TMI Blog1969 (11) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... n both the suits. It will be convenient to refer to these two companies hereinafter as "the private company "and "the company", respectively.notices of motion were argued elaborately and at great length and as if their hearing were a dress rehearsal for the hearing of the suits. I propose to set out first the material facts necessary for understanding the matters in controversy between the parties and deal with the other facts while considering the rival contentions under each head of controversy raised before me. The company was incorporated on January 20, 1960, as a result of collaboration between the plaintiffs, The Firestone Tyre and Rubber Company, a company incorporated under the laws of the State of Ohio in the United States of America and Tulsidas Kilachand and others to whom, for the sake of convenience, I will hereinafter refer as "the Kilachand group ". The Kilachand group consists of Tulsidas and his three brothers, Ramdas, Ambala and Chinubhai, and their relatives and other concerns and companies owned or controlled by the Kilachand family. The main object of the company is to manufacture and deal in synthetic rubber and it is the only company in India which ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s decided to appoint the private company as the sole selling agents of the company. In pursuance of such decision the following two c-49 resolutions were passed at the annual general meeting of the company held on September 23, 1963, the first of such resolutions as a special resolution and the second as an ordinary resolution : "Resolved that pursuant to section 314 and other applicable provisions of the Companies Act consent be and is hereby given to the appointment as the sole selling agents of the company for all the territories comprised within the Republic of India, Nepal, Bhutan and Sikkim, of Messrs. Kilachand Devchand and Company Private Ltd., a company in which Mr. Tulsidas Kilachand and Mr. Ramdas Kilachand, directors of this company, are interested as directors and members". Resolved that pursuant to section 294 and other applicable provisions of the Companies Act, Messrs. Kilachand Devchand and Co. Pvt. Ltd. be and they are hereby appointed the sole selling agents of the company for all the territories comprised within the Republic of India, Nepal, Bhutan and Sikkim for a period of five years commencing on the 1st October, 1963, and that the terms and conditions as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion at the rate of 2 per cent, on the net selling price exclusive of Government excise duty and sales tax or other like charges of the products sold by or through the selling agents within the said territories during the period of the said agreement. On products sold directly by the company the private company was to be paid such commission as the board of directors might decide, not exceeding the said rate of 2 per cent, on the net selling price. The account of commission was to be made up at the end of each quarter in each financial year. The said agreement further provided that if and when any goods manufactured by the company were sold outside the said territories during the period of the said agreement, the board of directors of the company and the private company would decide mutually whether any commission on such sales should be paid by the company to the private company and the rate of such commission, if any. Clause 13 of the said agreement provided as follows : "The terms of this agreement may be modified by mutual agreement of the board of directors of the company and the selling agent except that the rate of commission payable to the selling agents as provided in cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rried forward to the next year. For the year ending December 31, 1968, the net loss suffered by the company, after providing for depreciation for the years 1964 and 1968, was Rs. 26,52,335. For the years 1965, 1966, 1967 and 1968 the selling agency commission paid to the private company was Rs. 14,88,318, Rs. 16,86,971, Rs. 19,86,250 and Rs. 22,50,440, respectively. Thus, the total amount of commission paid to the company for the period of the said agreement dated September 24, 1963, aggregated to Rs. 84,63,849.appears that in 1965 some correspondence took place between the Company Law Board and the company. Ultimately, by its letter dated July 28, 1965, the Company Law Board intimated to the company that after careful consideration of the information furnished by the company it appeared to the Company Law Board that the terms of appointment of the company's sole selling agents were prejudicial to the interest of the company and the company was required to show cause why the Company Law Board should not, in exercise of the powers conferred upon it under section 294(5)( c ) of the Companies Act, 1956, read with the Government of India, Ministry of Finance, Department of Revenue, Not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the said letter that: "The Board would suggest, however, that at the time of the renewal of the agreement with the sole selling agents in 1968, your company should bear in mind the views of the Board which were communicated to you (that is, the company) in their letter of even number dated the 28th July, 1965, read with their letter of even number dated the 18th September, 1965 ". The letter of September 18, 1965, merely corrects some typographical errors in the earlier letter of July 28, 1965.a letter dated April 4, 1968, the private company intimated to the company that the company had suffered a considerable increase in their expenses due to the high price of imported alcohol and that the company had made very strenuous efforts with the Government of India to be allowed an increase in the selling price in order to offset the increased cost, but the selling price fixed by the Government of India with effect from April 1, 1968, did not offset such increased cost. It was further stated in the said letter that, in the interest of the company and in order to tide over the difficult situation of the company and in the mutual interest of both the parties and as a matter of comme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with Kilachand Devchand and Co. Pvt. Ltd., the selling agents of the company, be prepared on the same terms and conditions as are contained in the said agreement, dated 24th September, 1963, and that the seal of the company be affixed on the engrossment in token of execution by the company, in the presence of any two directors of the company and the secretary of the company, Mr. K.B. Dabke, who do sign the same but before such execution a clarification be endorsed or attached to such agreement duly signed by or on behalf of the selling agents in terms of their letter dated 4th April, 1968". The solicitor-director, Kirloskar and Ruia voted in favour of the resolution, while Reighley and Warner voted against it. Tulsidas and Ramdas, being interested in the said resolution, abstained from voting. I may mention at this stage that all through there has been a dispute between the parties as to whether the minutes of the board of directors of the company have been correctly recorded. It is not necessary for the purpose of these motions to go into the details of this controversy. All that is necessary to set out is that at the meeting of the board of directors held on February 3, 1969, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urpose of passing the following resolution as an ordinary resolution, namely : "Resolved that the appointment of Kilachand Devchand Co. Private Ltd. as the sole selling agents of the company's products for a period of five years commencing on 1st October, 1968, for the territories comprised within the Republic of India and Nepal, Bhutan and Sikkim made by the board of directors of the company by a resolution passed at their meeting on 14th November, 1968, be and the same is hereby not approved". The plaintiffs also set out the statement which they desired to have included in the explanatory statement to be annexed to the notice convening the said meeting. This letter came up for the consideration of the board at its meeting held on March 21, 1969, when it was resolved that the matter should be placed for the consideration of the board at the next meeting thereof to be held on March 27, 1969. At the meeting of the board held on March 27, 1969, the following resolution was passed by a majority, Reighley and Warner voting against the same. That resolution is as follows: "Resolved that pursuant to the provisions of section 294 and other applicable provisions of the Companies Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... das as chairman of the said meetings to be taken immediately and accordingly a poll was so taken. In respect of the poll taken at both the said meetings, defendant Nos. 3 and 4 in Suit No. 681 of 1969 were appointed as scrutinisers. Both these defendants are chartered accountants. The third defendant is a partner in the firm of chartered accountants who are the company's auditors, while the fourth defendant is a partner in Messrs. Ford, Rhodes, Parks and Company, chartered accountants, who are the auditors of the said Firestone Tyre and Rubber Company of India Private Ltd. After the poll was taken at the meeting of April 28, 1969, Tulsidas announced that the result of the poll would be declared by May 26, 1969, by an announcement in newspapers. Similarly, after the poll was taken at the meeting held on April 29, 1969, Tulsidas announced that the result of the poll would be declared 15 days after the result of the poll taken at the meeting held on April 28, 1969. Thereafter, by an announcement in newspapers, the announcement of the result of the poll of the meeting of the 28th April was postponed to the end of June, 1969. June 3, 1969, the plaintiffs filed Suit No. 522 of 1969. