SECTION 164
Registers
to be evidence
[1986] 60 COMP. CAS. 65
(ORI)
HIGH COURT OF ORISSA
v.
Orient Engineering Works P. Ltd.
P.
C. MISRA J.
COMPANY ACT CASE NO. 4 OF 1984
MARCH
1, 1985
Asok Mohanty, Bimal Pr. Das and Sashi Das for the petitioner.
Jagannath
Das, I. C. Das, R. Ch. Mohanty and R. K. Mohanty for the Respondent.
P. C. Misra J.—This is an application under sections 237, 397, 398 read
with section 402 of the Companies Act of 1956 (for short, hereafter "the
Act"), praying for appointment of a special officer or administrator to
take custody of the books, papers, documents and assets of M/s. Orient
Engineering Works (P.) Ltd. (hereafter called "the company") and also
to take over the affairs and management of the company. A further prayer has
also been made for directing an investigation to be made into the dealings of
the funds, assets and affairs of the company by opposite parties Nos. 2 to 6
and for other consequential reliefs.
The petitioner claims to
have become a shareholder of the company in the year 1975-76 and after
acquiring 460 equity shares of Rs. 100 each became a full time executive
director in the year 1979 with a remuneration of Rs. 1,500 subject to an enhancement
of Rs. 250 per year. Opposite party No. 2, Trailokyanath Mohanty, is the
managing director of the company. According to the petitioner, the company
after its incorporation took various loans from the Orissa State Financial
Corporation and from the State Bank of India which were to be operated by the
managing director and/or the petitioner. The company engages itself in
manufacturing various agricultural equipments and in the interest of the
company, the petitioner went to Japan, Philippines, Malaysia, Singapore, Hong
Kong and Taiwan in December, 1980, and came back in January, 1981. After his
return, the petitioner alleges that he is being treated indifferently by
opposite party No. 2, instead of allowing him to implement his knowledge and
ideas acquired during the visit to the foreign countries. He has further
alleged that opposite party No. 3, who is the son-in-law of the managing
director-opposite party No. 2, and opposite party No. 4, who is the wife of
opposite party No. 2, started interfering in all the affairs of the company and opposite party No. 3 was appointed as a
full-time manager of the company. Various acts of mismanagement have been
alleged and it has been stated that both opposite parties Nos. 2 and 3 are
maintaining the accounts of the company in an irregular manner and there has
been no audit of the company since 1980. They have also withdrawn a huge amount
of money of the company under false vouchers and it is alleged that the general
body meeting of the company has not been conducted since September, 1980. When
the petitioner went to the office of the Registrar of Companies for
verification of the records of the company, he found that Form No. 32 has been
filed under the signature of the managing director on March 11, 1983, wherein it
has been shown that the petitioner has resigned from the directorship which,
according to the petitioner, is not a fact. The petitioner alleges that all
these acts are being done to defraud the petitioner and the company for which
the present application has been filed.
A preliminary
counter-affidavit has been filed on behalf of opposite parties Nos. 1,2,4 and 5
denying all the allegations made in the application. It has been stated in the counter-affidavit
that the petitioner not being a member or a shareholder of the company on the
date of filing of the application has no locus standi to maintain the same.
I need not make a mention
of all the objections taken in the counter-affidavit as by order dated December
14, 1984, an inquiry was directed on the preliminary issue as to whether the
petitioner has the locus standi to maintain this application. In the
counter-affidavit, it has been alleged that the petitioner has transferred all
his shares in the company and has voluntarily resigned from the directorship of
the company more than a year back and thus he was not a shareholder of the
company on the date of presentation of this application on March 23, 1984. Both
the parties were allowed to lead evidence, both oral and documentary, on this
preliminary issue. Admittedly, the petitioner was a shareholder of the company
at some point of time. The opposite parties have alleged that the petitioner
has transferred all his shares in the company in favour of opposite party No. 2
which became effective from March 8, 1983, by necessary entry in the share
register whereafter the petitioner ceased to be a shareholder of the company.
The petitioner disputes the fact of transfer of shares as also of the validity
thereof. In these circumstances, the burden of proof that the petitioner has
transferred all his shares in the company in favour of opposite party No. 2 as
alleged in the counter-affidavit lay on the opposite parties and, therefore,
the opposite parties were directed to lead evidence first.
The opposite parties have
examined three witnesses including opposite party No. 2 himself whereas the
petitioner has examined himself as the sole
witness on his behalf. Several documents have been exhibited on behalf of the
opposite parties.
Before I go into the
evidence adduced by the parties, it may be mentioned that this is a composite
application in which reliefs under sections 397 and 398 of the Act have been
claimed. Unless the petitioner is found to be a shareholder of the company, he
would have no locus standi to maintain this application and in such an event,
the court need not go into the merits of the allegations made in the
application.
The first witness examined
on behalf of the opposite parties is opposite party No. 2 who is the managing
director of the company—opposite party No. 1. According to him, the petitioner
joined the company in the year 1979 and initially purchased 60 shares each of
Rs. 100 from one Gopinath Das and thereafter purchased 400 shares for which he
partly paid the money. In the meeting held on November 24, 1982, the managing
director of the company informed the board of directors that the petitioner was
no more interested to continue in the company and had been intending to offer
his resignation from the company. It was, however, agreed in that meeting that
the managing director would persuade the petitioner to continue in the company
and to remain in charge of some of the affairs of the company. The minutes of
the proceedings dated November 24, 1982, have been marked as exhibit 1 which
are in the handwriting of O.P. W. 1. The minutes of the proceedings were
confirmed in the next meeting held on February 8, 1983, the minutes of which
have been marked as exhibit 2. In the meeting held on February 8, 1983,
opposite party No. 2 intimated the board of directors that the petitioner
intended to sell away his entire share as he no longer wanted to remain in the
company. Opposite party No. 2 also expressed his desire to purchase the said
shares as no others in the company came forward to purchase the same. It was
resolved in the said meeting that opposite party No. 2 would be permitted to
purchase the said shares. According to this witness (O. P. W. No. 1), he and
the petitioner both went to the house of Shri G. Pande, the chartered
accountant, who has been examined in this case as O. P. W. No. 2, to consult
him as to how the transfer of shares should be effected. In accordance with the
advice of O. P. W. No. 2, the prescribed form was presented before the
Registrar of Companies on March 1, 1983, and was brought back by this witness
(O. P. W. No. 1), from the Registrar of Companies after the same was duly
sealed and signed by the Registrar of Companies. Opposite party No. 2
thereafter went to the house of Shri Pande (O. P. W. No. 2) on the following
day along with the accountant of the company, who has been examined in this
case as O. P. W. No. 3, and the petitioner where the form was filled up and
signed by the petitioner and by opposite party No. 2 in the presence of O. P.
W. No. 2. The form was thereafter kept with the petitioner and all of them,
namely, opposite party No. 2, the petitioner and the accountant of the company
(O. P. W. No. 3), proceeded to the office of the company, where opposite party
No. 2 claims to have paid Rs. 26,000 to the petitioner in cash. On receipt of
the said amount, the petitioner made over the form to the opposite party No. 2
along with the letter of resignation from the directorship of the company. The
prescribed form containing the signatures of the petitioner, opposite party No.
2 and the witnesses has been marked as exhibit 3, in this case. The letter of
resignation said to have been typed and signed by the petitioner has been
marked as exhibit 4. The transfer of shares thus made in favour of opposite
party No. 2 was approved in the meeting of the board held on March 8, 1983, the
minutes of which have been marked as exhibit 5 in the resolution book. Opposite
party No. 2 has proved the certified copy of the intimation in Form No. 32 to
the Registrar of Companies (exhibit 8) in which the resignation of the
petitioner has been intimated to the Registrar of Companies. The annual general
body meeting was held on September 30, 1980, the proceedings of which are
exhibit 9. Opposite party No. 2 has also proved exhibit 10, the certified copy
of the annual return of the company made up to September 30, 1983. O. P. W. No.
2 is the chartered accountant who has deposed that the petitioner and the
opposite party No. 2 came to him in connection with the transfer of shares and
he advised them as to how the statutorily prescribed form was to be filled up.
He also deposes that the form was filled up in his presence and both the
petitioner and opposite party No. 2 signed thereunder. He is one of the
witnesses to the statutory form in exhibit 3 and his signature appearing
thereon has been marked as exhibit 3/a .The last witness examined on behalf of
the opposite parties is the accountant of the company who has stated that he
had accompanied the petitioner and opposite party No. 2 to the house of O. P.
W. No. 2 in connection with the transfer of shares and on the advice of O. P.
W. No. 2, the prescribed form was filled up and signed in his presence. He has
further deposed that prior to their visit to the house of O. P. W. No. 2, he
had applied for the statutory form to the Registrar of Companies and had
obtained the form which was taken with them to the house of O. P. W. No. 2 on
March 2, 1983. He is also one of the witnesses to exhibit 3 and his signature
appearing on exhibit 3 has been marked as exhibit 3/b. The petitioner in his
affidavit dated December 14, 1984, denies having signed any instrument of
transfer on March 2, 1983, or at any point of time as alleged. The receipt of
Rs. 26,000 by him as alleged by opposite party No. 2 has also been denied in
the said affidavit. But in his evidence, the petitioner has admitted his
signatures appearing in exhibit 3, the statutory transfer of shares form, and
in exhibit 4, the letter of resignation, which have been marked as exhibits 3/c and 4/a respectively. It was suggested to
O. P. W. No. 1, that the signature of the petitioner was taken in the share
transfer form (exhibit 3) without his knowledge and nothing was suggested to
him so far as his signature in exhibit 4 is concerned. Similarly, nothing was
suggested to O. P. W. No. 3 relating to the petitioner's signature in exhibit 3
though he purports to be a witness to the execution of exhibit 3. In his
evidence, the petitioner does not explain as to how his signatures were
obtained in exhibits 3 and 4.
Section 41 of the Act
defines who is a member of a company. According to the said definition, the
test of membership of a company is whether the name of the person appears on
the register of members of the company. Section 164 of the Act provides that
the register of members of the company and the returns, etc., thereof shall be
the prima facie evidence of any matter authorised to be inserted therein by
this Act and the court shall accept the same as correct until it is rebutted.
Exhibit 6 is the relevant entry relating to the petitioner in the register of
shareholders of the company. In the said entry, it has been mentioned that the
transfer of the shares of the petitioner has been registered on March 8, 1983,
and exhibit 10 which is the certified copy of the annual return of the company
made up to September 30, 1983, omits to mention the name of the petitioner as a
shareholder of the company. Therefore, under the' circumstances, the
presumption would be that the petitioner no more continues to be a shareholder
of the company until the same is rebutted by the petitioner. Section 155 of the
Act provides for rectification of the register of shares if the name of a
person is entered in the register or omitted therefrom without sufficient
cause. On an application made under this section, the court may decide any
question relating to the title of the person aggrieved by the improper omission
of his name from the register. Evidently, the petitioner has not filed any
application for such relief.
The evidence of the
managing director (O. P. W. No. 1) has been fully corroborated by O.P.W. Nos. 2
and 3. Nothing substantial has been brought about in the cross-examination of
O.P.W. No. 2 to disbelieve his testimony. O.P. W. No. 2 is admittedly the
statutory auditor of the company. It was argued on behalf of the petitioner
that O. P. W. No. 2 is highly interested in opposite party No. 2 and he had
borne a grudge as the petitioner had pointed out to him that he had not audited
the accounts of the company for 10 years. But the petitioner in his evidence
does not breathe a word about the same. In these circumstances, the evidence of
O. P. W. No. 2 cannot be disbelieved. O. P. W. No. 3 is the accountant of the
company who is admittedly interested in opposite party No. 2, the managing
director of the company. His presence at the time of execution of the document
of transfer cannot be disbelieved and he is one of the witnesses to the same. I have already stated that the petitioner does
not dispute his signature in exhibit 3, the share transfer form, and no
explanation has been furnished in his evidence as to how his signature appears
therein. In the circumstances, there is no other alternative than to hold that
the share transfer form (exhibit 3) was signed by the petitioner with the full
knowledge of its contents. The petitioner is admittedly an educated person
having passed M.Sc. and was looking after the affairs of the company as one of
its directors from 1979. It cannot be believed that he has put his signature in
exhibit 3 without going through its contents and even if he has done so, he
would be bound by the document he has executed. So far as exhibit 4 is
concerned, the only explanation that has been offered by the petitioner is that
he does not know typing and the evidence adduced on behalf of the opposite
parties that he himself typed out that document and had put his signature
thereon should not be believed for that reason. I have already mentioned that
the petitioner has not offered any explanation as to how his signature in
exhibit 4 came into existence. The learned counsel appearing for the petitioner
has argued that the petitioner was required to put his signature on various
forms, papers and registers during his continuance as a director of the company
and in that process, his signature was obtained in a piece of paper which was
later on converted into the letter of resignation. Such a story cannot be
believed on the basis of the evidence of the petitioner in court where he says
that on exhibit 4, the signature and the date have been given in his hand. The
petitioner does not say that on March 2, 1983, he had signed any other paper of
the company. But on the other hand, his definite case is that after his return
from foreign tour in January 1981, he was not allowed to participate in the
management of the company. Though there are no materials to believe that the
contents of exhibit 4 were not typed out by the petitioner himself, but
assuming that it is so, it cannot be believed that the petitioner put his
signature on exhibit 4 without going through its contents. Consequently, the
petitioner will be bound by the effect of the documents in exhibits 3 and 4 to
which he is a party.
Exhibit 5 is the minutes of
the proceeding of the meeting of the board of directors held on March 8, 1983,
in which a resolution was adopted accepting the transfer of shares by the
petitioner in favour of the opposite party No. 2 and directing recording of
necessary entry in the register of members of the company maintained under
section 150 of the Act. The letter of resignation of the petitioner was placed
before the board and the board accepted the same. An objection was taken by the
petitioner that it is opposite party No. 2 who alone has signed the said
resolution and it does not contain the signatures of all the members of the
board of directors. The said objection is misconceived in view of the
provisions in section 193 of the Act. Section
193 of the Act requires the minutes of the proceedings of the meeting of the
board of directors to be signed by the chairman of the said meeting or by the
chairman of the next succeeding meeting. It does not require that all the
members of the board of directors should sign the same. Section 194 of the Act
provides that the minutes of the meetings kept in accordance with the
provisions of section 193 of the Act shall be the evidence of the proceedings
recorded therein and section 195 of the Act provides that the meeting in which
the said minutes were recorded shall be deemed to have been called and held
until the contrary is proved. Thus, the transfer of shares effected under
exhibit 3 shall be taken to have been duly accepted and given effect to in
pursuance of which a correction was made in the share register (exhibit 6).
Nothing has been pointed
out by the petitioner that the transfer of shares as per exhibit 3 does not
comply with the requirements of section 108 of the Act except that the same was
not duly stamped on the date of execution. According to the petitioner, the
stamps were obtained from the treasury on March 8, 1983, whereas exhibit 3 is
purported to have been executed on March 2, 1983. An application was filed on
January 18, 1985, in this court praying to call for the (stamp) register from
the Treasury Officer, Main Treasury, Cuttack, to show that the stamps were
obtained for the purpose on March 8, 1983. By order dated January. 18, 1985,
this court did not pass any order and allowed the said application to lie over
till the next date as the learned counsel for the petitioner wanted some time
for obtaining the certified copy of the relevant entry in the said register.
The learned counsel for the petitioner argued that he had applied for the
certified copy but the same was not granted by the concerned authority.
Accepting that the stamps were obtained on March 8, 1983, the learned counsel
for the opposite parties had stamps to be affixed on the document prior to its
execution. He refers to section 108(1A)(b) of the Act which provides that every
instrument of transfer in the prescribed form with the date of such
presentation stamped or otherwise endorsed thereon shall, after it is executed
by or on behalf of the transferor and the transferee and completed in all other
respects, be delivered to the company within the time specified in the said
section. According to the learned counsel for the opposite parties, all that
the aforesaid provision in section 108(1A)(b) of the Act requires is that
before delivery, the stamps should be affixed and it does not require the
stamps to be affixed prior to execution of the document. This argument of the
opposite parties appears to be acceptable in view of the language used in this
section. Some arguments were also advanced as to the due compliance of the
requirements of section 110 of the Act. In my view, unless an application is
made by the transferor, no notice under the said section is required to be
issued to the transferee.
The learned counsel for the
petitioner has pointed out some discrepancies in the evidence of the witnesses
examined on behalf of the opposite parties to build up an argument that the
incident deposed to by the said witnesses leading to the execution of exhibit 3
and payment of consideration thereunder cannot be believed being highly
discrepant. Having recorded the evidence of each of the witnesses and having
gone through the same carefully, I do not find any material discrepancy in the
evidence which would discredit the intrinsic evidence of the said witnesses.
It has been argued by the
learned counsel for the petitioner that the board of directors has not issued
any notice in writing offering to sell the shares to the existing members of
the company and, therefore, the transfer made under exhibit 3 must be held to
be invalid being violative of clause 9 of the articles of association of the
company. This argument advanced on behalf of the petitioner is not acceptable
in view of the fact that the petitioner cannot be said to be aggrieved even if
it is held that clause 9 of the articles of association of the company has been
violated. Besides, there has been substantial compliance of the said clause
inasmuch as the matter was discussed in the meeting of the board of directors
and the proposal for transfer in favour of opposite party No. 2 was accepted. The
learned counsel for the petitioner has next contended that the stamps affixed
to exhibit 3 have not been duly stamped. For the aforesaid proposition, the
learned counsel has relied upon a decision in Coronation Tea Co. Ltd., In re
AIR 1961 Cal 528 ; [1962] 32 Comp Cas 568. It is not the case of the petitioner
that exhibit 3 has been insufficiently stamped. Adhesive stamps have been
affixed on the reverse of exhibit 3. The said stamps have been cancelled by
putting "cross" ("X") marks in ink over the same. The
learned counsel for the petitioner relying on the aforesaid decision of the
Calcutta High Court has urged that the adhesive stamps used in exhibit 3 have
not been properly cancelled as putting of cross ("X") marks is not
sufficient cancellation. Section 12 of the Indian Stamp Act, 1899, provides the
mode of cancellation of adhesive stamps. It says that whoever affixed any
adhesive stamp to any instrument chargeable with duty which has been executed
by any person shall, when affixing such stamp, cancel the same so that it
cannot be used again. In the Calcutta case, the State Government issued a
notification under section 75 of the Indian Stamp Act, 1899, prescribing the
mode of cancellation of share transfer stamps under which it was stated that
the stamps shall be cancelled by the company by means of a punch which can
perforate either the word "cancel" or an abbreviation thereof.
Nothing has been brought to my notice that in this State any such rule has been
issued by the State Government. The manner in which the "cross"
("X") marks have been put on the stamps in exhibit 3 renders the same
unfit for use and, therefore, amounts to
proper cancellation in the language of section 12 of the Indian Stamp Act.
On a discussion of the
evidence on record, I, therefore, come to the conclusion that the petitioner
has duly transferred his shares in the company in favour of opposite party No.
2 which has taken effect in the relevant registers of the company. The
petitioner was, therefore, not a person having any share in the company and the
petition filed by him under sections 397 and 398 of the Act is, therefore, not
maintainable.
In the result, the
application is dismissed, but in the facts and circumstances of the case, there
would be no order as to costs.
The order of stay granted
on December 14, 1984, by this court in M.C.No. 27 of 1984 is hereby vacated.
The amount of rent damages so far deposited by the petitioner shall be
continued to be in deposit until the fixation of the quantum, if any, payable
by the petitioner for the house he is occupying, is decided by an appropriate
court in which event the said amount shall be withdrawn and adjusted by the
company.
[1977] 47 COMP. CAS. 356 (DEL)
HIGH COURT OF DELHI
v.
Official Liquidator, Indian
Electrim Tools Corpn. Ltd.
S.
RANGARAJAN J.
COMPANY
PETITION NO. 13-D
OF 1965.
MAY
15, 1975
Ved Vyas and R.C. Beri for the Petitioner.
P.C. Khanna for the
Respondent.
Rangarajan J.—The petitioner (the Maharaja of Tehri
Garhwal) had admittedly become a shareholder and director of the Indian
Electrim Tools Corporation Ltd. (in liquidation), a company registered under
the Companies Act, 1956 (hereinafter called "the company"). In this
petition he prays that the official liquidator (O.L.) may be directed not to
place him on the list of contributories ; he had 500 fully paid-up equity
shares ; he had also asked for the rectification of the register of members of
the company, which is stated to reveal that he had taken 50,000 equity shares
of Rs. 10 each in respect of which he had not paid anything, and not merely 500
equity shares, as admitted by the petitioner. Not only the facts leading to
this petition are somewhat interesting but one or two questions of law of some nicety
also arise for consideration.
On the record, as
admitted by the O.L., there is only one application for shares which was given
the mark "A" initially "C.W.1", has been written on it
probably by the Commissioner who was appointed to examine the petitioner as a
witness. According to the petitioner the said form of application for shares
was signed by him in blank. Many of the columns have been filled in later in
type, the form itself being a cyclostyled (typed) one. The figure 50,000 has
been written in manuscript in paragraph 1 which speaks of an application for
those shares being made after having read the statement in lieu of prospectus
relating to equity shares. In paragraph 3 the figure of Rs. 5 lakhs has been
entered. Even the manner in which the same was paid is not apparent from it
because all the three modes of payment in the form, namely, cash/cheque/draft,
appear to have been scored out. What is particularly intriguing is even though
a sum of Rs. 5 lakhs was said to have been enclosed along with the form it was
stated Rs. 5 per share was payable on application per share of Rs. 10 each, the
balance of Rs. 5 per share being payable on allotment. The date has been filled
up in handwriting to read that the application was made on the 30th day of April,
1962. According to the petitioner he had applied only for 500 equity shares ;
he had sent an application on April 25, 1962, for the same along with a cheque
(P-3) of the same date for Rs. 5,000, being the full amount of the aforesaid
shares through the stocks and share broker, H.P. Mehta, who has been examined
in this case as P.W.-4. 500 shares were the qualifying shares for becoming a
director. The said cheque for Rs. 5,000 was sent to the company for being
cashed only on May 2, 1962, and was cashed later. According to the petitioner
he did not give any cheque for Rs. 5 lakhs, allegedly for 50,000 equity shares.
Neither did he apply for the allotment of 50,000 shares, nor did he receive any
notice of such allotment. On the other hand, the company which was not
financially well-off had requested him to advance a loan of Rs. 10,000 in
November, 1962, out of which Rs. 3,000 alone had been returned some time on
November 10, 1962, details of these had been mentioned by the petitioner in his
letter dated March 23, 1964, to the O.L. (copy of which is annexure
"C" to the petition, exhibited as exhibit P-X and marked
"E" by the Commissioner).
Some time in
September/October, 1962, B.B. Lal Singhania (R-2), who was the promoter of the
company, came to the petitioner and informed him that the company's accountant
had made some obviously false entries in the account books and also a false
report against the company, the accountant had been dismissed for doing so. It
was then that the petitioner was informed for the first time that an entry in
respect of 50,000 equity shares in the company's records had been made in his
name, even though he had applied only for 500 shares. The petitioner was
further informed that since the Registrar of Companies was asking for an explanation
in this respect the petitioner may give him a reply on the terms set out in
annexure "B" to the petition, to the effect that the petitioner had
applied for shares worth Rs. 5 lakhs, that he wanted 50,000 shares to be
reserved for him, the subscription for which will be made before the public
issue and that he had not enclosed any cheque with the application though he
had mentioned therein that cheque was enclosed. The petitioner refused at first
but agreed to consult his own solicitors in Bombay but R-2 insisted and
prevailed on him saying that the company will, in that case, be in great
trouble. At the insistence of R-2, the petitioner had agreed to consult his
solicitors in Bombay, M/s. Hooseini Doctor & Co. The person, Mr. T.S.
Doctor, whom he had consulted, has been examined as PW-5, The solicitor advised
the petitioner to obtain some papers and not to sign the draft letter marked
"B".
The petitioner
attended a meeting of the board of directors of the company when the minutes of
a previous meeting of the board of directors held on February 28, 1963 (at
which he was not present), were read out for confirmation. One of the
resolutions at that meeting, dated February 28, 1963, was that 50,000 shares
which had been allotted on April 30, 1962, be cancelled. The petitioner was
surprised to learn about this for the pretext given for cancellation, namely,
that the cheque for the share money had been returned, was false. But the
petitioner was assured that the accountant had made a wrong entry and that for
this and other acts he had been dismissed. The petitioner was assured that
since the allotment of shares had been cancelled there was nothing for him to
worry.
According to the
reply of the O.L. filed in this petition shares worth Rs. 5 lakhs were allotted
to the petitioner on April 30, 1962 ; a total of 50,000 equity shares were
allotted to the petitioner and he was intimated about the same.
In his
reply-affidavit dated March 15, 1966, B.B. Lal Singhania (R-2) supported in
some respects the petitioner's case ; he has not, however, been examined as a
witness for the petitioner. It is needless, therefore, to be detained by the
averments in the said affidavit which cannot be taken as substantive evidence
in the case in the absence of his being examined and cross-examined.
The following issues
were framed on March 18, 1966 :
"1. Was there a valid application for the
allotment of 50,000 shares of the face value of Rs. 5 lakhs ? It not, what is
its effect ?
2. Was this application accompanied by the
requisite application money ? If not, what is its effect ?
3. Was there any valid allotment of 50,000
shares in the name of the petitioner ? If so, was this allotment communicated
to the petitioner, and, if not, what is its effect ?
4. What is the effect of the resolution dated
28th of February, 1963, for the cancellation of the allotment of 50,000 shares
to the petitioner ?
5. Is the petitioner estopped from seeking
remedy by way of rectification by reason of acquiescence or delay ?
6. Is
there any liability of respondent No. 4 ?
7. Relief?"
An application by the
O.L. to reframe the issues was rejected and no appeal had been preferred
against it. Issues had been framed after recording the statements of some
persons.
Issue No. 4 ;
It is needless to be
detained about the effect of the resolution dated February 28, 1963, cancelling
the allotment of 50,000 shares to the petitioner, in the view that the petition
for winding up has been filed even earlier, namely, on January 15, 1963.
The legal position cannot,
I believe, be put better than what Cohen J. said in In re Derham and Allen Ltd.
[1946] Ch. 31 36 ; 16 Comp. Cas. 51, 54 (Ch. D.) :
"In the present
case the company has taken upon itself to rectify the register without any
motion to the court for that purpose, and in justification of this procedure I
was referred to the judgment of Jessel M.R. in In re Poole Firebrick and Blue
Clay Co. Ltd. [1874] LR 18 Eq 542 and to In re Reese River Silver Mining Co.
Ltd. (LR 4 KL 64) which constituted authority for the proposition that where a
person on the register of members has a right to rectification, and the company
itself recognises that right, it is not essential for a valid rectification of
the register that an order of the court should be sought and obtained. I wish
to say nothing to encourage directors to carry out rectification of a company's
register without an order of the court being obtained in proceedings in which
the right to rectification is duly established. The protection of the court's
order is in the ordinary case essential to any rectification of the register by
the removal of the name of a registered holder of shares, but in this case it
was inevitable that the matter should come before the court, because it
involved the sanction of the court to the issue of shares at a discount. I am
satisfied that no one will be prejudiced, and I shall not require what would be
a mere formality, that is to say, a motion to rectify the register".
(Emphasis
added)
Cozens-Hardy L.J. had
earlier put the matter thus when he agreed with the other learned judges in In
re Sussex Brick Company [1904] 1 Ch. D. 598, 609 (CA):
"It seems to me
that Mr. Gore-Browne's argument is really based on this hypothesis, that the
register of members is a thing which ceases to have any real operation or
existence after the winding-up order ; that the only right which can be dealt
with after a winding-up order is one with regard to making some change in the position
of persons on the list of contributories".
In this light it
would be best to discuss issues (1) to (3) in a composite manner :
Issues (1) to (3):
It would be necessary
to know what is the true position that applies to the facts of this case before
discussing the facts. If there was no allotment of shares at all then no
further question of any delay or laches in the matter of applying for relief
would be of any consequence. In the language of Cozens-Hardy L.J. after a
winding-up order the only right which can be dealt with is one with regard to
making some change in the list of persons as contributories. This is exactly
the position here ; section 467 of the Companies Act of 1956 provides for it :
"467.(1)As soon
as may be after making a winding-up order, the court shall settle a list of
contributories, with power to rectify the register of members in all cases
where rectification is required in pursuance of this Act, and shall cause the
assets of the company to be collected and applied in discharge of its
liabilities :
Provided that, where
it appears to the court that it will not be necessary to make calls on, or
adjust the rights of, contributories, the court may dispense with the
settlement of a list of contributories.
(2) In
settling the list of contributories, the court shall distinguish between those
who are contributories in their own right and those who are contributories as
being representatives of, or liable for the debts of, others".
The position in
India, in this respect, is thus the same as in England.
It may also be
instructive to refer to the observations of Wright J. in In re International
Society of Auctioneers and Valuers : Baillie's case [1898] 1 Ch. 110, 114 (Ch.
D) :
"Under these
circumstances, is Baillie to be allowed to repudiate his liability, or rather
to say that he never contracted with the company now in liquidation ? In my
judgment the case is governed by the principles laid down in Cundy v. Lindsay
[1878] 3 App. Cas. 459, 465 (HL). The evidence satisfies me that there never
was a contract between Baillie and the company voidable by him on the ground of
the misrepresentations which were made to him, but something which was void ab
initio. In other words, there never was any contract at all. When Baillie made
his application and received his certificate he thought that the company he was
dealing with was the old Auctioneers' Institute, and those who were acting for
the liquidating company knew of this belief and distinctly deceived him. Under
circumstances like these there is no contract, as is shown by the observations
of Lord Cairns, Lord Hatherley and Lord Penzance in Cundy v. Lindsay [1878] 3
App. Cas. 459 (HL) That being so, Baillie is entitled to the relief which he
claims, and it is no objection to his claim that he took no steps to have it
declared that he was not under liability before the winding-up took place. It
has been suggested that, whatever the effect of Cundy v. Linsday [ 1 878] 3
App. Cas. 459 (HL) may be where the contract is not in writing, where the terms
are contained in writing the parties cannot deny that there was a contract. In
Cundy v. Lindsay [1878] 3 App. Cas. 459 (ML) what was alleged to be a contract
appears to have been in writing. But whether I am right in that view or not,
there is not in this case a contract in writing, because there is no contract
at all".
Gore-Browne on
Companies, 42nd edition (Boyle & Sykes) states, on page 503, as follows :
"It there is in
fact no contract, or the contract under which the alleged shareholder is supposed
to have taken his shares is void from the beginning and not merely avoidable,
his name may be removed from the register even after a winding-up has commenced
; for he never agreed to take the shares, (Oakes v. Turquand [1867] LR 2 HL 325
; Alabaster's case [1868] 7 Eq 273 ; Baillie's case [1898] 1 Ch. 110 (Ch. D.))
and in such a case delay is not a bar to the claim to rectify the register
[Gorrissen's case [1873] 8 Ch. App. 507 ; Wynne's case [1873] 8 Ch. App. 1002 ;
Beck's case [1874] 9 Ch. App. 392: Baillie's case [1898] 1 Ch. 110 (Ch. D.)] as
it is where relief is sought on the ground of misrepresentation".
The case of no
contract at all has been treated differently from a case where a contract is
one which has to be repudiated ; if it is of the latter kind prompt steps to
have his name removed from the register of the company would be necessary. In
First National Reinsurance Company v. Greenfield [1921] 2 KB 260 (KB) McCardie
J. referred to Oakes v. Turquand [1867] LR 2 HL 325 and the explanation given
by Lord Cranworth therein as to why the Companies Act of 1862 opened the
register to the inspection of all the world : it is obvious that no creditor
could safely trust the company without having the means of first ascertaining
who the shareholders might be, and, secondly, to what extent they would be
liable. The shareholders also, in the same way, had an interest in knowing who
are liable and to what extent. If the applicant for shares had done nothing
till winding up, Oakes v. Turquand [1867] LR 2 HL 325 Jaid down the principle,
there is no right to avoid a contract to take shares after winding up
commences. In other words, the avoidance is not possible unless there has been
either proceedings constituted before the winding up or an agreement that the
shareholder shall be bound by the result of other proceedings which have been
taken for the avoidance of a contract to take shares. McCardie I. also added
that with regard to the rectification of the register an application to the
court was essential only when the company disputes the right to rectification.
There is no reason why the directors, if they bona fide agree that the
shareholder has a right to avoid the contract, should not thereupon assent to
the rescission of the contract and rectify the register in an appropriate
manner. An order of the court is not necessary in such a case. To this category
belong In re London and Mediterranean Bank (known as Wright's case [1872] LR 7
Ch. App. 55), Reese River Silver Mining Co. v. Smith [1869] LR 4 HL 64, 67 and
In re Poole Firebrick and Blue Clay Corn-any (known as Hartley's case [1875] 10
Ch. App. 157). In the last mentioned case Lord Cairns L.C. pointed out that an
application for rescission could not be made after winding up and, if even made
before winding up, the case will have to be proved strictly. In re Hull and
County Bank (Burgess's case [1880] 1 5 Ch. D 507 (Ch. D.)) did not allow an
application for rescission of shares on the ground of misrepresentation by the
promoter after winding up, even though there were sufficient assets in the
hands of liquidators. All these cases when examined would be seen to be cases
where allotment was made but the same was questioned later.
The question,
therefore, is whether there was in the present case an allotment of 50,000
shares ? If this question is answered in the petitioner's favour he would not
be held disentitled to relief on any other ground. I am unable to comprehend
how if the 50,000 shares had been allotted on April 30, 1962, there was any
need to allot 500 further shares on May 12, 1962.
In the light of the
fact that no other written application for shares has been produced and the
only application for shares on record purport to ask for 50,000, but not 500
shares it becomes exceedingly difficult to find how 50,000 shares were
allotted. The allotment of 500 shares only is admitted by the petitioner.
All does not seem to
be well with the application dated April 30, 1962, for the allotment of 50,000
shares. Section 41(2) of the Act prescribes that persons other than subscribers
to the memorandum of association of the company, who are to be entered as
members in the register of members, should agree in writing to become such
members and that their names should be written in the register of members. The
difference between English law and Indian law is that no such writing is
required for becoming a member of a limited company. By the Companies
(Amendment) Act, 1960 (65 of 1960), the words "in writing" were
inserted. The view expressed by Ramanujam J. in Sree Ayyanar Spinning and
Weaving Mills Ltd. v. V.V.V. Rajendran [1973] 43 Comp. Cas. 225 (Mad) that a.
written application for allotment of shares was not necessary and that an oral
application would be enough for the purpose does not, I am afraid, take note of
the above change introduced by the Amending Act, 65 of 1960.
Rule 7 of the
Companies (Issue of Share Certificates) Rules, 1960, requires that the
particulars of every share certificate should be entered in the register of
members maintained in the form set out in the Appendix to those rules
indicating the date of issues, the person(s) to whom it has been issued along
with particulars of every share certificate issued. The number and date of
allotment, amounts due and on what account (allotment of call, etc.). date when
due and other particulars mentioned in the said Appendix have to be given in
the register of members.
What has been made
available to court by the official liquidator is what is known as a "Share
Account Register" which is not according to what has been prescribed in
the Appendix. In respect of the petitioner there is an entry on page 20 with
date April 30, 1962. Regarding 50,000 shares alone the distinctive share
numbers have been given as 16503 to 66502 and there is a credit in respect of
Rs. 5 lakhs. It is surprising that if the petitioner had subscribed also for
500 shares (about which there is no dispute) there is no mention of them. On
its face the said register is not free from suspicion. Even the presumption
which is available under section 164 of the Companies Act, in respect of the
register of members, among other documents referred to therein, that it would
be prima facie evidence of matters directed or authorised to be inserted
therein by the Act would not be available to the official liquidator because
the above "Share Account Register" is not the prescribed register of
members to which alone the presumption referred to in section 164 applies. The
petitioner's liability to be placed as a contributory cannot be fixed, therefore,
on the basis of the said "Share Account Register". There is a further
difficulty owing to the said entry itself reading that the said sum of Rs. 5
lakhs had been paid. It would not be permissible to fasten any liability on the
petitioner as a contributory in respect of those 50,000 shares de hors the said
entry which reads that Rs. 5 lakhs had been paid by the petitioner. I am only
referring to this aspect for the purpose of pointing out the sheer futility of
relying on the entry in the said Share Account Register to fasten any liability
on the petitioner on that basis. When, before any such liability can be
fastened on him, and the petitioner wants to guard himself against by means of
this petition, it would be necessary for the official liquidator to show that there
was an application for the said 50,000 shares by the petitioner, and that the
company had accepted the same.
It may be of help, in
this context, to refer to the discussion by James L. J. and Mellish L. J. in In
re United Ports and General Insurance Company (known as Beck's case) [1874] 9
Ch. App. 392, made while dismissing an appeal from the judgment of Bacon V.C.
The official liquidator had applied to have the name of Mr. Beck placed on the
list of contributories in respect of certain shares of the company. James L.J.
put the matter thus :
"Mr. Beck was
put on the register of shareholders without any authority from him. That was a
perfectly void act as utterly unauthorised by him, and yet he is now sought to
be charged with the consequences".
Mr. Beck had held
forty Ł5 shares (Ł210s. paid) in the Progress Insurance Company ; he had been
allotted 200 shares in the United Ports and General Insurance Company, in lieu
of 40 shares held by him in the former company as a result of amalgamation. The
amalgamation was decided to be void. Mr. Beck, who had applied fur shares, got
certain letters which contained some fresh terms. His subsequent application
for the certificates was held not to amount to acceptance of these fresh terms.
Both James L.J. and Mellish L.J. found that the parties had not come to an
agreement as to the terms on which the allotment of shares had to take place.
The consequence was that there was no agreement to become a shareholder. The
latter explained that Mr. Beck was only puzzled and when he wrote to the
company for his certificates he only wanted to know what really the truth was.
The essence of the
matter, therefore, is that there should be an agreement to become a shareholer,
which agreement can ripen into a concluded contract only by an offer to take
certain amount of shares and the same being accepted. There is nothing on
record to show that the allotment of 50,000 shares to the petitioners was even
communicated to him. If this was not done, there was clearly no acceptance,
even if there was an application for 50,000 shares, and hence there was no
concluded contract either.
It will be
appropriate in this connection to look at the auditor's note in the
balance-sheet for the period ending 30th April, 1962 (marked as exhibit
R.W.-1/A), which reads as follows :
"Note 2. 77,500
equity shares have been allotted on 30-4-62 by the directors. The amount due on
application and allotment was not received in cash but by cheques. The cheques
have not yet been sent to bank for collection and are in the hands of the
managing director as uncashed".
This report was by
the company's auditors, S. P. Chopra & Co. and G. S. Mathur & Co., and
is dated May 12, 1962. It may be recalled that on May 2, 1962, the cheque for Rs.
5,000 given by the petitioner was sent to the bank for collection and was
cashed. The question naturally arises how if the petitioner had given a cheque
for Rs. 5 lakhs in respect of 50,000 shares it was not sent to the bank for
being encashed ? The other 27,500 shares are said to have been taken by Bharat
Singh (the numbers of whose shares are said to be from 67503 to 94002 according
to the minutes book dated February 28, 1963). No explanation worth the name has
ever been advanced. The official liquidator is now under severe handicap
because the company has been wound up ; some fraud seems to have been
perpetrated. But these cannot by themselves dispense with the need for
acceptable proof that there was an application by the petitioner for 50,000
shares, that there was an allotment to him of those shares and that the same
was also communicated.
It may also be worth
noticing in this context thai the police had seized the records of this company
in June, 1962, including the minutes book. Item 7 of the minutes of the board
of directors of 30th April, 1962, relates to the above 50,000 shares but the
specified numbers have been allotted to the petitioner against his application.
Those who were present at the meeting were B.B. Lall Singhania, Smt. Prem Vati
Singhania and Mrs. U.R. Gupta (wife and brother's wife, respectively, of B. B.
Lall Singhania). If shares of this value had been allotted to the petitioner on
April 30, 1962, he would in all probability have been made a director at that
meeting itself ; as the subsequent discussion would show the petitioner had
agreed to become a director even when he says, he agreed to take 500 shares and
gave a cheque for the same on April 25, 1962, itself. The same remarks would
apply to Bharat Singh also who was said to have been allotted 27,500 shares
against his application as per the minutes of the said meeting.
Item 5 of the minutes
of the board's meeting dated May 12, 1962, contains a resolution to allot 500
shares (Nos. 97973 to 98472) to the petitioner and another 500 shares to one
Lt. Gen. B. Chaudhuri containing certain specific numbers of shares. Even at
that meeting the petitioner was not present. There are no further minutes of
the board recorded in the said minutes book which stops with the minutes dated
May 12, 1962 (at page 62), though the book, pages of which are numbered,
contains up to 99 pages (numbered in print) plus one page extra also. This is
perhaps understandable because of the police seizing it. The further
proceedings of the board incorporating the minutes from and after 2nd June,
1962, are in a different book (marked as exhibit R.W.-3/3). It was then for the
first time that resolution was passed (item 2) that the petitioner, in addition
to Lt. Gen. Chaudhuri and Bharat Singh, was appointed as director ; it was
stated that the consent of all of them to act as directors had been received in
the office. At this meeting an interesting record had been made as item 3 as
follows :
"It was stated
by the manager that the two cheques were returned by the old accountant, Mr.
G.S. Bambani to, (i) H.H. Tehri Garhwal, and (ii) S. Bharat Singh which had
discrepancies on May 14, 1962, and the same have not been sent back to the
company.
It was resolved that
in the next board meeting they may be requested to return fresh cheques in lieu
of those returned to them already, i.e. , H.H. Tehri Garhwal for Rs. five lakhs
and S. Bharat Singh for Rs. two lakhs and seventy-five thousand".
It is necessary to
notice in this context that there has been a publication by the manager of the
company in the Hinduslan Times dated May 28, 1952, (exhibit P.W.-2/1) that two
cheques had been lost by the cashier on his way from the bank to the office ;
the two cheques amounted to Rs. 7,75,000 on May 23, 1962. The finder was
requested to deposit them in the registered office of the company. It is
passing strange how in respect of the two cheques, which were said to have been
lost, a record could still have been made in the minutes of the company about
their having been returned by their old accountant to the petitioner and Bharat
Singh.
The next meeting of
the board was on June 7, 1962, in which the petitioner was not present ; Bharat
Singh was, however, present. The minutes of the meeting dated June 2, 1962,
were said to have been read and confirmed. Nothing is mentioned in this meeting
about the further action taken in respect of those two cheques said to have
been returned.
There was another
meeting on August 31, 1962, which was merely adjourned on the ground of
inability of the other members to attend the meeting. There was yet another
meeting of the board on September 7, 1962, at which also the petitioner was not
present. It was at the 'meeting of the board, held on November 14, 1962, the
petitioner was present for the first time. At that meeting Bharat Singh was not
present ; a resignation letter from him was stated to have been considered.
What is of relevance to our present purpose is item (1) of the minutes, which
reads that copies of the letter of Registrar had been circulated in advance and
that in the meeting it was unanimously decided that the reply, a draft of which
was approved by the board, should be shown to solicitors before it was sent to
the Registrar of Companies.
The petitioner, when
he was examined on commission, stated that he got a letter in June, 1962, that
he had been appointed as a director, he having agreed after some discussion
with his broker, H.P. Mehta (P.W.-4), to buy 500 shares ; he had seat a letter
with the application form (copy of which is marked as annexure "A" to
the petition). The cheque which he had sent has been proved by him and was
marked as exhibit P.W.-3/1 bearing the same date as the letter (April 25,
1962). He had never intended to take more than 500 shares. Apart from exhibit
P.W.-3/1 he had not given any other cheque. In fact, he had loaned a sum of Rs.
10,000 temporarily to the managing director of the company, B.B. Lall
Singhania, a November, 1962, out of which only Rs. 3,000 had been repaid to him
some time on November 10, 1962. He had occasion to contact his solicitor in
Bombay some time in September/October, 1962, because the managing director had
told him that the accountant had bungled or did something wrong on the basis of
which the Registrar of Companies had started enquiries ; he, therefore, wanted
the petitioner to sign a paper asking him to commit himself to the fact that he
had been allotted Rs. 5 lakhs worth of shares. He refused to do so but
ultimately he agreed to consult his solicitor on account of Singhania's
insistence.
T.S. Doctor (P.W.-5),
solicitor and a partner of Messrs. Hooseini Doctor and Co., Bombay, spoke to
the fact that the petitioner saw him some time in the last week of October,
1962, in connection with the letter which the company wanted from him. The
draft letter was marked "B". When he was talking to the petitioner,
B.B. Lall Singhania also came in whereupon he said he would have to consider ;
he asked for certain documents which he had referred to in his letter dated
October 27, 1962, to the petitioner. His advice to the petitioner was that he
should not sign that draft letter. The letter containing the objection of the
Registrar of Companies was also shown to P.W.-5 at the time the petitioner met
him. The petitioner told P.W.-5 that he had purchased only 500 shares and that
by some mischief an allotment of 50,000 shares had been made in the books of
the company. P.W.-5 admitted that the petitioner did not seek his advice as to
how to get rid of the liability in respect of 50,000 shares nor did he advise
the petitioner about his having to file an application for rectification. One
or two years afterwards he met the petitioner's secretary, (Verma), and asked
him why the petitioner was not going in for rectification. The petitioner had
not consulted P.W.-5 at the time of filing the present petition.
H.P. Mehta (P.W.-4)
had also supported the petitioner and stated that it was he who had asked the
petitioner to purchase shares in this company and that he had agreed to
purchase 500 shares. But B.B. Lall Singhania was keen on the petitioner taking
more shares than the minimum qualifying shares to become a director. He also
met the petitioner at this stage ; Singhania did not meet him. He did not get
anything for negotiating for these shares with the petitioner at the instance
of Singhania. He only suggested to the petitioner to take more shares but he
did not agree. The original letter dated April 25, 1962, was typed in the
office of the petitioner and was taken by him from there to the company.
On the same day, it
may be noticed that the company had written a letter (marked as "F")
to the petitioner referring to the fact that the company had been advised by
H.P. Mehta about the petitioner agreeing to join the board of directors of the
company and welcoming him. The letter also asked for the petitioner's consent
in triplicate along with share application through H.P. Mehta. This refers only
to a single application for shares for which a cheque, bearing the same date,
was also issued for Rs. 5,000.
Subsequently we have
the minutes dated February 28, 1963, of the company wherein there is a
resolution cancelling the shares (50,000) allotted to the petitioner as well as
the other shares allotted to Bharat Singh.
The entire effort of
Mr. P.C. Khanna, learned counsel for the official liquidator, was only directed
towards showing that some fraud had been perpetrated and that the conduct of
the petitioner in having agreed to consult his solicitor and, even after
consulting him, not taking steps to apply for rectification suggests that the
petitioner was himself a party to such fraud. While it seems that a bogus
company had been floated, in which the petitioner had been led to take shares,
the evidence falls far short of what is needed to establish that the petitioner
was a party to any fraud, along with the promoter. The evidence seems
consistent with the petitioner's embarrassment in having become involved in
this company as a shareholder and director and not being able to take any hasty
or drastic steps. He refused to sign a draft reply as per annexure
"B". In this respect he is supported by the solicitor (P.W. 5). If he
had agreed to consult his solicitor at Bombay, when the promoter was also
present, it was obviously to take legal advice. This is consistent with the
petitioner having been anxious to avoid any further injury to himself,
especially in the context of the records of the company having been seized
earlier by the police, even in June, 1962.
On the crucial
question whether 50,000 shares had been allotted to the petitioner and whether there
was a concluded contract in respect of those shares between members of the
company the evidence in this case is not sufficient to support such an
inference.
Dealing with the
powers conferred on the court to rectify the register of members at the stage
of settlement of the list of contributories given under the old section 184
corresponding to section 467 of the Act of 1956, A.N. Grover. J. (as he then
was), speaking for a Division Bench of the Punjab High Court, in S.K. Shankara,
Official Liquidator v. Sardar Haridhan Singh [1966] 36 Comp. Cas. 209 (Punj),
observed at page 218 as follows :
".........the
liquidator could ask for settlement of list of contributories only after the
winding up had been ordered and it is at that stage that he can invoke under
section 184 the power of the court to rectify the register of members. In my
opinion the intention to specifically confer the power to rectify the register
at the stage of settlement of list of contributories was with a very salutary
object in view, namely, to enable the liquidator to take necessary steps in the
matter of rectification when either due to fraud or collusion no one has made
an application for rectification under section 38 before the winding up of the
company".
The position in this
respect is the same except that the proviso to section 467(1), with which we
are not concerned, was adopted from section 257 of the English Companies Act of
1948.
On the sole ground,
even regardless of whether the company having rectified the same, the
petitioner is entitled to the relief prayed for, namely, that the register of
members of the company, if one exists, should be rectified so as to show that
the petitioner did not subscribe for 50,000 paid-up equity shares, but that he
was allotted only 500 paid-up shares, the official liquidator is directed not
to place the petitioner on the list of contributories.
My findings on issues
(1) to (3) are : There was no application at all for allotment of 50,000 shares
by the petitioner ; even if it was physically there and had been signed by the
petitioner it had been filled in without the petitioner's concurrence or
knowledge and contrary to his intention of subscribing for only 500 shares ;
the application was not accompanied by any cheque for Rs. 5 lakhs ; there was no
allotment of 50,000 shares to the petitioner and there has been no acceptance
by the company ; no allotment concerning 50,000 shares had ever been
communicated to the petitioner. In the result there was no contract, none which
had been concluded or was complete, in respect of 50,000 shares.
Issue (5) :
No estoppel can be
pleaded against the petitioner, there being no allotment of 50,000 shares.
Issue (6) :
This issue has not even
been argued before me. I do not see how such a question arises in the present
petition.
In particular, it may
be worth examining, in the light of the evils which the case on hand presents
whether stricter provisions concerning the allotment of shares than have been
provided even under the Companies (Amendment) Act (41 of 1974) should not be
thought of. Part II of the Act has no doubt been the subject of progressive
amendment aimed at controlling the evils usually encountered not only in the
matter of deposits invited by limited companies (in addition to sections 58A
and 58B recently added to the Act by Act XLI of 74), the Reserve Bank (Second
Amendment) Act also regulates deposits invited by non-banking financial
companies, but also by making provisions in the matter of mis-statements in
prospectuses providing for not only civil liability in respect of them (section
62) but also providing penalty (section 63) for fraudulently inducing persons
to invest money (section 68) and making personation for acquisition of shares
(section 68A). Certain prohibitions regarding allotment of shares (sections 69
and 70) have been imposed ; the legal effect of certain irregular allotments,
contravening the above provisions, has also been statutorily stated (section
71); the applicants for shares have also been given time to study the
prospectuses and withdraw their offer to subscribe for shares in case they are
not satisfied with the same (section 72). In the light of the evils which the
present case brings to light and may further bring to light if there is going to be a detailed probe into the affairs of this
company, it may be rewarding, in the public interest, to consider whether even
more stringent control and regulation than have been yet provided for are
necessary not only up to the pre-registration stage but also up to the stage
when the shares are finally allotted. In this respect, it seems to me, the
provisions of the German Stock Corporation Act of 1965 (see Mueller-Galbraith :
Aktien-gesetz, 1965,
The German Stock Corporation Law in English and German), in so far as they could be made applicable and modified to
suit the Indian context, may be worth close attention. I may only draw
attention to one provision, among many others, which requires that all
transactions pertaining to shares should be gone through banks—in our context,
the nationalised banks. It may be possible to combat at least some if a
provision is made that all applications for shares should be accompanied by
cheque on a nationalised bank to the extent prescribed and that no share would
be allotted unless and until the concerned bank intimates to the company, in
writing, that the cheque has been cashed. There are, surely, many other
provisions in the German Stock Corporation law which may be useful to us and be
capable of adaptation, but it is needless for me to refer to them all at the
present moment. I may, however, point out that even in England, from whom we
have largely borrowed our company law, efforts are currently under way to
introduce reforms in the company law in an effort to gear private effort also
to national growth (see Lord Watkinson's Committee Report).
I am directing a copy of this judgment to be
sent by the Registry to the Company Law Board not only for considering what
further safeguards may be provided than what have been provided so far, but
also for the purpose of more needed action (I am not aware of the details of
any action so far taken) being taken against the persons responsible for such a
sorry state of affairs.
In the result, the petition is accepted, as stated above, but, in the circumstances, without costs.
[1983] 54 COMP. CAS. 136 (BOM.)
v.
Unit Trust of India
BHARUCHA J.
SUIT NO. 1108 OF 1981
JUNE 28, 1982
K.S.
Cooper, G.A. Thakkar, A.N. Mody and V.C. Kotwal for the Plaintiffs.
F.S.
Nariman, R.P. Bhatt, I.M. Chagla, R.A. Dada, D.R. Dhanuka, Ashok Desai, T.R. Andhyarujina and G.E. Vahanvatti for the
Defendant.
Bharucha J.—The question to be decided arises in the context of a copy
of the return of allotments filed by the 8th defendant company with the
Registrar of Companies and an extract of the annual return also so filed, both
certified to be true by the Registrar under s. 610 of the Companies Act. The
said true copy and extract have been admitted on record as the first
defendant's exhibits (at exs. 17 and 18). The question is : Is the truth of
their contents established prima facie, as Mr. Nariman learned counsel for the first
defendant, contends or must the truth thereof be proved?
It is necessary to set out
the relevant provisions of the Evidence Act. In s. 3, a "document" is
defined as any matter expressed or described upon any substance by means of
letters, figures or marks or by more than one of those means, intended to be
used or which may be used, for the purpose of recording that matter. Again in
s. 3, a "fact" is said to be proved when, after considering the
matters before it, the court either believes it to exist, or considers its
existence so probable that a prudent man ought, under the circumstances of the
particular case, to act upon the supposition that it exists. Section 59 states
that all facts, except the contents of documents, may be proved by oral evidence.
Section 65 (61 ?) under the (Chapter) heading "of documentary
evidence", states that the contents of documents may be proved either by
primary or secondary evidence. Section 62 states that primary evidence means
the document itself produced for the inspection of the court. Section 63
relates to secondary evidence and states that secondary evidence includes,
inter alia, certified copies given under the provisions thereinafter contained
in the Act, and oral accounts of the contents of a document given by some
person who has himself seen it. Section 64 requires that documents must be
proved by primary evidence except in the cases thereinafter mentioned. Section
65 relates to those cases and states that secondary evidence may be given of
the existence, condition or contents of a document. It states that it is only
when the original is a public document within the meaning of s. 74 that a
certified copy of it, but no other kind of secondary evidence is admissible.
Section 67 requires that if a document is alleged to be signed or to have been
written wholly or in part by any person, the signature or the handwriting of so
much of the document as is alleged to be in that person's handwriting must be
proved to be in his handwriting. Sections 74 to 78 are in relation to
"Public documents" and are "the provisions hereinafter
contained" mentioned in s. 63. Section 74 sets out what documents are
public documents. Sub-section (1) states that documents forming the acts, or
records of the acts of the sovereign authority, of official bodies and
tribunals, and of public officers., legislative, judicial and executive, are
public documents. Sub-section (2) states that public records kept in any State
of private documents are public documents. Under s. 76 every public officer having
the custody of a public document is obliged to give any person on demand a copy
of it together with a certificate that it is a true copy of such document or
part thereof ; such copies so certified are called certified copies. Under s.
77 such certified copies may be produced in proof of the contents of the public
documents or parts of the public documents of which they purport to be copies.
Sections 79 to 90 are under the head of "Presumptions as to
documents". Section 79 deals with certified copies : it provides that the
court shall presume to be genuine every document purporting to be a
certificate, certified copy, or other document, which is by law declared to be
admissible as evidence of any particular fact and which purports to be duly
certified by an officer of the Government. Under its provisions the court shall
also presume that any officer, by whom any such document is purported to be
signed or certified, held, when he signed it, the official character, which he
claimed. The only section under this head, which requires the presumption of
the accuracy (or truth or correctness) of a document to be drawn, is s. 83 ;
thereunder, the court shall presume that maps or plans purporting to be made by
the authority of the Central or any State Govt. were so made and are accurate.
Much depends upon the
interpretation to be given to the expression "the contents of
documents" in the Act. It was contended at first by Mr. Nariman that that
expression wherever used in the Act meant the truth of the contents of documents.
When, however, the court pointed out to him the provisions of s. 63(5), Mr.
Nariman submitted that at least in ss. 61 and 77 that expression bore that
meaning, being linked to "proved" in s. 61 and to "proof"
in s. 77.
Maxwell on the
Interpretation of Statutes, 12th edition, states (at p. 278) that it is
reasonable to presume that the same meaning is implied by the use of the same
expression in every part of an Act.
Section 63 states that
secondary evidence includes an oral account of the contents of a document given
by some person who has seen it. That person does not give evidence of the truth
of the contents of the document merely by reason of having seen it, but of what
he saw. In s. 63, therefore, the expression "the contents of a document"
must mean only what the document states. Section 61 provides that the contents
of a document may be proved either by primary or by secondary evidence. The
expression in s. 61 must, therefore, also mean what the document states, and
not the truth of what the document states.
Secondly, ss. 61 and 62
read together show that the contents of a document must, primarily, be proved
by the production of the document itself for the inspection of the court. It is
obvious that the . truth of the contents of the document, even prima facie,
cannot be proved by merely producing the document for the inspection of the
court. What it states can be so established.
Thirdly, it is laid down
that the writer of & document must depose to the truth of its contents.
Three judgments must be noted in this connection.
In Bishwanath Rai v.
Sachhidanand Singh, AIR 1971 SC 1949, the Supreme Court said thus (at p. 1953)
:
"The contents of this
letter were proved by the evidence of Ram Chandra Sharma who stated that he
knew the handwriting of Swamiji with whom he had had correspondence even
earlier. His evidence, thus, was sufficient to prove that Swamiji wrote this
letter to Ram Chandra Sharma, and that the statements contained in the letter
were made by Swamiji himself. It is true that, in the absence of examination of
Swamiji, the correctness of those statements cannot be held to be proved. Thus,
the evidence of Ram Chandra Sharma proves the contents of the letter, but not
the correctness of those contents."
In the well known Bombay
case of Madholal Sindhu v. Asian Assurance Co. Ltd. [1954] 56 Bom LR 147 ; AIR
1954 Bom 305, N.H. Bhagwati J. held that it was futile to merely prove the
signature or the handwriting of the person who had signed or written various
documents without calling that person, who was the only person who could depose
to the correctness of the contents of those documents.
In the case of D and S, In
re [1966] 68 Bom LR 228, a Division Bench of this court approved the decision
in Madholal Sindhu's case [1954] 56 Bom LR 147 ; AIR 1954 Bom 305, and held
that the evidence of the contents; of a document was hearsay evidence unless
the writer thereof was examined before the court.
Fourthly, s. 67 of the Act
requires the proof of the handwriting or signature upon a document. If by a
mere production of the original document for the inspection of the court the
truth of its contents was proved prima facie, the requirement of proof of the
handwriting and of the signature upon it would be almost superfluous.
The Act requires, first,
the production of the original document. If the original document is not
available, secondary evidence may be given. This is to prove what the document
states. Upon this, the document becomes admissible, except where it is signed
or handwritten, wholly or in part. In such a case the second requirement is,
under s. 67, that the signature and handwriting must be proved. Further, where
the party tendering the document finds it necessary to prove the truth of its
contents, that is, the truth of what it states, he must do so in the manner he
would prove a relevant fact. As the cases of Bishwanath Rai, AIR 1971 SC 1949,
Madholal Sindhu [1954] 56 Bom LR 147; AIR 1954 Bom 305 and D and S, In re
[1966] 68 Bom LR 228 indicate, this is generally done by calling the author of
the document.
It would have been noticed
that the production of certified copies under the provisions of s. 63 is a
means of leading secondary evidence. Secondary evidence can, obviously, be led
only of what the document states, not as to whether what the document states is
true Under s. 65(e), secondary evidence may be given when the original is a
public document within the meaning of s. 74 and only a certified copy of the
public document is admissible. Secondary evidence of a public document so led
only proves what the document states and no more. In other words, he who seeks
to prove a public document is relieved of the obligation to produce the
original. He can produce instead a certified copy. All other requirements he
must still comply with.
In this context this
court's judgment in C. H. Shah v. 5.S. Malpathak [1972] 74 Bom LR 505 ; AIR
1973 Bom 14, must be noted. The court was concerned with deciding whether the
original of a public document had to be proved in the same manner as any other
document. A consideration of the relevant provisions of the Evidence Act
clearly showed the court that the only difference which the Act made between
public and private documents was in regard to the form of secondary evidence
which was admissible, viz., a certified copy, and in regard to the presumption
of the genuineness of the certified copy ; in all other respects, no
distinction was drawn by the Act between public and private documents.
In
Vithoba Savlaram v. Shrihari Narayan, AIR 1945 Bom 319, Chagla J., sitting singly, was concerned with the
production of the certified copy of a registered mortgage deed. He held that
there was no doubt that by producing the certified copy the plaintiff proved
the contents of the mortgage deed but its execution was not so proved. The portion
of the judgment, with which we are here concerned, reads thus (at p. 320):
"All that the Evidence
Act does is that it permits secondary evidence to be given of a registered
document because it is a public document within the meaning of s. 74, and under
s. 77 it provides that certified copies may be produced in proof of the
contents of the public documents. All that a certified copy does is that it
authenticates the genuineness of the copy. The court presumes that the original
document had the same contents as the copy. It certainly does not prove the
actual execution of the original document."
In Kashibai Martand v.
Vinayak Ganesh, AIR 1956 Bom 65, the judgment in Vithoba Savlaram's case, AIR
1945 Bom 319, came up for consideration before a Division Bench of this court.
The Division Bench pointed out that the attention of Chagla J. had not been
drawn to the relevant sections of the Indian Registration Act whereunder a
statutory presumption arose that the facts mentioned in the endorsements
required to be made under s. 59 occurred as indicated in the endorsements. The
judgement of the Division Bench did not, however, comment upon the aforesaid
observations of Chagla J. They still stand as good law.
