Section 256
Directors,
Ascertainment of directors retiring by rotation
[1952] 22 COMP. CAS. 324 (MAD.)
v.
Indian Trades & Investments
Ltd.
RAJAMANNAR, C.J.
AND VENKATARAMA IYER, J.
APRIL 4, 1952
G. Vasantha Pai, for the Appellant.
M. Sambandamurthi, V.
Radhakrishnaiah and R. Swaminatha Iyer, for the Respondent.
The question raised in these
appeals is whether the co-option of K.N. Narayana Iyer and K.C. Chandy as
directors in a company called the Amalgamated Coffee Estates Ltd. is valid.
This company was formed with the object of carrying on business in coffee, tea
cardamom and other commodities and was incorporated under the Indian Companies
Act in 1944. The last annual meeting of the company was held on 31st January,
1949. Article 55 of the articles of the company provides that a general meeting
shall be held within 18 months from the date of its incorporation and
thereafter once at least in every calendar year at such time (not being more
than 15 months after the holding of the last preceding general meeting) and
place as the directors may decide. In accordance with this provision the last
day for holding the annual meeting would be 30th April, 1950, but no meeting
was held either on or before that date. Notices were issued by the management
on 21st July, 1950, for an annual meeting to be held on 6th August, 1950. But
this meeting, however, was cancelled on the ground that objections were taken
to its legality. On 14th August, 1950, one of the shareholders, Mrs. A.
Ananthalakshmi Ammal filed an application under Section 76(3) of the Indian
Companies Act, Application No. 2813 of 1950, for an order that the court should
call for a general meeting, and in the affidavit filed in support of that
application it was alleged that no general body meeting had been called after
31st January, 1949, that the directorate consisted of only three members, V.R.
Veeramani, A.S. Padmanabhan and B.V. Raman, while Article 75 provided for a
minimum of four directors, that the affairs of the company were being grossly
mismanaged and that accordingly the court should direct that a general body
meeting should be convened for scrutinising the balance sheets, appointing
auditors and electing "new directors in the vacancies caused". There
was also a prayer that a commissioner should be appointed to convene the
meeting and act as chairman therefor. A similar application was filed by one of
the debenture-holders, Application No. 2814 of 1950, and therein Application
No. 2826 of 1950 was made for an injunction restraining the management from
co-opting any person as director. On 18th August, 1950, an interim injunction
was issued. On 21st August, 1950, the management applied in Application No.
2954 of 1950 for cancelling the interim injunction and all the four
applications were heard together by Krishnaswami Naidu, J., who passed an order
on 26th September, 1950, that the annual meeting be called on 29th October, 1950,
for discussing the balance sheet and profit and loss account for "election
of directors in the places vacant" and to consider the auditor's report,
and that notices of the said meeting be issued in the names of the two
directors, V.R. Veeramani and B.V. Raman. He also appointed an advocate, Mr.
Sanjeevi Naidu as commissioner to preside over the meeting. The injunction
petition was dismissed on the ground that in view of the orders passed in
Applications Nos. 2813 of 1950 and 2814 of 1950 no orders were necessary. On
7th October, 1950, notices were issued for animal meeting on 29th October,
1950, in terms of the order dated 26th September, 1950. The notices also stated
that "two directors, A.S. Padmanabhan and B.V. Raman retire. The vacancies
created by their retirements have to be filled up. Of the retiring directors
Mr. B.V. Raman offers himself for re-election."
On 9th October, 1950, two of the
directors, Veeramani and B.V. Raman passed a resolution co-opting K.N. Narayana
Iyer as a director in the place of one Dakshinamurthi who had resigned on I8th
June, 1950. On 11th October, 1950, V.R. Veeramani resigned his office as an
elected director and was nominated by the managing agents as a director under
Article 82A, and in the vacancy thus created K.C. Chandy was co-opted as a
director. Both the co-options took place after the court had passed an order on
26th September, 1950, for holding the annual meeting on 29th October, 1950, and
after notices thereof had actually been issued. Thus on 29th October, 1950, the
position was that V.R. Veeramani had become a nominated director; two directors
had to be elected in the place of Padmanabhan and B.V. Raman whose terms of
office had expired; and K.N. Narayana Iyer and K.C. Chandy had been co-opted as
directors.
At the annual meeting held on
29th October, 1950, when the subject of "Election of directors in the
places vacant" was taken up disputes arose as to the number of vacancies
which were available to be filled. On behalf of Mrs. Ananthalakshmi Ammal it
was contended that the expression "places vacant" would include the
maximum number of directors that could be elected under Article 75 and that
should be determined by the general body and that further the co-options of
K.N. Narayana Iyer and K.C. Chandy were invalid. The management contended that
the election should be limited to the two vacancies mentioned in the notice and
that the co-options of Narayana Iyer and K.C. Chandy were valid. In this
conflict of opinion it was decided to adjourn the meeting and obtain from the
court a clarification of the order dated 26th September, 1950. Application No.
4025 of 1950 was then filed by Mrs. Ananthalakshmi Ammal for that purpose and
on that Krishnaswami Naidu, J., passed an order on 3rd November, 1950, that
apart from the two vacancies mentioned in the notice there was also a vacancy
caused by the resignation of Dakshinamurthi on 18th June, 1950, and that an
election should be held to fill up that vacancy as well. On the question of the
validity of the co-options he observed that it was unnecessary to go into the
question in these proceedings.
Against this order the
management filed O.S.A. No. 103 of 1950. Their contention being that as there
was valid co-option in the place of Dakshinamurthi there were only two
vacancies. Mrs. Ananthalakshmi Ammal filed O.S.A. No. 110 of 1950 claiming that
V.R. Veeramani was the only director validly in office, that all the other
places were vacant and that the shareholders had the right to fill the
vacancies up to the maximum as provided under Article 75. Both these appeals
were disposed of by the judgment of this court dated 9th February, 1951.
Therein it was held that for the purpose of election
of directors "in the places vacant" as provided in the order dated
26th September, 1950, it was necessary to determine the number of vacancies and
that to decide that, it was necessary to decide whether the co-options were
valid or not. The matter was accordingly remanded for decision on the validity
of the co-options of K.N. Narayana Iyer and K.C. Chandy. There was also a
direction that the court might order, at its discretion, addition of parties
for the purpose of a satisfactory disposal of the points in dispute.
In pursuance of this order of remand Applications Nos. 2813
of 1950 and 2814 of 1950 came up for re-hearing before Krishnaswami Naidu, J.
The two directors, the validity of whose co-option was at issue, Narayana Iyer
and K.C. Chandy, were also impleaded as parties. The whole case was reheard and
on 14th November, 1951, Krishnaswami Naidu, J., pronounced judgment upholding
the co-option of K.N. Narayana Iyer and rejecting that of K.C. Chandy. It is
against this judgment that the present appeals have been brought. In O.S.A. No.
120 of 1951 Mrs. Ananthalakshmi Ammal contends that the co-option of K.N.
Narayana Iyer on 9th October, 1950, is invalid. In O.S.A. No. 15 of 1932 Mr.
K.C. Chandy contends that his co-option on 11th October, 1950, is valid. These
are the questions that fall to be determined in these appeals.
In O.S.A. No. 120 of 1951 Mr. Vasantha Pai, the learned
advocate for the appellant contends that the co-option of Narayana Iyer on 9th
October, 1950, was invalid because there was only one director who was entitled
to act on that date and that the power to co-opt could not be exercised when
there was no board of directors competent to act under Article 75; that in any
event such a power could not be exercised after an annual meeting had been
called; that at any rate on the facts of the present case such a power could
not be exercised as the court had ordered on 26th September, 1950, that the
shareholders should elect the directors in the vacancies at an annual meeting
to be held on 29th October, 1950, and that the resolution dated 9th October,
1950, did not comply with the requirements of Article 99 of the articles of the
company. It was further argued that even if the power to co-opt could be
validly exercised on 9th October, 1950, it was not in fact so exercised as the
co-option was made not in the interests of the shareholders but of the
management. The management controverts the soundness of these contentions.
The position that the power to co-opt directors comes to an
end when once an annual meeting is convened, is not ought to be supported by
anything in the Companies Act or in the articles of the company. Nor is any
authority cited in support of it. We have no hesitation in rejecting it. Nor is
there any substance in the argument that the order of the court dated 26th
September, 1950, directing that the annual meeting be convened for filling up
vacancies has the effect of extinguishing that power. Though interim injunction
was issued against co-option in Application No. 2826 of 1950 on 18th August,
1950, that became dissolved on the dismissal of that application on 26th
September, 1950. It is true that the order of dismissal was made not on the
merits but in view of the orders passed in Applications Nos. 2813 of 1950 and
2814 of 1950 and it must have been assumed that all the places would be filled
by election, at the annual meeting, on 29th October, 1950. This circumstance,
though material on the question whether the exercise of power on 9th October,
1950, and 11th October, 1950, was bona fide or not, does not operate to deprive
the management of its powers under Article 81. The objection based on Article
99 that the resolution dated 9th October, 1950, was not signed by all the
directors but only by two of them must also be rejected inasmuch as no
contention is raised by the management that the co-option of K.N. Narayana
Iyer, if not valid under Article 81 could still be upheld as one passed in
circulation under Article 99.
The two substantial contentions urged on behalf of the
appellant are (1) that on 9th October, 1950, there was only one director
competent to act and according to the articles of the company he would have no
power to co-opt a director and (2) that in any event the exercise of the power
was not for the benefit of the shareholders and therefore void. With reference
to the first contention it is necessary to set out the relevant articles of the
company on which it is based. Under Article 75 "Until otherwise determined
by a general meeting the number of the directors shall not be less than four or
more than nine." Article 83 provides that "at the first ordinary
meeting of the company the whole of the directors excepting the ex-officio
directors, shall retire from office and at the ordinary meeting in every
subsequent year, one-third of the directors (other than the ex-officio
directors) for the time being or if their number is not three or a multiple of
three, then the number nearest to one-third shall retire from office."
Section 83A(1) of the Indian Companies Act enacts that "every company
shall have at least three directors." Turning to the facts it should be
remembered that the last annual meeting was held on 31st January, 1949. Even at
that time there were only three directors in office, A.S. Padmanabhan, M.S.
Periasami Nadar and V.R. Veeramani. Of these Padmanabhan was due to retire
under Article 83 at the next annual meeting. Periasami Nadar resigned in August
1949 and in his place Dakshinamurthi was co-opted on 25th September, 1949. On
22nd March, 1950, one B.V. Raman was co-opted as the fourth director but he was also due to
retire at the next annual meeting. The meeting should have been held under
Article 55 on 30th April, 1950, at the latest. On 18th June, 1950,
Dakshinamurthi resigned and it was in his place that K.N. Narayana Iyer was
co-opted by a resolution of the directors, Veeramani and B.V. Raman.
On these facts it was argued by
the learned advocate for the appellants that two of the directors, Padmanabhan
and B.V. Raman who were due to retire at the annual meeting next to that held
on 31st January, 1949, should be held to have vacated their office on the last
date on which the annual meeting should have been held and that in consequence
they ceased to be directors after 30th April, 1950. This contention is amply
supported by the authorities. In Re Consolidated Nickel Mines Ltd. the question
arose whether two directors, Steel and Phillips, were entitled to remuneration
as directors. Article 101 of the company provided that at the ordinary meeting
all the directors should retire from office. 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. After 1905 no meeting was called but the
two directors continued to act. It was held that they vacated the office on the
last day on which the annual meeting should have been held, that is no 31st
December, 1906, and that therefore they were not entitled to remuneration
thereafter.
In Srinivasan v. Watrap Subramania Iyer Cornish, J., followed the decision in re Consolidated Nickel Mines Ltd. In Kanssen v. Rialte the point for decision was whether the allotment of shares made at a directors' meeting held on 30th March, 1942, was valid. Two persons Cromie and Strelitz purported to act as directors and made the allotment. Strelitz claimed to have been appointed as director at a meeting held on 1st February, 1940. It was found that there was no such meeting or appointment. Cromie was one of the original directors but under Rule 73 of Table A of the Companies Act, 1929, which in substance corresponds to Article 83 in the present case, the directors would have to retire at the annual meeting and the last day on which such a meeting should have been held was 31st December, 1941. On these provisions Lord Greene, M.R., who delivered the leading judgment of the Court of Appeal observed as follows:—
"Neither Mr. Cromie nor Mr.
Strelitz was then (on 30th March, 1942) a director of the company. Mr. Cromie
had been a director but he had vacated the office on 31st December, 1941, by
reason of Article 73 of the company's articles of association. See Re
Consolidated Nickel Mines Ltd."
This decision was affirmed by the
House of Lords in Morris v. Kanssen. On the point now under consideration the
decision is thus stated in the head note:—
"No general meeting was held
in 1941 and accordingly 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."
Vide the observations in the
speech of Lord Simonds at pages 467, 468 and 471. In Buckley on Companies Acts
the learned author commenting on Rule 89 in Schedule I of the Companies Act,
1948, which in terms corresponds to the present Article 83 states the law as
follows:—
"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 date of the year." (12th edition, page 882).
On these authorities it must be
held that both Padmanabhan and B.V. Raman ceased to be directors after 30th
April, 1950, and that at the time of the co-option of K.N. Narayana Iyer on 9th
October, 1950, there was only one director, Veeramani, who was lawfully in
office.
What follows on this conclusion?
The appellant contends that if on 9th October, 1950, there was only one
director, then there was no board of directors as required by Article 75 and
that therefore there could be no valid co-option as the power to co-opt could
only be exercised by the board. The respondent relies on Article 81 which is in
these terms:—
"The continuing directors
may act notwithstanding any vacancy in their body; but, so that if the number
falls below the minimum above fixed the directors, shall not, except in
emergencies or for the purpose of filling up vacancies, act so long as the
number is below the minimum."
The argument is that this is a
special provision made for meeting contingencies like the present and that the
co-option made thereunder is valid. The contention of the appellant is that
even for invoking the power under Article 81 there must be a board with the
minimum strength as required by Article 75 but this is opposed to the plain
language of the article which expressly confers power on the continuing
directors to fill vacancies when the number falls below the minimum and the
minimum that is referred to in this article is the minimum prescribed under
Article 75.
There is also considerable body
of authority in
"It is also contended that though by the articles two
directors form a quorum when the board is duly constituted, there could not be
a quorum capable of transacting business when the board of directors was not
filled up to the minimum number. I assume that the retiring directors had
ceased to be directors, and if that be so, the board was not made up to the
minimum number. Still I think that having regard to Article 83, the objection
cannot be maintained. It is urged that this article can only apply when the
number of directors is more than four, but I see no reason for adopting that
view."
In Re Bank of Syria, Owen and
Ashworth's claim, Whitworth's claim Article 38 of the company provided that the
members of the council shall be not be less than three and not more than nine.
At the time of the transaction there were only two directors and the question
arose whether they had the power to act. Article 42 provided that "the
continuing council may act notwithstanding any vacancy." It was held by
Wright, J., that under this clause the directors were entitled to act. He
observed "I am asked to say that in as much as there were only two directors
acting at that time, they had no power to bind the company. But it seems to me
that I ought to hold, having regard to the authorities, that Article 42, which
provides that a continuing council may act notwithstanding any vacancy, gets
over the difficulty... It seems to me, having in view Article 42, that the
principle in Re Scottish Petroleum Company applies to the present case."
There was an appeal against this decision. Vide Re Bank of
LORD ALVERSTON, C.J., in agreeing
with the decision of Wright, J., on this point observed that even if the number
of directors fell below the quorum fixed for a directors' meeting the principle
laid down in Re Scottish Petroleum Company would apply and that the continuing
directors would be entitled to act under Article 42. That is to say the power
to co-opt might be exercised notwithstanding that the strength of the
directorate has fallen below the minimum required, and below the quorum
prescribed, by the articles.
In Re Sly Spink and Co., the articles required that the
number of directors should not be less than four, that the quorum for a board's
meeting should be three and Article 88 gave authority to the continuing
directors to fill in vacancies. From the very start the company had never a
board of four directors. Only three directors were appointed and they allotted
shares. The company having gone into liquidation the question arose whether the
allotment of shares was valid. It was contended that the three directors had
authority to act under Article 88 and that the allotment was consequently
valid. Neville, J., held that article 88 would apply only if there had been a
properly constituted board of directors in the first instance but that where
there never was a board with the minimum strength, Article 88 would not apply.
The following observations may be quoted:—
"It is said that they were continuing directors
because they had not ceased to be directors. I do not think that is a
reasonable interpretation to put upon the words contained in the articles. The
expression is a familiar one and it applies to cases where the number of the
original board had been reduced by death or otherwise, and in such cases those
who are left, subject to the provisions of Article 88, would be entitled to
conduct the business of the company. With regard to that, I think the two cases
which were cited In re Scottish Petrolium Company and In re British Empire
Match Co. show very clearly the distinction between the case where the
directors too few in number can and cannot act as continuing directors. In one
case you have a board insufficient in number from the first and notwithstanding
the continuing clause it was held that the board could not transact business.
In the other case you have a board which was originally competent to transact
business but was diminished by retirement to a number less than that provided
for by articles. The continuing clause was held to apply and those directors
were held to be competent to transact the business of the company."
The company in the present case started with four
directors, being the minimum strength under Article 75. Vide the allegations in
paragraph 5 in the affidavit of Davar in Application No. 2954 of 1950; and
therefore the continuing directors would under the decision in Re Sly, Spink
and
"Sir John Jackson thus became sole director. What was
his power? Under the Companies Clauses Act, 1845, as continuing director, he
had power to fill up the vacancies on the board. The fact that a person
exercising that power does not constitute a quorum is not really a relevant matter.
The generality of the language used in Section 99 is so clear that it is
impossible for us to overlook it. Any other view on that point would paralyse
many a company."
The following observations occurring in the judgment of
Swinfen Eady, L.J., might also be usefully quoted:—
"I think that the context requires that the words
'remaining directors' should include the case of a remaining director. It is
obvious that the number of the board may, by death or resignation or otherwise,
be so reduced that it may be below the quorum, as well as that there may be
vacancies occurring in the board whilst still leaving a quorum, but in either
case it is necessary or proper that the vacancy should be filled up. In my
opinion the necessity of the case requires that 'the remaining directors'
should be read as including the case of a remaining director, so that if and so
long as there is any remaining director he may proceed to fill up the board by
appointing persons when casual vacancies occur. For these reasons I am of
opinion that it was open to Sir John Jackson as the sole remaining director,
under Section 89, to appoint duly qualified persons to be directors in the
place of the two who had ceased to be members of the board."
Applying these principles it must be held that the power
under Article 81 could be exercised even though the strength of the board had
fallen below the minimum prescribed by Article 81 and below the quorum
mentioned in Article 92 and even when there is only one director capable of
acting. The co-option of Narayana Iyer on 9th October, 1950, must, therefore,
be held to be within the scope of the authority conferred on the continuing
directors under Article 81.
The only question that remains to be decided is whether on
the fact and circumstances of this case the co-option of Narayana Iyer is open
to attack as improper and mala fide. The learned advocate for the appellant
argued that the directors stand in a fiduciary relationship to the
shareholders, that any power conferred on them must be exercised for the
benefit of the shareholders, that the co-option of directors should also be
made only in the interests of the shareholders and that Narayana Iyer was
co-opted only for the purpose of strengthening the hands of the management in
their fight with their shareholders and it is, therefore, invalid. That the
directors, are in a fiduciary position in relation to the shareholders cannot
seriously be questioned. In
The position is thus summed up in Palmer's Company
Precedents:
"Where the directors of a company are invested by the
regulations with certain powers, the authority thus conferred is to be read
subject to the general rules applicable to the exercise by directors of the
powers vested in them, and in particular to the rule that the directors are to
exercise the powers for the benefit of the company and in the true interests of
the company and according to the best of their judgment, for they stand in a
fiduciary position, and must act accordingly."
(Vide Vol. 1, page 434, paragraph 21; 16th edition).
We, therefore, agree with the appellant that if the
co-option of a director under Article 81 is not made in the interests of the
shareholders but for other purposes it cannot stand.
What then are the facts? It is common ground that the
affairs of the company were during this period in a very unsatisfactory
condition. For want of funds the coffee and tea estates were in a state of
neglect. More than Rs. 96,000 had to be paid for income-tax and the Government
were taking coercive steps to recover the same. Interests due to the
debenture-holders had not been paid; nor dividends which had been declared on
the shares. The creditors had obtained decrees against the company and
execution proceedings were in progress. These facts are stated in the
affidavits filed on behalf of the appellants in these proceedings. But it also
appears from these affidavits that the coffee and tea plantations owned by the
company were extensive and valuable and if finance was forthcoming they could
be properly worked and made to yield profits. It is clear from the records that
the managing agents were making strenuous attempts to get at a financier who
would be willing to advance the necessary funds for the working of the estate
and at last they found him in Narayana Iyer. This Narayana Iyer was the
managing director of a company called Messrs. Parkins (
"Messrs. Parkins (
A reading of this letter leaves no doubt that the
shareholders considered that the accession of Narayana Iyer would add to the
strength of the company and enable it to tide over its difficulties. It is
admitted in the affidavit filed in Application No. 2826 of 1950 that as early
as August the management itself had been negotiating with Narayana Iyer with
the object of bringing him in. He insisted naturally that if he should advance
the necessary funds, he should have a voice in the control and management of
the company. The management agreed to this and co-opted him as a director on
9th October, 1950. It appears from the affidavit of Narayana Iyer that after
his co-option he advanced monies to the extent of a lakh of rupees for the
working of the estate and harvesting coffee. The facts clearly show that the
company was in need of finance, that Narayana Iyer was co-opted for the purpose
of finding the necessary funds and that both from the point of view of his
experience and financial status he would be a source of strength to the
company.
But it is argued on behalf of the appellant that
notwithstanding the above circumstances, the co-option of Narayana Iyer must be
rejected as improper and mala fide because the vacancy in which he was filled
arose on 18th June, 1950, when Dakshinamurthi resigned, that the management did
not choose to fill that vacancy then; that on the other hand they stated in
their counter-affidavit in Applications Nos. 2813 of 1950 and 2814 of 1950 that
they thought it fair not to co-opt a director in view of the general body
meeting that was proposed to be convened; that an injunction was actually
issued on the 18th of August, 1950, restraining the managing agents from making
any co-option and though it became dissolved on 26th September, 1950, it was
understood by all persons that the vacancy would be filled by the shareholders
at the annual meeting and that therefore, the co option on 9th October, 1950,
must be held to have been made with the object of depriving the shareholders of
their right to elect a director.
But it must be remembered that
during this period the management was on the look out for a suitable financier
and that it was responsible on their part to have left the place vacated by
Dakshinamurthi vacant until a suitable person could be found and to have left
it to the shareholders to fill the place if their endeavours to get at a financier
did not succeed. Nor can any sinister purpose be spelt out of the fact that the
co-option was made after a general meeting had been called. It is admitted that
the coffee crops were ready for harvesting and if early steps were not taken to
gather them considerable damage would result. In paragraph 13 of the counter
affidavit filed by Davar in Appln. No. 2954 of 1950 it is alleged that
"the coffee plantations in Palghat and the cardamoms are deteriorating;
crops were being spoilt and what little can be gathered from the crops would be
lost to the shareholders and the debenture-holders on account of the neglect
and irresponsible attitude of the managing agents." This was in August,
1950. It is obvious that the urgency must have been greater in October and the
managing agents acted in the best interests of the shareholders in concluding a
bargain with Narayana Iyer on 9th October, 1950.
On a review of all the
circumstances we agree with Krishnaswami Naidu, J., that the co-option of
Narayana Iyer was a proper exercise of the power under Article 81. O.S.A. 120
of 1951 must accordingly be dismissed with costs.
In O.S.A. 15 of 1952 the point
for determination is whether the co-option of K.C. Chandy on 11th October,
1950, was a valid exercise of the power under Article 81. The facts relating to
this co-option present a picture totally different from what has been seen in
the case of Narayana Iyer. No particular reason has been shown why this
co-option should have been made on 11th October, 1950, when the annual meeting
had been called for 29th October, 1950. It is not stated that this co-option
was made under any arrangement to advance funds for the company. That
arrangement had already been concluded with Narayana Iyer. Nor does K.C. Chandy
possess anything like the experience which Narayana Iyer undoubtedly does
possess. He is an Advocate practising at Kottayam. The circumstances under
which the co-option was made clearly stamp it as mala fide. V.R. Veeramani who
was one director who has been in active management resigned his place as an
elected director on 11th November, 1950, and as part of the same proceedings he
became a nominated director. It is clear that this manoeuvre was adopted for
co-opting a director of the choice of the managing agents and it is open to the
objection that, it was made with a view to strengthen the hands of the managing
agents and not in the interests of the
shareholders. We agree with Krishnaswami Naidu, J. that this co-option cannot
be upheld.
It was argued by Mr. V. Radhakrishnayya the
learned advocate for the appellant that the validity of this co-option cannot
be gone into in these proceedings, but the matter is concluded by the judgment
of this court dated 9th February, 1951, and even otherwise the decision, on the
validity of the co-option is incidental to the exercise of the powers under
Section 76(3) of the Companies Act. In the result the appeal fails and is
dismissed with costs.
[1959]
29 COMP. CAS. 273 (BOM.)
V.
Colaba Land &
Mills Co. Ltd.
S
T DESAI AND DESAI, JJ.
I.C.
PETITION NO. 190 OF 1058
NOVEMBER
20, 1958
S. T.
DESAI, J. - A question of
considerable importance and some interest arises on this application under the new
Companies Act of 1956 and the question relates to the tenure of office of what
are usually described as directors elected at annual general meetings of
companies. Section 166 of the new Companies Act lays down that the first annual
general meeting shall be held by the a company within eighteen months of its
incorporation. It also lays down that the next annual general meeting of the
company shall be held 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 company within nine
months after the expiry of each financial year. Stripped of details, the
provision for years subsequent to the first annual general meeting is that a
company shall call its annual general meeting within nine months after the
expiry of its financial year. That provision is mandatory. It is express and
explicit. Ordinarily, elected directors of companies are not appointed for any
specified period of time in terms of years. They retire by rotation and they
retire from their office of directorship at a date which would be the date of
the statutory annual general meeting of the company. The question which we have
to determine is whether in a case where despite the mandatory provisions of
section 166 and in breach of their duty as directors, the directors do not call
an annual general meeting of the company for any length of time, can they claim
to continue in their office of director after the expiry of the period mentioned
in the section for calling the statutory meeting. Prima facie the contention
that they can continue to hold the office in any such case would seem wholly
unsound. But we are told that there is a provision in the Companies Act, which,
is properly interpreted, leads to such an undesirable result.
The
application before us in by the
(1) V. J. Pilani who had
been elected in the annual general meeting of the shareholders on March 29,
1956.
(2) Jayantilal Patel who
had been elected in the annual general meeting of the shareholders of the
company on April 14, 1955.
(3) K. J. Pilani who had
been elected in the annual general meeting of the shareholders on April 22,
1954.
(4) R. S. Sethna who had
been appointed by the Central Government on November 12, 1957.
(5) F. S. Wadia who had
been appointed by the Central Government on November 21, 1957.
(6) Solomon Moses who was
elected as an additional director of the company under section 260. That was in
November, 1957.
On September
30, 1958, the personnel of the board of directors of the company was the same
with this difference that K. J. Pilani who, it was said, had vacated his
office, was co-opted as director on September 8, 1958. An objection was raised
by one of the directors appointed by the Central Government to the attitude
taken up by two of the directors, Jayantilal Patel and Solomon Moses, that they
had continued to be directors of the company, although if annular general
meetings of the company had been held as required by section 166, they would
have retired long since. Their contention was that despite non-conformity with
the provisions of section 166 they continued to be directors of the company and
were entitled to act as such till the date when an annual general meeting of
the company might be heel in future. The company has come before us on this
application and the question we are asked to determine is whether Jayantilal
Patel and/or Solomon Moses have ceased to be directors of the company.
The relevant
part of section 166 of the new Companies Act to which we have already made some
reference may be set out here :
"166.
Annual general meeting. - (1)(a) Every company shall, in addition to any other
meetings, hold a general meeting which shall be styled its annual general
meeting at the intervals, and in accordance with the provisions, specified
below.
(b) The first annual
general meeting shall be held by a company within eighteen months of its
incorporation.
(c) The next annual
general meeting of the company shall be held 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 company within
nine months after the expiry of each financial year :
Provided 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 further period not exceeding six months.
(d) Except in the case
referred to in the foregoing proviso, not more than fifteen months shall elapse
between the date of one annual general meeting and that of the next."
Section 16
empowers the Central Government to call an annual general meeting where default
is made in holding an annual general meeting in accordance with section 166.
Section 168 is material and it inflicts penalty for default in complying with
the provision of section 166. The company and every officer of the company who
is in default is liable to punishment with fine which may extend to Rs. 5,000.
The other material sections are sections 255 and 256 which are as under :
"255.
Appointment of directors and proportion of those who are to retire by rotation.
–
(1) 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 regulation in the articles of the company, also
appointed by the company in general meeting."
"256.
Ascertainment of directors retiring by rotation and filling of vacancies. –
(1) At the first annual
general meeting of a public company, or a private company which is a subsidiary
of a public company, held next after the date of the general meeting at which
the first directors are appointed in accordance with section 255 and at every
subsequent annual general meeting, one-third of such of the directors for the
time being as are liable to retire by rotation, or if their number is not three
or a multiple of three, then the number nearest to one-third, shall retire from
office.
(2) The directors to retire
by rotation at every annual general meeting shall be those who have been
longest in office since their last appointment, but as between persons who
became directors on the same day, those who are to retire shall, in default of
and subject to any agreement among themselves, be determined by lot.
(3) At the annual general
meeting at which a director retires as aforesaid, the company may fill up the
vacancy by appointing the retiring director or some other person thereto
..."
V. J. Pilani,
respondent No. 2, Jayantilal Patel, respondent No, 4, and K. J. Pilani are
represented different counsel and have made their submissions before us. The
company is represented by separate counsel and the company has also made its
submissions before us. Solomon Moses, although he is not a party to the
petition, is also represented by counsel. Learned counsel for the company as
well as these directors have pressed before us the contention that the position
in law is that even though there is the breach of the statutory duty on the
part of the directors in not calling an annual general meeting of the company
as required by law, they continue and will continue to be the directors of the
company till an annual general meeting is in fact held. The directors appointed
by the Central Government have opposed that contention. The greatest reliance
has been placed by learned counsel for those directors and the company on
certain words in section 256 of the Act and the words are : "At the first
annual general meeting" and "at every subsequent annual general
meeting". It is urged that the directors who are liable to retire by
rotation continue to hold their office as directors till the annual general
meeting is in fact held. It is said that there is no other provision in the Act
which indicated any contrary rule. It is also said that if the directors have
committed a breach of the statutory requirement of section 166 pertaining to
calling of annual general meeting, that is irrelevant for the present purpose
and if it has any relevance that would only be on the question of penalty which
may be inflicted on them under section 168 for default in complying with the
provisions of section 166 relating to calling of annual general meetings. It is
urged that support is to be derived for this construction when reference is
made to the proviso to sub-clause (c) of section 166(1) which empowers the
Registrar for any special reasons to extend for a further period not exceeding
six months the time within which an annual general meeting should be held. It
is pointed out that if the view pressed for the acceptance of the court by the
directors appointed by the Central Government were to be accepted, the
directors would ordinarily retire at the expiry of nine months from the date of
the end of the financial year of the company, and if thereafter the Registrar
were to extend the time for the calling of the annual general meeting, the
directors who had vacated their office on retirement would not be able to seek
re-election. It is difficult to see why they would not be able to seek
re-election. But assuming that it is so, we do not see how that can affect the
legal position. Another hardship sought to be pointed out on behalf of the
company was that if the Central Government were to intervene and call an annual
general meeting at a later date the directors who would be treated as having
vacated their office latest at the end of nine months from the expiry of the
financial year, of the company would be prejudiced. There is no substance in
this suggestion either. The question that we have to consider really lies in a
very narrow compass and it is whether the tenure of the elected directors can
continue after the expiry of the statutory period laid down for calling an
annual general meeting ? Section 255, as we have already mentioned, is
material. It deals with the appointment of directors and proportion of those
who are to retire by rotation. Clause (a) of sub-clause (1) speaks of
two-thirds of the number of directors as persons whose period of office is
liable to determination by retirement of directors by rotation. Section 256
speaks of annual general meeting. But evidently it proceeds on the basis that
the annual general meeting has been called as required by statutes, i.e.,
section 166. In our judgment it 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 persons 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.
In the context
of the tenure of the office of an elected director, the general meeting at
which a director liable to retire by rotation "shall retire from
office" must, in our judgment, be understood to be a general meeting
called in accordance with the mandatory provisions of section 166. It is extremely
difficult to see how that tenure of office can be extended simply by not
calling the annual general meeting and taking shelter under the language of
section 256, which, as we have already said, does not lay down any substantive
provision relating to the tenure of the office of an elected director. Mr.
Bhabha, learned counsel for respondent Nos., 9 and 10 is, in our opinion, right
when he says that persons who have committed a breach of their duty by not
calling the required annual general meeting within the statutory time cannot be
permitted to say that they have not vacated their office because in fact an
annual general meeting has not been called. What we have to consider is the
meaning and effect of the sections to which we have already made reference, and
reading those section, we find little difficulty in reaching the conclusion
that a director vacates his office at the latest on the last day on which an
annual general meeting could have been called as required by section 166. Now,
it is not as if these is no authority in support of the view which we are
inclined to take. There is a considerable body of authority in England on the
construction of the analogous provisions relating to directors and there are
two authorities of courts in India, one a decision of the Madras High Court and
another a decision of the Calcutta High Court. It is not necessary for us to
examine the English decisions in any detail since that has been done in the
"Articles
of association may adopt all or any of the regulations contained in Table A in
the First Schedule, and shall in any event be deemed to contain regulations
identical with or to the same effect as regulation 56, regulation 66,
regulation 71, regulation 78, 79, 80, 81 and 82, regulation 95, regulation 97,
regulation 105, regulation 107 and regulation 112, 113, 114, 115 and 116
contained in that Table."
We are only
concerned with article 78 mentioned above which was to be deemed to be
contained in the articles of association of every company. That regulation was
as under :
"At the
first ordinary meeting of the company, the whole of the directors shall retire
from office, and at the ordinary meeting in every subsequently year, one-third
of the directors for the time being or, if their number is not three or a
multiple of three, then the number nearest to one-third shall retire from
office."
The wording of
the analogous provision in English law which was also a regulation was in pari
materia. By the Companies (Amendment) Act of 1936, section 861 was added in out
Companies Act of 1913 which dealt with the question of vacation of office of a
director. Sub-section (2) of that section was as under :
"Nothing
contained in this section shall be deemed to preclude a company from providing
by its articles that the office of director shall be vacated on grounds
additional to those specified in this section."
The position
that emerges from the provision in the Companies Act of 1913 is similar to that
under the present section 256.
A question
arose in the case decided by the Madras High Court reported in Anantalakshmi v.
Indian Trades and Investment as to whether directors who under the articles of
association should have retire from the board of directors at any annual
general meeting should be held to have vacated their office and ceased to be
directors of the company on the last day on which an annual general meeting
could have been held. The question was answered by the court in the affirmative
and it was held that the directors had vacated their office despite the fact
that an annual general meeting of the company had in fact not been called. The
judgment was delivered by Mr. Justice VENKATARAMA AYYAR (as he then was) and in
the course of his judgment his Lordship examined the decision of courts in
Our attention,
however, has been drawn to a decision of the Calcutta High Court where a
different view appears to have been taken. That case in reported in Kailash
Chandra v. Jogesh Chandra and this is all that is state in that case (p. 870) :
"With
regard to the merits, the articles of association provided that the directors
should be elected annually at a general meeting. It follows, therefore, that so
long as the general meeting is not held in which the directors are to be
elected the directors elected at the previous meeting would continue in office.
It is contended by the learned advocate for the respondent that according to
the true interpretation of the articles the directors would hold office only
for one year form the date of their appointment, and if no general meeting is
held at the lapse of one year the directors would automatically vacate their
office and the company would go on without any directors at all. 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."
With great
respect, we are unable to agree with this opinion. It appears that the
attention of the learned Judges was not drawn to many aspects of the matter nor
does it appear that their attention was drawn to the accepted position under
the analogous provisions of the English law.
A distinction
is sought to be made between the position of a director liable to retire by
rotation and an additional director and we have been referred to section 260
which deals with additional directors. That section is as under :
"Nothing
in section 255, 258 or 259 shall affect any power conferred on the board of
directors by the articles to appoint additional directors :
Provided that
such additional directors shall hold office only up to the date of the next
annual general meeting of the company :
Provided
further that the number of the directors and additional director together shall
not exceed the maximum strength fixed for the board by the articles."
It is said
that here the words used are : "shall hold office only up to the date of
the next annual general meeting" and, therefore, in any event in the case
of an additional director, he would not vacate his until the date of the next
annual general meeting. We do not think any emphasis can be laid on the word
"up to the date of the next annual general meeting." The expression
"up to the date" had to be used in the context of the section because
the position of an additional director is in certain respects different from
the position of an elected director. One-third of the elected directors have to
go out by rotation and in computing the number of directors, the additional
directors are not to be taken into consideration. Therefore, it may well be
that the Legislature thought it desirable that the words "up to the
date" should be inserted in the section instead of "at the annual
general meeting." This difference in language does not affect the real
question before us.
In our
opinion, therefore, both Jayantilal N. Patel and Solomon Moses had ceased to be
directors of the Company.
The company will
pay the costs of this application fixed at Rs. 500 of Mr. Nariman's client,
whom is a director appointed by the Central Government. The company will also
pay the costs of Mr. Bhabha's clients who are respondents Nos. 9 and 10 of this
application fixed at Rs. 500.
[1988] 64 COMP. CAS. 562 (
HIGH COURT OF
v.
DIPAK KUMAR SEN, ACTG., C.J.
AND SHYMAL KUMAR SEN, J.
JANUARY 12, 1988
JUDGMENT
Dipak Kumar Sen, ACTG.,
CJ.—The material facts on record and the
proceedings leading up to this appeal are, inter alia, that Sinclair Freight
and Chartering Consultants P. Ltd. (hereinafter referred to as "the
freight company") was incorporated under the Companies Act, 1956, on June
20, 1968. Swapan Dasgupta, the appellant, was a subscriber to the memorandum of the freight company
and under article 11 of the articles of association of the freight company the
appellant became and was named as one of its first directors. The appellant was
also appointed a managing director of the freight company and continued as such
till the time as hereinafter stated.
On
December 2, 1971, Sinclair Hotels P. Ltd. (hereinafter referred to as "the
hotels company") was incorporated under the Companies Act, 1956. The
appellant was also one of the subscribers to the memorandum of the hotels
company and under article 11 of the articles of association of the hotels
company, the appellant became and was named as one of the first directors
thereof.
On
July 14, 1978, a scheme of amalgamation was approved and sanctioned by this
court in Company Petition No. 196 of 1978 connected with Company Application
No. 39 of 1978 whereby the business and undertaking including all property,
assets and liabilities of the freight company was directed to be transferred
and vested in the hotels company on the terms and conditions of the said
scheme. After such transfer and vesting, the freight company was directed to be
dissolved.
It
was provided in the said scheme that the hotels company would take over the
services of the existing managing director of the freight company, i. e., the
appellant, on the same terms and conditions.
The
name of the hotels company was subsequently altered to
Subsequent
to the amalgamation, the appellant continued as a managing director of the
hotels company. On May 1, 1981, the appellant was reappointed as the managing
director of the hotels company for a period of five years. On November 4, 1981,
the hotels company was converted into a public limited company and named as
The
appointment of the appellant as the managing director of the said company was
approved by the Central Government by its letters dated September 13, 1982, and
May 17, 1983.
At
an extraordinary general meeting of the shareholders of the said company held
on January 11, 1983, the appointment of the appellant as the managing director
for live years was approved with effect from May 1, 1981.
On
April 30, 1986, the appellant ceased to be the managing director of the said
company but continued to act as a director and the chairman of the board of
directors thereof.
On
August 16, 1986, there was a meeting of the board of directors of the said
company which was presided over by the appellant. At this meeting, a committee
of management was constituted with the appellant as the chairman. Certain
additional duties in respect of the affairs of the said company were allotted
to the appellant and it was decided to issue a power of attorney in his favour.
It was recorded in the minutes of its meeting, inter alia, that the appointment
of the appellant as the chairman-director of the said company had been and was
thereby reaffirmed until the next annual general meeting of the said company.
In the return of the said company filed with the Registrar of Companies on
September 8, 1986, it was recorded that the appellant had been appointed the
chairman-director and the constituted attorney of the said company on August
16, 1986.
On
November 24, 1986, a notice was issued convening the annual general meeting of
the said company to be held on December 29, 1986. Under item No. 6 of the
agenda, an ordinary resolution was proposed to be passed that the appellant be
appointed as a director of the said company on a notice under section 257 of
the Companies Act, 1956, by a member of the company. In the explanatory
statement to the said notice, it was further stated that on August 16, 1986, at
a meeting of the board of directors of the said company, the appellant had been
appointed as the chairman-director and constituted attorney of the. said
company until the next annual general meeting and that the appellant will hold
his office as such additional director up to the date of the said meeting.
In
the directors' report it was also stated that the appellant had retired as the
managing director of the said company on April 30, 1986, but had continued as
the chairman. Pursuant to article 111 of the articles of association of the
said company, the appellant will hold his office up to the date of the next
annual general meeting.
At
a meeting of the board of directors of the company held on November 24, 1986, a
resolution was passed again appointing the appellant as the managing director
and chairman of the said company for a period of three years with effect from
January 1, 1987.
On
or about December 22, 1986, one Gopal Vyas, a shareholder of the company, instituted
a suit in this court against the said company and others, being Suit No. 934 of
1986, entitled Gopal Vyas v. Sinclairs Hotels and Transportation Ltd. (Suit No.
934 of 1986—22-12-1986), challenging, inter alia, the proposed appointment of
the appellant and others as directors of the said company and the annual
general meeting proposed to be held on December 29, 1986. On the same date, an
ad interim order was passed in the said suit whereby it was directed that the
said meeting would be held on December 22, 1986, only for the purpose of
adjournment and a learned advocate of this court was appointed as the chairman
to preside over the said meeting. On an appeal from the said ad interim order,
on December 23, 1986, the appeal court modified the said ad interim order and
directed that the said annual general meeting would be held on December 29,
1986, as scheduled but items Nos. 3, 4, 6, 7 and 8 of the agenda which related
to the appointment of directors would stand adjourned till January 20, 1987. By
subsequent directions of the court, the said meeting still stands adjourned.
On
February 6, 1987, a further order was passed by the appeal court whereby it was
made clear that the order passed by the appeal court on December 23, 1986, was
not intended to affect the position of the existing directors of the said
company by reason of the directions to hold the said annual general meeting in
part and adjourning the other items of the agenda. The parties were, however,
left free to contend that the status of the existing directors of the said
company were affected for reasons apart from the said meeting.