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticularly those which are necessary for forming an opinion on the order to be made on these motions are admitted. I will deal with these facts in detail while considering the arguments advanced with respect to the validity of the result of the poll.July 16, 1969, the plaintiffs filed Suit No. 681 of 1969. In this suit they have challenged the validity of the said notices convening the meetings, the conduct of the said meetings, the manner in which the result of the poll taken at the meeting of the 28th April was arrived at and the result of such poll. In the said suit the plaintiffs have prayed for a declaration that the said meeting held on the 28th April and the declaration of the result of the poll taken thereat were illegal and void and that the said meeting was not properly held as required by law. In the alternative they have prayed that the court should give directions for scrutinising the votes, proxies and letters of revocations in respect of the said two extraordinary general meetings and should appoint a fit and proper person to scrutinise them and to determine and decide the result of the said meetings and should remove Tulsidas and defendants Nos. 3 and 4 as the chair ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese motions and without in any mariner giving up the right to argue the said points at the hearing of the suits; for instance, though in the said Suit No. 522 of 1969 the validity of the initial appointment of the private company as sole selling agents of the company made in September, 1963, has been challenged, Mr. Nariman for the purposes of these notices of motion did not argue this point at the hearing of these motions. I may also mention that all parties before me are agreed and further applied to me that it would be in the interest of the parties if the hearing of both these suits were expedited, a view which I too am inclined to take. It was also not disputed by any of the defendants that an interim injunction may be granted restraining Tulsidas and the scrutineers in terms of prayer ( a ) of the said notice of motion in Suit No. 681 of 1969,. namely, restraining Tulsidas and the scrutineers from proceeding further with exercising any power as chairman or scrutineers at the said extraordinary general meeting of the company held on April 29, 1969, in connection with the scrutiny or examination of the proxies, revocations of votes cast thereat in connection with the declarati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te company, it is contended that the solicitor-director had no such concern or interest in the matter of the further appointment of the private: company as sole selling agents as required by section 300 of the Companies Act, 1956, and that assuming he had any such interest or concern, the plaintiffs all throughout knew about the same and did not raise any objection to the solicitor director taking part in the discussion or voting at the said meeting of the board held on November 14, 1968, and the plaintiffs are, therefore, estopped from taking up this contention . The relevant provisions of law are to be found in sub-sections (1) and (4) of section 299 and sub-sections (1), (3) and (4) of section 300 of the Companies Act, 1956. These provisions are as follows: "299. Disclosure of interests by director. (1) Every director of a company who is in any way, whether directly or indirectly, concerned or interested in a contract or arrangement, or proposed contract or arrangement, entered into or to be entered into, by or on behalf of the company, shall disclose the nature of his concern or interest at a meeting of the board of directors... (4) Every director who fails ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... travention of the provisions of sub-section (3) shall be liable to a fine not exceeding five hundred rupees". " 9IB. Prohibition of voting by interested director. (1) No director shall, as a director, vote on any contract or arrangement in which he is either directly or indirectly concerned or interested nor shall his presence count for the purpose of forming a quorum at the time of any such vote ; and if he does so vote, his vote shall not be counted : (2) Every director who contravenes the provisions of sub-section (1) shall be liable to a fine not exceeding one thousand rupees". In addition to the penal consequences provided for by section 299(4), a director who acts in contravention of section 299 vacates his office as such director under section 283(1)( i ) of the Companies Act, 1956. It may be mentioned that article 184B(1) of the articles of the company reproduces the provisions of section 300(1).facts which are said to make the solicitor-director an interested director within the meaning of section 300 may now be stated. These facts are all admitted by the defendants. The solicitor-director is a partner in the firm of solicitors, Messrs. Daphtary, Ferre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the solicitors of the said company. The legal work of the Kilachand family and the Kilachand concerns and companies is personally attended to by the solicitor-director, including their tax matters and contentious and non-contentious matters. The proxies for the meetings of the 28th and the 29th April which Tulsidas obtained were in favour of Tulsidas or failing him the solicitor-director or failing the solicitor-director the said Ruia or failing the said Ruia the said Kirloskar. Along with the said Ruia and the said Kirloskar the solicitor-director issued to the shareholders of the company a printed circular asking them to vote in favour of the resolutions to be moved at the said extraordinary general meeting of the 28th April. It is contended by the plaintiffs that the said firm of Messrs. Daphtary, Ferreira and Diwan and the solicitor-director as a partner in that firm have earned and are earning large sums of money as solicitors from the Kilachand family and the Kilachand concerns and companies and that as a result of his long association with the Kilachand family the solicitor-director is a family solicitor and also a close friend and a person in the confidence of the Kilachan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven at the time have been better. But still so inflexible is the rule that no inquiry on that subject is permitted". Though this was a case from Scotland, the rule of English law is the same, for, as observed by Swinfen Eady L.J., in Transvaal Lands Company v. New Belgium ( Transvaal ) Land and Development Company, the doctrine rests on such obvious principles of good sense that it is difficult to suppose that there could be any system of law in which it would not be found. In Transvaal Land Company's case [1914] 2 Ch. 488, 502 (CA) it was held at page 503 that: "Where a director of a company has an interest as shareholder in another company or is in a fiduciary position towards, and owes a duty to, another company which is proposing to enter into engagements with the company of which he is a director, he is in our opinion within this rule. He has a personal interest within this rule or owes a duty which conflicts with his duty to the company of which he is a director. It is immaterial whether this conflicting interest belongs to him beneficially or as trustee for others" This rule was characterised by Lord Cairns L.C. in Parker v. McKenna [1874] LR 10 Ch. App. 96 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ract; but the question is whether the defendant can be said to have been concerned in any bargain or contract entered into by the board. The expression ' in any manner concerned ' is a somewhat lax one. Cases may be put in which a person might perhaps be said in one sense to be concerned in a contract entered into by the board, and yet it might be tolerably obvious that he was not ' concerned in the contract' in the sense in which the Act uses the words. To interpret words of this kind, which have no very definite meaning, and which perhaps were purposely employed for that very reason, we must look at the object to be attained. The object obviously was to prevent the conflict between interest and duty that might otherwise inevitably arise". In Barnacle v. Clark [1900] 1 QB 279 the respondent was a member of a school board. He sold sand and gravel to a builder who had entered into a contract with the board for the building of a school. At the time of the sale the respondent was aware that the sand and gravel were intended to be used, as they were in fact used, in the building of the school. The respondent was prosecuted under section 34 of the Elementary Education Act, 1870, u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ishment expenses paid by the defendant and the fact that the spectacle cases bore the defendant's address helped to advertise his business with the consequent probability of increasing his custom. Salter J. held that "interest" in a contract within the meaning of section 12(1) of the Municipal Corporations Act, 1882, must be something more than a sentimental interest, such as arises from the natural love and affection of a man for his son ; it must be a pecuniary or, at least, a material interest; but it need not be a pecuniary advantage. On the facts of the case the Court of Appeal held that the defendant had a pecuniary interest of an adverse kind in the contract and that it could properly be held that the defendant had a pecuniary advantage, or a reasonable expectation of a pecuniary advantage, from the contract, for in any event this helped to advertise his business. In K.F. Narintan v. Municipal Corporation of Bombay [1923] 25 Bom LR. 689, 696, 697; AIR 1923 Bom 305, 308 , Mulla J. had to construe clause ( p ) of section 36 of the City of Bombay Municipal Act, 1888, as that Act was then entitled. That clause provided: "A Councillor shall not vote or take part in the dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... might have repudiated, had removed the blot upon it and placed the parties in the position in which they would have been if no bribes had been given and the plaintiff was not, therefore, deprived of his equitable right to rescission. The defendants filed an appeal which was dismissed. In the Court of Appeal Scrutton L.J. said [1917] 2 Ch.71, 89, 90, 91, (CA) " Two questions will arise in cases of solicitor and client first, as to the relation which will create this obligation, and, secondly, as to the nature of the obligation created. Where the relation of solicitor and client occurs in the very transaction attacked it will, in my view, be almost, if not quite impossible to avoid the obligation, and an independent solicitor should be employed by the client. It is called ' putting him at arm's length'. It might perhaps also be effected by a clear declaration of the position by the vendor, such as this : ' Mind, I am going to get the highest price I can; be on your guard;' but the position would have to be made very clear in order to relieve the solicitor of obligations far exceeding those of an ordinary vendor, and is a position to be avoided. More difficult questions arise when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1917] 2 Ch. 71 (CA) were followed in Goody v. Baring [1956] 2 All ER 11.behalf of the contesting defendants it was submitted that sections 299 and 300 provide for penal consequences and that not only there was a liability to be prosecuted under these sections and fined, but under section 283(1)( i ) a director who acted in contravention of section 299 vacated his office and these sections should, therefore, receive a strict construction. It was further submitted that the Companies Act was a complete code and no disqualification would be imported into sections 299 and 300 unless such disqualification could be found in the sections themselves and the scope of the sections cannot be enlarged on any equitable principles which may have applied prior to the enactment of the sections. It was further submitted that an interest in the contract or arrangement which the sections require must be a pecuniary or a material interest. It must relate to the contract or arrangement itself and must be such as creates a conflict between the interest of the director concerned as a director of the company and his own interest in the contract and not any one else's. Before considering these argume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he shareholders, so that they may have the benefit of the independent, unbiassed and collective judgment, opinion and wisdom of their board of directors, the words used in the sections have been purposely used in as general a sense as possible. To have laid down any confining limits to the operation of these sections may have resulted in defeating the very object for which these sections were enacted. As pointed out by the Privy Council in T.R. Pratt ( Bombay ) Ltd. v. M.T. Ltd [1938] 8 Comp. Cas. 137 (PC) and by the Supreme Court in Narayandas Sreeram Somani v. Sangli Bank Ltd [1965] 35 Comp. Cas. 596 (SC) with reference to the old sections 91A and 9IB, the sections contain concise statement of the general rule of equity fully considered and accepted by the Court of Appeal in