Section 114 of the Evidence
Act enables the court to presume the existence of any fact which it thinks
likely to have happened, regard beiDg had to the common course of natural
events, human conduct and public and private business, in their relation to the
facts of the particular case. The illustrations to the section state that the
court may presume, inter alia, that judicial and official acts have been
regularly performed. In respect of public documents which form the acts or
records of the acts of sovereign authority, official bodies and tribunals, and
of public officers, legislative, judicial and executive, the presumption can
be, and is, in fact, invariably drawn. It is necessary, however, to appreciate
that the source of the presumption is s. 114.
A judgment of the Calcutta
High Court must be noted in this connection. From its judgment in Pattu Kumari
Bibi v. Nirmal Kumar Singh Nawalakha, AIR 1939 Cal 569, the following passage
is extracted (at p. 577):
"The register of
powers-of-attorney is maintained by the Registering Officer under certain rules
made my the Inspector-General of Registration under s. 69, Registration Act,
1908. Every entry in that register is, therefore, 'a public document' within
the meaning of s. 74(1)(iii), Evidence Act, being 'a document forming the act
or record of the act' of an executive public officer in the discharge of a
statutory duty imposed upon him. It follows that a true copy of the entry
(which by virtue of sec. 76, Evidence Act, is a certified copy within the
meaning of s. 63(1) is admissible as proof of the original entry by virtue of
s. 65(e), Evidence Act. How far the original entry itself is good evidence of
the contents of the power-of-attorney is a slightly different question. It is
undoubtedly relevant under s. 35, Evidence Act. The weight to be attached to
the entry depends upon the accuracy of the abstract of the power which appears
to be the sixth column of the entry. According to this abstract the power was a
general power-of-attorney authorising the agent, inter alia, to adjust,
compromise and submit any account, debts, claims, demands, and disputes
touching any matters which now subsist or may arise between the principal and
Nirmal Kumar SiDgh Nawalakha ; also to abandon or compromise any suit, actions
or proceedings if the attorney thinks necessary; to appoint advocates,
attorneys, vakils, solicitors, pleaders, muktears, revenue agents and so forth.
This abstract is, as already mentioned, made by the Sub-Registrar in the
discharge of his official duty and we think that the court is entitled to
presume its correctness in accordance with the usual presumption that official
acts are regularly performed."
The court is also obliged
to draw the presumption in regard to documents included in Part I to the Schedule
to the Commercial Documents Evidence Act that they have been duly made and that
the statements contained therein are accurate. In respect of documents included
in Part II of the Schedule to that statute the court is given the discretion to
presume that they were so made and that the statements contained therein are .
accurate. Item 21 of Part II of the Schedule to that statute relates to a
"copy, certified by the Registrar of Companies, of the balance-sheet,
profit and loss account, and audit report of a company, filed with the said
Registrar under the Indian Companies Act, 1913, and the rules made
thereunder".
In Kashinath Sankarappa
Wani v. New Akot Cotton Ginning & Pressing Co. Ltd., AIR 1958 SC 437, the
Supreme Court was concerned with a case where the copy of a balance-sheet filed
by a company with the Registrar of Companies was rejected by the High Court.
The Supreme Court observed that if the attention of the High Court had been
drawn to s. 3 of the Commercial Documents Evidence Act and to Item No. 21 in
Part II of its Schedule the High Court would not have rejected the copy of the
balance-sheet obtained by the appellant from the office of the Registrar of
Companies. The Supreme Court was of the opinion that the copy should have been
admitted in evidence and it admitted the same. It then went on to consider
whether it should presume the accuracy of its contents under s. 3 of the
Commercial Documents Evidence Act and held that the High Court would have been
perfectly justified in not raising the presumption in regard to the accuracy of
the statements contained in the balance-sheet. Mr. Cooper, learned counsel for
the plaintiffs, placed reliance upon this judgment to submit that if under the
provisions of s. 77 a certified copy of the balance-sheet was proved even as to
the accuracy of its contents there was no reason for the Supreme Court to rely
upon the Commercial Documents Evidence Act and to the discretion therein given
to the court to draw the presumption of accuracy.
I now turn to the cases cited
by Mr. Nariman. In Madamanchi Ramappa v. Muthaluru Bojjappa, AIR 1963 SC 1633,
the High Court had interfered in second appeal upon the footing that a document
had not been proved and should not have been received in evidence. Before the
Supreme Court it was fairly conceded that this was erroneous. The Supreme Court
observed that the document in question, being a certified copy of a public
document, need not have been proved by calling a witness. Having come to the
conclusion that the document had been correctly admitted on record, the Supreme
Court held that the High Court should not have interfered in the second appeal
and upset the High Court's order. No question arose before the Supreme Court as
to the truth of the contents of the document.
In
P. C. Purushothama Reddiar v. S. Perumal, AIR 1972 SC 608, an election petition was before the Supreme Court. The
question was whether the returned candidate had held election meetings on
certain dates. Reports made by the police officers deputed to cover those meetings
were marked without objection. Before the Supreme Court an objection as to
their admissibility was raised. The Supreme Court held that it was not open to
the respondent to object to their admissibility. The next paragraph, para. 19
(at p. 613), must be fully reproduced :
"19.It
was next urged that even if the reports in question are admissible we cannot
look into the contents of those documents. This contention is again
unacceptable. Once a document is properly admitted, the contents of that document
are also admitted in evidence though those contents may not be conclusive
evidence."
Great stress was laid by
Mr. Nariman upon the last sentence of this paragraph. It was contended that
this meant that the truth of the contents of all documents which had been
properly admitted in evidence was prima facie established. It was urged that
the said copy and extract having been properly admitted the court was obliged
to consider the truth of the contents thereof as being prima facie established.
It would not, I think, be permissible to read the last sentence of para. 19 of
the judgment as holding that in all cases where a document has been admitted on
record it can be looked at on the basis that the truth of its. contents had
been established, albeit prima facie. I find it difficult to read this sentence
as overruling the decision in Bishwanth Rai's case AIR 1971 SC 1949 or the
decisions of the High Courts or nullifying the distinction between proof of the
contents of a document and proof of the truth of the contents of a document,
for, there is no discussion of the provisions of the statute or of any earlier
decisions. The sentence must, as I see it, be read in the context of the issues
in the case and the paragraphs that immediately precede and succeed it.
The judgment in Ramanbhai
Nagjibhai Patel v. Jasvantsingh Udesingh Dabhi, AIR 1978 SC 1162, was cited
because it referred (in para. 13) to the decision in P. C. Purushothama
Reddiar's case, AIR. 1972 SC 608. It is there stated only that the counsel made
a submission based upon that judgment. The case is of no assistance upon the
point at issue.
In Banamali Das v. Rajendra
Chandra Mardaraj Harichandan, AIR 1975 SC 1863, the Supreme Court was again concerned
with an election petition. The question was whether the returning officer had
erroneously entered the results of the second round on Table No. 14 twice in
the final tabulation, once as against the second round of Table No. 14 and once
as against the second round of Table No. 13. The original Check Memo of Table
No 13 in which the results of the second round were entered was not produced
during the trial but a certified copy thereof was admitted in evidence, subject
to an objection as to its admissibility. The Supreme Court held that there was
no substance in the objection. The Check Memo which was required to be
maintained by the officer in charge of the counting table was a document
forming the record of the acts of a public officer and, therefore, a certified
copy thereof, given by the Collector in whose custody the document was kept,
could be admitted in evidence in proof of the contents of the original
document. That certified copy showed that an error had indeed been made. It was
contended that this judgment showed that the" certified copy of a public
document established the truth of the contents thereof. It will be noted that
the question before the Supreme Court was whether the certified copy of the
Check Memo could be admitted in evidence. No contention was raised before the
Supreme Court regarding the correctness or truth of the document nor is there
any discussion of this aspect in the judgment.
In Tarit Kanti Biswas, AIR
1918 Cal 988, the court was concerned with a contempt petition. The alleged
contempt was of the Chief Justice made in a newspaper article. As far as this
discussion is concerned, the relevant question was whether two persons were
directors of the company that published the newspaper and could be held liable
for the contempt. There was before the court a certified copy of a statement
made by the company to the Registrar of Companies which showed the names of
these two persons as directors. It was held by Woodroffe J. that the statement
was a public record of a private document and, therefore, admissible. The
objection then was that the signature of the executant of the statement was not
proved. The learned judge held that, assuming that the production of the
certified copy was not such proof where proof was necessary, it was not
necessary there, for a person giving the name of one of the two alleged
directors bad signed the statement, and, as the statement was accepted by the
Registrar, it was common sense to assume that he was satisfied that it was made
on behalf of the company. The reasoning of Woodroffe J. in this regard was
accepted by all but one of the 5 learned judges constituting the Bench. The
dissenting judge, Mookerjee J. held that although secondary evidence was
admissible of a public document by way of its certified copy, the party who
produced it was not relieved of his obligation to prove the execution of the
document just as if the original had been produced, unless the case was covered
by s. 90 of the Evidence Act, or the legislature had otherwise expressly excepted
it. With the greatest respect to the four learned judges, I find myself
entirely in agreement with the view expressed by Mookerjee J.
Mr. Nariman contended that
the law on the point in India was what the law on the point in England was,
viz., that a certified copy of a public document proved prima facie the truth
of its contents. He relied upon Chap. 22 of Phipson on Evidence, 12th Edn.,
para. 1051, states that a class of exceptions to the hearsay rule consists of
statements contained in public or official documents which are in general prima
facie, though not conclusive evidence of the truth of the facts recorded, even
against strangers. Paragraph 1052 states that for the purposes of civil
proceedings the common law exceptions to the hearsay rule have either been
superseded or rendered statutory by the Civil Evidence Act, 1968. The
provisions of the Evidence Act, to which I have made reference, lay down the
position clearly. Thereunder a certified copy of a public document can be
admitted as secondary evidence to prove only what the document states. The
truth of what the document states must be separately established. That being
so, I find it unnecessary to take recourse to the English law based originally
on common law and now on the enactment of 1968.
In the result, I hold that
the said copy and extract (exs. 17 and 18) do not establish, even prima facie,
the truth or accuracy or correctness of the contents of their originals. They
prove only what the contents of their originals are.
At this stage Mr. Nariman refers to
section 159 and 164 of the Companies Act. He submits that the return (extract
of which is at ex. 18) is an annual return made by the 8th defendant company
under the provisions of section 159 and that under the provisions of s. 164
such annual return is prima facie evidence of any matters directed or
authorised to be inserted therein by the Companies Act. In Mr. Nariman's
submission, the said extract prima facie establishes the truth of the contents
of its original.
Mr. Cooper submits that the
said extract can be prima facie evidence only of matters directed or authorised
to be inserted therein by the Companies Act. He refers to the last page of the
extract which sets out the names of the holders of privately placed convertible
debentures, the number of debentures held by each of them, the number thereof
as have been converted into equity shares, and the number of equity shares
allotted on 5th June, 1979. He submits that all this information is in excess
of the requirements of s. 159 and its correctness cannot be prima facie
established thus. Section 159 makes a reference to Sch. V, Pt. 1; to the
register of debenture holders; to the debentures; and to the debeture-holders,
past and present. It does not appear to me that there is, therefore, anything
in excess in the annual return.
I now hold that the said
extract (Ex. 18) proves, by reason of s. 164 of the Companies Act, prima facie
the truth of the contents of its original.
[1958] 28 COMP. CAS. 13 (KER.)
V.
West Coast Planters Agencies
Ltd.
SANKARAN AND RAMAN NAIR JJ.
SEPTEMBER 2, 1957
RAMAN NAIR
J. - These appeals by the
State against acquittal of the same accused persons in two different cases
raise the question whether there can be a general meeting under section 76(1)
of the Indian Companies Act, 1913, of a company consisting only of one member.
The first accused in both the cases is the company itself, a private company as
it happens to be, and the second accused is the managing director of the
company who, at the relevant time, was its sole member. In one case the
prosecution was for an offence under section 76(2) of the Companies Act for
failure to hold a general meeting in the year 1953 as required by section 76(1)
; in the other, it was for an offence under section 133(3) read with section
131 for failure to lay before the company in general meeting a balance-sheet
and profit and loss account in the same year ; and in both the liability
depends upon whether section 76(1) enjoins such a meeting in the case of a one
man company or, perhaps, to put it more correctly, whether section 76(1)
applies to such a company. The learned Magistrate who tried the case took what
seems to us the common sense view that for a meeting there must be at least two
persons, that a man cannot meet himself, and that the general meeting required
by section 76(1) being an impossibility, no liability attached under section
76(2) or section 133(3) to either of the accused. In this view he acquitted the
accused in both the cases, and hence these appeals.
2. We are inclined to think
that the common sense view taken by the learned Magistrate is also the true
view in law. The word “meeting’ is thus defined in the Shorter Oxford
Dictionary, “an assembly of a number of people for entertainment, discussion, or
the like,” and in Black’s Law Dictionary, as, “a coming together of persons ;
and assembly. Particularly in law, an assembling of a number of persons for the
purpose of discussing and acting upon some matter or matters in which they have
a common interest.” It would follow that for a meeting, there must be at least
tow persons, and that this is the ordinary and natural meaning of the word is
recognised in the only two reported cases that have been brought to our notice.
In the first of these, Sharp v. Dawes the validity of a call made at a meeting
of a company purporting to have been held by one shareholder was in question.
The statute, viz., section 10 of the Stannaries Act, 1869, required that the
call should be made at a meeting of the company with special notice, and, in
pronouncing against the validity of the call on the ground that one man could
not hold a meeting within the meaning of the Act, LORD COLERIDGE C. J. said :
“the word `meeting’ prima facie means a coming together is nothing here to show
this to be the case.” MELLISH L. J. was more forthright and it would appear
that he refused to contemplate a meeting of one person. “It is clear”, he
observed, “that, according to the ordinary use of the English language, a
meeting could no more be constituted by one person than a meeting could have
been constituted if no shareholder at all had attended.”
3. In the second case, East v.
Bennett Brothers Limited WARRINGTON J. following Sharp v. Dawes, and also the
decision of JESSEL M. R. in Sanitary Carbon Co., In re, observed that in an
ordinary case it was quite clear that a meeting must consist of more than one
person. The learned judge however we on to hold that the word “meeting’ was
used in the memorandum of association he was construing in a special sense, and
that having regard to the purpose of the particular clause, namely, that the
formal consent of the preference shareholders should be obtained before
anything was done affecting their rights, the framers of the document, who must
have contemplated the possibility of all the preference shares being held by
one person, must have used the word “meeting” in a sense different from the
ordinary sense and as including the record, in a formal manner, of the assent
of a single person when he happens to be the sole preference shareholder. He
thought that that was one of the cases referred to by LORD COLERIDGE C. J. as
one in which it may be possible to show that the word “meeting” had a meaning
different from the ordinary meaning. The learned Judge also seems to have
thought that the circumstance that in the two cases referred to by him there
were several shareholders whose proxies were held by the single shareholder who
held the meeting, whereas in the case he was deciding there was only one
preference shareholder, made a difference. We agree ; but with due respect we
think the difference makes the case of a one-man company an a fortiori case.
4. It is to be observed that
both LORD COLERIDGE C. J. and WARRINGTON J. were dealing only with civil
obligations and that neither was construing a panel statute. WARRINGTON J. in
particular was construing only a memorandum of association of a company, and
the degree of latitude he allowed himself is apparent from the question he
posed himself, namely. “whether what the company did was in effect, although
not perhaps in terms, within the provisions of the memorandum and articles of
association, and if it was in effect though not in terms, whether there was a
sufficient compliance with the memorandum and articles to render the
proceedings valid,” although he straightaway put it in a different form,
namely, whether, upon the true construction of the memorandum and articles the
proceedings were not really and in terms a compliance with them.
5. One thing is clear from both
these decisions as also on the high authority of JESSEL M. R. in Sanitary
Carbon C., In re (the report of which has however not been placed before us),
and that is that, according to the ordinary use of the English language, a
meeting can no more be held by one person than it can be by none.
6. It is hardly necessary to
repeat what has been so often said that the golden rule of construction is that
the grammatical and ordinary sense of the words used in a statute should be
adhered to unless that would lead to some absurdity or repugnancy or
inconsistency with the rest of the statute. Words have to be given their plain,
fair and natural meaning where it is not apparent from the scope and intendment
of the statute that such a meaning would be inconsistent or would lead to
manifold injustice. It is no more necessary to say that the provisions of a
penal statute must be strictly construed, that a man cannot be punished for
breach of an obligation of which the words imposing that obligation do not give
him clear notice, or to put it somewhat differently, that a man cannot be
punished for failing to do, not what the statute on the face of it requires him
to do according to the ordinary and natural meaning of the words employed, but
according to some meaning that can be read into them by an involved process of
reasoning. No doubt as Maxwell observes (Chapter X, 9th edition) the rule of
strict construction in the case of penal statutes was more rigorously applied
in former times, and the tendency of modern decisions, upon the whole, is to
narrow materially the difference between what is called a strict and a
beneficial construction. The rule of strict construction must yield to the
paramount rule that every statute is to be expounded according to its express
or manifest intention. Nevertheless the intention to use words in a sense
different from their natural and ordinary sense must first be established, and
this more strictly in a criminal case.
7. We are told that section 76
of the Companies Act, in fact the Act as a whole, uses the word “meeting” in a
very special sense as including resolutions. The argument advanced in support
of this view is that, in law, there can be a company with only one member -
although under section 5 of the Companies Act at least tow persons are
necessary for forming a private company and seven for a public company ;
sections 147 and 162 (iv) contemplate the reduction of the membership to below
two. Therefore, since there can be a company with only one member, all the
provisions of the Act, including section 76, must apply to such a company. The
legislature could not have intended otherwise. There are so many provisions in
the Companies Act as, for example, sections 32 and 131 that depend on the
holding of the annual general meetings and many more, that depend on statutory
or extraordinary general meetings, and having regard to the scope and
intendment of the statute, it cannot be that these provisions, with the
obligations that they carry, were not intended to apply to the case of a one man
company.
8. So runs the argument, and
our attention has also been drawn to regulations 51 and 52 of the Regulations
in Table A of the first schedule to the Act (now embodied in section 174 of the
Companies Act, 1956) which read together imply that a meeting can be held with
less than two members. For regulation 51 lays down that two members personally
present shall be a quorum in the case of a private company and regulation 52
says that if at an adjourned meeting a quorum is not present, the members present
(which covers the case of one member, the plural including the singular, and
which, in the case of a private company can be only one) shall be a quorum.
9. The first answer that occurs
to us to this argument is that if sections 147 and 162 (iv) of the Act
contemplate the case of a one-man company they contemplate also a no man
company, for the reduction of membership below two or seven as the case may be,
can as well be to zero as to one. Similarly in the case of the regulations, the
absence of a quorum of two includes a case where none is present. That this is
in accord with strict legal theory, and that a company does not cease to exist
merely because it has ceased to have any members would appear from the
following observation in Salmond on Jurisprudence (page 339, 10th edition) :
“There is no
reason why a corporation should not continue to live, although the last of its
members is dead.”
By a parity
of reasoning a company should be obliged to hold an annual general meeting of
its members although it has no members.
10. We do not profess to read the
mind of the Legislature apart from what appears from the words it has used, but
it might well be that the Legislature thought it unnecessary that the
obligations under section 76 of the Act and under the other sections depending
on it, should be imposed on a one-man company. All these provisions, it will be
noticed, are primarily designed for the protection of the members of a company
against those in actual management of its affairs. They do not appear to be
designed so much for the protection of the general public, and that is why a
private company, all the members whereof would ordinarily have a hand in the
actual management, is exempt from some of the provisions : see for example
section 77(11) which exempts a private company from the provisions of that
section. Where a company consists of only one member he would naturally be in
conduct of its affairs, and the Legislature might well have thought it
unnecessary to protect him against himself. For the general public dealing with
such a company, it was probably thought that provisions like section 47 and
section 162(iv) would afford sufficient protection.
11. It is also possible that, in
framing section 76, the Legislature lost sight of the fact that there could be
a one-man company and proceeded on the basis that there would always be two or
more members. In any case, the notion of one man calling a meeting of himself,
going to that meeting to meet himself, electing himself to the chair, presiding
over himself, laying before himself the matter to be considered, and, after
having discussed these matters with himself, passing resolutions with regard to
them, and, perhaps, as was the case in Sharp v. Dawes , proposing a vote of
thanks to himself, sounds so Gilbertain that we should think that, unless the
words used expressly, or by necessary implication, point to it, the Legislature
could not have contemplated such a thing.
12. Such words are, in fact, to
be found in the explanation to section 186(1) (as also in the explanation to
section 167(1) of Companies Act, 1956) which states that the directions given
by the court under that sub-section may include a direction that one member of
the company shall be deemed to constitute a meeting. This, we are told, is only
declaratory of the law under section 79(3) of the Act of 1913 as that
provisions was judicially interpreted. That might well be so ; but even so it
clearly implies that in the sense in which the word “meeting” used in the Act
of 1956 (Which cannot be less comprehensive than the sense in which it is used
in the Act of 1913, the provisions of the later Act being more far-reaching)
there cannot be a meeting of one member of a company. It requires a direction
of the court (or of the Central Government as the case may be) before one
member can even be deemed to constitute a meeting. This, we should imagine is
conclusive against the argument advanced on behalf of the State.
13. We have been referred to the
decision of a Bench of this court in Peermade Tea Co. Ltd. v. Executive
Authority, as authority for the proposition, with which we have no quarrel,
that, if the context requires it, a word must be given a meaning wider than its
ordinary or primary meaning. But that decision which concerns itself with the
interpretation of the word “house” as used in a local administration statute,
an ambiguous word which has long outgrown its primary meaning of a building for
human habitation and has, especially in the context of rates and taxes, come to
include all manner of buildings, has no direct bearing on the present case. Our
attention is however invited to the following aphorism of Judge learned hand
which is quoted in that case, “it is one of the surest indexes of a mature and
developed jurisprudence not to make a fortress out of the dictionary.” We can
only observe that it is certainly not the index of such a jurisprudence to make
a flood-gate of the dictionary through which can enter any extravagance of the
mind.
14. It is said that it was the duty
of the company and of the sole surviving member to bring on the register the
legal representatives of the deceased members, and that the accused cannot be
allowed to take advantage of their own remissness. But we have not been shown
any provision of the Act which imposes such a duty ; nor are we aware that a
legal representative can be compelled to come on the register.
15. The
appeals fail and are dismissed.
Appeals
dismissed.
[1932] 2 COMP. CAS. 588 (CH. D)
CHANCERY DIVISION
Eve, J.
February 1, 2, 16, 1932
Manning, K.C.
and Harold Christie, for the applicant.
A. de W. Mulligan, for the liquidator.
Eve, J.,—after stating the facts as above set forth, read the following judgment: It is not contended, nor in the face of a number of authorities to the contrary effect could it be, that an arrangement of this nature for rewarding long and faithful service on the part of persons employed by the company is not within the power of an ordinary trading company such as this company was, and indeed in the company's memorandum of association is contained—clause 3, paragraph W—an express power to provide for the welfare of persons in the employment of the company, or formerly in its employment, and the widows and children of such persons and others dependant upon them, by granting money or pensions providing schools, reading room or places of recreation, subscribing to sick or benefit clubs or societies or otherwise as the company may think fit. But whether they may be made under an express or implied power, all such grants involve an expenditure of the company's money, and that money can only be spent for purposes reasonably incidental to the carrying on of the company's business, and the validity of such grants is to be tested, as is shown in all the authorities, by the answers to three pertinent questions: (1) Is the transaction reasonably incidental to the carrying on of the company's business? (2) Is it a bona fide transaction? and (3) Is it done for the benefit and to promote the prosperity of the company ? Authority for each of the foregoing propositions is to be found in the following cases—Hampson v. Price's Patent Candle Co., Hutton v. West Cork Railway, and Henderson v. Bank of Australasia.
In the present case the Court is left entirely without any material for determining whether the transaction was characterised by any of these several attributes, assuming, as I am quite prepared to do, that there are no grounds for impugning the bona fides of the board or the applicant; no one of them has given evidence to suggest that the course adopted was taken for the benefit of or to promote the prosperity of the company, or that the execution of the deed of covenant and the assumption of so burdensome a liability was reasonably incidental to the carrying on of the company's business. All that I have in the way of evidence are affidavits proving the death of Southerden and probate of his will, verifying the memorandum and articles and the minute book of the company, the three deeds executed on June 29, 1928, and the certificate of the applicant's birth. Neither of the two directors who authorised the sealing of the deeds has made any affidavits, and the only material paragraphs in the applicant's affidavit are paragraphs 2 and 3, where she says: "(2) My late husband was for many years prior to his death managing director of the company. (3) After the decease of my said husband considerable negotiations took place between me and the directors of the company and S.L. Behrens, Ltd., with a view to providing me with a pension, and eventually it was agreed that the company and S.L. Behrens, Ltd., and myself should enter into a deed of covenant under which the company and S.L. Behrens, Ltd. were to jointly and severally pay me an annuity of Ł500."
The conclusion to which, in my opinion, such evidence as is available irresistibly points is that the predominant, if not the only, considerations operating in the minds of the directors were a desire to provide for the applicant, and that the question what, if any, benefit would accrue to the company never presented itself to their minds. If there were nothing more in the case than what I have just indicated, I should feel myself bound in the circumstances to support the liquidator's rejection of this lady's proof. But there is another and perhaps more insurmountable difficulty with which she is faced, and it is this, that this annuity is a gift or reward given out of the company's assets by the directors to one of their own body, and this is something they cannot do unless authorised by the instrument which regulates the company, or by the shareholders at a properly convened meeting, that is, a meeting convened by a notice disclosing the intention to make the proposal. The authority for this proposition is the case of Newton & Co., In re. The paragraph I read earlier in this judgment from the company's memorandum does not assist the plaintiff, for "a director is not a servant" of the company—per Bowen, L.J. (52 L.J. Ch., at p. 698; 23 Ch. D., at p. 672), nor is any managing or other director a person in the employment of the company—Normandy v. Ind, Coope & Co. The alternative of getting authority from the shareholders at a meeting duly convened for the purpose was, never thought of, or, if thought of, was dismissed as superfluous, inasmuch as the shares were in the hands of so few, and, so far as was known, nobody was likely to object. It was the same in Newman's Case, but Lord Lindley, in giving judgment on behalf of Lord Halsbury, A.L. Smith, L.J., and himself disposed of this point in the following terms (64 L.J. Ch., at p. 413; [1895] 1 Ch., at p. 686): "Even if the shareholders in general meeting could have sanctioned the making of these presents, no general meeting to consider the subject was ever held. It may be true, and probably is true, that a meeting, if held, would have done anything which Mr. George Newman desired; but this is pure speculation, and the liquidator, as representing the company it its corporate capacity, is entitled to insist upon and to have the benefit of the fact that even if a general meeting could have sanctioned what was done, such sanction was never obtained. Individual assents given separately may preclude those who give them from complaining of what they have sanctioned; but for the purpose of binding a company in its corporate capacity individual assents given separately are not equivalent to the assent of a meeting. The company is entitled to the protection afforded by a duly convened meeting, and by a resolution properly considered and carried and duly recorded." All of which is peculiarly appropriate to the present case.
In my opinion, the rejection of this proof by the liquidator was quite right, and I must therefore dismiss this summons with costs.
[1972] 42 COMP. CAS. 632 (MAD.)
HIGH COURT OF MADRAS
Nungambakkam Dhanarakshaka
Saswatha Nidhi Ltd.
v.
Registrar of Companies
PALANISWAMY, J.
COMPANY APPLICATION NO. 333 OF 1971
NOVEMBER 4, 1971
K. Srinivasan and V. R.
Gopalan for the Applicant.
Palaniswamy, J. —This application raises an important question under the
company law, namely, whether the company court has inherent power to extend the
time within which the annual general meeting of a company should be held. The
short facts are these. The petitioner is a limited company and is carrying on
the business of receiving fixed deposits, recurring deposits, savings deposits,
etc. There are about 11,500 members on roll. The financial year of the company
is from 1st January to 31st December. The annual general meeting should be held
on 30th June of the succeeding year. In the month of January, 1971, there was a
strike among the members of the staff with the result that the normal working
of the Nidhi was dislocated. Putting forward that ground, the company approached
the Registrar of Companies by letter dated May 29, 1971, requesting for three
months’ time to hold the general body meeting from July 1, 1971. The Registrar,
by letter dated June 8, 1971, declined to grant time and informed the Nidhi
that expeditious steps should be taken to hold the meeting in accordance with
law. The persons in charge of the affairs of the company appear to have met the
Registrar in person and explained the position and reiterated the request for
time and followed up the request by a letter dated June 24, 1971, requesting
for extension of time up to at least 10 weeks. By letter dated 3rd September,
1971, the Registrar turned down that request also. It is in these circumstances
that this application has been taken under rules 9 and 11(b) of the Companies
(Court) Rules, 1959, praying that this court
may be pleased to extend the time for holding the annual general meeting up to
the middle of November, 1971. This application was presented on 18th September,
1971
The Registrar of Companies
has filed an affidavit contending that the application is not maintainable in
law, that the power to extend the time within which the annual general meeting
should be held rests with the Registrar and that this court has no power to
grant extension of time.
It is necessary to refer to
certain provisions of the Companies Act, 1956 (hereinafter referred to as “the
Act”), bearing on the subject. Section 165 defines what a statutory meeting is.
It also sets out what a statutory report should contain. Section 166 deals with
annual general meeting. It reads:
“166. Annual general
meeting—(1) Every company shall in each year hold in addition to any other
meetings a general meeting as its annual general meeting and shall specify the
meeting as such in the notices calling it; and not more than fifteen months
shall elapse between the date of one annual general meeting of a company and
that of the next:
Provided that a company may
hold its first annual general meeting within a period of not more than eighteen
months from the date of its incorporation; and if such general meeting is held
within that period, it shall not be necessary for the company to hold any
annual general meeting in the year of its incorporation or in the following
year:
Provided further that the
Registrar may, for any special reason, extend the time within which any annual
general meeting (not being the first annual general meeting) shall be held, by
a period not exceeding three months.
(2) Every annual general meeting shall be called
for a time during business hours, on a day that is not a public holiday, and
shall be held either at the registered office of the company or at some other
place within the city, town or village in which the registered office of the
company is situate:
Provided that the Central
Government may exempt any class of companies from the provisions of this
sub-section subject to such conditions as it may impose:
Provided further that—
(a) a public company or a private company which is a subsidiary of a
public company, may by its articles fix the time for its annual general
meetings and may also by a resolution passed in one annual general meeting fix
the time for its subsequent annual general meetings; and
(b) a private company which is not a subsidiary of a public company,
may in like manner and also by a resolution agreed to by all the members’
thereof, fix the times as well as the place for its annual general meeting.”
This section corresponds to
section 76 of the Companies Act, 1913, It also corresponds to section 131 of
the English Act. It will be seen that the first annual general meeting should
be held within 18 months of the company’s incorporation. No provision is made
for granting extension of time in such a case in contrast with the company’s
subsequent annual general meeting. The section, as it stood, originally
conferred power upon the Registrar to extend the time for holding the meeting
up to six months. But this period was reduced to three months by the Amending
Act XLV of 1960. The language employed in section 166 shows that the annual
general meeting should be held whether or not the annual accounts are ready for
consideration at that meeting. In other words, a clear statutory duty is cast
on the directors to call the meeting whether or not the accounts, the
consideration of which is one of the matters to be dealt with at an annual
general meeting, are ready or not.
Section 167 confers certain
powers on the Central Government in the matter of calling annual general
meeting. It provides:
“167.Power of Central Government to call annual general
meeting. —(1) If default is made in holding an
annual general meeting in accordance with section 166, the Central Government
may, notwithstanding anything in this Act or in the articles of the company, on
the application of any member of the company, call, or direct the calling of, a
general meeting of the company and give such ancillary or consequential
directions as the Central Government thinks expedient in relation to the
calling, holding and conducting of the meeting.
Explanation. —The
directions that may be given under this sub-section may include a direction
that one member of the company present in person or by proxy shall be deemed to
constitute a meeting.
(2) A general meeting held in pursuance of
sub-section (1) shall, subject to any directions of the Central Government, be
deemed to be an annual general meeting of the company.”
This section also
corresponds to section 76 of the 1913 Act and to section 131 of the English
Act. This section provides for a remedy in case of default in holding the
annual general meeting in accordance with section 166. Notwithstanding the
provisions of the Act or the articles of association of a company the Central
Government may, on the application of any member of the company, call or direct
calling of a general meeting of the company. The Central Government are also
given power to give such ancillary and consequential directions as they may
think expedient in relation to the calling, holding and conducting of the
meeting. Sub-section (2) of section 167 provides that a general meeting in
pursuance of section 167(1) shall, subject to any directions of the Central
Government, be deemed to be an annual general meeting of the company. This is a
clear statutory recognition of what should be
done in case there is default in holding the general meeting within the time
required by the statute. Thus, it is clear that exclusive power is conferred
upon the Central Government to permit the calling of a general meeting in case
of default to hold the general meeting notwithstanding anything contained in
the Companies Act or in the articles of association of a company.) The next
relevant section is section 186. It confers certain powers on the court in the
matter of calling meetings. It reads:
“186.
Power of court to order meeting to be called. —(1) If for any reason it is impracticable to call a meeting of a company, other
than an annual general meeting, in any manner in which meetings of the company
may be called, or to hold or conduct the meeting of the company in the manner
prescribed by this Act or the articles, the court may, either of its own motion
or on the application of any director of the company, or of any member of the
company who would be entitled to vote at the meeting, —
(a) order a meeting of the company to be called, held and conducted
in such manner as the court thinks fit; and
(b) give such ancillary or consequental 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 subsection 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.”
This corresponds to section
79(3) of the 1913 Act and to section 135 of the English Act. It would be seen
from the language employed in this section that it confers power upon the court
only in the case of meetings other than the annual general meeting. The obvious
reason is that as regards the annual general meeting express power is conferred
on the Central Government. The question arose before this court in Selvaraj v.
Mylapore Hindu Permanent Fund, whether the
company court can appoint a person to supervise and preside over the adjourned
annual general meeting called by the board. This court answered the question in
the affirmative. But that principle cannot be extended to a case of calling a
meeting itself. (The expression “other than annual general meeting” occurring
in section 186 makes it abundantly clear that the legislature did not want the
company court to exercise any power with regard, to annual general meeting but
restricted the power only with regard to other meetings In this connection, it is necessary to refer to the policy with
which power has been conferred upon the Central Government with regard to
calling any general meeting in case of default to hold a meeting as required
under law and with regard to conferment of power on the court under section
186. The Company Law Committee in its report at pages 54 and 55 observed;
“We further recommend that
the Registrar should have the power, in special circumstances, to extend the
time during which a general meeting should be ordinarily held. The absence of
any such provision in the Act of 1913 makes for needless rigidity, and our
recommendation that the annual general meeting should in future be held, within
nine months from the end of each financial year, justifies the grant of this
discretionary power to the Registrar to be exercised only in cases of proved
hardship. In default of the holding of an annual general meeting by the
company, under section 76 of the present Act, the Central Authority should have
the power to call such a meeting, on the application of any shareholder, and to
give such directions for this purpose as it may think fit. This is in
consonance with the provisions of section 131 of the English Companies Act,
1948, which confers this power not on the court but on the Board of Trade.”
Section 131 of the English
Companies Act, 1948, confers power on the Board of Trade in the matter of
calling annual general meeting on the application of any shareholder. That
power is not conferred on the court. It is in line with the policy underlying
section 131 of the English Companies Act, that the Company Law Committee
recommended incorporation of suitable provision and it is in those
circumstances that express power has been conferred upon the Central Government
under section 167, and that under section 186 the power of the court is
expressly excluded with regard to calling an annual general meeting of the
company.
A similar view was taken by
Mukharji J. in In re Coal Marketing Co, of India Private Ltd. In that
case, an application was taken out under section 633(2) of the Act for an order
that upon the undertaking of the applicants to hold the annual general meeting
of the company (which should have been held previously) within six months from
the date of the order, they may be relieved wholly from the liabilities for not
holding such annual general meeting. The learned judge, on an examination of
the provisions of the Act, came to the conclusion that the court has no power
to grant the request for holding the annual general meeting within any time
prayed for, having regard to sections 166, 167 and 186 of the Act.
The
decision in S. L. Kapur v. Registrar of Companies on which Mr.
Srinivasan, appearing for the petitioner,
relied, is not relevant, In that case, the directors of Kalinga Tubes Ltd. took
out an application under section 633(2) of the Act praying to excuse them for
the default committed in holding the annual
general meeting. They approached the court after having failed t6 convince the Registrar
to grunt’ extension of time. They put forward certain reasons for not being
able to hold the meeting within the time. The learned judge observed:
“In the circumstances
stated in the petition I am satisfied that the delay in holding the annual general
meeting and placing the balance-sheet, profit and loss account and directors
‘and auditors’ report before the said meeting and forwarding copies thereof to
the members was due to unavoidable reasons and that neither the company nor any
of its directors who constitute the interim board are individually responsible
for the delay which was due to circumstances entirely beyond their control.”
Having observed thus, the
learned judge held that the applicants were excused for the default, as prayed
for. The learned judge did not refer to section 166, 167 and 186. Obviously,
those sections did not arise for consideration. All that was asked for was a
prayer to excuse the directors for the default committed by them in not holding
the general meeting within the specified time. Under section 633(2) it is
competent for the company court to grant relief in respect of any negligence,
default of breach of duty, misfeasance or breach of trust by any officer of the
company. The question as to whether the court has got power to grant extension
of time for holding the annual general meeting did not arise for consideration.
Mr. Srinivasan, counsel for
the applicant, contended that this court, under its inherent power, can grant
the relief asked for by the Nidhi. Rule 9 of the Companies (Court) Rules, 1959,
on which reliance is placed in this behalf, reads:
“Inherent powers of court.
—Nothing in these rules shall be deemed to limit or otherwise affect the
inherent Dowers of the court to give such directions or pass such orders as may
be necessary for the ends of justice or to prevent abuse of the process of the
court.”
I am unable to accept the
argument that by virtue of this rule, the applicant Nidhi can be granted the
relief asked for. Rule 9 is analogous to section 151 of the Code of Civil
Procedure. It is well settled that the inherent power cannot be invoked where
express provision is made for the relief by conferring power upon other
authorities. No ground is made out by the applicant as to why they did not
approach the Central Government to exercise their power under section 167. Rule
9 of the Companies (Court) Rules cannot be applied to override the express
provisions of the Act.
In the result, I find that the application is not maintainable. It is accordingly dismissed. No costs.
[1934] 4 COMP. CAS. 282 (CAL.)
BRAHMANBARIA LOAN
CO. LTD., In re
BUCKLAND, J.
JANUARY 22, 1934
S.K. Dutt, for the Applicant.
Buckland, J. —This is an application made under Section 76, Companies Act, 1913, for an order that the Court do direct the calling of a general meeting of the company. The grounds for the application are a petition verified by the affidavit of Gobindalal Datta, who is described as a member of the board of directors of the company. In his petition, he states that the last balance-sheet of the company up to 31st March, 1932, was adopted at its general meeting held on 30th September in the same year. That, it appears, is the date when the last general meeting of the company was held. The section provides that:
"A general meeting of every company shall be held once at the least in every year, and not more than fifteen months after the holding of the last preceding meeting."
In the event of default, the company and every officer of the company, who is knowingly a party to the default, is liable to a fine. It is clear that the section has not been complied with as more than fifteen months have elapsed since the last general meeting was held. The petition also states that on 6 th March, 1933, criminal proceedings were instituted by the Company against its former secretary, in which proceedings certain books of the Company were exhibited and remained in Court, as the result of which the accounts of the company could not be audited and the balance-sheet for the year ending 31st March, 1933, could not be prepared and that "in consequence thereof no annual general meeting for the adoption of any balance-sheet for the said year could be held as yet."
It is then stated that the criminal proceedings terminated on 11th December, 1933, with the conviction of the former secretary who however, has filed an appeal against his conviction in the Court of the District Judge of Tippera, which appeal is not likely to be disposed of until the end of next month and that until the appeal has been disposed of, the books will not be returned to the company, and the auditor then will require about two months to audit the accounts of the company. In these circumstances, the Court is asked to make an order directing the calling of a general meeting of the company "within" 31st May, 1934. In my opinion, this application is entirely misconceived. The object of the section is to enable a member of a company where there has been default on the part of those whose duty it is to summon the meeting, to apply to the Court to direct the calling of a meeting. It is not, as is undisguisedly said by learned counsel, who appears on behalf of the applicant is the object of this application, intended to enable the Court to make an order which will excuse the persons responsible from the consequences of their omission. What the petition says with regard to the balance-sheet, upon which learned counsel has laid considerable stress, has nothing to do with the matter. Possibly, the general meeting which should have been called, is one before which the balance-sheet should have been placed. But section 76 makes do reference to the balance-sheet and its terms are mandatory.
I have enquired as to the genesis of this application and have been informed that, in cases where persons have rendered themselves liable to a penalty, it is the Registrar of joint stock companies who initiates the proceedings, and that the Registrar was approached in relation to this matter and said that he would stay his hands for three weeks in order to enable an application to be made under this section. If this information is correct the Registrar has taken an erroneous view of the object of the section, as there is nothing in the section which would excuse the persons liable for the default even if an order were made as desired. Take a case for which the section is obviously intended to provide, namely, where the directors, for reasons of their own, or it may be negligently or in furtherance of fraudulent dealing, fail to call a general meeting, and a shareholder considers it his business to take action under the section. In such case, could it be said that the persons responsible were to escape the consequences of their omission to call a general meeting? Certainly not. The fact that a director makes the application make no difference. On the contrary, I conceive that it is possible that he could have taken steps to have the meeting convened. He can only apply qua member of the company and even were I to make the order, he might still the liable to a fine under the section. I need hardly say that I am not prejudging any proceedings that may hereafter be instituted under the section and, in this connection, I desire to add that it would be extremely unsatisfactory on an ex parte application, such as this, to excuse any officer of the company from the consequences of his omission.
The order is one which may be made ex parte, but it may be that there are other matters to be considered which do not find a place in a petition and exculpation would not be justified. If proceedings are instituted and if there are sufficient grounds for not having complied with the mandatory provisions of the section I apprehend that they will furnish a defence and the person or persons charged will be acquitted, but this, in my judgment, is not the time or place at which either directly or indirectly to adjudicate on the point. The application will be dismissed.
[1961] 31 COMP. CAS. 193 (CAL.)
U. C. LAW, J.
INSOLVENCY NO. 4 OF 1949
JULY 8, 1960
LAW, J. - The hearing of this application under
sections 397, 398, 399 and 402 of the Companies Act, 1956, has taken
considerable time and the arguments were only concluded on June 14, 1960, when
I reserved my judgment; but I directed the matter to appear on the list on June
16, 1960, marked “to be mentioned” as I wanted certain information regarding
the cash balance in the current banking accounts of the company. It may be
mentioned here that prior to this the respondents had given an undertaking to
court (which still subsists) not to withdraw or deal with the compensation
money amounting to over Rs.35,00,000 and the accrued interest thereon lying
invested in short deposit accounts in different banks in the company’s account.
On June 16, 1960, Mr. R.C. Deb appearing on behalf of P.N. Talukdar informed me
that the amount lying in current accounts of the company with serveral banks
amounted to over Rs.1,67,000. Besides, there was also some cash in hand. This
undoubtedly is a considerable amount and in as much as I had by then made up my
mind as to the order I was going to pass in this application, except that I had
not finally decided as to the form the order should take, I asked Mr.Deb
whether the respondents were prepared to give an undertaking not to withdraw
the amount lying in the current accounts of the company pending my judgment.
Mr.Deb, however, was not inclined to do so when it was submitted on behalf of
the applicants that I should in the circumstances, issue an injunction
restraining the respondents from withdrawing any money from the current
accounts of the company with different banks. Having regard to the fact that I
had already by then come to a conclusion, I thought it proper that no money
belonging to the company should any longer be left under the control of the
respondents and accordingly I issued an interim injunction restraining the
respondents from withdrawing or dealing with the moneys of the company lying in
its current accounts in different banks.
Now I proceed
to deal with this application. Hindustan Co-operative Insurance Society Ltd.
(hereinafter referred to as the company) is a public company incorporated under
the Companies Act and has its registered office at No. 4, Chinttaranjan Avenue,
Calcutta. The authorised capital of the company is Rs. 1,00,00,000 divided into
1,00,000 shares of Rs. 100 each. From the balance-sheet of the company for the
year ending December 31,1954 it appears that the issued and subscribed capital
of the company was Rs. 28,69,500 divided into 28,695 shares of Rs. 100 each of
which Rs. 25 was called up per share.
The main
objects for which the company was incorporated was to carry on all forms of
insurance and guarantee and indemnity business and all business and work in
connection therewith or incidental thereto as mentioned in the memorandum of
the company and to employ the share capital of the company in any trading,
commercial or financial business whatever for gain or other benefit in the
interest of the shareholders and policyholders. The company, however,
admittedly at all material times carried on life insurance business only.
The applicants
are shareholders of the company holding amongst themselves 1,295 shares and
they have obtained consent in writing (which is an annexure to their petition)
of other shareholders who hold 3,853 shares, to move this application on behalf
and for the benefit of all of them. The total number of shares in support of
this application is, therefore, 5,148 which is more than 1/10th of the issued
and subscribed share capital of the company as is required under section 399 of
the Companies Act. All calls and other sums due on these shares have also been
fully paid up.
Since this
petition was taken out the following persons have been added as parties to this
proceeding and are supporting the petition :
(2) Surya Kumar Basu, Mouses Sasson Elias and Profulla Ranjan Roy being
registered holders in all of 67 shares as detailed in the petition. They are
also being supported by a number of shareholders holding in the aggregate more
than 1,200 shares of the said company as mentioned in the said application;
(3) Jagannath
Roy, registered holder of 750 shares; and
(4) S.M. Monoram Paul, Nirmalabala Poddar, Kalyani Paul and Anupama
Kundu each holding 50 shares aggregating 200 shares.
The applicants
have applied under sections 397, 398, 402 and 403 of the Companies Act, 1956,
for the reliefs mentioned in the petition with notice to Central Government as
required.
It is
significant that none of the director-respondents have affirmed any affidavit
in support of their case except P.N. Talukdar whose affidavit, in my opinion,
is not worth the paper it is written on. M.M. Chakravartty has not appeared.
The other respondents have appeared through counsel. The main affidavit in
opposition is by a person called Bibhuti Bhusan Roy who is not stated to be a
principal office of the company. In paragraph 23 of his affidavit is stated
when and how he came to join the company. Towards the end of the paragraph is
stated that after he retired from the Life Insurance Corporation in October,
1956, he again joint the company in July,1957.
I must at once
say, that if there be a case where the remedies under sections 397, 398 and 402
of the companies Act should be justly available it is before me now. As I
relate the facts and the circumstances of this case it would be clearly
manifest that not only there has been oppression of the minority shareholders
of the company but also the affairs of the company have been conducted in an
oppressive manner and further that the affairs of the company have also been
conducted in a manner prejudicial to the interest of the company. It will be
convenient here to refer to the sections :
“ 397.
Application to Court for relief in cases of oppression. -
(1) Any members of a company who
complain that the affairs of the company are being conducted in a manner
oppressive to any member or members (including any one or more of themselves)
may apply to the court for an order under this section, provided such members
have a right so to apply in virtue of section 399.
(2) If, on any
application under sub-section (1), the Court is of opinion-
(a) that the company’s affairs
are being conducted in a manner oppressive to any member or members; and
(b) that to wind up the company would unfairly prejudice such member or
members, but that otherwise the facts would justify the making of a winding-up
order on the ground that it was just and equitable that the company should be
wound up; the court may, with a view to bringing to an end the matters
complained of make such order as it thinks fit.
398.
Application to Court for relief in cases of mismanagement -
(1) Any members
of a company who complain -
(a) that the affairs of the company are being conducted in a manner
prejudicial to the interests of the company; or
(b) that a material change ( not
being a change brought about by, or in the interests of , any creditors including
debenture holders, or any class of shareholders of the company has taken place
in the management or control of the company, whether by an alteration in its
board of directors, or of its managing agent or secretaries and treasurers, or
in the constitution or control of the firm or body corporate acting as its
managing agent or secretaries and treasurers, or in the ownership of the
company’s shares, or if it has no share capital, in its membership or in any
other manner whatsoever, and that by reason of such change, it is likely that
the affairs of the company will be conducted in a manner prejudicial to the
interests of the company;
may apply to
the court for an order under this section, provided such members have a right
so to apply in virtue of section 399.
(2) If on any application under
sub-section (1), the Court is of opinion that the affairs of the company are
being conducted as aforesaid or that by reason of any material change as
aforesaid in the management or control of the company, it is likely that the
affairs of the company will be conducted as aforesaid, the court may, with a
view to bringing to an end or preventing the matters complained of or
apprehended, make such order as it thinks fit.”
On 21st
December, 1955, the 48th ordinary annual general meeting of the company was
held and the constitution of the board of directors was (1) Dr.N.N. Law, (2)
Kumar P.N. Roy (3)S.C. Law, (4) P.N. Talukdar, (5) Dr. M.M. Chakraborty, (6)
P.K. Bose, (7) J.N. Sen Gupta (8) B.K. Roy Choudhury (9) Sir Dhiren Mitter and
(10) B.C. Sinha. Of the above Nos. 1 to 5 were members-directors, Nos. 6 to 8
were policyholders-directors and Nos. 9 and 10 were directors appointed by the
Government. Of the members-directors it is admitted that Dr. M.M. Chakraborty
was disqualified for not holding the qualification shares thus reducing the
number of members-directors to four, namely, Dr. N.N. Law, Kumar P.N. Roy,
S.C.Law and P.N. Talukdar.
On January
19,1956 the Life Insurance (Emergency Provisions) Ordinance of 1956 came into
force and since its promulgation it is admitted that the directors appointed by
the policyholders and the Government became functus officio.
Under section
3, sub-section (1), of the said Ordinance the management of the controlled
business of the company (which was its only business) vested in the Central
Government on and from the “appointed day”, namely, January 19,1956, and the
persons in charge of the management of such business immediately before the
“appointed day” took charge of the management of the business for and on behalf
of the Central Government.
Under section
7, sub-section (2), of the Ordinance it was provided that “the compensation
payable under section 6 shall be distributed among the persons entitled thereto
by the Central Government in such manner as may be prescribed by rules made in
that behalf :
Provided that
in the case of an insurer who is a company the Central Government shall have
due regard to the wishes of the members expressed by them at any general
meeting convened for the purpose.”
Pursuant to
the powers vested in it by section 4 of the Ordinance, the Central Government
soon thereafter appointed a custodian who took over the management of the
controlled business and thereupon all persons in charge of the management of
the controlled business of the company ceased to be in charge of such
management.
On March 21,
1956 the Life Insurance (Emergency Provisions) Act of 1956 was passed.
On July 1,1956
the Life Insurance Corporation Act of 1956 came into force and under the said
Act the Life Insurance Corporation of India (hereinafter referred to as the
Corporation) was established with effect from September 1,1956. Under section 7
sub-section (1), of the said Act all the assets and liabilities appertaining to
the controlled business of all insurers vested in the Life Insurance
Corporation with effect from September 1,1956.
Section 16 of
the said Act provides that where the controlled business of an insurer has been
transferred to and vested in the Corporation under this Act, compensation shall
be given by the Corporation to that insurer in accordance with the principles
contained in the First Schedule.
Section 39 of
the act provides :
“Special
provisions for winding up of certain insurers. - Where any insurer being a
company (other than a composite insurer) whose controlled business has been
transferred to and vested in the Corporation under this Act has in accordance
with the provisions of this Act collected and distributed any moneys paid to
him by the Corporation by way of compensation or otherwise and has also
complied with any direction given to him by the Corporation for the purpose of
securing that the ownership of any property or any right is effectively
transferred to the corporation, the Central Government may on application being
made to it in this behalf by such insurer, grant a certificate to the insurer
that there is no reason for the continued existence of the insurer and where
such a certificate has been granted shall cause the certificate to the
published in the Official Gazette and upon the publication thereof the insurer
shall be dissolved.”
On November
1,1957, the Life Insurance Corporation paid to the company a compensation
amounting to Rs. 33,09,855 and a further compensation amounting to Rs. 2,30,553
was paid by the Corporation to the company on January 7,1958.
The
compensation money has not yet been distributed by the company to its
shareholders who are entitled thereto and is being retained by the respondents.
Besides the
above two sums the corporation has also paid a sum of Rs. 61,613 to the company
for loss of management of its controlled business on December 7,1957.
I shall go
back for a moment to January 19,1956, “the appointed day”, when the management
of the controlled business of the company vested in the Central Government and
give in broad outline the course of events which led to the petition.
It appears
that since January 19, 1956 the directors of the company did not call any
general meeting of the company nor did they make any effort or gesture to place
before the shareholders the balance-sheet of the year ending December 31,1955.
As a matter of fact that the shareholders of the company were not thought of by
the directors at all and were kept completely in the dark as to what was being
done with regard to the company’s affairs. It cannot be said that the directors
were not cognizant of their obligations or duties under the law, because it
appears that the chairman of the company Dr. N.N. Law for the first time on
April 5,1956, wrote to the custodian as follows :
“Dear Sir,
With a view to
enabling the directors of H.C.I.S. Ltd., to discharge their duties to the
shareholders I intend to hold a board meeting inter alia for drawing up the
balance-sheet of the society for the year ended December 31,1955 and for taking
action about matters of concern to the shareholders in the interest of the
latter.
A copy of the
notice calling the meeting at 96, Amherst Street, Calcutta, on Saturday the 7th
April,1956 at 10-30 a.m. is enclosed for your information.
I shall be
glad if you issue instructions to the secretary and the chief accountant of the
society to be present at the meeting......”
To this letter
a reply was sent on behalf of the custodian by the solicitor to the Central
Government at Calcutta on April 6,1956, stating that the notices were very
short and that there was no time to refer to the Central Government for
instructions. He further informed that the custodian had already received
instructions from the Central Government for the preparation of the
balance-sheet for the year ended December 31,1955, and the custodian was taking
necessary steps in that behalf. This letter of April 6,1956, was placed before
the board meeting of the company held on April 7,1956, and considered, and the
minutes of the meeting records that the board authorised the chairman to give a
suitable reply to the custodian; and further the consideration of the steps to
be taken for preparation of the balance-sheet for the year ended December
31,1955 was postponed. On May 3,1956 the chairman of the company sent a reply
to the letter dated April 6,1956. The relevant portion of the letter reads as
follows :
“The board of
directors have been legally advised that as the board have not ceased to exist
they are quite within their rights to confirm the proceedings of the previous
board meetings and the committee meetings and it is their responsibility to
prepare the balance-sheet for the year 1955 as contemplated under the Companies
Act. It is stated in the solicitor’s letter under reference that you have
already received instructions from the Central Government for the preparation
of the balance-sheet for the year ending 31st December, 1955, and that you are
taking necessary steps in that behalf . As this absolves the board from its
responsibility for the preparation of the said balance-sheet we are referring
this matter to the Government of India for confirmation.”
At the foot of
this letter it was stated that a copy was being forwarded to the Secretary,
Ministry of Finance, Department of Company Law Administration, for information
and with a request for advice as to the steps to be taken by the board in the
circumstances.
There is
nothing in the affidavits of the respondents, however, to show that any copy of
this letter was in fact sent as stated or as to whether any advice was received
from the Secretary, Ministry of Finance, Department of Company Law
Administration, in reply thereto.
Since the
board meeting of April 7,1956 several purported board meetings of the company
were held but it is curious that although the board knew about its duties under
the Companies Act regarding holding of general meetings and passing of the
balance-sheet for the year ending December 31,1955 this question was never
revived or even discussed until 1959, when only the balance-sheets for the
years ending 1956, 1957 and 1958 were considered.
It is now
contended on behalf of the respondents that “as the entire management of the
controlled business had vested in the Central Government on January 19,1956 by
virtue of the Life Insurance (Emergency Provisions) Ordinance, 1956, the
insurer was divested of its rights of management under provisions of both the
said Ordinance and the Life Insurance (Emergency Provisions) Act of 1956.The
board of directors ceased to manage or to have any right of management. All the
books of account and other papers and documents relating to the controlled
business were under the law made over to the custodian and the custodian in
fact took over every stitch of document on January 19, 1956. The result was
that the custodian replaced the directors of the company. Preparation of the
balance-sheet was one of the ordinary duties of the directors as part of the
management of the company’s affairs but as the directors no longer had any
power over the property, assets, staff, books and records it was physically
impossible for them to prepare the balance-sheet. Besides, the company had no
money, no staff or office and to call a meeting, expenses had to be incurred.
It was further contended that having regard to the provisions of the Life
Insurance (Emergency Provisions) ordinance, 1956, and the Life Insurance
(Emergency Provisions) Act (IX of 1956) the powers of the directors with
reference to the preparation, signing and placing of the balance sheet before
the general meeting ceased and still remain in that position because the
balance-sheet relates to the controlled business (that is the entire business
of the company) with reference to which the powers of the directors had been
taken away.” That in substances is the entire argument on behalf of the
respondents on this point.
I am unable to
accept this contention. Under section 3 of Ordinance No. 1 of 1956, only the
management of the controlled business of the company vested in the Central
Government. It is true that the controlled business was the only business of
the company at the time but the company as a separate legal entity remained as
before (and was asserted by the directors of the company also) with all its
rights and obligations and the directors remained still bound to call the
annual general meeting of the company in terms of section 166 of the Companies
Act and lay before the meeting the balance-sheet for the year ending 1955.
Article 132 of
the articles of association of the company provides “that the company shall at
the expiration of each year prepare with reference to that year a
balance-sheet, profit and loss account, revenue account or accounts..... in
compliance with the provisions of the Act and the Insurance Act. The directors
shall at the ordinary general meeting in each year lay before the company the
said balance-sheet, profit and loss account and revenue account make up to a
date not more than nine months before the meeting or such other date as
permissible in law. The balance-sheet profit and loss account, revenue account
and profit and loss appropriation account shall be audited by the auditors of
the company and the auditors’ report shall be attached thereto or......”
Article 133
provides that the directors shall make out and attach to every balance-sheet a
report with respect to the state of the company’s affairs, the amount if any,
which they recommend should be paid by way of dividend and the amount, if any,
which they propose to carry to the reserve or any other funds and as to the
state and conditions of the company.
Section 210 of
the Companies Act, 1956, provides that the board of directors shall lay before
the company at every annual general meeting a balance-sheet and a profit and
loss account for that period.
It appears
that the company did prepare a balance-sheet which was signed by the secretary
of the company and also audited by the company’s auditors except that it was so
prepared at the instance of the custodian to which the directors must be deemed
to have consented by their letter dated May 3,1956. This balance-sheet so
prepared by the custodian was duly filed with the Registrar and also made over
to the company and never objected to , but instead, was relied on by the
directors in the compensation case before the Tribunal. In my view there was
nothing to prevent the directors from placing the said balance-sheet before the
board of directors for approval and signature if they were so minded and,
thereafter, lay it before the annual general meeting of the company as required
under section 210 of the Companies Act, 1956. By not doing that the directors
deprived the shareholders of their right to scrutinies the accounts.
It is no
answer to say that as all the books of account and other papers and documents
were under the law made over to the custodian and as there were no fund, no
staff and no office it was not possible to call a general meeting. Under
Ordinance No. 1 of 1956, the documents to be delivered were enumerated in
section 3, sub-section (6) thereof, and all of them appertained to the
controlled business. The share register and other documents which did not
apparition to the controlled business and which were necessary for the purpose
of calling a meeting of the shareholders were not required under Ordinance No.
1 of 1956 to be delivered to the Central Government. mr. Advocate-General on
behalf of the company submitted that making over by the directors of the share
register and other documents not appertaining to the controlled business and not
required under the Ordinance of 1956 to the Central Government, at best, can be
held to be a bona fide mistake on the part of the directors and cannot amount
to oppression or mismanagement. I cannot accept this contention that it was a
bona fide mistake of the directors because of their subsequent conduct in the
affairs of the company as reflected in various resolutions passed by them. I
have already referred to the minutes of the board meeting held on April 7,1956,
when the consideration of the steps to be taken for preparation of
balance-sheet for the year ending 1955 was postponed. The next board meeting
was held on July 9,1956 when P.N. Talukdar was appointed representative of the
company to attend the conference in Delhi on July 9,1956, and subsequent dates,
for consideration of foreign life business of the company. It is significant
that no complaint was made regarding the want of funds at the meeting. After
the meeting of July 9,1956 it appears that no further meeting of the board was
held in 1956.
Before I
relate what happened thereafter it would be convenient here to set out the
following articles from the articles of association of the company.
Article 102 -
At the ordinary general meeting of the company to be held every year one-third
of the members’ directors for the time being or if their number is not three or
multiple of three then the number nearest to one-third shall retire from
office.
Article 103 -
The members’ directors to retire in every year shall be those (other than
special director or managing director) 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 members’ director shall retain office till the
dissolution of the general meeting.
Article 104. -
A retiring members’ directors shall be eligible for re- election.
Article 110(i)
_ The directors may meet together for the dispatch of business, adjourn or
otherwise regulate their meeting and proceedings as they deem fit and may
determine the quorum necessary for the transaction of business. Until otherwise
determined, three members’ directors shall from a quorum.
It may be
recalled that after the 48th ordinary general meeting Only Dr. N.N. Law, S.C.
Law, Kumar P.N. Roy and P.N. Talukdar remained as members’ directors, Mr. M.M.
Chakraborty having been disqualified for not holding the qualification shares.
Of the above
four S.C. Law was longest in office since his last election and was, therefore,
due to retire at the 49th ordinary general annual meeting to be held towards
the end of 1956. Thus for the year 1957 the directors would be Dr. N.N. Law,
Kumar P.N. Roy and P.N. Talukdar. At the 50th ordinary general annual meeting
to be held towards the end of 1957, one of either N.N. Law or P.N. Talukdar
would be due to retire they being longer in office than Kumar P.N. Roy since
their last election. Therefore, for the year 1958 there would only the two
directors, namely, Kumar P.N. ROy and one of either N.N. Law or P.N. Talukdar.
