TMI Blog1973 (5) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... ies Act of 1956 (hereafter called "the Act"), the court has been given power to call a meeting other than an annual general meeting; section 167 of the Act enables general meeting. To the details of these I shall revert later. It is necessary, to start with, to notice briefly the facts which have led to these petitions. The company was registered in the year 1916 as a public limited company, but is stated to have been controlled by the husband of the petitioner, R. K. Jain (petitioner in C. P. No. 1 of 1973) and some of their family members; Oudhbir Prasad (petitioner in C. P. No. 2 of 1973) who holds 63 ordinary shares of Rs. 10 each, is the son-in-law of the petitioner and was also a senior executive of the company. The petitioner and her husband had no male issue and had, therefore, adopted R. P. Jain, the brother-in-law of Sheel Chandra. Yogesh C. Gupta is said to be a friend of Sheel Chandra and R. P. Jain. There seems to have been considerable animosity between the petitioner and her husband on one side and their adopted son, R. P. Jain, as well as Sheel Chandra and Yogesh C. Gupta on the other. The articles of association of the company (article 96) provide for eight d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the said meeting is also denied. More importantly, a notice is said to have been given by the company to the petitioner (and others) concerning the issue of right shares (on November 17, 1972). There is some controversy as to whether an application for allotting right shares was in fact made and even whether one is necessary to be made in writing; it is, however, asserted for the petitioner that a sum of Rs. 2,12,540 was deposited in the company's bank by the petitioner on December 4, 1972 (3rd December being a Sunday), when she came to know of the issue from Bombay through some other source. The money is said to have been either loaned or arranged by Bk. Shivcharan Singh, learned counsel for the petitioner. According to the contesting respondents, the petitioners knew and were also informed in time about the issue of right shares, but they made no application because they did not raise the money and the money which was paid only on the afternoon of the 4th (after the allotments of the shares on the 4th morning) represents the money which R. K. Jain had secreted from out of the company's funds during his management. Applications Nos. 725 of 1972 and 73 of 1973 were filed for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nduct the meeting of the company in the manner prescribed by this Act or the articles, the court may, either of its own motion or on the application of any director of the company, or of any member of the company who would be entitled to vote at the meeting, ( a )order a meeting of the company to be called, held and conducted in such manner as the court thinks fit; and ( b )give such ancillary or consequential directions as the court thinks expedient, including directions modifying or supplementing in relation to the calling, holding and conducting of the meeting, the operation of the provisions of this Act and of the company's articles. Explanation. The directions that may be given under this sub-section may include a direction that one member of the company present in person or by proxy shall be deemed to constitute a meeting. (2) Any meeting called, held and conducted in accordance with any such order shall, for all purposes, be deemed to be a meeting of the company duly called, held and conducted". Section 79(3) of the Act of 1913 enabled the court to order even an annual general meeting of the company. The present provision (section 186) only enables the court to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is a subsidiary of a public company shall, ( a ) be persons whose period of office is liable to determination by retirement of directors by rotation, and ( b ) save as otherwise expressly provided in the Act, be appointed by the company at its general meeting. The remaining directors in the case of any such company shall, in default of and subject to any regulations in the articles of the company, also be appointed by the company in general meeting. Section 256 deals with ascertainment of rotational retirement of directors at annual general meetings; one-third of the directors of a public limited company retire at every annual general meeting. There is a conflict of judicial opinion on the question whether those directors who have to retire by rotation also vacate their offices by reason of their own failure to call a general meeting. Venkatarama Aiyar J. (as his Lordship then was), speaking for the Division- Bench of the Madras High Court in A. Ananthalakshmi Ammal v. Indian Trades and Investments Ltd. [1952] 22 Comp. Cas. 324 ; A.I.R. 1953 Mad. 467 held that they must be deemed to have vacated their offices. That case arose under sections 76 and 79 of the Act of 1913 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irector retiring by rotation for re-election, but allowing the said item to be adjourned pending further orders of the Tribunal. Vimadalal J. held that there was nothing in subsection (4)( b ) of section 256 to lead to the conclusion that the deeming provision was to apply only when a company had the choice of fulfilling its conditions or not. Reliance was placed on Grundt v. Great Boulder Proprietary Mines Ltd. [1948] Ch. 145 ; 18 Comp. Cas. 236, 239 (C.A.) concerning an article provision somewhat similar to section 256(4)( b )( i ). The concerned article provision