Transvaal Lands Company v. New Belgium ( Transvaal ) Land and Development Company. [1914] 2 Ch. 488 As pointed out by Upjohn L.J., while sitting in the Court of Appeal in Boulting v. Association of Cinematograph, Television and Allied Technicians [1963] 2 QB 606, 635, 636; [1963] 2 WLR 529; 33 Comp. Cas. 475, 494, 495 (CA) "The principle is one of the most firmly established in our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r indirectly, by himself or by his partner, any share or interest such as is described in clauses ( g ) to (1), both inclusive, of section 16, or in which he has a professional interest on behalf of a client, principal or other person. Now, it is obvious that clause ( p ) is in terms materially, different from section 300(1). Under clause ( p ) the share or interest must be such as is described in clauses ( g ) to (1) of section 16. Further, the matter before the meeting must be one in which his interest on behalf of another person is a professional interest. The concern or interest described in section 300(1) is not subject to any such restriction. In that case with respect to certain councillors it was alleged that they were shareholders of the Bombay Electric Supply and Tramways Company Ltd. which owned and conducted tramways in the city of Bombay. Mulla J. held that if a councillor was also a shareholder of the said company and had a beneficial interest in the shares, he was disqualified from voting. He, however, held that where the shares stood in the name of a councillor who had no beneficial interest in them but was a mere trustee for another, he was not disqualified from vo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les laid down in Transvaal Lands Company's case ( supra ) and pointed out that section 91B of the 1913 Act (corresponding to the present section 300) contained a concise statement of the general rule of equity explained in that case. K.F. Nariman's case ( supra ) was, of course, decided before the privy Council and the Supreme Court decisions. The point, however, is now concluded by this pronouncement of the highest courts. It should also be noted that section 300(1) does not merely use the word "interest" but speaks both of "concern" or" interest", whether direct or indirect, and in this connection reference may again be made to the observations of Lindley L.J. in Wilson case ( supra )of Darling J., in Barnacle v. Clark [1900] 1 QB 279 and of Romer J., in Victors Ltd. v. Lingard [1927] 1 Ch. 323 referred to above.was next submitted that the interest of the solicitor-director in the private company was at the highest a sentimental interest as, for example, that of a father in his son or of a man in a relative of his and that he was under no legal duty to protect or advance the interest of the private company and cannot therefore amount to an "interest" under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... director holds, vis-a-vis, Tulsidas, the Kilachand family and the Kilachand concerns and companies, by reason of the fact that his firm and he on behalf of his firm have for all this long period of years been their general solicitor and that his confidential relationship has deepened by reason of the close personal relationship which has sprung up between them. was next submitted that there was nothing to show that the solicitor-director or his firm would be acting as solicitors for the private company in the matter of its appointment as sole selling agents for a further period, and in this connection reliance was placed upon Mohan Lai v. Grain Chambers Ltd AIR [1959] All 276 ., which was affirmed in appeal by the Supreme Court in Selh Mohan Lai v. Grain Chambers Ltd. [1968] 38 Comp. Cas. 543;[1968] 2 SCR 252; AIR 1968 SC. 772 In that case the board of directors of the Grain Chambers Ltd. an association of grain merchants, passed a resolution containing the terms upon which an entry of transactions in future in gur were to be effected. This resolution was passed in pursuance of the general policy of the company in carrying on its business and functions. It provided how f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29;33 Comp Cas. 475 (CA) that this rule of equity is a flexible one and it develops to meet the changing situations and conditions of the time. What is important and should never be lost sight of are the words of Lord Cairns L.C. in Parker v. Mckenna [1874] 10 Ch. App. 96 that "this is a rule founded upon the highest and truest principles of morality ". If so heavy and onerous a duty lies upon a solicitor who acts as common solicitor in just one transaction, it would be absurd to say that the duty of that solicitor would be less or would be non-existent where that solicitor has been for a long period of time the general solicitor of one of the parties in all matters.must again be emphasised that section 300(1) refers not only to an "interest "but also to a "concern". Here reference may usefully be made to Baits Combe Quarry Ltd. v. Ford [1943] Ch. 51;13 Comp. Cas. 211,213 (CA) relied upon by Mr. Nariman, learned counsel for the plaintiffs. In that case the vendors of the Batts Combe Quarry covenanted with the purchasers "that they would not within ten years either solely or jointly with or as agent, officer, manager, servant, director or shareholder of any other person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon statements made in the correspondence by the plaintiffs, to show that Warner and Reighley represented the interest of the plaintiffs on the board of directors of the company. It was, therefore, contended that the knowledge of Warner and Reighley must be taken to be the knowledge of the plaintiffs and the presence of Warner and Reighley at the meeting of the board held on November 14, 1968, must be taken to be for and on behalf of the plaintiffs and that Warner and Reighley not having protested at the said meeting against the solicitor-director taking part in the discussion or voting, the plaintiffs must equally be taken as having acquiesced therein. Now, it cannot be denied that there are statements in the plaint and on the record as stated by the contesting defendants. The effect of these statements now falls to be considered. On behalf of the contesting defendents reliance was placed on T.R. Pratt ( Bombay ) Ltd. v. M.T. Ltd. [1938] 8 Comp. Cas. 137:40 Bom. LR. 1109; AIR. 1938 P.C. 151 , Narayandas Sreeram Somani v. Sangli Bank Ltd. [1965] 35 Comp. Cas. 596 (SC) and Ramji Lai Baisiwala v. Baiton Cables Ltd [1964] ILR. 14 Raj. 135 . In T.R. Pratt ( Bombay ) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y heard what was being said and saw what was happening and if the solicitor-director had an interest or concern in the matter of this appointment for a further term, Tulsidas and Ramdas had full knowledge of that fact and the private company, therefore, can hardly be said to be "a third party who had no notice of the defect"in the directors' authority. In Narayandas Sreeram Somani v. Sangli Bank Ltd [1965] 35 Comp. Cas. 596 (SC) . the question arose under somewhat peculiar circumstances. Narayandas was one of the directors of the company. Ramnath was his brother. Ramnath became indebted to the company in large amounts. In order to comply with the requirements of the Reserve Bank to re-call the loan to Ramnath, Ramnath repaid the entire balance of Rs. 1,04,198-8-0 due by him. Out of this a sum of Rs. 1,00,000 was paid on behalf of Ramnath by Narayandas who on the same date obtained a loan of Rs. 1,00,000 from the company by executing a promissory note in the said sum as collateral security along with a letter of pledge in respect of cloth, saris, etc ., valued at Rs. \ ,50,000. Narayandas failed to repay the loan. Further, in order to comply with the requirements of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... setting up the defect in his own authority of which he naturally had knowledge. This, according to their Lordships of the Supreme Caurt, he was estopped from doing. This case rests, therefore, on a wholly different footing from the case before me. In the present case it is not the interested director who is challenging the contract or the resolution sanctioning it on the ground of his own defect or want of authority. It is a shareholder who considers himself aggrieved by this contract who is challenging it. In the present case the question of the company affirming the contract also does not arise. One of the main disputes in Suit No. 681 of 1969 is whether the resolutions approving the appointment of the private company for a further term was in fact passed. Even the result of the poll as declared by Tulsidas shows that nearly 48 per cent, of the shareholders have voted against the resolution. A large number of proxies obtained by the plaintiffs have been rejected by Tulsidas as being invalid. Similarly, a large number of proxies in favour of Tulsidas, in respect of which letters of revocation were obtained by the plaintiffs and filed with the company, have been held to be not val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Privy Council in Premila Devi v. Peoples Bank of Northern India Ltd. [1939] 9 Comp. Cas. 1;41 Bom, LR. 147, 156; AIR 1938 P.C. 284 pointed out that by knowledge of the transaction Lord Chelmsford clearly meant knowledge of the invalidity of the transaction. In the Privy Council case it was held that there can be no ratification without an intention to. ratify, and there can be no intention to ratify an illegal act without knowledge of the illegality. In Ratnji Lai Baisiwala v. Baiton Cables Ltd. [1964] ILR. 14. Raj. 135,196,197 , it was held that if without the vote of the interested director, the contract would still have been carried through, it is not affected. But if without the vote of the interested director, the contract would not be carried through or without him there would be no quorum, then the contract was voidable at the option of the company. On facts, however, it was held that two directors formed a quorum, and out of the three directors of the company, the two who voted had no concern or interest. In the present case, without the vote of the solicitor-director the board's resolution of November 14, 1968, would not have been passed as there would have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion must be taken not to have been passed. It was next submitted that Warner was in the chair and that he having declared the resolution as having been passed, he should be taken to have given his second or casting vote in favour of the resolution. The short answer to this is that a casting vote has to be given and is not a matter of presumption. On the facts, it would also be illogical to draw any such presumption. Admittedly, Warner voted against the resolution. He, therefore, cannot, consistently With this, cast his second vote in favour of the resolution, unless the whole matter were to be treated as a farce. Further, even assuming that the acts of Warner and Reighley are to be taken as the acts of the plaintiffs, the facts on the record do not make out a case of estoppel apart from the position that there cannot be an estoppel against a statute. When the draft minutes of the meeting held on November 14, 1968,were circulated to the directors, Reighley altered the said draft minutes. The minutes then came up for approval before the meeting of the board of directors held on February 3, 1969. At that meeting Reighley read out a memorandum on behalf of himself and Warner and requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the English company was only liable