Kumar P.N. Roy died on August 22,1958, and this was not denied at the hearing.
Therefore, at the 51st general meeting to be held towards the end of 1958 the
only remaining director left would be due to retire and thus there would be no
director in 1959.
My above
conclusion as to the number of directors for the years 1956, 1957 and 1958 is
founded on the rule laid down in the following cases : Krishnaprasad Jwaladutt
Pilani v. Colaba Land and Mills Co. Ltd., Morris v. Kanssen, In re Consolidated
Nickel Mines Ltd.; where it was held that a director who was due to retire by
rotation at the annual general meeting vacated his office at the latest on the
last date on which that annual general meeting could have been called as
required by section 166 of the Companies Act, 1956, and cannot continue in
office thereafter on the ground that the meeting has not in fact been called.
The
respondents’ case is that they are validly appointed directors and not they are
protected under section 290 of the Companies Act. Yet at the hearing the
learned counsel for the respondents sought protection under section 290 of the
Companies Act. In my opinion, on the facts and circumstances of this case, the
acts of the directors cannot be validated under section 290 of the Companies
Act. This is not a case where there was a defective appointment but one where
there was no appointment of them as directors at all.
The directors
were fully aware of their position and there is ample evidence on record for
that also. Section 290 is not applicable to the facts and circumstances of this
case.
Now I shall
return to the last board meeting of July 9,1956, to which I referred before and
as I continue to outline the facts it would be clear that not only that the
affairs of the company were being conducted in a manner oppressive to the
company and other members of the company but were also being conducted in a
manner prejudicial to the interest of the company. After July 9,1956 the board
held its next meeting on March 6,1957. It appears from the minutes of the
proceedings that there was no quorum because by then S.C. Law was no longer a
director and had not right to sit at the meeting, yet the remaining two
directors purported wrongfully to conduct the affairs of the company. Kumar
P.N. Roy who was then a director did not attend.
At the next
meeting held on March 18,1957, S.C. Law who was not a director again wrongfully
took part in the meeting. Here again there was no quorum present. Kumar P.N. Roy
did not attend the meeting. The minutes clearly show that the directors without
quorum were attempting to augment their number by co-opting J.N. Sen Gupta and
P.K. Bose as directors which was invalid in law. Further they appointed B.B.
Roy as secretary of the company at a monthly remuneration of Rs. 750 which
undoubtedly was invalid, wrongful and also prejudicial to the interest of the
company, in that expenses were being wrongfully incurred at the costs of the
company and its shareholders. It appears that no further board meeting was held
in 1957. Towards the end of 1957, either N.N. Law or P.N. Talukdar was due to
retire. Therefore, there would be only two directors in 1958, namely, Kumar
P.N. Roy and either of Dr. N.N. Law or P.N. Talukdar. On November 1,1957,
either N.N.Law or P.N. Talukdar. On November 1,1957, the company received Rs.
33,09,855 as compensation and on January 7,1958, a further compensation of
Rs.2,03,553 was received by the company as hereinbefore stated. After receipt
of these moneys the next board meeting was held on March 1,1958, when it
appears that P.K. Bose and S.C.Law who were not directors again took part in
the proceedings. At this point of time it is to be noted that either N.N. Law
or P.N. Talukdar had ceased to be a director as one of them had to retire at
the end of September,1957. This meeting was held without a quorum and several
resolutions were passed authorising opening of bank accounts of the company
with the Central Bank of India Ltd. and the PUnjab National Bank Ltd. with
power to them to honour the cheques, bills of exchange and promissory notes
drawn, accepted or made on behalf of the company by any two directors jointly
and to act on any instructions so given relating to the account whether the
same be overdrawn or not or relating to the account whether the same be
overdrawn or not or relating to the transactions of the company. This meeting
also sanctioned payment of Rs. 8,142 for legal expenses incurred in connection
with the hearing before the Tribunal. A further sum of Rs. 600 was also
sanctioned for purchase of the office furniture by the secretary, who was
authorised to appoint office staff at a total monthly remuneration of Rs. 750.
A further sum of Rs. 580 for travelling expenses and costs of stamps in connection
with the Tribunal case was also sanctioned and indeed it is strange that lastly
it was resolved “that the payment of directors’ fee outstanding from January
1956, and payment of the secretary’s outstanding from July 15,1957 be made.” It
is still more strange that up till then no attempt or even a gesture was made
to call a meeting of the shareholders or any attempt made to inform the members
of these material changes that were being made in the management or control of
the company by alteration of its board of directors. No returns were filed with
the Registrar of Assurances and the result was , the shareholders were left
completely in the dark with no information regarding the manner in which the
affairs of the company were being conducted, while these men who purported to
act as directors dealt with the company’s money in any fashion they liked and
to the prejudicial interest of the company. These acts of the respondents who
had the majority backing no doubt amounted to oppression by them of the minority
shareholders and also, I consider, oppression in the conduct of the affairs of
the company. These were to the detriment of both the company and its members.
After the last
board meeting to which I have referred a latter was addressed by the chairman of
the company to the Life Insurance Corporation on March 6,1958 expressing
surprise that the common seal and certain documents, a list whereof was
appended below, were not returned yet and demanded return of them at the
earliest. In the appended list it appears that for the first time the share
register and index of members were demanded back and curiously enough the
chairman also asked for copies of the balance-sheet up to 31st of August, 1956,
that is, up to the date previous to vesting of the assets of the company in the
Life Insurance Corporation. I have failed to appreciate the cause of surprise
because never before this, did the chairman or anybody on behalf of the company
demand the return of the share register from the corporation. On May 23,1958 the
Corporation offered to return the register of members and most of the other
documents demanded by the chairman, but no immediate effort was made by the
directors to take delivery of them. On June 6, 1958, the Divisional Manager of
the Life Insurance Corporation again wrote to the company to take delivery of
the documents but the company on frivolous excuse deferred taking delivery till
about August 18,1958. All these actions and inactions on the part of the
directors, in my opinion, clearly indicate that they did not want to hold any
general meeting and pass the balance-sheet for the year 1955 and this is
confirmed by the fact that even at the hearing it was contended that the
directors had no duty to have the balance-sheet for the year ending 1955 passed
at a general meeting.
During 1958,
two further board meetings were held and in neither of them it appears the
quorum was present but, instead, persons who were not directors were wrongfully
allowed to take part in the proceedings.
This brings us
to the end of 1958 when the last of the directors had retired by rotation. With
the close of the year 1958, the company thus did not have any directors at all.
Yet it appears that on January 21,1959, a board meeting was purported to have
been held and business transacted concerning the affairs of the company. At the
said meeting opening of the deposit account with the United Bank of India Ltd.
was sanctioned and it was resolved that the account would be operated by two of
the directors although none of them was director any more. Auditors were
appointed. Sir S.S.M. Faroqui was co-opted as additional director of the
company. The minutes record that a letter dated December 24,1958, from Regional
Director, Eastern Region, Company Law Administration, in connection with the
annual general meeting of the company was read out and noted. This letter of
December 24,1958, is a reply to the letter dated December 22,1958, written by
B.B. Roy as a secretary of the company. It is significant that no reference was
made or advice sought by the secretary in this letter about holding of general
meeting and passing of the balance- sheet of the year ending 1955, which the
company had received from the Life Insurance Corporation, nor was any reference
made or advice asked regarding the balance-sheet, made up to August 31,1956.
The Regional Director’s letter dated December 24,1958, is also silent about
these balance-sheets. It is not correct to say that no business was done by the
company in 1956, as was stated by the secretary in his letter dated December
22,1958, as the assets of the company only vested in the Life Insurance
Corporation on September 1,1956. Therefore whatever business was done by the
company up to August 31,1956, was the business of the company, the management
of which had merely vested in the Central Government. The directors of the
company were fully aware of it as is manifest from the fact that all balance
sheet up to August 31,1956, was demanded by the chairman of the company in his
letter dated March 6,1958, from the Life Insurance Corporation. Further the
letter of December 22,1958, did not mention that under article 102 of the
articles of association of the company one-third of the directors for the time
being must retire from office at the annual general meeting every year. So I
hold that whatever advice was received in the letter dated December 24,1958,
was of no consequence and no valid advice at all as the proper materials were
not placed before the Regional Director and as such it cannot be accepted or
relied upon for any purpose nor can it in any way protect the respondents as
contended on their behalf. I have expressed this view only on the assumption
that the Regional Director had authority to give advice without deciding the
question.
It appears
that on January 2,1959, some of the shareholders of the company (numbering
about 28) addressed a letter to the Minister of Finance, Government of India
complaining that since the last annual general meeting held on December 21,1955
no further general meeting had been held and that persons who were no longer
directors were still wrongfully functioning as such and that the compensation
money paid by the Life Insurance Corporation to the company had not been
distributed amongst the shareholders of the company who were entitled thereto
and further they were afraid that the so- called directors may fritter away the
funds and asked for action to be taken in the matter immediately. It seems,
soon after this letter to the Finance Minister, the so-called directors
suddenly woke up and became intensely active and set about obtaining opinion
from Mr. N.K. Petigara, a solicitor of Bombay, as to what steps were to be
taken regarding the company. There is no previous resolution authorising
obtaining of such opinion and it would be most interesting to know at whose
instance such steps were being taken ; surely not at the instance of the
shareholders. On January 21,1959 they purported to hold a board meeting and the
resolution NO. 4 of the minutes of the meeting records that according to the
advice obtained from Mr. Petigara it was resolved that the company should
continue and carry on its business as per terms of the memorandum and the
articles of association. They further resolved that necessary steps for calling
a general meeting of the company be taken as early as possible to consider and,
if thought fit, to pass the following resolution in this regard as an ordinary
resolution :
“Having regard
to the fact that the company cannot after coming into effect of the Life
Insurance Act, XXXI of 1956, accept life insurance business and issue policies,
resolved that the company do continue its corporate existence and carry on all
or any of the business authorised by its memorandum of association and in
particular to do guarantee and indemnity business as set out in sub-clause (a)
of clause 3 as also....... and the company hereby authorise its board of
directors to carry on and continue to carry on business as described in all or
any one or more of the aforesaid clauses as it in its opinion considers to be
in the interest of the company.”
This
resolution and the persistent conduct of the respondents in the affairs of the
company since January 19,1956 clearly establish that they never intended to
distribute the compensation money amongst the shareholders who are entitled
thereto but to hold it in their hands and at their disposal and benefit by the
strength of their majority or controlling voting power. This conduct of the
respondents was no doubt oppressive to the company and to the applicant’s minority
shareholdings in the company. Section 39 of the Life Insurance Corporation Act
clearly envisages distribution of the compensation money amongst the
shareholders of the (insurer) company whose controlled business has been
transferred to and vested in the Corporation. The directors of the company in
all fairness to the shareholders should have done so as the very substratum of
the company was gone. Section 39 also provides the procedure for dissolution of
the company after such distribution. But the directors did not choose to do so.
From their conduct thus described it is impossible to suppose that that was no
part of the deliberate policy of the directors.
The next
meeting of the so-called board was held on April 25,1959, when the
balance-sheets for years ending December 31,1956, December 31,1957 and December
31,1958 were approved and signed and the board recommended declaration of a
dividend for 1958 at 5 per cent. per annum free of income- tax. No reference
was made to the balance-sheet for the year ending 1955. At the meeting held on
July 22,1959, the date of the annual general meeting was fixed on the August
24, 1959, and by resolution No. 7 the notice of the annual general meeting to
be held on the August 24,1959 with explanatory statement as required by section
173 of the Companies Act, 1956, was approved and signed. It is important to
note here that in the printed consolidated balance-sheet item No. 7 of the
notice of the meeting, the resolution as set out, is somewhat different from
the resolution approved of at the meeting of January 21,1959, as it appears to
have been altered by adding at the end the words “and to utilise the
compensation money for the aforesaid purpose.” When this alteration was
resolved I have not been told nor is there any resolution before me authorising
addition of these words which had been added to the resolution set out in the
notice dated July 22,1959, except that the minutes of the meeting of July
22,1959, recorded that the notice was approved and signed.
These so-called
board meetings of 1959 were no doubt not valid meetings at all because the
persons who held the meetings were not directors nor could constitute any valid
board and thus the notice issued on July 22,1959 was not valid also.
The next fact
I shall refer to is the consolidated balance-sheets for years ending 1956,1957
and 1958 prepared by the company which the so-called directors in control of
the affairs of the company intended to place before the annual general meeting
of the company fixed for August 24,1959, for adoption. These balance-sheets
obviously are not in accordance with law. Under section 210, sub-section (3)(B)
the balance-sheet must relate “ to the period beginning with the day
immediately after the period for which the account was last submitted and
ending with a day which shall not precede the day of the meeting by more than
nine months........” That has not been done here. The account which was last
submitted was for the year ending December 31,1954. Therefore, the
balance-sheet must commence from January 1,1955 to keep up continuity of the
account. Here the balance-sheet for year ending 1955 is deliberately left out.
Balance-sheet for 1956 as prepared does not give a true and fair view of the
state of affairs of the company during the year 1955, and thereafter from
January 1, to August 31, 1956. It was only on September 1,1956 that the
controlled business of the company vested in the Corporation. The conduct of
the affairs of the company remained with the company as before. The
shareholders were entitled to be apprised of the affairs of the company for the
year 1955 and also for the period from January 1,1956 to August 31,1956. The
so-called directors in charge simply suppressed the said accounts from the
shareholders.
The
consolidated balance-sheets make no reference to 1955 accounts. The report of
the board of directors at page 18 of the printed consolidated balance-sheets
for years 1956,1957 and 1958 (being annexure “H” to Bighuti Bhusan Roy’s
affidavit dated August 11,1959), is not at all a fair and honest report. At
page 18 under the heading Nationalisation of Life Insurance it has been stated
“accordingly since January 19,1956, the directors of the company had no access
to any books and records, documents and funds of the company and it was not
possible for them to discharge their duties as entrusted to them under the
Companies Act or under the articles of association of the company.” From these
words it would be reasonable to infer that the directors knew that they had a
duty to perform but could not do so for reasons stated (which I have not
accepted). But the report does not mention that the balance-sheet for the year
1955 as prepared by the custodian was forwarded to the company and that the
company relied on that before the Tribunal in the compensation case. Nor does
it say as to why the said balance sheet of 1955 was not being placed before
them for adoption. In my opinion it was a part of the policy of these directors
not to apprise the shareholders of the affairs of the company during year
ending 1955, and thereafter the period from January 1,1956, to August 31,1956.
I cannot see any other reason to justify this conduct of these directors who
had the control of the affairs of the company by their superior voting power.
This superior
voting power it may be mentioned here is entirely due to 2,920 shares belonging
to N.R. Sarkar Trust, voting rights whereof is in Dr.N.N. Law who has, however,
no beneficial interest in the shares. The beneficial interest lies in some of
the applicants. It is by use of these votes against persons who have the
beneficial interest therein that these directors have maintained control over
the affairs of the company. There is ample evidence on record, namely, the
affidavits of Bibhuti Bhusan Roy dated March 4,1960 and Santi Ranjan Sarkar
dated March 12,1960, to establish this fact. It is with these votes which gave
the directors their voting strength that they attempt now to force these
accounts for periods 1956,1957 and 1958 on the minority shareholders and change
the principal object of the company. The consolidated balance-sheets further
show that the company did no business since January 19,1956 and yet a sum of
well over Rs. 30,000 was wrongly spent or withdrawn as directors’ fees and
other expenses during the years 1957 and 1958 by these so-called directors out
of the funds of the company. The original minute book which was produced at the
hearing showed that Rs. 16,000 was sanctioned to be spent subsequently in law
charges and it further appears, and it was not denied at the hearing, that a
sum of over Rs. 8,50,000 out of the compensation money was kept uninvested for
well over ten months when it could earn at least 4 per cent. interest in short
deposit account like the rest of the compensation money.
As a result
whereof no doubt the company and the shareholders suffered considerable loss.
The minority shareholders were absolutely powerless to do anything in the
matter against these so-called directors with their majority voting strength
and was thus oppressed by them.
Soon after
this meeting of July 22,1959, this application under sections 397, 398 and 402
of the Companies Act, 1956 was filed by the applicants on August 3,1959 for
reliefs mentioned in the petition.
The learned
counsel for the applicants contended not only that the company’s affairs are
being conducted in a manner oppressive to the members (including themselves)
but also that the affairs of the company are being conducted in a manner
prejudicial to the interest of the company. Further that to wind up the company
would unfairly prejudice them, but otherwise the facts would justify the making
of a winding-up order on just and equitable rule; and also that a material
change has taken place in the management or control of the company by alteration
in its board of directors and thus it is a fit and proper case where the powers
given under section 397,398 and 402 of the Companies Act should be justly
invoked and relief granted to the petitioners. It was further contended that by
reason of section 7 of the Life Insurance Corporation Act of 1956 the entire
assets of the “controlled business” of the company vested in the Corporation
and the “controlled business” was the principal and the only business of the
company; and as by reason of the Life Insurance Corporation Act, 1956 it could
not longer carry on life insurance business and issue policies the very
substratum of the company was gone and that fact alone would justify winding up
of the company on the just and equitable rule thus satisfying the last condition
in section 397 of the Companies Act. The learned counsel relied on In re Haven
Gold Mining Co. and In re German Date Coffee Co. I accept this contention. Mr.
R.C. Deb on behalf of his client, however, contended that the present case is
distinguishable from the facts of the cases cited above and drew my attention
to the object clause in the memorandum of association of the company which runs
as follows :
“(a) To carry
on all forms of insurance and guarantee and indemnity business and all business
and work connected therewith...”
He argued that
insurance, guarantee and indemnity are to be treated as separate businesses
authorised under the object clause of the memorandum of association. I am not inclined
to accept this contention which in my opinion has no merit. The language is
“all forms of insurance and guarantee and indemnity business.” They must be
taken together. The word “business” is in singular. The inclusion of the word
“insurance” in the name of the company is in this respect significant also and
is a pointer to its principal object. Taking the memorandum and the articles of
association together as a whole, in my opinion the principal object of the
company was insurance and all other were ancillary to it. The principal
business is the business which is actually carried on by the company. Here the
only business carried on by the company was life insurance business which was
therefore the principal business of the company. So I hold that the principal
business having gone, the very substratum of the company also disappeared and
that alone would justify winding up of the company under the just and equitable
rule. Apart from this aspect of the matter there is ample evidence on record
which will also justify winding up of the company on the just and equitable
principle following the rule laid down in Lock v. John Blackwood. If the
applicants at the date of this application lodged a petition for winding up of
the company compulsorily it would undoubtedly have been granted and it can
hardly be denied that such an order would unfairly prejudice the applicants. SO
they now seek to invoke the new remedy given by sections 397, 398 and 402 of
the Companies Act, 1956.
Upon the facts
as I have outlined them, I consider that the acts complained of all refer to
the continuous conduct of the affairs of the company and it cannot be denied
that the affairs of the company have been conducted in a manner which can
justly be described as oppressive to the minority shareholders. I further
consider that the affairs of the company have also been conducted in a manner
prejudicial to the interest of the company and, lastly, I find that a material
change has taken place in the management or control of the company by alteration
in its board of directors (which in fact is now non-existent) with the result
that the affairs of the company are being conducted in a manner prejudicial to
the interest of the company.
VISCOUNT
SIMONDS in the House of Lords case of Meyer v. Scottish Co- operative Wholesale
Society Ltd. adopted the meaning of oppression as “burdensome, harsh and
wrongful” taking the dictionary meaning of the word. Adopting the same meaning
it appears to me that the directors-in control who had the majority voting power
exercised their authority wrongfully in a manner burdensome, harsh and
wrongful. All the so-called board meetings held between 1957 and 1959 and the
resolutions passed were no doubt oppressive and also prejudicial to the
interest of the company. By the resolutions passed at the meetings held on
January 21,1959 and July 22,1959 the so-called directors who had the majority
voting power attempted to force the applicants and the minority shareholders to
invest their money in a different kind of business against their will. The
applicants and its supporters who constitute the minority shareholders invested
their money in a life insurance business with all its safeguard and statutory
protection. But they were being forced to invest where there would be no such
protection or safeguard. Further, it must not be overlooked that the shares of
the company are only partly paid to the extent of Rs. 25 per share value of Rs.
100 each and in case the company is to continue and carry on a different
business as the so-called directors are attempting to do with their superior
voting power the applicants may in future be forced to pay the un called
balance of Rs. 75 per share in a business which they do not wish to carry on
and that would undoubtedly be “burdensome, harsh and wrongful” to the
applicants.
By adopting
such attitude the directors-respondent is failed to behave with scrupulous
fairness to the minority shareholders as was inclubent on them as holding a
position of trust. They further failed to maintain the utmost good faith
between themselves and the minority shareholders by their unlawful conduct of
the affairs of the company so that the minority shareholders were driven to
apply under these sections for an order inter alia for appointment of a special
officer and also for an order that the company do purchase to purchase the
shares including theirs at a valuation. Such a remedy is permissible under
section 402 of the Companies Act, 1956. I have no doubt that this is a case
where the powers under sections 397, 398 and 402 of the companies Act should be
justly invoked.
It is said
that the object of section 397 is to save the company so that it may be allowed
to operate instead of being wound up. It may be that there is such a suggestion
in the words of section 397, but it would be wrong to infer therefrom that the
remedy under section 397 is limited to cases where the company is still in
active business. The object of the remedy is to bring to an end the matters
complained of, that is, “ oppression”, and this can be done even though the
business of the company has been brought to a standstill. The same reasoning
apply also to cases falling under section 398. I have no hesitation in holding
that the facts and circumstances of this case have fully established that the relief
under this section should be justly available to the applicants.
In the
circumstances, I make the following order :
(1) Sir Dhirendra Nath Mitter,
failing Mr. A. B. Gupta, the chartered accountant, is appointed special officer
of the company at a remuneration of 1,000 per month inclusive of all his
travelling and other incidental expenses. He is directed forthwith to take over
the management and affairs of the company including the compensation money with
all accrued interest thereon lying in the following banks in the account of the
company without any right to operate or withdraw any amount therefrom and
subject to this that he will have power to renew the short deposit account for
further periods from time to time.
(1) F.D.R. / 533385/30/60 dated
2nd February, 1960 for Rs. 8 lakhs of the Punjab National Bank Ltd., New
Market, calcutta.
(2) S.D.R. 164396 and 45/627 dated 22nd March, 1960, for Rs. 12 lakhs
of the Central Bank of India, Calcutta.
(3) S.D.R. 164481 and 45/696 dated 4th April, 1960 for Rs. 2 lakhs of
the Central Bank of India Ltd., Calcutta.
(4) receipt No. 75510 re : 75339 dated 23rd March, 1960, for Rs. 15
lakhs and Account No. F. 126/17 for Rs.15 lakhs of the United Bank of India,
clive Ghat Street, Calcutta.
(5) Amounts lying in the current
account of the Central Bank of India, 33 Netaji Subhas road and the Punjab
National Bank, New Market Branch, Calcutta.
The special
officer is not to withdraw or operate on any of the aforesaid banking accounts
and the short deposit accounts and the current accounts of the company without
further order of this court. The said accounts are to remain standing in the
name of the company as they now stand and the respective banks are not to allow
any withdrawal without further order from this court. Let the Registrar, O.S.
of this court immediately inform the respective banks of this entire order and
after such information is given make a report to the court that such
information has been sent and received by the banks.
(2) the special officer is
directed to take immediate possession of the registered office of the company
and also to take possession of all books of account, share registers and all
the other papers, documents, records, whatsoever belonging to the company now
lying with and under the control of the respondents. The respondents do
forthwith make over such possession to the special officer and also make over
the cash in their hands belonging to the company.
(3) Immediately upon obtaining
possession of the registered office of the company and the share registers and
other records mentioned above, the special officer is directed to prepare a
list of the names of the applicants and their supporters as mentioned annexure
“Auto the petition and including the added parties to this application who have
supported this application and ascertain the number of shares held by each of
them and recorded in the register of the company.
(4) The special officer is
directed thereafter to make a valuation of the shares in the following manner :
(a) Ascertain the total sum available in respect of the compensation
money paid by the Life Insurance corporation to the company including the said
sum paid as compensation for vesting the management under the Life Insurance
(emergency Provisions) Act, 1956.
(b) Ascertain the total sum received and/or receivable for interest due
on the said sum lying in short deposit accounts in the name of the company in
different banks mentioned up to this date.
(c) Deduct income-tax payable on
the interest paid or payable and ascertain the net interest available.
(d) Add the net interest to the
compensation money and also the money paid as compensation for vesting the
management as aforesaid.
(e) Divide the total with the
total number of shares issued by the company , namely, 28,695 shares. The
quotation will be the value of one share.
I consider
this is the simplest way to value the shares on the facts and circumstances of
this case.
(5) The company, thorough the
special officer, is directed to purchase and pay for the shares standing in the
names of the applicants and their supporters whose names appear in annexure “A”
to the petition, including the added parties to this application as in
paragraph 3 above at the valuation so arrived at out of the funds of the company.
Such payment is to be made by the special officer upon obtaining directions
from the court and make consequent reduction of the share capital of the
company.
(6) After such purchase by the company
the special officer is directed to convene an extraordinary general meeting of
the remaining shareholders of the company to consider and if though fit to pass
either of the following resolutions with or without modifications :
(i)Resolved that the company do distribute the compensation money
received by the company from the Life Insurance Corporation of India to the
shareholders in accordance with law :
or
(ii) Resolved that the company do carry on any other business
authorised by its memorandum of association and utilise the compensation money
for the aforesaid objects.
Such meeting
is to be called in accordance with law by sending 21 days’ notice along with
the usual forms of proxy for general meting as per schedule 9 of the Companies
Act, 1956. Notices together with the forms of proxy be sent to each and every
shareholder at their respective address as recorded in the books of the
company. The said meeting will be presided over by the special officer and to
be held at such place as the special officer may think fit and proper. Such
meeting will be presided over by the special officer and to be held at such
place as the special officer may think fit and proper. Such meeting is also to
be held upon proper advertisement in the Calcutta Gazette, statesman, Amrita
Bazar Patrika, Ananda Bazar Patrika, Times of India, Bombay, and The Hindu,
Madras, at least a fortnight before the date of the meeting. In ascertaining
the aforesaid positions the votes in respect of all the trust shares be
recorded in terms of the order of H. K. Bose, J., passed on December 10, 1959.
(7) The
respondents Nos. 1 to 4 are removed from the board of directors of the company.
(8) Prasanta Kumar Bose and Nawab K.G.M. Faroqui were not elected as
directors and they are not to act or represent themselves as such directors any
more.
(9) B. B. Roy was not validly
appointed as the secretary of the company and he is not to act as such. He is
removed from the officer of the secretary.
(10)Let there be an injunction restraining the respondents Nos. 1 to 4
from acting or representing themselves as directors of the company and/or
dealing with the assets of the company including the compensation money, the
accrued interest thereon and also the money lying in the current account of the
company. They are also restrained by an injunction from operating on any of the
banks mentioned above.
(11)The special officer upon purchase of the shares as aforesaid is
directed to submit a report to the court for obtaining further directions.
(12) There will
be liberty to the special officer to apply and also to apply for funds.
(13)The special officer is also to make a report to the court after
holding the meeting as directed above and apply for further orders.
(14)Costs of and incidental to this application is to be paid by the
respondents Nos. 1 to 3 to the applicants. Costs of the Central Government will
be paid out of the funds of the company.
(15) Certified
that this is a fit case of engaging two counsels.
(16) All
parties and the banks are to act on the signed copy of this minute.
[1968] 38 COMP. CAS. 153 (MAD)
v.
Mylapore Hindu Permanent Fund Ltd.
RAMAPRASADA RAO, J.
COMPANY APPLICATION NOS. 124 AND 131 OF 1967
JULY 21, 1967
Nainar
Sundaram for the Applicant
N.
C. Raghavachari for the Respondent.
The
above two applications were taken up together for hearing, as common questions
are involved. Company Application No. 124 of 1967 is by a shareholder of the Mylapore
Hindu Permanent Fund Limited, which is governed by the provisions of the Indian
Companies Act, 1956, for a direction restraining respondents Nos. 2 to 5 from
exercising the functions of directors of the above Fund which is a public
limited company, and for certain incidental orders. The 1st respondent in the
said application is the Fund itself. The applicant alleges that respondents
Nos. 2 to 5 have to retire on the holding of the 94th annual general body
meeting of the Fund, their term of office having expired by efflux of time and
they being obliged to retire by rotation. The 94th annual general body meeting
was called by the board of directors who were in charge of the affairs of the
Fund and who were statutorily obliged to call for such a meeting. Such annual
general body meeting was proposed to be convened at 2 p.m. on April 22, 1967,
at the Gokhale Hall, No. 9, Armenian Street, Madras-1. The contention of the
applicant is that after calling for the said meeting, the board of directors,
including respondents Nos. 2 to 5 left the hall abruptly along with the
secretary of the Fund after distributing the agenda and the printed
balance-sheet for the financial year ending with October 31, 1966. As the board
of directors and the secretary left, without sufficient cause, the meeting
hall, the shareholders who were present there continued the meeting and
considered the agenda after electing Mr. S. T. Shanmugesan as the chairman
thereto. Several resolutions were passed in the said meeting, including the election
of directors in the place of respondents Nos. 2 to 5, who ought to have retired
normally if the meeting was held. The applicant therefore states that
respondents Nos. 2 to 5 can no longer hold their office and, in fact, they have
ceased to hold such office on April 22, 1967, after the annual meeting was held
by those who were left over at the hall after the board of directors and the
secretary left the same. He, therefore, prays that suitable directions
restraining respondents Nos. 2 to 5 from continuing as directors of the Fund
may be given. The 1st respondent has filed a counter affidavit through its
secretary. According to the 1st respondent, this application is not
maintainable in law and the facts stated in the affidavit in support of the
application do not represent the correct state of affairs. The secretary of the
Fund states that in spite of the best arrangements made by the board of
directors by providing separate entrances for the entry of members and
non-member proxy-holders, yet the persons who congregated at the hall,
including strangers, gained entrance into the hall improperly and insisted upon
their demands being conceded, and refused to vacate the hall. Even the police
help, which was sought to maintain peace and order, was of no avail. By that
time it was 2 p.m. and members and non-members who gathered outside the hall
gained entry by pushing the main door and there was thus confusion and
pandemonium and shouts and counter-shouts. As it became impossible for the
board of directors to commence and conduct the annual general meeting called
for, the president of the Fund recorded in the minutes book that the annual
general meeting could not be held and an announcement to that effect was also
made in the mike at about 3 p.m. It is also alleged that the minutes book and
the records were never taken away before the commencement of the meeting and
all such records were there in the hall till about 5 p.m. By reason of the fact
that the meeting could not be commenced and thereafter held, the Fund requested
the Registrar of Companies for extension of time for holding the 94th annual
general body meeting of the Fund. The Fund also refers to certain civil
proceedings taken by the petitioner and others, which it is unnecessary for
this court to set forth in detail. The Fund alleges that no annual meeting of
the Fund could have been held validly after the board of directors announced
that, due to pandemonium and confusion, no meeting can be held and that
therefore respondents Nos. 2 to 5 are still functioning as directors of the
Fund and this application for injunction is without any merits.
The
applicant, in his reply, reiterates what was said in the opening affidavit and
affirms that the meeting should be deemed to have commenced by the distribution
of the agenda and the balance-sheet and by the congregation of the members in
response to a call to hold the meeting. The petitioner's main contention is
that the board has no power to adjourn the meeting specifically convened for
electing directors, except under the provisions of section 256 of the Companies
Act. He denies what all has been said by the secretary in his counter affidavit
and alleges that the Registrar of Companies rejected the request of the
petitioner for extension of time for holding the 94th annual general body
meeting. He, therefore, presses that respondents Nos. 2 to 5 who are deemed to
have ceased to hold the office of directorship should be restrained from acting
as directors of the Fund.
Company
Application No. 131 of 1967 is by the Fund and the only material prayer asked
for is for the appointment of an independent chairman for holding and
conducting the 94th annual general body meeting of the Fund, as it could not be
held earlier though called for by the board of directors. This application is
also supported by an affidavit sworn to by the secretary. Here again, the
secretary refers to the disorder which prevailed on April 22, 1967, and as to
how the members and non-members gained forcible entry into the hall by pushing
the gates and that rival parties created galata and confusion with a view to
see that the meeting was not held and conducted. He reiterates that the board
of directors recorded the fact of such disorder in the minutes book and made an
announcement to that effect in the mike. One other contention raised in this
application is whether the claim of some of the shareholders to have the
election of directors by ballot was the only process which should be resorted
to for the election of directors to the Fund and whether it is not feasible to
adopt the practice in vogue for electing the directors by show of hands. The
Fund also refers to the fact that the election of directors in the past was in
accordance with the provisions of the Companies Act and there has been no
departure from such accepted rules. The Fund refers to certain proceedings in
the City Civil Court and, as I said already, it is unnecessary to refer to them
in the view that I intend taking in the matter. The Fund, therefore, prays that
to ensure a peaceful holding of the 94th annual general body meeting of the
Fund, it is necessary that an independent chairman be appointed for holding and
conducting the same and for holding the election of directors as per the
provisions of the Companies Act and for consideration of other subjects to be
tabled in the agenda. Notice of this application was directed to be published
by me in the newspapers, so that everyone of the shareholders may have the
benefit of the same. On such publication of the notice, several shareholders have
filed common counter affidavits and one such counter affidavit is filed by Mr.
S. T. Shanmugesan who happened to be the chairman of the alleged annual general
meeting conducted by the alleged shareholders of the Fund after the board of
directors expressed their inability to hold and conduct it at the Gokhale Hall
on April 22, 1967. In this counter affidavit the allegations already traversed
in Company Application No. 124 of 1967, are reiterated and the allegations made
in the affidavit of the secretary of the Fund in support of this application
are expressly denied. The deponent of this affidavit states that the Registrar
has recognised and approved the minutes of the alleged annual general meeting
held by the shareholders after the board expressed its inability to hold it and
that several matters in this application are sub judice in the City Civil Court
and that this court has no jurisdiction under section 186 of the Companies Act
to call for an annual general meeting of the Fund and that what the alleged shareholders
did on April 22, 1967, is valid and cannot be disturbed and that therefore
there is no need for the holding of a second annual meeting for the same
purpose. It is significant to note that the applicant in Company Application
No. 124 of 1967, also has filed a counter affidavit almost on similar lines
with that filed by Mr. Shunmugesan and others.
In
reply, the secretary of the Fund repudiates every contention of the respective
shareholders in each of their affidavits and reiterates the material facts
already traversed by me. His main contention is that the Registrar has not
recognised the so-called holding of the annual general meeting by the alleged
shareholders on April 22, 1967, and that there can be no impediment in the
circumstance for the grant of the prayers asked for.
In
the view that I intend taking in this matter, it may not be strictly necessary
for me to find whether respondents Nos. 2 to 5 still continue to be the
directors of the Fund and whether they have retired on the date when the annual
general meeting of the Fund was sought to be convened. It is no doubt true that
when an annual general meeting is held, then it is mandatory that out of the 12
directors of the Fund, one-third of the members have to retire annually and
fresh directors have to be elected and appointed in their place. The question,
however, in this case is whether any vacancy existed at all. In that sense, it
is not strictly necessary to go into the question whether respondents Nos. 2 to
5 have stepped down from their office or whether there has been a vacancy in
the office of directorship by reason of the fact that notice of the annual
general meeting to be convened on April 22, 1967, was given in the manner
provided under the provisions of the Companies Act.
No
doubt, the notice of the meeting was given by the Fund. But this court is now
confronted with the question whether a meeting has been held or whether a
meeting has commenced. Chamber's Twentieth Century Dictionary explains the word
"commence" as meaning "to enter upon." Even so, the word
"hold" has also been explained in the same dictionary as "to
continue or to conduct". I have already mentioned in detail the facts. It
can unhesitatingly be concluded that on the date when the shareholders were
called upon to gather at the Gokale Hall for the commencement and conduct of
the meeting, so that it may be held within the meaning of section 166 of the
Companies Act, 1956, it cannot be said with any amount of percision on that
circumstance alone that they gathered there with the object of commencing and
conducting the annual general meeting. The secretary of the Fund, who is a
responsible officer, has sworn to the affidavit in which he says that members
and non-members gathered inside the hall by gaining entry into it by pushing
the main door of the meeting hall and occupying the the seats wherever they
liked without verification. He swears that there were some outsiders also.
According to him, there was confusion and pandemonium and shouts and
counter-shouts by supporters of rival candidates. Indeed, police help was
sought. It was only thereafter when it was felt that it was impossible to
commence the meeting or to hold the meeting that the president recorded in the
minutes book as a fact as to what transpired therein and said that the annual
general meeting could not be held for the reasons stated in the minutes book.
Exhibit A-1 which is the record of such a fact in the minutes book, as noted by
the president of the Fund and countersigned by the secretary, runs as follow :
"As
there is confusion in the hall on account of people rushing into the hall
without verification of their signatures and as it is not possible to conduct
the meeting, the meeting could not be held. "
That
this is so is practically corroborated by Mr. S. T. Shanmugesan in his letter
dated April 28, 1967, marked as exhibit A-3, in which he accepts that the
secretary and the board of directors were not present in the hall to conduct
the annual general meeting. The expression used by Shanmugesan that the directors
were unable to conduct the annual general meeting is of special significance,
in so far as this case is concerned. The secretary would also state in the
affidavit that after recording the minutes as per exhibit A-1, they remained in
the hall and announced over the mike that the meeting could not be held, and
such an announcement was made at about 3 p.m. There is nothing compelling for
me to reject these statements made by a responsible officer of the Fund.
Excepting to deny the allegations, the petitioner in Company Application No.
124 of 1967, did not satisfy this court that the circumstances were such that a
meeting could be held and that the directors avoided the holding of the
meeting. Any rational, prudent and reasonable person who is obliged to act in
those circumstances would not have done anything better. The board of directors
who were present there, including the president and the secretary found that
the pandemonium which prevailed at that time in the hall made it impossible for
them to commence and thereafter hold the meeting. The fact that the agenda and
the balance-sheet were distributed to some of the shareholders prior to the
commencement of the meeting takes us nowhere, in so far as this case is
concerned. By the mere distribution of the agenda and the balance-sheet it
cannot by any stretch of imagination be stated that the meeting has commenced.
The agenda itself has got to be placed in the meeting ; even so the
balance-sheet; and, if, therefore, the meeting has not commenced and could not
be held by persons responsible for holding it, I am unable to countenance the
argument of the learned counsel for the applicant in Company Application No.
124 of 1967, that the meeting should be deemed to have commenced by the very
act of distribution of the agenda to some of the shareholders. Under article 52
of the articles framed by the Fund, the Fund shall hold in each year in
addition to any other meetings, a general meeting as its annual general meeting
specifying it as such at the Registered Office of the Fund or in some other
place within the City of Madras. The "Fund" has been defined as to
mean "The Mylapore Hindu Permanent Fund Limited" and includes the
branch office or offices as the case may be. Under article 64(a) the management
of the Fund shall vest in the board of directors appointed at the annual
general meeting. On a fair reading of these articles, it is clear that it is
the board of directors who are enjoined and obliged to hold the annual general
meeting as prescribed in article 52. It is not in dispute that a notice to
convene such a meeting was issued and duly published. But what is contended,
however, is that the meeting has been convened and the meeting was commenced
and that such an annual general meeting having commenced, the resolutions
passed by a majority of the shareholders present at that alleged annual general
meeting after the directors having recorded the fact that it was impossible to
hold a meeting on April 22, 1967, as previously announced, should be deemed to
be a regular annual general meeting of the Fund and all the business transacted
in the so-called annual general meeting under the chairmanship of S. T.
Shan-mugesan should be deemed to be valid, regular and enforceable. I am unable
to be persuaded to accept this argument. To quote the words of Beasley J., in
Watrap S. Subramania Aiyar v. United India Life Insurance Co. Ltd.:
"It
seems to me that it would be a travesty of the law if a person who has
deliberately brought about a state of affairs should be allowed to take
exception to that state of affairs and use that changed state for his own
advantage. "
It
is a common law principle that a meeting can adjourn itself if the
circumstances do warrant. In this case, the pandemonium and the confusion that
were admittedly created by the shareholders made it practically impossible for
the directors to commence and conduct and hold the meeting. Therefore, after
recording such a fact in exhibit A-1, they announced that the meeting could not
be held. Persons who gained entrance unauthorisedly and without following the
procedure prescribed by the board of directors, who were in charge of the
affairs of the Fund, cannot be allowed to plead that what they have done
subsequently is an act which is regular and which ought to be regularised. It
would be indeed a travesty of law as well as justice, as pointed out by the
eminent judge. The shareholders who subsequently purport to have met and passed
certain resolutions, did so at their own risk. They were not conscious and
indeed were not aware that they could not hold an annual general meeting within
the meaning of section 166 of the Companies Act. Such an annual general meeting
can only be held by the board of directors, and if for any reason they did not
hold the same, they have got other remedies to pursue. This is not a case under
section 167 of the Indian Companies Act, because there was no default on the
part of the board of directors to hold the meeting. The powers of the Central
Government to call for a meeting can be invoked only if there is initial
default. In the absence of such an initial default or initial laches on the
part of the board of directors in management of the affairs of the Fund, it
cannot be successfully contended that it is the Central Government alone in the
circumstances of this case that could call for the annual meeting and this
court as company court has no jurisdiction to give any directions regarding the
holding of the Fund's annual general meeting. To repeat, there has not been a
commencement of the meeting resulting in the holding of such meeting within the
meaning of section 166 of the Act. The board of directors bona fide wanted to
commence such a meeting and for that purpose they convened the meeting. But
they could not do so because the circumstances were beyond their control. What
the president did in the events that happened and which are practically no
disputed seriously, was that which every rational human being could have done. The interdict in
section 186 of the. Companies Act also cannot equally be brought into motion to
prevent this court from exercising its discretion in giving such directions as
are necessary. In fact, this aspect really arises in Company Application No.
131 of 1967 which I shall deal with presently. Suffice it, however, to say that
the congregation by the shareholders (said to be shareholders) after the board
of directors decided that it was impossible for them to hold the meeting is
valid and regular is something which is unheard of and which cannot be
implemented or given effect to. A fortiori it cannot be said that the
resolutions passed by some of the shareholders at the meeting held under the
chairmanship of S.T. Shanmugesan, as set out in exhibit A-3 can be deemed to be
resolutions passed by the body of shareholders regularly assembled at a meeting
properly convened and held for the purpose, in the eye of law. This is not a
case wherein the court is directing the board of directors to call for a meeting.
This is a case where the court is called upon to interpret whether the meeting
convened and called by the board of directors did commence at all. I am of the
opinion that the meeting never commenced at all and, therefore, the question of
holding a meeting does not really and strictly arise. The decision in Kailash
Chandra Datta v. Sadar Munsif Silchar is very
apposite in this case. At page 520 the learned judge states:
"There
are proper ways in which a meeting of a company can be called either by the
directors in accordance with the provisions of the articles of association, or
by the shareholders on requisition, also in accordance with provisions of the
articles of association. There is only one other way which I know, apart from
any special artical of association, that a meeting of a company can be called
and that is by a direction of a court to the liquidator in winding-up
proceedings. The mere fact that certain persons who happened to be shareholders
of the company met together at a private house and purported to pass
resolutions appointing directors and so on does not make that a meeting of the
company. For a meeting to be a meeting of the company it must be a meeting convened
in one of the ways to which I have referred and convened strictly in accordance
with the articles of association."
The
same problem can be viewed in another perspective as well. Under the articles,
the directors are given a clear mandate to be in charge of the affairs of the
Fund and are equally obliged to hold the annual general meeting in accordance
with law. This mandate to the directors, if it is to be altered at all, it can
only be done under the memorandum of article and not otherwise. So long as the
board of directors acted within the rule of law and did what they could do as
prudent and reasonable men, there is nothing that could be said against them.
As I have already stated, the meeting said to have been held by the alleged shareholders, be they
in majority after the record of fact made in exhibit A-1 and after the
announcement made by the board of directors in the Gokale Hall that they were
unable to conduct the meeting, cannot legitimately be characterised as the
annual general meeting of the Fund.
Both
the applications were again re-posted for further arguments at the request of
the counsel on both sides. Mr. Nainar Sundaram, appearing for some of the
respondents in Company Application No. 131 of 1967, practically re-argued the
case as a whole. On the merits, his contentions are that the meeting should be
deemed to have been held since a notice of convening the meeting was given,
since the shareholders congregated by reason of such a call by the board of
directors, and since the agenda and the balance-sheet were distributed by the
authorities. He also urged relying upon judicial precedents that the meeting
said to have been convened after the announcement by the board of directors
that it was not possible to hold it, is a valid one in the eye of law and there
is no necessity for the fund to call for another annual general meeting and
seek directions from this court for the appointment of a chairman to preside
therein. He referred to a passage at page 422 of Gore-Browne's Hand Book on
Joint Stock Companies, forty-first edition, which runs as follows:
"It
is only at general meetings that the shareholders can exercise any control over
the affairs of the company......It is the duty (of the chairman) to preserve
order, conduct proceedings regularly, and take care that the sense of the
meeting is properly ascertained with regard to any question before it."
But
this principle has no relevancy in so far as this case is concerned, because no
meeting was commenced for the general body to exercise its powers or the
chairman to act. A passage in Halsbury's Laws of England, second edition, was
referred to to substantiate the well-known principle that at the meeting
properly held, the chairman cannot adjourn the meeting or dissolve it while any
of the business for which it was called remains untransacted. This again is a
principle which is indisputable, but unfortunately inapplicable to the facts of
this case. Mr. Nainar Sundaramthereafter quoted the following three decisions:
National Dwellers Society v. Sykes, John
Kennedy Carruth v. Imperial Chemical Industries Lid. , and
Narayanan Chettiar v. Kaleeswarar Mills Ltd. In so far as
the first case is concerned, it deals with the duties of a chairman. The second
case concerned itself with an annual meeting which was properly convened and
held. The third cited precedent also sets out the well-known ratio that the
chairman of a meeting is not entitled to stop the meeting at his own will and
pleasure. I am afraid that these cases have no real bearing on the point at
issue in the applications under
consideration. On more than one occasion I have indicated that there has not
been a commencement of the meeting at all and it is, therefore, idle to
speculate whether there was a holding of the meeting. Lastly, he contended that
this court had no power to call for a meeting and that section 186 of the
Companies Act is an interdict against the court for calling for an annual
general meeting. This court, no doubt, is conscious of the limitations
prescribed by section 186 of the Act. But the learned counsel has failed to
appreciate that the direction asked for in Company Application No. 131 of 1967
is not to call for an annual general meeting, but to appoint a chairman to
supervise and preside over the annual general meeting to be called for by the
board of directors. In fact, on an earlier occasion and under similar
circumstances, this court did appoint a chairman for this very Fund. In Company
Application No. 138 of 1963, Ramamurti J., who disposed of the said application
observed:
"There
is ample inherent power in the court to give directions asked for. As I
mentioned already on two prior occasions, under somewhat similar circumstances,
on one occasion Ganapatia Pillai J. and on another occasion Ramachandra Iyer J.
(as he then was) issued similar directions. My attention has been drawn to a
bench decision of the Allahabad High Court in Br. India Corporation v. Robert
Mensies,
in which it was held that the company court has got ample inherent jurisdiction
to issue directions for the purpose of enabling the company to perform its
statutory duties as provided in the Companies Act. In this case, it is obvious
that the company has got to perform its statutory duty of convening an annual
general body meeting and several important matters and businesses have got to
be transacted at that annual general meeting. It is for no fault of the company
that it is not in a position to convene the meeting and it is clear that this
is a case in which the company ought to and is anxious to perform and carry out
its statutory duties. Under the circumstances, I am of opinion that this court
has ample inherent jurisdiction to issue necessary and appropriate directions
both to direct the company to perform its statutory duty and also enable the
company to perform its statutory duty."
I
respectfully agree with the observations of the learned judge and find that
Company Application No. 131 of 1967 is maintainable and this court has got
jurisdiction to issue the directions prayed for, as without which there will be
a stalemate and the apprehensions in the mind of the Fund and the board of
directors who are statutorily obliged to call for the annual general meeting
can never be relieved and there is every possibility of history repeating
itself.
Mr.
N.C. Raghavachari, appearing for the Fund, quoted certain relevant passages. He
invited my attention to Palmer's Company Precedents, seventeenth edition, at page 492, which
states that if a meeting has to be dissolved, members who remain behind cannot
continue the business. Albert Crew on Public Company and Local Government
Meetings, sixteenth edition, at page 164 is of the opinion that a meeting can
of course be adjourned before any business is done.
I
am satisfied that, in the circumstances of this case, the direction asked for
by the Fund to appoint an independent chairman to preside over the annual
general body meeting which it proposes to call for is justified and this court
is obliged to give such a direction, because it has to assist the Fund in doing
and performing its statutory obligations. To avoid impracticable situations
arising and repeating themselves and to enable the Fund to discharge its
statutory duty to conduct the annual general meeting peacefully, prayer 2 in
Company Application No. 131 of 1967 is ordered. The Commissioner to be
appointed as chairman will decide at the meeting as to the manner in which the
election of the directors should take place, to wit whether it should be by
ballot or by show of hands. It is also left to him to decide as to how and in
what manner proxy votes should be received or rejected as the case may be.
Having regard to all the circumstances, I am of the view that an advocate of
this court should be appointed as chairman of the proposed meeting, so that he
could conduct the proceedings in accordance with law. Sri K. Venkateswara Rao,
Advocate, is appointed as Commissioner to perform the functions of a chairman
at the meeting to be convened by the Fund. The applicant shall pay a sum of Rs.
750 in the first instance to him within a week from this date. The actual
amount of remuneration shall be fixed later.
If
the meeting has, therefore, not commenced at all and has not been
consequentially held by the board of directors, respondents Nos. 2 to 5
continue to be the directors because they could only retire when the annual
general meeting is held. In this case, I have held that the annual general
meeting has not been so held. Therefore, the applicant in Application No. 124
of 1967 is not entitled to the relief asked for in the Judge's Summons praying
for an interdict against respondents Nos. 2 to 5 from exercising their
functions as directors of the Fund. Company Application No. 121 of 1967 is,
therefore, dismissed. There will be no costs in both the applications.
[1994] 79 COMP. CAS. 830
(GUJ)
HIGH COURT OF GUJARAT
v.
R. A. MEHTA J.
Company Application No.
235 of 1990
NOVEMBER 19, 1991
J M. Thakore for the applicant.
S.B. Vakil for the Respondent.
JUDGMENT
R.A. Mehta
J.—The applicant is a
shareholder and member of the respondent-company and he has challenged the
validity of the annual general meeting of the company held at Surat on the
ground that it is in violation of the provisions of section 166 of the Companies
Act, 1956, and has prayed for a declaration of illegality and for declaring all
the business transactions at the said meeting as null and void. Section 166(2)
of the Companies Act reads as under :
"166. (2)Every annual general meeting shall be called for a time
during business hours, on a day that is not a public holiday and shall be held
either at the registered office of the company or at some other place within
the city, town, or village in which the registered office of the company is
situated :
Provided that
the Central Government may exempt any class of companies from the provisions of
this sub-section subject to such conditions as it may impose :
Provided further that :
(a) a public company or a private company which
is a subsidiary of a public company, may by its articles fix the time for its
annual general meetings and may also by a resolution passed in one annual
general meeting fix the time for its subsequent annual general meetings, and
(b) a private company which is not a subsidiary
of a public company, may in like manner and also by a resolution agreed to by
all the members thereof, fix the times as well as the place for its annual
general meetings".
The
petitioner submits that the annual general meeting of the company must be held
either at the registered office of the company or at some other place within
the city, town or village in which the registered office of the company is
situated. The registered office of the company is situated at village Mora,
Post Bhatha, Surat-Hajira Road, Dist. Surat, pin 394 510, Gujarat State. The
annual general meeting in question was held in Surat city and not in village
Mora, Post Bhatha, where the registered office of the company is situated.
On behalf of
the respondent-company, it is submitted that there is no breach of section
166(2) of the Act. It is not the revenue limits or municipal limits which is
required to be taken into consideration, but the postal limits of the city are
required to be considered and it is submitted that the postal department has
confirmed that village Mora falls within the postal limits of Surat and
reliance is placed on a Central Government Circular, dated February 16, 1981,
wherein it is clarified that a company can hold its annual general meeting at
any place within the postal limits of the city where its registered office is
situated if it is more convenient to its shareholders. That circular is
produced along with part of that circular which reads as follows :
"Section
166(2) may be taken to mean both the postal limits and local limits of the city
in which the registered office of the company is situated and where the two do
not coincide, the wider of the two. A company can, therefore, hold its annual
general meeting at any place within the postal limits of the city in which its
registered office is situated, if it is more convenient to its
shareholders."
It is further
submitted that the Senior Superintendent of Post Offices, Surat Division,
Surat, has confirmed by letter dated June 6, 1990 (page 26), that the situation
of the registered office of the company at Village Mora, Postal Bhatha, Dist.
Surat, falls within the postal limits of Surat. Even previous to this the
company had written a letter to the Ministry of Company Affairs on June 9,
1989, on the basis that the registered office falls within the postal limits of
Surat and, therefore, the holding of the annual general meeting in Surat would
be in order. The Ministry of Company Affairs, by their letter dated June 26,
1989, have confirmed the same "provided your registered office falls
within the postal limits of Surat".
In the
affidavit-in-rejoinder, it is pointed out that the postal limits of Surat city
and Surat Division are altogether different. The postal limits of the Surat
city and postal limits of Surat Division are not the same and the Senior
Superintendent of Post Offices, Surat Division, has written to the petitioner
by letter dated November 16, 1990, that the areas of Bhatha Post Office does
not fall within the postal limits of Surat city. It is also noted that the pin
code number of Surat city is 395 001 whereas Bhatha Post Office has the pin
code number 394 510. The third digit pinpoints the sorting district which is
different in the present case. Post Bhatha is in sorting No. 4, whereas Surat
is in sorting district No. 5. It is, therefore, submitted by the petitioner
that the postal limits of Surat city also do not cover village Bhatha and,
therefore, the holding of the meeting outside the postal limits of village
Bhatha would be a violation of section 166(2) of the Companies Act.
The
respondent-company has also raised a preliminary contention that the High Court
is a court of special jurisdiction in the matter of the Companies Act and its
jurisdiction is limited to certain matters specified under the Companies Act
and there is no general jurisdiction over any matter arising under the
Companies Act. For the purpose of the preliminary objection, I will proceed on
the allegation and assumption that there is violation of section 166(2) of the
Companies Act and examine the question as to whether the High Court has
jurisdiction to grant any relief or pass any orders.
In the
application, the only provision cited is section 166 of the Companies. Act and
the judge's summons is also said to be under section 166 of the Companies Act.
As far as section 166 it self is concerned, it does not contemplate or mention
any legal proceedings in any court. Section 10 provides that the court having
jurisdiction under this Act shall be the High Court having jurisdiction in
relation to the place at which the registered office of the company concerned
is situate, except to the extent to which jurisdiction has been conferred on
any District Court or District Courts subordinate to that High Court. This
section speaks only of territorial jurisdiction of the High Court as it
provides that the location of the registered office of the concerned company
would determine the territorial jurisdiction. This provision cannot be
construed to mean that the High Court has jurisdiction with respect to the
matters relating to that company.
Section 2(11)
defines "the court" which reads as under :—
" 'the
court' means—
(a) with respect to any matter relating to a
company (other than any offence against this Act), the court having jurisdiction
under this Act with respect to that matter relating to that company, as
provided in section 10 ;
(b) with respect to any offence against this
Act, the court of a Magistrate of the First Class or, as the case may be, a
Presidency Magistrate, having jurisdiction to try such offence."
Therefore, we
will have to find out which is the court having jurisdiction with respect to
that matter relating to the company. It is not the case of the applicant that
the civil court has no jurisdiction in respect of this matter or that the
jurisdiction of the civil court is implicitly barred. According to the
respondent, it is only the civil court which has the jurisdiction. According to
the applicant, the jurisdiction would be concurrent both in the civil court as
well as in the High Court.
Under the
Companies Act, several kinds of questions and matters arise and it is not that
all matters are within the jurisdiction of the Central Government, some are
within the jurisdiction of the Company Law Boards, some are within the
jurisdiction of the Companies Tribunal. It is, therefore, not a correct
proposition of law that with respect to any matter relating to a company in a
State, the High Court has jurisdiction under the Companies Act with respect to
that matter. These words "with respect to that matter" in section
2(11) are crucial. Some illustrative cases can be immediately seen by reference
to the Companies (Court) Rules, 1959.
Rule 11
illustrates the matters with respect to which the High Court has jurisdiction.
All the twenty-three items illustrate the jurisdiction of the High Court
conferred by the various provisions of the Companies Act in respect of specific
matters relating to the companies situated within its jurisdiction. The High
Court is a special court or a company court with special company jurisdiction
and that jurisdiction has to be found from specific provisions of the Act and
the High Court does not have any general plenary or residuary jurisdiction to
deal with all matters and all questions arising under the Companies Act.
Learned
counsel for the applicant has not been able to point out any specific provision
under which the High Court has jurisdiction to deal with the present question.
In the case
of Municipal Corporation v. Premchand Manasukhram [1964] 5 GLR 847, the
question of jurisdiction was considered in a different context and a classical
passage from the case of Wolverhampton New Water Works Co. v. Hawkesford (6
C.B. (N.S.) 336) was quoted. The provision of section 166 is created by the
Companies Act. However, for breach of section 166, no special remedy is
provided under the Act, and, therefore, the common law remedy of jurisdiction
of the civil court would remain and this will fall within the second class of
the cases referred to above.
In view of
the above, it is to be held that the High Court has no jurisdiction in the
absence of any specific provision to pass orders in respect of the alleged
breach of section 166(2) of the Companies Act in the present proceedings which
is only for the purpose of section 166(2).
In view of
the above finding, it would not be necessary to decide as to whether in fact
and in law, there is any breach of the provisions of section 166(2) and even if
there is such a breach, whether it has any nullifying effect on the meeting
held in the peculiar circumstances and the knowledge and guidance that was
obtained by the company at that time. The company was guided by the circular of
the Central Government and guided or misguided by the letter of the Senior
Superintendent of Post Office, Surat. According to the applicant, the company
has conveniently and deliberately misguided itself by approaching the postal
authorities at Surat division instead of Surat city. Now that the division
between Surat city postal limits and Surat division postal limits is clear,
there may not be any confusion or even bona. fide action under some guidance or
misguidance. Since this court has no jurisdiction, no final opinion need be
expressed by this court.
In the
result, the application fails and is dismissed.
RAJASTHAN HIGH COURT
[2001]
34 scl 750 (Raj.)
v.
Bank of Rajasthan Ltd.
PRAKASH
TATIA, J.
CIVIL
MISC. APPEAL NO. 236 OF 2001
MARCH 29,
2001
Section 166, read with sections 169 and 291, of
the Companies Act, 1956 - Meetings and proceedings - Annual General Meeting -
Defendant respondent bank having its registered office at Udaipur issued notice
for Extraordinary General Meeting (EGM) to be convened at Mumbai - Plaintiff
appellant filed a suit for declaration to effect that defendant had no right to
convene EGM at a place other than Udaipur and for injunction restraining
respondent to hold meeting at Mumbai inasmuch as holding of said meeting would
be against the provisions of sections 166 and 169 and alleged that holding
meeting at Mumbai would cause hardship to shareholders - He also alleged it was
to give benefit to Chairman of bank - Whether the board of directors of company
shall be entitled to exercise all such powers and to do all such acts and
things as company is authorised to exercise and do - Held, yes - Whether board
of directors have powers to call Extraordinary General Meeting and looking to
entirety of facts which also suggest that board of directors if will not have
power to call Extraordinary General Meeting it may not be workable for company
and when there is statutory provision of recognition of power of board of directors
to call extraordinary general meeting - Held, yes, it cannot be said that Board
has no power to call Extraordinary General Meeting simply because section 169
provides for calling Extraordinary General Meeting in particular situation only
- Held, yes - Whether, discretion of the board of directors in holding meeting
at a particular place is expected to be reasonable and in case if it is found
that the decision given by the Board of Directors is mala fide with intention
to deprive the shareholders from attending the meeting or any other reason, the
same can be challenged before appropriate Forum - Held, yes - Whether since
plaintiff failed to prove that holding meeting at Mumbai would cause hardship
to shareholders in view of fact that more than 70 per cent of shareholders were
living at Mumbai - It was reasonable for board to convene meeting at Mumbai -
Held, yes - Whether plaintiff had failed to even plead how result would be
affected by holding meeting at Udaipur or at Mumbai because of fact that it was
not case of plaintiff that Chairman and his persons would not be able to
participate in meeting at Udaipur nor this could be a ground for granting any
interim relief in favour of appellant - Held, yes - Whether since in instant
case there was no pleading to effect that board of directors had mala fidely or
with some alternative decided to hold meeting at Mumbai, plaintiff’s application
was liable to be rejected - Held, yes
Facts
The defendant-respondent bank was a company
registered under the Companies Act,
1956 having its registered office at Udaipur in Rajasthan. The
plaintiff-appellant, a shareholder of the respondent, applied for and was
allotted certain number of right shares, each right share attached with one
share-warrant. As per the provisions of the Act, for conversion of the share
warrants into shares, a resolution was required to be passed by the shareholders
of the company and a notice was issued by the respondent to convene an
Extraordinary General Meeting (EGM) to be held at Mumbai. The appellant filed a
suit for declaration against the respondent bank to the effect that
defendant-respondent had no right to convene EGM of the shareholders at a place
other than the registered office and sought relief of decree for injunction
restraining the defendant from convening meeting at Mumbai. He contended that
section 166(2) provides for holding of annual general meeting only at
registered office of the company or at some other place within the city, town
or village in which the registered office of company is situated. Secondly, he
alleged that holding meeting at Mumbai would cause hardship to shareholders
residing in Udaipur. He also alleged that meeting was to be convened at Mumbai
to give benefit to Chairman and his persons. The appellant further contended
that Articles 73 and 74 of the articles of association of the
defendant-company, were in violation to sections 166 and 169. Therefore, they
were illegal, null and void, and
section 166 was applicable, whereas section 169 which is for Extraordinary
General Meeting had no application.
