the order in C.M.A. No. 127 of 1986 and
C.R.P. No. 1286 of 1987 is against the order in C. M. A. No. 92 of 1986.
First defendant in both the
cases is- the Majestic Kuries and Loans (P.) Ltd., High Road, Trichur, a company
incorporated under the Companies Act for the conduct of kuries worth about Rs.
10 crores. There are 25 shareholders. Plaintiffs in both the cases are
shareholders of the company. The fourth annual general meeting of the company
was held on October 12, 1985. Thereafter, there were some disputes. There was a
request to convene an extraordinary general meeting. The right of the second
defendant to continue as chairman of the company was also disputed. So also
some of the members contended that defendants Nos. 3 and 4 in 0. S. No. 728 of
1986 are not shareholders. It was for these purposes that a request was
received to convene an extraordinary annual general meeting. The board of
directors instead of holding an extraordinary annual general meeting decided to
hold the fifth annual general meeting itself on August 28, 1986. Last and sixth
item in the agenda of that meeting was removal of the second respondent from
the board of directors. When the board of directors issued notice to convene
the fifth annual general meeting on August 28, 1986, one shareholder filed 0.
S. No. 728 of 1986 for an injunction directing the second defendant not to
preside over the meeting and to take up item No. 6 in the agenda, namely,
removal of the second defendant from the board of directors as the first item.
So also, he wanted a direction that defendants Nos. 3 and 4 are not entitled to
participate in the meeting since they are not shareholders. For these purposes,
the plaintiff moved I. A. No. 1842 of 1986 in O. S. No. 728 of 1986.
The annual general meeting
proposed to be held on August 28, 1986, could not be held for want of quorum.
Even before that, the Subordinate Judge granted an interim order in I. A. No.
1842 of 1986 directing the second defendant not to preside over the meeting,
that item No. 6 in the agenda to be taken up as the first item and that
defendants Nos. 3 and 4 shall not participate in the meeting. The adjourned
meeting was held on September 4, 1986. In that meeting, the second defendant
was removed from the board of directors. The vacancies in the board of
directors were filled up. The remaining agenda for the meeting were also gone
through.
Ignoring the meeting held
on September 4, 1986, the second defendant issued exhibit A-4 notice on
September 16, 1986, for the purpose of convening the fifth annual general
meeting on October 15, 1986. At that time, another shareholder filed 0. S. No.
2510 of 1986 before the Munsiff's Court, Trichur, for a declaration that the
annual general meeting held on September 4, 1986, is valid and for an
injunction restraining the meeting proposed to be held on October 15, 1986. In
that suit, the plaintiff also filed I. A. No. 3732 of 1986 for a temporary
injunction restraining the holding of the meeting.
In I. A. No. 1842 of 1986
in O. S. No. 728 of 1986, the Subordinate Judge found that the plaintiff was
not able to establish a prima facie case for injunction against defendants Nos.
3 and 4. So also it was found that there is nothing wrong in the second
defendant presiding over the meeting and casting his vote. The meeting held on
September 4, 1986, was held to be invalid on account of the injunction against
interested parties. At the same time, in I. A. No. 3732 of 1986 in 0. S. No.
2510 of 1986, the Munsiff found that the meeting held on September 4, 1986, is
valid and, therefore, there is no question of again calling the fifth annual
general meeting on October 15, 1986. Injunction was granted against that
meeting.
Thereafter, the former
board of directors filed O. S. No. 982 of 1986 before the Subordinate Judge,
Trichur, and filed I. A. No. 2511 of 1986 for injunction against the board of
directors elected on September 4, 1986. An ex parte order of injunction was
obtained on that application. C.M.A. No. 108 of 1986 filed by the defendants in
that case was allowed by the District Judge and the matter was remanded. That
was also by the same common order by which C. M. A. Nos. 92 and 127 of 1986
were disposed of. I was told that another revision petition has been filed
against the order of remand.
In C. M. A. Nos. 92 and 127
of 1986, the learned District Judge did not come to any conclusion on merits.
The District Judge' found that the validity of the annual general meeting held
on September 4, 1986, is a matter to be decided in the suit. At the same time,
a commissioner was ordered to be appointed for holding the fifth annual general
meeting.
The two questions that
arise for consideration, on the basis of the arguments addressed before me, are
: (1) Whether the annual general meeting held on September 4, 1986, and the
decisions taken therein are valid, and (2) Whether the direction given by the
District Judge to conduct the fifth annual general meeting through the
commissioner is legal.
On the first point, learned
counsel for the respondents strenuously argued that the meeting is not legal
because it was conducted at a time when there was injunction against defendants
Nos. 2, 3 and 4. So also he pointed out that immediately after the injunction
was vacated, the board of directors issued exhibit A-4 notice to convene the
meeting on October 16, 1986. The interpretation of section 174(4) of the
Companies Act was one of the main items of dispute between the parties at the
time of arguments in this respect. Section 174(4) of the Companies Act reads :
"In any other case,
the meeting shall stand adjourned to the same day in the next week, at the same
time and place, or to such other day and at such other time and place as the
board may determine".
Learned counsel for the
respondents said that while interpreting section 174(4), the provisions of
sections 166, 167, 168, 169, 171, 175 and 189(2) as well as rule 9 of the
Companies (Court) Rules and section 151 of the Code of Civil Procedure also
will have to be taken into account. I do not think that there is much merit in
that argument. Section 166(1) of the Companies Act only deals with the
liability to hold the annual general meeting and fixes the outer limit of
fifteen months. Proviso (2) to that sub-section authorises the Registrar to
extend that period up to a maximum limit of three months for special reasons.
Section 167 only deals with the power of the Central Government to hold the
annual general meeting in case of default by the company. Section 168 only
provides for penalty in cases of non-compliance with the provisions of section
166 or 167. Section 169(1) and (6) only deal with convening of meetings on
requisition. Section 171 is the section providing for the length of notice for
convening meeting. These provisions have absolutely no impact on the
interpretation of section 174(4).
Section 174(4) deals with
two situations. The first is where the meeting is not adjourned to any date. In
such a situation, what the sub-section says is that "the meeting shall
stand adjourned to the same day in the next week". In my opinion, this is
an automatic statutory adjournment of the meeting without the intervention of
human agency. The second situation contemplated under sub-section (4) is to
hold the meeting on such other day and at such other time and place as the
board may determine. In my opinion, the operation of the second part of
sub-section (4) comes into play only when the meeting is adjourned by the board
of directors to be convened on any particular day and time at any particular
place on the date of the meeting itself or at any rate before the commencement
of the same day in the next week. If no such date is fixed before that time
limit, the first part of sub-section (4) automatically operates and the
convening of the meeting on the same day in the next week at the same time and
place is nothing but legal and proper. Therefore, on that ground, the validity
of the meeting held on September 4, 1986, cannot be challenged.
So far as the second
defendant is concerned, the injunction was only against himself presiding over
the meeting. But defendants Nos. 3 and 4 were restrained from participating in
the meeting. Whether, on that ground, the meeting held on September 4, 1986, is
invalid or not is a matter that could be decided only by the final decision of
the suit. There is a contention that on account of the contravention of some
provisions of the articles of association, defendants Nos. 3 and 4 are not
shareholders. This contention is opposed by the other side. A decision on the
merits on that question is not possible at present. The learned District Judge
rightly held that this is a matter for final decision. Therefore, at present, I
am not in a position to express any final opinion regarding the validity of the
annual general meeting held on September 4, 1986, and the decisions taken
thereon.
But the fact remains that
the fifth annual general meeting was held on September 4, 1986. Before entering
a finding that the said meeting is invalid, the District Judge was not
justified in ordering the same fifth annual general meeting to be held once
again through a commission. If ultimately the meeting was held on September 4,
1986, and the decisions taken thereon are held to be valid, the meeting ordered
by the learned District Judge will amount to a duplication. That will only help
to add to the confusion.
Further, the authority of
the District Judge to order convening of such a meeting was also under serious
challenge. The only two provisions in the Companies Act under which the courts
could act in such cases are sections 186 and 633. Section 633 is at any rate
not applicable for our purpose. Section 186, as it stood before the amendment,
authorised the court to convene a meeting other than an annual general meeting.
That authorisation itself is only in favour of the company court and not the
civil court. Even that section has been amended in 1974 and instead of court
the Company Law Board was substituted.
In the decision in R. Rangachari v. S. Suppiah [1975] 45 Comp Cas 641 (SC),
even though the Madras High Court took the view that the court could appoint a
chairman for the meeting, the Supreme Court said that it could not. It was also
pointed out by the Supreme Court that after the amendment, the jurisdiction is
only with the Company Law Board. In the decision in Coal Marketing Co. of India P. Ltd., In re [1967] 37 Comp Cas
720, the Calcutta High Court expressed the view that the courts have no power
to call, hold, conduct or control annual general meetings.
Learned counsel for the
respondents relied on rule 9 of the Companies (Court) Rules and section 151 of
the Code of Civil Procedure to argue that even in the absence of a specific
provision, inherent powers are there. Inherent powers saved under rule 9 of the
Companies (Court) Rules are only in favour of the company courts. What that
rule says is that 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. Exactly those are the powers saved under section 151 of the Code
in favour of civil courts. Inherent powers cannot be invoked when express
provisions are there. In the Companies Act, there are express provisions for
reliefs and the authorities are also provided. Section 167 authorises the
Central Goyernment for convening meetings in certain contingencies and section
186 authorises the Company Law Board. Under the proviso to section 166, the
Registrar is also given power to extend time under certain contingencies. Under
such circumstances, it may not be proper to contend that the meetings could be
convened by the civil court in exercise of the inherent powers. In Nungambakkam Dhana-rakshaka Saswatha Nidhi
Ltd. v. Registrar of Companies [1972]
42 Comp Cas 632, the Madras High Court said that the inherent power of the
court cannot be invoked where express provision is made for relief by
conferring power upon other authorities. In these circumstances, the learned
District Judge was not correct in ordering to hold the fifth annual general
meeting through a commissioner appointed by that court.
Learned counsel for the
respondents argued that if the next annual general meeting is ordered to be
held without invalidating the fifth annual general meeting, it may cause
serious prejudice to his clients. In that connection, it has to be remembered
that nothing prevented the second respondent from participating in that
meeting. Learned counsel for the revision petitioners told me that even if
respondents Nos. 2 to 4 participated in that meeting, the decision would not
have been otherwise. In support of that argument, it was pointed out that only
11 shareholders participated in that meeting and the decision to remove the
second respondent was unanimous. So also I was told that the other decisions
were taken by a majority of 9 : 2 and that even if respondents Nos. 2 to 4
participated and voted, the difference at the maximum would have been only 9:5.
I do not think that those are matters to be considered at this stage.
The fourth annual general
meeting was held on October 12, 1985, and the fifth annual general meeting was
held on September 4, 1986. Subject to the final decision regarding the validity
of the fifth annual general meeting held on September 4, 1986, it is almost
time for convening the (next) sixth annual general meeting. Especially, in view
of the provisions contained in section 166 of the Companies Act and the
penalties provided under section 168, it is necessary that the next meeting
will have to be convened. I am giving a direction for the convening of the
sixth annual general meeting without prejudice to the right of the parties to
challenge the validity of the fifth annual general meeting and the decisions
taken therein.
The civil revision petitions
are partly allowed and the judgment of the learned District Judge directing
holding of the fifth annual general meeting by appointment of a commissioner is
hereby cancelled. Instead, there will be a direction to the board of directors
elected on September 4, 1986, to take necessary steps and hold the sixth annual
general meeting of the company on September 30, 1987. As earlier stated, this
will be without prejudice to the challenge directed against the fifth annual
general meeting held on September 4, 1986, and the decisions taken thereon
which will be considered on merits by the trial court while deciding the suit
finally. For the meeting to be held on September 30, 1987, notice shall be
issued to respondents Nos. 3 and 4 also. They will also be entitled to
participate and vote. This also will be subject to the final decision and
without prejudice to the contentions on either side. Parties are directed to
suffer costs.
[1986]
60 COMP. CAS. 381 (CAL)
HIGH COURT OF CALCUTTA
Baptist Church Trust Association
v.
Member, Company Law Board
DIPAK
KUMAR SEN J.
CIVIL
RULE NO. 15142 (W) OF 1983
P.
C Sen and S. N. Chowdhury for the petitioner.
S.
B. Mukherjee, N. K. Poddar and A. P. Agarwala for the Respondent.
JUDGMENT
Dipak Kumar Sen J.—The undisputed facts on record are, inter alia, that the
Baptist Church Trust Association, petitioner No. 1, in this application
(hereinafter referred to as "the trust association") was incorporated
under the Indian Companies Act, 1913, as a non-trading company on May 27, 1932.
The relevant clauses of its
memorandum and articles of association are as follows:
Memorandum of association
1. The name of the
company is "The Baptist Church Trust Association (hereinafter referred to
as "the association").
2. The objects for which
the Association is intituled are :.........
(b) To aid and further
the work of the Baptist Missionary Society, and the Baptist Churches in India
including any native States in India (hereinafter called "the said
area").......
(f) To accept property to be held by the
association:
(1) for the general purpose of the association and the Baptist
Churches, Baptist Unions, Church Unions, Church Councils and Baptist Missionary
Society.
Articles of association
1. For the purpose of registration, the number of members of the
association is declared not to exceed fifty.
2. These articles shall be construed with reference to the provisions
of the Companies Act, 1956 (hereinafter referred to as "the Act"),
and the terms used in these articles shall have the same respective meanings as
they have when used in that Act.
4. The members of the association shall be the (1) subscribers to the
memorandum of association ; (2) such persons not exceeding seven in number as
may be nominated by the Baptist Missionary Society, and (3) such other persons,
making a total membership including subscriber members and nominees of the
Baptist Missionary Society not exceeding fifty in all, as may be nominated by
the council of Baptist Churches in Northern India or by such other churches,
church or union of churches as may be authorised by a general meeting of the
association so as to nominate members, any necessary provisions as to the
number of members to be nominated being determined by a general meeting of the
association.
5 (a) Beginning from
the annual general meeting of 1960, one-third of the members of the association
shall retire annually, immediately before each annual general meeting of the
association. The committee of management shall arrange the order in which
members shall retire, and it shall be the responsibility of the bodies
authorised to nominate members to see that nominations and acceptance of
membership are duly made and intimated to the secretary of the association and
members retiring in accordance with the provisions of the article shall be
eligible for re-nomination……
6. The affairs of the association shall be administered by a committee
of management referred to in clause 4 of the memorandum of association. Such
committee of management shall consist of the officers and three (3) members of
the association……..
9. The officers of the association shall ordinarily be a president,
vice-president, treasurer and secretary who together with the three members of
the committee of management shall be elected by the association at its annual
meeting. Any casual vacancy occurring among the officers of the committee shall
be filled up by the remaining officers and committee from the members of the
association, but any person so chosen shall retain his office only until the next
annual meeting of the association when the vacancy shall be filled up by the
association........
16. (a) The association shall, in addition to
any other meetings, hold a general meeting which shall be styled as its annual
general meeting at intervals and in accordance with the provisions specified
below.
(b) The first
annual meeting shall be held by the association within eighteen months of its
incorporation.
(c) The next
annual meeting of the association shall be called by it within nine months
after the expiry of the financial year in which the first annual general
meeting was held ; and thereafter an annual general meeting shall be held by
the association within nine months after the expiry of each financial year but
so that no more than fifteen months shall elapse between the date of one
general meeting and that of the next except in a case where such general
meeting is held within such extended time not exceeding six months as may be
granted by the Registrar in terms of proviso to section 166 of the Act.........
18. The officers of the association may, whenever they think fit,
and they shall, if required in writing by such number of members as have, at
the date of receipt of requisition, not less than one-tenth of the total voting
power of all the members having at the date a right to vote in regard to the
matter for consideration of which the meeting is to be called, convene an
extraordinary meeting. Every such requisition shall express the object of the
meeting proposed to be called and shall be left with the Secretary and
thereupon an extraordinary meeting shall be convened by the said officers to be
held within forty-five days from the date of the receipt of such
requisition.........
20. A quorum at a general meeting shall consist of one-fifth
of the members of the association.
21. Twenty-one days' notice at least specifying the place and
time of meeting, and (in case of special business) the general nature thereof,
shall be sent to each member of the association, but non-receipt of any such
notice by any member shall not invalidate the proceedings of any general
meeting. With the consent in writing of all the members entitled to vote, a
meeting may be convened at shorter notice and in any manner they think fit. All
businesses to be transacted at the annual general meeting shall be deemed
special except the consideration of :
(a) the accounts;
(b) the annual report of
the secretary of the association on behalf of the committee, and
(c) the election of members of committee,
auditors and officers.
The bodies or organisations which have been
authorised by the trust association to nominate members are the Bengal Baptist
Union, the Baptist Union of Northern India, the Baptist Church of Mizoram and
the Utkal Christian Central Church Council. It is a matter of record that the
said bodies or organisations have been nominating members to the trust
association without dispute till 1974.
The council of Baptist
Churches in Northern India (incorporated as a registered society on or about
January 28, 1962), though authorised under the articles of the trust
association, have not so far nominated any members to the trust association.
Ajoy Kumar Saha, petitioner
No. 2, was nominated as a member of the trust association by the Bengal Baptist
Union and was elected as the secretary-cum-treasurer of the trust association
on November 8, 1974, at the annual general meeting of the trust association.
In 1974, disputes arose
over the management of the Bengal Baptist Union and in May, 1975, a suit was
instituted against petitioner No. 2 and others in the management of the Bengal
Baptist Union, being Suit No. 43 of 1975 in the court of the Ninth Subordinate
Judge, Alipore. In the said proceeding, an order was passed on December 9,
1975, by the Twelfth Additional District Judge, Alipore, in Miscellaneous
Appeal No. 273 of 1975 restraining the defendants in the said suit from
disposing of or leasing or letting out the properties of the Bengal Baptist
Union without leave of court. From another order passed in Miscellaneous Appeal
No. 407 of 1978 on January 25, 1980, by the learned Additional District Judge,
proceeding in revision was initiated in this court and on June 12, 1980, an
order was passed by this court recording an interim settlement between the
parties. In the said order, it was recorded that a particular group will
function as the Bengal Baptist Union (reformed). The said suit and the
proceedings thereunder are still pending.
In the Baptist Union of
Northern India, similar disputes arose over management and suits were filed in
the courts of Delhi, Agra and Bhiwani. The said suits are pending.
So far as the Utkal
Christian Church Central Council is concerned, some of the churches
constituting the council left the Baptist faith and in or about 1970 joined
"Church Union" under the Church of North India which does not follow
the Baptist faith and is not authorised to nominate members to the trust
association. Some of the churches of the said Utkal Christian Church Central
Council did not join the Church of North India.
It is not in dispute that
two rival groups in the Bengal Baptist Union and the Baptist Union of Northern
India are running two parallel organisations and that the Utkal Central Church
Council has ceased to exist since 1970.
The aforesaid disputes in
the several nominating bodies were reflected in the management and functioning
of the trust association. On February 10, 1976, at the annual general meeting
of the trust association for the year 1975, no business could be transacted as
there were allegations that petitioner No. 2 as the secretary had inducted a
number of non-members at the said meeting. No office bearers were elected at
the said meeting and the old committee of management and the office-bearers
appointed earlier continued.
Petitioner No. 2 attempted
to hold another annual general meeting of the trust association, not at the
latter's registered office, but at his residence on March 29, 1976. There were
allegations that notices of the said meeting had not been sent to bona fide
members and that non-members had been invited again. No business could be
transacted and there was no election of office bearers. The only decision taken
at the meeting was that, in future, notices of meetings should be issued under
the joint signatures of the president and the joint secretary of the trust
association and that till the office bearers were duly elected, the urgent and
important business of the trust association would be carried on by an ad hoc
committee consisting of the president of the trust association, the constituted
attorney of the Baptist Missionary Society and petitioner No. 2.
The trust association has
thereafter been sought to be constituted and represented by two different
groups and since 1977, two annual general meetings of the trust association
have been held every year, one at the registered office of the trust
association and the other by petitioner No. 2 at his residence. Both the groups
claim that they have been duly nominating office-bearers of the trust
association.
The group headed by
petitioner No. 2 has filed with the Registrar of Companies an application for
change of the registered office of the trust association. Respondent No. 2 has
also filed an intimation with the Registrar of Companies for removal of the
registered office of the trust association from the residence of petitioner No.
2 to its original registered office.
Koshy George, respondent
No. 2 in this proceeding, as the secretary and treasurer of the trust
association has filed annual return of the trust association under section 160
of the Companies Act, 1956, up to 1982. Such returns do not appear to have been
filed by petitioner No. 2 through his parallel organisation.
It appears from record,
that some time in 1978, an inspection report under section 209A of the
Companies Act was made by the Additional Registrar of Companies, West Bengal.
The Additional Registrar has come to the conclusion that the annual general
meetings of the trust association held at No. 44, Acharya Jagadish Chandra Bose
Road, Calcutta, the original registered office, on and from February 19, 1977,
were irregular as proper notices were not issued for the same and that there
was no quorum. The Registrar also found that petitioner No. 2 has continued to
be the secretary of the trust association since November, 1974, and meetings
called by him at Elliot Road, Calcutta, in 1977, were in conformity with the
articles of the trust association.
In such background, that
trust association some time in June, 1982, made an application before the
Company Law Board under section 186 of the Companies Act, 1956, for, inter
alia, the following orders:
(a) An enquiry
into the affairs of the trust association to determine, inter alia, the persons
who are entitled to its membership as well as those who are entitled to hold
office, as members of its committee of management.
(b) To order a
meeting of the trust association to be called, held and conducted in such
manner as the Company Law Board thinks fit.
Petitioner No. 2 opposed
the application of the trust association and affirmed an affidavit on or about
April 16, 1983, which was filed before the Company Law Board. It was contended,
inter alia, by petitioner No. 2 that no order could be passed under section 186
of the Act inasmuch as it had not been established that it was impracticable to
call an extraordinary general meeting of the company. It was further contended
that no attempt had been made to convene a meeting of the trust association on
requisition by the members in the usual course.
It was next contended that
the membership of the trust association was admittedly uncertain and in such a
case powers under section 186 of the Act could not be invoked or exercised. The
application before the Company Law Board had been made on the basis that there
were disputes as regards membership of the trust association. Such disputes
could be resolved only in a court of law but not under section 186 of the
Companies Act.
It was next contended that
the application was wholly mala fide and belated and a dispute which arose, in
1976 was being sought to be resolved through section 186 of the Act.
It was next contended that
the real dispute was in respect of the annual general meeting convened by
petitioner No. 2 in 1976 and that the agenda which was suggested in the
application to the Company Law Board were matters to be considered and decided
in an annual general meeting and not in an extraordinary general meeting. The
Company Law Board had no. power or jurisdiction to call an annual general
meeting.
It was next contended that
as suits were pending in different courts, the Company Law Board should not
invoke or exercise its jurisdiction under section 186 of the Act as the reliefs
sought for were in issue in the pending suits.
It was contended last that
there were disputes over the constitution of the different bodies which had the
power to nominate members to the trust association. The Bengal Baptist Union
and the Baptist Union of Northern India were being run by parallel
organisations. It was not open to the Company Law Board to decide which
particular organisation of the nominating bodies had the right to nominate
members to the trust association.
Respondent No. 2 affirmed
an affidavit on May 6, 1983, which was filed before the Company Law Board in
reply to the aforesaid affidavit of petitioner No. 2.
By an order dated December
1, 1983, A. R. Khare, Member, Company Law Board, Eastern Regional Branch,
Calcutta, disposed of the application under section 186 of the Act and gave the
following directions:
(a) A general meeting of the trust
association will be called.
(b) The said meeting will be conducted
by an independent chairman.
(c) Shri Sukumar
Bhattacharya, advocate, was appointed the chairman of the meeting.
(d) Notices of
the said meeting will be issued to the seven members nominated by the Baptist
Missionary Society and the four members nominated by the Church of Mizoram at
addresses to be furnished to the chairman by respondent No. 2 in accordance
with the procedure as provided in the Companies Act, 1956, and the articles of
the trust association.
(e) Respondent
No. 2 will submit to the chairman a copy of the memorandum and articles of the
trust association well in advance so that the notices can be given to
shareholders for the requisite period.
(f) The quorum
for the meeting be five persons to be personally present.
(g) The chairman will decide the venue
and time of the meeting.
(h) Respondent
No. 2 will meet the expenses of holding the meeting and the remuneration of the
chairman fixed at Rs. 1,100.
(i) The chairman
will submit a report to the Company Law Board within two weeks from the date of
the meeting.
(j) The meeting will consider, inter
alia,—
(i) The location of the registered office of
the trust association.
(ii) Determination of the
churches or union of churches empowered to nominate members of the trust
association under its articles.
(iii) Determination of the
persons entitled to hold the offices of the president, the vice-president, the
secretary, the treasurer and members of the committee of management of the
trust association and/or persons vested or to be vested with the right to
administer and manage the properties of the trust association in accordance
with law and the articles.
In its said order, the
Company Law Board found and recorded, inter alia, as follows :—
(a) The trust
association was promoted by the Baptist Missionary Society of London to aid and
further the work of the said Society in India.
(b) The trust
association held properties of the Baptist Missionary Society of India on
trust.
(c) The trust
association functioned normally till 1974 and its last audited balance-sheet
was filed on June 30, 1974. At the annual general meeting of the trust
association held on November 18, 1974, petitioner No. 2 was elected the
secretary and treasurer.
(d) In 1974, the
trust association had twenty-five members of whom two had been nominated by the
Baptist Missionary Association, eight had been nominated by the Bengal Baptist
Union, seven had been nominated by the Baptist Union of Northern India, six had
been nominated by the Churches of Orissa and two had been nominated by the
Churches of Mizoram.
(e) No annual
general meeting of the trust association were held for the years 1975 and 1976.
In 1976, the annual general meeting which was called could not transact any
business.
(f) Thereafter,
the trust association started functioning as a divided entity in two groups and
on and from 1977, two separate general meetings were held every year. Two rival
groups were claiming to represent the trust association and to manage or
administer its properties and affairs. Each group contended that the meetings
held by the other group were illegal.
(g) There were
serious disputes as to where the registered office of the trust association was
located and it was not certain as to which was the lawful registered office.
(h) Each of the
rival groups contended that it had nominated the office-bearers and members of
the committee of management and it was not known as to which set had been duly
elected to the committee.
(i) It was also
not clear as to who could requisition a future meeting and to whom such
requisition should be served and it was doubtful if any meeting convened or
held on the requisition of either group would be lawful.
(j) There was no
dispute that respondent No. 2 was a member of the trust association.
(k) The
application under section 186 of the Act was held to be maintainable as having
been filed by a member of the trust association. There was no delay in
submitting this application. Section 186 of the Companies Act did not prescribe
any time limit and there could be no question of limitation.
(l) It was not
possible nor practicable in fact for respondent No. 2 to submit any requisition
to the domestic forum for calling an extraordinary general meeting of the trust
association under section 169 of the Companies Act.
(m) Respondent No.
2 had submitted a list of persons stated to be the lawful members of the trust
association with corroborative evidence as also the register of members of the
trust association and the letters of acceptance by such members. The Council of
Baptist Churches of Northern India through its affidavit affirmed by its
secretary on June 8, 1983, had confirmed that the list submitted by respondent
No. 2 was the correct list of members.
(n) The separate
list filed by petitioner No. 2 without any corroborative evidence on August 27,
1983, after the time prescribed by the Board and after the arguments were
concluded could not be entertained.
(o) The
application was bona fide and made in the interests of justice as the
activities of the trust association were suffering immensely because of the
disputes between the two rival groups.
(p) The agenda
suggested in the application were of matters to be discussed in a general
meeting and not in an annual general meeting.
(q) In the list
of members submitted by respondent No. 2, seven had been nominated by the
Baptist Union of Northern India, eight had been nominated by the Orissa
Churches and four had been nominated by the Churches of Mizoram. The nomination
of the said seven members was confirmed by a letter dated April 28,1983, from
the Baptist Missionary Society to the Company Law Board. The said letter also
confirmed that respondent No. 2 was a constituted attorney of the Baptist
Missionary Society of India authorised to nominate members to the trust
association on their behalf.
(r) There was no
dispute in the Churches of Orissa and Mizoram and affidavits had been filed on
behalf of the said Churches confirming their nominations. The chairman of the
Baptist Trust of Mizoram, by his letter dated May 16, 1983, had further
confirmed their nominations.
(s) The Baptist
Missionary Society had an unqualified right to nominate members of the trust
association. There were disputes over the nominations by the Bengal Baptist
Union and the Baptist Union of Northern India as nominations had been made by
rival bodies. It would be for the general members of the trust association to
decide as to which particular church or Union of Churches would be authorised
to nominate members.
(t) In view of
the challenge thrown to the nomination of members by the Orissa Churches,
though petitioner No. 2 was unable to prove that there were rival bodies in the
Orissa Churches, as a matter of abundant caution members nominated by the
Orissa Churches should be excluded from the meeting and the eleven persons
nominated respectively by the Baptist Missionary Society and the Churches of
Mizoram would be entitled to attend the meeting as directed.
The present petition was
moved by the Baptist Church Trust Association and Ajay Kumar Saha on December
28, 1983, when a rule nisi was issued calling upon the respondents, namely, the
Member, Company Law Board, Koshy George, six other members nominated by the
Baptist Mission Society, four members nominated by the Mizoram Union of
Churches, the Regional Director, Company Law Board; the Registrar of Companies,
West Bengal, and the Union of India, to show cause why appropriate writs should
not be issued directing the Member, Company Law Board, to cancel, withdraw or
rescind his order dated December 1, 1983, restraining the respondents from
giving any further effect or from taking any steps pursuant thereto and also
for quashing the said order. An interim order was passed on the same date
restraining the respondents from giving effect to or acting in terms of or
taking any steps or passing any resolution in the meeting of the trust
association proposed to be held on December 29, 1983, on the basis of the
impugned order dated December 1, 1983.
It is contended in the
petition, inter alia, that respondent No.' 2 had no cause of action for
invoking the jurisdiction of the Company Law Board under section 186 of the
Companies Act and that the allegations made against petitioner No. 2 could at
best be grounds for proceeding under sections 397 and 398 of the said Act.
It is contended that as the
object of the application before the Company Law Board was to resolve the
alleged disputes between members and to hand over the management of the trust
association to some of the members, the same could not have been the subject-matter
of the application under section 186 of the Act. The deadlock in the trust
association, as framed, could not be resolved by the said meeting.
In the petition before the
Company Law Board, there was no allegation that it was otherwise impracticable
to hold a meeting in the domestic forum and no reasons were given as to what
prevented respondent No. 2 to requisition a meeting in the usual course.
The petition before the
Company Law Board of respondent No. 2 as the secretary of the trust association
should have been dismissed in limine.
No agenda of the proposed
meeting was annexed nor any explanatory statement to such agenda included in
the said application and, as such, the same was defective.
It is contended that the
Member, Company Law Board, in passing the impugned order proceeded on the basis
that the trust association was promoted by the Baptist Missionary Society and
held that the latter had an overriding power of nominating not more than seven
members. The said finding and the conclusion were erroneous and not borne out
by the memorandum or the articles of the trust association. The power of
nomination by the Baptist Missionary Society up to seven members of the trust
association could only be exercised when the total strength of membership would
be 50.
The Member, Company Law
Board, while directing the calling of a meeting under section 186 of the Act,
had no authority or jurisdiction to decide as to which of the members would
attend such meeting.
Without deciding or
intending to decide which group legally represented the trust association,
respondent No. 1, it is contended, wrongfully restricted the number of members
who could attend the meeting.
It is contended that the
disputes, as to who were the office-bearers of the committee of management or
the members of the trust association, could not be settled by calling a meeting
under section 186 of the Companies Act. It is contended that the Company Law
Board held wrongly that the annual general meetings of the trust association
subsequent to 1974 were all under challenge.
The Company Law Board, it
is contended, did not have any authority or jurisdiction to decide as to the
correctness or otherwise of the list of members of the trust association
submitted by respondent No. 2.
The Company Law Board
further erred in holding that the Limitation Act did not apply or that there
was any delay in making the said application under section 186.
In directing the dispute
about the registered office of the trust association to be considered in the
said meeting, another error was committed as the same could not be the
subject-matter of an extraordinary general meeting except in cases where the
registered office was shifted from one district to another or from one State to
another.
By the impugned order, the
control of the trust association, it is contended, has been made over to the
Baptist Missionary Society, London, who were a minority.
It is contended that the
impugned order is illegal, invalid, without jurisdiction and bad on the grounds
aforesaid.
Respondent No. 2 has
affirmed an affidavit on February 9, 1984, which has been filed in opposition
to the petition.
It is alleged in this
affidavit, inter alia, that by reason of the disputes between the two groups
who were functioning separately in the name of the trust association since
1977, there has been confusion and in the premises it has not been possible for
the trust association to hold any undisputed general or annual general meeting
after November 8, 1974.
It is not practicable to
hold any meeting of the members which can be deemed to be legal in view of the
aforesaid. The Member, Company Law Board, it is contended, has recorded the
deadlock in the trust association and the impracticability of calling a general
meeting.
It is alleged that the
Utkal Christian Church Council which joined the Church Union in or about 1969
or 1970 ceased to exist thereafter. Presently, there are two Dioceses in Orissa
being the Diocese of Cuttack and the Diocese of Sambalpur which have been
nominating members of the trust association. Such nominations were received and
accepted by petitioner No. 2 for the years 1974 to 1976.
It is contended that
explanatory statements to the proposed agenda were not required to be placed
separately before the Company Law Board.
The writ application, it is
contended, is bad on account of misjoinder and also for non-joinder of
necessary parties and that petitioner No. 2 has no jurisdiction nor authority
to implead the trust association as a petitioner. The Company Law Board, it is
alleged, has not been impleaded as a respondent.
Petitioner No. 2 has
affirmed an affidavit on February 28, 1984, which has been filed in reply to
the aforesaid affidavit of respondent No. 2.
At the hearing, learned
counsel for the petitioners reiterated the contentions in the petition. He
submitted that the impugned order of the Company Law Board was ex facie
erroneous and was liable to be quashed or set aside. He also submitted that the
Company Law Board had no jurisdiction to dictate the agenda of the
extraordinary general meeting. The decision to allow all the nominees of the
Baptist Missionary Society to attend the meeting was without authority or
jurisdiction and in any event violated the principles of natural justice
inasmuch as the petitioners did not have opportunity to make representation
against the alleged nomination confirmed at the very last stage of hearing. The
Company Law Board by accepting such nomination had made over the control of the
trust association to a minority group.
Learned counsel for
respondents Nos. 2, 3, 4, 5, 6, 7, 8, 9, 10 and 11 reiterated the contentions
raised in the affidavit of respondent No. 2 affirmed on February 9, 1984. He
also submitted that on the undisputed facts on record, it was established that
it was not practicable to hold any meeting of the members of the trust
association lawfully and that the Company Law Board came to the correct
conclusion and has directed an extraordinary general meeting to be called.
Learned counsel submitted
further that under section 186 of the Companies Act, while directing a general
meeting to be called, the Company Law Board had ample jurisdiction and
authority to give all consequential and ancillary directions for the holding of
such a meeting. Under the powers conferred, it was open to the Company Law
Board to decide as to which of the members would attend the meeting and also
what business the meeting would conduct. He submitted that the meeting directed
to be called by the Company Law Board was valid and lawful and the decision of
the Company Law Board should be sustained.
In support of the
respective contentions of the parties, decisions were cited at the Bar which
are considered hereafter.
(a) Lothian Jute Mills Co. Ltd., In re [1951]
21 Comp Cas 290. Here, a learned judge of this court considered and construed
section 79(3) of the Indian Companies Act, 1913, which is in pari materia with
section 186 of the later Act, and held that the power conferred on the court
under the said section to call a meeting of a company should be exercised with
caution and only when it was not practicable to call a valid meeting under the
constitution of the company. It was held, in the facts, that where there were
serious doubts and controversy as to who were the directors and there was a
possibility that a meeting called by any particular group of directors might be
invalid, a situation would be held to have arisen where it has become
impracticable to call a meeting of the company. The power under the section
should be exercised when it cannot be stated with reasonable approach to
certainty, or even prima facie, that a meeting called in exercise of the powers
contained in its regulations could be valid.
(b) Indian Spinning Mills Ltd. v. Lt. General Madan Shumshere Jung Bahadur
Rana, [1952] 22 Comp Cas 162 (Cal); AIR 1953 Cal 355. In this case, a
Division Bench of this court construed section 79(3) of the Indian Companies
Act, 1913, and observed, inter alia, as follows (at p. 167 of 22 Comp Cas):
"The meaning of the
word ' impracticable ' as used in this section has been considered by my
learned brother in the case of Malhati
Tea Syndicate Ltd., In re [1951] 21 Comp Cas 323 ; 55 CWN 653. He,
following some observations in a decision of the Privy Council, held that the
term implies that it is impracticable from a reasonable point of view. The
court must take a common sense view of the matter and must act as a prudent
person of business. Where the calling of a meeting by requisitionists would
lead to endless litigation and where matters might arise for debate and decision
which were already the subject-matter of suits, it appears to me that the
holding of a meeting would be impracticable. It would be most unlikely to lead
to any result and would inevitably cause more litigation and confusion and
further embitter the feelings between the parties."
(c) Star Tile Works Ltd. v. N. Govindan, AIR 1959 Ker 254. Here,
a Division Bench of the Kerala High Court construed section 167 of the
Companies Act, 1956, and held that only in a restricted contingency, where
there was a default in holding an annual general meeting in accordance with
section 166 of the statute, power was given under section 167 to the Central
Government to intervene on the application of any member and call for a general
meeting of the company to be deemed to be an annual general meeting.
(d) Clive Mills Co. Ltd., In re [1964],
34 Comp Cas 731 (Cal). Here, it was held by a learned judge of this court that
the power of the court under section 186 of the Companies Act, 1956, to direct
a general meeting of the company was wide and extraordinary in nature and
should be used sparingly and with great caution. If, for any reason, it was
impracticable to hold or conduct a meeting of the company as prescribed by the
Act or the articles of the company, the court would exercise its power under
the section and order a general meeting to be called.
In the facts of the case,
it was held that the articles of the company provided that holders of not less
than 1/10th of the paid-up share capital of the company could convene an
extraordinary general meeting and it was not shown why it was impracticable to
requisition such a general meeting. The court in that case did not interfere
under section 186 of the Act.
(e) Rohtas Industries Ltd. v. S. D. Agarwal [1969] 39 Comp Cas 781.
In this case, the Central Government had directed investigation of the affairs
of a company under section 237(b)
of the Companies Act. The Supreme Court held that the existence of
circumstances on which opinion had to be formed by the Central Government
before an investigation would be directed was open to judicial review. In
forming its opinion, the Central Government should proceed on the basis of
relevant facts and circumstances and not on suspicion nor on extraneous facts.
(f) Ruttonjee and Co. Ltd., In re [1970]
40 Comp Cas 491. In this case, a learned judge of this court considered and
construed section 186 of the Companies Act, 1956, and held as follows (p. 518)
:
The court would not
ordinarily interfere with the domestic management of a company which should be
conducted in accordance with its articles.
The discretion granted
under section 186 should be used sparingly and with caution so that the court
is not made to participate in the internecine squabbles of the company.
The expression
"impracticable" meant impracticable from a reasonable point of view
and the court should take a common sense view of the matter and must act as a
prudent man of business.
Where the meeting can be
called only by the directors and there were serious doubts and controversy as
to who were the directors or where there was a possibility that one or other of
the meetings called by the rival groups of directors might be invalid, the
court ought not to expose the shareholders to uncertainties and should hold
that a position has arisen which makes it "impracticable" to convene
a meeting.
The court should exercise
its powers under section 186 when, on the facts and circumstances, it can say
with a reasonable approach to certainty or even prima facie that a meeting
called in the manner in which meetings are ordinarily called under the Act or
under the articles would be invalid.
The court must be satisfied
when a director or a member moves an application under section 186 that it has
been made bona fide in the larger interests of the company for removing a
deadlock otherwise irremovable.
It is convenient to note
here the relevant statutory provisions. Section 79(3) of the Indian Companies
Act, 1913, which conferred power on courts to call a general meeting of
companies. The said section reads as follows:
"If for any reason it
is impracticable to call a meeting of a company in any manner in which meetings
of that company may be called or to conduct the meeting of the company in
manner prescribed by the articles or this Act, the court may, either of its own
motion or on the application of any director of the company or of any member of
the company who would be entitled to vote at the meeting, order a meeting of
the company to be called, held and conducted in such manner as the court thinks
fit, and where any such order is given, may give such ancillary or
consequential directions as it thinks expedient and any meeting called, held
and conducted in accordance with any such order shall for all purposes be
deemed to be a meeting of the company duly called, held and conducted."
The Companies Act, 1956,
when promulgated, conferred similar powers on the court under section 186
thereof. The said section has since been amended and such power was given to
the Company Law Board. The section reads as follows:
"Power of Company Law Board to order meeting
to be called.—(1) If, for any reason, it is impracticable to call a
meeting of a company, other than an annual general meeting, in any manner in
which meetings of the company may be called, or to hold or conduct the meeting
of the company in the manner prescribed by this Act or the articles, the
Company Law
Board may, either of its
own motion or on the application of any director of the company, or of any
member of the company who would be entitled to vote at the meeting—
(a) order a meeting of
the company to be called, held and conducted in such manner as the Company Law
Board thinks fit; and
(b) give such ancillary
or consequential directions as the Company Law Board thinks expedient,
including directions modifying or supplementing in relation to the calling,
holding and conducting of the meeting, the operation of the provisions of the
Act and of the company's articles.
Explanation.—The directions that may be given under this sub-section
may include a direction that one member of the company present in person or by
proxy shall be deemed to constitute a meeting.
(2) Any meeting called,
held and conducted in accordance with any such order shall, for all purposes,
be deemed to be a meeting of the company duly called, held and conducted."
I proceed to consider the
several points of controvery under separate heads.
Locus
standi of respondent No. 2 to move the Company Law Board :
The contention of the
petitioners has been that respondent No. 2 in his capacity as the secretary of
the trust association was not entitled to apply to the Company Law Board and,
as such, the application under section 186 was not maintainable and should have
been dismissed in limine.
It has been found by the
Company Law Board that there was no dispute that respondent No. 2 was at the
relevant time a member of the trust association. The membership of respondent
No. 2 was not challenged by the petitioner before the Company Law Board nor has
been challenged in the petition before this court. In any event, the Company
Law Board is empowered under section 186 to order a general meeting of a
company even on its own motion. In the premises, the contention that the
application should have been dismissed in limine by the Company Law Board
cannot be accepted.
Delay:
The petitioners have
contended that the disputes in the trust association arose in 1974. Long
thereafter, in 1982 the application was made before the Company Law Board. The
application should not have been entertained on the ground of delay.
The condition precedent for
ordering a meeting of a company under section 186 is the impracticability of
calling such a meeting in the usual course for any reason. If such a condition
exists, then the Company Law Board can exercise its power and direct the calling
of such a meeting. It is the case of the petitioners that the disputes in the
trust association have continued since 1974. It is not the case that such
disputes came to an end in 1982 and there was no impediment in calling a
meeting of the company in the usual course. Therefore, the fact that there have
been disputes in the trust association for a long time is of little
consequence. The cause of action of the applicant before the Company Law Board
would be deemed to have continued and there can be no question of limitation.
The contentions of the petitioner as to delay are, therefore, rejected.
Impracticability:
It has been held by the
Company Law Board that it is not practicable to call a meeting of the trust
association in the usual course. The grounds on which the conclusion has been
arrived at have been found to be, inter alia, that the trust association had
become a divided entity and was being sought to be run by two rival groups each
of which was seeking to carry on management through its own committee and its
own set of office bearers. There was also a dispute as to where the registered
office of the trust association was lawfully situated.
It appears to me that there
was sufficient material before the Company Law Board to come to a conclusion
that calling of a meeting of the trust association through the domestic forum
would be impracticable and that any meeting called in the usual course through
the domestic forum would be a matter of controversy and confusion and would
lead to further litigation and, in any event, would be of doubtful validity.
In cannot be said that such
finding and conclusion of the Company Law Board is perverse or not based on any
evidence. It also cannot be said that no reasonable man could come to such a
conclusion on the evidence on record. The Company Law Board has arrived at its
conclusion on cogent grounds which have been laid down in the several decisions
of this court cited and noted above and cannot be said to be erroneous. In any
event, in proceedings where the petitioners claim writs in the nature of
certiorari, this court cannot sit in appeal over the decision of the Company
Law Board, review and reappreciate the evidence on record and come to a
different conclusion.
The
determination of members eligible to attend the meeting called:
The contention of the
petitioners is that the Company Law Board wrongfully determined and nominated
the members who could attend the meeting which has been directed to be called.
It was not within its jurisdiction to decide which of the members had been
lawfully nominated and could be present at the meeting. It was also erroneously
held by the Company Law Board that the Baptist Missionary Society had an
overriding power to nominate seven members.
From the impugned order, it
appears that the Company Law Board has sought primarily to ascertain if there
were any internal disputes in the nominating bodies who were entitled to
nominate members of the trust association. It has been found that in several
bodies authorised to nominate members, there were internal disputes resulting
in litigation. It was found that the said nominating bodies were sought to be
represented by two parallel and contesting groups. The Company Law Board came
to the conclusion that any nomination of members by such bodies would be a
matter of controversy and dispute. Therefore, the Company Law Board accepted
the members whose nomination came from bodies which were functioning without
dispute and permitted them to take part in the meeting.
The above approach and
decision of the Company Law Board, in my view, cannot be held to be erroneous.
It was not open to the Company Law Board to go into the internal dispute of the
other nominating bodies or resolve the same. The only practical and feasible
solution has been prescribed.
The finding that under the
articles of the trust association, the Baptist Missionary Society is empowered
to nominate up to seven members cannot also be held to be erroneous. The
contention of the petitioners that the number of members to be nominated by the
Baptist Missionary Society would vary with the total strength of the membership
is without substance. On a plain reading of the articles of the trust
association, it is quite clear that the Baptist Missionary Society has the
unfettered option to nominate up to seven members and this option is not
dependent on the number of members to be nominated by the other bodies.
The contention of the
petitioners that the Company Law Board has wrongfully exercised authority,
assumed jurisdiction and went into the question of correctness or otherwise of
the list of members of the trust association submitted by respondent No. 2 is
also misconceived. The list submitted by respondent No. 2 is supported by
evidence and establishes the nominations. The Company Law Board has only decided
as to which of the nominations are undisputed and have permitted the undisputed
nominees to attend the said meeting.
The above decision of the
Company Law Board, in my view, comes within the four corners of section 186 of
the Act. The said section empowers the Company Law Board to give ancillary and
consequential directions in relation to the meeting as considered expedient.
The Company Law Board is further empowered to override the operation of the
provisions of the Act and the articles of the association of the corporate body
if necessary. The decision to allow undisputed nominees to attend the meeting
has obviously been given so that an effective meeting can be held. To allow the
disputed nominees to attend the meeting would defeat the meeting.
The contention of the
petitioner that by allowing a few members to attend the meeting, control of the
trust association has been conferred on a minority group is of little
relevance. The trust association is constituted by members to be nominated by
different bodies. If some of the nominating bodies cannot function with
certainty and make valid nomination because of their internal disputes, they
cannot be heard to complain that the other bodies which are free from dispute
should be prevented from nominating members who will constitute the trust
association.
Agenda
of the meeting :
The petitioners' contention
is that in the application before the Company Law Board, no agenda of the
proposed meeting was annexed nor was there any explanatory statement about the
resolution proposed to be passed in the meeting, in spite of which an agenda
has been dictated by the Company Law Board in which the meeting has been
directed to consider, inter alia, the valid location of the registered office
of the association. It is contended that the Company Law Board had no power or
jurisdiction to dictate the agenda and in any event a general meeting of the
trust association was not entitled to resolve the dispute over the location of
its registered office.
In view of the wide language
of section 186, it appears that the Company Law Board can give all ancillary
and consequential directions in relation to the holding of a meeting. Under
such powers, in my view, the Company Law Board has the power to direct the
corporate body to consider matters as suggested. It does not appear from the
impugned order that any agenda has been dictated. It has been left to the
chairman to issue notices of the meeting which will no doubt contain suitable
agenda.
It also appears that the
power under section 186 of the Act is invoked where a company is not
functioning normally and it is not practicable for the company to call a
meeting. When the Company Law Board exercises its extraordinary power under the
section and directs the calling of a meeting, it necessarily follows that the
agenda of such meeting has to be determined by the Company Law Board because
such an agenda cannot be decided or finalised through the usual machinery.
It has not been established
that the subjects which have been directed to be considered in the proposed
meeting are beyond the purview or jurisdiction of such meeting.
Natural
justice :
The petitioners have
invoked the principles of natural justice to impugn the nominations made by the
Baptist Missionary Society and the Churches of Mizoram. Petitioner No. 2,
admittedly, has no connection whatsoever either with Baptist Missionary Society
or the Churches of Mizoram. The nominations of the Baptist Missionary Society
were conveyed through respondent No. 2 who is the constituted attorney in India
of the Baptist Missionary Society of London. Such nominations were confirmed by
the letter written by the Baptist Missionary Society of London to the Company
Law Board.
It is not understood what
representations were intended to or could have been made by petitioner No. 2 on
such nomination. In any event, no light has been thrown in the present petition
as to what was left unsaid. Such contentions of the petitioners are of no
substance and are rejected.
For the reasons as above,
this application fails. The rule is discharged and all interim orders are
vacated. Let the meeting be held as directed by the Company Law Board. There
will be no order as to costs.
Learned advocate for the
petitioners has applied orally for stay of the operation of judgment which has
been signed today. I am unable to grant a total stay as prayed for, for the
following reasons :
(a) The affairs
of the trust association are being conducted by two parallel groups in
opposition to each other from two different places. It is not in the interest
of the trust association that such state of affairs should be allowed to be
continued indefinitely ;
(b) The trust
association holds valuable properties in trust which might be in jeopardy if
the administration of the trust association is not put in order expeditiously.
(c) There is no
personal allegation against any of the members permitted to attend the meeting
except, possibly, respondent No. 2.
On the above grounds, I
grant a limited stay of the operation of the judgment and order as follows :
The meeting will be held as
directed by the Company Law Board, the notice whereof will be served on the
advocate on record of the petitioners. In the event a new committee of
management is appointed in the meeting, the same will function subject to the supervision
of the chairman, acting as special officer for twelve weeks. Notice of all
meetings of the committee of management will be served on the special officer
who will be entitled to attend the said meetings or any of them as he thinks
fit. In any event, no decision of the committee of management will be given
effect to till it is approved by the special officer. It is made clear that the
supervision expected from the special officer will be in respect of finance,
properties and assets of the trust association and the special officer will
ensure that the same are protected during the interim period.
The initial remuneration of
the special officer is fixed at 150 gms.
Let all parties and the
special officer act on a plain copy of this order duly countersigned by an
officer of this court.
Order accordingly.
[1986]
60 COMP. CAS. 381 (CAL)
HIGH COURT OF CALCUTTA
Baptist Church Trust Association
v.
Member, Company Law Board
DIPAK
KUMAR SEN J.
CIVIL
RULE NO. 15142 (W) OF 1983
P.
C Sen and S. N. Chowdhury for the petitioner.
S.
B. Mukherjee, N. K. Poddar and A. P. Agarwala for the Respondent.
JUDGMENT
Dipak Kumar Sen J.—The undisputed facts on record are, inter alia, that the
Baptist Church Trust Association, petitioner No. 1, in this application
(hereinafter referred to as "the trust association") was incorporated
under the Indian Companies Act, 1913, as a non-trading company on May 27, 1932.
The relevant clauses of its
memorandum and articles of association are as follows:
Memorandum of association
1. The name of the
company is "The Baptist Church Trust Association (hereinafter referred to
as "the association").
2. The objects for which
the Association is intituled are :.........
(b) To aid and further the work of the Baptist
Missionary Society, and the Baptist Churches in India including any native
States in India (hereinafter called "the said area").......
(f) To accept property to be held by the
association:
(1) for the
general purpose of the association and the Baptist Churches, Baptist Unions,
Church Unions, Church Councils and Baptist Missionary Society.
Articles of association
1. For the purpose of
registration, the number of members of the association is declared not to
exceed fifty.
2. These articles shall
be construed with reference to the provisions of the Companies Act, 1956
(hereinafter referred to as "the Act"), and the terms used in these
articles shall have the same respective meanings as they have when used in that
Act.
4. The members of the
association shall be the (1) subscribers to the memorandum of association ; (2)
such persons not exceeding seven in number as may be nominated by the Baptist
Missionary Society, and (3) such other persons, making a total membership
including subscriber members and nominees of the Baptist Missionary Society not
exceeding fifty in all, as may be nominated by the council of Baptist Churches
in Northern India or by such other churches, church or union of churches as may
be authorised by a general meeting of the association so as to nominate
members, any necessary provisions as to the number of members to be nominated
being determined by a general meeting of the association.
5 (a) Beginning from the annual general
meeting of 1960, one-third of the members of the association shall retire annually,
immediately before each annual general meeting of the association. The
committee of management shall arrange the order in which members shall retire,
and it shall be the responsibility of the bodies authorised to nominate members
to see that nominations and acceptance of membership are duly made and
intimated to the secretary of the association and members retiring in
accordance with the provisions of the article shall be eligible for
re-nomination……
6. The affairs of the
association shall be administered by a committee of management referred to in
clause 4 of the memorandum of association. Such committee of management shall
consist of the officers and three (3) members of the association……..
9. The officers of the
association shall ordinarily be a president, vice-president, treasurer and
secretary who together with the three members of the committee of management
shall be elected by the association at its annual meeting. Any casual vacancy
occurring among the officers of the committee shall be filled up by the
remaining officers and committee from the members of the association, but any
person so chosen shall retain his office only until the next annual meeting of
the association when the vacancy shall be filled up by the association........
16. (a) The association shall, in addition to
any other meetings, hold a general meeting which shall be styled as its annual
general meeting at intervals and in accordance with the provisions specified
below.
(b) The first
annual meeting shall be held by the association within eighteen months of its
incorporation.
(c) The next
annual meeting of the association shall be called by it within nine months
after the expiry of the financial year in which the first annual general
meeting was held ; and thereafter an annual general meeting shall be held by
the association within nine months after the expiry of each financial year but
so that no more than fifteen months shall elapse between the date of one
general meeting and that of the next except in a case where such general
meeting is held within such extended time not exceeding six months as may be
granted by the Registrar in terms of proviso to section 166 of the Act.........
18. The officers of the association may, whenever they think fit,
and they shall, if required in writing by such number of members as have, at
the date of receipt of requisition, not less than one-tenth of the total voting
power of all the members having at the date a right to vote in regard to the
matter for consideration of which the meeting is to be called, convene an
extraordinary meeting. Every such requisition shall express the object of the
meeting proposed to be called and shall be left with the Secretary and
thereupon an extraordinary meeting shall be convened by the said officers to be
held within forty-five days from the date of the receipt of such
requisition.........
20. A quorum at a general meeting shall consist of one-fifth of
the members of the association.
21. Twenty-one days' notice at least specifying the place and time
of meeting, and (in case of special business) the general nature thereof, shall
be sent to each member of the association, but non-receipt of any such notice
by any member shall not invalidate the proceedings of any general meeting. With
the consent in writing of all the members entitled to vote, a meeting may be
convened at shorter notice and in any manner they think fit. All businesses to
be transacted at the annual general meeting shall be deemed special except the
consideration of :
(a) the accounts;
(b) the annual report of
the secretary of the association on behalf of the committee, and
(c) the election of members of committee,
auditors and officers.
The bodies or organisations which have been
authorised by the trust association to nominate members are the Bengal Baptist
Union, the Baptist Union of Northern India, the Baptist Church of Mizoram and
the Utkal Christian Central Church Council. It is a matter of record that the
said bodies or organisations have been nominating members to the trust
association without dispute till 1974.
The council of Baptist
Churches in Northern India (incorporated as a registered society on or about
January 28, 1962), though authorised under the articles of the trust
association, have not so far nominated any members to the trust association.
Ajoy Kumar Saha, petitioner
No. 2, was nominated as a member of the trust association by the Bengal Baptist
Union and was elected as the secretary-cum-treasurer of the trust association
on November 8, 1974, at the annual general meeting of the trust association.
In 1974, disputes arose
over the management of the Bengal Baptist Union and in May, 1975, a suit was
instituted against petitioner No. 2 and others in the management of the Bengal
Baptist Union, being Suit No. 43 of 1975 in the court of the Ninth Subordinate
Judge, Alipore. In the said proceeding, an order was passed on December 9,
1975, by the Twelfth Additional District Judge, Alipore, in Miscellaneous
Appeal No. 273 of 1975 restraining the defendants in the said suit from
disposing of or leasing or letting out the properties of the Bengal Baptist
Union without leave of court. From another order passed in Miscellaneous Appeal
No. 407 of 1978 on January 25, 1980, by the learned Additional District Judge,
proceeding in revision was initiated in this court and on June 12, 1980, an
order was passed by this court recording an interim settlement between the
parties. In the said order, it was recorded that a particular group will
function as the Bengal Baptist Union (reformed). The said suit and the
proceedings thereunder are still pending.
In the Baptist Union of
Northern India, similar disputes arose over management and suits were filed in
the courts of Delhi, Agra and Bhiwani. The said suits are pending.
So far as the Utkal
Christian Church Central Council is concerned, some of the churches
constituting the council left the Baptist faith and in or about 1970 joined
"Church Union" under the Church of North India which does not follow
the Baptist faith and is not authorised to nominate members to the trust
association. Some of the churches of the said Utkal Christian Church Central
Council did not join the Church of North India.
It is not in dispute that
two rival groups in the Bengal Baptist Union and the Baptist Union of Northern
India are running two parallel organisations and that the Utkal Central Church
Council has ceased to exist since 1970.
The aforesaid disputes in
the several nominating bodies were reflected in the management and functioning
of the trust association. On February 10, 1976, at the annual general meeting
of the trust association for the year 1975, no business could be transacted as
there were allegations that petitioner No. 2 as the secretary had inducted a
number of non-members at the said meeting. No office bearers were elected at
the said meeting and the old committee of management and the office-bearers
appointed earlier continued.
Petitioner No. 2 attempted
to hold another annual general meeting of the trust association, not at the
latter's registered office, but at his residence on March 29, 1976. There were
allegations that notices of the said meeting had not been sent to bona fide
members and that non-members had been invited again. No business could be
transacted and there was no election of office bearers. The only decision taken
at the meeting was that, in future, notices of meetings should be issued under
the joint signatures of the president and the joint secretary of the trust
association and that till the office bearers were duly elected, the urgent and
important business of the trust association would be carried on by an ad hoc
committee consisting of the president of the trust association, the constituted
attorney of the Baptist Missionary Society and petitioner No. 2.
The trust association has
thereafter been sought to be constituted and represented by two different
groups and since 1977, two annual general meetings of the trust association
have been held every year, one at the registered office of the trust
association and the other by petitioner No. 2 at his residence. Both the groups
claim that they have been duly nominating office-bearers of the trust
association.
The group headed by
petitioner No. 2 has filed with the Registrar of Companies an application for
change of the registered office of the trust association. Respondent No. 2 has
also filed an intimation with the Registrar of Companies for removal of the
registered office of the trust association from the residence of petitioner No.
2 to its original registered office.
Koshy George, respondent
No. 2 in this proceeding, as the secretary and treasurer of the trust
association has filed annual return of the trust association under section 160
of the Companies Act, 1956, up to 1982. Such returns do not appear to have been
filed by petitioner No. 2 through his parallel organisation.
It appears from record,
that some time in 1978, an inspection report under section 209A of the
Companies Act was made by the Additional Registrar of Companies, West Bengal.
The Additional Registrar has come to the conclusion that the annual general
meetings of the trust association held at No. 44, Acharya Jagadish Chandra Bose
Road, Calcutta, the original registered office, on and from February 19, 1977,
were irregular as proper notices were not issued for the same and that there was
no quorum. The Registrar also found that petitioner No. 2 has continued to be
the secretary of the trust association since November, 1974, and meetings
called by him at Elliot Road, Calcutta, in 1977, were in conformity with the
articles of the trust association.
In such background, that
trust association some time in June, 1982, made an application before the
Company Law Board under section 186 of the Companies Act, 1956, for, inter
alia, the following orders:
(a) An enquiry
into the affairs of the trust association to determine, inter alia, the persons
who are entitled to its membership as well as those who are entitled to hold
office, as members of its committee of management.
(b) To order a
meeting of the trust association to be called, held and conducted in such
manner as the Company Law Board thinks fit.
Petitioner No. 2 opposed
the application of the trust association and affirmed an affidavit on or about
April 16, 1983, which was filed before the Company Law Board. It was contended,
inter alia, by petitioner No. 2 that no order could be passed under section 186
of the Act inasmuch as it had not been established that it was impracticable to
call an extraordinary general meeting of the company. It was further contended
that no attempt had been made to convene a meeting of the trust association on
requisition by the members in the usual course.
It was next contended that
the membership of the trust association was admittedly uncertain and in such a
case powers under section 186 of the Act could not be invoked or exercised. The
application before the Company Law Board had been made on the basis that there
were disputes as regards membership of the trust association. Such disputes
could be resolved only in a court of law but not under section 186 of the Companies
Act.
It was next contended that
the application was wholly mala fide and belated and a dispute which arose, in
1976 was being sought to be resolved through section 186 of the Act.
It was next contended that
the real dispute was in respect of the annual general meeting convened by
petitioner No. 2 in 1976 and that the agenda which was suggested in the
application to the Company Law Board were matters to be considered and decided
in an annual general meeting and not in an extraordinary general meeting. The
Company Law Board had no. power or jurisdiction to call an annual general
meeting.
It was next contended that
as suits were pending in different courts, the Company Law Board should not
invoke or exercise its jurisdiction under section 186 of the Act as the reliefs
sought for were in issue in the pending suits.
It was contended last that
there were disputes over the constitution of the different bodies which had the
power to nominate members to the trust association. The Bengal Baptist Union
and the Baptist Union of Northern India were being run by parallel
organisations. It was not open to the Company Law Board to decide which
particular organisation of the nominating bodies had the right to nominate
members to the trust association.
Respondent No. 2 affirmed
an affidavit on May 6, 1983, which was filed before the Company Law Board in
reply to the aforesaid affidavit of petitioner No. 2.
By an order dated December
1, 1983, A. R. Khare, Member, Company Law Board, Eastern Regional Branch,
Calcutta, disposed of the application under section 186 of the Act and gave the
following directions:
(a) A general meeting of the trust
association will be called.
(b) The said meeting will be conducted
by an independent chairman.
(c) Shri Sukumar
Bhattacharya, advocate, was appointed the chairman of the meeting.
(d) Notices of
the said meeting will be issued to the seven members nominated by the Baptist
Missionary Society and the four members nominated by the Church of Mizoram at
addresses to be furnished to the chairman by respondent No. 2 in accordance
with the procedure as provided in the Companies Act, 1956, and the articles of
the trust association.
(e) Respondent
No. 2 will submit to the chairman a copy of the memorandum and articles of the
trust association well in advance so that the notices can be given to
shareholders for the requisite period.
(f) The quorum
for the meeting be five persons to be personally present.
(g) The chairman will decide the venue
and time of the meeting.
(h) Respondent
No. 2 will meet the expenses of holding the meeting and the remuneration of the
chairman fixed at Rs. 1,100.
(i) The chairman
will submit a report to the Company Law Board within two weeks from the date of
the meeting.