to pay income-tax upon such profits of the German company as had been received in England. This case is, however, not relevant. In view of the mandatory prohibition contained in section 300(1) and of the deliberate departure made in the language of that section from the language used in section 91B, I am at this stage inclined to hold that the vote of the solicitor-director cannot be validated but is void- and that the resolution was not duly passed. I am also not inclined at this stage to accept the contention that the plaintiffs are estopped from taking up this ground. There can be no estoppel against a statute nor can a person waive any right or benefit conferred by a statute unless it is of a personal and private nature. There is a clear distinction between a contractual or a statutory right created in favour of a person for his own benefit and a right which is created on the ground of public interest and policy. The rule of waiver cannot apply to a prohibition based on public policy (see Post Master-General, Bombay v. Gangaram Babaji Chavan [1941] 43 Bom. LR 758,766). The prohibitions contained in section 300(1) are prescribed in pub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich had been wrongfully abstracted from the capital. Towers v. African Tug Company [1904] 1 Ch. 558 (CA) turned upon its facts, and I fail to see how it bears out the proposition canvassed by the contesting defendants. The next point for consideration is whether a special resolution was necessary for the appointment for a, further term of the private company as sole selling agents of the company either under the provisions of section 314 of the Companies Act, 1936, or article 183 of the articles of association of the company. When the private company was appointed the sole selling agents in 1963, the resolution appointing it was passed as a special resolution. This was done as it was then considered that by reason of the fact that Tulsidas and Ramdas were directors and members of the private company, section 314 applied to the appointment of the private company as sole selling agents. Under section 189(2) of the Companies Act, 1956, a resolution is a special resolution when, inter alia , the intention to propose the resolution as a special resolution has been duly specified in the notice calling the general meeting or other intimation given to the members of the resolutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .". "294. Appointment of sole selling agents to require approval of company in general meeting. (1) No company shall, after the commencement of the Companies (Amendment) Act, 1960, appoint a sole selling agent for any area for a term exceeding five years at a time: .that nothing in this sub-section shall be deemed to prohibit the re-appointment, or the extension of the term of office, of any sole selling agent by further periods not exceeding five years on each occasion. (2) After the commencement of the Companies (Amendment) Act, 1960, the board of directors of a company shall not appoint a sole selling agent for any area except subject to the condition that the appointment shall cease to be valid if it is not approved by the company in the first general meeting held after the date on which the appointment is made. (2A) If the company in general meeting as aforesaid disapproves the appointment, it shall cease to be valid with effect from the date of that general meeting .". "314. Director, etc., not to hold office or place of profit. (1) Except with the consent of the company accorded by a special resolution, ( a )no director of a company shall hold any office o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ... ( b )in case, the office or place is held by an individual other than a director or by any firm, private company or other body corporate, if the individual, firm, private company or body corporate holding it obtains from the company anything by way of remuneration whether as salary, fees, commission, perquisites, the right to occupy free of rent any premises as a place of residence, or otherwise". Sub-section (1) of section 314 formerly required the previous consent of the company accorded by a special resolution in cases where the provisions of that sub-section were applicable. By the Companies (Amendment) Act, 1965 (31 of 1965), in order to obviate the difficulties which might arise from this stringent restriction, the word "previous "was deleted and the first proviso was inserted so as to now provide for the passing of the special resolution according consent at the first general meeting held after the appointment. The Explanation was added to sub-section (1) by the Companies (Amendment) Act, 1960. It is the plaintiffs' case that a sole selling agency is an office or place of profit and that, since Tulsidas and Ramdas were and are members and directors of the private c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elaborate than in the case of other office or places of profit. The object underlying section 314 is, however, different. The mischief which section 314 seeks to remedy is the holding by a director either personally or indirectly through other persons mentioned in clause ( b ) of sub-section (1) of section 314 of an office or place of profit under the company or its subsidiary. The object is to prevent directors from taking advantage of their position to earn profitts from the company in addition to their remuneration as directors. Thus, section 314 deals with a wholly different problem from that dealt with under sections 204 and 294 and there is, therefore, no question of the provisions of section 294 excluding those of section 314.behalf of the contesting defendants it was further submitted that a sole selling agency was not an office or place, and, assuming it was an office or place, it was in any event not an office or place under the company. It was submitted that in ordinary parlance the word "office "means a particular place or position with duties attached to it and the words "office or place "used in conjunction with the word "under "implies subordination and, consequent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cases referred to and approved by them, it was pointed out that the circumstances that the source from which the remuneration was paid was not from public revenue was held to be-a neutral factor, not decisive of the question. Their Lordships held that whether stress is to be laid on . one factor or the other will depend on the facts of each case. Relying upon this authority it was submitted that in the present case the sole selling agency agreements satisfied none of the tests laid down therein. This authority, however, is expressly against this submission. What was held in Guru Govinda Basu v. Sankari Prasad Ghosal [1963] 33 Comp. Cas 1132; [1964] 4 SCR 311;AIR 1964 SC 254 was that whether stress is to be laid on one factor or the other would depend on the facts of each particular case and the contention that all the factors enumerated should co-exist was expressly rejected. Further, this submission is not even justified by the terms of the agreement. By clause (1) of the agreement dated February 18,1969, as also of the earlier agreement dated September 24, 1963, the company expressly appointed the private company as its sole selling agents. It is thus an appointment which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction (3) is a deeming provision and by the operation of the legal fiction created by sub-section (3), inter alia , in case a private company (in which a director of the company is a director or member) holding a place or office obtains from the company anything by way of commission, it is to be deemed to be an office or place of profit under the company. Such an office or place need not be in fact in the company or under the company in the sense canvassed by the contesting defendants. In the present case, the private company is to receive commission under the sole selling agency agreements, the commission is to be obtained by it for services to be rendered by it and, as pointed out above, the company controls the manner in which the sole selling agency is to be performed.is also pertinent to note that sub-section (1) expressly excludes some, of the offices and places of profit which would not be office or place of profit if the contention of the contesting defendants were correct. Amongst the offices and places so excluded are those of banker and trustee for the holder of debentures. In Astley v. New Tivoli Ltd. [1899] 1 Ch.151 (Ch. D.) , the articles of association of the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the company, voting either in person or by proxies, agree to this being done at a meeting called to pass such a resolution. To hold that a sole selling agency is not an office or even a place of profit and that the appointment as sole selling agent of. persons mentioned .in section 314 can be made by an ordinary resolution requiring only a bare majority for it to be passed, while in respect of the holding by such persons of other offices and places of profit a special resolution is required, would be to exclude from the restrictive effect of section 314 highly lucrative place or office of profit while bringing within its fold other offices and places of profit not so lucrative. Section 294A also expressly refers to a sole selling agency as an office. I am, therefore, of the opinion that the private company was appointed to an office or place of profit under the company and that since two of the directors of the company, namely, Tulsidas and Ramdas, were both directors and members of the private company, it would be an office or place of profit under the company within the meaning of section 314.question still remains as to whether in the case of appointment as sole selling agents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emplated at the time of the original appointment. Such a construction would militate against the object underlying section 314. As mentioned before, the object is to prevent directors from putting into their pocket, either directly or indirectly, more remuneration, whether by way of salaries, fees, commission, perquisites, etc ., other than the remuneration to which they are entitled as such directors. Where three-fourths of the members of the company have agreed to a director so obtaining profit from the company, for a period of five years only, it cannot be that they should be deemed to have given their consent to the directors doing so for all times by repeated subsequent appointments consented to by merely a bare majority of the members. The ordinary rule of construction is that the one which harmonises best with the intention of the legislature and the object sought to be attained by the enactment should be adopted, and applying these principles of construction the view which I am inclined to take today is that unless the appointment in the first instance, to which the consent of the company has been accorded by a special resolution, provides for a subsequent appointment, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1968, commission at the rate of 2 per cent, on the net selling price of the company's products as prevailing on November 5, 1967. According to the plaintiffs, even though the intention at the date when the letter of April 4, 1968, was written or even on February 18, 1969, may have been that the private company should receive commission at a lower rate than what it would otherwise have been entitled to, the possibility of the private company receiving higher remuneration