Some
time in June, 1986, Navin Chand Suchanti, respondent No. 1, acquired some
shares of the said company and became a shareholder. On January 7, 1987,
respondent No. 1 filed the above suit, being Suit No. 5 of 1987, against the
appellant and respondents Nos. 2 to 9 with leave under Order 1, rule 8 of the
Code of Civil Procedure claiming, inter alia, a declaration that appellant No.
1 was never appointed as an additional director of the said company and that
the appellant and Sanat Kumar Mukherjee, respondent No. 2, were not directors
of the said company after December 29, 1986. Respondent No. 1 also claimed a
permanent injunction restraining the appellant and respondent No. 2 from
representing or holding themselves out or acting or functioning as directors of
the said company in any way and from interfering with the management and
affairs thereof. A permanent injunction was also sought restraining the
appellant and respondent No. 2 from entering into or attending the offices of
the said company. On the same date, that is, January 7, 1987, respondent No. 1
moved an application in the said suit for the following interim orders:
(a) An injunction restraining the
appellant and respondent No. 2 from representing or holding themselves out or
acting or functioning as directors of the said company in any way and from
interfering or inter meddling in the management and affairs of the latter.
(b) An injunction restraining the appellant
and the respondent No. 2 from entering or attending the offices of the said
company.
The
Case of respondent No. 1 in his pleadings was, inter alia, that the appellant
was appointed as a managing director of the said company for a period of five
years from May 1, 1981. On April 30, 1986, the appellant ceased to be the
managing director of the said company.
On
the basis of the minutes of the meeting of the board of directors held on
August 18, 1986, and the said notice of the annual general meeting of the said
company dated November 24, 1986, the appellant was claiming to have been
appointed as an additional director of the said company on August 16 1986. It
would be apparent from the minutes of the said meeting of the board of
directors held on August 16, 1986, that the appellant was not appointed as an
additional director of the said company at the said meeting.
In
any event, the appointment of the appellant as an additional director, if at
all, could continue only until the next annual general meeting of the said
company. In the agenda of the said annual general meeting under item No. 6, it
was proposed to appoint the appellant as a director of the said company. In the
explanatory statement annexed to the said notice, it was stated that the
appellant continued to hold office as an additional director of the said
company only up to the date of the said annual general meeting.
Under
section 260 of the Companies Act, 1956, and also under article 111 of the
articles of association of the said company, the appellant, as an additional
director, could hold his office only up to the date of the next annual general
meeting of the said company. In the premises, on the date of the next annual
general meeting, i.e., December 29, 1986, the appellant ceased to be a director
of the said company. In spite thereof, the appellant has continued to represent
and had held himself out to be a director of the said company, was acting as
such and interfering and intermeddling in the management of the affairs of the
said company.
The
appellant affirmed on affidavit on January 10, 1987, which was filed in
opposition to the petition of respondent No. 1. It was contended in the said
affidavit that the suit filed by respondent No. 1 as framed was not
maintainable as the said company had not been made a party thereto. It was
contended further that the said company should have been the proper plaintiff
and there was no explanation why it was not impleaded. The suit was liable to
be dismissed on the ground of nonjoinder of the said company. In any event,
respondent No. 1 was not entitled to any interlocutory relief and leave granted
under Order 1, rule 8 of the Code of Civil Procedure should be revoked. It was
further contended that he had been a director of the hotels company and the freight
company which were private limited companies since their inception and was also
the managing director of the freight company. After the merger of the said
companies, the appellant was appointed the managing director of the hotels
company in terms of the scheme sanctioned by this court. He was thereafter
reappointed as the managing director of the said company by its board of
directors with effect from May 1, 1981, for five years.
The
appointment of the appellant as the managing director of the said company was
approved by its shareholders at an extraordinary general meeting held on
January 11, 1983. The said appointment was also approved by the Central
Government.
It
was contended that the appellant was not appointed as a director, additional or
otherwise, at the general meeting of the board of directors of the said company
held on August 16, 1986. The appellant was already a director on that date.
After the expiry of his appointment as the managing director of the said
company, the appellant continued as a director thereof. The termination of the
office of the managing director did not bring to an end the office of the
appellant as a director. This position was reiterated and reaffirmed at the
said meeting of the board.
The
notice of the annual general meeting to be held on November 24, 1986, the
explanatory statement thereto and the relevant portions of the directors'
report for the said meeting had to be construed in the context of the aforesaid
and to the extent the same were inconsistent with the aforesaid would be of no
consequence. The same would be subject to suitable correction and the said
meeting had been adjourned under orders of this court.
It
was contended in the alternative that the description of the appellant as an
additional director appointed on August 16, 1986, was a mis-description or a
misnomer and did not affect the factual position that the appellant was a
director of the said company and was entitled to continue as such till the next
annual general meeting of the company was held. The said annual general meeting
has not yet been concluded and after transaction of some business had been
adjourned under orders of court.
Respondent
No. 1 affirmed on affidavit on January 12, 1987, which was filed in reply to the
aforesaid affidavit of the appellant. It was alleged in the said affidavit,
inter alia, that the appellant was never appointed as a director of the said
company. In any event, the appellant could not continue to act as a director or
managing director of the said company after April 30, 1986. In the alternative,
it was contended that the appellant was only entitled to hold office as a
director up to the date of the next annual general meeting of the said company
to be held on December 29, 1986, after which he would cease to be a director of
the said company.
The
said application of respondent No. 1 was allowed as against the appellant by a
judgment and order dated November 19, 1987, of the first court. It was held by
the learned judge, inter alia, that the application of respondent No. 1 was
prima facie maintainable as respondent No. 1 was not asserting any corporate
right. The said company might be a proper party but it could not be held prima
facie that it was a necessary party in whose absence no interim order could be
passed.
The
learned judge noted that the appellant was not quite clear about his case and
that there was some confusion in his pleadings. It was held that it was not
established that the appellant was appointed as an additional director on
August 16, 1986, though he was described as such in the records. It was also
not shown that the appellant has been appointed a director by the shareholders
of the said company at any annual general meeting. On the facts, it was
necessary for the court to construe the scope and effect of section 260 of the
Companies Act, 1956, in the case of the appellant. The learned judge noted that
the appellant had made out a contrary case before the Company Law Board
contending that he was appointed as an additional director of the said company
on August 16, 1986, and that there was no evidence that the appellant was ever
appointed a director by the shareholders. The learned judge recorded that the
articles of association of the said company as also those of its predecessors
in force at the relevant time in 1971 were not produced. The subsequent
articles of association adopted by the said company, it was held, were not
relevant. The learned judge came to the conclusion that the appellant had
failed to establish that he was a director appointed by the shareholders or
that he had been appointed as an additional director of the said company on
August 16, 1986, or at any other meeting.
The
present appeal is from the said judgment and order dated November 19, 1987. At
the instance of the parties, the appeal was treated as in the day's list and
was heard along with the application filed in the appeal. The appearing
respondents waived service of the notice of the appeal. Service of such notice
on the non-appearing respondent was dispensed with. By consent of the appearing
parties, filing of paper book was dispensed with and the undertaking given in
that behalf was directed to stand discharged. The records and pleadings before
the first court were produced and considered.
At
the hearing, learned advocate for the appellant produced before us the original
memoranda and articles of association of the hotels company and the freight
company as at the time of their incorporation. The memorandum and articles
which were adopted after the freight company merged into the hotels company and
which were again adopted when the amalgamated company was converted into a
public limited company were already on record.
Learned
advocate for the appellant submitted that the appellant had been duly appointed
as one of the first directors of the hotels company as also of the freight
company under their respective articles and that the appellant had continued in
his office as such director all along. After the freight company merged into
the hotels company, the appellant continued to be a director of the amalgamated
company by reason of his original appointment as a director in both the
original companies. The hotels company and the freight company, till their
amalgamation, remained private companies. After the merger, the amalgamated
company also remained a private company till November 4, 1981. It was submitted
that till November 4, 1981, there was no question of retirement of the
appellant from his office as a director under sections 255 and 256 of the Companies
Act, 1956, inasmuch as till that date the companies involved remained private
companies.
It
was submitted that after the amalgamated company became a public company, the
question of retirement of the appellant from his office as a director thereof arose
for the first time. But on May 1, 1981, the appellant was duly reappointed as
the managing director of the said company for a period of five years. Under
article 144 of the articles of association of the said company, as long as the
appellant continued to hold the office of the managing director, he was not
subject to retirement by rotation and as such the appellant continued to be a
director as also the managing director of the said company till April 30, 1986,
when the tenure of the appellant as the managing director of the said company
came to an end. On and from May, 1986, the appellant ceased to be the managing
director of the said company but continued to retain his office as a director
thereof and would be liable to retire at the next annual general meeting of the
said company but not before that. The next annual general meeting which was
initially scheduled to be held on December 29, 1986, has not yet been
concluded. By reason of the orders passed in the said Suit No. 934 of 1986
instituted by Gopal Vyas, the meeting stands adjourned from time to time and
the appellant continues to be a director of the said company.
Learned
advocate for the appellant also submitted that at a meeting of the board of
directors of the said company held on November 24, 1986, the appellant has been
reappointed as the managing director and chairman of the board of directors of
the said company for a further period of three years with effect from January
J, 1987.
Learned
advocate submitted further that in the facts and circumstances, no prima facie
case has been made out by respondent No. 1 that the appellant has ceased to be
a director of the said company and as such respondent No. 1 was not entitled to
the interim order in his suit under appeal. This interim order has resulted in
the ouster of the appellant from his office. By the said interim order, the
suit of respondent No. 1 stands decreed in part at the initial stage. On the
ground of balance of convenience also, such an interim order should not have
been passed.
Learned
advocate for the appellant also submitted that no interim order should have
been passed in the suit instituted by respondent No. 1 in the absence of the
said company. The said company was vitally interested as to who were its
directors and the interim order passed in the suit of respondent No. 1
seriously affects the administration of the said company. The said company is a
necessary party to the suit and in its absence the suit was liable to be
dismissed. It was also submitted that the pleadings of respondent No. 1
contained categoric admissions that the appellant had continued as a director
of the said company till its next annual general meeting and it could not be
contended by respondent No. 1 that the appellant was never appointed as a
director at all.
Learned
advocate for Sudhir Kumar Bhattacharyya, respondent No. 7, supported the
appellant.
In
support of his contentions, learned advocate for the appellant relied on and
cited the following decisions.
(a) Richard B.T.H. Chow v. James Chow Wakin [1970]
75 CWN 173. In this se, it was laid down by a Division Bench of this court that
in an application for an injunction restraining persons from acting as
directors, one of the considerations was whether the case of the applicant was
manifestly clear and free from doubt so as to entitle him to an injunction in
an interlocutory proceeding. Where the appointment of the directors had not
been disputed but they were sought to be restrained by an injunction on other
grounds which could not be said to be free from doubt, other questions such as
delay, acquiescence, balance of convenience and waiver were required to be
considered. It was observed as follows:
"In the case of an
illegality arising out of clear and manifest violation of statutory provisions,
the court has the power, and indeed it is the duty of the court, to restrain a
person from acting as a director of a company, and insuch cases, delay,
acquiescence, balance of convenience and waiver would be no bar to the issue of
an injunction".
(b) Catesby v. Burnett [1916] 2 Ch 325. In this case, the articles of
association of a company provided that a member would be qualified to be
elected a director of the less than 14
clear days before the date of election of directors. An ordinary general
meeting of the company was held on December 10, 1959, when two of the directors
retired but there was no election of new directors. A committee of shareholders
was appointed to investigate into the affairs of the company and submit a
report to the general meeting which was adjourned to a future date. In the
meantime, notice was given to the company by a member stating that at the
adjourned meeting he proposed to move for election of four directors. At the
adjourned meeting, it was held by the chairman that the subsequent notice for
election of directors was invalid and he left the meeting. Thereafter, the
shareholders appointed a new chairman and elected four new directors. On an
application by the shareholders for an interim injunction to restrain the
former two directors, who had retired earlier, from continuing to act as
directors, it was held that the date of the election of the directors within
the meaning of the said article was the date of the adjourned meeting and that
the notice for election of the four new directors was in compliance with the
articles. It was held that the said directors had been duly elected at the
adjourned meeting and the directors who had retired on the earlier occasion
were not entitled to act as directors.
(c) United Commercial Batik v. Bank of
"In the instant case, the High Court has
assumed that the plaintiffs had a prima facie case. It has not touched upon the
question where the balance of convenience lay, nor has it dealt with the
question whether or not the plaintiffs would be put to irreparable loss if
there was no injunction granted. In dealing with the prima facie case, the High
Court assumes that the appellant was in breach. There is no basis for this
assumption at all ... The question whether the appellant was in breach is an
issue to be tried in the suit".
Learned advocate for the
appellant also cited an unreported judgment dated November 22, 1985, in Appeal
No. 260 of 1984, entitled Ambari Tea Co. Ltd. v. Manjushree Saha. I was a party to this
judgment where it was held, inter alia,
construing the provisions of section 256 of the Companies Act, 1956, that
directors appointed by the shareholders in an annual general meeting of a
company do not retire ipso facto from their office if no further annual general
meetings of the company are held. It was only at the subsequent annual general meetings that
the retirement of the erstwhile directors and their re-election as also
election of new directors would have to be decided. A different construction of
section 256 of the Act would result in a vacuum in the management of a company
which is not the object of the statute. The retirement of the directors
appointed earlier would take place at the actual meeting held.
Learned
advocate for respondent No. J contended to the contrary and submitted that it
was the admitted position that the appellant was neither an additional director
appointed by the board of directors of the said company nor was he a director
appointed by the shareholders of the said company or its predecessors at any
annual general meeting. The appellant could at best be deemed to be a director
of the companies involved as a subscriber to the memoranda of association under
section 254 of the Companies Act, 1956. In any event, as such a deemed
director, the appellant could not have been continued as a director of the said
company or its predecessors for all time. Such a deemed office would
necessarily come to an end when directors would be duly appointed by the
companies involved at their annual general meeting under section 255 of the
Companies Act, 1956.
Learned
advocate for respondent No. 1 next submitted that even though the appellant was
nominated as one of the first directors in the hotels company as also the
freight company, he could not continue in his office as a director in the said
companies indefinitely on the strength of his nominations. Construing sections
254, 255 and 256 of the Companies Act, 1956, learned advocate for respondent
No. 1 submitted that even in a private company, as a rule, directors were meant
to be appointed in general meetings. The first directors of a private company
nominated in the articles would be in the same position as the deemed directors
of such a company under section 254 of the Companies Act, 1956, and they would
cease to hold their office at the first general meeting where regular directors
were to be appointed. If the first directors were not reappointed or re-elected
as directors at the annual general meeting of the company held after its
incorporation, they would cease to hold their office. It was submitted that the
above appeared to be the scheme of the statute.
Learned
advocate for respondent No. 1 conceded that section 255 of the Companies Act,
1956, provided an exception in the case of private companies to the general
rule that the directors of a company other than additional directors should be
appointed in a general meeting. If the articles of association of a private
company provided for appointment of directors otherwise than in a general
meeting, the same would override the general rule laid down in the section. In
the instant case, the articles of the hotels company from which the office
claimed by the appellant originated only provided that the appellant would be
one of the first directors. It was not stated that the appellant would continue
as such first director for any particular or definite period, limited or
unlimited. In the absence of any provision for period of office of the first
directors, the articles could not and did not override the general rule in
section 255 of the Act and the directors of the hotels company as also of the
freight company were required to be appointed in the usual course under section
255 of the said Act at the first general meeting of the said companies held
after their incorporation. The appellant was admittedly never appointed as a
director of any of the companies involved at any general meeting and as such
the appellant could not continue to hold his office as a director only by
virtue of his initial appointment as a first director in the hotels company or
the freight company under their respective articles.
It
was next submitted that the fact that the appellant has continued as a director
and also a managing director of the companies involved since their inception
would not make any difference to the legal position. The appellant ceased to
hold his office as a director of the companies involved long ago and thereafter
he was never reappointed by the shareholders of the companies involved at any
annual general meeting. There was no other basis on which the appellant could
claim or was claiming that he had been appointed and remained a director of the
said company.
It
was submitted that more than a prima facie case had been established by
respondent No. 1 that the appellant has ceased to have any locus standi to
continue to act as a director of the said company. The interim order passed by
the first court under appeal was a proper and valid order and should be
sustained.
It
was submitted last that the said company might be a proper party in the
proceedings but it could not be held that it was a necessary party in the
absence of which the suit of respondent No. 1 was bound to fail. In the instant
case, an effective order could be made restraining the appellant from
continuing to act as a director of the said company in the absence of the
latter.
In
support of his contentions, learned advocate for respondent No. 1, relied on
what he stated to be an official circular published in Company News and Notes,
dated July 1, 1963, on section 256 of the Companies Act, 1956, as follows:
Section
256 : Retirement of directors :
(b) It is open to a private company which is not
a subsidiary of any public company to provide in its articles, the manner of
appointment and the vacation of office of all its directors. Thus it is
permissible for such a private company to provide in its articles that none of
its directors is liable to retire by rotation. In the absence of anything to
the contrary in the articles of association, however, all the first directors
of such a private company who have been appointed under the articles may hold
office till the directors are appointed in accordance with the provisions of
section 255(2) at the first general meeting held after incorporation but before
the holding of the first annual general meeting.
Learned
advocate for respondents Nos. 1 and 7 also relied on and cited the following
decisions:
(a) Eyre v. Milton Proprietary Limited [1936]
1 Ch I) 244. In this case, the relevant article of association of a company
provided that an additional director of the company could hold office only until
the next following ordinary general meeting of the company. Construing the said
article, the English Court of Appeal held that at the ordinary general meeting
of the company, the additional directors will not be in office. That is, at the
moment when the next following ordinary general meeting of the company would
begin, the said directors would no longer be in office whereas the other
directors who were not additional directors but under the relevant articles of
association were scheduled to retire at the said ordinary general meeting would
continue to act as directors throughout the meeting.
(b) Udit Narain Singh Malpaharia v. Additional
Member, Board of Revenue,
"A necessary
party is one without whom no order can be made effectively; a proper party is
one in whose absence an effective order can be made but whose presence is
necessary for a complete and final decision on the question involved in the
proceeding".
(c) Joseph v. Jos [1964] 34 Comp Cas 931. This
decision of a learned judge of the Kerala High Court was cited for the
proposition that where infringement of a corporate membership right was
alleged, the remedy of a shareholder of a company was by way of a
representative action on behalf of himself and other shareholders or in some
instance by an action in the name of the company. But if such a corporate
membership right was subject to the will of the majority expressly, in
accordance with law and the articles of the company, then the same would be a
matter of internal management and could not be questioned except in very
limited cases. But where the wrong complained of was one which could not be
ratified by the majority as the same would be against the provisions of the
articles of association or otherwise illegal, any shareholder of the company
could insist on strict observance of the legal rules, statutory provisions and
the provisions of the memorandum and articles which could not be waived even by
a majority of the shareholders. In such a case, a suit and action initiated by
the shareholders would be maintainable.
(d) Comptroller of Customs v. Western Lectric
(e) Ram Autar Jalan v. Coal Products P. Ltd.
[1970] 40 Comp Cas 715 (SC). In this case, a suit was instituted by a company
alleging that the defendant was wrongfully and without authority purporting to
act as one of its directors. An application was filed in the suit for an
injunction restraining the defendant from acting as director and from operating
a bank account of the company. The company produced its share registers,
minutes books and other documents which established that the defendant was
neither a shareholder of the company nor had he been appointed as a director.
The first court refused to grant any injunction, inter alia, on the ground that
the defendant was. functioning as a director de facto. On an appeal, the said
decision was reversed and an interim injunction was granted against the
defendant on a consideration of the records of the company. On further appeal
to the Supreme Court, the order of the first appeal court was upheld. The
Supreme Court observed that the whole question was whether the defendant was
entitled to function as a director in law and the first court instead of
considering this important aspect decided the matter mainly on the basis that
the defendant was functioning as a director de facto. The first court was also
not justified in ignoring the records produced by the company to establish that
the defendant was neither a shareholder nor had been appointed a director.
(f) Desk Bandhu Gupta and Co. v. Delhi Stock
Exchange Association Ltd., AIR 1979 SC 1049. In this case, the Supreme Court in
construing a notification issued by the Central Government under section 18 of
the Securities Contracts (Regulation) Act, 1956, dated June 27, 1969, took note
of and considered a press statement issued by the Ministry of Finance
immediately upon the issuance of the notification and also a communication
dated June 28, 1969, from the Joint Director of the Ministry of Finance,
Department of Economic Affairs. The Supreme Court observed as follows (at p.
1054):
"It may be stated that it was not disputed
before us that these two documents which came into existence almost
simultaneously with the issuance of the notification could be looked at for
finding out the true intention of the Government in issuing the notification in
question, particularly in regard to the manner in which the outstanding
transactions were to be closed or liquidated. The principle of contemporanea
expositio (interpreting a statute or any other document by reference to the
exposition it has received from contemporary authority) can be invoked though
the same will not always be decisive of the question of construction. (Maxwell,
12th edition, page 268). In Crawford on Statutory Construction, 1940 edition,
in para. 219, at pages 393-395, it has been stated that administrative construction
(i.e., contemporaneous construction placed by administrative or executive
officers charged with executing a statute) generally should be clearly wrong
before it is overturned; such a construction, commonly referred to as a
practical construction although not controlling, is nevertheless entitled to
considerable weight as it is highly persuasive".
In reply, learned advocates
for the appellant and respondent No. 7 submitted that under section 255 of the
Companies Act, 1956, directors could be appointed by the shareholders of a
private company at a general meeting. This might be the general rule. But, in
the section itself, an exception was provided that in a private company the
articles of association could provide for appointment of directors otherwise than
in a general meeting by the shareholders and if such a provision was made, the
articles would override the section.
In the instant case, the
articles of association of the freight company as also the hotels company not
only provided for but actually appointed the appellant as a director of both
the companies by nomination. The articles did not provide as to how long the
appointment of such first directors would continue and, therefore, it must be
held that the first directors would continue in their office indefinitely. The
articles did not provide that the first directors would continue only till the
next general meeting of the said companies.
Construing sections 255 and
256 of the Companies Act, 1956, learned advocates for the appellant and
respondent No. 7 submitted that the said sections specifically provided for
appointment of directors of a public Company as also of a private company.
Retirement of directors of a public company was also provided for. The said
sections did not provide for termination of the office of a director of a
private company. Section 283 of the Companies Act, 1956, provided for vacation
of office by directors of a company in certain contingencies. In that section,
it was not provided that the first directors of a private company appointed by
its articles would vacate their offices at the next general meeting.
To appreciate the
controversies involved, it is convenient to refer to the relevant provisions of
the Companies Act, 1956:
"Section 2(26):
'Managing director' means a director who, by virtue of an agreement with the
company or of a resolution passed by the company in general meeting or by its
board of directors or, by virtue of its memorandum or articles of association,
is entrusted with substantial powers of management which would not otherwise be
exercisable by him, and includes a director occupying the position of a
managing director, by whatever name called".
"Section 26 : There
may in the case of a public company limited by shares, and there shall in the
case of an unlimited company or a company limited by guarantee or a private
company limited by shares, be registered with the memorandum, articles of
association signed by the subscribers of the memorandum, prescribing
regulations for the company".
"Section 254 : In
default of and subject to any regulations in the articles of a company,
subscribers of the memorandum who are individuals, shall be deemed to be the
directors of the company, until the directors are duly appointed in accordance
with section 255".
"Section 255(1) :
Unless the articles provide for the retirement of all the 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".
"Section 256(1) : At
the first annual general meeting of a public company, or a private company
which is a subsidiary of a public company, held next after the date of the
general meeting at which the first directors are appointed in accordance with
section 255 and at every subsequent annual general meeting, one-third of such
of the directors for the time being as are liable to retire by rotation, or if
their number is not three or a multiple of three, then, the number nearest to
one-third, shall retire from office".
"Section 260 : Nothing
in section 255, 258 or 259 shall affect any power conferred on the board of
directors by the articles to appoint additional directors:
Provided that such
additional directors shall hold office only up to the date of the next annual
general meeting of the company:..".
We also note the provisions
of articles 111 and 144 of the articles of association which were adopted by
the said company.
Article 111 : The board is empowered,
at any time and from time to time, to appoint any other person to be a director
of the company,... as an addition to the board, but so that the total number of
directors shall not exceed the maximum for the time being prescribed. A
person.......who is appointed as an additional director shall hold office only
up to the date of the next annual general meeting, but such person shall, in
either case, be eligible for re-election.
Article 144 : Subject as
hereinafter provided, a managing director (which expression shall include a
joint managing director) shall not, while he continues to hold that office, be
subject to retirement by rotation of directors or be taken into account in
determining the number of directors liable to retire by rotation of directors;
but if he ceases for any cause to hold the office of director, he shall, ipso
facto and immediately, cease to be managing director.
In this appeal, the scope
of the enquiry is limited to the prima facie determination of the initial
appointment of the appellant as a director of the companies involved and his
continuation in such office up to the relevant time. On such prima facie
determination will depend whether the appellant was a lawful director of the
said company at the date of the institution of the suit.
It being the common case
that the appellant had not been appointed as an additional director in any of
the companies involved and that the appellant was not claiming to hold the post
of such additional director, the question whether the appellant ceased to hold
such office as an additional director at the date of the annual general meeting
to be held on December 29, 1986, need not be considered further.
We note that the case of
the appellant made in his pleadings is contradictory to certain statements in
the records of the said company, namely, the notice dated November 24, 1986,
convening the said annual general meeting and the explanatory statement thereto
as also the directors' report. We also note that the stand taken by the
appellant before the
Company Law Board is also contradictory to the pleadings of the appellant in
this suit. Such contradictory stands of the appellant as to his office and
status cannot in our view affect the actual legal position which is to be
ascertained prima facie from the entire facts and circumstances.
It
stands established from article 111 of the articles of association of the
hotels company that the appellant was initially appointed as one of its first
directors. Such appointment was not as an additional director. The said article
also did not prescribe any time limit up to which the appellant would continue
in his office.
The
appointment of the appellant as a director of the freight company was made by
and recorded in the articles of association of the said company in an identical
manner.
When
the freight company was amalgamated with the hotels company, the appellant
continued to be a director of the amalgamated company.
Both
the hotels company and the freight company were private companies and their
articles did not provide for retirement of their directors and as such there
was no question of retirement of the appellant from his office at any
subsequent annual general meeting. Furthermore, the appellant, at the material
time, had been appointed as the managing director of the freight company and
continued as managing director of the amalgamated company. Under article 144 of
the articles of association adopted by the amalgamated company, the appellant
was not liable to retire from his office of director as long as he continued to
hold the post of managing director.
On
April 30, 1987, when the appointment of the appellant as the managing director
of the said company came to an end, the said company had become a public
company and only then the question of retirement of the appellant from his
office as director arose for the first time on May 1, 1986. In the ordinary
course, the appellant, after the termination of his office as a managing
director, would continue in his office as a director but would be liable to
retire at the next annual general meeting of the said company which was
scheduled to be held on December 29, 1986.
Respondent
No. 1 does not dispute that the appellant had been appointed as one of the
first directors of the hotels company as also of the freight company under
their respective articles of association. The contention of respondent No. 1 is
that the office of appellant No. 1 as first director came to an end at the next
general meetings of the two companies inasmuch as under sections 255 and 256 of
the Companies Act, 1956, the directors of a private company, apart from the
additional directors, were generally required to be appointed at a general
meeting by the shareholders unless the articles provided otherwise. The
articles of the said private companies being silent as to the term of office of
their first directors, it was contended that the first directors would continue
in their office till the next general meeting of the said private companies.
We
are unable to accept this contention of respondent No. 1. The expression
"first director" appears only in section 256 of the Companies Act,
1956, noted hereinabove and the said section applies only to public companies.
The section provides for retirement of the first directors by rotation at every
annual general meeting from the meeting held next after the general meeting at
which they were appointed.
It
is to be noted that this section does not deal with the appointment of first
directors in a private company.
Section
255 of the Companies Act, 1956, provides, inter alia, also for retirement of
directors of a public company. The section also provides for appointment of
directors in both public companies and private companies.
So
far as a private company is concerned, which is not a subsidiary of a public
company, the section provides that the directors of such a company are to be
appointed in a general meeting as in a public company but such appointment
would be subject to the articles which may provide otherwise.
It
appears to us on a plain reading of the section that if the articles are silent
as to the appointment of directors in a private company, or do not specifically
provide for appointment of directors otherwise than in a general meeting, then
the directors of a private company are to be appointed by the shareholders at
general meeting.
In
the instant case, article 111 of the articles of association of the hotels
company and freight company provided for and appointed the appellant as one of
its first directors. Under section 256 of the said Act read with section 26
thereof, such an article may be held to prescribe, and constitute a regulation.
This article, in our view, constituted an exception to the general rule laid
down under section 255 of the Act. Under the article, the appellant was
appointed as one of the first directors of the private company under the
provisions of section 255 of the Companies Act, 1956. The article also did not
provide for retirement or termination of office of such first directors at any
point of time. Accordingly, in our view, as long as the said two companies
continued to be private companies and after their amalgamation remained a
private company, there was no question of
retirement of the appellant from his office as a director or such office coming
to an end.
We are unable to accept the
interpretation of sections 255 and 256 of the Companies Act, 1956, as contained
in the so called circular, which has been relied on by learned advocate for
respondent No. 1. We are not sure as to who is the author of this so called
circular. Apparently, this alleged circular is an excerpt from Company News and
Notes, presumably a journal. In any event, this document is not a
contemporaneous exposition or interpretation of sections 255 and 256. As such,
this document cannot be treated in the same manner as a clarification or
exposition issued by a competent authority. In our view, the principles laid
down by the Supreme Court in Desh Bandhu Gupta and Co., AIR 1979 SC 1099, do
not apply to this document. In any event, the said document cannot be a
conclusive exposition.
From the facts on record,
it appears to us prima facie that the appellant was appointed as a director of
the hotels company under its articles under section 255 of the Companies Act,
1956, and continued in his office as a director after the freight company was
amalgamated with the hotels company. The amalgamated company continued as a
private company till November 4, 1981. On May 1, 1981, the appellant was
appointed as a managing director of the amalgamated company with the approval
of the Central Government and the shareholders for a period of five years. As
such, under article 144 of the said companies, there was also no question of
the appellant retiring from his office as a director till April 30, 1986, even
though the amalgamated company became a public company on and from November 4,
1981.
We also hold prima facie
that on the termination of his office as a managing director, the appellant did
not automatically lose his office as a director in the said company. We accept
the contention of the appellant that the appellant continued to be a director
of the said company which had become a public company by November 4, 1981, and
was liable to be retired at the next annual general meeting scheduled to be
held on December 29, 1986. This meeting was held partially on December 29,
1986, but was not concluded and the meeting was restrained from considering or
passing resolutions pertaining to retirement, appointment or reappointment of
directors which were directed to be considered at an adjourned date. Following
the principles laid down in Ambari Tea Co. Ltd. (Appeal No. 260 of
1984—22-11-85 (Cal)), we hold that the question of retirement of the appellant
would only arise at the adjourned date of the said annual general meeting of
the company when the said meeting is held and not before that.
It follows that on the date
when the present suit was instituted, the appellant prima facie was a director
of the said company and was entitled to act as such. This prima facie position
arises from the undisputed facts on record and cannot be affected or detracted
by statements or declarations to the contrary by the parties concerned or the
said company. A legal position or status cannot be affected by a wrong or
erroneous description. Admission, if any, by respondent No. 1 that the
appellant had continued as a director or as an additional director would also
be equally irrelevant.
It is unfortunate that the
memorandum and articles of association of the hotels company or the freight
company were not produced or relied on before the learned judge in the first
court nor was a clear stand taken before the first court as to how the
appellant initially came to be appointed as a director of the companies
involved. If this was done, proceedings before the first court might have been
shortened and the correct position in law and fact would have emerged.
We next consider whether
the present proceedings are maintainable in the absence of the said company. As
we have held that it has been prima facie established that the appellant is
continuing as a director of the said company and is liable to retire at the
next annual general meeting, it is not necessary to determine this question at
the interlocutory stage. Under the amended Civil Procedure Code, the suit
instituted by respondent No. 1 may ultimately fail by reason of non-joinder of
the said company which may be held to be a necessary party. It is open to
respondent No. 1 to apply for impleading the said company in the suit at any
time before the same is finally disposed of. It is also open to the court to
implead the said company in the suit suo motu at any stage. In that view, we
are not inclined to hold that by reason of non-joinder of the said company in
the suit at this stage, an interlocutory application in the suit will
necessarily fail.
For the above reasons, this
appeal is allowed. The judgment and order dated November 19, 1987, are set
aside so far as the appellant is concerned. The appeal and the application are
disposed of accordingly. Costs of the proceedings before us would be costs in
the suit.
We note that in the
proposed annual general meeting of the said company which stands adjourned by
orders of court, no resolution has been proposed recording the retirement of
the appellant or for his re-election as a director. This is a question which
would arise at the meeting and we express no opinion on the same.
Shyamal K. Sen J.—I agree.
[1988] 64 COMP. CAS. 562 (
v.
Navin Chand
Suchanti
DIPAK KUMAR SEN, ACTG., C.J.
AND SHYMAL KUMAR SEN, J.
JANUARY 12, 1988
JUDGMENT
Dipak Kumar Sen, ACTG.,
CJ.—The material facts on record and the proceedings
leading up to this appeal are, inter alia, that Sinclair Freight and Chartering
Consultants P. Ltd. (hereinafter referred to as "the freight
company") was incorporated under the Companies Act, 1956, on June 20,
1968. Swapan Dasgupta, the appellant, was a subscriber to the memorandum of the freight company
and under article 11 of the articles of association of the freight company the
appellant became and was named as one of its first directors. The appellant was
also appointed a managing director of the freight company and continued as such
till the time as hereinafter stated.
On
December 2, 1971, Sinclair Hotels P. Ltd. (hereinafter referred to as "the
hotels company") was incorporated under the Companies Act, 1956. The appellant
was also one of the subscribers to the memorandum of the hotels company and
under article 11 of the articles of association of the hotels company, the
appellant became and was named as one of the first directors thereof.
On
July 14, 1978, a scheme of amalgamation was approved and sanctioned by this
court in Company Petition No. 196 of 1978 connected with Company Application
No. 39 of 1978 whereby the business and undertaking including all property,
assets and liabilities of the freight company was directed to be transferred
and vested in the hotels company on the terms and conditions of the said
scheme. After such transfer and vesting, the freight company was directed to be
dissolved.
It
was provided in the said scheme that the hotels company would take over the
services of the existing managing director of the freight company, i. e., the
appellant, on the same terms and conditions.
The
name of the hotels company was subsequently altered to
Subsequent
to the amalgamation, the appellant continued as a managing director of the
hotels company. On May 1, 1981, the appellant was reappointed as the managing
director of the hotels company for a period of five years. On November 4, 1981,
the hotels company was converted into a public limited company and named as
The
appointment of the appellant as the managing director of the said company was
approved by the Central Government by its letters dated September 13, 1982, and
May 17, 1983.
At
an extraordinary general meeting of the shareholders of the said company held
on January 11, 1983, the appointment of the appellant as the managing director
for live years was approved with effect from May 1, 1981.
On
April 30, 1986, the appellant ceased to be the managing director of the said
company but continued to act as a director and the chairman of the board of
directors thereof.
On
August 16, 1986, there was a meeting of the board of directors of the said
company which was presided over by the appellant. At this meeting, a committee
of management was constituted with the appellant as the chairman. Certain
additional duties in respect of the affairs of the said company were allotted
to the appellant and it was decided to issue a power of attorney in his favour.
It was recorded in the minutes of its meeting, inter alia, that the appointment
of the appellant as the chairman-director of the said company had been and was
thereby reaffirmed until the next annual general meeting of the said company.
In the return of the said company filed with the Registrar of Companies on
September 8, 1986, it was recorded that the appellant had been appointed the
chairman-director and the constituted attorney of the said company on August
16, 1986.
On
November 24, 1986, a notice was issued convening the annual general meeting of
the said company to be held on December 29, 1986. Under item No. 6 of the
agenda, an ordinary resolution was proposed to be passed that the appellant be
appointed as a director of the said company on a notice under section 257 of
the Companies Act, 1956, by a member of the company. In the explanatory
statement to the said notice, it was further stated that on August 16, 1986, at
a meeting of the board of directors of the said company, the appellant had been
appointed as the chairman-director and constituted attorney of the. said
company until the next annual general meeting and that the appellant will hold
his office as such additional director up to the date of the said meeting.
In
the directors' report it was also stated that the appellant had retired as the
managing director of the said company on April 30, 1986, but had continued as
the chairman. Pursuant to article 111 of the articles of association of the
said company, the appellant will hold his office up to the date of the next
annual general meeting.
At
a meeting of the board of directors of the company held on November 24, 1986, a
resolution was passed again appointing the appellant as the managing director
and chairman of the said company for a period of three years with effect from
January 1, 1987.
On
or about December 22, 1986, one Gopal Vyas, a shareholder of the company,
instituted a suit in this court against the said company and others, being Suit
No. 934 of 1986, entitled Gopal Vyas v. Sinclairs Hotels and Transportation
Ltd. (Suit No. 934 of 1986—22-12-1986), challenging, inter alia, the proposed
appointment of the appellant and others as directors of the said company and
the annual general meeting proposed to be held on December 29, 1986. On the
same date, an ad interim order was passed in the said suit whereby it was
directed that the said meeting would be held on December 22, 1986, only for the
purpose of adjournment and a learned advocate of this court was appointed as
the chairman to preside over the said meeting. On an appeal from the said ad
interim order, on December 23, 1986, the appeal court modified the said ad
interim order and directed that the said annual general meeting would be held
on December 29, 1986, as scheduled but items Nos. 3, 4, 6, 7 and 8 of the
agenda which related to the appointment of directors would stand adjourned till
January 20, 1987. By subsequent directions of the court, the said meeting still
stands adjourned.
On
February 6, 1987, a further order was passed by the appeal court whereby it was
made clear that the order passed by the appeal court on December 23, 1986, was
not intended to affect the position of the existing directors of the said company
by reason of the directions to hold the said annual general meeting in part and
adjourning the other items of the agenda. The parties were, however, left free
to contend that the status of the existing directors of the said company were
affected for reasons apart from the said meeting.
Some
time in June, 1986, Navin Chand Suchanti, respondent No. 1, acquired some
shares of the said company and became a shareholder. On January 7, 1987,
respondent No. 1 filed the above suit, being Suit No. 5 of 1987, against the
appellant and respondents Nos. 2 to 9 with leave under Order 1, rule 8 of the
Code of Civil Procedure claiming, inter alia, a declaration that appellant No.
1 was never appointed as an additional director of the said company and that
the appellant and Sanat Kumar Mukherjee, respondent No. 2, were not directors
of the said company after December 29, 1986. Respondent No. 1 also claimed a
permanent injunction restraining the appellant and respondent No. 2 from
representing or holding themselves out or acting or functioning as directors of
the said company in any way and from interfering with the management and
affairs thereof. A permanent injunction was also sought restraining the
appellant and respondent No. 2 from entering into or attending the offices of
the said company. On the same date, that is, January 7, 1987, respondent No. 1
moved an application in the said suit for the following interim orders:
(a) An injunction restraining the
appellant and respondent No. 2 from representing or holding themselves out or
acting or functioning as directors of the said company in any way and from
interfering or inter meddling in the management and affairs of the latter.
(b) An injunction restraining the
appellant and the respondent No. 2 from entering or attending the offices of
the said company.
The
Case of respondent No. 1 in his pleadings was, inter alia, that the appellant
was appointed as a managing director of the said company for a period of five
years from May 1, 1981. On April 30, 1986, the appellant ceased to be the
managing director of the said company.
On
the basis of the minutes of the meeting of the board of directors held on
August 18, 1986, and the said notice of the annual general meeting of the said
company dated November 24, 1986, the appellant was claiming to have been
appointed as an additional director of the said company on August 16 1986. It
would be apparent from the minutes of the said meeting of the board of
directors held on August 16, 1986, that the appellant was not appointed as an
additional director of the said company at the said meeting.
In
any event, the appointment of the appellant as an additional director, if at
all, could continue only until the next annual general meeting of the said
company. In the agenda of the said annual general meeting under item No. 6, it
was proposed to appoint the appellant as a director of the said company. In the
explanatory statement annexed to the said notice, it was stated that the
appellant continued to hold office as an additional director of the said
company only up to the date of the said annual general meeting.
Under
section 260 of the Companies Act, 1956, and also under article 111 of the
articles of association of the said company, the appellant, as an additional
director, could hold his office only up to the date of the next annual general
meeting of the said company. In the premises, on the date of the next annual
general meeting, i.e., December 29, 1986, the appellant ceased to be a director
of the said company. In spite thereof, the appellant has continued to represent
and had held himself out to be a director of the said company, was acting as
such and interfering and intermeddling in the management of the affairs of the
said company.
The
appellant affirmed on affidavit on January 10, 1987, which was filed in
opposition to the petition of respondent No. 1. It was contended in the said
affidavit that the suit filed by respondent No. 1 as framed was not
maintainable as the said company had not been made a party thereto. It was
contended further that the said company should have been the proper plaintiff
and there was no explanation why it was not impleaded. The suit was liable to
be dismissed on the ground of nonjoinder of the said company. In any event,
respondent No. 1 was not entitled to any interlocutory relief and leave granted
under Order 1, rule 8 of the Code of Civil Procedure should be revoked. It was
further contended that he had been a director of the hotels company and the
freight company which were private limited companies since their inception and
was also the managing director of the freight company. After the merger of the
said companies, the appellant was appointed the managing director of the hotels
company in terms of the scheme sanctioned by this court. He was thereafter reappointed
as the managing director of the said company by its board of directors with
effect from May 1, 1981, for five years.
The
appointment of the appellant as the managing director of the said company was
approved by its shareholders at an extraordinary general meeting held on
January 11, 1983. The said appointment was also approved by the Central
Government.
It
was contended that the appellant was not appointed as a director, additional or
otherwise, at the general meeting of the board of directors of the said company
held on August 16, 1986. The appellant was already a director on that date.
After the expiry of his appointment as the managing director of the said
company, the appellant continued as a director thereof. The termination of the
office of the managing director did not bring to an end the office of the
appellant as a director. This position was reiterated and reaffirmed at the
said meeting of the board.
The
notice of the annual general meeting to be held on November 24, 1986, the
explanatory statement thereto and the relevant portions of the directors'
report for the said meeting had to be construed in the context of the aforesaid
and to the extent the same were inconsistent with the aforesaid would be of no
consequence. The same would be subject to suitable correction and the said
meeting had been adjourned under orders of this court.
It
was contended in the alternative that the description of the appellant as an
additional director appointed on August 16, 1986, was a mis-description or a misnomer
and did not affect the factual position that the appellant was a director of
the said company and was entitled to continue as such till the next annual
general meeting of the company was held. The said annual general meeting has
not yet been concluded and after transaction of some business had been
adjourned under orders of court.