(j) The meeting will consider, inter
alia,—
(i) The location of the registered office of
the trust association.
(ii) Determination of the
churches or union of churches empowered to nominate members of the trust
association under its articles.
(iii) Determination of the
persons entitled to hold the offices of the president, the vice-president, the
secretary, the treasurer and members of the committee of management of the
trust association and/or persons vested or to be vested with the right to
administer and manage the properties of the trust association in accordance
with law and the articles.
In its said order, the
Company Law Board found and recorded, inter alia, as follows :—
(a) The trust
association was promoted by the Baptist Missionary Society of London to aid and
further the work of the said Society in India.
(b) The trust
association held properties of the Baptist Missionary Society of India on
trust.
(c) The trust
association functioned normally till 1974 and its last audited balance-sheet
was filed on June 30, 1974. At the annual general meeting of the trust
association held on November 18, 1974, petitioner No. 2 was elected the
secretary and treasurer.
(d) In 1974, the
trust association had twenty-five members of whom two had been nominated by the
Baptist Missionary Association, eight had been nominated by the Bengal Baptist
Union, seven had been nominated by the Baptist Union of Northern India, six had
been nominated by the Churches of Orissa and two had been nominated by the
Churches of Mizoram.
(e) No annual
general meeting of the trust association were held for the years 1975 and 1976.
In 1976, the annual general meeting which was called could not transact any
business.
(f) Thereafter, the
trust association started functioning as a divided entity in two groups and on
and from 1977, two separate general meetings were held every year. Two rival
groups were claiming to represent the trust association and to manage or
administer its properties and affairs. Each group contended that the meetings
held by the other group were illegal.
(g) There were serious
disputes as to where the registered office of the trust association was located
and it was not certain as to which was the lawful registered office.
(h) Each of the rival
groups contended that it had nominated the office-bearers and members of the
committee of management and it was not known as to which set had been duly
elected to the committee.
(i) It was also not
clear as to who could requisition a future meeting and to whom such requisition
should be served and it was doubtful if any meeting convened or held on the
requisition of either group would be lawful.
(j) There was no
dispute that respondent No. 2 was a member of the trust association.
(k) The application
under section 186 of the Act was held to be maintainable as having been filed
by a member of the trust association. There was no delay in submitting this
application. Section 186 of the Companies Act did not prescribe any time limit
and there could be no question of limitation.
(l) It was not
possible nor practicable in fact for respondent No. 2 to submit any requisition
to the domestic forum for calling an extraordinary general meeting of the trust
association under section 169 of the Companies Act.
(m) Respondent No. 2
had submitted a list of persons stated to be the lawful members of the trust
association with corroborative evidence as also the register of members of the
trust association and the letters of acceptance by such members. The Council of
Baptist Churches of Northern India through its affidavit affirmed by its
secretary on June 8, 1983, had confirmed that the list submitted by respondent
No. 2 was the correct list of members.
(n) The separate list
filed by petitioner No. 2 without any corroborative evidence on August 27,
1983, after the time prescribed by the Board and after the arguments were
concluded could not be entertained.
(o) The application
was bona fide and made in the interests of justice as the activities of the
trust association were suffering immensely because of the disputes between the
two rival groups.
(p) The agenda
suggested in the application were of matters to be discussed in a general
meeting and not in an annual general meeting.
(q) In the list of
members submitted by respondent No. 2, seven had been nominated by the Baptist
Union of Northern India, eight had been nominated by the Orissa Churches and
four had been nominated by the Churches of Mizoram. The nomination of the said
seven members was confirmed by a letter dated April 28,1983, from the Baptist
Missionary Society to the Company Law Board. The said letter also confirmed
that respondent No. 2 was a constituted attorney of the Baptist Missionary
Society of India authorised to nominate members to the trust association on
their behalf.
(r) There was no
dispute in the Churches of Orissa and Mizoram and affidavits had been filed on
behalf of the said Churches confirming their nominations. The chairman of the
Baptist Trust of Mizoram, by his letter dated May 16, 1983, had further
confirmed their nominations.
(s) The Baptist
Missionary Society had an unqualified right to nominate members of the trust
association. There were disputes over the nominations by the Bengal Baptist
Union and the Baptist Union of Northern India as nominations had been made by
rival bodies. It would be for the general members of the trust association to
decide as to which particular church or Union of Churches would be authorised
to nominate members.
(t) In view of the
challenge thrown to the nomination of members by the Orissa Churches, though
petitioner No. 2 was unable to prove that there were rival bodies in the Orissa
Churches, as a matter of abundant caution members nominated by the Orissa
Churches should be excluded from the meeting and the eleven persons nominated
respectively by the Baptist Missionary Society and the Churches of Mizoram
would be entitled to attend the meeting as directed.
The present petition was
moved by the Baptist Church Trust Association and Ajay Kumar Saha on December
28, 1983, when a rule nisi was issued calling upon the respondents, namely, the
Member, Company Law Board, Koshy George, six other members nominated by the
Baptist Mission Society, four members nominated by the Mizoram Union of
Churches, the Regional Director, Company Law Board; the Registrar of Companies,
West Bengal, and the Union of India, to show cause why appropriate writs should
not be issued directing the Member, Company Law Board, to cancel, withdraw or
rescind his order dated December 1, 1983, restraining the respondents from
giving any further effect or from taking any steps pursuant thereto and also
for quashing the said order. An interim order was passed on the same date
restraining the respondents from giving effect to or acting in terms of or
taking any steps or passing any resolution in the meeting of the trust
association proposed to be held on December 29, 1983, on the basis of the
impugned order dated December 1, 1983.
It is contended in the
petition, inter alia, that respondent No.' 2 had no cause of action for
invoking the jurisdiction of the Company Law Board under section 186 of the
Companies Act and that the allegations made against petitioner No. 2 could at
best be grounds for proceeding under sections 397 and 398 of the said Act.
It is contended that as the
object of the application before the Company Law Board was to resolve the
alleged disputes between members and to hand over the management of the trust
association to some of the members, the same could not have been the
subject-matter of the application under section 186 of the Act. The deadlock in
the trust association, as framed, could not be resolved by the said meeting.
In the petition before the
Company Law Board, there was no allegation that it was otherwise impracticable
to hold a meeting in the domestic forum and no reasons were given as to what
prevented respondent No. 2 to requisition a meeting in the usual course.
The petition before the
Company Law Board of respondent No. 2 as the secretary of the trust association
should have been dismissed in limine.
No agenda of the proposed
meeting was annexed nor any explanatory statement to such agenda included in
the said application and, as such, the same was defective.
It is contended that the
Member, Company Law Board, in passing the impugned order proceeded on the basis
that the trust association was promoted by the Baptist Missionary Society and
held that the latter had an overriding power of nominating not more than seven
members. The said finding and the conclusion were erroneous and not borne out
by the memorandum or the articles of the trust association. The power of nomination
by the Baptist Missionary Society up to seven members of the trust association
could only be exercised when the total strength of membership would be 50.
The Member, Company Law
Board, while directing the calling of a meeting under section 186 of the Act,
had no authority or jurisdiction to decide as to which of the members would
attend such meeting.
Without deciding or
intending to decide which group legally represented the trust association,
respondent No. 1, it is contended, wrongfully restricted the number of members
who could attend the meeting.
It is contended that the
disputes, as to who were the office-bearers of the committee of management or
the members of the trust association, could not be settled by calling a meeting
under section 186 of the Companies Act. It is contended that the Company Law
Board held wrongly that the annual general meetings of the trust association
subsequent to 1974 were all under challenge.
The Company Law Board, it
is contended, did not have any authority or jurisdiction to decide as to the
correctness or otherwise of the list of members of the trust association
submitted by respondent No. 2.
The Company Law Board
further erred in holding that the Limitation Act did not apply or that there
was any delay in making the said application under section 186.
In directing the dispute
about the registered office of the trust association to be considered in the
said meeting, another error was committed as the same could not be the
subject-matter of an extraordinary general meeting except in cases where the
registered office was shifted from one district to another or from one State to
another.
By the impugned order, the
control of the trust association, it is contended, has been made over to the
Baptist Missionary Society, London, who were a minority.
It is contended that the
impugned order is illegal, invalid, without jurisdiction and bad on the grounds
aforesaid.
Respondent No. 2 has
affirmed an affidavit on February 9, 1984, which has been filed in opposition
to the petition.
It is alleged in this
affidavit, inter alia, that by reason of the disputes between the two groups
who were functioning separately in the name of the trust association since
1977, there has been confusion and in the premises it has not been possible for
the trust association to hold any undisputed general or annual general meeting
after November 8, 1974.
It is not practicable to
hold any meeting of the members which can be deemed to be legal in view of the
aforesaid. The Member, Company Law Board, it is contended, has recorded the
deadlock in the trust association and the impracticability of calling a general
meeting.
It is alleged that the
Utkal Christian Church Council which joined the Church Union in or about 1969
or 1970 ceased to exist thereafter. Presently, there are two Dioceses in Orissa
being the Diocese of Cuttack and the Diocese of Sambalpur which have been
nominating members of the trust association. Such nominations were received and
accepted by petitioner No. 2 for the years 1974 to 1976.
It is contended that
explanatory statements to the proposed agenda were not required to be placed
separately before the Company Law Board.
The writ application, it is
contended, is bad on account of misjoinder and also for non-joinder of
necessary parties and that petitioner No. 2 has no jurisdiction nor authority
to implead the trust association as a petitioner. The Company Law Board, it is
alleged, has not been impleaded as a respondent.
Petitioner No. 2 has
affirmed an affidavit on February 28, 1984, which has been filed in reply to
the aforesaid affidavit of respondent No. 2.
At the hearing, learned
counsel for the petitioners reiterated the contentions in the petition. He
submitted that the impugned order of the Company Law Board was ex facie
erroneous and was liable to be quashed or set aside. He also submitted that the
Company Law Board had no jurisdiction to dictate the agenda of the
extraordinary general meeting. The decision to allow all the nominees of the
Baptist Missionary Society to attend the meeting was without authority or
jurisdiction and in any event violated the principles of natural justice
inasmuch as the petitioners did not have opportunity to make representation
against the alleged nomination confirmed at the very last stage of hearing. The
Company Law Board by accepting such nomination had made over the control of the
trust association to a minority group.
Learned counsel for
respondents Nos. 2, 3, 4, 5, 6, 7, 8, 9, 10 and 11 reiterated the contentions
raised in the affidavit of respondent No. 2 affirmed on February 9, 1984. He
also submitted that on the undisputed facts on record, it was established that
it was not practicable to hold any meeting of the members of the trust
association lawfully and that the Company Law Board came to the correct
conclusion and has directed an extraordinary general meeting to be called.
Learned counsel submitted
further that under section 186 of the Companies Act, while directing a general
meeting to be called, the Company Law Board had ample jurisdiction and authority
to give all consequential and ancillary directions for the holding of such a
meeting. Under the powers conferred, it was open to the Company Law Board to
decide as to which of the members would attend the meeting and also what
business the meeting would conduct. He submitted that the meeting directed to
be called by the Company Law Board was valid and lawful and the decision of the
Company Law Board should be sustained.
In support of the
respective contentions of the parties, decisions were cited at the Bar which
are considered hereafter.
(a) Lothian Jute Mills Co. Ltd., In re [1951]
21 Comp Cas 290. Here, a learned judge of this court considered and construed
section 79(3) of the Indian Companies Act, 1913, which is in pari materia with
section 186 of the later Act, and held that the power conferred on the court
under the said section to call a meeting of a company should be exercised with
caution and only when it was not practicable to call a valid meeting under the
constitution of the company. It was held, in the facts, that where there were
serious doubts and controversy as to who were the directors and there was a
possibility that a meeting called by any particular group of directors might be
invalid, a situation would be held to have arisen where it has become
impracticable to call a meeting of the company. The power under the section
should be exercised when it cannot be stated with reasonable approach to
certainty, or even prima facie, that a meeting called in exercise of the powers
contained in its regulations could be valid.
(b) Indian Spinning Mills Ltd. v. Lt. General Madan Shumshere Jung Bahadur
Rana, [1952] 22 Comp Cas 162 (Cal); AIR 1953 Cal 355. In this case, a
Division Bench of this court construed section 79(3) of the Indian Companies
Act, 1913, and observed, inter alia, as follows (at p. 167 of 22 Comp Cas):
"The meaning of the
word ' impracticable ' as used in this section has been considered by my
learned brother in the case of Malhati
Tea Syndicate Ltd., In re [1951] 21 Comp Cas 323 ; 55 CWN 653. He,
following some observations in a decision of the Privy Council, held that the
term implies that it is impracticable from a reasonable point of view. The
court must take a common sense view of the matter and must act as a prudent
person of business. Where the calling of a meeting by requisitionists would
lead to endless litigation and where matters might arise for debate and
decision which were already the subject-matter of suits, it appears to me that
the holding of a meeting would be impracticable. It would be most unlikely to
lead to any result and would inevitably cause more litigation and confusion and
further embitter the feelings between the parties."
(c) Star Tile Works Ltd. v. N. Govindan, AIR 1959 Ker 254. Here,
a Division Bench of the Kerala High Court construed section 167 of the
Companies Act, 1956, and held that only in a restricted contingency, where
there was a default in holding an annual general meeting in accordance with
section 166 of the statute, power was given under section 167 to the Central
Government to intervene on the application of any member and call for a general
meeting of the company to be deemed to be an annual general meeting.
(d) Clive Mills Co. Ltd., In re [1964],
34 Comp Cas 731 (Cal). Here, it was held by a learned judge of this court that
the power of the court under section 186 of the Companies Act, 1956, to direct
a general meeting of the company was wide and extraordinary in nature and
should be used sparingly and with great caution. If, for any reason, it was
impracticable to hold or conduct a meeting of the company as prescribed by the
Act or the articles of the company, the court would exercise its power under
the section and order a general meeting to be called.
In the facts of the case,
it was held that the articles of the company provided that holders of not less
than 1/10th of the paid-up share capital of the company could convene an
extraordinary general meeting and it was not shown why it was impracticable to
requisition such a general meeting. The court in that case did not interfere
under section 186 of the Act.
(e) Rohtas Industries Ltd. v. S. D. Agarwal [1969] 39 Comp Cas 781.
In this case, the Central Government had directed investigation of the affairs
of a company under section 237(b)
of the Companies Act. The Supreme Court held that the existence of
circumstances on which opinion had to be formed by the Central Government
before an investigation would be directed was open to judicial review. In
forming its opinion, the Central Government should proceed on the basis of
relevant facts and circumstances and not on suspicion nor on extraneous facts.
(f) Ruttonjee and Co. Ltd., In re [1970]
40 Comp Cas 491. In this case, a learned judge of this court considered and
construed section 186 of the Companies Act, 1956, and held as follows (p. 518)
:
The court would not
ordinarily interfere with the domestic management of a company which should be
conducted in accordance with its articles.
The discretion granted
under section 186 should be used sparingly and with caution so that the court
is not made to participate in the internecine squabbles of the company.
The expression
"impracticable" meant impracticable from a reasonable point of view
and the court should take a common sense view of the matter and must act as a
prudent man of business.
Where the meeting can be
called only by the directors and there were serious doubts and controversy as
to who were the directors or where there was a possibility that one or other of
the meetings called by the rival groups of directors might be invalid, the
court ought not to expose the shareholders to uncertainties and should hold
that a position has arisen which makes it "impracticable" to convene
a meeting.
The court should exercise
its powers under section 186 when, on the facts and circumstances, it can say
with a reasonable approach to certainty or even prima facie that a meeting
called in the manner in which meetings are ordinarily called under the Act or
under the articles would be invalid.
The court must be satisfied
when a director or a member moves an application under section 186 that it has
been made bona fide in the larger interests of the company for removing a
deadlock otherwise irremovable.
It is convenient to note
here the relevant statutory provisions. Section 79(3) of the Indian Companies
Act, 1913, which conferred power on courts to call a general meeting of
companies. The said section reads as follows:
"If for any reason it
is impracticable to call a meeting of a company in any manner in which meetings
of that company may be called or to conduct the meeting of the company in
manner prescribed by the articles or this Act, the court may, either of its own
motion or on the application of any director of the company or of any member of
the company who would be entitled to vote at the meeting, order a meeting of
the company to be called, held and conducted in such manner as the court thinks
fit, and where any such order is given, may give such ancillary or
consequential directions as it thinks expedient and any meeting called, held
and conducted in accordance with any such order shall for all purposes be
deemed to be a meeting of the company duly called, held and conducted."
The Companies Act, 1956,
when promulgated, conferred similar powers on the court under section 186
thereof. The said section has since been amended and such power was given to
the Company Law Board. The section reads as follows:
"Power of Company Law Board to order meeting
to be called.—(1) If, for any reason, it is impracticable to call a
meeting of a company, other than an annual general meeting, in any manner in
which meetings of the company may be called, or to hold or conduct the meeting
of the company in the manner prescribed by this Act or the articles, the
Company Law
Board may, either of its
own motion or on the application of any director of the company, or of any
member of the company who would be entitled to vote at the meeting—
(a) order a meeting of
the company to be called, held and conducted in such manner as the Company Law
Board thinks fit; and
(b) give such ancillary
or consequential directions as the Company Law Board thinks expedient,
including directions modifying or supplementing in relation to the calling,
holding and conducting of the meeting, the operation of the provisions of the
Act and of the company's articles.
Explanation.—The directions that may be given under this sub-section
may include a direction that one member of the company present in person or by
proxy shall be deemed to constitute a meeting.
(2) Any meeting called,
held and conducted in accordance with any such order shall, for all purposes,
be deemed to be a meeting of the company duly called, held and conducted."
I proceed to consider the
several points of controvery under separate heads.
Locus
standi of respondent No. 2 to move the Company Law Board :
The contention of the
petitioners has been that respondent No. 2 in his capacity as the secretary of
the trust association was not entitled to apply to the Company Law Board and,
as such, the application under section 186 was not maintainable and should have
been dismissed in limine.
It has been found by the
Company Law Board that there was no dispute that respondent No. 2 was at the
relevant time a member of the trust association. The membership of respondent
No. 2 was not challenged by the petitioner before the Company Law Board nor has
been challenged in the petition before this court. In any event, the Company
Law Board is empowered under section 186 to order a general meeting of a
company even on its own motion. In the premises, the contention that the
application should have been dismissed in limine by the Company Law Board
cannot be accepted.
Delay:
The petitioners have
contended that the disputes in the trust association arose in 1974. Long thereafter,
in 1982 the application was made before the Company Law Board. The application
should not have been entertained on the ground of delay.
The condition precedent for
ordering a meeting of a company under section 186 is the impracticability of
calling such a meeting in the usual course for any reason. If such a condition
exists, then the Company Law Board can exercise its power and direct the
calling of such a meeting. It is the case of the petitioners that the disputes
in the trust association have continued since 1974. It is not the case that
such disputes came to an end in 1982 and there was no impediment in calling a
meeting of the company in the usual course. Therefore, the fact that there have
been disputes in the trust association for a long time is of little
consequence. The cause of action of the applicant before the Company Law Board
would be deemed to have continued and there can be no question of limitation.
The contentions of the petitioner as to delay are, therefore, rejected.
Impracticability:
It has been held by the
Company Law Board that it is not practicable to call a meeting of the trust
association in the usual course. The grounds on which the conclusion has been
arrived at have been found to be, inter alia, that the trust association had
become a divided entity and was being sought to be run by two rival groups each
of which was seeking to carry on management through its own committee and its
own set of office bearers. There was also a dispute as to where the registered
office of the trust association was lawfully situated.
It appears to me that there
was sufficient material before the Company Law Board to come to a conclusion
that calling of a meeting of the trust association through the domestic forum
would be impracticable and that any meeting called in the usual course through
the domestic forum would be a matter of controversy and confusion and would
lead to further litigation and, in any event, would be of doubtful validity.
In cannot be said that such
finding and conclusion of the Company Law Board is perverse or not based on any
evidence. It also cannot be said that no reasonable man could come to such a
conclusion on the evidence on record. The Company Law Board has arrived at its
conclusion on cogent grounds which have been laid down in the several decisions
of this court cited and noted above and cannot be said to be erroneous. In any
event, in proceedings where the petitioners claim writs in the nature of
certiorari, this court cannot sit in appeal over the decision of the Company
Law Board, review and reappreciate the evidence on record and come to a
different conclusion.
The
determination of members eligible to attend the meeting called:
The contention of the
petitioners is that the Company Law Board wrongfully determined and nominated
the members who could attend the meeting which has been directed to be called.
It was not within its jurisdiction to decide which of the members had been
lawfully nominated and could be present at the meeting. It was also erroneously
held by the Company Law Board that the Baptist Missionary Society had an
overriding power to nominate seven members.
From the impugned order, it
appears that the Company Law Board has sought primarily to ascertain if there
were any internal disputes in the nominating bodies who were entitled to
nominate members of the trust association. It has been found that in several
bodies authorised to nominate members, there were internal disputes resulting
in litigation. It was found that the said nominating bodies were sought to be
represented by two parallel and contesting groups. The Company Law Board came
to the conclusion that any nomination of members by such bodies would be a
matter of controversy and dispute. Therefore, the Company Law Board accepted
the members whose nomination came from bodies which were functioning without
dispute and permitted them to take part in the meeting.
The above approach and
decision of the Company Law Board, in my view, cannot be held to be erroneous.
It was not open to the Company Law Board to go into the internal dispute of the
other nominating bodies or resolve the same. The only practical and feasible
solution has been prescribed.
The finding that under the
articles of the trust association, the Baptist Missionary Society is empowered
to nominate up to seven members cannot also be held to be erroneous. The
contention of the petitioners that the number of members to be nominated by the
Baptist Missionary Society would vary with the total strength of the membership
is without substance. On a plain reading of the articles of the trust
association, it is quite clear that the Baptist Missionary Society has the
unfettered option to nominate up to seven members and this option is not
dependent on the number of members to be nominated by the other bodies.
The contention of the
petitioners that the Company Law Board has wrongfully exercised authority,
assumed jurisdiction and went into the question of correctness or otherwise of
the list of members of the trust association submitted by respondent No. 2 is
also misconceived. The list submitted by respondent No. 2 is supported by
evidence and establishes the nominations. The Company Law Board has only
decided as to which of the nominations are undisputed and have permitted the
undisputed nominees to attend the said meeting.
The above decision of the
Company Law Board, in my view, comes within the four corners of section 186 of
the Act. The said section empowers the Company Law Board to give ancillary and
consequential directions in relation to the meeting as considered expedient.
The Company Law Board is further empowered to override the operation of the
provisions of the Act and the articles of the association of the corporate body
if necessary. The decision to allow undisputed nominees to attend the meeting
has obviously been given so that an effective meeting can be held. To allow the
disputed nominees to attend the meeting would defeat the meeting.
The contention of the
petitioner that by allowing a few members to attend the meeting, control of the
trust association has been conferred on a minority group is of little
relevance. The trust association is constituted by members to be nominated by
different bodies. If some of the nominating bodies cannot function with
certainty and make valid nomination because of their internal disputes, they
cannot be heard to complain that the other bodies which are free from dispute
should be prevented from nominating members who will constitute the trust
association.
Agenda
of the meeting :
The petitioners' contention
is that in the application before the Company Law Board, no agenda of the
proposed meeting was annexed nor was there any explanatory statement about the
resolution proposed to be passed in the meeting, in spite of which an agenda
has been dictated by the Company Law Board in which the meeting has been
directed to consider, inter alia, the valid location of the registered office
of the association. It is contended that the Company Law Board had no power or
jurisdiction to dictate the agenda and in any event a general meeting of the
trust association was not entitled to resolve the dispute over the location of
its registered office.
In view of the wide
language of section 186, it appears that the Company Law Board can give all
ancillary and consequential directions in relation to the holding of a meeting.
Under such powers, in my view, the Company Law Board has the power to direct
the corporate body to consider matters as suggested. It does not appear from
the impugned order that any agenda has been dictated. It has been left to the
chairman to issue notices of the meeting which will no doubt contain suitable
agenda.
It also appears that the
power under section 186 of the Act is invoked where a company is not
functioning normally and it is not practicable for the company to call a
meeting. When the Company Law Board exercises its extraordinary power under the
section and directs the calling of a meeting, it necessarily follows that the
agenda of such meeting has to be determined by the Company Law Board because
such an agenda cannot be decided or finalised through the usual machinery.
It has not been established
that the subjects which have been directed to be considered in the proposed
meeting are beyond the purview or jurisdiction of such meeting.
Natural
justice :
The petitioners have
invoked the principles of natural justice to impugn the nominations made by the
Baptist Missionary Society and the Churches of Mizoram. Petitioner No. 2,
admittedly, has no connection whatsoever either with Baptist Missionary Society
or the Churches of Mizoram. The nominations of the Baptist Missionary Society
were conveyed through respondent No. 2 who is the constituted attorney in India
of the Baptist Missionary Society of London. Such nominations were confirmed by
the letter written by the Baptist Missionary Society of London to the Company
Law Board.
It is not understood what
representations were intended to or could have been made by petitioner No. 2 on
such nomination. In any event, no light has been thrown in the present petition
as to what was left unsaid. Such contentions of the petitioners are of no
substance and are rejected.
For the reasons as above,
this application fails. The rule is discharged and all interim orders are
vacated. Let the meeting be held as directed by the Company Law Board. There
will be no order as to costs.
Learned advocate for the
petitioners has applied orally for stay of the operation of judgment which has
been signed today. I am unable to grant a total stay as prayed for, for the
following reasons :
(a) The affairs
of the trust association are being conducted by two parallel groups in
opposition to each other from two different places. It is not in the interest
of the trust association that such state of affairs should be allowed to be
continued indefinitely ;
(b) The trust
association holds valuable properties in trust which might be in jeopardy if
the administration of the trust association is not put in order expeditiously.
(c) There is no
personal allegation against any of the members permitted to attend the meeting
except, possibly, respondent No. 2.
On the above grounds, I
grant a limited stay of the operation of the judgment and order as follows :
The meeting will be held as
directed by the Company Law Board, the notice whereof will be served on the
advocate on record of the petitioners. In the event a new committee of
management is appointed in the meeting, the same will function subject to the
supervision of the chairman, acting as special officer for twelve weeks. Notice
of all meetings of the committee of management will be served on the special
officer who will be entitled to attend the said meetings or any of them as he
thinks fit. In any event, no decision of the committee of management will be
given effect to till it is approved by the special officer. It is made clear
that the supervision expected from the special officer will be in respect of
finance, properties and assets of the trust association and the special officer
will ensure that the same are protected during the interim period.
The initial remuneration of
the special officer is fixed at 150 gms.
Let all parties and the
special officer act on a plain copy of this order duly countersigned by an
officer of this court.
Order accordingly.
[1986]
60 COMP. CAS. 381 (CAL)
HIGH COURT OF CALCUTTA
Baptist Church Trust Association
v.
Member, Company Law Board
DIPAK
KUMAR SEN J.
CIVIL
RULE NO. 15142 (W) OF 1983
P.
C Sen and S. N. Chowdhury for the petitioner.
S.
B. Mukherjee, N. K. Poddar and A. P. Agarwala for the Respondent.
JUDGMENT
Dipak Kumar Sen J.—The undisputed facts on record are, inter alia, that the
Baptist Church Trust Association, petitioner No. 1, in this application
(hereinafter referred to as "the trust association") was incorporated
under the Indian Companies Act, 1913, as a non-trading company on May 27, 1932.
The relevant clauses of its
memorandum and articles of association are as follows:
Memorandum of association
1. The name of the company is "The Baptist Church Trust
Association (hereinafter referred to as "the association").
2. The objects for which
the Association is intituled are :.........
(b) To aid and further the work of the Baptist
Missionary Society, and the Baptist Churches in India including any native
States in India (hereinafter called "the said area").......
(f) To accept property to be held by the
association:
(1) for the
general purpose of the association and the Baptist Churches, Baptist Unions,
Church Unions, Church Councils and Baptist Missionary Society.
Articles of association
1. For the purpose of
registration, the number of members of the association is declared not to
exceed fifty.
2. These articles shall
be construed with reference to the provisions of the Companies Act, 1956
(hereinafter referred to as "the Act"), and the terms used in these
articles shall have the same respective meanings as they have when used in that
Act.
4. The members of the
association shall be the (1) subscribers to the memorandum of association ; (2)
such persons not exceeding seven in number as may be nominated by the Baptist
Missionary Society, and (3) such other persons, making a total membership
including subscriber members and nominees of the Baptist Missionary Society not
exceeding fifty in all, as may be nominated by the council of Baptist Churches
in Northern India or by such other churches, church or union of churches as may
be authorised by a general meeting of the association so as to nominate
members, any necessary provisions as to the number of members to be nominated
being determined by a general meeting of the association.
5 (a) Beginning from the annual general
meeting of 1960, one-third of the members of the association shall retire
annually, immediately before each annual general meeting of the association.
The committee of management shall arrange the order in which members shall
retire, and it shall be the responsibility of the bodies authorised to nominate
members to see that nominations and acceptance of membership are duly made and
intimated to the secretary of the association and members retiring in
accordance with the provisions of the article shall be eligible for
re-nomination……
6. The affairs of the
association shall be administered by a committee of management referred to in
clause 4 of the memorandum of association. Such committee of management shall
consist of the officers and three (3) members of the association……..
9. The officers of the
association shall ordinarily be a president, vice-president, treasurer and
secretary who together with the three members of the committee of management
shall be elected by the association at its annual meeting. Any casual vacancy
occurring among the officers of the committee shall be filled up by the
remaining officers and committee from the members of the association, but any
person so chosen shall retain his office only until the next annual meeting of
the association when the vacancy shall be filled up by the association........
16. (a) The association shall, in addition to
any other meetings, hold a general meeting which shall be styled as its annual
general meeting at intervals and in accordance with the provisions specified
below.
(b) The first annual
meeting shall be held by the association within eighteen months of its
incorporation.
(c) The next annual
meeting of the association shall be called by it within nine months after the
expiry of the financial year in which the first annual general meeting was held
; and thereafter an annual general meeting shall be held by the association
within nine months after the expiry of each financial year but so that no more
than fifteen months shall elapse between the date of one general meeting and
that of the next except in a case where such general meeting is held within
such extended time not exceeding six months as may be granted by the Registrar
in terms of proviso to section 166 of the Act.........
18. The officers of the association may, whenever they think
fit, and they shall, if required in writing by such number of members as have,
at the date of receipt of requisition, not less than one-tenth of the total
voting power of all the members having at the date a right to vote in regard to
the matter for consideration of which the meeting is to be called, convene an
extraordinary meeting. Every such requisition shall express the object of the
meeting proposed to be called and shall be left with the Secretary and
thereupon an extraordinary meeting shall be convened by the said officers to be
held within forty-five days from the date of the receipt of such
requisition.........
20. A quorum at a general meeting shall consist of one-fifth
of the members of the association.
21. Twenty-one days' notice at least specifying the place and
time of meeting, and (in case of special business) the general nature thereof,
shall be sent to each member of the association, but non-receipt of any such
notice by any member shall not invalidate the proceedings of any general
meeting. With the consent in writing of all the members entitled to vote, a
meeting may be convened at shorter notice and in any manner they think fit. All
businesses to be transacted at the annual general meeting shall be deemed
special except the consideration of :
(a) the accounts;
(b) the annual report of
the secretary of the association on behalf of the committee, and
(c) the election of members of committee,
auditors and officers.
The bodies or organisations which have been
authorised by the trust association to nominate members are the Bengal Baptist
Union, the Baptist Union of Northern India, the Baptist Church of Mizoram and
the Utkal Christian Central Church Council. It is a matter of record that the
said bodies or organisations have been nominating members to the trust
association without dispute till 1974.
The council of Baptist
Churches in Northern India (incorporated as a registered society on or about
January 28, 1962), though authorised under the articles of the trust
association, have not so far nominated any members to the trust association.
Ajoy Kumar Saha, petitioner
No. 2, was nominated as a member of the trust association by the Bengal Baptist
Union and was elected as the secretary-cum-treasurer of the trust association
on November 8, 1974, at the annual general meeting of the trust association.
In 1974, disputes arose
over the management of the Bengal Baptist Union and in May, 1975, a suit was
instituted against petitioner No. 2 and others in the management of the Bengal
Baptist Union, being Suit No. 43 of 1975 in the court of the Ninth Subordinate
Judge, Alipore. In the said proceeding, an order was passed on December 9,
1975, by the Twelfth Additional District Judge, Alipore, in Miscellaneous
Appeal No. 273 of 1975 restraining the defendants in the said suit from
disposing of or leasing or letting out the properties of the Bengal Baptist
Union without leave of court. From another order passed in Miscellaneous Appeal
No. 407 of 1978 on January 25, 1980, by the learned Additional District Judge,
proceeding in revision was initiated in this court and on June 12, 1980, an
order was passed by this court recording an interim settlement between the
parties. In the said order, it was recorded that a particular group will
function as the Bengal Baptist Union (reformed). The said suit and the
proceedings thereunder are still pending.
In the Baptist Union of
Northern India, similar disputes arose over management and suits were filed in
the courts of Delhi, Agra and Bhiwani. The said suits are pending.
So far as the Utkal
Christian Church Central Council is concerned, some of the churches
constituting the council left the Baptist faith and in or about 1970 joined
"Church Union" under the Church of North India which does not follow
the Baptist faith and is not authorised to nominate members to the trust
association. Some of the churches of the said Utkal Christian Church Central
Council did not join the Church of North India.
It is not in dispute that
two rival groups in the Bengal Baptist Union and the Baptist Union of Northern
India are running two parallel organisations and that the Utkal Central Church
Council has ceased to exist since 1970.
The aforesaid disputes in
the several nominating bodies were reflected in the management and functioning
of the trust association. On February 10, 1976, at the annual general meeting
of the trust association for the year 1975, no business could be transacted as
there were allegations that petitioner No. 2 as the secretary had inducted a
number of non-members at the said meeting. No office bearers were elected at
the said meeting and the old committee of management and the office-bearers
appointed earlier continued.
Petitioner No. 2 attempted
to hold another annual general meeting of the trust association, not at the
latter's registered office, but at his residence on March 29, 1976. There were
allegations that notices of the said meeting had not been sent to bona fide
members and that non-members had been invited again. No business could be
transacted and there was no election of office bearers. The only decision taken
at the meeting was that, in future, notices of meetings should be issued under
the joint signatures of the president and the joint secretary of the trust
association and that till the office bearers were duly elected, the urgent and
important business of the trust association would be carried on by an ad hoc
committee consisting of the president of the trust association, the constituted
attorney of the Baptist Missionary Society and petitioner No. 2.
The trust association has
thereafter been sought to be constituted and represented by two different
groups and since 1977, two annual general meetings of the trust association
have been held every year, one at the registered office of the trust
association and the other by petitioner No. 2 at his residence. Both the groups
claim that they have been duly nominating office-bearers of the trust
association.
The group headed by
petitioner No. 2 has filed with the Registrar of Companies an application for
change of the registered office of the trust association. Respondent No. 2 has
also filed an intimation with the Registrar of Companies for removal of the registered
office of the trust association from the residence of petitioner No. 2 to its
original registered office.
Koshy George, respondent
No. 2 in this proceeding, as the secretary and treasurer of the trust
association has filed annual return of the trust association under section 160
of the Companies Act, 1956, up to 1982. Such returns do not appear to have been
filed by petitioner No. 2 through his parallel organisation.
It appears from record,
that some time in 1978, an inspection report under section 209A of the
Companies Act was made by the Additional Registrar of Companies, West Bengal.
The Additional Registrar has come to the conclusion that the annual general
meetings of the trust association held at No. 44, Acharya Jagadish Chandra Bose
Road, Calcutta, the original registered office, on and from February 19, 1977,
were irregular as proper notices were not issued for the same and that there
was no quorum. The Registrar also found that petitioner No. 2 has continued to
be the secretary of the trust association since November, 1974, and meetings
called by him at Elliot Road, Calcutta, in 1977, were in conformity with the
articles of the trust association.
In such background, that
trust association some time in June, 1982, made an application before the
Company Law Board under section 186 of the Companies Act, 1956, for, inter
alia, the following orders:
(a) An enquiry
into the affairs of the trust association to determine, inter alia, the persons
who are entitled to its membership as well as those who are entitled to hold
office, as members of its committee of management.
(b) To order a
meeting of the trust association to be called, held and conducted in such
manner as the Company Law Board thinks fit.
Petitioner No. 2 opposed
the application of the trust association and affirmed an affidavit on or about
April 16, 1983, which was filed before the Company Law Board. It was contended,
inter alia, by petitioner No. 2 that no order could be passed under section 186
of the Act inasmuch as it had not been established that it was impracticable to
call an extraordinary general meeting of the company. It was further contended
that no attempt had been made to convene a meeting of the trust association on
requisition by the members in the usual course.
It was next contended that
the membership of the trust association was admittedly uncertain and in such a
case powers under section 186 of the Act could not be invoked or exercised. The
application before the Company Law Board had been made on the basis that there
were disputes as regards membership of the trust association. Such disputes
could be resolved only in a court of law but not under section 186 of the
Companies Act.
It was next contended that
the application was wholly mala fide and belated and a dispute which arose, in
1976 was being sought to be resolved through section 186 of the Act.
It was next contended that
the real dispute was in respect of the annual general meeting convened by
petitioner No. 2 in 1976 and that the agenda which was suggested in the application
to the Company Law Board were matters to be considered and decided in an annual
general meeting and not in an extraordinary general meeting. The Company Law
Board had no. power or jurisdiction to call an annual general meeting.
It was next contended that
as suits were pending in different courts, the Company Law Board should not
invoke or exercise its jurisdiction under section 186 of the Act as the reliefs
sought for were in issue in the pending suits.
It was contended last that
there were disputes over the constitution of the different bodies which had the
power to nominate members to the trust association. The Bengal Baptist Union
and the Baptist Union of Northern India were being run by parallel
organisations. It was not open to the Company Law Board to decide which
particular organisation of the nominating bodies had the right to nominate
members to the trust association.
Respondent No. 2 affirmed
an affidavit on May 6, 1983, which was filed before the Company Law Board in
reply to the aforesaid affidavit of petitioner No. 2.
By an order dated December
1, 1983, A. R. Khare, Member, Company Law Board, Eastern Regional Branch,
Calcutta, disposed of the application under section 186 of the Act and gave the
following directions:
(a) A general meeting of the trust
association will be called.
(b) The said meeting will be conducted
by an independent chairman.
(c) Shri Sukumar
Bhattacharya, advocate, was appointed the chairman of the meeting.
(d) Notices of
the said meeting will be issued to the seven members nominated by the Baptist
Missionary Society and the four members nominated by the Church of Mizoram at
addresses to be furnished to the chairman by respondent No. 2 in accordance
with the procedure as provided in the Companies Act, 1956, and the articles of
the trust association.
(e) Respondent
No. 2 will submit to the chairman a copy of the memorandum and articles of the
trust association well in advance so that the notices can be given to
shareholders for the requisite period.
(f) The quorum
for the meeting be five persons to be personally present.
(g) The chairman will decide the venue
and time of the meeting.
(h) Respondent
No. 2 will meet the expenses of holding the meeting and the remuneration of the
chairman fixed at Rs. 1,100.
(i) The chairman
will submit a report to the Company Law Board within two weeks from the date of
the meeting.
(j) The meeting will consider, inter alia,—
(i) The location of the registered office of
the trust association.
(ii) Determination of the
churches or union of churches empowered to nominate members of the trust
association under its articles.
(iii) Determination of the
persons entitled to hold the offices of the president, the vice-president, the
secretary, the treasurer and members of the committee of management of the
trust association and/or persons vested or to be vested with the right to
administer and manage the properties of the trust association in accordance
with law and the articles.
In its said order, the
Company Law Board found and recorded, inter alia, as follows :—
(a) The trust
association was promoted by the Baptist Missionary Society of London to aid and
further the work of the said Society in India.
(b) The trust
association held properties of the Baptist Missionary Society of India on
trust.
(c) The trust
association functioned normally till 1974 and its last audited balance-sheet
was filed on June 30, 1974. At the annual general meeting of the trust
association held on November 18, 1974, petitioner No. 2 was elected the
secretary and treasurer.
(d) In 1974, the
trust association had twenty-five members of whom two had been nominated by the
Baptist Missionary Association, eight had been nominated by the Bengal Baptist
Union, seven had been nominated by the Baptist Union of Northern India, six had
been nominated by the Churches of Orissa and two had been nominated by the
Churches of Mizoram.
(e) No annual
general meeting of the trust association were held for the years 1975 and 1976.
In 1976, the annual general meeting which was called could not transact any
business.
(f) Thereafter, the
trust association started functioning as a divided entity in two groups and on
and from 1977, two separate general meetings were held every year. Two rival
groups were claiming to represent the trust association and to manage or
administer its properties and affairs. Each group contended that the meetings
held by the other group were illegal.
(g) There were
serious disputes as to where the registered office of the trust association was
located and it was not certain as to which was the lawful registered office.
(h) Each of the rival
groups contended that it had nominated the office-bearers and members of the
committee of management and it was not known as to which set had been duly
elected to the committee.
(i) It was also not
clear as to who could requisition a future meeting and to whom such requisition
should be served and it was doubtful if any meeting convened or held on the
requisition of either group would be lawful.
(j) There was no
dispute that respondent No. 2 was a member of the trust association.
(k) The application
under section 186 of the Act was held to be maintainable as having been filed
by a member of the trust association. There was no delay in submitting this
application. Section 186 of the Companies Act did not prescribe any time limit
and there could be no question of limitation.
(l) It was not
possible nor practicable in fact for respondent No. 2 to submit any requisition
to the domestic forum for calling an extraordinary general meeting of the trust
association under section 169 of the Companies Act.
(m) Respondent No. 2
had submitted a list of persons stated to be the lawful members of the trust
association with corroborative evidence as also the register of members of the
trust association and the letters of acceptance by such members. The Council of
Baptist Churches of Northern India through its affidavit affirmed by its
secretary on June 8, 1983, had confirmed that the list submitted by respondent
No. 2 was the correct list of members.
(n) The separate list
filed by petitioner No. 2 without any corroborative evidence on August 27,
1983, after the time prescribed by the Board and after the arguments were
concluded could not be entertained.
(o) The application
was bona fide and made in the interests of justice as the activities of the
trust association were suffering immensely because of the disputes between the
two rival groups.
(p) The agenda
suggested in the application were of matters to be discussed in a general
meeting and not in an annual general meeting.
(q) In the list of
members submitted by respondent No. 2, seven had been nominated by the Baptist
Union of Northern India, eight had been nominated by the Orissa Churches and
four had been nominated by the Churches of Mizoram. The nomination of the said
seven members was confirmed by a letter dated April 28,1983, from the Baptist
Missionary Society to the Company Law Board. The said letter also confirmed
that respondent No. 2 was a constituted attorney of the Baptist Missionary
Society of India authorised to nominate members to the trust association on
their behalf.
(r) There was no
dispute in the Churches of Orissa and Mizoram and affidavits had been filed on
behalf of the said Churches confirming their nominations. The chairman of the
Baptist Trust of Mizoram, by his letter dated May 16, 1983, had further
confirmed their nominations.
(s) The Baptist
Missionary Society had an unqualified right to nominate members of the trust
association. There were disputes over the nominations by the Bengal Baptist
Union and the Baptist Union of Northern India as nominations had been made by
rival bodies. It would be for the general members of the trust association to
decide as to which particular church or Union of Churches would be authorised
to nominate members.
(t) In view of the
challenge thrown to the nomination of members by the Orissa Churches, though
petitioner No. 2 was unable to prove that there were rival bodies in the Orissa
Churches, as a matter of abundant caution members nominated by the Orissa Churches
should be excluded from the meeting and the eleven persons nominated
respectively by the Baptist Missionary Society and the Churches of Mizoram
would be entitled to attend the meeting as directed.
The present petition was
moved by the Baptist Church Trust Association and Ajay Kumar Saha on December
28, 1983, when a rule nisi was issued calling upon the respondents, namely, the
Member, Company Law Board, Koshy George, six other members nominated by the
Baptist Mission Society, four members nominated by the Mizoram Union of
Churches, the Regional Director, Company Law Board; the Registrar of Companies,
West Bengal, and the Union of India, to show cause why appropriate writs should
not be issued directing the Member, Company Law Board, to cancel, withdraw or
rescind his order dated December 1, 1983, restraining the respondents from
giving any further effect or from taking any steps pursuant thereto and also
for quashing the said order. An interim order was passed on the same date
restraining the respondents from giving effect to or acting in terms of or
taking any steps or passing any resolution in the meeting of the trust
association proposed to be held on December 29, 1983, on the basis of the
impugned order dated December 1, 1983.
It is contended in the
petition, inter alia, that respondent No.' 2 had no cause of action for
invoking the jurisdiction of the Company Law Board under section 186 of the
Companies Act and that the allegations made against petitioner No. 2 could at
best be grounds for proceeding under sections 397 and 398 of the said Act.
It is contended that as the
object of the application before the Company Law Board was to resolve the
alleged disputes between members and to hand over the management of the trust
association to some of the members, the same could not have been the
subject-matter of the application under section 186 of the Act. The deadlock in
the trust association, as framed, could not be resolved by the said meeting.
In the petition before the
Company Law Board, there was no allegation that it was otherwise impracticable
to hold a meeting in the domestic forum and no reasons were given as to what
prevented respondent No. 2 to requisition a meeting in the usual course.
The petition before the
Company Law Board of respondent No. 2 as the secretary of the trust association
should have been dismissed in limine.
No agenda of the proposed
meeting was annexed nor any explanatory statement to such agenda included in
the said application and, as such, the same was defective.
It is contended that the
Member, Company Law Board, in passing the impugned order proceeded on the basis
that the trust association was promoted by the Baptist Missionary Society and
held that the latter had an overriding power of nominating not more than seven
members. The said finding and the conclusion were erroneous and not borne out
by the memorandum or the articles of the trust association. The power of
nomination by the Baptist Missionary Society up to seven members of the trust
association could only be exercised when the total strength of membership would
be 50.
The Member, Company Law
Board, while directing the calling of a meeting under section 186 of the Act,
had no authority or jurisdiction to decide as to which of the members would
attend such meeting.
Without deciding or
intending to decide which group legally represented the trust association,
respondent No. 1, it is contended, wrongfully restricted the number of members
who could attend the meeting.
It is contended that the
disputes, as to who were the office-bearers of the committee of management or
the members of the trust association, could not be settled by calling a meeting
under section 186 of the Companies Act. It is contended that the Company Law
Board held wrongly that the annual general meetings of the trust association
subsequent to 1974 were all under challenge.
The Company Law Board, it
is contended, did not have any authority or jurisdiction to decide as to the
correctness or otherwise of the list of members of the trust association
submitted by respondent No. 2.
The Company Law Board
further erred in holding that the Limitation Act did not apply or that there
was any delay in making the said application under section 186.
In directing the dispute
about the registered office of the trust association to be considered in the
said meeting, another error was committed as the same could not be the
subject-matter of an extraordinary general meeting except in cases where the
registered office was shifted from one district to another or from one State to
another.
By the impugned order, the
control of the trust association, it is contended, has been made over to the
Baptist Missionary Society, London, who were a minority.
It is contended that the
impugned order is illegal, invalid, without jurisdiction and bad on the grounds
aforesaid.
Respondent No. 2 has
affirmed an affidavit on February 9, 1984, which has been filed in opposition
to the petition.
It is alleged in this
affidavit, inter alia, that by reason of the disputes between the two groups
who were functioning separately in the name of the trust association since
1977, there has been confusion and in the premises it has not been possible for
the trust association to hold any undisputed general or annual general meeting
after November 8, 1974.
It is not practicable to
hold any meeting of the members which can be deemed to be legal in view of the
aforesaid. The Member, Company Law Board, it is contended, has recorded the
deadlock in the trust association and the impracticability of calling a general
meeting.
It is alleged that the
Utkal Christian Church Council which joined the Church Union in or about 1969
or 1970 ceased to exist thereafter. Presently, there are two Dioceses in Orissa
being the Diocese of Cuttack and the Diocese of Sambalpur which have been
nominating members of the trust association. Such nominations were received and
accepted by petitioner No. 2 for the years 1974 to 1976.
It is contended that
explanatory statements to the proposed agenda were not required to be placed
separately before the Company Law Board.
The writ application, it is
contended, is bad on account of misjoinder and also for non-joinder of
necessary parties and that petitioner No. 2 has no jurisdiction nor authority
to implead the trust association as a petitioner. The Company Law Board, it is
alleged, has not been impleaded as a respondent.
Petitioner No. 2 has
affirmed an affidavit on February 28, 1984, which has been filed in reply to
the aforesaid affidavit of respondent No. 2.
At the hearing, learned
counsel for the petitioners reiterated the contentions in the petition. He
submitted that the impugned order of the Company Law Board was ex facie
erroneous and was liable to be quashed or set aside. He also submitted that the
Company Law Board had no jurisdiction to dictate the agenda of the
extraordinary general meeting. The decision to allow all the nominees of the
Baptist Missionary Society to attend the meeting was without authority or
jurisdiction and in any event violated the principles of natural justice inasmuch
as the petitioners did not have opportunity to make representation against the
alleged nomination confirmed at the very last stage of hearing. The Company Law
Board by accepting such nomination had made over the control of the trust
association to a minority group.
Learned counsel for
respondents Nos. 2, 3, 4, 5, 6, 7, 8, 9, 10 and 11 reiterated the contentions
raised in the affidavit of respondent No. 2 affirmed on February 9, 1984. He
also submitted that on the undisputed facts on record, it was established that
it was not practicable to hold any meeting of the members of the trust
association lawfully and that the Company Law Board came to the correct
conclusion and has directed an extraordinary general meeting to be called.
Learned counsel submitted
further that under section 186 of the Companies Act, while directing a general
meeting to be called, the Company Law Board had ample jurisdiction and
authority to give all consequential and ancillary directions for the holding of
such a meeting. Under the powers conferred, it was open to the Company Law
Board to decide as to which of the members would attend the meeting and also
what business the meeting would conduct. He submitted that the meeting directed
to be`called by the Company Law Board was valid and lawful and the decision of
the Company Law Board should be sustained.
In support of the
respective contentions of the parties, decisions were cited at the Bar which
are considered hereafter.
(a) Lothian Jute Mills Co. Ltd., In re [1951]
21 Comp Cas 290. Here, a learned judge of this court considered and construed
section 79(3) of the Indian Companies Act, 1913, which is in pari materia with
section 186 of the later Act, and held that the power conferred on the court
under the said section to call a meeting of a company should be exercised with
caution and only when it was not practicable to call a valid meeting under the
constitution of the company. It was held, in the facts, that where there were
serious doubts and controversy as to who were the directors and there was a
possibility that a meeting called by any particular group of directors might be
invalid, a situation would be held to have arisen where it has become
impracticable to call a meeting of the company. The power under the section
should be exercised when it cannot be stated with reasonable approach to
certainty, or even prima facie, that a meeting called in exercise of the powers
contained in its regulations could be valid.
(b) Indian Spinning Mills Ltd. v. Lt. General Madan Shumshere Jung Bahadur
Rana, [1952] 22 Comp Cas 162 (Cal); AIR 1953 Cal 355. In this case, a
Division Bench of this court construed section 79(3) of the Indian Companies
Act, 1913, and observed, inter alia, as follows (at p. 167 of 22 Comp Cas):
"The meaning of the
word ' impracticable ' as used in this section has been considered by my
learned brother in the case of Malhati
Tea Syndicate Ltd., In re [1951] 21 Comp Cas 323 ; 55 CWN 653. He,
following some observations in a decision of the Privy Council, held that the
term implies that it is impracticable from a reasonable point of view. The
court must take a common sense view of the matter and must act as a prudent
person of business. Where the calling of a meeting by requisitionists would
lead to endless litigation and where matters might arise for debate and
decision which were already the subject-matter of suits, it appears to me that
the holding of a meeting would be impracticable. It would be most unlikely to
lead to any result and would inevitably cause more litigation and confusion and
further embitter the feelings between the parties."
(c) Star Tile Works Ltd. v. N. Govindan, AIR 1959 Ker 254. Here,
a Division Bench of the Kerala High Court construed section 167 of the
Companies Act, 1956, and held that only in a restricted contingency, where
there was a default in holding an annual general meeting in accordance with
section 166 of the statute, power was given under section 167 to the Central
Government to intervene on the application of any member and call for a general
meeting of the company to be deemed to be an annual general meeting.
(d) Clive Mills Co. Ltd., In re [1964],
34 Comp Cas 731 (Cal). Here, it was held by a learned judge of this court that
the power of the court under section 186 of the Companies Act, 1956, to direct
a general meeting of the company was wide and extraordinary in nature and
should be used sparingly and with great caution. If, for any reason, it was
impracticable to hold or conduct a meeting of the company as prescribed by the
Act or the articles of the company, the court would exercise its power under
the section and order a general meeting to be called.
In the facts of the case,
it was held that the articles of the company provided that holders of not less
than 1/10th of the paid-up share capital of the company could convene an
extraordinary general meeting and it was not shown why it was impracticable to
requisition such a general meeting. The court in that case did not interfere
under section 186 of the Act.
(e) Rohtas Industries Ltd. v. S. D. Agarwal [1969] 39 Comp Cas 781.
In this case, the Central Government had directed investigation of the affairs
of a company under section 237(b)
of the Companies Act. The Supreme Court held that the existence of
circumstances on which opinion had to be formed by the Central Government
before an investigation would be directed was open to judicial review. In
forming its opinion, the Central Government should proceed on the basis of
relevant facts and circumstances and not on suspicion nor on extraneous facts.
(f) Ruttonjee and Co. Ltd., In re [1970]
40 Comp Cas 491. In this case, a learned judge of this court considered and
construed section 186 of the Companies Act, 1956, and held as follows (p. 518)
:
The court would not
ordinarily interfere with the domestic management of a company which should be
conducted in accordance with its articles.
The discretion granted
under section 186 should be used sparingly and with caution so that the court
is not made to participate in the internecine squabbles of the company.
The expression
"impracticable" meant impracticable from a reasonable point of view
and the court should take a common sense view of the matter and must act as a
prudent man of business.
Where the meeting can be
called only by the directors and there were serious doubts and controversy as
to who were the directors or where there was a possibility that one or other of
the meetings called by the rival groups of directors might be invalid, the
court ought not to expose the shareholders to uncertainties and should hold
that a position has arisen which makes it "impracticable" to convene
a meeting.
The court should exercise
its powers under section 186 when, on the facts and circumstances, it can say
with a reasonable approach to certainty or even prima facie that a meeting
called in the manner in which meetings are ordinarily called under the Act or
under the articles would be invalid.
The court must be satisfied
when a director or a member moves an application under section 186 that it has
been made bona fide in the larger interests of the company for removing a
deadlock otherwise irremovable.
It is convenient to note
here the relevant statutory provisions. Section 79(3) of the Indian Companies
Act, 1913, which conferred power on courts to call a general meeting of
companies. The said section reads as follows:
"If for any reason it
is impracticable to call a meeting of a company in any manner in which meetings
of that company may be called or to conduct the meeting of the company in
manner prescribed by the articles or this Act, the court may, either of its own
motion or on the application of any director of the company or of any member of
the company who would be entitled to vote at the meeting, order a meeting of
the company to be called, held and conducted in such manner as the court thinks
fit, and where any such order is given, may give such ancillary or
consequential directions as it thinks expedient and any meeting called, held
and conducted in accordance with any such order shall for all purposes be deemed
to be a meeting of the company duly called, held and conducted."
The Companies Act, 1956,
when promulgated, conferred similar powers on the court under section 186
thereof. The said section has since been amended and such power was given to
the Company Law Board. The section reads as follows:
"Power of Company Law Board to order meeting
to be called.—(1) If, for any reason, it is impracticable to call a
meeting of a company, other than an annual general meeting, in any manner in
which meetings of the company may be called, or to hold or conduct the meeting
of the company in the manner prescribed by this Act or the articles, the
Company Law
Board may, either of its
own motion or on the application of any director of the company, or of any
member of the company who would be entitled to vote at the meeting—
(a) order a meeting of
the company to be called, held and conducted in such manner as the Company Law
Board thinks fit; and
(b) give such ancillary
or consequential directions as the Company Law Board thinks expedient,
including directions modifying or supplementing in relation to the calling,
holding and conducting of the meeting, the operation of the provisions of the
Act and of the company's articles.
Explanation.—The directions that may be given under this sub-section
may include a direction that one member of the company present in person or by
proxy shall be deemed to constitute a meeting.
(2) Any meeting called,
held and conducted in accordance with any such order shall, for all purposes,
be deemed to be a meeting of the company duly called, held and conducted."
I proceed to consider the
several points of controvery under separate heads.
Locus
standi of respondent No. 2 to move the Company Law Board :
The contention of the
petitioners has been that respondent No. 2 in his capacity as the secretary of
the trust association was not entitled to apply to the Company Law Board and,
as such, the application under section 186 was not maintainable and should have
been dismissed in limine.
It has been found by the
Company Law Board that there was no dispute that respondent No. 2 was at the
relevant time a member of the trust association. The membership of respondent
No. 2 was not challenged by the petitioner before the Company Law Board nor has
been challenged in the petition before this court. In any event, the Company
Law Board is empowered under section 186 to order a general meeting of a
company even on its own motion. In the premises, the contention that the
application should have been dismissed in limine by the Company Law Board
cannot be accepted.
Delay:
The petitioners have
contended that the disputes in the trust association arose in 1974. Long
thereafter, in 1982 the application was made before the Company Law Board. The
application should not have been entertained on the ground of delay.
The condition precedent for
ordering a meeting of a company under section 186 is the impracticability of
calling such a meeting in the usual course for any reason. If such a condition
exists, then the Company Law Board can exercise its power and direct the
calling of such a meeting. It is the case of the petitioners that the disputes
in the trust association have continued since 1974. It is not the case that
such disputes came to an end in 1982 and there was no impediment in calling a
meeting of the company in the usual course. Therefore, the fact that there have
been disputes in the trust association for a long time is of little
consequence. The cause of action of the applicant before the Company Law Board
would be deemed to have continued and there can be no question of limitation.
The contentions of the petitioner as to delay are, therefore, rejected.
Impracticability:
It has been held by the
Company Law Board that it is not practicable to call a meeting of the trust
association in the usual course. The grounds on which the conclusion has been
arrived at have been found to be, inter alia, that the trust association had
become a divided entity and was being sought to be run by two rival groups each
of which was seeking to carry on management through its own committee and its
own set of office bearers. There was also a dispute as to where the registered
office of the trust association was lawfully situated.
It appears to me that there
was sufficient material before the Company Law Board to come to a conclusion
that calling of a meeting of the trust association through the domestic forum
would be impracticable and that any meeting called in the usual course through
the domestic forum would be a matter of controversy and confusion and would
lead to further litigation and, in any event, would be of doubtful validity.
In cannot be said that such
finding and conclusion of the Company Law Board is perverse or not based on any
evidence. It also cannot be said that no reasonable man could come to such a
conclusion on the evidence on record. The Company Law Board has arrived at its
conclusion on cogent grounds which have been laid down in the several decisions
of this court cited and noted above and cannot be said to be erroneous. In any
event, in proceedings where the petitioners claim writs in the nature of
certiorari, this court cannot sit in appeal over the decision of the Company
Law Board, review and reappreciate the evidence on record and come to a
different conclusion.
The
determination of members eligible to attend the meeting called:
The contention of the
petitioners is that the Company Law Board wrongfully determined and nominated
the members who could attend the meeting which has been directed to be called.
It was not within its jurisdiction to decide which of the members had been
lawfully nominated and could be present at the meeting. It was also erroneously
held by the Company Law Board that the Baptist Missionary Society had an
overriding power to nominate seven members.
From the impugned order, it
appears that the Company Law Board has sought primarily to ascertain if there
were any internal disputes in the nominating bodies who were entitled to
nominate members of the trust association. It has been found that in several bodies
authorised to nominate members, there were internal disputes resulting in
litigation. It was found that the said nominating bodies were sought to be
represented by two parallel and contesting groups. The Company Law Board came
to the conclusion that any nomination of members by such bodies would be a
matter of controversy and dispute. Therefore, the Company Law Board accepted
the members whose nomination came from bodies which were functioning without
dispute and permitted them to take part in the meeting.
The above approach and
decision of the Company Law Board, in my view, cannot be held to be erroneous.
It was not open to the Company Law Board to go into the internal dispute of the
other nominating bodies or resolve the same. The only practical and feasible
solution has been prescribed.
The finding that under the
articles of the trust association, the Baptist Missionary Society is empowered
to nominate up to seven members cannot also be held to be erroneous. The
contention of the petitioners that the number of members to be nominated by the
Baptist Missionary Society would vary with the total strength of the membership
is without substance. On a plain reading of the articles of the trust
association, it is quite clear that the Baptist Missionary Society has the
unfettered option to nominate up to seven members and this option is not
dependent on the number of members to be nominated by the other bodies.
The contention of the
petitioners that the Company Law Board has wrongfully exercised authority,
assumed jurisdiction and went into the question of correctness or otherwise of
the list of members of the trust association submitted by respondent No. 2 is
also misconceived. The list submitted by respondent No. 2 is supported by
evidence and establishes the nominations. The Company Law Board has only
decided as to which of the nominations are undisputed and have permitted the
undisputed nominees to attend the said meeting.
The above decision of the
Company Law Board, in my view, comes within the four corners of section 186 of
the Act. The said section empowers the Company Law Board to give ancillary and
consequential directions in relation to the meeting as considered expedient.
The Company Law Board is further empowered to override the operation of the
provisions of the Act and the articles of the association of the corporate body
if necessary. The decision to allow undisputed nominees to attend the meeting
has obviously been given so that an effective meeting can be held. To allow the
disputed nominees to attend the meeting would defeat the meeting.
The contention of the
petitioner that by allowing a few members to attend the meeting, control of the
trust association has been conferred on a minority group is of little
relevance. The trust association is constituted by members to be nominated by
different bodies. If some of the nominating bodies cannot function with
certainty and make valid nomination because of their internal disputes, they
cannot be heard to complain that the other bodies which are free from dispute
should be prevented from nominating members who will constitute the trust
association.
Agenda
of the meeting :
The petitioners' contention
is that in the application before the Company Law Board, no agenda of the
proposed meeting was annexed nor was there any explanatory statement about the
resolution proposed to be passed in the meeting, in spite of which an agenda
has been dictated by the Company Law Board in which the meeting has been
directed to consider, inter alia, the valid location of the registered office
of the association. It is contended that the Company Law Board had no power or
jurisdiction to dictate the agenda and in any event a general meeting of the
trust association was not entitled to resolve the dispute over the location of
its registered office.
In view of the wide
language of section 186, it appears that the Company Law Board can give all
ancillary and consequential directions in relation to the holding of a meeting.
Under such powers, in my view, the Company Law Board has the power to direct
the corporate body to consider matters as suggested. It does not appear from
the impugned order that any agenda has been dictated. It has been left to the
chairman to issue notices of the meeting which will no doubt contain suitable
agenda.
It also appears that the
power under section 186 of the Act is invoked where a company is not
functioning normally and it is not practicable for the company to call a
meeting. When the Company Law Board exercises its extraordinary power under the
section and directs the calling of a meeting, it necessarily follows that the
agenda of such meeting has to be determined by the Company Law Board because
such an agenda cannot be decided or finalised through the usual machinery.
It has not been established
that the subjects which have been directed to be considered in the proposed
meeting are beyond the purview or jurisdiction of such meeting.