cannot be ruled out, for there is always the possibility of the selling prices in the future being lower than those prevailing on November 5, 1967. It is said that in fact such a situation has already arisen. It is alleged by the plaintiffs in their affidavit in rejoinder to the company's affidavit in reply in the notice of motion in Suit No. 522 of 1969 that in June 1969 the Government of India fixed prices of synthetic rubber at rates lower than those prevailing on November 5, 1967. In support of these allegations a copy of a letter dated June 4, 1969, addressed by the Government of India to the company is annexed to the said affidavit. In that letter it is stated that with effect from June 8, 1969,, the plainti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated February 18, 1969. It was, however, contended that this intention was shown by the use in the said letter of the words "clarification "and "ad-hoc arrangement ". I do not find it possible to construe these words as meaning that the private company would be entitled to commission at the rate of 2 per cent, on the prices actually prevailing at the date of the sale or those prevailing on November 5, 1967, whichever is lower. It is obvious that the prices of the company's products vary from time to time. These prices are fixed by the Government and they have varied in the past and they may well vary in the future. There is no binding obligation on the private company either under the said agreement dated February 18, 1969, or under the said letter of the same date to accept commission on the basis of the prices prevailing on the date of sale or on November 5, 1967, whichever are lower. In fact, under clause 13 of the agreement the terms of the agreements with respect to the rate of commission provided in clause 12 cannot be modified by mutual agreement of the board of directors of the company and the private company though other terms can be. Any revision in the rate of commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that even if the directors had such powers, the words "subsequent appointment" in the Explanation to section 314(1) imply continuity. It was not disputed by the contesting defendants that, if between the original appointment and the further appointment the appointment of another person had intervened, it would not have been a "subsequent appointment". The question is whether an appointment made after the expiry of the period of the first appointment is a subsequent appointment. The dictionary meaning of the word "subsequent "as given in the Shorter Oxford English Dictionary, volume II, page 2062(1), is "following in order or succession; coming or placed after, esp., immediately after; following or succeeding in time; existing or occurring after, esp., immediately after something expressed or implied .".It was argued that such a construction would entail great hardship, for a board may not be able to meet by reason of the circumstances beyond its control, such as illness of directors. I am not able' to see any such hardship as; envisaged. I fail to see why a subsequent appointment should be deferred till the last moment. Even in the present case the private company asked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o make this appointment and that too with retrospective effect whether this action of the board has been approved or ratified by the general meeting held on April 28, 1969. The notice convening the meeting and the resolution set out therein which was required to be passed does not set out that part of the resolution of the board under which the acts and deeds of the private company done on or after October 1, 1968, were ratified and confirmed and it was further resolved to pay them commission in respect of services rendered for the said period as provided in the said agreement of September 24, 1963, clarified by the said letter of April 4, 1968. The shareholders were never informed that for this intervening period the sole selling agents had acted without any authority and that they were not entitled to any commission unless the same was provided for expressly. The explanatory statement to the notice convening the extraordinary general meeting for April 28, 1969, also does not point this fact out to the shareholders. In these circumstances, I am doubtful whether it can be said that any appointment with retrospective effect was ratified or approved by the shareholders. It was conced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor-director was an interested or a concerned director, the nature of his concern or interest in the further appointment of the sole selling agents was a material fact which was required to be disclosed in the explanatory statement, and this position is not disputed. The contention of the contesting defendants, however, is that the solicitor-director was not a concerned or an interested director. This point has already been considered by me in connection with the resolution of the board of directors at its meeting on November 14, 1968, and I have already expressed the prima facie conclusion reached by me that he had a concern or an interest in this matter. The only question, therefore, which remains to be considered in this connection is the consequence of such non-disclosure. First, however, I will deal with the question whether the correspondence with the Company Law Board can be said to be a material fact concerning the business to be transacted at the said meetings. Now, the first meeting was for approving the private company's appointment as sole selling agents for a further term. The second meeting, namely, the meeting requisitioned by the plaintiffs, was for not approving th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a suitable person to investigate and report on the terms and conditions of the appointment of the sole selling agents. Thus, the Central Government is conferred wide and extensive statutory powers of control over the sole selling agencies of companies and is constituted the statutory authority to determine whether the terms and conditions of a sole selling agency are prejudicial to the interests of the company or not. Under section 10E these powers of the Central Government have been delegated to the Company Law Board. Where, therefore, a statutory authority empowered to decide whether the terms and conditions of the appointment of a sole selling agent are prejudicial to the interests of the company or not, had already opined that certain provisions of the said agreement dated September 24, 1963, were prejudicial to the interests of the company and had expressly required the company to bear its views in mind at the time of the renewal of the agency, it cannot be said that the disclosure of the views of the Company Law Board to the shareholders at the time of further appointment on terms which contained the very features objected to by the Company Law Board was not material. The obj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also know what is the nature of the concern or interest of the management in such item of business, the idea being that the shareholders may not be duped by the management and may not be persuaded to act in the manner desired by the management unless they have formed their own judgment on the question after being placed in full possession of all material facts and apprised of the interest of the management in any particular action being taken. Having regard to the whole purpose and scope of the provision enacted in section 173, I am of the opinion that it is mandatory and not directory and that any disobedience to its requirements must lead to nullification of the action taken. If, therefore, there was any contravention of the provisions of section 173, the meeting of the company held on 5th September, 1961, would be invalid and so also would the resolution passed at that meeting be invalid". The same view was taken by a Division Bench of the Calcutta High Court in Shalagram Jhajharia v. National Co. Ltd. [1965] 35 Comp. Cas. 706 ,740 (Cal.) That was a case of a resolution to approve under section 294 the appointment of sole selling agents. In that case Mitter J. observed : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Court of Appeal held that the notice had been "most artfully framed to mislead the shareholders "since a very considerable portion of that, which was part of the consideration for the purchase, was not to be paid to the vendors but was to be paid to the directors and officers of the selling company. Lindley M.R. said at pages 369-370 : "It is a tricky notice, and it is to my mind playing with words to tell shareholders that they are convened for the purpose of considering a contract for the sale of their undertaking, and to conceal from them that a large portion of that purchase-money is not to be paid to the vendors who sell that undertaking .. I do not think that this notice discloses the purpose for which the meeting is convened. It is not a notice disclosing that purpose fairly, and in a sense not to mislead those to whom it is addressed". The Court of Appeal, accordingly, granted the injunction prayed for subject to this that it left the selling company free upon a proper notice to sanction the agreement. It is pertinent to note that section 71 of the Companies Clauses Consolidation Act was similar to section 172(1) of the Companies Act, 1956, which requires every no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , one of the resolutions passed was that the secretary of the company should send out notices of the said two meetings together with the explanatory statements in consultation with the solicitors of the company. This shows that neither the explanatory statements nor their drafts thereof were placed before the board meeting, much less approved.was next sought to be contended that the plaintiffs had knowledge of the correspondence and of the interest and concern of the solicitor-director and, therefore, they could not. complain about the same and that it is only a shareholder who was ignorant of these facts who could make such a complaint. In support of this contention reliance was placed first upon Parashuram Detaram Shamdasani v. Tata Industrial Bank Ltd. [1928] 30 Bom. LR 115; AIR 1928 PC 180 In that case the Tata Industrial Bank decided to amalgamate with the Central Bank of India Ltd. and an agreement of amalgamation was entered into. A meeting of the shareholders was called for approving the scheme. The plaintiff who had in the past adopted a hostile attitude towards the bank, which attitude was known to the shareholders, opposed the scheme. On a poll being demanded, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ortly deal with the same. In my opinion, none of these authorities support the contesting defendants. Each turns upon its own facts. The Privy Council decision in Shutndasani's case ( supra ) was under the Indian Companies Act, 1913, which did not contain any section corresponding to section 173(2) of the 1956 Act. Regulation 49 of Table A of Schedule 1 of the 1913 Act, inter alia , required that, in case of special business, the general nature of that business should be set out in the notice. This regulation corresponds to* section 172(1) of the 1956 Act which requires every notice of a meeting - to contain a statement of the business to be transacted thereat. The Privy Council did not have to decide the question of a mandatory statutory provision, non-compliance with which would invalidate the notice. The Privy Council held that there was nothing questionable about the notice. The plaintiff who had a long history of dispute with the bank was in a hopeless minority. The shareholders did not appear to have put any faith in any statement made by him. They did not even desire to hear him further. The action, therefore, was, on the face of it, personal only to him and his brother, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are material facts and what is the nature and extent of interest under section 173(2) are questions of fact depending on the facts of each case and the party who knew the real nature of the transaction could not complain of the insufficiency of the notice. The court held that, in the facts of that particular case, they were not concerned to look to the interest of absentee shareholders. Before the Supreme Court, however, the appellant, Shanti Prasad Jain, was not allowed to urge this point inasmuch as the objection was not taken in the petition, and as the point was a mixed question of fact and law, the court further added [1965]. 