in that case reads as follows: "If at any general meeting at which an election of directors ought to take place the place of any director retiring by rotation is not filled up, he shall, if willing, continue in office until the ordinary meeting in the next year, and so on from year to year until his place is filled up, unless it shall be determined at any such meeting on due notice to reduce the number of directors in office". At the annual general meeting held in July, 1947, Grundt retired by rotation but a resolution for re-electing him was lost by show of hands. There was no resolution, however, to reduce th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll owing to the confusion which prevailed; it was held that the previous directors must be deemed to continue in office. The contrary holdings of each of the two High Courts, Madras and Calcutta, introduce an additional element of uncertainty about the true legal position. In the view I take of this petition it seems unnecessary to express an opinion on this rather difficult question which may require fuller consideration when it arises. The Indian decisions which hold that a retiring director vacates office if he fails to hold the annual general meeting seem to be based upon the view taken by the English court in In re Consolidated Nickel Mines Ltd. [1914] 1 Ch. 883 (Ch. D.) and the statement in Buckley on the Companies Acts (12th edition, page 882). Probably the decision of the House of Lords in Morris v. Kanssen [1946] A.C. 459 ; 16 Comp. Cas. 186 (H.L.) is also material. In that case the question was whether the allotment of shares by some who purported to act as directors was valid when it was found that there was no appointment at all, the observations were expressly applicable to the case of there being no appointment at all or the original appointment itself bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rector is not filled up, such director shall, if willing to continue in office, be deemed to have been re-elected at such meeting, unless it shall be determined at such meeting to reduce the number of directors, or to leave any vacancy unfilled". It may be recalled that article 106 provides that the continuing directors may act notwithstanding any vacancy in their body and that article 2 (interpretation clause) states that " words importing the plural number also include the singular number". Venkatarama Aiyar J. in A. Ananthalakshmi Ammal 's case ( supra ) quoted the observations of Swinfen Eady L.J. in Channel Collieries Trust Ltd. v. Dover, St. Margaret's and Martin Mill Light Railway Cd. [1914] 2 Ch. 506 (C.A.) : "I think that the context requires that the word ' remaining directors ' should include the case of a remaining director..........and so long as there is any remaining director he may proceed to fill up the board by appointing persons when casual vacancies occur". Venkatarama Aiyar J. applied those principles and held that the power to co-opt directors can be exercised even though the strength of the directors falls below the minimum and even when there w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he retirement of a director unless one of two conditions is satisfied : either there must be a number which is one-third of the directors, or there must be a number which is nearer to, but does not exceed, one-third. Here it is clear that neither of those conditions is satisfied. There are two directors and, therefore, you cannot find a number which is one-third. There are two directors and, therefore, you cannot find a number which is nearer to but does not exceed, one-third". This case was referred to and distinguished by Venkatarama Aiyar J. in B. N. Viswanathan v. Tiffin's Barytes, Asbestos and Paints Ltd. [1953] 23 Comp. Cas. 29; [1953] 1 M.L.J. 346 (Mad.) on the basis of the language employed in David Moseley's case ( supra ) and the absence of analogous language in Viswanathan 17 ; it was held that even one of two directors should retire at the meeting. The language of article 109 is analogous to that employed in David Moseley's case ( supra ) . Even if this view is not correct, Sheel Chandra must be taken to have retired not earlier than July 31, 1971, the last annual general meeting having been held on April 30, 1970 (there can be an interval of 15 months ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch, to which Banerjee J. also was a party, when it was felt that the calling of a meeting by the requisitionists would lead to endless litigation and where matters may arise for debate and decision which were already the subject-matter of suits. The Division Bench had no difficulty in holding in such circumstances that a meeting of the company would be " impracticable". In a still later decision of the same High Court in Bengal and Assam Investors Ltd. v. J . K. Eastern Industries P. Ltd. [1957] 27 Comp. Cas. 86 ; A.I.R. 1956 Cal. 658, P. B. Mukharji J. (as he then was) reviewed the case law in question and agreed with the principles decided by the aforesaid cases but still declined to order a meeting in that case. He observed that a discretion granted under section 186 should be sparingly used and with great caution so that the court does not become either a shareholder or a director of the company trying to participate in internecine squabbles of a company. In a still later case before the same High Court S. P. Mitra J. reviewed all the authorities in United Breweries Ltd. v. Ruttonjee Co. Ltd. [1962] 2 Comp. L.J. 155 (Cal.) and summarised the principles to be borne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of