Natural
justice :
The petitioners have
invoked the principles of natural justice to impugn the nominations made by the
Baptist Missionary Society and the Churches of Mizoram. Petitioner No. 2,
admittedly, has no connection whatsoever either with Baptist Missionary Society
or the Churches of Mizoram. The nominations of the Baptist Missionary Society
were conveyed through respondent No. 2 who is the constituted attorney in India
of the Baptist Missionary Society of London. Such nominations were confirmed by
the letter written by the Baptist Missionary Society of London to the Company
Law Board.
It is not understood what
representations were intended to or could have been made by petitioner No. 2 on
such nomination. In any event, no light has been thrown in the present petition
as to what was left unsaid. Such contentions of the petitioners are of no
substance and are rejected.
For the reasons as above,
this application fails. The rule is discharged and all interim orders are
vacated. Let the meeting be held as directed by the Company Law Board. There
will be no order as to costs.
Learned advocate for the
petitioners has applied orally for stay of the operation of judgment which has
been signed today. I am unable to grant a total stay as prayed for, for the
following reasons :
(a) The affairs
of the trust association are being conducted by two parallel groups in
opposition to each other from two different places. It is not in the interest
of the trust association that such state of affairs should be allowed to be
continued indefinitely ;
(b) The trust
association holds valuable properties in trust which might be in jeopardy if
the administration of the trust association is not put in order expeditiously.
(c) There is no
personal allegation against any of the members permitted to attend the meeting
except, possibly, respondent No. 2.
On the above grounds, I
grant a limited stay of the operation of the judgment and order as follows :
The meeting will be held as
directed by the Company Law Board, the notice whereof will be served on the
advocate on record of the petitioners. In the event a new committee of
management is appointed in the meeting, the same will function subject to the
supervision of the chairman, acting as special officer for twelve weeks. Notice
of all meetings of the committee of management will be served on the special
officer who will be entitled to attend the said meetings or any of them as he
thinks fit. In any event, no decision of the committee of management will be
given effect to till it is approved by the special officer. It is made clear
that the supervision expected from the special officer will be in respect of finance,
properties and assets of the trust association and the special officer will
ensure that the same are protected during the interim period.
The initial remuneration of
the special officer is fixed at 150 gms.
Let all parties and the
special officer act on a plain copy of this order duly countersigned by an
officer of this court.
Order accordingly.
[1976] 46 COMP. CAS. 548 (KAR)
v.
Mysore
Paper Mills Ltd.
B.
VENKATASWAMI AND E. S. VENKATARAMIAH, JJ.
O.S.A.
No. 4 of 1975
Vasantha Pai for K.J. Shetty for the appellant.
T. Krishna Rao and R.J. Balm for the respondent.
Venkataramiah, J.—This appeal is presented under section 4 of the Karnataka High Court Act, 1961, against the order of the learned single judge dated February 3, 1975, passed in Company Petition No. 1 of 1975 on the file of this court, dismissing the petition. The appellant was the petitioner in that petition. He filed it under section 186 of the Companies Act (hereinafter referred to as "the Act") on the basis of the following allegations:
The appellant is a shareholder of the Mysore Paper Mills Ltd. (hereinafter referred to as "the company") which was incorporated in 1936 under the Mysore Companies Act, 1917, and is now governed by the Act. The authorised capital of the company is Rs. 1,50,00,000 divided into 15,00,000 shares of Rs. 10 each. The subscribed capital is Rs. 1,2,62,120 of which shares of the value of Rs. 58,980 have been forfeited. The company was started with the object of establishing and running a paper mill. The company owns and is now running a paper mill at Bhadravathi in the State of Karnataka. The 39th annual general meeting of the company was held on September 30, 1974. On that day two directors had to be elected in the place of two retiring directors. The meeting also had to consider certain resolutions for removing some directors and for electing some others in their place and to elect three additional directors. According to the appellant, at the commencement of the meeting, an advocate of this court brought to the notice of the chairman and members present at the meeting that the meeting could not be proceeded with in view of an order of injunction issued by a court at Calcutta and ignoring the said order the meeting was held. It is alleged that there was disturbance at the meeting and that the election of the directors was irregular for various reasons. He, therefore, along with some other shareholders served on the company a notice under section 169 of the Act on November 23, 1974, requesting the company to hold an extraordinary general meeting to consider the following subjects:
"(1) Resolved to place on record that the election of Sri V.T. Velu purported to have been made at the ordinary general meeting of the company held on 30th September, 1974, is void on account of non-compliance with the provisions of section 263 of the Companies Act.
(2) Resolved to place on record that the election of Sri K. Subbarao
Ramaswamy purported to have been made at the ordinary general meeting of the
company held on 30th September, 1974, is void on account of non- compliance
with the provisions of section 263 of the Companies Act.
(3) Resolved to place on record that the election of Sri B.P.
Ramakrishna purported to have been made at the ordinary general meeting of the
company held on 30th September, 1974, is void on account of non- compliance
with the provisions of section 263 of the Companies Act.
(4) Resolved to place on record that the election of Sri G.
Ramarathnam purported to have been made at the ordinary general meeting of the
company held on 30th September, 1974, is void on account of non- compliance
with the provisions of section 263 of the Companies Act.
(5) Resolved to place on record that the removal of Sri B.P. Jalan as
a director of the company is void under section 263 of the Companies Act as it
was not separately and individually voted upon.
(6) Resolved to place on record that the removal of Sri L.S. Venkaji
Rao as a director of the company is void under section 263 of the Companies Act
as it was not separately and individually voted upon.
(7) Resolved that Sri S.N. Parthasarathy be removed from the directorship of the company under section 284 of the Companies Act. by an ordinary resolution of which special notice has been given under section 284(2) of the Act.
(8) Resolved to appoint Sri H.B. Datar by a separate resolution as a
director of the company in the place of Sri S.N. Parthasarathy after his
removal under resolution No. 7 of which special notice has been given under
section 284(2) of the Act.
(9) Resolved to appoint Sri T.R. Jalan as a director of the company in
the place wrongly declared on 30th September, 1974, to have been filled by Sri
V.T. Velu.
(10) Resolved to appoint Sri N.R. Morarka as a
director of the company in the place wrongly declared to have been filled on
September 30, 1974, by Sri K. Subbarao Ramaswamy.
(11) Resolved to increase the strength of the board
from the existing number of 9 to 12.
(12) Resolved to appoint Sri S. Srinivasan as a
director of the company in the vacancy caused by the increase in the strength
of the board.
(13) Resolved to appoint Sri. Ram S. Tarneia as a
director of the company in the vacancy caused by the increase in the strength
of the board. And
(14) Resolved to appoint Dr. S.L. Keshwani as a
director of the company in the vacancy caused by the increase in the strength
of the board."
In reply to the said notice, the appellant received from the secretary of the company a telegram dated December 11, 1974, on December 12, 1974, and a letter dated December 12, 1974, stating that the meeting could not be convened in accordance with the notice of the appellant and others served on the company on November 23, 1974, as the subjects to be discussed of which notice had been given were the subject-matter of litigation in some courts. The appellant along with other requisitionists, therefore, convened an extraordinary general meeting under section 169(6) of the Act, the notice of which was given through the medium of advertisements in newspapers as the appellant could not secure from the company the list of members though a request was made in that behalf. The said meeting was to take place on February 5, 1975, at 3-00 at the Banquet Hall of Hotel Ashoka, Bangalore, to consider the subjects referred to above. As the appellant apprehended that the chairman of the company who was entitled to preside over the meeting under the articles was prejudiced and as the minutes book, register of members, the share register and the register of proxies were all with the company, it was alleged that the holding of the meeting by the requisitionists on February 5, 1975, had become "impracticable". It was also alleged that there were factions amongst the shareholders and the chairman was not a fit person to preside over the meeting. According to the appellant the circumstances were such that there was need for the court appointing an advocate as chairman of the proposed meeting to be held on February 5, 1975, and for an order directing the company to make available all the books and registers of the company necessary for holding the meeting. The appellant, therefore, filed the petition on January 8, 1975, out of which this appeal arises for the following principal reliefs:
(a) an advocate-chairman
be appointed to conduct the extraordinary general meeting of the company
convened by the appellant and other requisitionists on February 5, 1975; and
(b) that the
company be directed to place at the disposal of the advocate-chairman appointed
by the court all the books and records of the company necessary for holding the
meeting.
The petition was resisted by the company. In its statement of objections, the company denied that the election of directors held on September 30, 1974, was irregular. It was alleged that the petition had been filed at the instance of B.P. Jalan, T.R. Jalan and M.P. Jalan of Calcutta who had tried to corner the shares of the company recently with a view to acquiring control over the affairs of the company and hence the petition had been made mala fide. It was denied that the chairman was informed at the meeting held on September 30, 1974, that there was an order of a court at Calcutta restraining the holding of the meeting and that it was read out at the meeting. It was asserted that the said meeting had been held regularly as could be seen from the minutes of the meeting. The company further alleged that it was served with an order of the court of munsiff at Howrah on November 22, 1974, restraining it from holding any annual general meeting or any other general meeting until further orders from that court, that the said proceedings and other proceedings in a court at Bangalore had been filed by Jalans referred to above and their associates (including the appellant) as they failed to succeed in getting sufficient support for the candidates put up by them at the election held on September 30, 1975. The company had informed the requisitionists of the extraordinary general meeting that it could not convene the meeting as desired by them because of the order of temporary injunction issued in a suit filed by Balakrishna Jalan, Civil Suit No. 146 of 1974, on the file of the Fifth Munsiff, Howrah, restraining the company from holding any general meeting. It was stated that the chairman who was an officer of the State Government was not in any way disqualified from acting as chairman of any general meeting. Several other allegations made by the appellant were also traversed in the course of the statement of objections.
After hearing the parties, the learned single judge who heard the petition came to the conclusion that the petition had not been filed bona fide and dismissed the petition. Hence, this appeal.
In this appeal, in an affidavit filed on behalf of the appellant, it is stated that the meeting called on February 5, 1975, had been adjourned to March 29, 1975. The truth of the above statement and the validity of the adjournment of the meeting are disputed by the company.
At this stage it is necessary to refer to the relevant provisions of the Act. Section 169(1) provides that the board of directors of a company shall on the requisition of such number of members of the company as is specified in sub-section (4) of section 169 forthwith proceed duly to call an extraordinary general meeting of the company. Section 169(6) provides that if the board does not within twenty-one days from the date of a valid requisition proceed duly to call a meeting for the consideration of the matters specified in the requisition, the meeting may be called by the requisitionists or others who satisfy the conditions in clauses (b) or (c) of section 169(6). Clause (b) of section 169(7), however, says that the meeting to be called by the requisitionists under section 169(6) shall not be held after the expiration of three months from the date of the requisition. Section 186 of the Act as it stood on the date of the petition read:
"186. Power of court to order meeting to be called. —(1) If for any reason it is impracticable to call a meeting of a company, other than an annual general meeting, in any manner in which meetings of the company may be called, or to hold or conduct the meeting of the company in the manner prescribed by this Act or the articles, the court may, cither of its own motion or on the application of any director of the company, or of any member of the company who would be entitled to vote at the meeting, —
(a) order a meeting of
the company to be called, held and conducted in such manner as the court thinks
fit; and
(b) give such ancillary
or consequential directions as the court thinks expedient, including directions
modifying or supplementing in relation to the calling, holding and conducting
of the meeting, the operation of the provisions of this Act and of the
company's articles:
Explanation. —The directions that may be given under this sub-section may include a direction that one member of the company present in person or by proxy shall be deemed to constitute a meeting.
(2) Any meeting called, held and conducted in accordance with any such order shall, for all purposes, be deemed to be a meeting of the company duly called, held and conducted."
The prayer made by the appellant in the petition filed by him is very restricted. He has only prayed for the appointment of an advocate as the chairman of the proposed meeting and for a direction to the company to make all the necessary books and records available to the advocate appointed as chairman to facilitate the holding of the meeting. There is no prayer for ordering a meeting of the company to be called. The question is whether, on the facts and in the circumstances of this case, the relief prayed for can be granted in the absence of a prayer to order a meeting of the company to be called in such manner as the court thinks fit.
It is not disputed that in Civil Suit No. T.S. 146 of 1974, on the file of the court of the Fifth Munsiff, Howrah, an order of temporary injunction has been passed restraining the company from "holding the annual general meeting or any general meeting on September 30, 1974, or any other date" until further orders from that court and it was served on the company on November 22, 1974. The said order is still in force. The board of directors was, therefore, right in stating that it could not call a general meeting as per the requisition of the appellant and some others. It may be that, as stated on behalf of the appellant, a situation has arisen on account of the said order of temporary injunction making it "impracticable" to call a meeting of the company, because neither the board of directors nor the requisitionists who have the knowledge of the order served on the company can call a general meeting as rule 5 of Order 39 of the Code of Civil Procedure makes the said order binding on all members and officers of the company. In these circumstances the appellant should have requested the court to order a meeting of the company to be called and to give such ancillary or consequential directions as may be necessary in the circumstances of the case because a meeting called in obedience to an order of this court under section 186(1) would not have contravened the order of temporary injunction which only prevented the company from calling a general meeting. The appellant has not requested the court to order a meeting to be called but has only prayed for the appointment of an advocate as chairman of a meeting called by him and other requisitionists in contravention of the order of temporary injunction. In these circumstances, we think that no court can give any relief which would have the effect of violating an order of another court which is in force unless it has the power to annul or modify the said order. The appellant cannot also be permitted to amend his prayer suitably now because the power under section 186 is exercisable after February 1, 1975, by the Company Law Board and not by the court by virtue of the amendment of the Act by the Companies (Amendment) Act, 1974 (41 of 1974). In fact, no application for such a relief has been filed before us either. As the requisitionists are prevented by an order of court from calling the meeting itself, the question of appointing a chairman and securing the registers and records of the company for that purpose does not arise. We are, therefore, of the view that this appeal has to fail.
In view of the foregoing, we do not propose to express any view on the correctness of the finding of the learned single judge that the petition filed by the appellant lacks bona fides. For the same reason, we do not express any opinion on the preliminary objections raised on behalf of the company regarding the maintainability of the appeal, viz., (i) that section 4 of the Karnataka High Court Act, 1961, is unconstitutional, and (ii) that no appeal is maintainable against an order passed under section 186 of the Act, in the absence of an express provision in the Act. We, however, observe that the constitutionality of section 4 of the Karnataka High Court Act, 1961, has been upheld by a Full Bench of this court in Writ Appeal No. 35 of 1973, and the appeal filed against the order of the Full Bench is still pending before the Supreme Court. We do not also consider it necessary to decide the question whether a meeting can be held in this case after the expiry of three months from the date of deposit of requisition in view of section 169(7) of the Act.
In the result, this appeal fails and is dismissed. There shall, however, be no order as to costs.
[1974] 44 COMP. CAS. 228
(DELHI)
v.
Delhi Flour Mills Co. Ltd.
S. RANGARAJAN, J.
B. K. Shivcharan Singh, A. L. Kapur and Deepak Chaudhri for the petitioner.
Ved Vyas, A. N. Khanna, A. N. Khanna and C. S. Duggal for the respondent.
Satish Chandra for a shareholder of the company.
P. A. Behl for the general manager and secretary of the company.
Rangarajan, J.—This order will also dispose of Company Petition Nos. 1 and 2 of 1973, which have been filed by the husband of the petitioner and another shareholder, respectively, of the Delhi Flour Mills Co Ltd. (hereafter referred to as "the company") for calling a meeting of the company (the calling of which "otherwise" has become "impracticable"), and for certain other directions (which are not uniform in all the three petitions) without which the petitioner's purpose in calling such a meeting may not be served. Under section 186 of the Companies Act of 1956 (hereafter called "the Act"), the court has been given power to call a meeting other than an annual general meeting; section 167 of the Act enables general meeting. To the details of these I shall revert later. It is necessary, to start with, to notice briefly the facts which have led to these petitions.
The company was registered in the year 1916 as a public limited company, but is stated to have been controlled by the husband of the petitioner, R. K. Jain (petitioner in C. P. No. 1 of 1973) and some of their family members; Oudhbir Prasad (petitioner in C. P. No. 2 of 1973) who holds 63 ordinary shares of Rs. 10 each, is the son-in-law of the petitioner and was also a senior executive of the company. The petitioner and her husband had no male issue and had, therefore, adopted R. P. Jain, the brother-in-law of Sheel Chandra. Yogesh C. Gupta is said to be a friend of Sheel Chandra and R. P. Jain. There seems to have been considerable animosity between the petitioner and her husband on one side and their adopted son, R. P. Jain, as well as Sheel Chandra and Yogesh C. Gupta on the other.
The articles of association of the company (article 96) provide for eight directors, but there were actually three i (1) R. K. Jain, (2) Sheel Chandra, and (3) Yogesh C. Gupta. It is common ground that R. K. Jain had been appointed a managing director of the company for five years under an agreement to take effect from October 5, 1967, i.e. , till October 4, 1972. Nonetheless, he had also been in fact re-elected at least once in 1969 as a director, even subsequent to the said agreement. Sheel Chandra, who had retired by rotation was re-elected on April 30, 1968. Yogesh C. Gupta who had to retire by rotation next, according to the petitioner, was not in fact re-elected and had to retire at the farthest when the annual general meeting had to be held, namely, April 30, 1971. The accounting year of the company ends on the 31st October of each year. The accounts for the year ending October 31, 1969, were passed at the annual general meeting held on April 30, 1970. There has been no annual general meeting thereafter.
Article 106 provides for the continuing directors acting notwithstanding any vacancy in their body; the interpretation article (article 2) says that words importing the singular number include, where the context administers or requires, the plural number and vice versa. Article 115 provides for a quorum of three directors; but this is seen to be contrary to section 287 of the Act, which provides for one-third the number or two, whichever is higher; this section does not permit any article provision to the contrary, as some other sections of the Act seem to permit. The retirement of directors by rotation is provided by sections 255 and 256 of the Act and articles 109-112. To these details also I shall revert later.
Before the impugned right shares under section 81 of the Act were issued and allotted (on December 4, 1972), the petitioner held about 46% of the shares out of a total of Rs. 8,06,380 units of shares, the claim by the contesting respondents being that by the impugned issue and allotments the shares were increased to Rs. 12,27,100 thus reducing the proportion of the petitioner's holdings to about 25%. It would be sufficient to notice this broad feature but not the details of the holdings. The decision to increase the share capital (under section 81) is said to have been taken at a meeting of the board at which R. K. Jain is said to have been present, but R. K. Jain denies that he was present then. The validity of the said meeting is also denied. More importantly, a notice is said to have been given by the company to the petitioner (and others) concerning the issue of right shares (on November 17, 1972). There is some controversy as to whether an application for allotting right shares was in fact made and even whether one is necessary to be made in writing; it is, however, asserted for the petitioner that a sum of Rs. 2,12,540 was deposited in the company's bank by the petitioner on December 4, 1972 (3rd December being a Sunday), when she came to know of the issue from Bombay through some other source. The money is said to have been either loaned or arranged by Bk. Shivcharan Singh, learned counsel for the petitioner. According to the contesting respondents, the petitioners knew and were also informed in time about the issue of right shares, but they made no application because they did not raise the money and the money which was paid only on the afternoon of the 4th (after the allotments of the shares on the 4th morning) represents the money which R. K. Jain had secreted from out of the company's funds during his management. Applications Nos. 725 of 1972 and 73 of 1973 were filed for the petitioner, her husband, etc., being cross-examined on the said matters.
To complete the narrative it may also be noticed at this stage that S. L. Verma, yet another shareholder, a stranger, holding 3,054 ordinary shares, had applied to this court (in C.A. 481/72 in C.P. 71/72) for an order restraining the company from issuing right shares and Bk. Shivcharan Singh, appearing himself for the company, an order was passed restraining the issue of such shares. It is stated for the petitioners that in view of this restraint order, passed on 5th December, 1972, the contesting respondents have been put to a Hobson's choice, as it were, of either taking the allotments later, in violation of the restraint order, or land themselves in another difficulty by having to assert that the shares had been allotted even on the 4th December, 1972 (it is contended for the petitioner that this was short of the requisite period of notice under section 81). SL. Verma has since filed a suit in this court (No. 23 of 1972) making all the parties in this proceeding also as parties to that suit, alleging that in a petition under section 186 of the Act (these three petitions) the question of the validity of these allotments could not be gone into and asking for a declaration that the issue and allotment of 42,070 right shares (of Rs. 10 each) were illegal, that there was no legally constituted board after 30th April, 1971, that the directors who now purport to function (Sheel Chandra, Yogesh C. Gupta, Balbir Singh and Pritam Singh—the last two being co-opted on 9th and 4th of December, 1972, respectively) are not the directors and that they should be restrained from acting as such.
It was not found necessary to record evidence or allow the request made as aforesaid for cross-examining Mr. and Mrs. R. K. Jain in particular, because Bk. Shivcharan Singh stated that he was willing to argue these applications on facts which were admitted and the legal consequences arising therefrom.
Both sides, however, covered very wide ground touching various aspects in controversy between the parties.
Before discussing at least the important among them it is necessary to read section 186 of the Act:
"186. (1) If for any reason it is impracticable to call a meeting of a company other than an annual general meeting, in any manner in which meetings of the company may be called, or to hold or conduct the meeting of the company in the manner prescribed by this Act or the articles, the court may, either of its own motion or on the application of any director of the company, or of any member of the company who would be entitled to vote at the meeting,—
(a) order a meeting of the company to be called, held and conducted in such manner as the court thinks fit; and
(b) give such ancillary or consequential directions as the court thinks expedient, including directions modifying or supplementing in relation to the calling, holding and conducting of the meeting, the operation of the provisions of this Act and of the company's articles.
Explanation.—The directions that may be given under this sub-section may include a direction that one member of the company present in person or by proxy shall be deemed to constitute a meeting.
(2) Any meeting called, held and conducted in accordance with any such order shall, for all purposes, be deemed to be a meeting of the company duly called, held and conducted".
Section 79(3) of the Act of 1913 enabled the court to order even an annual general meeting of the company. The present provision (section 186) only enables the court to call a meeting of the company, other than annual general meeting. The English Companies Act of 1929 provided (section 112(3)) that the court may call a general meeting of the company. But there was an amendment of the English Companies Act as a result of the report of a committee headed by Justice Cohen in the year 1945 recommending that it would save expense if the power of calling an annual general meeting should be transferred from the court to a Board of Trade. It was this later position that was made applicable to India by section 186 of the Act of 1956 which restricted the court's power in the matter of Calling an annual general meeting, the same being vested in the Central Government alone.
Every company shall hold every year, in addition to any other meeting, a general meeting. It is called the annual general meeting. Not more than 15 months shall elapse between the date of the general meeting and the next; the first general meeting of the company has to be held within 18 months after incorporation (section 166). At the annual general meeting the following items of business (which shall be deemed to be special) have to be put on the agenda :
(1) consideration of accounts, balance-sheet and reports of the board of directors and auditors;
(2) declaration of dividend;
(3) appointment of directors in the place of those retiring;
(4) appointment and fixing the remuneration of auditors (section 173).
The above items are within the exclusive domain of the annual general meetings.
Section 257 enables a person to stand for directorship at any general meeting, which may be held, and not necessarily only at an annual general meeting. So long as the company is not having the maximum number of directors fixed by its articles, additional directors may be appointed at general meetings up to the maximum limit. The only effect of introducing sub-section (1A) to section 257 seems to be that no one other than a director can stand as a candidate for appointment unless not less than 14 days' notice is given to the company, the company not having the power to waive such notice.
Concerning the retirement of directors by rotation section 255 of the Act provides that, unless the articles provide for 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 of 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 the Act, be appointed by the company at its general meeting. The remaining directors in the case of any such 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.
Section 256 deals with ascertainment of rotational retirement of directors at annual general meetings; one-third of the directors of a public limited company retire at every annual general meeting.
There is a conflict of judicial opinion on the question whether those directors who have to retire by rotation also vacate their offices by reason of their own failure to call a general meeting. Venkatarama Aiyar J. (as his Lordship then was), speaking for the Division- Bench of the Madras High Court in A. Ananthalakshmi Ammal v. Indian Trades and Investments Ltd. held that they must be deemed to have vacated their offices. That case arose under sections 76 and 79 of the Act of 1913. This view was followed by a Division Bench of the Bombay High Court in Krishna Prasad v. Colaba Land and Mills Co. Ltd. and by a single judge in In re Hindustan Co-operative Insurance Society Ltd. The single judge of the Calcutta High Court had not noticed an earlier Division Bench decision of the same High Court in Kailash Chandra Dutt v. Jogesh Chandra Majumdar , which had taken a contrary view. The Bombay decision did not specifically discuss the effect of, though it did notice, section 256(4) of the Act, which reads as follows :
"256. (4) (a) [f 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 re-appointed at the adjourned meeting, unless—
(i) at that meeting or at the previous meeting a resolution for the re-appointment 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 re-appointed;
(iii) he is not qualified or is disqualified for appointment;
(iv) a resolution, whether special or ordinary, is required for his appointment or re-appointment in virtue of any provisions of this Act; or
(v) the proviso to sub-section (2) of section 263 is applicable to the case.
Explanation.—In this section and in section 257, the expression ' retiring director ' means a director retiring by rotation".
In a later decision in Lalchand Mengraj v. Shree Ram Mills Ltd., Vimadalal J. discussed the above-said newly added provision from an unusual angle, namely, the impact of the order of the Companies Tribunal (as it then was) restraining the company from considering an item on the agenda relating to the offer by the director retiring by rotation for re-election, but allowing the said item to be adjourned pending further orders of the Tribunal. Vimadalal J. held that there was nothing in subsection (4)(b) of section 256 to lead to the conclusion that the deeming provision was to apply only when a company had the choice of fulfilling its conditions or not. Reliance was placed on Grundt v. Great Boulder Proprietary Mines Ltd. concerning an article provision somewhat similar to section 256(4)(b)(i). The concerned article provision in that case reads as follows:
"If at any general meeting at which an election of directors ought to take place the place of any director retiring by rotation is not filled up, he shall, if willing, continue in office until the ordinary meeting in the next year, and so on from year to year until his place is filled up, unless it shall be determined at any such meeting on due notice to reduce the number of directors in office".
At the annual general meeting held in July, 1947, Grundt retired by rotation but a resolution for re-electing him was lost by show of hands. There was no resolution, however, to reduce the number of directors. It was held that despite what happened Grundt continued in office in terms of the above-mentioned article provision. Lord Greene M. R. was not led to come to a different result merely on account of the absurdity of deeming Grundt to be re-elected despite his re-election having been lost by show of hands "Absurdity", observed Lord Greene M. R., "I cannot help thinking, like public policy, is a very unruly horse". What is of greater significance is that a previous decision in Robert Batcheller & Sons Ltd. v. Batcheller, which came to an opposite conclusion in identical circumstances, was disapproved. In Robert also the articles contained a similar provision and the retiring directors were not re-elected on a show of hands. A poll was demanded and the meeting was adjourned to take the poll, but due notice was not given as required by the articles for the adjourned meeting. At the illegally convened meeting the shareholders purported to elect other directors. Romer J. held that the retiring directors could not be deemed to have been re-elected thus enforcing what was exactly the opposite of what had in fact happened. Cohen L.J., with whom Lord Greene M. R. concurred in Grundt, disapproved of Robert as not being consistent with still an earlier decision by Maugham J. in Holt v. Catterall. The decision in Grundt was nullified by a change made in the Companies Act of 1948 (Schedule I, Table A, article 92) providing that the deeming provision would not apply in a case where a resolution for the re-election of such director had been put to the meeting and lost. Vimadalal J. observed that any statutory change made in England would not affect the validity of Grundt in the matter of interpreting an article of association. Ananthalakshmi Ammal having been a decision rendered under the Act of 1913, did not have to concern itself with section 256(4). Without referring to the same, which was a Division Bench decision, a single judge of the Madras High Court held a contrary view in V. Selvaraj v. Mylapore Hindu Permanent Fund Ltd. and observed that the directors retired at the annual general meeting which was convened but the meeting had not commenced at all owing to the confusion which prevailed; it was held that the previous directors must be deemed to continue in office. The contrary holdings of each of the two High Courts, Madras and Calcutta, introduce an additional element of uncertainty about the true legal position. In the view I take of this petition it seems unnecessary to express an opinion on this rather difficult question which may require fuller consideration when it arises.
The Indian decisions which hold that a retiring director vacates office if he fails to hold the annual general meeting seem to be based upon the view taken by the English court in In re Consolidated Nickel Mines Ltd. and the statement in Buckley on the Companies Acts (12th edition, page 882). Probably the decision of the House of Lords in Morris v. Kanssen is also material. In that case the question was whether the allotment of shares by some who purported to act as directors was valid when it was found that there was no appointment at all, the observations were expressly applicable to the case of there being no appointment at all or the original appointment itself being fraudulent. In Consolidated Nickel Mines Ltd. the question for consideration was whether the two directors were entitled to remuneration in spite of the obligation laid down on them by section 497 of the Act that the directors had to summon a general meeting every year and the articles of association providing that all the directors retire from office at the ordinary meeting.
Shri Ved Vyas, learned counsel for the respondent-company, referred to the uncertainty regarding the legal position in support of his contention that in the circumstances it could not be stated that the directors who were at least functioning de facto had notice of any defect in their appointment and for that reason the allotment of the right shares issued by them could not be questioned on the ground of their lacking the necessary authority to do so.
The articles of association of this company provide that at the second ordinary general meeting and at every succeeding ordinary general meeting, two of the directors, exclusive of the ex-officio directors and the debenture director (if any), shall retire from office; the provisions of this article are subject to the terms of any agreement between the company and a director (article 109). Articles 110 to 112 are also material and they read as follows:
"110. The directors to retire at the second ordinary general meeting shall, unless the directors concerned agree among themselves, be determined by lot, in every subsequent year the directors to retire shall be those who have been longest in office. As between directors who have been in office for an equal length of time, the directors to retire shall be determined by lot. The length of time a director has been in office shall be computed from his last election or appointment where he has previously vacated office. A retiring director shall be eligible for re-election.
111. The company at any general meeting at which any directors retire in manner aforesaid shall fill up the vacated offices by electing a like number of persons to be directors; provided that it shall not be obligatory upon the company to fill up any vacancy or vacancies not necessary to be filled up in order to make up the minimum number of directors required under article 96.
112. If at any general meeting at which an election of directors ought to take place, the place of any retiring director is not filled up, such director shall, if willing to continue in office, be deemed to have been re-elected at such meeting, unless it shall be determined at such meeting to reduce the number of directors, or to leave any vacancy unfilled".
It may be recalled that article 106 provides that the continuing directors may act notwithstanding any vacancy in their body and that article 2 (interpretation clause) states that " words importing the plural number also include the singular number".
Venkatarama Aiyar J. in A. Ananthalakshmi Ammal quoted the observations of Swinfen Eady L.J. in Channel Collieries Trust Ltd. v. Dover, St. Margaret's and Martin Mill Light Railway Co.:
"I think that the context requires that the word ' remaining directors ' should include the case of a remaining director..........and so long as there is any remaining director he may proceed to fill up the board by appointing persons when casual vacancies occur".
Venkatarama Aiyar J. applied those principles and held that the power to co-opt directors can be exercised even though the strength of the directors falls below the minimum and even when there was only one director capable of acting. Where there was at least one director he was capable of co-opting other directors. Pritam Singh and Balbir Singh are stated to have been co-opted on December 4, 1972, by Sheel Chandra and Yogesh C. Gupta. R. K. Jain (husband of the petitioner) retired in 1969, and he was re-elected despite the agreement according to which he was to be a managing director till October 4, 1972 (five years from October 4, 1967). That agreement does not expressly say that R. K. Jain did not have to retire as a director. In none of the model forms which have been suggested by Palmer's Company Precedents is there any particular form to suggest that by reason of an agreement alone the director could be a managing director for a period of 5 years without his also having to continue as director. It seems reasonable that the agreement would be operative if the person concerned was a director throughout the period mentioned in the agreement; in other words, if he ceased to be a director earlier than that period he may not by virtue of that agreement alone claim to be a managing director. As a fact, however, he seems to have been taken as continuing.
In the view that out of a total of three directors, Sheel Chandra and Yogesh C. Gupta alone continued as directors, article 109 would be relevant. It provides that at the second ordinary general meeting of the company and at every succeeding ordinary general meeting two of the directors, exclusive of the ex-officio director and debenture directors (if any), shall retire from office, but the provisions of this article are subject to an agreement between the company and the director. The expression in article 109 "two of the directors" itself suggests that the retirement by rotation of directors would take place only when there are more than two directors, that is to say, only if there are more than two directors, two, out of them, can retire by rotation. It is instructive to refer to In re David Moseley and Sons Ltd., where the concerned article provided for one-third of the directors retiring and also that, if the number is not a multiple of three, then the number nearer to but " not exceeding one-third" to retire from office. At the material date there were only two directors. Simonds J. observed (at page 723) as follows :
"The article, in my judgment, does not provide for the retirement of a director unless one of two conditions is satisfied : either there must be a number which is one-third of the directors, or there must be a number which is nearer to, but does not exceed, one-third. Here it is clear that neither of those conditions is satisfied. There are two directors and, therefore, you cannot find a number which is one-third. There are two directors and, therefore, you cannot find a number which is nearer to but does not exceed, one-third".
This case was referred to and distinguished by Venkatarama Aiyar J. in B. N. Viswanathan v. Tiffin's Barytes, Asbestos and Paints Ltd. on the basis of the language employed in David Moseley and the absence of analogous language in Viswanathan; it was held that even one of two directors should retire at the meeting. The language of article 109 is analogous to that employed in David Moseley.
Even if this view is not correct, Sheel Chandra must be taken to have retired not earlier than July 31, 1971, the last annual general meeting having been held on April 30, 1970 (there can be an interval of 15 months between two general meetings). Then, Yogesh C. Gupta, having become a director later than Sheel Chandra, he could continue as director till the next day on which the annual general meeting was to be held and in this sense did have the potentiality, according to Shri Veda Vyas, of co-opting other directors. I have referred to these aspects which may possibly have to be considered not for the purpose of deciding them but only for the purpose of indicating that these extremely difficult and complex questions cannot be satisfactorily and properly decided, collaterally, for the purpose of finding out whether it is "impracticable" for the company to conduct a meeting.
The expression "impracticable" is not, however, to be construed as "impossible". Sinha J. observed in Lothian Jute Mills Co. Ltd. that section 79(3) of the Companies Act of 1913 contemplated that the court should exercise its powers where it cannot say with reasonable approach to certainty, or even prima facie, that the meeting called in exercise of the powers contained in the regulations will be valid. This was to ensure that the shareholders should not be exposed to uncertainty flowing from the situation and the consequent litigation. Banerjee J. also held in In re Malhati Tea Syndicate that the word "impracticable" means "impracticable from a reasonable point of view". The court must take a "common-sense view" of the matter and must act as a prudent person of business. Following the observations of the Judicial Committee in Commissioner, Lucknow Division v. Deputy Commissioner of Pratabgarh, Banerjee J. observed in In re Malhati Tea Syndicate Ltd. that when there is doubt as to the existence of a board of validly appointed directors and there is possibility of interminable troubles and prejudice to the interest of the company if a meeting is held otherwise than under the direction of the court, it will be expedient for the court to call a meeting of the company. The observations of the same court in Indian Spinning Mills Ltd. v. His Excellency Lt. General Madan Shumshere Jang Bahadur . An appeal against an order of Mooker jee J. calling a meeting was dismissed by the Division Bench, to which Banerjee J. also was a party, when it was felt that the calling of a meeting by the requisitionists would lead to endless litigation and where matters may arise for debate and decision which were already the subject-matter of suits. The Division Bench had no difficulty in holding in such circumstances that a meeting of the company would be " impracticable". In a still later decision of the same High Court in Bengal and Assam Investors Ltd. v. J. K. Eastern Industries P. Ltd., P. B. Mukharji J. (as he then was) reviewed the case law in question and agreed with the principles decided by the aforesaid cases but still declined to order a meeting in that case. He observed that a discretion granted under section 186 should be sparingly used and with great caution so that the court does not become either a shareholder or a director of the company trying to participate in internecine squabbles of a company. In a still later case before the same High Court S. P. Mitra J. reviewed all the authorities in United Breweries Ltd. v. Ruttonjee & Co. Ltd. and summarised the principles to be borne in mind in an application under section 186. It seems to me that the following principles were re-stated :
(1) the court would not ordinarily interfere with the domestic management of a company which should be conducted in accordance with the articles;
(2) the discretion granted under section 186 should be used sparingly and with caution so that the court does not become either a share holder or a director of the company; in other words, the court will ordinarily keep itself aloof and not participate in quarrels of rival groups of directors or companies;
(3) the word " impracticable " has to be construed from a practical point of view;
(4) but where the meeting can be called only by the directors and there are serious doubts and controversies as to who are directors or there is a possibility that one or two or both the meetings called by rival groups have been invalid, the court ought not to expose the shareholders to un certainty and should hold that a position has arisen which makes it "impracticable" to convene a meeting in any manner in which the meeting may be called;
(5) the court should exercise its powers under section 186 when on considering all the facts and circumstances of a case it can with reasonable approach to certainty and even prima facie say that the manner in which meetings are previously called under the Act and/or under the articles would be invalid;
(6) before exercising discretion under section 186 the court must be satisfied that a director or a member moved an application bona fide in the larger interests of the company for removing a deadlock which is otherwise irremovable.
Mitra J., referred to In re El Sombrero Ltd., which was a somewhat extraordinary case. The applicant held 90% of the shares of a private company and each of the two directors held 5%. According to the company's articles of association, the quorum for the general meeting was 2, present in person or by proxy; if within half an hour from the time appointed for a meeting the quorum was not present, the meeting, if convened on the requisition of members, would stand dissolved. No general meeting of the company had ever been held. On March 11, 1958, the applicant requisitioned an extraordinary general meeting under section 132 of the Companies Act, 1948, for the purpose of passing resolutions removing the two directors and appointing two other persons as directors. The directors having failed to comply with the requisition the applicant himself convened an extraordinary general meeting for April 21, 1958. The directors did not attend the meeting either in person or by proxy; the quorum not being there the meeting stood dissolved. On April 29, 1958, the applicant served a special notice under section 142 of the Act of 1948 of his intention to move the same resolutions at the next extraordinary general meeting; on the same day he took summons asking for a meeting to be called by the court under section 135(1) of the Act of 1948 for the purpose of passing the resolutions, and for a direction that one member of the company should be deemed to constitute a quorum at such meeting. The application was opposed by the directors. An order directing a meeting to be held and that one member present should constitute a quorum was made in the circumstances. This case illustrates the exercise of such power in order to suit the exigency of each situation. It is also of interest to note that there was no reference here to the previous decision of the English Court of Appeal in MacDougall v. Gardiner. It was held in that case that where by the articles of association of a company, the directors, and in the alternative, a certain portion of the shareholders can summon a meeting of the company, the court will not order the directors to summon a meeting for the general purposes of the company.
Reliance was placed by the petitioner upon a Full Bench decision of the Allahabad High Court in Balkrishna Maheshwari v. Uma Shankar Mehrotra, a case arising under the old sections 76 and 79 of the Companies Act of 1913. The District Judge of Kanpur had passed an ex parte order directing an annual general meeting of the company which was later on confirmed. The dispute related to the annual general meeting of the company for the year 1946, the last one having taken place on February 3, 1945, According to the articles of association the annual general meeting of the company for the year 1946 had to be called on some date before 31st March of that year. The management of the affairs of the company lay in the hands of a council of 21 members, including a president and a vice president; the duty of calling the annual general meeting of the company in every calendar year lay upon that council. It was contended on one side that 14 days' clear notice had been given for the meeting in 1945, It was contended, on the other hand, that though a notice was directed to issue fixing a date, no notice had been issued and posted with the result that there could be no clear 14 days' notice as required. An objection had been raised by one of the members to whom a notice had been sent that the notice had been invalid. The District Judge had held that a meeting of some sort was held on March 28, 1946, though it was without a clear margin of 14 days' and was invalid. The Full Bench of the Allahabad High Court observed that the District Judge should also have held that he had the competence to find out whether there had been a previous valid meeting as a necessary step in the matter of calling the meeting sought for under section 186 of the Act. Mootham J., speaking for the Full Bench, observed :
"It was strenuously contended by learned counsel that the determination of such an issue might often involve the decision of complicated questions of fact and law and it must, therefore, be inferred that the law did not contemplate the determination of such a question in a miscellaneous proceeding under section 79(3). We are not impressed at all by this argument because we do not think that in the large majority of cases any complicated questions of law and fact will arise for consideration. The question of the validity or otherwise of a meeting will, in a vast majority of cases, turn upon the interpretation of the company's articles of association and some general provisions of the law".
The Full Bench decision is, therefore, of no assistance to the petitioner; this is not a simple case, free from complexity.
Shri Ved Vyas, on the other hand, contended that the present petitions not having been brought in the name of the company they are not maintainable according to the well-known rule in Foss v. Harbottle. As an important facet of the principle of majority rule, it was held that if a wrong has been done to a company only the company could sue. To this rule itself there are exceptions like the act or resolution complained of being itself illegal or ultra vires, the controllers of the company acting in breach of the articles of association and fraud on the minority being committed. This case was followed in a number of cases including Mozley v. Alston, where two shareholders in their individual capacity brought proceedings against the company and members of the board of directors seeking to restrain the directors from acting as such until four of their members had retired by rotation, as required by the company's constitution, and four new directors had been elected in their place. The action failed in the view that if injury was not one personally to the plaintiffs but to the company—an usurpation of the office of directors—being an invasion of the rights of the corporation; yet no reason had been assigned why the corporation had not put itself in motion to seek the remedy. The "pre-eminently procedural character" as described by Palmer (vide Company Law, 21st edition, page 503) of this rule was explained by Jenkins L.J. in Edwards v. Halliwell, as follows :
"The rule in Foss v. Harbottle, as I understand it, comes to no more than this. First, the proper plaintiff in an action in respect of a wrong alleged to be done to a company or association of persons is prima facie the company or the association of persons itself. Secondly, where the alleged wrong is a transaction which might be made binding on the company or association and on all its members by a simple majority of the members, no individual member of the company is allowed to maintain an action in respect of that matter for the simple reason that, if a mere majority of the members of the company or association is in favour of what has been done, then cadit quaestio, no wrong had been done to the company or association and there is nothing in respect of which any one can sue. If, on the other hand, a simple majority of members of the company or association is against what has been done, then there is no valid reason why the company or association itself should not sue. In my judgment, it is implicit in the rule that the matter relied on as constituting the cause of action should be a cause of action properly belonging to the general body of cooperators or members of the company or association as opposed to a cause of action which some individual member can assert in his own right".
In Edwards v. Halliwell two members of a trade union successfully sued two members of the executive committee of a trade union and the union itself for a declaration of illegality regarding a resolution passed by a delegate meeting of the union, without taking a ballot, increasing the contributions of members contrary to the constitution of the union—that it was not to be altered until a ballot of the members had been taken and a two-thirds majority obtained.
The submission of Shri Ved Vyas in this regard is seen to be without much force in so far as a petition under section 186 need not be on behalf of the company for the very language of that section even permits the court suo motu to call a meeting of the company if it has become impracticable to call a meeting, other than an annual general meeting. But the submission of Shri Ved Vyas may have force if this petition, under section 186, is sought to be used mainly for obtaining reliefs pertaining to the alleged usurpation of office by directors. However, an action need not be in the name of the company for actions concerning injuries personal to the petitioner. There is also one other aspect of the rule in Foss v. Harbottle, and the line of cases following it, namely, that the English court of equity had constantly and consistently refused to interfere on behalf of share holders until they have done their best to set right the matter of which they complain, by calling general meetings (vide Lindley L. J. in Isle of Wight Railway Company v. Tahourdin).
The ground has now been prepared for discussing some of the even more important aspects of this case.
The English cases pertaining to what is known as the rule in Royal British Bank v. Turquand, have been described by Gower as "Something of a jungle of irreconcilable decisions" (Principles of Modern Company Law, 3rd edition, page 158). The question which arose in that case, whether a third party dealing with a company is bound to ensure that all the internal regulations of the company have in fact been complied with as regards the exercise and delegation of authority was answered in the negative. In other words, third parties need not enquire into regularity of indoor proceedings and may assume that everything was validly done. Despite this rule having been laid down in such simple terms, as Gower (page 158) points out, the tendency during the last thirty years has been "to whittle it away notwithstanding the vigorous opposition by judges more familiar with company practice". It is most confusing to go into the English cases which have either applied the said rule in Royal British Bank v. Turquand, or did not apply it. Another standard author, Palmer (Company Law, list edition, pages 249-50) thinks that there is an exception to the said rule, namely, where the persons concerned have knowledge of the irregularity or even when those persons are put on enquiry. The effort not to apply the said rule is really based on the theory of protecting the shareholders; the further question, however, is whether there can be any unwarrantable protection given to the shareholders where the interests of the whole community is made to suffer ? It does not appear to be necessary to go into these difficult and nice questions in the present case because counsel for both sides did not endeavour to go into them.
Shri Ved Vyas relied upon section 290 of the Indian Act in support of his contention that the directors who were functioning in this case, even in the view contended for by the petitioner that they were not de jure directors, were at least de facto directors who functioned without any knowledge of the defect in their continuance or functioning as directors. To appreciate this contention it would be necessary in the first instance to read section 290:
"290. Acts done by a person as a director shall be valid, notwithstanding that it may afterwards be discovered that his appointment was invalid by reason of any defect or disqualification or had terminated by virtue of any provision contained in this Act or in the articles :
Provided that nothing in this section shall be deemed to give validity to acts done by a director after his appointment has been shown to the company to be invalid or to have terminated".
The corresponding section of the Indian Act of 1913 was section 86 and of the English Act section 180. The principle obviously is that there should be no vacuum in the affairs of a company and that all acts done bona fide should be fully protected not only between third parties and the company but also between the company and its members and between members and members.
While considering an article providing for the validity of acts of directors, notwithstanding the discovery later of some defect in the appointment of such directors, Chitty L.J. observed as follows in Dawson v. African Consolidated Land and Trading Co. :
"It is not framed so as to render valid a
resolution passed by any persons who without a shadow of title assume to act as
directors of a company .... The clause is addressed..........to cases of
defective appointment or disqualification".
Dawson was followed in British Asbestos Co. v. Boyd. Until Dawson the object of such article and the concerned provision of the Act was understood as only protecting honest acts of de facto directors in relation to outsiders bat not as between members of the company and the company. In British Asbestos Co. Ltd. v. Boyd, Farwell J. had held that the above view of law to be incorrect; bona fide acts of de facto directors were also good between members of the company inter se and members of the company and the company. The same principle was reiterated in Channel Collieries Trust Ltd. v. Dover, St. Margaret's and Martin Mill Light Railway Co. It was pointed out by Lord Cozens Hardy M.R., when dismissing the appeal against the judgment of Sargant J. that the concerned statutory provision, which had to be construed broadly not only between the company and outsiders but also between the company and the members, validated the bona fide allotment of the shares in question. The view of Farwell J. in Dawson , that the subsequent discovery of a defect did not merely mean the discovery of facts but of the defect itself, was approved. Swinfen Eady L.J. referred to the defects not being present in the minds of the parties who so acted.
The said principle was affirmed by the House of Lords in Morris v. Kanssen also but the observations were confined to acts of defective appointment but not extending to cases of no appointment at all or a fraudulent usurpation of authority from the outset.
This distinction between discovery of facts and discovery of defects was also made by Dua J. (as he then was), speaking for a Division Bench of the Punjab High Court in Karnal Distillery Co. Ltd. v. Ladli Parshad Jaiswal . There is a full discussion of this aspect by Mallick J. in Albert Judah Judah v. Rampada Gupta. Referring not only to standard text writers but also to Indian cases, Mallick J. observed at pages 735-36 as follows:
"In all the authorities, however, cited before me and noticed before the term de facto directors has been restricted to directors with defective appointment. No case has been cited in which the court has upheld the act of a ' pretended director ' without any appointment. In other words, in no case the term de facto director has been applied to a mere usurper without any appointment whatsoever".
To the same effect is also the decision of a Division Bench of the Allahabad High Court in Shiromani Sugar Mills Ltd. v. Debi Prasad, where Desai J., speaking for the Division Bench, considered some of the cases and held that the actions of de facto directors are protected when brought to their minds. A similar view was also taken by Chopra J. in Fateh Chand Kad v. Hindsons (Patiala) Ltd.
Without recording evidence it is hardly proper to go into the facts bearing on this contention. The materials on record do not show any consciousness on the part of those concerned, before the controversies arose, that all or any of the retiring (?) directors could not legally continue. When by letter dated 6th December, 1972 (annexure "C" to the petition), Yogesh C. Gupta informed Bk. Shivcharan Singh (in reply to his letter of the 5th informing the company of the restraint order (annexure "B" to the petition) that the allotment of right shares had been made on 4th December, 1972, Bk. Shivcharan Singh wrote a long letter on 9th December, 1972 (annexure "D"), informing Yogesh C. Gupta about his various legal contentions, also citing some decisions in support. My attention has not been drawn to any communication prior to 4th December, 1972, drawing the attention of the company to the fact that the right shares could not be issued on the ground that there was no validly constituted Board. For this reason alone it does not seem possible for the petitioner, without bringing in more evidence if the same is available on this question to contend that the directors, if they were only de facto, did have notice of the alleged defects, and could not have validly allotted those right shares. Probably realising this difficulty Bk. Shivcharan Singh mounted his attack upon the invalidity pertaining to the decision to issue right shares and to the illegality of the notice issued in this behalf.
The invalidity of the decision to issue the right shares is only a part of the general question, discussed already, whether there were de jure or de facto directors and even if they were only de facto, they had notice of the alleged defects. Any other attack, on how the meeting, at which the decision to increase the capital was taken, was conducted would be possible only if detailed evidence is led on this question. In these circumstances Bk. Shivcharan Singh vigorously concentrated on the sufficiency of the notice that was issued to the petitioner (and others) concerning the issue of right shares.
According to article 10 of the articles of association :
"Where the board of directors of a company decides to increase the subscribed capital of the company by allotment of further shares, then unless the requirements of sub-section (1 A) of section 81 of the said Act are complied with, (a) such further shares shall be offered to the persons who, at the date of the offer, are holders of the equity shares of the company, in proportion as nearly as circumstances admit, to the capital paid up on those shares at the date; (b) the offer aforesaid shall be made by notice specifying the number of shares offered and limiting a time, not being less than fifteen days from the date of offer, within which the offer, if not accepted, will be deemed to have been declined".
The notice is said to have been issued on November 17, 1972, and on the date of receipt the petitioner and her husband should have 15 clear days which would take us to December 3, 1972, but the issue in this case is stated to have been made on December 4, 1972; December 3, 1972, was a Sunday.
Section 81 of the Act provides for the issue of further capital; such further shares shall be offered to the persons who, at the date of the offer, are holders of the equity shares of the company in proportion, as nearly as circumstances admit, to the capital paid up on those shares at that date. This offer should be made by notice specifying the number of shares offered and limiting the time "not being less than fifteen days" from the date of the offer within which the offer, if not accepted, will be deemed to have been declined. In construing the expression "not less than 15 days" it is urged by the petitioner that the date of issuing the notice and receiving the notice must be excluded. It is at par with the expression "7 clear days' notice", which was interpreted in King v. Turner as exclusive of the dates of dispatch and receipt. The same was followed in In re Hector Whaling Ltd as exclusive of the date of service of the notice and exclusive of the day on which the meeting is to be held. The same view was taken by a Division Bench of the Madras High Court in N. V. R. Nagappa Chettiar v. Madras Race Club, where a number of English decisions were also considered. A Division Bench of this court consisting of P. N. Khanna and Prakash Narain JJ. in Bharat Kumar Dilwali v. Bharat Carbon and Ribbon Manufacturing Co. Ltd., interpreted the expression "not less than 21 days' notice" used in section 171 of the Act as notice of 21 whole or clear days. Part of the day, after the hour at which the notice is deemed to have been served, cannot be combined with the part of the day before the time of the meeting on the day of the meeting, to form one day.
The offer of right shares is stated to have been made by a letter dated November 17, 1972. The right shares are said to have been allotted on December 4, 1972; December 3, 1972, was a Sunday. 17 days notice inclusive of the date of issue and date of receipt of the letter will take us to December 3, 1972. Notice of not less than 15 days alone is necessary to be given; that will take us to December 3, 1972, alone exclusive of the day of the despatch and day of receipt of letter. A letter posted in Delhi ordinarily reaches another in Delhi the next day. It is contended that the notice asked the offeree to accept the notice "within 17 days from the date of this offer" and, therefore, there is an extension of time for that reason beyond what the statute prescribes. 17 days "from the date of offer", namely, November 17, 1972, will not take it beyond December 3, 1972. Prima facie the notice does not appear to be shorter than what is required by section 81. Even assuming that the notice was short a declaration cannot be granted against the allottees of those shares in their absence. This would be plainly opposed to the rule of natural justice. It will be sufficient to cite the latest decision of the Supreme Court on this question, i e., Smt. fatan Kanwar Golcha v. Golcha Properties Pvt. Ltd. in which both the official liquidator and the company court were held to be bound by the rules of natural justice. Even an application for the rectification of the share register could not be disposed of without notice to the parties affected. The court may even decline to grant rectification on an application made under section 155 if it involves any complicated questions and the parties could properly be referred to a suit in such a case. The following passage from Halsbury's Laws of England, third edition, page 218, may be usefully referred to :
"If the court thinks that the case, by reason of its complexity or on the ground that there are matters requiring investigation or otherwise, could more satisfactorily be dealt with by an action, the court will decline to make an order on a motion, without prejudice to the right of the applicant to institute an action for rectification".
A similar approach has been adopted by the Indian courts also (vide In re Dhelakhat Tea Co. Ltd., and Mahendra Kumar Jain v. Federal Chemical Works Ltd.). There is also great force in the contention that a suit having been filed, though not by the petitioner but by S. L. Verma (another shareholder) to which the petitioner and her husband are parties, specifically raising the question of the invalidity of the allotment of the right shares and rectification of the register of members concerning the entries made on the basis of the said allotments, it would not be proper to adjudicate on this question summarily.
A right of a shareholder of a company to vote is a right to property, vide Lord Maugham in Carruth v. Imperial Chemical Industries Ltd. . It has been repeatedly held by the Supreme Court that when civil consequences are involved an order having such consequences should comply with the rules of natural justice. The Supreme Court has recently pointed out in Smt. Jatan Kanwar Golcha v. Golcha Properties Private Ltd. that the company court will not pass orders affecting the rights of parties without notice to them; this is nothing but a rule of natural justice. It is instructive to also refer to In re Greater Britain Insurance Corporation Ltd.: ex parte Brockdorff. The Court of Appeal dismissed the appeal against an order passed by Russel J. throwing out an action praying for rectification of the register of members of the company on the ground that the interests of third parties were concerned and that it was not for the court to exercise jurisdiction conferred upon it by article 32 of the Companies (Consolidation) Act, 1908, in the absence of a party affected, even if satisfied, and that it must be enforced in an action to which affected persons are parties.
It remains to notice one other contention of Shri Ved Vyas that article 115, fixing the quorum for the meeting of the board of directors at three, is ultra vires in view of section 287(2), prescribing the maximum as two, not permitting an article provision to the contrary. It is true that there are some provisions contrary to what has been laid down (section 174 is one such) and that section 9 provides that save as otherwise expressly provided in the Act the provisions of the Act shall have effect notwithstanding anything to the contrary in the memorandum or articles of association. I wonder whether it has any relevance here. I have also not been referred to any decided case where such an article provision as the present (though it seems to be common enough) was ever questioned merely on the ground that it provides for a greater quorum than what the Act insists—it may be another matter if the articles provide for less. It seems unnecessary to express an opinion on this question also. Even if the decision to issue right shares was invalid a declaration concerning its invalidity cannot be granted in the absence of those who would be affected by it.
Bk. Shivcharan Singh drew my attention to In re Sly, Spink & Co. where rectification of register of members was granted when the shares were allotted by directors who were less than the quorum. (This argument subsumes that Pritam Singh and Balbir Singh were not properly co-opted and that even if Sheel Chandra and Yogesh C. Gupta were validly continuing as directors they could not by themselves (two of them alone) decide to raise the capital of the company. But then R.K. Jain is said to have been present at a meeting when such a decision was taken; R. K. Jain disputes this and this leads to a controversy concerning facts also). Assuming that everything contended for by Bk. Shivcharan Singh is true and valid we are confronted here with a somewhat extraordinary request to cancel the allotment of right shares without even an application to rectify the register of members, without even having all those who would be affected by that decision as parties before the court and when a suit for such a relief is pending in this very court. Perhaps the greatest difficulty faced by the petitioner is on the above score.
Bk. Shivcharan Singh wanted the sympathy of the court for the petitioner in the view that the adopted son was trying to displace his adoptive parents supported by his own brother-in-law and friends. But sympathy by itself would be hardly enough. The petitioner would have at least to show that there is no other option than to apply under section 186. Even this has not been done. Shri Ved Vyas contends, and with some force, that the members themselves may apply for an extraordinary general meeting under section, 169 and articles 64 to 66; if that were so it would not be for this court to call such a meeting. The petitioner can also apply to the Central Government to convene an annual general meeting under section 167. The petitioner has not obviously considered it sufficient to apply under section 167 to the Central Government because no relief in regard to the issue of right shares could be obtained. That is why these petitions have been filed for getting a declaration concerning the invalidity of the issue and allotment of right shares under the guise of the court having to give directions pertaining to who should vote at such a meeting if one is to be called by this court. I have endeavoured to study myself the reported decisions on this subject and I have not been able to come across a single case—none has been cited to me—where the court went to the extent of rectifying the register of members for the purpose of giving directions as to who should vote.
There was an exceptional situation arising out of the register of members and other records, maintained under the Building Societies Act, 1874, being destroyed due to enemy action, when Vaisey J. (in Payne v. Coe) gave a direction to hold a meeting in accordance with the rules for ascertaining the names and addresses of the members by means of public advertisement. No question of rectifying the register of members for the purpose of giving such directions arose in that case.
Krishnaswamy Nayudu J. of the Madras High Court had given a direction that those whose names appeared in the register of members on a certain date would vote at the meeting called under the old section 39(3), before the present section 186 was placed on the statute book. Venkatarama Aiyar J. in Viswanathan v. Tiffin's Barytes, Asbestos and Paints Ltd. has referred to this direction by Krishnaswamy Nayudu J. as follows : "to this course the company could have no objection". In the case on hand, however, there are several objections (they have been already noticed) to a direction being given that there should be no voting on the basis of the right shares. The petitioner's purpose would not be served if such a direction is not given. What was originally 46% had been reduced to about 25% after the said issue; even if the petitioner is supported by the other two petitioners and S.L. Verma it would be of no avail.
The circumstances discussed at length do not justify the court using its discretion under section 186 of the Act to call a meeting as prayed for.
C. A. Nos. 725 of 1972 and 73 of 1973 are accordingly dismissed. The separate application filed (C.A. No. 119 of 1973) to dismiss the main petition on the admissions contained therein has also become unnecessary. It is also needless to be detained by the question who is the proper person to represent the company, a point raised in C.A. No. 700 of 1972. All these interlocutory applications as well as the main petition (C.P. No. 96 of 1972) are dismissed. There will be no order as to costs in any of them in the circumstances.
[1981] 51 COMP. CAS. 51 (DELHI)
HIGH COURT OF DELHI
Indian Hardware Industries Ltd.
v.
S.K. Gupta
Rajinder Sachar and S.B. Wad, JJ.
Company Appeal No. 17 of 1976 against order, dated 23-4-76 in C.P.M. No. 86 of 1975 connected with C.A. No. 166 of 1975—In C.P. No. 50 of 1971
March 14, 1980
R.L.
Roshan for the Appellant.
K.K.
Jain for the Respondent.
Sachar, J.—Has the court, which has sanctioned a scheme under s. 391 of the Company's Act, during the working of the scheme, the power to call a general meeting of the shareholders for the purpose of electing the board of directors is the only question which we are to answer in this appeal against the order of the learned single judge dated 28th April, 1976, by which he directed the holding of a meeting of the shareholders for the purpose of electing an interim board, who would hold office till the annual general meeting was held. Before dealing with the question of law it is, however, necessary to mention a few facts.
Indian Smelting and Refining Co. Ltd., being one of the unsecured creditors of the Indian Hardware Industries Ltd., the appellant, moved C.P. No. 50 of 1971 for winding up of the company. It was admitted for hearing in December, 1971, and citation was also issued in July. During the pendency of those proceedings, an application under s. 391(2) of the Companies Act, 1956 (to be called "the Act"), was moved by the Delhi Flour Mills Co. Ltd. (D.F.M.) being Company Petition No. 86 of 1975. This scheme was sanctioned by the court on 15th October, 1975. Later on, by an order of 26th April, 1976, respondent No. 1 was substituted for the D.F.M. The Jain group took up the matter in appeal and the Division Bench, by its order of 16th July, 1976, set aside the order of substitution. Sri Gupta went in appeal to the Supreme Court, which by its order of 30th January, 1979, reported in S.K. Gupta v. K.P. Jain [1979] 49 Comp Cas 342, held that Gupta had sufficient locus standi to maintain an application for modification or substitution of the scheme and, therefore, allowed Gupta to be substituted as sponsor of the scheme. We may note that earlier the company judge had found that the only way in which the scheme could be supervised was to hold a general meeting of the company to appoint new directors. The reason was that there was a serious dispute as to who were the directors. He, by the impugned order of 28th April, 1976, directed an extraordinary general meeting to be called to elect an interim board of directors, who would hold office till the annual general meeting was held. Jain group, being aggrieved, filed the present appeal. At the time of admission, the Bench passed an interim order staying the operation of the impugned order. But by then, i.e., 27th May, 1976, the meeting of the shareholders had already been held in pursuance of the order of the learned single judge. The Bench thereupon directed that the impugned decision will not be implemented. That interim order is continuing till today because for some reason or the other the appeal could not be heard earlier.
In the meanwhile the matters were also being dealt with by the learned company judge and by the order of 25th May, 1979, and 24th January, 1980, he had directed the commissioner appointed by the court, to hand over possession of the factory and the other assets of the company to Gupta group, to enable them to implement the scheme. This, however, was to be done under the supervision of the committee of management, composed of a representative of the Gupta group and a representative of the Jain group, acceptable to the Gupta group, and Shri S.D. Verrna, former Chairman, Allahabad Bank, who would act as chairman of the committee. The company judge has noticed that a reasonably satisfactory course of action would have been to have comparative strength of the two groups in the company determined as also a proper board of directors constituted in a duly convened general meeting of the company, but, as there is a dispute with regard to the validity of the transfer of interest in favour of the Gupta group, that matter had to be decided before the meeting could take any worthwhile position. He has, therefore, continued the committee of management so as to effectively implement the scheme and has also directed that none of the groups are entitled to hold themselves out to be the company or as the board of directors until the disputes have been settled. He has also permitted the parties to move the court for further directions.
It is apparent that since the passing of the impugned order of April 28, 1976, much water has flown and very many new developments have taken place which need to be examined by the learned company judge who is seized of the matter. At the time when the impugned order was passed, the learned company judge faced with the problem as to who should function as a board of directors and, in order to resolve the controversy, had directed the calling of an extraordinary general meeting of the company to elect an interim board of directors. As the Division Bench stayed the implementation of the impugned order, the directors never took up office. In the meanwhile the company judge has appointed a committee of management. It is, therefore, essential that a second look be given by the company judge to the impugned order and other developments. We say this because the impugned order of 1976 had directed the election of the interim board of directors till the next annual general meeting was held. Even if we were to dismiss the appeal, we would be reluctant to permit the directors elected in 1976 to function as the board. That eventually would seriously strain the implementation of the scheme, by limiting the direction of the company judge who is supervising the scheme. We were, therefore, inclined to dispose of the appeal with the clarification as above, so as to leave a free hand to the company judge to pass any appropriate order in the light of subsequent developments. But we were pressed by Mr. Mohan, the learned counsel for the respondent, to decide the question of law which was vehementally raised by Mr. Roshan, advocate, namely, that there is no power with the company judge to call an extraordinary general meeting of the company for the purpose of electing the board of directors even when as, in the instant case, a scheme is being carried out under the supervision of the court.