35 Comp. Cas. 351,370 (SC) : "We may add that, though the objection was not taken in the petition, it seems to have been urged before the appeal court. Das J. has dealt with it at length and we would have agreed with him if we had permitted the question to be raised. This attack on the validity of what happened on March 29, 1958, must thus fail" Now, what Das J. in the High Court really held was that the explanatory statement was comprehensive and that there was no non-compliance with section 173(2) and that what are material facts including the natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a full-fledged memorandum and cleared the terms. The Company Law Board had, however, remarked that ' at the time of the renewal of the agreement with the sole selling agents in 1968 ..', thus visualising the renewal of the agreement in 1968". This again is a misleading statement, for the relevant and important words in the Company Law Board's communication, namely, that "your company should bear in mind the views of the Board which were communicated to you in their letter of even number dated 28th July, 1965, read with their letter of even number dated 28th September, 1965 ", were omitted and substituted by dots, thus suggesting that the Company Law Board had no objection to the renewal of the agreement in the same form in 1968. In my opinion, this omission is deliberate and made with the intention to mislead, particularly in view of the letter dated April 9, 1969, from the Company Law Board to which I have already referred above, which letter was certainly known to Tulsidas but most certainly not known to the other shareholders of the company. This statement of the private company appeared in the newspaper "Indian Express" of April 15, 1969, and in the newspaper "Financial Expr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fendant company as the same had been adequately dealt with and, as no further communication had been received from the Company Law Board, the said letter dated the 9th April, 1969, was dealt with in the ordinary course after consulting the solicitors of the 1st defendant company. I deny that the said letters dated the 9th April, 1969, and 22nd April, 1969, were wrongfully or with mala fide intention suppressed as alleged. I say that the said letter and the reply was placed at the first board meeting of the 1st defendant company held thereafter". Very much the same statements are made in the affidavit-in-reply filed by Dabke, the secretary of the company, on behalf of the company. The board meeting referred to in Tulsidas's affidavit was held on June 25, 1969. At least one thing is obvious on Tulsidas's own statement, that it was necessary to place the said letter before the board. Bearing this in mind let us examine the bona fides of Tulsidas. By his letters of April 9, 1969, and April 22, 1969, Reighley called upon Tulsidas as the chairman of the company to call a meeting of the board of directors immediately. Copies of these letters were sent to all the directors. It appears ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee of directors was appointed to deal with it. Why were the objections of the Company La Board to the further appointment dealt with in this fashion by Tulsidas alone ? Tulsidas's explanation that it was not necessary to circulate the letter as no further communication had been received from the Company Law Board after the company's reply of April 22, 1969, is untenable on the face of it. What was required to be circulated to the directors was the letter of the Company Law Board before any reply was sent thereto. According to Tulsidas, the matter was important enough to require consultation with the solicitors of the company but not important enough to place before the board of directors. The plaintiffs' contention that a board meeting was not called in April, 1969, though repeatedly requested by Reighley because, otherwise, this correspondence would have come to the knowledge of Reighley and through him to the knowledge of the shareholders appears, therefore, to be well founded. No one can be naive enough to believe, as Tulsidas expects it to be believed, that because no further communication had been received to the company's reply dated April 22, 1969, between April 22, 1969, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Law Board in the same way as the earlier communications from the Board, but it is clear from the letter itself that it is a communication from the Company Law Board. In fact, the said letters dated July 28, 1965, and September 18, 1965, were also signed by the under-secretary to the Company Law Board. These were, however, not treated as letters from some under-secretary and not from the Company Law Board. This letter of April 9, 1969, and the company's reply remained in the exclusive knowledge of Tulsidas, Dabke and the company's solicitors and were, in my opinion, deliberately kept back from the knowledge of all other shareholders and directors with a view to see that the said resolution of further appointment of the private company as sole selling agents should be got passed. In Tiessen v. Henderson [1899] 1 Ch. 861, 866 (Ch. D.) Kekewich J. pointed out that: " ..the vote of the majority at a general meeting, as it binds both dissentient and absent shareholders, must be a vote given with the utmost fairness that not only must the matter be fairly put before the meeting, but the meeting itself must be conducted in the fairest possible manner". To repeat the words of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticles of association of a company form a contract between the company and the members and between the members inter se, the members had agreed to an interested person being the chairman of every general meeting inasmuch as the majority of the business which comes up before a general meeting relates to the acts of directors. This argument does not appear to me to have any relevance. What was before the meeting was not the act of Tulsidas as a director in which he was concerned or interested as a director to see that the same should be upheld by the meeting. What was before the meeting was the approval of an agreement entered into between the company and the private company controlled by Tulsidas under which the private company and, therefore, indirectly, Tulsidas, were to receive considerable amounts by way of remuneration and profit. In this matter Tulsidas, in his capacity as a director, had not taken any part in the resolution of the board passed at its meeting held on November 14, 1968. His interest in the item of business before the meeting was, therefore, not in his capacity as director of the company but in his capacity as director and member of the private company and as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e result declared by Tulsidas cannot be said to be the true result of the meeting. I may also point out that while article 97(2) of the articles of association of the company makes the declaration of the chairman, whether on a show of hands a resolution has or has not been carried, or has or has not been carried either unanimously or by a particular majority, conclusive evidence of that fact, without proof of the number or proportion of the votes cast in favour of or against such resolution, there is no such provision with respect to the declaration of the result of a poll. Under article 98(6) it is only the decision of the chairman on any difference between the scrutineers appointed by the chairman to scrutinise the votes given on the poll and report to him which is made conclusive and not his declaration of the result of the poll.I deal with the decisions or directions given by Tulsidas, a few further facts which are important on this aspect of the case require to be set out. In the plaint in Suit No. 681 of 1969 the plaintiffs have made a grievance that the company through its secretary got some data fed into the computers maintained by the Tata Consultancy Services, Bombay, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the latest position of the polled proxies was to be prepared. The register would flag those cases where the proxies could be disputed, helping to avoid, as stated in the said letter, "unnecessary screening of valid proxies". It appears that the Tata Consultancy Services were paid a sum of Rs. 20,000 for this work. There is no resolution of the board meeting authorising the engagement of the Tata Consultancy Services or the payment of such amount to them, except that the fact that such payment had been made was intimated to the board of directors at its meeting held on June 25, 1969. In justification of his action Dabke sought to rely in his affidavit-in-reply upon a previous instance when similar assistance was taken from the International Business Machines Corporation. According to him, in 1960, when the company's shares were oversubscribed to about 60 times the face value of the shares offered to the public, assistance of the International Business Machines Corporation was similarly taken for processing allotment letters and refund orders, etc ., and at that time also no resolution of the board of directors was passed sanctioning such procedure, and it was the secretary and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proxy register of members" in spite of diligent efforts by the staff of the company. Folio numbers were, therefore, not given to such proxies and such proxies are referred to as "untraceable "in the affidavit-in-reply. After the remaining proxies were arranged as aforesaid and numbered and stamped with the relevant letter, they were sent under armed escort to the Tata Consultancy Services in the company of two representatives of the plaintiffs, two of the private company and two of the company for preparation of proxy analysis which accordingly was done by them. It is alleged that the said arrangement of taking and bringing back proxies to and from the Tata Consultancy Services was arrived at on April 26, 1969, in consultation with Ramdas, Reighley, Warner and their solicitor and the solicitor-director. The said proxies were removed on 26th and 27th April, 1969, from the' company's office to the office of the Tata Consultancy Services. It is alleged that the plaintiffs had deputed their own representatives to accompany the said proxies as well as deputed their representatives to supervise the return of the said proxies. It is said that there could be no question of consulting t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the secretary of the 1st defendant company in consultation with the Tata