Respondent
No. 1 affirmed on affidavit on January 12, 1987, which was filed in reply to
the aforesaid affidavit of the appellant. It was alleged in the said affidavit,
inter alia, that the appellant was never appointed as a director of the said
company. In any event, the appellant could not continue to act as a director or
managing director of the said company after April 30, 1986. In the alternative,
it was contended that the appellant was only entitled to hold office as a
director up to the date of the next annual general meeting of the said company
to be held on December 29, 1986, after which he would cease to be a director of
the said company.
The
said application of respondent No. 1 was allowed as against the appellant by a
judgment and order dated November 19, 1987, of the first court. It was held by
the learned judge, inter alia, that the application of respondent No. 1 was
prima facie maintainable as respondent No. 1 was not asserting any corporate
right. The said company might be a proper party but it could not be held prima
facie that it was a necessary party in whose absence no interim order could be
passed.
The
learned judge noted that the appellant was not quite clear about his case and
that there was some confusion in his pleadings. It was held that it was not
established that the appellant was appointed as an additional director on
August 16, 1986, though he was described as such in the records. It was also not
shown that the appellant has been appointed a director by the shareholders of
the said company at any annual general meeting. On the facts, it was necessary
for the court to construe the scope and effect of section 260 of the Companies
Act, 1956, in the case of the appellant. The learned judge noted that the
appellant had made out a contrary case before the Company Law Board contending
that he was appointed as an additional director of the said company on August
16, 1986, and that there was no evidence that the appellant was ever appointed
a director by the shareholders. The learned judge recorded that the articles of
association of the said company as also those of its predecessors in force at
the relevant time in 1971 were not produced. The subsequent articles of
association adopted by the said company, it was held, were not relevant. The
learned judge came to the conclusion that the appellant had failed to establish
that he was a director appointed by the shareholders or that he had been
appointed as an additional director of the said company on August 16, 1986, or
at any other meeting.
The
present appeal is from the said judgment and order dated November 19, 1987. At
the instance of the parties, the appeal was treated as in the day's list and
was heard along with the application filed in the appeal. The appearing
respondents waived service of the notice of the appeal. Service of such notice
on the non-appearing respondent was dispensed with. By consent of the appearing
parties, filing of paper book was dispensed with and the undertaking given in
that behalf was directed to stand discharged. The records and pleadings before
the first court were produced and considered.
At
the hearing, learned advocate for the appellant produced before us the original
memoranda and articles of association of the hotels company and the freight
company as at the time of their incorporation. The memorandum and articles
which were adopted after the freight company merged into the hotels company and
which were again adopted when the amalgamated company was converted into a
public limited company were already on record.
Learned
advocate for the appellant submitted that the appellant had been duly appointed
as one of the first directors of the hotels company as also of the freight company
under their respective articles and that the appellant had continued in his
office as such director all along. After the freight company merged into the
hotels company, the appellant continued to be a director of the amalgamated
company by reason of his original appointment as a director in both the
original companies. The hotels company and the freight company, till their
amalgamation, remained private companies. After the merger, the amalgamated
company also remained a private company till November 4, 1981. It was submitted
that till November 4, 1981, there was no question of retirement of the
appellant from his office as a director under sections 255 and 256 of the
Companies Act, 1956, inasmuch as till that date the companies involved remained
private companies.
It
was submitted that after the amalgamated company became a public company, the
question of retirement of the appellant from his office as a director thereof
arose for the first time. But on May 1, 1981, the appellant was duly
reappointed as the managing director of the said company for a period of five
years. Under article 144 of the articles of association of the said company, as
long as the appellant continued to hold the office of the managing director, he
was not subject to retirement by rotation and as such the appellant continued
to be a director as also the managing director of the said company till April
30, 1986, when the tenure of the appellant as the managing director of the said
company came to an end. On and from May, 1986, the appellant ceased to be the
managing director of the said company but continued to retain his office as a
director thereof and would be liable to retire at the next annual general
meeting of the said company but not before that. The next annual general meeting
which was initially scheduled to be held on December 29, 1986, has not yet been
concluded. By reason of the orders passed in the said Suit No. 934 of 1986
instituted by Gopal Vyas, the meeting stands adjourned from time to time and
the appellant continues to be a director of the said company.
Learned
advocate for the appellant also submitted that at a meeting of the board of
directors of the said company held on November 24, 1986, the appellant has been
reappointed as the managing director and chairman of the board of directors of
the said company for a further period of three years with effect from January
J, 1987.
Learned
advocate submitted further that in the facts and circumstances, no prima facie
case has been made out by respondent No. 1 that the appellant has ceased to be
a director of the said company and as such respondent No. 1 was not entitled to
the interim order in his suit under appeal. This interim order has resulted in
the ouster of the appellant from his office. By the said interim order, the
suit of respondent No. 1 stands decreed in part at the initial stage. On the
ground of balance of convenience also, such an interim order should not have
been passed.
Learned
advocate for the appellant also submitted that no interim order should have been
passed in the suit instituted by respondent No. 1 in the absence of the said
company. The said company was vitally interested as to who were its directors
and the interim order passed in the suit of respondent No. 1 seriously affects
the administration of the said company. The said company is a necessary party
to the suit and in its absence the suit was liable to be dismissed. It was also
submitted that the pleadings of respondent No. 1 contained categoric admissions
that the appellant had continued as a director of the said company till its
next annual general meeting and it could not be contended by respondent No. 1
that the appellant was never appointed as a director at all.
Learned
advocate for Sudhir Kumar Bhattacharyya, respondent No. 7, supported the
appellant.
In
support of his contentions, learned advocate for the appellant relied on and
cited the following decisions.
(a) Richard B.T.H. Chow v. James Chow Wakin [1970]
75 CWN 173. In this se, it was laid down by a Division Bench of this court that
in an application for an injunction restraining persons from acting as
directors, one of the considerations was whether the case of the applicant was
manifestly clear and free from doubt so as to entitle him to an injunction in
an interlocutory proceeding. Where the appointment of the directors had not
been disputed but they were sought to be restrained by an injunction on other
grounds which could not be said to be free from doubt, other questions such as
delay, acquiescence, balance of convenience and waiver were required to be
considered. It was observed as follows:
"In the case of an
illegality arising out of clear and manifest violation of statutory provisions,
the court has the power, and indeed it is the duty of the court, to restrain a
person from acting as a director of a company, and insuch cases, delay,
acquiescence, balance of convenience and waiver would be no bar to the issue of
an injunction".
(b) Catesby v. Burnett [1916] 2 Ch 325. In this case, the articles of
association of a company provided that a member would be qualified to be
elected a director of the company on a written notice of his intention in that
behalf to be given to the company not less than 14 clear days before the date
of election of directors. An ordinary general meeting of the company was held
on December 10, 1959, when two of the directors retired but there was no
election of new directors. A committee of shareholders was appointed to
investigate into the affairs of the company and submit a report to the general
meeting which was adjourned to a future date. In the meantime, notice was given
to the company by a member stating that at the adjourned meeting he proposed to
move for election of four directors. At the adjourned meeting, it was held by
the chairman that the subsequent notice for election of directors was invalid
and he left the meeting. Thereafter, the shareholders appointed a new chairman
and elected four new directors. On an application by the shareholders for an
interim injunction to restrain the former two directors, who had retired
earlier, from continuing to act as directors, it was held that the date of the
election of the directors within the meaning of the said article was the date
of the adjourned meeting and that the notice for election of the four new directors
was in compliance with the articles. It was held that the said directors had
been duly elected at the adjourned meeting and the directors who had retired on
the earlier occasion were not entitled to act as directors.
(c) United Commercial Batik v. Bank of
"In the instant case, the High Court has
assumed that the plaintiffs had a prima facie case. It has not touched upon the
question where the balance of convenience lay, nor has it dealt with the
question whether or not the plaintiffs would be put to irreparable loss if
there was no injunction granted. In dealing with the prima facie case, the High
Court assumes that the appellant was in breach. There is no basis for this
assumption at all ... The question whether the appellant was in breach is an
issue to be tried in the suit".
Learned advocate for the
appellant also cited an unreported judgment dated November 22, 1985, in Appeal
No. 260 of 1984, entitled Ambari Tea Co. Ltd. v. Manjushree Saha. I was a party to this
judgment where it was held, inter alia,
construing the provisions of section 256 of the Companies Act, 1956, that directors
appointed by the shareholders in an annual general meeting of a company do not
retire ipso facto from their office if no further annual general meetings of
the company are held.
It was only at the subsequent annual general meetings that the retirement of
the erstwhile directors and their re-election as also election of new directors
would have to be decided. A different construction of section 256 of the Act
would result in a vacuum in the management of a company which is not the object
of the statute. The retirement of the directors appointed earlier would take
place at the actual meeting held.
Learned
advocate for respondent No. J contended to the contrary and submitted that it
was the admitted position that the appellant was neither an additional director
appointed by the board of directors of the said company nor was he a director
appointed by the shareholders of the said company or its predecessors at any
annual general meeting. The appellant could at best be deemed to be a director
of the companies involved as a subscriber to the memoranda of association under
section 254 of the Companies Act, 1956. In any event, as such a deemed
director, the appellant could not have been continued as a director of the said
company or its predecessors for all time. Such a deemed office would
necessarily come to an end when directors would be duly appointed by the
companies involved at their annual general meeting under section 255 of the
Companies Act, 1956.
Learned
advocate for respondent No. 1 next submitted that even though the appellant was
nominated as one of the first directors in the hotels company as also the
freight company, he could not continue in his office as a director in the said
companies indefinitely on the strength of his nominations. Construing sections
254, 255 and 256 of the Companies Act, 1956, learned advocate for respondent
No. 1 submitted that even in a private company, as a rule, directors were meant
to be appointed in general meetings. The first directors of a private company
nominated in the articles would be in the same position as the deemed directors
of such a company under section 254 of the Companies Act, 1956, and they would
cease to hold their office at the first general meeting where regular directors
were to be appointed. If the first directors were not reappointed or re-elected
as directors at the annual general meeting of the company held after its
incorporation, they would cease to hold their office. It was submitted that the
above appeared to be the scheme of the statute.
Learned
advocate for respondent No. 1 conceded that section 255 of the Companies Act,
1956, provided an exception in the case of private companies to the general
rule that the directors of a company other than additional directors should be
appointed in a general meeting. If the articles of association of a private
company provided for appointment of directors otherwise than in a general
meeting, the same would override the general rule laid down in the section. In
the instant case, the articles of the hotels company from which the office
claimed by the appellant originated only provided that the appellant would be
one of the first directors. It was not stated that the appellant would continue
as such first director for any particular or definite period, limited or
unlimited. In the absence of any provision for period of office of the first
directors, the articles could not and did not override the general rule in
section 255 of the Act and the directors of the hotels company as also of the
freight company were required to be appointed in the usual course under section
255 of the said Act at the first general meeting of the said companies held
after their incorporation. The appellant was admittedly never appointed as a
director of any of the companies involved at any general meeting and as such
the appellant could not continue to hold his office as a director only by
virtue of his initial appointment as a first director in the hotels company or
the freight company under their respective articles.
It
was next submitted that the fact that the appellant has continued as a director
and also a managing director of the companies involved since their inception
would not make any difference to the legal position. The appellant ceased to
hold his office as a director of the companies involved long ago and thereafter
he was never reappointed by the shareholders of the companies involved at any
annual general meeting. There was no other basis on which the appellant could
claim or was claiming that he had been appointed and remained a director of the
said company.
It
was submitted that more than a prima facie case had been established by
respondent No. 1 that the appellant has ceased to have any locus standi to continue
to act as a director of the said company. The interim order passed by the first
court under appeal was a proper and valid order and should be sustained.
It
was submitted last that the said company might be a proper party in the
proceedings but it could not be held that it was a necessary party in the
absence of which the suit of respondent No. 1 was bound to fail. In the instant
case, an effective order could be made restraining the appellant from
continuing to act as a director of the said company in the absence of the
latter.
In
support of his contentions, learned advocate for respondent No. 1, relied on
what he stated to be an official circular published in Company News and Notes,
dated July 1, 1963, on section 256 of the Companies Act, 1956, as follows:
Section
256 : Retirement of directors :
(b) It is open to a private company which is not
a subsidiary of any public company to provide in its articles, the manner of
appointment and the vacation of office of all its directors. Thus it is
permissible for such a private company to provide in its articles that none of
its directors is liable to retire by rotation. In the absence of anything to
the contrary in the articles of association, however, all the first directors
of such a private company who have been appointed under the articles may hold
office till the directors are appointed in accordance with the provisions of
section 255(2) at the first general meeting held after incorporation but before
the holding of the first annual general meeting.
Learned
advocate for respondents Nos. 1 and 7 also relied on and cited the following
decisions:
(a) Eyre v. Milton Proprietary Limited [1936] 1
Ch I) 244. In this case, the relevant article of association of a company
provided that an additional director of the company could hold office only
until the next following ordinary general meeting of the company. Construing
the said article, the English Court of Appeal held that at the ordinary general
meeting of the company, the additional directors will not be in office. That
is, at the moment when the next following ordinary general meeting of the
company would begin, the said directors would no longer be in office whereas
the other directors who were not additional directors but under the relevant
articles of association were scheduled to retire at the said ordinary general
meeting would continue to act as directors throughout the meeting.
(b) Udit Narain Singh Malpaharia v. Additional
Member, Board of Revenue,
"A necessary party is one
without whom no order can be made effectively; a proper party is one in whose
absence an effective order can be made but whose presence is necessary for a
complete and final decision on the question involved in the proceeding".
(c) Joseph v. Jos [1964] 34 Comp Cas 931. This
decision of a learned judge of the Kerala High Court was cited for the
proposition that where infringement of a corporate membership right was alleged,
the remedy of a shareholder of a company was by way of a representative action
on behalf of himself and other shareholders or in some instance by an action in
the name of the company. But if such a corporate membership right was subject
to the will of the majority expressly, in accordance with law and the articles
of the company, then the same would be a matter of internal management and
could not be questioned except in very limited cases. But where the wrong
complained of was one which could not be ratified by the majority as the same
would be against the provisions of the articles of association or otherwise
illegal, any shareholder of the company could insist on strict observance of
the legal rules, statutory provisions and the provisions of the memorandum and
articles which could not be waived even by a majority of the shareholders. In
such a case, a suit and action initiated by the shareholders would be
maintainable.
(d) Comptroller of Customs v. Western Lectric
(e) Ram Autar Jalan v. Coal Products P. Ltd.
[1970] 40 Comp Cas 715 (SC). In this case, a suit was instituted by a company
alleging that the defendant was wrongfully and without authority purporting to
act as one of its directors. An application was filed in the suit for an
injunction restraining the defendant from acting as director and from operating
a bank account of the company. The company produced its share registers,
minutes books and other documents which established that the defendant was
neither a shareholder of the company nor had he been appointed as a director.
The first court refused to grant any injunction, inter alia, on the ground that
the defendant was. functioning as a director de facto. On an appeal, the said
decision was reversed and an interim injunction was granted against the
defendant on a consideration of the records of the company. On further appeal
to the Supreme Court, the order of the first appeal court was upheld. The
Supreme Court observed that the whole question was whether the defendant was
entitled to function as a director in law and the first court instead of
considering this important aspect decided the matter mainly on the basis that
the defendant was functioning as a director de facto. The first court was also
not justified in ignoring the records produced by the company to establish that
the defendant was neither a shareholder nor had been appointed a director.
(f) Desk Bandhu Gupta and Co. v. Delhi Stock
Exchange Association Ltd., AIR 1979 SC 1049. In this case, the Supreme Court in
construing a notification issued by the Central Government under section 18 of
the Securities Contracts (Regulation) Act, 1956, dated June 27, 1969, took note
of and considered a press statement issued by the Ministry of Finance
immediately upon the issuance of the notification and also a communication
dated June 28, 1969, from the Joint Director of the Ministry of Finance,
Department of Economic Affairs. The Supreme Court observed as follows (at p.
1054):
"It may be stated that it was not disputed
before us that these two documents which came into existence almost
simultaneously with the issuance of the notification could be looked at for
finding out the true intention of the Government in issuing the notification in
question, particularly in regard to the manner in which the outstanding
transactions were to be closed or liquidated. The principle of contemporanea
expositio (interpreting a statute or any other document by reference to the
exposition it has received from contemporary authority) can be invoked though
the same will not always be decisive of the question of construction. (Maxwell,
12th edition, page 268). In Crawford on Statutory Construction, 1940 edition,
in para. 219, at pages 393-395, it has been stated that administrative
construction (i.e., contemporaneous construction placed by administrative or
executive officers charged with executing a statute) generally should be
clearly wrong before it is overturned; such a construction, commonly referred
to as a practical construction although not controlling, is nevertheless
entitled to considerable weight as it is highly persuasive".
In reply, learned advocates
for the appellant and respondent No. 7 submitted that under section 255 of the
Companies Act, 1956, directors could be appointed by the shareholders of a
private company at a general meeting. This might be the general rule. But, in
the section itself, an exception was provided that in a private company the
articles of association could provide for appointment of directors otherwise
than in a general meeting by the shareholders and if such a provision was made,
the articles would override the section.
In the instant case, the
articles of association of the freight company as also the hotels company not
only provided for but actually appointed the appellant as a director of both
the companies by nomination. The articles did not provide as to how long the
appointment of such first directors would continue and, therefore, it must be
held that the first directors would continue in their office indefinitely. The
articles did not provide that the first directors would continue only till the
next general meeting of the said companies.
Construing sections 255 and
256 of the Companies Act, 1956, learned advocates for the appellant and
respondent No. 7 submitted that the said sections specifically provided for
appointment of directors of a public Company as also of a private company.
Retirement of directors of a public company was also provided for. The said sections
did not provide for termination of the office of a director of a private
company. Section 283 of the Companies Act, 1956, provided for vacation of
office by directors of a company in certain contingencies. In that section, it
was not provided that the first directors of a private company appointed by its
articles would vacate their offices at the next general meeting.
To appreciate the
controversies involved, it is convenient to refer to the relevant provisions of
the Companies Act, 1956:
"Section
2(26): 'Managing director' means a
director who, by virtue of an agreement with the company or of a resolution
passed by the company in general meeting or by its board of directors or, by
virtue of its memorandum or articles of association, is entrusted with
substantial powers of management which would not otherwise be exercisable by
him, and includes a director occupying the position of a managing director, by
whatever name called".
"Section
26 : There may in the case of a
public company limited by shares, and there shall in the case of an unlimited
company or a company limited by guarantee or a private company limited by
shares, be registered with the memorandum, articles of association signed by
the subscribers of the memorandum, prescribing regulations for the
company".
"Section
254 : In default of and subject to
any regulations in the articles of a company, subscribers of the memorandum who
are individuals, shall be deemed to be the directors of the company, until the
directors are duly appointed in accordance with section 255".
"Section
255(1) : Unless the articles provide
for the retirement of all the 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".
"Section
256(1) : At the first annual general
meeting of a public company, or a private company which is a subsidiary of a
public company, held next after the date of the general meeting at which the
first directors are appointed in accordance with section 255 and at every
subsequent annual general meeting, one-third of such of the directors for the
time being as are liable to retire by rotation, or if their number is not three
or a multiple of three, then, the number nearest to one-third, shall retire
from office".
"Section
260 : Nothing in section 255, 258
or 259 shall affect any power conferred on the board of directors by the
articles to appoint additional directors:
Provided that such
additional directors shall hold office only up to the date of the next annual
general meeting of the company:..".
We also note the provisions
of articles 111 and 144 of the articles of association which were adopted by
the said company.
Article 111 : The board is
empowered, at any time and from time to time, to appoint any other person to be
a director of the company,... as an addition to the board, but so that the
total number of directors shall not exceed the maximum for the time being
prescribed. A person.......who is appointed as an additional director shall
hold office only up to the date of the next annual general meeting, but such
person shall, in either case, be eligible for re-election.
Article 144 : Subject as
hereinafter provided, a managing director (which expression shall include a
joint managing director) shall not, while he continues to hold that office, be
subject to retirement by rotation of directors or be taken into account in
determining the number of directors liable to retire by rotation of directors;
but if he ceases for any cause to hold the office of director, he shall, ipso
facto and immediately, cease to be managing director.
In this appeal, the scope
of the enquiry is limited to the prima facie determination of the initial
appointment of the appellant as a director of the companies involved and his
continuation in such office up to the relevant time. On such prima facie
determination will depend whether the appellant was a lawful director of the
said company at the date of the institution of the suit.
It being the common case
that the appellant had not been appointed as an additional director in any of
the companies involved and that the appellant was not claiming to hold the post
of such additional director, the question whether the appellant ceased to hold
such office as an additional director at the date of the annual general meeting
to be held on December 29, 1986, need not be considered further.
We note that the case of
the appellant made in his pleadings is contradictory to certain statements in
the records of the said company, namely, the notice dated November 24, 1986,
convening the said annual general meeting and the explanatory statement thereto
as also the directors' report. We also note that the stand taken by the
appellant before the
Company Law Board is also contradictory to the pleadings of the appellant in
this suit. Such contradictory stands of the appellant as to his office and
status cannot in our view affect the actual legal position which is to be
ascertained prima facie from the entire facts and circumstances.
It
stands established from article 111 of the articles of association of the
hotels company that the appellant was initially appointed as one of its first
directors. Such appointment was not as an additional director. The said article
also did not prescribe any time limit up to which the appellant would continue
in his office.
The
appointment of the appellant as a director of the freight company was made by
and recorded in the articles of association of the said company in an identical
manner.
When
the freight company was amalgamated with the hotels company, the appellant
continued to be a director of the amalgamated company.
Both
the hotels company and the freight company were private companies and their articles
did not provide for retirement of their directors and as such there was no
question of retirement of the appellant from his office at any subsequent
annual general meeting. Furthermore, the appellant, at the material time, had
been appointed as the managing director of the freight company and continued as
managing director of the amalgamated company. Under article 144 of the articles
of association adopted by the amalgamated company, the appellant was not liable
to retire from his office of director as long as he continued to hold the post
of managing director.
On
April 30, 1987, when the appointment of the appellant as the managing director
of the said company came to an end, the said company had become a public
company and only then the question of retirement of the appellant from his
office as director arose for the first time on May 1, 1986. In the ordinary
course, the appellant, after the termination of his office as a managing
director, would continue in his office as a director but would be liable to
retire at the next annual general meeting of the said company which was
scheduled to be held on December 29, 1986.
Respondent
No. 1 does not dispute that the appellant had been appointed as one of the
first directors of the hotels company as also of the freight company under
their respective articles of association. The contention of respondent No. 1 is
that the office of appellant No. 1 as first director came to an end at the next
general meetings of the two companies inasmuch as under sections 255 and 256 of
the Companies Act, 1956, the directors of a private company, apart from the
additional directors, were generally required to be appointed at a general
meeting by the shareholders unless the articles provided otherwise. The
articles of the said private companies being silent as to the term of office of
their first directors, it was contended that the first directors would continue
in their office till the next general meeting of the said private companies.
We
are unable to accept this contention of respondent No. 1. The expression
"first director" appears only in section 256 of the Companies Act,
1956, noted hereinabove and the said section applies only to public companies.
The section provides for retirement of the first directors by rotation at every
annual general meeting from the meeting held next after the general meeting at
which they were appointed.
It
is to be noted that this section does not deal with the appointment of first
directors in a private company.
Section
255 of the Companies Act, 1956, provides, inter alia, also for retirement of
directors of a public company. The section also provides for appointment of
directors in both public companies and private companies.
So
far as a private company is concerned, which is not a subsidiary of a public
company, the section provides that the directors of such a company are to be
appointed in a general meeting as in a public company but such appointment
would be subject to the articles which may provide otherwise.
It
appears to us on a plain reading of the section that if the articles are silent
as to the appointment of directors in a private company, or do not specifically
provide for appointment of directors otherwise than in a general meeting, then
the directors of a private company are to be appointed by the shareholders at
general meeting.
In
the instant case, article 111 of the articles of association of the hotels
company and freight company provided for and appointed the appellant as one of
its first directors. Under section 256 of the said Act read with section 26
thereof, such an article may be held to prescribe, and constitute a regulation.
This article, in our view, constituted an exception to the general rule laid
down under section 255 of the Act. Under the article, the appellant was appointed
as one of the first directors of the private company under the provisions of
section 255 of the Companies Act, 1956. The article also did not provide for
retirement or termination of office of such first directors at any point of
time. Accordingly, in our view, as long as the said two companies continued to
be private companies and after their amalgamation remained a private company, there was no question of retirement of the
appellant from his office as a director or such office coming to an end.
We are unable to accept the
interpretation of sections 255 and 256 of the Companies Act, 1956, as contained
in the so called circular, which has been relied on by learned advocate for
respondent No. 1. We are not sure as to who is the author of this so called
circular. Apparently, this alleged circular is an excerpt from Company News and
Notes, presumably a journal. In any event, this document is not a
contemporaneous exposition or interpretation of sections 255 and 256. As such,
this document cannot be treated in the same manner as a clarification or
exposition issued by a competent authority. In our view, the principles laid
down by the Supreme Court in Desh Bandhu Gupta and Co., AIR 1979 SC 1099, do
not apply to this document. In any event, the said document cannot be a
conclusive exposition.
From the facts on record,
it appears to us prima facie that the appellant was appointed as a director of
the hotels company under its articles under section 255 of the Companies Act,
1956, and continued in his office as a director after the freight company was
amalgamated with the hotels company. The amalgamated company continued as a
private company till November 4, 1981. On May 1, 1981, the appellant was
appointed as a managing director of the amalgamated company with the approval
of the Central Government and the shareholders for a period of five years. As
such, under article 144 of the said companies, there was also no question of
the appellant retiring from his office as a director till April 30, 1986, even
though the amalgamated company became a public company on and from November 4,
1981.
We also hold prima facie
that on the termination of his office as a managing director, the appellant did
not automatically lose his office as a director in the said company. We accept
the contention of the appellant that the appellant continued to be a director
of the said company which had become a public company by November 4, 1981, and
was liable to be retired at the next annual general meeting scheduled to be
held on December 29, 1986. This meeting was held partially on December 29,
1986, but was not concluded and the meeting was restrained from considering or
passing resolutions pertaining to retirement, appointment or reappointment of
directors which were directed to be considered at an adjourned date. Following
the principles laid down in Ambari Tea Co. Ltd. (Appeal No. 260 of
1984—22-11-85 (Cal)), we hold that the question of retirement of the appellant
would only arise at the adjourned date of the said annual general meeting of
the company when the said meeting is held and not before that.
It follows that on the date
when the present suit was instituted, the appellant prima facie was a director
of the said company and was entitled to act as such. This prima facie position
arises from the undisputed facts on record and cannot be affected or detracted
by statements or declarations to the contrary by the parties concerned or the
said company. A legal position or status cannot be affected by a wrong or
erroneous description. Admission, if any, by respondent No. 1 that the
appellant had continued as a director or as an additional director would also
be equally irrelevant.
It is unfortunate that the
memorandum and articles of association of the hotels company or the freight
company were not produced or relied on before the learned judge in the first
court nor was a clear stand taken before the first court as to how the
appellant initially came to be appointed as a director of the companies
involved. If this was done, proceedings before the first court might have been
shortened and the correct position in law and fact would have emerged.
We next consider whether
the present proceedings are maintainable in the absence of the said company. As
we have held that it has been prima facie established that the appellant is
continuing as a director of the said company and is liable to retire at the
next annual general meeting, it is not necessary to determine this question at
the interlocutory stage. Under the amended Civil Procedure Code, the suit
instituted by respondent No. 1 may ultimately fail by reason of non-joinder of
the said company which may be held to be a necessary party. It is open to
respondent No. 1 to apply for impleading the said company in the suit at any
time before the same is finally disposed of. It is also open to the court to
implead the said company in the suit suo motu at any stage. In that view, we
are not inclined to hold that by reason of non-joinder of the said company in
the suit at this stage, an interlocutory application in the suit will
necessarily fail.
For the above reasons, this
appeal is allowed. The judgment and order dated November 19, 1987, are set
aside so far as the appellant is concerned. The appeal and the application are
disposed of accordingly. Costs of the proceedings before us would be costs in
the suit.
We note that in the
proposed annual general meeting of the said company which stands adjourned by
orders of court, no resolution has been proposed recording the retirement of
the appellant or for his re-election as a director. This is a question which
would arise at the meeting and we express no opinion on the same.
Shyamal K. Sen J.—I agree.
[1982] 52 Comp. Cas. 299 (Ker)
High Court OF Kerala
Cardamom Marketing Co. (Travancore) Ltd.
v.
N. Krishna Iyer
P. Subramonian Poti, Actg., C.J.
and V. Khalid, J.
MARCH 16, 1981
M.
Ramanatha Pillai for the petitioner.
S. Easwara Iyer for the Respondent.
Khalid, J.—The
appellants are the plaintiffs in O.S. No. 138 of 1975 of the Munsiff’s Court,
Kottayam. The 1st plaintiff is a public limited company (hereinafter called
"the company") and the 2nd plaintiff a shareholder and secretary of
that company. The defendant claims to be a director and chairman of the company.
The suit was filed for a declaration that the respondent ceased to be a
director of the appellant-company from February 7, 1974, and for other reliefs.
The trial court dismissed the suit on the ground that the suit was bad for
mis-joinder of parties and cause of action and also on the ground that the
respondent continued to be a director of the company by virtue of s. 256(4)(b)
of the Companies Act, for short, "the Act". In appeal, the
subordinate judge reversed the finding of the trial court regarding mis-joinder
but confirmed the other finding about the status of the respondent, and
dismissed the appeal. Hence the second appeal.
The second appeal was admitted and notice was given
to the respondent on the following substantial questions of law:
"(1) Is it
a prerequisite for the applicability of section 256(4)(b) of the Companies Act
that an earlier meeting should have been held?
(2) Whether
the general provisions contained in section 174 of the Companies Act is applicable
to a case coming under section 256(4) of the Act?"
A few more
facts are necessary. The company was functioning smoothly till its 27th annual
general meeting. The said meeting was notified to be held on January 31, 1974,
on which date the respondent's term of office as director expired. It could not
be held on that day for want of quorum. It was adjourned and another meeting
was held on February 7, 1974, under the chairmanship of the respondent, who was
then a director. On February 7, 1974, nobody was proposed or elected in the
place of the respondent. It was also not resolved that the vacancy need not be
filled up. The respondent's case is that the meeting on February 7, 1974, was
an adjourned meeting within s. 256(4)(a) of the Act and since nobody was
proposed on that day, he should be deemed to have been reappointed. The
appellant's case on the other hand is that there was no meeting on January 31,
1974, and hence the meeting held on February 7, 1974, was not one contemplated
by s. 256(4)(a). The question that falls for consideration in this case,
therefore, is the scope of s. 256 and the impact of s. 174(4), if any, on it.
The second
appeal comes before us on reference by one of us. Section 174 of the Companies
Act bears the caption "Quorum of meeting". Section 174(1) prescribes
the quorum. Section 174(2) provides that unless the articles of the company
otherwise provide, the provisions of sub-ss. (3), (4) and (5) shall apply with
respect to the meetings of a public or private company. Section 174(3), (4) and
(5) can be usefully extracted:
"(3) If within half an hour from the time appointed for holding a
meeting of the company, a quorum is not present, the meeting, if called upon
the requisition of members, shall stand dissolved.
(4) 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.
(5) If at the adjourned meeting
also, a quorum is not present within half an hour from the time appointed for
holding the meeting, the members present shall be a quorum."
Under s.
174(3) a meeting called upon the requisition of the members shall stand
dissolved if a quorum is not present within half an hour from the time appointed
for holding it, and in any other case the meeting: shall stand adjourned to the
same day in the next week. Sub-clause (5) deals with the adjourned meeting.
Reliance is placed on s. 174(4) by the respondent's advocate to contend that a
meeting even if without a quorum is presumed to be a meeting and a quorum is
not necessary for a meeting to be adjourned. This submission is made for the
purpose of validating the meeting notified to be held on January 31, 1974, for
the purpose of adjournment.
We will examine the two sections closely. Section
174(4) lays down the law regarding meetings in general. In all meetings coming
within the ambit of s. 174 where the necessary quorum is not present, the
consequence as laid down in the sub-sections should follow. Whether this
section governs s. 256 is the question that has to be decided. Section 256 is a
special provision. It comes under Chap. II under the heading
"Director" and "Constitution of Board of Directors". The
scheme of the various provisions in this chapter would indicate that they
contained special provisions. In s. 174(4) there is a statutory mandate for a
meeting without quorum in cases other than where the meeting is called upon the
requisition of members to be adjourned to the next week. There is no mention
therein of such a meeting being adjourned for any reason other than the fact
that there is no quorum. That cannot apply to a meeting contemplated under s.
256(4) of the Act. For better appreciation of this case, we read s. 256(4)(a)
and (b):
"(4)(a) If
the place of the retiring director is not so filled up and the meeting has not expressly resolved not to
fill the vacancy, the meeting shall stand adjourned till the same day in
the next week, at the same time and place, or if that day is a public holiday,
till the next succeeding day which is not a public holiday, at the same time
and place. (emphasis
supplied)
(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..."
Sub-sections (1), (2) and (3) of s. 256 relate to the
ascertainment of directors retiring by rotation and filling of vacancies. Under
sub-cl. (3), in the place of a retiring director, either the retiring director
or some other person can be appointed to fill up the vacancy. It is then that
sub-cl. (4) comes into operation. Section 256(4)(a) provides for a meeting to
be convened for the purpose of filling up the vacancy and also provides for
such a meeting to stand adjourned till the same day in the next week when the
place of the retiring director is not so filled up and that meeting has not
expressly resolved not to fill the vacancy. The sub-section, on its terms,
deals with the adjournment of a meeting not for want of quorum but for other
reasons mentioned therein. This provision, therefore, cannot be controlled by
s. 174(4). Section 174(4), as already indicated, prescribes adjournment of the
meeting for want of quorum. Not so s. 256(4)(a). The adjournment of the meeting
under this section comes in only when the meeting has not expressly resolved
not to fill the vacancy. This postulates the fact that a meeting contemplated
in s. 256(4)(a) is a valid meeting at which decisions could be taken. It is not
a meeting where decisions cannot be taken. In a meeting without quorum no
decision can be taken. Though s. 174(4) loosely refers to a meeting without a
quorum also as a meeting, the distinction between such a meeting and a meeting
that s. 256(4)(a) contemplates cannot be lost sight of. A meeting in which its
participants could deliberate and whereat decisions could be taken is a meeting
different from a meeting without a quorum. Section 256(4)(b) deals with an
adjourned meeting, that is, a meeting held on account of the adjournment of the
earlier meeting, whereat no decision was taken, and not a meeting consequent
upon an adjournment of an earlier meeting for want of quorum. If the meeting
that was adjourned is one which does not satisfy s. 256(4)(a), the fact that no
decision was taken at the adjourned meeting will not bring in the consequences
mentioned in s. 256(4)(b). In other words, it is only when there was a valid
meeting held under s. 256(4)(a), at which meeting no decision was taken about
the filling up of the vacancy of the retiring director and which meeting stood
adjourned to the following week, that the consequences mentioned in s.
256(4)(b) would follow. In this case, the meeting on January 31, 1974, was
without quorum. It was, therefore, not a meeting which could take any valid decision.
Therefore, the meeting on February 7, 1974, is not an adjourned meeting
attracting s. 256(4)(a). It is true that no decision was taken on February 7,
1974. But the respondent cannot claim to continue as a director or deem to be
re-appointed as director for that reason on the strength of s. 256(4)(b)
because the meeting held on February 7, 1974, does not satisfy the requirement
of s. 256(4)(a).
Reference was made at the bar to the decision in
Traco Enterprises P. Ltd. v. Alexander Balathinkel [1964] KLT 467: AIR 1964 Ker
273. Raman Nayar J. was dealing with a petition under s. 101(1) of the
Companies Act, 1956, for the confirmation of a resolution for reduction of
share capital. In that case, art. 13 of that company prescribed that three
members personally present should be a quorum for the general meeting. At the
meeting in question only two members were present. The court held that it was
not a meeting at all and, therefore, no resolution to be confirmed. We agree,
with respect, with the statement of law made there. A meeting without quorum is
not a meeting whereat any decision could be taken.
A decision in Re London Flats, Ltd. [1969] 2 All ER
744; [1970] 40 Comp Cas 593 (Ch D) was also referred to at the bar. Shorn of
unnecessary details, that case related to a meeting which originally started
with the applicant and the respondent therein, who alone were entitled to
attend and vote. The respondent purported to appoint himself as a liquidator,
at which time the applicant left the meeting. In that case, what the court had
to consider was not a question of quorum but the question whether there was any
meeting at all. It was held that if a quorum was present at the beginning of a
meeting the subsequent departure of a member reducing the meeting below the number
required for a quorum did not invalidate the proceedings of the meeting after
the departure. It was, however, held that a single shareholder cannot
constitute a meeting and the decision at that meeting was a nullity for the
reason that the moment when the respondent was in the course of purporting
himself as liquidator the applicant left the meeting and for that reason there
was no meeting. The facts of that case differ from the case on hand. What was
decided there was that when there is only one person there is no meeting
together and hence no meeting. In this case, there was no quorum ; in the
absence of a quorum there may be a meeting, but not a meeting capable of
deliberating and taking any decision. That is the crux of s. 256(4)(a). We,
therefore, hold that it is a prerequisite for the applicability of s. 256(4)(a)
that an earlier meeting should have been held and that s. 174 of the Act is not
applicable to a case coming within s. 256(4). In this case, no meeting was held
on January 31, 1974. and the meeting held on February 7, 1974, is not an
adjournment coming within s. 256(4)(b).
In the result, we set aside the
decree and judgment of the courts below and declare that the respondent ceased
to be a director from February 7, 1974. He is directed to surrender all assets,
records and seal of the plaintiff-company to the trial court within one month
from today. The trial court will pass appropriate orders for their entrustment
to the 2nd appellant when moved. We allow the second appeal with costs.
[1932] 2 COMP CAS
147 (MAD.)
HIGH COURT OF
v.
W.S. Subrahmanya
Ayyar
CURGENVEN AND
CORNISH, JJ.
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.
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
"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.
[1953] 23 Comp Cas 29
(MAD)
v.
Rajamannar C.J. and
Venkatarama Aiyar J.
October 16, 1952
K. Rajah Ayyar, R. Swaminatha Ayyar, K.S. Ramamurthy and P.S. Seshadri for the Appellants.
O.
Radhakrishnan, G. Vasanta Pai, S. Mohan Kumaramangalam, V. Venkatraman, for the
Respondents.
Venkatarama
Ayyar J. — The question that
arises for determination in this appeal is the validity of the election of the
respondents as directors of a company called
Balakrishna Aiyar J. who heard the suit disagreed with the contentions put forward on behalf of the plaintiffs and dismissed the suit with costs. Against that decision the plaintiffs have preferred this appeal.
Several contentions were urged by Mr. K. Rajah Ayyar in support of this appeal. It was firstly argued that the power which the general body has under the articles of the company is only to appoint directors in place of those who retire at the annual meeting; only one director actually retired at the meeting held on February 26, 1951, and that therefore the election of six directors was beyond the competence of the meeting; that there was no proper notice that six directors were to be elected at the meeting and that there was not even a resolution to that effect. Hence, it is urged, the election of defendants 2 to 7 is void. The complaint that there was not clear notice to the members that six directors were going to be elected is without substance. Exhibit P. 6 is the notice of the meeting to be held on February 18, 1951, and item 2 therein is as follows:—"To elect directors. Mr. A.S. Padmanabhan retires at the meeting." It was argued that read as a whole Exhibit P. 6 would mean that a director is to be appointed in place of A.S. Padmanabhan who was to retire and that it would not convey the meaning that six directors were to be elected. We are unable to agree with this contention. The retirement of A.S. Padmanabhan is stated as a fact and the notice does not state as is usual "to elect a director in place of Padmanabhan who retires." The business to be transacted under item No. 2 is generally to elect directors and not to elect a director. This objection is, therefore, overruled.
A more substantial objection to the validity of the election of the defendants is that the power of the general body is limited to electing a director in the place of one who retires at the annual meeting under article 53 that the power to appoint other directors vests under article 58 exclusively with the board of directors and that in consequence the general body could appoint only one director in the place of A.S. Padmanabhan who retired at the meeting. The articles of the company material for the purpose of this contention are 47, 53 and 58. They are as follows:
Article 47:—"The number of directors inclusive of the director (ex-officio) shall not exceed 10 nor be less than 3. The quorum for a directors' meeting is 3. The quorum of a committee meeting shall be determined by the directors."
Article 53:—"The directors nominated by the agents and secretaries shall be ex-officio directors of the company and shall not be subject to retirement by rotation nor shall the clause relating to directors' share qualifications be applicable to him. The first directors of the company (except the ex-officio directors) shall hold office till the annual general meeting in 1946 when the whole of the directors shall retire from office and is every subsequent year one-third of the directors for the time being or if their number is not three or a multiple of three, then the number nearest to one-third shall retire from office. The directors to retire in every year shall be those who have been longest in office since their last election but as between persons who became directors on the same day those to retire shall (unless they otherwise agree among themselves) be determined by lot. A retiring director shall be eligible for re-election."
Article 58:—" If there be any vacancy in the directorate or if it is found necessary to increase the directorate so as not to exceed the maximum number the board may from time to time fill such vacancies by co-opting others as directors."
On these articles it is argued for the appellants that the power to appoint directors had been delegated to the board of directors under article 58 subject only to article 53 and that the exercise of that power by the general body was in contravention of the articles and was therefore void. Reliance is placed on the decision in Blair Open Hearth Furnace Company Ltd. v. Reigart. In that case, at an extraordinary meeting of the company, resolutions were passed increasing the number of directors and electing two additional directors. The company filed a suit for a declaration that under the articles of association the general body had no power to appoint the two additional directors, and that the election of the defendants was, therefore, illegal. Article 82 of the company's articles provided that the number of directors shall not be less than two or more than seven. Article 85 provided that at the ordinary meeting every year one director shall retire and the meeting at which any director shall retire shall fill up his place. Article 93 provided "Any casual vacancy in the office of director may at all times be filled up by the board by the appointment of a director. The directors may from time to time appoint additional directors but so that the total number of directors shall not exceed the prescribed maximum." On a construction of these articles it was held that the company had delegated its power of appointment of directors to the board and that it could not itself exercise it. The ground for the decision is thus stated by Eve J.:—
"I think the express power contained in article 93 excludes the possibility of implying a concurrent power under article 82 and in my opinion the company has by its constitution delegated to those of its members who for the moment constitute the board the sole right of appointing additional directors and that is so whether such additional directors are necessary to make up the number to the maximum number fixed by the original article or to any other number which the company may from time to time determine on as the maximum. As a matter of construction, therefore, I think that the plaintiffs are right and that it was not within the power of the company to do that which it purports to have done at the meeting of the 14th March and on this ground alone the relief sought on the motion must, in my opinion, be granted."