Respondents submitted that the plaintiff could
not be permitted to travel beyond the pleadings which he had raised in the
pleadings in the plaint from a bare perusal of the reading of the plaint, it
was clear that the plaintiff was fully aware that there could be an annual
general meeting and there could be an Extraordinary General Meeting. The
plaintiff, in his plaint, specifically at a number of places, admitted that the
meeting which was sought to be convened in pursuance of the notice was
Extraordinary General Meeting and shown his consciousness about the annual general
meeting and Extraordinary General Meeting referred to in various paras of the
plaint wherein the plaintiff submitted that as per section 166 whatever meeting
was convened including Annual General meeting could be held only at registered
office or any place in the city, town or village where the registered office of
the company is situated. The suit was dismissed by the lower court.
Held
The appellant was conscious and aware of the
fact that the meeting may be Annual General Meeting (AGM) or Extraordinary
General Meeting (EGM). The appellant himself specifically in his plaint
mentioned that whatever meeting was convened including AGM could be held at the
registered office or in the city where the registered office was situated.
There was no pleading of the plaintiff-appellant that though the meeting had
been described as EGM but in fact it was AGM. It was clear from various
provisions of the Act that meeting convened was not an AGM. When the said
meeting could not be held as AGM then there arose no question for application
of section 166(2).
Regarding contention of the appellant that the
only procedure prescribed for convening the EGM was provided under section 169,
from a bare perusal of section 169 it is clear that section 169 provides
procedure for calling of EGM on requisition. In instant case, that was not case
of the plaintiff that any requisition was made by the shareholders having
one-tenth of shareholding as provided under section 169. Section 169 nowhere
deals with the contingency of calling an EGM by the board of directors suo motu
without there being any requisition of shareholders. Therefore, the present
meeting could not be said to be an EGM under section 169.
From a bare perusal of section 291, it is
clear that Board of Directors are entitled to exercise all such powers and to
do all such acts and things as the company is authorised to exercise and to do.
Therefore, the statutory provision authorises the Board to exercise all powers.
So far as proviso to section 291 is concerned, it also in fact, further
recognises the power of the Board to do things and exclude only limited fields.
The proviso merely says that the Board shall not exercise any power or do any
act or thing which is directed as required to be done by the company in general
meeting if it is provided by the Act, Memorandum, Articles or otherwise. The
appellant could not point out whether the power of calling EGM was given by the
Act, Memorandum or Articles. In view of section 291, Articles 47 and 48 of
Table A and various commentaries, the Court was of the opinion that Board have
powers to call EGM and looking to the entirety of the facts which also suggest
that Board if will not have power to call EGM, it may not be workable for the
company and when there is statutory provision of recognition of the power of
the Board to call EGM, it cannot be said that Board has no power to call EGM
simply because section 169 provides for calling EGM in particular situation
only.
Regarding second allegation of the appellant,
it was stated that more than 70 per cent of the shareholders were from Mumbai
and only 0.634 per cent were residing at Udaipur. The direction of the Board of
Directors (BOD) in holding meeting at a particular place is expected to be
reasonable and in case if it is found that decision given by BOD is mala fide
with intention to deprive the shareholders from attending the meeting or any
other reason, the same can be challenged before appropriate Forum. Here, there
was no pleading to the effect that BOD had mala fidely or with some ulterior
motive decided to hold meeting in Mumbai. The plaintiff had failed to plead how
the Chairman would be affected by holding a meeting at Mumbai or at Udaipur. If
the appellant thought that hardship would be caused to him by going to Mumbai,
he should also be aware that shareholders of Mumbai who were large in number
would have to come to Udaipur and that would cause great hardship to large
number of persons as compared to the appellant alone. Also suit filed by
appellant was in his individual capacity and self-claimed representative
litigation could not be permitted without complying with the formalities for
protecting other right - or formalities provided for representing others.
Therefore, there was no substance in the contention of the appellant with
respect to the hardship due to the calling of meeting at Mumbai. It was clear
that there was no violation of any statutory provision, because of the fact
that the present meeting was Extraordinary General Meeting and not Annual
General Meeting, sub-section (2) of section 166 had no application. The Act
nowhere restricts holding of meeting at particular place. Therefore, the
contention of the appellant deserved to be rejected.
In view of the above, the Court did not find any prima facie case in favour
of the appellant for grant of injunction and he failed to prove any irreparable
injury. The balance of convenience was also not in his favour as his total
stake in case was negligible and no other shareholders joined with him in this
suit.
Accordingly, the appeal was dismissed.
Cases Referred to
M.R.S. Rathnavelusami Chettiar v. M.R.S.
Manickavelu Chettiar AIR 1951 Mad. 542 and Bloom Dekor Ltd. v. Subhash Himatlal
Desai [1994] 6 SCC 322.
J.P. Joshi for the Appellant. D.S. Shishodia, Paras Kuwad and Manish
Shishodia for the Respondent.
Judgment
The present appeal is arising out of the Order
dated 5-2-2001 passed by the Additional District Judge No. 2, Udaipur in Civil
Misc. Case No. 6/2001 (16/2001), by which application for injunction of the
plaintiff-appellant was dismissed by the Court below.
2. The facts of
the present case are that the plaintiff-appellant filed a suit for declaration
and injunction against the defendant-respondent Bank alleging therein that the
defendant-Bank is working since last 50 years and having about 300 branches in
main cities of entire India. Its registered office is situated at Udaipur in
Rajasthan and the defendant-Bank is a company registered under the Companies
Act.
3. The plaintiff
submitted that the plaintiff is holding 100 shares of the defendant-Company.
The defendant-Company decided to offer a right issue for which a letter of
offer was issued on 20-3-1999 by which total 4,48,55,480 equity shares were to
be issued having value of Rs. 10 each share with a premium of Rs. 5 per share.
As per the decision of the defendant-Company, each right share to be issued
with one detachable warrant which will entitle the holder thereof to apply and
to be allotted one ordinary share of Rs. 10 within 12 to 18 months at a discount
of 25 per cent of average market price of last 6 months.
4. As per the
terms and conditions of the letter of offer, per share, the plaintiff since
applied in the right issue, he was offered 250 shares and plaintiff applied for
additional 50 shares which all were allotted to the plaintiff. Therefore, the
plaintiff, at the time of filing the present suit, was having original 100
shares and 500 shares which were allotted to the plaintiff.
5. According to
plaintiff, in accordance with the provisions of the Companies Act, for
conversion of the share warrants into shares a resolution was required to be
passed by the shareholders of the Company and the defendant-respondent issued a
notice dated 6-1-2001, according to which extraordinary general meeting of the
shareholders of the defendant-respondent Company was to be convened at Indian
Merchants Chambers, Balchand Heerachand Hall, Fourth Floor, I.M.C. Road, Church
Gate, Mumbai.
6. According to plaintiff,
there are about 32,000 shareholders of the defendant-Company, out of which
about 22,000 shareholders are from Rajasthan and in view of the above notice
dated 6-1-2001 if the meeting of the Company will be convened at Mumbai, it
will be illegal and will also cause great hardship to the plaintiff and other
shareholders. The plaintiff, therefore, aggrieved against the holding of the
above meeting at Mumbai in pursuance of the notice dated 6-1-2001, filed the
present suit for declaration to the effect that it may be declared that the
defendant-respondent has no right to convene extraordinary general meeting of
the shareholders of the Company in pursuance of notice dated 6-1-2001 at Mumbai
and it may also be declared that the defendant-respondent has no right to
convene the meeting at a place other than the registered office of the
defendant-Company or in the city, town or village where the registered office
of the company is situated. The plaintiff further sought relief of decree for
injunction restraining the defendant-company from convening meeting at Mumbai
on 6-2-2001.
7. The grounds for
challenge raised by the plaintiff in his plaint are mainly two-folds. One is
that as per sub-section (2) of section166 of the Companies Act (‘the Act’),
annual general meeting of the shareholders can be held only at the registered
office of the Company or at some other place within the city, town or village
in which the registered office of the company is situate. In addition to above,
the plaintiff-appellant in para 10 of the plaint stated that, as per section
166, any meeting of the shareholders of the company including extraordinary
general meeting can be held at registered office of the company or within the
city or town where the registered office of the Company is situate. Second
ground of objection in the plaint was that holding of the meeting at Mumbai
will cause hardship to 32,000 shareholders and since the meeting is important
one, the hardship is much more grave. The plaintiff-appellant also submitted that
the meeting is being convened at Mumbai to give benefit to one Shri P.K. Tayal,
Chairman of the Bank and his persons. The plaintiff further submitted that some
of the shareholders of the company are having even only 10 shares, 20 shares or
50 shares and they will have to go to Mumbai to attend the extraordinary
general meeting. According to plaintiff, in last 50 years from incorporation
of the defendant-Company, none of the annual general meeting or extraordinary
general meeting was held outside of Udaipur.
8. The plaintiff
also filed an application under order 39, rules 1 and 2 of the Code of Civil
Procedure for seeking ad interim injunction against the defendant from holding
extraordinary general meeting on 6-2-2001 at Mumbai, outside from the city of
Udaipur.
9. The
defendant-respondent submitted a detailed reply to the application moved under
order 39, rules 1 and 2 of the Code of Civil Procedure by the plaintiff and
submitted that the decision to convene the meeting was taken by the Board of
Directors on 6-1-2001. Notice to that effect was issued on 9-1-2001 by U.P.C.
whereas the suit was filed on 2-2-2001. Therefore, the application deserves to
be dismissed only on the ground of delay and the plaintiff is not entitled for
any equitable relief of injunction.
10. The defendant-respondent further submitted that as per article 74 of
the Articles of Association of the Company, the meeting can be convened at any
place as decided by the Board of Directors and extraordinary general meeting of
shareholders of the Company is convened as per section 169 of the Act. The
defendant further submitted that out of 32,000 shareholders, only 887
shareholders are from Udaipur City. According to reply of the defendant, out of
total shareholdings, 70.85 per cent shares are with the residents of Mumbai
whereas only 0.634 per cent shares are with the residents of Udaipur.
Therefore, the decision was in the interest of the shareholders so that large
number of shareholders may attend the extraordinary general meeting. It was
also stated that as per the directions of the Reserve Bank of India which were
issued under the Banking Regulation Act, the Bank is required to bring capital
reserve equity ratio, upto 9 per cent which is 6 per cent at present and,
therefore, capital reserve is required to be raised by Rs. 45,00,00,000 and it
is stated that in case of any interim order, it will affect the rights of
31,999 shareholders and it will affect the realisation of Rs. 45,00,00,000 to
the Company.
11. It is also stated in the reply that the plaintiff earlier filed two
suit Nos. 18 of 1999 and 20 of 1999 before the Company Law Board which were
withdrawn by the plaintiff and the plaintiff, with some other purpose and to
obstruct the working of the defendant-company, filed the present application
for injunction. It is further stated that the plaintiff is not going to suffer
any irreparable injury by convening meeting at Mumbai on 6-2-2001. According to
defendant, by this decision, the shareholders will be benefited and financial
position of the company will be stronger.
12. In rejoinder filed by the appellant-plaintiff, it is submitted that
articles 73 and 74 of the Articles of Association of the defendant-company, are
in violation to sections 166 and 169 and, therefore, they are illegal, null and
void. In rejoinder, it is further submitted by the plaintiff-appellant that
section 166 is applicable whereas section 169 which is for extraordinary
general meeting has no application.
13. After hearing the arguments, the trial Court, by impugned Order dated
5-2-2001, dismissed the injunction application of the plaintiff-appellant. It
is relevant to mention here that the injunction application was dismissed on
5-2-2001 a day before the date of meeting to be held on 6-2-2001 at Mumbai. The
present appeal was filed on 19-2-2001 and an ad interim order was passed by
this Court on 23-2-2001 restraining the defendant-Company from taking any step
in furtherance to the decision taken in the meeting dated 6-2-2001. At the
request of both the parties, on 19-3-2001 and subsequent dates, this appeal was
heard finally.
14. The learned
counsel for the appellant vehemently submitted that the order passed by the
court below dated 5-2-2001 is absolutely illegal, perverse and hence deserves
to be set aside. The learned counsel for the appellant also submitted that the
trial Court has not even dealt with the points which were raised by the
appellant.
15. The learned
counsel for the appellant, in support of his arguments, submitted that it is an
admitted fact that the Company’s registered office is situated at Udaipur in
Rajasthan and it is also an admitted fact that since last 50 years from the
time of incorporation of the defendant-company, all the meetings were held at
Udaipur City only, but, now to give benefit to one Shri P.K. Tayal, Chairman of
the respondent-company and men of Shri Tayal, the meeting being convened at
Mumbai so as to deprive the plaintiff to attend the meeting and also with an
object to prevent the large number of shareholders from attending the meeting.
16. The learned
counsel for the appellant further submitted that as per sub-section (2) of
section 166, annual general meeting of the shareholders of the Company can be
held at the registered office of the Company or at some other place within the
City, town or village in which the registered office of the Company is situate
and, therefore, there is a clear breach of statutory provisions by the
defendant-Company.
17. According to the
learned counsel for the appellant. Articles 73 and 74 of the articles of
association of the defendant-company are void being in violation to sections
166 and 169. The learned counsel for the appellant further relies upon section
9 of the above Act. Sub-clause (b) of section 9 according to the learned
counsel for the appellant, specifically provides that any provision contained
in the memorandum, articles, agreement or resolution shall, to the extent to
which it is repugnant to the provisions of this Act, is void and when there is
a specific provisions of holding meeting at registered office in view of
sub-section (2) of section 166, Article 74 permitting discretion of the Board
of Directors to decide the venue of the meeting is void.
18. According to the
learned counsel for the appellant, the meeting which is convened on 6-2-2001 is
not convened under section 169 because of the fact that the meeting under
section 169 can be convened only when there is a requisition from the
shareholders of the company which will not be less than 1/10th of shareholding
with persons requisitioning the meeting and it is submitted by the learned
counsel for the appellant that there is no requisition of the shareholders of
the Company to convene the extraordinary general meeting of the Company.
19. The learned counsel for the appellant, to
substantiate his argument, referred sub-section (2) of section 166 of the Companies
Act, which reads as under :
“Annual general meeting.—
(1) ** **
**
(2) Every annual general meeting
shall be called for a time during business hours, on a day that is not a public
holiday, and shall be held either at the registered office of the company or at
some other place within the city, town or village in which the registered
office of the company is situate :
Provided that the Central Government may
exempt any class of companies from the provisions of this sub-section subject
to such conditions as it may impose :
Provided further that—
(a) a public company or a private company which is a subsidiary of a
public company, may by its articles fix the time for its annual general meeting
and may also by a resolution passed in one annual general meeting fix the time
for its subsequent annual general meetings; and
(b) a private company which is not a subsidiary of a public company
may in like manner and also by a resolution agreed to by all the members
thereof, fix the times as well as the place for its annual general meeting.”
20. It is further relevant to refer relevant sub-sections of section 169
which read :
“Calling of extraordinary general meeting on
requisition.—(1) The Board of directors of a company shall, on the requisition
of such number of members of the company as is specified in sub-section (4),
forthwith proceed duly to call an extraordinary general meeting of the company.
(2) The requisition shall set out
the matters for the consideration of which the meeting is to be called, shall
be signed by the requisitionists, and shall be deposited at the registered
office of the company.
(3) The requisition may consist of
several documents in like form, each signed by one or more requisitionists.
(4) The number of members entitled
to requisitions a meeting in regard to any matter shall be—
(a) in the case of a company having a share capital, such number of
them as hold at the date of the deposit of the requisition, not less than
one-tenth of such of the paid-up capital of the company as at that date carries
the right of voting in regard to that matter;
(b) in the case of a company not having a share capital, such
number of them as have at the date of deposit of the requisition not less than
one-tenth of the total voting power of all the members having at the said date
a right to vote in regard to that matter.
21. On the basis of
above submissions, the learned counsel for the appellant submitted that there
is a clear violation of the statutory provisions, namely, sub-section (2) of
section 166, by the defendant-respondent-company in convening the meeting at
Mumbai and the meeting can be held only at Udaipur. Therefore, according to the
appellant, there is a strong prima facie case in his favour.
22. I may now refer to section 9 of the Companies Act which reads as under
:
“Act to override memorandum, articles, etc.
Save as otherwise expressly provided in the
Act—
(a) the provisions of this Act shall have effect notwithstanding
anything to the contrary contained in the memorandum or articles of a company,
or in any agreement executed by it, or in any resolution passed by the company
in general meeting or by its Board of Directors, whether the same be
registered, executed or passed, as the case may be, before or after the
commencement of this act; and
(b) any provision, contained in the memorandum, articles, agreement
or resolution aforesaid shall, to the extent to which it is repugnant to the
provisions of this Act, become or be void, as the case may be.”
23. According to the
appellant, the Act has its overriding effect over all the provisions contained
in the memorandum, articles, agreement or resolution to the extent to which it
is repugnant to the provisions of this Act and it was further submitted by the
learned counsel that that part is void. Article 74 of the Articles of
Association reads :
“74. The Directors may, whenever they think
fit and they shall, on the requisition of the holders of not less than
one-tenth of the issued share capital of the Company upon which all calls or
other sums then due have been paid forthwith proceed to convene an
Extraordinary General Meeting of the Company and in the case of such
requisition the provisions of section 78 of the Act shall apply. The provisions
of clause (a) of sub-section (2) of section 79 of the Act for the calling of a
meeting by two or more members holding not less than one-tenth of the total
share capital paid up, shall not apply.”
24. In reply to above
submissions, the learned counsel for the respondents submitted that the
plaintiff cannot be permitted to travel beyond the pleadings which he has
raised in his pleadings in the plaint. The learned counsel for the respondents,
for which, invited my attention to the pleadings in the plaint and submitted
that a bare perusal of the reading of the plaint it is clear that the plaintiff
was fully aware that there can be an annual general meeting and there can be an
extraordinary general meeting. The plaintiff, in his plaint, specifically at a
number of places, admitted that the meeting which was sought to be convened in
pursuance of the notice dated 6-1-2001 was extraordinary general meeting and
shown his consciousness about the annual general meeting and extraordinary
general meeting referred to in various paras of the plaint including para 10
wherein the plaintiff submitted that as per section 166 whatever meeting is
convened including annual general meeting can be held only at registered office
or any place in the city, town or village where the registered office of the
Company is situated. In Para 11 of the plaint, the plaintiff further mentioned
that despite the clear provisions of section 166, the defendant-Company is
convening the extraordinary general meeting in pursuance of the notice dated
6-1-2001.
25. The learned
counsel for the respondent further pointed out that the total relief claimed by
the plaintiff in the plaint is with respect to the extraordinary general
meeting and sought relief of declaration with respect to the extraordinary
general meeting in pursuance of notice dated 6-1-2001 and there is no pleading
to the effect that the meeting which was going to be held on 6-2-2001 was
annual general meeting. Faced with this situation, the learned counsel for the
appellant submitted that the objection was raised in the rejoinder in this
respect.
26. The learned
counsel for the respondent further submitted that Articles 73 and 74 are not
under challenge in the suit and section 166 applies only to the annual general
meeting and not to the extraordinary general meeting. According to the learned
counsel for the respondent, annual general meeting is required to be held within
15 months of preceding annual general meeting of the company. It is also
provided that the company may hold its first annual general meeting within a
period of not more than 18 months from the date of its incorporation and if
such meeting is held within that period, it shall not be necessary for the
Company to hold any annual general meeting in the year of its incorporation or
in the following year.
27. The learned
counsel for the respondent vehemently submitted that section 291 of the Act
empowers the Board of Directors to exercise all powers and to do all such acts
and things as the company is authorised to exercise and to do and it is also
submitted by the learned counsel for the respondent that section 166 and
section 169 are the source of powers of the Board of Directors to convene the
extraordinary general meeting. The annual general meeting is an obligatory
meeting which is required to be held within the specified period as provided
under section 166 and meeting under section 169 is also an obligatory meeting
which can be convened only on requisition if made by the shareholders having
shareholding of 1/10th of paid up capital of the Company and in case the Board
does not convene the meeting as provided under sub-sections of section 169 the meeting may be called even
by the requisitionists themselves as provided in sub-section (2) of section
169. Therefore, the above provision of section 169 is only a provision to
safeguard the interest of the minority shareholders and it is not the only
provision in which extraordinary general meeting can be requisitioned.
28. The learned
counsel for the respondent gave few instances to substantiate his submission
that extraordinary general meeting can be called by the Board of Directors and
this power vests in the Board of Directors as recognised by section 291 and, in
case such power is held to be not available to the Board of Directors, then no
Company can work. The Company is required to take decision and, therefore,
section 291 specifically says that the Board of Directors of Company shall be
entitled to exercise all such powers and to do all such acts and things as the
Company is authorised to exercise and do.
29. Article 47 says that
all general meetings other than annual general meetings shall be extraordinary
general meetings.
30. It was further
submitted by the learned counsel for the respondent that while enacting article
48, the legislation was fully aware of sections 166 and 169 and gave powers to
the Board of Directors to convene the meeting by enacting article 48(1) which
reads as under :
“48(1) The Board may, whenever it thinks fit,
call an extraordinary general meeting.”
31. There is no restriction
of place for convening extraordinary general meeting if it is convened by the
Board and there is no restriction of place as provided in section 166 and this
is a statutory recognition of the power of the Board of Directors. It was also
submitted that to convene extraordinary general meeting is also not dependent
upon the statutory provisions but it is also a common law right.
32. Though both the
sides initially refer some orders passed in the proceedings by various courts
but ultimately both the counsels agreed that none of the court has passed any
order restraining the defendant-company from holding meeting at Mumbai. In view
of the above fact, I do not think it fit to refer all those proceedings
because of the reason that the relief claimed by the plaintiff in the suit has
not been granted in any of the Courts by restraining the defendant-company from
holding the meeting on 6-2-2001.
33. I have considered the rival submissions made
by the learned counsel for the parties and have perused the record which was
made available by the parties and also perused the plaint, application, reply
and rejoinder along with documents.
34. It is clear from
the facts narrated above and from the pleadings of the parties that initially
the suit was filed on the ground that the respondent-company has no right to
convene extraordinary general meeting in pursuance of the notice dated
6-1-2001 at Mumbai. The submission of the learned counsel for the appellant
that reference of extraordinary general meeting was made in the plaint only
because of the fact that this was the notice issued by the defendant wherein it
is stated that the meeting convened is extraordinary general meeting and
because of this reason only the plaint contained the averment of extraordinary
general meeting. Otherwise the meeting when not convened as provided under
section 169 on the requisition of the shareholders then the meeting can be only
under section 166. The submission made by the learned counsel for the appellant
cannot be accepted in view of the fact that the appellant was conscious and
aware of the fact that the meeting may be annual general meeting or extraordinary
general meeting. The appellant himself specifically in his plaint mentioned
that whatever meeting is convened including annual general meeting can be held
at the registered office of the company or in the City where the registered
office is situated. Not only this, there is no pleading of the
plaintiff-appellant that though the meeting has been described as extraordinary
general meeting but in fact it is annual general meeting. It is also clear from
the various provisions of the Companies Act that the meeting convened is not an
annual general meeting of the Company. Even in relief, the appellant has sought
relief against holding of extraordinary general meeting at Mumbai in pursuance
of notice dated 6-1-2001. The contention of the learned counsel for the
appellant that in rejoinder the plaintiff has averred that extraordinary
general meeting can be convened only as provided under section 169 and,
therefore, when the meeting is not convened on the requisition of the
shareholders of the Company as provided under section 169, therefore, there is
pleading to the effect that the present meeting is not an extraordinary general
meeting. Above submission of the learned counsel for the appellant is also
devoid of force on various grounds; firstly, the parties cannot be permitted to
give entirely a new case that too contrary to their own pleadings by way of
filing rejoinder and secondly, the learned counsel for the appellant could not
point out any fact or law by which it can be held that the present meeting
sought to be convened is an annual general meeting. When the present meeting
held on 6-2-2001 cannot be held as annual general meeting then there arises no
question for application of sub-section (2) of section 166.
35. The learned
counsel for the appellant submitted that the only procedure prescribed for
convening the extraordinary general meeting is provided under section 169 and
when there is a procedure prescribed by statute then it can be held that all
other modes are excluded for convening the extraordinary general meeting. From
a bare perusal of section 169 it is clear that section 169 provides procedure
for calling of extraordinary general meeting on requisition. Admittedly, here
in this case, this is not the case of the plaintiff that any requisition was
made by the shareholders having one-tenth of shareholding as provided under
section 169. Section 169 nowhere deals with the contingency of calling an
extraordinary general meeting by the Board of Directors suo motu without there
being any requisition of the shareholders. Therefore, the present meeting
cannot be said to be an extraordinary general meeting of the Company under
section 169.
36. The submission of
the learned counsel for the appellant that since defendant-respondent has
admitted in their reply that the present meeting which was at that time sought
to be convened, was convened as per the provisions of section 169 for which,
the learned counsel for the appellant referred para 2 of the reply of the
injunction application. In Para 2 of the reply to the injunction application,
the defendant-company said that extraordinary general meeting can be convened
as per section 169 but it nowhere says that the present meeting is convened
under section 169 upon requisition of the shareholders. It appears that in
reply, reference of section 169 is there but it was only a reference of
provision of law which also deals with the calling of an extraordinary general
meeting and this was referred only in the context to substantiate objection of
jurisdiction of Civil Court to be barred under section 10 of the Act. In the
subsequent paras itself the defendant relied upon article 74 of the articles of
association of the company and it is clearly stated by the defendant that
there is a provision for calling extraordinary general meeting under article 74
and in this article itself it is clearly mentioned that meeting can be called
at any place. I may now quote relevant part of Article 74 which is as under :
“The Directors may, whenever they think fit,
and they shall on the requisition of the holders of not less than one-tenth of
the issued share capital of the company....convene an extraordinary general
meeting of the Company....”
37. In Article 74 of
the Articles of Association, the Board of Directors has been given power to
convene meeting; (i) whenever they think fit, (ii) and on requisition.
38. In view of the
above facts it cannot be said that the meeting sought to be convened by notice
dated 6-1-2001 is a meeting convened under section 169.
39. The question
arises whether the Board of Directors have no jurisdiction to convene a meeting
of the shareholders except as provided under sections 166 and 169 for which,
the learned counsel for the appellant submitted, as stated above, that when
there is a procedure prescribed by the statute, all other procedures are
excluded. The learned counsel for the respondent submitted that the procedure
has been provided for convening meeting in the given circumstances in section
169 and section 291 empowers the Board of Directors to exercise all powers of
the Company. Therefore, the company through its Board of Directors can convene
its meeting wherein the shareholders may participate in accordance with the
law.
40. The learned
counsel for the appellant pointed out that section 291 also contained a
proviso which restricts the power of the Board. Section 291 is as under :
“General powers of Board.—(1) Subject to the
provisions of this Act, the Board of Directors of a company shall be entitled
to exercise all such powers, and to do all such acts and things, as the company
is authorised to exercise and do :
Provided that the Board shall not exercise any
power or to do any act or thing which is directed or required, whether by this
or any other Act or by the memorandum or articles of the company or otherwise,
to be exercised or done by the Company in general meeting :
Provided further that in exercising any such
power or doing any such act or thing, the Board shall be subject to the
provisions contained in that behalf in this or any other Act, or in the
memorandum or articles of the company, or in any regulations not inconsistent
therewith and duly made thereunder, including regulations made by the company
in general meeting.
(2) No regulation made by the company in
general meeting shall invalidate any prior act of the Board which would have
been valid if that regulation had not been made.”
41. From a bare
perusal of section 291 it is clear that the Board of Directors of the company
are entitled to exercise all such powers and to do all such acts and things as
the company is authorised to exercise and to do. Therefore, the statutory
provision authorizes the Board of Directors to exercise all the powers. So far
as proviso to section 291 is concerned, it also, in fact, further recognises
the power of the Board of Directors to do the things and excludes only limited
fields. The proviso merely says that the Board shall not exercise any power or
do any act or thing which is directed or required to be done by the company in
general meeting if it is provided by the Companies Act or by the Memorandum or
Articles of the Company or otherwise. The learned counsel for the appellant
could not point out whether the power of calling of extraordinary general
meeting has been given by the Companies Act or by Memorandum or Articles of
company to the annual general meeting of the company.
42. The learned
counsel for the respondent submitted that neither section 169 nor section 291
are the sole power of source of calling meeting by the Board. According to the
learned counsel for the appellant statutory power of calling of extraordinary
general meeting vests in the Board of Directors as per section 291 but it is
also a common law right of the Board of the Directors, for which, the learned
counsel referred the commentary on Company Law by Pennington. At page 618 of
the above commentary (Sixth Edition) says that :
“The articles of a company usually expressly
empower the board of class meetings, and the board has this power at common law
even if it is not expressly conferred on them.”
43. In Shackleton on
the law and Practice of Meetings (Seventh Edition) by Ian Shearman dealt with the
powers of the Directors to convene the extraordinary general meeting. At page
120, it is mentioned that :
“The directors usually have power to convene
an extraordinary meeting either on their own motion or on the requisition of
members. Table A provides that: ...”
44. In Company
Meetings Law and Procedure by B.K. Sen Gupta [1985], at page 221, the power of
Directors for calling extraordinary general meeting has been dealt with and it
is said that :
“The directors have power to call general
meeting which include extraordinary general meeting.”
45. Again I may refer
Article 48 of the Schedule-I Table A of the Companies Act which clearly gives
power to the Board to call extraordinary general meeting whenever it thinks
fit.
46. In view of the above
provisions of law, namely, section 291, Articles 47 and 48 of the Schedule-I
Table A of the Companies Act and in view of the above commentaries, I am of the
opinion that the Board of Directors have powers to call extraordinary general
meeting and looking to the entirety of the facts which also suggest that the
Board of Directors if will not have power to call extraordinary general meeting
it may not be workable for the Company and when there is statutory provision of
recognition of the power of the Board of Directors to call extraordinary
general meeting, it cannot be said that the Board has no power to call
extraordinary general meeting simply because section 169 provides for calling
extraordinary general meeting in particular situation only.
47. The learned
counsel for the appellant submitted that the commentaries are dealing with the
provisions of the companies matters as in England and not in India. I am unable
to subscribe this view, in view of the law discussed above, which empowers the
Board of Directors to call extraordinary general meeting.
48. The learned
counsel for the appellant further submitted that even if it is an extraordinary
general meeting, then the meeting cannot be held outside the place of
registered office. The learned counsel for the appellant submitted that in view
of section 166 when the Legislature itself has thought fit to permit the
companies to hold annual general meeting at the place of registered office,
then it can be presumed that that is a reasonable restriction on the power of
the Board and it was also submitted by the learned counsel for the appellant
that it has its own reason for holding the meeting at the place where the registered
office is situated. According to the learned counsel for the appellant in the
extraordinary general meeting, a shareholder of the company, if wants to refer
the record of the company which is kept at the registered office, he will be
deprived of his valuable right and this will result into same wrong decision.
It is also submitted that when the company itself has decided to have its
registered office at a particular place, then the company cannot and should
not be permitted to say that holding of meeting at place of registered office
may cause inconvenience to shareholders or it will be more beneficial to the
shareholders to hold meeting at other place.
49. Above submissions
of the learned counsel for the appellant appears to be on the basis of the
hardship which he apprehends in convening meeting at place other than the place
of registered office. The submission made by the learned counsel for the appellant,
though at its face value, may be attractive but is devoid of any force. The
Company may have their own registered office at a particular place at the time
of incorporation of the Company, with the passage of time and expansion, the
shareholders may be in large number residing outside the place of registered
office of the Company. In this case also, it is stated that more than 70 per
cent of the shareholders of the Company are from Mumbai and only 0.634 per cent
of the shareholders are residing at Udaipur in Rajasthan. The discretion of the
Board of Directors in holding meeting at a particular place is expected to be
reasonable and in case if it is found that the decision given by the Board of
Directors is mala fide with intention to deprive the shareholders from
attending the meeting or any other reason, the same can be challenged before
appropriate Forum. Here in this case, when there is no pleading to the effect
that the Board of Directors have mala fidely or with some ulterior motive
decided to hold meeting at Mumbai, I need not to go into this matter
particularly because of the fact that the allegation levelled by the plaintiff
is only to the effect that the meeting is being held to give benefit to one
Shri P.K. Tayal, Chairman of the defendant-Company and his near persons. There
is no pleading of the plaintiff how Shri P.K. Tayal will be benefited by
holding meeting at Mumbai and who are the near persons of Shri P.K. Tayal who will
be getting benefit. What is their shareholding and whether simply because of
holding a meeting at Udaipur, Shri P.K. Tayal and his persons will not be able
to cast their votes. It is not the case of the plaintiff and it should not have
been that simply because of holding a meeting at Udaipur he will be in a
position to get the decision as he wished or Shri P.K. Tayal and his persons
will not be in a position to carry the resolution. In my opinion, the plaintiff
has failed to even plead how the result will be affected by holding a meeting
at Udaipur or at Mumbai because of the fact that it is not the case of the
plaintiff that Shri P.K. Tayal and his
persons will not be able to participate in the meeting at Udaipur nor this can
be a ground for granting any interim relief in favour of the appellant. It is
also relevant to mention here that the plaintiff has not said a single word how
much loss he is going to suffer by acceptance of resolution of the Company and
so far as the contention raised regarding hardship due to going to Mumbai by
the plaintiff is concerned, the same deserves to be rejected on the face of it.
If the appellant thinks that hardship will be caused to him by going to Mumbai
from the place of his residence then certainly he is fully aware that the
shareholders who are not residing in Udaipur will have to come from their
residence to Udaipur and those shareholders of Mumbai who are large in number
will have to come to Udaipur and that will cause great hardship to large number
of persons as compared to the plaintiff alone.
50. It is further
relevant to mention here that the suit filed by the plaintiff is in his
individual capacity, pleading his own hardship. The suit is not in
representative capacity nor the shareholders whose rights will be affected are
parties in the suit so as to plead their hardships. Therefore, the self-claimed
representative litigation cannot be permitted without complying with the
formalities for protecting other’s right or formalities provided for
representing others. Therefore, there is no substance in the contention of the
learned counsel for the appellant with respect to the hardship due to the
calling of meeting at Mumbai.
51. The learned
counsel for the appellant vehemently submitted that when there is a breach of
statutory provision then the plaintiff need not to prove his other irreparable
injury as no party has right to breach the statutory provision and in case of
violation of statutory provision of law, the hardship will be required to be
proved then it will result into lawlessness. The arguments advanced by the
learned counsel for the appellant is attractive but cannot be applied in the
present case. It is clear that there is no violation of any statutory
provision, as held above, because of the fact that the present meeting is
extraordinary general meeting and not annual general meeting, sub-section (2)
of section 166 has no application. Article
48 of the Companies Act nowhere restricts holding of meeting at
particular place. Therefore, the contention of the learned counsel for the
appellant deserves to be rejected.
52. The learned
counsel for the appellant submitted that Article 74 of the Articles of
Association of the Company is contrary to the provisions of sections 166 and
169. Section 169 nowhere gives any discretion to the Board of Directors to call
extraordinary general meeting whereas Article 74 of the Articles of Association
of the Company empowers the Board of Directors to call extraordinary general
meeting at their own instances without there being any requisition.
53. The learned
counsel for the appellant relied upon section 9 which is having overriding
effect over the memorandum or Articles of the Company. The contention of the
learned counsel for the appellant is further devoid of force because, it has
already been held that for calling extraordinary general meeting source of
power is not section 169 and there is no other provision which is being
offended by Article 74 of Articles of Association of the Company and the Board
of Directors has power to call meeting as per Article 48 of the Companies Act,
as mentioned above, and all meetings except annual general meeting are
extraordinary general meeting as per Article 47 of the Companies Act.
54. The learned
counsel for the appellant cited judgments reported in : M.R.S. Rathnavelusami
Chettiar v. M.R.S. Manickavelu Chettiar AIR 1951 Madras 542 and Bloom Dekor
Limited v. Subhash Himatlal Desai [1994] 6 SCC 322, but they are not applicable
to the facts of the present case.
55. In view of the
above facts and the law discussed above, I do not find any prima facie case in
favour of the plaintiff for grant of injunction and the plaintiff also failed
to prove any irreparable injury. The balance of convenience is also not in
favour of the plaintiff as the plaintiff’s total stake in the present
controversy is negligible and no other shareholder has joined with the
plaintiff in this suit.
56. Before parting
with, I may deal with the request of the learned counsel for the respondent for
initiation of proceedings for criminal contempt against the
plaintiff-appellant. The learned counsel for the respondent submitted that the
present litigation is absolutely an abuse of process of the Court and in view
of the events referred by the respondent in their reply dated 26-2-2001, it is
clear that the present litigation is at the behest of some other persons also
and the defendant-company was forced to contest the matter at Rohtak,
Chandigarh, Calcutta, Udaipur, Jaipur and Jodhpur. The learned counsel for the
respondent tried to submit that the appellant has sought relief in this appeal
much more than the relief which has been claimed by the appellant in even
injunction application.
57. In my opinion,
who initiated the litigation against the respondent-company and whether they
are litigating jointly and mala fidely, can be a subject-matter in the suit
when both the parties have opportunities of leading evidence but, at present,
there is no sufficient material to hold that the plaintiff has committed any
wrong in filing the appeal before this Court or seeking any injunction against
the respondent. I do not find any force in the submission of the learned
counsel for the respondent for
initiation of criminal contempt against the appellant.
58. The learned
counsel for the respondent further submitted that looking to the frivolous
litigation and because of the fact that the appellant obtained injunction order
on 23-2-2001 though the injunction application was decided on 5-2-2001, clearly
shows that he deliberately obtained the stay order to harm the respondent-company.
Therefore, exemplary costs be awarded to the respondent-Bank. The appellant
filed the injunction suit. The application was dismissed by the trial Court and
the appellant has filed the present appeal. During this period, just a day
after the dismissal of the injunction application, the meeting of the
shareholders was convened and, therefore, the appellant might have chosen to
ask appropriate relief in appeal on the basis of the subsequent events. That
cannot be said to be mala fide at this stage. Hence, there is no force in this
argument for awarding exemplary costs or even costs.
59. The learned
counsel for the appellant may be right in submitting that the order passed by
the court below has not specifically dealt with the points raised by the
appellant but I am unable to accept that the ultimate decision given by the
court below is wrong or can be set aside.
60. The learned
counsel for the appellant submitted that in case the injunction application is
dismissed, the shareholders may be given further time to avail the benefit of
the resolution. The relief cannot be granted in view of the fact that none of
the shareholders came forward with any such relief and so far as the plaintiff
is concerned; he was fully aware of the litigation and no ground is made out
for any relief.
61. Therefore, the
appeal of the appellant has no force and the same is hereby dismissed. No order
as to costs.
Appeal dismissed.
[1986] 60 COMP. CAS. 14 (DELHI)
v.
R. P. Bhasin
R. K. KAPUR AND D.
P. WADHWA JJ.
MAY 9, 1984
K.
K. Mehra and Miss Poonatn Wadhwa for the petitioner.
S.
N. Kumar and Man Mohan Krishan for the Respondent.
D.
K. Kapur J.—Company
Petition No. 58 of 1979, which is a petition under sections 397 and 398 of the
Companies Act, 1956, is pending before the company judge. Company Application
(C. A. No. 111 of 1983) was moved by the petitioners seeking directions regarding
the year ending March 31, 1982. The application was filed on February 7, 1983.
It was claimed in the application that the existing executive committee of the
company became functus officio on September 30, 1982, and could not legally
function beyond that date. The annual general meeting had already been delayed
and it was prayed that certain articles and rules should be changed or amended
to bring about a fair and legal meeting and elections. It was also prayed that
the register of members should be corrected first and bogus
members be removed. Furthermore, it was claimed, the elections should be held
under the supervision of the court with an impartial and independent chairman.
This application was
decided on July 22, 1983, by the impugned order. The appellants have challenged
the various directions made in the order as well as the changes made in the
articles of association and election rules of the company.
It must here be stated that disputes relating to the motion pictures association have been before the court almost continuously since the year 1973 and various orders of various company judges have been passed during the pendency of these petitions and other proceedings before the company court regarding the holding of the annual general meeting. The order under appeal is, however, somewhat different from orders made in the past, because in the past, either directors have been appointed to the company or an observer, has been appointed regarding the meeting. In the present case, a committee has been appointed to hold the elections and also drastic changes have been made in the election rules and also the method of elections, which have been challenged on various grounds before us on the footing that the court cannot depart from the Companies Act with regard to the holding of the annual general meeting and also complaining that the election procedure cannot be changed so as to deprive a number of members of their right to stand for elections, and also, complaining that the elections are almost impossible to be held under the directions made by the company court.
It must here be said that
the court has not been very successful regarding the conduct of elections in
the past. The company petition has been pending from 1979 and notwithstanding
the orders of the Supreme Court passed in 1982 that the case should be heard
day to day and decided in two months, it is still far from a decision even in
1984. At the same time, it appears that subsequent elections and the annual
general meeting and so on are also under challenge in various sub-proceedings.
It is, therefore, imperative to re-think over this matter in a practical manner
rather than create a situation in which every election is liable to be
challenged in proceedings before the company judge, thus making it impossible
to decide the main petition.
Now, the various
alterations made by the company judge in the order under appeal can be set out
and analysed. The court has given its reasons in one order and then, as two
sub-annexures to this order, has given directions regarding the holding of the
meeting and changes to the election rules.
It is necessary now to
analyse the directions first. It is stated therein that the elections were to
be held on May 30, 1983, but in view of the changes in the election rules and
procedure, the same have been postponed. The actual dates and programme have
now to be decided by the committee appointed by the court. The court has then
appointed three persons, namely, Shri Shyam Behari Mehra, Shri K. M. S. Khan
and Shri R. K. Kaul, Joint Registrar, of this court, to be the committee of
which Shri R.K. Kaul is to be the chairman with a casting vote. The committee
can take assistance of other officials of the court. The elections are to be
conducted by this committee at Delhi, Kanpur and Allahabad. The dates for
voting have to be decided by the committee. Before the elections can actually
be held, the voters' list is to be correctly made to represent the membership.
An authenticated list of members is to be prepared and objections invited. The
list is first to be corrected up to January 12, 1982, and then a separate list
made of persons who have become members after that date and objections also
invited to that list. Members who are in arrears of subscription are required
to make up their deficiency and elections to be conducted in accordance with
the election rules as amended by the court. Though these directions may appear
innocuous, they are actually drastic departures from the Companies Act and it
is difficult to see how this committee can hold the annual general meeting at
three places under the Companies Act.
The next set of directions
in the judgment are the amendments to the election rules. The changes are with
regard to how a representative of a company or a representative of a partnership
firm can vote or stand for election. According to the first amendment, such
representatives can stand for election, but this was not permitted under the
existing election rules. The second amendment is that the authorisation to the
representatives of firms or companies should be in the prescribed form and a
copy of the resolution of the firm or company should be sent to the
association. The third amendment is that annexure II to the articles of
association is deleted. The fourth amendment is that no person, who has been a
member of the executive committee for two years is entitled to contest unless
there is a gap of one year. The fifth amendment is that natural persons cannot
vote more than once. The sixth amendment is that a firm can be a candidate and
the seventh amendment is that a director, secretary or manager of a company can
be a candidate. The next amendment is that the elections should be held at
three places, Delhi, Kanpur and Allahabad. The last amendment is that any
provisions of the articles of the company or election rules inconsistent with
these amendments will stand amended.
In order to understand
these amendments, it is also necessary to understand the set up of the company.
The company can have as its members, natural members, company members and
partnership firm members. These persons must either be exhibitors or
distributors of motion pictures in Delhi or Uttar Pradesh. There are various
provisions in the articles as to how a person ceases to be a member. In order
to continue to be a member, the member must have a cinema or a film for
distribution. There are also other provisions for debarring a member such as
failure to pay subscription or failure to pay the dues. As the motion picture
business is a continuous one and, sometimes, a hazardous one, it happens that
persons who own cinemas will sell them, or persons who have the distribution of
films go out of business, either on failure, or due to transfer of the
business. There is, therefore, a continuous influx of new members and outgoing
of old members. This is bound to happen because of the nature of the business.
At the same time, there can be changes in partnership firms brought about by
retirement, death, dissolution and so on. The voting rights of the members are
also fixed by the articles and election rules. No proxy voting is allowed. In
the case of natural members, the member must be present in person. In the case
of the company members, the person voting must be authorised by a resolution of
the company as provided by section 187 of the Companies Act. There is no
difficulty about such persons. The difficulty is about partnership firms which
are not normal members and companies as they are not legal persons for the
purpose of holding shares. In this company, a partnership firm can be a member,
and the question has arisen as to who can vote for such a firm and how. The
procedure prescribed by the election rules is that all the members of the firm
should jointly authorise one person to vote, who can then exercise the vote.
The form for this is set out as annexure "E" to the existing election
rules. It is an authorisation for a specific annual general meeting and allows
the authorised person to vote at the annual general meeting and also at the
elections at that meeting. The amendment made by the court in Company Petition
No. 32 of 1976 was that the secretary shall issue a letter of authorisation to
partnerships concerned to nominate a partner and all the partners should sign
that authorisation letter. There is also a date fixed, i.e., 45 days before
meeting when that letter is to be issued. There seems to be some difficulty in
working out this annexure. We think the company judge is right in making a
departure from this annexure. In order to make this matter specific, we would
point out in the course of this judgment what we think should be the amendment.
The other changes made in
the election rules are such that it is difficult to see how the elections can
be held. For instance, rule 6 of the existing election rules provides that
non-members or attorneys or agents or representatives of any type of member
cannot be a candidate. According to the proposed changes, directors of
companies, secretaries or managers can also be candidates. At the same time,
members of firms are also debarred under the existing rule which is as follows
:
"Partners of partnership firms, members and
representatives of body corporates, even though authorised under section 187 of
the Companies Act, 1956, cannot nominate or be nominated."
The purpose of the existing
rule was to ensure that only persons who were members in their own right could
be candidates and not persons who were either partners or directors or
employees or partnership firms or companies. We do not see why there should be
any departure from the existing rules regarding who can stand for elections and
none have been pointed out in the judgment. In fact, there is nothing about
this in the application. We do not know why the company judge has differed from
the existing rules regarding who can stand for election and become a member of
the executive committee. As the rules stand at present, only natural members
can stand and only natural members can nominate.
Then there is the question
of voting. As far as the companies are concerned, there is no difficulty
because all that the company has to do is to send its resolution under section
187 of the Companies Act, 1956, regarding who is the person authorised to vote.
This is also set out in annexure "F" to the election rules. The case
of partnership firms presents special difficulty which will be dealt with later
on in the judgment.
The next amendment is that
a person who has been a member of the executive committee for two years is not
entitled to contest without a gap of one year. This has been introduced because
it appears that the counsel stated that an amendment of this type could be made
on the lines of the Bar Association of the Supreme Court. We fail to understand
how the Companies Act can debar a person from standing for elections, if he
wants to. There has to be a specific decision of the members to introduce a
special article to create such a bar. If a meeting of the company amends the
article to this effect, it will be a moot point whether the amendment will be
valid. But, assuming it is valid, it must have the support of the requisite
majority of the members. This is a drastic alteration of the democratic right
of every member to stand for election. In the case of companies and partnership
firms, the bar is created by the fact that the firm is the member and not the
partner and in the case of the companies, the company is the member and not its
director or manager. To explain this, section 187 of the Companies Act, 1956,
has only to be referred to. It states that a body corporate whether a company
under the Act or not can authorise such persons as it thinks fit to act as its
representative at the meeting and such person can exercise the power of vote as
if he was an individual member. This section is limited to companies and body
corpo-rates and does not apply to partnership firms. It, therefore, comes about
that a partner, who is a member of a firm which is itself a member, cannot
stand for election and nor can a director or an employee of a company member.
Any departure from this is a drastic change in the Companies Act and cannot be
directed by the company judge. It is a legislative Act.
The next amendment is that
one person can only vote once, i.e., if he votes in his own right, he cannot
vote for any partnership firm or any company. This amendment is ununderstandable
and seems to be inconsistent with the fact that a person can be a member in his
own right and also a representative of a company or partnership firm. No
partnership firm can vote except through a representative and the same applies
to companies. This amendment is, therefore, totally unnecessary and seems to be
inconsistent with the articles and the election rules. The next two amendments
regarding the authority of firm members to be candidates or company members to
have their own directors, secretaries or managers as candidates has already
been dealt with.
Coming now to the two
remaining amendments, namely, that the elections should be held at three
places, Delhi, Kanpur and Allahabad and that the articles of association of the
election rules inconsistent with the amendments shall stand amended, we think
that the direction regarding the holding of the annual general meeting at three
places cannot be given in law as it is inconsistent with the Companies Act, and
this means that virtually all the proposed changes to the election rules have
to be held to be unnecessary except the one relating to partnership firm
members con-concerning which we will give separate directions.
It is now necessary to analyse
the directions regarding the holding of the annual general meeting. These
directions were challenged on a large number of points by learned counsel, but
it seems unnecessary to analyse this matter too deeply as the scheme of the
Companies Act is that there should be an annual general meeting each year at
which the accounts are presented and are passed with or without modification,
the report of the directors is presented, the auditors are appointed and the
retiring directors are replaced by others. In most companies, only a few
directors retire at the annual general meeting. In the case of this particular
company, which is a section 25 company, all the executive members including the
office bearers retire and have to be replaced by a new executive committee. In
a company which has a share capital, the fate of the elections is determined by
a majority of the votes determined from the shareholding. Thus, even if there
is one member owning a large number of shares, he can outvote every person
holding lesser shares because each share has one vote. In a company, like the
present, there is only one vote per member because there are no shares. Thus,
the annual general meeting to be held under the Act has to include not only the
elections of the new executive committee but also the other ingredients of an
annual general meeting. Various provisions of the Companies Act, like sections
166, 167 and 168, indicate that the annual general meeting has to be held and
the consequences of not holding it may be a criminal offence. Section 173
indicates that the annual general meeting has to have its normal business, the
consideration of the accounts, the balance-sheet and reports of the board of
directors and auditors, the declaration of dividend, the appointment of directors
and the appointment of auditors. The appointment of directors has, therefore,
to be done at an annual general meeting and not otherwise.
The most important
provision as far as the directions regarding the meeting are concerned are
contained in sections 166(2) and 168 of the Act. Sub-section (2) of section 166
provides that the annual general meeting has to be called at a time or place
during business hours on a day not being a public holiday and the meeting has
to be held either at the registered office or at some other place within the
same city, town or village where the registered office is situate. Thus, the
annual general meeting has to be held at Delhi and cannot be held elsewhere.
The direction regarding the meeting to be held at Delhi, Kanpur and Allahabad
is, therefore, invalid as far as the Act is concerned.
Then section 167 allows the
Central Government to call the annual general meeting. This shows that the
court has not been given any power regarding the annual general meeting. The
only power of the court was to call a meeting under section 186, but that was a
meeting other than the annual general meeting. Even that power has been taken
away by the Amendment Act of 1974. Thus, at present, the court has no power to
hold an annual general meeting or even any other meeting of the company. On
this ground, it is submitted that the directions of the court are ultra vires
the Act. We would prefer not to go into this question because we do not think
it necessary to direct that the meeting should be held at three places.
There are also other
reasons for this. In the case of election for this particular company, there
are no proxy votes allowed, so the member has to come in person or not to vote
at all. The existing election rules show that the candidates and their
representatives can object to the identity of the voters which has to be
decided by the chairman of the meeting. This is rule 13. The chairman has to be
an independent man as provided in rule 19. If the election is held at three
places, the possibility of substitute voters, which is one of the problems, is
likely to arise. As, in the case of any dispute, a reference to the records of
the company may be necessary for purposes of identification, the most
convenient place to hold the meeting is at the registered office or at some
other place where the records can easily be brought.
Then we have to refer to
section 168 which provides for prosecution in case of delay in holding the
annual general meeting. The directions of the court are that the meeting"
is to be conducted by three persons who are not directors. It is open to the
court to appoint these three persons as directors of the company when they will
be liable for the default if any. We fail to understand how they can be made
responsible for holding a meeting which under law has to be held by the
existing board of directors. There are two possibilities. Either the executive
committee as existing cannot hold the elections in which case an order has to
be sought from the Central Government under section 167, or it is the executive
committee which has to hold the meeting, as they are the persons who are liable
for any default under section 168. It is, therefore, essential that the
executive committee should hold the elections. But, the court can make
provision for the proper conduct of the elections by nominating a chairman as
visualised by rule 19. We think that we should replace the direction by
appointing a person to be the chairman of the actual meeting as far as the
election part is concerned as visualised by rule 19 of the election rules of
the company. The chairman so nominated will take over after the other business
of the annual general meeting has been completed for the purpose of the
elections. We will also give directions regarding assistance to the chairman by
the officials of the court.
Turning now to the question
of settling the register of members and the voters list, we are faced with a
formidable set of objections and a great practical difficulty in complying with
the order passed by the company judge. The only purpose of the directions was
to hold the meeting, i.e., the annual general meeting. The register of members
of the company for past years is quite immaterial. An investigation into how
persons have become members or have ceased to be members is an endless process.
There are too many ways in which a person ceases to be a member, to justify
investigation prior to the meeting and this is a too long drawn out process for
holding an annual general meeting. We would, therefore, be of the view that it
is unnecessary for the committee to first make an investigation as to how many
members have been removed from the membership. As the meeting has to be held
within the statutory period, any delay is unjustified. The effect of the order
has been to continue the executive board for nearly a year because the meeting
was to be held in May, 1983, and as a result of the directions, it has been
unnecessarily postponed. We have examined the report submitted by the board
which shows that 498 persons have been removed from the membership of the
association and only 142 members have joined from January 13, 1982, to July 31,
1983. Also, the membership as on January 12, 1982, was 1,359. Also, 400 persons
had applied for membership between January 1, 1975, to July 31, 1983, which are
still pending. As far as persons who have not become members are concerned, we
do not think anything can be done by the company judge. As far as the persons
who have been removed from membership are concerned, they have every right to
move the court under section 155 of the Companies Act. If each of these cases
is investigated independently, we doubt that the result recorded by the
committee would have any legal backing or would have the effect of bringing
them back. When there is an express provision of law, namely, section 155,
enabling the company court to rectify the register, only the court has to act
under that section or it can refuse relief. But, a general power of this type
cannot be handed over to a committee. It is a judicial matter as to whether a
person has been rightly or wrongly removed from membership. None of those
persons appear to have moved the court by way of a petition under section 155
or by recourse to the civil court. We do not see why the court should make any
investigation into this matter thus creating a lot of further complications in
what would otherwise have been quite a simple procedure. We, therefore, think
that there is no purpose in the court trying to rectify the register of members
on its own initiative by a procedure which is somewhat different to that laid
down in the Companies Act.
This brings us to the
question as to how the voters list has to be settled. There is a procedure laid
down in the election rules of the company. This states in rule 18 that the
register of members shall remain closed eight clear days before the holding of
the annual general meeting and no person will be admitted to membership
thereafter. This means that when the date of the annual general meeting is
announced, more members can be enlisted or allowed to join till eight clear
days before the date of the meeting. Normally, such persons would be entitled
to vote at that meeting, so there is no purpose in settling the voters' list in
advance.
Then there is rule 17, which states that the secretary of the company shall prepare a role of members entitled to vote. These persons will be all proprietary firm members in their own right giving the name of the member who is entitled to vote ; the names of partnership firm members together with the name of the authorised partner in whose favour an authorisation has been given and, thirdly, the name of the authorised representative of company members in whose favour valid resolutions have been filed. Thus, the list consists of natural members and representatives, i.e., partners of firms who are entitled to vote and authorised members of company members. This rule further shows that persons in arrears of subscription are not included in the voters list.
So, the procedure
visualised by the election rules is that the voters list will consist of
members who are borne on the register of members which may consist of natural
members, and partners of firms who have been authorised to vote. We see nothing
wrong in this method of settling the voters list. It is designed to facilitate
voting.
Now, we can visualise the
worst situation that persons who are otherwise entitled to vote are removed
from the voters list with a view to manipulate the elections. The chairman
appointed by us will take into consideration any objections against wrongful
removal from the voters list and allow the vote to be cast under objection
separately if he thinks that there is some substance in the allegation of
wrongful removal. We will give directions in this respect at the end of the
judgment.
In the result, all the
directions and amendments to the election rules as given by the learned single
judge are set aside except to the extent indicated above. But, directions have
now to be given regarding: (a) a chairman to be appointed for the elections as
discussed above, (b) the procedure to be adopted by him regarding persons
wrongly removed from the voters list, and (c) regarding the election rules, an
amendment has to be made to enable partnership firms and companies for casting
their votes in accordance with the said election rules.
Taking up the amendment to
the election rules first, the relevant rule is rule 10, which provides as
follows :
"10.
Who can vote :
A member of the
association, who is :—
(a) the proprietor of
a proprietorship firm member ;
(b) Any one of the partners of a partnership firm member duly
authorised by all other partners of such partnership firm to cast vote on
behalf of the firms in writing, as per authority letter issued by the
association in terms of annexure II of the articles of association passed by
the Hon'ble High Court ;
(c) the managing director or any one of the directors or the
secretary or any other officer of a company member duly authorised under a
resolution passed by the board of directors of the company-member concerned, in
terms of section 187 of the Companies Act, 1956, to cast vote on behalf of the
company-member concerned (specimen copy of the resolution is attached in
annexure 'F' hereto) can cast vote, provided, however, that :
(i) the required certified copy of the resolution and/or letter
of authority in regard to the category of members under clause Nos. (b) and (c)
above, in favour of the person authorised to cast vote, shall be filed in the
office of the association at least 4 (four) clear days (excluding the due date
of receipt of such resolution and/or letters of. authority and the date of the
general meeting) before the date of the relevant general meeting at which the
election is to take place, and if that day happens to be a holiday, on the day
preceding it ;
(ii) the name of the member on whose behalf the authorisation/
resolution is being filed, is on the register of members of the association on
the date of filing of such authorisation/resolution and continue to be so, until
the date on which the register of members is closed, prior to the general
meeting at which the election is to take place ;
(iii) a member, who has not paid the membership
subscription in terms of article 20 of the articles of association, or any other
dues to the association, and continues to be a defaulter, is not eligible to
vote, in terms of article 62(ii) of the articles of association,
notwithstanding the fact that the name of such a member appears on the register
of members of the association on the date of filing of the required
authorisation/resolution and continues to be so until the date of closure of
the register of members prior to the election ;
(iv) in the case of partnership firm members with only one major
partner, no authorisation will be necessary, as such a major partner will be
deemed to be in the position of a sole proprietor for the purpose of voting
only ; provided, however, a declaration has been already made about the age of
the second minor partner in the membership application form itself, while
membership application form was filed by the partnership firm.
If there is any constitutional defect in the
concern of any member, the record of the association so maintained, shall be
final for the decision of the chairman and no member shall raise any objection
for his own fault for not correcting his/her record in the association."
In respect of this rule,
there can be no doubt that there is no difficulty about proprietors, i.e.,
members, who are not partnership firms or companies. In the case of a
partnership firm, all that is objected to is the issue of an authority letter
by the association. We propose that annexure II of the articles of association
should be treated as deleted and order accordingly and the unnecessary words in
clause (b) should be deleted. This sub-clause will now read :
"(b) any one of the
partners of a partnership firm member duly authorised by all other partners of
such partnership firm to cast vote on behalf of the firms in writing."
As far as sub-clause (c) is
concerned, there is no real objection to the same. It is retained. As far as
sub-clause (i) of the proviso is concerned, it will remain as it is with the
addition of the following words :
"the resolutions or letters of authority
filed in accordance with this rule shall continue to operate in all subsequent
annual general meetings unless varied by a specific resolution or letter of
authority, as the case may be."
This change is in
accordance with section 187 of the Companies Act, which provides that the resolution
entitles the representative to vote. The section does not contemplate a fresh
resolution being filed for every meeting. There is also sub-clause (iv) which
deals with partnership firms where there is one major partner and a minor
partner which we think may be retained as it is. But, as this rule visualises
objections before the chairman, it is noted here for this purpose. We think
that this amendment in the election rules will facilitate the voting by the
company members and partnership members which is one of the main points of
objection.
Turning now to the
appointment of the chairman, we think that Mr. R. K. Kaul, Joint Registrar of
this court, who has been appointed chairman of the committee can be nominated
by us to be the chairman of the meeting. He will be given a fee of Rs. 2,500
and he will be assisted by Shri S. M. Saxena, superintendent, who has been
associated in the past with the committee in the previous elections and such
other members of the court staff as the company judge may nominate. The fees of
these persons including Shri S. M. Saxena will be settled by the company judge.
The payment will be made by the company.
Turning now to the question
of objections to the register of members and voters list, as far as the
register of members is concerned, the chairman may for the purpose of the
meeting treat it as conclusive. Unless rectified by an order of the court, the
register of members is effective, and will be used as such at the annual
general meeting for the purposes of voting. However, as a variety of questions
and problems may arise at the meeting when the voting takes place, we would
like to set out a set of directions to meet some contingencies that may arise.
We have kept in view the allegations in the main petition regarding the possibility
of the elections being manipulated :—
(1) It is posssible that a person is entered in the register
of members but is not entitled to be a member. This is a case of possible bogus
voters. In such a case, the chairman may note the objection, but will allow the
person to vote if the name is in the register of members and the voters list.
The court will consider such objection later, if necessary.