Consultancy Services. I say that the further data that was fed into the said computer after 26th June, 1969, was based upon my decisions on the validity or otherwise of various proxies and letters of revocations .I say that, as explained above, the scrutineers know the nature of the data fed except the data which was fed after I had given my decisions aforesaid." The plaintiffs have denied any prior knowledge, consent or approval of Reighley, Warner or the plaintiffs to what was done. Even according to the contesting defendants, there was no prior knowledge or approval or consent of either Reighley, Warner or the plaintiffs. It also seems consistent with the other facts to believe that Reighley protested against the proxies being removed as he alleges, and that the plaintiffs' representatives accompanied the said proxies along with others "to supervise the return of the said proxies as stated and alleged by Dabke himself in his affidavit-in-reply". In any event, it is not the case of the contesting defendants that anybody except Dabke knew what the complete data was which was fed into the computers.the heari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he last minute for lodging proxies at the registered office of the company was by 4 p.m. of April 26, 1969. According to the plaintiffs, 1017 proxies in favour of Tulsidas and three others were deposited by Shukla, the secretary of the private company, after 4 p.m. on April 26, 1969, and after the bell announcing the expiration of time allowed for depositing proxies had been rung. At that time Reighley, Karode, one P.K. Nambia, also a shareholder of the company, and the third defendant were present. Karode and Reighley objected to such proxies being deposited. Such objection was recorded by Karode on the same day and confirmed by Reighley and the letter of objection was signed by Karode and Reighley in the presence of the third defendant who has attested their signature. These 1017 proxies were in 12 unopened packets. These packets were opened and numbered and a note has been put on the said letter of Objection to the effect that "after numbering as above, receipt has been given to Kilachand Devchand and Company Private Ltd. by Synthetics and Chemicals Ltd. at 5-55 p.m. on 26-4-69". According to the affidavits-in-reply, at about 12-30 p.m. on the 26th April, the company received fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... number of proxies lodged on behalf of the Kilachand group was about 7,789 including the 1,017 disputed proxies. It is thus difficult to understand why, when these 7,789 proxies were lodged at 12-30 p.m., they could not have been counted till 2-30 p.m. or till 5-55 p.m. It is also difficult to understand why a receipt was not given in respect of the said packets to the effect that so many packets said to contain so many proxies were received. In fact, on April 28, 1969, Reighley had deposited approximately 11,730 revocations contained in two trunks and in respect of these trunks receipts were issued showing that trunk of a particular colour said to contain revocation letters was received at the registered office of the company on April 28, 1969, at 2-50 p.m. It is also significant that, prior to the affidavits in-reply, the story now set up about all these proxies being brought at 12-30 p.m. has not been set up in the correspondence.the said meeting of April 28,1969, written objections were raised by a shareholder, Kishore K. Koticha, to several proxies in favour of Reighley and others. It appears that a similar letter of objection was written by Koticha with respect to the proxies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eets there is an analysis of the different types of proxies worked out at the back. This is more than sufficient to convey to any one what the effect on the voting "would be if a particular class of proxies were held to be valid or invalid. It is difficult to believe that a similar analysis was not done in respect of proxies in favour of Tulsidas, if a register in respect thereof was prepared. At the hearing various statements were sought to be handed over to me and facts and figures were given to me of the various heads under which the proxies in favour of both parties would fall. I was also handed over by learned counsel for the company a specimen page, said to be a copy of one of the sheets in one of the proxy registers. I have returned this document and not kept it on the file. Based on the contents of the said specimen copy, detailed arguments were advanced to me by the contesting defendants. When this specimen copy was compared with the original sheet, of which it purported to be a copy, it was found that not only the headings of the columns differed but what was filled in under the columns had no relation to the original sheet. I may mention in fairness to the attorneys of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his decisions and directions which are contained in his said letter of June 26, 1969. Secondly, whatever counsel may have opined as to the validity in law of any objection is immaterial. The matter is to be decided by the court itself and not in accordance with the opinion given by counsel. For these reasons I did not permit Mr. Daphtary to produce any such opinion will now examine the validity of the objections to the proxies. Though the plaintiffs are challenging the validity of most of these decisions, at the hearing of these notices of motion Mr. Nariman, learned counsel for the plaintiffs, has confined himself to only some of them. The decisions or directions of Tulsidas are contained in his said letter of June 26, 1969. That letter is addressed to Dabke and begins this way: "Now that the papers relating to the extraordinary general meeting held on 28th April, 1969, have been tabulated I am giving the following directions." The opening words of this letter also make it abundantly clear that these directions have been given after the papers relating to proxies, etc ., had been tabulated and on the basis of such tabulations, that is, after Tulsidas had before him a clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2)Any instrument bearing an adhesive stamp which has not been cancelled so that it cannot be used again, shall, so far as such stamp is concerned, be deemed to be unstamped. (3)The person required by sub-section (1) to cancel an adhesive stamp may cancel it by writing on or across the stamp his name or initials or the name or initials of his firm with the true date of his so writing, or in any other effectual manner. " Thus, under section 12(2) any proxy on which the stamp is not cancelled must be treated as an unstamped proxy and ought to have been rejected. In In re Tata Iron and Steel Co. Ltd. [1928] 30 Bom. LR 197, 217; AIR 1928 Bom. 80 Crump J. has also held that the proxies which are unstamped or upon which the stamps have not been cancelled must be excluded and any votes recorded on the authority of such proxies should equally be excluded. No attempt has been made to support the legal validity of this direction but it was suggested that this was a favour to the plaintiffs inasmuch as several proxies in their favour bore stamps which were not cancelled. This overlooks the fact that on the admission of both Dabke and Tulsidas, there were proxies also in favour of Tuls ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duty with which it is chargeable has been paid. Under sub-section (3) of section 32, any instrument upon which an endorsement has been made under section 32 is to be deemed to be duly stamped and, if chargeable with duty, is to be receivable in evidence or otherwise, and may be acted upon and registered as if it had been originally duly stamped. There was, therefore, no question of Tulsidas or anybody sitting in judgment upon the certificate of the stamp officer. All such proxies, therefore, ought to have been held to be valid. Here again no attempt was made to justify the validity of this direction.5 requires that where there is a difference between the specimen signature of the shareholder giving the proxy and the signature on the proxy, the proxy should not be rejected by Dabke but the proxy and the specimen signature should be shown to Tulsidas for his decision. It nowhere appears that any such signatures were ever shown to Tulsidas. None of the affidavits-in-reply mention that any such signature was ever shown to Tulsidas. On the contrary, the affidavits-in-reply show that this work was done by the staff of the company. This is also clear from the correspondence with the scrut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ighley, which were reported "untraceable", and that similarly about 700 revocations in favour of Tulsidas and others were also reported "untraceable". It appears that such proxies and revocations lodged by the plaintiffs, bore on the reverse certain reference numbers. By the said letter the scrutineers requested that the company's office should be instructed to trace the said proxies and revocations with the help of reference on the back of the documents and suggested that the assistance of the respective parties may be taken for that purpose. In the progress report which the scrutineers made on May 22, 1969, they have referred to their letter of May 21, 1969, and requested that the same should be attended to. By their attorneys' said letter of June 10,1969, addressed to Tulsidas, the plaintiffs pointed out that the staff of the company had not mentioned folio numbers on approximately 1,450 proxies and 5,000 odd revocations in favour of Reighley, while they had given folio numbers to all proxies and revocations in favour of Tulsidas. They have further recorded that on May 5, 1969, Reighley and Karode were in the office of the company and had offered to assist in putting the folio n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oxies and revocations", such offer was rejected. This attitude on the part of Tulsidas militates against his claim of bona fides, fairness and impartiality.7 requires that wherever there is a difference between the specimen signature and the signature on the revocation letter, the revocation letter should be shown to Tulsidas for decision. As is clear from what is stated with respect to direction 6, no such revocation letter was ever shown to Tulsidas, but such revocation letters were dealt with only by Dabke and the office staff.8( a ) requires undated revocation letters to be ignored. The plaintiffs had lodged about 11,000 revocation letters obtained by them. The position appears to be that a large number of revocation letters in favour of Rgjghley and others were undated, while those in favour of Tulsidas were dated. In In re Tata Iron and Steel Co Ltd. [1928] 30 Bom.L.R. 197,213,214;AIR.1928 Bom 80,88, Crump J. said that such an objection with respect to proxies hardly required discussion. He observed: "The proxy was lodged within the time allowed and before the date of the meeting. I can understand that an omission to state the date of the meeting may be a serious defect, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and are in these terms: "I have signed forms of proxy and forms of revocation in favour of Mr. Tulsidas Kilachand and others. I have subsequently revoked the said forms of proxy and revocation and executed fresh forms of proxy and revocation in favour of Mr. F.J. Reighley and others. Kindly note the aforesaid position in your register and acknowledge receipt of this letter." Now, I fail to see what can be objected to in this form. All that was said was that this form