Articles 82, 85 and 93 which were construed in Blair Open Hearth Furnace Company Ltd. v. Reigart are substantially identical with articles 47, 53 and 58 in the present case and the appellants accordingly argued that the reasoning and the decision in Blair Open Hearth Furnace Company Ltd. v. Reigart would directly apply to the instant case.
Now it is doubtful how far the decision in Blair Open Hearth Furnace Company Ltd. v. Reigart can still be considered to be good law. Its correctness was doubted in Worscester Corsetry v. Witting in which the articles were similar to those in Blair Open Hearth Furnace Company Ltd. v. Reigart with the difference that the company had also adopted articles 83 and 85 in Table A in the Companies Act of 1908. Article 83 runs as follows:—
"The
company may from time to time in general meeting increase or reduce the number
of directors, and may also determine in what rotation the increased or reduced
number is to go out of office."
Article 85 provided that "the directors shall have power at any time, and from time to time, to appoint a person as an additional director who shall retire from office at the next following ordinary general meeting, but shall be eligible for election by the company at that meeting as an additional director." On these articles the question arose whether the appointment of two more directors at an extraordinary meeting of the general body was ultra vires of the powers of the general body. Farwell J. held, following the decision in Blair Open Hearth Furnace Company Ltd. v. Reigart, that the general body had no power to appoint the additional directors. On appeal this decision was reversed on the ground that in Blair Open Hearth Furnace Company Ltd. v. Reigart, there was nothing in the articles corresponding to article 83 in Table A and that that article conferred on the general a general power to elect additional directors. In this view it became necessary to pronounce on the correctness of the decision in Blair Open Hearth Furnace Company Ltd. v. Reigart. But Lord Hanworth M.R, remarked: "I am bound to say that I find some little difficulty in seeing that the power must be either in the one or in the other; but be that as it may, we have to interpret the articles of association as we find them." Lawrence L.J. observed: "This court is not concerned upon the present occasion to say whether the construction put upon the articles in the Blair case by Eve J. was right or not; we have here to see what is the true meaning of the articles of the plaintiff company."
In Ram Kissendas v. Satya Charan the general body passed a resolution appointing seven new directors in addition to the existing four. The validity of this resolution was disputed in an action by the shareholders. Articles 109, 111 and 128 of the company were in substance similar to articles 82 and 93 which were considered in the Blair case. There was also an additional article 126 corresponding to article 83 in Table A which had been adopted by the company in Worcester Corsetry v. Witting. The Privy Council held on a construction of the articles that the election of new directors by the general body was valid. The decision in Blair Open Hearth Furnace Company Ltd. v. Reigart does not appear to have been cited before the Board but in view of the fact that the articles in Ram Kissendas v. Satya Charan are similar to those in Worcester Corsetry v. Witting and that Blair Open Hearth Furnace Company Ltd. v. Reigart differed from both in not having anything corresponding to article 83 of Table A in Worcester Corsetry v. Witting or article 126 in Ram Kissendas v. Satya Charan it is not possible to hold that Blair Open Hearth Furnace Company Ltd. v. Reigart is opposed to the decision in Ram Kissendas v. Satya Charan.
In Palmer's Company Precedents (16th edn., p. 573) it is stated that "the articles may, however, be so expressed as to delegate the power of appointing new directors to the directors to the exclusion of a general meeting." And the Blair case is quoted as authority for this position with a note that the correctness of the decision had been doubted in Worcester Corsetry v. Witting. In Buckley on Companies Acts (12th edn., p. 885) the position is thus stated:—"It has been held that an article in similar form amounts (in the absence of an article corresponding to article 84 ante,) to such a delegation to the directors of the power of appointing additional directors as to preclude the company in general meeting from appointing such directors." The authority quoted again is the decision in Blair Open Hearth Furnace Company Ltd. v. Reigart but the decision in Worcester Corsetry v. Witting is noted against it. Article 94 referred to in the above quotation corresponds to article 83 in Table A. The position, therefore, is that the decision in Blair Open Hearth Furnace Company Ltd. v. Reigart is of doubtful authority though it has not been overruled.
In this case it has to be noted that the articles of the company provide that "the regulations of Table A of Schedule I of the Indian Companies Act of 1913 shall apply to this company except in so far as otherwise provided for hereunder." Regulation 83 in Table A of Schedule I runs as follows:—"Subject to the provisions of Sections 83-A and 83-B of the Indian Companies Act, 1913, the company may from time to time in general meeting increase or reduce the number of directors and may also determine in what rotation the increased or reduced number is to go out of office." This regulation, must, therefore, be read as part of the articles of the company. In Worcester Corsetry v. Witting it was the existence of this article which was held to distinguish it from the decision in Blair Open Hearth Furnace Company Ltd. v. Reigart where there was no such article. In Ram Kissendas v. Satya Charan also there was an article 126 corresponding to regulation 83 and the power of the general body to elect additional directors was confirmed. The decisions in Worcester Corsetry v. Witting and Ram Kissendas v. Satya Charan rather than the decision in Blair Open Hearth Furnace Company Ltd. v. Reigart will apply to the present case.
It
was further argued by Mr. Vasantha Pai on behalf of the respondents that even
if the power to appoint additional directors is exclusively vested in the board
of directors under Regulation 58 the resolution of the general body appointing
defendants 2 to 7 as directors should be upheld because there was at the time
of the meeting no board of directors which could validity function under the
article and the general body had inherent power, which it could then exercise,
to appoint directors for enabling the company to function. In support of this
contention he cited the decisions in Isle of Wight Railway Co. v. Tahourdin,
Barron v. Potter, Foster v. Foster and
"In my judgment it is quite impossible to read the 89th section as the only section relating to the filling up of vacancies in the office of directors. That applies only where there are remaining directors, and those remaining directors think proper to exercise their powers. That does not in my judgment deprive the general meeting of the power to elect directors, where there are no directors or where the directors do not think fit to exercise their powers."
In
Barron v. Potter, Potter v.
In Palmer's Company Precedents (p. 673) it is stated that the company has the power to appoint additional directors "where owing to differences between the directors no board meeting could be held for the purpose." The principles laid down in the authorities discussed above may be summed up thus :—A company has inherent power to take all steps to ensure its proper working and that, of course, includes the power to appoint directors. It can delegate this power to appoint directors to the board of directors and such delegation will be binding upon it but if there is no legally constituted board which could function or if there is a board but that is unable or unwilling to act then the authority delegated to the board lapses and the members can exercise the right inherent in them of appointing directors.
In this view the question arises whether at the time of the annual meeting there was legally in existence a board of directors who could act. The appellants contend that there was, while the respondents deny it. The facts material for this contention may now be stated. It has already been mentioned that the first directors of the company were five persons named in article 49 which number was raised to six by the co-option of Veeramani under that article, that all of them retired at the annual meeting held on June 24, 1946, and were re-elected. Under article 53 a third of the directors had to retire at every annual meeting. Before the next annual meeting which was held on August 27, 1947, three of them had resigned. Of the remaining three, two directors Padmanabhan and Veeramani retired at the meeting and were re-elected. The third director resigned at that meeting and thus the strength of the directorate became reduced to two. Section 83-A of the Companies Act is as follows:—
"Every
company shall have at least three directors."
Article 47 provides that the number of directors inclusive of the director (ex-officio) shall not be less than three and that was also the number prescribed as quorum for a meeting of the directors. Thus after August 27, 1947, there was no board which could act except for the purpose of filling up vacancies under article 62. Admittedly no directors were co-opted in 1948 and the position on December 30, 1948, when the last annual meeting was held was that there were only two directors; both of them had been elected at the annual meeting held on August 27, 1947, and one of them had to retire at that meeting. Veeramani retired at that meeting and was re-elected. Thereafter there was no annual meeting.
The plaintiffs contended that on December 30, 1949, one Dekshinamurthy was co-opted as a director, Exhibit P-9, that he resigned on June 18, 1950, Exhibit P-10, and that on August 12, 1950, one Murugappa Chettiar was co-opted in his place, Exhibit P-11, and that there were thus three directors, Padmanabhan, Veeramani and Murugappa Chettiar who could act at the time of the annual meeting in 1951. But if the annual meeting had been convened in 1949 as it should have been Padmanabhan would have been bound to retire under article 53. But it is argued on behalf of the appellants firstly that article 53 contemplates the existence of at least three directors and it could not apply when their number fell below that minimum. The decision in David Moseley and Sons Ltd., In re was quoted in support of this position. There article 94 provided that "at every succeeding ordinary general meeting one-third of the directors or if their number is not a multiple of three, then the number nearest to but not exceeding one-third, shall retire from office." The strength of the directorate became reduced to two and the question was whether either of them ceased to be a director under this article. In holding that neither of them vacated the office Simonds J. observed: "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 nearest 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 nearest to but does not exceed one-third."
It
will be seen that this decision was based on the words "but not exceeding
one-third" and in the absence of similar language in article 53 it must be
held that even one of the two directors should have retired at the meeting. It
is next argued that as no meeting was actually held in 1949 article 53 would
not apply and Padmanabhan would continue to be a director. The respondents
contend on the other hand that the directors could not take advantage of their
own default and continue in office beyond the period when they would have
retired, if they had done their duty and called for a meeting in accordance
with article 29. This contention is supported by the decisions in In re
Consolidated Nickel Mines Ltd.; Srinivasan v. Watrap Subramania Iyer; Kanssen
v.
Then there is the case of Murugappa Chettiar who is put forward as the third director. It is stated that Dakshinamurthy was co-opted on December 30, 1949, but it does not appear in whose place he was co-opted and as four directors who retired in 1946 and 1947 had all been elected at the annual meeting held on June 24, 1946, their term of office would have expired under article 53 during the year 1949 and Dakshinamurthy whose co-option must have been in their place could not hold office beyond 1949. At any rate as he resigned on June 18, 1950, his rights do not merit any further consideration. It would follow from this that the co-option of Murugappa Chettiar in the place of Dakshinamurthy on August 12, 1950, must be held to be inoperative because the vacancy in which Dakshinamurthy could have been co-opted had itself come to an end under article 53. It is unnecessary to refer to the various infirmities in the appointment of Murugappa Chettiar as a director which are referred to in the judgment of Balakbishna Iyer J. We agree with him that Murugappa Chettiar was never validly co-opted as director, and it was not merely a case of defective appointment as director but of no appointment at all. We must accordingly hold that there was at the time of the annual meeting on February 26, 1951, no director validly in office and on the principle laid down in Isle of Wight Railway Co. v. Tahourdin and Barren v. Potter, Potter v. Berry the members had the right to elect the directors at the annual meeting.
One other contention relating to this part of the case remains to be considered. It was contended that by the time the annual meeting was held on February 26, 1951, the place of Murugappa Chettiar as a director was no longer vacant and therefore the election of six directors was invalid. The argument of the appellants may thus be stated: the general meeting was convened for February 18, 1951. On that day it was adjourned to February 26, 1951. Article 43 provides that if at any meeting at which an election is to take place, the places of the vacating directors are not filled up, the meeting shall stand adjourned till the Same day in the next week at the same time and place and if at the adjourned meeting the places of the vacating directors are not filled up the vacating directors or such of them as have not had their places filled shall be deemed to have been re-elected at the adjourned meeting. The contention is that under this article the meeting should have been adjourned from February 18, 1951, to February 25, 1951, and if on that date there was no election the vacating directors must be deemed to have been re-elected; therefore on February 25, 1951, Murugappa Chettiar became re-elected as director. We do not agree with this contention. Article 43 will apply only when there is a meeting held and as none was held before February 26, 1961, it has no application. Moreover in the view we have taken that there was no director who was in office on the date of the meeting there is no scope for applying article 43.
It was also urged that regulation 50 in Table A of Schedule I of the Companies Act provides that the election of directors other than those who retire, that is under article 63, must be by a special resolution, there was none such in this case and that, therefore, the election is illegal. But under article 33 of the articles of the company, which prevails over Regulation 50 no special resolution is required for election of directors. In the result we hold that the election of defendants 2 to 7 as directors is valid and not open to any objection.
It is next contended that members who were entitled to vote at the meeting had been excluded from exercising their right and that, therefore, the proceedings are illegal. In Application No. 139 of 1951 as part of the order adjourning the meeting originally fixed for January 28, 1951, to February 18, 1952, Krishnaswamy Nayudu J. gave the following directions:—
"But I consider that if it is made clear that the register as on November 28, 1950, will be the register that will be taken into consideration for the purpose of finding out the members who are entitled to vote or to be reckoned in a quorum, the apprehension on behalf of the respondent will disappear. To this course the company could have no objection." (Exhibit P. 4). It was in pursuance of this direction that the chairman declined to permit members who were not on the register of the company on November 28, 1950, to vote at the meeting. The contention of the appellants is that this direction is opposed to Section 79(1)(e) of the Companies Act which provides "any shareholder whose name is entered in the register of shareholders of the company shall enjoy the same rights and be subject to the same liabilities as all other shareholders of the same class."
Article 46 of the articles of the company runs as follows:—
"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 meeting." The direction made in Exhibit P. 4 is obviously in accordance with this article. But Section 79(1) provides that the provision contained therein shall have effect "notwithstanding any provision made in the articles of the company in this behalf" and the contention of the appellants that article 46 is illegal must be accepted. It is contended on behalf of the respondents that the order in Application No. 139 of 1951 was made at the instance of the company and that the order has become final and that, therefore, its validity cannot now be questioned. The appellants reply that the shareholders were not as such parties to this application and that their rights could not be concluded by an order to which they were not parties. We are inclined to agree with this contention. But the question is whether this contention is open to the plaintiffs. They were on the register of the company on November 28, 1950, and they were allowed to exercise their right of voting. Therefore they are not persons adversely affected by the direction contained in Exhibit P. 4. Their complaint is that two members Srinivasam Pillai and Narasimharn whose names had been placed on the register after November 28, 1960, had sent their proxies on January 25, 1951, and that those proxies had been wrongly rejected. Assuming that Srinivasam Pillai and Narasimham had validly been admitted as members, a point on which Balakrishna Iyer J. had held against them, it is obvious that when their proxies were rejected they were the persons who were wronged and that, therefore, they are the only persons who can make a complaint of it and not other shareholders.
In Pulbrook v. Richmond Consolidated Mining Company the plaintiff who had been elected as a director complained that he had been excluded by the company from taking part in the management and sued for an injunction. The company contended that the action was not maintainable except in the name of the company. Overruling this contention Jessel M.R. held that when the wrong complained against is individual to the shareholder he was the person who was entitled to maintain the action and observed: "But in a case of an individual wrong, another shareholder cannot on behalf of himself and others, not being the individuals to whom the wrong is done, maintain an action for that wrong." That is precisely what the plaintiffs seek to do in this action. They are not themselves wronged and they seek to sue on behalf of themselves and others.
It may also be mentioned that even if the votes of Srinivasam Pillai and Narasimham are counted in favour of the plaintiff's group and against defendants 2 to 7 the result of the election would not be affected and on this ground also this objection must be overruled.
Another contention passed on behalf of the appellants is that at the general meeting held on February 26, 1951, two persons Ramachandran and Narayanaswami who were not members were allowed to take part in the proceedings and record votes, on the strength of powers of attorney which they had obtained from two members, Mrs. Ananthalakshmi Ammal and Sri N. Sri Ram respectively, and that the same was illegal and vitiated the entire proceedings. It is well settled that the right of a member of a company to vote by proxy is not a common law right and that it is determined solely by its articles which constitute a contract between him and the company.
In Haroen v. Phillips where the nature of the right which a member possessed to vote by proxy was discussed, Cotton L.J. observed: "But the whole of Mr. Benjamin's argument really depended on this, that there was a right independently of contract to vote by proxy. I cannot accede to that." Bowbn L.J. observed, "that there is no common law right on the part of a member of a corporation to vote by proxy. We know, of course, that in many cases a man may do through another person what he may lawfully do himself………But when persons agree to act together in the conduct of a business the way in which that business is to be carried on must depend in each case on the contract, express or implied which exists between them as to the way of carrying it on."
In MacLaren v. Thompson Astbury J. observed: "There is no inherent or equitable right in any shareholder to vote by proxy; such right, if it exists, must be found in the contract binding the shareholders generally, that is, in the company's regulations or constitution and it then exists only in the form and subject to the limitations therein appearing."
Vide Halsbury's Laws of England Vol. 8 (2nd edn.) page 61 paragraph 108.
The question then simply is what do the articles say on this matter? Article 38 is as follows:— "On a demand of poll every member present in person or by proxy or by attorney shall have one vote." Under Section 79(2)(g) of the Companies Act "a proxy must be a member of the company," and article 44 in Table A provides "No person shall be appointed a proxy who is not a shareholder," and these provisions are applicable to the present case there being nothing in the articles of the company inconsistent therewith. Therefore, there is no doubt that a proxy can validly be given only to a member. But the respondents argue that article 38 clearly recognises that a member can be present in person or by proxy or by attorney and that, therefore, the attorneys form a class distinct from proxies and as to them there is no limitation that they should be members. Mr. K. Rajah Ayyar contends on behalf of the appellants that in law the status of a proxy is only that of an agent, that no distinction can be made between a proxy and an attorney and that they are synonymous words. He refers to item 48 in Schedule I to the Stamp Act which deals with the power of attorney not being a proxy and item 52 which deals with proxy and argues that this is a recognition that proxies are only a form of power of attorney. He also relies on the observations of Lindley J. in English Scottish and Australian Chartered Bank In re that a "proxy there means some agent properly appointed" and the decision of Satyanarayana Rao and Chandra Reddi JJ. in Narayanan Chettiar v. Kaleswarar Mills where it was held that the relationship between a shareholder and a proxy is that of a principal and an agent. That undoubtedly is so but the question is what do the words "by proxy or by attorney" in article 38 mean? Clearly they cannot be held to be synonymous because the words actually used are "by proxy or by attorney", and not "by proxy or attorney". The argument of the appellants involves the rejection of the words "by attorney" as meaningless surplusage. But it is unnecessary to pursue this matter further because there is a clear ground on which this contention of the appellants must fail. It appears from the voting list appended to the commissioner's report that even excluding the votes cast by the two non-members Narayanaswami and Ramachandran the defendants get 10,120 votes as against 4,078 obtained by the plaintiffs' group. The result of the election has not been affected by this irregularity and, therefore, it cannot be set aside.
Objection is next taken to the inclusion of proxies which were deposited on the 14th and 15th of February 1951. These proxies were cast in favour of the defendants. The contention is that as the meeting was originally fixed for January 28, 1951, as per Exhibit P. 3 the proxies should have been deposited under article 68 in Table A at least 72 hours before the meeting and, therefore those deposited on the 14th and 15th should be rejected. Article 42 of the company's articles provides that the instrument appointing proxy shall be deposited at the registered office of the company not less than 72 hours in advance of the meeting or the adjourned meeting; else it is invalid.
It is argued that this article is opposed to regulation 66 which is obligatory and therefore void. Reliance was also placed on the decision in McLaren v. Thompson that an adjourned meeting was only a continuation of the original meeting and that proxies which could not be used at the date of the original meeting could not be used at the adjourned meeting. But the short answer to this contention is that though the date of the meeting was originally fixed for January 28, 1951, it was not actually held on that date by reason of the order dated January 16, 1951, Exhibit P-3; that there was no notice even given of that meeting and that the meeting which was held on February 18, 1951, can in no sense be said to be an adjourned meeting.
The contention that there had been no valid nomination of the defendants 2 to 7 as directors because it was not made seven days before the meeting is again based on the assumption that there was a meeting on January 28, 1951, and that the meeting held on February 18, 1951, is the continuance thereof. There was no meeting on January 28, 1951, and therefore there can be no question of an adjourned meeting on February 18, 1951. It is conceded that the nominations are in time if the date of the meeting is February 18, 1951, and not January 28, 1951.
It is finally contended that Sanjeevi Naidu the commissioner who was appointed to preside over the meeting which was fixed for February 18, 1951, had no authority to adjourn it to February 26, 1951,and that, therefore, the proceedings of the meeting held on February 26, 1951, are void.
In
Halsbury's Laws of England, Vol. V, page 359, paragraph 588, (2nd Edn.) the law
is thus stated:—"Except where empowered by the regulations of the company,
the chairman cannot adjourn the meeting nor dissolve it while any of the
business for which it was called remains untransacted." In this case
article 35 provides that the chairman may with the consent of the meeting
adjourn it from time to time. It is not now disputed that Mr. Sanjeevi Naidu
obtained the consent of the meeting to adjourn it. It is suggested that the
order appointing him does not confer upon him power to adjourn the meeting. But
the meeting is to be conducted in accordance with the articles of association
and the chairman had the authority to adjourn the meeting under article 35.
Moreover the plaintiffs themselves pressed for adjournment and it is not open
to them to make a complaint of it. In Burt v. The British Nation Life Assurance
Association 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." This principle was
applied in this court by Satyanarayana Rao and Panchapagesa Sastri JJ. in
Nagappa Chettiar v.
[1941] 11 COMP CAS 203 (
HIGH
COURT OF
v.
AMEER ALI, J.
FEBRUARY 12, 1940
P.C. Ghose, Dr. Sudhish Roy and J.C. Maitra, for the Plaintiff.
S. Chaudhuri and K.K. Basu, for the Defendants.
I would have taken time to consider the typed note handed up to me by Mr.
Roy on the question of law but for two reasons, one is that the real point is
one of those which must be largely a question of opinion on the construction
and language of the Articles of Association, and upon that I have come to a
conclusion; the other is that I am anxious that the next suit should be called
on and that this matter should go back to the company, if that course is
possible. The real trouble with this unfortunate matter is that in this company
there are at least three groups of opinion. There are. first, the
amalgamationists; there are, second, the isolationists; and there are, third,
the re-insurers, who are amalgamationists in another form. The question is
which of these groups is the genuine Genuine Insurance Company. That is the
essence of the matter. As a result, there have been since the latter part of
October last two separate organizations, two rival boards of directors.
This suit is in substance one by a member of what I shall call the
"C" board for declarations which will oust the "B" board.
The meaning of these two symbols will appear from the facts which in a
simplified form I will now set out. The company is an insurance company on a
modest scale. Recent legislation has imposed certain presumably necessary
burdens or conditions upon such insurance companies in the interests of
policy-holders. The directors, whom I will call the "A" board, who
were functioning prior to 1st October, 1939, were as follows: I number them,
because although I am at this stage now more familiar with their names, the
names are at first very confusing: (1) Kumud Chandra Roy Chowdhury; (2) Khetra
Mohan Chaterjee; (3) Sailendra Nath Bose. These three had been elected by the
shareholders; (4) Subodh Mitra (elected by the policy-holders); (5) Sailen
Sircar; (6) Hiralal Ghose; (the last two being appointed by the managing agents,
and therefore under the articles permanent).
On 29th September 1939 was issued a notice of the ordinary general
meeting to be held on 16th October, with the usual business including the
election of directors in place of the retiring directors. On 1st October, there
were two directors' meetings, at which a proposal to amalgamate with the
Aryasthan Insurance Company was discussed and in substance adopted, a course
due to the pressure of the new Act. The proposal to amalgamate involved the
bringing in of the directors of the latter insurance company, and the six
persons whose names I am about to give were on 1st October co-opted as
additional directors: (1) Sir Manmatha Nath Mukerji, (2) the Raja of Nasipur,
(3) Khan Bahadur M. A. Momin, (4) Rai Bahadur A.C. Banerji, (5) Mr. Santosh
Kumar Basu and (6) Miss. Jyotirmoyee Ganguli. Mr. S.C. Roy, manager of the
Aryasthan Insurance Company, was appointed manager. It was also decided that
three members of the "A" board should resign as from that date in
order that the total number should not exceed the limit of nine. On 7th
October, a further board meeting was held, at which it was decided to convene
an extraordinary general meeting to obtain the final approval of the
shareholders to the amalgamation. That notice was sent out on nth October for
the 31st.
On 16th October the ordinary general meeting was held, 23 members being
present. Resolution 2 provided that only two out of the retiring directors were
to be re-elected, Professor Kumud Ray Chowdhury and Hiralal Ghose, although, if
I remember rightly, Hiralal Ghose was permanent as the managing agents'
appointee. At this meeting nothing was said about the six co-opted directors,
and no election in their place was either mooted or effected. There is no
evidence before me indicating whether the company was or was not made aware of
their co-option. I do not however draw the inference suggested by counsel for
the plaintiff that the company decided to reduce the number of directors to two
only. Indeed, if an inference is to be drawn, I should infer that the
re-election was confined to two, for the reason that the election of others was
contemplated. Nor has there been any evidence that on 16th October there was any
group of parties on the question of amalgamation, which of course on that dated
had not been put before the company. I should have mentioned that between 1st
October and 16th October, the board which continued to function and which may
now be designated the "B" board, consisted of the six co-opted
directors and three of the "A" board, Nos. 2,3 and 5. After 16th
October, the "B" board purported at any rate to function and
consisted of the six co-opted members, with Kumud Chandra Ray Chowdhury and
Hiralal Ghose. Subodh. Mitra continued as the policy-holders' director.
Owing to the disputes which subsequently arose challenging the status of
the "B" board after 16th October (it is not disputed between 1st
October and 16th October) parallel sets of minute books, both for the company
and the directors' meetings were kept. In the "B" board's minute book
is a minute which has not been put in evidence, but which I shall allow to
remain on the record, of 30th October 1939. I use it for no other purpose, than
to explain the history of the matter. It appears at this meeting, as appears
from the documents put in, that certain disputes arose, as the result of which
the "B" board co-opted the Chief Presidency Magistrate and sought the
assistance of the police, one of the factors which has such an effect in
promoting business in
From this date, as I have already said, the two boards functioned
independently and on parallel lines. I gather, that Kumud' Chandra Ray
Chowdhury and Hiralal Ghose ceased to function as a part of the "B"
board and constituted themselves a limited board of their own. On 8th November they
proceeded to create what I call throughout the case the "C" board, by
the resignation of Hiralal Ghose, the co-option first of Ramendra Nath Mukerji,
and subsequently at a meeting of the same date at which Ramendra Nath Mukerji
presided, the co-option of another six persons, of whom the plaintiff is one.
Professor Ray Chowdhury and Sailendra Mitra subsequently resigned on 21st
November, 1939, and the "C" board therefore after that date was
composed of persons exclusive of the nine included in the " B" board.
Now, the "C" board in the normal course, if anything is normal in
this matter, notified the Registrar of Insurance Companies, that its members
were the proper board of directors of the company. The "B" board, of
course, also notified the Registrar of Insurance Companies to the same effect
with regard to its members, and we have therefore parallel registrations. The
"C" board also I see from the records attempted to obtain the
assistance of the police but was less successful. The. "C" board finding
themselves in the same difficulty as the "A" board, according to them
as will appear from their resolutions, by reason of the misconduct of the
"B" board, were compelled to enter into a similar or analogous
proposal, which is called "re-insurance" with another company called
the Aryasthan Insurance Co. The relevant resolutions are in December 1939. It
was at this stage, I presume, that the third group of opinion to which I have
referred, the isolationists, who like neither the "B" board's
amalgamation nor the "C" board's amalgamation, came into existence.
Meanwhile, on dates which I have not for the moment before me, the deposit
under the new Insurance Act not having been paid, the Government took steps to
cancel the registration certificate of the company.
As a result of this unfortunate imbroglio, we have an imposing set of
proceedings: this suit by a director of the "C" board, the next suit
by a number of shareholders to obtain a decision as between the "A"
board and the "C" board, the "A" opinion and the "C''
opinion. There is an application to sanction the amalgamation under the
Companies Act. There are, I understand, proceedings to challenge the decision
of the Government. There are also proceedings in which the position of those
supporting the ' C ' amalgamation is sought to be affirmed or established. At
some stage of the proceedings, as to which I am not quite clear (I would be
glad if counsel would inform me) the appointment of a member of the bar to act
in place of the secretary of the company, presumably by way of an interlocutory
safeguard was made by the Court. Those are the facts. The evidence before me
consists of the oral evidence of Professor Kumud Ray Chowdhury, who was a
member of all the boards, "A", "B" and "C," a
most respectable gentleman, who gave his evidence very fairly and is a
Professor of Geography, and the plaintiff, who is said, by himself,' to have
some knowledge of insurance.
Coming to the present suit, I can deal with technical questions very
shortly. Among the prayers are two for declarations that the resolutions of the
Bhubaneswar Nag meeting are valid, and those of the Khan Bahadur Abdul Momin
meeting are invalid, that of course being what the suit is aimed at. But those
reliefs were not pressed, nor, in my opinion, could they have been obtained in
a suit framed as this suit is framed. I am also of opinion that as a matter of
law Mr. Chaudhuri is right in his contention that in so far as this is a suit
challenging the position of the "B" board and to remove them from the
directorate, the suit is wrongly constituted. It is not necessary for me to go
into the technicalities of the matter, because I expressed this opinion, to
which I adhere, that in so far as it is a suit for a declaration that the
plaintiff is, a director and for the protection of his rights qua director, the
suit lies. And in deciding that question on the facts of this case it may be
necessary for me as a matter of fact and not for the purpose of proceeding to
other reliefs or declarations to go into the question of the appointment of the
"B" board because on the facts of this case the "B" board
and the "C" board so to speak are mutually exclusive. Again, I do not
as at present advised consider that a suit by A to establish the rights by
declaration and injunction of B,C,D and E lies. But to the limited extent I
have stated, in my opinion, the suit is good, and so limited the only issue is
whether the plaintiff is a director. It involves two subsidiary questions: (1)
whether the B group of directors are directors, and (2) whether the plaintiff
is a director or disqualified, because counter-attack has been made on his
position.
The first, question falls within a very small compass and the answer
depends upon the applicability and effect of Art. 148 of the Articles of
Association, for this reason, that the B board for whom Mr. Chaudhuri appears,
rely upon this article to validate their position and upon nothing else. Mr.
Chaudhuri, in my opinion, exercised very sound discretion in not relying upon
what is relied upon in his written statement, namely, a company meeting of 23rd
October 1939. As a result the minutes of this meeting which appear at page 29
of the brief but marked "not admitted" by the plaintiff have not been
proved. Now Mr. Chaudhuri, while he has .deprived us of a description which
would have delighted the heart of Gilbert and Sullivan, has achieved two very
desirable objects for his client, first, he avoided a finding on the lines of
two very popular English sayings: "That a little company law is a
dangerous thing" and second, "That girls rush in where Khan Bahadurs
fear to tread." I do not mean to be flippant but to indicate that Mr.
Chaudhuri was very wise. He achieved an even more important object because he
excluded an argument (which as it has not been put before me I will say no more
than that it appears highly plausible), namely that there was an actual meeting
on the 23rd, either an adjourned or a distinct meeting, and that having regard
to what took place then the application of Art. 148 in the sense in which it has
been construed by the ruling in In re Great Northern Salt & Chemical Works
; Ex parte Kennedy does not
apply, the position being, on the evidence that matters ended with the company
meeting of 16th October.
Now this question of the applicability of Art. 148 to co-opted directors
is by no means easy especially to one like myself who has no knowledge of
company matters. Summarising the arguments, the defendants rely upon the
language of the articles coupled with the decision to which I have already
referred in In re Great Nothern Salt & Chemical Works; Ex parte Kennedy, which ruled
that this article or an article in similar though possibly distinguishable
terms (this is a matter to which I shall have to refer again) was directory
only, in other words, that there is a notional adjourned meeting and a notional
re-appointment.
Counsel for the plaintiff have advanced a variety of arguments. Mr. Roy
was called upon by the absence of his colleague to make the main address, and
his full and careful argument was obviously the result of much midnight or
early morning research into his extensive library, his point, I think, being
constructed upon certain authorities which in justice to him I shall have to
examine. Mr. Roy's point, for want of a better phrase I will for the moment
designate as the "different posts," the shareholder's directors and
additional directors point. Indeed as I understood him, this was really the
only point upon which he desired to rely. I do not for a moment mean to
indicate that he or any other counsel makes a binding admission about other
points. As to that, I think he misunderstood me in the course of the argument.
But the Court is entitled to know what point is being argued, and what is not
being argued.
Mr. Ghose followed, and as I understood his points I may enumerate them
as follows: (a) On a proper reading of Art. 151 reelection means reelection by
directors, (b) That there was no notice for the meeting of 16th October setting
out as business the re-election of additional directors with certain
consequences. (c) And this must be an alternative point, that the company in
fact determined not to re-elect on 16th October, (d) That Art. 148 is not like
the old Arts. 62 and 82 of the English Schedules and is in our case mandatory,
relying upon differences of language, (e) And lastly, that the last words of
Art.151 must be read in the language of the Schedules to the Companies Act
where after "reelection" appear "as additional directors,"
and that this involves that at the meeting there must be a proposal to appoint
additional directors, and that that is a condition precedent to any re-election
of those who have been additional directors.
I come back to Mr. Roy's point, and although, I think, I have followed
the argument I still am not clear as to the philosophy behind it. It seemed to
me, and so I put it to him in the course of the argument that his point must
depend upon establishing that the vacancy created by the two classes of
retiring directors is in some way different, and I have not been able to
discover how it is different. I asked him whether the vacancy was one which
according to his argument must be filled by directors. This was not his point
although it was a point taken by Mr. Ghose, and that would be logical. He did
contend on the authority of a certain case with which I shall deal in a moment
that the difference was this. That in the case of co-opted directors the
vacancy is created before the meeting. His actual words if I remember rightly
are that "he has a co-opted director is civilly dead before the
meeting," whereas the shareholder's directors, to use Mr. Roy's
expression, "only die at the meeting," and if this was so, certain
consequences would follow. But I still think that his argument boils down to
the question whether there are two species or varieties of vacating directors
leaving two species or varieties of vacancies, and I cannot see it. My point of
view, again without any desire to be flippant and only a desire to be clear, I
expressed to Mr. Roy as follows: We have Professor Roy Chowdhury a
shareholder's director, we have Khan Bahadur Mahomed Momin additional director.
That the void left by the former might be actually or physically different from
the void left by the latter may well be, but the void left by them in law is to
my mind precisely the same when they retire at or for the purposes of that
meeting. They both lose their status; they are re-eligible purely as
individuals. In the absence of a special article or in the absence of anything
to be gathered from the articles, in my view they are both eligible for
re-election, and such re-election should take place at a company's meeting.
I quite follow that from this, coupled with Art. 148 and the ruling in In
re Great Northern Salt & Chemical Works: Ex parte Kennedy, certain
anomalies may follow ; the company may find itself with a large number of
additional directors appointed for another year which it had no intention of
appointing. It may be that in certain cases the appointment of additional
directors might be concealed from the company, but I have dealt with this case
on the basis that no fraud of that kind has been alleged or established. I do
not again mean that my view on Mr. Roy's point necessarily decides the matter.
I do not think it does, and I shall proceed to state in a moment after dealing
with Mr. Ghose's points, what I consider to be the crux of the matter after
having referred to the law or authorities upon which Mr. Roy has constructed
his argument. Taking the cases in order of time, Bluett v. Stulchbury's Ltd. I have not
the case before me but my note is merely director not re-elected—not a
director". Nor if I remember rightly does this case establish anything
further. Blair Open Hearth Furnace Co., Ltd. v. Reigarit: Mr. Roy
used this for the proposition that director's directors were of a different
quality to shareholder's directors. That they were a mutually exclusive body.
Now, to some extent, while they are functioning, that is so, but as I read that
case the decision amounts to no more than this : that where under a company's
articles the maximum number of directors is fixed at seven but the company
under another article has power to increase that number the company could not
in a general meet-sing appoint additional directors that being a function
delegated to the board, especially in view of the fact that it bad not under
the appropriate article expanded the number. I do not think that this case is
an authority on the status of directors retiring at the general meeting, or
establishes that in respect of the retirement of each class, different
consequences ensue.
The next case, Spencer v. Kennedy: This really
relates to the operation of Art. 148 or its corresponding article in the
schedule ;and I may refer to it again when dealing with Mr. Ghose's point on
the effect of the operation of the article in question. Eyre v.
Turning to Mr. Ghose's points: I am against him on the first. I do not
read Art. 151 in any other sense than "eligible for reelection in the company
meeting.'' I do not think this point is strongly pressed. I deal next with his
point to the effect that Art. 148 is mandatory. Again I am against him. In my
view, no stress is to be laid upon a difference in language in this article
(Art. 82) the old Art. 62 or Art. 64. His remaining points which depending upon
the circumstances of the case come nearer to what in my mind is the crux of the
question, and indeed it may be that with the difference in language the point
contended for by Mr. Ghose is the one which I am now going to formulate.
To my mind, the question reduces itself to one which may be simply
formulated but not easy to decide, and that question is, "What ought to
have taken place at the company meeting?" The language used is the
language of ordinary life which in this connection does not make it simpler.
"What ought to have taken place?" On the one view, if the re-election
of the additional directors could have taken place, it ought to have taken
place. On the language it is difficult to avoid the conclusion that if it could
and should it ought. As against this, and this has been my main difficulty, can
it be said that a directory and remedial provision! should apply only where
there has been a clear accidental omission? Can it be said that there was no
such omission on 16th October 1939 because the matter was never before the
meeting ? That, in the facts of this case, it could not be before the meeting,
or that the omission, if any, was on the part of the directors in not bringing
it before the meeting, not an omission at the meeting. That in other words the
company had no opportunity of making the omission and it is therefore not a
meeting at which an election "ought to have taken place within the meaning
of Art. 148." That is the opposite contention to which it strikes me there
can be the following rejoinder on the language of the articles, namely that at
best it ought to have been put before the meeting, and if it ought to have been
put before the meeting it ought to have taken place at the meeting. There still
remains an omission to do something which should have been done at the meeting
notwithstanding that that omission was due to an earlier omission. This I think
is the essential point although I may not have expressed it with sufficient
accuracy. It is a point upon which reading the sections there may be two
opinions, but my opinion for what it is worth is, whatever view you take, there
still remains something which ought to have been done at the meeting. For that
reason I am of opinion that Art. 148 does apply and not being mandatory the
position of the "B" board is established.
With regard to the counter-attack upon the status of the plaintiff,
although the plaintiff's position appeared by no mean a unassailable, the
evidence was not conclusive. I was asked for an opportunity to give additional
evidence on the point of default-in the payment of calls, and subject to the
objection of Mr. Ghose I allowed it. In view of my decision on the main point I
do not propose to rely upon the evidence subsequently tendered. With regard to
Mr. Ghose's point of law in answer to the counterattack on the plaintiff's
position, and the authority cited by him, Dawson v. African Consolidated Land
& Trading, Co.; I am by no
means prepared without further consideration to hold that default in payment of
call prior to appointment and continuing after appointment is not a
disqualification, or even if the appointment be valid the director who is bound
to vacate would be granted by this Court equitable relief. Nor that I would be
bound to take into account the fact that the director seeking such relief has
subsequently complied with the payment of the call. I have thought it right to
decide upon the main point in the case. The injunction in this suit restraining
the B directors from acting may be dissolved as there is a similar injunction
in the next suit which will now be called on. The suit is dismissed with costs.
[1968] 38 COMP. CAS. 606 (BOM)
HIGH COURT OF
v.
Shree Ram Mills Ltd.
VIMADALAL, J.
COMPANY
APPLICATION NO. 27 OF 1967 IN COMPANY PETITION NO. 102 OF 1967 IN PETITION NO.
17 OF 1967
August 24, 1967
J.C. Bhatt and A.B. Diwan for the Petitioners.
P.P. Khambatta, F.S.
Nariman, M.R. Mody and K.S. Cooper for the Respondent.
This is an interim
application pending the disposal of an application under section 403 of the
Companies Act, 1956, which is itself for an interim order on a substantive
petition by the petitioners under sections 397 and 398 of the said Act.
The facts necessary for the
purpose of this application are that the shares in the 1stt respondent-company
are held by two groups, namely, the Bhogilal group and his associates who hold
the majority of as much as about 69 per cent. of the paid up capital of the
company which stands at present at the figure of Rs. 99,60,000, and the
Menghraj group and his associates who constitute the minority group holding the
remaining shares. The three petitioners and the 8th respondent belong to the
said minority group of shareholders, the respondents Nos. 2 to 5 to the
majority group of shareholders. It may be mentioned that the 3rd petitioner and
the 8th respondent were, at the material time, directors of the 1st
respondent-company along with respondents Nos. 1 to 7 and though it is a matter
in controversy between the parties whether the 3rd petitioner still continues
to be a director of that company, it is an admitted position that respondents
Nos. 1 to 8 are even now the directors of the said company. It is the case of
the petitioners that though respondents Nos. 6 and 7 do not belong to the
majority group of shareholders, they are supporting them in excluding the
minority group of shareholders from the control and management of the company. The annual general meeting of the shareholders of
the 1st respondent-company for the year ending 31st December, 1966, was to be
held on the 2nd of June, 1967, and at that meeting the 3rd petitioner was due
to retire as a director by rotation, but, being eligible for reappointment, he
offered himself for re-election as such. The appointment of a director in place
of the 3rd petitioner, who, however, offered himself for reappointment was, in
fact, one of the items on the agenda (item No. 3) of the said meeting. It is
the case of the petitioners that, in view of the threatening attitude of the
majority group and their attempts to exclude the minority group from having any
voice in the control and management of the last respondent-company, the
petitioners apprehended that the majority group of shareholders of the company
would defeat the resolution for the reappointment of the 3rd petitioner as a
director of the said company at the said meeting. The petitioners filed a
petition before the Companies Tribunal at New Delhi, which has now been
abolished, for reliefs under sections 397 and 398 of the Companies Act on the
ground that the affairs of the 1st respondent company were being conducted in a
manner prejudicial to the interests of the said company, and in a manner
oppressive to the minority group of shareholders who were represented on the
board of directors by the 3rd petitioner and the 8th respondent, as already
stated above. The petitioners' case is that gross improprieties in the conduct
of the affairs of the 1st respondent-company, in the form of clandestinely
retaining the profits earned in foreign countries for their own benefit,
altering and fabricating contracts with a view to benefit certain relatives of
the majority group of shareholders, and certain fraudulent dealings with a firm
named Chunilal and Co. in respect of cotton waste, have been committed by
respondents Nos. 2, 3 and 5 which compelled the petitioners to present a
substantive petition under sections 397 and 398 of the Companies Act.
In the said petition the
petitioners have prayed for the removal of respondents Nos. 2 to 5 as directors
and respondent No. 3 as managing director of the said company, for a permanent
injunction restraining them from functioning as such, for the appointment of an
administrator or special officer with all powers of the board of directors for
a period of five years for managing the affairs of the company, and for other
ancillary as well as interlocutory reliefs.
Having filed the said
petition, the petitioners made an application for interim relief under section
403 of the said Act on the 1st of June, 1967, just a day prior to the annual
general meeting at which the question of the reappointment of the 3rd
petitioner as a director was to come up as item No. 3 on the agenda of the said
meeting. On that application, the Companies Tribunal, while camping at
"In view of the
serious allegations made regarding the alleged breach of the foreign exchange
regulations, we direct that the rule in this application should also be served
on the Reserve Bank of
By the said order, the
Companies Tribunal also appointed joint receivers of all books of account,
records, files, vouchers and papers of the 1st respondent-company and granted
liberty to the parties to apply, directing that the rule issued by them on the
said application under section 403 would be heard by them at New Delhi on the
28th of June, 1967. A copy of the said order is annexed and marked "A"
to the affidavit in support of the present application.
