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TMI Blog1975 (1) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... ing necessary for decision of that case. The company was formed under section 25 of the Companies Act, 1913, with no share capital and prohibiting the payment of dividend to its members. It had for its object the promotion of the interests of its members, who are engaged in the trade of exhibition, distribution and exploitation of motion pictures in the Union territories of Delhi and the State of Uttar Pradesh. Any person wanting to indulge in these (business) activities relating to motion pictures in the above areas has to become a member of this company. The company, according to its articles, is to hold its annual general meeting within six months of the closing of its accounts, which is the 31st December each year ; the last annual general meeting of the company was held on 3rd May, 1969. Article 24 of the company reads as follows : "At every annual general meeting all sitting members of the executive committee Khali retire from office. The retiring members shall be eligible for re-election in the annual general meeting in which they retire." According to article 31 "the retiring member or members of the executive committee shall retain office till the dissolution of the me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssly provided in this Act, be appointed by the company in general meeting, (2) The remaining directors in the case of any such company, and the directors generally in the case of a private company which is not a subsidiary of a public company, shall, in default of and subject to any regulations in the articles of the company, also be appointed by the company in general meeting." A member of the company (G. S. Mayawala) had filed a suit (476 of 1960), against the company in which there was an application for restraining it from holding the annual general meeting till the decision of the suit. The company voluntarily appeared in that suit and undertook not to hold any annual general meeting till the suit was decided. The suit ended in a compromise. Subsequent to the compromise 134 members had demanded, by a requisition which had been left at the office of the company on July 29, 1972, the holding of an extraordinary general meeting for consideration and adoption of certain resolutions as stated in that requisition. That requisition fell short of the minimum 10% of the total membership because some signatures were found invalid and the rest were (subsequently) withdrawn. A body of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is petition were elected as members of the executive committee (directors) of the company. It is now stated that in spite of the petitioner in C.P. No. 102/74 (J.S. Sood), who was admittedly one of the 18 who was so elected) pressing for regularisation of certain defaults and a further election of members of the executive committee on or before June 30, 1974 (the financial year closing on December 31 each year) no such meeting was called. In the result, it is alleged, that by June 30, 1974, all the 18 must be deemed to have vacated the office of directorship/membership of the executive committee by operation of law. In April, 1974, the petitioner had also communicated in writing to the company that their term as elected executive committee had expired on June 30, 1974, and they should not continue thereafter to act. Though the receipt of this communication was denied by the secretary of the company after an application (Cr. O. No. 84 of 1974) to punish him was filed, Mr. I. N. Shroff, learned counsel for the company, did not wish to justify the secretary's denial of the receipt of the said communication, but on the other hand apologised to the court for the same. It is contended b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d cease to be directors, as claimed in this petition, on or before June 30, 1974, the present petition under section 186 would not be competent, in the view that they themselves could call a meeting at which the directors/executive committee members could be elected. It, therefore, falls for consideration whether having regard to the relevant provisions of the Act and the articles of the company set out above, the 18 executive committee members/directors of the company retired and ceased to hold office on or before June 30, 1974, and for that reason it has become impracticable to call a meeting of the company. In addition to the sections of the Act noticed above, the following sections may also be noticed at this stage : "168. If default is made in holding a meeting of the company in accordance with section 166, or in complying with any directions of the Central Government under sub-section (1) of section 167, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five thousand rupees and in the case of a continuing default, with a further fine which may extend to two hundred and fifty rupees for every day after the firs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he seven days aforesaid, any further appeal or petition is preferred in respect of the adjudication, sentence, conviction, or order, and the appeal or petition, if allowed, would result in the removal of the disqualification, until such further appeal or petition is disposed of. (2A) Subject to the provisions of sub-sections (1) and (2), if a person functions as a director when he knows that