Mr. Roshan was candid enough to admit that if on a fresh consideration the learned judge were to be inclined to call a general meeting for the purpose of electing a board of directors, he would certainly raise an objection as to the competency of the learned judge to call such a meeting. In these circumstances, we feel that there is justifiction for Mr. Mohan to urge that this Bench should at least decide this question of law, so that, if in future the learned judge is inclined to call a general meeting of the shareholders, the competency or otherwise of the court to do so may not again be reagitated. Considering that almost a decade has passed when the application for winding up was first moved and almost five years have elapsed since the scheme was propounded we owe a duty to the public faith in the judicial system to decide at least this question of law and remove one hurdle in the expeditious disposal of the matter. There is one justification for this exercise even when technically the actual impugned order is not to be implemented in any case. The main argument of Mr. Roshan is that after amendment in 1974 the power to call a meeting is only with the Company Law Board, because the court has been substituted by the amendment. No doubt this power under s. 186 of the Act is now to be exercised by the Company Law Board in normal circumstances. But does it completely denude the court of its power to call a meeting even when it is supervising a scheme under s. 392 of the Act ?
We are thus concerned with a very sharp and narrow question, namely, where the company judge is of the opinion that it is necessary to call a meeting of the shareholders to elect directors, is it in law permissible for him to do so ? Now, s. 392 empowers the court sanctioning a scheme or at any time thereafter to give such directions in regard to any matter or make such modifications in the compromise or arrangement as it may consider necessary for the proper working of the compromise or arrangement. We cannot read any limitation in it so as to exclude the power to call a meeting of the company for the purpose of electing the directors if the court feels that it is necessary for the proper working of the scheme to know who are the real directors of the company. The amplitude of the power under s. 392 is no longer in doubt. Section 392(1) confers powers of the widest amplitude on the High Court to give directions and if necessary to modify the scheme with the only limitation that such directions or modifications must be for the proper working of the compromise or arrangement. In S.K. Gupta v. K.P. Jain [1979] 49 Comp Cas 342, 351; [1979] 3 SCC 54 (SC), the court further observed :
"The purpose underlying s. 392 is to provide for effective working of the compromise and/or arrangement once sanctioned and over which the court must exercise continuous supervision [see s. 392(1)], and if over a period there may arise obstacles, difficulties or impediments, to remove them, again, not for any other purpose but for the proper working of the compromise and/or arrangement. This power either to give directions to overcome the difficulties or if the provisions of the scheme themselves create an impediment, to modify the provision to the extent necessary, can only be exercised so as to provide for smooth working of the compromise and/or arrangement.....But the legislature, foreseeing that a complex or complicated scheme of compromise or arrangement spread over a long period may face unforeseen and unanticipated obstacles, has conferred power of the widest amplitude on the court to give directions and, if necessary, to modify the scheme for the proper working of the compromise or arrangement. The only limitation on the power of the court, as already mentioned, is that all such directions that the court may consider appropriate to give or make such modifications in the scheme, must be for the proper working of the compromise and/or arrangement".
This vast power cannot be whittled down by the 1974 amendment. The argument of Mr. Roshan is based on a misapprehension of the scope of the 1974 amendment of s. 186 and others. The amendments were brought in pursuance of the recommendation of the Administrative Reforms Commission that the functions which are discharged by the courts under the Companies Act may be reviewed and those which are essentially of an administrative nature may be transferred to the executive. It had also observed that there was a case for relieving the courts of items of merely administrative nature. These could be transferred to the Central Govt. which could delegate them to the Company Law Board. The courts then will be left with such cases as would involve the sifting of the evidence. It was this recommendation which led to the amendment of ss. 17, 18, 19, 79, 141 and 186. It is true that if after the 1974 amendment, any person wishes to call an extraordinary annual general meeting he will have to apply to the Company Law Board. But the present is not a case where a meeting is being called in the normal course. The learned company judge who directed the calling of the meeting did so because he felt that the only way in which the court can supervise the carrying out of the scheme was to order that a general meeting of the company is held in order to appoint the directors of the company. It would be quite anomalous to suggest, as Mr. Roshan seeks to do, that if the court felt the necessity of calling such a meeting, it would have to request the Company Law Board to call such a meeting. Mr. Roshan accepted the anomaly of the situation, but all that he could reply was that if there was a lacuna it was for the legislature to remove it. We do not accept that the legislature intended such a result because it is well-settled law that if an interpretation leads to absurdity and anomaly, the same must be avoided. The argument of Mr. Roshan is totally alien to our jurisprudence which gives finality to the jurisdiction of the court and which cannot be taken away unless the legislature has by express words so directed. There is nothing in s. 186 which lays down that a company court which is supervising the scheme under s. 392 cannot call a meeting of the company if it feels that it is necessary to do so for the proper supervision and implementation of the scheme. We cannot accept an interpretation which puts the court in the position of a supplicant before the Company Law Board. Such an interpretation runs counter to the power of the widest apptitude read into this provision by the above decision of the Supreme Court. So long as the meeting is to be called, because the court feels it necessary for the proper working of the scheme, the power must be found to be implicit in the court by virtue of s. 392(1) and it is not necessary to invoke s. 186 for this purpose.
According to Palmer's Company Law (21st edn., p. 470) in the exercise of the very wide power contained in s. 210 of the English Companies Act (which is equivalent to s. 397 of the Indian Companies Act) the court has power, if the requirements of that section are satisfied, to convene a general meeting of the members of the company or of any class thereof. Now, s. 392(2) of the Act empowers the court that, if it is satisfied that the arrangement sanctioned under s. 391 cannot be worked satisfactorily, it may make an order winding up the company. As a matter of fact the company judge has in Company Petition No. 50 of 1971 (winding-up petition) by his order of March 29, 1976, specifically directed that, notwithstanding the sanctioning of the scheme, the winding-up petition will remain pending because if the scheme fails, winding-up order may have to be passed. Thus, it must also be remembered that this direction to call a meeting is being exercised during the pendency of the winding-up petition. Now, it is well settled that if the scheme is sanctioned by the court in the course of winding-up proceedings which is pending, the scheme is certainly and truly an alternative mode, a substitute, for the pending winding-up and that the court may stay the winding up for the purpose of giving effect to the scheme. In such a case the court may exercise the powers of a winding-up court in matters arising under or out of the scheme as matters arising in winding-up. See Smt. Bhagwanti v. New Bank of India Ltd. [1950] 20 Comp Cas 68; AIR 1950 East Punjab 111 [FB]. Not even Mr. Roshan contended that the winding-up court would need to apply under s. 186 of the Act if it wanted to call a meeting of the company. In principle we see no justification why, in view of the position of law enunciated above, the court which is supervising the scheme should have lesser power during the pendency of a winding-up petition.
One other aspect may be noticed which will indicate the vast powers under s. 391. Sub-section (6) of s. 391 empowers the court, if an application has been made, to stay the commencement or continuation of any suit or proceedings against the company on such terms as the court thinks fit, until the application is finally disposed of. Recognising the importance of a scheme in re-starting the business of a company, the Legislature aims at removing the normal legal constraints. Surely, it cannot be urged that after the scheme has been sanctioned and the same is being supervised by the court it should be held to be so helpless as not to be in a position even to call a meeting of the company which it feels is necessary to be called for the proper implementation and working of the scheme. To deny this power to the court would be to make s. 391 and the supervision by the court an idle formality.
Now, a look at the scheme shows that, apart from Dena Bank, a secured creditor, there are unsecured creditors to the amount of over 2.3 lakhs. The Delhi Flour Mill (which has now been substituted by the Gupta group, respondent) is to dispose of part or whole of the machines in the pressure die casting section and clear the debt of Dena Bank. If the sale amount is not enough, the Gupta group is to dispose of the whole or a part of the machines in the tool room section so as to liquidate the debt. The Gupta group is to run the other sections like the building hardware section and is to advance a sum of Rs. 3 lakhs. The company is expected to make a profit up to 4 lakhs and is supposed to pay up all the unsecured creditors within 4 years. The Delhi Flour Mill (Gupta group) is to be paid after all unsecured creditors have been paid. No interest is to be paid to the Gupta group for the advance paid by it. It needs no argument to stress that such a detailed scheme would obviously require a board of directors which does not impede the scheme and works under the directions of the court. A situation cannot be permitted where, for working the scheme, it is necessary to work a particular unit of the company but the board of directors decided to close down that particular section. Can it be envisaged that the board of directors would be competent to decide that, contrary to the provision in the scheme, the machines in the pressure die casting section will not be sold ? For the effective working of the scheme, active co-operation of the board of directors would be necessary. Is the court to be a helpless spectator and see the scheme being wrecked by a non-co-operative board of directors. Surely the court which possesses power under s. 392(2), on the failure of the scheme to work satisfactorily to order the winding-up of the company, cannot be said to be so denuded of the power as not to be able to call a meeting of the company in an effort to have a proper working of the scheme. To deny such a power is to strip the potency of s. 392(1) of the Act and to put the court in the unacceptable position of a helpless spectator. We cannot countenance such an interpretation which would make the supervision of the companies and the scheme sanctioned by the court a mere will o' the wisp. If the remedy is to be effective, it demands that this power of calling a meeting, which the court feels is necessary for a working of the scheme, must be and is read to be implicit in the power of the court under s. 391 of the Act. Section 186 is no hurdle to the exercise of this power by the court. Reference was then made to A.D. Chaudhary v. Mysore Paper Mills Ltd. [1976] 46 Comp Cas 548; [1976] Tax LR 2051 (Kar). In that case an application was filed under s. 186 of the Companies Act before the court (this application was filed before the 1974 amendment) praying for the appointment of a chairman by the court for a meeting of the company which was proposed to be held. It appears that earlier a Munsif had passed an order of temporary injunction restraining the company from holding a meeting and hence the board had refused to call a meeting while the requisitionists had been insisting on holding a meeting. The High Court held that in the circumstances it cannot order the calling of a meeting which would violate the injunction issued by the Munsif and that the proper thing for the applicant would be to request the court for calling a meeting of the company which he had not done and, therefore, no relief could be given to him. Dealing with the aspect that the applicant should be allowed to amend the prayer for calling a meeting it was observed by way of obiter that now the power under s. 186 was exercisable after February 1, 1975, by the Company Law Board and not by the court and also that no application or prayer had been filed before the High Court and, therefore, the relief cannot be given. It will be seen that the case has laid down that in normal circumstances an application for calling a meeting would have to be made to the Company Law Board in view of the amendment of 1974. That case is clearly distinguishable because in the present case the calling of a meeting is being done by virtue of the powers under s. 391 of the Act. In Radford & Bright Ltd., In re [1901] 1 Ch 272 (Ch D), a meeting of the creditors and contributories of the company had nominated a committee of inspection. Later on a foreign company being one of the large creditors represented that it should also be represented on the committee. Wright J. felt the justification of the plea. The question, however, arose, in what manner this was to be done. The court found that there was no provision expressly enabling the court to interfere directly with the constitution of the committee of inspection when once it was validly appointed but, as the court found the plea of the committee to be justified, it used its power to remove one or more members of the committee to direct a general meeting of the creditors to be summoned to consider these questions. Thus, it will be seen that the court evolved a procedure to make the effective functioning of the committee. In the present case also, when the court is to supervise the scheme, the inherent power of the court to direct the calling of the meeting cannot be faulted.
We are, thus, of the view that the learned judge had the necessary power tinder the Act to call a general meeting to elect the board. Therefore, no objection can be raised on the ground of want of power of summoning a meeting. This objection of Mr. Roshan, therefore, fails.
Though, therefore, we held that the meeting was properly called by the learned judge we do not think that it will be proper to let the implementation of that order be carried out without the learned company judge having again looked into the matter in the light of the various events that have since taken place. The matter, therefore, will now go back to the learned judge. It will be open to the learned judge, if he is of the opinion that for the proper implementation of the scheme a meeting of the shareholders is necessary to call the same. It will also be open to the learned judge if he is not inclined to call a meeting not to do so. We wish to make it clear that there is no mechanical implementation of the proceedings of the general meeting which takes place in pursuance of the impugned order. It will, thus, be open to the learned judge either to implement these proceedings or to make any other direction that he considers necessary for the proper implementation of the scheme. We have in this appeal only decided a question of law, namely, that it is open to a learned judge to call a meeting of the company, if he feels it necessary for the proper implementation of the scheme. But that is not to be understood as in any way compelling the learned judge to accept the proceedings which take place in pursuance of the impugned order because we would want the learned judge to pass an order after taking into account the various events since then. We may mention that Mr. Mohan, learned counsel for the respondent, has offered that the committee of inspection which has been appointed by the learned judge may be deemed to be the board of directors so long as the scheme is being implemented and that it may not be necessary in that circumstance to elect a board of directors separately. Mr. Roshan was unable to subscribe to this. We are only making note of it for consideration by the learned judge.
With these observations the appeal is disposed of. Parties through their counsel have been directed to appear before the learned judge on March 20, 1980.
[1968]
38 COMP. CAS. 153 (MAD)
HIGH COURT OF MADRAS
v.
Mylapore Hindu Permanent Fund Ltd.
RAMAPRASADA
RAO, J.
COMPANY
APPLICATION NOS. 124 AND 131 OF 1967
Nainar
Sundaram for the Applicant
N. C. Raghavachari for the Respondent.
ORDER
The above two applications were taken up together for hearing, as common questions are involved. Company Application No. 124 of 1967 is by a shareholder of the Mylapore Hindu Permanent Fund Limited, which is governed by the provisions of the Indian Companies Act, 1956, for a direction restraining respondents Nos. 2 to 5 from exercising the functions of directors of the above Fund which is a public limited company, and for certain incidental orders. The 1st respondent in the said application is the Fund itself. The applicant alleges that respondents Nos. 2 to 5 have to retire on the holding of the 94th annual general body meeting of the Fund, their term of office having expired by efflux of time and they being obliged to retire by rotation. The 94th annual general body meeting was called by the board of directors who were in charge of the affairs of the Fund and who were statutorily obliged to call for such a meeting. Such annual general body meeting was proposed to be convened at 2 p.m. on April 22, 1967, at the Gokhale Hall, No. 9, Armenian Street, Madras-1. The contention of the applicant is that after calling for the said meeting, the board of directors, including respondents Nos. 2 to 5 left the hall abruptly along with the secretary of the Fund after distributing the agenda and the printed balance-sheet for the financial year ending with October 31, 1966. As the board of directors and the secretary left, without sufficient cause, the meeting hall, the shareholders who were present there continued the meeting and considered the agenda after electing Mr. S. T. Shanmugesan as the chairman thereto. Several resolutions were passed in the said meeting, including the election of directors in the place of respondents Nos. 2 to 5, who ought to have retired normally if the meeting was held. The applicant therefore states that respondents Nos. 2 to 5 can no longer hold their office and, in fact, they have ceased to hold such office on April 22, 1967, after the annual meeting was held by those who were left over at the hall after the board of directors and the secretary left the same. He, therefore, prays that suitable directions restraining respondents Nos. 2 to 5 from continuing as directors of the Fund may be given. The 1st respondent has filed a counter affidavit through its secretary. According to the 1st respondent, this application is not maintainable in law and the facts stated in the affidavit in support of the application do not represent the correct state of affairs. The secretary of the Fund states that in spite of the best arrangements made by the board of directors by providing separate entrances for the entry of members and non-member proxy-holders, yet the persons who congregated at the hall, including strangers, gained entrance into the hall improperly and insisted upon their demands being conceded, and refused to vacate the hall. Even the police help, which was sought to maintain peace and order, was of no avail. By that time it was 2 p.m. and members and non-members who gathered outside the hall gained entry by pushing the main door and there was thus confusion and pandemonium and shouts and counter-shouts. As it became impossible for the board of directors to commence and conduct the annual general meeting called for, the president of the Fund recorded in the minutes book that the annual general meeting could not be held and an announcement to that effect was also made in the mike at about 3 p.m. It is also alleged that the minutes book and the records were never taken away before the commencement of the meeting and all such records were there in the hall till about 5 p.m. By reason of the fact that the meeting could not be commenced and thereafter held, the Fund requested the Registrar of Companies for extension of time for holding the 94th annual general body meeting of the Fund. The Fund also refers to certain civil proceedings taken by the petitioner and others, which it is unnecessary for this court to set forth in detail. The Fund alleges that no annual meeting of the Fund could have been held validly after the board of directors announced that, due to pandemonium and confusion, no meeting can be held and that therefore respondents Nos. 2 to 5 are still functioning as directors of the Fund and this application for injunction is without any merits.
The applicant, in his reply, reiterates what was said in the opening affidavit and affirms that the meeting should be deemed to have commenced by the distribution of the agenda and the balance-sheet and by the congregation of the members in response to a call to hold the meeting. The petitioner's main contention is that the board has no power to adjourn the meeting specifically convened for electing directors, except under the provisions of section 256 of the Companies Act. He denies what all has been said by the secretary in his counter affidavit and alleges that the Registrar of Companies rejected the request of the petitioner for extension of time for holding the 94th annual general body meeting. He, therefore, presses that respondents Nos. 2 to 5 who are deemed to have ceased to hold the office of directorship should be restrained from acting as directors of the Fund.
Company Application No. 131 of 1967 is by the Fund and the only material prayer asked for is for the appointment of an independent chairman for holding and conducting the 94th annual general body meeting of the Fund, as it could not be held earlier though called for by the board of directors. This application is also supported by an affidavit sworn to by the secretary. Here again, the secretary refers to the disorder which prevailed on April 22, 1967, and as to how the members and non-members gained forcible entry into the hall by pushing the gates and that rival parties created galata and confusion with a view to see that the meeting was not held and conducted. He reiterates that the board of directors recorded the fact of such disorder in the minutes book and made an announcement to that effect in the mike. One other contention raised in this application is whether the claim of some of the shareholders to have the election of directors by ballot was the only process which should be resorted to for the election of directors to the Fund and whether it is not feasible to adopt the practice in vogue for electing the directors by show of hands. The Fund also refers to the fact that the election of directors in the past was in accordance with the provisions of the Companies Act and there has been no departure from such accepted rules. The Fund refers to certain proceedings in the City Civil Court and, as I said already, it is unnecessary to refer to them in the view that I intend taking in the matter. The Fund, therefore, prays that to ensure a peaceful holding of the 94th annual general body meeting of the Fund, it is necessary that an independent chairman be appointed for holding and conducting the same and for holding the election of directors as per the provisions of the Companies Act and for consideration of other subjects to be tabled in the agenda. Notice of this application was directed to be published by me in the newspapers, so that everyone of the shareholders may have the benefit of the same. On such publication of the notice, several shareholders have filed common counter affidavits and one such counter affidavit is filed by Mr. S. T. Shanmugesan who happened to be the chairman of the alleged annual general meeting conducted by the alleged shareholders of the Fund after the board of directors expressed their inability to hold and conduct it at the Gokhale Hall on April 22, 1967. In this counter affidavit the allegations already traversed in Company Application No. 124 of 1967, are reiterated and the allegations made in the affidavit of the secretary of the Fund in support of this application are expressly denied. The deponent of this affidavit states that the Registrar has recognised and approved the minutes of the alleged annual general meeting held by the shareholders after the board expressed its inability to hold it and that several matters in this application are sub judice in the City Civil Court and that this court has no jurisdiction under section 186 of the Companies Act to call for an annual general meeting of the Fund and that what the alleged shareholders did on April 22, 1967, is valid and cannot be disturbed and that therefore there is no need for the holding of a second annual meeting for the same purpose. It is significant to note that the applicant in Company Application No. 124 of 1967, also has filed a counter affidavit almost on similar lines with that filed by Mr. Shunmugesan and others.
In reply, the secretary of
the Fund repudiates every contention of the respective shareholders in each of
their affidavits and reiterates the material facts already traversed by me. His
main contention is that the Registrar has not recognised the so-called holding
of the annual general meeting by the alleged shareholders on April 22, 1967,
and that there can be no impediment in the circumstance for the grant of the
prayers asked for.
In the view that I intend taking in this matter, it may not be strictly necessary for me to find whether respondents Nos. 2 to 5 still continue to be the directors of the Fund and whether they have retired on the date when the annual general meeting of the Fund was sought to be convened. It is no doubt true that when an annual general meeting is held, then it is mandatory that out of the 12 directors of the Fund, one-third of the members have to retire annually and fresh directors have to be elected and appointed in their place. The question, however, in this case is whether any vacancy existed at all. In that sense, it is not strictly necessary to go into the question whether respondents Nos. 2 to 5 have stepped down from their office or whether there has been a vacancy in the office of directorship by reason of the fact that notice of the annual general meeting to be convened on April 22, 1967, was given in the manner provided under the provisions of the Companies Act.
No doubt, the notice of the meeting was given by the Fund. But this court is now confronted with the question whether a meeting has been held or whether a meeting has commenced. Chamber's Twentieth Century Dictionary explains the word "commence" as meaning "to enter upon." Even so, the word "hold" has also been explained in the same dictionary as "to continue or to conduct". I have already mentioned in detail the facts. It can unhesitatingly be concluded that on the date when the shareholders were called upon to gather at the Gokale Hall for the commencement and conduct of the meeting, so that it may be held within the meaning of section 166 of the Companies Act, 1956, it cannot be said with any amount of percision on that circumstance alone that they gathered there with the object of commencing and conducting the annual general meeting. The secretary of the Fund, who is a responsible officer, has sworn to the affidavit in which he says that members and non-members gathered inside the hall by gaining entry into it by pushing the main door of the meeting hall and occupying the the seats wherever they liked without verification. He swears that there were some outsiders also. According to him, there was confusion and pandemonium and shouts and counter-shouts by supporters of rival candidates. Indeed, police help was sought. It was only thereafter when it was felt that it was impossible to commence the meeting or to hold the meeting that the president recorded in the minutes book as a fact as to what transpired therein and said that the annual general meeting could not be held for the reasons stated in the minutes book. Exhibit A-1 which is the record of such a fact in the minutes book, as noted by the president of the Fund and countersigned by the secretary, runs as follow :
"As there is confusion in the hall on account of people rushing into the hall without verification of their signatures and as it is not possible to conduct the meeting, the meeting could not be held. "
That this is so is practically corroborated by Mr. S. T. Shanmugesan in his letter dated April 28, 1967, marked as exhibit A-3, in which he accepts that the secretary and the board of directors were not present in the hall to conduct the annual general meeting. The expression used by Shanmugesan that the directors were unable to conduct the annual general meeting is of special significance, in so far as this case is concerned. The secretary would also state in the affidavit that after recording the minutes as per exhibit A-1, they remained in the hall and announced over the mike that the meeting could not be held, and such an announcement was made at about 3 p.m. There is nothing compelling for me to reject these statements made by a responsible officer of the Fund. Excepting to deny the allegations, the petitioner in Company Application No. 124 of 1967, did not satisfy this court that the circumstances were such that a meeting could be held and that the directors avoided the holding of the meeting. Any rational, prudent and reasonable person who is obliged to act in those circumstances would not have done anything better. The board of directors who were present there, including the president and the secretary found that the pandemonium which prevailed at that time in the hall made it impossible for them to commence and thereafter hold the meeting. The fact that the agenda and the balance-sheet were distributed to some of the shareholders prior to the commencement of the meeting takes us nowhere, in so far as this case is concerned. By the mere distribution of the agenda and the balance-sheet it cannot by any stretch of imagination be stated that the meeting has commenced. The agenda itself has got to be placed in the meeting ; even so the balance-sheet; and, if, therefore, the meeting has not commenced and could not be held by persons responsible for holding it, I am unable to countenance the argument of the learned counsel for the applicant in Company Application No. 124 of 1967, that the meeting should be deemed to have commenced by the very act of distribution of the agenda to some of the shareholders. Under article 52 of the articles framed by the Fund, the Fund shall hold in each year in addition to any other meetings, a general meeting as its annual general meeting specifying it as such at the Registered Office of the Fund or in some other place within the City of Madras. The "Fund" has been defined as to mean "The Mylapore Hindu Permanent Fund Limited" and includes the branch office or offices as the case may be. Under article 64(a) the management of the Fund shall vest in the board of directors appointed at the annual general meeting. On a fair reading of these articles, it is clear that it is the board of directors who are enjoined and obliged to hold the annual general meeting as prescribed in article 52. It is not in dispute that a notice to convene such a meeting was issued and duly published. But what is contended, however, is that the meeting has been convened and the meeting was commenced and that such an annual general meeting having commenced, the resolutions passed by a majority of the shareholders present at that alleged annual general meeting after the directors having recorded the fact that it was impossible to hold a meeting on April 22, 1967, as previously announced, should be deemed to be a regular annual general meeting of the Fund and all the business transacted in the so-called annual general meeting under the chairmanship of S. T. Shan-mugesan should be deemed to be valid, regular and enforceable. I am unable to be persuaded to accept this argument. To quote the words of Beasley J., in Watrap S. Subramania Aiyar v. United India Life Insurance Co. Ltd.:
"It seems to me that it would be a travesty of the law if a person who has deliberately brought about a state of affairs should be allowed to take exception to that state of affairs and use that changed state for his own advantage. "
It is a common law
principle that a meeting can adjourn itself if the circumstances do warrant. In
this case, the pandemonium and the confusion that were admittedly created by
the shareholders made it practically impossible for the directors to commence
and conduct and hold the meeting. Therefore, after recording such a fact in
exhibit A-1, they announced that the meeting could not be held. Persons who
gained entrance unauthorisedly and without following the procedure prescribed
by the board of directors, who were in charge of the affairs of the Fund,
cannot be allowed to plead that what they have done subsequently is an act
which is regular and which ought to be regularised. It would be indeed a
travesty of law as well as justice, as pointed out by the eminent judge. The
shareholders who subsequently purport to have met and passed certain
resolutions, did so at their own risk. They were not conscious and indeed were
not aware that they could not hold an annual general meeting within the meaning
of section 166 of the Companies Act. Such an annual general meeting can only be
held by the board of directors, and if for any reason they did not hold the same,
they have got other remedies to pursue. This is not a case under section 167 of
the Indian Companies Act, because there was no default on the part of the board
of directors to hold the meeting. The powers of the Central Government to call
for a meeting can be invoked only if there is initial default. In the absence
of such an initial default or initial laches on the part of the board of
directors in management of the affairs of the Fund, it cannot be successfully
contended that it is the Central Government alone in the circumstances of this
case that could call for the annual meeting and this court as company court has
no jurisdiction to give any directions regarding the holding of the Fund's
annual general meeting. To repeat, there has not been a commencement of the
meeting resulting in the holding of such meeting within the meaning of section
166 of the Act. The board of directors bona fide wanted to commence such a
meeting and for that purpose they convened the meeting. But they could not do
so because the circumstances were beyond their control. What the president did
in the events that happened and which are practically no disputed seriously,
was that which every rational human being could have done. The interdict in section 186 of the.
Companies Act also cannot equally be brought into motion to prevent this court
from exercising its discretion in giving such directions as are necessary. In
fact, this aspect really arises in Company Application No. 131 of 1967 which I
shall deal with presently. Suffice it, however, to say that the congregation by
the shareholders (said to be shareholders) after the board of directors decided
that it was impossible for them to hold the meeting is valid and regular is
something which is unheard of and which cannot be implemented or given effect
to. A fortiori it cannot be
said that the resolutions passed by some of the shareholders at the meeting
held under the chairmanship of S.T. Shanmugesan, as set out in exhibit A-3 can
be deemed to be resolutions passed by the body of shareholders regularly
assembled at a meeting properly convened and held for the purpose, in the eye
of law. This is not a case wherein the court is directing the board of
directors to call for a meeting. This is a case where the court is called upon
to interpret whether the meeting convened and called by the board of directors
did commence at all. I am of the opinion that the meeting never commenced at
all and, therefore, the question of holding a meeting does not really and
strictly arise. The decision in Kailash
Chandra Datta v. Sadar Munsif
Silchar is
very apposite in this case. At page 520 the learned judge states:
"There are proper ways in which a meeting of a company can be called either by the directors in accordance with the provisions of the articles of association, or by the shareholders on requisition, also in accordance with provisions of the articles of association. There is only one other way which I know, apart from any special artical of association, that a meeting of a company can be called and that is by a direction of a court to the liquidator in winding-up proceedings. The mere fact that certain persons who happened to be shareholders of the company met together at a private house and purported to pass resolutions appointing directors and so on does not make that a meeting of the company. For a meeting to be a meeting of the company it must be a meeting convened in one of the ways to which I have referred and convened strictly in accordance with the articles of association."
The same problem can be viewed in another perspective as well. Under the articles, the directors are given a clear mandate to be in charge of the affairs of the Fund and are equally obliged to hold the annual general meeting in accordance with law. This mandate to the directors, if it is to be altered at all, it can only be done under the memorandum of article and not otherwise. So long as the board of directors acted within the rule of law and did what they could do as prudent and reasonable men, there is nothing that could be said against them. As I have already stated, the meeting said to have been held by the alleged shareholders, be they in majority after the record of fact made in exhibit A-1 and after the announcement made by the board of directors in the Gokale Hall that they were unable to conduct the meeting, cannot legitimately be characterised as the annual general meeting of the Fund.
Both the applications were again re-posted for further arguments at the request of the counsel on both sides. Mr. Nainar Sundaram, appearing for some of the respondents in Company Application No. 131 of 1967, practically re-argued the case as a whole. On the merits, his contentions are that the meeting should be deemed to have been held since a notice of convening the meeting was given, since the shareholders congregated by reason of such a call by the board of directors, and since the agenda and the balance-sheet were distributed by the authorities. He also urged relying upon judicial precedents that the meeting said to have been convened after the announcement by the board of directors that it was not possible to hold it, is a valid one in the eye of law and there is no necessity for the fund to call for another annual general meeting and seek directions from this court for the appointment of a chairman to preside therein. He referred to a passage at page 422 of Gore-Browne's Hand Book on Joint Stock Companies, forty-first edition, which runs as follows:
"It is only at general meetings that the shareholders can exercise any control over the affairs of the company......It is the duty (of the chairman) to preserve order, conduct proceedings regularly, and take care that the sense of the meeting is properly ascertained with regard to any question before it."
But this principle has no relevancy in so far as this case is concerned, because no meeting was commenced for the general body to exercise its powers or the chairman to act. A passage in Halsbury's Laws of England, second edition, was referred to to substantiate the well-known principle that at the meeting properly held, the chairman cannot adjourn the meeting or dissolve it while any of the business for which it was called remains untransacted. This again is a principle which is indisputable, but unfortunately inapplicable to the facts of this case. Mr. Nainar Sundaramthereafter quoted the following three decisions: National Dwellers Society v. Sykes, John Kennedy Carruth v. Imperial Chemical Industries Lid. , and Narayanan Chettiar v. Kaleeswarar Mills Ltd. In so far as the first case is concerned, it deals with the duties of a chairman. The second case concerned itself with an annual meeting which was properly convened and held. The third cited precedent also sets out the well-known ratio that the chairman of a meeting is not entitled to stop the meeting at his own will and pleasure. I am afraid that these cases have no real bearing on the point at issue in the applications under consideration. On more than one occasion I have indicated that there has not been a commencement of the meeting at all and it is, therefore, idle to speculate whether there was a holding of the meeting. Lastly, he contended that this court had no power to call for a meeting and that section 186 of the Companies Act is an interdict against the court for calling for an annual general meeting. This court, no doubt, is conscious of the limitations prescribed by section 186 of the Act. But the learned counsel has failed to appreciate that the direction asked for in Company Application No. 131 of 1967 is not to call for an annual general meeting, but to appoint a chairman to supervise and preside over the annual general meeting to be called for by the board of directors. In fact, on an earlier occasion and under similar circumstances, this court did appoint a chairman for this very Fund. In Company Application No. 138 of 1963, Ramamurti J., who disposed of the said application observed:
"There is ample inherent power in the court to give directions asked for. As I mentioned already on two prior occasions, under somewhat similar circumstances, on one occasion Ganapatia Pillai J. and on another occasion Ramachandra Iyer J. (as he then was) issued similar directions. My attention has been drawn to a bench decision of the Allahabad High Court in Br. India Corporation v. Robert Mensies, in which it was held that the company court has got ample inherent jurisdiction to issue directions for the purpose of enabling the company to perform its statutory duties as provided in the Companies Act. In this case, it is obvious that the company has got to perform its statutory duty of convening an annual general body meeting and several important matters and businesses have got to be transacted at that annual general meeting. It is for no fault of the company that it is not in a position to convene the meeting and it is clear that this is a case in which the company ought to and is anxious to perform and carry out its statutory duties. Under the circumstances, I am of opinion that this court has ample inherent jurisdiction to issue necessary and appropriate directions both to direct the company to perform its statutory duty and also enable the company to perform its statutory duty."
I respectfully agree with the observations of the learned judge and find that Company Application No. 131 of 1967 is maintainable and this court has got jurisdiction to issue the directions prayed for, as without which there will be a stalemate and the apprehensions in the mind of the Fund and the board of directors who are statutorily obliged to call for the annual general meeting can never be relieved and there is every possibility of history repeating itself.
Mr. N.C. Raghavachari, appearing for the Fund, quoted certain relevant passages. He invited my attention to Palmer's Company Precedents, seventeenth edition, at page 492, which states that if a meeting has to be dissolved, members who remain behind cannot continue the business. Albert Crew on Public Company and Local Government Meetings, sixteenth edition, at page 164 is of the opinion that a meeting can of course be adjourned before any business is done.
I am satisfied that, in the circumstances of this case, the direction asked for by the Fund to appoint an independent chairman to preside over the annual general body meeting which it proposes to call for is justified and this court is obliged to give such a direction, because it has to assist the Fund in doing and performing its statutory obligations. To avoid impracticable situations arising and repeating themselves and to enable the Fund to discharge its statutory duty to conduct the annual general meeting peacefully, prayer 2 in Company Application No. 131 of 1967 is ordered. The Commissioner to be appointed as chairman will decide at the meeting as to the manner in which the election of the directors should take place, to wit whether it should be by ballot or by show of hands. It is also left to him to decide as to how and in what manner proxy votes should be received or rejected as the case may be. Having regard to all the circumstances, I am of the view that an advocate of this court should be appointed as chairman of the proposed meeting, so that he could conduct the proceedings in accordance with law. Sri K. Venkateswara Rao, Advocate, is appointed as Commissioner to perform the functions of a chairman at the meeting to be convened by the Fund. The applicant shall pay a sum of Rs. 750 in the first instance to him within a week from this date. The actual amount of remuneration shall be fixed later.
If the meeting has, therefore, not commenced at all and has not been consequentially held by the board of directors, respondents Nos. 2 to 5 continue to be the directors because they could only retire when the annual general meeting is held. In this case, I have held that the annual general meeting has not been so held. Therefore, the applicant in Application No. 124 of 1967 is not entitled to the relief asked for in the Judge's Summons praying for an interdict against respondents Nos. 2 to 5 from exercising their functions as directors of the Fund. Company Application No. 121 of 1967 is, therefore, dismissed. There will be no costs in both the applications.
[1962] 32 COMP. CAS.
896 (MP)
SHIV DAYAL J.
OCTOBER 31, 1960
This is a petition under section 186 of the Companies Act made by Radheylal Khaitan praying that this court may order an extraordinary meeting of the Pasari Flour Mills Ltd., Bhilsa, to be held under the directions of this court. The Pasari Flour Mills Ltd. (hereinafter called the company) is a public limited company which was incorporated on November 16, 1937, under the Gwalior State Companies Act of Samvat 1963. The registered office of the company is at Vidisha (Bhilsa) in the erstwhile Gwalior State, now in the State of Madhya Pradesh. The authorised share capital of the company is Rs. 5 lakhs divided into 5,000 ordinary shares of the face value of Rs. 100 each. The petitioner is a shareholder. The company is now governed by the provisions of the Companies Act, 1956 (hereinafter called the “Act”).
It is stated in the petition that Messrs. Ram Narain Prem Sukh and Sons (consisting of Birmadutt Premsukh and Keshavdeo Premsukh) were appointed managing agents of the company for a period of 31 years from the date of the incorporation by virtue of an agreement in writing dated September 3, 1938. The managing agents were entitled to appoint and remove and re-appoint from time to time two persons as directors (ex officio). They were also given power to appoint an ex officio chairman of the board of directors.
The ex officio directors nominated by the managing agents were to hold office until retired by the managing agents; they were not bound to retire by rotation. In 1940, the managing agents appointed Birmadutt as an ex officio director and Seth Pratap Seth alias Motilal Manik Chand as the ex officio chairman. Motilal Manik Chand resigned whereupon Shri Umadutt Nemani was appointed ex officio chairman. In or about 1956, the managing agents intimated to the company that with effect from April 30, 1956, Birmadutt alone would be the sole ex officio director of the company.
The seventeenth ordinary general meeting of the company, being the ordinary general meeting for the year ending June 30, 1954, was held on April 7, 1956. Thereafter, no ordinary or extraordinary general meeting has been called or held.
Birmadutt has filed a written statement which virtually supports the petition and, inter alia, it is admitted that no annual general meeting of the company was held after April, 1956, as alleged by the petitioner. He has also filed here a copy of the plaint of the suit (together with its annexures) instituted in the court of the Additional District Judge, Vidisha (Civil Suit No. 7 of 1960), against Keshavdeo, Sajjankumar and Kedar Nath.
Keshavdeo has filed objections challenging the petition as mala fide and actuated by collusion with Birmadutt. This fact is, however, admitted that no annual general meeting has been held after April 7, 1956, but has fastened the blame on Birmadutt for the default. He has also stated that the board of directors were “taking steps to call an annual general meeting for 7th November, 1960”. Allegations and counter allegations have been made by Birmadutt and Keshavdeo against each other.
Kedarnath has filed objections praying that the petition be dismissed on the ground, inter alia, that an application under section 186 of the Companies Act is not maintainable.
No one else has filed any written statement or objection.
As a preliminary objection, Shri K. L. Mishra contends that Radheylal has no right to file this petition inasmuch as he holds only one share and, further, he owes the company a sum of Rs. 700. Reliance is placed on articles 63, 96 and 97 of the articles of association of the company. Radheylal has stated on oath that his accounts have been adjusted and he owes nothing to the company, and that, on the contrary, when accounts will further be taken as regards the service rendered by him to the company it will be the company which will be found liable to pay him something. It is unnecessary to go into the details of those allegations because even if Radheylal is indebted to the company, I do not see how he is not a member of the company today. Article 63 gives the company a first and paramount lien upon the shares of a member for his debts, liabilities and engagements. Lien granted, membership is not lost. Article 63 does not debar a shareholder from being present or voting at a meeting. Article 96 deprives a member from voting or to be present at any general meeting whilst any money due from him “in respect of any share or shares in the company” remains unpaid. It is clear to me that article 96 is irrelevant here. There is no allegation that there is any outstanding money in respect of his share. Article 97 of the company no doubt entitles only those shareholders to be present and to vote at a meeting who hold at least 5 shares in the company. But this article must be held to be inoperative as it is in conflict with section 182 of the Act. It is enacted in that section that a company shall not prohibit any member from exercising his voting right on any ground except on the grounds set out in section 181. And section 181 enables the company to provide in its articles that no member shall exercise any voting rights in respect of any shares registered in his name on which any loans or other sums presently payable by him have not been paid or in regard to which the company has or will exercise any right or lien. Section 181 does not allow any restriction to be imposed on the basis of the number of the shares. As such, the mandatory provisions in section 181 render article 97 inoperative. The preliminary objection must, therefore, be overruled.
It is conceded by everybody that there has been a non-compliance with the provisions of section 166. Now, it is enacted in section 166 of the Companies Act, that every company must hold a general meeting to be styled its annual general meeting within 9 months after the expiry of each financial year and not more than 15 months shall elapse between the date of one annual general meeting and that of the next. For that reason it is urged by Shri Gupta that this is a clear case where this court should exercise its powers under section 186 of the Companies Act and order a meeting of the company to be called, held and conducted in an appropriate manner.
From the statements made in the petition and in the affidavits of Keshavdeo and Birmadutt, it appears quite clear that there are serious disputes between them. They are step-brothers and seem to be at daggers drawn. A civil suit has also been instituted in the court of the Additional District Judge, Vidisha, for a declaration that Birmadutt continues to be the validly appointed ex officio director of the company; that Mahavir Prasad, Radhakishen and Sitaram are validly appointed directors and these four are the only validly appointed directors at present; that Keshavdeo has ceased to be a director of the company from and after April 7, 1956, and that his appointment as also the appointment of Sajjan Kumar and Kedar Nath is illegal and ultra vires. Ancillary reliefs have also been prayed for. It is also said that Keshavdeo has transferred some of his shares. It is alleged by Keshavdeo that Birmadutt went away to Bombay in the year 1958; the books of the company up to that year are with him; on the appointment of new directors (himself, Sajjan Kumar and Kedar Nath) they are running the mills and with profit.
Before a meeting can be ordered to be held under section 186 of the Companies Act the court must find that it has become “impracticable” to call a meeting in the ordinary manner. It is quite unnecessary to consider in this petition which of the parties is responsible for the disputes and who is acting in a high-handed manner. The fact remains that there are factions. Birmadutt and Keshavdeo, step-brothers, have formed two groups. Each of them has at least two more persons with himself who claimed to be the rightful directors.
“Impracticable” and “impossible” are not the same. This distinction was considered in In re El Sombrero Ltd. at page 4 and it was observed :
“Examine the circumstances of the particular case and answer the question whether, as a practical matter, the desired meeting of the company can be conducted, there being no doubt, of course, that it can be convened and held.”
It is undoubted that here all the parties have themselves made out a clear case of “impracticability”. In re Lothian Jute Mills Co. Ltd., Indian Spinning Mills Ltd. v. Madan Shumshere Jang Bahadur and Bal Krishna v. Uma Shankar may also be seen. Shri K. L. Mishra candidly admits that having regard to the circumstances of this case, no one can reasonably object to a meeting of the company being called.
This brings me to the question whether a meeting, if held by an order under section 186 of the Act, will serve any useful purpose. When 1 read sections 167 and 186 side by side, there is no doubt that in the present Act there is a clear bifurcation of the power to call the different kinds of meetings of a company. Section 79 of the Indian Companies Act, 1913, gave power to the court to call any and every kind of meeting contemplated under the Companies Act, so that the court could call an annual general meeting as well. Under the 1956 Act, it is only the Central Government which is empowered to call or direct the calling of 6an annual general meeting.
Sub-section (2) of section 167 makes it clear that such a meeting would be deemed to be an annual general meeting of the company. Section 167 of our Act is analogous to section 131 (2) of the English Companies Act(11 and 12 Geo. VI, c. 38 of 1948) which provides that if default is made in holding the annual general meeting, a member may apply to the Board of Trade to call or direct the calling of such meeting and on such application the board has power to call a meeting and to give such directions as appear to it expedient in relation to the calling, holding and convening of the meeting.
In section 186 of the 1956 Act, which empowers the court to call meetings, an annual general meeting is excepted. It comes to this that this court has power to call or direct the calling of only an extraordinary general meeting of a company, but not an annual general meeting.
The main object for which the petitioner wants the meeting to be called is that the new directors may be elected. If this can be done only at an annual general meeting but not at an extraordinary general meeting, an order under section 186 will bear no fruit in this case; but if that business can be transacted at a meeting other than an annual general meeting, the result would be different.
Shri Gupta seeks aid from section 173 of the Act. I clearly see that it affords no solution for the problem. Clause (a) of section 173(I) categorises all business into two broad heads : (1) special and (2) other than special. In the case of an annual general meeting, four things numbered (i), (ii), (iii) and (iv) are not included in the expression “special”, so that at an annual general meeting, those four things will constitute “ordinary business” (if I may coin that expression for “business which is not special”). All other business to be transacted at the annual general meeting is deemed to be special. For special business, a longer notice is required and it has to fulfil certain formalities. In the case of an extraordinary general meeting all business, irrespective of the categories, is deemed special. In other words, whatever business is transacted at an extraordinary general meeting is “special” and requires the aforesaid preliminaries. But it is altogether a different question what business can be transacted at an extraordinary general meeting and, in particular, whether directors can be appointed at an extraordinary general meeting. This has to be determined from the relevant provisions in the Act and in the articles of the company.
Shri K. L. Mishra calls attention to sections 210, 224 and 256. Under section 210, the board of directors of a company is required to lay before the company a balance-sheet and a profit and loss account at “every annual general meeting”. Section 224 requires every company to appoint an auditor at an annual general meeting. Section 256 deals with the ascertainment of the directors retiring by rotation and the filling of vacancies. The argument is that a director who is liable to retire by rotation can retire only at an annual general meeting and the vacancy so created can also be filled up only at the annual general meeting by reappointing the retired director or by appointing some other person. Emphasis is on the words “the” and “annual”.
The expression “annual general meeting” in section 256 refers to a meeting which is to be held annually under the mandatory provisions contained in section 166 of the Act. But where an annual meeting is not held at the scheduled time, is retirement automatic and do they cease to hold the office with effect from the last day on which the annual general meeting should have been held ? In In re Consolidated Nickel Mines Ltd., the question was whether the two directors, Steel and Philips, were entitled to remuneration as directors. Article 101 of the company provided that all directors were to retire from the office at the ordinary meeting. Section 49 of the Companies Act provided that the directors were bound to summon a general meeting of the company once in every calendar year. However, no meeting was held after 1905 and the two directors continued to act. It was held that they vacated the office in December 31, 1906, that is, the last day on which the annual meeting should have been held. They were disentitled to remuneration after that date. In Kanssen v. Rialto (West End) Ltd., the point for decision was whether the allotment of shares made at a directors’ meeting held on March 30, 1942, was valid. The allotment was made by Cromie and Strelitz, who purported to act as directors. The latter claimed to have been appointed a director at a meeting held on February 1, 1940. It was found that there was no meeting or appointment. Cromie was one of the original directors, but he was to retire at the annual meeting and the last date on which such a meeting should have been held was December 31, 1941. It was held by the Court of Appeal, relying on the case of In re Consolidated Nickel Mines Ltd. “ Neither Mr. Cromie nor Mr. Strelitz was then (on March 30, 1942) a, director of the company. Mr. Cromie had been a director, but he had vacated office on December 31, 1941, by reason of article 73 of the company’s articles of association.” This decision was affirmed by the House of Lords in Morris v. Kanssen where it was held that since no general meeting had been held in 1941 by the effect of article 73 of Table “A” as varied by article 22 Of the company’s articles of association, there were thereafter no de jure directors. It is stated in Buckley on Companies Act (12th edition, page 882) : “.... if in any calendar year an annual meeting is not held under an article in this form, those directors who would have retired at the meeting had the same been held will vacate office on the last day of the year.” The dictum laid down in the above authorities was followed by Rajamannar C.J. and Venkatarama Iyer J. in Anantalakshmi Ammal v. Indian Trades and Investments Ltd.. The Madras decision has recently been followed in Krishna Prasad Jwaladutt Pilani v. Colaba Land and Mills Co. Ltd.. In that case the annual general meeting for the year 1955 of the Colaba Land and Mills Co. Ltd. was held on March 20, 1956. The annual general meeting for the year 1956 was not called although the time for holding that meeting was extended by the Registrar up to March 31, 1958. Two directors (Jaintilal Patel and Solomon Moses) would have retired if a meeting was held in 1957. It was contended before the Bombay High Court that despite the non-compliance with the provisions of section 166 they continued to be directors of the company and were entitled to act as such until an annual general meeting of the company was held. It was declared that both Jaintilal Patel and Solomon Moses had ceased to be the directors of the company on the last date on which the annual general meeting for the year 1956 should have been held. The High Court posed a question : “Whether the tenure of the elected directors can continue after the expiry of the statutory period laid down for the calling of an annual general meeting.” This was answered with reference to the various provisions of the 1956 Act thus :
In our judgment it (section 256) speaks of directors who till the date of the actual calling of the meeting continued to be directors in accordance with the provisions of law. A person who is to cease to be a director by retirement at the expiry of a stated time cannot claim to have escaped such retirement simply because an annual general meeting has not been called as required by law within that time. Section 256 does not include those who vacated their office. It only applies to directors who had not already vacated their office or ceased to be directors by operation of any provision of law. It has nothing to do with the tenure of the office of a director in the proper sense of that expression. The marginal note of section 256, which we may look at for the purpose of seeing the trend of the section, speaks of ascertainment of directors retiring by rotation and filling of vacancies. It does not lay down any substantive rule as to the tenure of the office of a director. It is not the only section which has to be considered. We have to ascertain the tenure of the office of an elected director not merely from that section but from the language of sections 166, 255 and 256 read together.” There is a Calcutta decision which takes a contrary view : Kailash Chandra v. Jogesh Chandra (A.I.R. 1928 Cal. 868.). It was urged in that case by the learned counsel for the respondent that the directors could hold office only for one year from the date of their appointment and if no general meeting was held at the lapse of one year the directors automatically vacated their office. The learned judge who decided the case rejected the said contentions in these words : “I am unable to accept this contention of the learned advocate as it seems to me that it would be unreasonable to hold that this is the true meaning of the articles of association.” The Bombay High Court has dissented from this view.
In the Indian Companies Act, 1913, under which the Madras case was decided, there was no provision corresponding to section 256 of the 1956 Act but regulation 78 of Table A read with section 17(2) of that Act laid down substantially the same law. In that case, however, the High Court was not considering the question of appointment of directors. Nor did that question arise in the Bombay case. In the case before me the question precisely is whether I can order the appointment of new directors on the assumption that there are vacancies in the board of directors because of the automatic retirement of the former directors. Section 255 provides that not less than two-thirds of the total number of directors of a public company shall be persons whose period of office is liable to terminate by retirement or rotation. Such directors are to be appointed in a general meeting, save as otherwise provided in the Act. The remaining one-third of the total number of directors shall be appointed in general meeting, subject to the articles of the company. No tenure of office has been fixed in the Act during which a director shall act. But section 256 provides that one-third of the directors who are liable to retire by rotation, shall retire from office at the first and at every subsequent annual general meeting. The directors to retire shall be those who have been longest in office. Vacancies so created at the general meeting at which some of the directors retire as above shall be filled up by reappointing the retiring directors or by appointing fresh directors. The places so vacated are to be filled up in the same meeting and if not so filled up an adjourned meeting is to be held on the same day of the next week. If at the adjourned meeting also fresh directors are not appointed as provided in sub-section (4), the retiring directors shall be deemed to have been re-appointed at the adjourned meeting. There are five exceptions to this deeming provision none of which is applicable here. I think these provisions in our Companies Act of 1956 were made in order to resolve controversies which arose in a number of English decisions. In the case of Robert Batcheller and Sons Ltd. v. Batcheller, the articles of the company provided :
“ Save as hereinafter provided if at any meeting at which an election of directors ought to take place, the places of the retiring directors or some of them are not filled up, the retiring directors or such of them as have not had their place filled up, shall, if willing to act, be deemed to have been re-elected.” A similar view was taken in Spencer v. Kennedy. Article 124 of this company is almost in identical terms. It runs thus :
“ If at any ordinary general meeting at which an election of directors ought to take place, the place of any retiring director is not filled up, such retiring director as has not had his place filled up, shall, if willing, continue in office until the first ordinary meeting in the next year and so on from year to year until his place is filled up, unless it shall be determined at such meeting on due notice to reduce the number of directors or leave any vacancy unfilled.” What exactly is the nature of the contingency under which alone such an article would operate has been a matter of controversy in England. In In re Great Northern Salt and Chemical Works it was held that the true meaning of such an article only is that if for any reason either the first meeting or the adjourned meeting does not proceed to fill up the places of the vacating directors, then they are to continue in office.
Astbury J. in Spencer’s case ([1926] Ch. 25.) made a passing observation suggesting that such an article applies only where the retirement of a director by rotation and the necessity of his re-election or replacement has been entirely lost sight of at the annual meeting. But this view was not acceptable to Maugham J. in Holt v. Catterall. However, in Batcheller’ case Romer J. was inclined to agree that the I operation of such article was confined to cases of accidental omission to fill up vacancies of retiring directors. Romer J. dealt in detail with the word “deem” in his judgment. In view of the clear provisions contained in section 256 of our new Companies Act no such problem arises here. Whatever may be the reason for omission to elect fresh directors in place of those who retire, either there must be an election at the same annual general meeting or at the adjourned meeting which is to be held on the same day in the next week, otherwise the retiring directors shall be deemed to be re-elected. In the present case indeed there has been no retirement of directors strictly under the provisions of section 256(1) because an annual general meeting has not been held for the last four years. If the dictum of the Madras and the Bombay decisions is applied and it is held that during the last three years all the directors who were liable to retire (that is to say, apart from ex officio directors) have retired by rotation (one-third in each of the three years), it has also to be held that under the deeming provision contained in section 256(4) they were reappointed as directors. Article 124 of the articles of the company clinches the issue. That article is not in conflict with any provision of the Companies Act. By virtue of that article, the directors whose retirement is overdue are continuing in office and shall so continue from year to year until their places are filled up. Unless an ordinary general meeting is held their places cannot be filled and unless their places are filled they continue in office. The two things are interdependent.
From whatever angle this point is examined it must be held that the directors continue in their office whether because they have not retired at an annual general meeting, or because of the deeming provision contained in sub-section (4) of section 256 - and shall continue to remain in office unless there is an election at an annual general meeting Therefore, the only remedy is that an ordinary meeting of the company should be convened and held. The Companies Act of 1913 presented no difficulty as the court was competent to call or direct the calling of any and every kind of meeting of a company. Under the Companies Act of 1956, however, there has been a bifurcation of the power to call an annual general meeting and the power to call any meeting other than an annual general meeting and the two powers having been separately given to two different authorities (the former to the Central Government and the latter to the court) they must be exercised in water-tight compartments. All this leads me to say that I am prepared to call an extraordinary general meeting of the company for which this court is empowered under section 186, yet I cannot direct the appointment of directors nor an appointment of an auditor nor the laying of balance- sheets or profit and loss accounts. And if the above business cannot be transacted it will be futile and merely ceremonial to hold a meeting of the company, When no meeting has been held for the last four years, no accounts have been asked by the shareholders, serious disputes have arisen regarding directorship and transfer of shares and in a word the whole thing has been in a mess. The chief object of this petition is that an extraordinary general meeting of the company be convened and called “to elect and appoint a board of directors of the company”. That relief I am unable to give to the petitioner as discussed above. Then it is prayed that I should direct the meeting “to transact such other business as may be determined by this court”. This prayer is too vague to be allowed. At the hearing Shri Gupta did not address me as to what other business the petitioner wanted to be transacted. Since I have reached the conclusion that I have to deny the petitioner the main and substantial relief which he wanted but which I cannot give him, the question of granting ancillary and incidental reliefs does not arise. The prayer that I should direct a meeting to transact such other business as may be determined by this court is too vague to be made the subject of a direction.
For these reasons the petition is dismissed. In the circumstances of the case all the parties are left to bear their own costs.
[1976] 46 Comp Cas 339 (Del)
v.
Motion Pictures Association
S. RANGARAJAN, J.
K.K. Mehra and Satish Chandra for the petitioner.
I.N. Shroff and G.L. Rawal for the Respondent.
Rangarajan, J.—This order passed in C.P. No. 106 of 1974, which has been tiled by B.R. Kundra, will also dispose of C.P. No. 102 of 1974, which has been filed by J.S. Sood.
The Motion Pictures Association (hereinafter known as "the Company") with whose affairs I had dealt previously in C.A. No. 565 of 1972 (In re Motion Pictures Association), is again said to require court's intervention in the circumstances which will be noted presently. This petition raises an interesting question of company law concerning the interpretation of section 255 of the Companies Act, 1956 (hereinafter known as "the Act"), a question which was merely discussed by me in yet another case, but left open, Shrimati Jain v. Delhi Flour Mills Ltd., as one of difficulty but not being necessary for decision of that case.
The company was formed under section 25 of the Companies Act, 1913, with no share capital and prohibiting the payment of dividend to its members. It had for its object the promotion of the interests of its members, who are engaged in the trade of exhibition, distribution and exploitation of motion pictures in the Union territories of Delhi and the State of Uttar Pradesh. Any person wanting to indulge in these (business) activities relating to motion pictures in the above areas has to become a member of this company. The company, according to its articles, is to hold its annual general meeting within six months of the closing of its accounts, which is the 31st December each year; the last annual general meeting of the company was held on 3rd May, 1969.
Article 24 of the company reads as follows:
"At every annual general meeting all sitting members of the executive committee Khali retire from office. The retiring members shall be eligible for re-election in the annual general meeting in which they retire."
According to article 31 "the retiring member or members of the executive committee shall retain office till the dissolution of the meeting at which his or their successor is/are elected."
It is necessary to read sections 166 and 255 of (he Act also at this stage:
"166. (1) Every company shall in each year hold in addition to any other meeting a general meeting as its annual general meeting and shall specify the meetings as such in the notices calling it; and not more than fifteen months shall elapse between the date of one annual general meeting of a company and that of the next:
Provided that a company may hold its first annual general meeting within a period of not more than eighteen months from the date of its incorporation; and if such general meeting is held within that period, it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation or in the following year:
Provided further that the Registrar may, for any special reason, extend the time within which any annual general meeting (not being the first annual general meeting) shall be held, by a period not exceeding three months.
(2) Every annual general meeting shall be called for a time during business hours, on a day that is not a public holiday, and 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:
Provided that the Central Government may exempt any class of companies from the provisions of this sub-section subject to such conditions as it may impose:
Provided further that—
(a) a public company or a private company which is a subsidiary of a public company, may by its articles fix the time for its annual general meetings and may also by a resolution passed in one annual general meeting fix the time for its subsequent annual general meetings; and
(b) a private company which is not a subsidiary of a public company, may in like manner and also by a resolution agreed to by all the members thereof, fix the times as well as the place for its annual general meeting."
"255. 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 of 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."
A member of the company (G.S. Mayawala) had filed a suit (476 of 1960), against the company in which there was an application for restraining it from holding the annual general meeting till the decision of the suit. The company voluntarily appeared in that suit and undertook not to hold any annual general meeting till the suit was decided. The suit ended in a compromise.
Subsequent to the compromise 134 members had demanded, by a requisition which had been left at the office of the company on July 29, 1972, the holding of an extraordinary general meeting for consideration and adoption of certain resolutions as stated in that requisition. That requisition fell short of the minimum 10% of the total membership because some signatures were found invalid and the rest were (subsequently) withdrawn. A body of 11 persons, purporting to be the executive committee, took steps to hold an extraordinary general meeting of the company on the 7th October, 1972, in order to amend certain articles in pursuance of the above compromise as a preliminary to the holding of the annual general meeting. A circular letter was also issued by the honorary general secretary (B. N. Gupta) on September 16, 1972, setting out all these facts. Some asserted their faith in the said body while others asserted their want of faith in it. In this situation, C.A. No. 496 of 1972 was filed in this court under section 186 of the Act to call a meeting of the company. With the consent of all those who had appeared in the proceedings the extraordinary general meeting, which had been called on September 9, 1972, was adjourned to the 7th of October, 1972, to take place under the chairmanship of Mr. Daljit Singh, advocate, directing certain resolutions, pertaining to the number of office bearers, to be moved at the said meeting in a particular manner. But it was discovered later to be subject to a certain infirmity. Hence a general meeting of the company was ordered to be called on October 10, 1972 (vide order in C.A. No. 472 of 1972), for electing office bearers. Mr. P.A. Bahl, advocate, was appointed chairman to conduct the said meeting and supervise the election of directors. After the election was held the chairman submitted a report but certain persons who unsuccessfully contested the said election made an application (C.A. No. 565 of 1972), alleging fraud, etc., besides other irregularities in the conduct of the meeting affecting the result of the election. During the hearing of that application, it was noticed that even apart from the allegations concerning the conduct of the elections at the said meeting, the meeting and the elections which took place on October 27, 1972, were not according to the directions which had been given by this court and it would not, therefore, "deem" the meeting (held on October 7, 1972), as one called and conducted by the company within the meaning of sub-section (2) of section 186 of the Act. A fresh meeting was directed to be called and elaborate and detailed directions were also given concerning how the meeting should take place and the elections should be conducted. Such a meeting and elections took place on October 13, 1973, when the 18 persons mentioned in this petition were elected as members of the executive committee (directors) of the company.
]It is now stated that in spite of the petitioner in C.P. No. 102/74 (J.S. Sood), who was admittedly one of the 18 who was so elected) pressing for regularisation of certain defaults and a further election of members of the executive committee on or before June 30, 1974 (the financial year closing on December 31 each year) no such meeting was called. In the result, it is alleged, that by June 30, 1974, all the 18 must be deemed to have vacated the office of directorship/membership of the executive committee by operation of law. In April, 1974, the petitioner had also communicated in writing to the company that their term as elected executive committee had expired on June 30, 1974, and they should not continue thereafter to act. Though the receipt of this communication was denied by the secretary of the company after an application (Cr. O. No. 84 of 1974) to punish him was filed, Mr. I. N. Shroff, learned counsel for the company, did not wish to justify the secretary's denial of the receipt of the said communication, but on the other hand apologised to the court for the same.
It is contended by the petitioner that it has become "impracticable" to hold a meeting of the company under the articles of the company or under the Act in the above circumstances: it is, therefore, prayed that the court may be pleased to direct, under section 186 of the Act, a. meeting of the company to be called where, in addition to electing the members of the executive committee, they should also be directed to adopt annual accounts ending 31st December, 1969, to 31st December, 1973, as a special business, and to appoint and fix the remuneration of auditors for 1974 also as a special business.
It is obvious and it was also common ground before me that the court has no power to call annual general meeting under section 186 of the Act; the items of business which can be transacted only at an annual general meeting may not, therefore, be ordered to be transacted at a meeting ordered to be held under section 186 of the Act; the election of office bearers, however, could take place at a meeting other than an annual general meeting,
This petition has been resisted on the same grounds on which C.P. No. 102 of 1974 (filed by J.S. Sood for the same reliefs) has been resisted; no separate reply has been filed in this petition.
The following objections on behalf of the company were raised by Mr. I.N. Shroff. By way of preliminary objection it was staled that the assumption on which the present petition has been filed, namely, that the office bearers should be deemed to have retired on June 30, 1974, was not correct and that if this is not correct the very basis for invoking section 186 of the Act would not be available. It was pointed out that there is no express provision in the Companies Act of 1956 to the effect that, if there is default on the part of elected directors in holding the annual general meeting, as required by section 186 of the Act, the elected directors shall be deemed to have retired on the last date on which the annual general meeting should be (or ought to have been) called and held. How this contention was developed by Shri Shroff will be discussed presently. It was further contended that moving the Central Government under section 167 of the Act was the remedy, if any, and that the jurisdiction of this court under section 186 of the Act cannot be invoked.
It is common ground that if the members of the executive committee/ directors did not retire and cease to be directors, as claimed in this petition, on or before June 30, 1974, the present petition under section 186 would not be competent, in the view that they themselves could call a meeting at which the directors/executive committee members could be elected. It, therefore, falls for consideration whether having regard to the relevant provisions of the Act and the articles of the company set out above, the 18 executive committee members/directors of the company retired and ceased to hold office on or before June 30, 1974, and for that reason it has become impracticable to call a meeting of the company.