On the 2nd of June, 1967,
the annual general meeting of the 1st respondent-company was held, but the same
was adjourned to the 8th of June, 1967, in view of the said order of the
Companies Tribunal dated the 1st of June, 1967. On the 3rd of June, 1967,
respondents Nos. 1 to 7 made an urgent application to the Companies Tribunal
for varying the said order dated the 1st of June, 1967, and the Companies
Tribunal, by their order of 3rd June, 1967, modified their earlier order of 1st
June, 1967, in regard to the custody of books, papers, etc., by the joint
receivers, as well as for inspection, but stated in clear terms in the
concluding portion of the said order: "The rest of the interim order
passed by us on 1st June, 1967. shall stand". A copy of the said order
dated the 3rd of June 1967, has been annexed to the affidavit in support of the
present application and marked "B".
At the adjourned annual
general meeting of the 1st respondent-company which was held on the 8th of
June, 1967, item No. 3 on the agenda which related to the reappointment of the
3rd petitioner as a director was not considered in view of the injunction
granted by the Companies Tribunal on the 1st of June, 1967, which was continued
by their order of the 3rd of June, 1967. By their letter dated the 10th of
July, 1967, addressed by Messrs. Mulla and Mulla, Cragie, Blunt and Caroe on
behalf of the 1st respondent-company to the 3rd petitioner, the latter was
however informed that, according to the legal opinion obtained by the said
company, the 3rd petitioner could not act as a director of the said company
after the date of the
adjourned meeting of the 8th of June, 1967, and that intimation of that fact
was being sent to the Registrar of Companies. An intimation to that effect was,
in fact, sent by the 1st respondent-company to the Registrar of Companies in
the prescribed form of return on the 10th of July, 1967, itself. The
petitioners have thereafter made the present application by way of a judge's summons
to this court, in view of the abolition of the Companies Tribunal as from the
1st day of July, 1967. By this summons, the petitioners have prayed for an
injunction restraining respondents Nos. 1 to 7 from preventing the 3rd
petitioner from exercising his rights as a director of the 1st
respondent-company for an order directing the 1st respondent-company to
withdraw or cancel the intimation given by them to the Registrar of Companies,
and, if necessary, for the appointment of the 3rd petitioner as a director of
the 1st respondent-company.
It
will be convenient at this stage to refer to the provisions of section 256 of
the Companies Act, 1956. The material portion of subsection (1) of that section
provides that, at each annual general meeting, one-third of the directors for
the time being must retire, sub-section (2) thereof provides that the directors
to retire by rotation at every annual general meeting would be those who have
been longest in office, subsection (3) provides that, at the annual general meeting
at which a director retires by rotation, the company may fill up the vacancy
either by appointing the retiring director or some other person as director,
and the material portion of sub-section (4), which is very important for the
purpose of deciding the present application, reads as follows :
"(4)(a)
If the place of the retiring director is not so filled up and the meeting has
not expressly resolved not to fill the vacancy, the meeting shall stand
adjourned till the same day in the next week, at the same time and place, or if
that day is a public holiday, till the next succeeding day which is not a
public holiday, at the same time and place.
(b)
If at the adjourned meeting also, the place of the retiring director is not
filled up and that meeting also has not expressly resolved not to fill the
vacancy, the retiring director shall be deemed to have been reappointcd at the
adjourned meeting, unless—
(i) at that meeting or at the previous meeting a
resolution for the reappointment of such director has been put to the meeting
and lost".
The
whole case of respondents Nos. 1 to 7 in regard to the present application
turns on the construction which they seek to place upon the statutory
provisions referred to above. According to respondents Nos. 1 to 7, only one
adjournment is provided for by statute in respect of an annual general meeting,
and, at such adjourned meeting, the director who is to retire by rotation must
be held to have retired, unless he is re-elected, or the conditions of
sub-section (4)(b) of section 256 are satisfied, and he must be deemed to have been reappointed as a director at the adjourned
meeting. It is the case of respondents Nos. 1 to 7 that, in view of the interim
order passed by the Companies Tribunal on the 1st of June, 1967, which was
continued by their order dated the 3rd of June, 1967, the provisions of
sub-section (4)(b)of section 256 are not attracted, and, under the
circumstances, the 3rd petitioner has ceased to be a director of the 1st
respondent-company.
It is common ground that it
is not the petitioners' case on the present application that the 3rd petitioner
has not retired by rotation at the adjourned meeting of the 8th of June, 1967.
The petitioner's case is that if the company had further adjourned the annual
general meeting, as, according to them, the company was entitled to do, the 3rd
petitioner would not have retired by rotation in view of the order passed by
the Companies Tribunal on the 1st of June, 1967, by which the status quo in the
matter was to be preserved, pending adjournment of the annual general meeting.
The petitioners' case further is that since there was, in fact, no such further
adjournment of the annual general meeting, the 3rd petitioner retired by
rotation. As it is common ground that the 3rd petitioner has retired by
rotation, either on 8th June, 1967, as respondents Nos. 1 to 7 contend, or on
9th June, 1967, as the petitioners contend, the question as to whether the
Tribunal's order of the 1st of June, 1967, should be construed as an order
directing the 1st respondent-company and the other respondents to continue the
3rd petitioner as a director, does not arise. What the petitioners contend is
that the annual general meeting of the 2nd of June, 1967, stood statutorily
adjourned by reason of the provisions of sub-section (4)(a) of section 256, to
the 9th of June, 1967, and though respondents Nos. 1 to 7 purported to adjourn
it to the 8th of June, 1967, since on the 9th of June, 1967, to which date the
annual general meeting stood statutorily adjourned, (1) the vacancy of the 3rd
petitioner was not filled up, (2) it was not expressly resolved that the
vacancy of the 3rd petitioner was not to be filled up, and (3) no resolution
for the reappointment of the 3rd petitioner has been put to the meeting and
lost, the 3rd petitioner must be "deemed to have been reappointed" on
the 9th of June, 1967, by virtue of the provisions of sub-section (4)(b) of
section 256 of the Companies Act.
In support of his contention
on the point, Mr. Bhatt for the petitioners has relied strongly on the English
decision in the case of Grundt v. Great Boulder Proprietary Mines Ltd. Before I deal with the said case, it may be
pointed out that, till the decision in Grundt's case was given, there was no provision in English
law similar to the one that is to be found in sub-section (4)(b)(i) of section
256 of our Companies Act. Article 102 of the company concerned in the said case
provided :
"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".
Mr.
Bhatt has pointed out in the course of his argument that the said article was
similar to the provisions of sub-section (4) of section 256 of our Act with
this material difference that the condition in sub-section (4)(b)(i) to the
effect that a resolution for the reappointment of the retiring director must
not have been put to the meeting and lost, is not contained therein. The facts
of Grundt's case were that, at the annual general meeting of
the said company in the year 1947, the plaintiff was the director retiring by
rotation, and he was proposed for re-election, but the resolution for his
reappointment was declared to be lost. No other person was then proposed for
election as a director in the plaintiff's vacancy, and no resolution was passed
to reduce the number of directors in office. The learned trial judge dismissed
the action, holding that since the number of directors, even after the
retirement of the plaintiff, was not reduced to less than the minimum required,
it could not be said that there were circumstances present which created a
position in which an election of directors "ought" to have taken
place within the terms of article 102 of the said company. The plaintiff having
appealed, it was held (at pages 150-151):
"....
that the word 'ought' was not necessarily of imperative signifi-cance and was
certainly not synonymous with the word 'must' and would cover the case of an
ordinary general meeting at which directors retire by rotation, since, at such
a meeting, election of directors would be proper, correct or naturally
expected".
The
learned judges then proceeded to consider the other argument advanced on behalf
of the defendant-respondents in the said appeal, namely, that, as a matter of
construction, an article in the form of article 102 cannot, in common sense,
operate, when the company intimates by express adverse vote that it does not
desire the retiring director to continue as a director. In support of that
contention, reliance was sought to be placed by the learned counsel for the
respondents in Grundt's case on the case
of Robert Batcheller and Sons Ltd. v. Batcheller, which was
strongly relied upon also by Mr. Nariman for respondents Nos. 2 to 5 before me.
Articles of association in Robert Balcheller's case provided that
if the places of retiring directors were not filled up, the retiring directors
should be deemed to be re-elected. What happened in Robert Batcheller's case was that two
retiring directors were not re-elected, but
the chairman, ignoring the consideration of the item which provided for filling
up of the said vacancies, declared that they were re-elected under the said
article 93. The shareholders, however, then purported to elect two new
directors to fill the said vacancies. In an action brought by the company for a
declaration that the two new directors had been duly elected, it was held that,
as notice to the shareholders was not in proper form, the purported election of
the two new directors was invalid, but that, as article 93 only operated when
the known circumstances of a particular case were such as "sensibly and
legitimately" to admit of its application, and to apply it notwithstanding
that the shareholder had refused to re-elect them amounted to "a complete
absurdity" and the claim of the retiring directors to have been re-elected
was therefore "repugnant to commonsense", and failed (at pages
176-177). On the strength of the said decision, it was sought to be contended
by the learned counsel for the respondents in Grundt's case that a provision of the nature of article 102
in the said case could not be applied, where it would lead to the absurdity of
continuing as directors those whom the company had expressly rejected at the
annual general meeting at which they stood for re-election. That argument based
on absurdity was rejected by the court. Rejecting that argument, Cohen L. J.
stated (at page 155):
"I do not think that
on grounds of that kind we are justified in disregarding what seems to me the
plain meaning of English language even though in a particular case it does
appear to produce an inequitable result".
Cohen L.J. then went on to
observe (at page 157) that he was not satisfied that it was necessarily an
absurdity, for it might well be that persons responsible for the adoption of
the article deliberately took the view that, having regard to the small number
of directors to whom the business was being entrusted, there should be no
reduction of the number in charge without the attention of the shareholders
being specifically drawn to the same. To the same effect are the observations
of Lord Greene M. R., who added (at page 158):
"'Absurdity' I cannot
help thinking, like public policy, is a very unruly horse, because there may
very well be considerations which would be well understood by the persons
concerned to work a particular document in question, which do not readily
present themselves to the mind of a judge".
The appeal was, therefore,
allowed, and it was held that the plaintiff must succeed and be entitled to the
declaration that he claimed to the effect that he continued in office as a
director of the said company, notwithstanding the express resolution of the
company rejecting his re-election at the annual general meeting in question.
Relying on the decision in Grundt's case , Mr. Bhatt
for the petitioners has sought to contend before me that I must ignore the argument advanced
on behalf of respondents Nos. 1 to 7 which was based on the alleged
impossibility created by the order passed by the Companies Tribunal on the 1st
of June, 1967, which, according to the said respondents, prevented them from
either re-electing some other person in that vacancy, or resolving not to fill
up the said vacancy. It may, however, be mentioned at this stage that no other
person had filed his nomination paper for being elected as director in place of
the 3rd petitioner, and no question of appointing any other person in the
vacancy caused by the retirement of the 3rd petitioner arose at all in the
present case. Mr. Bhatt has contended that, since each one of the conditions
laid down in sub-section (4)(b) of section 256 of the Companies Act has been
satisfied in the present case, I must, irrespective of considerations of the
impossibility alleged to have been created by the Tribunal's order of 1st June,
1967, hold that the "deeming provision" contained in section 256
(4)(b) operated and resulted in the re-appointment of the 3rd petitioner for a
further term.
In
answer to that contention of Mr. Bhatt, Mr. Khambatta for the 1st
respondent-company as well as Mr. Nariman for respondents Nos. 2 to 5 sought to
point out the passages at page 535 of Palmer's Company Law (20th edition) and
article 92 at page 883 of Buckley's Companies Act (13th edition), which show
that, consequent on the decision in Grundt's case relied upon by Mr. Bhatt, a change was
effected in the English law on the point by which the effect of that decision
was nullified by inserting a statutory provision of the nature of that
contained in sub-section (4)(b)(i) of section 256 of our Act. Both Mr.
Khambatta and Mr. Nariman have, therefore, urged that, not being bound by the
decision in Grundt's case, I should
prefer to follow the decision in Robert Batcheller's case and hold that, where a "deeming
fiction" of the nature of that contained in sub-section (4)(b) of section
256 of our Act leads either to an impossibility as is alleged in the present
case, or to an absurdity, the same should not be applied, since to do so would
be repugnant both to the common sense as well as to the very language of
sub-section (4)(b) of section 256 of our Act.
I
am afraid, I cannot accept the contention of Mr. Khambatta as well as Mr.
Nariman that, because a change was made in the English law consequent on the
decision in Grundt's case , I should not
regard Grundt's case as laying down the correct law. The change
made in the English law on the point may be a matter of expediency, but the
decision in Grundt's case actually turned on a construction of the plain
language of article 102 of the company in that case, which was similar to
sub-section (4)(b) of section 256 of our Act, but in which the proviso
contained in sub-clause (i) of that sub-section did not find place. It is that
proviso that was added by the change in the
English law effected in the form of the new clause 92 of Table A of the English
Companies Act, 1948, which replaced article 38 of Table A of the earlier
English Companies Act of the year 1929. Whilst, therefore, the English
Legislature may have considered the result of Grundt's case to be undesirable, the fact that a change was
effected in the law on the point does not, under the circumstances, mean that
the decision, as a matter of construction of the plain language of the article,
was thought to be erroneous. I agree with the decision in Grundt's case . In my
opinion when the language is clear and unambiguous there is no scope for
introducing considerations of absurdity or other like considerations for the
purpose of negativing the effect of the plain language of an article or a
section.
Apart altogether from the
view which I have taken in the preceding paragraph, namely, that impossiblity
of complying with the conditions laid down in section 256(4) is no reason for
holding that the result contemplated by that sub-section should not follow from
its plain language, in my opinion, there was, in fact, no impossibility created
by the order passed by the Companies Tribunal on the 1st of June, 1967, in
complying with those statutory conditions, as Mr. Khambatta and Mr. Nairman
have contended. In my opinion, the order of the Tribunal did not prevent it
from passing a resolution, either at the meeting of the 2nd of June, 1967,
itself or at the adjourned meeting of the 8th of June, 1967, expressly
resolving not to fill the vacancy caused by the retirement of the 3rd
petitioner by rotation. The Tribunal's order of the 1st of June, 1967,
restrained the respondents only from "allowing the consideration of item
No. 3 on the agenda", and that item in terms related only to the
appointment of a director in place of the 3rd petitioner. Reading the
Tribunal's order along with the terms of item No. 3 on the agenda, it is,
therefore, clear that all that the respondents were restrained from doing by
the said order was the appointment of a director in place of the 3rd
petitioner. I do not think that they were prevented from passing a resolution
expressly resolving not to fill the said vacancy. There was another line of
argument advanced by Mr, Bhatt for the purpose of showing that the Tribunal's
order of 1st June, 1967, did not create any impossibility in complying with the
conditions of section 256(4). Mr. Bhatt's contention was that, by its said
order, the Tribunal expressly left it open to the company and the other
respondents to allow item No. 3 on the agenda of the annual general meeting
that was to be held on the following day, which related to the appointment of a
director in place of the 3rd petitioner, to be "adjourned pending further
orders of the Tribunal" in the said application. It was argued by Mr.
Bhatt that it was, therefore, open to the 1st respondent-company, to have
adjourned the said annual general meeting for a period sufficiently long to have the said application
disposed of by the Companies Tribunal and, on general principles of law, such
adjourned meeting would be a continuation of the original meeting (Spencer v.
Kennedy ).
Mr. Bhatt submitted that, if the 1st respondent-company, had chosen to adopt
that course, which was open to it, and had adjourned the annual general meeting
for a sufficiently long period, no question of its being unable to comply with
the provisions of section 256 (4) could have arisen at such adjourned meeting.
It was argued by Mr. Bhatt that, by adjourning the meeting to the 8th of June,
1967, the company voluntarily placed itself in the position of which it now
complains. Though, on general principles, an adjourned meeting would be a
continuation of the original meeting, it is important to bear in mind that
section 256(4) provides for only one statutory adjournment of the annual
general meeting as far as the item of filling the vacancy of a retiring
director is concerned. That was, no doubt, the provision under article 82 of
the articles of the company in the case Spencer v. Kennedy on which Mr. Bhatt has relied. I, however, do
not feel called upon to decide the question as to whether an annual general
meeting statutorily adjourned under section 256(4)(a) can be further adjourned,
without entailing the legal consequences laid down in section 256 (4)(b).
Having regard to the view which I have taken above, that the Tribunal's order
of 1st June, 1967, did not create any impossibility as it did not prevent the
company from expressly resolving not to fill the vacancy, it is unnecessary for
me to pronounce upon the interesting argument of Mr. Bhatt which I am now
considering, and which was in support of the same main contention, viz., that
no impossibility in complying with the conditions of section 256(4) was created
by the Tribunal's order of 1st June, 1967.
Both
Mr. Khambatta and Mr. Nariman have, however, contended, in the alternative,
that, even as a matter of construction of the language of section 256(3) and
(4), "the deeming fiction" contained in the latter subsection can
apply only when the company has the choice of fulfilling its conditions or not.
I must, therefore, proceed to examine this contention of Mr. Khambatta and Mr.
Nariman. Sub-section (1) of section 256 provides in mandatory terms for the
retirement of one-third of the directors by rotation at each annual general
meeting. Sub-section (3) of the same section enacts that, at the annual general
meeting at which a director retires pursuant to the provisions of sub-section
(1) thereof, "the company may fill up the vacancy", either by
reappointing the retiring director or appointing somebody else in his place.
Clause (a) of sub-section (4) proceeds to lay down that, if the place of the
retiring director "is not so filled up", and the meeting has not
expressly resolved not to fill the vacancy, there is to be a statutory
adjournment of the meeting for a week, as prescribed therein. Mr. Nariman has emphasised the word "so" in this
sub-section as indicating that it comes into play only in cases in which it is
open to the company to fill up the vacancy under sub-section (3) of that
section. I am afraid, that is not the proper construction of sub-section
(4)(a), and, in my opinion, the word "so" therein relates only to the
manner in which the vacancy is filled up. Sub-section (3) provides for two ways
of filling up the vacancy, one by the reappointment of the retiring director, and
the other by appointing some other person in the vacancy of the retiring
director, and the word "so" in sub-section (4)(a) is intended to
convey that, when the vacancy is not filled up in one or the other of those two
modes provided in subsection (3), the consequences of a statutory adjournment
provided for in sub-section (4)(a) must follow. The use of the word
"so" in sub-section (4)(a) has, in my opinion, nothing to do with the
question as to whether or not the company has the choice of filling up the
vacancy. As far as sub-section (4)(b) is concerned, both Mr. Khambatta and Mr.
Nariman have strongly contended that the same can come into play only when the
company has the choice of fulfilling the conditions specified therein, namely,
(1) of filling up the vacancy of the retiring director, (2) of resolving
expressly not to fill up the vacancy, and (3) of resolving that the retiring
director should not be re-appointed. Whatever might be the practical
inconvenience or hardship that might result, I am afraid, a plain reading of
sub-section (4)(b) of section 256 leaves no room for placing upon it the
construction for which Mr. Khambatta and Mr. Nariman have contended, and which,
as a matter of "commonsense", has, no doubt, considerable force. It
was on a similar ground that, whatever be the scope of the provision, it
operates only "when the known circumstances of a particular case are such
as sensibly and legitimately to admit of its application", and that a
construction should not be placed which amounts to a "complete absurdity",
that the decision in Robert Batcheller's case was founded, but the same was disapproved by
the learned judges in Grundt's case as already stated above. I am not concerned
with the question as to whether the circumstances of the present case are such
as sensibly and legitimately to admit of the application of sub-section (4)(b)
of section 256, but am concerned only with the plain language of that
sub-section. There is nothing in sub-section (4)(b) of section 256 to lead me
to the conclusion that the deeming provision contained therein is to apply only
when the company has the choice of fulfilling its conditions or not. Nothing in
the order of a Tribunal can prevent the operation of a statutory provision,
once its conditions are fulfilled. It is on that principle that the 3rd
petitioner must be held to have retired under section 256(1), notwithstanding the
fact that, by its order of 1st June, 1957, the Tribunal wanted to preserve the
status quo. I must, therefore, reject the
argument of Mr. Khambatta and Mr. Nariman on this point, and hold, first, that
the meeting of the 2nd of June, 1967, stood statutorily adjourned to the 9th
June, 1967 by virtue of the provisions of sub-section (4)(a) of section 256;
secondly, that, at that adjourned meeting of the 9th of June, 1967, which, in
fact, did not take place because the respondents chose to fix that meeting for
the 8th of June, 1967, the 3rd petitioner retired by rotation by reason of the
provisions of sub-section (1) of section 256, as construed by our High Court in
the case of Krishnaprasad
v. Colaba Land and Mills Co. Ltd. under which such compulsory retirement takes place even when an annual general
meeting is, in fact, not held; and thirdly, that, since, at that meeting which
should have stood statutorily adjourned to the 9th of June, 1967, the 3rd
petitioner's place as a retiring director was not filled up, nor was it
resolved that his vacancy was not to be filled up, nor was any resolution for
his appointment put to the meeting and lost, the 3rd petitioner must be deemed
to have been reappointed as a director for a further term at that adjourned
meeting of the 9th of June, 1967.
That leaves for my
consideration the argument urged by Mr. Nariman, which was really in the nature
of preliminary objection, that no application under section 397 and 398 lies in
the present case, having regard to the fact that the substantive petition filed
by the petitioners, under which the interim applications have been made, does
not deal with mismanagement or with oppression of a member by a member as such,
but only relates to the status of the 3rd petitioner as a director. In support
of that contention, Mr. Nariman has relied upon the English decision in the
case of In re Lundie Brothers Ltd., but it is
unnecessary for me to refer to that decision in view of the fact that Mr.
Nariman's analysis of the petition itself, on which this argument is founded,
is not correct. It may be mentioned that Mr. Bhatt has stated that there is no
provision in English company law corresponding to section 398 of our Companies
Act. First of all, Mr. Nariman's argument overlooks the fact that the
substantive petition is filed not by the 3rd petitioner alone, the 3rd
petitioner being both a director as well as shareholder of the 1st
respondent-company, but also by petitioners Nos. 1 and 2 who are mere
shareholders, and that is the position in regard to the present judge's summons
also. The minority group of shareholders with a holding of about 31 per cent, to
which the three petitioners and the 8th respondent belong, are represented on
the board of directors of the 1st respondent-company by the 3rd petitioner and
the 8th respondent, who, as directors, are in a position to look after their
interests and to act as a check on the alleged mismanagement by the majority
group of shareholders. Moreover, as Mr. Bhatt
has pointed out, the gravamen of the complaints contained in the petition is
summarised in paragraph 7 of the affidavit in support of the present judge's summons,
and it shows clearly that what is alleged is that respondents Nos. 2 to 7 are
conducting the affairs of the 1st respondent-company in a manner prejudicial to
its interests and also prejudicial to public interest, as also in a manner
oppressive to the minority group of shareholders. It is not for me to consider
at this stage whether or not those allegations are well-founded, but the same
are sufficient for the petitioners to maintain a petition under sections 397
and 398 of the Companies Act. This contention of Mr. Nariman must, therefore,
also stand rejected.
In
the result, I make the summons absolute in terms of prayers (a), (b) and (e)
thereof.
Counsel
certified.
Summons made absolute.
[1992] 73 COMP. CAS. 275
(KER)
HIGH
COURT of KERALA
Sree Rama Vilas
Press & Publications (P.) Ltd., In re
K. JOHN MATHEW J.
JULY 10, 1991
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
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
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,
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)
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.
[1993] 76 COMP. CAS. 691 (GUJ)
HIGH COURT OF
v.
Cement Corporation of Gujarat Ltd.
M.B. SHAH J.
COMPANY APPLICATION NO. 77 OF 1991 IN COMPANY PETITION NO.
22 OF 1991.
APRIL 22, 23, 1991
K.S.
Cooper, J.M. Thakore and K.N. Raval for the Applicants.
S.B.
Vakil, M.J. Thakore and A.L. Shah for the Respondent.
M.B.
Shah J.‑Company
Petition No. 22 of 1991 is filed under sections 397 and 398 of the Companies
Act, 1956 (hereinafter referred to as "the Companies Act" ). It is
the case of the petitioners that Cement Corporation of Gujarat Ltd.
(hereinafter referred to as the "company") was incorporated on March
29, 1973. The nominal capital of the company is Rs. 40 crores divided into 4
crores equity shares of Rs. 10 each. The issued capital of the company is Rs.
30,25,00,000 divided into 3,02,50,000 equity shares of Rs. 10 each. It was floated
originally by respondent No. 2, Gujarat Industrial Investment Corporation Ltd.
(hereinafter referred to as the "GIIC"). Till 1981, the proposed
project for setting up a modern cement plant in
The
Mehta group and the GIIC arrived at an agreement and a memorandum of
understanding and thereafter a shareholders' agreement dated April 9, 1981, was
executed between the Mehta group and the GIIC which contemplated participation
in equity of respondent No. 1-company by respondent No. 2 of 26 percent, and by
the Mehta group and their associates to the extent of 25 per cent. Along with
other terms it, inter alia, provides as under :
"(2)(ii) The
Mehtas shall also have the right to take up either by itself or along with its
subsidiary companies or nominees and subscribe at par for 25 per cent, of the
equity share capital of the company, provided that the shareholding of the
Corporation shall not be less than that of the Mehtas and the Corporation shall
have at least one share more than the shares subscribed by the Mehtas.
(v) On every issue of
further capital by the company, the Corporation and the Mehtas shall
respectively subscribe for equity shares in the ratio mentioned above.
(8) Notwithstanding
the provisions of clause 2(ii) hereinabove, with regard to the Corporation
holding one share more than that of the Mehtas, on and after the date of
commercial production the Corporation shall have the right to reduce its equity
shareholding from 26 per cent, to 10 per cent, on the following terms :
(i) The right to reduce equity shareholding
shall be subject to and in accordance with the guidelines for joint sector
projects which may be laid down by the Government of India from time to time.
(ii) The Corporation may sell or transfer its
shareholding to the Government of Gujarat or any institutions, companies Or
Corporations of the Government of Gujarat without any restrictions, provided
such transferees agree to ratify and abide by this agreement.
(iii) If, however, the Corporation intends to sell
its equity to the public, the Corporation shall in the first instance offer
such shares to the Mehtas and the provisions of clauses (22) and (23) shall apply.
Board of directors and management :
(10)The number of directors of the company shall be not
more than eleven. The Corporation will be represented by four directors,
including a Chairman to be nominated by the Corporation whether rotating or
non-rotating (these directors are hereinafter referred to as the
"Corporation directors"). The Mehtas will be represented on the board
by three directors (these directors are hereinafter referred to as the
"Mehta directors"). The managing director of the company shall be
appointed by the board of the company as jointly recommended by the Corporation
and the Mehtas.
Business Committee :
(15)So long as the Corporation and the Mehtas hold equity
shares in the ratio of 26 per cent, and 25 per cent, respectively and if the
board of directors of the company finds it necessary to constitute any
committee for formulating policy matters, such committee shall consist of
directors represented equally by the Corporation and the Mehtas. The Chairman
of the committee shall be from among the Corporation directors and the Chairman
shall have the casting vote at the committee meeting".
The
aforesaid terms and conditions of the shareholders' agreement are also
reflected in the memorandum and articles of association of the Cement Corporation
of Gujarat Limited. The relevant articles 10(a), (c) and (d) and 11 are as
under :
"10(a) Unless
otherwise determined in a general meeting and subject to the provisions of
section 252 of the Act, the number of directors of the company shall not be less
than three or more than fifteen excluding debenture, special and Corporation
directors, if any. One-third of the total directors shall be non-rotational
directors. The Chairman and managing director of the company shall not be
liable to retire by rotation. The GIIC and TMIL shall be entitled to nominate
non-rotational directors in proportion to their respective equity shareholding.
(c) So long as the
GIIC shall continue to hold not less than 26 per cent, in the equity share
capital of the company, the GIIC shall be entitled to nominate up to four
directors including the Chairman (these directors are hereinafter referred to
as the 'GIIC directors). So long as TMIL shall continue to hold not less than
25 per cent, in the equity share capital of the company, TMIL shall be entitled
to nominate up to three directors (these directors are hereinafter referred to
as "TMIL directors"). In addition, the managing director shall be
appointed on the recommen dation as stated in article 15 hereinafter.
(d) In the event of
appointment of additional directors in the company, the number of additional
directors of the GIIC and TMIL shall always be equal.
Business
Committee :
11. If the board of
directors of the company find it necessary to constitute any committee, such
committee shall include such number of directors from the GIIC, private
promoters and outside directors as may be decided by the board and also
nominees of financial institutions. The Chairman of the committee shall be from
among the GIIC's directors and the Chairman shall have a casting vote at
committee meetings. The committee shall be delegated with such powers and
functions as are decided by the board from time to time".
It
is the say of the petitioners that they are the subsidiary companies of the
Mehta International Ltd. and as a result of the shareholders' agreement between
TMIL and the GIIC the petitioners have also subscribed to the share capital of
respondent No. 1-company as part of the Mehta group.
Various
facts are mentioned in the petition why the company failed to start
functioning. For our purposes it is not necessary to narrate them as at present
I am not required to deal with, in detail, Company Petition No. 22 of 1991,
which is admitted. But some facts are necessary to be gone into as Company Application
No. 77 of 1991 is filed for interim directions.
It
is the say of the petitioners that as a consequence of delay, the entire
project was reviewed by the IDBI in September, 1988, and the project cost was
revised from Rs. 121 crores to Rs. 167.50 crores. It was proposed to provide
for Rs. 46.50 crores as under :
|
(Rs. in crores) |
|
|
"Addl. Equity |
7.56 |
|
Interest free deposit from promoters |
0.69 |
|
Addl. loan from institutions |
26.66 |
|
Ad hoc loans for funding interest from institutions |
9.59 |
|
Infra-structural loan |
2.00 |
|
Total |
46.50 |
The equity of Rs.
7.56 crores was to be raised as under :
|
(Rs. in crores) |
|
|
Respondent No. 2 |
2.86 |
|
Mehta group |
2.70 |
|
IDBI and institutions |
2.00 |
|
Total |
7.56". |
A
copy of IDBI's letter dated September 30, 1988, advising the above financing
pattern is annexed as annexure "15" to the petition.
In
this view of the matter, the Mehta group was required to subscribe for equity
shares of Rs. 2.70 crores and respondent No. 2-GIIC was required to subscribe
for Rs. 2.86 crores. However, GIIC was not prepared to subscribe shares for the
aforesaid amount. On September 30, 1988, the managing director of the GIIC
wrote a letter (annexure "18") to Mr. M.N. Mehta stating that the corporation
would contribute to the additional equity towards the over-run, subject to the
condition that the Mehta group shall buy back this additional equity over a
period of one year. Along with the said letter he sent a blank copy of the
agreement entered into with Messrs. Golden Tobacco for that purpose. In
response to that letter Mr. M.N. Mehta replied by letter dated October 5, 1988
(annexure "19"), wherein it has been, inter alia, pointed out that
full support from the GIIC was needed to meet the challenging task and
requested him to reconsider and to agree to take full share of the additional
equity. Finally as the GIIC was not willing to deal in additional equity, the
rights issue was not opened. The Mehta group arranged for the Canbank Mutual
Fund to subscribe Rs. 2.70 crores and persuaded the Indian Bank to provide a
temporary loan for the said amount by an agreement that the company would repay
the principal amount of the loan taken from the Indian Bank as soon as equity
shares were applied for by Canbank. The board of directors passed a resolution
in the meeting held on March 27, 1989, (annexure "26"). As the GIIC
was not agreeing to purchase its equity shares, the loan of Rs. 26 crores (as
per annexure "15") was not given by the IDBI and other institutions.
The petitioner agreed to make alternative arrangements for raising equity
towards the GIIC's share by their letter dated December 5, 1989 (annexure
"24"). That letter was written to the managing director of the GIIC
wherein it is specifically mentioned that TMIL and its associates have decided
to take shares of Rs. 2.86 crores which was required to be taken by the GIIC
and the necessary arrangement was made with the approval of the IDBI. It also
requested that the company would open the rights issue as soon as all the
formalities were completed and requested the GIIC to renounce its rights shares
in favour of the TMIL's nominee.
The
rights issue was opened on January 2, 1990. The IDBI declined to contribute to
the rights issue by their letter dated January 29, 1990 (annexure
"28") by stating that the IDBI "are deeply concerned with the
affairs and potential viability of the unit and we are reviewing the options
available for reviving the unit. Pending a review, we would not be able to
subscribe to the rights issue".
Thereafter,
the GIIC expressed reservation about the management of Mr. Balsari as managing
director. Without entering into any contro-versy Mr. Mehta agreed to call back
Mr. Balsari and Mr. T.V. Balan was appointed as managing director by letter
dated August 4, 1989 (annexure "27"). The petitioners have produced
on record the board resolution that for a few days or months staying in the
Hotel President in
Because
of this dispute and various acts committed by respondent No. 1-company it is
contended by the petitioners that the petitioners who are minority shareholders
are oppressed by the respondents with the aid of the State Government as the
GIIC and the State Government want to hand over respondent No. 1-company to the
Gujarat Ambuja Cements Ltd. It has been pointed out that :
(1) the petitioners' right as
shareholders to appoint three directors as per articles of association is being
jeopardised by all sorts of dubious methods ;
(2) the injunction issued by the City
Civil Court is violated with a mala fide intention of not re-appointing Mr.
M.N. Mehta as a director of the company and of not putting the name of Mr.
Sanat Mehta as a director of the company as nominee of Mehta group ;
(3) for the benefit of the company the
Mehta group has brought a bridge loan of Rs. 2.86 crores from Indian Bank by
giving guarantee. The company has utilised the said amount and yet the question
of rights issue is prolonged for various reasons ;
(4) funds of the company are being
squandered due to wrong personnel policies, there is a vacuum at the factory
site and wrong decisions regarding purchases and production with long range and
long- term implications are being taken, attempts made to cover up irregulari
ties and project itself as a competent management at the cost of the company.
The whole approach is based on the desire to oust the Mehta group and induct
the Gujarat Ambuja Cements Ltd.
Therefore,
in Company Petition No. 22 of 1991 the petitioners have prayed as under :
"(a) To pass suitable orders for regulating the
management and conduct of the affairs of respondent No. 1-company ;
(b) to restrain the respondents from preventing
Mr. M.N. Mehta and Mr. Sanat Mehta from functioning as directors of the
respondent No. 1-company ;
(c) That agenda notes, minutes and other
documents to which access as is sought for by the aforesaid two directors of
the petitioners group be given by the respondent No. 10-company, and nominees
of the petitioners group be allowed full access to the records of the
respondent No. 1-company, plant and office ;
(d) To declare that the proceedings of the
meetings of the board of directors of respondent No. 1-company on December 29,
1990, and March 22, 1991, as also the annual general meeting dated December 29,
1990, are null and void ab initio and of no effect whatsoever ;
(e) That steps be taken for nominating a new independent
chair man and managing director of the respondent No. 1-company as also a
committee of management to supervise the performance and operation of
respondent No. 1-company :
(f) An independent chartered accountant be
appointed to inquire into the conduct and affairs of the company and to report
to this Hon'ble Court the financial irregularities which have been committed by
the present management of the respondent No. 1-company ;
(g) That the respondents be restrained from inducting
any new management from transferring shares or issuing shares without the prior
consent of the petitioners ;
(h) That the respondents be restrained by an
order or injunction from this Hon'ble Court from directly or indirectly
permitting any additions or alterations to the board of directors or to the
management of respondent No. 1-company without the prior permission of this
Hon'ble Court;
(i) That the respondents be directed to close
the rights issue, and allot shares for the amount which was received from the
respective applicants and further to utilise the amount so received towards
satisfying the bridge loan-of Rs. 2.70 crores received from the Indian Bank
with all incidental charges, etc., immediately ;"
Pending
hearing and disposal of this petition, by taking out a judge's summons, the
petitioners have prayed for various interim reliefs. One of the main prayers is
that the respondents be directed to consider Mr. M.N. Mehta as continuing as
director of the respondent No. 1-com-pany. It has also been prayed that the
company be directed to consider Mr. Sanat Mehta as director of respondent No.
1-company as a second nominee of the Mehta group. With regard to this prayer,
the learned advocates for the respondents vehemently submitted that (a) Mr. Mehta
has resigned as a director, (b) after the annual general meeting which was held
on December 29, 1990, he was not continuing as a director, and (c) against him
enquiry for the various charges is pending. Therefore, no direction as prayed
for should be given. Mr. Sanat Mehta is not appointed as a director at any time
by the company. Therefore, at this stage no direction should be given that Mr.
Sanat Mehta should be inducted as a director of the company.
As
quoted above, the articles of association specifically provide that so long as
TMIL (The Mehta International Ltd.) or the Mehta group hold 25% equity share
capital, TMIL is entitled to nominate up to three directors. It is an admitted
fact that TMIL is at present holding 26,percent, of the equity shares and the
GIIC is holding approximately 27 per cent, of the equity shares. Yet, prima
facie it seems the GIIC is interested in seeing that TMIL does not get its
representation on the board of directors.
An
attempt was made to disqualify Mr. M.N. Mehta from continuing as a director of
the respondent No. 1-company in September, 1990. The matter was referred for
opinion to the former Chief Justice of the Madras High Court, Shri Chandurkar.
This, according to the petitioners, was done with a view to oppress the petitioners'
group and to bring about change in the management which was contrary to the
interest of respondent No. 1-company and the petitioners' group. The opinion of
Justice Chandurkar was sought on the following points :
"1.1.Whether borrowing of Rs. 270 lakhs by the querist
company will attract the provisions of section 77(2) of the Companies Act,
1956, which prohibits the querist company providing any direct or indirect
financial assistance for the purpose of or subscription made or to be made for
any shares of the querist company ?
1.2.Since interest on the said bridge loan had to be
reimbursed by the SHPL (Sumaraj Holdings Pvt. Ltd.), whether non-reimbursement
thereof by SHPL will also fall within the purview of section 77(2) of the
Companies Act, 1956 ?
2.1.The querist company has already received the amount of
Rs. 270 lakhs from the Indian Bank which has been reported to have been
arranged by the SHPL, an associate company of the TMIL. Shri M.N. Mehta is a
director of TMIL as well as SHPL and is also a director on the board of the
CCGL (the querists). In view of this whether the amount borrowed by the querist
company from the Indian Bank which is said to have been arranged by the SHPL
towards their advance contribution for the rights shares of the querist
company, will amount to indirect loan given by the querist company to the SHPL
within the meaning of section 295 of the Companies Act, 1956 ?
2.2.Whether the non-reimbursement of interest amounting at
present to approximately Rs. 70 lakhs by the SHPL will fall within the purview
of the provisions of section 295 of the Companies Act, 1956 ?
2.3.Whether the adjustment of Rs. 8.39 lakhs whereby the
company's funds have been appropriated by the Indian Bank will be treated as
indirect loan given by the querist company to the SHPL ? And if so, whether the
provisions of section 295 of the Companies Act, 1956, will be attracted ?"
After
considering all the aspects in detail, the opinion was given that Mr. Mehta was
not disqualified to be a director of the company and all other issues were
opined in the negative. That opinion dated November 13, 1990, is at annexure
"36".
It
seems that as Mr. Mehta was insisting that the Gujarat Ambuja Cement Ltd.
should not be given shares, the chairman of the respondent No. 1-company who is
also the chairman of the GIIC wrote a letter dated December, 1990 (annexure
"39"), to the effect that Mr. Mehta should be replaced and the
important question which required consideration was that financial commitments
in the revival of this company should not be the sole criteria because the
financial commitments will depend upon various factors including the sacrifices
required by various parties. According to his opinion, the important issue was
the compatibility of the joint sector partner and his understanding of the
culture and ethos of the joint sector partnership in the State of Gujarat. This
letter was written by the Chairman of the GIIC and respondent No. 1 to the
Chief Secretary, Government of Gujarat. Thereafter in December, 1990, the Mehta
International Limited filed Civil Suit No. 6093 of 1990, before the City Civil
Court, Ahmedabad, wherein the plaintiff sought enforcement of the shareholders
agreement dated April 19, 1981, executed between the plaintiff and the
defendant No. 1-GIIC. It was prayed that the defendants are bound to ensure
that the plaintiff's participation in the management of defendant No. 2-company
is not in any way altered or obstructed and that defendant No. 2 should be
directed to act in accordance with the agreement at the annual general meeting
to be held on December 29, 1990, with regard to the re-election of the
plaintiff's nominees. It was also prayed that defendants Nos. 1 and 2 should
ensure that the nominee of the plaintiff, Shri H.N. Mehta, is re-elected as a
director of the defendant No. 1-company and is not removed during the pendency
of the shareholders agreement. In that suit the court has granted ad interim
relief in the following terms :
"You
the defendant No. 2, your servants, agents, nominees, are hereby restrained by
an order of ad interim injunction from acting in contravention of the letter
and spirit of the shareholders' agreement dated April 9, 1981, at the meeting
of the board of directors or the annual general meeting or at any other meeting
of the defendant No.l-company or elsewhere. If the defendants desire to
postpone the annual general meeting it will be open to them to do so and the
plaintiff shall agree to any such postponement desired by the defendants".
It
should be noted at this stage that neither of the respondents has moved for
vacation of the said injunction order till today.
In
spite of this injunction order, if is the contention of the respondents that in
the meeting which was held on December 29, 1990, the petitioner has resigned as
a director or, in the alternative, as he is not re-elected, he ceases to be a
director of the company. The respondents have not produced any written
resignation given by Mr. M.N. Mehta. Even in the minutes of the meeting of the
board of directors which was held on December 29, 1990, it is nowhere mentioned
that Mr. M.N. Mehta has tendered his resignation as a director of the company.
It is the contention of the petitioners that in the meeting of the board of
directors held on December 29, 1990, Mr. M.N. Mehta was shown certain
allegations made against him or Jai Mehta or the previous managing director.
That item was taken on the agenda as an additional item with the permission of
the chair. That was placed by Shri A.K. Joshi, executive director (finance),
narrating the alleged irregularities committed by Shri Jai Mehta, executive
director, Shri B.M. Balsari, ex-managing director, and Shri M.N. Mehta,
director of the company. The board, therefore, decided to have a special audit
of the company conducted by the chartered accountants' firm named Messrs. S.D.
Bilimoria and Co. at Bombay. In the minutes of the said meeting it has been,
inter alia, mentioned that the board was of the opinion that in view of the
irregularities involving Shri Mehta, Shri Mehta should step down from the board
as a director of the company pending the enquiry and examination into the said
irregularities by the board of directors. It is further mentioned that M.N.
Mehta agreed that there were serious issues deserving enquiry and agreed to
step down if the board felt so. The board appreciated his gesture. This also
nowhere shows that Mr. Mehta has stepped down as a director or has resigned as
a director. But from this in no set of circumstances it can be said that Mr.
