1951 (1) TMI 21 - HC - Companies Law

Meeting and Proceedings Representation of corporation at meetings of companies & creditors

Summary

Issues Involved:
1. Whether the Income-tax Appellate Tribunal was right in holding that the directors of the respondent company had a controlling interest as contemplated by section 2(21) of the Excess Profits Tax Act.
2. Validity of Article 90 of the Articles of Association under the Indian Companies Act.
3. Validity of the power-of-attorney given to Mr. Bash by Aluminium, Ltd.

Issue-wise Detailed Analysis:

1. Controlling Interest under Section 2(21) of the Excess Profits Tax Act:
The primary issue was whether the respondent company was a director-controlled company within the meaning of section 2(21) of the Excess Profits Tax Act, 1940. The section defines "statutory percentage" for businesses carried on by bodies corporate, distinguishing between those where directors have a controlling interest (10% per annum) and those where they do not (8% per annum). The respondent company had a capital structure where M/s. Aluminium Ltd. held the majority of shares, and Mr. Bash, as a director, was empowered to vote on behalf of Aluminium Ltd. The Appellate Assistant Commissioner initially held that Mr. Bash acted as an agent of Aluminium Ltd., not as a director of the respondent company, thus it was not director-controlled. However, the Tribunal found that Mr. Bash's power-of-attorney from Aluminium Ltd. meant the company was director-controlled. The High Court affirmed this view, referencing the House of Lords' decisions in Inland Revenue Commissioners v. J Bibby & Sons Ltd. and F.A. Clark & Sons, Ltd. v. Commissioners of Inland Revenue, which established that "controlling interest" pertains to the power to control company decisions through voting, irrespective of beneficial ownership.

2. Validity of Article 90 of the Articles of Association:
Dr. S.K. Gupta for the Commissioner argued that Article 90, which allowed a representative of a company to vote at meetings, was ultra vires the Indian Companies Act, specifically section 80. Section 80 permits a company to authorize representatives to act at meetings, but Aluminium Ltd. was not incorporated under the Indian Companies Act, making section 80 inapplicable. Despite this, the Court held that Aluminium Ltd. could still grant a power-of-attorney to Mr. Bash because a corporation must act through human agents. The Court noted that this form of power-of-attorney is recognized in legal precedents and forms.

3. Validity of the Power-of-Attorney:
The argument that the power-of-attorney given to Mr. Bash was invalid was not raised before the Tribunal, and thus could not be considered by the High Court. The Court emphasized that mandamus principles require that issues must be raised before the Tribunal to be considered in a reference. The applicant had proceeded on the basis that the power was valid at all lower levels of adjudication. Consequently, the High Court declined to entertain the argument of invalidity at this stage.

Conclusion:
The High Court concluded that the respondent company was indeed a director-controlled company, with Mr. Bash having a controlling interest through his power-of-attorney from Aluminium Ltd. This interpretation aligns with the broader legal understanding of "controlling interest" as the power to influence company decisions through voting, regardless of beneficial ownership. The Court also dismissed the argument regarding the invalidity of Article 90 and the power-of-attorney, as these points were not raised before the Tribunal. The answer to the reference question was in the affirmative, and the applicant was ordered to pay the costs of the reference.