In addition to the sections of the Act noticed above, the following sections may also be noticed at this stage:
"168. If default is made in holding a meeting of the company in accordance with section 166, or in complying with any directions of the Central Government under sub-section (1) of section 167, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five thousand rupees and in the case of a continuing default, with a further fine which may extend to two hundred and fifty rupees for every day after the first during which such default continues."
"283. (1) The office of a director shall become vacant if—
(a) he fails to obtain within the time specified in sub-section (1) of section 270, or at any time thereafter ceases to hold, the share qualification, if any, required of him by the articles of the company;
(b) he is found to be of unsound mind by a court of competent jurisdiction;
(c) he applies to be adjudicated an insolvent;
(d) he is adjudged an insolvent;
(e) he is convicted by a court of any offence involving moral turpitude and sentenced in respect thereof to imprisonment for not less than six months;
(f) he fails to pay any call in respect of shares of the company held by him, whether alone or jointly with others, within six months from the last date fixed for the payment of the call unless the Central Government has, by notification in the Official Gazette, removed the disqualification incurred by such failure;
(g) he absents himself from three consecutive meetings of the board of directors, or from all meetings of the board for a continuous period of three months, whichever is longer, without obtaining leave of absence from the board;
(h) he (whether by himself or by any person for his benefit or on his account), or any firm in which he is a partner or any private company of which he is a director, accepts a loan, or any guarantee or security for a loan, from the company in contravention of section 295;
(i) he acts in contravention of section 299;
(j) he becomes disqualified by an order of court under .section 203;
(k) he is removed in pursuance of section 284; or
(l) having been appointed a director by virtue of his holding any office or other employment in the company, or as a nominee of the managing agent of the company, he ceases to hold such office or other employment in the company or, as the case may be, the managing agency comes to an end.
(2) Notwithstanding anything in clauses (d), (e) and (j) of sub section (1), the disqualification referred to in those clauses shall not take effect—
(a) for thirty days from the date of the adjudication, sentence or order;
(b) where any appeal or petition is preferred within the thirty days aforesaid against the adjudication, sentence or conviction resulting in the sentence or order until the expiry of seven days from the date on which such appeal or petition is disposed of; or
(c) where within the seven days aforesaid, any further appeal or petition is preferred in respect of the adjudication, sentence, conviction, or order, and the appeal or petition, if allowed, would result in the removal of the disqualification, until such further appeal or petition is disposed of.
(2A) Subject to the provisions of sub-sections (1) and (2), if a person functions as a director when he knows that the office of a director held by him has become vacant on account of any of the disqualifications, specified in the several clauses of sub-section (1), he shall be punishable with fine which may extend to five hundred rupees for each day on which he so functions as a director.
(3) A private company which is not a subsidiary of a public company may, by its articles, provide, that the office of director shall be vacated on any grounds in addition to those specified in sub-section (1)."
The plain language of section 166 is that not more than 15 months shall elapse between the date of one annual general meeting of a company and that of the next; the Registrar, for any special reasons, may extend the time at which the annual general meeting (not being the first annual general meeting) shall be held by a period not exceeding three months (this period was reduced from 6 to 3 months); the total period, therefore, even if the Registrar is to use his power to extend the period by three months, cannot be anything more than 18 months between one annual general meeting and another. It is on this basis that the petitioner claims that the annual general meeting in this case should have been held on or before 30th June, 1974, the company having to close its annual accounts by the end of December each year.
In Shrimati Jain v. Delhi Flour Mills Co., to which reference has been made already, I was concerned with a case where one-third of the directors retired by rotation at every annual general meeting. I had referred to a few Indian cases which discussed the question whether those directors who have to retire by rotation also vacated their offices by reason of their own failure to call an annual general meeting. Venkatarama Iyer J. (as his Lordship then was), held on behalf of a Division Bench of the Madras High Court in A. Ananthalakshmi Ammal v. Indian Trades and Investments Ltd. that they must be deemed to have vacated their offices— this case arose under sections 76 and 79 of the Act of 1913— which view was followed by a Division Bench of the Bombay High Court in Krishna-prasad Jwaladutt Pilani v. Colaba Land and Mills Co. Ltd. and by a single judge of the Calcutta High Court in In re Hindustan Co-operative Insurance Society Ltd., who had not noticed an earlier decision of the Division Bench of the same High Court in Kailash Chandra Dutt v. Jogesh Chandra Majumdar which expressed a contrary view. In this Calcutta case the Division Bench held that a suit for declaration by one of the shareholders that the directors were no longer directors was not maintainable under section 92 of the old Specific Relief Act. On the merits the observation was made only in passing and without discussion that the article provision concerning annual election of directors did not mean that they could not continue after the year. No provision of the Companies Act was even discussed. The Bombay decision rightly dissented from Kailash Chandra and followed in In re Consolidated Nickel Mines Ltd. and A. Ananthalakshmi Ammal (a Division Bench decision of the Madras High Court). A single judge of the Madras High Court in V. Selvaraj v. Mylapore Hindu Permanent Fund Ltd., who did not refer to the Division Bench decision in A. Ananthalakshmi Ammal observed that the directors retired at an annual general meeting but since in that case the meeting had not commenced at all owing to the confusion which prevailed the previous directors must be deemed to continue in office. This decision which seems to proceed of the view, apparently, that there was no default on the part of directors since a meeting had been called but could not be conducted owing to confusion, is even distinguishable.
The Indian decisions which have held that a retiring director vacates office if he fails to hold the annual general meeting are seem to be based on the view taken by the English court in In re Consolidated Nickel Mines Ltd. In that case the articles provided that general meetings should be held once every year; that at the ordinary meeting in 1906 all the directors should "retire from office" and that the directors should be remunerated at certain rates per annum. Section 49 of the Companies Act of 1863 (which was then in force) provided that an annual general meeting should be held once every year. No general meeting was held or called in 1906 or 1907 but the directorate continued to act as such. Sargent J. held as follows:
"They cannot take advantage of their own default in that respect and say that they still remain as directors."
This view does not appear to have been challenged at any time before the English courts. It is useful to refer to Morris v. Kanssen. The House of Lords dismissed the appeal which arose from the decision of the Court of Appeal in Kanssen v. Rialto (West End) Ltd. Lord Green M.R. specifically referred to In re Consolidated Nickel Mines Ltd., and noted that as per the said decision the director, Cromie, had vacated office on December 31, 1941, by reason of article 73 of the company's articles of association, a fact which nobody at the time seems to have appreciated. The only other remaining director, Strelitz, the Master of Rolls pointed out, had never been validly appointed. It transpired, therefore, that by virtue of article 73 of Table A, as modified by the company's articles, there were at the relevant date no directors in existence. On the above assumption that there were no such directors the further question was discussed as to whether the rule in Turquand (Royal British Bank v. Turquand), applied; not having had notice of the defect their actions purporting to act as directors were held to be valid. It was pointed out that section 145 of the Companies Act of 1929 (section 180 of the Act of 1948) had validated the impugned actions by the said two persons who were functioning as directors despite the above infirmity. That Cromie had ceased to be director on December 31, 1941, by reason of the annual general meeting which had to be called on or before that day was not questioned either before the Court of Appeal or before the House of Lords. Mr. Shroff made a vain bid to say that this question, which proceeded on a concession, should not be taken to have been decided; greater weight has to be attached to the holding in In re Consolidated Nickel Mines Ltd., which was specifically referred to before the Court of Appeal but was not questioned ; on the other hand the correctness of the same was conceded before the Court of Appeal ; the concession on a question of law was not even sought to be withdrawn when the case was argued before the House of Lords. This argument also overlooks the observations of Lords Simonds in that case, Morris v. Kanssen (vide pages 467, 468 and 471 of 1946 A.C.— the ruling starts on page 458). The headnote as stated in 1946 A.C. 459 reads:" No general meeting was held in 1941..............there were thereafter no de jure directors."
Having thus noticed what the position in England is as we are able to see that as per the above-said two decisions,—no other case having suggested any contrary point of view—it may also be rewarding to notice what, a leading English author on company law has to say. In Penning-ton's Company Law (third edition, page 478) the above-said two cases have been noticed in the footnote as authority for the text which reads as follows:
"If no other annual general meeting is held the appropriate number of directors will retire at the end of the calendar year in which it should have been held."
Venkatarama Iyer J. had relied on a passage in Buckley on the Companies Acts (12th edition, page 882) to the effect:
"Semble, if in any calendar year an annual meeting is not held under an article in this form, those directors who would have retired at the meeting had the same been held will vacate office on the last day of the year."
The following cases are given in the footnote (j) as authority for this position:
"(j) In re Consolidated Nickel Mines, Kanssen v. Rial to (West End) Ltd., affirmed sub nom. Morris v. Kanssen".
Palmer's Company Law, 21st edition, page 540, regards Morris v. Kanssen, as an authority for the position that a person who has not b«en duly appointed a director or who has become disqualified for being a director not being a de jure director but he may be a director de facto for which section 180 of the English Act of 1948 makes a provision. But the question of any of these 18 executive committee members/directors functioning as de facto cannot arise because they cannot function as directors with knowledge of their having ceased to become directors, if in fact they had ceased to become directors. It is needless to quote from other leading authors.
Mr. Shroff drew my attention to section 283 (set out earlier) and contended that the office of director shall become vacant only in the eventualities mentioned therein and since the retirement of any director is not one of these eventualities mentioned in section 283 of the Act it was not part of the legislative intent to regard a director as having retired on the date on which the annual general meeting had to be held. The fallacy of this argument obviously lies in not perceiving the true scope of section 283 which provides only for cases where the office of the director becomes vacant by reason of the disqualifications which a director may incur in the eventualities contemplated by clauses (a) to (1) of sub-section (1) of section 283. That section 283 deals only with disqualification of directors, incurred during their term as directors, will become clearer if reference is made to sub-section (2) of section 283, which describes the eventualities in clauses (a) to (1) of sub-section (1) of section 283 as "disqualification".
It was next contended by Mr. Shroff that section 168 of the Act provides for default in the matter of complying with sections 186 and 187 and that all that the Act intended to provide was a penalty for those directors who did not comply with those sections and no more; in other words, that independently of the said penalty there was no other disability attaching to a director functioning after the maximum period allowed under section 255 had expired. I find this contention difficult to follow. That a penalty has been prescribed for a defaulting director is something totally distinct from the question how long a director continues to hold office in the absence of his being elected. Again In re Consolidated Nickel Mines Ltd. has been followed in India also as an authority for the position that a director cannot by his own default in not calling the annual general meeting, as he is bound to do, take advantage and still continue as director and/or collect the remuneration payable to such director. This view found favour with Venkatarama Iyer J. (as he then was) in Anantha-lahshmi Animal. Section 166 of the Act replaced section 76 of the previous Act; the corresponding provision in the English Act is section 131. Mr, A. Ramiah in his book, which has run into several successive editions, A Guide to the Companies Act, 1971 (6th edition), has extracted, on page 292, the object of the amendment made by the Amending Act 55 of 1960 in this respect. Since the said source quoted by Mr. Ramiah has not been available to me, I am quoting the same as given by Mr. Ramiah on page 292.
"The provisions of section 166 are not effective against delay in the holding of annual general meetings on the one hand, and on the other, cause unnecessary inconvenience to non-profit making and certain other companies in that they cannot hold annual general meetings at a time and place more convenient to their members, in view of the rigid requirements of the present section. It is proposed to remove these defects from the section on the lines suggested in para. 69 of the Report."
It is worth recalling that the power of the Registrar to extend the time for holding the meeting which was 6 months normally was also reduced to 3 months by the above amended Act. The legislative policy obviously was, therefore, not to allow a person to continue as director in spite of the maximum permissible time having elapsed between the holding of one annual general meeting and another; the Registrar's power to extend time was reduced from 6 to 3 months thus reducing the total period from 21 months to 18 months. It is not a case of casus omissus, as contended by Mr. Shroff, who commented that the legislature had not specifically stated that at the end of the period for which a director is elected he will retire or vacate office. I do not see how such express mention was necessary. When the term of office is fixed with a further provision that the incumbent would retire on the day on which the annual meeting would have had to take place coupled with a provision concerning the maximum interval that can elapse between one annual general meeting and another, we have all parameters, within which a director functions, fully and comprehensively. There seems no scope at all, therefore, for the contention of Mr. Shroff that even after the 30th June, 1974, the 18 executive committee members/directors continued as de jure directors/executive committee members. The settled rule of interpretation is that a statute will have to be interpreted with reference to the object of the statute, the mischief to be remedied and the remedy provided. The object of the legislature here was clearly to see that the directors would not continue beyond the terms for which they were elected and also fixing the maximum time that can elapse between one annual general meeting and another with a further statement, as under section 255, that at least one-third of the directors would, in the absence of article provision to the contrary, retire at every annual general meeting. In this case article 24 provides for the whole set of directors retiring at the annual general meeting. The articles (article 31) provide that when an annual general meeting takes place the persons concerned would retire at the end of such meeting. This provision was to remove a possible anomaly of their having to retire either before the meeting or during the course of it. In the present case, when no annual general meeting had taken place for the maximum permissible period the executive committee members/directors did retire at the expiry of the said period. To allow them to continue at the end of the said period as de jure directors would be to invest them with a power to continue as directors by defaulting to call an annual general meeting. That no defaulting director could take advantage of his own wrong seems a fairly well-established proposition; this was pointed out in In re Consolidated Nickel Mines Ltd. not questioned before the Court of Appeal or House of Lords and followed by Venkatarama Iyer J. in Ananthalakshmi Ammal. Even shorn of authority I will have no difficulty in upholding such a position.
There is also another way of looking at this matter. The legal position established by In re Consolidated Nickel Mines Ltd. which was not only not disputed later but admitted to be correct both before the Court of Appeal and House of Lords in Kanssen, shows that the accepted position in common law is that directors could not, by reason of merely postponing the convening of annual general meeting, continue to be the de jure directors after the expiry of the maximum permissible statutory period. If this is the position according to common law and if the subsequent statute, consolidating the pre-existing law in the field, was silent about it there is ample authority for the view that the statute must be read in consonance with the common law. It is sufficient to refer to a few passages in Maxwell on Interpretation of Statutes (12th edition) and Crates on Statute law (17th edition) in support of this well-established proposition. The former contains passages, among others, to the following effect:
"(a) Few principles of statutory interpretation are applied as frequently as the presumption against alterations in the common law." (page 116);
(b) In the case of a consolidating Act there is a particularly strong presumption that it does not alter the law contained in the statutes which it replaces " (page 116).
In the latter also there are plenty of passages in support of the said positions; it would not be necessary to refer to all of them. It will be sufficient to notice the following:
"(a) To alter any clearly established principle of law a distinct and positive legislative enactment is necessary." (page 121).
(b) It must be remembered that it is a sound rule to construe a statute in conformity with the common law rather than against it except where or in so far as the statute is plainly intended to alter the course of the common law." (page 188).
(c) If it is clear that it was the intention of the legislature in passing a new statute to abrogate the previous common law on the subject, the common law must give way and the statute must prevail; but there is no presumption that a statute is intended to override the common law." (page 339).
(d) The courts will lean against any presumption that a consolidation Act was intended to alter the common law." (page 363).
Reference to another well-established rule of common law may also be made; it is that a person should be heard before his rights are affected; if there are any omissions in the statute in this regard "the justice of the common law principle would supply the omission". (See above observation of Byles J. which has become classic in Cooper v. Wandsworth Board of Works). In that case the metropolitan statute empowered the district board to alter or demolish a house, where the builder has neglected to give notice of his intention to build, seven days before proceeding to lay or dig the foundation. It was held by all the three judges that the statute did not empower them to demolish the building, without first giving the party guilty of the omission an opportunity of being heard. Mr. I. N. Shroff pointed out that the above said decision related to a rule of natural justice which does not fall for consideration in the present case. The question is not so much in what context the above said observation was made but it is one concerning the presumption of a statute not changing the common law unless it contains an express provision contrary to the common law especially when a statute consolidated the previously existing position, this presumption becomes even stronger.
Looking at it from any angle it seems futile to contend that the members of the executive committee/directors continued in this case after the expiry of the maximum permissible meeting, without their being elected as executive committee members/directors in a manner known to law. Once the conclusion is reached that there are, at the moment, no de jure directors who can convene a meeting for the election of office bearers the further question is whether the court is to exercise its power under section 186, as it did previously in the affairs of the same company, or merely direct that the Central Government alone should be moved for this purpose under section 167. It is no doubt true that under section 167 any member of the company can apply to the Government for the purpose of calling an annual general meeting. My attention has been drawn to the affidavit dated December 19, 1974, filed by Shri J. S. Sood in this petition that he had approached the Regional Director of the Company Law Board, Kanpur, to call a general meeting in the year 1971-72, in view of the same not being held in 1970-71. Not only was no general meeting convened by the Central Government but even he did not inform of any action taken on such request. In the result he did not pursue the matter with the Regional Director of the Company Law Board, Kanpur. This fact was not disputed by Mr. I.N. Shroff even during the hearing. When a submission was made orally from the Bar to the above effect by Shri K.K. Mehra on behalf of the applicant he was directed to file an affidavit which was filed in this court on December 19, 1974. The Companies Act, as amended in 1973, provides for the powers exercised by the court under section 186 being exercised by the Central Government after the said Act comes into force ; the said Act comes into force only from the appointed date, which is yet to be fixed. So far as the present case is concerned, therefore, a meeting can be called by this court under section 186.
The scope of section 186 of the Act has been discussed by me elaborately on more than one occasion, vide Shrimati Jain v. Delhi Flour Mills Co. Ltd. and In the matter of Companies Act, 1956, and In the matter of Motion Pictures Association. I had referred, among other decisions, to that in United Breweries Ltd. v. Rustomji and Co. Ltd. Explaining the principles to be borne in mind while dealing with an application under section 186 it was stated, inter alia, that even when there is doubt as to whether a meeting in the regular course could be called the company should not be exposed to difficulty and risk of litigation; it would be a proper case, therefore, for the exercise of the power conferred under section 186 to call a meeting of the company. It is in the light of the facts discussed above that it seems imperative to call a meeting of the company under section 186 of the Act.
It seems needless to refer to the earlier attempts made to have only a chairman appointed by court for a meeting already called by the company; it was probably thought that it was an inexpensive course to adopt. But when the executive committee members/directors are not functioning de jure they could not call a meeting themselves. As such there is no other alternative to exercising powers under section 186 of the Act to call a meeting of the company where office bearers (executive committee members/directors) could be elected.
Since the election held at a meeting called by the court at the first instance resulted in several irregularities and difficulties consequently cropped up, I had to give specific directions in a matter how the later meeting, which I had directed to be called, should be conducted and the election held. Since these directions proved to be effective and successful I propose to give similar directions now. A meeting of the company is directed to be called/held/conducted on Saturday, the 1st March, 1975, at the premises of the company, i.e., F-27, Darya Ganj, Delhi. Shri Prithvi Raj Sachdev, advocate, will be the chairman of the meeting and Shri A.L. Joshi, advocate, will be the alternate chairman.
The following procedure shall be adopted at the said meeting:
(1) Any application for new membership from today onwards will be put up before the chairman and his initials obtained thereon before a new member is admitted.
(2) All the firms and limited companies, which are members of the company (association) will send written authorisations and duly authenticated copies of authorisations of needed resolutions, respectively, to reach the secretary of the company at least three days in advance of the date of the meeting, indicating who will vote at the meeting and what his position is in the firm or company, as the case may be.
(3) No member of the company, which is a firm or limited liability company, will be entitled to vote unless such written authorisations or authenticated copies of resolutions, as the case may be, are sent by the companies or firms concerned and received by the secretary of the com any within the aforesaid time. In the case of partnership firms the authorisations will be confined to one of the partners. If the same person is a partner in more than one member-firm he can on being authorised by the concerned firm or firms vote for the firm or firms concerned. In such cases (i.e.) where the person concerned is representing more than one member firm when signing the attendance register at the meeting he will indicate therein the firm/firms which he is representing.
(4) All proprietary concerns can vote only in person, subject to identity and membership being verified.
(5) The nominations along with the consent of the person nominated in the case of those wishing to be elected as office bearers will reach the secretary of the company on or before 5 p.m. on 13th February, 1975. The nominations will be scrutinised by the chairman. The last date of receipt of objections to nominations will be on or before 5 p. m. on 15th February, 1975. The chairman will go into the objections, scrutinize the nomination papers and make his decision concerning them. For this purpose he will attend the aforesaid premises of the company on 17th February, 1975. The list of valid nominations will be dispatched, under certificate of posting, by the secretary of the company to all the members not later than the 19th February, 1975.
(6) Members attending the meeting will not be permitted to sign the attendance register after 12 noon. In other words, if any member does not sign the meeting register by 12 noon that member will not be entitled to vote.
(7) The requisition slips for the ballot papers will be actually signed by the person who has to record the vote on behalf of the concerned member ; they (requisition slips) will not be issued to any one else. A register will be maintained concerning the issue of requisition slips and the signature of the person concerned will be taken in token of his having received the requisition slip. When the ballot paper is issued in pursuance of the requisition slip the signature of the person concerned will be taken on the requisition slip itself in token of his having received the ballot paper.
(8) No ballot paper will be issued after 5 p.m. At 5 p.m. the chairman will announce the time beyond which no person will be allowed to record his vote; this decision will be made by him in the light of the time that is likely to be taken by those to whom ballot papers have been issued but are yet to record their votes.
(9) The chairman will exclude from the premises where the meeting and voting take place any person who has not to record his vote.
(10) The following scrutineers are appointed to help the chairman:
1. Shri K.L. Budhiraja, Advocate
2. Shri M.L. Sachdev, Private Secretary
3. Shri Suhinder Singh, Reader
4. Shri S.M. Saxena, Superintendent.
I have been able to take the consent of Shri K. L. Budhiraja, Advocate, only among the lawyers who were appointed at the last meeting. I am, therefore, unable to include the name of any other advocate. The chairman will be at liberty to move for more scrutineers to be appointed in case he wants any more.
(11) The scrutineers themselves will work under the guidance and help of the chairman/alternate chairman and count the votes.
(12) The following persons are also appointed to help movement of files and to perform other petty errands at the conduct of election on 1st March, 1975:
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1. Shri Sant Ram, Restorer |
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of this court |
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2. Shri Krishan Chand, Daftri |
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3. Shri Deep Chand, PeonJ |
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4. Shri Om Prakash, Peon |
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of Tis Hazari Bar Association |
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5. Shri Mangli, Peon |
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They will each of them be paid rupees fifty.
(13) As soon as the voting is over the counting of votes will commence and the result will be announced that night itself.
(14) After the election is over the chairman will submit a report to this court concerning the meeting along with the requisition slips, ballot papers, the attendance register, nominations, authorisations and any other documents that may be considered relevant by the chairman, all in sealed container, within a week after the meeting.
(15) Only the contesting candidates will be allowed to be present inside the premises when the polling and counting take place; no other person on his behalf to help the candidates will be allowed to be present. The chairman will not allow the staff of the company to participate in the matter of conducting the election.
(16) The chairman (Shri Prithvi Raj Sachdev) will be paid a remune ration of Rs. 2,000, the alternative chairman (Shri A.L. Joshi) Rs. 1,000 and the four scrutineers (Sarvashri K.L. Budhiraja, M.L. Sachdev, Suhinder Singh and S.M. Saxena) Rs. 500 each, by the company. Sarvashri M.L. Sachdev, Suhinder Singh and S.M. Saxena, officers of this court who have been appointed scrutineers, will receive the said sum of Rs. 500 each as rewaid for this special service.
(17) The secretary of the company (Shri J.C. Basu) is authorised to make payments in respect of the above remunerations.
(18) Shri J.C. Basu in addition to Sarvashri (names to be mentioned before chairman) will be allowed to be present along with the chairman for the purpose of helping the identification of voters. They will not stand as candidates for the election.
A copy of this order will be caused to be cyclostyled or printed by the secretary of the company (association) and the same sent under certificate of posting to all the members within three weeks from today.
The chairman will have the necessary authority to visit the aforesaid premises of the company, as often as he may wish, to see that all the directions given herein are implemented by the secretary of the company.
The petition is ordered in the above terms. There will be no order as to costs.
[1961] 31 COMP. CAS.
301 (CAL.)
Murarka Paint And Varnish Works
(P.) Ltd.
v.
Mohanlal Murarka
A.N. RAY, J.
SUIT NO. 426 OF 1960
AUGUST 1, 1960
A.N. RAY, J. - This suit has been instituted by Murarka Paint and Varnish Works (Private) Ltd. against Mohanlal Murarka, Chunilal Murarka, Purushottamlal Murarka, Beharilal Murarka, Radheylal Murarka, Kunjalal Murarka and Hiralal Murarka. The plaintiff has its registered office at 4E, Dalhousie Square, East Calcutta. The plaintiff uses the said office in common with five other limited companies. At the last annual general meeting of the plaintiff company, Sohanlal Murarka, Kissenlal Murarka, Shankarlal Murarka and Mohanlal Murarka were appointed directors.
Article 111 of the company states that every director shall vacate his office, inter alia, on his being requested in writing by all his co- directors to resign. On or about February 24, 1960, Sohanlal Murarka, Kissenlal Murarka and Shankarlal Murarka acting under article 111 requested Mohanlal Murarka in writing to resign. The plaintiff’s case is that Mohanlal Murarka immediately thereafter ceased to be director of the plaintiff. On or about February 25, 1960, the board of directors of the plaintiff at a meeting held by it on the same day appointed in accordance with the articles one Mahabir Prasad Murarka in place and stead of Mohanlal Murarka. The plaintiff alleges that in the premises on and from February 25, 1960, the lawful directors of the plaintiff were and are : Sohanlal Murarka, Kissenlal Murarka, Shankarlal Murarka and Mahabir Prasad Murarka.
On or about February 25, 1960, the plaintiff, through its solicitors, Messrs. Khaitan and Co., issued notices in various newspapers to the effect that all power and authority of the defendant, Mohanlal Murarka, as a director had been terminated. The defendants, Chunilal Murarka, Radheylal Murarka, Beharilal Murarka, Hiralal Murarka and Kunjalal Murarka, it is alleged, are not registered shareholders of the plaintiff. The defendant, Mohanlal, is the joint registered owner of 6,250 ordinary shares in the plaintiff company along with the defendants Purushottamlal Murarka and Shankarlal Murarka.
On or about March 23, 1960, at about 2 p.m., it is alleged, the defendants, Mohanlal Murarka, Chunilal Murarka, Purushottamlal Murarka and Beharilal Murarka accompanied by about 25 unknown persons and police officers forcibly entered in to the office of the plaintiff and attempted wrongfully and illegally to take possession and charge of the affairs and properties of the plaintiff including its books of accounts, papers, documents and moneys, etc. The plaintiff, on March 23, 1960, lodged a complaint at Hare Street Police Station in Calcutta. On March 24, 1960, an application was made before the Chief Presidency Magistrate, Calcutta, praying for the issue of process against the defendants, Chunilal Murarka, Mohanlal Murarka, Purushottamalal Murarka and Beharilal Murarka. A report was called for by the Chief Presidency Magistrate by April 9, 1960. After the passing of the order, it is alleged, the defendants with the help of unknown persons started dismantling almirahs, fixtures, etc., situate in the office of the plaintiff. Another application was made before the Chief Presidency Magistrate for an order under section 144 of the Criminal Procedure Code. Another report was called for by the Chief Presidency Magistrate by March 26, 1960, and it was directed that there was to be no breach of peace meanwhile.
The plaintiff’s solicitors received a letter dated March 23, 1960, from Radheylal Murarka whereby Radheylal Murarka purporting to act as a director of the plaintiff informed the plaintiff’s solicitors that Sohanlal Murarka, Kissenlal Murarka and Shankarlal Murarka had been removed from the board of directors of the plaintiff.
It is further alleged in the plaint that, on March 24, 1960, the plaintiff’s law agent went to the office of the plaintiff company when it was discovered that Kunjalal Murarka was asserting that he and his father Hiralal Murarka were directors. The plaintiff’s law agent further discovered almirahs to be broken and tampered with, cash moneys having been forcibly taken away by Mohanlal Murarka and Chunilal Murarka, and that several unknown persons were sitting and/or standing in the office room.
The plaintiff alleges that none of the defendants could be validly or at all appointed director and that the defendants acted illegally and without any authority or jurisdiction. It is alleged that the only persons entitled to manage the affairs of the business and properties in accordance with the memorandance and articles of association and the provisions of the Companies Act are the present board of directors as mentioned in paragraph 9 of the plaint. It is further alleged that the defendants trespassed into the office and interfered with the management of the affairs, business and properties.
The plaintiff company asks for a permanent injunction restraining the defendants, their servants, nominees and/or agents from occupying the office of the plaintiff and from interfering with the management and control of the plaintiff and also injunction restraining the defendants from usurping the management and control of the affairs, business and properties of the plaintiff and further injunction restraining the defendants, their servants, nominees and/or agents from in any way acting as directors of the plaintiff and reliefs regarding books, furniture and cash moneys.
Defendants Nos.1 to 6 filed a joint written statement. One of the points taken in the written statement is that the suit has been instituted without the authority of the board of directors and against the decision of the shareholders. As present it is not necessary to deal with other defenses in this suit.
This suit came up before me on June 3, 1960. None of the counsel on behalf of the plaintiff and the defendants was present in court. Only the plaintiff’s solicitor and the defendants’ solicitor were present in court. The solicitor for the defendants suggested that a meeting be convened to ascertain the wishes of the shareholders as to whether they wished to continue the suit. The solicitor for the plaintiff was unable to show any reason as to why that should not be done. I made an order to that effect.
A couple of days thereafter counsel on behalf of the plaintiff expressed regret that they were not present when the suit was called on and prayed for rehearing of the matter. Counsel for the defendant also stated that the matter could be heard under those circumstances.
Counsel on behalf of the plaintiff contended that there were groups of shareholders on the side of the defendants and some of such shareholders had no title to the shares. To illustrate, it was contended that Mohanlal Murarka who was shown to be holding 12,500 shares was restrained by orders of this court from asserting rights in respect of such shares. These 12,500 ordinary shares standing in the name of Mohanlal Murarka originally belonged to Radheylal Murarka and Chunilal Murarka and were forfeited in exercise of lien and were allotted to Mohanlal Murarka. Two suits were filed by Radheylal Murarka and Chunilal Murarka, Nos.3264 of 1947 and 3265 of 1947 respectively. In those suits it was ordered that the defendants to the suit were prohibited and restrained until the determination of the suit or until further orders of this court from in any way interfering with the rights of the plaintiff as registered shareholder in respect of the shares. The suits are still pending. Under these circumstances counsel of the plaintiff contended that no rights could be asserted in respect of those shares by Mohanlal Murarka. Counsel for the defendants submitted that Chunilal and Radheylal Murarka were supporting the defendants and, therefore, those shares were in any event in support of the defendants. These suits are still pending decision.
Counsel for the defendants similarly contended that 6,250 shares standing in the name of Maniklal Murarka and others jointly were registered in violation of the provision contained in article 14. Maniklal Murarka and others are supporting the plaintiff. These 6,250 shares are in the names of Maniklal Murarka, Lachmiprasad Murarka, Ajit Prasad Murarka, Iswari Prasad, Narayan Prasad and Mani Bai. Article 14 states that shares may be registered in the names of any limited company but not in the name of a minor nor usually more than four persons be registered as joint holders of any share. Counsel for the plaintiff contended that article 14 referred to allotment of shares but did not relate to transmission of shares on death et cetera It was contended on behalf of the plaintiff that under article 47 there could be no limitation upon the number of heirs to be registered in respect of any share.
It was also contended on behalf of the plaintiff that 6,250 shares which were shown to be standing in the name of Beharilal Murarka and which were alleged to be transferred on Marh 24, 1960, were so done wrongfully. Similarly it was contended that 2,750 shares standing in the name of Kunjalal Murarka were purported to be transferred wrongfully. Beharilal Murarka and Kunjalal Murarka are supporting the defendants. It was contended on behalf of the plaintiff that article 84 did not apply to cases where persons claimed share by inheritance and that article 84 was confined to transmission of shares under article 48. It was contended on behalf of the plaintiff that article 47 related to transmission of shares of deceased persons. It was further contended that only executors or administrators of the deceased could apply under article 47. Beharilal Murarka and Kunjalal Murarka who claim shares on the death of Laloola Murarka, it was contended by counsel for the plaintiff, had further to satisfy the directors under article 84 of the right to act in that capacity. It was contended by counsel for the plaintiff that there was no evidence that Beharilal Murarka or Kunjalal Murarka satisfied the directors of their right to act in that capacity.
Counsel on behalf of the defendants contended that Beharilal Murarka was entitled to vote and, whether the shares in the name of Laloolal Murarka belonged to a joint family or were held individually, Beharilal Murarka would be entitled to vote in consequence of the death of Laloolal Murarka.
It is manifest under these circumstances that the shareholding bristles with disputes as to rights and counsel for the plaintiff, in my view, rightly characterised such disputes relating to title to the shares as containing seeds of litigation concerning the shares and assertion of rights in respect thereof. Counsel for the defendants contended that if a general meeting were ordered it would not be relevant at this stage to take any notice as to disputes to title of the shares.
I am unable to accept the contention of counsel for the defendants. I cannot allow a meeting to be held without deciding who the shareholders are and who will vote. I am extremely doubtful it I can inquire into these questions either in this suit or at this stage.
Counsel for the defendants contended first that it was specifically pleaded in the written statement that the suit was bad being in the name of the plaintiff company and that there was no resolution disclosed by the plaintiff showing the authority of the plaintiff to institute the suit. It was secondly contended that even if the initiation of the suit was good the company might discontinue and equally if initiation were bad the company might continue the suit by ratification. A general meeting would be necessary to find out if the suit is to be continued or discontinued. It was thirdly contended that the dispute in the present case related purely to the internal management and, therefore, the court would not interfere.
As to the first point, namely, the use of the name of the company by the plaintiff, counsel for the plaintiff contended that it was not open to the defendants to take that objection as a defence to the suit and that they should have proceeded by way of motion to stay the suit. On behalf of the defendants counsel contended that it was not an absolute rule that the objection should be by way of motion to stay the suit but that it could be brought to the notice of the court that the plaintiff was not authorised to sue in the name of the company. Reliance was placed by the defendants on the decision of La Company de Mayville v. Whitley [1896] 1 Ch.788, Daimler Co.Ltd. v. Continental Tyre and Rubber Co. (Great Britain) Ltd., Danish Mercantile Co.Ltd. v. Beaumont [1951] 1 Ch.680. It is well settled that if authority is wanted to use the name of the company, it must be authority got from the proper quarter, either from the directors or from the shareholders convened for the purpose. In the Daimler Company case it was found that no authority was conferred upon the secretary to institute the action and it was under these circumstances ordered to be struck out. It was contended in that case that the objection should have been raised by a motion to strike out the writ but LORDS PARKER and PARMOUR said that the action was altogether irregular and that no steps necessary to confer authority on the secretary had been taken. In the Danish Mercantile Company case there was an application to stay the proceedings. The managing director under an agreement was to manage and conduct the affairs. He instructed the solicitor to start an action in the name of the company. The action was approved neither by the company in general meeting nor by the board of directors before it was started. In the meantime liquidation commenced. The defendants thereafter applied by motion to strike out the name of the plaintiff. It was held that the liquidator had ratified the bringing of the action. In that case reference was made to the decision in London and Blackwall Railway Co. v. Cross, where a distinction was drawn between an application for an injunction restraining the unauthorised use of the company’s name in certain proceedings and an application in an action to stay the proceedings or strike out the plaintiff’s name on the ground that the proceedings were brought without the plaintiff’s authority. The principle established there is that if a person without authority brings an action in the name of another it is an abuse of the process of the court, and the court can stop it. Counsel for the defendants thus contended that the court had power, whether there was a motion to stay the suit or not, to stop the proceedings when it was unauthorised use of the name of the company.
Counsel for the plaintiff relied on the decision of Russian Commercial and Industrial Bank v. Computer d’Escompte de Mulhouse. One of the disputes there was as to whether it was open to the defendants to raise by way of defence to the action the objection that the London branch manager had no authority to bring the action in the name of the plaintiff. Dealing with the contention VISCOUNT CAVE said : “.......I do not think that it is open to the defendants to raise this question by way of defence to the action. If the defendants desired to dispute the authority of Mr. Jones to commence these proceedings in the name of the plaintiff company their proper course was to move at an early stage of the action to have the name of the company struck out as plaintiff and so to bring the proceedings to an end.” Again in the case of John Shaw and Sons (Salford) Ltd. v. Shaw a question arose as to whether a suit was properly instituted in the name of the company. In the trial court no objection was taken that the court could not decide the question of the authority of the directors to commence the action as a defence to the suit but only on a motion to stay the action. On appeal, GREER, L.J., held that where the power to commence an action is vested by the articles in the permanent directors then an ordinary resolution of the company would not control their exercise of that power. SLESSER, L.J., held otherwise. ROCHE, L.J., held that the onus was on the defendant to prove that the action was unauthorised and that the defendant failed to discharge the onus and failed to produce material information. It was indicated that the minute books should have been produced and information should have been given to the court whether before the meeting at which action was decided upon the permanent directors had conferred any, and, if so, what power upon the ordinary directors. Information should also have been available as to whether the meeting purported to be the meeting of the directors and appeared as such in the minute book or whether it was in form as well as in fact a meeting of the directors on a matter within a class of matters previously excluded by them from the purview of the ordinary directors.
In the present case counsel for the plaintiff opposed any right of the defendants to contend as a defence to the suit that it was an unauthorised suit. The plaintiff insisted that there should have been a motion to stay the action. Counsel for the defendants submitted that not much time had elapsed since the institution of the suit and that, since the plaintiff did not disclose any resolution authorising the institution of the suit, it should be stopped. I am unable to accept the contentions of the defendants. To my mind the majority of the decisions shows that an objection as to the user of the name of the company by the plaintiff cannot be raised as a defence but should be on a motion to stay the action. Furthermore, the defendants have not furnished the necessary information to discharge the onus that there is no resolution. The plaintiff contends that the directors are empowered under the articles to institute an action and that there is also a resolution to that effect. There is no conclusive evidence that the plaintiff has not the right to proceed in the name of the company or that the suit has been instituted without authority in the name of the company. On the contrary the directors are empowered by the articles to institute suits but the defendants contend that the exercise of such powers by the directors is subject to the control of the members.
As to the contentions of the defendants that the court will not interfere in disputes as to internal management or that the court will allow a general meeting to be convened for the purpose of continuing or discontinuing the suit counsel for the plaintiff contended that articles 121 and 122(6) confer sufficient authority on the board to commence the suit and such power conferred on the board could not be taken away by any general meeting. It was contended that the only way by which the management in the hands of the board could be controlled was by virtue of the provisions in the Act or provisions in the articles and by alterations of the articles. Under article 121 it is stated that the management of the business of the company shall be vested in the managing agents or directors, who, in addition to the powers and authorities by these presents or otherwise conferred upon them, may exercise all such powers and do all such acts and things as may be exercised or done by the company as are not hereby or by statutes expressly directed or required to be exercised or done by the company in general meeting but subject nevertheless to the provisions of the statute and all these presents and to any regulations from time to time made by the company in general meeting. Counsel for the defendants laid emphasis on the words “any regulations from time to time made by the company in general meeting” as empowering the shareholders by a general meeting to continue or discontinue the suit. Counsel for the plaintiff on the other hand contended that the word “regulations” was synonymous with “articles” and that the shareholders could control the acts of the directors only by alteration of the articles.
The directors and the shareholders in general meeting are the primary organs of the company between whom the company’s powers are divided. The general meeting retains ultimate control, but only through its powers to amend the articles, to take away powers from the directors and to remove the directors and to substitute others to the taste of the shareholders. Until one or other of the aforesaid steps be taken, the directors, under the articles, according to the contention of the plaintiff, can disregard the wishes of the members and that the general meeting cannot restrain the directors from conducting actions in the name of the company.
In the case of Isle of Wight Railway Company v. Tahourdin the court refused an application by the directors of a statutory company for an injunction to restrain the holding of a general meeting. COTTON, L.J., said :”It is a very strong thing indeed to prevent shareholders from holding a meeting of the company, when such a meeting is the only way in which they can interfere, if the majority of them think that the course taken by the directors, in a matter which is intra vires of the directors, is not for the benefit of the company.” In Automatic Self-cleansing Filter Syndicate Co.Ltd. v. Cuninghame. The directors of a registered company refused to carry out a sale agreement resolved upon in general meeting. The powers of management in that case were entrusted to the board under article 96 comparable to article 121 in the present case. Under article 96 there the management in the hands of the directors was subject to “such regulations, not being inconsistent with these presents as may from time to time be made by extraordinary resolutions.” It was, therefore, held that the general meeting would be a nullity inasmuch as article 96 contemplated extraordinary resolution. It was thus held to be incompetent for the majority of the shareholders in an ordinary meeting to affect or alter the powers originally given to the directors. In the case of Marshall’s Valve Gear Co. Ltd. v. Manning Wardle & Co. Ltd. the management was vested in the directors under article 55 which was similar to article 121 in the present case. A and three other persons were the four directors of the company and they held substantially the whole of the subscribed share capital of the company. A held a majority but not a three-fourth majority of the shares. Disputes arose at a meeting between A and the other three directors who were interested in a patent vested in the N company which, so A was advised, infringed the M company’s patent and was admittedly a competing patent. The three directors bona fide declined to sanction any proceedings against the N company in the name of the M company to restrain the alleged infringement. Thereupon the three directors moved in the name and on behalf of the M company to strike out the name of that company as plaintiff and to dismiss the action on the ground that the name of the M company had been used without authority. It was held that under article 55 in Marchall’s case [1909] 1 Ch.267 the majority of the shareholders in the company at a general meeting had a right to control the action of the directors so long as they did not affect to control any direction contrary to any of the provisions of the article which bound the company.
In the case of Salmon v. Quin & Axtens Ltd. the Court of Appeal followed Cuninghame’s case and the House of Lords upheld the decision as will appear in Quin & Axtens Ltd. v. Salmon. In Salmon’s case under article 75 the business of the company was to be managed by the board subject to the provisions of any Act of Parliament or of the articles and to such regulations as might be prescribed by the company in general meeting. Article 80 in that case regulated that no resolution of a meeting of the directors having the object of borrowing money, the acquisition by purchase, lease or otherwise was to be valid or binding unless not less than 24 hours’ notice in writing by letter or telegram specifying the business proposed to be transacted thereat had been given to each of the managing directors. A and B, the managing directors, held the bulk of the ordinary shares in the company. Resolutions were passed by the directors for the acquisition of certain premises and for the letting of certain other premises, but B dissented from each of these resolutions in accordance with the articles. At a general meeting of the company resolutions to the same effect were passed by a simple majority of the shareholders. It was contended that the resolutions were of no effect. The resolutions were held to be inconsistent with article 80 as an attempt to alter the terms of contract between the parties by a simple resolution instead of by a special resolution. FARWELL, L.J., said that the directors were not servants to obey directions given by the shareholders as individuals, but that they were persons entrusted by the regulations with the control of the business and could be dispossessed from that control only by the statutory majority which could alter the articles. In the two recent decisions of John Shaw & Sons (Salford) Ltd. v. Shaw and Scott v. Scott the modern doctrine is that a resolution of the members disapproving the commencing of an action by the directors would be a nullity, for, if powers of management are vested in the directors they and they alone can exercise these powers. GREER, L.J., said (in Shaw’s case : “The only way in which the general body of the shareholders can control the exercise of the powers vested by the articles in the directors is by altering the articles, or, if opportunity arises, under the articles by refusing to re-elect the directors of whose action they disapprove. They cannot themselves usurp the powers which by articles are vested in the directors, nor the directors can usurp the powers vested by the articles in the general body of the shareholders.” Similarly, in the case of Scott v. Scott [1943] 1 All E.R. 582 it was held that when powers had been delegated to the directors the members at the general meeting could not interfere with their exercise until they were taken away by the amendment of articles.
The law as laid down in Halsbury’s Laws of England, 3rd edition, volume VI, at page 445, is as follows : “As regards litigation by an incorporated company, the directors are, as a rule, the persons who have authority to act for the company; but, in the absence of any contract to the contrary in the articles of association, the majority of the members of the company are entitled to decide, even to the extent of overruling the directors, whether an action in the name of the company should be commenced or allowed to proceed.” The pre-eminent question, therefore, is as to whether the directors under the articles in the present case can be controlled by a general meeting with regard either to the commencement or to the continuance of this suit. Counsel for the defendants contended that in the absence of any contract to the contrary in the articles the majority of shareholders are entitled to decide the course of action and that in the present case there is no contract to the contrary. The words “subject to any regulation from time to time made by the company in general meeting” occurring in article 121 in the present case cannot, in my opinion, overrule the directors’ powers by prescribing a regulation or passing a resolution inconsistent with the articles. In Gramophone & Typewriter Co.Ltd. v. Stanley BUCKLEY, L.J., said that even a resolution of numerical majority at a general meeting of he company could not impose its will upon the directors when the articles had confided to them the control of the company’s affairs. As I have already indicated, the law is that directors can be denuded of their powers of control and management either by alteration of the articles or by their removal. Marchall’s case is the only one on which counsel for the defendants laid considerable emphasis. Marshall’s case appears not to have been approved by the House of Lords in Quin & Axtens Ltd. v. Salmon. Furthermore, the view expressed in Palmer’s Company Precedents, 17th edition, volume I, at pages 543 to 545, is that where it is desired to give the general meeting more effective control the articles should be so framed that the exercise of such powers should be subject to the control and regulation of a general meeting specially convancesed for the purpose. Such an article will have the effect of being construed as a “contract to the contrary” of the powers of the directors. Furthermore, Marshall’s case [1909] 1 Ch.267 seems to suggest that the general meeting can commerce proceedings on behalf of the company if the directors failed to do so. Ordinarily, the appropriate authority to start an action on the company’s behalf is the board of directors to whom this power is delegated as an incident to the management of the company. If the directors cannot or will not start proceedings in the company’s name the power to do so reverts to the general meeting.
In the present case, I am of opinion, that the power of management is vested under the articles in the board. This power is subject to alteration of the articles. The word “regulation” in article 121 in the present case is, in my opinion, synonymous with “articles” and the result is that the powers of management can be challenged only by alteration of the articles. In my opinion, there is a contract providing for management by the board and such a contract is contrary to regulation of the exercise of the powers of directors by the general meeting.
Counsel for the defendants contended that under section 284 of the Companies Act, the directors could be got rid of at a general meeting and, therefore, if a general meeting were convened, it would appeal whether the shareholders wireless accept that acts of the directors. Under section 284 of the Companies Act it is provided that a company may by ordinary resolution remove a director before the expiry of his period of office. A special notice is contemplated under that section of any resolution to remove a director or to appoint somebody instead of a director so removed. It is further contemplated in that section that on receipt of a notice of a resolution the company is to send a copy thereof to the directors concerned and the director shall be entitled to be heard on the resolution at the meeting. Counsel for the plaintiff, in my view, rightly contended that no general meeting should be allowed to be convened in the present suit for obtaining any relief under section 284 of the Act. I am of opinion that no meeting convened for the purpose of ascertaining the wishes of the shareholders as to whether a suit should be allowed to proceed or not should be converted for another indirect purpose of removal of the directors.
Counsel for the plaintiff relied on Dhanuka’s case. In that case there was an ordinary resolution at a requisitioned general meeting and several persons were appointed directors in addition to the four existing directors. There was an action on behalf of the shareholders and others alleging that the resolution was invalid on the ground that under the article it should have been passed only by a special resolution. A question arose as to whether the court would interfere in the internal management of the company. Dealing with that contention their Lordships’ opinion was that, to treat the resolution as effective would mean that the company could terminate the appointment of managing agents by ordinary resolution contrary to the articles which required an extraordinary resolution. In other words, an infraction of the article was not permitted. Counsel for the plaintiff on the authority of Dhanuka’s case [1950] 20 Comp.Cas.133 contended that to allow a general meeting and to get rid of directors under section 284 of the Companies Act would be to allow by ordinary resolution what had to be done only after observing formalities contemplated in section 284. It is true that the directors can be removed in a general meeting but any proposed resolution for such removal of directors is conditional upon certain prior notice. In the present case there has been no such notice. I am of opinion that the defendants cannot resort to the purpose of removal of directors under the garb of a general meeting to be convened to ascertain the wishes of shareholders as to the continuance of a suit. Counsel for the plaintiff further contended relying on the decision of Cook v. Deeks that to allow the holding of a meeting in the present case would be to allow an alleged exercise of tyranny over the minority. Under these circumstances it will not be a case of internal management but an infraction of the article, for the majority would get hold of the company and get rid of the management, which is being exercised by the present board under the articles. Such use of voting power would be to allow the members to usurp powers of management which are entrusted to the board by the articles.
Counsel for the defendants made a distinction between a general and particular delegation of powers to directors. As to particular delegation of powers counsel conceded that they could not be taken away from the directors without amendment of articles. Instances of such particular delegation were illustrated with reference to articles 20, 26 and 45 which related to calls on shares, forfeiture of shares and transfer of shares. Counsel for the defendants contended that articles 121 and 122 were instances of general delegation and related to the general management. Counsel for the defendants contended on the authority of Burland v. Early that the court would not interfere with the internal management. The two principles laid down in that case are, first, that the court would not interfere with the internal management of the company acting within their powers and, secondly, that in order to redress a wrong done to the company or to recover money or damage alleged to be due to the company, the action would prima facie be brought by the company itself. The doctrine of supremacy of shareholders would apply, provided, first, it is within their powers and, secondly, that the acts of the shareholders are to cure mere informality and irregularity as opposed to the infraction of articles or statutes. In the present case the directors have instituted the suit against persons who have invaded the powers of directors and/or their management. The acts complained of by the directors are an infraction of articles. Such acts are impeached by the company as violation of the articles by persons described as trespassing upon the powers of the board.
I am of opinion, first, that it is not open to the defendants as a defence to the suit to object to the use of the name of the company by the plaintiff. Secondly, there is no conclusive evidence showing that the plaintiff is not authorised to institute the suit. Thirdly, the articles confer sufficient powers on the plaintiff to maintain this suit. Fourthly, no general meeting should be held to deprive the directors of their powers under the articles.
For these reasons I am of opinion that no general meeting in the present case should be allowed to be held. I recall the order which I made on June 3, 1960. The suit will appear in the list on August 25, 1960, subject to any part heard suit. Costs cost in the cause. Certified for two counsel.
[1970] 40 Comp. Cas. 491 (Cal)
SANKAR
PRASAD MITRA, J.
COMPANY PETITION NO. 213 OF 1965
A. K. Basu and S. Chatterjee for the petitioner.
S.C. Sen and G. Bysack for the respondent.
Sankar Prasad Mitra, J.—This is an application of the United Breweries Ltd., under section 186 of the Companies Act, 1956, inter alia, for a direction for calling an extraordinary general meeting of Ruttonjee & Co. Ltd. The petitioner holds 3,52,800 equity shares (out of 40,00,000 equity shares) of Ruttonjee & Co. Ltd. Section 186 of the Act runs thus:
"186. Power of court to order meeting to be called.—(1) If for any reason it is impracticable to call a meeting of a company, other than an annual general meeting, in any manner in which meetings of the company may be called, or to hold or conduct the meeting of the company in the manner prescribed by this Act or the articles, the court may, either of its own motion or on the application of any director of the company, or of any member of the company who would be entitled to vote at the meeting,—
(a) order a meeting of
the company to be called, held and conducted in such manner as the court thinks
fit; and
(b) give such ancillary or consequential directions as the court thinks expedient, including directions modifying or supplementing in relation to the calling, holding and conducting of the meeting, the operation of the provisions of this Act and of the company's articles.
Explanation.—The directions that may be given under this sub-section may include a direction that one member of the company present in person or by proxy shall be deemed to constitute a meeting.
(2) Any meeting called, held and conducted in accordance with any such order shall, for all purposes, be deemed to be a meeting of the company duly called, held and conducted."
It is to be observed at the outset that under section 186 the court in the exercise of its discretion calls a meeting of the company. Secondly, the court must be satisfied that it is for any reason "impracticable" to call a meeting in any manner in which meetings of the company may be called. Thirdly, the court has no power to call an annual general meeting. Bearing these principles in mind we have first to consider the facts of this case. On the 12th March, 1958, the Government of West Bengal gave permission to a partnership firm called Ruttonjee & Co. to start a brewery in West Bengal. About a year later on January 5, 1959, the Commissioner of Excise wrote to the Director of Industries regarding grant of permission to the said firm to establish a brewery. On the 17th January, 1959, the Government of India wrote to the firm enclosing the terms and conditions which were usually attached to a licence granted under the Industries (Development and Regulation) Act, 1931, and asking if the firm was agreeable to the terms. Thereafter, the West Bengal Government granted to the firm a piece of land at Kalyani.
On the 4th July, 1959, there was a tentative agreement between the firm and Phipson & Co. (Private) Ltd. The relevant terms of the agreement were: (a) a company called Ruttonjee & Co. (Private) Ltd. would be formed as a subsidiary of Phipson & Co. (Private) Ltd., (b) the articles of association of Ruttonjee & Co. (Private) Ltd. would provide that H. Bhesania and F.R. Bhesania of Ruttonjee & Co. would be permanent directors out of the total of six directors of Ruttonjee & Co. Private Ltd.; (c) the firm will have the right to appoint one more director of Ruttonjee & Co. (Private) Ltd.; and (d) the firm and its nominees would purchase 2,000 shares in Phipson & Co. (Private) Ltd., at the rate of Rs. 150 per share and another 1,000 shares would be kept reserved for them till the 31st August, 1959.
In January, 1960, the
Government of India issued a manufacturing licence to this firm. On the 22nd
February, 1963, H.R. Bhesania and F.R. Bhesania formed and incorporated
Ruttonjee & Co. (Private) Ltd. They became permanent directors. On the 1st
March, 1960, the certificate of incorporation was issued to the company.
Thereafter, the Government of West Bengal made actual allotment of the land at
Kalyani to the firm.
Some time after incorporation one B.K. Roy also became a director of Ruttonjee & Co. (Private) Ltd. On the 23rd November, 1960, one lakh shares of the company were allotted. A further allotment of three lakhs shares was made on the 16th November, 1961. On September 20, 1961, Vittal Mallya became a director of the company. In the same year Phipson & Co. (Private) Ltd. as well as Ruttonjee & Co. (Private) Ltd. became public companies and the shares of Ruttonjee & Co. (Private) Ltd., due to be taken by Phipson & Co. (Private) Ltd., were allotted to the present petitioner, the United Breweries Ltd.
In 1962, with the consent of the said partnership firm (which was the allottee of the land at Kalyani), Ruttonjee & Co. Ltd. became the lessee thereof. Between 1961 and 1964 the company's factory was constructed and its machinery was installed. In 1962, there was cash credit arrangement between the Bank of India and Ruttonjee & Co. Ltd. for Rs. 21,00,000. The guarantors were the United Breweries Ltd., H.R. Bhesania and F.R. Bhesania. The facility for the entire sum of Rs. 21,00,000 was taken by the company. That is why in 1963 another arrangement was entered into between the bank and the company for a cash credit facility of Rs. 5,00,000 with F. Bhesania, H. Bhesania and Vittal Mallya as guarantors. (In this second account a sum of Rs. 4,76,809.92 was due by the company to the bank on the 20th October, 1965).
On the 23rd August, 1963, Dali Ruttonjee, a director of R.D. & Sons (Private) Ltd., holding 7,000 shares in Ruttonjee & Co. Ltd., was appointed a director of Ruttonjee & Co. Ltd. In 1964, F.M. Bhesania and Sookamal Kanti Ghose became directors of the company; on the 10th August, 1964, Vittal Mallya ceased to be a director.
It appears from the above facts that the Bhesanias through their partnership firm were trying originally to set up a brewery in West Bengal. They succeeded in obtaining the necessary permission both from the Government of India and the Government of West Bengal. They even secured a plot of land. Apparently they did not have the requisite financial resources and they had to approach Phipson & Co. (Private) Ltd. for raising the necessary funds. Ultimately, the company, with which we are concerned in this application, came into existence but the Bhesanias made it a condition that two of them shall be permanent directors of the company. The financial interest of the Bhesanias in the company was not large; but the parties agreed that they would have substantial control over the management of the company, presumably because they were instrumental in securing governmental sanction for starting a brewery and making preliminary arrangements therefore. Up to August, 1964, all the projects undertaken by the two groups, namely, the Bhesania group and the other group principally represented by Vittal Mallya, were going on smoothly. In December, 1964, Vittal Mallya sent to Dali Ruttonjee and F.R. Bhesania a draft agreement between Ruttonjee & Co. Ltd. and R.D. & Sons (Private) Ltd. I do not intend to discuss the terms of the agreement. It is enough to observe for our purposes that the draft was rejected.
Then, on the 27th March, 1965, Vittal Mallya wrote to Dali Ruttonjee suggesting, inter alia, payment of royalty by Ruttonjee & Co. Ltd. to the United Breweries Ltd., in respect of the labels of the latter which the former would be using on bottles of beer that would be marketed by Ruttonjee 6c Co. Ltd. The differences of opinion between the two groups started with this suggestion.
In April, 1965, the Commissioner of Excise, West Bengal, allowed the company's brewery to start manufacturing beer under an ad hoc permission granted in favour of the firm of Ruttonjee & Co. in whose name the original Government permission to start the brewery stood. Pursuant to this ad hoc permission the manufacture of beer commenced.
On the 24th June, 1965, Vittal Mallya, on behalf of the United Breweries Ltd., wrote to F.R. Bhesania suggesting certain terms for manufacture of beer. It was suggested for instance that Ruttonjee & Co. Ltd. will be given one-third of the production up to 24,000 dozen per month and one-fourth of the production in excess of 24,000 dozen per month and supplies would be made under the "Blue Label Export Lager" and "Beer Brand Lager Labels". The price structures of different varieties of beer or Lager was also suggested.
On the 5th July, 1965, F.R. Bhesania replied to Vittal Mallya's letter of the 24th June accepting some of Mallya's terms and suggesting modifications of certain other terms said to be in the common interest of all concerned.
The next important date
is the 24th July, 1965, when the Government of West Bengal gave its approval to
the grant of a brewery licence at Kalyani jointly in favour of "the
partnership known as M/s. Ruttonjee & Co. and the public limited company
known as M/s. Ruttonjee & Co. Ltd." On the 29th July, 1965, H.
Bhesania as director of Ruttonjee & Co. Ltd. circulated a proposed resolution
amongst the other directors suggesting, inter alia, approval of the draft
application to the Additional District Magistrate, Nadia, for grant of the
joint licence. The resolution was eventually signed by H. Bhesania, F.R.
Bhesania, F.M. Bhesania, B.K. Roy, Sookamal Kanti Ghose and Dali Rattonjee who
were admittedly the directors of the company on that date. This resolution also
suggested that B.K. Roy and F.M. Bhesania, two of the directors of the company,
shall apply for the licence along with the said partnership firm and they would
represent the company before the excise authorities in all matters connected
with the licence.
The application for the joint licence was made on the 29th July, 1965. H. Bhesania and F.M. Bhesania signed this application as partners of Ruttonjee & Co. and F.R. Bhesania and B. K. Roy signed as directors of the company. The Government granted the joint licence on the 3rd August, 1965, and three days later beer was released.
On the 20th August, 1965, the United Breweries Ltd. gave a notice under section 257 of the Companies Act, 1956, that they intended to propose the appointment of A.K. Thakur as a director of the company at the next annual general meeting which was to be held on or before September 30, 1965, for the year ended March 31, 1965.
On the 30th August, 1965, notice was given for the 5th annual general meeting of the company to be held at its registered office at P-19, Ganesh Chandra Avenue, Calcutta-13, at 4-30 p.m. on the 28th September, 1965.
On the 28th September,
1965, the annual general meeting, according to the Bhesanias, could not be held
due to lack of quorum: the required minimum of five shareholders in person were
not present. It is common case that the attendance on this date was as follows:
Shareholders present:
1. H. R. Bhesania
2. United Breweries Ltd.
by their representative, H. P. Bhagat.
3. R. D. & Sons Pvt. Ltd. by their representative, D. Ruttonjee. Present by proxy:
1. Vittal Mallya—by his
proxy, A. K. Thakur.
2. Jagannath Muchhal—by his
proxy, P. Y. Navalkar
Directors
present:
1. B.K.Roy
2. Sookamal Kanti Ghose.
Now, under section 174(4) of the Companies Act, 1956, if in an annual general meeting within half an hour from the time appointed for holding the meeting, a quorum is not present, the meeting shall be adjourned to the same day in the next week, at the same time and place, or to such other day and at such other time and place as the board may determine. The Bhesanias say (vide paragraph 5 (P) of the affidavit-in-opposition of Dali Ruttonjee affirmed on the 10th December, 1965), that since the annual general meeting could not be held on the 28th September, 1965, for lack of quorum, it was decided that the adjourned meeting would be held at such time, date and place as the directors might determine.
On the 29th September, 1965, a notice was issued for a meeting of the board of directors on the 30th September, 1965. Sookamal Kanti Ghose, one of the admitted directors, wrote to H. Bhesania on the 6th October, 1965, complaining that this notice of the board's meeting was not in accordance with article 101 of the company's articles which requires ten days' notice. He says: "I had hardly any time left to attend the meeting."
According to the Bhesanias this meeting of the board of directors was held on the 30th September, 1965, and it was decided that as Tuesday, the 5th October, 1965 (which was the date on which the adjourned annual general meeting should have been held under section 174(4) unless the directors determined otherwise), was the Vijaya Dasami day, that is, a public holiday, the adjourned annual general meeting would be held on Saturday, the 6th November, 1965, at 12-30 p.m. at the company's registered office at P-19 (26), Ganesh Chandra Avenue; and notices dated the 30th September, 1965, were accordingly issued to the shareholders on or about the 1st October, 1965: vide paragraph 5(P) of the said affidavit-in-opposition.
According to the Mallya group the adjourned 5th annual general meeting was held at the company's registered office in accordance with the provisions of section 174(4) on October 5, 1965, and was adjourned till the next day at the residence of Sookamal Kanti Ghose. The Mallya group says that on the 6th October, 1965, at the residence of Mr. Ghose, B. K. Roy retired from directorship and A. K. Thakur was elected a director in his place and the other usual business of an annual general meeting was transacted. On behalf of the Bhesania group a contention is raised that, assuming that the meetings of the 5th and 6th October were validly held, A. K. Thakur could not have been elected a director at the residence of Sookamal Kanti Ghose: the election should have taken place at the registered office of the company where the meeting which failed for want of quorum was called.
On the 12th October, 1965, H. Bhesania replies to Sookamal Kanti Ghose's letter of the 6th October, 1965. In this reply Bhesania explains why the board's meeting was called on short notice on the 30th September, 1965, and adds: "In view of the objection stated in your letter regarding such short notice, a meeting of the board of directors would be held on Tuesday, the 26th October, at 5-30 p.m. at the registered office of the company………A copy of the notice dated the 12th October, 1965, is being forwarded to you separately."
On the basis of this letter it is contended before me on behalf of the petitioner that admittedly there was no proper meeting of the board of directors on the 30th September, 1965. The annual general meeting called for the 6th November, 1965, was not, therefore, validly convened.
The Mallya group asserts that the board of directors was duly reconstituted at the annual general meeting held on the 5th and 6th October, 1965, as aforesaid. And at a meeting of the board on the 18th October, 1965, Sukumar Roy was co-opted as a director pursuant to article 95 of the company's articles read with section 260 of the Companies Act, 1956.