Mehta has resigned as a director of the company.
The
next question is with regard to re-election of Mr. Mehta as director. As stated
above, it is an admitted fact that the Mehta International Ltd. has filed Civil
Suit No. 6093 of 1990 before the City Civil Court at Ahmedabad. The court has
granted ad interim relief restraining defendant No. 2, i.e , the GIIC from acting in contravention of
the letter and spirit of the shareholders' agreement dated April 9, 1991, at
the meeting of the board of directors or at the annual general meeting or at
any other meeting of the company or elsewhere. It should be noted that the
shareholders' agreement between the GIIC and the Mehta International Ltd.,
inter alia, provides that the Mehtas shall have a right to take up 25 per cent,
of the equity shares of the company ; if the GIIC intends to sell its equity to
the public, the Corporation shall in the first instance offer such shares to
the Mehtas ; the Corporation will be represented by four directors ; the Mehtas
would be represented on the board by three directors and that the GIIC shall
exercise voting rights in respect of the shareholding of the company and in
support of the appointment and/or election of directors nominated by the
Mehtas. The said agreement further provides that to ensure the proper
maintenance, implementation and observance of the terms and provisions
contained and the spirit of this agreement, both the parties to the agreement
would exercise voting rights in accordance with the agreement and that the
parties are entitled to specific performance of the terms of the agreement
including obligations contained in the clauses as to the exercise of voting
rights. Keeping in view the aforesaid agreement the trial court has granted the
interim injunction.
On
December 29, 1990, at 3.30 pm. the annual general meeting of the shareholders
of the company was held as per the agenda (annexure "55"). The
following business was to be transacted :
"Ordinary
business :
1. To receive and adopt the directors' report and
audited profit and loss accounts for the year ended March 31, 1990, and
balance-sheet as at that date (please see directors' statement attached
herewith).
2. To appoint a director in place of Shri P.G.
Ramrakhiani, IAS, who retires by rotation, and being eligible offers himself
for re-appointment.
3. To appoint a director in place of Sri K.
Lalit, who retires by rotation, and being eligible offers himself for
re-appointment.
4. To appoint a director in place of Shri M.N.
Mehta, who retires by rotation, and being eligible offers himself for
re-appointment.
5. To appoint a director in place of Shri V.P.
Kamdar, who retires by rotation, and being eligible offers himself for
re-appointment".
It
is an admitted fact that items Nos. 2, 3 and 5 of the agenda have been
transacted. Mr. P.G. Ramrakhiani, Mr. K. Lalit and Mr. V. P. Kamdar were
re-appointed as directors of the company. It is the say of the respondent No.
1-company that item No. 4 was postponed or adjourned.
With
regard to Mr. Mehta it has been stated in the draft minutes circulated for the
meeting which was held on March 22, 1991 (annexure "56"), that the
representative of the Gujarat Investment Industrial Corporation Ltd. sought
adjournment of the annual general meeting for consideration of the aforesaid
specific item and the meeting was adjourned pending the vacation of the interim
order. It further provides that Mr. Mehta was due to retire by rotation. Since
the item relating to re-appointment by rotation could not be considered in the
said annual general meeting, the company has been advised that Mr. Mehta ceases
to be a director of the company with effect from December 29, 1990, pending his
re-appointment in the adjourned general meeting.
From
the aforesaid record, it seems that to avoid the direction given by the City
Civil Court by taking undue advantage of the majority, the chairman of
respondent No. 1-company who is also the chairman of respondent No. 2 has
adjourned the meeting with regard to one agenda item only whereby Mr. M.N.
Mehta's name was proposed for re-appointment as a director. The City Civil
Court has only stated that if the defendants desire to postpone the annual
general meeting, it will be up to them to do so and the plaintiffs shall agree
to any such postponement. The injunction order passed by the City Civil Court
nowhere provides that only one item of the agenda by which Mr. M.N. Mehta's
name was proposed for re-appointment as a director should be adjourned. It is
to be noted that with regard to the chairman and the other two directors the
business was transacted in the said meeting and they were re-appointed as
directors. It seems that the item of the agenda with regard to the
re-appointment of Mr. Mehta is adjourned for an ulterior motive because it
seems that in the minutes of the 108th meeting of the board of directors of
respondent No. 1-company held on December 29, 1990, in item No. 7 it has been
specifically stated that the chairman of the State Bank of India was of the
view that the State Bank of India would not consider re-examination for
providing working capital till such time as the Mehtas remain shareholders in
respondent No. 1-company. The minutes further state that it was explained to
the chairman of the State Bank of India that the issue of the Mehtas opting out
of shareholding will take some time. The entire minutes with regard to item No.
7 reflect that respondent No. 2 is interested in seeing that the Mehta group is
ousted. One of the reasons for doing so may be because of the dispute of
bringing in Gujarat Ambuja Cements Ltd. as another private promoter or because
of personal opinion as expressed by Mr. P. C. Ramrakhiani in his letter
annexure exhibit "39". It is his view that Mr. M.N. Mehta should be
replaced. He has further opined to the Government of Gujarat that for revival
of the company a new joint sector partner should be selected in such a way that
he understands the culture and ethos of the joint sector partnership in the
State of Gujarat. He has further opined that only financial commitments should
not be taken into consideration.
Considering
the aforesaid facts it is apparent that the Mehta group-is having some
difference of opinion with the GIIC. The GIIC is, therefore, trying to oust the
Mehta group.
Apart
from this aspect, under the provisions of section 256 Mr. M.N. Mehta continues
to be director of respondent No. 1-company. In my view, as per sub-section (4)
of section 256, Mr. M. N. Mehta is deemed to have been re-appointed after he
ceased to be director on December 29, 1990, i.e , after his period was over. For this
purpose it would be necessary to refer to sub-section (4) of section 256 which
reads as under :
"256.(4)(a) If the place of the retiring director is
not so filled up and the meeting has not expressly resolved not to fill the
vacancy, the meeting shall stand adjourned till the same day in the next week,
at the same time and place, or if that day is a public holiday, till the next
succeeding day which is not a public holiday, at the same time and place.
(b) If at the
adjourned meeting also the place of the retiring director is not filled up and
that meeting also has not expressly resolved not to fill the vacancy, the
retiring director shall be deemed to have been 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".
It
is an admitted fact that the annual general meeting of respondent No. 1-company
was held on December 29, 1990. As per the minutes, annexure "56", the
meeting for considering the agenda item of re-appointing Mr. M.N. Mehta as a
director was adjourned. That adjourned meeting is not held as per the statutory
provision.
As
per clause (a) of sub-section (4) of section 256 if the place of a retiring
director is not 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, if it is not a public holiday, at the same time and place.
Therefore, as per the statutory provision the meeting for re-appointing the
director stands adjourned for a week.
The
question, therefore, is, if that statutory meeting is not held, what is its
effect ? The answer to this question is provided in clause (b) of sub-section
(4) of section 256. It provides for a deeming fiction if certain conditions are
fulfilled. It provides that the retiring director shall be deemed to have been
re-appointed at the adjourned meeting if certain conditions are fulfilled. It
should be noted that —
(a) there is no injunction against the
respondents from calling the annual general meeting for considering agenda item
No. 4 for re-appointment of Mr. M. N. Mehta as a director of the company ;
(b) in the annual general meeting held
on December 29, 1990, no resolution has been passed not to fill up the vacancy
of Mr. Mehta ;
(c) the
resolution for re-appointment of Mr. Mehta has not been put to the meeting ;
(d) Mr. Mehta has not given a notice in
writing addressed to the company or its board of directors expressing his
unwillingness to be re-appointed as a director ; and
(e) he
is not disqualified for re-appointment.
The
respondents have not held the adjourned meeting as required by clause (a) of
sub-section (4) of section 256. But by that doubtful device at present the
respondents cannot be permitted to act in such an oppressive manner as to
ignore section 256(4), the injunction order by the City Civil Court and the
articles of association which specifically provide that TMIL shall have a right
to nominate three directors on the board of directors of the company till it
holds 25 per cent, of the equity shares. In any set of circumstances, the
respondents cannot be permitted to take advantage of their own default in not
calling the adjourned meeting as required under sub-section (4).
Learned
counsel for the petitioners has relied upon the judgment of the Bombay High
Court in the case of Lalchand Mengraj v. Shree Ram Mills Ltd. [1968] 38 Comp.
Cas. 606, and submitted that it should be deemed that Mr. M.N. Mehta is
re-appointed as a director of the company. In that case a substantive petition
under sections 397 and 398 of the Companies Act was filed. Thereafter the
petitioners made an application for interim relief under section 403 of the Act
on June 1, 1967, just a day prior to the annual general meeting at which the
question of re-appointment of the third petitioner as a director was to come up
as item No. 3 of the agenda of the said meeting. The Companies Tribunal made an
order on June 1, 1967, by which the respondents were restrained from allowing
the consideration of item No. 3 of the agenda of the annual general meeting of
the shareholders of the company which was to be held on June 2,1967. At the
adjourned annual general meeting of the company on June 8, 1967, item No. 3 of
the agenda which related to the re-appointment of the third petitioner as a
director was not considered in view of the injunction granted by the Companies
Tribunal on June 1, 1967. After considering the various contentions, the court
held that the meeting of June 2, 1967, stood statutorily adjourned to June 9,
1967, by virtue of the provisions of sub-section (4)(a) of section 256 ;
secondly, that on June 9, 1967, the third petitioner retired by rotation by
reason of the provisions of sub-section (1) of section 256, as construed by the
High Court in the case of Krishnaprasad v. Colaba Land and Mills Co. Ltd.
[1959] 29 Comp. Cas. 276 (Guj), under which such compulsory retirement takes
place even when an annual general meeting is, in fact, not held ; and, thirdly,
that since at that meeting which should have been statutorily adjourned to June
9, 1967, the third petitioner's place as a retiring director was not filled up,
nor was it resolved that his vacancy was not to be filled up, nor was any
resolution for his appointment put to the meeting and lost, the third
petitioner must be deemed to have been re-appointed as a director for a further
term at that adjourned meeting of June 9, 1967.
Considering
the aforesaid law and the facts of the present case and the fact that since
1981 Mr. M.N. Mehta continues as a director, in my view it would be just and
proper to give an interim direction that Mr. M.N. Mehta continues to be a
director of the company.
In
view of the aforesaid direction that Mr. Mehta continues to be a director of
respondent No. 1-company, it would not be necessary to pass any order with
regard to the prayer that the respondents should be directed to give full
access to Mr. Mehta and/or their nominees to the records of respondent No.
1-company because section 209(4) specifically provides that the books of
account and other books and papers shall be open to inspection by any director
during business hours. Therefore, the aforesaid direction is not required to be
given at this stage. Hence the contention of learned counsel for the petitioners
that apart from being a director, as serious baseless allegations are made
against Mr. M.N. Mehta and Mr. Jai Mehta as a shareholder and litigant, he is
entitled to inspect the relevant records of the company, is not required to be
dealt with.
Further,
at this stage in my view it would not be proper to give a direction that Shri
Sanat Mehta should be considered to be a director of respondent No. 1-company
as he was not appointed by respondent No. 1-company at any time as a director
as the Mehta group's nominee. As per the articles of association it would be
open to the petitioner to nominate him as a director as the Mehta group is
entitled to nominate three persons on the board of directors of respondent No.
1-company. At present it would also not be necessary to give a direction for
appointing him as additional director under section 260 of the Companies Act.
The
next question is whether any direction is required to be given with regard to
the rights issue which is opened since January 2, 1990. It should be noted that
the rights issue is opened because of the recommendation from the Industrial
Development Bank of India as per its letter dated September 30, 1988 (annexure
"15"). The said letter, inter alia, provides that the Lead
Institution (IDBI) would provide the facilities mentioned therein if equity
share capital of Rs. 756 lakhs is issued on rights basis. It is the contention
of the petitioners that the GIIC from the very beginning took up the stand that
they will subscribe to the rights issue only if there is substantial alteration
in the shareholders' agreement and the Mehta group buys back the additional
equity within a period of one year.. The letter to the aforesaid effect written
by the managing director of the GIIC to Mr. M. N. Mehta is at annexure
"18". Correspondence followed between the parties. Finally by the
letter dated December 5, 1989 (annexure "24"), Mr. M. N. Mehta agreed
to take the shares of Rs. 286 lakhs of the GIIC. By the letter dated January
29, 1990 (annexure "25"), the IDBI expressed its unwillingness to
subscribe to the rights issue. Further, it should be noted that in the meeting
of the board, of directors of the company which was held on March 27, 1989, on
behalf of Mehta International Ltd., Messrs. Sumaraj Holdings Pvt. Ltd. had made
an arrangement to provide a sum of Rs. 270 lakhs. The arrangement was made with
the Indian Bank to provide Rs. 270 lakhs to the company directly on their
behalf as a temporary loan for a period not exceeding six months. It is the
contention of the petitioners that Messrs. Sumaraj Holdings Pvt. Ltd. was to
pay interest on it at the rate of 18 per cent, for that period. Further, as
stated earlier, from the document which is placed on record it is apparent that
GIIC had not agreed to subscribe for shares of Rs. 2.86 crores. Because GIIC
failed to subscribe for it as per the shareholders' agreement between the GIIC
and TMIL, the Mehta group agreed to purchase its shares through its nominee,
B.O.I. Finance. Mr. Shah, the learned advocate appearing on behalf of GIIC,
states that B.O.I. Finance is not the nominee of the Mehta group. As against
that, it has been submitted by learned counsel for the petitioners that on
behalf of the Mehta group, B.O.I. Finance has sent its application for purchase
of shares worth Rs. 2.86 crores. At present the question whether or not B.O.I.
Finance is the nominee of the Mehta group is not required to be decided. The
question which requires decision is whether the rights equity issue which is
opened on January 2, 1990, should be closed or not. The learned counsel for the
petitioners submitted that the respondents be directed to close the said issue
on or before May 15, 1991, so that the petitioners or the Mehta group nominees
can subscribe to the said rights issue. It is agreed that as per the consent
given by the Controller of Capital Issues the rights issue can be kept open up
to June 30, 1991. It is also an admitted fact that TMIL has brought Rs. 2.70
crores as a bridge loan from the Indian Bank on April 28, 1989. As the said amount
is not paid by respondent No. 1-company or its guarantor, i.e., associates of
the Mehta group, the civil suit is filed for recovery of the said amount.
Learned counsel for the petitioners, therefore, submitted that the respondents
should be directed to close the rights issue on or before May 15, 1991, so that
the associates of the Mehta group can subscribe to the equity shares to the
tune of Rs. 2.70 crores and the company should be directed to pay back the loan
which was brought by the associates of the Mehta group by giving guarantee to
the Indian Bank. Further, it should be noted that Mr. M. N. Mehta has written a
letter to the Chairman of the company on March 16, 1991 (annexure
"53"), to the effect that the rights issue was opened on January 2,
1990, and the only subscription so far received is of B.O.I. Finance Ltd. of
Rs. 2.5 crores and a few other members from the public. Because of the
tripartite arrangement the Indian Bank has given a bridge loan to the company
on the strength of the buy-back arrangement entered into and the Indian bank
has recalled the loan and notices have been issued. It has been also pointed
out that Messrs. Sumaraj Holdings Pvt. Ltd. has agreed to bear the interest
burden for a period of 3 to 6 months. In view of the assurance given, the whole
issue will be tied up during that period. The company has received the amount
and has used it and has also executed a promissory note for that purpose. In
order to resolve the controversy with the Indian Bank, it was suggested that subscription
to the rights issue of Rs. 3 crores from friends and associates was tied up
and, therefore, the board of directors should agree to the following courses of
action so that Rs. 3 crores can be made available to the company :
"(1) After receipt of this subscription of Rs. 3
crores the rights issue is to be closed and shares are to be allotted within
four weeks thereafter.
(2) The amount so received to be immediately
used for repaying the bridge loan of Rs. 2.70 crores received by the CCGL from
the Indian Bank.
(3) As and when the IDBI and the institutions
agree to subscribe, a fresh rights issue can be made and the whole matter can
be resolved.
You
will appreciate that in view of the past controversies, this contribution of Rs.
3 crores can be made only if the issue is immediately closed at the most within
a period of one week from the receipt of the money and the amount repaid to the
Indian Bank. This would at the least obviate the problems with the Indian
Bank".
Considering
the aforesaid facts, in my view it would be just and proper to direct
respondent No. 1-company to accept the amount up to Rs. 3 crores for the rights
issue from the Mehta group or its nominee. The said rights issue shall be
closed on May 15, 1991, and the shares should be allotted within four weeks
thereafter. Respondent No. 1 shall immediately make arrangements for repaying
the bridge loan of Rs. 2.70 crores received from the Indian Bank as stated
earlier from the aforesaid amount. The necessary application forms shall be
given to the petitioners or their nominees by the respondent No. 1-company.
With
regard to prayer (e), i.e., for restraining respondent No. 2 from transferring
the shares in the respondent No. 1-company, Mr. Shah, the learned advocate appearing
on behalf of the GIIC, states that the respondent would act as per the
shareholders' agreement without prejudice to the GIIC's right to challenge the
shareholders' agreement. It is clarified that the offer for sale of shares as
contemplated by the shareholders' agreement by respondent No. 2-company to the
Mehta group shall be in writing.
At
present the rest of the prayers are not required to be considered at this stage
mainly because proceedings are pending before the Board for Industrial and
Financial Reconstruction and it is submitted by the parties that the management
of respondent No. 1 cannot be changed without its approval. However,
considering the apprehension of the petitioners, it is directed that with
regard to the alleged charges against Mr. M.N. Mehta or Mr. Jai Mehta or Mr.
Balsari, respondent No. 1 shall forward the representation made by Mr. Mehta to
the concerned chartered accountants who are appointed for investigating the
matter.
In
the result, the judge's summons is partly allowed.
Respondent
No. 1-company is directed to consider that Mr. M.N. Mehta continues to be a
director of respondent No. 1-company.
The
rights issue which is opened on January 2, 1990, shall be closed on May 15,
1991. Respondent No. 1-company would give the necessary application forms to
Mr. M.N. Mehta or his nominee for making application for the rights issue as
stated above to the extent of Rs. 2.76 crores or more. The shares shall be
allotted within four weeks from May 15, 1991. The amount received from the Mehta
group or its associates shall be utilised by the company for repaying the loan
to the Indian Bank.
The
rest of the prayers are rejected. Still, however, it would be open to the
petitioners to move a fresh application, if necessary, as per the circumstances.
At
the request of the learned advocates for the respondents the operation of this
order is stayed up to April 29, 1991. Mr. Thakore, the learned advocate
appearing on behalf of respondent No. 1-company, states that at present a
meeting of the board of directors of the company is not contemplated.
Section 257
Rights of persons other than
retiring directors to stand for directorship
[1984]
55 COMP. CAS. 500 (MAD.)
HIGH COURT OF
v.
Aruna Sugars Ltd.
SHANMUKHAMM J.
April 23, 1983
P.R. Rangarajan, K.M.
Vijayan and C.M. Krishnakumar for the applicant.
C. Harikrishnan and A.K.
Mylswami for the respondent.
The applicant in both the
applications is a shareholder of the public limited company, Aruna Sugars Ltd.
The relief claimed in the
former is to declare that the election of the second respondent as director of
the first respondent company as void, while that in the latter is to restrain
the second respondent from functioning as director pending disposal of the
former.
The undisputed facts, in
brief, are given below: At the annual general meeting of the company held on
March 30, 1983, at Hotel Dasaprakash,
The
main contention of Mr. Rangarajan, learned counsel for the applicant, proceeded
thus: The strength of the directors was only eight. As the company had not
raised the strength of board of directors from eight to nine as provided under
art. 109, the election of the second respondent as director is invalid. I find
this contention is not well founded. In the foremost, it has to be noticed that
though art. 93 provided that, until otherwise determined by the general
meeting, the number of directors shall be not less than three and not more than
12, including any ex-officio members. It is not the case of the applicant that
in any general meeting the strength of the directors were fixed at eight.
In
the absence of even an averment to the above effect, it is not open to the
applicant to submit that the fixed strength of the board of directors is eight
and that, therefore, unless as provided under art. 109, the strength is
increased, there cannot be a valid appointment of a ninth director in the
annual general meeting. On the other hand, according to art. 93, any number of
directors, not exceeding 12, can be appointed by the members at the annual
general meeting. Further, it is seen from the balance-sheets for the year
ending September 30, 1981, and September 30, 1982, the strength of the board of
directors was 9 and 10 respectively. Such constitution is consistent with art.
93.
The
other contention is that the election of a director otherwise than in the
vacancy caused by the retiring director is a special subject and that,
therefore, the statutory notice issued under s. 173(1)(a) shall contain
explanatory notes in relation to such special subject. The argument proceeded
further to the effect that in this case as admittedly the statutory notice
dated February 16, 1983, did not contain any explanatory note, the meeting held
on March 30, 1983, pursuant to such defective notice, is illegal and,
consequently, the election of the second respondent is also void. Even here I
find no merit for factually in the statutory notice dated February 16, 1983,
the reference to the nomination of the second respondent was not possible
because it is only after the issue of the said notice, the company was in
receipt of the three notices under s. 257(1) of the Act.
It
is necessary to examine sections 171 and 257.
Section 171 reads as
follows:
"171.Length
of notice for calling meeting.—(1) A general meeting of a company may be called
by giving not less than twenty one days' notice in writing.
(2) A general meeting may be called after
giving shorter notice than that specified in sub-section (1), if consent is
accorded thereto—
(i) in the case of an annual general meeting, by all the members
entitled to vote thereat; and
(ii) in the case of any other meeting, by members of the company (a)
holding, if the company has a share capital, not less than 95 per cent. of such
part of the paid up share capital of the company as gives a right to vote at
the meeting, or (b) having, if the company has no share capital, not less than
95 per cent. of the total voting power exercisable at that meeting:
Provided that where any
members of a company are entitled to vote only on some resolution or
resolutions to be moved at a meeting and not on the others, those members shall
be taken into account for the purposes of this sub-section in respect of the
former resolution or resolutions and not in respect of the latter".
Section 257 reads thus:
"257.
Right of persons other than retiring directors to stand for directorship.—(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".
The use of the expression
"not less than fourteen days" before the meeting, obviously referring
to the general meeting by the framers of the Act, is a clear indication that in
respect of the general meeting of which notice under s. 171 had been issued, a
member can exercise his option to nominate any person as a candidate for the
office of a director provided he had 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.
Section 257 does not contemplate a case of adjournment of that meeting on any
ground. If the contention of Mr. Rangarajan were to be accepted, it would mean
that whenever any notice under s. 257(1) is received by the company, the company
shall invariably adjourn the general meeting because the notice containing the
explanatory note must have 21 clear days preceding the date of the meeting.
Such a position is against the express language employed in s. 257. A longer
period fixed under s. 171 and a lesser period under s. 257 will also justify
the conclusion that there was no statutory obligation on the company to adjourn
the general meeting simply because it was served by a member with a notice
under s. 257(1) and it owed a duty to inform its members of such notice.
Further, it is well settled that, while interpreting the two provisions in a
statute, one should not be allowed to operate as to render the other otiose and
that they are intended to cover two different fields. Then the reasonable
interpretation is that when a special subject were to be included in the agenda
for the general meeting, the notice itself should contain an explanation,
while, when the company was found to act under s. 257(1A), it is enough the
later notice issued contained the explanatory note. In this case, the notice
dated March 16, 1983, did contain a note "if he (Arumugam) is elected, the
number of directors on the board of Aruna Sugars Ltd. will go up from the
present 8 to 9". In my opinion, there is thus compliance of both the
provisions of ss. 173 and 257 of the Act.
The learned counsel laid
emphasis on the following expression "subject to the provisions of this
Act" found in the opening sentence of s. 257 and submitted that s. 257,
is, therefore, subject to s. 173. I am unable to countenance the said argument.
For, the expression "subject to the provisions of this Act" will only
qualify the person who is not a retiring director. He must otherwise possess
the requisite qualification for being nominated as a director. It does not,
therefore, follow that s. 257 is in any way controlled by s. 173. I have
already pointed out that the two sections cover two different areas. If a.
subject has to be shown in the agenda in the notice under s. 173, there is a
statutory obligation on the part of the company to refer to the explanation
with reference to the special subject. While the company was obliged to act
under s. 257(1A) it can validly act by sending a notice intimating its receipt
of the notice from a member or members proposing the candidature of any person
as a director by serving individual notices to the members not less than seven
days before the meeting. This time factor, one referred to in s. 171, while the
others referred to in s. 257 and s. 257(1A), will serve as a guiding factor as
to reasonably infer that, while the company were to act under s. 257(1A), it
cannot practically comply with s. 173(2). At the same time, the requirement of
s. 173(2) was complied with by appending a note to the second notice. I have already
pointed out that it had been complied with in the instant case.
The other complaint averred
in the affidavit is that the applicant was denied of an opportunity to offer
himself as a candidate to the office of the director at the meeting held, on March
30, 1983. It is stated in the counter-affidavit filed by the company that it is
not disputing that the applicant became a member only on March 22, 1983.
Therefore, factually he could not have offered himself as a candidate for the
office of the director at the meeting held on March 30, 1983. Hence, this
contention also fails.
Here, there is another
factor, which will be disadvantageous to the applicant, that is, the majority
of the shareholders had expressed their mind and elected the second respondent as
a director. In my opinion, in the above conspectus, it is not open to the
applicant to have the election of the second respondent as director declared
void on an interlocutory petition. So far as the maintainability is concerned,
I do not propose to advert to this as on merits the applications fail.
The result is the
applications are dismissed. But I make no order as to costs.
[1990] 68 COMP. CAS. 516 (
HIGH COURT OF
v.
MRS. PADMA KHASTGIR AND MAHITOSH MAJUMDAR J J.
MARCH 16, 1989
Dipankar Ghosh for the Applicant.
Mrs.
S.B. Mukherji for the Respondent.
Mrs.
Padma Khastgir J.
—The only point which calls for consideration in this application arises under
the following facts and circumstances.
The
petitioner, Gopal Vyas, filed a suit under Order I, rule 8 of the Code of Civil
Procedure. In the said suit, the petitioner moved an application before Mr.
Justice R.N. Pyne (as his Lordship then was) whereupon, the learned judge
directed that the annual general meeting of the company, Sinclair Hotels and
Transportation Ltd., be held under the chairmanship of a member of the Bar but
for adjournments of the same until further orders. The petitioner, being
aggrieved thereby, preferred this appeal; apart from the usual prayers, the
petitioner prayed for an order directing the company to hold the fourteenth
annual general meeting and at such meeting to consider the notices and the proposal
made by the petitioner under section 257 of the Companies Act.
The
petitioner, Gopal Vyas, proposed the candidature of one Navin Chand Suchanti
for the office of a director of respondent No. 1 at such annual general
meeting. The petitioner had given a notice under section 257 of the Companies
Act, 1956. The petitioner contended that the company was under an obligation to
inform its members of such proposal made by the petitioner at such annual
general meeting due to be held on December 29, 1986. But the company, being
respondent No. 1 herein, according to the petitioner, wrongfully refused to
comply with the said proposal on the alleged ground of non-compliance with the
provisions of section 188 of the Companies Act.
There
have been many proceedings so far as this company is concerned, for various
reliefs. After protracted litigations, the matter went before the Supreme Court
of India and, ultimately, the learned judges of the Supreme Court directed that
all pending matters before the High Court should go on but no effect be given
to any of such orders till the matter is finally decided by the learned judges
of the Supreme Court.
Section
257 of the Companies Act, 1956, provides as follows:
"257.
Right of persons other than retiring directors to stand for directorship. —(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".
Under
this section, if a person other than a retiring director desires to be
appointed as a director, a notice of his candidature may be given to the
company. Such notice may be given by the candidate himself or by any member intending to propose him
as a candidate. This candidate may be an outsider or a member of the company.
He need not be even a shareholder but such notice has to be given fourteen
clear days before the meeting. On receipt of such notice, the company shall
inform the members at least seven days before the meeting either by individual
notice or by an advertisement.
Section
188 of the Companies Act makes the provision for circulation of the members'
resolutions in the following manner:
"188.
Circulation of members' resolutions.—(1) Subject to the provisions of this
section, a company shall, on the requisition in writing of such number of
members as is hereinafter specified and (unless the company otherwise resolves)
at the expense of the requisitionists:
(a) give to members of the company entitled to
receive notice of the next annual general meeting, notice of any resolution
which may properly be moved and is intended to be moved at that meeting;
(b) circulate to members entitled to have notice
of any general meeting sent to them any statement of not more than one thousand
words with respect to the matter referred to in any proposed resolution, or any
business to be dealt with at that meeting.
(2)
The number of members necessary for a requisition under sub section (1) shall
be—
(a) such number of members as represent not less
than one- twentieth of the total voting power of all the members having at the
date of the requisition a right to vote on the resolution or business to which
the requisition relates; or
(b) not less than one hundred members having the
right aforesaid and holding shares in the company on which there has been paid
up an aggregate sum of not less than one lakh of rupees in all.
(3) Notice of any
such resolution shall be given, and any such statement shall be circulated, to
members of the company entitled to have notice of the meeting sent to them, by
serving a copy of the resolution or statement on each member in any manner
permitted for service of notice of the meeting; and notice of any such
resolution shall be given to any other member of the company by giving notice
of the general effect of the resolution in any manner permitted for giving him
notice of meetings of the company:
Provided
that the copy shall be served, or notice of the effect of the resolution shall
be given, as the case may be, in the same manner and, so far as practicable, at
the same time as notice of the meeting, and where it is not practicable for it to be
served or given at that time, it shall be served or given as soon as
practicable thereafter.
(4) A company shall
not be bound under this section to give notice of any resolution or to
circulate any statement unless —
(a) a copy of the requisition signed by the
requisitionists (or two or more copies which, between them, contain the
signatures of all the requisitionists) is deposited at the registered office of
the company—
(i) in the case of a requisition requiring
notice of a resolution, not less than six weeks before the meeting;
(ii) in the case of any other requisition,
not less than two weeks before the meeting; and
(b) there is deposited or tendered with the
requisition a sum reasonably sufficient to meet the company's expenses in
giving effect thereto:
Provided
that if, after a copy of a requisition requiring notice of a resolution has
been deposited at the registered office of the company, an annual general
meeting is called for a date six weeks or less after the copy has been
deposited, the copy, although not deposited within the time required by this
sub-section, shall be deemed to have been properly deposited for the purposes
thereof.
(5) The company
shall also not be bound under the section to circulate any statement 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 section are being
abused to secure needless publicity for defamatory matter; and the court may
order the company's costs on an application under this section to be paid in
whole or in part by the requisitionists, notwithstanding that they are not
parties to the application.
(6) A banking company shall not be bound to circulate any
statement under this section, if, in the opinion of its board of directors, the
circulation will injure the interests of the company.
(7) Notwithstanding
anything in the company's articles, the business which may be dealt with at an
annual general meeting shall include any resolution of which notice is given in
accordance with this section, and for the purposes of this sub-section, notice
shall be deemed to have been so given, notwithstanding the accidental omission,
in giving it, of one or more members.
(8) If default is
made in complying with the provisions of this section, every officer of the
company who is in default, shall be punishable with fine which may extend to
five thousand rupees".
Under
this section, members' resolutions are intended to be moved at an annual
general meeting or at any other meeting after the circulation to members in
each case of the text of the proposed resolution with explanatory statement, if
any, in respect of the resolution or other business. This section has conferred
on all shareholders an important right to give through the company machinery
publicity among all the members of the company the resolution which he intends
to propose or for statements which he wants to make at the annual general
meeting.
The
question which calls for determination in this appeal is as to whether the
company was justified in refusing to circulate the notice given by the
petitioner under section 257 of the Companies Act on the ground that such
proposal was made by one member for the candidature of directorship of Navin
Chand Suchanti on the ground that it was not proposed either by 100
shareholder-members or by l/20th strength of the members. The provision of
section 257 is an independent section. It is not subject to the provision of
section 188. Section 257 is a specific provision giving a right to an
individual member to give such notice. It is a self-contained provision and,
under section 257, there is no scope for introduction of any other
qualification which the Legislature, in its wisdom, did not think it necessary
to incorporate. The specific right that had been given under section 257 does
not provide that the implementation of such right will have to be in accordance
with the procedure as laid down under section 188 of the Companies Act. In
fact, the provision of sections 188 and 257 of the Companies Act cover two
different fields. A comparative perusal of the provisions of the two sections
indicates that, under section 257, any person can apply by giving the requisite
notice whereas under section 188, some specific percentage of shareholding,
that is, either l/20th or hundred members are the necessary requisite for such
requisition. Not only is there a difference as to who can apply under both the
sections but also there is a difference in respect of the subject-matter of
such notice. Under section 257, such notice is given when a proposal is given
for appointment to the office of director at any general meeting provided it
has given not less than fourteen days before the meeting and the consent
signifying his candidature for the office of the director has been given
whereupon it shall be the duty of the company to inform its members of such
candidature, whereas, under section 188, any matter can be transacted. There is
also a difference in respect of time, which has to be given within fourteen
days before the meeting under section 257 of the Companies Act. Whereas, under
subsections (3) and (4) of section 188, different times have been provided. The
conditions for such application under section 257 are different from the
conditions as provided under section 188 inasmuch as, under the previous provision
of section 257, the member was not required to deposit any sum whereas, under
section 188, specific provision has been made for deposit and/or tender of the
requisite amount reasonably sufficient to meet the company's expenses in giving
effect to such members' requisition. Under section 257, it has been
specifically provided that individual notice of such requisition under section
257 will have to be given by the company to its members or if the company
decides to advertise such candidature in two newspapers having circulation at
the place where the registered office of the company is located either in the
English language or in any other regional language of that place. Such
provision has not been made under section 188. The provision of section 257 shall
not apply to a private company unless it is a subsidiary of a public company.
There is no such corresponding restriction so far the provision of section 188
is concerned. Under section 257, as soon as the notice complying the provision
of section 257 is served, the company has no discretion in the matter inasmuch
as it has been provided under section 257(1A) that the company shall inform its
members of the candidature of a person for the office of a director or the
intention of a member to propose such a person as a candidate of the office by
serving individual notice or by advertisement as provided in the said section.
The
provision of section 173 of the Companies Act does not seem to be necessary in
the instant case inasmuch as section 173 of the Companies Act provides as
follows:
"173.
Explanatory statement to be annexed to notice. — (1) For the purposes of this
section —
(a) in the case of an annual general meeting,
all business to be transacted at the meeting shall be deemed special, with the
exception of business relating to (i) the consideration of the accounts,
balance-sheet and the reports of the board of directors and auditors, (ii) the
declaration of a dividend, (iii) the appointment of directors in the place of
those retiring, and (iv) the appointment of, and the fixing of the remuneration
of, the auditors; and
(b) in
the case of any other meeting, all business shall be deemed special.
(2) Where any items
of business to be transacted at the meeting are deemed to be special as
aforesaid, there shall be annexed to the notice of the meeting a statement
setting out all material facts concerning each such item of business, including
in particular the nature of the concern or interest, if any, therein, of every
director, and the manager, if any:
Provided
that where any item of special business as aforesaid to be transacted at a
meeting of the company relates to, or affects, any other company, the extent of
shareholding interest in that other company of every director, and the manager,
if any, of the first-mentioned company shall also be set out in the statement if the extent of
such shareholding interest is not less than twenty per cent, of the paid up
share capital of that other company.
(3) Where any item of
business consists of the according of approval to any document by the meeting,
the time and place where the document can be inspected shall be specified in
the statement aforesaid".
Under
the circumstances, it appears that the transaction proposed by the appellant at
such meeting was an ordinary business and not a special one in view of
sub-clause (iii) of sub-section (1)(a). Moreover, section 173 provides that, in
the case of annual general meeting, all business to be transacted at the
meeting shall be deemed, specially with the exception of the business as
provided under sub-clauses (i), (ii), (iii) and (iv) and under clause (b) in
case of any other meeting, as special and it is only where any items of
business to be transacted at the meeting are deemed to be special that there
shall be annexed to the notice of the meeting a statement setting out all
material facts as provided under clause (b). The appointment of a director in
the place of those retiring is an item of ordinary business to be transacted at
the annual general meeting of the company. The petitioner has not called for
the meeting. It is at a meeting called by the company that the petitioner has
given the notice for transaction of the business, which is ordinary in nature
at such meeting. Under section 237, any member is entitled to take advantage of
such provisions as contained in section 257.
The
petitioner's name appears in the register of shares, so until his name is
removed by rectification of such share register, his right remains. The very
fact that there are proceedings pending before the company court challenging
the petitioner's membership which matter is going on for a pretty long time
will not disentitle the petitioner from giving such notice In any event, in
view of the order passed by the learned judges of the Supreme Court that no
effect be given to any of the orders passed in these proceedings relating to
Sinclair Hotels and Transportation Ltd. whether the petitioner has the right to
give notice would be determined finally by the learned judges of the Supreme
Court. This proceeding before this court only relates to the construction of
two particular sections of the Companies Act.
This
is not an appeal from an interlocutory order passed by the learned court below
but it is only pursuant to the leave granted by the learned judges of the
Division Bench, the present application had been taken out. The case cited by
Mrs. S.B. Mukherjee appearing on behalf of the company Pedley v. Inland
Waterways Association Ltd. [1977] 1 All ER 209 (Ch D) does not seem to have any
application to the facts and circumstances of this case. That was a case of
removal of a director. The articles of the company in that case did not confer any power on
any individual member to require such a resolution to remove the director be
included in the agenda. Under the circumstances, the company could not be
compelled to give such notice of resolution proposed by the member to be
included in the agenda. The company also rejected the said notice on the ground
that he had not complied with the provisions of section 140 of the Companies
Act of 1947. There, section 142 did not confer on any individual member the
right to compel the inclusion of a resolution in the agenda of a company
meeting. At page 212, it was observed that the company's articles of
association conferred no express right on any one individual member to have any
item included in the notices of the agenda. Therefore, the plaintiff had to
claim the right to compel the company to include the notices in the agenda of
the annual general meeting of an intended resolution, had to come under some
provisions of the Act giving him the right. Section 140 of the Act plainly gave
him this right if he could find members representing him not less than 1/20th
of the total voting rights complying with the conditions as to time and other
matters as set out under section 140, sub-sections (4) and (5). Then, it was
the company's duty under section 140(1) at the expense of the requisitionists
unless the company otherwise resolved to give to its members the notice. The
procedure for removal of a director has been specially provided in our
Companies Act. Section 284 makes specific provision for such removal where
special notice is required for any resolution of removal of a director or for
appointment of somebody instead of that director so removed at the meeting at
which he is removed. But, there is no corresponding provision given in the
English Act as provided under section 257 of the Indian Companies Act. Under
the special facts and circumstances of this case, the case in Pedley v. Inland
Waterways Association Ltd. [1977] 1 All ER 209 (Ch D) has no application.
By
allowing this application in favour of the petitioner, this court does not pass
a mandatory order upon the company to pass such resolution. It is only a direction
to enable the petitioner to express before the members of such meeting his
intention as contained in the notice. In the case of Indian Cable Co. Ltd. v.
Sumitra Chakraborty, AIR 1985 Cal 248, the learned judges of the Division Bench
of this court, after discussing various cases, were of the view that, if a
court is called upon to grant any relief on any interlocutory application
which, when granted, would mean granting substantially the relief claimed in
the suit, the court will be very slow and circumspect in the matter of granting
any such prayer. It is indeed true that such a relief should be granted only in
exceptional cases. Though exercise of such a discretion should be limited to
rare and exceptional cases, still, at the same time, no court should think
that, in law, there is any absolute bar to the court granting such a relief. In
deserving cases, the court
should not hesitate to come in aid of a litigant and uphold the cause of
justice by granting such a relief.
The
observation of the learned judges of the Supreme Court at paragraph 100 of the
case LIC of India v. Escorts Ltd. [1986] 59 Comp Cas 548 indicates that a duty
is cast on the management to disclose in the explanatory note all material
facts relating to the resolution coming up before the general meeting to enable
the shareholders to form a judgment on the business before them. It does not
require the shareholders calling a meeting to disclose the reasons for the
resolution, which they proposed to move at the meeting. It was further observed
that every shareholder of a company has the right, subject to the statutory
prescribed procedure and numerical requirement, to call an extraordinary
general meeting in accordance with the provisions of the Companies Act. He
cannot be restrained from calling a meeting and he is not bound to disclose the
reasons for the resolution proposed to be moved at the meeting. Factually, the
present case is different inasmuch as the petitioner, being a shareholder, has
not called an extraordinary general meeting but, at a meeting called by the
company, he has only proposed for the candidature of a particular person in the
place of the retiring director. In our view, to hold that the provision of
section 257 is subject to the provision of section 188 will render the
provisions of section 257 nugatory and redundant. Under the circumstances,
there will be an order directing the company to consider the notice given by
the petitioner in accordance with law at its fourteenth annual general meeting.
The
meeting was scheduled to be held on March 18, 1989: In any event, the meeting
cannot be held on March 18, inasmuch as clear 21 days' notice is required to be
given. Under these circumstances, the meeting is to be held on April 20, 1989.
Mrs.
Mukherji, learned lawyer appearing on behalf of the company, prays for stay of
the operation of this order. Such prayer is allowed. There will be a stay for a
period of a fortnight.
Mahitosh
Majumdar J.—I agree.
[1974] 44 COMP. CAS. 298 (
high court of
S. RANGARAJAN J.
COMPANY APPLICATION NO. 565 OF 1972
IN COMPANY APPLICATION NO. 496 OF 1972
MAY 25, 1973
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.
[1972] 42 COMP. CAS. 48 (BOM.)
HIGH COURT OF
v.
Gajanan Gopalrao Dixit
BHOLE, J.
FEBRUARY 25, 1971
V.R. Manohar for the Applicants.
W.G.
Deo for the Opponent
JUDGMENT
The
original defendants Nos. 1 and 3 being aggrieved by the judgment and decree
passed by the assistant judge, Akola, in a miscellaneous civil appeal arising out
of an order passed by the second joint civil judge, junior division,
The
applicant No. 1 is a public limited company registered under the provisions of
the Companies Act. Applicant No. 2 is now a director against whom the suit was
filed by opponent No. 1. Opponent No. 2 was a chairman of the board of
directors till January 24, 1970, on which date an annual general meeting of the
company was held. The agenda included the election of a new director in place
of opponent No. 2 who was retiring by rotation. The meeting was presided over
by opponent No. 2. Opponent No. 1 was present in the meeting in person as well
as by proxy for three other shareholders. There were two others, D.A. Bhalerao
and D.R. Palsodkar, who were not shareholders but were present as proxies. In
the said meeting applicant No. 2 was declared elected as the director of the
company.
The
opponent No. 1's grievance is that applicant No. 2 was elected illegally. He,
therefore, filed a suit on February 5, 1970, seeking a declaration that the
resolutions adopted at the said meeting as well as the election were in
contravention of the rules and regulations and were therefore null and void.