(2) It is possible for a person's name to appear on the
register of members and yet not be on the voters list. In such a case, the
chairman will note the nature of the objection and allow the vote to be cast as
an object ed vote. However, the objected vote will not be taken into
consideration when result is declared, but should be kept separate. In case the
objection regarding exclusion is upheld by the court, such vote may have to be
in cluded in the recount, if any, is directed.
(3) There are disputes regarding the identity of a voter or
of a representative which might arise. In such a case, the objection should be
settled on the basis of the record, i.e., the signatures of the voter and those
on the record of the company, or any other method which the chairman thinks
appropriate to the situation.
(4) If there is a person claiming to be a member whose name
is neither on the register of members nor on the voters list, such a person
should not be permitted to vote, but it will be open to the chairman to record
the person's objection, if he is so advised.
(5) These directions only relate to situations we can visualise
and if there are others, the chairman may exercise his discretion.
Before parting with this
appeal, it is useful to say that section 403 of the Companies Act visualises an
interim order of the type that can be passed under section 402, with a view to
bring to an end the oppression or mismanagement visualised by sections 397 and
398 of the Act. The holding of a future annual general meeting under the
provisions of the Companies Act hardly qualifies to be classified as
mismanagement or oppression under section 397 or 398 of the Act. So, it might
be asked, how the court can pass orders altering the election rules or other
procedure relating to the annual general meeting? In this case, it so happens
that the type of oppression or mismanagement alleged in the petition is
connected with the elections because the case of the petitioners is that fair
and impartial elections are not held and the same people come back to power as
members of the executive board from time to time. This may be the result of two
possibilities. Either the elected persons are supported by the majority of the
members, or there is something wrong in the election procedure. With a view to
minimising the possibility of the elections being held in a manipulated manner
or in some manner which prevents a fair and impartial result, we have been
compelled to give the aforementioned directions. We hope that as a result of
the changes, a fair and impartial election can be held.
In the result, we accept this appeal partly and direct the annual general meeting to be held within the shortest possible time. The annual general meeting in question relates to the period ending March 31, 1982, and consequently the accounts and reports for that period alone have to be placed before the meeting. The company court may as soon as these elections have been held give any directions that may be necessary for holding the annual general meeting for the subsequent periods, i.e., March 31, 1983, and March 31, 1984, as those periods have also expired in the meanwhile. In view of the nature of the case and the controversy as well as the result of the appeal, we allow the parties to bear their own costs.
[1986] 60 Comp. Cas. 142 (Mad)
High Court of
Madras
v.
South India Viscose Ltd.
Ratnam J.
January 8, 1985
M.
R. Narayanaswami and K. Venugopal for the petitioner.
S. Govindswaminathan
and Patridge for the respondent.
Ratnam
J.—The plaintiff
in O.S. No. 2017 of 1983, District Munsif's Court, Coimbatore, is the
petitioner in this Civil Revision Petition. In the respondent company with
which the petitioner appears to have been associated since its inception, he
holds two shares. Prior to September 29, 1983,
the petitioner was one of its directors. The twenty-fifth annual general
meeting of the respondent-company was scheduled to be held on September 29,
1983, at 11.30 a.m. Item 2 in the agenda for that meeting related to the
appointment of a director in the place of the petitioner who retired by
rotation and was eligible to offer himself for reappointment. The annual report
of the company and the notice of the twenty-fifth annual general-meeting were
sent to all the shareholders of the company well in advance. While matters
stood thus, on September 28, 1983, one P. J. Joseph, who held two shares in the
respondent company, instituted S. C. Suit No. 5658 of 1983, before the City
Civil Court, Bombay, against the respondent company, the petitioner herein, as
well as other directors and obtained an ad interim injunction restraining the
respondent company and its directors from holding the twenty-fifth annual
general meeting of the company on September 29, 1983. It further appears that
the plaintiff in S.C. Suit No. 5658 of 1983, City Civil Court, Bombay, reached
Coimbatore in the morning of September 29, 1983, and served the order of ad
interim injunction on the petitioner in his house at about 11 a.m. and,
thereafter, proceeded to the place where the twenty-fifth annual general
meeting of the respondent company was scheduled to be held and informed the
chairman and secretary of the company at about 11.20 a.m. about the ad interim
injunction order passed by the City Civil Court at Bombay and also served the
order of ad interim injunction on the secretary of the company and the chairman
for the meeting, Mr. Desai. Though it is claimed that thereafter there was some
discussion as well as protests, the twenty-fifth annual general meeting of the
company went on as scheduled and certain resolutions were passed. In so far as
the petitioner was concerned, his reappointment as a director of the company
was also considered and the resolution in that regard was declared as lost, as
2,90,732 votes were cast against the reappointment of the petitioner, while
1,807 votes alone were cast in his favour. The result was, the petitioner
ceased to be a director of the respondent company and was not reappointed and
the resolution of the company to that effect was also communicated to the
petitioner. Subsequently, on October 7, 1983, the petitioner instituted O.S.
No. 2017 of 1983, in the District Munsif's Court, Coimbatore, praying for a
declaration that the twenty-fifth annual general meeting of the respondent
company held on September 29, 1983, at 11.30 a.m. in contravention of the order
of ad interim injunction passed by the City Civil Court at Bombay in S.C. Suit
No. 5658 of 1983 is illegal and for a permanent injunction restraining the
respondent company from implementing the resolutions passed at the meeting and
also from interfering with the rights of the petitioner from functioning as a
director of the respondent company and other incidental reliefs. In I.A. No.
2487 of 1983 in O.S. No. 2017 of 1983, the petitioner prayed for an ad interim
injunction restraining the respondent company from implementing the resolutions
passed at the twenty-fifth annual general meeting held on September 29, 1983,
and from holding any meeting of the board of directors without the participation
of the petitioner therein. The main ground urged by the petitioner in that
application was that the proceedings of the twenty-fifth annual general meeting
were held in violation of the order of ad interim injunction passed by a
competent court and all its proceedings were illegal and he was entitled to
continue to be a director in the respondent company.
On October 7, 1985, the
learned District Munsif, Coimbatore, granted an ad interim injunction and
ordered notice on the injunction application returnable by November 7, 1983.
Subsequently, it was realised that a caveat had already been lodged by the
respondent company, which was also in force and when that was brought to the
notice of the court, the order of ad interim injunction passed by it earlier
was recalled and notice only was ordered on the injunction application
returnable by November 7, 1983. Thereafter, the respondent company filed its
counter.
In the counter filed by the
company, it raised an objection regarding the maintainability of the suit as well
as the application for injunction on the ground that the reliefs prayed for
therein can be obtained by the petitioner only in the suit instituted before
the City Civil Court at Bombay. An objection was also taken that owing to the
non-joinder of necessary parties, namely, the directors of the company, the
suit is bad. Yet another objection that was raised was that the suit had not
been instituted by the petitioner in a representative capacity and that there
was no proper and valid service of the order of ad interim injunction passed by
the City Civil Court at Bombay on the respondent company. The proceedings of
the twenty-fifth annual general meeting held on September 29, 1983, were
claimed to be quite in order, valid as well as legal. The illegality or otherwise
of the twenty-fifth annual general meeting of the respondent company held on
September 29, 1983, was a matter, according to the respondent, to be decided
only by that court which passed the order of ad interim injunction and which
was, by then, seized of an application alleging contempt also taken out by P.
J. Joseph. It was the further case of the respondent that the propriety and the
validity of the service of the order of ad interim injunction can also be
decided only by the City Civil Court, Bombay, and, therefore, the suit as well
as the application for injunction should be stayed under the provisions of the
Code of Civil Procedure. Inasmuch as the petitioner ceased to be a director of
the respondent company with effect from September 29, 1983, the respondent
questioned the locus standi of the petitioner to institute the suit as well as
to file the application and stated that the balance of convenience was also
only in favour of the respondent company. The respondent company, therefore,
prayed for the dismissal of the application for injunction.
Before the learned District
Munsif, Coimbatore, on behalf of the petitioner, exhibits Al to A13 were
marked, while on behalf of the respondent company, exhibits B1 to B3 were filed
and no oral evidence was let in on both sides. On a consideration of the
evidence so placed, the learned District Munsif took the view that the
respondent company was put on notice of the ad interim injunction order passed
by the City Civil Court, Bombay, prohibiting the conduct of the twenty-fifth
annual general meeting scheduled to be conducted on September 29, 1983, that
the respondent company understood the nature of the ad interim injunction order
passed by the said court at Bombay, that the petitioner had been removed from
the directorship of the respondent company by the proceedings of the
twenty-fifth annual general meeting of the respondent company without any fault
of his and by depriving him of a valuable right to get himself re-elected by
participating in the twenty-fifth annual general meeting and that the balance
of convenience, under those circumstances, was also in favour of the
petitioner. In that view, I. A. No. 2487 of 1983 was allowed.
Aggrieved by that order,
the respondent company preferred an appeal in C. M. A. No. 1 of 1984 to the
District Judge, Coimbatore. In that appeal, the respondent company filed I. A.
No. 45 of 1984 under Order 41, rule 27, Code of Civil Procedure, for reception
as additional evidence in the appeal the final orders passed by the City Civil
Court at Bombay on January 12, 1984, on certain notices of motion taken out by
the respondent company in S. C. Suit No. 5658 of 1983, City Civil Court,
Bombay, on the ground that that order had a material bearing on the point
arising for decision in the appeal. Though that application was opposed by the
petitioner herein, the learned District Judge felt that since the documents
were only certified copies of court proceedings, no prejudice will be caused to
the petitioner and directed the reception of the orders of the City Civil
Court, Bombay, as additional evidence in the appeal and marked them as exhibits
B4 and B5. Dealing with the merits of the appeal, the learned District Judge
found that though an ex parte order of ad interim injunction was granted by the
City Civil Court, Bombay, on September 28, 1983, the very same court had,
later, on the notice of motion by the respondent company, found that it had no
jurisdiction to entertain the suit in S. C. Suit No. 5658 of 1983, that the
injunction application filed by P. J. Joseph as well as the contempt
application filed by him had been dismissed and further that the plaint itself
had been directed to be returned on the finding that no part of the cause of
action arose within the jurisdiction of the City Civil Court at Bombay, and,
therefore, on the strength of the order of ad interim injunction passed earlier
by the City Civil Court at Bombay, the petitioner cannot be granted the relief
of injunction, as was done by the trial court. In that view, the appeal was
allowed and I. A. No. 2487 of 1983 filed by the petitioner was dismissed. The
correctness of that order is challenged in this civil revision petition.
The learned counsel for the
petitioner submitted that the holding of the twenty-fifth annual general
meeting by the respondent company and the business transacted thereat contrary
to the order of ad interim injunction granted by the City Civil Court, Bombay,
would render the meeting as well as the other proceedings therein illegal. It
was further pointed out that the subsequent order passed by the City Civil
Court, Bombay, on the notice of motion of the respondent company would not make
the original order of ad interim injunction non-est or void and anything done
in contravention of such an order, which was good until it was set aside, would
put back the parties in the original position which they occupied. The learned
counsel also attempted to distinguish between a case of total lack of
jurisdiction or competence in a court and an objection relating to the
pecuniary or territorial jurisdiction to contend that this case is one where
there was no total want of competence in the court and no objection had also
been taken to the jurisdiction of the local court which suggested a waiver.
Reliance in support of these submissions was placed upon the decisions in Nalla Senapathi v.
Sri Ambal Mills P. Ltd., AIR 1966 Mad 53, Century Flour Mills Ltd. v. S.
Suppiah [1975] 45 Comp Cas 444 (Mad); AIR 1975 Mad 270 [FB], Hira Lal v. Kali
Nath, AIR 1962 SC 199 and Kammaran Nambiar v. Valia Ramunni [1938] I MLJ 193.
Per contra, the learned counsel for the
respondent company contended that in view of the orders passed by the City
Civil Court, Bombay, on the notice of motion taken out by the respondent
company, that court had _'no jurisdiction whatever to entertain the suit and an
order passed by a court without jurisdiction would be a nullity and, therefore,
no exception could be taken either to the legality or propriety of the
proceedings of the twenty-fifth annual general meeting or to the business
transacted thereat. Strong reliance in this connection was placed by the
learned counsel upon the decision of the Supreme Court in Kiran Singh v. Chaman
Paswan, AIR 1954 SC 340. The learned counsel further submitted that in this case
pointedly objection had been raised by the respondent company to the
jurisdiction of the City Civil Court at Bombay, and on the upholding of such an
objection, any order passed in the interregnum alone cannot be treated as valid
as the said court ab initio lacked jurisdiction to entertain the suit
instituted by P. J. Joseph and the objection regarding the jurisdiction had not
in any manner been waived or given up by the respondent company.
Thus, the principal
question that arises for consideration is, whether the petitioner is prima
facie entitled to an order of injunction as prayed for by him based on the
order of ad interim injunction granted by the City Civil Court, Bombay, on
September 28, 1983, in the suit instituted by P. J. Joseph against the respondent
company, the petitioner and other directors as well. There is now no dispute
before this court that the respondent company was put on notice and also served
with an order of ad interim injunction issued by the City Civil Court, Bombay,
with reference to the twenty-fifth annual general meeting of the company held
on September 29, 1983. Equally, there is no dispute that by the order dated
January 12, 1984, marked as exhibits B4 and B5, the City Civil Court, Bombay,
had dismissed the application for injunction taken out by P. J. Joseph and also
the application taken out by him for punishing the respondent-company, the
petitioner as well as other directors for wilful disobedience of the order of
ad interim injunction passed by the City Civil Court, Bombay, on September 28,
1983, in Notice of Motion No. 5053 dated September 28, 1983. It is seen from
that order that the respondent company had raised and persisted in its plea
that the City Civil Court, Bombay, had no jurisdiction to entertain the suit
filed by P. J. Joseph. On that question, it was found by the City Civil Court,
Bombay, that the plaint proceeded to state that the respondent company had its
office in Bombay and was also carrying on business in Bombay and that was an
incorrect statement of fact. No material also was placed before the City Civil
Court, Bombay, to show that the respondent company carried on any business at
Bombay. The earlier holding of some of the meetings at Bombay was also held not
to give rise to the cause of action for the suit or to clothe the court with
jurisdiction to entertain the same. The issue of the notice of the meeting was
also sought to be pressed into service to show that the court at Bombay had the
jurisdiction, but all the notices were found to have been posted at Coimbatore,
as shown by the certificates of posting produced before court. Though the
respondent company had a branch office at Bombay, since no part of the cause of
action for the institution of the suit by P. J. Joseph arose at that place, the
City Civil Court at Bombay was found to lack territorial jurisdiction to
entertain the suit. In that view, it was also held that any order passed in
such a suit will not be binding, but would be inoperative and void and of no
effect against the respondent company and its other directors. The City Civil
Court, Bombay, also further found that though the respondent company had held
the twenty-fifth annual general meeting contrary to the order of ad interim
injunction, yet, the question of disobedience of orders of court would not
arise as that order was passed by a court having no jurisdiction and no action
for contempt for disobedience of that order would also lie. It was on the
aforesaid reasoning and conclusions that the City Civil Court, Bombay, vacated
the ad interim injunction granted by it in favour of P. J. Joseph in Notice of
Motion No. 5053 dated September 28, 1983, on the Notice of Motion No. 6054
dated September 20, 1983, taken out by the respondent company. Notice of Motion
No. 5326 dated October 3, 1983, taken out by P. J. Joseph for punishing the
respondent company and its directors for having disobeyed the order of ad
interim injunction was dismissed. A certified copy of the order of the Bombay
High Court dated February 24, 1984, was produced by the learned counsel for the
respondent company before this court to show that the High Court had also
confirmed the dismissal of the Notices of Motion No. 5053 dated September 28,
1983, and No. 6054 dated September, 20, 1983, by the City Civil Court, Bombay.
As regards the Notice of Motion No. 5326 dated October 3, 1983, for contempt,
the High Court observed that it was unnecessary to take any action or pass any
orders save and except to confirm the trial court's ultimate order dismissing
the notice of motion. It is thus clear that the very court which granted the ad
interim injunction initially in favour of P. J. Joseph had thought fit
subsequently to vacate it and that order had also since been confirmed by the
High Court, Bombay. The petitioner had instituted the suit in O. S. No. 2017 of
1983 and prayed for injunction in I.A No. 2487 of 1983 solely on the basis of
the invalidity attaching to the holding of the twenty-fifth annual general
meeting of the respondent company and the business transacted thereat owing to
the contravention of the order of ad interim injunction passed by the City
Civil Court, Bombay. The order of ad interim injunction granted by the City
Civil Court, Bombay, is no longer in force. Indeed, the High Court at Bombay
has also confirmed the order of the City Civil Court, Bombay, vacating the ad
interim injunction. Therefore, the substratum of the suit laid by the
plaintiff, on the basis of which the interlocutory relief of ad interim
injunction was prayed for by him, is gone. The petitioner cannot, therefore,
contend that he is still entitled on the strength of the order of ad interim
injunction granted by the City Civil Court, Bombay, and claim that certain
consequences relating to the validity and legality of the meeting had followed
and, therefore, an injunction should be granted in his favour.
It has earlier been seen
that under exhibits B-4 and B-5, the City Civil Court, Bombay, had passed
orders to the effect that it had no jurisdiction to entertain the suit in S.C.
Suit No. 5658 of 1983 instituted by P. J. Joseph, as no part of the cause of
action arose within its jurisdiction. The effect of such lack of jurisdiction
came to be considered by the Supreme Court, though also in the context of
section 11 of the Suits Valuation Act, 1887, in Kiran Singh v. Chaman Paswan, AIR 1954 SC 340.
In that case, on the valuation stated in the plaint, the suit was properly laid
before the Sub-Court and against the decision rendered by it, an appeal was
preferred to the District Court. When the matter was further taken up in second
appeal before the High Court at Patna, for the first time, an objection was
raised regarding the valuation in the plaint and the valuation was determined
at a figure, which would have rendered the first appeal before the District Court
incompetent. In view of that, an argument was raised before the Supreme Court
that the appeal should be heard free from the limitations under section 100,
Code of Civil Procedure, as a first appeal against the judgment of the
Sub-Court, as the decree and judgment passed by the District Court was a
nullity. Alternatively, it was contended that even if the decree and judgment
of the District Court were valid, the appellants had suffered prejudice within
the meaning of section 11 of the Suits Valuation Act, 1887, and the decree was,
therefore, liable to be set aside with a direction that the appeal should be
heard by the High Court on merits as a regular appeal. In setting out the
general principles applicable when a court entertains a suit or an appeal over which
it has no jurisdiction, the Supreme court pointed out as follows (at page 342):
"It
is a fundamental principle well-established that a decree passed by a court
without jurisdiction is a nullity, and that its invalidity could be set up
whenever and wherever it is sought to be enforced or relied upon, even at the
stage of execution and even in collateral proceedings. A defect of
jurisdiction, whether it is pecuniary or territorial, or whether it is in
respect of the subject-matter of the action, strikes at the very authority of
the court to pass any decree, and such a defect cannot be cured even by consent
of parties. If the question now under consideration fell to be determined only
on the application of general principles governing the matter, there can be no
doubt that the District Court of Monghyr was ' coram non judice ', and that its
judgment and decree would be nullities."
The
Supreme Court thereafter only proceeded to consider, on the facts of the case,
the effect of section 11 of the Suits Valuation Act, 1887. In this case,
considerations arising under section 11 of the Suits Valuation Act, 1887, are
not applicable, as the objection is not on the footing of overvaluation or
undervaluation of a suit. The objection taken in this case is squarely rested
on a total absence of a cause of action for Mr. P. J. Joseph to institute the
suit within the jurisdiction of the City Civil Court at Bombay and that has
nothing whatever to do with section 11 of the Suits Valuation Act, 1887. The
submission of the learned counsel for the petitioner that the observations of
the Supreme Court extracted above must be
confined to and understood in the context of section 11 of the Suits Valuation
Act, 1887, does not carry any conviction, for, the Supreme Court has clearly pointed
out that a defect in territorial jurisdiction also strikes at the very
authority of the court to pass any decree, which defect cannot be cured even by
consent of parties. It is, therefore, not possible to accept the contention of
the learned counsel for the petitioner that the decision of the Supreme Court
must be understood as being confined to the interpretation of the provisions of
the Suits Valuation Act, 1887.
Turning to the argument
relating to the illegality of the holding of the twenty-fifth annual general
meeting of the respondent company as well as the invalidity of the business
transacted thereat owing to the holding of the meeting in contravention of the
orders of ad interim injunction granted by the City Civil Court, Bombay, it is
seen that the very court which granted the ad interim injunction had not only
found that it had no jurisdiction to entertain the suit and pass interim
orders, but also that any order passed by it would be inoperative and not
binding. That has also been affirmed on appeal by the order of the High Court
of Bombay referred to earlier. Besides, a complaint of having committed
contempt of the order of ad interim injunction by disobeying the same had been
thrown out by the very same court, as even according to it, such orders will
have no effect on the company. The rejection of the application for contempt
has also been affirmed by the High Court of Bombay. Under these circumstances,
it is not clear as to how the petitioner can claim that the proceedings of the
twenty-fifth annual general meeting held on September 29, 1983, are either
illegal or invalid as being in contravention of the order of ad interim
injunction passed by a competent court. When the City Civil Court at Bombay,
which issued the ad interim injunction order had declared, though subsequently,
that such an order will have no binding effect on the respondent company,
because the court had no jurisdiction to entertain the suit and has also
dismissed the application for contempt laid against the respondent company and
others for disobedience of its order of ad interim injunction, it appears to me
that the petitioner, who was a party to those proceedings and who will be bound
by the orders passed by the City Civil Court, Bombay, and the High Court at
Bombay, cannot claim that the holding of the twenty-fifth annual general
meeting of the respondent company and the business transacted thereat would all
be illegal and invalid. Though reliance in this connection was placed by the
learned counsel for the petitioner upon the decision in N. Senapathi Sarkarai Manradiar v. Sri Ambal
Mills P. Ltd., AIR 1966 Mad 53, I am unable to
read it as expressing any clear and final opinion on the question, as could be
seen from paragraphs 6 and 8 of the judgment. Besides, there has been an
assumption that territorial jurisdiction was ex facie lacking, which was not
found as a fact one way or the other, and the decision appears to have
proceeded on the assumption without any factual basis or finding. Century Flour
Mills Ltd. v. S. Suppiah [1975] 45 Comp Cas 444 (Mad); AIR 1975 Mad 270 [FB],
arose out of proceedings to declare as void, illegal and inoperative certain
resolutions passed at a meeting of the company, held despite a stay order of
court. In the course of dealing with the question whether the resolutions were
valid or not, the court after taking note of the difference between an order
for stay and an order for injunction pointed out that the courts are not
powerless to undo a wrong done in disobedience of court's order and that in
doing so, it would refuse to recognise the holding of the meeting as a legal
one. This decision proceeds to approve Nalla Senapathi Sarkarai Manradiar v.
Sri Ambal Mills P. Ltd., AIR 1966 Mad 53. The situation that arose in the
decision in Century Flour Mills Ltd. v. S. Suppiahi [1975] 45 Comp Cas 444
(Mad); AIR 1975 Mad 270 [FB], is different, in that, no question of
jurisdiction of a court as such was involved, but what was complained of was a
violation of a stay order passed by a court of competent jurisdiction. In that
context only, the learned judge laid down that the court would refuse to
recognise the holding of the meeting and that the party should be put back in
the same position as he occupied prior to the stay order. Such is not the
situation in this case, where the very court which passed the ad interim
injunction whatever to entertain the suit or even to pass the interim order and
had even gone further to declare that the interlocutory orders passed by it
will not have any binding or operative effect on the respondent company. The
decisions relied on by the learned counsel for the petitioner cannot,
therefore, have any application at all in this case.
It is now necessary to
consider the objections based on the distinction between total lack of
competence and lack of local jurisdiction. If [there is total lack of
competence in a court to entertain the suit, then there is no difficulty at
all, because any order or adjudication made by such a court would be a nullity.
Even if the objection is based upon want of jurisdiction on the ground of
either pecuniary or territorial jurisdiction, in view of the decision of the
Supreme Court in Kiran Singh v. Chaman Paswan, AIR 1954 SC 340, it seems to me
that such a defect would also strike at the very authority of the court to pass
a decree and it cannot be cured by consent of parties. Even on the assumption
that there could be waiver of the objection in a manner recognised by law, in
this case, there is no question of waiver at all, for, the respondent had clearly
raised an objection regarding the jurisdiction of the City Civil Court at
Bombay to entertain the suit and had persisted in that objection, which
resulted in the court coming to the conclusion that the City Civil Court at
Bombay did not have jurisdiction to entertain the suit at all and that,
therefore, the interim orders passed by it were of no consequence and were not
binding on the respondent company. In view of this circumstance, the reliance
placed by the learned counsel for the petitioner upon the decision of the
Supreme Court in Hira Lal v. Kali Nath, AIR 1962 SC 199, cannot avail the
petitioner, for, in that case, factually there was a waiver of the objection
relating to the territorial jurisdiction of the court raised in the written
statement, when the matter was agreed to be referred to arbitration through
court. It is, therefore, rather difficult to accept the contention of the
learned counsel for the petitioner that there has been a waiver in this case,
as the record clearly establishes contra. Kammaran Nambiar v. Valia Ramunni
[1938] 1 MLJ 193 also reiterates the fundamental rule that the judgment of a
court without jurisdiction is a nullity and that want of jurisdiction cannot be
waived and the law recognises two exceptions to this, namely, section 11 of the
Suits Valuation Act, 1887, relating to defects of jurisdiction due to wrong
pecuniary valuation and under section 21, Code of Civil Procedure, with
reference to the wrong place of suing. There is no question of the
applicability of section 11 of the Suits Valuation Act in this case because
there is no dispute on valuation at all and with reference to the territorial
incompe-tency of the City Civil Court at Bombay, factually, there is no waiver
of the objection relating to jurisdiction by the respondent company, which
raised the objection in the court of first instance at the earliest possible
opportunity, even in the course of the interlocutory proceedings, and had
persisted in that objection which was upheld as well and that is the clearest
indication that there is no abandonment of the objection regarding the
territorial jurisdiction at all. Therefore, even assuming that similar
considerations of waiver would arise with reference to an objection based on
section 11 of the Suits Valuation Act, 1887, and section 21, Code of Civil
Procedure, there has been no waiver in this case and the petitioner cannot
claim that he is entitled to an order for injunction on the footing that the
earlier order of ad interim injunction passed by the City Civil Court at Bombay
would still hold good. The argument that the subsequent order passed by the
City Civil Court at Bombay would not make the original order non est or void
cannot be countenanced. If the court had no jurisdiction at all to entertain
the suit, anything done by it, by assuming such jurisdiction, would be totally
without competence on its part to do so and merely because such incompetence is
discovered subsequently, that would not render the intermediate acts valid and
binding till the date of discovery of such incompetence. To accept this
argument would lead to a very strange situation in that orders passed by a
court, incompetent to entertain the proceedings, would be valid between the
date when the proceedings are entertained and the discovery of its incompetence
and would not be either binding or operative, after the date of discovery of
the incompetence of the court. Either the court is competent or it is
incompetent to entertain suits and pass orders. The acceptence of the argument
of the learned counsel would render the same court competent up to a particular
stage of the proceedings and make it incompetent at the subsequent stages.
Under those circumstances, this argument of the learned counsel for the
petitioner that the subsequent order would not make the original order non est
or void is unacceptable. No other point was urged. Consequently, the civil
revision petition fails and it is dismissed with costs.
KERALA HIGH COURT
[2002]
36 SCL 664 (Ker.)
High Court of Kerala
v.
Nadukkara Agro Processing Co. Ltd.
G.
Sivarajan, J.
O.P.
No. 16519
of 2001
Section 166 of the Companies Act, 1956 -
Meetings and proceedings - Annual general meeting - Petitioner was a shareholder
and candidate for election to board of directors in first respondent company -
A notice was published in a daily on 30-5-2001 stating that AGM could not be
held on 31-5-2001 which was last date for holding it due to unavoidable reasons
- Petitioner challenged such notice and sought for direction to respondent Nos.
1 to 3 to hold AGM of first respondent company on 31-5-2001 itself - Since
meeting could not be convened on said date, petitioner filed application for
amendment in which he sought that AGM must be convened within a timeframe based
on voters’ list on date of publication - Whether there are any provisions in
the Companies Act, which would enable company to defer convening of AGM to a
date beyond time specified in section 166 - Held, no - Whether first respondent
was justified in not complying with statutory requirements under section 166 -
Held, no - Whether failure to convene Annual General Body Meeting is a
continuing default for which consequences are provided and in such circumstances
what was required to be done was to direct first respondent-company to convene
AGM at earliest - Held, yes
Facts
The petitioner was a shareholder of first
respondent-company and was also a candidate for election to the directors board
of the company. The annual general meeting of the first respondent-company was
fixed for 31-5-2001 which was the last date for convening the AGM. The AGM was
postponed by publishing a notice in a daily on 30-5-2001 on the ground that it
could not be held due to unavoidable reasons and that the new date of the AGM
was to be intimated to the shareholders. The petitioner challenged the notice
in the original petition and was seeking for a direction to respondent Nos. 1
to 3 to hold the AGM of the first respondent on 31-5-2001 itself. The meeting
was not convened on 31-5-2001. So the petitioner filed application for
amendment in which, among other prayers, he sought the AGM must be convened
within a timeframe based on voters list on the date of publication.
Held
Admittedly, the meeting which was proposed to
be conducted on 31-5-2001, was the first annual general meeting of the first
respondent-company. As per the provisions of the section 166, there is an
obligation on the part of the company to convene the first annual general meeting
at the latest by the end of 18 months. Admittedly 31-5-2001 was the last date
for convening the first annual general meeting of the first respondent-company
as per the said section. The first respondent could not bring to notice any
provisions in the Companies Act, which would enable the company to defer the
convening of the said meeting to a date beyond the time specified in section
166. That apart, the only reason stated by the first respondent in their
counter was that the meeting was deferred in view of the judgment dated
15-5-2001, directing the Government to dispose of the representations submitted
by the additional respondent Nos. 6 to 11 within a period of three months.
There was no direction by the Court in the said judgment to defer the annual general
meeting which had to be convened on or before 31-5-2001. In such circumstances,
the first respondent was not justified in not complying with the statutory
requirements under section 166. It might be that the first respondent had bona
fide believed that convening of the said meeting before the disposal of the
representation as directed by the court in the judgment would be against the
spirit of the decision. It must also be noted that the enquiry directed by the
Court in the said judgment did not stand in the way of the annual general
meeting being conducted in accordance with law. Now admittedly, the meeting was
deferred. Failure to convene the annual general body meeting is a continuing
default for which consequences are also provided under the Act. In such
circumstances what is required to be done is to direct the first
respondent-company to convene the annual general meeting at the earliest.
Hence, the first respondent-company was directed to convene the annual general
meeting of the first respondent-company within a period of one month from the
date of judgment. The annual general meeting must be held on the basis of the
list of shareholders available as on 31-5-2001. No fresh nominations to the
directors board would be entertained.
V. Philip Mathews for the petitioner. V.M. Kurian, P.K.
Santhamma, George Kuruvilla, Johnson Manayani and K. Ramakumar for
the Respondent.
Judgment
1. The petitioner
is a shareholder of the first respondent-company and he was also a candidate
for election to the directors board of the company. The annual general meeting
(AGM) of the first respondent was fixed for 31-5-2001. Here it must be noted
that 31-5-2001, is the last date for convening the annual general meeting of
the first respondent-company under the provisions of the Companies Act, 1956
(‘the Act’). The first respondent published a notice in Mathrubhoomi daily
dated 30-5-2001, stating that ‘due to unavoidable reasons, it has been decided
to postpone the annual general meeting of the company, to be held on 31-5-2001.
The new date of holding the annual general meeting will be intimated to all the
shareholders shortly’. The petitioner challenges the said notice in this
original petition. He also seeks for a direction to the respondent Nos. 1 to 3
to hold the annual general meeting of the first respondent on 31-5-2001,
itself. Since the meeting was not convened on 31-5-2001, the petitioner filed
application for amendment in which among other prayers, he sought the annual
general meeting must be convened within a timeframe based on the voters list on
the date of publication of exhibit P-2. The petitioners in O.P. No. 15321 of
2001 (Annexure A-8) have filed C.M.P. No. 27206 of 2001 seeking for impleading
them as additional respondent Nos. 6 to 11 in this original petition.
2.
Counter-affidavits are filed on behalf of the first respondent, fourth
respondent and respondent Nos. 6 to 11.
3. I have heard V.
Philip Mathews, the learned counsel appearing for the petitioner, V.M. Kurian,
the learned counsel appearing for the first and second respondents, Smt. P.K.
Santhamma, the learned Government pleader appearing for third respondent, the
learned counsel appearing for the fourth respondent. K. Ramakumar, the learned
senior Central Government standing counsel appearing for the fifth respondent
and Shri Johnson Manayani, the learned counsel appearing for respondent Nos. 6
to 11. The counsel for the petitioner submitted that the first respondent was
under a legal obligation to conduct the first annual general meeting of the first
respondent-company on or before 31-5-2001, in view of the provisions of section
166 of the Act, and that the first respondent has failed to comply with the
said direction without any valid justification. The counsel for the first
respondent, on the other hand, submits that since this court in O.P. No. 15321
of 2001 has directed the Government to consider the representations filed by
the Respondent Nos. 6 to 11 and to pass appropriate orders thereon within three
months from 15-5-2001, the first respondent was under the bona fide belief that
the conduct of the annual general meeting for the purpose of election to the
directors board also will be contrary to the spirit of the said direction. The
counsel further submits that there is no other reason for deferring the meeting
fixed to 31-5-2001. The counsel for the respondent Nos. 6 to 11 submitted that
though respondent Nos. 6 to 11 submitted applications for issuance of shares
and remitted share amounts in advance, the first respondent did not issue the
shares to the said respondents. According to respondent Nos. 6 to 11, there was
absolutely no justification for not issuing share certificates to them. He also
submits that since this Court has already directed disposal of their
representation by the Government, the first respondent was fully justified in
deferring the annual general meeting fixed for 31-5-2001, to another date. He
also submits that the Government have posted the representation submitted by
the respondent Nos. 6 to 11 for hearing to 22-6-2001. The counsel for the fifth
respondent points out that the fifth respondent has already issued a
communication dated 17-5-2001 [exhibit R-6(j)] stating that the complaint made
by the respondent Nos. 6 to 11 has been taken up with the company for their
reply in that matter and the same is awaited. It is further stated that in case
they seek any urgent relief, they can move before appropriate court of law.
4. I have
considered rival submissions. Admittedly the meeting which was proposed to be
conducted on 31-5-2001, was the first annual general meeting of the first
respondent-company. As per the provisions of the section 166 of the Act, there
is an obligation on the part of the company to convene the first annual general
meeting at the latest by the end of 18 months. Admittedly 31-5-2001, was the
last date for convening the first annual general meeting of the first
respondent-company as per the said section. The counsel for the first
respondent could not bring to my notice any provisions in the Act, which would
enable the company to defer the convening of the said meeting to a date beyond
the time specified in section 166. That apart, the only reason stated by the
first respondent in their counter is that the meeting was deferred in view of
the judgment dated 15-5-2001, directing the Government to dispose of the
representations submitted by the additional respondent Nos. 6 to 11 within a
period of three months. There is no direction by this Court in the said
judgment to defer the annual general meeting which has to be convened on or
before 31-5-2001. In such circumstances, the first respondent was not justified
in not complying with the statutory requirements under section 166. It may be
that the first respondent has bona fide believed that convening of the said meeting
before the disposal of the representation as directed by this Court in the
judgment mentioned above will be against the spirit of the said decision. It
must also be noted that the enquiry directed by this Court in the said judgment
did not stand in the way of the annual general meeting being conducted in accordance with law. Now admittedly, the
meeting was deferred. Failure to convene the annual general body meeting is a
continuing default for which consequences are also provided under the Act. In
such circumstances what is required to be done is to direct the first
respondent-company to convene the annual general meeting at the earliest.
Hence, I direct the first respondent-company to convene the annual general
meeting of the first respondent-company within a period of one month from
today. The annual general meeting as directed above must be held on the basis
of the list of shareholders available as on 31-5-2001. No fresh nominations to
the directors board will be entertained.
5. The counsel for
the respondent Nos. 6 to 11 submitted that a direction may be issued to the
Government to dispose of the representation filed by them within a time-frame.
No order in that regard is required in this judgment in view of the fact that
time had already been specified in the judgment in O.P. No. 15321 of 2001.
6. The original petition is disposed of as
above.
[1985] 58 Comp. Cas. 293 (Cal.)
v.
Assistant Registrar of Companies
Manoj Kumar Mukherjee and Sankar Bhattacharyya,
JJ.
Criminal Revision No. 2179 of 1981.
September 13, 1984
D. Dutt for the Petitioner.
S. Sengupta for the
Respondent.
Sankar Bhattacharyya, J.—On a complaint filed before the learned Chief Judicial Magistrate,
24-Parganas, by opposite party No. 1, in this rule, the Assistant Registrar of
Companies, the two petitioners before us, the directors of M/s. Sukhlal
Chandanmul P. Ltd. (hereinafter referred to as "the company") with
its registered office at No. 23/21, Gariahat Road, Calcutta-29, have been
summoned to face trial under s. 210(5) of the Companies Act, 1956 (hereinafter
referred to as "the Act").
The allegations made in the
above complaint is that though the petitioners were under a statutory obligation
under the Act to lay before the company at its annual general meeting which
should have been held in pursuance of s. 166 of the Act by September 30, 1977,
at the latest, its balance-sheet and profit and loss account for the financial
year ending on March 31, 1977, they failed and neglected to do so in compliance
with the provisions of s. 210(1), (3), of the Act in spite of references made
to them by the complainant and thereby committed an offence punishable under s.
210(5) of the Act.
Being aggrieved by the
launching of the above prosecution, the petitioners moved this court in
revision with a prayer for quashing the proceedings against them and obtained
this rule.
Mr. Dutt, appearing in
support of the rule, contends before us that the annual general meeting of the
company for the financial year in question was duly held on September 27, 1977,
that is, within the statutory period, but as the audit could not be completed
by then due to the illness of the accountant of the company, the shareholders
of the company adopted an unanimous resolution to adjourn the meeting till the
annual audit was completed. The adjourned meeting was finally held on March 31,
1978, and at the said meeting, the audited balance-sheet and the profit and
loss account of the company for the financial year ending on March 31, 1977,
were duly laid, adopted and passed unanimously by the shareholders.
Relying upon the Division
Bench decision of this court in the case of M.D. Mundhra v. Assistant Registrar of Companies [1980] 50
Comp Cas 346 (Cal), Mr. Dutt argues that the
adjourned annual general meeting of the company held on March 31, 1978, was
nothing but a continuation of its earlier meeting. That being so, argues Mr.
Dutt, it cannot be said that the petitioners committed an offence under s.
210(5) of the Act.
In this context, our
attention has also been drawn by Mr. Dutt to another Division Bench decision of
this court in the case of Sudhir Kumar Seal v. Assistant Registrar of Companies, West Bengal
[1979J 49 Comp Cas 462 (Cal) wherein, in view
of a circular bearing No. 35/9/72-CL. III, dated February 2, 1974, issued by
the Company Law Board, Ministry of Law, Justice and Company Affairs, the Bench
held that in a case where the annual accounts were not ready for laying at the
annual general meeting of the company, it would be open to the directors of the
company to get the annual general meeting adjourned to a subsequent date by an
appropriate resolution and the accounts and the balance-sheet could be laid at
the adjourned annual general meeting.
On the other hand, Mr. Sen
Gupta, appearing for the complainant, has raised a point of law of some
importance which does not appear to have come up for consideration before the
Division Bench in either of the two cases referred to above.
The point canvassed by Mr.
Sen Gupta is that though an annual general meeting of a company may be
adjourned to a subsequent date by an appropriate resolution and the adjourned
meeting is to be deemed to be a continuation of the earlier meeting, the whole
afiair must be finished within the statutory period prescribed by s. 166 of the
Act, that is to say, within a period of fifteen months from the date of the
previous annual general meeting.
After having heard both
sides at length and given our careful thought to their respective contentions,
we are inclined to hold that the point raised by Mr. Sen Gupta is quite sound
and should be accepted for the reasons which follow.
Section 166(1) of the Act
lays down in clear and unambiguous terms that the time gap between one annual
general meeting of a company and the next shall, in no case, exceed fifteen
months. The power to extend the above period has been given to the Registrar of
Companies by the second proviso to the said section if there be special reason
for such extension but then, even the Registrar's power of extension has been
restricted to a period not exceeding three months. That being the mandate of
the Legislature, the question naturally arises whether the holding of the
annual general meeting of a company can be postponed, through resolutions taken
in the meeting, beyond the statutory period by virtue of the circular issued by
the Company Law Board referred to above.
The position can be best
appreciated through an example. Suppose the annual general meeting of a company
is called on the last day of the fifteenth month from the date of its earlier
meeting and is adjourned by an appropriate resolution to a future date. If the
circular is to be literally construed divorced of the provisions of s. 166 of
the Act, such adjournments may go on ad infinitum and in such contingency, not
only the provisions of s. 166 but also the provisions of ss. 168 and 210 of the
Act would be rendered nugatory, leading to chaos and confusion in the matter of
enforcement of the relevant provisions of the Act by the Registrar of
Companies. Also, the second proviso to s. 166 empowering the Registrar to
extend the statutory period fixed by s. 166 would become wholly superfluous.
If the above position is to
be accepted, the annual general meeting of a company may be deferred with
impunity at the pleasure of the shareholders for years together and so also the
laying of the balance-sheet and the profit and loss account rendering the
statutory provisions of the Act meaningless and ineffective. In our considered
opinion, the circular could never be intended to be used as an instrument for
circumvention or subversion of the provisions of s. 166 of the Act.
Mr. Dutt also argues that
s. 166(1) of the Act merely says that the annual general meeting is to be held
within the period prescribed by it, but nowhere enjoins that the meeting is to
be completed within the said period. We find no substance in the above argument
because, if a statute enjoins that a meeting is to be held within a specified
period, it follows by necessary implication that it must be completed within
the said period. On a careful consideration of what has been discussed above,
we hold that notwithstanding adjournments of an annual general meeting of a
company by appropriate resolutions, the meeting must be completed within the
statutory period of fifteen months from July 29, 1976, the date of the annual
general meeting for the previous year and it was at the adjourned meeting that
the audited balance-sheet and the profit and loss account of the company for
the financial year in question were laid, adopted and passed by the
shareholders.
In view of the principles
laid down by the Supreme Court in the case of State of Bombay v. Bandhan Ram Bhandani [1961] 31 Comp
Cas 1 (SC), we find that, in the circumstances
of the instant case, the petitioners could be prosecuted both under s. 166 as
well as under s. 210(5) of the Act. In our opinion, there has not been any
illegality or impropriety on the part of the learned Chief Judicial Magistrate in
taking cognizance of the offence under s. 210(5) of the Act and issuing
processes against the petitioners. There is, therefore, no ground for quashing
the impugned proceedings. In the result, the rule stands discharged.
Manoj Kumar Mukherjee J.—I
agree.
Later: The oral prayer of the petitioners for a certificate of fitness for appeal to the Supreme Court is refused as no substantial question of law requiring determination by the Supreme Court is involved in this case.
[1938] 8 COMP. CAS. 175 (MAD.)
Sree Meenakshi Mills Company Ltd.
v.
Assistant Registrar of Joint Stock Companies, Madura.
BURN, J.
MARCH 18, 1938
Nugent Grant, and T.M. Kasturi, for Petitioners.
K.
Venkatraghavachari, for the Crown.
Burn, J.—The conviction of the Company was in my opinion correct. Section 76 (1) of the Companies Act requires a general meeting to be held once at least in every year. The argument on behalf of the petitioners is that since the general meeting called on 30th December 1934 was adjourned to 31st March 1935 and was held on that date, it follows that a general meeting was held in 1934 and in 1935 and the general meeting held on the 28th January 1936 was within 15 months of 31st March, 1935. This is specious, but unsound. It can be reduced to absurdity in a moment. If it were correct a general meeting held in 1934 could be adjourned to 1935 and again adjourned to 1936 and so on without limit. But that would obviously not satisfy Section 76.
Section 76 demands that there shall be a general meeting held once at least in every year, i.e., one meeting per year and as many meetings as there are years. It does not mean that the same meeting can go on being held once in each year. The meeting on 31st March 1936 was not a different meeting from the one, which began on 30th December 1934; it was the same meeting. Section 76 required that in 1935 a separate and distinct meeting should be held.
The conviction of the company is therefore correct and the fine as reduced by the learned Sessions Judge is not excessive. The officers however cannot be said to have been "knowingly parties to the default" in the face of the evidence that they took legal advice and acted accordingly.
I set aside the convictions of the accused Nos. 5, 6, 7 and 8 and direct that the fines imposed on them be refunded if collected.
v.
RAGHAVA RAO, J.
Second
Appeal No. 599 of 1950
August 10,
1950
K. Bhashyam and S.V. Venugopalachari, for the appellant.
R. Gopalaswami Aiyangar, for the respondents.
JUDGMENT
There are in the main two interesting questions of company law involved
in this case: (1) whether the suit out of which this second appeal arises is
maintainable; and (2) whether a resolution of the shareholders of a company
known as Vel Brothers Ltd. (hereinafter to be referred to as the company) of
the 3rd November, 1948, removing the plaintiff from its managing directorship
and appointing the first defendant as managing director instead, is invalid or
illegal. The facts which require to be stated for appreciating the point
arising for decision are these. The first and the second defendants called upon
the managing director, the plaintiff, by letter dated 28th September, 1948, to
convene a meeting for electing a new managing director in place of the
plaintiff. The reply of 27th October, 1948,that was given to it by the
plaintiff was that since the general meeting was anyhow going to be held on 30th
December, 1948, the matter might be considered at that juncture. Finding that
the plaintiff did not take action on their letter within 21 days the
re-quisitionists sent notices to all the members of a meeting proposed to be
held on 3rd November, 1948, at the registered office of the company at 5 p.m.
The subject, it was said, was the election of a managing director in place of
the plaintiff. It may also be stated that in a letter written by the plaintiff,
Ex. B. 11 of the 27th October, 1948, he himself had expressed an intention to
move a resolution at the meeting to be held on 3rd November, 1948, that the
company be wound up voluntarily. On 3rd November, 1948, it appears however that
the meeting could not be held at the premises of the registered office at the
time fixed because the premises were locked. As the lower appellate court has
found, the shareholders who were assembled at the registered office for the
purpose of the meeting accordingly moved on to the premises at No. 286,
Kallukatti East Street, which is only a few yards off the registered office and
there held a meeting at which a resolution removing the plaintiff from managing
directorship was passed. The validity of the meeting so held and of the
resolution so passed is the subject matter of the present action. The plaintiff
complains that the meeting and the resolution are altogether invalid and
illegal. The answer of the defendants is firstly that a suit of this character
is not maintainable and secondly that the meeting and the resolution are
perfectly legal and valid.
The suit was disposed of by the learned District Munsif of Devakottai on
the basis of a certain admission made by the pleader for the plaintiff on the
plaint which is to the following effect:—
"I admit for the purpose of this suit that the
registered office of the Vel Brothers Ltd., Karaikudi, was not available for
the meeting to be held at 5 p.m. on 3rd November, 1948, and that a meeting was
held at 5-15 p.m. on 3rd November, 1948, in the premises of door No. 286
Kallukatti East Street, and the resolutions complained of by the plaintiff were
passed at that meeting."
No evidence was taken by the learned District Munsif who proceeded on the
basis of this admission to deal with the merits of the case after finding the
suit to be maintainable as not being a matter of mere internal management or a
mere domestic matter on which the court should not interfere. On appeal taken
to the court of the Subordinate Judge of Devakottai the judgment of the learned
District Munsif has been reversed on both the points. The plaintiff accordingly
files this second appeal against the decision of the lower appellate court.
As regards the maintainability of the suit the learned Subordinate Judge
has applied what he calls the well known rule in Foss v. Harbottle which he
defines as being that a court will not interfere with the ordinary management
of a company acting within its powers and has no jurisdiction to do so at the
instance of the shareholders. He has quoted James, L.J., from Mac Dougall v.
Gardiner, at pages 21 and 25 to this effect:—
"I think it is of the utmost importance in all
these companies that the rule which is well known in this court as the rule in
Mozley v. Alston and Lord v. Copper Miners (Governor & Co. of) and Foss v.
Harbottle, should always be adhered to; that is to say, that nothing connected
with internal disputes between the shareholders is to be made the subject of a
bill by some one shareholder on behalf of himself and others, unless there be
something-illegal, oppressive or fraudulent, unless there is something ultra
vires on the part of the company qua company or on the part of the majority of
the company, so that they are not fit persons to determine it; but that every
litigation must be in the name of the company, if the company really desire it.
In my opinion if the thing complained of is a thing
which in substance the majority of the company are entitled to do or if
something has been done irregularly which the majority of the company are
entitled to do regularly, or if something has been done illegally which the
majority of the company are entitled to do legally, there can be no use in
having a litigation about it, the ultimate end of which is only that a meeting
has to be called and then ultimately the majority gets its wishes."
The respondents before me have reiterated the reliance upon this
statement of the law before me. Mr. Gopalaswami Aiyangar has also drawn my
attention to the fact that the resolution passed on 3rd November, 1948, was
later on confirmed by a resolution of a general body meeting held on 30th
December, 1948.
The rule in Foss v. Harbottle has been considered by this court in
Nagappa Chettiar v. Madras Race Club, and has been, with its limitations and
exceptions, set forth in detail in Palmer's Company Law, 19th edition, by A.F.
Topham, K.C., at pages 228 to 230. I have considered the matter carefully and
have come to the conclusion that what we are concerned with here is not really
either the rule or any exception thereto. The question which arises here is indeed
a different matter and is governed not by the rule in Foss v. Harbottle but by
what has been said by Sir George Jesse], M.R., in Pulbrook v. Richmond
Consolidated Mining Co. The ruling of Sir George Jessel, M.R., has been
considered in very close detail by Beasley, J., as he then was in Subramania
Aiyer v. The United India Life Assurance Co. Ltd. The case before the learned
Judge related to the United India Life Insurance Co. Ltd., Madras. There the
articles of association provided for the election or appointment of two
directors by the policy holders of the company, the directors so elected or
appointed to be known as "policy holders' directors ". Two persons
alleging themselves to have been validly elected "policy holders'
directors" sued the company and its directors for a declaration of the
validity of their election as such directors and of their right to act as such
and also an injunction restraining the other directors from interfering with
their right to act as such directors. On objection taken by the defendants that
individually the plaintiffs had no cause of action and that the suit should
have been instituted by the policy holders as a body, the objection was
overruled by the learned Judge who held that the plaintiffs alone could
maintain the suit and that no other policy holders on their behalf could have
maintained it, and that the directors of the company had properly been
impleaded as defendants. Referring to the decision of Sir George Jessel, M.R.,
in Pulbrook v. Richmond Consolidated Mining Co., the learned Judge observes at
page 398 that that decision "seems to be authority both for the statement
that a director who has been excluded from acting as a director by the
directors of a company can sustain an action in his own name on the ground of
individual injury to himself and for the statement that such an action can be
sustained against the other directors." The learned Judge quotes the
following from Sir George Jessel, M.R.'s decision:—
"In this case a man is necessarily a shareholder
in order to be a director, and as a director, he is entitled to fees and
remuneration for his services, and it might be a question whether he would be
entitled to the fees if he did not attend meetings of the board. He has been
excluded. Now, it appears to me that this is an individual wrong, or a wrong
that has been done to an individual. It is a deprivation of his legal rights
for which the directors are personally and individually liable. He has a right
by the constitution of the company to take a part in its management, to be
present, and to vote at the meetings of the board of directors. He has a
perfect right to know what is going on at these meetings."
Reference may be made in this connection also to a Bench ruling of this Court
(of Curgenven and Cornish, JJ.) in Srinivasan v. Watrap Subramania Aiyar, where
after pointing out the distinction between the class of cases illustrated by
Pulbrook v. Richmond Mining Co. on the one hand and the class of cases
illustrated by Foss v. Harbottle on the other the learned Judges ruled that
"The Court has jurisdiction to entertain a suit by shareholders against
the company in respect of an infringement of their individual rights as
shareholders when the interests of justice so require and a suit in substance
to establish and enforce the right of a shareholder to exercise his vote is
therefore maintainable at the instance of a single shareholder."
It is perfectly clear to my mind that in the case before me the plaintiff
is suing in respect of an individual wrong and not a wrong in which all the
shareholders generally and as a body, only are interested. He is asking it to
be declared—and that is principally a matter of concern for him—that he has not
ceased to be the managing director and that the first defendant has not become
that in his place. The question of the maintainability of the suit must
therefore be answered in favour of the appellant before me.
Turning to the other question arising for determination I must state that
the lower appellate court's finding as to what happened on 3rd November, 1948,
is contained in paragraph 16 of its judgment which I may as well quote:—
"There is no evidence as to what actually
happened, as to whether the requisitionists and other members assembled for the
meeting at the registered office and finding it locked adjourned to 236,
Kallukatti East Street, and there held the meeting. But it was admitted that
the meeting was actually held there at 5-15 p.m. It is not disputed that 286,
Kallukatti East Street, is a residential place of the parties, who are close
relations, within a few yards from the registered office of the company, Only
appellants 1, 2 and 4 attended the meeting and the first respondent did not
attend it. It is not suggested that any other member turned up at the
registered office and went away or was prevented from attending the mating held
at 286, Kallukatti East Street, for want of notice. In view of the first
respondent's volte face at the trial and in view of his admission the
appellants did not adduce any oral evidence. In the circumstances, in view of
the pleadings and the admissions made by the first respondent at the trial, it
is quite likely that appellants 1, 2 and 4 assembled at the registered office
for the meeting but the first respondent locked up the premises and made the
registered office not available for the meeting to be held there at 5 p. m. and
did not give them any facilities for holding the meeting and that consequently
they adjourned to 286, Kallukatti East Street, a few yards away and held the
meeting there at 5-15 p.m. and passed the resolutions complained of there at
that meeting to the knowledge of the first respondent. This could reasonably be
presumed under Section 114 of the Evidence Act, having regard to the common
course of natural events, human conduct, and public and private business, in
their relation to the facts of this particular case."
This, it is said, by Mr. Bhashyam, the learned advocate for the
appellant, is not a finding of fact which I should accept; it is a mere surmise
and speculation which should never be regarded as an effective substitute for
proof. I am not prepared to accept the argument. It seems to me rather that
what the learned Judge has recorded in paragraph 16 is an inference of fact
from the admitted circumstances of the case gleanable from the endorsement on
the plaint, the contents of the minutes book and the probabilities of the case.
Accepting this view of the lower appellate court for the purpose of his
argument Mr. Bhashyam urges (1) that the meeting actually held at No. 286,
Kallukatti East Street was not the outcome of an adjournment of a meeting fixed
for one place to another place so that the proceedings at the latter place may
be regarded as a continuation of the meeting initiated earlier at the former
place, and (2) that if on account of the plaintiff's conduct it became
impracticable for the requisitionists to conduct the meeting of the company at
its registered office the proper remedy to be pursued was either to take steps
for a fresh meeting under the Indian Companies Act or to move the court under
Section 79(3) of the Act to order the meeting to be held and conducted in such
manner as the court may think fit. Against the latter contention Mr.
Gopalaswami Aiyangar has urged that Section 79(3) of the Act applies only to
cases where for any reason it is impracticable to call for a meeting of a
company or to conduct it and not to cases in which it is impracticable to hold
it. Learned counsel seeks to make a distinction between the holding of a
meeting which according to him applies to the stage preliminary to the choice
of the chairman and the conducting of a meeting which applies to the stage
thereafter. I am not satisfied that this distinction which is undoubtedly
subtle is at all sound. In my opinion the expression "to conduct" in
the provision of the statute includes the stage prior to the choice of the
chairman, and the impracticability in the conducting of the meeting did none
the less exist in the present case because in the matter of the assembling of
the shareholders at the premises of the registered office there was no
difficulty. The fact that the words "held" and "conducted"
are both to be found used in the provision of the statute in relation to the order
to be made by the court if the impracticability contemplated by it arises,
affords no ground in support of the contention of counsel. It became
impracticable in the circumstances of this case to conduct the meeting of the
company in the registered office. Whatever the reason for it might be,
sub-section (3) of Section 79 says that it would be open for the court either
on its own motion or on the application of any director of the company or of
any member of the company entitled to vote at the meeting to order a meeting of
the company to be called, held and conducted in such manner as the court thinks
fit. The restricted interpretation sought to be put upon the statutory
provision by learned counsel for the respondents must accordingly be repelled.
The contention of the learned counsel for the appellant that there was no
adjournment from the registered office to No. 286, Kallukatti East Street,
arises on the presupposition that the adjournment must be after a regular
meeting is first held with a chairman. Regulation 55 of Table A of the Indian
Companies Act is referred to in this connection. That provides:—
"The Chairman may with the consent of any
meeting at which a quorum is present (and shall if so directed by the meeting),
adjourn the meeting from time to time and from place to place".
It is said that the place of meeting is very important and only the
chairman of the meeting has the privilege of adjourning it. As against this
submission for the appellant Mr. Gopalaswami Aiyangar urges that the right to
adjourn which is expressed through the chairman where one exists is always a
thing inherent in an assembly which can be exercised by it where none exists.
In support of their respective contentions learned counsel on both sides have
relied upon the case in Subramania v. The United India Life Insurance Co. Ltd.,
one relying upon what is to be found at page 400 where a reference is made to
"the power of the meeting to adjourn itself", the ether relying upon
what is to be found said at page 402 with reference to Lord Harwicke, C.J.'s
pronouncement in the case of Stroughton v. Reynolds. In this last case it was
held that the adjournment of a vestry meeting was a common right vested in the
parishioners at large and not in the vicar, unless by law or by custom it was
shown that the vicar himself had power to adjourn the meeting. I am on the
whole of opinion that the reference to “the power of the meeting to adjourn
itself" at page 400 of the report does not involve and imply that there
must in every case be a meeting held under a chairman at one place before an
adjournment can be said to take place by the actual holding and conducting of a
meeting at another place.
In any case I am not satisfied that if there was a violation of law in
the present case by reason of the people assembled at the registered office of
the company moving on to a place hard by and holding their meeting there in
view of the difficulty of the locking up of the registered office with which
they were confronted when they were assembled there, the violation is to be
regarded as anything more than an irregularity. It does not seem to my mind
that the validity of the meeting actually held at No. 286, Kallukatti East
Street, must necessarily and ipso facto be pronounced against in the absence of
any proof that a different result would have necessarily followed on a fresh
meeting.
One other point which has been debated before me is whether by reason of
his conduct in making the premises of the registered office of the company
unavailable for the meeting to be held the plaintiff is precluded from
complaining of the invalidity of the meeting actually held at 286, Kallukatti
East Street. As to this, it is observed by the learned Subordinate Judge in
paragraph 20 of his judgment as follows:
"It is urged for the first respondent that there
is no evidence to show that he was aware of the meeting held at 286, Kallukatti
East Street, or of the resolution passed at that meeting and if notice were
issued for a fresh meeting to all the members it could not be said that the
same result could have followed, i.e., the same resolutions could have been
passed at such a fresh meeting. But it is quite probable on the pleadings and
the admissions of the first respondent that he was aware of the meeting held at
286, Kallukatti East Street, and no fresh notice was necessary therefor and he
could not be allowed to make the registered office unavailable for such a
meeting to be held there and then contend that the consequent change of venue
of the meeting invalidated the meeting and the resolutions passed at the
meeting for want of notice. He came to Court with the case that he was waiting
for the meeting to be held at the registered office at 5 p.m. anxious to
preside at it and take part in it, but nobody came and nothing happened and no
meeting was held that day at all either at 286, Kallukatti East Street, or
anywhere else. But he gave it up as untrue and admitted that a meeting was
actually held at 286, Kallukatti East Street, and the resolutions complained of
were actually passed. It could little avail him to contend that the resolution
was invalid for want of fresh notice of meeting."
In support of the view of the learned Judge thus expressed Mr.
Gopalaswami Aiyangar relies upon a passage in Broom's Legal Maxims, 8th
edition, page 233, and a passage in the judgment in Subramania Aiyar v. The
United India Life Insurance Co. Ltd., In the case in Subramania Aiyar v. The
United India Life Insurance Co. Ltd. the venue of the meeting of the company
had to be changed from its registered office to the Mahajana Saba Hall on
account of the failure of the company to give those facilities which had been
promised by the seventh defendant on behalf of the company. What happened was
that after the seventh defendant had said that the company would give all facilities
for the meeting, as a matter of fact the company proceeded to appoint its own
directors in haste. Having done so, as the learned Judge observes, "……..It
is clear that it refused to give the facilities for the meeting being held in
its office and the other facilities which the policy holders desired; in fact,
it clearly and definitely declined to allow the office to be used for the
purpose of the adjourned meeting. The policy holders therefore selected the
Mahajana Saba Hall. It was the deliberate act of the defendants that caused
this change of venue and Mr. Alladi Krishnaswami Aiyar has argued with great
force that it does not lie in the mouth of any one who has by his own act
prevented something taking place afterwards to take exception to that state of
affairs and to use that state of affairs for his own benefit. I think that that
argument is a perfectly sound one. It seems to me that it would be a travesty
of the law if a person who has deliberately brought about a state of affairs
should be allowed to take exception to that state of affairs and use that
changed state for his own advantage."
The learned Judge then proceeds to discuss the two English cases, New
Zealand Shipping Co. v. Societe des Ateliers et Chantiers de France and Quesnel
Forks Gold Minning Co., Ltd. v. Ward and Others, and winds up thus: "I
think that the defendants cannot be heard to say that the change of venue was
an irregularity such as to make the meeting of the 5th May invalid."