On the 19th October, 1965, Sookamal Kanti Ghose replied to H. Bhesania's letter of the 12th October, 1965. In this letter Ghose upholds the validity of the annual general meeting and the proceedings thereof held on the 5th and the 6th October, 1965. He contends that no directors' meeting could be held on the 30th September, 1965, pursuant to the notice of the 29th September, 1965, and if any such meeting was held, the same was bad in law and any proceedings thereat were void and inoperative. His further contention is that H. Bhesania, F. R. Bhesania, F. M. Bhesania and Dali Rattonjee have all ceased to be directors of the company with effect from the 17th June, 1965, for contravention of section 295 of the Companies Act, 1956. We shall examine this last contention of Sookamal Kanti Ghose in detail later in this judgment.
On the same date, namely, the 19th October, 1965, Vittal Mallya, as a director of the United Breweries Ltd., addressed a letter to the manager of the Bank of India Ltd. In this letter he informs the bank that the Bhesanias (incidentally, Dali Ruttonjee is also a Bhesania) have vacated their respective offices as directors with effect from the 17th June, 1965, owing to contravention of section 295 of the Companies Act, 1956. Mallya states that on the date of this letter there were three directors of this company, namely, Sookamal Kanti Ghose, A. K. Thakur and Sukumar Roy. He states further that the registered office of the company has been shifted to premises No. 6, Old Court House Street. The Bank of India on the 20th October, 1965, forwarded to Ruttonjee & Co. Ltd. at its Ganesh Chandra Avenue address a copy of Mallya's letter of the 19th October.
On the 23rd October, 1965, H. Bhesania, F. R. Bhesania and B. K. Roy describing themselves as directors of Ruttonjee & Co. Ltd. wrote to the manager of the Bank of India Ltd. disputing all the statements in Mallya's said letter of the 19th October and stating that the annual general meeting of the 5th and 6th October was illegal and void.
The next interesting event occurred on the 3rd November, 1965: a suit was instituted in the name of the company against H. R. Bhesania, F. R. Bhesania, F. M. Bhesania and Dali Rattonjee, inter alia, for a declaration that these defendants have ceased to be directors of the company from June 17, 1965, or in any event from July 31, 1965; the plaint in the suit was verified by A. K. Thakur.
On the same day the interlocutory court was moved and an interim order was obtained in the said suit prohibiting the holding of any general meeting or meeting of directors of the company till the disposal of the application.
On the 6th November, 1965, the Commissioner of Excise, West Bengal, addressed a letter to Ruttonjee & Co. Ltd. of 26, Ganesh Chandra Avenue. In this letter the Commissioner says that one P. Y. Navalkar, describing himself as a constituted attorney of the company, had written to him, inter alia, that the name of Messrs. Ruttonjee & Co. (i.e., the partnership firm) should be deleted from the aforesaid joint licence granted to the firm and the company. The Commissioner wanted to see the documents of authorisation to Navalkar. On the 11th November, 1965, a reply was sent to the Commissioner that Navalkar's power-of-attorney stood revoked and he was never the holder of any office mentioned in the Excise Rules.
On the 9th November, 1965, F. R. Bhesania and Dali Rattonjee made an application in the said suit for certain orders and the interlocutory court directed on that application that the company's minute books would be kept with the Registrar for safe custody.
On the 15th November, 1965, the court reopened after the long vacation and the present application was moved on the following day. Certain interim orders were obtained on the application on the 17th November, 1965, which are not material for our purposes at present. On the 8th December, 1965, the learned interlocutory judge vacated the interim injunction in the suit and directed that board meetings of the company might be held; but no effect was to be given to the board's resolutions until the disposal of the present application. The company has been functioning since then under interim arrangements made by orders of this court obtained from time to time.
It is clear from the
facts set out above that the company was initially started at the initiative of
the Bhesanias with the financial backing of the Mallya group. For some time the
company was functioning smoothly as the two groups were working in cohesion.
From August/September, 1965, disputes and differences between the two groups
started arising on various matters including payment of royalties to the United
Breweries Ltd. These disputes and differences were not settled through
dialogues or negotiations and the breach gradually appeared to be final. The
annual general meeting that was to be held on the 28th September, 1965, failed,
due to want of quorum. It is not alleged, however, that any one deliberately
kept himself away from the meeting with a view to create any difficulties.
Thereafter the two groups wanted to have their annual general meetings in their
own ways and the present position is that the Mallya group is contending that
the Bhesanias have ceased to be directors and the Bhesania group says that A.
K. Thakur and Sukumar Roy are not duly elected directors. Sookamal Kanti Ghose
has, it is alleged, in paragraph 17 of the petition, tendered his resignation
on the 9th November, 1965.
It is against this background that the petitioner invites this court to exercise its powers under section 186 of the Companies Act and to call a general meeting with the following agenda—
1. Removing all existing directors and/or persons claiming to be directors, namely:
(a) Mr. H. R. Bhesania.
(b) Mr. F. R. Bhesania.
(c) Mr. F. M. Bhesania.
(d) Mr. Dali Ruttonjee.
(e) Mr. A. K. Thakur.
(f) Mr. Sukumar Roy.
2. Accepting the resignation tendered by Sookamal Kanti Ghose by his
letter dated November 9, 1965.
3. Electing and
appointing new directors.
4. To consider the situation arising out of the litigation between
rival claimants for the office of the directors of the company and to pass
necessary resolution for the proper management of the business of the company.
5. To
consider and decide where the registered office of the company should be
maintained or located. Obviously, the court before it exercises its discretion
has to enquire into the petitioner's motive. The court also has to examine the
respective contentions aforesaid of the two groups as to who the present
directors of the company are with a view to ascertain whether it is, in fact,
"impracticable" to call a meeting of the company. It was conceded by
learned counsel for both the parties that if the court came to the conclusion
that any of the rival contentions aforesaid is unacceptable or there are some
persons who are still directors of the company, the power under section 186
should not be exercised.
We have seen above that the very first agenda which is suggested for the general meeting this court has been invited to call under section 186 is:
"Removing all existing directors and/or persons claiming to be directors……."
Learned counsel for the petitioner has urged that under article 87 of the company's articles read with section 284 of the Companies Act, 1956, a resolution for removal of all the directors would be a perfectly valid resolution. Learned counsel argues further that in view of the disputes between the Mallya group and the Bhesania group the only course open for a proper functioning of this company is to remove all its directors and elect a new set of directors and the court should accede to this request to solve the deadlock which exists.
Now, article 87 of the company's articles provides:
The number of directors
shall not be less than two or more than six. The first directors shall be the
promoters of the company, namely:—
1. Mr. F. Bhesania.
2. Mr. H. Bhesania.
These directors are permanent directors and not liable to removal unless they are otherwise disqualified from continuing as directors under the provisions of the law.
Mr. Basu, learned counsel for the company, says that there is no difficulty in removing these permanent directors. He relies on section 284 of the Act. Under this section a company may, by ordinary resolution, remove a director before the expiry of his period of office.
Assuming that by virtue of section 284 even permanent directors may be removed, it is to be observed that the power which is given to a company under this section is not an absolute or an unrestricted power. The legislature has provided for adequate safeguards against arbitrary or unreasonable exercise of this power. Sub-section (2) of section 284 provides that special notice shall be required of any resolution to remove a director under this section or to appoint somebody instead of a director so removed at the meeting at which he is removed. Sub-section (3) of section 284 says that on receipt of notice of a resolution to remove a director under this section, the company shall forthwith send a copy thereof to the director concerned, and the director (whether or not he is a member of the company) shall be entitled to be heard on the resolution at the meeting. Sub-section (4) of section 284 prescribes that where notice is given of a resolution to remove a director under this section and the director concerned makes with respect thereto representations in writing to the company (not exceeding a reasonable length) and requests their notification to members of the company, the company shall, unless the representations are received by it too late for it to do so: (a) in any notice of the resolution given to members of the company, state the fact of the representations having been made; and (b) send a copy of the representations to every member of the company to whom notice of the meeting is sent (whether before or after receipt of the representations by the company); and if a copy of the representations is not sent as aforesaid because they are received too late or because of the company's default, the director may (without prejudice to his right to be heard orally) require that the representations shall be read out at the meeting; provided that copies of the representations need not be sent out and the representations need not be read out at the meeting if, on the application either of the company or of any other person who claims to be aggrieved, the court is satisfied that the rights conferred by this sub-section are being abused to secure needless publicity for defamatory matter, and the court may order the company's costs on the application to be paid in whole or in part by the director notwithstanding that he is not a party to it.
I have elaborately set out the above provisions just to show that to remove a director under section 284 certain essential requirements are to be fulfilled. The director concerned must be given a reasonable opportunity to make representations against the proposal for his removal and the shareholders of the company should also have adequate opportunities of being acquainted with such representations before they subscribed to a resolution for removal. That is precisely why in clause (b) of the prayers in the present petition directions have been asked for dispensing with the giving of the special notice and the circulation thereof. The point is whether the court should go to this exent on the facts of this case.
It is manifest that the Mallya group wants to eliminate the Bhesania group from the board altogether although at the inception it was solemnly agreed that two of the Bhesanias would be permanent directors. It may be that, if the two permanent directors were indulging in activities injurious or prejudicial to the interests of the company, there was no reason why they should be retained on the board: but before a court is asked to exercise its powers under section 186 and to dispense with the special notice provided for in section 284, the court should at least be told what the specific charges against these two permanent directors are. I have gone through the petition but have not discovered any such charges against them, apart from the statement that some persons are contending that they have ceased to be directors for contravention of section 295 of the Companies Act, 1956. We shall consider the charge of contravention later; but the court should not, in my opinion, be a party to removal of permanent directors (or of any director) of a company by exercising its discretion under section 186 and dispensing with the said special notice in the absence of concrete, precise and specific charges against these directors with relevant evidence in support thereof. I have said that the motive of a petitioner is an important factor for the court's consideration in using the discretion under section 186. The manner in which the petitioner has asked the court to remove the permanent directors does not, in my opinion, reveal a laudable motive. I would have occasion to discuss the petitioner's motive again later in this judgment. Mr. Basu, arguing for the petitioner, referred to In re El Sombrero Ltd in which the court exercised its powers under section 135(1) of the English Act, which was similar to section 186 of our Act; but it was proved that the directors were neither calling annual general meetings nor were they complying with requisitions for general meetings. The facts, to my mind, were entirely different.
The next argument of the
petitioner's counsel is based on paragraph 5(k) of the affidavit-in-opposition of Dali Ruttonjee. Learned
counsel contends that the averments in this sub-paragraph should convince me
that the four Bhesanias who are all directors of the company, are anxious for a
joint licence in the name of the company and the partnership firm of which
admittedly two of the Bhesanias are partners and the two others are the partners'
brothers. These are not persons, according to the petitioner's counsel, who can
be said to have a real concern for the company's welfare and an attempt at
their removal cannot be stamped with bad motive.
It is embarrassing for me to examine this contention as this point has not been taken in the petition. I find from the facts, however, that the excise authorities, presumably upon considering all the facts of this case, had granted a joint licence to the partnership firm and the company. And the Mallya group accepted that position. I have been told by counsel for the respondents (who were not contradicted by the petitioner's counsel) that after the present dispute had started an attempt was made to obtain the licence in the name of the company alone; the then Excise Minister of West Bengal was approached; and the Government passed an order for issue of the licence only to the company. The order was challenged under article 226 of the Constitution and D. Basu J. had set it aside. The company thereupon represented by A. K. Thakur preferred an appeal against the judgment of Basu J. The State Government also preferred a separate appeal. I understand that the company's appeal has been withdrawn and the State Government's appeal is pending. In these premises it would not be proper for me to infer that the Bhesanias have a mala fide intention as suggested by the petitioner's counsel especially in the face of a judgment of this court (which has not yet been reversed on appeal) that a licence only to the company, on the facts of this case, should not have been granted.
Learned counsel for the petitioner then argued that the Bhesanias have taken up an obstructive attitude making it impossible for the company's board of directors to function under the articles inasmuch as they do not want to pay any royalty to the United Breweries Ltd. for (a) the use of their (that is, the United Breweries Ltd.) label and trade mark of Sunagar and King Fisher, and (b) for surrendering territories for sale of 24,000 bottles per month. It is submitted that these are reasonable demands particularly having regard to the sacrifices the shareholders of the United Breweries Ltd. have made for Ruttonjee & Co. Ltd. It is stated that the United Breweries Ltd. has purchased 3,52,800 shares out of 4,00,000 equity shares of the company by paying Rs. 600 per each share; it has also agreed that its label and trade mark with respect to the two varieties of beer mentioned above would be used by Ruttonjee & Co. Ltd.; and unless this royalty is realised the directors of United Breweries Ltd. would not be able to justify their conduct before their own shareholders.
This is a matter concerning the internal management of the company. The court ought not to express any views on it except in so far as it is necessary to do so to determine the impracticability of calling a general meeting. With this end in view I intend to look into the case of the Bhesanias on this question of payment of royalty to the United Breweries Ltd. Dali Ruttonjee in his said affidavit-in-opposition says that Vittal Mallya by his letter dated the 21st August, 1965, addressed to F. R. Bhesania (a copy whereof was sent to Dali Ruttonjee) again raised the question of royalty: vide paragraph 5(o). He says further that Vittal Mallya is anxious that the company should pay a royalty to the petitioner; but if such royalty is paid, the total amount would come up to about Rs. 16,00,000 a year on the basis that the brewery works in one shift only. (Mallya in paragraph 7 of his affidavit-in-reply affirmed on the 17th January, 1966, states that the royalty would come up to Rs. 13 lakhs approximately). According to Dali Ruttonjee the result will be that the company will never be able to pay off its debts or to give any dividend to its shareholders. He charges that in order to achieve this object Vittal Mallya is anxious to have a board of directors of his own choice and to remove the Bhesanias: vide paragraph 6.
In the board of directors of a company it is not at all unlikely that there would be differences of opinion on various matters between two individual directors or two sets of directors. These differences may be settled by mutual discussions or majority of votes. They may, by adopting the appropriate procedure, be also brought before the shareholders for a decision; but I do not think that on this application I can hold that the Mallya group is justified in asking for a royalty or the Bhesania group is unreasonably objecting to it. It is possible that the Bhesania group honestly considers that payment of a huge sum as royalty every year to the petitioner is not in the interest of the company and its future prospects would be seriously affected if such an arrangement be agreed to. The forum for settlement of this dispute is, in my opinion, not this court trying an application under section 186 of the Companies Act, 1956. I do not think that the court should either be a party to or instrumental in the removal of all the Bhesanias from the company's board of directors simply because they do not want to pay royalties to the petitioner. I am of the view that section 186 of the Companies Act was not introduced into the statute book to help the majority of shareholders to achieve objects of this kind.
Let us now examine the contention that the Bhesanias have ceased to be directors under section 295 of the Companies Act, 1956. Section 295, inter alia, provides that no company (hereinafter called the lending company) without obtaining the previous approval of the Central Government in that behalf shall, directly or indirectly, make any loan to, (a) any director of the lending company or any partner or relative of any such director; and (b) to any firm in which any such director or relative is a partner.
[Then after discussing the facts of the case, his Lordship proceeded:]
On these slender materials I cannot assume that the Bhesanias have ceased to be directors. I wish to make it clear that I am not. expressing any views on the merits of the suit now pending before this court. On proper evidence to be adduced in the suit the court may come to a different conclusion; but at the moment for the purpose of the present application the materials available to me do not justify the conclusion that there has been in the instant case a contravention of section 295 of the Companies Act, 1956. It naturally follows, therefore, that unless the court is satisfied that there are no directors who are capable of functioning legally or there is reasonable doubt as to who the directors are the court would find it difficult to hold that it is "impracticable" to call a general meeting of the company.
Learned counsel for the petitioner has contended before me that if there is a prima facie case for loan the directors concerned, that is, all the Bhesanias, have vacated the office under section 295 read with section 283(h) of the Companies Act, 1956. To my mind even a prima facie case requires better materials to be placed before the court. How the merits of the dispute would be decided in the suit is not my concern; but prima facie I must be satisfied that the Bhesanias are no longer directors and they are not in a position to call a general meeting.
It is true that there are serious disputes between the parties as to whether the adjourned annual general meeting of the company was held on the 5th and 6th October, 1965. If this meeting has been held then A. K. Thakur and Sukumar Roy are now directors of the company; and B. K. Roy is no longer a director. If the meeting has not been validly held, B. K. Roy is still a director and neither A. K. Thakur nor Sukumar Roy can claim to be directors. As regards the resignation of Sookamal Kanti Ghose also, there is a dispute. The Bhesanias group says that Ghose's letter of resignation was addressed to a non-existent secretary of the company and is of no effect.
In the context of these
facts we have to consider the "impracticability" of calling a general
meeting to bring the case within the scope of section 186 of the Companies Act.
Learned counsel for the petitioner refers to annexure "E" to the affidavit-in-reply of Hari
Prem Bhagat affirmed on the 14th January, 1966. This is a copy of a letter
dated the 12th October, 1965, which H. Bhesania addressed to Sookamal Kanti
Ghose "for Ruttonjee & Co. Ltd." and as a director thereof. In
this letter, as we have already observed, Bhesania has explained why notice for
an emergency meeting of the board of directors to be held on the 30th
September, 1965, was issued on the 29th September, 1965. Then Bhesania goes on
to say that:"
“In view of the objection stated in your letter
regarding such short notice, a meeting of the board of directors would be held
on Tuesday, the 26th October, at 5-30 p.m. at the registered office of the
company at P-19, Ganesh Chandra Avenue, Calcutta-13. A copy of the notice dated
the 12th October, 1965, is being forwarded to you separately."
The petitioner's counsel contends that from this letter of H. Bhesania it is clear that a fresh annual general meeting has to be called by the board of directors. In the alternative, a requisitioned meeting under section 169 of the Companies Act has to be called. In that event a requisition has to be addressed to the board of directors so that the requisitionists may call such meeting in case of failure to do so on the part of the board. According to the petitioner's counsel there are no directors to whom the requisition can be addressed. In any event, there is no certainty as to the persons who constitute the board as the matter depends on (a) whether the Bhesanias have vacated office and (b) whether the 5th annual general meeting was validly held on the 5th and 6th October, 1965.
I have already held that there is no prima facie case that H.R. Bhesania, F.R. Bhesania, F.M. Bhesania and Dali Ruttonjee have ceased to be directors of the company. I can understand that the positions of B.K. Roy, Sookamal Kanti Ghose, A.K. Thakur and Sukumar Roy are disputed; but with regard to the four Bhesanias, I cannot hold on the averments in the petition and in the affidavits before me that they are no longer directors of the company. The company's articles provide that the number of directors shall not be less than two or more than six and the quorum for meetings of the board of directors shall be one-third of its total strength (any fraction contained in that one-third being rounded off as one) or two directors, whichever is higher: vide articles 87 and 102. In these circumstances, I am not satisfied that a requisition meant for the four Bhesanias (who according to the contesting respondents are admittedly directors of the company) shall be an invalid requisition. Moreover, on the facts of the instant case, the court cannot also ignore the provisions of section 167 of the Companies Act, 1956. This section is as follows:
"167. Power of Central Government to call annual
general meeting.—(1) If default is made in holding an annual general
meeting in accordance with section 166, the Central Government may,
notwithstanding anything in this Act or in the articles of the company, on the
application of any member of the company, call, or direct the calling of, a
general meeting of the company and give such ancillary or consequential
directions as the Central Government thinks expedient in relation to the
calling, holding and conducting of the meeting.
Explanation.—The directions that may be given under this sub-section may include a direction that one member of the company present in person or by proxy shall be deemed to constitute a meeting.
(2) A general meeting held in pursuance of sub-section (1) shall, subject to any directions of the Central Government, be deemed to be an annual general meeting of the company."
In the present case there is a dispute as to whether the 5th annual general meeting has been validly held and admittedly no annual general meeting has been held thereafter. Under the Companies Act, 1956, the Central Government appears to be a competent authority to call an annual general meeting in cases of default. Section 186 gives power to the court to call a meeting of the company other than an annual general meeting. I am told that no attempt has yet been made by any member of the company to approach the Central Government. If the result of that attempt had been known, it would perhaps have been easier for me to entertain this application under section 186.
Let us again go back to the practicability of requisitioning a meeting. Learned counsel for the petitioner has urged that in this application the court should not enter into the controversy relating to the Bhesanias' vacating office under section 295 as that is the subject-matter of the suit. I do not accept this contention. The court cannot be expected to exercise its discretionary powers under section 186 without even ascertaining whether there is a prima facie case against the Bhesanias. A mere allegation that certain persons are not directors of a company does not create a ground for an application under section 186. I do not think that is or can be the object of the section. The court, to my mind, must test the basis of the allegation before it decides upon calling a meeting under section 186.
The next contention of the petitioner's counsel is that there appears to be two registered offices of the company, one at the office of the partnership at No. 26, Ganesh Chandra Avenue, and the other at No. 6, Old Court House Street, Calcutta. Under section 169 a requisition has to be deposited at the company's registered office; but in view of the contentions of the parties herein, it is not at all certain where the registered office is.
From a letter of A. K.
Thakur to Messrs. Fowler & Co. dated October 20, 1965 (a copy whereof has
been annexed to Mallya's affidavit-in-reply) it appears that according to the
Mallya group or the Thakur group the registered office of the company was
transferred from 26, Ganesh Chandra Avenue to 6, Old Court House Street,
Calcutta-1, "from October 19, 1965". The case of the petitioner is
that on the 18th October, 1965, a meeting of the company's board of directors
was held. At this meeting Sukumar Roy was co-opted as a director and it was
decided that the company's registered office would be transferred as aforesaid.
The Bhesania group, in my view, rightly contends on the facts placed before me
that the decision to transfer the registerd office is of no effect inasmuch as
no notice of the meeting of the board was sent to or received by any of the
Bhesanias. Article 101 of the company's articles clearly provides that 10 days'
notice of every meeting of the board of directors shall be given in writing to
every director for the time being in India and at his usual address in India to
every other director, provided that a meeting of the board may be called at
less than 10 days' notice with the consent of all the directors.
There is no prima facie case that the Bhesanias have ceased to be directors. In the premises a meeting of the board of directors could not be convened without notice to the Bhesanias. If a meeting was held without such notice and in that meeting it was resolved that the registered office should be transferred, the resolution, to my mind, on the facts at present available, is of no effect. Moreover, admittedly, this meeting of the board was not held at the company's then registered office at No. 26, Ganesh Chandra Avenue, Calcutta. The registered office of the company, therefore, still continues to be at 26, Ganesh Chandra Avenue.
Learned counsel for the petitioner then says that it is also not clear to whom the notice of the requisition is to be given. It is common case that before the disputes started H.R. Bhesania was the chairman of the company's board of directors. The notice of the requisition may be addressed to him at No. 26, Ganesh Chandra Avenue, and after getting this notice if the board fails to convene the requisitioned meeting, the consequences prescribed by section 169 of the Companies Act would, in my opinion, follow. Learned counsel appearing for all the contesting respondents have repeatedly assured me in the course of the hearing upon instructions that a notice of requisition addressed as aforesaid to H.R. Bhesania would be duly received.
The next argument of the petitioner's counsel is that by reason of section 174 of the Companies Act a requisitioned meeting would fail for want of quorum if the Bhesanias do not attend the meeting. This is a hypothetical problem and the court cannot be expected to solve it at the moment.
On these facts the position appears to be that unless the result of an attempt to convene a requisitioned meeting is known, I do not think it would be proper for the court in the exercise of its discretion to call a meeting under section 186. My view is that to reach the conclusion that "it is impracticable to call a meeting of the company…….in any manner in which meetings of the company may be called" as contemplated by section 186, it is necessary for the court to know, on the facts of this case, that the shareholders made an attempt to call a requisitioned meeting but that attempt had failed.
The petitioner's counsel has also invited me to take into consideration certain other facts of this case. He says that if the 5th annual general meeting of the company has not been validly held there may be prosecutions. Secondly, another year has ended on the 31st March, 1966, which means that the 6th annual general meeting should have been called by the 30th September, 1966. Thirdly, no balance-sheet can be prepared unless the auditors are asked to do so by a resolution of the board: no dividend can be declared or paid; and a young company which has started production for about a year only cannot be killed by the greed of only 12% of the shareholders. Learned counsel submits that in circumstances such as these the only remedy is to have an annual general meeting under orders of the court.
It is true that the 6th annual general meeting has not been called; but in view of the interim orders of this court I have already mentioned, I do not think any prosecution ought to succeed. Secondly, if there are serious difficulties in holding the annual general meeting or default is made in holding it, the Central Government may be approached under section 167 to solve the problem, but up-till now no such attempt has been made. I am not impressed by the argument that the greed of a minority of shareholders is holding back the normal functioning of this company. The minority group tells me in rebuttal of this allegation that the trouble has arisen owing to the greed of 88% of the shareholders headed by Vittal Mallya who claims a royalty of Rs. 16,00,000 a year according to Dali Ruttonjee (paragraphs 5(o) and 6 of Dali Ruttonjee's affidavit-in-opposition) and about Rs. 13,00,000 a year according to Vittal Mallya (paragraph 7 of Mallya's affidavit-in-reply). I have said, I would not enter into the merits of the dispute and pronounce my opinion as to which group is justified in taking up its attitude; but on the materials at present available to me, I am reluctant to accept the proposition that a meeting should be called by this court because a minority of shareholders is unreasonably causing obstructions.
Learned counsel for the petitioner argued further that the deadlock has reached such a stage that, if Sukumar Roy and A.K. Thakur called a meeting, the Bhesania group would file suits. If, on the other hand, the Bhesania group called a meeting, the Thakur group would file suits. The pending suits, says the petitioner's counsel, would be taken up on appeal; from the suits that may be filed there would be appeals; and it is exactly to prevent such a situation that the court assists the shareholders in expressing their wishes at a meeting called by the court.
I am not saying that this point is altogether without substance; but one should also consider that suits and appeals could be filed as a matter of right whether there was any foundation for them or not; but when pending suits or appeals and the possibility of further suits and appeals form the basis of an application under section 186, the court, to my mind, has a duty to see if there is a prima facie case. In the present application I can see that there are disputes which are not perhaps frivolous regarding the positions of B.K. Roy, Anil Thakur, Sukumar Roy and Sookamal Kanti Ghose vis-a-vis the board of directors of the company; but I have not found a prima facie case against H.R. Bhesania, the chairman of the board of directors, F.R. Bhesania, F.M. Bhesania and Dali Ruttonjee that they have ceased to be directors. I do not want to repeat what I have said earlier on this point. This company requires a minimum of two directors only to constitute a Board. And there are at least 4 directors against whom, in my opinion, no prima facie case exists at this moment. If I could come to the conclusion on the facts stated before me that there were doubts as to whether the Bhesanias also were still the directors of the company, I might have been inclined to exercise my powers under section 186; but no materials have been placed before me to reach that conclusion except that certain persons are contending that they have ceased to be directors. Contentions alone would not do if the facts stated by Dali Ruttonjee in paragraph 5(k) of his affidavit-in-opposition go practically unchallenged.
In concluding my views on the facts of this case, I intend to reiterate that from the relevant paragraphs in the petition and the various affidavits in these proceedings, it seems to me that the Mallya group is determined to throw out the Bhesania group who took the initiative in bringing this company into existence without any positive complaint against them or without giving them an opportunity to answer the charges, if any, against them by a brute majority of votes in the general meeting. The court has a discretion under section 186 and that discretion, in my opinion, should not be used in favour of the petitioner with these facts in the background.
Numerous decisions were cited at the Bar. I need not refer to all of them. I would only discuss the cases decided by our court and an English case in which the facts leading to impracticability of calling a general meeting were considered.
In re Lothian Jute Mills Co. Ltd. Sinha J., as he then was, had to consider the provisions of section 79(3) of the Companies Act, 1913, which were the same as in section 186 of the new Act. There were disputes between two rival groups of directors. His Lordship has laid down certain general principles to be observed in applying section 79(3). These principles are as follows:
"The court would not ordinarily interfere in the domestic management of the company which must be conducted in accordance with the powers contained in the regulations of the company.
But where the meeting can be called only by the directors and there are serious doubts and controversy as to who are the directors and where there is possibility that one or other or both the meetings called by the quarrelling groups of directors may be invalid, the shareholders should not be exposed to the uncertainties flowing from the situation and the consequent litigation and it should be held that a position has arisen which makes it 'impracticable' for the meeting being called in accordance with the articles.
The court should exercise its powers where it cannot say with reasonable approach to certainty, or even prima facie that the meeting called in exercise of the powers contained in the regulations will be valid."
This is the first case of this court cited before me. Sinha J., on the facts of the case, upon considering the disputes raised by the rival groups, did exercise his powers under section 79(3) "in order to resolve the conflict and uncertainty" which had arisen. With respect, I agree with the broad principles enunciated by the learned judge; but by applying those principles to the instant case, I am finding it difficult to invoke my powers under section 186. I cannot with reasonable approach to certainty or even prima facie say that a meeting called in accordance with the articles of this company will not be valid. There is no challenge here to the appointment of directors ab initio. So far as the Bhesanias are concerned, the allegation is that by reason of some specific act after a valid appointment they have ceased to be directors. Such an allegation has to be examined to see if there is a prima facie case. The Bhesania group's contention before me is that money was received for the specific purpose of payment of excise duty; it was received entirely for the benefit of the company; it would be realised by the company out of the sale proceeds; and it was not repayable by any of the directors at all. As a matter of fact up till now no suit has been filed for the recovery of any alleged loan. It is also stated that the money did not belong to the company at all; it was paid in cash by someone else as the company had no money. On these facts I cannot prima facie hold that the four Bhesanias have ceased to be directors; and then draw the conclusion that it is"impracticable" to call a general meeting in the ordinary way.
The next case to which my attention was invited was the case of Malhati Tea Syndicate Ltd. Here also there were disputes as to whether there was a valid board of directors. At page 655, Banerjee J. observed:
"It is difficult for me on this application
and it would be inexpedient having regard to the pending suits to decide which
of the directors have been validly appointed. I am not satisfied on the facts
of this case that there is a board of directors who can call a meeting in the
manner in which a meeting of the company may be called. Meetings held otherwise
than under the direction of the court under section 79 in the circumstances of
this case would lead to interminable troubles and prejudice the interests of
the company."
On the same grounds which I have advanced in discussing the Lothian Jute Mills Co. Ltd.'s case the judgment of Banerjee J. is also distinguishable.
We next come to the case of Indian Spinning Mills Ltd. v. M. S. J. Bahadur Rana . This is a judgment of the appellate court by Harries C. J. sitting with Banerjee J. The question there arose as to whether it was impracticable to hold an extraordinary general meeting. The trial court made an order calling a meeting under section 79(3) of the 1913 Act. One A.C. Roy Chowdhury had been elected chairman of the board of directors but disputes arose and eventually the other directors challenged his position on the board and he was requested "to vacate from the board of directors………" Roy Chowdhury was thereafter excluded from the board and another shareholder was co-opted in his stead and a new chairman was appointed. The contesting respondents contended that the entire proceedings excluding Roy Chowdhury and appointing a new chairman were illegal and of no effect. The position of Roy Chowdhury also became the subject-matter of two suits in which the contestants aforesaid tried to assert their respective positions. In one of the suits there was a prayer for a declaration that an extraordinary general meeting which had been called on September 9, 1950, was improperly convened, and further that any directors appointed at that meeting should be declared to have been invalidly appointed. It appears that a requisition was served on the directors to call an extraordinary general meeting but they did not comply with the requisition and when the requisitionists themselves proceeded to call the meeting, the suit was filed to defeat it.
The facts of this case clearly point to the impracticability of calling a general meeting in the usual way and the appellate court affirmed the decision of the trial court calling a meeting under section 79(3). Harries C. J. observed in paragraph 18 at page 356:
"The learned judge rightly refused to decide the matters which are in issue in the suit and I do not think it will be right for us to express any opinion upon these matters. However, it is clear that there is a serious dispute between the parties as to whether Mr. Roy Chowdhury was qualified to act as a director and whether or not he was wrongly excluded from the board. If it transpired in the suit that he was wrongly excluded from the board, difficulties might arise concerning any meeting which the requisitionists might call under section 78(3). In fact it seems fairly clear that if such a meeting was called it would be the cause of considerable litigation."
In paragraph 19, at page 357, Harries C. J. says:
"If the meeting was called, difficulties would undoubtedly arise as to the conduct of the meeting. In an extraordinary general meeting the parties might elect their own chairman, but the probabilities are that objection would at once be taken to Mr. Roy Chowdhury either acting as chairman or even voting or being concurred in the proceedings at all. It seems to me that if the requisitionists were allowed to conduct this meeting endless difficulties would arise and, therefore, I think the learned judge was right in holding that it was impracticable to hold such a meeting.”
Harries C. J. supports the meaning of the word "impracticable" given by Banerjee J. in the case of Malhati Tea Syndicate Ltd. Banerjee J. adopted the meaning which the Judicial Committee gave to the word "impracticable" in Commissioner, Lucknow Division v. Deputy Commissioner of Partabgarh According to the Privy Council "impracticable" means impracticable from a reasonable point of view and Banerjee J. has added in the case of Malhati Tea Syndicate Ltd, 6 that "the court takes a common-sense view of the matter and acts as a prudent person of business".
I have discussed this judgment of the appellate court slightly in detail with a view to point out the meaning that should be given to the word "impracticable" in section 186 of the Companies Act, 1956. The court in every case has to look at the facts from a reasonable commonsense point of view and act as a prudent person of business to decide whether it has become "impracticable" to call a general meeting. That is one of the reasons why I have been saying that a prima facie case against the Bhesanias should have been established in the instant case to enable the court to decide upon the impracticability of convening a general meeting in the ordinary manner.
I would now come to a case recently decided in England. It is the case of El Sombrero Ltd. The provisions of section 135(1) of the English Companies Act, 1948, are similar to those of section 186 of our Act. The applicant in this case held 90 per cent, of the shares of a private company incorporated in March, 1956. There were two directors and each of them held 5 per cent. of the shares. The quorum for general meetings was two members present in person or by proxy, and, if within half an hour from the time appointed for a meeting a quorum was not present, the meeting, if convened on the requisition of members, was dissolved. No general meeting of the company had ever been held. On March 11, 1958, the applicant requisitioned an extraordinary general meeting for the purpose of passing resolutions removing the two directors and appointing two other persons as directors. The existing directors failed to comply with the requisition. The applicant himself convened an extraordinary general meeting for April 21, 1958. The directors deliberately did not attend the meeting either in person or by proxy and, as a quorum was not present, the meeting was dissolved. On April 29, 1950, the applicant served a special notice, under section 142 of the Act of 1948 of his intention to move the same resolutions, under section 142 and section 184, at the next extraordinary general meeting of the company. On the same day he took out an originating summons asking for a meeting to be called by the court, under section 135(1), for the purpose of passing the resolutions and for a direction that one member of the company should be deemed to constitute a quorum at such meeting. The directors opposed the application. Wynn-Parry J. has held:
(i) as a practical matter, the desired meeting of the company could not be conducted in accordance with the articles of association and the court had jurisdiction under section 135(1) of the Companies Act, 1948, to order a meeting to be held notwithstanding opposition by the shareholders other than the applicant, and
(ii) an order for meeting to be held and that one member present should constitute a quorum would be made because—
(a) to refuse the
application would be to deprive the applicant of his statutory right under
section 184 to remove the directors by means of an ordinary resolution, and
(b) the respondent-directors
had failed to perform their statutory duty to call an annual general meeting
for the reason that, if they had convened a general meeting, they would have
ceased to be directors.
It is apparent that the facts of the case before Wynn-Parry J. were much stronger than the facts here. In the English case the facts established that there was an impracticability to which the directors themselves had contributed. In our case it cannot be said that the directors have failed to call any annual general meeting. In our case there has been no requisition as yet which the directors have not complied with and it is also not yet in evidence that the Bhesania group has deliberately refrained from attending any extraordinary meeting so that the quorum may not be present. I do not think that the decision of Wynn-Parry J. can be applied to the facts of the present case.
Reliance was also placed on Stroud's Judicial Dictionary, third edition, volume 2, at page 1377. It says:
"The words ' impracticable to conduct a meeting ' in section 115(2) of the Companies Act, 1929…….see now Companies Act, 1948, section 135……..covers the case where it is impracticable owing to the terms of the articles and the state of shareholding in the company to get a quorum present: In re Edinburgh Workmen's Housing Improvement Co. "
Learned counsel for the petitioner has urged that having regard to the state of the shareholding in this company it is impracticable to get a quorum. I have already said that on the facts of the case the proposition at present appears to be hypothetical. In the case of El Sombrero Ltd. , as we have seen, the dissenting group deliberately chose not to attend the meeting to frustrate the purpose of the meeting due to lack of quorum. We do not yet know what the Bhesania group is going to do if an extraordinary general meeting is requisitioned. Until that is known I do not see how the court, in the exercise of its judicial discretion, can call a meeting under section 186.
I would now come to the case of Bengal and Assam Investors Ltd. v. J. K. Eastern Industries Private Ltd. P. B. Mukharji J. refused to call a general meeting in this case under section 186. The facts, inter alia, were that a notice had already been issued calling an extraordinary general meeting of the company. The learned judge, in paragraph 5, at page 660, observed:
"The resolutions that are intended to be passed at the meeting demanded by the requisitionists are set out in the notice itself."
The learned judge thought that there was, therefore, no impracticability in the matter of calling the meeting. The ground on which the assistance of the court was sought, was that one K. L. Jatia, the chairman of the board of directors, might not act impartially because his removal was sought in one of the proposed resolutions for the extraordinary meeting. P.B. Mukharji J., in paragraph 13, at page 661, says:
"I am satisfied that K.L. Jatia cannot decide on the resolutions proposed in that meeting because the resolutions will have to be voted by the shareholders. It is the shareholders who will be in control of the meeting.
If the applicant has on its side 55 per cent. of the votes of the shareholders, I do not see why they should be at all frightened. The chairman's power is very limited. He has a vote as a shareholder and director. That gives him no special position to control the meeting. He has, in the event of an equality of votes between two rival groups, a casting vote. But on the applicant's own showing there is no question of equality of votes in this case because the applicant's group is much larger than the respondent's group."
It is no doubt true, as the petitioner's counsel has contended, that the facts in this case were entirely different from the facts we have to deal with. And this case does not give us much assistance in deciding whether this application should be refused; but P.B. Mukharji J., in paragraphs 17 and 18 of his judgment, has discussed certain general principles that are to be applied to section 186 of the Companies Act. The petitioner's counsel says that these observations are in the nature of obiter; but, to my mind, they are useful observations and some of them lay down the basic principles that are to be followed by the courts while considering an application under section 186. P.B. Mukharji J. has expressed his concurrence with the meaning given to the word "impracticable" by Banerjee J. in the case of Malhati Tea Syndicate Ltd. (Banerjee J.’s view, as we have already seen, has also been accepted by the appellate court), and has developed the point still further in the case of Bengal and Assam Investors Ltd.
Upon considering the relevant authorities on this subject and examining the language of the statute the main principles involved in trying an application under section 186 are, to my mind, as follows:
1. The
court would not ordinarily interfere with the domestic management of a company
which should be conducted in accordance with its articles.
2. The discretion granted under section 186 should be used sparingly
and with caution so that the court does not become either a shareholder or a
director of the company trying to participate in the internecine squabbles of
the company.
3. The word "impracticable" means impracticable from a
reasonable point of view.
4. The court should take a commonsense view of the matter and must act
as a prudent man of business.
5. A prudent man of business has not a sensitive, officious view of intervention in case of every rivalry between two groups of directors; prudence demands that the court ordinarily keep itself aloof from participating in quarrels of rival groups of directors or shareholders.
6. But where the meeting can be called only by the directors and there
are serious doubts and controversy as to who are the directors or where there
is a possibility that one or other or both the meetings called by the rival
groups of directors may be invalid, the court ought not to expose the
shareholders to uncertainties and should hold that a position has arisen which
makes it "impracticable" to convene a meeting in any manner in which
meetings of the company may be called.
7. The court should exercise its powers under section 186, when, upon considering all the facts and circumstances of a case, it can say with a reasonable approach to certainty or even prima facie that a meeting called in the manner in which meetings are ordinarily called under the Act or under the articles, would be invalid.
8. Before the court exercises its discretion under section 186 the court must be satisfied, when a director or a member moves an application, that it has been made bona fide in the larger interests of the company for removing a deadlock otherwise irremovable.
When I apply the principles enunciated above to the facts of this case it seems to me that this is not a case which falls for the court's interference under section 186 of the Companies Act, 1956.
Numerous other points have been urged before me. Mr. S. C. Sen, learned counsel for one of the contesting respondents, has also dealt with the history of company jurisprudence in relation to the provisions of section 186; but having regard to the conclusions I have already reached, I do not think it necessary to consider any other point raised in this application.
The result is that this application is dismissed. The petitioner will pay to the respondents one set of costs. Certified for counsel.
[1961] 31 COMP. CAS.
301 (CAL.)
Murarka Paint And Varnish Works
(P.) Ltd.
v.
Mohanlal Murarka
A.N. RAY, J.
SUIT NO. 426 OF 1960
AUGUST 1, 1960
A.N. RAY, J. - This suit has been instituted by Murarka Paint and Varnish Works (Private) Ltd. against Mohanlal Murarka, Chunilal Murarka, Purushottamlal Murarka, Beharilal Murarka, Radheylal Murarka, Kunjalal Murarka and Hiralal Murarka. The plaintiff has its registered office at 4E, Dalhousie Square, East Calcutta. The plaintiff uses the said office in common with five other limited companies. At the last annual general meeting of the plaintiff company, Sohanlal Murarka, Kissenlal Murarka, Shankarlal Murarka and Mohanlal Murarka were appointed directors.
Article 111 of the company states that every director shall vacate his office, inter alia, on his being requested in writing by all his co- directors to resign. On or about February 24, 1960, Sohanlal Murarka, Kissenlal Murarka and Shankarlal Murarka acting under article 111 requested Mohanlal Murarka in writing to resign. The plaintiff’s case is that Mohanlal Murarka immediately thereafter ceased to be director of the plaintiff. On or about February 25, 1960, the board of directors of the plaintiff at a meeting held by it on the same day appointed in accordance with the articles one Mahabir Prasad Murarka in place and stead of Mohanlal Murarka. The plaintiff alleges that in the premises on and from February 25, 1960, the lawful directors of the plaintiff were and are : Sohanlal Murarka, Kissenlal Murarka, Shankarlal Murarka and Mahabir Prasad Murarka.
On or about February 25, 1960, the plaintiff, through its solicitors, Messrs. Khaitan and Co., issued notices in various newspapers to the effect that all power and authority of the defendant, Mohanlal Murarka, as a director had been terminated. The defendants, Chunilal Murarka, Radheylal Murarka, Beharilal Murarka, Hiralal Murarka and Kunjalal Murarka, it is alleged, are not registered shareholders of the plaintiff. The defendant, Mohanlal, is the joint registered owner of 6,250 ordinary shares in the plaintiff company along with the defendants Purushottamlal Murarka and Shankarlal Murarka.
On or about March 23, 1960, at about 2 p.m., it is alleged, the defendants, Mohanlal Murarka, Chunilal Murarka, Purushottamlal Murarka and Beharilal Murarka accompanied by about 25 unknown persons and police officers forcibly entered in to the office of the plaintiff and attempted wrongfully and illegally to take possession and charge of the affairs and properties of the plaintiff including its books of accounts, papers, documents and moneys, etc. The plaintiff, on March 23, 1960, lodged a complaint at Hare Street Police Station in Calcutta. On March 24, 1960, an application was made before the Chief Presidency Magistrate, Calcutta, praying for the issue of process against the defendants, Chunilal Murarka, Mohanlal Murarka, Purushottamalal Murarka and Beharilal Murarka. A report was called for by the Chief Presidency Magistrate by April 9, 1960. After the passing of the order, it is alleged, the defendants with the help of unknown persons started dismantling almirahs, fixtures, etc., situate in the office of the plaintiff. Another application was made before the Chief Presidency Magistrate for an order under section 144 of the Criminal Procedure Code. Another report was called for by the Chief Presidency Magistrate by March 26, 1960, and it was directed that there was to be no breach of peace meanwhile.
The plaintiff’s solicitors received a letter dated March 23, 1960, from Radheylal Murarka whereby Radheylal Murarka purporting to act as a director of the plaintiff informed the plaintiff’s solicitors that Sohanlal Murarka, Kissenlal Murarka and Shankarlal Murarka had been removed from the board of directors of the plaintiff.
It is further alleged in the plaint that, on March 24, 1960, the plaintiff’s law agent went to the office of the plaintiff company when it was discovered that Kunjalal Murarka was asserting that he and his father Hiralal Murarka were directors. The plaintiff’s law agent further discovered almirahs to be broken and tampered with, cash moneys having been forcibly taken away by Mohanlal Murarka and Chunilal Murarka, and that several unknown persons were sitting and/or standing in the office room.
The plaintiff alleges that none of the defendants could be validly or at all appointed director and that the defendants acted illegally and without any authority or jurisdiction. It is alleged that the only persons entitled to manage the affairs of the business and properties in accordance with the memorandance and articles of association and the provisions of the Companies Act are the present board of directors as mentioned in paragraph 9 of the plaint. It is further alleged that the defendants trespassed into the office and interfered with the management of the affairs, business and properties.
The plaintiff company asks for a permanent injunction restraining the defendants, their servants, nominees and/or agents from occupying the office of the plaintiff and from interfering with the management and control of the plaintiff and also injunction restraining the defendants from usurping the management and control of the affairs, business and properties of the plaintiff and further injunction restraining the defendants, their servants, nominees and/or agents from in any way acting as directors of the plaintiff and reliefs regarding books, furniture and cash moneys.
Defendants Nos.1 to 6 filed a joint written statement. One of the points taken in the written statement is that the suit has been instituted without the authority of the board of directors and against the decision of the shareholders. As present it is not necessary to deal with other defenses in this suit.
This suit came up before me on June 3, 1960. None of the counsel on behalf of the plaintiff and the defendants was present in court. Only the plaintiff’s solicitor and the defendants’ solicitor were present in court. The solicitor for the defendants suggested that a meeting be convened to ascertain the wishes of the shareholders as to whether they wished to continue the suit. The solicitor for the plaintiff was unable to show any reason as to why that should not be done. I made an order to that effect.
A couple of days thereafter counsel on behalf of the plaintiff expressed regret that they were not present when the suit was called on and prayed for rehearing of the matter. Counsel for the defendant also stated that the matter could be heard under those circumstances.
Counsel on behalf of the plaintiff contended that there were groups of shareholders on the side of the defendants and some of such shareholders had no title to the shares. To illustrate, it was contended that Mohanlal Murarka who was shown to be holding 12,500 shares was restrained by orders of this court from asserting rights in respect of such shares. These 12,500 ordinary shares standing in the name of Mohanlal Murarka originally belonged to Radheylal Murarka and Chunilal Murarka and were forfeited in exercise of lien and were allotted to Mohanlal Murarka. Two suits were filed by Radheylal Murarka and Chunilal Murarka, Nos.3264 of 1947 and 3265 of 1947 respectively. In those suits it was ordered that the defendants to the suit were prohibited and restrained until the determination of the suit or until further orders of this court from in any way interfering with the rights of the plaintiff as registered shareholder in respect of the shares. The suits are still pending. Under these circumstances counsel of the plaintiff contended that no rights could be asserted in respect of those shares by Mohanlal Murarka. Counsel for the defendants submitted that Chunilal and Radheylal Murarka were supporting the defendants and, therefore, those shares were in any event in support of the defendants. These suits are still pending decision.
Counsel for the defendants similarly contended that 6,250 shares standing in the name of Maniklal Murarka and others jointly were registered in violation of the provision contained in article 14. Maniklal Murarka and others are supporting the plaintiff. These 6,250 shares are in the names of Maniklal Murarka, Lachmiprasad Murarka, Ajit Prasad Murarka, Iswari Prasad, Narayan Prasad and Mani Bai. Article 14 states that shares may be registered in the names of any limited company but not in the name of a minor nor usually more than four persons be registered as joint holders of any share. Counsel for the plaintiff contended that article 14 referred to allotment of shares but did not relate to transmission of shares on death et cetera It was contended on behalf of the plaintiff that under article 47 there could be no limitation upon the number of heirs to be registered in respect of any share.
It was also contended on behalf of the plaintiff that 6,250 shares which were shown to be standing in the name of Beharilal Murarka and which were alleged to be transferred on Marh 24, 1960, were so done wrongfully. Similarly it was contended that 2,750 shares standing in the name of Kunjalal Murarka were purported to be transferred wrongfully. Beharilal Murarka and Kunjalal Murarka are supporting the defendants. It was contended on behalf of the plaintiff that article 84 did not apply to cases where persons claimed share by inheritance and that article 84 was confined to transmission of shares under article 48. It was contended on behalf of the plaintiff that article 47 related to transmission of shares of deceased persons. It was further contended that only executors or administrators of the deceased could apply under article 47. Beharilal Murarka and Kunjalal Murarka who claim shares on the death of Laloola Murarka, it was contended by counsel for the plaintiff, had further to satisfy the directors under article 84 of the right to act in that capacity. It was contended by counsel for the plaintiff that there was no evidence that Beharilal Murarka or Kunjalal Murarka satisfied the directors of their right to act in that capacity.
Counsel on behalf of the defendants contended that Beharilal Murarka was entitled to vote and, whether the shares in the name of Laloolal Murarka belonged to a joint family or were held individually, Beharilal Murarka would be entitled to vote in consequence of the death of Laloolal Murarka.
It is manifest under these circumstances that the shareholding bristles with disputes as to rights and counsel for the plaintiff, in my view, rightly characterised such disputes relating to title to the shares as containing seeds of litigation concerning the shares and assertion of rights in respect thereof. Counsel for the defendants contended that if a general meeting were ordered it would not be relevant at this stage to take any notice as to disputes to title of the shares.
I am unable to accept the contention of counsel for the defendants. I cannot allow a meeting to be held without deciding who the shareholders are and who will vote. I am extremely doubtful it I can inquire into these questions either in this suit or at this stage.
Counsel for the defendants contended first that it was specifically pleaded in the written statement that the suit was bad being in the name of the plaintiff company and that there was no resolution disclosed by the plaintiff showing the authority of the plaintiff to institute the suit. It was secondly contended that even if the initiation of the suit was good the company might discontinue and equally if initiation were bad the company might continue the suit by ratification. A general meeting would be necessary to find out if the suit is to be continued or discontinued. It was thirdly contended that the dispute in the present case related purely to the internal management and, therefore, the court would not interfere.
As to the first point, namely, the use of the name of the company by the plaintiff, counsel for the plaintiff contended that it was not open to the defendants to take that objection as a defence to the suit and that they should have proceeded by way of motion to stay the suit. On behalf of the defendants counsel contended that it was not an absolute rule that the objection should be by way of motion to stay the suit but that it could be brought to the notice of the court that the plaintiff was not authorised to sue in the name of the company. Reliance was placed by the defendants on the decision of La Company de Mayville v. Whitley [1896] 1 Ch.788, Daimler Co.Ltd. v. Continental Tyre and Rubber Co. (Great Britain) Ltd., Danish Mercantile Co.Ltd. v. Beaumont [1951] 1 Ch.680. It is well settled that if authority is wanted to use the name of the company, it must be authority got from the proper quarter, either from the directors or from the shareholders convened for the purpose. In the Daimler Company case it was found that no authority was conferred upon the secretary to institute the action and it was under these circumstances ordered to be struck out. It was contended in that case that the objection should have been raised by a motion to strike out the writ but LORDS PARKER and PARMOUR said that the action was altogether irregular and that no steps necessary to confer authority on the secretary had been taken. In the Danish Mercantile Company case there was an application to stay the proceedings. The managing director under an agreement was to manage and conduct the affairs. He instructed the solicitor to start an action in the name of the company. The action was approved neither by the company in general meeting nor by the board of directors before it was started. In the meantime liquidation commenced. The defendants thereafter applied by motion to strike out the name of the plaintiff. It was held that the liquidator had ratified the bringing of the action. In that case reference was made to the decision in London and Blackwall Railway Co. v. Cross, where a distinction was drawn between an application for an injunction restraining the unauthorised use of the company’s name in certain proceedings and an application in an action to stay the proceedings or strike out the plaintiff’s name on the ground that the proceedings were brought without the plaintiff’s authority. The principle established there is that if a person without authority brings an action in the name of another it is an abuse of the process of the court, and the court can stop it. Counsel for the defendants thus contended that the court had power, whether there was a motion to stay the suit or not, to stop the proceedings when it was unauthorised use of the name of the company.
Counsel for the plaintiff relied on the decision of Russian Commercial and Industrial Bank v. Computer d’Escompte de Mulhouse. One of the disputes there was as to whether it was open to the defendants to raise by way of defence to the action the objection that the London branch manager had no authority to bring the action in the name of the plaintiff. Dealing with the contention VISCOUNT CAVE said : “.......I do not think that it is open to the defendants to raise this question by way of defence to the action. If the defendants desired to dispute the authority of Mr. Jones to commence these proceedings in the name of the plaintiff company their proper course was to move at an early stage of the action to have the name of the company struck out as plaintiff and so to bring the proceedings to an end.” Again in the case of John Shaw and Sons (Salford) Ltd. v. Shaw a question arose as to whether a suit was properly instituted in the name of the company. In the trial court no objection was taken that the court could not decide the question of the authority of the directors to commence the action as a defence to the suit but only on a motion to stay the action. On appeal, GREER, L.J., held that where the power to commence an action is vested by the articles in the permanent directors then an ordinary resolution of the company would not control their exercise of that power. SLESSER, L.J., held otherwise. ROCHE, L.J., held that the onus was on the defendant to prove that the action was unauthorised and that the defendant failed to discharge the onus and failed to produce material information. It was indicated that the minute books should have been produced and information should have been given to the court whether before the meeting at which action was decided upon the permanent directors had conferred any, and, if so, what power upon the ordinary directors. Information should also have been available as to whether the meeting purported to be the meeting of the directors and appeared as such in the minute book or whether it was in form as well as in fact a meeting of the directors on a matter within a class of matters previously excluded by them from the purview of the ordinary directors.
In the present case counsel for the plaintiff opposed any right of the defendants to contend as a defence to the suit that it was an unauthorised suit. The plaintiff insisted that there should have been a motion to stay the action. Counsel for the defendants submitted that not much time had elapsed since the institution of the suit and that, since the plaintiff did not disclose any resolution authorising the institution of the suit, it should be stopped. I am unable to accept the contentions of the defendants. To my mind the majority of the decisions shows that an objection as to the user of the name of the company by the plaintiff cannot be raised as a defence but should be on a motion to stay the action. Furthermore, the defendants have not furnished the necessary information to discharge the onus that there is no resolution. The plaintiff contends that the directors are empowered under the articles to institute an action and that there is also a resolution to that effect. There is no conclusive evidence that the plaintiff has not the right to proceed in the name of the company or that the suit has been instituted without authority in the name of the company. On the contrary the directors are empowered by the articles to institute suits but the defendants contend that the exercise of such powers by the directors is subject to the control of the members.
As to the contentions of the defendants that the court will not interfere in disputes as to internal management or that the court will allow a general meeting to be convened for the purpose of continuing or discontinuing the suit counsel for the plaintiff contended that articles 121 and 122(6) confer sufficient authority on the board to commence the suit and such power conferred on the board could not be taken away by any general meeting. It was contended that the only way by which the management in the hands of the board could be controlled was by virtue of the provisions in the Act or provisions in the articles and by alterations of the articles. Under article 121 it is stated that the management of the business of the company shall be vested in the managing agents or directors, who, in addition to the powers and authorities by these presents or otherwise conferred upon them, may exercise all such powers and do all such acts and things as may be exercised or done by the company as are not hereby or by statutes expressly directed or required to be exercised or done by the company in general meeting but subject nevertheless to the provisions of the statute and all these presents and to any regulations from time to time made by the company in general meeting. Counsel for the defendants laid emphasis on the words “any regulations from time to time made by the company in general meeting” as empowering the shareholders by a general meeting to continue or discontinue the suit. Counsel for the plaintiff on the other hand contended that the word “regulations” was synonymous with “articles” and that the shareholders could control the acts of the directors only by alteration of the articles.
The directors and the shareholders in general meeting are the primary organs of the company between whom the company’s powers are divided. The general meeting retains ultimate control, but only through its powers to amend the articles, to take away powers from the directors and to remove the directors and to substitute others to the taste of the shareholders. Until one or other of the aforesaid steps be taken, the directors, under the articles, according to the contention of the plaintiff, can disregard the wishes of the members and that the general meeting cannot restrain the directors from conducting actions in the name of the company.
In the case of Isle of Wight Railway Company v. Tahourdin the court refused an application by the directors of a statutory company for an injunction to restrain the holding of a general meeting. COTTON, L.J., said :”It is a very strong thing indeed to prevent shareholders from holding a meeting of the company, when such a meeting is the only way in which they can interfere, if the majority of them think that the course taken by the directors, in a matter which is intra vires of the directors, is not for the benefit of the company.” In Automatic Self-cleansing Filter Syndicate Co.Ltd. v. Cuninghame. The directors of a registered company refused to carry out a sale agreement resolved upon in general meeting. The powers of management in that case were entrusted to the board under article 96 comparable to article 121 in the present case. Under article 96 there the management in the hands of the directors was subject to “such regulations, not being inconsistent with these presents as may from time to time be made by extraordinary resolutions.” It was, therefore, held that the general meeting would be a nullity inasmuch as article 96 contemplated extraordinary resolution. It was thus held to be incompetent for the majority of the shareholders in an ordinary meeting to affect or alter the powers originally given to the directors. In the case of Marshall’s Valve Gear Co. Ltd. v. Manning Wardle & Co. Ltd. the management was vested in the directors under article 55 which was similar to article 121 in the present case. A and three other persons were the four directors of the company and they held substantially the whole of the subscribed share capital of the company. A held a majority but not a three-fourth majority of the shares. Disputes arose at a meeting between A and the other three directors who were interested in a patent vested in the N company which, so A was advised, infringed the M company’s patent and was admittedly a competing patent. The three directors bona fide declined to sanction any proceedings against the N company in the name of the M company to restrain the alleged infringement. Thereupon the three directors moved in the name and on behalf of the M company to strike out the name of that company as plaintiff and to dismiss the action on the ground that the name of the M company had been used without authority. It was held that under article 55 in Marchall’s case [1909] 1 Ch.267 the majority of the shareholders in the company at a general meeting had a right to control the action of the directors so long as they did not affect to control any direction contrary to any of the provisions of the article which bound the company.
In the case of Salmon v. Quin & Axtens Ltd. the Court of Appeal followed Cuninghame’s case and the House of Lords upheld the decision as will appear in Quin & Axtens Ltd. v. Salmon. In Salmon’s case under article 75 the business of the company was to be managed by the board subject to the provisions of any Act of Parliament or of the articles and to such regulations as might be prescribed by the company in general meeting. Article 80 in that case regulated that no resolution of a meeting of the directors having the object of borrowing money, the acquisition by purchase, lease or otherwise was to be valid or binding unless not less than 24 hours’ notice in writing by letter or telegram specifying the business proposed to be transacted thereat had been given to each of the managing directors. A and B, the managing directors, held the bulk of the ordinary shares in the company. Resolutions were passed by the directors for the acquisition of certain premises and for the letting of certain other premises, but B dissented from each of these resolutions in accordance with the articles. At a general meeting of the company resolutions to the same effect were passed by a simple majority of the shareholders. It was contended that the resolutions were of no effect. The resolutions were held to be inconsistent with article 80 as an attempt to alter the terms of contract between the parties by a simple resolution instead of by a special resolution. FARWELL, L.J., said that the directors were not servants to obey directions given by the shareholders as individuals, but that they were persons entrusted by the regulations with the control of the business and could be dispossessed from that control only by the statutory majority which could alter the articles. In the two recent decisions of John Shaw & Sons (Salford) Ltd. v. Shaw and Scott v. Scott the modern doctrine is that a resolution of the members disapproving the commencing of an action by the directors would be a nullity, for, if powers of management are vested in the directors they and they alone can exercise these powers. GREER, L.J., said (in Shaw’s case : “The only way in which the general body of the shareholders can control the exercise of the powers vested by the articles in the directors is by altering the articles, or, if opportunity arises, under the articles by refusing to re-elect the directors of whose action they disapprove. They cannot themselves usurp the powers which by articles are vested in the directors, nor the directors can usurp the powers vested by the articles in the general body of the shareholders.” Similarly, in the case of Scott v. Scott [1943] 1 All E.R. 582 it was held that when powers had been delegated to the directors the members at the general meeting could not interfere with their exercise until they were taken away by the amendment of articles.
The law as laid down in Halsbury’s Laws of England, 3rd edition, volume VI, at page 445, is as follows : “As regards litigation by an incorporated company, the directors are, as a rule, the persons who have authority to act for the company; but, in the absence of any contract to the contrary in the articles of association, the majority of the members of the company are entitled to decide, even to the extent of overruling the directors, whether an action in the name of the company should be commenced or allowed to proceed.” The pre-eminent question, therefore, is as to whether the directors under the articles in the present case can be controlled by a general meeting with regard either to the commencement or to the continuance of this suit. Counsel for the defendants contended that in the absence of any contract to the contrary in the articles the majority of shareholders are entitled to decide the course of action and that in the present case there is no contract to the contrary. The words “subject to any regulation from time to time made by the company in general meeting” occurring in article 121 in the present case cannot, in my opinion, overrule the directors’ powers by prescribing a regulation or passing a resolution inconsistent with the articles. In Gramophone & Typewriter Co.Ltd. v. Stanley BUCKLEY, L.J., said that even a resolution of numerical majority at a general meeting of he company could not impose its will upon the directors when the articles had confided to them the control of the company’s affairs. As I have already indicated, the law is that directors can be denuded of their powers of control and management either by alteration of the articles or by their removal. Marchall’s case is the only one on which counsel for the defendants laid considerable emphasis. Marshall’s case appears not to have been approved by the House of Lords in Quin & Axtens Ltd. v. Salmon. Furthermore, the view expressed in Palmer’s Company Precedents, 17th edition, volume I, at pages 543 to 545, is that where it is desired to give the general meeting more effective control the articles should be so framed that the exercise of such powers should be subject to the control and regulation of a general meeting specially convancesed for the purpose. Such an article will have the effect of being construed as a “contract to the contrary” of the powers of the directors. Furthermore, Marshall’s case [1909] 1 Ch.267 seems to suggest that the general meeting can commerce proceedings on behalf of the company if the directors failed to do so. Ordinarily, the appropriate authority to start an action on the company’s behalf is the board of directors to whom this power is delegated as an incident to the management of the company. If the directors cannot or will not start proceedings in the company’s name the power to do so reverts to the general meeting.
In the present case, I am of opinion, that the power of management is vested under the articles in the board. This power is subject to alteration of the articles. The word “regulation” in article 121 in the present case is, in my opinion, synonymous with “articles” and the result is that the powers of management can be challenged only by alteration of the articles. In my opinion, there is a contract providing for management by the board and such a contract is contrary to regulation of the exercise of the powers of directors by the general meeting.
Counsel for the defendants contended that under section 284 of the Companies Act, the directors could be got rid of at a general meeting and, therefore, if a general meeting were convened, it would appeal whether the shareholders wireless accept that acts of the directors. Under section 284 of the Companies Act it is provided that a company may by ordinary resolution remove a director before the expiry of his period of office. A special notice is contemplated under that section of any resolution to remove a director or to appoint somebody instead of a director so removed. It is further contemplated in that section that on receipt of a notice of a resolution the company is to send a copy thereof to the directors concerned and the director shall be entitled to be heard on the resolution at the meeting. Counsel for the plaintiff, in my view, rightly contended that no general meeting should be allowed to be convened in the present suit for obtaining any relief under section 284 of the Act. I am of opinion that no meeting convened for the purpose of ascertaining the wishes of the shareholders as to whether a suit should be allowed to proceed or not should be converted for another indirect purpose of removal of the directors.