Opponent No. 1 also prayed for an injunction and, therefore, filed an
application under Order 39, Civil Procedure Code, against the applicants and
opponent No. 2 restraining them from giving any effect to the resolutions
passed in the meeting on January 24, 1970, and for further restraining the
applicant No. 2 to act as a duly elected director of the company and for
participating in the meetings of the board of directors.
This
application was opposed by the applicants on the ground that there was no
allegation that any irreparable injury would be caused to the opponent No. 1 if
an interim injunction was not granted and the balance of convenience was in
favour of the applicants. The trial court issued an interim injunction to the
effect that the resolution passed in the meeting on January 24, 1970, would not
be given effect to and that the applicant No. 1 shall not permit the applicant
No. 2 to record himself as a duly elected director of the company.
Aggrieved
by this order, the applicants preferred an appeal before the District Court,
On
January 24, 1970, when the annual general meeting of the company was held, a
new director in place of a retiring director was to be elected. There were five
nominations for it. Three candidates withdrew in the meeting. Only two,
therefore, remained for the contest. They were opponent No. 1, plaintiff, and
applicant No. 2, defendant No. 3. The opponent No. 2 was in the chair. Although
it was not necessary for anybody to second the proposals under the provisions
of the Companies Act, it was stated in the suit that opponent No. 2 called for
the names of the proposers as well as the seconders for the nomination of both
the candidates. The plaintiff, opponent No. 1, was seconded not by a
shareholder but by a proxy who had attended the meeting. The other candidate was proposed and
seconded by the shareholders present. The chairman, opponent No. 2, therefore,
ruled that opponent No. 1, Gajanan Dixit's nomination, was not validly
seconded. Accordingly, therefore, he was not treated to be a candidate validly
proposed and seconded. The chairman then ruled that applicant No. 2, Deshmukh,
was the only candidate remaining in the field validly nominated. He therefore
declared him elected. The plaintiff being aggrieved by the way the meeting was
held and by the way the chairman of the meeting ruled against the provisions of
the Companies Act, filed the suit as well as an application for the interim
injunction with which we are now concerned.
It
is now well settled that Order 39, rule 1, Civil Procedure Code, provides for
temporary injunctions; rule 2 requires that some injury must be threatened, the
injury must be a legal injury and not any fancied injury. The court in an
application under this order has to enquire as to what are the contents of the
rights claimed by the plaintiff. The court has not only to find the contents of
the rights claimed by the plaintiff but also has to consider whether
irreparable injury or inconvenience would result to the plaintiff if the same
is refused. But the learned advocate for the applicants contends here that it
is not always necessary to look into both these elements. According to him in a
case such as the one with which we are concerned, viz., regarding an election
to a post, temporary injunction should not be granted even if a legal injury
was caused unless and until the election was set aside. For this purpose, he
relies on a case of this court in Jagannath Pundlik v. Sukhdeo Onkar. A Division Bench
of this court was hearing a writ petition against an order in an election
petition challenging the validity of the election of successful candidates to a
village panchayat. It does not appear to me that this court laid down any ratio
in this case that, even if an injury is caused, temporary injunction cannot be
granted in such cases unless and until the election is finally set aside. It is
to the contrary. This court did consider rule 2 of Order 39 in which the
element of injury also is mentioned. This court observed in paragraph 5 that in
order to prove legal injury the applicant has to establish that he has a legal
right to do something and the opponent prevents him from the exercise of such
right; that unless a right is alleged and/or shown to exist prima facie, there
can be no question of any breach of that right. This court, however, while
considering the scheme of the Panchayat Act observed at one place that the
person who was elected to the office continued to act in the office until his
election was set aside by a tribunal entitled to do so. Reading the whole of
the judgment it does not appear to me that the startling ratio, which the
learned advocate for the applicants says, was propagated. It cannot be. The
very rule 2 in Order 39 shows that in any suit for restraining the defendant from committing a
breach of contractor other injury of any kind, whether compensation is claimed
in the suit or not, the plaintiff may, at any time after the commencement of
the suit, and either before or after judgment, apply to the court for a
temporary injunction to restrain the defendant from committing the breach of
contract or injury complained of, or any breach of contract or injury of a like
kind arising out of the same contract or relating to the same property or
right. Therefore, some injury must be threatened and some right must be claimed
by the plaintiff in a suit before an application under Order 39, rule 2, is
made.
The
learned advocate for the applicants also refers to Shamsuddin Ahmed v. Charu
Chandra Biswas
as well as Kalyanpur Lime Works v. State of Bihar. These were
also cases under Order 39, rule 2, Civil Procedure Code. They were naturally
decided on the facts and circumstances of those cases. In the Calcutta case
where the plaintiff filed a suit for a declaration that they were the only
elected members and that the defendants were not the members, and applied for
an interim injunction restraining them from attending the meeting, it was held
that the likelihood of injury and inconvenience was much greater if the
defendants were not allowed to function as members and that the injunction
should not be granted. The Patna case also observes as follows:
"Whether an
order of injunction should or should not be issued will depend on the facts of
the case, and the court must also consider the question of irreparable or
serious injury and balance of convenience."
The
learned assistant judge against whose order the present application is filed
relied on Abdul Gafur v. Mustakim Ali. The
plaintiff there had filed a suit for declaration that the election of the
defendant as chairman of the society was void and illegal and that the
defendant was not entitled to hold the office as the chairman of the said
society and an interim injunction restraining the defendant from taking over
charge and functioning as chairman was granted by the trial court. The
defendant challenged the injunction order, inter alia, on the ground that the
suit itself was barred by section 79(2) of the Assam Co-operative Societies
Act. It was held there that as the plaintiff had challenged the very
constitution of the managing committee which elected the defendant as the
chairman, the plaintiff had a prima facie case to go to trial. Under section
79(2) of the above-said Co-operative Societies Act, the civil court's
jurisdiction was not barred where the question of jurisdiction was involved
regarding the subject-matter of the suit. Hence it could not be said that the
suit was prima facie barred under that section. The principle there too was
regarding the balance of convenience. We have to see whether an injury or
inconvenience is likely to arise from refusing the injunction or it is likely
to arise from granting the injunction. We have, therefore, to consider the facts
and circumstances of our case.
Both
the courts below have agreed that the plaintiff has a prima facie case in his
favour. Section 257 of the Indian Companies Act which deals with the rights of
persons other than the retiring directors to stand for directorship is as
follows:
"257.
Right of persons other than retiring directors to stand for directorship.—(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."
The
section clearly contemplates that a member was only to be proposed. It does not
contemplate that he should also be seconded. In fact, the provisions of the
company law contemplated the deposit of a notice of a candidate showing his
intention to stand as a director. Then there is a publication in the newspapers
regarding his candidature. The shareholders are to be present by proxies, by
depositing the proxies according to law. There can be a demand for poll under
section 179 of the Companies Act before or on the declaration of the result of
the voting of any resolution and the chairman has to accept such demand. The
proxies also can demand a poll. The minutes show that the chairman ruled out
the demand for poll because, according to him, the proxy represented by a
person who was not a member could not demand a poll. Then in the matter of
election of a director it was said by the chairman that a proxy who is not a
shareholder cannot second the proposal of Dixit, opponent No. 1. This is also
prima facie not correct. But when one Mr. Deo, who was a shareholder, stood up
and seconded the proposal, the chairman said that it was not then open for
anybody to propose, second or support any proposal.
It is in these circumstances that the chairman declared that there was only one
candidate, Dr. B. V. Deshmukh, and declared him to be elected as a director of
the company. The plaintiff, opponent No. 1, therefore, is aggrieved by this
conduct of the meeting.
We
have a case in In re Horbury Bridge Coal, Iron and Waggon Company where that court was considering whether in such meetings
it was necessary to second the proposal. The judgment shows that in such
meetings of the companies, it was not necessary for seconding any proposal. I
am, therefore, inclined to agree that the plaintiff has a prima facie case. The
point that is, however, important is whether any injury is threatened and what
are the contents of the rights claimed by the plaintiff. In this case, the
plaintiff, opponent No. 1, wanted to be director and, therefore, had actually
deposited his notice of candidature with the company on January 5, 1970, and
his candidature was also published in the newspapers according to the
provisions of the Companies Act. In Joseph v. Jos the Kerala
High Court was considering the rights of a shareholder. The plaintiff, opponent
No. 1, is also of course a shareholder. That court observed that the right of a
shareholder to stand for election as a director of the company is an individual
membership right and gives rise to a justiciable issue. It has further observed
that there are two kinds of rights for a member of the company, one the
individual membership right, and the other, the corporate membership rights;
that so far as the corporate membership rights are concerned, a shareholder can
assert those rights only in conformity with the decision of the majority of the
shareholders; and that an individual membership right is a right to maintain
himself in full membership with all the rights and privileges appertaining to
that status. This right, according to that court, implies that the individual
shareholder can insist on the strict observance of the legal rules, statutory
provisions and provisions in the memorandum and articles which cannot be waived
by a bare majority of shareholders. It is not, therefore, that the plaintiff
has no right or has any fancied right. He having a membership right which is
justiciable, can have also a right to stand for election as a director. If
there is a prima facie case that the election of the other person was against
legal rules and statutory provisions, he has a right to complain. This right is
therefore threatened and laid low because of the conduct of the proceedings of
the annual general meeting.
What is the balance of
convenience? There are five directors of the company. Two directors form a
quorum. Prima facie, applicant No. 2 appears to have got himself elected
against the legal rules and statutory provisions. If, therefore, an injunction
is granted, the business of the company cannot be stopped; it can be carried on
without the newly elected director. On the other hand, if the applicant No. 2 is allowed to
remain as director there is likelihood of his inflicting legal injuries not
only to the plaintiff-opponent No. 1 but also to the interests of the company.
In that way, he would be acting against or detrimental to the interests of the
shareholders. Moreover, prima facie, an illegality was committed; such
illegality should not be allowed to continue. It appears to me, therefore, that
the order passed by the learned assistant judge is quite legal and proper.
Moreover,
this is a civil revision application under section 115 of the Civil Procedure
Code. The revisional jurisdiction has its own limits. If the subordinate court
has exercised a jurisdiction not vested in it by law or has failed to exercise
a jurisdiction so vested or has acted in the exercise of its jurisdiction
illegally or with material irregularity, then only this court can interfere. It
would be difficult for me also to entertain this revision application under
section 11 5 of the Civil Procedure Code.
This
revision application therefore is dismissed with costs.
[1994]
80 COMP. CAS. 174 (
HIGH COURT OF
v.
MRS.
SANTOSH DUGGAL J.
APRIL
6, 1990
Pankaj Kalra for the plaintiffs.
P.P.
Malhotra for defendants Nos. 1, 2, 4 to 10.
K.K.
Mehra defendant No. 2 in person.
Mrs.
Santosh Duggal J.—The
plaintiffs in this suit for declaration, permanent and mandatory injunction are
members of the executive committee and some of them are office-bearers of the
Delhi and District Cricket Association ("the DDCA" for short),
inasmuch as plaintiff No. 1, Mr. Sunil Dev, is the sports secretary and
plaintiffs Nos. 2 to 4, members of the executive committee, whereas plaintiffs
Nos. 5 and 6 are its ordinary members. The persons arrayed as defendants
besides DDCA are also office-bearers and members of this body, which is stated
to be a company incorporated under section 25 of the Indian Companies Act (for
short "the Act").
This
suit has been brought with a challenge to the validity of the notice issued on
December 8, 1989, by the president of the DDCA (defendant No. 2) for holding
the annual general meeting on December 29, 1989. The challenge is based
primarily on three contentions, namely, that immediately after the elections
for the last year, which concluded on December 29, 1988, defendant No. 2, the
president embarked upon to induct a large number of persons as members without
compliance with the requirements, as laid down in the articles of association
of the DDCA as also the relevant provisions of the Act which were applicable to
this body by virtue of the provisions of section 25(2) read with section 9 of
the Act and also without placing the matter before the executive committee, and
that it was learnt by the plaintiffs that a large number of persons have been
thus taken as members although it was decided in the meeting of the executive
committee held on January 18, 1989, that the membership be increased by 500 and
that apart from the fact that persons beyond this number have been reportedly
taken as members, otherwise also no procedure as contemplated by the memorandum
and articles of association has been adopted and in fact no steps were taken to
streamline any such procedure. The allegation is that defendant No. 2 has taken
persons as members, the majority of whom are his own henchmen with the ulterior
motive of having a majority for voting at the time of fresh elections, which
were scheduled to be held in the annual general meeting on December 29, 1989.
Another
challenge to the legality of the annual general meeting summoned for December
29, 1989, is that there had been no prior approval of the agenda for this
meeting by the executive committee which was a mandatory requirement and
further that the accounts as well as annual report had not been got approved by
the executive committee, and that the annual accounts were not being placed
before the annual general meeting as was the mandatory requirement as per
sections 116 to 210, 217 and 220 of the Act inasmuch as no annual general
meeting can be held without laying of annual accounts. Asserting that defendant
No. 1, the DDCA, was a public body established with the objective of advancing
the cause of cricket and it was incumbent on the president for the closing
year, namely, defendant No. 2, to act in a fair and reasonable manner and avoid
all actions which were detrimental to the interest of the company or detracted
from the aims and objectives thereof ; various acts of omissions and
commissions are alleged against the president and other defendants described as
his group, as being contrary to the provisions of the Act as well as the memorandum
and articles of association, such as (1) non-auditing of annual accounts, (2)
non-approval of the annual report by the executive committee, (3) non-approval
of the accounts by the executive committee, (4) summoning of the annual general
meeting without placement of annual accounts, (5) summoning of the annual
general meeting without approval of the agenda by the executive committee, (6)
enrolment of new members contrary to the articles of association, (7) change of
election officer contrary to the decision of the executive committee, and (8)
continuation of the fixed deposit receipt in Grindlays Bank. All these
allegations are tabulated in paragraph 3-F of the plaint.
The
provocation for this suit, as already noted, was the notice calling the annual
general meeting of the association on December 29, 1989, to transact the
following business, as mentioned in the notice :
1. To
consider and adopt the report of the president for the year ending March 31,
1989.
2. To
elect office-bearers and members of the executive committee for the year
1989-90.
3. To
appoint auditors for the year 1989-90 and to fix their remunerations.
It
is contended on the basis of the notified agenda that it is apparent that the
accounts for the financial year under consideration are not being placed before
the annual general meeting which is violative of the provisions of section 166
of the Act, which enjoins upon every company that the annual accounts and
balance-sheet along with profit and loss account be laid at every annual
general meeting as per the requirement of section 210, so much so that
contravention of these provisions makes the company and its directors liable to
prosecution and that this requirement of placing the annual accounts of the
company in the annual general meeting every year cannot be waived in any
circumstances and that it was the requirement of law that these annual accounts
have to be placed before the annual general meeting and not before any other
meeting with the result that the agenda, as indicated by the notice, calling
the annual general meeting would render convening of the annual general meeting
violative of the mandatory provisions of the company law. It is further alleged
that as per the requirement of section 217 of the Act, the balance-sheet should
also be accompanied by the report of the board of directors (members of the
executive committee in the case of this company) with respect to the state of
the company's affairs including finances and thus any annual report that has to
be placed before the annual general meeting must be approved by the executive
committee and this has not been done in the present case. The plaintiffs have
summed up their allegations by asserting that neither the annual report of
defendant No. 1 nor the agenda of the annual general meeting was approved by
the executive committee in any of its meetings and they thus allege that the
annual general meeting convened for December 29, 1989, on the basis of notice
dated December 8, 1989, and the agenda therein is not only contrary to sections
166, 210 and 220 of the Act but also contravened the provisions of section 217
of the Act which mandates that the annual report of the board of directors
should be annexed to the annual accounts to be submitted.
It
is, therefore, contended that such a meeting cannot be permitted and that the
president's report as well as the agenda were to be treated as non est as not
being in compliance with the mandatory requirement, and that it is apprehended
that in case this annual general meeting is allowed to be held without the
annual accounts being presented, then these would never come up before the
annual general meeting and that the law cannot be allowed to be bypassed in
this manner.
There
is also an allegation that some of the members have not even received notice of
the annual general meeting, while to some it has been sent at the wrong
address, the motive being to deprive members of their right to cast votes at
the annual general meeting and also to contest the elections.
The
action of defendant No. 2 in convening the annual general meeting is also
described as mala fide for the reason of enrolment of members amounting to 645
in number which matter, as per the plaintiffs' allegations, never came up
before the executive committee as required by clauses 11 and 12 of the articles
of association and the enrolment is thus impugned as unconstitutional.
Yet
another allegation is that in the meeting held on December 4, 1989, a decision
was taken to appoint an election officer for carrying out the election process
for the annual general meeting of December 29, 1989, and Mr. M.S. Jaspal was
thus appointed election officer with four persons to assist him whereas it was
learnt subsequently that another person had been appointed as election officer
without any meeting of the executive committee having been convened or any
resolution by circulation having been passed and thus this appointment of the
election officer is contrary to the rules.
It
is, therefore, contended that all the three items, as agenda for the annual
general meeting, involve violation of the statutory provisions inasmuch as the
report of the president is contrary to the provisions of section 217 of the Act
which envisages that the annual report can only be the report of the board of
directors (executive committee in the instant case) and that should be annexed
to the annual accounts, and, secondly, a number of persons have been enrolled
as new members with right to contest elections, as well as exercise voting rights,
which act is also contrary to the provisions of the mandate of the law and,
lastly, the question relating to appointment of auditors also is not free from
suspicious circumstances inasmuch as steps could have been taken to make the
auditors audit the accounts and that recourse to the provisions of sections 224
to 234 could have been taken and the Central Government asked to appoint an
auditor in case any such eventuality had arisen whereas in this case neither
the president nor the treasurer nor any other member concerned with the day to
day administration has informed the Central Government that the audit work was
suffering and that such a lapse was also indicative of the mala fide intention
or irregular work of the previous committee.
Some
of the plaintiffs, namely, plaintiffs Nos. 1 to 3 pleaded to have asked for the
accounts on receiving notice of the meeting and also that of the minute books
but these requests were not attended to and thus obliged the plaintiffs to
approach the court seeking a declaration that the notice dated December 8,
1989, agenda and annual report as mentioned therein were contrary to law and
the memorandum and articles of association and hence null and void, and the
plaintiffs were thus entitled to seek further decree of permanent injunction
restraining the defendants from holding the annual general meeting in pursuance
of the notice dated December 8, 1989, and on the basis of agenda therein and
further a mandatory injunction calling upon the defendants to hold the annual
general meeting strictly in accordance with law after preparation and auditing
of the accounts.
Along
with the suit, the plaintiffs have moved the present application under Order
39, rules 1 and 2 read with section 151 of the Civil Procedure Code, seeking an
interlocutory order almost on the same terms as prayer in the suit confining
specifically to the annual general meeting that had been convened on December
29, 1989, pursuant to notice, dated December 8, 1989, and from transacting any
business in terms of the agenda mentioned in the said notice.
The
case appears to have been instituted some time on December 23, 1989, and it
came up along with Interim Application No. 9487 of 1989 before the vacation
judge of this court on December 26, 1989, when Mr. K.K. Mehra, defendant No. 2,
who is president of the DDCA appeared and gave an undertaking that the annual
general meeting scheduled for December 29, 1989, would be held but it would be
adjourned without transacting any business till the disposal of the interim application.
Thereafter,
when the case was received in this court, Mr. Suman Kapur, advocate, appeared
separately for defendant No. 3, Mr. Akash Lal, who is the vice-president of the
DDCA, and sought time to file a separate written statement. It would be expedient
to first take up the pleas taken up in this written statement singly by
defendant No. 3.
A
perusal of the said written statement reveals that defendant No. 3 is confining
his challenge primarily to the enrolment of members purported to have been
finalised in the meeting held on November 29, 1989, the allegation being that
no business was transacted in the said meeting of the executive committee for
the reason that one of the members, Mr. S.C. Ladi, had raised an objection that
he had not received a copy of the agenda and that this matter was then
adjourned to December 4, 1989, and in this adjourned meeting, no decision
regarding enrolment of members was taken. This defendant, therefore, alleges
that the entire process of enrolment of 645 members was violative of the
decision of the executive committee who had initially resolved to enrol 500 new
members, 100 life and 400 ordinary, and that not only members far in excess of
this number have been enrolled, there was no indication as to how many were
life members, and how many ordinary members, what qualification had been taken
in view, how many applications in all had been received, how many had been
rejected, and, if rejected, on what grounds, and that the executive committee
had been completely bypassed in the entire process and that the enrolment was
illegal with the result that the new members cannot be accorded any right of
contesting the election to the executive committee or even exercising voting
rights.
This
defendant has generally endorsed the averments made and contentions raised in
the plaint on other issues, such as the validity of the annual general meeting
called by notice dated December 8, 1989, for the reason that there was no
approval of the president's report and the agenda and also on account of the
fact that no audited accounts were placed before the executive committee for
approval and none were scheduled to be placed before the annual general meeting
and that in the absence of audited accounts, no annual general meeting can be
validly held.
The
other defendants including the DDCA through its president have filed a common
written statement controverting the allegations set out in the plaint. On each
count by giving detailed reference to the meetings held, decisions taken and
resolutions passed in those meetings, pleading that the plaintiffs particularly
the four of them who were office-bearers and members of the executive committee
of the DDCA had participated in the entire decision-making process and that
they unreservedly participated in the election process initiated by notice
dated December 8, 1989, by filing their nomination papers, submitted to
scrutiny and that the present suit brought a short time before the scheduled
date of the annual general meeting is manifestly for mala fide and ulterior
motive, which is obvious from the fact that although the notice for the annual
general meeting was received by the plaintiffs on December 10/11, 1989, they
deliberately waited for two weeks to file this suit, adding that two more suits
were filed in the District Court which were imputed with the mala fide
intention stalling the election process.
On
the issue of enrolment of new members also, there is emphatic denial of all the
allegations made in the plaint and it is asserted that the applications were
invited for enrolment as new members pursuant to a decision of the executive
committee taken on January 8, 1989, and duly processed by the scrutiny
committee that had been constituted by the executive committee on January 3,
1989, and that besides the fact that majority of the new members taken were
relations or friends of one plaintiff or the other, with full particulars
narrated in the written statement ; plaintiff No. 1, Mr. Sunil Dev, was a
member of the scrutiny committee, and every application along with other three
members of the scrutiny committee bears his signature by way of approval and
that the imputation now being made against defendant No. 2 in this respect is
wholly unfounded. The allegations made in the written statement of defendant No.
3 in this respect are also repudiated in the same manner by adding that the
said defendant was himself the proposer or seconder for a number of applicants
for membership including his own son and that earlier also in the years 1982 and 1984, when this defendant was an
office-bearer, a number of new members were, enrolled by the same process,
namely, on the recommendation of the scrutiny committee. It is further added
that the entire list of the applicants for membership was duly approved by the
executive committee meeting held on November 29, 1989, where defendant No. 3
was also present besides plaintiffs Nos. 1, 2 and 4.
In the same way, the
allegation about the annual general meeting having been convened without
complying with the mandatory provisions of law is controverted, by pleading
that the decision was duly taken to hold the annual general meeting including
the elections in the meeting held on December 4, 1989, when the defendant No. 3
as well as plaintiffs Nos. 1 to 3 were also present and that the president's
report along with the agenda were duly approved with a decision that a note
shall be put up in respect of the accounts for the current year for the reason
that the auditors appointed for the said year had not been able to carry out
the audits, because the auditors for the erstwhile period had declined to hand
over the audit to these auditors by reason of some technical objections, for
which a reference had already been made to the Institute of Chartered
Accountants. The challenge to the validity or legality of the annual general
meeting is thus wholly repudiated.
The application for an
interlocutory order, on the same lines as prayer in the suit (I.A. No. 9487 of
1989), has been heard at length. I propose to deal with the averments seriatim
as outlined by Mr. Pankaj Kalra appearing for the plaintiffs.
The first and foremost
issue which the plaintiffs have raised and which also agitates defendant No. 3
relates to the question of enrolment of new members. The contention is,
firstly, that there has been no decision of the executive committee to approve
these persons who have been enrolled as members, their number being 645 ;
secondly, the whole process smacks of some oblique motive on the part of
defendant No. 2 to have his own persons as members so as to retain his hold on
DDCA, otherwise there was no reason as to why the decision should have been
postponed till a few days before the annual general meeting and why the
applications were not earlier put up when as far back as by resolution on
January 18, 1989, the executive committee had decided to have new members
enrolled, and lastly the members now enrolled are far in excess of the number
(500) originally approved, for which there is no explanation and no sanction.
The
answer of the defendants to this allegation is total controversion by asserting
that the applications were received during the course of the year to the full
knowledge of the plaintiffs and, in fact, through them and in any case
plaintiff No. 1, Sunil Dev being a member of the scrutiny committee was
throughout associated with the processing of these applications and there was
no question of their being put up during the course of the year before the
executive committee because the applications were being received from time to
time and it was in the fitness of things that they were kept together to be put
up before the executive committee towards the end of the year.
I
have given my earnest thought to this controversy about the enrolment of new
members and I am of the considered view that the fault being now found by the
plaintiffs as well as defendant No. 3 is without any basis and that they
themselves have been associated with the majority of persons whose applications
for membership had been received and who were approved for being enrolled as
members. The defendants have gone on record by specifically alleging, firstly,
that the practice in the DDCA had always been to process the applications for
new membership by the scrutiny committee appointed by the executive committee,
and that plaintiff No. 1 and defendant No. 3 had at least been associated in
the past also as office-holders for the enrolment of new members in this
manner, and, secondly, this year also a number of persons were recommended by
plaintiff No. 1 and other plaintiffs, being the proposers or seconders, and in
the same way defendant No. 3 in the past as well as this year proposed or
seconded names of certain persons on their applications, and that in any case
plaintiff No. 1 was a member of the scrutiny committee and has signed
applications by way of approval which is tantamount to recommendation of the
scrutiny committee for enrolment of a particular person as member.
The
contesting defendants have even given particulars of some of the persons who
were closely related or associated with the persons who are now questioning the
enrolment of new members, such as the application of the son of defendant No.
3, named Arsh Lal being there and proposed by plaintiff No. 1 and seconded by
this defendant himself and also other persons closely associated with the
plaintiffs such as wives of plaintiffs Nos. 2 and 4 or other close relations as
well as superiors such as principal of DAV College where plaintiff No. 5 was
working as lecturer and that it cannot lie in the mouth of these persons now to
contend that defendant No. 2 had brought in his own people.
The
defendants have also placed on record photo copies of a number of applications
which bear them out on facts, namely, that all the applications bear signatures
of plaintiff No. 1 and three other members of the scrutiny committee by way of
approval, the application of Arsh Lal, son of defendant No. 3, being one of
them.
During
the course of hearing, defendant No. 2 has also produced the entire bulk of applications
in original and it was pointed out by Mr. P.P. Malhotra, appearing for the
defendants, that all the applications contained signatures of Sunil Dev,
plaintiff No. 1, as member of the scrutiny committee. The defendants have also
furnished information in writing, pursuant to the court query, as to the
break-up of the applications received so that the allegation of the plaintiffs
and defendant No. 3 could be appreciated in the proper perspective. It is
revealed as per information referred to above that the applications were
received in the following order :
|
January,
1989 |
172 |
|
February,
1989 |
147 |
|
March,
1989 |
190 |
|
April,
1989 |
135 |
|
May,
1989 |
2 |
|
July,
1989 |
1 |
making
a total of b47 out of which two were rejected as invalid and 645 applicants
remained to be considered as having validly applied for membership and all of
which applications passed through the hands of the members of the scrutiny
committee, including plaintiff No. 1. There is also a resolution of the
executive committee passed on November 29, 1989, which is to the following
effect:
"List
of 645 members duly scrutinised by the scrutiny committee and recommended for
enrolment as members was placed before the executive committee. It was also
brought to the notice of the executive committee that, by an earlier
resolution, it had been decided to enrol 500 members. However, if the
recommendation of the scrutiny committee was to be accepted, the members of the
association would be 3,500, which is the maximum allowed under the memorandum
and articles of association. The executive committee decided to enrol 645
members as recommended by the scrutiny committee".
During
the course of hearing information was also furnished, to which there was no
rebuttal from the plaintiffs' side, that in the year 1984 also, 500 new members
were enrolled, also in the same manner, namely, on the recommendation of the
scrutiny committee and it was further asserted, which fact was again not controverted,
though plaintiff No. 1 was present in court, that at that time only two members
of the scrutiny committee, of which plaintiff No. 1 was one, had processed
these applications and the executive committee endorsed their recommendations
and there has never been a challenge to the enrolment of the members during
that year. The whole lot of original applications in the year 1984 in separate
file covers was produced for perusal of the court along with applications for
this year. The number of applications were shown at random to plaintiff No. 1
and he admitted his signature almost on each one of them, barring one or two,
but there again there was no categorical denial. The plea of the defendants is
therefore prima facie acceptable : (1) that the applications had been duly
received through all the members and the majority of them through the
plaintiffs and defendant No. 3, (2) plaintiff No. 1 was associated with the
processing and scrutiny of these applications, and (3) the recommendation of
the scrutiny committee was placed before the executive committee in the meeting
held on November 29, 1989, and duly endorsed with a decision to take all the
645 applicants as members as per list prepared by the scrutiny committee.
As
can be noticed from the break-up tabulated above, the bulk of the applications
were received by April, 1989, barring two applications in May, 1989, and one in
July, 1989. It will be thus not possible on the face of it to subscribe to the
allegation of the plaintiffs or defendant No. 3 that persons have been taken as
members with some ulterior motive, shortly before the annual general meeting. I
say so because there is no suggestion even that persons other than those whose
applications on forms duly issued by the DDCA had been taken as members. The
authenticity of the applications is prima facie acceptable because of the
signatures of plaintiff No. 1 being there as member of the scrutiny committee.
The
caveat added by plaintiff No. 1 that the seal, namely, "approved"
which appears on each of these applications was not there when he signed, is of
no consequence because when he signed the applications as member of the
scrutiny committee, without -saying anything further, such as "to be
rejected", the implication is that he approved the particular person for
membership, besides the added fact that the other plaintiffs or defendant No. 3
were either proposers or seconders for a number of applicants. To say that
their applications should have been placed before the executive committee does
not sound to be a reasonable assertion for the reason that sub-committees like
scrutiny committee in this case performed functions as delegate of the plenary
committee, which is permissible under clause 12 of the articles.
The
plea that this item for enrolment of membership was taken on November 29, 1989,
without any agenda also does not detract from the fact that a resolution was
passed as a matter of fact in the said meeting. This is reflected in the
minutes of this meeting recorded in the minutes book. I have gone through the
original minutes book as well as the record of proceedings produced in the
court in original. They have been found to be, on face of it, duly maintained
in the regular course of business. Defendant No. 2 also volunteered
information, which was not repudiated, that all minutes are recorded in the
hand of Mr. M.S. Jaspal, the paid secretary of the DDCA. It has to be noted
that this is the officer who enjoys the confidence of the plaintiffs as well as
defendant No. 3 inasmuch as it is he who was appointed as election officer in
the meeting held on December 4, 1989, and defendant No. 3 had gone to the
extent of saying that his credibility is beyond impeachment and thus it can be
safely presumed that the minutes were correctly recorded by Mr. Jaspal
including the proceedings of the meeting of November 29, 1989. The original
minutes book also shows that this meeting was attended by plaintiffs Nos. 1, 2
and 4 as well as defendant No. 3 whose signatures appear against the
attendance. The presumption of correctness of these minutes also arises in view
of the provisions of section 195 of the Act. The contention raised by Mr. Kalra
that this presumption will be available only if the minutes are duly recorded,
as required by section 193, is without exception but on the facts as shown on
record, this presumption can safely be raised for the reason that attendance of
plaintiffs Nos. 1, 2 and 4 as well as defendant No. 3 is duly proved by their
own signatures and the minutes having been recorded by a trusted officer, as
per their own showing, and there being the signature of the president as
required by law, on the minutes book, in respect of this meeting which
defendant No. 2 explained in court to have put after these were approved in the
meeting held on December 4, 1989.
The
enrolment of members beyond the number originally decided would also be prima
facie of no consequence because the final decision is also of the executive
committee, and there can be no gainsaying the fact that the committee was
within its rights to take any decision in supersession or modification of the
earlier decision, so long as the maximum limit was not exceeded, and there is
no suggestion that it was so.
The
challenge to this resolution on the ground that this item was not in the regular
agenda is also not prima facie tenable, as it had been taken up under the
heading "any other business" which was within the purview of the
executive committee. I find on a reference to the minutes book that even a
decision to constitute the sub-committee was also taken under the heading
"Any other business" in the meeting held on January 3, 1989.
This
mode of conducting business is duly recognised by judicial decisions, one of
which being the judgment of a Division Bench of this court in Smt. Abnash Kaur v.
Lord Krishna Sugar Mills Ltd. [1974] 44 Comp Cas 390, where it was held that
the business of a company can be transacted even without a formal agenda. The
same view was endorsed by the Division Bench of the Punjab and Haryana High
Court in the case of Suresh Chandra Marwaha v. Lauls P. Ltd. [1978] 48 Comp Cas
110, where it was specifically laid down that it is a well-known fact that
every agenda of a meeting of a company has a residuary clause, "to
consider any other matter with the permission of the chairman", and that
there is no provision for issuance of an agenda in the meeting of the board of
directors, which would be the executive committee in the present case. It has
also been held in a case of the Calcutta High Court reported as Joginder Singh
Palta v. Time Travels P. Ltd. [1983] Tax LR 2487 ; [1984] 56 Comp Cas 103, that
even if there are certain irregularities committed, it would not be a proper
exercise of discretion in the application under Order 39, rules-1 and 2 of the
Civil Procedure Code, to restrain a company to take action based on a
resolution, on the ground that there was irregularity in convening the meeting
or conduct thereof because the company is at liberty to remove or cure the
irregularities, if any, at the company's meeting. This view was expressed on
the basis of the principle laid down in Bentley-Stevens v. Jones [1974] 2 All
ER 653 (Ch D). On the same analogy it can be said that even if there was some
irregularity, that was an irregularity committed by the executive committee, and
not by any particular member or office-bearer, that the decision has to be left
to the company to rectify it in the subsequent meeting, if considered necessary
or if any of the members raises or presses an objection and that it was not
such a matter where the court should interfere.
There
is also abundant authority for the view that courts should not generally
interfere in the internal affairs or management of a company acting within
their powers. This principle finds support in a judgment of the Bombay High
Court in Satyavart Sidhantalankar v. Arya Samaj, AIR 1946 Bom 516 ; [1947] 17
Comp Cas 21.
The same view was endorsed
in the judgment of the Madras High Court in S. Krishnaswamy v. South India Film
Chamber of Commerce, AIR 1969 Mad 42, where it was observed as under (at page
47) :
"In the case of clubs
and societies registered under the Societies Registration Act, the general
principles governing the right of suit of an individual shareholder or a member
of the company would apply and ordinarily the court will not interfere with the
internal management of the society at the instance of one or some only of the
members of the society..".
unless of course the
impugned act was ultra vires the society or constituted fraud or the action was
otherwise illegal. None of such elements prima facie exists in the present case
as the foregoing discussion would reveal.
There is also a very
significant observation in the judgment of the Madras High Court in the case of
S. Krishnaswamy, AIR 1969 Mad 42, that where the conduct of the parties reveals
that there has been some practice in vogue for several years which was accepted
by every one concerned without any challenge or question, then that practice in
the course of long years in itself becomes an indication that the rules or
articles of association which are framed by way of internal management of a
company were understood in that sense. In this view of the matter also, in view
of the uncontroverted facts at this stage that in the year 1984 also, 500
members were taken on record only on the recommendation of the scrutiny
committee when the applications passed through the hands only of two members of
the scrutiny committee as against four in the current lot, and plaintiff No. 1
being a party to such endorsements on the applications during that year also,
and there being no suggestion to a challenge having been made to that mode of
enrolment, I do not think that the contention of the plaintiffs can, at this
stage, be conceded while considering the application for an interlocutory
order, which is disposed of on the basis of facts pleaded or submissions made
at the Bar or during the course of hearing.
The contention raised by
Mr. Suman Kapur, appearing for defendant No. 3, that the resolution passed on
January 3, 1989, constituting the scrutiny committee does not contain any
indication that it was meant for enrolment of new members is very specious, on
the face of it, for the reason that the resolution under reference records the
decision that "all the application forms will be addressed to the honorary
general secretary". This clearly shows on the face of the records that the
purpose of the scrutiny
committee constituted was enrolment of new members. The subsequent conduct of
all concerned including plaintiff No. 1 and defendant No. 3 as well as other
plaintiffs also makes this inference inescapable.
It
is also pertinent to note that the plaintiffs do not say even in the plaint as
to at what particular point of time or date they acquired knowledge of the
enrolment of new members. The inference that inevitably arises in view of this
is that they were very much party to the resolution passed on November 29,
1989, and the allegation that no such resolution was passed, cannot prima facie
be entertained because they should have averred while filing the suit only 5/6
days before the scheduled meeting of the annual general meeting, setting forth
this major challenge, that they had gained knowledge of this fact on a given
date so that their plea could assume some credibility. The inference can safely
be raised further that copy of the minutes of this meeting must have been
circulated to the plaintiffs as also to other members of the executive
committee before December 4, 1989, the next date of the meeting and the fact
that the plaintiffs participated in the entire process initiated by notice
dated December 8, 1989, is on the face of it, indicative of the fact that they
were party to this resolution and the decision to enrol new members was the
decision of the executive committee.
I
may also refer in passing to the assertion made by learned counsel for the
plaintiffs, Mr. Kalra, that this body, DDCA, exists for the benefit of the
cricket loving public and there should have been some criterion fixed for
persons to be enrolled as members thereof. This argument besides being based on
hollow pretensions of the plaintiffs, cannot otherwise be sustained for the
short reason that the articles of association do not prescribe any
qualifications for persons desiring to be enrolled as members of the DDCA, and
there is no suggestion that there had been any such consideration in the past.
The contention based on the Supreme Court judgment, namely, in the case of
National Textile Workers' Union v. P.R. Ramakrishnan [1983] 53 Comp Cas 184 ;
AIR 1983 SC 75, to the effect that a company cannot be considered as a
proprietary body of the shareholders, though laying down very laudable
principle, does not seem to be with all respect, having much relevance qua the
present case for the reason that those observations were made on the facts of
that case when the company happened to be a profit making company and it was
then held that it existed not only for the benefit of the shareholders but also
the workers consumers and other members of the community.
I
am, therefore, of the considered view that on this question of enrolment of new
members the prayer of the plaintiffs for issuance of injunction order in
respect of the annual general meeting cannot be entertained because their
contention prima facie is not acceptable that the enrolment has been without
the approval of the executive committee or in contravention of the provisions
of clause 12 of the articles of association of the DDCA. The defendants have
also explained prima facie the receipt of subscription with the membership fee
by pleading that this was the normal practice and that like call money for
shares this amount is always received with the application subject to
acceptance of the application for enrolment, otherwise it was liable to be
refunded. Even if it is felt, as defendant No. 3 agitated by writing letters to
defendant No. 2 in April, 1989, that this was an irregularity, then appropriate
course can be laid down in a future meeting of the executive committee and it
does not involve prima facie any question of non-compliance with any of the
rules or articles of association, which may justify interference by the court.
The
next contention assailing the validity of the annual general meeting that was called
on December 29, 1989, is to the effect that the meeting had been convened
without complying with the provisions of section 166 read with section 210 of
the Act as also section 173 thereof for the reason that the notice of the
meeting issued on December 8, 1989, is not accompanied by any statement of
accounts much less audited accounts and also that the agenda for the annual
general meeting as well as the president's report had never been placed for
approval before the executive committee. In so far as the allegation of the
agenda or the president's report having not been approved by the executive
committee is concerned, this is prima facie an unfounded allegation because the
minutes of the meeting passed on December 4, 1989, reveal that, vide item No.
5(a), a complete decision had been taken to hold the elections, the schedule
for which was also laid down and there is also approval of the agenda,
guidelines and the president's report as also note about the accounts. The
sweeping denial on the part of the plaintiffs and defendant No. 3 about any
such resolution having been passed cannot prima facie be accepted for the
reason that a part of this resolution in item, vide 5(b) reveals that Lt. Col.
M.S. Jaspal (Retd.), administrative in charge of DDCA, had been appointed
election officer to be assisted by certain other officials. This part of the
resolution the plaintiffs as well as defendant No. 3 are accepting without any
qualification and in fact the insistence is that there should have been no
change in respect of this part of the resolution. There are number of other
items considered and passed. The plaintiffs cannot be heard to disown a part of
the resolution and swear by the other part; besides the fact, as already
noticed, about the minutes book having been kept and maintained in the regular
course, and there being no prima facie indication of the minutes being not
genuinely recorded. I, therefore, find this allegation to be baseless, as it
has been shown by the defendants that the requisite resolution approving the
agenda for the annual general meeting as well as the President's report with
the explanatory note about the accounts and guidelines was duly approved, and
thus there has been no contravention of any of the provisions of the Act.
A
perusal of the notice dated December 8, 1989, also reveals that the agenda was
very clearly notified and a note about the accounts being not presented has
been appended containing the explanation that on account of a technical
objection having been raised against the auditors, M/s. V.P. Batra, appointed
for the current year in the last annual general meeting by the outgoing
auditors, M/s. R.C. Dass Mathur and Co., the accounts could not be audited. It
is also pleaded by the defendants that this matter had been brought to the
notice of the Institute of Chartered Accountants and it is also now on record
that the matter had been taken up with the Company Law Board.
There
is thus a prima facie satisfactory reason for the accounts being not placed
before this annual general meeting. This is a matter for which the annual
general meeting cannot be withheld because it is to be statutorily convened
within the calendar year, and in any case within 15 months of the last meeting
and the defendants are right in pleading that steps were taken accordingly to
convene the annual general meeting so that other business including the holding
of the annual elections can be transacted and the position as to the accounts
not being ready was fully explained.
Mr.
P.P. Malhotra appearing for the defendants rightly contended that not laying
the accounts before the annual general meeting within the statutory period
would not invalidate the meeting and, placing reliance on a Division Bench
judgment of the Calcutta High Court in M.D. Mundhra v. Assistant Registrar of
Companies [1980] 50 Comp Cas 346, pleaded that in case the accounts are not
ready to be laid before the annual general meeting, then the meeting could be
adjourned for this purpose. Mr. Malhotra further added that even the Company
Law Board circulars, copies of which the plaintiffs have placed on the file,
provides for such a contingency. The same view was expressed in an earlier
judgment of the Calcutta High Court, also of a Division Bench, in Sudhir Kumar
Seal v. Assistant Registrar of Companies [1979] 49 Comp Cas 462 (Cal).