The passage in Broom's Legal Maxims relied upon before me is part of the
discussion of the maxim "nullus commodum capere potest de injuria sua
propria"—No man can take advantage of his own wrong—to be found at pages
191 to 200 of the tenth and latest edition of the work. There the rule and its
limitations are pointed out in a very exhaustive treatment. The maxim which is
based on elementary principles, as is said in that work, is fully recognised in
courts of law and equity and, indeed, admits of illustration from every branch
of legal procedure. It is therefore a sound principle, as observed at page 193
that "he who prevents a thing from being done shall not avail himself of
the non-performance he has occasioned." Then as observed at page 195, the
maxim applies also with peculiar force to that extensive class of cases in
which fraud has been committed by one party to a transaction, and is relied
upon as a defence by the other. It is pointed out at page 197 citing the Latin
maxim "allegans contraria non est audiendus" that "a person who
has expressly made a verbal representation, on the faith of which another has
acted, shall not afterwards be allowed to contradict his former statement, in
order to profit by that conduct which it has induced." Finally, it is said
at page 199: "In Hooper v. Lane, which strikingly illustrates the rule
that 'no man shall take advantage of his own wrong', various instances were put
by Bramwell, B., showing that the rule 'only applies to the extent of undoing
the advantage gained, where that can be done, and not to the extent of taking
away a right previously possessed."
It is argued by Mr. Bhashyam that the case in Subramania Aiyar v. The
United India Life Insurance Co. Ltd. was one in which there was a separate
meeting held in the changed venue after the earlier meeting had become
frustrated, and that therefore it cannot be applied as being of sufficient
parity of facts, to the case on hand. It is urged therefore that except that
his client cannot dispute the necessity for the meeting which came to be
actually held at 5-15 p.m. on 3rd November, 1948, in other premises he is not
estopped from relying upon the invalidity of that meeting in order to
invalidate the resolution passed at it. Mr. Bhashyam also urges that at best
his client's conduct might be a matter for consideration on a question of costs
and would not preclude an argument of the kind which has been advanced by
learned counsel against the validity of the meeting held at door No. 286,
Kallukatti East Street, and of the resolution passed at it, removing his client
from the office of managing director and appointing the first defendant in his
place. I have carefully considered the matter and have come to the conclusion
that the way in which Mr. Bhashyam seeks to get over the point of estoppel is
not sound. The facts with reference to which he distinguishes the case in
Subramania Aiyar v. The United India Life Insurance Co. Ltd. do not in the
least affect the principle which really falls to be applied to this class of
case. There is no reason why that principle which is so fully discussed in
Subramania Aiyar v. The United India Life Insurance Co. Ltd. with reference to
the English cases and which is of very extensive application in a variety of
cases as pointed out in Broom should not be actually held applicable to the
case on hand, as it was held applicable to the case in Subramania Aiyar v. The
United India Life Insurance Co. Ltd. The differentiation attempted by learned counsel between that case and this is on an
accident of fact and not on an essential of legal principle.
In the result the second appeal
fails and is dismissed with costs. No leave.
[1980] 50 COMP. CAS. 611 (KER.)
HIGH COURT OF KERALA
v.
Sree Narayana Dharma Paripalana
Yogam
M.P. MENON, J.
COMPANY PETITION NO.
1 OF 1979
NOVEMBER 23, 1979
C.K.S. Panicker,
P.G.P. Panicker, V. Bhaskara Menon and K.S. Radhakrishnan for the Petitioner.
K. Sukumaran
and K.K. Usha for the Respondent.
M.P. Menon
J.—The Sree Narayana Dharma
Paripalana Yogam (SNDP) is a company formed for the purpose of "promoting
and encouraging religious and secular education and industrious habits
among the Ezhava community and the doing of all such other things as are
incidental or conducive to the attainment of these objects". The
management of the Yogam is vested in the board of directors. The president,
vice president, general secretary and the devaswom secretaries are to be
elected once in three years at the annual general body meeting in accordance
with the subsidiary bye-laws framed under art. 45 of the articles of association.
The general body shall consist of the members of the board of directors,
presidents and secretaries of the various unions and delegates elected from
among the permanent members. Notice for the 75th annual general meeting, to be
convened on 30th December, 1978, was published on December 6, 1978. The agenda
included the passing of the balance-sheet and the profit and loss account for
1977 and the election of the president, vice-president, general secretary,
devaswom secretary and the directors. In this petition filed under ss. 10 and
166 of the Companies Act, 1956, the petitioner, a permanent member of the
yogam, seeks to challenge the validity of the meeting held on December 30,
1978, on the following broad grounds :
(i) The
delegates who attended the meeting were not duly elected by the branches ; the
head office accepted as valid, lists received from the branches beyond the time
specified under art. 44. Discrimination was also practiced in the matter of
entertaining such lists.
(ii) Against
the provisions of art. 15, the nomination of a branch secretary to the director
board was approved at the meeting ;
(iii) About
60 delegates admitted to the meeting belonged to the SNDP Sabha which was once
functioning in the Cochin-Kanayannur Taluk; those who elected them and they
themselves were illegally treated as permanent members ;
(iv) No
information had been given to the members, by proper publication under s. 257,
of the candidature of different persons for the office of director ; and
(v) The uniform practice of preparing and publishing a "voters list" much in advance of the meeting was not followed.
The reliefs claimed are the following :
(i) To
declare that the meeting held on December 30, 1978, is not a duly and validly
convened annual general meeting of the SNDP Yogam, that the election of the
president, vice-president, general secretary and devaswom secretary and
directors purported to have been made in the said meeting is invalid and that
they are not competent to administer and manage the affairs of the SNDP Yogam ;
(ii) To
issue a direction to convene the annual general meeting of the Yogam in
accordance with the provisions contained in the memorandum and articles of
association and to conduct the election to the office of the president, vice-president,
general secretary and devaswom secretary and the directors in accordance with
the provisions therefor ;
(iii) To
restrain the respondents 2 to 7 from functioning as office bearers of the
yogam, and
(iv) To pass such other order that may be
made in the premises as shall be just.
In application No. 30/79, the petitioner sought
permission to file the petition "on behalf of all the members" ; this
was not opposed, and the application was allowed.
Respondents 1 to 3 contend that the petition is not
maintainable and that ss. 10 and 166 do not confer jurisdiction on the company
court to interfere in matters relating to the annual general body meeting of a
company and election of its directors. It is suggested that the remedy of the
petitioner, if any, is to institute a regular civil suit before the appropriate
civil court. No corporate rights are involved, and the petitioner has no right
referable to ss. 10 and 166. Counsel on either side agreed that the question of
maintainability be decided as a preliminary one, and, accordingly, arguments
were heard.
The petitioner's contention is that s. 10 of the
Companies Act, read with s. 2(11), confers exclusive jurisdiction on the
company court "with respect to any matter relating to a company", and
"any matter" includes all matters including annual general meeting
and election of directors, unless jurisdiction over them are expressly taken
away by some other provisions of the Act and vested in other authorities. On
behalf of the respondents, on the other hand, it is contended that ss. 2(11)
and 10 cannot be attracted at all unless power is conferred on the court to
deal with the matter, by some other provisions of the Act.
From the days of Foss v. Harbottle [1843] 2 Hare 461
courts have been showing a distinct disinclination to interfere in the internal
management of a company at the instance of a minority of members dissatisfied
with the conduct of its affairs by the majority. Different reasons are advanced
for this, but they mainly rest on the need to preserve the right of the
majority to decide how the company's affairs should be conducted. Management
functions are best left to those in management with the support of the
majority, and the court's views are not to be imposed on them. The rule has,
however, been stretched further and in some cases at least courts have refused
to remedy wrongs done to the company, unless the grievance is backed by a
majority. The principle is that the company, with a separate legal personality
of its own, can alone complain of legal injuries to it; and any action by a
dissatisfied minority cannot be treated as an action brought by the company. In
this view, the question is one of locus standi. But the two principles of
majority rule and locus standi do not always cover the same ground, and there
are separate exceptions to both. An action by some of the members, notionally
at least in the interest of all, to enforce the rules of conduct governing the
company's affairs is an exception to the first; and an action against a third
person who has wronged the company where the plaintiffs are supposed to be the
champions of the company's interest, is an exception to the second. But in both
the cases, the plaintiffs sue in a representative capacity to enforce what are
called "corporate rights", and not their personal rights. When
reliefs are claimed against third parties, the action is to enforce a claim
belonging to the company and not to the plaintiff or plaintiffs ; the right to
sue is derived from the company, and in that sense, such actions are called
"derivative actions". In these types of cases, judgments are given in
favour of the company and not in favour of the plaintiffs.
As already noticed, there are recognised exceptions
to the rule in Foss v. Harbottle [1843] 2 Hare 461. Even a majority resolution
of the company not to sue may be of no avail against an action by members to
restrain the commission of an ultra vires act, or an action to compel the
directors to compensate the company for loss sustained by such acts. Similarly,
it is open for members to sue for restraining a threatened breach of the
provisions of the memorandum or articles. A member can also seek a declaration
against a resolution altering the memorandum or articles, though passed in
proper form, on the ground that it is not in good faith for the benefit of the
members as a whole. Again where a resolution is passed by a general meeting,
when it should have been passed as a special or extraordinary resolution, its
validity can likewise be challenged by the members. A representative action to
restrain the company from doing an act contrary to the provisions of the
Companies Act, or the general law, or from giving effect to an invalid decision
of the general meeting, is also permissible. At the root of the above exceptions
lies either a question of vires or contract, and the remedy is mostly to
prevent a threatened act, and not to get undone something improperly done.
Apart from corporate rights which are but rights to
get remedied wrongs done to a company, a member has also personal rights to sue
for wrongs done to himself in his capacity as a member. These individual rights
stem partly from contract, express or implied, and partly from the general law.
A contract is implied between a company and a member who joins it. And this
gives him the right to have his name properly entered in the register of
members with all correct particulars, to vote at meetings of members, to
receive dividends and to have his capital returned to him in whole or in part,
in the event of winding up ; and he can, therefore, sue for enforcing these
rights. Under the general law, he has an individual right to restrain the
company from doing ultra vires acts, to have a reasonable opportunity of
attending and speaking at meetings, to move amendments at such meetings, to
transfer his shares and not to have his financial obligations to the company
increased without his consent. The Companies Act also gives him some personal
rights such as rights to inspect documents, to get a share certificate issued
and to appoint proxy at meetings. The Act, however, confers on him no general
right to have all the provisions of the memorandum or articles duly observed,
or to initiate action for violation of all the obligations the statute imposes
on the company.
But the "action" referred to above, whether
for vindicating corporate rights or personal, whether representative or
individual, cannot be confused with initiation of proceedings before the
company court in all such matters. The course of case law seems to be that except
in cases where the Companies Act confers jurisdiction on the company court or
some other authority, either expressly or by necessary implication, all other
disputes pertaining to a company are to be resolved through the forum of the
civil courts, when such disputes are capable of being resolved by them.
Questions sometimes arise whether the provisions of the Act conferring power on
the company court (or any other authority) to adjudicate certain matters oust
the jurisdiction of the civil courts in respect of those matters ; and they
have to be separately dealt with, with specific reference to the statutory
provisions involved, as and when occasions arise. But it is quite a different
thing to contend, as the petitioner does here, that every dispute pertaining to
a matter touched by the Companies Act is to be adjudicated by the company
court. Stated generally, the Companies Act only supplements the minority
shareholders' power to protect their interests by bringing personal,
representative or derivative actions; the interests or the rights themselves
are often not its creation. Minority shareholders are given a special remedy
against oppression under s. 397 and s. 398 provides for relief against
mismanagement. The forum in these two instances is the company court; but it is
significant that under s. 408, the Central Govt. is also given power to grant
relief of a limited nature, on the application of a specified group of
shareholders, in cases of oppression and mismanagement. The Act also permits
minority shareholders to enforce certain claims of the. company, free from the
restrictions of Foss v. Harbottle [1843] 2 Hare 461, in the event of winding
up; and s. 542 (fraudulent trading) and s. 543 (misfeasance) are instances
where contributories can approach the company court for relief. Section 107 is
another instance where dissentient shareholders can complain against variation
of a class of shares. And there are also provisions, like those in s. 235,
where members can apply to the Central Govt, for appointment of inspectors to
investigate the affairs of a company. Personal rights are also recognised by
provisions like those in s. 155 and s. 163(2). Under the former, any member
"may apply to the court" for rectification of the register of
members, and under sub-s. (6) of s. 163 the court is empowered to enforce the
rights recognised by sub-s. (2). But what about other rights in respect of
which remedy by way of resort to the company court is not provided for?
Section 10 of the Act only attempts to enumerate or
specify "the court having jurisdiction under this Act" where such
jurisdiction is conferred on a court by the other provisions of the Act. Powers
are conferred by the Act not only on courts, but also on other authorities like
the Central Govt., the Company Law Board, and the Registrar ; and where a power
is vested in a court, that court has to be specified. Beyond so specifying the
court competent to deal with a matter arising under the Act, s. 10 does not
purport to invest the company court with jurisdiction over every matter arising
under the Act. It may be that, in view of the elaborate provisions contained in
the 1956 Act in regard to the management and the conduct of a company's affairs
including even important internal matters of administration, the scope for
interference by civil court has become more limited, but the power has not at
all been taken away. Every suit for redress of individual wrongs cannot be
considered as merely concerned with matters of internal management, so as to
attract the rule in Foss v. Harbottle [1843] 2 Hare 461. This court had
occasion to consider in Joseph v. Jos [1964] 34 Comp Cas 931, whether a suit
would lie to declare the election of certain directors at a company meeting as
null and void ; and Mathew J. (as he then was), held that it would. Foss v.
Harbottle [1843] 2 Hare 461 was referred to, as also the distinction between
corporate rights and individual rights of members, and it was observed that
where a wrong is done to an individual member, he could insist by recourse to a
civil suit, 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".
Section 166 imposes a duty on the company to hold
annual general meetings in accordance with the prescriptions therein. There
should be a special notice for such a meeting. The interval between two annual
general meetings shall not exceed fifteen months. The meeting should be called
during business hours, at the registered office, or at some other place within
the city, town or village. It shall not be held on a public holiday. And if
default is committed in holding a meeting "in accordance with s.
166", the Central Govt. is empowered under s. 167 to call such a meeting
or direct such calling. Section 168 provides for punishment where the
requirements of s. 166 or a direction under s. 167 are not complied with. The
power of Central Govt. under s. 167 is to be exercised on the application of
"any member", and that apparently shows that every member has a right
to insist that the annual general body meeting should be held in accordance
with s. 166. If the meeting is held on a holiday, or at a place far away from
the registered office or without due special notice, the Central Govt. can
possibly interfere. But what is to be particularly noticed is that the member
can complain to the Central Govt. alone, and not to the company court. The
company and its officers can be fined under s. 168 for breach of s. 166 or of a
direction under s. 167; but where a meeting is called with due notice, in
proper time and at the proper place, and the proceedings are still held in
violation of the articles or of other legal provisions, such violations are not
matters even the Central Govt. could rectify. Section 186 empowers the Company
Law Board, on the application of a director or member or even suo motu, to
order a meeting (other than an annual general meeting) of the company to be
called, if certain conditions exist. The statutory scheme is thus to bring into
the picture the Central Govt. in the case of annual general meetings and the
Company Law Board in the case of others ; and even these two come in under
limited circumstances and for exercising limited powers. The court defined in
s. 10 does not come into the picture at all.
Considerable reliance was placed on behalf of the
petitioner on British India Corporation v. Robert Menzies [1936] 6 Comp Cas 250
; AIR 1936 All 568, to contend that where a law requires something to be done,
there must exist a court that can order it to be done, that where there is a
right there should be a remedy, and that, in the absence of other provisions,
s. 166 read with s. 10 should be construed as conferring an "inherent
power" on the court to entertain a complaint of this type and grant
relief. The provisions of s. 166 have already been seen, and it has also been
noticed that for non-compliance with the requirements, the forum for complaint
is the Central Govt. Where Parliament has addressed itself to the question of
prescribing the minimum requirements for an annual general meeting and has also
specified the Central Govt. as the authority competent to interfere when such
requirements are not satisfied, it is idle to contend that the company court
should still be able to exercise power over the same matter, or matters
ancillary or residuary, on the principle that a court should be found wherever
an injury exists. The broad propositions laid down in British India
Corporation's case [1936] 6 Comp Cas 250 (All) did not find favour with the
Madras High Court in Sree Krishna Jute Mills v. Krishna Rao [1947] 17 Comp Cas
63; AIR 1947 Mad 322, and I have not been referred to a single case where the
company court has actually interfered in such matters.
In Star Tile Works v. N. Govindan, AIR 1959 Ker 254,
a Division Bench of this court referred with approval to Sree Krishna Jute
Mills' case [1947] 17 Comp Cas 63 ; AIR 1947 Mad 322, and held that the company
court has no exclusive jurisdiction in all company matters. The decision arose
from a suit for a declaration that the proceedings of the annual general body
meeting of the Star Tile Works was void, illegal and ultra vires. One of the
questions agitated in second appeal was whether the civil court had
jurisdiction to entertain such a suit, and the contention was that the company
court alone could deal with such a matter in view of s. 2(11) and s. 10. This
contention was overruled and it was observed (p. 264, para. 49):
"...what is asked for in the plaint is that
certain proceedings evidenced by certain resolutions purported to have been
passed at the meeting of 22-7-1957 have not been validly passed and are not
binding on the company or the shareholders. That such a relief can be obtained
in the civil court and that by shareholders like the plaintiffs have been held
in a number of decided cases."
This decision seems to be on all fours with the facts
of the present case, and I am bound by it.
Counsel pointed out that the above view did not find
favour with the Madhya Pradesh High Court in Nava Samaj Ltd. v. Civil Judge,
AIR 1966 MP 286, where Dixit C.J., after extracting ss. 2(11) and 10, observed
(p. 290, para. 7, col. 1):
"The plain effect of the above provisions is
that the power and jurisdiction to deal with such matters as are covered by the
Act itself has been given to the courts specified in s. 10(1) with respect to
any matter relating to a company, other than an offence against the Act . . . .
. The courts nominated under the Act have exclusive jurisdiction to take
cognisance of the matters covered by the Companies Act. This follows from the
well-settled principle that where a particular court is specified or a special
tribunal is created, by or under authority of an Act of Legislature, for the
purpose of determining questions as to rights which are the creation of the
Act, then the jurisdiction of that court or tribunal is, unless otherwise
provided, exclusive."
But the other learned judge on the Division Bench was
not prepared to go to that extent, and said (p. 293, para. 16):
"As I read the definition of "the
court" in cl. (a) of s. 2(11) of the Act (the one in cl. (b) not being
material for this case), it merely enacts that, for determining the court competent
to deal with any matter relating to a company (other than an offence against
the Act), one must refer to s. 10 of the Act for ascertaining which court has
jurisdiction under that Act with respect to that matter relating to that
company. The reason for this is obvious from the provisions of s. 10. Where the
jurisdiction in regard to the particular matter under consideration has been
conferred on District Courts under sub-s. (2) of s. 10, the District Court
within whose territorial jurisdiction the registered office of the company is
situate will be the court having jurisdiction to deal with that matter. Again,
as provided by sub-section (3) of s. 10, the jurisdiction to wind up a company
will be in that High Court or District Court, as the case may be, within whose
territorial jurisdiction its registered office remained located for the longest
period during the six months immediately preceding the presentation of the
winding-up petition. In my opinion, s. 10 of the Act merely specifies the
courts, which have jurisdiction to adjudicate upon the various matters required
by the provisions of the Act to be dealt with by ' the court'."
Section 2(11), in so far as it is relevant, reads :
"(11) 'the court' means,—
(a) with respect to any matter relating to a company
(other than any offence against this Act), the court having jurisdiction under
this Act with respect to that matter relating to that company, as provided in
section 10."
It appears to me that what the above definition
clause does is to indicate that wherever other provisions of the Act contain
the term "the court" with respect to any matter relating to a
company, that has to be understood as the court having jurisdiction under s. 10
with respect to that matter. And s. 10, dealing with "jurisdiction of
courts" lays down that the High Court of the territory where the
registered office of the company is situate is to have jurisdiction over all
matters except to the extent such jurisdiction has been conferred by
notification on District Courts. Take, for example, s. 107. This section
provides that dissentient shareholders "may apply to the court" to
have the variation cancelled. The shareholders concerned will have to find out
which court they should resort to. It may be the High Court of one State or of
another, depending upon where the head office of the company is situated. It
may be the District Court of one place or another, again depending upon the
notifications issued under s. 19(2). The purpose of s. 2(11) read with s. 10 is
only to enable the shareholders to decide as to which court they should
approach for remedy, in respect of that particular matter. It is difficult to
construe the definition clause as one conferring jurisdiction, exclusive or
otherwise; and even s. 10 refers only to "the court having jurisdiction
under this Act", i.e., where such jurisdiction is conferred by the Act, as
under ss. 107, 155, 163(2), 237, 397, 425, etc. In other words, the conferment
of jurisdiction on "the court" is not under s. 10, but by other provisions
of the Act like those enumerated above. If, on the other hand, ss. 2(11) and 10
are construed as not only nominating the courts, but also conferring exclusive
jurisdiction on them, the specific provisions in the other sections conferring
jurisdiction on the court to deal with the matters covered by them will become
redundant. It may be that where the Act specifies the company court as the
forum for complaint in respect of a particular matter, the jurisdiction of the
civil court would stand ousted to that extent. This depends, as already
noticed, on the language of the particular provisions (like ss. 107, 155, 397
and others) and not on ss. 2(11) and 10. For instance, there are decisions to
the effect that the concurrent jurisdiction of the civil courts to rectify share
registers is not affected by s. 155 which confers power on the company court
over the same matter.
Dealing with an identical contention based on s.
2(11) and s. 10, the High Court of Punjab and Haryana held in Panipat Woollen
and General Mills Co. Ltd. v. Kaushik [1969] 39 Comp Cas 249, 253 :
"These provisions and the notification only
point out that the matters relating to a company and mentioned in the Act will
either be tried by the High Court or in certain cases by the district courts.
These provisions, however, do not show that the jurisdiction of the civil
courts had been expressly barred."
The same view was expressed by another learned judge
of the same court in Niranjan Singh v. EGPW Association [1977] 47 Comp Cas 285
; and in Ravinder Kumar Jain v. Punjab
Registered (Iron and Steel) Stockholders Association Ltd. [1978] 48 Comp
Cas 401, the same court again held that a petition under ss. 166 and 171 would
not lie before the company court for a declaration that the meeting of a
company was illegal and void.
The grievance of the petitioner, as can be gathered
from the grounds noticed earlier, is that the annual general body meeting held
on December 30, 1978, was not strictly in accordance with the provisions of the
articles of association and certain provisions of the Act itself. This pertains
to the realm of individual rights of alleged wrongs done to individual members,
and not to the realm of corporate rights, notwithstanding the representative
character acquired by reason of the order in Application No. 30/79. As held in
Joseph's case [1964] 34 Comp Cas 931 (Ker.), he could possibly insist on strict
observance of the relevant provisions by recourse to a civil suit. In any
event, the company court is not invested with jurisdiction, much less exclusive
jurisdiction, to grant relief in a matter like this.
The request for return of the petition under O. 7, r.
10, CPC, read with r. 6 of the Companies (Court) Rules, 1959, also seems to be
inadmissible in view of the fact that there is no "plaint" to be dealt
with under r. 10 or r. 10A.
The company petition is accordingly dismissed, leaving the parties to bear their own costs.
[1967 37 COMP. CAS. 720 (CAL)
Coal Marketing Co of India (P.)
Ltd., In Re
P
B MUKHARJI, J.
COMPANY
PETITION NO. 254 OF 1966
MARCH
21, 1967
JUDGMENT
The important
question for determination on this application is, how far the court can call,
hold, conduct or control annual general meetings of the companies, beyond the time
appointed by the Companies Act. I have come to the conclusion that the courts
have no such power under the present law in India.
This is an
application under section 633(2) of the Companies Act, 1956, for an order that
upon the undertaking of the petitioners to hold the annual general meetings of
the Coal Marketing Company of India Private Limited which ought to have been
held on the 12th February, 1961, 12th February, 1962, 12th February, 1963, 12th
February, 1964, 12th February, 1965 and the 31st January, 1966, within six
months from the date of the order the petitioners be relieved wholly from their
liabilities for not holding such annual general meetings. The present
application also seeks to relieve the petitioners for not filing balance-sheets
and profit and loss accounts for the years ending on the 30th June, 1961, 30th
June, 1962, 30th June, 1963, 30th June, 1964 and 30th June, 1965. The
application in presented by Charu Chandra Chatterjee, Balchand Mundra and
Lahoriram Parasar, who described themselves as directors of the Coal Marketing
Company of India Private Limited.
This is an
extraordinary application. To come forward with an application to hold six
annual meetings of 1960, 1961, 1962, 1963, 1964 and 1965, not held at all so
far and to hold them all in 1967 is to make a farce of company law and company
management. How can there be annual general meetings any more of those years?
This is really an application to convert statutory annual general meetings
which must be held annually under the Companies Act into quinquennial meetings,
unknown under the Companies Act. The matter has a history which must be set out
first before proceeding to discuss the law.
The company
was incorporated on or about the 29th July, 1951. From 1963 attempts like the
present have been going on. On the 23rd December, 1963, there was an order of
B. C. Mitra J. relieving the then directors of the company from liability for
not holding the annual general meetings of 1961 and 1962 and for not filing
balance-sheets and profit and loss accounts for 1961, 1962 and 1963 on the
directors' undertaking to do the said acts within six months. The undertaking
was violated by the directors. Although the undertaking expired on the 23rd
June, 1963, the directors did not hold the annual general meetings in terms of
their undertaking to the court. A second attempt was again made and these very
directors obtained another similar order from B. C. Mitra J. for the second
time on the 20th July, 1964, relieving them again from liability for not
holding annual general meetings of 1961, 1962 and 1963 and for not filing
annual returns of 1961, 1962, 1963, and 1964 and balance-sheets and profit and
loss account of 1961, 1962, 1963 and 1964 again upon these directors
undertaking to do the said acts within six months. The directors for the second
time violated this undertaking. This undertaking expired on or about the 20th
January, 1965. No step was taken within that time to hold the annual general
meetings or to file annual returns or the balance-sheets or the profit and loss
accounts. Again these directors for the third time came to this court and
obtained a similar order from A. K.Mukherjee J., relieving the directors from
liability for not holding these annual general meetings, for not filing these balance-
sheets and for not filing the annual returns on the directors, again
undertaking to do the said act within six months. It is extraordinary how the
petitioners describing themselves as the directors could come repeatedly before
this court and get repeatedly such orders from this court in spite of their
repeated violations of solemn undertakings to the court. These orders are not
only irregular, but illegal and beyond the powers and jurisdiction of this
court. The result has been really deplorable.
Now this is
the fourth attempt before me to ask for a similar order. I protest against the
use made of this court in this manner. I shall state briefly the reasons for my
protest and for refusing this application.
In the first
place it is put forward as a ground that because the company's auditors, George
Read and Company, could not complete their job and that their senior partner
died, therefore the meetings could not be held, the annual returns,
balance-sheets, and profit and loss account could not be filed. This ground is
attempted to be supported by a letter from George Read and Company, dated 12th
October, 1965. But then that can be no ground for not holding annual general
meetings or filing balance-sheets or profit and loss accounts or annual returns
in 1961, 1962, 1963 and 1964, long before his death. The death of the senior
partner of George Read and Company in 1965 could not obviously be a reason for
such non-observance of the mandates of the statute; nor could it be a ground
for violating solemn undertakings by these petitioners to this court both under
orders dated 23rd December, 1963, and 20th July, 1964, a year and two years
before the death of the senior partner of George Read and Company.
The second
ground put forward by the applicants is that one Mr. B. Mukherjee, Chartered
Accountant of Messrs N. Sarkar and Company, internal auditors, was supposed to
approach this company for appointment as auditor of the company but again Mr.
B. Mukherjee died. All this was happening on the 12th October, 1965, and 13th
June, 1966. On that date viz., on the 13th June, 1966 one Mr. Ajit Kumar Ghosh,
Chartered Accountant was appointed auditor of the company in place of George
Read and Company. On those facts I consider that the excuse put forward on the
ground of change of auditors or death of auditors is absolutely frivolous and
does not explain non-compliance with the statutory requirements from 1961 to
1964.
Thirdly, it
has been suggested that these annual general meetings could not be held and the
balance-sheets and annual returns could not be filed because the books of
account and other papers of the company were lying in different suits and
proceedings. That also is an utterly frivolous plea. The Registrar of Joint
Stock Companies points out in paragraph 9 of the affidavit of Jethalal Gopaldas
Gatha, Additional Registrar of Companies, West Bengal, that in the Company
Petition No.93 of 1965 heard on the 18th August, 1965, it was stated by this
very applicant, Charu Chandra Chatterjee, on oath before the court of A. K.
Mukherjee J., that the company had got back all the necessary books of account
and documents and further undertook to the court on behalf of himself and the
other directors to file the documents within six months from that date. On that
undertaking he got the relief order dated 12th May, 1965, for the third time.
The excuse is
clearly false also from another point of view. If there was any genuine
difficulty in holding the annual general meetings, filing balance-sheets,
profit and loss accounts and annual returns, then one would expect that the
company and its directors would come before the time and take necessary steps.
A mere glance at the dates will make the point quite clear. After the third
order made on the 12th May, 1965, on the undertaking of these directors to
complete these acts within six months from that date and which expired on the
12th November, 1965, these directors took no steps whatsoever to make either
this application or any other application. They flouted this court's order and
they violated their own undertaking. They did not move the court or any other
authority under the Companies Act, from 12th May, 1965, until the present
application on the 19th December, 1966, which is about a year and a half after
the violation of the undertaking and non-compliance with the order of the
court. I cannot help coming to the conclusion that the company and its
directors have bluffed this court and have repeatedly taken time and have done
nothing.
Indeed, the
Registrar of Companies applied to the Chief Presidency Magistrate, Calcutta, on
the 30th November, 1966, who fined each director of the company Rs.200 for not
filing annual return on January 31, 1966, and for not holding annual general
meeting on 31st December, 1965, and for not filing profit and loss account for
1965 on January 31, 1966. The fine was paid by each director of the company.
Monied directors always flaunt their monies and pay the fine without the least
compunction because the fines are mostly paid out of company's funds in some
shape or other. Fines unless exemplary have little or no deterrent effect to
tone up the present company administration. The idea is growing fast today that
all that the Companies Act does, to punish the recalcitrant directors, who
flagrantly commit breaches of the Companies Act, disobey their own undertakings
to the court repeatedly and who violate orders of the court, is to let them off
on payment of paltry fines and permit them to be easily relieved of their
statutory liabilities and obligations. This is really a travesty of law and
justice.
The power to
grant relief which this court has under section 633(1) and (2) is a
discretionary power. It should be exercised only where the court is satisfied
that the defaulting director has acted honestly and reasonably and that, having
regard to all the circumstances of the case, he ought fairly to be excused. It
is then only that the court may relieve him either wholly or partly from his
liability on such terms as it thinks fit. This satisfaction is not a mere ritual.
It is not met by a mechanical averment in the petition or affidavit. This
satisfaction must be reached after a serious and careful consideration of the
whole question that the director "acted honestly and reasonably and that
having regard to all the circumstances of the case he ought fairly to be
excused." That is the language of section 633(1) which applies to any
pending proceeding for negligence, default, breach of duty, misfeasance or
breach of trust against an officer of a company, which includes directors. It
is under sub-section (2) of section 633 that this application is brought and
that sub-section (2) deals with a case not pending but "where any such
officer has reason to apprehend that any proceeding will or might be brought
against him in respect of negligence, default, breach of duty, misfeasance or
breach of trust." On that apprehension that officer is allowed to apply to
the High Court for relief. The High Court's power to relieve on such
application is the same as it would have if this High Court was the court
before which a proceeding against that officer for negligence, default, breach
of duty, misfeasance or breach of trust had been brought under sub-section (1).
The word
"relieve" in both the sub-sections (1) and (2) of section 633 of the
Companies Act does not in my interpretation include power to extend the time to
hold five successive annual general meetings not held in their respective years
but to hold them all subsequently in the 6th or 7th year. The power under
section 633 is a power to relieve from liability. The expression "relieve
from liability" appears in sub- section (1) and the word
"relieve" in sub-section (2) must be read in that context, specially
when it refers to the court before which a proceeding for such negligence,
default, breach of duty, misfeasance or breach of trust could be brought under
sub-section (1). Relief from liability in this context means relief from the
consequences, namely, fines and penalties, that follow under section 168 of the
Act from the negligence, default, breach of duty, misfeasance or breach of
trust. Relief from liability cannot mean power to suspend operation of the
Companies Act, directing holding of annual general meetings or filing annual
returns, balance-sheets and profit and loss accounts. It cannot be
overemphasised that the words of section 633 of the Companies Act are confined
to relieve "officers" of the company from fines and penalties, and
not the company from calling, holding or conducting annual or even other meetings
of the companies according to this statute and suspending the operation of the
relevant sections of the Companies Act in respect of such meeting and extend
such time. I, therefore, hold that on a proper interpretation of section 633(2)
of the Companies Act this court has no power by way of relief from liability
for the default mentioned therein to extend the time for holding the annual
general meetings, to file statutory annual returns or balance-sheets or profit
and loss accounts.
In any event,
this power of relief is discretionary. I am satisfied on the facts on records
of the directors who are the present applicants before me that no discretion
should be exercised in their favour. In any event, they cannot be granted the
relief which they are now seeking under section 633(2) of the Companies Act to
obtain permission to hold the annual general meetings of 1961, 1962, 1963, 1964
and 1965 in the year 1967.
I am inclined
to accept the views expressed by Shelat J. in In re Tolaram Jalan (In re
Filmistan Private Ltd.) [1959] 29 Comp. Cas.34; A.I.R.1959 Bom.245, on the
point that a petition under sub-section (2) of section 633 of the Companies Act
is for relief against liabilities for fines or penalties to file balance-sheets
and auditor's report, as was the case there, and not for extending the time for
(a) holding annual general meetings, (b) filing annual returns and (c) balance-
sheets after so many years.
It will be
appropriate at this stage to review certain relevant sections of the Companies
Act on the annual general meeting of companies. Section 166 of the Companies
Act demands that every company shall in each year hold, in addition to any
other meetings, a general meeting as its annual general meeting and shall
specify the meeting as such in the notices calling it and not more than fifteen
months shall elapse between the date of one annual general meeting of a company
and that of the next. There are only two provisos under that section, the
proviso permitting a company to hold its first annual general meeting within a
period of not more than 18 months from the date of its incorporation and if
such general meeting is held within that period, it shall not be necessary for
the company to hold any annual general meeting in the year of its incorporation
or in the following year. The other proviso permits the Registrar for any
special reasons to extend the time within which any annual general meeting (not
being the first annual general meeting) shall be held, by a period not
exceeding three months. It is also provided by that section that the first
annual general meeting shall be held within 18 months of the company's
incorporation and that the next annual general meeting of the company shall be
held by it within 9 months after the expiry of the financial year in which the
first annual general meeting was held and thereafter the annual general meeting
shall be held by the company within 9 months after the expiry of each financial
year. This is followed by a proviso permitting the Registrar for any special
reason to extend the time within which the annual general meeting (not being
the first annual general meeting) shall be held by a further period not
exceeding six months. It is also provided in that section that except in the
cases referred to in the proviso which is immediately mentioned, not more than
fifteen months shall elapse between the date of one annual general meeting and
that of the next.
The above is a
fair summary of the provisions of section 166(1) of the Companies Act. It shows
the anxiety of the statute to direct that the annual general meeting is a
meeting of a very special character and it must be held within the time
mentioned in the statute and the only permissible extension is the extension
expressly recognised in the statute and in the provisos just mentioned. The
present application does not come within the time limit or the exemption
provided in the statute, and is plainly beyond them.
The only other
provision is in section 166(2) of the Companies Act which by way of proviso
says: "Provided that the Central Government may exempt any class of
companies from the provisions of this sub-section subject to such conditions as
it may impose." This much is clear that the present application seeking
court's permission to hold past years annual general meetings in the 7th or 8th
year is not covered by section 166(1); nor is it covered by any exemptions with
regard to such time which can only be granted by the Registrar under the
proviso to sub- clause (a) or sub-clause (c) of section 166(1) of the Act, or
by the Central Government under section 166(2) of the Act.
The other
difficulty in the way of the present application is section 167 of the Act
which gives power to the Central Government to call an annual general meeting
in case of a default. That section in substance provides that, if default is
made in holding the annual general meeting in accordance with section 166, the
Central Government may, notwithstanding anything in this Act or in the articles
of the company, on the application of any member of the company, call, or
direct the calling of, a general meeting of the company and give such ancillary
or consequential directions as the Central Government thinks expedient in
relation to the calling, holding and conducting of the meeting. It is provided
there that a general meeting held in pursuance of section 167(1) shall, subject
to any directions of the Central Government, be deemed to be an annual general
meeting of the company under section 167(2) of the Act. This, therefore, is a
clear statutory recognition of what should be done in case there is any default
in holding the annual general meeting within the time required by the statute.
Two things are clear. First, the default can be excused under section 167 of
the Companies Act. Secondly, it can also be excused by the Central Government
which alone has the power under this section to permit calling of such a
meeting, notwithstanding anything contained in the Companies Act. That, in my
judgment, excludes the court's power to extend the time to hold the annual
general meeting for which all statutory time has expired.
If these two
sections are read with section 186 of the Companies Act, the legal position
seems to be quite clear. Section 186 of the Companies Act provides for power of
the court to order a meeting to be called. It is provided there in that section
that if for any reason it is impracticable to call a meeting of the company,
"other than an annual general meeting, in any manner in which meetings of
the company may be called, or to hold or conduct 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 even modifying the operation of the
Act and the company's articles in respect of calling, holding and conducting of
the meeting. Such meeting so called, held and conducted in accordance with any
such order shall, for all purposes, be deemed to be a meeting of the company
duly called held and conducted. The crucial words are "other than an
annual general meeting," in section 186(1) of the Act. This expression
makes it quite clear that Parliament did not want this court to exercise any
power with regard to annual general meeting but granted this power to the court
to order meeting in respect of meetings other than the annual general meeting.
This is express statutory exclusion of annual general meeting from the court's
power to order meetings. The annual general meeting therefore, in case of
default, can only be called by either the directions of the Registrar within
the meaning of the exemption under section 166(1) of the Companies Act or by
the Central Government under section 167 of the Act. I am, therefore,
disinclined to so interpret section 633 of the Companies Act, and sub-section
(2) thereof as to whittle down the clear prohibition upon the court to grant
any extension of time with regard to calling, holding and conducting of an
annual general meeting. I wish to emphasise again that the language of section
633 of the Companies Act is confined to relieve an "officer" of the
company, and not intended to relieve the company from holding its annual
general meetings and suspend the operation of the relevant mandatory provisions
of the Companies Act and extend time to hold annual general meetings. The
analogy of the English law is misleading on this point.
In the 12th
edition of Buckley on the Companies Act, the learned editors at page 319,
commenting on section 131 of the English Companies Act, 1948, state:
"By
section 112(3) of the 1929 Act, the court was for the first time empowered to
convene a meeting in the event of default to hold an annual meeting. This
marked a departure from the principle established under the Acts previously in
force that, since the court would not interfere with the internal management of
companies, it would not convene, or direct the convening of, a meeting for
general purposes, even if it had jurisdiction to do so. The power to convene a
meeting under this section is now transferred from the court to the board of
trade, upon whom a number of ancillary powers are also now conferred."
But even then
section 131(3) of the English Companies Act, 1948, expressly provides that
"where a meeting so held is not held in the year in which the default in
holding the company's annual general meeting occurred, the meeting so held
shall not be treated as the annual general meeting for the year in which it is
held unless at that meeting the company resolves that it shall be so
treated."
Palmer's Company
Law, 20th edition, at page 129 speaks of these provisions under section 131 or
135 of the English Companies Act, 1948, as procedures to break the deadlock. No
doubt they are provisions to resolve the deadlock. But the provisions being
statutory and the company being a creature of the statute, the deadlock must be
resolved only according to the procedure prescribed by the statute and not
otherwise.
The English
provision in section 135 of the English Companies Act, 1948, providing for the power
of the court to order meetings is very different from section 196 of the Indian
Act which expressly excludes annual general meetings. But even then such
provisions as section 135 of the English Act of 1948, and section 186 of the
Indian Companies Act, 1956, require that there must be reason to hold that it
is impracticable to call a meeting of the company in a manner prescribed by the
Act or the articles. I am entirely satisfied on the records and facts of this
case that nothing satisfactory has been shown to me why it was impracticable
for this company to hold its annual general meetings in 1961, 1962, 1963, 1964
and 1965 and to file the statutory returns, profit and loss accounts and
balance-sheets in respect of those years. It follows, therefore, that even if I
had the power, which I hold I have not, I would not exercise that power in
favour of the applicants.
It is
unnecessary for me here to discuss the conflict of views between In re Tolaram
Jalan (In re Filmistan Private Ltd. [1959] 29 Comp. Cas. 34; A.I.R.1959
Bom.245.) and Thakur Dan Singh Bist v. Registrar of Companies [1960] 30 Comp.
Cas.405. or such other decisions as Ram Krishan Dalmia v. Registrar, Joint
Stock Companies [1962] 32 Comp. Cas.341. and Benarsi Dass v. Registrar of
Companies [1963] 33 Comp. Cas. 163.
Mr. Ray
Chowdhury, learned counsel for the petitioners, realised the difficulties in
the way of his clients. He, therefore, submitted that this court should treat
this application as an application to get relief from fines and penalties, on
the line of the application in In re Tolaram Jalan (In re Filmistan Private
Ltd.[1959] 29 Comp. Cas. 34; A.I.R.1959 Bom.245). I am afraid I really cannot
treat this application as such. It is an entirely different application with
different reliefs and prayers. It is an application which openly and expressly
seeks for extension of time to hold annual general meetings, file
balance-sheets and profit and loss accounts and other statutory returns after
several years have elapsed. The penalty for default in complying with sections
166 and 167 of the Companies Act, as provided in section 168 of the Act, is
inter alia that every officer of the company who is in default shall be
punishable with fine which may extend to Rs. 5,000 and, in case of continuing default,
with a further fine which may extend to Rs. 250 for every day after the first
during which such default continues. The heavy fine indicated in section 168
shows that, while the statute does not go to the length of saying that this
default would lead to extinction of the company, it does indicate the severity
in penalising the defaulter to the extent mentioned therein. At the Bar,
learned counsel made an interesting reference to a very old decision of this
court under the old Companies Act, viz., In re Brahmanbaria Loan Company
Limited, [1934] 4 Comp. Cas.282; I.L.R. 61 Cal.408 decided by Buckland J. In
dealing with section 76 of the Indian Companies Act of 1913, the learned judge
came to the conclusion that the section was not intended to enable the court to
make an order which will excuse persons responsible for failure to call a
general meeting from the consequences of their omission and the terms of that
section 76 of the Indian Companies Act, 1913, were mandatory and made no
reference to the balance-sheets, the preparation of which has nothing to do
with the matter. See the observation of Buckland J., at pages 410 and 411. It
will not be necessary to refer to that decision any more because the Act has
changed. It would also not be necessary in this context to refer to the English
decision in In re El Sombrero Limited. [1958] 28 Comp. Cas. 619; [1958] 3 All
E.R.1.
Finally it was
submitted by Mr. Ray Chowdhury, learned counsel for the applicants, that under
rule 7 of the Companies Rules, the court has power to enlarge or abridge time
in any case in which it shall deem fit. In the first place, I do not consider
it to be a case at all fit in which I shall enlarge the time. The matter,
therefore, ends there. In the second place, this power of the court to enlarge
or abridge the time is only confined to the time appointed by this rule or
fixed by an order of the court for doing any act or taking any proceeding. If
the statute and the interpretation of its relevant section show that the court,
itself has no power to extend the time for holding the annual general meeting,
this question does not arise and such an order of the court will then not only
be irregular and outside the court's jurisdiction but illegal being against the
statute.
Mr. Ray
Chowdhury's submission that I should treat this application as an application
to relieve the petitioners of any possible fine that might be imposed in a
possible future proceeding that might be brought does not appeal to me in the
facts of the case. I have already discussed this point. I shall only conclude
by saying that the fine has already been paid by the directors on or about 30th
November, 1966, on the Registrar's complaint to the Chief Presidency Magistrate
for not filing the annual return on 31st January, 1966, and for not holding the
annual general meeting on 31st December, 1965, and for filing profit and loss
account of 1965 on 31st January, 1966. The last of the fines was therefore
paid. I do not see why I should now treat this application as an application to
relieve fines that might be imposed for defaults prior to the defaults
mentioned in the order for fine which is mentioned.
I consider
this application to be devoid of all the merits and frivolous. I, therefore,
dismiss it with costs.
Certified for
counsel.
[1978]
48 COMP. CAS. 401 (P&H)
v.
Punjab Registered (Iron and Steel)
Stockholders Association Ltd.
S. SANDHAWALIA J.
COMPANY PETITION NO. 212 OF 1977.
JANUARY 12, 1978
D.R.
Nanda with S.P. Jain for the petitioner.
Bhagirath
Dass and G.S. Chawla for the Respondents.
Sandhawalia
J.—Ravinder
Kumar Jain, petitioner, has moved this petition under section 166 read with
section 171 of the Companies Act, against the Punjab Registered (Iron and Steel)
Stockholders Association Ltd., to seek the primary relief that the meeting of
the respondent-company held on the 28th September, 1977, be declared illegal
and void. The petition is primarily based on the allegations that the notices
issued for the calling of the annual general meeting violated the statutory
period of 21 clear days. Written statement has been filed and the replication
on behalf of the petitioner was also placed on the record. From the pleadings
of the parties, the following preliminary issue was struck:
"Whether the
present petition under section 166 read with section 171 of the Companies Act,
1956, is maintainable in this court in the present form?"
It
appears to me that it would be wasteful to dilate on this matter because the same
appears to be concluded against the petitioner by a number of judgments of this court. In Panipat Woollen and General
Mills Co. Lid. v. R.L.
Kaushik [1969] 39 Comp. Cas. 249 (Punj), Pandit J., by a considered judgment,
came to the conclusion that the civil courts had jurisdiction to try a suit
challenging the validity and regularity of the general meeting of a company and
the election of directors held therein. In Siri Ram v. Edward Ganj Public
Welfare Association Ltd. [1971] 47 Comp. Cas. 283 (Punj) also the validity of
the meeting of a company and the election of its directors therein was sought
to be assailed on a variety of grounds. Tuli J., whilst holding that the
petition was not maintainable, observed that this was not a matter for decision
under section 186 of the Companies Act.
The
case which directly covers the point, however, is the categoric opinion of
Sharma J. in S. Niranjan Singh v. Edward Ganj Public Welfare Association [1917]
47 Comp. Cas. 285 (Punj). Therein also the validity of a meeting of the company
and the election held therein was sought to be challenged. The learned judge
relying on the aforementioned two authorities concluded as follows (page 286):
"In view of this
I hold that this petition is not competent before me and the only remedy
available to the petitioner is to file a civil suit. This petition is
accordingly dismissed."
Before
me, no cogent argument has been raised to assail the correctness of the view
expressed in Niranjan Singh's case [1977] 47 Comp. Cas. 285 (Punj) referred to
above. As at present advised, I see no reason to take a contrary view.
Following the same it is held that the present petition is not maintainable.
The preliminary issue is decided in favour of the respondent and the petition
is dismissed. There will be no order as to costs.
[1994]
80 COMP. CAS. 174 (DELHI)
HIGH COURT OF DELHI
v.
Delhi and District Cricket Association
MRS.
SANTOSH DUGGAL J.
I.A. No. 9487 of 1989 in Suit No.
3470 of 1989
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.
[1960]
30 COMP. CAS. 523
(RAJ.)
V.
I
N Modi, J.
CRIMINAL
REVISION NOS. 88 TO 91 OF
1959
FEBRUARY
22, 1960
I N MODI,
J.- These are four revisions
between the same parties and involve the determination of identical questions
of law. I, therefore, propose to dispose of them by a single judgment.
The material facts
leading up to these revisions may be shortly stated as follows. Petitioner No.
1, Messrs. Saraswati Printers Ltd., Jaipur, was a firm which having a share
capital was incorporated as a public limited company on the 21st January, 1944,
under the Companies Act of the former Jaipur State. Petitioner No. 2 was the
managing director of that company while petitioners Nos. 3 to 6, among others,
were its directors at all relevant times. The last annual general meeting of
the company was held on the 24th December, 1952. Thereafter no such meeting was
held until the 11th January, 1957. The petitioners were, therefore, prosecuted
at the instance of the Registrar of Companies, Rajasthan, for not having held a
general meeting under section 76 of the Indian Companies Act (VII of 1913)
(hereinafter referred to as the Act), and for not submitting the annual list of
its members and the various other particulars under section 32(3) of the Act,
and for not laying before the company in general meeting a balance-sheet and a
profit and loss account under section 131(1) , and for not sending three copies
of such balance-sheet, and profit and loss account to the Registrar under
section 134 of the said Act with respect to the years 1953 to 1956. It is also
alleged that notices were issued from time to time to the company and its
officers asking them for compliance with respect to the provisions afore-
mentioned but without any effect.
The defence of
the petitioners was that it was found some time towards the end of 1952 that
the company was working at a loss and so it was resolved that with a view to
meet the claims of the various creditors of the company the board of directors
be authorised to sell or otherwise dispose of all the fixed or liquid assets of
the company in one or more lots on such terms or conditions as the board should
think fit and the directors were further authorised to take all the necessary
steps to achieve this end. It was also pleaded that the directors in their
meeting dated the 24th December, 1952, had decided to transfer the total assets
of the company to Messrs. Indermal chandmal, a firm of the managing director
chandmal against the entire debts due from the company, and that the petitioner
Chandmal had taken upon himself the entire responsibility with respect to the
affairs of the Company from December, 1952, onwards. The petitioners, other
than Chandmal, therefore, contended that they were not responsible for calling
the general meetings or doing the various other acts with respect to which they
had been prosecuted. So far as the petitioner Chandmal is concerned, he
admitted that he was the managing director of the company from 1953 to 1956 but
his defence was that as he had to go to Indore on account of unavoidable
business commitments he could not call the general meeting or carry out the
various other functions which he was required to do under the Act but his
defaults were not made wilfully, and, therefore, he prayed for condonation
under section 281 of the Act.
The trial
court found the company and the other petitioners guilty under sections 32, 76,
131 (1) and 134 of the Act and sentenced them to pay a fine of Rs. 50, on each
count for each of the four years in question. The petitioners thereafter went
in appeal to the learned sessions Judge, Jaipur City, who upheld their
convictions but halved their fines. THe petitioners have now come up to in
revision to this court.
The main
contention of the petitioners before this court was that once the petitioners
were convicted under section 76 of the Act, they should not have been further
convicted under the various other sections under which they were prosecuted as
a matter of law, inasmuch as the other defaults all flowed from the fact that
no general meeting for the respective years had at all been held, and,
therefore, the other defaults were a natural and inevitable consequence of the
primary default under section 76 and did not constitute any independent default
on the part of the petitioners. Developing the point it was argued that where
an annual general meeting was not held for a particular year, then it was
impossible to lay the balance-sheet or the profit and loss account of the
company before the said meeting or to send a copy thereof to the Registrar or
even to send a list of the members and the other particulars required under
section 32 of the Act. Putting the same argument from another angle, it was
contended that if a general meeting had been held for a particular year and
then the various requirements had not been fulfilled as laid down in section 32
of 131 or 134 of the Act, then a prosecution for these other defaults could
well have been successfully launched, but not where the annual general meeting
itself had not been held, and, therefore, it was physically impossible to
comply with the various requirements of the other sections with which we are
concerned. Learned counsel for the petitioners placed strong reliance on In re
Narasimha Rao {[1937] 7 Comp. Cas. 80}, Surendra Nath v. Emperor {[1942] 12
Comp. Cas. 252.} and Emperor v. Pioneer Clay & Industrial Works {[1948] 18
Comp. Cas. 31}.
In In re
Narasimha Rao {[1948] 18 Comp. Cas. 31}, certain directors of the company were
prosecuted for not sending a copy of the balance-sheet after laying it before
the general meeting of the company, both under section 131 and section 134,
with respect to a number of years. It was held by a learned single judge of the
Madras High Court that a conviction under sections 131 and 134 both with
respect to the same persons for the same years was not possible because section
134 contemplates the sending of a copy of the balance-sheet only after it had
been placed before the general meeting of the company, and where the
balance-sheet had not at all been so placed, the offence under section 134
could not possibly have been committed. In this view of the matter, the
convictions under section 134 were quashed.
In Surendra
Nath v. Emperor {[1942] 12 Comp. Cas. 252.} the facts were these, The managing
director of a company was convicted under section 76 of the Act, and thereafter
he was prosecuted under section 32 and was convicted by the trial court. In
revision it was held by a learned single judge of the Calcutta High Court that
the second prosecution was "rather pointless after the first". The
learned judge proceeded to observe that it would have been another matter if
the defence of the petitioner had been that the general meeting was held and
then it was found that he had committed a default under section 32. The
attention of the learned judge was invited to the decision of the Court of
Appeal in Park v. Lawton {[1911] 1 K.B. 588}, which dealt with the
interpretation of a similar provisions under the English Act; but the latter
ruling was distinguished by saying that all it held was that a person could not
put forward the impossibility as a defence if the impossibility had been due to
his own default. With all respect, it seems to me rather difficult to hold that
the decision in the English case was not applicable because the same petitioner
was first prosecuted under section 76 and then under section 32, and obviously,
therefore, it could hardly be said of him that the impossibility of carrying
out the requirements of section 32 had not proceeded from his own default under
section 76.
It is
important to point out here that there was an earlier Bench decision of the
Calcutta High Court in Debendra Nath Das Gupta v. Registrar of Joint Stock
Companies, Bengal {A.I.R. 1917 Cal. 1.}, which does not seem to have been
brought to the notice of the learned single judge. The petitioner in this case
was a director of a joint stock company and was convicted under section 134 of
the Act in respect of a default made about filing with the Registrar the
balance-sheet for a certain year. The defence of the petitioner in revision was
that there was no general meeting in that year, and, therefore, no
balance-sheet was laid before the company at any such general meeting, and as
these preliminaries had not been fulfilled, it was impossible for him or his
company to comply with the provisions of section 134, and that if at all he
should have been convicted under section 76 or section 131 but not under
section 134. This contention was repelled, it having been held that the
petitioner as one of the directors was himself responsible for ensuring that
all necessary preliminaries should have been observed, and that on the
principle of the decision of the Court of Appeal in Park v. Lawton {[1911] 1
K.B. 588}, it was not open to the petitioner to plead his prior default with
respect to the calling of the prescribed general meeting.
This brings me
to the decision of the Bombay High COurt in Emperor v. Pioneer Clay &
Industrial Works {1948] 18 Comp. Cas. 31}. The default in this case arose under
section 134(4) of the Act in the matter of filing with the Registrar of
Companies three copies of the balance-sheet and the profit and loss account of
the company for a certain year. It was common ground that no general meeting of
the company was called at which the balance-sheet and the profit and loss
account of the company for the year 1944 could have been laid. It was held that
the acquittal of the accused under section 134(4) was correct. The ratio of
this decision was that no conviction under section 134(4) is possible until the
stage of sections 76 and 131 has been gone through. With reference to the
decision of the Court of Appeal in Park's case {[1911] 1 K.B. 588}, it was held
that that decision was based on section 26 of the English Act which in its
scheme and terms was entirely different from the section with which we are
concerned. The learned judges in the this case refused to follow the decision
of the Calcutta High Court in Debendra Nath Das Gupta v. Register of Joint
Stock Companies A.I.R. 1917 Cal. 1, and pointed out that the learned judges in
the Calcutta case had not taken due note of the language of section 134 as we
have it in India. It was further pointed out that what the accused person
realise on in a case like this is not on his earlier default but on the factor
that the stage at which his prosecution could have been made had not arrived.
In other words, the real defence was that they could have sent copies of the
balance-sheet and the profit and loss account only after general meeting had
been called and the balance-sheet and the profit and loss account had been
placed before that meeting. In this view of the matter the acquittal of the
accused under section 134 was maintained.
As I
understand the case,however, I may state at once that it is no authority for
the broad proposition for which learned counsel contends, namely, that once the
accused has been prosecuted under section 76 of the Act, his further
prosecution under section 32 or section 131 of the Act cannot be maintained. In
fact CHAGLA, AG. C.J. as he then was, clearly laid down that in that case the
directors were in default both in not calling a general meeting and also in not
laying the balanced-sheet and profit and loss account before such a meeting,
and that in not carrying out either of these requirements and obligations they
rendered themselves liable to the penalties provided by the Act, and it was
open to Government to prosecute them under either of these two sections. What
seems to have prevailed with the learned Acting Chief Justice in the case was
the peculiar language of section 134 which, to my mind, is rather unhappy. The
wording of the section is that " after the balance-sheet and profit and
loss account (or the income and expenditure account as the case may be) have
been laid before the company at the general meeting ", three copies
thereof signed by the manger or secretary of the company shall be filed with
the Registrar at the same times as the copy of the annual list of members and
summary prepared in accordance with the requirements of section 32. In the
other words, certain copies of the balanced-sheet and the profit and loss
account have to be filed with the Registrar only after the balance-sheet and
the profit and loss account or the income and expenditure account, as the case
may be, have been laid before the company at the general meeting. Where,
however such balanced-sheet and account have not been placed before a general
meeting of the company, it would appear, on the authority of this case, that an
offence under section 134 would not be committed. I propose to examine the
Bombay view as a to the correct interpretation to be put on section 134, a
little more closely hereafter. But even on this view of section 134 which is
indeed plausible, I have no hesitation in saying that the further contetion
that a prosecution under section 32 or under section 131 is not possible in law
on account of a prosecution under section 76 would be going very far indeed,
and for such a proposition the case of Emperor v. Pioneer Clay & Industrial
Works, [1948] 18 Comp. Cas. 31., is no authority. The reason is that the
language of all the other sections with which we are concerned, namely,sections
32, 76 and 131, is entirely different from that of section 134, and the
considerations which may possibly seem to apply to section 134(1) do not and
cannot apply to the other sections. Thus section 32 provides that every company
having a share capital shall within a certain period from its incorporation and
thereafter once at least in every year make a list of all persons, who on the
day of the first or only ordinary general meeting in the year are members of
the company , and of all persons who have ceased to be member since the date of
the last return or the date of the incorporation of the company, as the case
may be. This list, it is further provided must state certain particulars
mentioned in sub-section (2) of the section. Sub-section (3) then provides that
the company shall send a copy of the above list and summary signed by the
director or the manager together with the certificate of its correctness to the
Registrar. Sub-section(5) then provides that if a company makes a default in
complying with the requirements of this section, it shall be liable to a fine
not exceeding fifty rupees for every day during which the default continues,
and every officer of the company who knowing and wilfully authorises or permits
the default shall be liable to the like penalty. It clearly seems to me that
the requirement of this section is essentially a requirement which is
independent of either section 76 or section 131. There is no question that, so
far as section is 76 is concerned, it lays down a basic requirement namely that
general meeting of every company shall be held within a certain period from the
date of its incorporation and thereafter once at least in every calendar year
and not more than fifteen months after the holding of the last preceding
general meeting and a default in this respect is punishable under sub-section
(2) of the section.
Then comes
section131. This section, broadly speaking, provides for the laying of a
balance-sheet and profit and loss account or an income and expenditure account
duly audited by the auditors of the company with their report at a general
meeting which must be called by the directors with reference to certain points
of time stated in sub-section (1) of section 131. Sub-section (3) of section
133 inter alia then provides that if any default is made in laying before the
company, or in issuing a balance-sheet and profit and loss account or income
and expenditure account as required by section 131,the company and every
officer of the company who is knowingly and willfully a party to the default
shall be punishable with fine which may extend to five hundred rupees. In the
my opinion, this provision on its plain language, provides for a distinct
default. Thus, where the directors are in default in not calling a general
meeting or in not laying the balanced -sheet or profit and loss account before
such a meeting or in not sending the list of members together with a summary under
section 32, I am of opinion that they render themselves liable to the penalties
provided by the Act for each and every one of these defaults provided of course
that so far as the directors or other officers are concerned, their default is
wilful and not inadvertent as distinguished from the default of the company
itself which has been made liable independently of any such requirement and its
liability is therefore,absolute.
It seems to me
that, to a default in any of the respects last mentioned the principle of the
decision of the Court of Appeal in Park's case [191[] 1 K.B.588 fully applies
without any doubt whatsoever. The facts in this case were that the respondents
who were all directors of the company were charged with an offence under
section 26 of the companies (consolidation) Act, 1908, for having knowingly and
wilfully permitted default to be made by the company in forwarding to the
Registrar of Companies a copy of its list of members with a summary of its
capital and shares etc. It was common ground that no general meeting of the
company had been held during the year in question. It was, therefore, contended
that it was impossible for them to comply with the requirements of section 26.
Now section 26 of Act of 1908 provided that once at least in every year a list
was to be made of all persons who " on the fourteenth day after the first
or only ordinary general meeting in the year are members of the company , ''
and further the list must contain a summary of some important particulars and sub-section
(5) of section 26 imposes a penalty if default is made in compliance with the
requirements of the section. LORD ALVERSTONE C.J., relying on Gibson v. Barton
L.R. 10 Q.B. 329 and Edmonds v. Foster 45 L.J. (M.C.) 41 , repelled the
contention raised by the directors and held that :
" .....a
person charged with an offence under section 26 is not entitled by way of
defence to plead the impossibility of complying with section 26 by reason of no
general meeting having been held, at any rate meeting; in other words, a person
charged with an offence cannot rely on his own default as an answer to the
charge."
It was further
observed that : "
If it were the
case that everything required to be inserted in the list was dependent on the
fact of the general meeting having been held, it might perhaps have been
contended with some force that it is impossible to calculate a continuing
penalty from a day which has never come into existence; but when one sees that
section 26requires a number of important matters to be included in the list of
members which are entirely independent of the holding of a general meeting this
very much weakens the catenation that no list need be complied if,owing to the
failure to hold a general meeting, it is impossible to say what day is the fourteenth
day thereafter. "
Therefore, it
was held that it was no defence to the charge under section 26 for the
directors that no general meeting had been held the directors themselves having
been parties to the default in holding the general meeting .