referred to revocation as having been done earlier and did not by itself revoke the proxies. The form of letter of revocation in favour of Tulsidas is more elaborate and it states that the executant had executed the final proxies in favour of Tulsidas and others and had on that day revoked all proxies executed in favour of Reighley and others. Now, I fail to see why either of these two forms of revocation should be rejected. A proxy holder is merely an agent of a shareholder to vote at a particular meeting. Under section 203 of the Indian Contract Act, 1872, except where an agent has an interest in the subject-matter of the agency, the principal may revoke the authority given to his agent at any time before the aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itself revoked, the earlier proxy can be resuscitated. The result of a later proxy being revoked would be that the later proxy would also fall and not that the earlier proxy would revive. This direction too must, therefore, be said to be bad in law.9( c ), inter alia , provides that where a shareholder has given proxies in favour of both Reighley and others as also Tulsidas and others, than if both the proxies are undated or both bears the same date, they will be treated as cancelling each other unless one of the proxies is validly revoked. Here also to my mind the result would be that two cross proxies bearing the same date or both undated would cancel each other out irrespective of whether one of them is thereafter revoked or not because revocation of one of such proxies cannot lead to the revival of the other proxy. This direction also, therefore, does not seem to me to be justified in law.far as the bona fides of Tulsidas are concerned, it may also be mentioned that after the result was declared, Reighley, in his capacity as director, repeatedly requested Tulsidas as well as Dabke as the secretary of the company to give him inspection of various papers. Copies of that corre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Proxies Shares Total number of proxies received and the number of shares against these proxies (as shown in the register and rectified as mentioned in) (1) .. 6,798 70,698 6,396 2,54,642 Minus : deletions as per list 'A' attached. 182 2,972 53 8,171 6,616 67,726 6,283 2,46,471 Plus: as per additions mentioned in list 'B' . attached 1 6 3 161 6,617 67,732 6,286 2,46,632 Along with the said letter the Tata Consultancy Services also returned the old proxy register in which the said changes were marked. This letter was sent to the company in duplicate and was delivered by hand. One signed original was retained by the company and the other sent to the scrutineers. In both the original letters, after the portion reproduced above, further corrections have been made in ink under the heading "Firestone" in the first thr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that in favour of Tulsidas and others averages about 13 to 14 votes, it may well be that if a recount as submitted were ordered, the resolution would be lost.are a number of objections taken by the plaintiffs in connection with this aspect of the case. In view of the conclusion which I have already reached, I do not consider it necessary to deal with these objections and they may well be decided at the hearing of the suit.question that remains is what order to make in this case. It was submitted by Mr. Nariman, learned counsel for the plaintiffs, that since the conclusions I have arrived at are that the resolution passed at the meeting of the board held on November 14, 1968, and the notice convening the said meeting of April 28, 1969, and what was transacted at the said meeting are all invalid, the court must restrain the continuance of an ultra vires and an illegal act and grant an injunction as prayed for. On the other hand, the contesting defendants submitted that the conclusions to which I have arrived at on these notices of motion can only be prima facie and on such prima facie conclusions the court ought not to grant an injunction. I have at this stage held in favour of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . By a notification No. BRU 21690-LAB. I, dated July 9, 1969, of the Government of Maharashtra, Industries and Labour Department, published in Part I-L of the Maharashtra Government Gazette, Extraordinary, of July 9, 1969, the Government of Maharashtra in exercise of the powers conferred by section 3 and clause ( a )( iv ) of sub-section (1) of section 4 of the Bombay Relief Undertakings (Special Provisions) Act, 1958, declared that the said Digvijay Spinning and Weaving Company Ltd. should be conducted for a period of one year commencing on July 9, 1969, and ending on July 9, 1970, to serve as a measure of unemployment relief, and has further directed that during the said period any right, privilege, obligation or liability accrued or incurred before July 9, 1969, and any remedy for the enforcement thereof should be suspended. A copy of the relevant gazette has been put in by consent and marked exhibit C. Thus, this debt is today not recoverable, assuming that a company which had to be declared as a relief undertaking is capable of meeting its debts. Further, the auditors' notes appended to the said balance-sheet show that the sales tax assessments of the company have been finali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a loss. The financial position of the private company cannot, therefore, be said to be so sound as to justify dispensing with security.was then submitted by the contesting defendants that in respect of the working of the sole selling agency, the private company has to incur expenses which, under the terms of the agreement, are to be borne by it and, therefore, at least the amount of such expenses should be allowed to be received unconditionally by it. In the said affidavit-in-reply of Shukla it is said that the expenses incurred for the year ending September 30, 1968, were in the sum of Rs. 17,11,300 and a summary of such expenses is annexed as exhibit A to the said affidavit. After this affidavit was filed, the plaintiffs by their attorneys' letter of September 8, 1969, called upon the private company to give them inspection of documents from which the correctness of such expenses could be ascertained as also inspection of the balance-sheet for the year ending September 30, 1968, and the documents required by law to be annexed or attached thereto, including the profit and loss account and the auditors' and the directors' report, which balance-sheet was referred to in the said af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake. Under the sole selling agency agreement the private company has to set up and maintain at its own expense an adequate organisation for sale of the company's products within the agency territories and is to bear and pay all expenses relating to such organisation. Such expenses are, therefore, to be met by the private company out of the amount of commission received by it. Under section 294(2A), if the appointment of a sole selling agent is disapproved by the company in general meeting, it ceases to be valid with effect from the date of the general meeting, and section 294A(l)(a) provides that "A company shall not pay or be liable to pay to its sole selling agent any compensation for the loss of his office in the following cases : ( a )where the appointment of the sole selling agent ceases to be valid by virtue of sub-section (2A) of section 294." Under sub-section (2) of section 314, if any office or place of profit is held in contravention of the provisions of sub-section (1), not only is such office or place vacated on and from the date next following the date of the general meeting of the company at which a special resolution according the consent was required to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not. An ad interim injunction was given by me, as mentioned before, restraining each of the defendants from disposing of or in any manner dealing with any of the said papers and documents including those mentioned in exhibit 29. In spite of this, in none of the affidavits-in-reply is the existence of any of these documents denied. Since for whatever reason a consent order cannot be passed, it is not possible to appoint any private individual to be the custodian of these papers and the normal rule must prevail.parties are agreed that the hearing of both these suits should be expedited, but according to the contesting defendants, Suit No. 522 of 1969 ought to be heard first and Suit No. 681 of 1969 to be heard one month thereafter. It was submitted that Suit No. 522 of 1969 was filed as a short cause, the pleadings in that suit are complete and when the suit came on board for directions as a short cause, it has been ordered to be tried as a contested short cause on December 1, 1969, while Suit No. 681 of 1969 is filed as a long cause and written statements have not yet been filed therein. The last date for filing written statements in Suit No. 681 of 1969 was August 23, 1969. If th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be deposited on or before November 30, 1969, and the amounts for the subsequent months on or before the thirtieth day of each succeeding month.Devachand and Company Private Ltd. will be at liberty to withdraw one-half of the amount of each such deposit upon furnishing a bank guarantee or security to the satisfaction of the prothonotary and senior master of this court and on condition that in the event of the plaintiffs succeeding in either of the said two suits, Kilachand Devchand and Company Private Ltd. will forthwith deposit into the court the amounts so withdrawn by it for the purpose of being refunded .to Synthetics and Chemical Ltd.also grant, pending the hearing and final disposal of this suit, an iujunction restraining Tulsidas Kilachand, the second defendant in Suit No. 681 of 1969, from in any manner exercising any power or function as chairman of the extraordinary general meeting of Synthetics and Chemicals Ltd. held on April 29, 1969, as also restraining defendants Nos. 3 and 4 in Suit No. 681 of 1969 and each of them from exercising any power or function as scrutineers appointed at the said extraordinary general meeting.also appoint, pending the hearing and final disp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll such papers and documents.direct the defendants in Suit No. 681 of 1969 to file their written statement on or before November 30, 1969.affidavits of documents in each of the said suits shall be made on or before December 15, 1969, and inspection of the documents disclosed therein shall be given forthwith after such discovery is made.direct that Suit No. 522 of 1969 shall be placed peremptorily on board for hearing and final disposal, subject to a part-heard matter, on February 2, 1970, and that Suit No. 681 of 1969 be placed on board for hearing and final disposal on the same date immediately after Suit No. 522 of 1969.far as the costs of these notices of motion arc concerned, the hearing has lasted nearly 63 hours. Looking to the length of the hearing, the heavy record, the elaborate preparation and arguments and the complexity and importance of the question involved and the fact that each side is represented by three, and in some cases more than three, counsel, except defendants Nos. 3 and 4, who are represented by two counsel only, I direct that the costs of these notices of motion be taxed on the long cause scale with two counsel being allowed and shall be costs in the cause ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