passing resolutions removing the two directors and appointing two other persons as directors. The directors having failed to comply with the requisition the applicant himself convened an extraordinary general meeting for April 21, 1958. The directors did not attend the meeting either in person or by proxy; the quorum not being there the meeting stood dissolved. On April 29, 1958, the applicant served a special notice under section 142 of the Act of 1948 of his intention to move the same resolutions at the next extraordinary general meeting; on the same day he took summons asking for a meeting to be called by the court under section 135(1) of the Act of 1948 for the purpose of passing the resolutions, and for a direction that one member of the company should be deemed to constitute a quorum at such meeting. The application was opposed by the directors. An order directing a meeting to be held and that one member present should constitute a quorum was made in the circumstances. This case illustrates the exercise of such power in order to suit the exigency of each situation. It is also of interest to note that there was no reference here to the previous decision of the English ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact and law and it must, therefore, be inferred that the law did not contemplate the determination of such a question in a miscellaneous proceeding under section 79(3). We are not impressed at all by this argument because we do not think that in the large majority of cases any complicated questions of law and fact will arise for consideration. The question of the validity or otherwise of a meeting will, in a vast majority of cases, turn upon the interpretation of the company's articles of association and some general provisions of the law". The Full Bench decision is, therefore, of no assistance to the petitioner; this is not a simple case, free from complexity. Shri Ved Vyas, on the other hand, contended that the present petitions not having been brought in the name of the company they are not maintainable according to the well-known rule in Foss v. Harbottle [1843] 2 Hare 461; 67 E.R. 189 . As an important facet of the principle of majority rule, it was held that if a wrong has been done to a company only the company could sue. To this rule itself there are exceptions like the act or resolution complained of being itself illegal or ultra vires , the controllers of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in his own right". In Edwards's case ( supra )two members of a trade union successfully sued two members of the executive committee of a trade union and the union itself for a declaration of illegality regarding a resolution passed by a delegate meeting of the union, without taking a ballot, increasing the contributions of members contrary to the constitution of the union that it was not to be altered until a ballot of the members had been taken and a two-thirds majority obtained. The submission of Shri Ved Vyas in this regard is seen to be without much force in so far as a petition under section 186 need not be on behalf of the company for the very language of that section even permits the court suo motu to call a meeting of the company if it has become impracticable to call a meeting, other than an annual general meeting. But the submission of Shri Ved Vyas may have force if this petition, under section 186, is sought to be used mainly for obtaining reliefs pertaining to the alleged usurpation of office by directors. However, an action need not be in the name of the company for actions concerning injuries personal to the petitioner. There is also one other aspect of the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ho were functioning in this case, even in the view contended for by the petitioner that they were not de jure directors, were at least de facto directors who functioned without any knowledge of the defect in their continuance or functioning as directors. To appreciate this contention it would be necessary in the first instance to read section 290: "290. Acts done by a person as a director shall be valid, notwithstanding that it may afterwards be discovered that his appointment was invalid by reason of any defect or disqualification or had terminated by virtue of any provision contained in this Act or in the articles : Provided that nothing in this section shall be deemed to give validity to acts done by a director after his appointment has been shown to the company to be invalid or to have terminated". The corresponding section of the Indian Act of 1913 was section 86 and of the English Act section 180. The principle obviously is that there should be no vacuum in the affairs of a company and that all acts done bona fide should be fully protected not only between third parties and the company but also between the company and its members and between members and members. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aspect by Mallick J. in Albert Judah Judah v. Rampada Gupta [1960] 30 Comp. Cas. 582 ; A.I.R. 1959 Cat. 715. Referring not only to standard text writers but also to Indian cases, Mallick J. observed at pages 735-36 as follows: "In all the authorities, however, cited before me and noticed before the term de facto directors has been restricted to directors with defective appointment. No case has been cited in which the court has upheld the act of a ' pretended director ' without any appointment. In other words, in no case the term de facto director has been applied to a mere usurper without any appointment whatsoever". To the same effect is also the decision of a Division Bench of the Allahabad High Court in Shiromani Sugar Mills Ltd. v. Debi Prasad [1950] 20 Comp. Cas. 296 ; A.I.R. 1950 All. 508 , where Desai J., speaking for the Division Bench, considered some of the cases and held that the actions of de facto directors are protected when brought to their minds. A similar view was also taken by Chopra J. in Fateh Chand Kad v. Hindsons ( Patiala ) Ltd. [1957] 27 Comp. Cas. 340 ; A.I.R. 1956 Pepsu 89 Without recording evidence it is hardly proper to go in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the persons who, at the date of the offer, are holders of the equity shares of the company, in proportion as nearly as circumstances admit, to the capital paid up on those shares at the date; ( b ) the offer aforesaid shall be made by notice specifying the number of shares offered and limiting a time, not being less than fifteen days from the date of offer, within which the offer, if not accepted, will be deemed to have been declined". The notice is said to have been issued on November 17, 1972, and on the date of receipt the petitioner and her husband should have 15 clear days which would take us to December 3, 1972, but the issue in this case is stated to have been made on December 4, 1972; December 3, 1972, was a Sunday. Section 81 of the Act provides for the issue of further capital; such further shares shall be offered to the persons who, at the date of the offer, are holders of the equity shares of the company in proportion, as nearly as circumstances admit, to the capital paid up on those shares at that date. This offer should be made by notice specifying the number of shares offered and limiting the time "not being less than fifteen days" from the date of the offer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation cannot be granted against the allottees of those shares in their absence. This would be plainly opposed to the rule of natural justice. It will be sufficient to cite the latest decision of the Supreme Court on this question, i e. , Smt. fatan Kanwar Golcha v. Golcha Properties Pvt. Ltd. [1971] 41 Comp. Cas. 230 ; A.I.R. 1971 S.C. 374 in which both the official liquidator and the company court were held to be bound by the rules of natural justice. Even an application for the rectification of the share register could not be disposed of without notice to the parties affected. The court may even decline to grant rectification on an application made under section 155 if it involves any complicated questions and the parties could properly be referred to a suit in such a case. The following passage from Halsbury's Laws of England, third edition, page 218, may be usefully referred to : "If the court thinks that the case, by reason of its complexity or on the ground that there are matters requiring investigation or otherwise, could more satisfactorily be dealt with by an action, the court will decline to make an order on a motion, without prejudice to the right of the appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry to what has been laid down (section 174 is one such) and that section 9 provides that save as otherwise expressly provided in the Act the provisions of the Act shall have effect notwithstanding anything to the contrary in the memorandum or articles of association. I wonder whether it has any relevance here. I have also not been referred to any decided case where such an article provision as the present (though it seems to be common enough) was ever questioned merely on the ground that it provides for a greater quorum than what the Act insists it may be another matter if the articles provide for less. It seems unnecessary to express an opinion on this question also. Even if the decision to issue right shares was invalid a declaration concerning its invalidity cannot be granted in the absence of those who would be affected by it. Bk. Shivcharan Singh drew my attention to In re Sly, Spink Co. [1911] 2 Ox. 430 (Ch. D.) where rectification of register of members was granted when the shares were allotted by directors who were less than the quorum. (This argument subsumes that Pritam Singh and Balbir Singh were not properly co-opted and that even if Sheel Chandra and Yogesh C. Gu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Societies Act, 1874, being destroyed due to enemy action, when Vaisey J. (in Payne v. Coe [1947] 1 All E.R. 841 (K.B.) ) gave a direction to hold a meeting in accordance with the rules for ascertaining the names and addresses of the members by means of public advertisement. No question of rectifying the register of members for the purpose of giviDg such directions arose in that case. Krishnaswamy Nayudu J. of the Madras High Court [1953] 23 Comp. Cas. 29, 43 ; [1953] 1 M.L.J. 346, 355 (Mad.) had given a direction that those whose names appeared in the register of members on a certain date would vote at the meeting called under the old section 39(3), before the present section 186 was placed on the statute book. Venkatarama Aiyar J. in Viswanathan's case ( supra ) has referred to this direction by Krishnaswamy Nayudu J. as follows i "to this course the company could have no objection". In the case on hand, however, there are several objections (they have been already noticed) to a direction being given that there should be no voting on the basis of the right shares. The petitioner's purpose would not be served if such a direction is not given. What was originally 46% had ..... X X X X Extracts X X X X X X X X Extracts X X X X
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