Counsel for the plaintiff relied on Dhanuka’s case. In that case there was an ordinary resolution at a requisitioned general meeting and several persons were appointed directors in addition to the four existing directors. There was an action on behalf of the shareholders and others alleging that the resolution was invalid on the ground that under the article it should have been passed only by a special resolution. A question arose as to whether the court would interfere in the internal management of the company. Dealing with that contention their Lordships’ opinion was that, to treat the resolution as effective would mean that the company could terminate the appointment of managing agents by ordinary resolution contrary to the articles which required an extraordinary resolution. In other words, an infraction of the article was not permitted. Counsel for the plaintiff on the authority of Dhanuka’s case [1950] 20 Comp.Cas.133 contended that to allow a general meeting and to get rid of directors under section 284 of the Companies Act would be to allow by ordinary resolution what had to be done only after observing formalities contemplated in section 284. It is true that the directors can be removed in a general meeting but any proposed resolution for such removal of directors is conditional upon certain prior notice. In the present case there has been no such notice. I am of opinion that the defendants cannot resort to the purpose of removal of directors under the garb of a general meeting to be convened to ascertain the wishes of shareholders as to the continuance of a suit. Counsel for the plaintiff further contended relying on the decision of Cook v. Deeks that to allow the holding of a meeting in the present case would be to allow an alleged exercise of tyranny over the minority. Under these circumstances it will not be a case of internal management but an infraction of the article, for the majority would get hold of the company and get rid of the management, which is being exercised by the present board under the articles. Such use of voting power would be to allow the members to usurp powers of management which are entrusted to the board by the articles.
Counsel for the defendants made a distinction between a general and particular delegation of powers to directors. As to particular delegation of powers counsel conceded that they could not be taken away from the directors without amendment of articles. Instances of such particular delegation were illustrated with reference to articles 20, 26 and 45 which related to calls on shares, forfeiture of shares and transfer of shares. Counsel for the defendants contended that articles 121 and 122 were instances of general delegation and related to the general management. Counsel for the defendants contended on the authority of Burland v. Early that the court would not interfere with the internal management. The two principles laid down in that case are, first, that the court would not interfere with the internal management of the company acting within their powers and, secondly, that in order to redress a wrong done to the company or to recover money or damage alleged to be due to the company, the action would prima facie be brought by the company itself. The doctrine of supremacy of shareholders would apply, provided, first, it is within their powers and, secondly, that the acts of the shareholders are to cure mere informality and irregularity as opposed to the infraction of articles or statutes. In the present case the directors have instituted the suit against persons who have invaded the powers of directors and/or their management. The acts complained of by the directors are an infraction of articles. Such acts are impeached by the company as violation of the articles by persons described as trespassing upon the powers of the board.
I am of opinion, first, that it is not open to the defendants as a defence to the suit to object to the use of the name of the company by the plaintiff. Secondly, there is no conclusive evidence showing that the plaintiff is not authorised to institute the suit. Thirdly, the articles confer sufficient powers on the plaintiff to maintain this suit. Fourthly, no general meeting should be held to deprive the directors of their powers under the articles.
For these reasons I am of opinion that no general meeting in the present case should be allowed to be held. I recall the order which I made on June 3, 1960. The suit will appear in the list on August 25, 1960, subject to any part heard suit. Costs cost in the cause. Certified for two counsel.
[1951] 21 COMP.
CAS. 294 (MAD.)
HIGH COURT OF MADRAS
v.
Tiffin's Barytes, Asbestos & Paints Ltd.
RAJAMANNAR, C.J.
AND PANCHAPAKESA
AIYAR, J.
O.S. APPEAL NO.
118 OF 1950
G. Vasanta Pai, for the Appellant.
O. Radhakrishnan, for the Respondent.
Rajamannar, C.J.—This
is an appeal against an order of Krishnaswami Nayudu, J., directing the
directors of Tiffin's Barytes Asbestos & Paints Ltd., to convene and hold
the annual general meeting of the company on Sunday, the 28th January, 1951,
after giving due notice to the shareholders as provided under the articles to
consider certain subjects. This order was made on an application filed by the
appellant who is a shareholder on the allegation that the last annual general
meeting of the company had been held on 30th December, 1948, and there had been
no annual meeting for over 15 months. There is no appeal by the company of the
directors against the order directing the holding of the meeting, but the.
shareholder who applied to the court and who is the appellant before us seeks
in this appeal the appointment of an independent person to preside over the meeting
as chairman. Such a request was made to the learned Judge, but he thought that
no case had been made out for appointing an independent chairman.
It is true that, under Article 35, the chairman of the
board of directors shall be entitled to take the chair. Under Article 64 the
directors may make regulations as to the election of the chairman. It was
conceded before us by learned counsel appearing for the company that no
regulations had been made as contemplated by this article. But he mentioned
that at a meeting of the directors on 12th August, 1950, one Mr. Veeramani was
elected chairman. It is obvious that it cannot be said in this case that there
is a validly elected chairman of the board of directors whose right to that
office is not challenged by any one. It is not necessary for us to decide
whether he could lawfully function as chairman. It is sufficient to say that
there is room for dispute. There is also another objection into which we have
not gone on the ground that at the time of the alleged election, there were
only few directors functioning; that is to say, less than the minimum number
required to make a quorum. Be
that as it may, it is obvious that it cannot be said that there is a permanent
chairmen chosen in the normal course of the business of the company.
Under an order of this court there was an extraordinary
meeting of the general body on 23rd October, 1950. It is represented to us that
the report of the advocate who was appointed to conduct the meeting is the
subject-matter of certain objections by the respondent. We shall therefore,
refrain from saying anything as to the correctness or otherwise of any of his
decisions. But it is clear that the person who is put forward by the company as
the permanent chairman rejected all the 73 proxies submitted by one Mr. E.R.
Krishnan on the ground that they did not conform to the form under Regulation
No. 66 of the Act. There is besides this enough on the record to convince us
that there are factions among the shareholders of the company. Though the learned
Judge thought that at the meeting only formal subjects would come up for
consideration, we think that the election of directors cannot be said to be
such a formal or non-controversial subject as would ordinarily be the case in
respect of a company whose affairs are running smoothly. As this is one of the
impartant items of business to be transacted at that meeting, we consider it
desirable that the meeting should be presided over by an independent chairman
appointed by the court. Mr. Radhakrishnan, learned counsel for the respondent,
objected to the appointment of a chairman by the court on the ground that
thereby the court would be interfering with the internal management of the
company which it had no jurisdiction to do. But we find that Section 79(3)
itself contemplates the giving of directions by the court as to the manner in
which a meeting of the company can be held and conducted. Section 76 expressly
confers on the Court the power to call or direct the calling of a general
meeting of the company. If the court can call for a meeting, we presume the
court can also appoint a person to conduct that meeting, who will be the
chairman to preside over it.
We, therefore, modify the order of the learned Judge and
direct that the meeting may be conducted by the advocate to be appointed by us
in this order who will preside at the meeting as its chairman. He shall also
scrutinise the proxies which had been duly deposited in time under Article 42
of the Articles of Association.
[1951] 21 COMP CAS 210
(MAD.)
HIGH COURT OF MADRAS
v.
Hindustan Investment & Financial Trust Ltd.
RAJAMANNAR, C. J.
AND SOMASUNDARAM, J.
ORIGINAL SIDE APPEAL NO. 17
OF 1951
Govinda Chetti v. Rangammal, [1929] (A.I.R. 1929 Mad. 261).
G.
Vasanta Pai, for the Appellant.
O. Radhakrishnan, for the Respondent.
Rajamannar, C.J.—This appeal relates to the
affairs of a company incorporated under the Indian
Companies Act called the Hindustan Investment and Financial Trust Ltd, Madras. The
managing director of the company convened the annual general meeting of
the company for 31st December, 1950, by notice dated 14th December 1950. On
26th December, 1950, one Mrs. Ananthalakshmi Ammal, a shareholder of the
company, who is the appellant before us, filed an application (No. 4988 of
1950) on the original side of this Court for the appointment of an independent
chairman to hold and conduct the annual general meeting to be held on 31st December, 1950, with power to scrutinize all the
proxies and record the proceedings of the meeting. The application first came
up before the Judge sitting |n the Christmas vacation (one of us,
Somasundaram, J.) who made an interim order on 27th
December, 1950, adjourning the meeting to 28th January, 1951, and posting the
application for final disposal after reopening of the Court. The application
itself was eventually disposed of on 16th January, 1951, by Krishnaswami
Nayudu, J., who appointed an advocate of this Court to preside over the annual
general meeting to be held on 28th January, 1951, with power to scrutinise the
proxies. On the same day the managing director on
behalf of the company filed an application (No. 190 of 1951) praying
that the meeting scheduled to take place on 28th
January, 1951, should be adjourned to a convenient date after the disposal of
an application which he had taken out for committing one Mr. Ramachandran, the
son of the appellant, for contempt of Court. The ground on which the
adjournment was sought was that the said Mr. Ramachandran had issued a circular
containing false and defamatory allegations against him to which he could not
reply pending the disposal of the application for contempt. This application
was opposed. Evidently the learned Judge, when this application first came up,
considered that this reason was not adequate enough to justify an adjournment
of the meeting. Therefore time was taken for filing a further affidavit and the
manag ing director filed subsequently on 22nd January, 1951, a further
affidavit in which he gave an additional reason, namely, that the share holders
should be informed of the fact that the Court had appointed an independent
chairman to preside over the meeting. The application was heard and disposed of
finally by Krishnaswami Nayudu, J., on 24th January, 1951. The learned Judge
was not satisfied that the first of the reasons, namely, the issue of a
circular by Mr. Ramachandran was sufficient to grant an adjournment of the
meeting. The learned Judge, however, considered that the second reason which had
been subsequently put forward in the further affidavit was more substantial. He
thought that the shareholders must be given due notice of the appointment of an
independent chairman by the Court. He thought it better to issue fresh
notice giving 14 days time, intimating that a
chairman had been appointed to preside over the meeting with power to
scrutinize the proxies. Objection was taken on behalf of the appellant before us that the Court had no power to adjourn
the meeting, but this was overruled. It was then pointed out on her behalf that
prejudice is likely to be caused by reason of the possibility of new
shareholders who had registered themselves within two months from the date of
the meeting would also be entitled to vote. Otherwise, only those shareholders
who were on the list of shareholders two months prior to the original date of
the meeting, namely, 31st December, 1950, would be entitled to partake and
vote, at the meeting. This result was a direct
consequence of Article 48 of the Articles of Association of the company which
is in the following terms:—
"No member shall be entitled to vote nor be
reckoned in a quorum when his name has not been in
the register for a continuous period of two months immediately preceding the
date of the meetings nor whilst any call or other sums shall be due and payable
to the company in respect of any of the shares of such member".
The learned Judge appears
to have been impressed with this aspect and observed:—
"This could be avoided
if it is made clear that only those shareholders who are on the list of
shareholders prior to two months of the adjourned date of the meeting, viz., 28th January, 1951, that is,
all shareholders who are on the list of shareholders
as on the 28thNovember, 1950, will alone be entitled to participate and vote at
the meeting".
It was urged on behalf of the appellant that the relevant date would be 31st October, 1950, but the learned Judge held that as the meeting had been adjourned by the Court to 28th January, 1951, that should be the material date. On behalf of the managing director, it was contended that having regard to the provisions of Section 79(1)(e) of the Indian Companies Act (hereinafter referred to as the Act) there could be no such discrimination among the shareholders and that all shareholders would be entitled to take part whether their names have been in the list for two months prior to the date of the meeting or not. The learned Judge was of the opinion that it was not open to the company to go behind the articles of association; but he thought it was not necessary for the purpose of the application to give any finding on the question. In the end he directed the meeting scheduled to take place on 28th January, 1951, to be adjourned to 11th February, 1951, and directed that such shareholders as were on the list of shareholders on the 28th November, 1950, shall alone be entitled to vote at the meeting. Against this order the managing director filed an appeal (O. S. A. No. 12 of 1951) and an application for stay of the operation of the order pending the appeal on 9th February, 1951. The application for stay was urgently moved before us on the same day, but we refused to grant interim stay and only directed notice to the other side. Meanwhile, the managing director had also filed an application for review of the order of 24th January, 1951 (No. 572 of 1951). The ground on which review was sought was that the order of the learned Judge was inconsistent with Section 79(1)(e) of the Act, and there was an error apparent on the face of the record. This application was taken up and disposed of on the same day on which we refused to grant interim stay. This learred Judge came to the conclusion that in view of the clear language of Section 79(1)(e) of the Act, the order passed by him on 24th January, 1951, was in error and therefore the application was sustainable under Order 47, rule 1, of the Civil Procedure Code. He held that all the shareholders who were on the register on the date of the meeting would be entitled to take part and vote at the-meeting. As the shareholders who would have come into the list after 28th November, 1950, could not have had notice of the meeting because of his prior order of the 24th January, 1951, the learned Judge held that it was necessary to adjourn the meeting, which he did to 4th March, 1951. It is against this order Mrs. Ananthalakshmi Animal the. shareholder, has filed the above appeal.
A preliminary objection was
taken on behalf of the company by its managing director, that the appeal was
not maintainable as the conditions of Order 47, rule 7, of the Civil Procedure
Code were not fulfilled. According to that rule, an order granting an
application for review could be objected only on the ground that the order was
in contravention of the provisions of rule 2 or rule 4 or that the application
for review was barred by limitation and there was no sufficient cause. This
objection, though very plausible and has some support in decided cases, does
not appear to us to be invulnerable. An appeal would lie on the ground that an
order granting review was in contravention of the provisions of rule 4. Rule 4
(1) says that, "Where it appears to the Court that there is not sufficient
ground for a review it shall reject the application".
So. if the Court does not reject the application where there is no sufficient ground for review but grants the application, then it contravenes rule 4. We do not see any justification for construing "rule 4" in rule 7 (1) (b) as confined to rule 4 (2). But we do not think it necessary to finally decide this question, because even assuming that an order permitting a review, that is to say, allowing the case to be re-opened, is not by itself appealable, there is nothing to prevent an appeal being filed against the final order passed after a reconsideration. That order on review can be attacked on the merits in an appeal: see Govinda Chetti v. Rangammal.
On the merits we are of
opinion that the learned Judge ought to have dismissed Application No. 190 of
1951. We agree with the learned Judge that there was nothing in the first
reason given by the applicant therein, namely, the Managing Director, for
adjourning the meeting scheduled to take place on the 28th January,
1951. We are further of opinion that there is equally
nothing of substance in the second reason too which was clearly in the
nature of an afterthought and which had not been assigned in the affidavit originally filed along with the application. With respect to the learned Judge, we are
unable to imagine why the shareholders must be given due notice of the fact
that the court had appointed an independent chairman before they could take
part in the meeting. The appointment of an independent chairman which does not
affect their rights in any manner cannot have any possible effect on the way in
which they should cast their votes. The meeting must of course have a chairman
and it does not matter in the least to the shareholders, if the chairman
happens to be a chairman appointed by this Court. It is most undesirable that
the meeting fixed for a particular date should be adjourned on this
insubstantial ground, especially when strong objection was taken to an
adjournment. The learned Judge, in our opinion, erred in granting the
application for adjournment.
It is impossible, however,
to set that right now. The date originally fixed for the meeting has expired
and still the meeting has not been held. It therefore becomes necessary
to deal with the point specifically raised in the
review application, namely, the effect of Section 79(1)(e) of the Indian
Companies Act. Counsel were unable to cite any decision, bearing on the point.
The learned Judge has made a reference to a passage from the Select Committee
Report, but we think that our decision should depend entirely on the
construction of the language of the enactment. We are of opinion that Section
79 (1) (e) of the Act must override any provision made in the articles of the
company and therefore Article 48 also. If a shareholder's name is entered in
the register of shareholders of the company, he cannot be prevented from
enjoying the right to vote on the ground that his name has not been on
the register for any specified time. It was contended by Mr. Venkatarama Aiyar
that there is no discrimination really between the
shareholders, because every shareholder is subject to the same
disability, namely, that he has no right to vote till after the expiry of two months from the time his name is entered in the
register of shareholders. We do not agree, because logically that would mean
that there could be an article to the effect that additional qualifications
should be satisfied before a shareholder can exercise his right to vote. We are
inclined to think that this provision which was inserted by the amending Act of
1936 was designed to prevent the denial to shareholders duly brought on
the register of the full exercise of their rights as shareholders which would include the right to vote.
Now, what is the position? The annual general meeting was originally called for 31st December, 1950. It was thereafter adjourned to 28th January, 1951, by the court and it was not contended before us that the court had no power to adjourn the meeting. The meeting so adjourned had not till now been held but is being adjourned from time to time. Now, Article 26 of the Articles of Association of the company provides that the transfer books of the company shall be closed during 14 days immediately preceding the ordinary general meeting in each year. Presumably therefore, the transfer books must have been closed on and from the 17th December, 1950. The meeting convened for the 31st was adjourned on the 27th December to 28th January, 1951, and thereafter to subsequent dates. But the meeting nevertheless is, in our opinion, the meeting originally convened for the 31st December, 1950, which however is being adjourned from time to time. If the meeting had been held on the 31st December, 1950, as originally convened, then those persons who were entered in the list of shareholders as on 17th December, 1950, would alone have been entitled to take part and vote at the meeting. We think it neither legal nor equitable that merely because of adjournments due to the action of one party or the other, there should be any prejudice to the entire body of shareholders as on the material date namely, 17th December, 1950. We therefore hold that only such of the shareholders who were entered in the list of shareholders on 17th December, 1950 would be entitled to vote at the meeting to be held on the adjourned date. This direction does not in any way contravene the provisions of Section 79(1)(e) of the Act.
The appeal is allowed. The
order of the learned Judge is set aside and there will be an order
adjourning the meeting to 1st April, 1951, with a direction that only those shareholders whose names are found entered
in the register of shareholders as on 17th December, 1950, will be
entitled to take part and vote at that meeting. There
will be no order as to costs.
[1982] 52 COMP. CAS. 371
(MAD)
High Court OF
Madras
v.
Universal Film (India) Private Ltd.
Sathiadev, J.
COMPANY APPLICATION NO. 2182
OF 1980.
C. Harikrishnan and S. Subbulakshmi for the Applicant.
T. Raghavan and A.K. Mylsamy for the Respondent.
Sathiadev J.—This application is filed under rr. 9 and 11(b) of the Companies (Court) Rules, 1959, for the' appointment of an independent chairman of court's choice to conduct the proceedings of the extraordinary general meeting of the shareholders of the company named Universal Film (India) Private Ltd. proposed to be held at 11 a.m. on November 26, 1980, at No. 300, Mowbrays Road, Madras.
In the supporting affidavit, the applicant states that himself and his wife are the promoters of the company and it was incorporated on 11th July, 1979, and each of them had subscribed for 50 shares. The registered Office is situate at No. 95, Mount Road, Madras, and its authorised capital is Rs. 14 lakhs divided into 14,000 equity shares of Rs. 100 each. In August, 1979, the company allotted further shares to the extent of Rs. 2,95,000 among the persons mentioned in para. 6 in the affidavit. The persons set out in (c) to (f) therein have not paid the balance of 65% of the share value and hence they are no longer shareholders of the company. Under art. 20 of the articles of association of the company, the applicant is the managing director for life and as such he is still functioning. Reference has been made to certain debts to certain parties mentioned in para. 13. In para. 14, it is stated that the size of the board of directors of the company was enlarged by the addition of four persons but subsequently, the company has also allotted further shares to the persons mentioned therein. According to the applicant, when he was out of Madras on 19th September, 1980, and by the time he could return, certain movables belonging to the company had been removed to premises No. 300, Mowbrays Road, which resulted in the filing of certain police complaints and action is being taken against respondents Nos. 2 and 3 for what has been done.
On October 28, 1980, the communication signed by the second respondent, convening an extraordinary general body meeting to be held on November 26, 1980, had been received to consider two resolutions, one of which is for the removal of himself and his wife as directors of the company. The two respondents having no right to convene the meeting at a place other than the registered office of the company which is situate at No. 95, Mount Road, Madras, and of the invalidity of the actions taken by them, would be challenged by the applicant at the appropriate time and place and the right to take such an action has been reserved by the applicant. In conclusion, he states that in view of the strained relationship which existed between the respondents Nos. 2 and 3 on the one hand and himself on the other, the meeting to be held in the business premises of the third respondent, which is illegal, he apprehends both physical intimidation and manipulations of the records. Two of the shareholders are abroad and, out of the balance, admittedly 5 of them are against him. He would state "from the rest I hold proxies and, therefore, matters will be certainly against respondents Nos. 2 and 3". The present application is taken out for the holding of a meeting in which the decision should be taken without any intimidation from any quarters and furthermore the applicant apprehended danger to his person and, therefore, the relief as prayed for requires to be granted.
In the counter-affidavit, it is stated that the application is not maintainable and misconceived. The extraordinary general meeting is to be held on November 26, 1980, and has been duly convened by issue of notice as early as October 28, 1980, and notices had been sent to the then shareholders of the company and the place where it has to be held is mentioned as No. 300, Mowbrays Road, Madras, and hence it is not as if, without a proper notice, the meeting is being convened. The decision to shift the registered office at No. 300, Mowbrays Road, was resolved in the meeting of the board of directors held on October 27, 1980. The claim regarding nonpayment of share amount by some of the directors is not correct and the so-called investments made in production of certain films adverted to by the applicant, are highly exaggerated and under art. 28, only the board of directors are authorised to borrow monies and hence the applicant, as managing director, had no authority to encumber the company by any such borrowals and the alleged expenses incurred in respect of certain pictures, are not true and intended to syphon off the funds of the company to benefit the applicant, and after the allotment of 2,900 shares, no further allotment of shares in the capital of the company had been effected. The applicant does not hold 2,000 shares as claimed and he has only paid a sum of Rs. 5,000 for the 50 shares. As for the 950 shares allotted to him in August, 1979, he had not paid any amounts and these are matters on record found in the minutes of the board which would show that no allotment was made after August, 1979, as claimed by the applicant. Equally, Damodaran Nambudiripad had also not been allotted any shares. When once the company has chosen to convene an annual general body meeting with proper notice, pursuant to the decision of the board, taken as early as October 27, 1980, there can be no interdict to the holding of such a meeting at the instance of the applicant by invoking r. 9 of the Rules. The apprehension expressed of physical intimidation is without any substance and the applicant is not prevented from participating in the meeting. Though he claims of holding of proxies, so far no proxy had been lodged by him with the company and the registered office.
Mr. Harikrishnan, counsel for the applican,, would contend that the admission made in the counter-affidavit about the registered office having been shifted to the business premises of the third respondent, is a positive proof of the high-handed manner in which the requisitioned meeting is proposed to be held, and hence the court on being moved, cannot allow such an illegal meeting to be held. Admittedly, when the applicant is the managing director, the steps being taken for holding a meeting at a place different from the registered office is unauthorised and, therefore, the applicant is entitled to move this court for securing ends of justice. The objection that the application itself is not maintainable is without any substance in view of the decision rendered by this court in Selvaraj v. Mylapore Hindu Permanent Fund [1968] 38 Comp Cas 153, wherein this court has held that there is ample inherent power in the court to give directions for a Commissioner to be appointed as chairman to decide as to how the meeting is to be held, and he can, for the purpose of avoiding impracticable situation, hold the meeting in the interests of the company and for reporting to the court as to what has actually transpired.
Mr. Raghavan by relying upon the decision in R. Rangachari v. S. Suppiah [1975] 45 Comp Cas 641 (SC) contends that when the meeting had been already called by the company to be held, the court would thereafter be not competent to appoint either a chairman or even an observer to be present in the meeting.
The main point to be considered is whether this application is maintainable or not.
Except r. 9 and r. 11(b) of the Companies (Court) Rules, 1959, no other substantial provision of the Companies Act has been invoked. The applicant himself would state in para. 21 of the affidavit that he reserves his right to challenge and set aside the action of respondents Nos. 2 and 3 at the appropriate time and place. The application is sought for the appointment of a chairman to preside over the meeting, which has been already called by the company, to be held. During the course of arguments, Mr. Harikrishnan, pleaded that if not a chairman, an advocate-observer, may be directed to be present at the meeting to know the truth of what actually happens at the meeting. The applicant had stated that he apprehends physical danger and of intimidation and of manipulation of proceedings of the meetings. Whether in the context of such an apprehension expressed, the court by exercising powers under r. 9, can direct outsiders to be observers, is the aspect on which Mr. Raghavan would contend that in a similar situation, when a Division Bench of this court directed an observer to be present, the Supreme Court had held that when a meeting has been already called for by the company, an application under s. 186 of the Act was not maintainable and the relief granted by this court deserved to be set aside. It was a case in which the respondents therein lodged a requisition under s. 169 of the Act calling for the extraordinary general body meeting of the company for the removal of one of the two managing directors. Certain other shareholders similarly lodged a requisition for the removal of the other managing directors also. The meeting was directed to be held at the residence of one of the shareholders of the company instead of its registered office, because the shareholders were divided into two factions belonging to the two groups of managing directors. Apprehension was expressed that there would be difficulty and trouble in the conduct of the meeting and hence a prayer was made for the appointment of an advocate-commissioner as chairman of the meeting to be held on the date already fixed and convened by the company.
When the application was heard by the company court, it was held that no relief can be granted and thereafter the matter was taken up in appeal, and the court stayed the convening of the meeting, but in spite of the service of the order, the meeting was held as scheduled which resulted in a petition being filed under r. 9 of the Rules to declare the meeting held as void and the resolutions passed as illegal and inoperative. Ultimately, the appeal was allowed and it was declared that the resolutions were not valid. An advocate of the court was appointed as advocate-chairman to hold and conduct the meeting. It was under such circumstances, after dealing with the scope of s. 186 of the Companies Act, it was, by the Supreme Court, held that in the company petition no prayer had been made for an order for calling a general body meeting ; nor any such order had been made by the appellate court in appeal, and hence the application itself was not maintainable. When the shareholders of a company had applied to the court only for the appointment of a chairman for a meeting already called by the directors, then the court was not competent to make the order as prayed for.
The decision relied upon by counsel for the applicant was also referred to by the Division Bench of this court, which was reversed by the Supreme Court in the aforesaid decision (See 45 Com Cas 641). Hence, in this case, when the meeting has been already called by the company, there is no scope for this court to appoint a chairman for the meeting, and such an application is not maintainable.
Mr. Harikrishnan would then contend that though the application is filed for the appointment of a chairman, he is presently asking only for the appointment of an advocate-observer who would be an independent person and who can take note of the manner in which the meeting is conducted, so as to safeguard the interests of the applicant particularly when he apprehends physical danger to himself. He would state that r. 9 is of the widest amplitude, and if in such cases, relief cannot be granted by invoking the rule alone, it deserves to be scrapped rather than being not available for persons like the applicant. Mr. Raghavan, on this aspect, contends that if the mere surmise or an expression of apprehension in an affidavit is to be a valid ground for inducting an outsider to be present in company meetings, it would take away the right of corporate bodies to decide their affairs in the manner in which they may choose to do. If, at the instance of one of the directors or a shareholder, an outsider is to come in, may be an advocate-commissioner or an auditor or any other party as may be appointed by the court, it would prevent a free and frank discussion when the shareholders have a right to do that without any watchful eye over their affairs.
When the Supreme Court has held, by reference to s. 186 of the Act, that once a meeting is called by the company, there can be no question of appointment of a chairman to be present for other purpose in a meeting, it is indicative of the approach to be made when an application is filed by a party merely invoking r. 9 of the Rules. It was also a case where the meeting was held in the residence of one of the shareholders of the company and an apprehension was expressed, but still ultimately it was held that the application itself was not maintainable in law, and no relief could be granted. Merely because the expression "ends of justice" is found in r. 9 of the Rules, and the court has the inherent powers, it cannot be invoked for destroying the corporate functions of companies. Apprehension expressed by a shareholder by itself cannot be a ground for inducting an outsider in an annual general body meeting of the company. The fate of the company is to be decided by the shareholders. They may ruin themselves or decide for their prosperity. If in the meeting there is no proper procedure followed, or the chairman of the meeting does not conduct the meeting properly or if the resolutions passed are against the provisions of the Companies Act, the applicant has the right to challenge those proceedings by instituting appropriate proceedings. It is not as if, this applicant is not conscious of such a remedy being available, since he has reserved that right in para. 21 of his affidavit. Before ever the court is to exercise its inherent powers and induct an outsider in a company meeting that has been already convened duly, it cannot extend beyond what could not be done even under s. 186 of the Act.
Even otherwise, the inherent power, if at all to be exercised could be only to further the ends of justice on taking into account the totality of circumstances. It is the claim of Mr. Harikrishnan, during the course of arguments, that the applicant has got a majority and if only there is no intimidation the resolutions can be defeated. Therefore, if there is any physical intimidation, the observer appointed by court cannot give him protection but can only take note of what has happened. It is for him to seek police assistance if his right of entrance is being prevented.
It is also possible for him in the proceedings taken at appropriate stage to examine such witnesses who had participated in the meeting along with him to establish as to what had happened, and if what is claimed, is found acceptance of by the court, the resolutions passed would be certainly set aside. It is not as if he is not having remedies if intimidation, as apprehended, takes place. At least if it is a meeting to be convened by the court, then by appointing a chairman, as held in [1968] 38 Company Cases 153 the chairman takes a decision at the meeting as to the manner in which the election of the directors should take place, to hold whether it would be by ballot or by show of hands and for him also to decide as to how and in what manner proxy votes should be received and rejected.
This is a case where the applicant only wants an observer to be present. He cannot take any decision as to how the proceedings are to be conducted. He cannot participate in the meeting nor can he issue directions to any of the persons present in the meeting either to do a particular thing or not to do in a particular manner. He can at best be only an observer so that later on in court the advocate-observer may be examined to speak as to what has happened. Here again it was pointed out to Mr. Harikrishnan that it is not as if the evidence of the advocate-observer may be accepted in toto, and no other evidence could be received to contradict what he may say. It would put the advocate-observer in a great predicament, if what is claimed or observed by him is ultimately found to be not correct, or that himself being not very much conversant with the affairs of the company he had not properly understood the situation, etc., it would result in the court having appointed a person who could be of no assistance either to the court or to the company or even to the applicant. When such are the possibilities, a court would not come forward to exercise its inherent powers to bring about such a piquant situation for an observer to be appointed by it and who would have no right to be present in a company meeting convened by the company.
When the applicant has got remedies available to him under the Companies Act if improprieties or illegalities are committed in the said meeting, the invocation of r. 9 to satisfy his requirements cannot be acceded to, and the purport of r. 9 is not for subserving such interests. Hence, this application is dismissed as not maintainable.
[1947] 17 COMP. CAS. 216
(ALL.)
HIGH COURT OF ALLAHABAD
v.
MULLA, MALIK AND MOOTHAM, JJ.
CIVIL REVISION NO. 278 OF 1946
JUDGMENT
This reference to a Full Bench arises out of a petition in revision under Section 115 of the Civil Procedure Code presented by one Bal Krishna Maheshwari, a member of the Merchant's Chamber of U.P. which is a company limited by guarantee duly incorporated and registered under Section 26 of the Indian Companies Act (VII of 1913). The petitioner challenged the validity of an order passed by the learned District Judge of Cawnpore on 26th April, 1946, confirming a previous exparte order passed by him on 28th March, 1946, directing the calling of the annual general meeting of the Company on 27th April, 1946. The challenge was made on the ground that the said order of the learned District Judge of Cawnpore was beyond his jurisdiction and on that basis the petitioner claimed the relief that the said order and the annual general meeting of the company held in pursuance thereof should be declared to be null and void. The matter came up for consideration before a Bench of this Court and from the argument addressed by the parties two questions having an important bearing on the administration of the company law arose for determination. In view of the importance of those questions, and the fact that they were not covered by any precedent of this Court or of any other High Court the Bench seized of the matter made the present reference with the object of having those questions fully considered and finally decided by an authoritative pronouncement of this Court.
The material facts of the case and the points raised in the course of the argument have been set out at great length in the order of reference made by the Bench and we think it would be an obvious waste of time and labour to cover the whole ground again in the present judgment. As already stated, there are but two points of law which arise for consideration and we consider it necessary to state a few facts in order to bring out those points. Article 46 of the Articles of Association of the company provides that an annual general meeting of the company shall be held in every calendar year before 31st of March. The dispute in the present case relates to the annual general meeting of the company for the year 1946. It is an admitted fact that the last preceding annual general meeting of the company had taken place on 3rd February, 1945. According to the Articles of Association of the company referred to above, the annual general meeting of the company for the year 1946 had to be called on some date before 31st March, in that year. The management of the affairs of the company lies in the hands of a Council of twenty-one members, including a President and a Vice-President, and the duty of calling the annual general meeting of the company in every calendar year falls upon that Council. On behalf of the petitioner it is alleged that in accordance with the Articles of Association of the company a clear fourteen days' notice for the annual general meeting in 1946 was issued and posted in due course on 13th March, 1946, fixing 28th March, 1946, as the date of the meeting. It is contended on the other side that though a notice was directed to be issued fixing that date, yet in fact no notice was issued and posted to any member of the company until 15th March, 1946, so that there could be no clear fourteen days' notice of the meeting as required by Article 49 of the company's Articles of Association. It is further alleged that a member of the company, who received a notice of the meeting to be held on 28th March, 1946, actually raised an objection that the notice was invalid and sent a written communication to that effect to the President of the Council who thereupon proceeded to cancel the meeting on 25th March, 1946, and on 28th March, made an application to the learned District Judge, Cawnpore, invoking his jurisdiction under Section 79 (3) of the Indian Companies Act to call the annual general meeting. The two points of law which have to be determined in the present case turn upon the true interpretation of Section 79 (3) of the Indian Companies Act and it is, therefore, necessary to set out its terms in extenso The section runs as follows:—
"If for any reason it is impracticable to call a meeting of a company in any manner in which meetings of that company may be called or to conduct the meeting of the company in manner prescribed by the articles or this Act, the Court may, either of its own motion or on the application of any director of the company or of any member of the company who would be entitled to vote at the meeting order a meeting, of the company to be called, held and conducted in such manner as the Court thinks fit, and where any such order is given may give such ancillary or consequential directions as it thinks expedient, and any meeting called, held and conducted in accordance with any such order shall for all purposes be deemed to be a meeting of the company duly called, held and conducted."
For the purposes of appreciating the points raised before us in the argument on behalf of the petitioner it is necessary also to set out here the terms of Section 76 of the Indian Companies Act which runs as follows:—
"76. (1) A general meeting of every company shall be held within eighteen months from the date of its incorporation and thereafter once at least in every calendar year and not more than fifteen months after the holding of the last preceding general meeting.
(2) If default is made in holding a meeting in accordance with the provisions of this section, the company and every director or manager of the company: who is knowingly and wilfully a party to the default shall be liable to a fine not exceeding five hundred rupees.
(3) If default is made as aforesaid, the Court may, on the application of any member of the company, call or direct the calling of a general meeting of the company."
We may also mention here that the learned District Judge has found as a fact upon the evidence produced before him by the parties that though a meeting of some sort was held on 28th March, 1946, yet the notice calling a meeting on that date was not actually issued and posted until 15th or 16th March, 1946, so that it did not leave a clear margin of fourteen days before 28th March, 1946. Having arrived at that finding, the learned District Judge proceeded to hold that the meeting of some sort which had taken place on 28th March, 1946, was not a valid meeting in the eye of the law and had consequently to be disregarded altogether. He thus arrived at the conclusion that the calling of a valid meeting in the manner prescribed by the company's Articles of Association had become impracticable and he consequently proceeded on 26th April, 1946, to confirm his previous ex parte order of 28th March, 1946, calling a general meeting of the company on 27 April, 1946. The petition before us challenges the validity of this order and consequently of the meeting held in pursuance thereof on the ground that it was beyond the jurisdiction of the learned District Judge.
It is not permissible in revision to go behind the finding of fact recorded by the learned District Judge and the argument before us has, therefore, proceeded on the assumption that though a meeting of some sort was held on 28th March, 1946, yet there was no clear fourteen days' notice for that meeting as required by the company's Articles of Association. In view of the clear language of Section 79 (3), it is evident that there is a condition precedent to the exercise of the jurisdiction conferred by it and that is that it must be found that for some reason it has become impracticable to call a meeting of a company in any manner in which meetings of that company may be called. So far there is and can be no contest. On behalf of the petitioner the challenge against the jurisdiction of the learned District Judge is sought to be supported on two grounds and they give rise to the two points of law which we have to determine. The first ground is that the question of the impracticability or otherwise of calling an annual general meeting must be decided not only in the light of the company's Articles of Association, but also of the general provision contained in Section 76(1) which has been cited above. It is contended on that basis that in the circumstances of the present case, the calling of the annual general meeting of the company had not become impracticable, inasmuch as though the time-limit prescribed by the company's Articles of Association had expired, yet the wider limit laid down by Section 76(1) was still available and having regard to the fact that the last preceding annual general meeting had taken place on 3rd February, 1945, the annual general meeting for the year 1946 could validly be called at any time before 3rd May, 1946. It has been very strenuously argued on behalf of the petitioner that in the present case a conflict had arisen between the general provision contained in Section 76(1) and the Articles of Association of the company and the former must prevail over the latter. In support of his argument learned counsel for the petitioner further contended that in Section 79 (3) the phrase "in manner prescribed by the articles or this Act" must be applied to both the clauses that precede it and it must, therefore, be held that the impracticability or otherwise of calling a meeting has to be determined not only by reference to the Articles of Association of a company, but also to the general provisions of the Act. Upon a careful analysis of the language of Section 79(3) and of the general provision contained in Section76, we are unable to accept this contention. In our judgment there are two distinct and separate clauses which precede the phrase "in manner prescribed by the articles or this Act" in Section 79 (3) and it follows, therefore, that upon a plain grammatical construction of the language of the section the phrase is applicable only to the clause which immediately precedes it. Section 79(3) provides for two separate matters : firstly, the impracticability of calling a meeting of a company in any manner in which meetings of that company may be called and secondly, conducting the meeting of the company "in manner prescribed by the articles or this Act." It is worthy of note that the words "in any manner" occur in the first clause and upon the reading suggested by the learned counsel for the petitioner the words "in manner" have to be repeated if the phrase "in manner prescribed by the articles or this Act" is applied to both the clauses that precede it. Upon a plain reading of the languages of the section, we are of the opinion that the question of the impracticability or otherwise of calling a meeting has to be decided primarily in the light of the company's Articles of Association. We may here point out that the words "that company" in the first clause are very significant. They clearly show that the clause refers to a particular company and not to all companies; whereas the provision contained in Section 76(1) applies to every company. It has, however, to be borne in mind that there may be cases in which the Articles of Association either fail to make any provision for a matter which is governed by the general provisions of the Act or make a provision which is in direct conflict with some mandatory provision of the Act applicable to all companies. In the former case it would obviously be necessary to refer to the Act when deciding the question of the impracticability or otherwise of calling a meeting. In the latter case the mandatory provision of the Act will prevail and the provision contained in the Articles of Association will have to be disregarded. Apart from these exceptional cases, the question of the impracticability or otherwise of calling a meeting must be decided only by reference to the company's Articles of Association. We find further that in the circumstances of the case before us no conflict could really arise between the general provision contained in Section 76 and the company's Articles of Association. Section 76 in sub-section (1) lays down two mandatory provisions of general application to all companies relating to the calling of the annual general meeting ; firstly, that the meeting shall be held once at least in every calendar year and secondly, that it shall be held not more than fifteen months after the holding of the last preceding general meeting. This sub-section does not prohibit any company from prescribing any time-limit for the holding of its annual general meeting so long as the two mandatory conditions mentioned above are fulfilled. In the case before us the company laid down in Article 49 of its Articles of Association that "there shall be an annual general meeting of the Chamber which shall be held before 31st of March, at such time and place, as the Council for the time being may determine." This provision did not contravene any one of the two conditions prescribed by Section 76(1) and hence no question of any conflict between Section 76(1) and the company's Articles of Association arises at all. In prescribing a time-limit for the holding of its annual general meeting in each calender year the company did not infringe any provision of the Companies Act. It is not one of the exceptional cases referred to above and it follows, therefore, that the question of the impracticability of calling the annual general meeting in 1946 had to be determined only by reference to the company's Articles of Association. The argument on behalf of the petitioner proceeds on the assumption that Section 76 enables the calling of an annual general meeting at any time after the expiry of the time-limit fixed by a company's Articles of Association and before the expiry of the wider time-limit given by Section 76(1). Upon a plain reading of the language of Section 76, we find that this assumption is not correct. An annual general meeting of a company may be called under sub-section (3) of Section 76 on the application of any of its members, but the condition precedent is that a default must have taken place in holding the general meeting in accordance with the provisions of the section. It follows, therefore, that Section 76 can never operate for the purposes of calling an annual general meeting at any time within the limit prescribed by sub-section (1). From this again it is clear that in the present case there could be no conflict between Section 76 on the one hand and the company's Articles of Association on the other. Learned counsel for the petitioner contended that if the directors of the company had called and held the annual general meeting at any time after 31st March, 1946, and before 3rd May, 1946, the validity of such a meeting could not possibly be challenged in view of Section 76(1). It may have been possible for the directors of the company to call and hold such a meeting and that meeting may have been valid, but it could not be a meeting called and held either in accordance with the company's Articles of Association or the provisions of Section 76. The meeting could be called and held with the consent of all the members, but the possibility of such a meeting being called and held cannot be taken into account for the purpose of deciding the question whether the calling of the annual general meeting had or had not become impracticable on the date on which the jurisdiction of the learned District Judge under Section 79(3) was invoked. We are, therefore, of the opinion that the general provisions contained in Section 76 of the Act have no application to the period intervening between the time-limit for calling and holding an annual general meeting fixed by a company's Articles of Association and the wider time-limit for calling and holding such a meeting prescribed by Section 76(1). At any time before the expiry of the wider limit prescribed by Section 76(1) the jurisdiction conferred upon the Court by Section 79(3) comes into operation and it can be invoked by a director or a member of any company for calling the annual general meeting. We find further that the jurisdiction of the learned District Judge was rightly invoked in the present case by the President of the Council in charge of the management of the company's affairs.
The second ground on which the jurisdiction of the learned District Judge has been assailed is that Section 79(3) is only a procedural provision which does not confer any judicial power on the District Judge to enter into and decide the question of the validity or otherwise of a meeting alleged to have been held. It is contended that where the jurisdiction of the Court is invoked under Section 79(3) of the Act for the purpose of calling a meeting and an objection is raised that a meeting has in fact already been called and held, all that lies in the power of the Court to do in the exercise of its jurisdiction is to decide the question of fact and if it finds that the fact of a meeting having been held has been established, it must immediately stay its hand and has no jurisdiction to proceed further to decide whether the meeting was valid or invalid. It was strenuously argued that as soon as the issue of the validity or otherwise of a meeting is raised, the Court acting under Section 79(3) of the Act must declare that it has no jurisdiction to proceed any further and must leave the parties to pursue their remedy in the civil Court. At one stage of the argument learned counsel for the petitioner tried to maintain that the Court acting under Section 79(3) ceased to have any jurisdiction as soon as on objection was raised before it that a meeting has actually been held. The claim that the jurisdiction of a Court can be ousted merely by an allegation is obviously extravagant and it was not, therefore, pressed but the learned counsel laid great emphasis on the fact that an order passed by the Court in the exercise of its jurisdiction under Section 79(3) of the Act is not open to any appeal even though the order might affect valuable rights and on this ground we were asked to infer that the law could not possibly have intended to confer upon the Court the jurisdiction to determine the validity or otherwise of a meeting. In our judgment, the position taken on behalf of the petitioner is untenable. It is conceded that there are no express words in the statute which place the suggested limit on the jurisdiction of the Court under Section 79(3), but it is contended that the lack of jurisdiction to decide the question of the validity or otherwise of a meeting must necessarily be inferred from the fact that no appeal has been provided from an order made by the Court in the exercise of its jurisdiction under that section. In dealing with this question we must first of all point out that all jurisdiction under the Indian Companies Act has been conferred by Section 3(1) in the first instance upon "the High Court having jurisdiction in the place at which the registered office of the company is situate." We do not think that it can be argued with any force or reason that the High Court has no jurisdiction to enter into and decide the question of the validity or otherwise of a meeting. There is further provision in the same section that the Central Government may, by notification in the official gazette and subject to such restrictions and conditions as it thinks fit, empower any District Court to exercise all or any of the jurisdiction by this Act conferred upon the Court, and in that case such District Court shall, as regards the jurisdiction so conferred, be the Court in respect of all companies having their registered offices in the district.
The District Judge at Cawnpore exercises jurisdiction under the Indian Companies Act in accordance with this provision and it has not been suggested that the Central Government has placed any restrictions upon his jurisdiction. It follows, therefore, that the District Judge at Cawnpore possesses the same jurisdiction which has been conferred upon the High Court by Section 3(1) of the Act. Now, when the Court empowered under Section 3(1) proceeds to exercise the jurisdiction conferred upon it by Section 79(3), the very first question which it has to decide is whether the calling of a meeting has become impracticable. It is open to any party to challenge the exercise of that jurisdiction and for that purpose it may be alleged as in the present case that a meeting has actually been called and held and hence the basic condition on which the Court can proceed to exercise its jurisdiction for calling a meeting does not exist at all. Such an allegation must necessarily amount to assertion that the meeting alleged to have been held fulfils all the requirements of the law. No objector can be allowed to ask the Court to stay its hand merely with the allegation that a meeting has in fact been called and held, though it was not a valid meeting. When such an allegation is made, the issue which immediately arises for decision is: Has a valid meeting been in fact called and held? The Court must proceed to find not only whether a meeting of some sort has been held but that the said meeting fulfilled the requirements of the law before it can refuse to exercise its jurisdiction. The Court may find that a meeting of say nine persons was held, though the quorum required by the law was ten and the question is whether upon such a finding the Court must stay its hand and declare that it has no further jurisdiction in the matter. In our judgment the answer is obviously in the negative. The Court cannot shut its eyes to the fact that the meeting actually held was not a meeting in the eye of the law and if it takes that fact into account, it must proceed to hold that the calling of a meeting has become impracticable provided that the time-limit fixed for the calling of such a meeting by the company's Articles of Association has expired or the calling of the meeting within that time-limit in the manner prescribed by the Articles of Association has become impossible. We see no reason at all why such an issue should not be determined by the Court. There is nothing in the language of Section 79 (3) upon which the contention of the learned counsel for the petitioner can be founded. It was strenuously contended by learned counsel that the determination of such an issue might often involve the decision of complicated questions of fact and law and it must, therefore, be inferred that the law did not contemplate the determination of such a question in a miscellaneous proceeding under Section 79(3). We are not impressed at all by this argument because we do not think that in the large majority of cases any complicated questions of law and fact will arise for consideration. The question of the validity or otherwise of a meeting will in a vast majo rity of cases turn upon the interpretation of the company's Articles of Association and some general provisions of the law. We see no reason for holding that the Court acting under Section 79(3) is for any reason less competent to try and decide such questions than the civil Court to which learned counsel for the petitioner seems to attach a peculiar sanctity. It has to be borne in mind that the District Court empowered under Section 3(1) of the Indian Companies Act possesses unlimited jurisdiction for trying civil suits when acting as a civil Court and we see no justification in law for placing any fetters upon it when acting in the exercise of its jurisdiction under Section 79(3). Nor are we impressed by the argument that the law could not have intended to afford such a wide jurisdiction upon the Court acting under Section 79(3) because it did not provide for any appeal from an order passed in the exercise of that jurisdiction and also because it is always open to a party to move the civil Court for the determination of the validity or otherwise of a meeting. These considerations do not in our judgment justify the contention that the jurisdiction of the Court under Section 79(3) must be of a very limited character. We may also point out that it may be said on the other hand, and perhaps with greater reason, that the law might well have presumed that the members of a company would be anxious to prevent the normal running of their business from being brought to a standstill by protracted litigation in the civil Court and to have any disputes calculated to interfere with that business speedily settled by resorting to the Court upon which jurisdiction has especially been conferred under the Companies Act. It may be open to any party to seek relief from the civil Court, but that is no reason for holding that the jurisdiction of the Court especially empowered to deal with company matters is in any respect fetterred or limited. We, therefore, hold that where upon the jurisdiction of the Court under Section 79(3) being invoked by a party a question is raised as to the validity or otherwise of a meeting, the Court has jurisdiction to determine that question. It follows, therefore, that the order passed by the learned District Judge at Cawnpore on 26th April, 1946, confirming the previous ex parte order passed by him on 28th March, 1946, in pursuance of which the annual general meeting of the company was called and held on 27th April, 1946, was entirely within his jurisdiction and the petitioner is not entitled to any relief. The petition in revision is accordingly dismissed with costs.
[1949]
19 COMP. CAS. 175 (MAD.)
HIGH COURT OF MADRAS
v.
SATYANARAYANA RAO AND
PANCHAPAKESA SASTRI, JJ.
V.C. Gopalaratnam and N. Rajagopala Aiyangar, for the Appellant.
O.T.G. Nambiar instructed by King and Partridge and L.V. Krishnaswami Aiyar, for the Respondent.
This appeal arises out of an action by the members of the Madras Race Club. The action was tried on the original side by Bell, J., and by his judgment he dismissed the suit of the plaintiffs. Hence this appeal by the plaintiffs.
The Madras Race Club is a body corporate registered under the Indian Companies Act of 1913 before it was amended in 1936. The object of the Club, as its name indicates, is to carry on the business of a race club and to provide certain amenities to its members. The Memorandum of Association and the Articles of Association are contained in Ex. P-29. The Memorandum of Association prohibits the division of profits by way of dividend amongst the members, and they have to be utilised only for the purpose of the club. There are two classes of members, namely, club members and stand members. There are about 260 club members, and they alone are entitled to vote, while the stand members have certain other privileges, but not the right to vote. The management of the business of the Club is vested in six Stewards who must be club members. They occupy the position of the directors of a company and discharge similar functions in respect of the Club. The Articles provide as usual for the qualification for Stewards, for their retirement by rotation, filling up of vacancies, and also their powers and duties. After every annual general meeting of the club the senior Steward is elected at the first meeting of the Stewards, who is to preside at every meeting of the Stewards. The quorum for a meeting of the Stewards is fixed at three. They are charged with the duty of calling for a general meeting annually and also, on the requisition of a prescribed number of members, calling for an extraordinary general meeting for special business. Article 50 prescribes the period or notice and the manner of issuing the notice for a general meeting. The senior Steward also presides as chairman at a general meeting. Article 73 lays down the manner of serving notices on members. After the Companies (Amending) Act of 1936 was passed the Articles of this Club were also amended in 1941, and Ex. P-29 contains the articles which were in force in 1947.
Some time in April, 1947, 45 members of the Club sent a requisition to the Club for convening an extraordinary general meeting, inter alia, to appoint a committee to consider the revision of the Articles of Association and to suggest changes wherever necessary (Ex. P-1). In pursuance of this, an extraordinary general meeting was duly held on the 21st of June, 1947, and in that meeting a special committee of seven members besides the Stewards, who were ex officio members thereof, was constituted for the specific purpose of the revision of the Articles of Association and the suggestion of changes. They were required to submit a report on that behalf by the end of September, 1947, and it was also decided that a meeting of the general body should be called for not later than 31st of October,. 1947, for the consideration of the report. The special committee had several sittings, and in the meeting of the 13th of September, 1947, they proposed several alterations to the Articles, the most important of which were that the management of the business of the Club should vest in a managing committee of 12 members instead of the Stewards, and that from among the members of the managing committee a senior Steward and five other Stewards should be elected, who should be solely responsible for the racing. They also recommended the abolition of the proxy system of voting. Under a licence granted by the Central Government under Section 26 (2) of the Indian Companies Act, 1913, the Club was permitted to be registered as a company with a limited liability without the addition of the word "limited" to its name. The Provincial Government on whom the duty of issuing licences subsequently devolved framed regulations under the said section governing the issue of licences (vide Development Department Notification, Fort St. George, March 6th, 1937, G.O. No. 549). Under clause 8 of this Notification, "If the Memorandum and Articles of Association are altered without the previous approval of the Government having been obtained in that behalf, the licence granted by the Government shall be deemed to have become void."
In view of this requirement the special committee directed the solicitors of the Club to draft the necessary resolutions in proper form altering the Articles of Association in the manner suggested, and at a subsequent meeting of the 26th of September, 1947, in which some more alterations were suggested, the Club's solicitors were also requested to further revise the draft and send it to the Government for approval. The solicitors sent the revised draft to the Government on the 29th of September, 1947 (Ex. P-5). On the 11th of October, 1947, the Government approved the revised Articles of Association proposed by the Club but with one modification relating to Article 69. The Government also pointed out that the revised Articles of Association should be adopted by passing a special resolution under Section 81(2) of the Indian Companies Act. Section 20 of the Indian Companies Act also requires a special resolution to alter or add to the existing Articles. On the 15th of October, 1947, the special committee at its meeting considered the order of the Government and resolved that an extraordinary general meeting of the members be convened on the 7th of November, 1947, at 6-30 p.m. to consider the report and pass a special resolution and requested the solicitor, Mr. Small, to draft the resolutions. The committee was adjourned to meet again at 5 p.m. on 7th November, 1947 (P-1). At this meeting of the special committee were present nine members of whom one was the senior Steward, Mr. Annamalai Chettiar, and two Stewards. On the 16th of October, notice was issued to the Club members of the extraordinary general meeting on the 7th of November, 1947, at 6-30 p.m. The contents of this notice (P-8) are material for the decision of this case, and therefore it is necessary to set them out in extenso:—
"Notice hereby is given, that an Extraordinary General Meeting of Club members of the Madras Race Club will be held at the Members' Stand of the Club at Guindy on Friday the 7th day of November, 1947, at 6-30 o'clock in the evening for the following purpose:—
(1) To receive the report of the Chairman of the Special Committee constituted to revise the Articles of Association of the Club and to suggest developments to the Club's present amenities;
(2) To consider and, if thought fit, to pass as a Special Resolution That the Article in the printed document submitted to the meeting, and for the purpose of identification subscribed by the Chairman there of be approved, with or without modification, and adopted as the Articles of Association of the Club in substitution for and to the exclusion of all the existing Articles of Association thereof".
(3) If the said Special Resolution be duly passed ,then to elect twelve Club members as the first Managing Committee of the Club to hold office until the Annual General Meeting of Club Members to be held in November, 1948; and
(4) To consider the Special Committee's
following proposals for development of the Club's amenities and to give
directions to the Managing Committee thereon:—
(a) That the present lunch room be furnished suitably to serve as a lounge for Club members:
(b) That the northern corner of the verandah adjoining the lunch room be equipped to serve as a card room for Club members;
(c) That the present billiards room be reserved for use only by Club members when a separate recreation room can be provided for trainers and jockeys; and
(d) That arrangement be made to serve Refreshments also.
N.B.—(1) A print of the proposed amended Articles of Association will follow shortly.
(2) Each nomination of a Club member as a candidate for election to the Managing Committee should be signed by two Club members and sent to the Secretary fourteen clear days before the date of meeting."
This notice, it is common ground, was posted at Guindy on the 16th October. About the same time notice of the annual general meeting of the Club fixed to 18th November, 1947, was also issued to the members. The extraordinary general meeting was also advertised in the Hindu of 18th October, 1947, (Ex. P-10) and the Madras Mail of even date (Ex. P-11.) In pursuance of this notice, Ex. P-8, the Club received 24 nominations for the membership of the Managing Committee which was communicated to the members by notice, dated 27th October, 1947 (Ex. P-12). By 29th October, 1947, the Club received notice of amendments to the Articles of Association from Messrs. T.T. Krishnamachari, G. Narasimham, A.R. Srinivasan and the Raja of Vizianagaram, and these were notified to the members by a notice of 29th October, 1947 (Ex. P-13). On the 21st of October, 1947 (it is admitted before us by both sides, though there is no evidence regarding it) the Club sent the printed draft of the proposed amendments to the Articles of Association (Ex. P-30) to all the members. On the 5th of November, 1947, the Government of Madras suggested that the Articles of Association might be suitably amended to eliminate voting by proxy and to delete Articles 55, 56 and 57 altogether with a view to make the members of the Race Club take full responsibility for the proper conduct of racing. In the light of this suggestion the Government wanted a fresh draft on those lines, or alternatively that the existing Articles suitably altered and approved by the general body be submitted to them through the Registrar of Joint Stock Companies, Madras, for approval before "it is finalised". At 5 p.m. on the 7th November, 1947, the Special Co a-mittee met and considered the proposal of the Government. They passed at that meeting two resolutions:
"(1) Resolved that the letter be placed before
the General Body Meeting to be held at 6-30 p.m. with the recommendation that
the suggestion of the Government be accepted; and
(2) Resolved also that this Committee recommends that the spirit of the letter of the Government of Madras be observed by refraining from using proxies at today's meeting and subsequent meetings as well as the Annual General Body Meeting."
These resolutions were passed, one member Mr. Annamalai Chettiar dissenting. The extraordinary general body meeting was held on the 7th November, 1947, at 6-30 p.m. which was presided over by Mr. P. Natesan as the senior Steward, Mr. Annamalai Chettiar expressing his unwillingness to take the chair. What exactly happened at that meeting is a matter of serious controversy between the parties, and the fate of this case mostly depends upon our decision on this point. What purported to be the proceedings of the meeting of the 7th November were communicated by the Club to the members, and the plaintiffs filed the communication received by them, which is marked as Ex. P-18. The solicitors of the Club by their letter of 10th November, 1947, communicated to the Registrar of Joint Stock Companies the proposed revised Articles which, it was alleged, were adopted at the meeting of the 7th November. The Registrar of Joint Stock Companies through a telephonic message of 14th of November, 1947, asked the solicitors whether the revised set of Articles was adopted by a special resolution at the meeting of the 7th, and that, if so, a copy of the resolution and a copy of the notice convening the meeting should be sent to him for reference. It was also pointed out by the Registrar that if the Articles were adopted by a special resolution, prior sanction of the Government ought to have been obtained and the Government might have to be addressed to condone the omission. To this the solicitors replied by their letter of 15th November, 1947, pointing out that there was no such necessity. The general meeting was held on the 18th at which some formal business was transacted, and the members were informed that there was no necessity to elect the Stewards as at the first meeting of the Managing Committee held on 10th of November, 1947, Mr. P. Natesan was elected Chairman and five persons were elected as Stewards. Mr. Annamalai Chettiar wrote to the Registrar of Joint Stock Companies on the 18th (Ex. P-20) that the proposed special resolution had not been put to the meeting at all by the Chairman, Mr. Natesan, on the 7th of November, 1947, and that it had not been passed by the requisite statutory majority. The present plaint-iris issued through their lawyers a notice to the Club questioning the legality of the meeting of the 7th November and of the election of the members of the Managing Committee on that date on the grounds elaborately specified in that notice including the fundamental objection that the special resolution was not moved or put before the meeting and was not voted upon. The notice demanded the Managing Committee to accept the invalidity of the proceedings of the meeting of 7th November failing which it was intimated a suit would be instituted for appropriate reliefs. The reply of the Club is Ex. P-23, dated 25th of November, 1947, and was sent through their solicitors. In this the allegations in the notice Ex. P-21 were denied.
This was followed by the present suit which was filed on the 8th of December, 1947, by two members of the Club for themselves and on behalf of the other members of the Club other than those who were originally impleaded as defendants in the suit after obtaining the necessary permission under Order 1, Rule 8, Civil Procedure Code. The first defendant is the Race Club. Defendants 2 to 13 are members of the Club who were elected as members of the Managing Committee. The suit was originally filed impleading only defendants 1 to 13. Defendants 14 to 90 who are some of the other members of the Club were impleaded as parties at their own request, as they wanted publicly to dissociate themselves from the plaintiffs.
The main reliefs claimed in the plaint were: (1) a declaration that the meeting of the general body of the members of the Club held on the 7th November, 1947, was invalid and void and that all business transacted thereat was invalid, null and void; (2) a declaration that the Managing Committee comprising defendants 2 to 13 purported to have been elected at the said meeting was not lawfully or validly elected and were not entitled to assume office; (3) a declaration that the proposed amended Articles have not been duly passed and are ineffective; (4) a declaration that the Stewards who were in office prior to 7th November, 1947, still continue to be in office and are the persons legally and lawfully entitled to be in management and control of the Club; and (5) a declaration that the proceedings of the general meeting of the 18th of November, 1947, are illegal, invalid and void. There is also a relief for an injunction against defenants 2 to 13.
The grounds on which the reliefs claimed in the plaint were sought to be sustained before us may be catalogued as follows: (1) The meeting of the 7th of November, 1947, was not convened by the proper authority under the Articles, viz., the Stewards. (2) The notice of the meeting (Ex. P-8) which was posted on the 16th October, 1947, contravened the provision of Section 81 (2) of the Indian Companies Act as 21 days were not allowed between the date of the meeting and the receipt of the notice. (3) The notice of the meeting did not contain the necessary particulars as it did not comply with the requirement that the general nature of the business should be indicated in it, the proposed amended Articles of Association not having been sent along with the notice so as to give notice thereof of 21 clear days. (4) Item No, 2 in the agenda, the special resolution relating to the proposed amendment of the Articles, was not moved or put before the meeting for being voted upon. (5) In any event even if the voting of 66 members at that meeting was in support of the special resolution, that did not constitute the statutory three-fourths majority of the members present, who numbered according to the plaintiffs 105. (6) The amendments moved were not within the scope and ambit of the original resolution and could not have been validly made. (7) The election of the 12 members of the Managing Committee was illegal as the notice regarding it was insufficient as regards the time and was also defective as the members were not informed of the qualifications and the functions of the Managing Committee before they were called upon to submit nominations. (8) The election of the entire Managing Committee was illegal, or in any event that of Mr. Natesan, was clearly illegal as he was disqualified to preside at the meeting, being himself a candidate for election to the Managing Committee. (9) If the meeting of 7th November, 1947, was void, the annual general meeting of 18th November, 1947, was equally void, as proxies were illegally excluded.
These charges are of course denied by defendants 2 to 8, 10, 12 and 13. In paragraph 5 ot the written statement filed on behalf of the first defendant, the first defendant stated with reference to the allegations in paragraph 6 of the plaint that although 105 members signed the attendance sheet during the period of the meeting and 49 proxies were registered, only 66 members were actually present at the time when the resolution to adopt the new articles was put to vote. The other defendants 2 to 8, 10, 12 and 13 filed a separate written statement practically adopting the written statement filed on behalf of the first defendant. Defendant 9 seems to have signed the written statement of defendants 2 to 8, 10, 12 and 13 but without looking into the written statement filed on behalf of the first defendant. Mr. Vijayaraghavan, the 9th defendant, wanted to see the written statement of the first defendant before their written statement was actually filed into Court. For this purpose he wrote to his solicitors on the 10th of January, 1948, communicating his intention to see the written statement of the first defendant before the written statement bearing his signature was actually put into Court. To this the reply of the solicitors dated 12th January, 1947, was that their written statement was filed in Court on that day as Mr. Small was otherwise engaged that morning and that it was too late to withhold the filing of their written statement. Mr. Vijayaraghavan was informed that the written statement signed by him merely adopted the written statement filed on behalf of the Club. On the 15th January, 1948, Mr. Vijayaraghavan by his letter protested against this action of the solicitors and pointed out that paragraph 5 of the first defendant's written statement was highly misleading and even incorrect. According to him, when the resolution was put to vote at the meeting, 66 persons voted for, one member said he was neutral and about 30 to 35 other members did not vote either way. He pointed out that the statement in paragraph 5 of the written statement of the Club that only 67 members were present at that time was not true and that therefore he could not subscribe to it. After this protest when the written statement of the defendants 2 to 8, 10, 12 and 13 was returned the solicitors scored out his name. Mr. Vijayaraghavan filed a separate written statement engaging another counsel. Mr. Vijayaraghavan in his written statement denied the allegations in paragraph 5 of the written statement, reaffirmed the facts as stated in his letters and left other questions to be decided by the Court. Annamalai Chettiar also filed a separate written statement setting out his contention.