In this view
of the matter, I have no hesitation in coming to the conclusion that the
conviction of the petitioners under sections 32 and 131 read with section 133
cannot be said to be wrong on the reasoning that their default under section 32
or 133 read with section 133 proceeded from an earlier dedault under section 76
of the Act and for which they stand prosecuted and punished.
The further
question which requires to be considered in this connection is whether the
default of petitioners Nos. 2to 6 under these section was intentional and
wilful. It may be pointed out in this connection that under the Act a company
had been made liable only where he knowingly and wilfully authorises or permits
the default. The result, therefore , is and must be that a company would be
always liable where any such requirements are not fulfilled without more, but
the officers of the directors of the company would be liable only if they
knowingly and wilfully authorise or permit such defaults.
Now there is
ample authority for the proposition that in order that the default should be
wilfully and knowingly committed, it need not necessarily be suggestive of
dishonesty or fraud on the part of those concerned. It is important to remember
in the this connection for the reasons already pointed out that the party in
default cannot be allowed to plead the impossibility of complying with the
various provisions of the Act for which he is being prosecuted on the ground
that some thing which was required to be done earlier was not done when such
impossibility is due to his own previous default. Be it noted that the language
of the relevant provisions is wide enough. A default to be punishable may not
have been authorised and yet it may be wilfully permitted, and if that is so,
it would be punishable. The law presumes,and rightly, that those who have
accepted the office of directors of a company know the duties attaching to
their office. Thus a positive duty had been laid on the directors to call an
annual general meeting under section 76 and to see that the requisite list and
summary of particulars are prepared and sent to the Registrar under section 32
and that a balance-sheet and a profit and loss account (or an income and
expenditure account, as the case may be ) duly audited are laid before the
company in general meeting, broadly speaking , once in every calendar year
under section 131 of the Act. The directors, therefore, cannot be allowed to
escape the performance of these duties by the mere plea that they had no real
control over the affairs of the company and therefore, they did not wilfully
permit the default. It is their duty not to mere passive spectators of what is
going on but to see and make the nursery attempt that the statutory
requirements are carried out, and where this has not been done, the courts can
and would legitimately infer that the defaults thought not expressly authorised
were still wilfully permitted. See Ballav Das v. Mohan Lal Sadhu [1936] 6 Comp.
Cas. 432 and Bhagirath Chandra Das v. Emperor [1947] 17 Comp. Cas. 93. Now, so
for as the instant cases are concerned, there is evidence on the record to show
that the Registrar of the Companies, Rajasthan had sent notice to the
petitioners to comply with the various requirements with respect to which they
have been subsequently prosecuted (exhibits P-3, P-4, P-5 and P-6) but without
nay effect whatever. That being so, the conclusion is inescapable that the
defaults on the part of the petitioners were committed knowingly and wilfully
and not inadvertently. This disposes of the second question raised by learned
counsel for the petitioners.
The next point
that remains to decide is whether the conviction of the petitioners under
section 134 (1) is correct. I have already referred to the authorities on which
learned counsel for the petitioners relies, and the leading authority which
supports him on his this aspect of the case is Emperor v. Pioneer Clay &
Industrial Works [1948] 18 Comp Cas. 31. As against this, the learned Deputy
Government Advocate relies on the Debendranath Das Gupta v. Registrar of Joint
Stock Companies, Bengal (1918) I.L.R. 45 Cal. 486. which takes the contrary
view. The question for decision, therefore, is the better of the two views. As
already stated, the language of section 134 appears to me to be rather unhappy
and it is that which has perhaps given rise to divergence between the Calcutta
and the Bombay views. Since the decision in Emperor v. Pioneer Clay and
Industrial Works [1948]18 Comp. Cas. 31 was given the matter came up for
consideration before a learned single judge of the Madras High Court in In re
Gangipati Appayya [1952] 22 Comp. Cas. 78 In this case, the Assistant Registrar
of Joint Stock Companies prosecuted the directors of a certain motor transport
company for their failure to place the balance-sheet before a general meeting
of the company under section 131 (1) read with section 133 (3) of the Act. The
defence was that as no general meeting had been held, the question of placing
the balance sheet before a general could not possibly arise, and, therefore, no
offence had been committed at all. The directors were convicted by the trial
court and their conviction was maintained in the High Court. Referring to
Emperor v. Pioneer Clay & Industrial Works [1948] 18 Comp. Cas. 31 , the
learned judge disagreed with the view taken in that case. This decision
proceeded on the footing that the directors were relying on their own default
in not having called the general meeting and this they could not be allowed to
do as held in Park v. Lawton [1911] 1 K.B. 588 and Debendranath Das Gupta v.
Registrar of Joint Stock Companies, Bengal (1918) I.L.R. 45 Cal. 486 , already
referred to above.
But before I
deal with this aspect of the case, I wish to point out that the case before the
learned judge, In re Gangipati Appayya was a case under section 131 (1) read
with section 133 (3) and not under section 134, and the considerations which
might possibly arise on the language of section 134 do not in my opinion rally
arise with respect to a prosecution under section 131(1) read with section 133
(3) or under section 32 or 76 because the language and tenor of those sections
are entirely different from language the of section 134 (1) as already
discussed above. Be that as it may, the question directly arises here whether a
director who has failed to comply with the requirements of section 134, can be
allowed to plead that the balanced sheet and the profit and loss account or the
income and expenditure account had not been laid before the company at the
general meeting and therefore he could not send the requisite copy to the
Registrar and, therefore, he has not committed any offence under section 134
(1) even though the directors who were sought to be prosecuted under section
134(1) are the very persons who were responsible for not calling the general
meeting and not placing the balanced sheet and the profit and loss account
before the general meeting of the company. On a careful and anxious
consideration of the pros and cons of the two views, I think, on the whole,
with respect, that though the Bombay view is plausible, it is not sound and is
perhaps needlessly narrow. As I look at the matter, untramelled by authority
one way or the other, the substantial requirement of section 134 (1) appears to
me to be the sending of a certain number of copies of the balance sheet and the
profit and loss account or the income and expenditure account as the case may
be to the Registrar and it is there that the true emphasis of the section lies
and not on the introductory part of the section namely, " after the
balance sheet and profit and loss account (or the income and expenditure
account as the case may be ) has been laid before the company at a general
meeting as seems to have been supposed. I say so because if the liability of
the directors or officers of the company in the matter of sending such copies
to the Registrar could be successfully met and answered merely on the pretext
that the balanced sheet and the profit and loss account were not laid in
general meting before the company it should be only one step further from this
to say that as no annual general meeting was held, it was scarcely material
whether the balance sheet and the profit and loss account were prepared or not,
or again the that for that reason a list of the members along with a summary
under section 32 need not or could not have been prepared and sent to the
Registrar. A reasoning like this in my considered opinion, would very largely
render nugatory the various obligatory provisions of the Act by which several
important duties are imposed on the directors in the public interest at various
stages in the management of the company. It may be that these stages are
different and the default at one stage may be due to a default at a prior stage
; but, nevertheless, in the eye of law, these are independent defaults for
which the directors concerned are accountable at every respective stage, and it
cannot be a satisfactory answer for them to say that they are not responsible
for them because there was a default at an earlier stage, the more so where the
persons who are at fault at both stages are one and the same. It does seems to
me that the courts should not place an interpretation upon a section which
would put a premium on a double default, or, putting it slightly differently, permit
the evasion of or escape from on e default simply because this default was the
inevitable consequence of another default, and where both these defaults are
punishable in the eye of law and where those responsible for the second default
are also responsible for the first, I am disposed to hold the view that the
proper course is to punished the persons guilty for both the defaults and not
for one only. I hold accordingly.
In the view of
the matter, the conclusion I come to is that the conviction of the petitioners
under section 134(1) is not untenable in law and does not call for any
interference. Further, as to whether the default under this section also was
knowingly and wilfully committed by the accused petitioners, my observations
under this head made in the foregoing part of this judgment with respect to
their default under other sections fully apply as to the present count and I
consider it unnecessary to repeat them.
The last
question raised by the learned counsel for the petitioners is that even if his
court concurs in the conclusion of the courts below that the accused
petitioners are guilty of the various offences discussed above, they should be
given the benefit of section 281 of the Act. The short answer to the this
submission is that before section 281 can be properly invoked it must be shown
that the person or persons so seeking relief had " acted honestly and
reasonably". In the other words the conduct of he accused must satisfy the
two-fold requirement of lack of dishonesty as well as lack of unreasonableness,
and honesty by itself would not be enough. Assuming that the petitioners in
this case were not dishonest, I find it difficult to hold that their satisfies
the test of reasonableness. One of them was a managing director and the rest were
directors. They held a certain position of trust and responsibility with
respect to the affairs of the company. The statute had placed certain
obligations upon them and their breach thereof for no satisfactory reasons
cannot be lightly disregarded for obvious reasons. I have already held above
that their neglect to comply with the duties under which they were bound to act
according to the statute continued over a number of years and was wilful
inasmuch as they failed to do in spite of warning or notice by the Registrar.
The lapses, therefore, were not the result of any accident, unforeseen or
unforeseeable, but were if, I may say so, born of sheer recklessness. This in
my judgment disentitles them to the benefit of section 281. I hold accordingly.
The result is
that these revisions fail and are hereby dismissed.
Petitions
dismissed.
[1976] 46 Comp Cas 339 (Del)
v.
Motion Pictures Association
S. RANGARAJAN, J.
K.K. Mehra and
Satish Chandra for the petitioner.
I.N. Shroff
and G.L. Rawal for the Respondent.
Rangarajan,
J.—This order passed in C.P.
No. 106 of 1974, which has been tiled by B.R. Kundra, will also dispose of C.P.
No. 102 of 1974, which has been filed by J.S. Sood.
The Motion
Pictures Association (hereinafter known as "the Company") with whose
affairs I had dealt previously in C.A. No. 565 of 1972 (In re Motion Pictures
Association),
is again said to require court's intervention in the circumstances which will
be noted presently. This petition raises an interesting question of company law
concerning the interpretation of section 255 of the Companies Act, 1956 (hereinafter
known as "the Act"), a question which was merely discussed by me in
yet another case, but left open, Shrimati Jain v. Delhi Flour Mills Ltd.,
as one of difficulty but not being necessary for decision of that case.
The company
was formed under section 25 of the Companies Act, 1913, with no share capital
and prohibiting the payment of dividend to its members. It had for its object
the promotion of the interests of its members, who are engaged in the trade of
exhibition, distribution and exploitation of motion pictures in the Union
territories of Delhi and the State of Uttar Pradesh. Any person wanting to
indulge in these (business) activities relating to motion pictures in the above
areas has to become a member of this company. The company, according to its
articles, is to hold its annual general meeting within six months of the
closing of its accounts, which is the 31st December each year; the last annual
general meeting of the company was held on 3rd May, 1969.
Article 24 of
the company reads as follows:
"At
every annual general meeting all sitting members of the executive committee
Khali retire from office. The retiring members shall be eligible for re-election
in the annual general meeting in which they retire."
According to
article 31 "the retiring member or members of the executive committee
shall retain office till the dissolution of the meeting at which his or their
successor is/are elected."
It is necessary
to read sections 166 and 255 of (he Act also at this stage:
"166. (1) Every company
shall in each year hold in addition to any other meeting a general meeting as
its annual general meeting and shall specify the meetings as such in the
notices calling it; and not more than fifteen months shall elapse between the
date of one annual general meeting of a company and that of the next:
Provided that
a company may hold its first annual general meeting within a period of not more
than eighteen months from the date of its incorporation; and if such general
meeting is held within that period, it shall not be necessary for the company
to hold any annual general meeting in the year of its incorporation or in the
following year:
Provided
further that the Registrar may, for any special reason, extend the time within
which any annual general meeting (not being the first annual general meeting)
shall be held, by a period not exceeding three months.
(2) Every annual general
meeting shall be called for a time during business hours, on a day that is not
a public holiday, and shall be held either at the registered office of the
company or at some other place within the city, town or village in which the
registered office of the company is situate:
Provided that the Central Government may exempt any
class of companies from the provisions of this sub-section subject to such
conditions as it may impose:
Provided further that—
(a) a public company or a private company which is a subsidiary of a public company, may by its articles fix the time for its annual general meetings and may also by a resolution passed in one annual general meeting fix the time for its subsequent annual general meetings; and
(b) a private company which is not a subsidiary of a public company, may in like manner and also by a resolution agreed to by all the members thereof, fix the times as well as the place for its annual general meeting."
"255. Unless the articles provide for the
retirement of all directors at every annual general meeting, not less than
two-thirds of the total number of directors of a public company, or of a
private company which is a subsidiary of a public company, shall—
(a) be persons whose period of office is liable to determination by retirement of directors by rotation; and
(b) save as otherwise expressly provided in this Act, be appointed by the company in general meeting,
(2) The remaining
directors in the case of any such company, and the directors generally in the
case of a private company which is not a subsidiary of a public company, shall,
in default of and subject to any regulations in the articles of the company,
also be appointed by the company in general meeting."
A member of the company (G.S. Mayawala) had filed a suit (476 of 1960), against the company in which there was an application for restraining it from holding the annual general meeting till the decision of the suit. The company voluntarily appeared in that suit and undertook not to hold any annual general meeting till the suit was decided. The suit ended in a compromise.
Subsequent to the compromise 134 members had demanded, by a requisition which had been left at the office of the company on July 29, 1972, the holding of an extraordinary general meeting for consideration and adoption of certain resolutions as stated in that requisition. That requisition fell short of the minimum 10% of the total membership because some signatures were found invalid and the rest were (subsequently) withdrawn. A body of 11 persons, purporting to be the executive committee, took steps to hold an extraordinary general meeting of the company on the 7th October, 1972, in order to amend certain articles in pursuance of the above compromise as a preliminary to the holding of the annual general meeting. A circular letter was also issued by the honorary general secretary (B. N. Gupta) on September 16, 1972, setting out all these facts. Some asserted their faith in the said body while others asserted their want of faith in it. In this situation, C.A. No. 496 of 1972 was filed in this court under section 186 of the Act to call a meeting of the company. With the consent of all those who had appeared in the proceedings the extraordinary general meeting, which had been called on September 9, 1972, was adjourned to the 7th of October, 1972, to take place under the chairmanship of Mr. Daljit Singh, advocate, directing certain resolutions, pertaining to the number of office bearers, to be moved at the said meeting in a particular manner. But it was discovered later to be subject to a certain infirmity. Hence a general meeting of the company was ordered to be called on October 10, 1972 (vide order in C.A. No. 472 of 1972), for electing office bearers. Mr. P.A. Bahl, advocate, was appointed chairman to conduct the said meeting and supervise the election of directors. After the election was held the chairman submitted a report but certain persons who unsuccessfully contested the said election made an application (C.A. No. 565 of 1972), alleging fraud, etc., besides other irregularities in the conduct of the meeting affecting the result of the election. During the hearing of that application, it was noticed that even apart from the allegations concerning the conduct of the elections at the said meeting, the meeting and the elections which took place on October 27, 1972, were not according to the directions which had been given by this court and it would not, therefore, "deem" the meeting (held on October 7, 1972), as one called and conducted by the company within the meaning of sub-section (2) of section 186 of the Act. A fresh meeting was directed to be called and elaborate and detailed directions were also given concerning how the meeting should take place and the elections should be conducted. Such a meeting and elections took place on October 13, 1973, when the 18 persons mentioned in this petition were elected as members of the executive committee (directors) of the company.
]It is now stated that in spite of the petitioner in
C.P. No. 102/74 (J.S. Sood), who was admittedly one of the 18 who was so elected)
pressing for regularisation of certain defaults and a further election of
members of the executive committee on or before June 30, 1974 (the financial
year closing on December 31 each year) no such meeting was called. In the
result, it is alleged, that by June 30, 1974, all the 18 must be deemed to have
vacated the office of directorship/membership of the executive committee by
operation of law. In April, 1974, the petitioner had also communicated in
writing to the company that their term as elected executive committee had
expired on June 30, 1974, and they should not continue thereafter to act.
Though the receipt of this communication was denied by the secretary of the
company after an application (Cr. O. No. 84 of 1974) to punish him was filed,
Mr. I. N. Shroff, learned counsel for the company, did not wish to justify the
secretary's denial of the receipt of the said communication, but on the other
hand apologised to the court for the same.
It is contended by the petitioner that it has become
"impracticable" to hold a meeting of the company under the articles
of the company or under the Act in the above circumstances: it is, therefore,
prayed that the court may be pleased to direct, under section 186 of the Act,
a. meeting of the company to be called where, in addition to electing the
members of the executive committee, they should also be directed to adopt
annual accounts ending 31st December, 1969, to 31st December, 1973, as a
special business, and to appoint and fix the remuneration of auditors for 1974
also as a special business.
It is obvious and it was also common ground before me
that the court has no power to call annual general meeting under section 186 of
the Act; the items of business which can be transacted only at an annual general
meeting may not, therefore, be ordered to be transacted at a meeting ordered to
be held under section 186 of the Act; the election of office bearers, however,
could take place at a meeting other than an annual general meeting,
This petition has been resisted on the same grounds
on which C.P. No. 102 of 1974 (filed by J.S. Sood for the same reliefs) has
been resisted; no separate reply has been filed in this petition.
The following objections on behalf of the company
were raised by Mr. I.N. Shroff. By way of preliminary objection it was staled
that the assumption on which the present petition has been filed, namely, that
the office bearers should be deemed to have retired on June 30, 1974, was not
correct and that if this is not correct the very basis for invoking section 186
of the Act would not be available. It was pointed out that there is no express
provision in the Companies Act of 1956 to the effect that, if there is default
on the part of elected directors in holding the annual general meeting, as
required by section 186 of the Act, the elected directors shall be deemed to
have retired on the last date on which the annual general meeting should be (or
ought to have been) called and held. How this contention was developed by Shri
Shroff will be discussed presently. It was further contended that moving the
Central Government under section 167 of the Act was the remedy, if any, and
that the jurisdiction of this court under section 186 of the Act cannot be
invoked.
It is common
ground that if the members of the executive committee/ directors did not retire
and cease to be directors, as claimed in this petition, on or before June 30,
1974, the present petition under section 186 would not be competent, in the
view that they themselves could call a meeting at which the directors/executive
committee members could be elected. It, therefore, falls for consideration
whether having regard to the relevant provisions of the Act and the articles of
the company set out above, the 18 executive committee members/directors of the
company retired and ceased to hold office on or before June 30, 1974, and for
that reason it has become impracticable to call a meeting of the company.
In addition
to the sections of the Act noticed above, the following sections may also be noticed
at this stage:
"168. If
default is made in holding a meeting of the company in accordance with section
166, or in complying with any directions of the Central Government under
sub-section (1) of section 167, the company, and every officer of the company
who is in default, shall be punishable with fine which may extend to five
thousand rupees and in the case of a continuing default, with a further fine
which may extend to two hundred and fifty rupees for every day after the first
during which such default continues."
"283.
(1) The office of a director shall become vacant if—
(a) he fails to obtain within the time specified
in sub-section (1) of section 270, or at any time thereafter ceases to hold,
the share qualification, if any, required of him by the articles of the
company;
(b) he
is found to be of unsound mind by a court of competent jurisdiction;
(c) he
applies to be adjudicated an insolvent;
(d) he
is adjudged an insolvent;
(e) he is convicted by a court of any offence
involving moral turpitude and sentenced in respect thereof to imprisonment for
not less than six months;
(f) he fails to pay any call in respect of
shares of the company held by him, whether alone or jointly with others, within
six months from the last date fixed for the payment of the call unless the
Central Government has, by notification in the Official Gazette, removed the
disqualification incurred by such failure;
(g) he absents himself from three consecutive meetings
of the board of directors, or from all meetings of the board for a continuous
period of three months, whichever is longer, without obtaining leave of absence
from the board;
(h) he (whether by himself or by any person for
his benefit or on his account), or any firm in which he is a partner or any
private company of which he is a director, accepts a loan, or any guarantee or
security for a loan, from the company in contravention of section 295;
(i) he
acts in contravention of section 299;
(j) he
becomes disqualified by an order of court under .section 203;
(k) he
is removed in pursuance of section 284; or
(l) having been appointed a director by virtue
of his holding any office or other employment in the company, or as a nominee
of the managing agent of the company, he ceases to hold such office or other
employment in the company or, as the case may be, the managing agency comes to
an end.
(2) Notwithstanding anything in clauses (d), (e) and (j) of sub section
(1), the disqualification referred to in those clauses shall not take effect—
(a) for
thirty days from the date of the adjudication, sentence or order;
(b) where any appeal or petition is preferred
within the thirty days aforesaid against the adjudication, sentence or
conviction resulting in the sentence or order until the expiry of seven days
from the date on which such appeal or petition is disposed of; or
(c) where within the seven days aforesaid, any
further appeal or petition is preferred in respect of the adjudication,
sentence, conviction, or order, and the appeal or petition, if allowed, would
result in the removal of the disqualification, until such further appeal or
petition is disposed of.
(2A)Subject to the provisions of sub-sections (1) and (2), if a person
functions as a director when he knows that the office of a director held by him
has become vacant on account of any of the disqualifications, specified in the
several clauses of sub-section (1), he shall be punishable with fine which may
extend to five hundred rupees for each day on which he so functions as a
director.
(3) A private company which is
not a subsidiary of a public company may, by its articles, provide, that the
office of director shall be vacated on any grounds in addition to those
specified in sub-section (1)."
The plain
language of section 166 is that not more than 15 months shall elapse between
the date of one annual general meeting of a company and that of the next; the
Registrar, for any special reasons, may extend the time at which the annual
general meeting (not being the first annual general meeting) shall be held by a
period not exceeding three months (this period was reduced from 6 to 3 months);
the total period, therefore, even if the Registrar is to use his power to
extend the period by three months, cannot be anything more than 18 months
between one annual general meeting and another. It is on this basis that the
petitioner claims that the annual general meeting in this case should have been
held on or before 30th June, 1974, the company having to close its annual
accounts by the end of December each year.
In Shrimati
Jain v. Delhi Flour Mills Co.,
to which reference has been made already, I was concerned with a case where
one-third of the directors retired by rotation at every annual general meeting.
I had referred to a few Indian cases which discussed the question whether those
directors who have to retire by rotation also vacated their offices by reason
of their own failure to call an annual general meeting. Venkatarama Iyer J. (as
his Lordship then was), held on behalf of a Division Bench of the Madras High
Court in A. Ananthalakshmi Ammal v. Indian Trades and Investments Ltd.
that they must be deemed to have vacated their offices— this case arose under
sections 76 and 79 of the Act of 1913— which view was followed by a Division
Bench of the Bombay High Court in Krishna-prasad Jwaladutt Pilani v. Colaba
Land and Mills Co. Ltd.
and by a single judge of the Calcutta High Court in In re Hindustan
Co-operative Insurance Society Ltd.,
who had not noticed an earlier decision of the Division Bench of the same High
Court in Kailash Chandra Dutt v. Jogesh Chandra Majumdar
which expressed a contrary view. In this Calcutta case the Division Bench held
that a suit for declaration by one of the shareholders that the directors were
no longer directors was not maintainable under section 92 of the old Specific
Relief Act. On the merits the observation was made only in passing and without
discussion that the article provision concerning annual election of directors
did not mean that they could not continue after the year. No provision of the
Companies Act was even discussed. The Bombay decision rightly dissented from
Kailash Chandra
and followed in In re Consolidated Nickel Mines Ltd.
and A. Ananthalakshmi Ammal (a Division Bench decision of the Madras High
Court). A single judge of the Madras High Court in V. Selvaraj v. Mylapore
Hindu Permanent Fund Ltd.,
who did not refer to the Division Bench decision in A. Ananthalakshmi Ammal
observed that the directors retired at an annual general meeting but since in
that case the meeting had not commenced at all owing to the confusion which
prevailed the previous directors must be deemed to continue in office. This
decision which seems to proceed of the view, apparently, that there was no default
on the part of directors since a meeting had been called but could not be
conducted owing to confusion, is even distinguishable.
The Indian decisions which have held that a retiring director vacates office if he fails to hold the annual general meeting are seem to be based on the view taken by the English court in In re Consolidated Nickel Mines Ltd. In that case the articles provided that general meetings should be held once every year; that at the ordinary meeting in 1906 all the directors should "retire from office" and that the directors should be remunerated at certain rates per annum. Section 49 of the Companies Act of 1863 (which was then in force) provided that an annual general meeting should be held once every year. No general meeting was held or called in 1906 or 1907 but the directorate continued to act as such. Sargent J. held as follows:
"They cannot take advantage of their own default
in that respect and say that they still remain as directors."
This view does not appear to have been challenged at
any time before the English courts. It is useful to refer to Morris v. Kanssen.
The House of Lords dismissed the appeal which arose from the decision of the
Court of Appeal in Kanssen v. Rialto (West End) Ltd.
Lord Green M.R. specifically referred to In re Consolidated Nickel Mines Ltd.,
and noted that as per the said decision the director, Cromie, had vacated
office on December 31, 1941, by reason of article 73 of the company's articles
of association, a fact which nobody at the time seems to have appreciated. The
only other remaining director, Strelitz, the Master of Rolls pointed out, had
never been validly appointed. It transpired, therefore, that by virtue of
article 73 of Table A, as modified by the company's articles, there were at the
relevant date no directors in existence. On the above assumption that there
were no such directors the further question was discussed as to whether the
rule in Turquand
(Royal British Bank v. Turquand),
applied; not having had notice of the defect their actions purporting to act as
directors were held to be valid. It was pointed out that section 145 of the
Companies Act of 1929 (section 180 of the Act of 1948) had validated the
impugned actions by the said two persons who were functioning as directors
despite the above infirmity. That Cromie had ceased to be director on December
31, 1941, by reason of the annual general meeting which had to be called on or
before that day was not questioned either before the Court of Appeal or before
the House of Lords. Mr. Shroff made a vain bid to say that this question, which
proceeded on a concession, should not be taken to have been decided; greater
weight has to be attached to the holding in In re Consolidated Nickel Mines
Ltd.,
which was specifically referred to before the Court of Appeal but was not questioned
; on the other hand the correctness of the same was conceded before the Court
of Appeal ; the concession on a question of law was not even sought to be
withdrawn when the case was argued before the House of Lords. This argument also overlooks the observations of
Lords Simonds in that case, Morris v. Kanssen (vide pages 467, 468 and 471 of
1946 A.C.— the ruling starts on page 458). The headnote as stated in 1946 A.C.
459 reads:" No general meeting was held in 1941..............there were thereafter
no de jure directors."
Having thus
noticed what the position in England is as we are able to see that as per the
above-said two decisions,—no other case having suggested any contrary point of
view—it may also be rewarding to notice what, a leading English author on
company law has to say. In Penning-ton's Company Law (third edition, page 478)
the above-said two cases have been noticed in the footnote as authority for the
text which reads as follows:
"If no other
annual general meeting is held the appropriate number of directors will retire
at the end of the calendar year in which it should have been held."
Venkatarama
Iyer J. had relied on a passage in Buckley on the Companies Acts (12th edition,
page 882) to the effect:
"Semble,
if in any calendar year an annual meeting is not held under an article in this
form, those directors who would have retired at the meeting had the same been
held will vacate office on the last day of the year."
The following
cases are given in the footnote (j) as authority for this position:
"(j) In
re Consolidated Nickel Mines,
Kanssen v. Rial to (West End) Ltd.,
affirmed sub nom. Morris v. Kanssen".
Palmer's
Company Law, 21st edition, page 540, regards Morris v. Kanssen,
as an authority for the position that a person who has not b«en duly appointed
a director or who has become disqualified for being a director not being a de
jure director but he may be a director de facto for which section 180 of the
English Act of 1948 makes a provision. But the question of any of these 18
executive committee members/directors functioning as de facto cannot arise
because they cannot function as directors with knowledge of their having ceased
to become directors, if in fact they had ceased to become directors. It is
needless to quote from other leading authors.
Mr. Shroff
drew my attention to section 283 (set out earlier) and contended that the
office of director shall become vacant only in the eventualities mentioned
therein and since the retirement of any director is not one of these
eventualities mentioned in section 283 of the Act it was not part of the
legislative intent to regard a director as having retired on the date on
which the annual general meeting had to be held. The fallacy of this argument
obviously lies in not perceiving the true scope of section 283 which provides
only for cases where the office of the director becomes vacant by reason of the
disqualifications which a director may incur in the eventualities contemplated
by clauses (a) to (1) of sub-section (1) of section 283. That section 283 deals
only with disqualification of directors, incurred during their term as
directors, will become clearer if reference is made to sub-section (2) of
section 283, which describes the eventualities in clauses (a) to (1) of
sub-section (1) of section 283 as "disqualification".
It was next contended by Mr. Shroff that section 168
of the Act provides for default in the matter of complying with sections 186
and 187 and that all that the Act intended to provide was a penalty for those
directors who did not comply with those sections and no more; in other words,
that independently of the said penalty there was no other disability attaching
to a director functioning after the maximum period allowed under section 255
had expired. I find this contention difficult to follow. That a penalty has
been prescribed for a defaulting director is something totally distinct from
the question how long a director continues to hold office in the absence of his
being elected. Again In re Consolidated Nickel Mines Ltd.
has been followed in India also as an authority for the position that a
director cannot by his own default in not calling the annual general meeting,
as he is bound to do, take advantage and still continue as director and/or
collect the remuneration payable to such director. This view found favour with
Venkatarama Iyer J. (as he then was) in Anantha-lahshmi Animal.
Section 166 of the Act replaced section 76 of the previous Act; the
corresponding provision in the English Act is section 131. Mr, A. Ramiah in his
book, which has run into several successive editions, A Guide to the Companies
Act, 1971 (6th edition), has extracted, on page 292, the object of the
amendment made by the Amending Act 55 of 1960 in this respect. Since the said
source quoted by Mr. Ramiah has not been available to me, I am quoting the same
as given by Mr. Ramiah on page 292.
"The provisions of section 166 are not effective
against delay in the holding of annual general meetings on the one hand, and on
the other, cause unnecessary inconvenience to non-profit making and certain
other companies in that they cannot hold annual general meetings at a time and
place more convenient to their members, in view of the rigid requirements of
the present section. It is proposed to remove these defects from the section on
the lines suggested in para. 69 of the Report."
It is worth recalling that the power of the Registrar
to extend the time for holding the meeting which was 6 months normally was also
reduced to 3 months by the above amended Act. The legislative policy obviously
was, therefore, not to allow a person to continue as director in spite of the
maximum permissible time having elapsed between the holding of one annual
general meeting and another; the Registrar's power to extend time was reduced
from 6 to 3 months thus reducing the total period from 21 months to 18 months.
It is not a case of casus omissus, as contended by Mr. Shroff, who commented
that the legislature had not specifically stated that at the end of the period
for which a director is elected he will retire or vacate office. I do not see
how such express mention was necessary. When the term of office is fixed with a
further provision that the incumbent would retire on the day on which the
annual meeting would have had to take place coupled with a provision concerning
the maximum interval that can elapse between one annual general meeting and
another, we have all parameters, within which a director functions, fully and
comprehensively. There seems no scope at all, therefore, for the contention of
Mr. Shroff that even after the 30th June, 1974, the 18 executive committee
members/directors continued as de jure directors/executive committee members.
The settled rule of interpretation is that a statute will have to be
interpreted with reference to the object of the statute, the mischief to be
remedied and the remedy provided. The object of the legislature here was
clearly to see that the directors would not continue beyond the terms for which
they were elected and also fixing the maximum time that can elapse between one
annual general meeting and another with a further statement, as under section
255, that at least one-third of the directors would, in the absence of article
provision to the contrary, retire at every annual general meeting. In this case
article 24 provides for the whole set of directors retiring at the annual
general meeting. The articles (article 31) provide that when an annual general
meeting takes place the persons concerned would retire at the end of such
meeting. This provision was to remove a possible anomaly of their having to
retire either before the meeting or during the course of it. In the present
case, when no annual general meeting had taken place for the maximum
permissible period the executive committee members/directors did retire at the
expiry of the said period. To allow them to continue at the end of the said
period as de jure directors would be to invest them with a power to continue as
directors by defaulting to call an annual general meeting. That no defaulting
director could take advantage of his own wrong seems a fairly well-established
proposition; this was pointed out in In re Consolidated Nickel Mines Ltd.
not questioned before the Court of Appeal or House of Lords and followed by
Venkatarama Iyer J. in Ananthalakshmi Ammal.
Even shorn of authority I will have no difficulty in upholding such a position.
There is also another way of looking at this matter.
The legal position established by In re
Consolidated Nickel Mines Ltd.
which was not only not disputed later but admitted to be correct both
before the Court of Appeal and House of Lords in Kanssen,
shows that the accepted position in common law is that directors could not, by
reason of merely postponing the convening of annual general meeting, continue
to be the de jure directors after the expiry of the maximum permissible
statutory period. If this is the position according to common law and if the
subsequent statute, consolidating the pre-existing law in the field, was silent
about it there is ample authority for the view that the statute must be read in
consonance with the common law. It is sufficient to refer to a few passages in
Maxwell on Interpretation of Statutes (12th edition) and Crates on Statute law
(17th edition) in support of this well-established proposition. The former
contains passages, among others, to the following effect:
"(a) Few principles of statutory interpretation are applied as frequently as the presumption against alterations in the common law." (page 116);
(b) In the case of a consolidating Act there is a particularly strong presumption that it does not alter the law contained in the statutes which it replaces " (page 116).
In the latter also there are plenty of passages in
support of the said positions; it would not be necessary to refer to all of them.
It will be sufficient to notice the following:
"(a) To alter any clearly established principle of law a distinct and positive legislative enactment is necessary." (page 121).
(b) It must be remembered that it is a sound rule to construe a statute in conformity with the common law rather than against it except where or in so far as the statute is plainly intended to alter the course of the common law." (page 188).
(c) If it is clear that it was the intention of the legislature in passing a new statute to abrogate the previous common law on the subject, the common law must give way and the statute must prevail; but there is no presumption that a statute is intended to override the common law." (page 339).
(d) The courts will lean against any presumption that a consolidation Act was intended to alter the common law." (page 363).
Reference to another well-established rule of common
law may also be made; it is that a person should be heard before his rights are
affected; if there are any omissions in the statute in this regard "the
justice of the common law principle would supply the omission". (See above
observation of Byles J. which has become classic in Cooper v. Wandsworth Board
of Works).
In that case the metropolitan statute empowered the district board to alter or
demolish a house, where the builder has neglected to give notice of his
intention to build, seven days before proceeding to lay or dig the foundation.
It was held by all the three judges that the statute did not empower them to
demolish the building, without first giving the party guilty of the omission an
opportunity of being heard. Mr. I. N. Shroff pointed out that the above said
decision related to a rule of natural justice which does not fall for
consideration in the present case. The question is not so much in what context
the above said observation was made but it is one concerning the presumption of
a statute not changing the common law unless it contains an express provision
contrary to the common law especially when a statute consolidated the
previously existing position, this presumption becomes even stronger.
Looking at it from any angle it seems futile to
contend that the members of the executive committee/directors continued in this
case after the expiry of the maximum permissible meeting, without their being
elected as executive committee members/directors in a manner known to law. Once
the conclusion is reached that there are, at the moment, no de jure directors
who can convene a meeting for the election of office bearers the further
question is whether the court is to exercise its power under section 186, as it
did previously in the affairs of the same company, or merely direct that the Central
Government alone should be moved for this purpose under section 167. It is no
doubt true that under section 167 any member of the company can apply to the
Government for the purpose of calling an annual general meeting. My attention
has been drawn to the affidavit dated December 19, 1974, filed by Shri J. S.
Sood in this petition that he had approached the Regional Director of the
Company Law Board, Kanpur, to call a general meeting in the year 1971-72, in
view of the same not being held in 1970-71. Not only was no general meeting
convened by the Central Government but even he did not inform of any action
taken on such request. In the result he did not pursue the matter with the
Regional Director of the Company Law Board, Kanpur. This fact was not disputed
by Mr. I.N. Shroff even during the hearing. When a submission was made orally
from the Bar to the above effect by Shri K.K. Mehra on behalf of the applicant
he was directed to file an affidavit which was filed in this court on December
19, 1974. The Companies Act, as amended in 1973, provides for the powers
exercised by the court under section 186 being exercised by the Central
Government after the said Act comes into force ; the said Act comes into force
only from the appointed date, which is yet to be fixed. So far as the present
case is concerned, therefore, a meeting can be called by this court under
section 186.
The scope of section 186 of the Act has been
discussed by me elaborately on more than one occasion, vide Shrimati Jain v.
Delhi Flour Mills Co. Ltd.
and In the matter of Companies Act, 1956, and In the matter of Motion Pictures
Association.
I had referred, among other decisions, to that in United Breweries Ltd. v.
Rustomji and Co. Ltd.
Explaining the principles to be borne in mind while dealing with an application
under section 186 it was stated, inter alia, that even when there is doubt as
to whether a meeting in the regular course could be called the company should
not be exposed to difficulty and risk of litigation; it would be a proper case,
therefore, for the exercise of the power conferred under section 186 to call a
meeting of the company. It is in the light of the facts discussed above that it
seems imperative to call a meeting of the company under section 186 of the Act.
It seems needless to refer to the earlier attempts
made to have only a chairman appointed by court for a meeting already called by
the company; it was probably thought that it was an inexpensive course to
adopt. But when the executive committee members/directors are not functioning
de jure they could not call a meeting themselves. As such there is no other
alternative to exercising powers under section 186 of the Act to call a meeting
of the company where office bearers (executive committee members/directors)
could be elected.
Since the election held at a meeting called by the
court at the first instance resulted in several irregularities and difficulties
consequently cropped up, I had to give specific directions in a matter how the
later meeting, which I had directed to be called, should be conducted and the
election held. Since these directions proved to be effective and successful I propose
to give similar directions now. A meeting of the company is directed to be
called/held/conducted on Saturday, the 1st March, 1975, at the premises of the
company, i.e., F-27, Darya Ganj, Delhi. Shri Prithvi Raj Sachdev, advocate,
will be the chairman of the meeting and Shri A.L. Joshi, advocate, will be the
alternate chairman.
The following procedure shall be adopted at the said
meeting:
(1) Any application for new membership from today onwards will be put up before the chairman and his initials obtained thereon before a new member is admitted.
(2) All
the firms and limited companies, which are members of the company (association)
will send written authorisations and duly authenticated copies of
authorisations of needed resolutions, respectively, to reach the secretary of the company at least three
days in advance of the date of the meeting, indicating who will vote at the
meeting and what his position is in the firm or company, as the case may be.
(3) No member of the company, which is a firm or
limited liability company, will be entitled to vote unless such written
authorisations or authenticated copies of resolutions, as the case may be, are
sent by the companies or firms concerned and received by the secretary of the
com any within the aforesaid time. In the case of partnership firms the
authorisations will be confined to one of the partners. If the same person is a
partner in more than one member-firm he can on being authorised by the
concerned firm or firms vote for the firm or firms concerned. In such cases
(i.e.) where the person concerned is representing more than one member firm
when signing the attendance register at the meeting he will indicate therein
the firm/firms which he is representing.
(4) All proprietary concerns can vote only in
person, subject to identity and membership being verified.
(5) The nominations along with the consent of the
person nominated in the case of those wishing to be elected as office bearers
will reach the secretary of the company on or before 5 p.m. on 13th February,
1975. The nominations will be scrutinised by the chairman. The last date of
receipt of objections to nominations will be on or before 5 p. m. on 15th
February, 1975. The chairman will go into the objections, scrutinize the
nomination papers and make his decision concerning them. For this purpose he
will attend the aforesaid premises of the company on 17th February, 1975. The
list of valid nominations will be dispatched, under certificate of posting, by
the secretary of the company to all the members not later than the 19th
February, 1975.
(6) Members attending the meeting will not be
permitted to sign the attendance register after 12 noon. In other words, if any
member does not sign the meeting register by 12 noon that member will not be
entitled to vote.
(7) The requisition slips for the ballot papers
will be actually signed by the person who has to record the vote on behalf of
the concerned member ; they (requisition slips) will not be issued to any one
else. A register will be maintained concerning the issue of requisition slips
and the signature of the person concerned will be taken in token of his having
received the requisition slip. When the ballot paper is issued in pursuance of
the requisition slip the signature of the person concerned will be taken on the
requisition slip itself in token of his having received the ballot paper.
(8) No ballot paper will be issued after 5 p.m.
At 5 p.m. the chairman will announce the time beyond which no person will be
allowed to record his vote; this decision will be made by him in the
light of the time that is likely to be taken by those to whom ballot papers
have been issued but are yet to record their votes.
(9) The
chairman will exclude from the premises where the meeting and voting take place
any person who has not to record his vote.
(10) The following scrutineers are
appointed to help the chairman:
1. Shri K.L. Budhiraja, Advocate
2. Shri M.L. Sachdev, Private Secretary
3. Shri Suhinder Singh, Reader
4. Shri S.M. Saxena, Superintendent.
I have been able to take the consent of Shri K. L. Budhiraja, Advocate,
only among the lawyers who were appointed at the last meeting. I am, therefore,
unable to include the name of any other advocate. The chairman will be at
liberty to move for more scrutineers to be appointed in case he wants any more.
(11) The scrutineers themselves will work under the guidance and help of the chairman/alternate chairman and count the votes.
(12) The following persons are also appointed to help movement of files and to perform other petty errands at the conduct of election on 1st March, 1975:
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1. Shri Sant Ram, Restorer |
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of this court |
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2. Shri Krishan Chand, Daftri |
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3. Shri Deep Chand, PeonJ |
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4. Shri Om Prakash, Peon |
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of Tis Hazari Bar Association |
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5. Shri Mangli, Peon |
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They will each of them be paid rupees fifty.
(13) As soon as the voting is over the counting of votes will commence and the result will be announced that night itself.
(14) After the election is over the chairman will submit a report to this court concerning the meeting along with the requisition slips, ballot papers, the attendance register, nominations, authorisations and any other documents that may be considered relevant by the chairman, all in sealed container, within a week after the meeting.
(15) Only the contesting candidates will be allowed to be present inside the premises when the polling and counting take place; no other person on his behalf to help the candidates will be allowed to be present. The chairman will not allow the staff of the company to participate in the matter of conducting the election.
(16) The
chairman (Shri Prithvi Raj Sachdev) will be paid a remune ration of Rs. 2,000,
the alternative chairman (Shri A.L. Joshi) Rs. 1,000 and the four scrutineers
(Sarvashri K.L. Budhiraja, M.L. Sachdev, Suhinder Singh and S.M. Saxena) Rs.
500 each, by the company. Sarvashri M.L. Sachdev, Suhinder Singh and S.M.
Saxena, officers of this court who have been appointed scrutineers, will
receive the said sum of Rs. 500 each as rewaid for this special service.
(17) The secretary of the company (Shri J.C. Basu) is authorised to make payments in respect of the above remunerations.
(18) Shri J.C. Basu in addition to Sarvashri (names to be mentioned before chairman) will be allowed to be present along with the chairman for the purpose of helping the identification of voters. They will not stand as candidates for the election.
A copy of this order will be caused to be cyclostyled
or printed by the secretary of the company (association) and the same sent
under certificate of posting to all the members within three weeks from today.
The chairman will have the necessary authority to
visit the aforesaid premises of the company, as often as he may wish, to see
that all the directions given herein are implemented by the secretary of the
company.
The petition is ordered in the above terms. There
will be no order as to costs.
[1986] 60 COMP. CAS. 920 (CAL)
HIGH COURT OF CALCUTTA
v.
Titagarh Paper Mills Co. Ltd.
ASHA MUKUL PAL J.
AUGUST 13, 1984
Prabir Sen for the
petitioner.
R. Nag for the Respondents.
Asha Mukal Pal J.—This is an application by one Gopal Das Gujarati for an order
of injunction restraining the defendants, namely, the Titagarh Paper Mills Co
Ltd., Kanak Ghosh, working for gain at 95, Park Street, Calcutta, and others
including Sri Betrabet, Deputy General Manager, Development and Planning, and
N. I. Gangaram, Deputy General Manager, working for gain at the Industrial
Development Bank of India along with others from proceeding with or acting in
terms of the notice dated August 24, 1983, calling the annual general meeting
on September 30, 1983, and also from holding the annnal general meeting on the
said date. Appointment of administrator and/or special officer has also been
sought for over the Titagarh Paper Mills Co. Ltd., defendant No. 1.
The petitioner's case is
that at all material times, he was and still is a shareholder of the Titagarh
Paper Mills and he is holding 32,179 fully paid-up ordinary shares of Rs. 10
each in the capital of the Titagarh Paper Mills. Respondents Nos. 2 to 9 are
acting and/or holding themselves out as directors of the Titagarh Paper Mills.
His further case is that A. B. Majumdar and Kanak Ghosh are purporting to act
as whole time directors of the company without the appropriate sanction of the
Central Government. Industrial Development Bank of India, Industrial Credit and
Investment Corporation of India Ltd., Industrial Financial Corporation of India
and Life Insurance Corporation of India have advanced substantial loans to
Titagarh Paper Mills and due to mismanagement by the directors, the loans of
the financial institutions could not be paid in accordance with the schedule
and as a result whereof the delinquent management converted a part of the loan
into equity share capital in the said Titagarh Paper Mills. The other
defendants, the petitioner alleges, are the nominees of the different financial
institutions named before but most of them, it is stated, are engaged in their
own business or not mindful of the business of the defendant company and the
actual day-to-day business of the affairs of the Titagarh Paper Mills was
and/or still is vested in Sri Mazumdar and Sri Ghosh who at all material times
were and/or are still "pretending" to act as whole time directors of
the Titagarh Paper Mills Ltd. For the last two years, the company had failed to
declare any dividend and it was, as alleged by the petitioner, due to the
mismanagement and inefficiency of the management leadership.
In paragraph 10, it has
been alleged that on or about September 8, 1983, the petitioner received a
notice dated August 24, 1983, purporting to call an annual general meeting on
September 30, 1983. This is the notice which has been challenged in the suit
and this is the notice which the petitioner wants that the court should direct
that the defendant should be restrained from giving any effect thereto. The
petitioner's case as stated in paragraph 11 of the petition is that as the said
notice contained agenda of far-reaching consequences, he wrote a letter on
September 8, 1983, to the Titagarh Paper Mills raising certain "pertinent
queries" (according to the petitioner) and also relating to management and
administration of the Titagarh Paper Mills Co. Ltd., in order to enable the
petitioner to apply his mind to exercise his voting rights accordingly. But no
reply was received by the petitioner from any one of the directors of the
company.
In paragraph 12 of the said
petition, the petitioner formulates the grounds why the said notice and the
annual general meeting which was held on September 30, 1983, pursuant to the
said notice should be held to be illegal and ultra vires the Companies Act.
His first ground is that
defendant No. 3 has offered himself for reappointment as director and the
directors' report states that as Sri T. N. Gidwani does not wish to seek
re-election, the board did not propose to fill up the vacancy caused by the
retirement of Mr. Gidwani and Mr. Kanak Ghosh (defendant No. 3) being eligible
offered himself for reappointment. The petitioner's contention is that the
appointment of Sri Kanak Ghosh as a special director cannot be said to be an
ordinary business but a special business within the meaning of section 173 of
the Companies Act, inasmuch as the agenda of appointment of Sri Kanak Ghosh as
full time director was a special business and, as such, under section 173(2),
it should have been clearly mentioned in a statement annexed to the notice of
the meeting. His main grievance is also that it will appear from the director's
report that for the year 1982-83, the approval of the Central Government
sanctioning the terms of appointment of Kanak Ghosh as wholetime director has
not been obtained from the Central Government as required under the mandatory
provisions of law and in order to bypass the said mandatory provision, it was
sought to be done under the garb of ordinary business. In the language of the petitioner
(paragraph II(1V)): "The wholetime directorship of defendant No. 3, Sri
Kanak Ghosh, is sought to be smuggled in the agenda without giving the
shareholders the minimum information that is required to be given under the
provisions of the Companies Act. In fact, in the said notice, not only the
factum of such non-approval has been suppressed but the deliberate misleading
and tricky agenda has been inserted in an innocuous manner to mislead and
hoodwink the shareholders including the petitioner."
The petitioner's case is
that the explanatory statement does not at all explain the material facts in
any explanatory way.
Mr. Prabir Sen, counsel for
the petitioner, contends that none, sittingin the arm-chair of the absentee
shareholders, could be enlightened as to the real state for which the items of
agenda were sought to be resolved and he criticised most of the agenda of
raising of loans in challenging the said explanatory statement. The
petitioner's grievance is that " in the absence of any answer to the
legitimate queries made by the petitioner, it is well nigh impossible for the
petitioner to apply his mind and cast his voting rights either in favour of or
against the passing of the resolution relating to the profit and loss account.
His further grievance is
that agenda No. 4 relates to authorising the board to have the power to borrow
money to the tune of rupees forty crores ; the explanatory statement relating
to the said item is misleading and does not disclose material facts. The
petitioner challenges that the ground on the basis of which the borrowing power
was sought by the board was a sort of conferring a blanket power to borrow a
huge sum of forty crores without disclosing any particulars. The mere statement
that it was required for the reconstruction and/or rehabilitation scheme cannot
in any way be said to be explanatory.
These are the main grounds
on which the petition is based for not giving effect to the notice dated August
24, 1983, and for an order to restrain the directors from holding the annual
general meeting pursuant to the said notice and on the basis of which an
argument was advanced before me by the petitioner's counsel. The grounds are
really two: one is that without the sanction of the Central Government, Kanak
Ghosh cannot be appointed as a full time director and/or he cannot draw
remuneration as a full-time director which he did in violation of the
provisions of section 309 read with section 269 of the Companies Act and the
second ground is that why such a huge sum was required to be borrowed had not
been fully explained in the explanatory statement.
In paragraph 16, the
petitioner states that unless the defendants are restrained by a temporary
order of injunction from holding the annual general meeting on September 30,
1983, and passing illegal resolutions therein and unless the said Sri Kanak
Ghosh is restrained from reappointing himself as wholetime director by
virtually committing a fraud upon the shareholders, the plaintiff will suffer
irreparable injury and for the ends of justice and to avoid such irreparable
injury, an order of injunction prayed for should be granted as it would be just
and equitable in the facts and circumstances of the case. I should state here
that the petition was affirmed on September 30, 1983. That means the date of
the meeting and the application for ad interim injunction was sought for after
the meeting was over. It may also be noted that the petitioner did not appear
in the said meeting. I say all these things which I shall deal with later on
for my finding whether the application is a bona fide one and whether any
relief can be granted in the facts and circumstances of the case as made out in
the petition.
Mr. Prabir Sen, counsel for
the petitioner, in order to show that Kanak Ghosh could not be appointed as a
wholetime director because of the absence of the Central Government approval
cited a judgment in Titagarh
Paper Mills Co. Ltd. v. Union of India [1984] 1 CLJ 422 ; [1986] 59 Comp Cas 94 (Cal) where Titagarh Paper Mills under an
application under article 226 of the Constitution challenged the withholding of
the approval regarding reappointment of three wholetime directors including
Kanak Ghosh and lost the application. But, however, I have been shown by
counsel for the respondent, Titagarh Paper Mills, that before the said judgment
was published, the approval of the Central Government was accorded to the
appointment of Kanak Ghosh as wholetime director. Therefore, so far as that
part of the argument is concerned, it loses its force and as a matter of fact,
counsel for the petitioner virtually concedes that point, only submitting (when
the letter of approval was shown) that his client would enquire into the matter
and take necessary steps for setting aside of the said approval moving in the
proper forum. Therefore, the other point that is left before me is whether the
requirement of borrowing had been properly or duly explained in the explanatory
statement and whether the absence of the full explanatory statement vitiated
the notice and the meeting held thereunder, along with the resolution passed in
the said meeting.
Mr. Sen cited before me a
judgment in Firestone Tyre and Rubber Co. v. Synthetics and Chemicals Ltd.
[1971] 41 Comp Cas 377 (Bom). At page 435 of the said report, justice Madon, as
his Lordship then was, observed that it is the duty of the company acting
through its board to incorporate in an explanatory statement all material facts
concerning the item of special business to be transacted at a meeting. The
passage to which my attention has been drawn at page 435 of the said report is
as follows:
"Any fact which would
influence them in making up their minds, one way or the other, would be a
material fact under section 173(2) and had to be set out in the explanatory
statement to the notice of the meeting. The views expressed by the Company Law
Board would have certainly played a part, and perhaps an important part, in
enabling the company's shareholders to make up their minds whether to vote for
approval of the further appointment or not."
In another judgment,
Shalagram Jhajharia v. National Co. Ltd. [1965] 35 Comp Cas 706, 725; [1965] 69
CWN 369, 385 a Division Bench of the Calcutta High Court held that under
section 173(2), the explanatory note with regard to the special item of
business is to be annexed to the notice of the meeting; and if it was not done,
there was no compliance with the requirements of section 173(2) of the
Companies Act inasmuch as it was incumbent under the said section, that if any
special business was to be transacted at the meeting, it should specify the
nature of such business in the notice.
Mr. Nag, appearing for the
respondents, drew my attention to item No. 4 of the explanatory statement and I
find that the figure of rupees forty crores sought to be borrowed as stated in
the petition does not indicate the correct state of facts regarding this amount
to be borrowed. The company has specifically stated :
"Item No. 4 : Section
293(l)(d) of the Companies Act, 1956, provides, inter alia, that except with
the consent of the company in a general meeting, the board of directors shall
not borrow moneys, if the moneys to be borrowed, together with the moneys
already borrowed by the company (apart from temporary loans, obtained from the
company's bankers in the ordinary course of business) exceed the paid-up
capital of the company and its free reserves, that is to say, reserves not set
apart for specific purposes. The proposed resolution is intended to satisfy the
said requirements of the law. By a resolution passed by the company at its
annual general meeting held on September 29, 1978, the board of directors of
the company was authorised to borrow in excess of its paid-up share capital and
free reserves up to a limit of Rs. 15 crores. In connection with its expansion/
modernisation scheme, the company has already obtained loans from various
financial institutions and State Bank of India. The company will require
further loans for its reconstruction/rehabilitation scheme relating to its
mills at Titaghar and Kankinara in West Bengal, Choudwar in Orissa, and also
for the purpose of its business."
It has been denied in the
affidavit-in-opposition that the notice is misleading and tricky. It is denied
that the explanatory statement does not contain the material particulars.
Reference may be had to the statements contained in paragraph 13(c) of the said
affidavit-in-opposition affirmed by Kanak Ghosh where such denial has been
made. He has also referred to the auditor's report to show the bona fides and
to refute the charge of trickiness or mismanagement by the board of the
company. It has been argued on behalf of the respondents that he holds only 0
006% of the shares. It does not amount to 1% even. It is further stated that
Government holds 61% of the said shares. It has been argued by Mr. Nag and
quite rightly that the letter which has been written challenging the notice of
the explanatory statement by the petitioner is a document which does not
purport to touch the real point. It relates to some matters of the years
bygone, a matter of the past. By reading the said letter, it appears that the
petitioner does not have any tangible material to say against the management
for the purpose of his real interest in the company. It appears to me that if I
allow that letter to be taken into account seriously from a person who holds
0006% shares, I shall be allowing a minimal minority to hold the overwhelming
majority to ransom. Such an order would be against any legal norm: equitable
principles too deter me from making any such order.
The very conduct of the
petitioner does not prima facie show that he was really interested in the real
interest of the company in praying for an order of injunction. His conduct,
also does not show his real concern. He had enough time to come forward for
asking for an interim order. He came before the court on the last date and that
also after the meeting was over. I have been cited a judgment, Surajmull
Nagarmull v. Shew Bhagwan Jalan [1973] ILR 1 Cal 207. A. N. Sen J., as his
Lordship then was, in such a case refused to grant an order of injunction. The
ratio of the said judgment has been accepted by D. K. Sen J. I have dealt with
the same in the concluding portion hereinafter. In Maharani Lalita Rajya
Lakshmi v. Indian Motor Co. Hazaribagh Ltd. [1962] 32 Comp Cas 207, 213; 67 CWN
63, 68 ; AIR 1962 Cal 127, 130 and 131, Justice P. B. Mukharji, presiding over
a Division Bench, following the Privy Council judgment in Parashuram Detaram
Shamdasani v. Tata Industrial Bank Ltd. [1928] LR 55 IA 274; [1928] ILR 52 Bom
571 ; AIR 1928 PC 180, observed that a shareholder who by his conduct shows
that he knew the real effect of the work to be transacted at a meeting, cannot
complain of a notice on the ground of insufficiency. Here also he knew about
all these facts but he did not choose to attend the meeting, but instead, after
the meeting was over, moved the court. By such conduct, relief as sought for
cannot be granted. P. B. Mukharji J., in the said Division Bench judgment,
observed (at pp. 213 and 214 of 32 Comp Cas) : "besides, we are not
satisfied on the facts here, that there has been any failure to comply with the
substance of section 173(2) of the Companies Act. How much is 'all material
facts' and what is 'nature and extent of interest' under section 173(2) are
questions of fact and degree to be judged in each case."
In another Division Bench
judgment, East India Commercial Co. P. Ltd. v. Raymon Engineering Works Ltd.,
AIR 1966 Cal 232, the Division Bench held that solution of problems as to
whether all material facts were disclosed depends upon the facts of each case.
The Division Bench held that it is not the function of an explanatory statement
to travel beyond the proposed resolution. Material facts have to be given but
not detailed particulars. The other case which has been cited is also a
Division Bench judgment of our court referred to by Mr. Sen in National Co.
Ltd. v. Shalagram Jhajharia, [1979] Tax LR 1629. None of these cases enjoins
that the explanatory statement should be a detailed statement and this being a
question of fact must be judged according to the facts and circumstances of
each case. Here, in the present case, the explanatory statement may not contain
the full details, but it is not a tricky one or misleading one as contended by
Mr. Sen. It could have been more explicit, but not being so, it does not stand
condemned.
On behalf of the
respondents, a judgment reported in Sitaram Jaipuria v. Banwarilal Jaipuria,
AIR 1972 Cal 105 ; 76 CWN 161, has been cited. In the said judgment, it has
been held by the Division Bench (at page 165 of CWN at pp. 108-109 of AIR) as
Chief Justice, P. B. Mukharji, observed, in such cases there are two main
considerations in an application for injunction. One is the question of balance
of convenience, the other is whether a prima facie case has been made out. In
the course of the judgment, Chief Justice Mukharji observed that the petitioner
holds seven voting rights (here in this case the petitioner's shareholding is
negligible) and in refusing an injunction, the Division Bench took into
consideration that an injunction, if issued on the application of such a person
who has got only an infinitesimal interest in the shareholding of the company,
a stalemate would be created and the entire affairs of the company would come
to a standstill.
In this case too, there was
no injunction and the next annual general meeting is going to be held again in
the course of a month or two and if I pass an order of injunction, the entire
matter will come to a standstill. Therefore, on the balance of convenience too,
it does not appear to me that the facts of this case prima facie justify an
order for injunction. Mr. Nag has successfully met all the challenges including
item No. 6 of the notice (page 23 of the petition).
The criticism of Mr. Sen
that section 81(3) of the Companies Act had not been complied with has been
refuted by Mr. Nag by arguing that it was done in conformity with the rules
made by the Government in this regard by Notification No. S.O. 2577, dated July
30, 77,
as amended by Notification No. S.O. 1328, dated May 8, 1978, as it
would appear from page 24 of the petition. As I said before, the excess payment
to Sri Kanak Ghosh which was sought to be argued by Mr. Sen fails as the
Central Government approval issued by the Ministry of Law, Justice and Company
Affairs dated December 31, 1983, is produced before the court wherein Sri Kanak
Ghosh's wholetime directorship has been approved from January 1, 1980.
I may also refer here to an
unreported judgment of Justice D. K. Sen in Suit No. 1073 of 1980 (Dipak Mazumdarr v. Calcutta
Chemicals Co. Ltd.). Justice Sen referring to
and following the judgment of Sitaram Jaipuria v. Banwarilal Jaipuria, AIR 1972
Cal 105, quoted the observation of the said Division Bench which observed as
follows:
"The important point
of this decision is that in construing provisions like section 173(2), too
rigid an interpretation should not be made as to hamper the conduct of the
business. Section 173(2) of the Companies Act means a notice and the
explanatory statement should give the essence and substance of the transaction
intended to be passed at the meeting. It is a business document and it must be
used in a common sense business-like manner where so long as that standard is
satisfied, this court should not be astute to find legal and technical points
to defeat the notice and the explanatory statement."
Justice Sen also referred
to Surajmull Nagarmull v. Shew Bhagwan Julian [1973] ILR 1 Cal 207, where
Justice A. N. Sen, as his Lordship then was, observed that any breach of the
provisions of section 173 does not necessarily have the effect of invalidating
a meeting and nullifying the proceedings thereof. I also think here, in the
instant case, apart from the balance of convenience, particulars that have been
given in the explanatory statement do not invalidate the proceedings in the
facts and circumstances of the case.
Considering all the aspects
of the matter and after hearing the argument of respective counsel for the
parties, I am not in favour of making any order of injunction as prayed for on
this application on the grounds mentioned above. In order to avoid repetition,
I can only summarise the main grounds which are as follows:
(1) Balance of convenience is not in favour of the petitioner
as he is holding only a minimal amount of shares.
(2) The
grounds mentioned in the petition lack credibility.
(3) Explanatory statement does not lack the particulars in my
view as prima facie it appears to me (it must be noted I am not hearing the
suit), lack of particulars on which so much has been said is not such as to
justify me to stay the result which had already been passed in a meeting held
and approved by an overwhelming majority of shareholders.
(4) It has not been explained why he came on the last date
even at a time when the meeting was over although he had the chance to come
before.
(5) The next
annual general meeting is going to be held shortly.
(6) The conduct of the petitioner is not such as to justify
me to grant an order of injunction which after all is an equitable relief.