the office of a director held by him has become vacant on account of any of the disqualifications, specified in the several clauses of sub-section (1), he shall be punishable with fine which may extend to five hundred rupees for each day on which he so functions as a director. (3) A private company which is not a subsidiary of a public company may, by its articles, provide, that the office of director shall be vacated on any grounds in addition to those specified in sub-section (1)." The plain language of section 166 is that not more than 15 months shall elapse between the date of one annual general meeting of a company and that of the next; the Registrar, for any special reasons, may extend the time at which the annual general meeting (not being the first annual general meeting) shall be he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h D 883 (Ch D) and A. Ananthalakshmi Ammal (a Division Bench decision of the Madras High Court). A single judge of the Madras High Court in V. Selvaraj v. Mylapore Hindu Permanent Fund Ltd. [1968] 38 Comp. Cas. 153 (Mad.), who did not refer to the Division Bench decision in A. Ananthalakshmi Ammal observed that the directors retired at an annual general meeting but since in that case the meeting had not commenced at all owing to the confusion which prevailed the previous directors must be deemed to continue in office. This decision which seems to proceed of the view, apparently, that there was no default on the part of directors since a meeting had been called but could not be conducted owing to confusion, is even distinguishable. The Indian decisions which have held that a retiring director vacates office if he fails to hold the annual general meeting are seem to be based on the view taken by the English court in In re Consolidated Nickel Mines Ltd. (supra). In that case the articles provided that general meetings should be held once every year; that at the ordinary meeting in 1906 all the directors should " retire from office " and that the directors should be remunerated at cer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... correctness of the same was conceded before the Court of Appeal ; the concession on a question of law was not even sought to be withdrawn when the case was argued before the House of Lords. This argument also overlooks the observations of Lords Simonds in that case, Morris v. Kanssen (vide pages 467, 468 and 471 of 1946 A.C.- the ruling starts on page 458). The headnote as stated in 1946 A.C. 459 reads :" No general meeting was held in 1941..............there were thereafter no de jure directors. " Having thus noticed what the position in England is as we are able to see that as per the above-said two decisions,-no other case having suggested any contrary point of view-it may also be rewarding to notice what, a leading English author on company law has to say. In Penning-ton's Company Law (third edition, page 478) the above-said two cases have been noticed in the footnote as authority for the text which reads as follows: "If no other annual general meeting is held the appropriate number of directors will retire at the end of the calendar year in which it should have been held. " Venkatarama Iyer J. had relied on a passage in Buckley on the Companies Acts (12th edition, page 882 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not comply with those sections and no more ; in other words, that independently of the said penalty there was no other disability attaching to a director functioning after the maximum period allowed under section 255 had expired. I find this contention difficult to follow. That a penalty has been prescribed for a defaulting director is something totally distinct from the question how long a director continues to hold office in the absence of his being elected. Again In re Consolidated Nickel Mines Ltd. [1914J 1 Ch D 803 (Ch D) has been followed in India also as an authority for the position that a director cannot by his own default in not calling the annual general meeting, as he is bound to do, take advantage and still continue as director and/or collect the remuneration payable to such director. This view found favour with Venkatarama Iyer J. (as he then was) in Anantha-lahshmi Animal case (supra). Section 166 of the Act replaced section 76 of the previous Act; the corresponding provision in the English Act is section 131. Mr, A. Ramiah in his book, which has run into several successive editions, A Guide to the Companies Act, 1971 (6th edition), has extracted, on page 292, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so fixing the maximum time that can elapse between one annual general meeting and another with a further statement, as under section 255, that at least one-third of the directors would, in the absence of article provision to the contrary, retire at every annual general meeting. In this case article 24 provides for the whole set of directors retiring at the annual general meeting. The articles (article 31) provide that when an annual general meeting takes place the persons concerned would retire at the end of such meeting. This provision was to remove a possible anomaly of their having to retire either before the meeting or during the course of it. In the present case, when no annual general meeting had taken place for the maximum permissible period the executive committee members/directors did retire at the expiry of the said period. To