The
judgment cited by Mr. Pankaj Kalra, namely Sheth Mohanlal Ganpatram v. Shri
Sayaji Jubilee Cotton and Jute Mills Co. Ltd. [1964] 34 Comp Cas 777 ; AIR 1965
Guj 96, to the effect that the provisions of section 173 of the Act were
mandatory, does not help in the present case because under the provisions of
section 170 of the Act, section 173 along with a bunch of other sections does
not apply to a company, as contemplated by section 25 of the Act. For the same
reason the challenge made to the validity of the annual general meeting for the
reason that individual members were not served with notice containing
information as to the candidates contesting elections for various offices or
for membership of the executive committee is not prima facie tenable because by
virtue of the exemption notification appended to section 25 of the Act, the
provisions of section 257 are not applicable to such a company. Mr. Kalra's
contention that that notification covers only companies where election is by
ballot is not prima facie sustainable for the reason that the relevant
expression used is not "by ballot alone" (emphasis supplied)
but only as "by ballot" and it thus cannot be argued at this stage
that this notification is confined only to companies where polling is by ballot
and would not cover companies where both the modes, namely, show of hands and
ballot, are provided.
Another
challenge made by the plaintiffs is in respect of the change of election
officer brought about, as per defendants, by resolution based on circular of
December 5, 1989, whereby Lt. Col. M.S. Jaspal (Retd.) and others were replaced
by Mr. M.S. Joshi, a retired judge of this court, to be assisted by Mr. R.D.
Verma, Deputy Registrar of this court. The only contention in this respect is
that the resolution purported to be by circulation was not in fact so, and thus
in contravention of the provisions of section 289 of the Act inasmuch as it was
never sent to the plaintiffs. The defendants have pleaded, on the other hand,
that this resolution was passed by a majority of the members and was duly
circulated.
Before
discussing further, I would first like to dispose of the contention of Mr. Kalra
that there is no specific plea of the impugned resolution having been
circulated to all the members particularly the plaintiffs because this plea is
very much there in paragraph 12 of the written statement filed to the plaint.
It is also to be noted that defendant No. 3 also admits to have sent this
resolution and so do the two patrons, Shri Subhash Chopra and K.C. Khanna, in
their affidavits which the plaintiffs have filed. It does not therefore seem
possible to accept the allegation of the plaintiffs that only they were
excluded particularly when there is a definite assertion in the written
statement that this resolution had been circulated to all concerned. That being
so, I take it prima facie that the resolution was validly passed. It is also
evident that the plaintiffs did not seem to have any grouse till the suit was
filed on December 23, 1989, and before that they had, pursuant to notice dated
December 8, 1989, participated in the entire electoral process by filing their
nomination papers before the same election officer for scrutiny and withdrawal
of nominations and plaintiff No. 1 as well as defendant No. 3 are still
candidates as per the final list prepared.
There
is not even an attempt at explanation as to how they came to appear before Mr.
M.S. Joshi as election officer, which conduct virtually amounts to their
acceptance of him. The only inference possible is that they were aware of this
resolution and it was passed after circulation to every member of the executive
committee. In the face of this prima facie finding, the contention of Mr. Kalra
that there could be no estoppel against statute does not retain any force
because the question here is not of any estoppel or of consideration of
acquiescence, but evidence by conduct. I, therefore, do not find on the face of
it any contravention of the provisions of section 289 of the Act and it has
thus to be taken that the change in election officer and his assistant was by
means of a resolution legally passed.
I
would like to dispose in passing of the contention raised by Mr. Kalra that the
plaintiffs have filed their affidavits and of certain other persons who swear
by the fact that the resolution had not been circulated to them, and express my
reservation about taking into consideration these affidavits. As observed by
the Supreme Court in the case of Needle Industries (India) Ltd. v. Needle
Industries Newey (India) Holdings Ltd. [1981] 51 Comp Cas 743 ; AIR 1981 SC
1298, it is generally unsatisfactory to record a finding involving grave
consequences to a person on the basis of affidavits and documents without
asking that person to submit to cross-examination and a total reliance on the
written word involves the risk that the person accused of wrongful conduct is
denied an opportunity to controvert the inference said to arise from the
documents or affidavits.
I
may also passingly deal with the contention in relation to the proxies. Apart
from the fact that there is no such challenge in the plaint, otherwise also I
have found from the report of the election officer, Mr. justice M.S. Joshi that the proxies were received by him on the given
dates and because of the suit having been filed and an interim order issued by
this court, these were kept by him in safe custody with Mr. R.D. Verma, Deputy
Registrar of this court after sealing the same. The fact therefore that forms
of proxies may have been issued before the election officer came into the
picture does not retain any significance because it is the proxies which had
been received and which are to be used during the election which matter and
these, as per report dated December 28, 1989, referred to above have been duly
received by the election officer and complete particulars of the invalidated
and/or rejected proxies are annexed as also the proxies which have been found
valid and it is specifically recorded that these had been "sealed by
me" (emphasis added),
that is, by Mr. M.S. Joshi himself. Consequently, prima facie, no suspicion can
be entertained in respect of their proper use at the time of election.
In this context, the
judgment cited by Mr. Kalra is A.C. Jose v. Sivan Pillai, AIR 1984 SC 921, does
not seem to have any bearing on the issue because it was not a case where the election
officer has taken any steps as not warranted by law, and his report shows that
he proceeded entirely in accordance with the provisions of the Act and the
articles of association.
In view of the foregoing
discussion, I do not find any case made out for interference of the court in
the matter of holding of the annual general meeting and conducting of its
business as per notice dated December 8, 1989. The election officer appointed
by means of resolution dated December 5, 1989, can also act as supervisor for
the purpose of the annual general meeting and transacting its business in
accordance with the agenda, including holding of elections as per schedule
already fixed. It has been held even in the case cited by Mr. Kalra, namely,
Nanalal Zaver v. Bombay Life Assurance Co. Ltd. [1950] 20 Comp Cas 179 ; AIR
1950 SC 172, that it is not within the province of the court to interfere with
matters concerning the affairs of the company, unless of course there was some
mala fide action. In view of the fact that no such mala fides are discernible,
in the present case, and whatever decisions are there, these have been found to
be prima facie those of the executive committee itself of which the plaintiffs
and defendant No. 3 were members and both the relevant meetings, namely, of
November 29, 1989, and December 4, 1989, were attended by three of the
plaintiffs and defendant No. 3, and the resolution dated December 5, 1989, had
also been passed as a fact after being duly circulated to all concerned.
The
application is, therefore, dismissed. No orders are required to be passed on
the other applications, namely I. As. Nos. 9488-89 of 1989, seeking preparation
of the inventory of the records of the DDCA and also seeking production of
these in court because, as already noted, these have already been produced and
perused by the court. All the applications are, therefore, dismissed. The
annual general meeting shall be now convened in furtherance of the process
already initiated, pursuant to notice dated December 8, 1989, under the
supervision and directions of Mr. M.S. Joshi, assisted by Mr. R.D. Verma as per
the resolution dated December 5, 1989. The Election Officer-cum-Supervisor
shall take all requisite steps, in accordance with provisions of the Act and
the articles of association of the DDCA.
All
the applications are disposed of in the above terms.
The main matter be listed for further proceedings on
May 21, 1990.
[1992]
73 COMP. CAS. 285 (KER)
HIGH COURT of KERALA
v.
Sreerama Vilas Press & Publications (P.) Ltd.
VARGIIESE
KALLIATH AND G.H. GUTTAL JJ.
SEPTEMBER
20, 1991
M. Ramanatha Pillai for the
appellant.
Varghese Kalliath J.—This is an appeal against the order of a learned single judge
of this court in Application No. 253 of 1990 in C.P. No. 28 of 1984. The said
application was filed under rule 9 of the Companies (Court) Rules, 1959, by a
shareholder of the company for an order declaring the election of directors and
managing director of the company (Sreerama Vilas Press and Publications (P.)
Ltd., Quilon) held on March 10, 1990, as illegal, void and inoperative.
These are the facts : The
applicant is a shareholder of the company. There was a winding up order by the
company on November 4, 1976. Subsequently, the company court approved a scheme
for revival of the company. As a consequence of that order, the board of
directors as on the date of the winding up petition was revived. A general body
meeting of the company was held on April 19, 1985, and a new board of directors
was elected. On February 25, 1986, another general body meeting was held
wherein a resolution was passed removing one of the directors, N. Madhavan
Nair, who was the managing director of the company. Madhavan Nair filed
Application No. 63 of 1986 before the company 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. The company court passed
an order of interim stay on March 3, 1986.
When the petitions came up
for hearing, the period of appointment of the managing director and the board
of directors of the company had expired. The company court did not consider the
question on merits, but directed a fresh election to the board of directors and
managing director. In order to enable a proper election, the company 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
meeting held under the directions of the company court elected the board of
directors and N. Madhavan Nair was also elected as the managing director.
A misfeasance application
was filed against N. Madhavan Nair. The company court directed N. Madhavan Nair
to pay to the company a total amount of Rs. 44,550. Madhavan Nair has filed
M.F.A. No. 174 of 1989. A cross-appeal also was filed. Both are now pending.
Two
of the shareholders of the company made a requisition to the board of directors,
under section 169 of the Companies Act on December 31, 1988, requesting it to
convene an extraordinary general body meeting of the company. The managing
director did not convene any meeting. Another director of the company filed a
suit, O.S. No. 34 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's 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 five
directors. Before the company court, a report was filed. Another application
was also moved before the company court to allow the newly elected board of
directors to function. When the matter came up before the company court, it
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 agreed that for the time being he will meet the expenses of the
meeting. The company court, as per order dated October 30, 1989, appointed Shri
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. 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 the company court.
The
meeting was held on March 10, 1990. Out of the shareholders of the company, six
were present and three by proxy attended the general body meeting. Those nine
members together held 2,630 shares out of 4,689 shares held by the total number
of members, viz., 15. Ordinarily, there were 17 members of whom two persons had
died. The present strength of members is 15. In the meeting held under the
directions of the company court, a board of directors and managing director
were elected. The Commissioner filed a report on March 22, 1990. The present
Application No. 253 of 1990 was filed challenging the election and its
proceedings. 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 the present application (Application No. 253 of 1990). The company
court dismissed the application for stay. An appeal was filed as M.F.A. No. 322
of 1990, which was dismissed on June 18, 1990, with certain directions.
The
company court has now dismissed Application No. 253 of 1990. The applicant is
aggrieved and she has filed this appeal.
Counsel
for the appellant raised certain points before us which he has raised in the
petition and before the company court. He submitted that the notice convening
the meeting by the chairman appointed by the company court is defective, since
an explanation as contemplated under section 173(2) of the Companies Act was
not annexed to the notice. Further, it was submitted that the notice is
defective since, along with the notice, the names of candidates for elections
were not furnished. It was also contended that individual notices to the
members of the company regarding the candidature of a person were not sent and
that it is a violation of section 257(1A) of the Companies Act. Counsel
submitted that the appointment of Commissioner and direction to convene an
extraordinary general body meeting of the company itself are without
jurisdiction. The above contentions were raised before the company court also.
The company court found no merit in those contentions and negatived those
contentions. Counsel argued the case elaborately. We are obliged to consider the
points raised by counsel, since he pressed all the points with equal emphasis.
The
first question we have to consider is whether the notice is defective on
account of lack of explanatory statement under section 173(2) of the Companies
Act. Section 173(2) of the Companies Act provides thus :—
"173.
Explanatory statement to be annexed to notice.— ... (2) Where any items of
business to be transacted at the meeting are deemed to be special as aforesaid,
there shall be annexed to the notice of the meeting a statement setting out all
material facts concerning each such item of business, including in particular
the nature of the concern or interest, if any, therein, of every director, and
the manager, if any".
It
has to be remembered that the chairman appointed by the company court was
seeking directions in the matter of conducting the meeting. The company court
gave certain directions for the proper conduct of the meeting. The former
managing director, Sri N. Madhavan Nair, filed Application No. 187 of 1990 to stop
the convening of the meeting on the ground that the notice is not in conformity
with sections 171, 173 and 257(1A) of the Companies Act. The company court
overruled the objections, found the notice in order and dismissed the
application of the former managing director. He filed an appeal, M.F.A. No. 333
of 1990. The appeal 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. So even though the company court has found that
the notice sent by the chairman appointed by the company court was not
defective, that matter was left open to be considered by the company court at
the final stage of the main application, viz., Application No. 253 of 1990. But
it has to be noted that the meeting was held as early as on March 10, 1990, and
the period of appointment of the board of directors and managing director of
the company has expired by efflux of time and an election to a new board of
directors and managing director became necessary.
Nevertheless,
we feel that we are bound to consider the correctness of the judgment
challenged in this appeal. The company court, in its order, has extracted in
full the notice issued by the chairman appointed by the company court and we do
not want to repeat it in this judgment. The purpose for which the meeting is
held is clearly stated in the notice. The purpose is for conducting an election
to the board of directors and managing director of the company. There is no
difficulty to hold that the notice was issued following the provisions
contained in the articles of association and no argument was advanced by
counsel for the appellant stating that the notice is defective on account of
the fact that it has not complied with the provisions contained in the articles
of association.
The
gravamen of the charge against the notice is that it has not complied with the
provisions contained in section 173 of the Companies Act. The articles of
association provide for the nature of the notice to be sent to the effect that
what has to be done is to inform the members of the company of the general
nature of the business to be transacted at the meeting. The learned single
judge observed that since there is a specific provision in the articles of
association regarding the notice of a general meeting where special business is
to be transacted, section 173 of the Companies Act may not apply to the present
case. Further, the company court said that the notice issued contains all
material facts concerning the business that was to be transacted in the
meeting, viz., election of managing director and directors and that the order
to convene the meeting was passed after hearing all parties and the notice
itself was approved by the company court. It was also pointed out that the
meeting was convened by the chairman appointed by the company court and not
exactly by the company. The intent and purpose of section 173 of the Companies
Act is to give directions to the shareholders in the matter of holding a
meeting by the management.
In Sitaram Jaipuria v.
Banwarilal Jaipuria, AIR 1972 Cal 105, the Calcutta High Court has held that the
provisions like section 173(2) of the Companies Act should not be construed in
a rigid manner and an interpretation should not be made so as to hamper the
conduct of business. The notice has to be construed in a realistic and businesslike manner and if it
satisfied the essence of section 173 of the Companies Act, the meeting should
not be invalidated on the technical ground that the notice has not complied
with the provisions of section 173(2) of the Companies Act. The intention
behind the provisions contained in section 173 of the Companies Act has to be
understood in a meaningful manner. Of course, if a transaction of business has
not been sufficiently notified or which is substantially different from the
notification, it would be invalid. Beyond that on technicalities the meeting
should not be invalidated. It is clear from the notice that the transaction of
business to be carried out in the meeting is the election of the board of
directors and managing director. That was the only transaction scheduled in the
meeting and for which alone the meeting was called.
The
notice was found to be valid by the company court. All proceedings for the
conduct of the election were supervised by the company court and the parties
had opportunities before the company court to raise points against the validity
of the notice. Even before the holding of the meeting, the company court has
considered it and found it to be valid. It is also necessary to note that
neither the notice nor the explanatory note omits to disclose material facts
pertaining to the transaction to be carried out in the meeting. The decision
taken in respect of that transaction would be invalid and ineffective (sic).
But if a shareholder is aware of the facts, he cannot reasonably complain of
insufficiency of the notice or any irregularity. If he is present at the
meeting, he must point out to the chairman about the irregularity before the
meeting proceeds with the agenda. There is no case for the petitioner, who is
the appellant herein that she has raised any objection in the meeting itself.
The
provisions contained in section 173 of the Companies Act making some
requirements for a valid notice is to enable the members to understand and
appreciate the nature of the business or items of business proposed to be
considered at the meeting and make up their mind whether to go to and attend
and vote at the meeting or abstain from voting (see Pearce, Duff and Co. Ltd.,
In re [1960] 3 All ER 222 (Ch D)). We feel that the requirement of section 173
of the Companies Act is that the members of the company should be informed
truly of the nature of business to be transacted at the general meeting. Too
rigid an interpretation would not advance the object of the provision which
will only hamper the conduct of business.
In
this case, it has to be noted that the meeting was called by the chairman
appointed by the company court and all proceedings were subjected to scrutiny
and directions of the company court. No one can attribute any mala fide motive
on the part of the chairman to cover up or to mislead the members as to the
object and purpose of the meeting. In our view, the learned single judge has rightly rejected the
contention of the appellant based on section 173(2) of the Companies Act.
Counsel
for the appellant submitted before us that the provision contained in section
257(1A) of the Companies Act has not been complied with. It is contended that
section 257(1A) of the Companies Act mandates the company to inform its members
of the names of the persons who proposed to stand for election to the board of
directors. In order to understand this submission of counsel for the appellant,
we feel that it is apposite to quote section 257 of the Companies Act.
"257. Right of persons
other than retiring directors to stand for directorship.—(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, along
with a deposit of five hundred rupees which shall be refunded to such person
or, as the case be, to such member, if the person succeeds in getting elected
as a director.
(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".
His
Lordship Justice John Mathew considered this question very elaborately and
found that sub-section (1A) of section 257 of the Companies Act has no
application in regard to a private company and the company in this case is a
private company. Sub-section (1A) of section 257 is really interlinked with
sub-section (1) of section 257 of the Companies Act. It has to be noted that in
sub-section (1) of section 257 of the Companies Act the statute provides that
"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". It is significant to note that it is a provision intended for
controlling the procedure for the election of a director at the general
meeting. It was found that sub-section (1) of section 257 of the Companies Act
was not complete and so sub-section (1A) of section 257 was introduced by an
amendment. The integrant of sub-section (1) of section 257 of the Companies Act
if analysed, can be read as follows : (1) a person who is not a retiring
director shall, subject to the provisions of the Companies Act, be eligible for
appointment to the office of director, (2) it can be done in a general meeting,
(3) for appointment as a director that person or some member intending to
propose him should have 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 not less
than 14 days before the meeting, and (4) the notice should accompany a deposit
of Rs. 500 which shall be refunded to such person or, as the case may be, to
such member, if the person succeeds in getting elected as a director. What has
to be done with the notice under sub-section (1) has been provided for in the
provisions contained in sub-section (1A) of section 257 of the Companies Act.
So as an adjunct or part of sub-section (1), an amendment was introduced as
sub-section (1A) of section 257 of the Companies Act wherein it is mandated
that when such a notice is received, the company is bound to 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 the office of a director by
serving individual notices on the members not less than seven days before the
meeting. So, in effect, both sub-section (1) and sub-section (1A) of section
257 of the Companies Act together postulate a procedure with regard to the election
to the office of director of a company. It is significant to note that the
company shall inform its members about the candidature of a person for the
office of director or the intention of a member to propose a person as a
candidate. Both these are referred to only in subsection (1A) of section 257 of
the Companies Act. Only in sub-section (1) the procedure is prescribed by which
14 days' notice has to be given signifying by a member his intention to stand
as a candidate for the office of director or any other member who wants to
propose a member as a candidate for the office of director. Sub-section (1A)
can have any meaning only if we read subsection (1A) along with sub-section (1)
of section 257 of. the Companies Act. Otherwise, sub-section (1A) will be
incomprehensible. Sub-section (1A) cannot be separated from sub-section (1) of section 257 of the
Companies Act. It is on account of this intimate relationship with sub-section
(1) that the provisions contained in sub-section (1A) of section 257 of the
Companies Act have been termed as section (1A).
Sub-section
(2) of section 257 of the Companies Act makes it clear that sub-section (1)
shall not apply to a private company unless it is a subsidiary of a public
company. There is no point in saying that sub-section (1) is not applicable by
virtue of the provisions contained in sub-section (2) of section 257 of the
Companies Act as far as this company is concerned, but nevertheless,
sub-section (1A) of section 257 of the Companies Act is applicable to this private
company. If such a construction is adopted, it will lead to manifest absurdity.
The learned judge also found so. We see no error in this interpretation of the
provision. In view of this, we see no merit in the second ground urged by
counsel for the appellant.
Counsel
for the appellant next contended that the court has no jurisdiction to convene
an extraordinary general meeting of the company. This contention was raised on
the basis of section 186 of the Companies Act. 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. We also share with the opinion
expressed by the learned single judge that 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 not taken away by the said amendment.
In Dineker Rai D. Desai v. R.P. Bhasin [1986] 60 Comp. Cas. 14 (
In
this case, yet another important fact has to be taken into account. The meeting
itself was convened at the behest of the court, since the company was in the
process of implementing a scheme sanctioned under section 392(1) of the
Companies Act under the direct supervision of the court. In Indian Hardware
Industries Ltd. v. S.K. Gupta [1981] 51 Comp. Cas. 51 (Delhi), it has been held
that under section 392 of the Companies Act, the court has the power to
supervise the carrying out of the revival scheme and also 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 of
the Companies Act is not in any way affected or circumscribed by section 186 of
the Companies Act. We are of the view that the point raised on the basis of
section 186 of the Companies Act has no merit in the circumstances of the case.
The learned judge has also found so.
We cannot forget the fact
that the meeting was convened overruling the objection, which was subject to an
appeal and that appeal was also dismissed and now, as it is, the period of the
board of directors has expired by efflux of time. Section 392 of the Companies
Act empowers the court sanctioning a scheme to supervise the implementation of
that scheme and to give such direction in regard to any matter or to make such
modifications, compromises or arrangements as it may consider necessary for the
proper working of the revival scheme. It is difficult to read any limitation in
that power 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 appoint a board of directors of the
company. The width and scope of the power under section 392 of the Companies
Act is no longer in doubt. Section 392(1) of the Companies Act confers power of
the widest amplitude on the High Court to give directions and if necessary to
modify the scheme and that power implies in itself all incidental powers like
convening a meeting of the members to elect directors. In S.K. Gupta v. K.P.
Jain [1979] 49 Comp. Cas. 342, the Supreme Court has observed thus (at page 35)
:
"The purpose
underlying section 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 section 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 history of the amendment also
fortifies the view we have taken. The amendments were brought on the
recommendation of the Administrative Reforms Commission. It recommended 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 also recommended that there was a case for relieving the courts
of items of merely administrative nature. These can be transferred to the
Company Law Board and as a result of that, a new section, section 186 of the
Companies Act was introduced. 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 by a member. 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 be held in order to appoint the directors of
the company. It would be quite anomalous to hold 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.
The
court cannot ignore this vital aspect and adopt a course which might be
inconsistent with the provisions of the section. We cannot think 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. There
is nothing in section 186 which ousts the jurisdiction of the court by
expressly or impliedly saying that the company court which is supervising the
scheme under section 392 of the Companies Act cannot call a meeting of the
company, if it feels that such a course is necessary to do justice in the matter
and to make the scheme effective. We cannot accept an interpretation which puts
the court in the position of a supplicant before the Company Law Board. It will
be against the widest amplitude given to the power under section 392(1) of the
Companies Act as interpreted by the Supreme Court.
In
the result, we see no merit in this appeal and the appeal is only to be
dismissed. We do so.
[2001] 30 SCL 246 (Mad.)
HIGH COURT OF
Oriental
Benefit and Deposit Society Ltd.
v.
Bharat Kumar K. Shah
Srinivasan
and Abdul Hadi, JJ.
O.S.
Appeal No. 327 of 1995 and O.A. No. 1011 of 1995
in C.S. No. 1419 of 1995
Section 257 of the Companies Act, 1956 -
Directors - Right of persons other than retiring directors to stand for directorship
- Respondent obtained an injunction from Single Judge restraining
appellant-company from holding its annual general meeting as scheduled - Judge,
however, made it clear that appellant was at liberty to hold annual general
meeting on any future date after rectifying defects pointed out both in respect
of rejection of nomination of respondent and in notifying ‘special business’ in
item No. 7 in respect of confirmation of co-option of ‘D’ as a director -
Whether view expressed by Judge that entire meeting should not be permitted to
go on and that injunction should be granted with reference to entire meeting
and not in respect of a part thereof, could be considered as an abstract
proposition of law applicable to all cases arising under Act with reference to
AGM - Held, no - Whether Judge had only expressed a view with reference to
facts of instant case, and it would be unjustified to treat it as a precedent
in other matters - Held, yes - Whether the question of rejection of nomination
being mala fides, can be decided in absence of evidence - Held, no - Whether
since section 257 does not say that tender of nomination should be before a
particular time on last day, rejection of nomination on ground that deposit was
tendered one minute later than 3.30 p.m., i.e., office hours for cash
transactions, would be erroneous inasmuch as it contravened provisions of
section 257 - Held, yes
The respondent, in a suit, contended that his nomination
for election as a director in the annual general meeting to be held on
30-9-1995 was rejected illegally on account of mala fides on the part of the
appellant-company; and that the company was not entitled to transact the
subject in item 7 of the AGM notice, regarding confirmation of co-option of ‘D’
as director and that the appellant should be restrained from holding its AGM on
30-9-1995 or any other day unless and until his candidature for election to the
post of director was accepted. The respondent also sought interim injunction in
this regard. The appellant-company contested the application on several
grounds, contending mainly that there was neither illegality nor mala fides in
the rejection of the nomination inasmuch as the nomination was itself tendered
only at 3.31 p.m. on 14-9-1996, and without being accompanied by a deposit of
Rs. 500.
The court granted the injunction, with the
stipulation that the appellant was at liberty to hold the AGM on any future
date after rectifying the defects both in respect of the rejection of the
nomination of the respondent and in notifying ‘special business’ in item 7 and
after giving due notice as per the provisions of the Act.
On appeal :
The view expressed by the Single Judge that
the injunction had to be granted with reference to the entire meeting of the
annual general body and not in respect of a part thereof since there cannot be
two AGMs, could not be considered as an abstract proposition of law applicable
to all cases. It is a question which has to necessarily depends upon the facts
of each case, and the court has to decide whether the entire meeting has to be
stopped or only a part thereof as per the notice of the meeting. The view
expressed by the Single Judge would not amount to a general proposition of law
in the abstract. He had only expressed a view with reference to the facts in
this case and it could not be treated as a precedent in other matters.
As to the second contention that the Single
Judge was in error in characterising the rejection of the nomination as illegal
and mala fide, insofar as mala fides
were concerned, it could not be decided without any evidence in that regard.
But insofar as illegality was concerned, prima facie the materials on record
would show that the rejection of the nomination was not in accordance with the
provisions of the Act. The endorsement on the nomination by an official of the
company itself showed that the rejection was on the ground that the money was
not paid in time. The endorsement was not to the effect that the nomination
form did not accompany the deposit. If no money was tendered, the endorsement
would have been to the effect that deposit amount did not accompany the
nomination. In such circumstances, even on the face of the nomination form produced
by the appellant, the reason for rejection was that the tender was not in time.
Section 257 does not prescribe any hour as
time-limit on a particular date. The Single Judge had held that the rejection
of the deposit on the ground that it was tendered one minute later than 3.30
p.m. was erroneous, as that time-limit was not applicable to the same. The
Judge was right in holding so, inasmuch as it contravened the provisions under
section 257.
The last contention of the appellant that the
order of the Judge, read as if the respondent was to be treated as a candidate
automatically, was not acceptable as no such view had been expressed by the
Judge. The Judge had only given liberty to the appellant to hold the AGM after
rectifying the defects pointed out by him in the order. In fact, the respondent
submitted that he was bound to comply with the provisions of section 257, if he
wanted to submit himself as candidate in the election to be held. Though the
Judge had not said so, in his order, the decretal order drafted by the office
read as if the candidature of the respondent should be included in the meeting
to be held hereafter irrespective of his complying with section 257. This
clause of the order was likely to be understood by any person as to permit the respondent
to submit himself as a candidate even without complying with section 257. Hence
the said clause was to be deleted and substituted by a clause restraining the
appellant from holding its AGM on 30-9-1995 or any other date, unless and until
the defects pointed out in the Judge’s order were rectified. The respondent
should also comply with the provisions of section 257, if he wanted to submit
himself as a candidate for the election. The appeal was, accordingly,
dismissed.
T.K. Seshadri for the Appellant. K. Nagarajan for
the Respondent.
Srinivasan, J. - The defendant in the suit is the appellant.
The grievance of the respondent is that his nomination for election as a
director in the annual general body meeting to be held on 30-9-1995, was rejected
illegally on account of mala fides on the part of the appellant-company. The
respondent sought for a declaration that the said rejection is illegal and
mala fide. The respondent has also prayed for a declaration that the company is
not entitled to transact the subject mentioned as item 7 in the notice for the
annual general body meeting. The said item is to confirm the co-option of Sri
K. Divakar as director in the vacancy caused by the death of K. Kumarasami,
ex-director and Legal Advisor. Items 7 and 8 are shown under the caption
‘special business’. According to the respondent, the subject cannot be
discussed in the annual general body meeting without complying with the
provisions of article 34 of the articles of association of the company. The third
prayer in the suit is for injunction restraining the appellant from holding its
annual general body meeting on 30-9-1995, or any other day unless and until the
candidature of the plaintiff for election to the post of director is accepted.
2. The respondent
filed O.A. No. 1011 of 1995 praying for interim injunction restraining the
appellant from holding the annual general body meeting on 30-9-1995, or any
other date unless and until the respondent’s candidature for election was
included in the meeting and after deleting item No. 7 mentioned in the notice
for the meeting. The application was contested by the appellant on several
grounds. In short, the appellant contended that there was neither illegality
nor mala fides in the rejection of the nomination. It is submitted that the
nomination was itself tendered only at 3.31 p.m. on 14-9-1996, practically at
the last moment and without being accompanied by a deposit of Rs. 500. It is
his further contention that the suit itself was not maintainable.
3. The learned
Judge has granted the injunction as prayed for by the respondent. However, he
made it clear that the appellant is at liberty to hold the annual general body
meeting on any other future date, after rectifying the defects pointed out both
in respect of the rejection of the nomination of the respondent and in
notifying ‘special business’ in item No. 7, after giving due notice as per the
provisions of the Companies Act. Aggrieved by the said order, the appellant has
preferred this appeal.
The learned counsel for the appellant fairly
stated that the date fixed for the annual general body meeting having already
passed, several of the contentions, which he wanted to urge, have become
academic and it is not necessary for this court to consider the same. However,
he stressed three of the contentions for our consideration.
4. The first is,
that the view expressed by the learned Single Judge that the entire meeting
should not be permitted to go on, there cannot be two annual general body
meetings and if an injunction is granted, it should be with reference to the
entire meeting and not in respect of a part thereof. The learned counsel
submitted that if it is taken as a decision on the proposition of law, it will
cause undue hardship and even bring about havoc in the matter of administration
of companies. It is submitted by him that it is open to the general body to
consider a part of the business as per the notice, even if the general body is
prevented by an order of the court from considering the remaining part. It is
pointed out by him that in the notice, eight items are mentioned out of which,
only four became the subject of matter the suit. It is submitted by him that
the general body could have been and should have been permitted to carry on the
other part of the business as per the notice.
5. The learned
counsel for the respondent submits that it is a matter to be argued in detail,
though it may be said in general that a meeting can be held to consider a part
of the business as per the notice; but according to him, it has to be
considered in each case and decided with reference to the facts of that case.
In our opinion, it is not necessary for us to give a decision on that question,
as it has become academic at this stage. However, we wish to point out that the
view expressed by the learned judge cannot be considered as an abstract
proposition of law applicable to all cases arising under the Companies Act with
reference to the annual general body meeting. It is a question which has to
necessarily depend upon the facts of each case and the court has to decide
whether the entire meeting has to be stopped or only a part thereof as per the
notice of the meeting. We are unable to agree with learned counsel for the
appellant that the view expressed by the learned judge would amount to a
general proposition of law in the abstract. We do not understand the view expressed
by the learned judge in that manner. In our opinion, he has only expressed
a view with reference to the facts in
this case and it cannot be treated as a precedent in other matters.
6. The second
condition of the learned counsel is that the learned judge is in error in
characterising the rejection of the nomination as illegal and mala fide. It is
submitted by him that the contention of the respondent is disputed by the
appellant and without any evidence on record, it cannot be held that the action
of the appellant is illegal and mala fide. Insofar as mala fides are concerned,
we agree with the argument of learned counsel for the appellant that it cannot
be decided without any evidence in that regard. But insofar as illegality is
concerned, prima facie the materials on record would show that the rejection of
the nomination is not in accordance with the provisions of the Act. A xerox
copy of the nomination given by the respondent has been produced before us. It
is at page 101 of the typed set of papers. It contains the rubber stamp seal of
the company and an endorsement by an official of the company, which shows that
the nomination was received at 3.31 p.m. on 14-9-1995. The endorsement reads
as follows :
“Without paying fees for Rs. 500 in time.”
Below that, the initials of the official and
below that the date and time are mentioned. The endorsement itself shows that
the rejection is on the ground that the money was not paid in time. The
endorsement is not to the effect that the nomination form did not accompany the
deposit. If no money was tendered, the endorsement would have been to the
effect that (deposit amount did not accompany the nomination). In such
circumstances, even on the face of the nomination form produced by the
appellant, it is seen that the reason for rejection is that the tender was not
in time.
7. Section 257(1) of the
Companies Act, 1956, read as follows :
“257. Right of persons other than retiring
directors to stand for directorship.—(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 14 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, along
with a deposit of five hundred rupees which shall be refunded to such person,
or, as the case may be, to such member, if the person succeeds in getting
elected as a director.”
8. The section
does not prescribe any hour as time-limit on a particular date. According to
the section, the nomination should be filed not less than 14 days before the
meeting. Apart from that, the section does not say that such tender of
nomination should be before a particular time on the last day. We are not
informed by counsel for the appellant that there is any article in the articles
of association prescribing such time-limit. What has been contended by learned
counsel is that there is a rule to the effect that the office hours of the
company are 9 a.m. to 1 p.m. and 2 p.m. to 4.30 p.m. and that no cash
transaction will be held after 3.30 p.m. on a working day and 2.30 p.m. on
Sundays. It was contended before the learned judge that the time specified in
the said rule relates only to cash transactions between the company, on the one
hand, and the shareholders or any other person, on the other. According to the
respondent, the said time-limit is not for filing nomination by a candidate and
tendering application fees along with the nomination form. That contention has
been accepted by the learned judge and he has held that the rejection of the
deposit on the ground that it was tendered one minute later than 3.30 p.m. was
erroneous, as that time-limit was not applicable to the same. The learned judge
was right in holding so, inasmuch as it contravenes the provisions under
section 257.
9. The last
contention put forward by the learned counsel for the appellant is that in the
meeting to be held hereafter, on a fresh notice, the respondent has to comply
with the provisions of section 257. According to the learned counsel, the order
of the learned judge reads as if that the respondent is to be treated as a
candidate automatically, because of what has happened already. We are unable to
accept this contention, as no such view has been expressed by the learned
judge. The learned judge has only given liberty to the appellant to hold the
annual general meeting after rectifying the defects, pointed out by him in the
order. In fact, learned counsel for the respondent submits that the respondent
is bound to comply with the provisions of section 257, if he wants to submit
himself as a candidate in the election to be held hereafter.
10. Though the
learned judge has not said so, in his order, the decretal order drafted by the
office reads as if the candidature of the respondent should be included in the
meeting to be held hereafter irrespective of his complying with section 257.
Clause (1) of the decretal order reads as follows :
“(1) That the Oriental Benefit and Deposit Society Limited,
the respondent herein, its agents, servants and representatives be and are
hereby restrained by an injunction until further orders of this court from
holding its annual general body meeting on September 30, 1995, or on any other
day unless and until the plaintiff/applicant’s candidature for election to the
post of director of the said defendant is included in the said meeting after
deleting item No. 7 mentioned in the notice of the said company for its annual general
body meeting proposed to be held on September 30, 1995.”
The learned counsel for the appellant is right
in submitting that this clause is likely to be understood by any person as to
permit the respondent to submit himself as a candidate even without complying
with section 257. We agree with him and in fact, we find that the said clause
is wrongly drafted by the Registry. Hence, we delete the said clause and
instead, substitute the same by a clause restraining the appellant from holding
its annual general body meeting on 30-9-1995, or any other date, unless and
until the defects pointed out in the order of the learned judge, are rectified.
11. It is made clear
that the respondent shall also comply with the provisions of section 257 if he
wants to submit himself as a candidate for the election.
12. With the above observations, the O.S. appeal is dismissed. There will
be no order as to costs.
[1990]
69 COMP. CAS. 256 (KER)
HIGH COURT OF KERALA
v.
Cochin Stock Exchange Ltd.
K.T. THOMAS AND L. MANOHARAN J.
JANUARY 12, 1990
Joseph Vellappally for the Respondents.
Thomas,
J. —Cochin Stock
Exchange Ltd. is a company incorporated under the Companies Act, 1956 (for
short "the Act"). The appellant who claims himself to be a
shareholder of the said company filed a petition before the original
jurisdiction of this court (company court) purportedly under section 257 of the
Act praying for a direction to the company to circulate exhibit P-2 notice
among its members. The learned single judge, after finding that the petition is
not maintainable in the company court, dismissed the same as per the judgment
which is challenged in this appeal. According to the learned single judge, the
company court has no jurisdiction to grant the relief on the petition filed by
the appellant
Sri
Joseph Vellappally, advocate, who took notice on behalf of the first
respondent-company, raised a preliminary objection regarding the
maintainability of this appeal under section 5 of the Kerala High Court Act,
1958. An appeal shall lie to a Bench of two judges from "a judgment or
order of a single judge in the exercise of original jurisdiction". Learned
counsel contends that, as the order has sprouted from a finding that the
learned single judge has no jurisdiction, it must be deemed that the order was
not in exercise of original jurisdiction. The question of jurisdiction is also
a matter for the court, before which it is raised, to decide. If the court
decides that question in the negative, the decision is in exercise of its
jurisdiction. Hence, we hold that the appeal cannot be dismissed as not
maintainable on that ground.
The
appellant contended that the learned single judge has erred in holding that the
petition filed before the company court cannot be entertained by the said
court, since section 10 of the Act confers exclusive jurisdiction on the High
Court to deal with all matters arising under the Act.
Exhibit
P-2 is a letter sent by the appellant to the assistant secretary of the company
giving notice of his intention to move a resolution proposing himself as a
candidate for the ensuing election to the council of management of the company.
His grievance is that the said letter which is in the form of a nomination has
not been circulated, as required under the articles or memorandum of the
company. Assuming that the appellant has forwarded the original of exhibit P-2
letter to the assistant secretary of the company, what we have now to decide is
whether the company court can be moved for a direction to circulate the said
letter to the other members of the company as well.
Section
257 of the Act enables a person (who is not a retiring director) to be eligible
for appointment to the office of director at any general meeting, if he has
left, at the office of the company, a notice in writing, under his hand,
signifying his candidature for the office of director, not less than fourteen
days before the meeting. The appellant contends that, if the letter is not
circulated, he is entitled to compel the company to do so through the company
court. Section 2(11) of the Act defines "the court" with respect to
any matter relating to a company (other than any offence against the Act) as
the court having jurisdiction under the Act with respect to that matter
relating to that company, as provided in section 10. Evidently, a definition
clause is not intended to confer jurisdiction on any particular court. The
definition only gives the meaning for the word "court" wherever it
appears in the' statute. Section 10(1) says that the court having jurisdiction
under this Act shall be the High Court except to the extent to which
jurisdiction has been conferred on any district court and, in cases where
jurisdiction has been conferred on the district court, the court having
jurisdiction under the Act shall be the district court in regard to matters
falling within the scope of the jurisdiction so conferred. The expression
"the court having jurisdiction" cannot be construed as one conferring
jurisdiction on a particular court in regard to all matters referred to in the
Act. It is only to be understood that, whenever the Act requires a court to
exercise jurisdiction on any specified matter, such jurisdiction has to be
exercised by the court referred to in section 10. In the rules framed by the
Supreme Court under the Act in consultation with the High Court, provisions
have been made for filing applications in the form of petitions or judge's
summons. Rule 10 says that, unless otherwise provided by the rules or permitted
by the judge, "all applications under the Act shall be made by a petition
or by a judge's summons". Rule 11(a) enumerates the provisions of the Act
under which applications could be filed and rule 11(b) says that all other applications
shall be made by judge's summons returnable to the judge sitting in court or in
chambers.
No
provision in the Act has been brought to our notice as specifying expressly or
impliedly that an application to compel a company to comply with the
requirements in section 257 will lie in the company court. The Act specifies
certain questions or disputes to be resolved by the Central Government, certain
others by the Company Law Board and certain matters to be dealt with by the
company court. Only such matters as are specified in the Act or in the rules to
be dealt with by the court could the company court deal with. The jurisdiction
of the ordinary civil court can be regarded as impliedly barred in respect of
those matters specified in the Act to be dealt with by the court. It cannot be
held that the jurisdiction of the civil court in respect of all other matters
relating to a company is barred. The corollary is that, unless a particular
matter is specified in the Act to be dealt with by the company court, it cannot
exercise jurisdiction merely because it is also a matter which relates to a
company.
A
Division Bench of this court has held in Star Tile Works v.
"Whether
for vindicating corporate rights or personal, whether representative or
individual, the 'action' cannot be confused with initiation of proceedings
before the company court in all matters. Except in cases where the Companies
Act, 1956, confers jurisdiction on the company court or some other authority
like the Central Government or the Company Law Board, either expressly or by
implication, all other disputes pertaining to a company are to be resolved
through the forum of civil courts when the disputes are capable of being
resolved by them".
The
learned judge also observed that it is difficult to construe the definition
clause under section 2(11) or even section 10 as one conferring jurisdiction
exclusively or otherwise. Section 10 of the Act does not purport to invest the
company court with jurisdiction over every matter arising under the Act. Where
a wrong is done by an individual member, he could insist by recourse to a civil
suit. In the said case, an application was filed before the company court for
compelling the company to hold the annual general meeting, since section 166 of
the Act imposes such a duty on the company. It was held that such an
application is not maintainable in the company court as the Act does not
specify a matter of that nature to be dealt with by the company court.
The
appellant, during his arguments, referred us to a very early decision of the
Allahabad High Court in British India Corporation Ltd. v. Robert Menzies [1936]
6 Comp Cas 250 ; AIR 1936 All 568, wherein it was held that a company judge has
jurisdiction to enforce compliance with the provisions of the Companies Act,
though such power is not expressly conferred on the judge by the provisions of
the Act. The said view was taken in consideration of the rules made by the
Allahabad High Court under the Companies Act which was in force then. By
reference to clause (2) of the said rules, their Lordships observed that (at
page 258) :
"We
take this rule to indicate that, ordinarily, proceedings for the enforcement of
the provisions of the Companies Act are to be initiated by petitions presented
to the court having jurisdiction under the Act".
Reference
was also made to the decision of a Division Bench of the Madhya Pradesh High Court
in Nava Samaj Ltd. v. Civil Judge, AIR 1966 MP 286. The argument raised in the
said case was that the civil court has concurrent jurisdiction on matters
specified in the Companies Act to be dealt with by the company court. The
Division Bench held that the jurisdiction of the civil court must be deemed to
have been excluded by necessary implication on the principle embodied in
section 9 of the Code of Civil Procedure. The reliefs sought for in the said
suit were such as could be obtained by filing a petition under section 398 of
the Act and hence it was found that the civil court has no concurrent
jurisdiction. The said decision is no authority in support of the contention
that, for any matter referred to in the Companies Act, an application can be entertained
by the company court.
We,
therefore, conclude that the learned single judge has rightly found that the
petition cannot be entertained by the company court. Accordingly, we dismiss
this appeal.