However, I say this without prejudice to the rights and contentions of the
parties in the suit. These are the grounds in brief along with other grounds
which I stated hereof and which appeared to me as impediments in granting any
order of injunction.
In view of the aforesaid, I
am constrained to say that this application has little merit in view of what
has been stated before. I pass no order in this application. It is made clear,
however, that this is without prejudice to the rights and contentions of the
parties in the suit or in any other proceedings that the petitioner may be
advised to take.
Costs of the application
would be costs in the cause.
[1997] 88
COMP. CAS. 754 (MAD.)
HIGH COURT OF
MADRAS
v.
Dr. K.R. Lakshmanan
JAGADEESAN J.
APPEAL
AGAINST ORDER NO.
1118 OF 1996
NOVEMBER
15, 1996
Mohan Parasaran for
the Appellant.
G. Vasudevan for the
Respondent.
Jagadeesan J.—The Madras Race Club has filed
the present appeal against the order of the Company Law Board, Southern Region
Bench, Madras, in C.P. No. 660/167/SRB/96, dated August 17, 1996. The
respondent herein, a member of the club, has filed a petition under section 167
of the Companies Act in C.P. No. 660 of 1996 to hold the annual general meeting
for the years 1986 to 1996.
The case of the
respondent is that as per the Tamil Nadu Horse Races (Abolition of Wagering or
Betting) Act, 1974 (hereinafter referred to as "the Act"), horse
racing was sought to be banned. The appellant herein challenged the validity of
the said Act before this court. This court upheld the validity of the said Act.
Aggrieved by the same, the appellant herein preferred an appeal before the
Supreme Court and obtained an order of stay of the operation of the said Act.
When the matter was pending before the Supreme Court, the Government of Tamil
Nadu passed another enactment, viz., the Madras Race Club (Acquisition and
Transfer of Undertaking) Act, 1986. By virtue of this Acquisition Act, the
undertaking of the club, the right and interest of the club in relation to its
undertaking stood transferred to and vesting in the Government. Some of the shareholders
challenged the validity of the Acquisition Act also before the Supreme Court.
Pending these cases, the Supreme Court constituted a committee of management to
manage the affairs of the club. In view of the constitution of the committee of
management, the activities of the club came to a standstill and the members
have been sending the subscription every year.
In February, 1996,
the Supreme Court struck down the Acquisition Act and directed the committee of
management to hand over the management to a newly constituted management
committee Under the memorandum and articles of association before March 31,
1996 (see [1996] 86 Comp Cas 66). Accordingly, in the extraordinary general
Meeting held on February 20, 1996, a new management committee was elected and
the said committee is now functioning after taking over the affairs of the
club. As the duly elected committee is in operation, the committee should be
directed to hold the annual general meetings of the club which were not held
from 1986, after the Acquisition Act was passed.
The appellant herein
filed a counter stating that in view of the Acquisition Act, admittedly, the
meetings were not held from 1986 onwards. From that period, it is further
admitted that the committee of management appointed by the Supreme Court was in
management of the affairs of the club. Virtually no activity of the club was
carried on and as such there is no question of any annual general meeting with
retrospective effect to be held for the previous years.
The Company Law Board
by its order dated August 17, 1996, allowed the company petition and directed
the appellant to hold the annual general meeting for every year from 1986 to
1995. Aggrieved by the same, the present appeal has been filed.
Mr. Mohan Parasaran,
learned counsel for the appellant, contended that the non-holding of the
meeting is not due to any inaction on the part of the duly elected management
committee subsequent to the order of the Supreme Court, striking down the
Acquisition Act. By virtue of the order of the Supreme Court, constituting the
management committee, the said committee alone was in charge of the management
of the affairs of the club. Since the committee was constituted by the Supreme
Court, there was no necessity for the convening of the annual general meeting.
Virtually the club has become defunct under section 560 of the Companies Act,
1956. But, after the constitution of the newly elected management committee,
the appellant had convened the annual general meeting on September 25, 1996, at
which the accounts for the year ended March 31, 1996, had been approved. Now
that the annual general meeting has been held, there is no question of
convening the annual general meeting for the years 1986 to 1995 and on this
ground the order of the Company Law Board is liable to be set aside.
It is not in dispute
that the Tamil Nadu Government had passed an Act known as the Madras Race Club
(Acquisition and Transfer of Undertaking) Act, 1986, which was challenged
before the Supreme Court. Pending decision in those cases, the Supreme Court
had constituted a committee of management to manage the affairs of the club and
till February 20, 1996, the said management committee constituted by the
Supreme Court was in charge of the affairs of the club. During that period, no
activities of the club had been carried on, except the conduct of the races.
The Company Law Board also in paragraph 6 of its order has made reference to
the fact that, the committee constituted by the Supreme Court consisting of
some of the members of the club was in management. But, however, that
management committee constituted under the articles of the club should have
convened the annual general meeting every year which it failed to do so. It is
unnecessary for the Board to go into the reasons for not holding the annual
general meeting and on this ground directed the holding of the meeting from
1986 to 1995. The management committee constituted by the Supreme Court cannot
be said to be the managing committee constituted under the articles of the club.
It is only by virtue of the order of the court. Further, when the committee has
been directed to take care of the affairs of the club and except the conduct of
the races no other activity of the club was carried on by the appellant club,
and when the appellant had become defunct by virtue of the order of the court,
there is absolutely no necessity to call for the annual general meeting. When
the appellant club was taken over by the said committee by virtue of the
Acquisition Act, the appellant is not entitled to carry on the regular affairs.
Only in order to avoid such inconvenience, the Supreme Court had constituted a
committee to look after the affairs whereby the races alone were conducted. The
committee has maintained regular accounts for that period. When the appellant
club itself is not in existence and no other activity had been carried on,
there is no necessity for convening the annual general meeting as contended by
the respondent herein.
It is well-settled
that under certain circumstances compliance with the provision of statutes
which prescribe how something is to be done will be excused. This is, in
accordance with the maxim of law, lex non cogit ad impossibilia. In Broom's
Legal Maxims, it has been stated thus :
"It is, then, a
general rule which admits of ample practical illustration, that impotentia
excusat legim ; where the law creates a duty or charge, and the party is
disabled to perform it, without any default in him, and has no remedy over,
there the law will in general excuse him and though impossibility of
performance is in general no excuse for not performing an obligation which a
party has expressly undertaken by contract, yet when the obligation is one
implied by law, impossibility of performance is a good excuse."
In fact, the Supreme
Court has also referred to the maxim in the judgment reported in Vinod K. Kaul
v. Union of India [1995] 9 JT 205 (SC) as follows :
"The legal maxim
lex non cogit ad impossibilia has to be borne in mind, i.e., the law does not
compel a person to do the impossible."
As I have already
pointed out, by virtue of the enactment of the Acquisition Act, the race club
vested in the Government, as there was no stay of operation of the provisions
of the Act pending the cases before the Supreme Court, challenging the said
Acquisition Act. Instead of granting stay, the Supreme Court has constituted
the committee of management. When the committee has been constituted by the
apex court, no question of convening the annual general meeting under section 167
of the Companies Act arises. Hence the order of the Company Law Board directing
the appellant to convene the annual general meeting for the years 1986 to 1995
cannot be sustained.
As pointed out
already, in those periods between 1986 to 1996 when the committee constituted
by the Supreme Court was in management of the affairs of the club, no business
was carried on by the club except the conduct of the races for which the
accounts have been maintained. In fact in the annual general meeting held on
September 25, 1996, the first agenda of the business was to receive, consider
and adopt the profit and loss account for the year ended March 31, 1996, and
the balance-sheet as on that date and also the reports of the committee of
management and auditors thereon. In the said meeting, the accounts, as
submitted by the committee of management in its report, had been passed
unanimously.
Learned counsel for
the respondent, Mr. Vasudevan, also fairly conceded that as a member of the
club, the respondent is interested in the welfare of the appellant club and now
that the annual general meeting had been convened, and the accounts had been
passed, it is more than sufficient compliance with the direction issued by the
Company Law Board and he does not want to pursue the matter.
For the reasons
stated above, the appeal shall stand allowed, setting aside the order of the
Company Law Board.
[1998] 15 SCL 187 (DELHI)
HIGH
COURT OF DELHI
v.
Union of India
C.M. NAYAR, J.
SEPTEMBER 22, 1997
Section 166 of the Companies Act, 1956 -
Annual general meeting - Company was joint-venture between 'MUL' and 'SMC’ -
Parties had right to designate MD by turns - On completion of terms of nominee of
'SMC’ on 27-8-1997 'MUL' appointed 'B' as MD on same date - Appointment of 'B'
was to be ratified at annual general meeting scheduled to be held on 22-9-1997
- 'SMC’ alleged that no concurrence and no effective consultation with it was
held before appointment of 'B' and it approached International Court for
Arbitration - Pending arbitration invoking section 9 of Arbitration and
Conciliation Act, 1996 petitioner sought for stay of annual general meeting -
Whether it will not be in interest of justice to restrain holding of such a
meeting as petitioner will not suffer any irreparable injury which cannot be
cured at a subsequent stage when proceedings in arbitration are concluded -
Held, yes
Section 317 of the Companies Act, 1956 -
Managing Director - Tenure of appointment - 5 years term of previous MD was
completed on 27-8-1997 but fifth annual general meeting after his appointment
fell on 22-9-1997 - 'B' was appointed as managing director from 27-8-1997 -
Whether since in view of provisions of section 317 an embargo is placed on
company that term of managing director cannot exceed five years at a time,
appointment of 'B' as MD could be said to be outside framework of provisions of
section 317 - Held, no - Whether it would be appropriate to set aside or hold appointment
of new MD in abeyance and stay operation of resolution appointing him or to
restrain holding of annual general meeting proposed to be held - Held, no
FACTS
The company
in question was a joint-venture between 'MUL' and 'SMC’ According to the joint
venture agreement the parties had the right to designate the managing director
by turns and the party which nominated the managing director should be entitled
to remove such managing director and nominate a new managing director for the
term of the office up to the expiry of term of office of the predecessor. On
27-8-1997 the term of the managing director who was nominee of 'SMC was
completed and accordingly 'MUL' appointed one 'B' on the same day as the
managing director which was to be ratified at the annual general meeting of
shareholder which was to be held on 22-9-1997. 'SMC’ on allegation that before
appointing 'B' there had been no concurrence and no effective consultation with
it and its nominee had opposed the said appointment filed arbitration petition
before International Chamber of Commerce. Thereafter, invoking section 9 of the
Arbitration and Conciliation Act, 1996 it sought for a stay order against the
proposed annual general meeting as it had approached for arbitration before
International Court of Arbitration. It was further contended that the
petitioner's nominee managing director was to hold office till the conclusion
of the fifth annual general meeting which fell on 22-9-1997 and the appointment
of nominee of 'MUL' prior to that date was not valid.
HELD
In view of
the provisions of section 317 an embargo is placed on the company that the term
of the managing director cannot exceed five years at a time. The board approved
the appointment of nominee of 'MUL' as managing director of the company with
effect from 27-8-1997, till the conclusion of the 5th annual general meeting of
the company following his assumption of office subject to the approval of the
shareholders. Therefore, the appointment of managing director could not be said
to be outside the framework of the statutory provisions as well as of the joint
venture agreement. Further, 'B' was functioning as the managing director of
'MUL' from 27-8-1997 till date, i.e., for about three weeks and it would not be
appropriate to set aside or hold his appointment in abeyance and stay the
operation of the resolution appointing him or to restrain the holding of annual
general meeting proposed to be held on 22-9-1997. The appointment in any case
had to be ratified at the annual general meeting wherein 'SMC’ would be at
liberty to raise objection. As disputes and differences had arisen between the
parties out of or in relation to or in connection with the agreement, 'SMC’ had
taken recourse to arbitration and approached an appropriate authority in this
regard It was established from record that the consent and concurrence of the
petitioner was not taken while nominating the present managing director of the
respondent-company. In any case, his appointment had to be concurred and
approved at the annual general meeting and it would not be in the interest of
justice to restrain holding of such a meeting. 'SMC’ would not suffer any
irreparable injury which could not be cured at a subsequent stage when the
proceedings in arbitration were concluded. In view of the above, the petition
was disposed of with the following directions : The proposed annual general
meeting of the company should be held on 22-9-1997, as scheduled as no prima
facie ground was made out for restraining the holding of such meeting in the facts
and circumstances of the case. The appointment of 'B' in the board meeting held
on 27-8-1997, in case it was finally approved by the shareholders in the annual
general meeting should be subject to the decision/award as may be rendered by
the arbitrator in the arbitration proceedings which have since commenced.
CASES REFERRED TO
Bentley-Stevens
v. Jones [1974] 2 All ER 653; United Commercial Bank v. Bank of India AIR 1981
SC 1426; Life Insurance Corporation of India v. Escorts Ltd AIR 1986 SC 1370; Dalpat Kumar v.
Prahlad Singh [1992] 1 SCC 719; Gujarat Bottling Co. Ltd v. Coca Cola Co.
[1995] 5 SCC 545 and Centre for Public Interest Litigation v. Union of India
[1997] 68 DLT 650 (Delhi).
K.K.
Venugopal, S.S. Shroff, Miss Ritu Bhalla, Ms. Manali Singh, Ms. Lira Goswami,
Ms. Amita Duggal and Sriniwas
Murthy for the Petitioner. V.R. Reddy, Sarabjit Sharma, Rakesh Tikku,
Ashok Desai, Rohington Nariman, P.K. Ganguli, Dinesh Agnani, Sukumaran and D.S.
Narula for the Respondent.
JUDGMENT
1. The present
petition is filed under section 9(ii)(e) of the Arbitration and Conciliation
Act, 1996, for interim measures of protection by the petitioner against the
respondents as specified in the prayer clause.
2. The petitioner
entered into a joint venture agreement with respondents No. 1 and 2 on
2-10-1982. This agreement was amended on 2-6-1992. The controversy between the
parties arose as a consequence of the Board resolution allegedly passed in its
meeting held on 27-8-1997, to nominate Mr. R.S.S. L.N. Bhaskarudu, Joint
Managing Director, as Managing Director of the Board of Directors of respondent
No. 2, Maruti Udyog Ltd. with effect from the same date. The communication in
this regard reads as follows :
"Government of India
Ministry of Industry
Department of Heavy Industry
No.
2(8)/89-PE.VI Dated 27-8-1997
To,
Shri Abhijit
Mukhopadhyay,
Company
Secretary,
Maruti Udyog
Limited,
25, K.G.
Marg,
New Delhi.
Subject : Appointment of Managing Director in Maruti Udyog Ltd. (MUL)
on behalf of Government of India
Sir,
In pursuance
of article 88(4) of the articles of association of Maruti Udyog Ltd. (MUL), the
Government has appointed Shri R.S.S. L.N. Bhaskarudu, JMD, MUL, as Managing
Director on the Board of Directors of MUL w.e.f. 27-8-1997 and till further
orders.
Yours faithfully,
Sd/—Sanjay Bhatia,
Deputy Secretary"
3. The learned
counsel for the petitioner has vehemently argued that in the above said Board
meeting this decision could not have been taken as nominees of the petitioner-company
were in majority and they had protested against the appointment of R.S.S.L.N.
Bhaskarudu. The Board, therefore, could not have passed this resolution. The
following grounds of attack have been reiterated :
(a) The appointment is
illegal, void, invalid and ultra vires. The resolution was never passed and
could not have been passed as the nominees of the petitioner-company had
rejected the appointment;
(b) The resolution
passed, in any case, on 27-8-1997, if put to vote would have been defeated by a
margin of 5 to 4;
(c) The respondents
failed to comply with the provisions of article 5.4 which lays down 'that all
major corporate decisions with respect to Maruti Udyog Ltd. will be made only
after consultation with Suzuki Motor Corpn. and with the concurrence of Suzuki
Motor Corpn. The major corporate decisions with respect of Maruti Udyog Ltd.
shall mean an action requiring shareholders' approval under the Companies Act,
1956.' The concurrence of the nominees of the petitioner was not obtained and
the purported resolution dated 27-8-1997, could not be given effect to;
(d) There was no vacancy as on 27-8-1997, as the previous
managing director took over on 28-8-1997, and he would only be deemed to have
vacated the office at the close of 5th annual general meeting of shareholders
which is now fixed to be held on 22-9-1997. Therefore, there was no vacancy as
on 27-8-1997, when the Board allegedly approved the appointment of Mr.
Bhaskarudu.
4. On the other hand, the
learned Attorney General has argued that the present petition under section
9(ii)(e) of the Arbitration and Conciliation Act, 1996, for interim measures is
not maintainable in law. Mr. R.S.S.L.N. Bhaskarudu acted as managing director
of respondent No. 2 since 27-8-1997, for the last three weeks and to impugn his
appointment at the belated stage on the eve of the annual general meeting in
the present proceedings is not permissible in law. It will not be in the
interest of justice to stop a meeting as no restraint order can be passed on the
facts and in the circumstances of the case. There is no balance of convenience
or prima facie case in favour of the petitioner-company. The new managing
director was earlier the joint managing director of the company and he is fully
qualified to hold the present post. The concurrence of the petitioner company
was not required in terms of the joint venture agreement. The learned Attorney
General has made reference to the amended joint venture agreement dated
2-6-1992, particularly, to the provisions of article 5.2 to show that the word
'consultation' is missing in the amended provisions. Therefore, it was not
imperative on the part of the respondent company to have consultations before
appointment of the managing director. The only condition which was applicable
was that the petitioner and the Government shall have the right to designate
the managing director by turns provided that the party which nominates the
managing director shall be entitled to remove such managing director and
nominate the new managing director for the term of the office on the expiry of
term of office of the predecessor. It is submitted that presently, it is the
turn of the Government to nominate the managing director and the petitioner
company should have no grievance on that account. Lastly, in answer to the plea
of the petitioner that the appointment of the managing director could only take
place at the annual general meeting and the meeting of the Board held on
27-8-1997, nominating the managing director was bad in law, the learned Attorney
General has cited the provision of section 317 of the Companies Act, 1956 ('the
Act') which lays down that no company shall, after the commencement of this
Act, appoint or employ any individual as its managing director for the term
exceeding 5 years at a time. The period of the previous managing director as
nominated by the petitioner company having expired on 27-8-1997, it was
imperative in law to appoint a new managing director.
5. The clauses which
are relevant for deciding the present controversy between the parties may be
reproduced as follows :
“5.1
Confirmation of the provisions of the joint venture agreement and Maruti s
articles of association.—All agreements, promises, representations, warranties
and/or provisions set forth in the joint venture agreement, as amended by this
article 5, shall remain in full force and effect in accordance with their
respective terms as so amended.
5.2 Board of
directors and management.—Notwithstanding the provisions of article 5 of the
joint venture agreement, the parties hereto hereby agree as set forth below
with respect to the Board of directors, officers and management of Maruti :
(a) Article 5.1 of the Joint Venture Agreement shall be amended to
read as follows :
'5.1 Board of
directors.—The Board of directors of Maruti will consist of not more than
twelve (12) persons. The Board of directors will have the right to manage and
responsibility for the management of Maruti. All directors of Maruti shall be nominees
of Suzuki and the Government. So long as Suzuki and/or its subsidiary or
subsidiaries and the Government (and/or any financial institution wholly owned
by the Government) together with shares held by Maruti Udyog Employees Mutual
Benefit Fund hold 50% each in the issued share capital of Maruti, both Suzuki
and the Government shall be entitled to nominate an equal number of directors
on the Board of Maruti. Suzuki and the Government, as the case may be, shall be
entitled to remove the directors nominated by each of them.
The
Government and Maruti shall take and cause directors of Maruti to take any and
all steps required for any purpose contained in this clause 5.1 under the
articles of association and other regulations of Maruti and the laws of India.
The term of office of the Chairman of the Board of directors shall expire at
the close of the fifth annual general meeting of shareholders to be held
following his assumption of office. The Chairman of the Board of directors
shall be nominated by Suzuki and the Government by turns : provided that the
party which nominates the Chairman of the Board of directors shall be entitled
to remove such Chairman and nominate the new Chairman of the Board of directors
for the term of office upto the expiration of the term of office of the
predecessor. The Government shall cause the Chairman of the Board of directors
in office as of the date of this agreement to retire at the close of the annual
general meeting of shareholders to be held first following the date of this
agreement (such meeting currently scheduled to be held on or before 31 July,
1992) and the Government shall have the right to designate the next Chairman of
the Board of directors to be appointed at such annual general meeting of
shareholders. Chairman shall be a part-time director of Maruti.'
(b) Article 5.2 of the Joint Venture Agreement shall be amended to
read as follows :
'5.2
Officers.—The managing director shall be the chief executive officer of Maruti,
who will have the power and authority to represent Maruti. The term of office
of the managing director shall expire at the close of the fifth annual general
meeting of shareholders to be held following his assumption of office. Suzuki
and the Government shall have the right to designate the managing director by
turns: provided that the party which nominates the managing director shall be
entitled to remove such managing director and nominate the new managing
director for the term of office upto the expiration of the term of office of
the predecessor. The Government shall cause the managing director in office as
of the date of this agreement to retire at the close of the annual general
meeting of shareholders to be held first following the date of this agreement
(such meeting currently scheduled to be held on or before 31 July, 1992) and
Suzuki shall have the right to nominate the next managing director to be
appointed at such annual general meeting of shareholders. Any nominee as
managing director shall be the person who has an experience of work for Maruti
as employee and/or full time officer for not less than three consecutive years
before the nomination and is well acquainted with matters of Maruti. The
aforesaid qualifications for nominee as managing director may be waived or
modified in a particular case when Suzuki and the Government so agree for such
case. Notwithstanding any provision herein contained to the contrary, in case
the Government and Suzuki so agree, the managing director can concurrently be
the Chairman of the Board of directors. Suzuki, the Government and Maruti shall
take any and all steps required for any purpose set forth in this clause 5.1
under the articles of association and other regulations of Maruti and the laws
of India. The officers of Maruti will perform such duties as are required by
law and as are authorised by resolution of the Board of directors. When the
managing director proposes any agenda concerning a matter important for
operation or management of Maruti, such proposal shall be made after
consultation with the Chairman of the Board.'"
The above
provisions are also incorporated in article 88 of the articles of association
of Maruti Udyog Ltd., respondent No. 2 company, as framed in pursuance to the
provisions of the Companies Act.
6. Article 10 of
the agreement dated 2-10-1982, provided the arbitration agreement. The amended
agreement dated 2-6-1992, also contained an arbitration clause in article 7.7
which may be reproduced as follows :
"7.7
Arbitration.—Any and all claims, disputes, controversies, disagreements or differences
between the parties arising out of or in relation to or in connection with this
agreement or a breach hereof, which cannot be satisfactorily settled by
correspondence or mutual conference between the parties hereto, shall be
determined by arbitration in accordance with the then prevailing rules of
conciliation and arbitration of the International Chamber of Commerce by one or
more arbitrators appointed in accordance with such rules upon written request
of any party hereto. The site of such arbitration shall be London, United
Kingdom. The decision of such arbitrator or arbitrators shall be final and
binding upon the parties hereto and judgment thereon may be entered in any
court having jurisdiction thereon or application may be made to such court for
judicial acceptance of the award and/or order of enforcement, as the case may
be."
7. The short
question in the present facts which arises for consideration in this petition
is as to whether it will be open for the court to pass restraint orders and stop
annual general meeting of the company which is scheduled to be held on
22-9-1997, at 3 P.M. The parties, admittedly, have equal stakes in the joint
venture and it cannot be categorically said that views of each other can be
by-passed, ignored and considered irrelevant. The term of the previous managing
director who was the nominee of the petitioner company was approved in the
annual general meeting held on 28-8-1992, when the following resolution was
passed :
"Item
No. 3. To approve the appointment of Shri R.C. Bhargava, as Managing Director -
With the consent of all members present in the meeting Shri R.S.S.L.N.
Bhaskarudu, Director (Materials), chaired the meeting for this item of business
as it concerned Shri R.C. Bhargava, Chairman of the meeting.
Smt. Abha
Anand Kishore, authorised representative of the President of India, proposed
the following motion to be passed as special resolution :
'Resolved
that in terms of article 88 of the articles of association of the company Shri
R.C. Bhargava be and is hereby elected and appointed as hereunder:....'"
8. The above
resolution would indicate that Mr. Bhargava was appointed for a period of five
years with effect from 28-8-1992, and the period of five years obviously had
expired on 27-8-1997, when the Board took up the matter to appoint his
successor. The relevant portions of the minutes of the Board meeting which took
place on 27-8-1997, read as under :
"The
Board examined the position and concluded that the tenure of Shri Ravindra
Chandra Bhargava as managing director expired on 27-8-1997. Mr. Yoshio Saito,
director, stated that he could not accept Government's nominee as managing
director and that there was no need for a managing director till the next
annual general meeting. Chairman and Shri Anup Mukerji pointed out that it was
necessary to have a managing director for a company with operations of the size
of MUL and that substantial powers of management stand delegated to the
managing director. Hence, there was a need for the managing director.
The Board thereafter taking all this into account,
passed the following resolutions subject to the approval of the shareholders at
the ensuring annual general meeting of the company :
1. Resolved that in terms of article 88(4) of the articles of
association and subject to the provisions of sections 198,309,310,311, Schedule
XIII, and other applicable provisions, if any, of the Companies Act, 1956, Mr.
R.S.S.L.N. Bhaskarudu be and is hereby appointed as managing director of the
company w.e.f. 27-8-1997 till the conclusion of the 5th annual general meeting
of the company to be held following his assumption of office subject to the
approval of the shareholders in the annual general meeting on the following
terms and conditions………."
9. The Board in view of the
above, approved the appointment of Mr. R.S.S.L.N. Bhaskarudu as managing
director of the company with effect from 27-8-1997, till the conclusion of the
5th annual general meeting of the company following his assumption of office
subject to the approval of the shareholders. The learned Attorney General is
quite right to contend that in view of the provisions of section 317 an embargo
is placed on the company that the term of the managing director cannot exceed
five years at a time. Section 317 reads as follows :
"317.Managing director not to be appointed for more than five
years at a time.—(1) No company shall, after the commencement of this
Act, appoint or employ any individual as its managing director for a term
exceeding five years at a time.
(2) Any individual holding at the commencement of this Act the office
of managing director in a company shall, unless his term expires earlier, be
deemed to have vacated his office immediately on the expiry of five years from
the commencement of this Act.
(3) Nothing contained in sub-section (1) shall be deemed to prohibit
the re-appointment, re-employment, or the extension of the term of office, of
any person by further periods not exceeding five years on each occasion :
Provided that any such re-appointment, re-employment
or extension shall not be sanctioned earlier than two years from the date on
which it is to come into force.
(4) This section shall not apply to a private company unless it is a
subsidiary of a public company."
Therefore, on the above basis, the appointment of
managing director cannot be said to be outside the framework of the statutory
provisions as well as of the joint venture agreement.
10. The judgments as
in Bentley-Stevens v. Jones [1974] 2 All ER 653; United Commercial Bank v. Bank
of India AIR 1981 SC 1426; Life Insurance Corporation of India v. Escorts Ltd.
AIR 1986 SC 1370; Dalpat Kumar v. Prahlad Singh [1992] 1 SCC 719 and Gujarat
Bottling Co. Ltd v. Coca Cola Co. [1995] 5 SCC 545 have been cited by the
learned counsel for the respondents to reiterate the proposition that the court
would not grant an interlocutory injunction in respect of irregularities which
could be cured by going through a proper process.
11. In
Bentley-Stevens' case (supra) the notice of motion which was before the court
asked for an order on behalf of the plaintiff restraining the defendants and
each of them until the trial of the action or further order from acting upon
the resolution purported to have been passed by the defendant company at a
purported extraordinary general meeting thereof held at 9.30 A.M. on 26-2-1974,
removing the plaintiff as a director of the defendant company. The following
passage from the judgment may be reproduced as follows :
"The
plaintiff's case is first of all that proper notice of the Board meeting of
Holdings on Monday, 28 January, 1974, was not given, with the consequence that
the proceedings of that meeting, and everything that flowed from them, were
invalid. Secondly, it was submitted on behalf of the plaintiff that even if
sufficient notice of the meeting was given, a Board meeting of the defendant
company was necessary before an extraordinary general meeting of that company
could be validly convened, and no such meeting was ever held, with the
consequence that the extraordinary general meeting was not properly convened
and its proceedings were, therefore, a nullity. Alternatively, counsel for the
plaintiff submitted that this is what is popularly known as a
'quasi-partnership' case and that on the principles enunciated by the House of
Lords in Ebrahimi v. Westbourne Galleries Ltd. [1972] 2 All ER 492 (HL)], the
court should restrain the first and second defendants, as two of the three
partners in the quasi-partnership, from expelling the third partner, namely,
the plaintiff.
I will deal
with the first and second submissions together. In my judgment, even assuming
that the plaintiff's complaint of irregularities is correct, this is not a case
in which an interlocutory injunction ought to be granted. I say that for the
reason that the irregularities can all be cured by going through the proper
processes and the ultimate result would inevitably be the same. In Browne v. La
Trinidad [(1888) 37 Ch D 1], Lindley LJ said :
'I think it
is most important that the court should hold fast to the rule upon which it has
always acted, not to interfere for the purpose of forcing companies to conduct
their business according to the strictest rules, where the irregularity
complained of can be set right at any moment.'
It seems to
me that the motion which is before me falls within the principle stated by
Lindley LJ."
12. The case as
reported in United Commercial Bank's case (supra) is not of great relevance
when it is correlated to the facts of the present case. It is only said by the
Supreme Court that the court usually refrains from granting injunction to
restrain the performance of the contractual obligations arising out of letter
of credit or a bank guarantee between one bank and another.
13. In Escorts Ltd's
case (supra) the case of Bentley Stevens' (supra) was referred to by the
Supreme Court reads as under :
"99.
Again in Bentley-Stevens v. Jones [1974] 2 All ER 653, it was held that a
shareholder had a statutory right to move a resolution to remove a director and
that the court was not entitled to grant an injunction restraining him from
calling a meeting to consider such a resolution. A proper remedy of the
director was to apply for a winding-up order on the ground that it was 'just
and equitable' for the court to make such an order. The case of Ebrahimi v.
Westbourne Galleries Ltd. (1972) 2 All ER 492 was explained as a case where a
winding-up order was sought. In the case of Ebrahimi v. Westbourne Galleries
Ltd (supra) the absolute right of the general meeting to remove the directors
was recognised and it was pointed out that it would be open to the director
sought to be removed to ask the Company Court for an order for winding-up on
the ground that it would be 'just and equitable' to do so. The House of Lords
said ;
'My Lords,
this is an expulsion case, and I must briefly justify the application in such
case of the just and equitable clause…….The law of companies recognises the
right, in many ways, to remove a director from the Board. Section 184 of the
Companies Act, 1948, confers this right on the company in general meeting
whatever the articles may say. Some articles may prescribe other methods, for
example, a governing director may have the power to remove [Cf. Re Wondoflex
Textiles Pty. Ltd. (1951) VLR 458], And quite apart from removal powers, there are
normally provisions for retirement of directors by rotation so that their
re-election can be opposed and defeated by a majority, or even by a casting
vote. In all these ways, a particular director member may find himself no
longer a director, through removal, or non-re-election : this situation he must
normally accept, unless he undertakes the burden of proving fraud or mala
fides. The just and equitable provision nevertheless comes to his assistance if
he can point to, and prove, some special underlying obligation of his fellow
member(s) in good faith, or confidence, that so long as the business continues,
he shall be entitled to management participation, an obligation so basic that,
if broken, the conclusion must be that the association must be dissolved...."
(p. 1423)
14. In Dalpat
Kumar's case (supra) the principle that existence of a prima facie case must be
shown that non grant of injunction must result in irreparable injury to the
parties seeking relief. Paragraph 5 of the judgment may be reproduced as
follows :
"5.
Therefore, the burden is on the plaintiff by evidence aliunde by affidavit or
otherwise that there is 'a prima facie case' in his favour which needs
adjudication at the trial. The existence of the prima facie right and
infraction of the enjoyment of his property or the right is a condition for the
grant of temporary injunction. Prima facie case is not to be confused with
prima facie title which has be established, on evidence at the trial. Only
prima facie case is a substantial question raised, bona fide, which needs
investigation and a decision on merits. Satisfaction that there is a prima
facie case by itself is not sufficient to grant injunction. The court further
has to satisfy that non-interference by the court would result in 'irreparable
injury' to the party seeking relief and that there is no other remedy available
to the party except one to grant injunction and he needs protection from the
consequences of apprehended injury, or dispossession. Irreparable injury,
however, does not mean that there must be no physical possibility of repairing
the injury, but means only that the injury must be a material one, namely, one
that cannot be adequately compensated by way of damages. The third condition
also is that 'the balance of convenience' must be in favour of granting
injunction. The court while granting or refusing to grant injunction should
exercise sound judicial discretion to find the amount of substantial mischief
or injury which is likely to be caused to the parties, if the injunction is
refused and compare it with that which is likely to be caused to the other side
if the injunction is granted. If one weighing competing possibilities or
probabilities of likelihood of injury and if the court considers that pending
the suit, the subject matter should be maintained in status quo, an injunction
would be issued. Thus the court has to exercise its sound judicial discretion
in granting or refusing the relief of ad interim injunction pending the
suit."
15. Similarly in Gujarat
Bottling Co. Ltd.'s case (supra) the court considered relevant tests for
exercise of discretion. The judgment makes the following reading :
"43. The
grant of an interlocutory injunction during the pendency of legal proceedings
is a matter requiring the exercise of discretion of the court. While exercising
the discretion, the court applies the following tests.— (i) whether the
plaintiff has a prima facie case; (ii) whether the balance of convenience is in
favour of the plaintiff; and (iii) whether the plaintiff would suffer an
irreparable injury if his prayer for interlocutory injunction is
disallowed. The decision whether or not to grant an interlocutory injunction
has to be taken at a time when the existence of the legal right assailed by the
plaintiff and its alleged violation are both contested and uncertain and remain
uncertain till they are established at the trial on evidence. Relief by way of
interlocutory injunction is granted to mitigate the risk of injustice to the
plaintiff during the period before that uncertainty could be resolved. The
object of the interlocutory injunction is to protect the plaintiff against
injury by violation of his right for which he could not be adequately
compensated in damages recoverable in the action if the uncertainty were
resolved in his favour at the trial. The need for such protection has, however,
to be weighed against the corresponding need of the defendant to be protected
against injury resulting from his having been prevented from exercising his own
legal rights for which he could not be adequately compensated. The court must
weigh one need against another and determine where the 'balance of convenience'
lies, [see Wander Ltd. v. Antox India (P.) Ltd. [1990] (Supp) SCC 727, at pages
731-32]. In order to protect the defendant while granting an interlocutory
injunction in his favour the court can require the plaintiff to furnish an
undertaking so that the defendant can be adequately compensated if the
uncertainty were resolved in his favour at the trial."
16. In view of the settled
position of law, as referred to above, the facts of the present case may now be
briefly examined. The term of the previous managing director had come to an end
after the expiry of five years from the date of his appointment. The Board
resolved in its meeting held on 27-8-1997, that the Government has appointed
Mr. R.S.S.L.N. Bhaskarudu, Joint Managing Director (MUL) as managing director
on the Board of directors of MUL with effect from 27-8-1997, and till further
orders. The appointment of managing director has to be in compliance with the
provisions of law and as contained in the agreement entered into between the
parties and must be ratified at the annual general meeting of shareholders
which is scheduled to be held on 22-9-1997. It is also not denied that it is
the turn of the respondent-company (MUL) to nominate its managing director. The
main grievance of the petitioner Corpn. is that there has been no concurrence
and no effective consultation and its nominees had opposed the appointment of
Mr. Bhaskarudu. The present petition has been filed under section 9(ii)(e) of
the Arbitration and Conciliation Act, 1996, for urgent interim measures. The
following relief is prayed for in the application :
"(a) stay the operation of the purported
resolution of the Board meeting of 27 August, 1997, purportedly appointing Mr.
R.S.S.L.N. Bhaskarudu as the managing director of respondent 2;
(b) restrain the holding of the
annual general meeting proposed to be held on 22 September, 1997;
(c) alternatively, restrain
respondents 1 and 2 from considering at the 16th AGM to be held on 22
September, 1997, the item No. 11 of the agenda, being the resolution for the
appointment of Mr. R.S.S.L.N. Bhaskarudu, as the managing director of
respondent 2;
(d) alternatively, appoint a
senior court official or the Registrar or a senior advocate of this Hon'ble
court to act as the Chairman of the 16th AGM of Maruti to be held on 22
September, 1997, and suspend the effect of the resolutions, if any, passed at
the 16th annual general meeting pending the adjudication of the disputes in the
International Commercial Arbitration initiated by the applicant."
17. Paragraph 9 of
the application states that the request of arbitration has been forwarded to
the International Court of Arbitration of the International Chamber of Commerce
and the applicant/petitioner has requested Lord Mustill to be appointed as a
sole arbitrator to adjudicate upon the disputes, differences and claims arising
out of the JVA on a fast track route.
18. Mr. Bhaskarudu is functioning as managing
director of respondent No. 2 with effect from 27-8-1997, till date (for about
three weeks) and it will not be appropriate to set aside or hold his
appointment in abeyance and stay the operation of the resolution appointing him
or to restrain the holding of annual general meeting proposed to be held on
22-9-1997. The appointment, in any case, has to be ratified at the annual
general meeting where in the petitioner Corporation will be at liberty to raise
objections.
19. The question
which has been highlighted and agitated is that the consent, concurrence and
opinion of the petitioner Corporation was not taken into consideration before
nominating Mr. Bhaskarudu. This question as to whether it was incumbent on the
respondent company to take the decision in consultation and concurrence with
the petitioner will have now to be determined by the arbitrator as the
petitioner has chosen to take recourse to that remedy as provided by article
7.7 of the joint venture agreement. As, admittedly, disputes and differences
have arisen between the parties out of or in relation to or in connection with
the agreement, the petitioner Corporation has taken recourse to arbitration and
approached an appropriate authority in this regard. Articles 3 and 4 of the ICC
Rules of Conciliation and Arbitration may be read as follows :
Article 3 : Request for Arbitration
1. A party wishing to have
recourse to arbitration by the International Chamber of Commerce shall submit
its request for arbitration to the Secretariat of the International
Court of Arbitration, through its National Committee or directly. In this
latter case, the Secretariat shall bring the request to the notice of the
National Committee concerned.
The date when the request is received by the
Secretariat of the Court shall, for all purposes, be deemed to be the date of
commencement of the arbitral proceedings.
2. The request for
arbitration shall inter alia contain the following information :
(a) names in full, description, and addresses of the parties,
(b) a statement of the claimant's case,
(c) the relevant agreements, and in particular, the agreement to arbitrate, and such documentation or information as will serve clearly to establish the circumstances of the case,
(d) all relevant particulars concerning the number of arbitrators and their choice in accordance with the provisions of Article 2 above.
3. The Secretariat shall send a copy of the request and the documents
annexed thereto the defendant for his answer.
Article 4 : Answer to the
Request
1. The defendant shall
within 30 days from the receipt of the documents referred to in paragraph 3 of
article 3 comment on the proposals made concerning the number of arbitrators
and their choice and, where appropriate, nominate an arbitrator. He shall at
the same time set out his defence and supply relevant documents. In exceptional
circumstances, the defendant may apply to the Secretariat for an extension of
time for the filing of his defence and his documents. The application must,
however, include the defendant's comments on the proposals made with regard to
the number of arbitrators and their choice and also, where appropriate, the
nomination of an arbitrator. If the defendant fails so to do, the Secretariat
shall report to the International Court of Arbitration, which shall proceed
with the arbitration in accordance with these Rules."
20. An affidavit has also
been filed in court by Director and General Manager of Asia and Oceanza,
Automobiles Department, Overseas Automobile Marketing Division, Suzuki Motor
Corporation, which reads as under :
"Affidavit
I, J.
Sugimori, son of Shri Yuri Sugimori, aged 55 years, resident of 1-406, 2640
Tomitsuka, Hamamastu, Japan, and temporarily resident in New Delhi do hereby
solemnly affirm and declare as under :
1. I state that I am the
Director and General Manager of Asia and Oceanza, Automobiles Department,
Overseas Automobile Market ing Division, Suzuki Motor Corporation.
2. I state that Suzuki Motor
Corporation commenced the arbitration proceedings before the commencement of
section 9 proceedings in the Hon'ble Delhi High Court.
3. I state that M/s. Amar Chand
and Mangal Das and Suresh A. Shroff & Co., the Solicitors and Advocates of
Suzuki Corporation, by their communication dated 18 September, 1997, bearing
No. D-AB/6-A0001-02-03 sent out the requests to arbitrate to the International
Chamber of Commerce (International Court of Arbitration) by Fax No.
003349532933) and 10.35 A.M.
4. The same request was also couriered
by them at 14-50 hours on the 18th of September.
5. I also state that a sum of
US $2,000 was also telex paid to the account of the International Court of
Justice in Switzerland (Bank SARASIN & Co.). A copy of the courier slip and
fax despatch sheet is enclosed herewith as Annexures A and B respectively.
Solemnly affirm at New Delhi on this the 19th day of September,
1997."
21. The question as
to whether the consultation and concurrence of the petitioner Corporation was
required in the Board meeting which was held on 27-8-1997, will have to be
determined by the arbitrator and the proceedings in this regard have since been
commenced by the petitioner. It is established from record that the consent and
concurrence of the petitioner was not taken while nominating the present
managing director of the respondent company. In any case, his appointment has
to be concurred and approved at the annual general meeting and it will not be
in the interest of justice to restrain holding of such a meeting. The petitioner
will not suffer any irreparable injury which cannot be cured at a subsequent
stage when the proceedings in arbitration are concluded. In view of the above,
the present petition is disposed of with the following directions :
A. The proposed annual
general meeting of the company shall be held on 22-9-1997, as scheduled as no
prima facie ground is made out for restraining the holding of such meeting in
the facts and circumstances of the present case;
B. The appointment of Mr. R.S.S.L.N. Bhaskarudu in the
Board meeting held on 27-8-1997, in case it is finally approved by the
shareholders in the annual general meeting shall be subject to the decision/
award as may be rendered by the arbitrator in the arbitration proceedings which
have since commenced.
22. During the course of
arguments it was put to learned counsel for the parties to sit across the table
and find an amicable solution to the controversy which has been raised. They
have very fairly stated that the matter is still open and they will examine the
pleas and talk to each other to find out whether the disputes can be resolved.
However, it has now been stated that there is no progress in this regard to
resolve the same.
23. Regretfully, I am constrained to say that the resondent Government in the press as well as on television made certain statements which cannot be said to be in the best interests of the parties and should have
been avoided when the matter was subjudice before the
court. The following paragraph which appeared in the daily newspaper 'The
Economic Times' dated 29-9-1997, may be reproduced :
"Maran
calls Suzuki's bluff, says suitors a dozen.—The face off between the Government
and Suzuki Motor Corporation worsened today with Industry Minister Murasoli
Maran cocking a snook at Suzuki saying other candidates were ready to step in
if the Japanese car maker pulled out of the joint car venture Maruti Udyog Ltd.
'There are
thousands of people waiting', he said. 'The Americans are there, the Germans
are there, and there is no dearth of technology. There are several people
better than Suzuki', he told newsmen today.
Suzuki and
the Government, which jointly own MUL, are at loggerheads over the nomination
of the venture's new managing director. But Mr. Maran added the Government was
not averse to a dialogue with Suzuki to sort out the crisis. The interests of
Maruti would not be allowed to suffer at any cost.
'We are
waiting for the High Court's decision. It is not going to affect foreign
investment at all if Suzuki backs out.'
'Toyota is
there. All the automobile majors are waiting to jump to this opportunity', he
said."
Similarly, the headlines in 'The Times of India' of the same date read
as follows :
"Suzuki
is welcome to step out of Maruti: Maran says other foreign automobile majors are
ready to invest
New Delhi :
Industry Minister Murasoli Maran on Friday said Suzuki Motor Corporation (SMC)
was welcome to withdraw from Maruti Udyog Ltd. (MUL) if it so desired, adding
there were other automobile majors waiting to step in.
'We welcome it
if Suzuki decides to step out', 'let them go', he said when asked what would
happen if the Japanese company decided to step out owing to differences between
the two parties. Even if Suzuki backed out, it would not affect foreign
investment inflow into India, he added. 'Why should it, every foreign major is
in India?' he said."
24. Similar news items have appeared in other
newspapers as well as on television. These are most unfortunate when the
proceedings have been pending in court. The Government must realise that it is
dealing with such situations on behalf of the country as well as the people.
The matters of public importance may have to be ratified by the Parliament
which is supreme and is representative of people. There cannot be any absolute
discretion with one individual. The concept of 'discretion' has been defined by
a recent judgment of the Division Bench of this court in Centre for Public
Interest Litigation v. Union of India [1997] 68 DLT 650. From the judgment
reads as under :
"In
these cases where the allotments of petrol pumps, etc., made by the Minister
under his discretionary quota have been called in question, it is necessary to
lay down as to what is the concept of 'discretion'. 'Discretion' implies good
faith in discharging public duties. The exercise of 'discretion' has to be
based on relevant considerations. When it is exercised by taking into
extraneous considerations such action has to be quashed. The concept of
absolute, untrampled or unfettered 'discretion' is wholly inappropriate to a
public authority. When given power to exercise 'discretion' it has to be used
for public good. The concept of unfettered 'discretion' is appropriate only
when dealing with a private property and not when dealing with public property.
'Discretion' does not empower a person to do what he likes. He has to act
reasonably. When it is found that no right thinking or conscientious person
would have exercised the 'discretion' in the manner it was exercised, the
action will have to be quashed. The power is to use the 'discretion' and not
abuse it. The authority granted 'discretion' has to exercise power in a
fiduciary capacity. If the court finds that there were illegitimate motives in
exercise of the 'discretion', the action would not be sustained. While going into
individual cases, we have kept in view that it is not for this court to usurp
the 'discretion' of public authority. If the decision to make discretionary
allotment is within the confines of reasonableness, this court will not go into
the merits, even if two views are possible. But, at the same time, arbitrary
exercise of 'discretion' cannot be legitimated (legitimized?) by this court.
The court may overlook certain aberrations and allow considerable freedom of
'discretion' on being satisfied that the public authority was acting bona fide
but at the same time when it is found that by exercising discretionary powers
allotments were given only as benevolence to those who do not deserve
it, and the grant of such benevolence was for illegitimate motives, the court
is duty bound to set right the wrong...."
Further it is said in paragraph
17 :
"What is given away by way of exercise of
discretionary power is not the personal property of an individual. It is the
property of the people of the country. The personal property can be given away
at one's whim and fancy. That cannot be the standard while parting with the
property of the others, namely, the Nation. We may note that most of these
petrol pumps particularly, in big cities like Delhi, Bombay, Bangalore, Calcutta
and Madras, are worth huge amounts if put to auction. If a person has to
acquire a petrol pump in a city like Delhi he would have to spend lakhs of
rupees. We are not suggesting that ignoring these financial aspects or loss of
revenue which may result on grant of discretionary allotment, the Government
cannot make allotment for the benefit of certain persons or class of persons to
carry out its welfare object. Such allotments, however, have to be made on
rational basis and on consideration of relevant factors whether there exists or
not any written guideline. If there are no written guidelines governing such
discretionary allotments, the yardstick has to be reasonableness and fairness
of action. If the procedure is not laid down, it only means a reasonable and
just procedure from the viewpoint of a reasonable average man. This has to be
the standard while considering the exercise of discretionary power of the
Government in the matter of grant of allotments concerning the public property.
Non-adherence to these principles has necessarily to result in quashing of
impugned action. We are unable to accept the plea urged by some counsel
equating these allotments with that of favour for a bed in a Government
hospital or a railway ticket or a domestic gas connection or alike."
25. In view of the above, it
will not be correct to make sweeping statements as to who should step out and
who should come in. I will not say anything more on this question except to
reiterate that exercising restraint has its own advantages and in discretion
must be avoided.
26.
Petition disposed of.
High Court of Madras
v.
Commissioner & Management of the Muthialpet Benefit Fund Ltd.
N.V. BALASUBRAMANIAN AND C.
NAGAPPAN, JJ.
And C.M.P. No. 13425 of 2002
Section 167
of the Companies Act, 1956 - Meetings and proceedings - Company Law Board’s
power to call Annual General Meeting - On successive failure on part of company
to hold Annual General Meetings, CLB directed convening of same - Whether mere
fact that audited accounts might have shown company’s unstable financial
position could not be a ground to hold that CLB should not have exercised its
discretion in calling for Annual General Meeting - Held, yes
Facts
M Ltd., a Nidhi company, was engaged in the business of lending loans and accepting fixed deposits from the public. Pursuant to disputes between the Directors of the company, a suit was filed in the High Court wherein a Commissioner was appointed to manage the affairs of the company, in the interest of shareholders and the public. In appeal, taking note of the fact that the company did not hold annual general meetings for three years in succession, the High Court directed that the company or any other member may approach the CLB and seek appropriate directions with regard to the convening and holding of the annual general meetings. On application, the CLB directed the calling of annual general meeting for the concerned years after finalisation of accounts. In instant appeal, the appellant contested the said order on the ground that the audited accounts might show the company’s unstable financial position.
Held
The CLB was correct in its finding that the holding of annual general meeting was a mandatory requirement on the part of the company and the CLB was justified in calling for annual general meetings of the company.
Further, the CLB was not solely guided by the directions of the High Court. The CLB had referred to the observations made by the Division Bench, but the observations had not influenced the CLB in directing holding of annual general meetings.
The CLB is an independent judicial authority and it has the power under section 167 to call for annual general meeting. The CLB is also vested with necessary powers to give directions which are consequential in relation to the holding of annual general meeting. The successive failure on the part of the company to hold annual general meetings from 1999 was taken note of by the CLB while directing the convening of annual general meetings of the company.
As far as the submissions made by the appellant were concerned, it was imperative on the part of the company to hold annual general meeting. The mere fact that audited accounts may show the company’s unstable financial position was not a ground to hold that the CLB should not exercise its discretion in calling for the annual general meetings. The shareholders were entitled to know the financial strength or weakness of the company as they had invested their money in the company, and, therefore, the submission that accounts of the company would be exhibited if annual general meetings were allowed to be convened was not acceptable. Every shareholder of the company is entitled to know the financial strength of the company and its relative weakness and, therefore, the fact that accounts would be displayed or disclosed was not a ground to hold that annual general meetings need not be held. The submission that there would be a rush by the shareholders for the return of deposits knowing the financial instability of the company was also not acceptable. It was merely speculative and even assuming that the shareholders may approach for the return of the deposits, it was always open to the company to regulate the return of the deposits in the best manner possible.
The submission regarding the conduct of previous management was not acceptable, because by holding annual general meeting it was not expected that the persons who were in previous management of the company would be re-elected, nor it could be assumed that the persons to be elected to the Board may not be competent persons.
Further, there are sufficient inbuilt safeguards in the Act against the misdeeds, if any, done by the erring directors. The Commissioner, in his fairness, had brought to the attention of the CLB that he required time up to August 2002 to finalise the accounts of the company and, hence, the convening of annual general meeting should be fixed thereafter, and considering the request made by the Commissioner, the CLB had directed the annual general meeting of the company to be held on or before 10-10-2002.
The prolonged delay in holding and convening annual general meeting would not be either in the interest of the company or of the member/shareholders.
The CLB had properly exercised its discretion and, accordingly, there was no question of law that arose out of the order of the CLB. Accordingly, the appeal was to be dismissed in limine.
Case referred to
Ruttonjee & Co. Ltd., In re [1970] 40 Comp. Cas. 491 (Cal.).
T.R. Rajagopalan and V. Venkadasalam for the Appellant.
Judgment
N.V. Balasubramanian, J. - This appeal is preferred against the order of the Company Law Board, Southern Region Bench, Chennai made in C.A. No. 75 of 2002 dated 6-9-2002. The Company Law Board has passed the above order in the application filed under section 167 of the Companies Act, 1956, hereinafter referred to as ‘the Act’ by one Veeraraghavan seeking a direction against M/s. Muthialpet Benefit Fund Limited, hereinafter referred to as ‘the company’ to convene and hold Annual General Meetings for the years 2000, 2001 and 2002.
2. The appeal is filed by the second respondent in the company application, viz., Mohan. We are of the opinion that it is necessary to refer to certain facts for the disposal of the appeal. Muthialpet Benefit Fund Limited is a Mutual Benefit Fund and it is stated that the company was started in the year 1895 and incorporated under the provisions of the Indian Companies Act, 1882 and the company has been functioning for more than 107 years. The company is a Nidhi company and its main business is lending loans on jewels and landed property and accepting fixed deposits from the public. It is stated that the last Annual General Meeting of the company was held in the year 1999 and after 1999, the Annual General Meeting has not been held. It is needless to mention that Annual General Meeting is required to be held every year. It is seen from the copies of the papers placed before us that there were disputes between the Directors of the company resulting in the filing of the suit in C.S. No. 1025 of 1999 on the file of this Court and this Court, by order dated 20-1-2000 held that it would be appropriate to appoint a Commissioner to manage the affairs of the company in the interests of the shareholders and the public and accordingly, this Court appointed Mr. Justice S. Padmanabhan, a retired Judge of this Court as Commissioner and he has been functioning as Commissioner since then.
3. The abovesaid order was challenged by way of appeal and a Division Bench of this Court in O.S.A. Nos. 23 to 25 of 2000, has issued certain directions periodically, and on 11-4-2002, taking note of the fact that the last Annual General Meeting was held in the year 1999, gave the following directions :—
“We have been informed that the last Annual General Meeting of the company was held in the year 1999, at which meeting, five Directors were elected. Annual General Meetings for the subsequent years have not been held. The time for holding those Annual General Meetings was over long ago. The reconstitution of the Board of Directors can only be made by electing the Directors at the Annual General Meeting which are required to be held for each year.
2. It is rightly pointed out by counsel that under section 167 of the Companies Act, the power to convene the Annual General Meetings, notwithstanding what is contained in the Act or Articles, is vested in the Company Law Board. Anyone of the members of the Company who are parties to this proceeding, or any other member may approach the Company Law Board and seek appropriate directions with regard to the convening and holding of the Annual General Meetings for the years 2000 and 2001. The directions from the Company Law Board can also be sought with regard to the holding of Annual General Meetings for the year 2002.
3. It is advisable that these Annual General Meetings are held expeditiously. In order to save expenditure, it is also admissible that the Annual General Meetings for all the three years viz., 2000, 2001 and 2002 are held on the same day. In order to do so, the accounts for the year 2001-02 will have to be audited for being placed before the Annual General Meetings. Counsel for the Administrator says that the Administrator will need about three months time to have the audit completed and the balance sheet as also the profit and loss account finalised after due audit.
4. While seeking directions from the Company Law Board, the parties may suggest that the Annual General Meetings for these three years be held sometime by mid September, 2002. The Administrator shall ensure that the accounts for the year 2001-02 are duly audited and kept ready for being placed before the Annual General Meetings well before the period, as the accounts will have to be circulated to the members after giving the statutory period of notice.
5. The parties shall report to us after the Annual General Meetings are so held, so that further directions can be given with regard to the discharge of the Administrator and allowing the reconstituted Board to take charge of the affairs of the company.”
4. The third respondent in the appeal, by name, Veeraraghavan has filed an application before the Company Law Board stating that he was one of the directors of the company and there were disputes in the management due to some misunderstanding between the directors and, after referring to the civil suit and the appointment of the Commissioner to administer the company, he has stated that he along with other directors filed an appeal before this Court in O.S.A. Nos. 23 to 25 of 2000. He also referred to the order of the Division Bench dated 11-4-2002 and according to him, the Division Bench has directed for the holding of Annual General Meeting. Accordingly, he prayed the Company Law Board to fix the time for election in September 2002.
5. The Commissioner has filed a counter stating that he has no objection for passing orders for convening Annual General Meetings for the years 2000, 2001 and 2002. The Commissioner has also stated that directions are required for the convening and conduct of the Annual General Meetings since the Board of Directors of the Nidhi Company are in a state of ‘suspended animation’ and he has also required time for finalisation of accounts of the company up to the end of August 2002. He has also stated that Annual General Meetings may be fixed on any date thereafter providing for adequate time to comply with the statutory provisions.
6. The appellant/second respondent also filed a counter affidavit. The Company Law Board, after hearing the arguments of the counsel for the petitioner, counsel appearing for the Commissioner and the counsel appearing for the second respondent and the third respondent, held that Annual General Meetings should be held each year and the failure to hold Annual General Meetings would attract penal proceedings. After noticing the order passed by the Division Bench in O.S.A. Nos. 23 to 25 of 2000 dated 11-4-2002, the Company Law Board held that the company has defaulted to hold Annual General Meetings for the years 2000 and 2001 and the financial year of the company is from 1st April to 31st March every year and Annual General Meeting for the year ending 31-3-2002 should also be convened before 30-9-2002. In exercise of powers under section 167 of the Act, the Company Law Board directed the calling of Annual General Meetings of the company for the years 2000, 2001 and 2002 and also gave certain directions. It is against that order, the present appeal has been filed.
7. Mr. T.R. Rajagopalan, learned senior counsel representing Mr. V. Venkadasalam, learned counsel for the appellant submitted that the order of the Company Law Board is not sustainable in law and according to him, the Company Law Board has not properly exercised its discretion under section 167 of the Act, as the convening of Annual General Meetings would not be appropriate. According to the learned senior counsel, before the Commissioner convenes Annual General Meetings, he has to finalise accounts of the company for three years and the accounts are required to be advertised and since the financial condition of the company, a Nidhi company, is not sound, there will be a rush by all depositors for getting back their money resulting in the closure of the company itself.
8. Though Mr. T.R. Rajagopalan, learned senior counsel submitted that it is not the intention of the appellant that the Commissioner should continue for ever, but according to him, the impugned order calling for Annual General Meetings should be rescinded and Annual General Meetings should be convened only after the financial stability of the company is restored. Learned senior counsel referred to the achievements made by the Administrator and the steps taken by him to realise the loans and disbursement of money to some of the depositors. Learned senior counsel submitted that the Company Law Board has not exercised its discretion properly and has not considered the various points raised by the learned counsel for the appellant before it. Learned senior counsel, in support of his submissions, referred to the decision of the Calcutta High Court in Ruttonjee & Co. Ltd., In re [1970] 40 Comp. Cas. 491.
9. We have carefully considered the submissions made by the learned senior counsel for the appellant. We find that the Company Law Board has properly exercised its discretion. The Company Law Board noticed the provisions of section 166 of the Act and found that it is the mandatory requirement on the part of the company to hold Annual General Meeting every year within the period stipulated or the extended period and the failure of the company to hold meeting would enable the Company Law Board to exercise the power under section 167 of the Act. Section 168 of the Act provides for penalty in the case of default of the company to hold Annual General Meeting or to comply with the directions of the Company Law Board to hold Annual General Meeting. We are of the view that the Company Law Board was correct in its finding that the holding of Annual General Meeting is a mandatory requirement on the part of the company and the Company Law Board was justified in calling for Annual General Meetings of the company.
10. We also find that the Company Law Board is not solely guided by the directions of this Court in O.S.A. Nos. 23 to 25 of 2000. The Company Law Board has referred to the observations made by the Division Bench of this Court, but we find that the observations have not influenced the Company Law Board in directing holding of Annual General Meetings. The Company Law Board is an independent judicial authority and it has the power under section 167 of the Act to call for Annual General Meeting. The Company Law Board is also vested with necessary powers to give directions which are consequential in relation to the holding of Annual General Meeting. We find that the successive failure on the part of the company to hold Annual General Meetings from 1999 was taken note of by the Company Law Board while directing the convening of Annual General Meetings of the company.
11. As far as the submissions made by the learned senior counsel for the appellant are concerned, we find that it is imperative on the part of the company to hold Annual General Meeting. The mere fact that audited accounts may show the company’s unstable financial position is not a ground to hold that the Company Law Board should not exercise its discretion in calling for the Annual General Meetings. We are of the view that the shareholders are entitled to know the financial strength or weakness of the company as they have invested their money in the company, and therefore the submission of the learned senior counsel that accounts of the company would be exhibited if Annual General Meetings are allowed to be convened is not acceptable. As we have already observed, every shareholder of the company is entitled to know the financial strength of the company and its relative weakness and therefore the fact that accounts would be displayed or disclosed is not a ground to hold that Annual General Meetings need not be held. We are also unable to accept the submission that there will be a rush by the shareholders for the return of deposits knowing the financial instability of the company. We are of the view that it is merely speculative and even assuming that the shareholders may approach for the return of the deposits, it is always open to the company to regulate the return of the deposits in the best manner possible.
12. The submission made by the learned senior counsel regarding the conduct of previous management is not acceptable, because by holding Annual General Meeting it is not expected that the persons who were in previous management of the company would be re-elected, nor we can assume that the persons to be elected to the Board may not be competent persons. Further, there are sufficient inbuilt safeguards in the Companies Act against the misdeeds, if any, done by the erring directors. We find that the Commissioner, in his fairness, has brought to the attention of the Company Law Board that he required time up to August 2002 to finalise the accounts of the company and hence, the convening of Annual General Meetings should be fixed thereafter, and considering the request made by the Commissioner, the Company Law Board has directed the Annual General Meetings of the company to be held on or before 10th October, 2002.
13. As far as the decision of the Calcutta High Court in Ruttonjee & Co.’s case (supra) is concerned, the decision was rendered under the provisions of section 186 of the Act and we are of the view that the decision of the Calcutta High Court is not applicable to the facts of the case. In the present case, it was found that the company did not hold Annual General Meetings for three years in succession and its accounts were also not audited and we are of the view that the prolonged delay in holding and convening Annual General Meetings will not be either in the interest of the company or of the member/shareholders.
14. We find that the Company Law Board has properly exercised its discretion and accordingly, we do not find any question of law that arises out of the order of the Company Law Board. We find that there are no grounds made to interfere. Accordingly, the appeal fails and the same is dismissed in limine, at the admission stage itself. Consequently, C.M.P. No. 13425 of 2002 is dismissed.