allow them to continue at the end of the said period as de jure directors would be to invest them with a power to continue as directors by defaulting to call an annual general meeting. That no defaulting director could take advantage of his own wrong seems a fairly well-established proposition; this was pointed out in In re Consolidated Nickel Mines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide the common law." (page 339). (d)The courts will lean against any presumption that a consolidation Act was intended to alter the common law." (page 363). Reference to another well-established rule of common law may also be made; it is that a person should be heard before his rights are affected ; if there are any omissions in the statute in this regard " the justice of the common law principle would supply the omission ". (See above observation of Byles J. which has become classic in Cooper v. Wandsworth Board of Works [1863] 143 EE 414; 14 CB (NS) 180). In that case the metropolitan statute empowered the district board to alter or demolish a house, where the builder has neglected to give notice of his intention to build, seven days before proceeding to lay or dig the foundation. It was held by all the three judges that the statute did not empower them to demolish the building, without first giving the party guilty of the omission an opportunity of being heard. Mr. I. N. Shroff pointed out that the above said decision related to a rule of natural justice which does not fall for consideration in the present case. The question is not so much in what context the above said observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hi Flour Mills Co. Ltd. ILR [1973] 2 Delhi 322 and In the matter of Companies Act, 1956, and In the matter of Motion Pictures Association [1974] 44 Comp. Cas. 298 (Delhi). I had referred, among other decisions, to that in United Breweries Ltd. v. Rustomji and Co. Ltd. [1962] 2 Comp. LJ 155. Explaining the principles to be borne in mind while dealing with an application under section 186 it was stated, inter alia, that even when there is doubt as to whether a meeting in the regular course could be called the company should not be exposed to difficulty and risk of litigation; it would be a proper case, therefore, for the exercise of the power conferred under section 186 to call a meeting of the company. It is in the light of the facts discussed above that it seems imperative to call a meeting of the company under section 186 of the Act. It seems needless to refer to the earlier attempts made to have only a chairman appointed by court for a meeting already called by the company; it was probably thought that it was an inexpensive course to adopt. But when the executive committee members/directors are not functioning de jure they could not call a meeting themselves. As such there is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5)The nominations along with the consent of the person nominated in the case of those wishing to be elected as office bearers will reach the secretary of the company on or before 5 p.m. on 13th February, 1975. The nominations will be scrutinised by the chairman. The last date of receipt of objections to nominations will be on or before 5 p. m. on 15th February, 1975. The chairman will go into the objections, scrutinize the nomination papers and make his decision concerning them. For this purpose he will attend the aforesaid premises of the company on 17th February, 1975. The list of valid nominations will be dispatched, under certificate of posting, by the secretary of the company to all the members not later than the 19th February, 1975. (6)Members attending the meeting will not be permitted to sign the attendance register after 12 noon. In other words, if any member does not sign the meeting register by 12 noon that member will not be entitled to vote. (7)The requisition slips for the ballot papers will be actually signed by the person who has to record the vote on behalf of the concerned member ; they (requisition slips) will not be issued to any one else. A register will be m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be allowed to be present inside the premises when the polling and counting take place; no other person on his behalf to help the candidates will be allowed to be present. The chairman will not allow the staff of the company to participate in the matter of conducting the election. (16)The chairman (Shri Prithvi Raj Sachdev) will be paid a remune ration of Rs. 2,000, the alternative chairman (Shri A. L. Joshi) Rs. 1,000 and the four scrutineers (Sarvashri K. L. Budhiraja, M. L. Sachdev, Suhinder Singh and S. M. Saxena) Rs. 500 each, by the company. Sarvashri M. L. Sachdev, Suhinder Singh and S. M. Saxena, officers of this court who have been appointed scrutineers, will receive the said sum of Rs. 500 each as rewaid for this special service. (17)The secretary of the company (Shri J. C. Basu) is authorised to make payments in respect of the above remunerations. (18)Shri J. C. Basu in addition to Sarvashri (names to be mentioned before chairman) will be allowed to be present along with the chairman for the purpose of helping the identification of voters. They will not stand as candidates for the election. A copy of this order will be caused to be cyclostyled or printed by the secret ..... X X X X Extracts X X X X X X X X Extracts X X X X
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