The learned Judge who tried the suit held that though there were some irregularities at the meeting and though he was not prepared to accept it in their entirety the contentions put forward by the Club relating to "waiver", "estoppel" and the like, the plaintiffs had failed to substantiate their contention on the material issues. He was of opinion that there was no illegality in the proceedings of the meeting of 7th November, and that the special resolution was validly passed at that meeting. He characterised the action as a case of "a storm in a tea cup" and dismissed the plaintiffs' suit.
At the outset it is necessary to consider the question whether the suit as framed is maintainable. The action was brought by two plaintiffs who are the members of the Club for themselves and also on behalf of the other members after obtaining the requisite leave under Order 1, Rule 8, Civil Procedure Code. The learned Judge was of opinion that the suit was incompetent as what is known as the rule in Foss v. Harbottle applied to the case. The rule in Foss v. Harbottle is that a Court will not interfere with the ordinary management of a company acting within its powers and has no jurisdiction to do so at the instance of the shareholders. A shareholder is entitled to institute a suit to enforce his individual rights against the company such as his right to vote, or his right to stand as a director of a company at an election. If the shareholder however intends to obtain redress in respect of a wrong done to the company or to recover monies as damages alleged to be due to the company, the action should ordinarily be brought by the company itself. In order therefore to enable a shareholder to institute a suit in the name of the company, in such a case, there must be the sanction of the majority for corporate action. In ordinary cases, therefore, this principle implies the supremacy of the will of the majority. It is open to a majority always to set right a thing which was done by the majority either illegally or irregularly, if the thing complained of was one which the majority of the company were entitled to do legally and was within the powers of the company by calling a fresh meeting. That is the reason why in such cases the Court refuses to interfere at the instance of a shareholder even in a representative action brought by him. If the majority however act in an oppressive manner, it is not as if the minority are without a remedy. This possibility was foreseen by Sir James Wigram, Vice-Chancellor who delivered the judgment in Foss v. Harbottle. At page 492 the Vice-Chancellor says:—
"If a case should arise of injury to a corporation by some of its members, for which no adequate remedy remained, except that of a suit by individual corporators in their private characters and asking in such character the protection of those rights to which in their corporate character they were entitled, I cannot but think that the principle so forcibly laid down by Lord Cottenham in Wallwonh v. Holt , and other cases would apply and the claims of justice would be found superior to any difficulties arising out of technical rules respecting the mode in which corporations are required to sue."
In such a case where action by a shareholder is permitted, the plaintiffs would not have a larger right to relief than if the company itself were the plaintiff and are not entitled to complain of acts which are valid, if done with the consent of the majority of the shareholders pr are capable of ratification by the majority.
The later decisions however have recognised exceptions to what is conveniently known as the rule in Foss v. Harbottle. James, L.J. in MacDougall v. Gardiner considered the rule and stated the exceptions in the following passages at page 21 which has since become classic:—
"I think it is of the utmost importance in all these companies that the rule which is well known in this Court as the rule in Mozley v. Alston and Lord v. Copper Miners Co. and Foss v Harbottle ,should be always adhered to ; that is to say, that nothing connected with internal disputes between the shareholders is to be made the subject of a bill by some one shareholder on behalf of himself and others, unless there be something illegal, oppressive, or fraudulent—unless there is something ultra vires on the part of the company qua company, or on the part of the majority of the company, so that they are not fit persons to determine it ; but that every litigation must be in the name of the company, if the company really desire it."
From this it follows that a shareholder or shareholders are entitled to bring an action (1) in respect of matters which are ultra vires the company and which the majority of shareholders were incapable of sanctioning (see Burland v. Earle); (2) where the act complained of constitutes a fraud on the minority; and (3) where the action of the majority is illegal. The decisions in Baillie v. Oriental Telephone and Electric Co. Lte., and Cotter v. National Union of Seamen, recognised a fourth exception where a special resolution was required by the articles of the company and the company obtained the assent of the majority to such special resolution by a trick, or even where a company authorised to do a particular thing only by a special resolution does it without a special resolution duly passed as in such a case to deny a right of suit to the shareholders without using the name of the company would in effect result in the company doing the thing by an ordinary resolution. In other words, this means that where a special resolution was improperly passed, if the rule that the company alone is the proper plaintiff to institute a suit questioning such resolution were to be enforced, the shareholders by a bare majority could defeat and prevent the minority from using the name of the company. The result of such a course would be indirectly to uphold the validity of a special resolution which was otherwise invalid. To avoid this result this exception was recognised in the two decisions. The rule and the exceptions thereto are also stated in Palmer's Company Law, 17th Ed., at pages 236 and 237 and Halsbury's Laws of England (2nd Ed.), Vol. 5, page 445, paragraph 728. The appellants' learned advocate placed before us the authorities bearing on the rule and the exceptions, and the respondents learned advocate did not challenge the position contended for by the appellant. It is needless to consider the authorities in detail as the substance of the decisions is as stated above.
The attempt of the learned advocate for the appellants is to bring the present case under the two exceptions, namely, that the acts complained of are illegal acts, and secondly that if the special resolution was not passed or was passed illegally the effect of applying the rule in Foss v. Harbottle to this case would be indirectly to sanction by an ordinary resolution that which the law requires to be passed only by a special resolution. For reasons given below, in our judgment the present suit falls within these two exceptions and that it is maintainable.
It will be convenient to deal first with the objection that the' special resolution, item 2 in the agenda, was not put to the meeting and was not passed, for this question goes to the root of the matter. If we find that no special resolution was passed at the meeting of the 7th November, 1947, the whole proceedings of that meeting fall to the ground. Section 20 of the Indian Companies Act requires a special resolution to alter the articles. If there was no special resolution sanctioning the alteration, the action of the Club in altering the Articles without authority would be void and the alterations would have no legal effect. It is unfortunate that in this case notwithstanding the presence of the solicitor of the Club, Mr. Small, at the proceedings of the meeting and notwithstanding the fact that the Chairman of the meeting and shareholders were men of status in life there is no authentic record of the proceedings of the meeting. This has made our task more difficult. ' According to the plaintiffs one and only one resolution was put before the meeting on that day, that is, resolution No. 1 of the special committee in Exhibit P-16, and that it was this resolution that was passed by 66 voting for, and one remaining neutral out of the members present. The plaintiffs categorically asserted in the plaint that the special resolution (items in the agenda) was not put to the meeting and was not passed. This of course was denied by the defendants. According to the version of the defendants the special resolution alone was put to the meeting, and it was in respect of that that the counting of the votes took place and it was carried by 66 votes, one remaining neutral. According to both versions it would be clear from the evidence that there was only one counting of the votes at which it was found that 66 were in favour of the resolution, whether it was the resolution of the special committee that was put to the meeting or the special resolution itself. As regard the number of persons; present at that sole count, there is also conflicting evidence,
[After discussing the evidence bearing on this question their Lordships concluded.]
We, therefore, hold agreeing with the contention of the plaintiffs that the special resolution was not put to the meeting and was not passed.
If the special resolution was, in: fact, pat to the meeting a passed by 66 voting for, we have no doubt on the evidence adduced even by the plaintiffs that there were no more than about 10 or 20, members who did not take part in the voting and therefore the 66 would constitute the required majority for declaring the resolution carried. In, view, of the finding that the special resolution was not passed, the amendment of the Articles and the consequent election of the members of the Managing Committee are wholly void.
This really disposes of the suit in favour .of the plaintiffs. In this view it may not be necessary to consider the other objections to the meeting. However we will deal with the other objections also, as in our opinion, some of them are well founded.
We now proceed to consider them in the order in which they wore enumerated earlier. The first of the objections is that the meeting was not convened by the proper authority. The Stewards constitute the, authority under the articles (Article 49) to call for an extraordinary-general meeting as well as the annual general meetings. The quorum for the meeting of Stewards is fixed at three. The notice, Exhibit P-8 was signed by the Secretary. It is common ground that there was no separate meeting of the Stewards in which "they decided that an extra" ordinary general meeting should be convened on the 7th November. No minutes of any such meeting have been placed on record. Of the six Stewards Mr. Lawrence died some time ago, Mr. Chidambaram Chettiar was out of India and according to Mr. Small, Mr. Hume was at the time of the notice in Ceylon, though he had no personal knowledge of it. Mr. Hume was present on the 7th both at the special committee and also at the extraordinary., general meeting. It may that Mr. Hume also was not available at the time Exhibit P-8 was issuee. The notice Exhibit P-8 did not indicate the authority under which the meeting was called. The extraordinary general, meeting decided on the 21st June, 1947 (Exhibit P-2), that after the report of the special committee then constituted for revising the Articles was submitted, a meeting of the general body should be called for not later than 31st October, 1947, for the consideration of the report. This authority would not avail, because the time fixed had expired and the meeting was subsequently convened only 6n the 7th November, 1947. The. defendants relied on Exhibit P-7 which contains a resolution of the special committee passed on 15th October., 1947, that an extraordinary general body meeting should be convened on the 7th November, 1947. This meeting of the special committee was attended by 9 members of whom 3 were Stewards who were ex ojficio members of the special Committee. As three of the Stewards who Constituted the quorum for a meeting of the Stewards and who were the only persons available in India at that time took part in the special committee meeting, it is urged on behalf of the defendants that the resolution of that meeting may be deemed to be a resolution of the Stewards and therefore justified the calling of the meeting. Alternatively, it is also contended that in any event this is at the most an irregularity and not an illegality which justifies the setting aside of the resolution. If a general meeting is convened by the Secretary without proper authority it is not valid. See Hay craft Gold Reduction and Mining Company, In re and State pf Wyoming Syndicate, In re. Where the directors however met aad decided to convene a general meeting but the meeting of the directors itself was not properly convened, it was held in Browne v. La Trinidad, that by reason of the irregularity of the Board meeting the general Meeting was not incapacitated from acting. In the case in Harhenv. Phillips a Board meeting of the directors was held which decided to convene an extraordinary general meeting. At the Board meeting the plaintiffs who were the directors were refused admittance to the meeting by the Secretary under the direction of persons in possession of the Board room. The plaintiffs protested and withdrew. The persons in possession of the Board room purporting to act as a Board adjourned their meeting to the next day to a different place, the office of their solicitor, and on the requisition presented to the meeting on the next day which was attended by three of the defendants, appointed a special committee to convene an extraordinary general meeting. At the meeting of the Board there was unquestionably a person who took part in the meeting and who was not a director. It was held that the meeting of the Board of Directors on the two days were unlawful and that everything that was done at those meetings was invalid. The. consequence was that the appointment of the special committee and the notice convening the meeting were also invalid. It was pointed put in answer to an argument that there was a quorum of the directors and therefore the meeting was lawful and that it was not enough that there was a quorum as the lawfully constituted directors were prevented from attending the meeting. The convening of the meeting, according to this decision, was not a mere ministerial act. The directors have to exercise their discretion and have to fix the time within which and the place at which the meeting should be held, and whether a meeting should at ail be held. In the light of these decisions it is difficult to say that there was a valid meeting of the Stewards. There is no doubt some force in the argument of the respondents that the proceedings of the special committee in which three of the Stewards who were available in India were present may be deemed to be a valid meeting of the Stewards. The objection of the plaintiffs is technical. The mere presence of the other members of the special committee at that meeting may not vitiate the resolution to which the Stewards were a party. We do not however think it necessary to express any final opinion on this question.
The next question for consideration is whether the notice, Ex. P. 8, posted on the 16th October, 1947, complied with the requirement of Section 81, sub-clause (2), of the Indian Companies Act that there should be a notice of "Not less than 21 days." There were 260 Club members of whom 23 were living outside British India, 51 members were absent members and 59 members lived at places which could be served through post after more than a day had elapsed from the date of posting. 127 members were within one day's reach from the date of posting. The notice of the meeting therefore posted on the 16th at Guindy could have been received by less than half the members only on the 17th. More than a day was required at least in respect of 59 members. Excluding therefore the date of service of notice and the date of the meeting there was only an interval of 20 days in respect of 127 members, and a still less interval in the case of others. Section 81(2) of the Indian Companies Act provides:—
"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."
It is obligatory to serve notice of the meeting of a company with a statement of the business to be transacted at the meeting on every member in the manner laid down for service of notice under the Articles. Article 49 of Table A of the Indian Companies Act which is the same as Article 50 of the Articles of the Club lays down;—
"Subject to the provisions of sub-section (2) of Section 81 of the Indian Companies Act, 1913, relating to special resolutions fourteen days' notice at the least (exclusive of the day on which the notice is served or deemed to be served, but inclusive of the day for which notice is given) specifying the place, the day and the hour of meeting and, in case of special business the general nature of that business, shall be given in manner hereinafter mentioned, or in such other manner if any, as may be prescribed by the company in a general meeting to such persons as are under the Indian Companies Act, 1913, or the regulations of the company, entitled to receive such notices from the company; but the accidental omission to give notice to or the non-receipt of notice by any member shall not invalidate the proceedings at any general meeting."
The manner of serving notices is provided by Article 112 of Table A which is the same as Article 73 of Ex. P-29. It states:—
"112. (1) A notice may be given by the company to any member, either personally or by sending it by post to him to his registered address or (if he has no registered address in British India) to the address if any within British India supplied by him to the company for the giving of notice to him.
(2) Where a notice is sent by post, service of the notice shall be deemed to be effected by properly addressing, prepaying and posting a letter containing the notice and, unless the contrary is proved to have been effected at the time at which the letter would be delivered in the ordinary course of post."
It is admitted on behalf of the respondents that if regard be had to the expression "not less than twenty-one days" occurring in Section 81 (2) there should be an interval of 21 clear days and indeed this position could not be disputed as it was established by decisions where similar expressions occurring in the Companies Act and also other statutes were considered. See Railway Sleepers Supply Company, In re, and Rex v. Turner The argument however that was pressed on behalf of the respondents was that the section should be construed in the light of Article 49 of Table A which includes the date of the meeting in cases where only 14 days' notice is required. It was also argued that it was permissible to refer to the Articles for the purposes of ascertaining the intention of the legislature in the body of the Act. In support of this contention the decisions in Barned's Banking Co., In re, Ex parte The Contract Corporation, Lock v. Queensland Investment and Land Mortgage Company, and Halsbury's Laws of England. Vol. 5, Second Edition, Page 292, para. 504 were referred to. There cattle no dispute that the principle of construction contended for On behalf of the respondents is correct. As Article 49 is expressly made subject to the provisions of sub-section (2) of Section 81 it cannot be inferred that in construing that sub-section the Legislature intended to include the date of the meeting within the period of 21 days. It cannot be assumed that because that date was included, in other cases the Legislature intended to include it also in case of special resolutions covered by sub-section (2) of Section 81. The very fact that a specific reference is made in Article 49 to include the date of the meeting within 14 days in cases in which a notice of 14 days is required is a clear indication that it was not intended to apply to cases of meetings which require 21 days' notice. Under the corresponding provisions of the English Companies Act of 1929 the Court of Chancery had to consider a similar question. Sub-section (2) of Section 117 of the English Act corresponds to sub-section (2) of Section 81 of the Indian Act, and Article 42, of the English Act corresponds to our Article 49. In the case reported in Hector Whaling Limited, In re a notice convening an extraordinary general meeting of the company on 30th May, 1935, was dated 8th May, 1935, and was posted on that day. By virtue of the Articles of Association of the company the notice is deemed to have been served on the following day, that is, 9th May, 1935. Excluding the date of the meeting it would be noticed that in that case the interval was only 20 days. Article 138 of the company in question stated:—
"Any notice or other document if served by post shall be deemed to have been served on the day following that on which the letter containing the same is put into the post, and in proving such service it shall be sufficient to prove that the letter containing the notice or document was properly addressed and put into the post office as a prepaid letter or prepaid registered letter as the case may be."
On the authority of the decisions in Rex v. Turner and Chambers v Sniiih, Bennett, J., held that the expression "not less than twenty-one days’ notice" contained in sub-section (2) of Section 117 meant 21 clear days exclusive of the day of service and exclusive also of the day on which the meeting was to, be held. It was also pointed out that It was not open by the Articles of Association to curtail the length of time which the statute had fixed. No doubt in that decision, specific reference was not made to the language of Article 42, and the contention now advanced was not raised and considered. It cannot however be assumed that the counsel who argued the case and the learned Judge who decided it were not aware of the language of Article 42. In view of the clear language of the./article the point does; not admit of any doubt, and perhaps that was the reason why the contention was not raised as of no substance.
It was next argued that in any event we should count 21 days from the date of posting, and that if that was done, there was an interval of clear 21, days even if the date of the meeting was excluded. The argument, in our opinion, is opposed to the clear language of Article 112, The Article states that, unless the contrary is proved the notice must be deemed to have been effected at, the time at which the letter would -be delivered in the ordinary course of post, and this would be the 17th in the case of at least half the number of the members. This extraordinary contention is not supported by any decisions. Form No VIII in which a special resolution has to be communicated to the; Registrar of Joint Stock Companies was relied on. In the form one of the columns is "Date of dispatch of notice specifying the intention to propose the resolution as a special resolution or extraordinary resolution." We do not think that it is permissible to rely on the language of the form to interpret the section and the article. The date of the meeting and the date of service of notice are therefore to be excluded, and in-between the dates there should be an interval of 21 days, The notice issued to all the members therefore was inadequate and did not comply with the statutory requirement and is therefore illegal. The meeting therefore was not legally convened.
The next branch of argument on behalf of the respondents in., this part of the case was that as none of the members including the plaintiffs, who though absent appointed proxies on their behalf, objected at the time of the, meeting, it must, therefore be deemed that the members Present either in person or by proxy had waived the objection was not specifically raised in the, written statement nor in, the issues. All that was said in paragraph 3 of the written statement was that the plaintiffs had revived the notice pf the meeting iii due time arid raised no objection (to the validity of the notice, at, any time or about, the meeting though they were present by proxy at the meeting. Issue 3 raises, in a general form the question whether the, plaintiffs were entitled to question the validity of the notice of the meeting, or the proceedings of the meeting at the general body of the 7th .November, 1947, as stated in paragraph 3 of the written statement. As the. facts have been pleaded in the. written statement, though the point was not specifically raised in the form of waiver, we thought that 'the respondents should be allowed to argue the question. The respondents wanted also to raise a point based on the proviso to sub-section (2) of Section 81 but as it was nowhere raised we refused to grant them permission to raise and argue it for the first time in appeal. In 31 Halsbury, 2nd Edition at page 559 it is stated that, "a statutory right which is granted as a privilege may be waived either altogether or in a particular case."
If the plaintiffs had waived their right to question the legality of the notice, it is urged that they are precluded from maintaining the suit not only on their behalf but also on behalf of other members. Strong reliance was placed on the decision in Burt v. British Nation Life Assurance Association, where it was held that a plaintiff who has a right to complain of an act done to a numerous society of which he is a member, is entitled to sue on behalf of himself and all others similarly interested, though no other may wish to sue, so although there are a hundred who wish and are entitled to sue, still, if they sue by a plaintiff who is personally precluded from suing, the suit cannot proceed, although other persons on whose behalf the suit was instituted might maintain the action as plaintiffs. The question therefore resolves itself into this, namely, whether in view of the imperative provision regarding the notice in Section 81 (2) it is open to the plaintiffs to waive their right to object to an illegality, the right being certainly not their personal right but a right belonging to them in their corporate character. The proviso to Section 117(2) of the English Act was added for the first time in 1929 in view of the decision in Oxford Motor Co., in re, which decided that it was competent for the shareholders of the company acting together to waive the formalities required by Section 69 of the Companies (Consolidation) Act, 1908, as to notice of intention to propose a resolution as an extraordinary resolution. In that case all the shareholders met and passed a resolution without objection and it was held that the want of notice could be waived. 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 establishment of all the members to wave 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 valid meeting. The plaintiffs therefore are not precluded form raising the contention that the notice contravened the provisions of sub-section (2) of Section 81.
The next objection is that the notice was insufficient, in that it did not give full particulars of the nature of the business. Under the articles the notice should indicate the general nature of the business intended to be transacted at the meeting. The draft proposed amendments to the Articles of Association did not accompany the notice and were if fact posted only on the ,21st October, and therefore must have been received on the 22nd., On this question there is no evidence on record, but it was agreed before us by the learned advocates appearing for the appellants and the respondents that the printed draft was posted on the 21st October. It is therefore urged that the notice did not indicate the general nature of the business. We are not prepared however to agree with this contention. It was on the initiative of the general body that a special committee was appointed to consider the amendments, if any, to the Articles of Association. The notice clearly stated that a print of the proposed amended Articles of Association will follow shortly. From the 22nd to 7th of November the members had ample time to consider the proposed amended Articles. We do not think that the notice was insufficient and therefore bad on this ground. No useful purpose would be served by referring to the decisions to which our attention was drawn, as the decision of the question would invariably rest on the fact's of each case.
In Palmer's Company Precedents, Part I, at page 1002, it is pointed out that:
"Where a large number of alterations have to be made, it is generally more convenient to adopt a new set of articles altogether. Where this is course is adopted, a copy of the new regulations should life for inspection at the office, and the notice convening the meetings should state the fact; and in some cases it may be deemed expedient to Send printed copies of the proposed new articles with the notices. According to the decision of Kekewich, J., in Normandy v. Ind Coope & Co., the notice should Call attention to any material alterations; and in Baillie v Oriental Telephone and Electric Co., the Court of Appeal held that a notice of a proposed resolution to alter articles involving a large increase in the remuneration of the directors was invalid on the ground that the proposed increase was not fully and frankly disclosed….
The notice should state that a copy of the new articles is enclosed, or that a copy of the proposed new articles may be seen at the company's office."
In this case in the notice it was stated that the proposed articles would be sent shortly, and they had been posted within six days from the date of posting of the notice. In the light of the principles stated above we think that there is substantial compliance with this requirement of law and that the notice was not bad on this ground.
Nor is there any force in the objection that the amendments moved relating to the proxies were not within the scope and ambit of the original resolution. Notice of the amendments was given in Exhibit P-13 by Mr. T. T. Krishnamachari and others, and the Government later pointed out that it would be advisable in the interests of racing that prbxies should be abolished to make the members take active interest in racing. The amendments proposed by Mr. Eswara Aiyar cannot be said to be outside the scope of the original resolution.
The next objection relates to the election of 12 members of the Managing Committee. If our view that the special resolution was not at all moved and the amendments were not passed by a special resolution is correct, the meeting had no authority to elect 12 members to the Managing Committee, as the old articles continued to be in force. Apart from this, we think that the election was illegal, as the notice was not sufficient in the circumstances of the case. Exhibit P-8 was posted on the 16th October, and it required nominations for election to the Managing Committee to be submitted to the Secretary 14 clear days before the date of the meeting. That means, the nominations should be posted by a member either on the 21st October or on the 22nd to reach the Secretary. The members were not made aware of the functions and the duties of the Managing Committee, and in fact they did not receive the proposed alterations earlier than the 22nd, taking the view most favourable to the defendants. It is impossible for the members to make up their mind with no data before them and to submit nominations. Practically they had no valid notice of the election and the election was rushed through at the meeting of the 7th. The election is also invalid on the further ground that Mr. Natesan presided at the meeting. He was himself a candidate for the Managing Committee. There were 24 nominations and 19 actually contested the election. Objection was raised at the meeting that the new rule came into existence only on that day and that nominations were proposed 14 days before the passing of the rule. The chairman had to give a ruling on the question, and he decided in favour of the validity of the nominations including his own. The chairman's ruling may be correct or may be incorrect. Perhaps in view of the decision in Pacific Coast Coal Mines Ltd. v. Arbuthnot, a notice for election of the members of the Managing Committee may retrospectively be validated bypassing a special resolution, but that is not the question. Here is an instance where the chairman was in the position of a quasi-judicial officer, and he had to be a judge in his own cause. There was clearly a conflict between his duty and his interest. In the normal course he should have vacated the chair and requested another member who was not a candidate to take it, and this was not done. That a person cannot be a judge in his own cause is an elementary rule, and if an authority is wanted it is to be found in Rag v. Owens. In Fanagah v. Kernan, it is stated:—
"There is no more sacred maxim of our law than that no man shall be a judge in his own cause, and such force has that maxim that interest constitutes a legal incapacity to a person being a judge in every case ... It is impossible for a Court of law to allow him to exercise the function of presiding at that election of which he could influence the result.
No man can preside at his own election and return himself. See The Queen v. White. These principles are well established, and it is unnecessary to deal with them elaborately. In fact, the respondents' advocate does not dispute the propositions, but contends that those principles apply to meetings other than the meetings of a company. Under the articles provision is made for the appointment of a chairman, and he continues to preside at the meeting whether the meeting is one for transacting ordinary, business or passing a special resolution or for the election of members to the Board, and the mere fact that the chairman is also a candidate for a committee or a Board of Management will not vitiate the proceedings. So ran the argument. No authority in support of this distinction was placed before us, and we do not see any reason for making a distinction between meeting of company and other meetings. The principles above referred to are elementary and are of universal application. We therefore hold that the election of the 12 members of the Managing Committee was illegal, even apart from the question whether the special resolution was put to the meeting and passed or not.
We therefore hold that the special resolution "item 2 in the agenda" was not passed, that the meeting of the 7th November was not legal and that the members of the Managing Committee were not duly elected. From this it follows that the proceedings of the general meeting of 18th November, 1947, are void, and, in any event, the exclusion of proxies at the meeting was not warranted by the articles then in force. Differing therefore form the learned trial Judge we hold that the plaintiffs are entitled to the reliefs asked for.
The appeal is therefore allowed and the decree dismissing the suit is set aside. There will be decree in favour of the plaintiffs as prayed for. The plaintiffs are entitled to the costs of this appeal and the costs of suit, payable by the first defendant. Having regard to the trouble involved and time taken we fix under rule 12 of Order 6 of the High Court Fees Rules, a fee of Rs. 2500 for the plaintiffs advocates in the appeal and Rs. 2,500 for them in the suit.
[1994] 79 COMP. CAS. 53
(BOM)
HIGH COURT OF BOMBAY
v.
Patel Engg. Co. Ltd.
D.R. DHANUKA J.
Notice of Motion No. Nil of 1991, in Suit (Lodging) No. 1924 of 1991
J.I. Mehta with G. E. Vahanvati, Aspi Chinoy and Pratap, instructed by Mulla and Mulla and Craigie, Blunt and Caroe, for the plaintiffs.
I.M. Chagla with J. Avaria and Khambatta, instructed by Bachubhai Nania Co., for defendants Nos. 2 to 6.
S.F. Vajifdar, instructed by Hariani and Co., for defendant No. 1.
D.R. Dhanuka J.—The plaintiffs are shareholders of Patel Engineering Company Limited, the first defendant company in this suit. Defendants Nos. 2 to 8 are also the shareholders of the first defendant company. There are two groups of shareholders in this company who are continuously fighting for its control and management since quite some time, i. e., (1)Y. G. Patel group represented by the plaintiffs, and (2) Pravin Patel group represented by the defendants. Having regard to the verdict of the extraordinary general meeting of the company held on May 8, 1990, under the chairmanship of a retired judge of this court, Shri D. M. Rege, and the realities of the situation, it can be safely stated that the defendants' group is the majority group and the plaintiffs' group is the minority group. On June 24, 1991, the plaintiffs filed this suit seeking to obtain several reliefs against defendants Nos. 2 to 7. By prayer (a) of the plaint, the plaintiffs have prayed that defendants Nos. 2 to 7 be decreed to pay a sum of Rs. 511 lakhs to the first defendant company along with further interest on the sum of Rs. 470 lakhs at 18% per annum from the date of the suit till judgment and, thereafter, till payment and realisation. The plaintiffs have described the action as a derivative action. By prayer (b) of the plaint, the plaintiffs have sought a declaration in the following terms :
"That this court be pleased to declare that defendants Nos. 2 to 7 are not entitled to chair/act as chairman at general meetings of the first defendant company."
These are the only substantive prayers in the suit, the rest of the prayers being for interim reliefs.
By this notice of motion, the plaintiffs have sought a direction from this court to appoint a retired High Court judge or some other fit and proper person to be the chairman of the extraordinary general meeting of the first defendant company scheduled to be held on July 9, 1991. By the said prayer, the plaintiffs have also sought relief to the effect that such independent chairman should address letters to the members of the first defendant company who are alleged to have addressed proxies asking them to confirm in writing to such independent chairman whether they have in fact executed the proxies or not. Prayer (a)(iii) of the notice of motion is too general. By prayer (a)(iv) of the notice of motion, the plaintiffs are seeking appointment of the Court Receiver, High Court, Bombay, as the receiver of all the books of account, papers, documents and records of the first defendant company including those pertaining to the Doha arbitration claim (and in particular correspondence exchanged between the first defendant company and the ninth defendant and/or the Government of Qatar) as also all statutory records and proxies wherever located, with all powers under Order" XL, rule 1 of the Code of Civil Procedure.
When an application for ad interim relief was made to me on behalf of the plaintiffs, I decided to grant an opportunity to the contesting defendants to file their affidavits, if any, to oppose the application by Friday, June 28, 1991, and fixed the application for hearing on July 1, 1991. This application was extensively argued by learned counsel for the parties on July 1, 1991, and July 2, 1991. Having regard to the citation of a number of authorities and the length of the arguments, I had to reserve my orders and the matter was kept today for dictating orders.
This notice of motion involves a question of law as to whether the civil court has inherent jurisdiction to appoint a chairman to conduct a meeting already called by the company in pursuance of a requisition served on it in the absence of any enabling power under the Companies Act, 1956, particularly when the articles of association of the company make the necessary provisions in respect thereof. The questions raised pertain to the subject of corporate democracy, doctrine of internal management, rule of supremacy of majority coupled with exceptions thereto and the power of the court to interfere with the conduct of company meetings. This notice of motion involves consideration of the question as to the power of the civil court to grant interlocutory relief of the kind sought in the absence of prayer for final reliefs in terms thereof or in a situation when prayer (a) of the plaint is in the nature of a money claim and prayer (b) thereof is totally unmaintainable in law.
The facts and circumstances leading to the filing of this suit as explained by counsel on both sides are too many. However, I propose to refer only to such of the facts and such of the documents as, in my opinion, are really germane to the disposal of this application.
The material facts are as under :
(a) Till about June, 1990, Mr. Y. G. Patel group was in management of the first defendant company. Sometime in the year 1963, Mr. Y.G. Patel was appointed as the chairman and managing director of the first defendant company. Sometime in or about the year 1976, Mr. Kishore Patel, son of Mr. Y.G. Patel, was appointed as the chief executive of the first defendant company. Mr. Kishore Patel also held power of attorney from the first defendant company.
(b) During January, 1989, to April, 1989, various persons belonging to Pravin Patel group purchased 29,842 shares of the first defendant company. On May 3, 1989, the board of directors of the first defendant company communicated its decision to the applicants concerned to the effect that the said shares could not be transferred to the name of the transferees as in its opinion such proposed transfer would be prejudicial to the interests of the company and there was an attempt to take over. References were filed before the Company Law Board. The Company Law Board ultimately, directed the first defendant company to effect transfer of the shares. The decision of the Company Law Board is impugned by the persons aggrieved thereby in a writ petition, being Writ Petition No. 2150 of 1991, filed on the appellate side of this court.
(c) Members of Pravin Patel group claim to be in majority having acquired large number of shares, as aforesaid. An attempt was, therefore, made by this group to acquire the control and management of the company in accordance with the norms of corporate democracy. On August 29, 1989, an extraordinary general meeting of the company was held. At the said meeting, five directors nominated by Pravin Patel group were elected. On September 11, 1989, Mr. Kishore Patel belonging to Y.G. Patel group filed Suit No. 6506 of 1989, in the Bombay City Civil Court at Bombay in order to restrain the defendants to the suit from giving effect to the special resolution dated August 29, 1989. On September 14, 1989, one Ratilal Shah, another shareholder, being a supporter of Y.G. Patel group, also filed a similar suit in the city civil court at Bombay. The directors who were elected at the meeting held on August 29, 1989, were restrained from functioning as directors by interim orders passed by the Bombay City Civil Court. The matters came to the High Court in appeal. By an order dated March 23, 26 and 28, 1990, passed in appeals from order, Variava J. allowed the appeals and directed the convening of an extra ordinary general meeting on May 8, 1990, to consider as to whether the resolution dated August 29, 1989, could be ratified and confirmed. Variava J. passed several strictures against the plaintiffs' group in his judgment. This meeting was held under the chairmanship of a retired judge of this court, Shri D. M. Rege. The resolution dated August 29, 1989, was ratified and confirmed. The additional directors nominated by Pravin Patel group took over. The plaintiffs lost control. Pravin Patel group got control of the management of the first defendant company in due course of law after having established their majority. By an order dated May 4, 1990, the Supreme Court dismissed the special leave petition filed by Y.G. Patel group. The order of Variava J. has acquired finality. On June 5, 1990, the annual general meeting of the first defendant company was held. At this meeting also, the directors nominated by the plaintiffs' group could not be elected. The power of attorney granted by defendant No. 1 in favour of Mr. Kishore Patel was revoked. It is not disputed that since about June, 1989, Pravin Patel group is in management of the affairs of the first defendant company. It is not necessary to refer to the large number of litigations which are pending between the parties or which were initiated by the parties against each other or one another in different courts. What I have said above is enough for the purpose of stating the background facts leading to the filing of the present suit.
I shall now state the facts concerning the extraordinary general meeting scheduled to be held on July 9, 1991, in respect whereof the plaintiffs are seeking judicial intervention by this notice of motion.
(a) On April 9, 1991, certain shareholders belonging to Y.G. Patel group served a requisition on the first defendant company calling upon the company to convene an extraordinary general meeting of the company to consider and, if thought fit, to pass various resolutions set out therein as ordinary resolutions. By the said requisition, it was proposed that the following resolutions should be considered at the extraordinary general meeting :
(1) "Resolved that the total number of directors of the company be increased from seven to nine".
(2) "Resolved that Shri Pravin A. Patel a director of the company be removed from the office of the director and that the vacancy caused as a result of removal of the said Shri Pravin A. Patel be not filled up".
(3) "Resolved that Shri Rohit A. Patel a director of the company be removed from the office of the director and that the vacancy caused as a result of removal of the said Shri Rohit A. Patel be not filled up".
(4) "Resolved that Shri Shamit Majumdar a director of the company be removed from the office of the director and that the Vacancy caused as a result of removal of the said Shri Shamit Majmudar be not filed up".
(5) "Resolved that Shri Sukhinder Bagai a director of the company be removed from the office of the director and that Shri Azad N. Parikh be appointed as a director of the company instead of the said Sukhinder Bagai so removed at the meeting".
(6) "Resolved that Shri Kishore Y. Patel be appointed as a director of the company who shall be liable to retire by rotation",
(7) "Resolved that Shri Surendra Jashbhai Patel be appointed as director of the company who shall be liable to retire by rotation".
In the explanatory statement attached to the said requisition, it was stated by the requisitionists that the directors sought to be removed (representing Pravin Patel group) do not reflect the sentiments of the majority of the shareholders of the company and corporate democracy required that the board should have persons of choice of the majority of shareholders of the company. No allegations are to be found in the explanatory statement appended to the said requisition.
(b) On April 29, 1991, the first defendant company issued a notice to its shareholders convening the extraordinary general meeting of the company on May 24, 1991. On May 16, 1991, members of Y.G. Patel group filed a suit in the Bombay City Civil Court at Bombay, numbered as Stamp No. 4382 of 1991, for a direction that the city civil court do appoint a retired judge of the High Court or some other fit and proper person to preside as the chairman of the extraordinary general meeting of the first defendant company to be held on May 24, 1991, including any adjourned date thereof. It was also prayed in the said suit that defendants Nos. 2 to 5, who are four of the directors sought to be removed by the said requisition or any director from that group, be restrained from acting as chairman at that meeting. The said suit is pending. An application for interim relief taken out by way of notice of motion in the said suit- is also pending. In the abovementioned writ petition filed on the appellate side of this court (appellate side Writ Petition No. 2150 of 1991, impugning the decision of the Company Law Board directing the company to transfer the shares in question) a Division Bench of this court consisting of Vaidya J. and myself, passed an order to the effect that the meeting scheduled to be held on May 24, 1991, be held only for the purpose of adjourning the same to July 9, 1991, in order to enable the court to consider the said petition on reopening. The said petition is pending. On May 21, 1991, parties to the suit in the city civil court, who are the very same parties in substance, obtained an order from the Hon'ble Judge, Shri J. M. Patel, to the effect that Mrs. Liliben Pandya, defendant No. 7 in this suit, shall chair the meeting of the company scheduled to be held on May 24, 1991. The Bombay City Civil Court Suit Stamp No. 4353 of 1991, as well as the notice of motion taken out therein are still pending. On June 24, 1991, the plaintiffs have filed this suit. Most of the reliefs claimed in this notice of motion are identical to the reliefs claimed in the city civil court suit referred to hereinabove. The plaintiffs have chosen to continue parallel proceedings in two courts without any justification.
Before detailed arguments on this application were commenced by Mr. J. I. Mehta, learned counsel for the plaintiffs, Mr. I. M. Chagla, learned counsel for the contesting defendants, informed the court that apart from his strong legal views in the matter to the effect that this court has no inherent jurisdiction to appoint a chairman to conduct a meeting of this kind, to cut the matter short, his clients were willing to take a consent order for appointment of an independent chairman as chairman of the meeting, provided no special directions as contemplated in prayer (a)(ii) of the motion were sought. According to learned counsel for the contesting defendants, the chairman of the meeting could not be directed to carry on correspondence with shareholders who had given proxies and the contesting defendants could not be expected to agree to issue of any special directions by the court in terms of prayer (a)(ii) of the motion. Since this offer of Mr. Chagla was not acceptable to Mr. Mehta, the hearing was proceeded with on the merits.
I shall first consider the question as to whether the civil court has inherent jurisdiction to appoint a chairman to conduct a company meeting already convened by the company in pursuance of a requisition.
Article 75 of the articles of association of the company provides that the chairman (if any) of the board of directors shall, if willing, preside as chairman at every general meeting, whether ordinary or extraordinary, but if there be no such chairman, or in case of his absence or refusal, some one of the directors (if any be present) shall be chosen to be chairman of the meeting. Article 76 provides that in certain situations the shareholders present shall choose one of their own members to be the chairman of the meeting. The Companies Act, 1956, provides for holding of statutory meetings, annual general meetings and extraordinary general meetings. Wherever the Legislature thought it fit to empower an independent authority to convene a company meeting, the Legislature has expressly made provisions in that behalf under the Companies Act, 1956. Ii" default is made in holding of an annual general meeting in accordance with section 166, the authority named in section 167 of the Act can convene an annual general meeting of the company. Similarly, if for any reason it is impracticable to call a meeting of the company other than an annual general meeting in any manner in which meetings of the company may be called or to hold or conduct a meeting of the company in the manner prescribed by the Act or the articles, the Company Law Board is empowered to convene a meeting of the company in accordance with the parameters laid down under section 186 of the Companies Act, 1956. Prior to 1974, section 186 of the said Act, conferred powers on the courts to direct the convening of a meeting other than an annual general meeting and issue all ancillary and consequential directions in that behalf. Since 1974, the court has no such power to convene or conduct the company meeting under section 186 of the Act. The Act also empowers the company court to issue directions for holding of meetings of the members, secured creditors and unsecured creditors under section 391 of the Act. The Act confers large powers on the company court to direct convening of meetings under sections 397 and 398 thereof. Articles of association of company bind all the shareholders. The court can issue directions to a company to convene or conduct the meeting in a manner not warranted by articles only when specifically authorised by a statutory provision and not otherwise. It was held at one stage by the High Court of Madras that the court could appoint an independent chairman to conduct a meeting already called by the company under section 186 of the Act. This view was in terms overruled by the Supreme Court in its judgment in R. Rangachari v. S. Suppiah [1975] 45 Comp Cas 641. By this judgment, the Supreme Court reversed the Division Bench judgment of the High Court of Madras against which the appeal was filed before the Supreme Court.
Learned counsel for the plaintiffs frankly conceded that the plaintiffs are not invoking section 186 or any other substantive provisions of the Act. Mr. J. I. Mehta, learned counsel for the plaintiffs, strongly relied on rule 9 of the Companies (Court) Rules, 1959. The said rule reads as under:
"9. Inherent powers of court.—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."
It is well known that these rules were framed by the Supreme Court in exercise of the powers conferred on it by sub-sections (1) and (2) of section 643 of the Companies Act, 1956. Rule 9 of the Companies (Court) Rules must therefore be construed in conjunction with section 643 of the Companies Act, 1956. Section 643 of the said Act has a direct bearing on interpretation and applicability of rule 9 invoked by Mr. Mehta, as stated above. Section 643 of the Companies Act, 1956, enables the Supreme Court to make rules providing for all matters relating to the winding up of companies and for other matters specified therein. It appears to me that section 643(1)(b)(v) of the Act alone is relevant for our purpose. Section 643(1)(b)(v) of the Act reads as under :
"Section 643. (1)(b)(v) generally for all applications to be made to the court under the provisions of this Act."
While considering applications made to the company court under the substantive provisions of the Companies Act, 1956, the company court is entitled to mould the relief and exercise its inherent jurisdiction whenever found necessary to prevent injustice. The court is thus required to address itself to the question as to under which substantive provision of the Companies Act, 1956, the application is made by the applicant. If the application made is found maintainable under some specific substantive provision of the Act, then alone rule 9 of the rules can be pressed into service and not otherwise. In our case, the application made by the plaintiffs is not maintainable under any of the provisions of the Companies Act, 1956. In my judgment, rule 9 of the Companies (Court) Rules cannot therefore be invoked.
I shall now refer to the authorities cited by learned counsel on both sides.
Learned counsel for the plaintiffs relied upon the judgment of the High Court of Madras in the case of Nagappa Chettiar (N. V. R.) v. Madras Race Club [1949] 19 Comp Cas 175. In this case, the plaintiff had filed a declaratory suit impugning the election of defendants Nos. 2 to 13 to the managing committee of the club and impugning also certain resolutions purported to have been passed at certain meetings of members of the club. In this case, the chairman of the meeting himself was one of the candidates. The chairman of the meeting had given a ruling in respect of the validity of his own nomination paper. In paragraph 19 of the judgment, it was observed by the Division Bench of the High Court of Madras that the election of the members of the managing committee was wholly void as no special resolution was passed as required by law. In paragraph 20 of the judgment, the High Court held that in view of no special resolution having been passed, the suit could be straightaway disposed of in favour of the plaintiffs and nothing else survived in the suit. However, the court thought it proper to deal with the other objections also in respect of the said election. In paragraph 29 of its judgment, the Division Bench held that the impugned election was also invalid on the further ground that Mr. Natesan presided at the meeting. It was observed that Mr. Natesan was himself a candidate for the managing committee and he gave a ruling on the question of validity of his own nomination. It was held that the chairman was in the position of a quasi-judicial officer. It was held that it was a case of clear conflict between interest and duty and the principles relied upon by the plaintiffs were principles of universal application. It was, therefore, held by the court as an additional ground of its decision that the impugned election was void. Learned counsel for the plaintiffs submits that on first principles, if one may use that expression, defendants Nos. 2, 3, 4 and 6 cannot be permitted in law to chair the meeting at which resolutions seeking to remove them as directors would be discussed and voted upon. Learned counsel submits that if the resolution passed at a meeting under their chairmanship would be assailable on the principles laid down in the above referred case, there is no reason as to why the plaintiffs should not be able to prevent defendants Nos. 2, 3, 4 and 6 and their supporters from chairing the meeting or getting an independent chairman appointed. The abovereferred judgment of the High Court of Madras was well distinguished by the High Court of Calcutta in Bengal and Assam Investors Ltd. v. J. K. Eastern Industries P. Ltd., AIR 1956 Cal 658 ; [1957] 27 Comp Cas 86. In this case, the shareholders had issued a requisition to call an extraordinary general meeting to consider a proposed resolution for removal of certain persons as directors. In this case, an application was made for an order that the meeting be called in accordance with the directions of the court and the same be conducted in a manner the court deemed fit. In support of the application, learned counsel for the applicant in the above referred Calcutta case relied upon the ratio of the judgment of the Madras High Court in Nagappa's case, AIR 1951 Mad 831. P. B. Mukharji J. of the High Court of Calcutta held that the abovereferred Madras case was clearly distinguishable, as in the case before him the decision would be taken by the shareholders and not by the chairman himself. It was for the shareholders to decide as to whether a particular director should be removed from directorship or not. It was held that accordingly on any view of the matter, the case in which the chairman had given a ruling on the validity of his own nomination had no analogy with the case before him. The learned judge held that merely because there was rivalry between two groups of directors, the court could not be called upon to convene a meeting or conduct the same. After considering the evolution of the company law, the learned judge held that the court could not be required to intervene to convene a company meeting not in the manner prescribed by the Act or by the articles of association of the company and to override the express provisions thereof. I am in complete agreement with the ratio of the abovereferred Calcutta High Court case which is directly on the point. I must, however, add that I do not share the observations made in paragraph 17 of this judgment by Mukharji J. to the effect that the powers then given to the court under section 186 of the Act was unsuitable and irresponsible. Since 1974, the court has no power to convene or conduct a company meeting under section 186 of the Act. In any event, the abovereferred Madras High Court judgment is not an authority for the proposition that the court has power to appoint an independent chairman of a company meeting except in accordance with express statutory provisions made in the Act. It is for the chairman, directors and shareholders to decide as to who will chair the meeting to be held on July 9,1991, in the light of articles of association of the company and the applicable provisions of law. It is possible that the directors sought to be removed will express their unwillingness to chair the meeting and some one else entitled to chair the same would do so in terms of the authorisation under the articles of association of the company.
In my judgment, the ratio of the judgment in Nagappa's case [1949] 19 Comp Cas 175 (Mad), is not "an authority for the proposition that the court has inherent power to appoint chairman of a company meeting or that the court can intervene in these matters except in accordance with express statutory provisions of the Act. Even if it is assumed that defendants Nos. 2, 3, 4 or 6 are not entitled to chair the meeting, one of the others authorised under the articles of association of the company can do so.
Learned counsel for the plaintiffs then relied upon another judgment of the High Court of Madras in V. Selvaraj v. M.H.P. Fund Ltd. [1968] 38 Comp Cas 153. In this case, following an unreported judgment of Ramamurthy J. quoted in paragraph 8 of the judgment, it was held that the court has inherent power to give directions in the matter where there was confusion and pandemonium and it was in the interests of justice to assist the company to perform its statutory duty to hold the annual general meeting which it was not able to hold because of the trouble which it was facing. This judgment is expressly, or at any rate by necessary implication, overruled by a later judgment of the same High Court in T. M. Menon v. Universal Film (India) Pvt. Ltd. [1982] 52 Comp Cas 371. This judgment also takes note of the judgment of the Supreme Court in R. Rangachari's case [1975] 45 Comp Cas 641. I shall now discuss the ratio of the judgment of the High Court of Madras in T.M. Menon v. Universal Film (India) Pvt. Ltd. [1982] 52 Comp Cas 371. The facts of this case appear to be almost identical to the facts of the present case. In this case, an extraordinary general meeting of the shareholders of the company was scheduled to be held on November 26, 1980. In this case, an application was filed under rules 9 and 11(b) of the Companies (Court) Rules, 1959, for appointment of an independent chairman of the court's choice to conduct the said meetings. In this case also, one of the items on the agenda was to consider the resolution for removal of the respondent and his wife as directors of the company. The question before the court was as to whether the application was at all maintainable under the law. Learned counsel for the applicant pressed for appointment of an independent chairman by the court in exercise of its powers under rules 9 and 11(b) of the said Rules. In the alternative, learned counsel for the applicant submitted that at least an "advocate-observer" may be appointed with power to remain present at the meeting of the company. The High Court of Madras, after referring to the Supreme Court judgment in R. Rangachari's case [1975] 45 Comp Cas 641, held that the application made to the court was not maintainable as the court could not exercise its inherent power and induct an outsider in a company meeting which was duly convened beyond what could not be done even under section 186 of the Act. It was argued before the court that the judgment of the Supreme Court in R. Rangachari's case [1975] 45 Comp Cas 641, must be restricted to a case which directly arose under section 186 of the Act alone. On this aspect, the learned judge observed as under (at p. 376) :
"When the Supreme Court has held, by reference to section 186 of the Act, that once a meeting is called by the company, there can be no question of appointment of a chairman to be present for other purposes in a meeting, it is indicative of the approach to be made when an application is filed by a party merely invoking rule 9 of the -Rules ..."
I go one step further in my judgment. Rule 9 of the Rules can be invoked only for the purpose of moulding appropriate relief to be granted, provided the application is shown to be maintainable under substantive provision of the Companies Act, 1956, and not otherwise. In the above-referred judgment of the Madras High Court, the judgment of the same High Court in V. Selvaraj's case [1968] 38 Comp Cas 153, was in terms relied upon in the Division Bench judgment in R. Rangachari's case [1975] 45 Comp Cas 641, which was expressly overruled by the Supreme Court. In T. M. Menon's case [1982] 52 Comp Cas 371, the High Court of Madras held that the application made to the court for appointment of an independent chairman or in the alternative an "advocate-observer" was not maintainable and the court has no inherent power to do so under rule 9. It is axiomatic and well settled that in case the meeting is conducted illegally and illegal resolutions are passed or procedure followed at the meeting is opposed to law, the decisions taken at the meeting can be impugned in appropriate proceedings which may be filed later on.
At this stage it shall be appropriate to refer to the judgment of the High Court of Kerala in Dr. A.M. Zacharia v. Majestic Kuries and Loans (P.) Ltd. [1987] 62 Comp Cas 865. It was held by the High Court of Kerala that the civil court had no inherent power to direct the convening or conducting of a company meeting. In this case, the question before the High Court of Kerala was as to whether the civil court was authorised by law to direct the convening of an annual general meeting of a company. It was held by the High Court of Kerala, after referring to the judgment of the Supreme Court in R. Rangachari's case [1975] 45 Comp Cas 641, and various other judgments, that the civil court had no authority to appoint a commissioner to convene the fifth annual general meeting of the company. I am in respectful agreement with the ratio of the judgments of the High Courts of Calcutta, Madras and Kerala referred to hereinabove. The earlier judgments of the High Court of Madras cited by learned counsel for the plaintiffs are not directly on the point or do not hold the field as stated above.
Mr. J.I. Mehta, learned counsel for the plaintiffs, also relied upon an unreported judgment of brother Choudhari J., dated June 20, 1989, in Notice of Motion No. 1154 of 1989, in Suit No. 1352 of 1989. This judgment was in terms set aside in appeal. I have been shown a copy of the order passed by the Division Bench of this court in appeal and I find that the abovereferred judgment and order were both set aside by the Division Bench. Learned counsel for the plaintiffs has submitted that I should attach weightage to the view expressed by a learned judge of this court in a judgment although set aside in appeal as the appellate order was by consent and it does not therefore state any reason. In this case, brother Choudhari J., expressed the view to the effect that the court always had power to appoint an independent chairman to preside over the meeting of a company. In this case, it was held that the appointment of a chairman by the court was necessary when there are factions among the shareholders. In this case, the learned judge relied upon the judgment of the High Court of Madras in Ananthalakshmi v. T.B.A. mid P. Ltd., [1951] 21 Comp Cas 294, and the judgment in V. Selvaraj's case [1968] 38 Comp Cas 153. With great respect to the learned brother judge, I am in total disagreement with the view expressed by him. In my humble view, it cannot be assumed that the court always has inherent power to appoint an independent chairman of the company meeting when there are factions amongst the shareholders. In my opinion, the provisions of the Companies Act, 1956, and the articles of association of the company hold the field and the court has no power to override the Act or the articles in the garb of exercising powers under rule 9 of the Rules. In my humble opinion, it is also not correct to say that whenever there are two groups amongst the shareholders, the court must appoint an independent chairman and conduct the meeting through its nominee. If that were the law, in every case the court could be called upon to appoint a chairman of the company meeting as existence of rival groups in a company is almost a common feature. In my judgment, the court is required by law to restrict itself to the statutory provisions under the Act. According to me, the judgment of the High Court of Madras in V. Selvaraj's case [1968] 38 Comp Cas 153, stands overruled by the later judgment of the same court in T.M. Menon's case [1982] 52 Comp Cas 371. The judgment of the High Court of Madras in Ananthalakshmi's case [1951] 21 Comp Cas 294 (Mad), also does not hold the field.
It was argued by Mr. Aspi Chinai, learned counsel for the plaintiffs, who supplemented the arguments of Mr. J. I. Mehta at the stage of rejoinder, that prayers (c)(i), (c)(ii) and (c)(iii) of the plaint must be considered as ancillary to prayers (a) and (b) only. Learned counsel submitted that the civil court always has inherent power to grant appropriate interim relief in a civil suit. In my judgment, prayer (b) of the plaint is totally misconceived and is liable to be treated as not maintainable in law. No one can seek a declaration from a civil court debarring a particular person from chairing a meeting of the company which may be held at any point of time. If prayer (c) of the plaint is to be treated as adjunct to prayer (b) of the plaint, ex facie it is not maintainable in law. By prayer (a) of the plaint, the plaintiffs are seeking a money decree in favour of defendant No. 1 and against defendants Nos. 2 to 7. Holding of the extraordinary general meeting on July 9, 1991, has no nexus whatsoever with prayer (a) of the plaint. The plaintiffs ought to have annexed a copy of the requisition dated April 9, 1991, to the plaint. Learned counsel for the plaintiffs was fair enough to tender a copy of the said requisition for perusal of the court. It is for the shareholders to decide as to which particular individual or group enjoys the confidence of the majority. It is not within the power of this court to issue a declaration and disqualify one or the other individual from chairing a meeting of the company irrespective of facts and irrespective of the situation prevailing. In my judgment, a declaration of the kind sought in prayer (b) of the plaint can never be claimed.
Mr. Chagla, learned counsel for the contesting defendants, rightly relied on the judgment of the Supreme Court in Cotton Corporation of India Ltd. v. United Industrial Bank Ltd. [1984] 55 Comp Cas 423, in support of his submission that the court cannot grant interim relief unless it is likely to grant final relief in the same terms or in terms having close nexus with the prayer for interim relief. It appears that the submission of Mr. Chagla is well founded. In my judgment, the court is not likely to grant final relief in terms of prayer (b) of the plaint. In my judgment, there is no nexus between the money decree prayed for in prayer (a) of the plaint and the interim relief sought in this case. From this point of view also, the notice of motion is liable to fail. Assuming that I had inherent power to appoint an independent chairman of the company, I would not have exercised any such power in this case having regard to the history of the litigation and the observations made by Variava J. against the plaintiffs in his judgment and order dated March 23, 26, 28, 1990, referred to hereinabove and having regard to the parallel proceedings which have been continued by the plaintiffs in the city civil court at Bombay as well as in this court. If the meeting dated July 9, 1991, is conducted in contravention of law, the party aggrieved can always pursue its legal remedy.
It was stated that several proxies have been forged at the instance of Pravin Patel group. This allegation has been denied. Mr. B. Srinivasan has filed an affidavit, a copy whereof is annexed as exhibit 'L' to the plaint. The plaintiffs have given a schedule of the alleged forged proxies in exhibit 'M' to the plaint. Along with the affidavit in rejoinder, the plaintiffs have filed several affidavits of the members of the Bajaj family. All these allegations are bare allegations. The allegations are strongly made on behalf of the plaintiffs and the same are strongly denied on behalf of the Contesting defendants. It is explained on behalf of the contesting defendants that all these persons had earlier given proxies referred to in exhibit 'M' to the plaint in favour of Pravin Patel group but later on these proxies have been given in favour of Y.G. Patel group. It was submitted on behalf of the contesting defendants that in this view of the situation, the plaintiffs are unnecessarily trying to malign the contesting defendants as the proxies of the later date in favour of the plaintiffs' group are bound to prevail over the earlier proxies. I am not persuaded to uphold the allegation of forgery. If such an allegation is persisted in, evidence may have to be recorded in appropriate proceedings at an appropriate stage.
In conclusion, I hold as under :
(1) The Companies Act, 1956, makes specific provisions for convening of company meetings. The Act empowers authorities like the Company Law Board to convene meetings and issue directions notwithstanding the provisions contained in the articles of association. The Act specifically empowers the court to direct the convening of meetings in certain situations only. The civil court or the company court has no inherent power to convene or conduct a company meeting by appointing a chairman or otherwise. The Companies Act, 1956, prevails. In the absence of invocation of overriding statutory provisions of the Act, the articles of association of the company must prevail.
(2) Rule 9.of the Companies (Court) Rules is liable to be interpreted in the light of the enabling, provisions of the Act contained in section 643 of the Companies Act. Rule 9 can, therefore, be invoked by the company court while considering applications made to it under one or other of the substantive provisions of the Companies Act, 1956, and not otherwise.
(3) The civil court cannot intervene to conduct a company meeting not in the manner prescribed by the Act or by the articles of association of the company or override the same in exercise of its inherent power under rule 9 of the Companies (Court) Rules or section 151 of the Code of Civil Procedure.
(4) I hold that the notice of motion is not maintainable in so far as prayers (a)(i) and (a)(ii) are concerned. In any event, no case is made out for grant of any interim relief. Since there is no substance in the motion, it shall have to be dismissed straightaway.
Learned counsel for the plaintiffs has supported the prayer for appointment of receiver by contending that the contesting defendants have siphoned away the funds of the first defendant company and have caused enormous loss to the first defendant company by purporting to settle the claim of the company in respect of the Doha project. Learned counsel for the plaintiffs wants me to appoint the Court Receiver, High Court, Bombay, as receiver of all the books of account, papers, etc., of the first defendant company. Some of the relevant facts emerging from the record are as under :
(a) The first defendant company is engaged in execution of construction projects in India and abroad.
(b) Sometime in the year 1981, a contract was awarded to the first defendant company in respect of a project described by the parties as Doha project.. Soon after completion of the project, the first defendant company made a claim against the concerned Government in the sum of Rs. 34.6 million Qatar Riyals. Some time in the month of July, 1988, the Ministry of Public Works made a recommendation to the effect that the said claim be settled for the amount of Qatar Riyals 9918520.74. At that time, the plaintiffs' group was in management of the first defendant company. Nothing further happened in pursuance of the said report for about two years. According to the contesting defendants, a copy of the said report was not in file. According to the contesting defendants, the plaintiffs are answerable to explain as to what steps were taken by them as a follow up to the report, exhibit 'A', to the plaint. The contesting defendants have submitted that Mr. Kishore Patel had himself observed in the meeting of the working group held on January 27, 1988, as under:
"PECL was, however, optimistic that the client may finally accept to settle claims amounting to Qatar Riyals 5 million."
A copy of the minutes of this meeting is annexed to the affidavit in reply. It has been pointed out that merely because the Ministry of Public Works recommended settlement by its report (exhibit 'A' to the plaint) in a sum of 9 million odd Qatar Riyals, it should not be assumed that the said recommendation was accepted or was likely to be accepted. A question is posed on behalf of the contesting defendants as to why the plaintiffs' group did not get this proposal implemented immediately as the plaintiffs' group was in management of the first defendant company until about June, 1990. The plaintiffs have built up the charge of siphoning off of funds against the defendants on the basis of conjectures and surmises.
(c) The said claim was ultimately settled for 7 million odd Qatar Riyals. The first defendant company represented by the new management appears to have agreed to pay 20% commission to a person called Shaikh Abdul Rehman, who saw to it that the matter was not merely settled but the amount was actually remitted to defendant No. 1. It is stated on behalf of the plaintiffs that there was no such middleman in the picture. The story of an agent intervening to finalise the settlement is attacked as a false story. The contesting defendants dispute every single allegation. It is submitted on behalf of the plaintiffs that the letter dated November 14, 1990, addressed by the first defendant company to the Reserve Bank for permission to grant 20% commission to this middleman was full of lies and it could be easily demonstrated that the contesting defendants have committed fraud. It is commented with some apparent justification that no reference was made to the letter dated September 22, 1990, in this letter dated November 14, 1990. All these aspects have been properly explained at least in part on behalf of the contesting defendants. The matter may have to be examined on evidence at the trial. Part of the amounts has already been paid to Shaikh Abdul Rehman. The first defendant has already received the full amount of 7.3 million Qatar Riyals in its bank account at London some time in the month of December, 1990. It may be that when the evidence is led the plaintiffs may be able to establish some more facts. Today, I have nothing before me except the unproved allegations, some of which, at any rate, do not inspire any confidence whatsoever. It is a matter of business strategy as to whether and for what amount a claim against a foreign Government should be settled or whether some concession or commission should be given to an agent in between. I cannot infer dishonesty, misfeasanee or lack of probity at this stage. The burden of proving the allegations made would be on the plaintiffs and for the moment I must presume good faith until the contrary is proved. Thus prayer (c) of the plaint for interim relief has no merit whether viewed in conjunction with prayer (b) alone or prayers (a) and (b) both or independently of the said prayers. I cannot direct appointment of a court receiver of all the records of the first defendant company. Learned counsel for the plaintiffs has submitted a list of documents pertaining to the Doha project, a copy whereof has been submitted to learned counsel for the contesting defendants, which they would like to be preserved in view of the matter being sub-judice. I have no reason to suspect that the documents in the possession of the first defendant company will disappear. If the plaintiffs make an application for inspection of the relevant documents or initialling of the originals or some such relief, such an application will be considered on its own merits. I express no opinion. No case is made out for appointment of a receiver of the documents of the first defendant company. Prayer (a)(iv) of the notice of motion is not maintainable also in view of the ratio of judgment of the Supreme Court in Padam Sen v. State of Uttar Pradesh, AIR 1961 SC 218. In this case it was held that the court had no inherent power to appoint a commissioner to seize account books in possession of the plaintiffs upon an application by the defendant that he has an apprehension that they would be tampered with.
Now an important question arises as to what final order I should pass in a matter of this nature. I have held that there is no substance whatsoever in prayer (b) of the plaint. I have held that I have no jurisdiction to appoint a chairman in respect of a company meeting which is already convened. I have held that I cannot appoint a receiver for the records of the first defendant company in a matter of this nature. The question still arises as to whether I should merely refuse ad interim relief and keep the motion pending and for what ? In similar situations, civil applications are filed on the appellate side of this court for interim relief. Such applications are circulated and placed on board for consideration as to whether rule should be issued or not. When the court comes to the conclusion that no case is made out for grant of ad interim relief, such applications are straightaway rejected. It does not happen and it should not happen that in every case, the application for interim relief is fixed for final hearing on a future day when ad interim relief is declined. In a given case, the court may decline ad interm relief and fix the application for interim relief for final hearing on a future date. In another case, the application itself is rejected straightaway. It all depends on the facts of each case. I am not persuaded to keep the notice of motion pending and make it returnable to some other date for a further hearing. Having regard to the totality of facts and circumstances and non-maintainability of the motion, the notice of motion is dismissed' with costs.
The plaintiffs are directed to pay to the contesting defendants a sum of Rs. 3,000 towards cost of the notice of motion.
The prothonotary and senior master shall issue certified copy of this order expeditiously.