TMI Blog1974 (9) TMI 125X X X X Extracts X X X X X X X X Extracts X X X X ..... ders were and are the members of a single family consisting of Gurditmal Anand, his five sons namely, R. L. Anand, S. L. Anand, T. R. Anand, H. R, Anand and R. P. Anand along with one S. C. Anand and Sumitra Devi. On this small capital the holding company borrowed deposits and other loans amounting to over a crore of rupees. The subsidiary had existed as an independent company owning a very valuable property in the shape of a cinema theatre in Bombay with a capital of ₹ 15 lakhs divided in 1000 ordinary shares of ₹ 100.00 each nd 500 preference shares of ₹ 100 each. In 1962 the holding company bought 889 ordinary shares of Mazda Theatres while the remaining 111 ordinary shares were bought by the individual members of the Anand family. Mazda Theatres thus became a subsidiary wholly owned by the members of the Anand family in realty though in the eye of law the overwhelming majority of shares belonged to the holding company and the minority of shares belonged to the individual members of the Anand family. The 500 preference shares are held by some one else who has neither figured in this litigation nor claimed any voting rights. The major part of the financial resou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, the holding company filed C.A. 114-D of 1966 in this Court under section 391 (6) of the Companies Act for injuncting the subsidiary from exercising the lien. A temporary iniunction was granted by this Court. The subsidiary at first objection to it on the ground that this Court had no territorial jurisdiction. But this objection was not pressed and the injunction continued to operate against the subsidiary. On October 20, 1966, the Company Law Board appointed M. N. Kaul and Sardar Singh as Goverment directors of the subsidiary. Thereafter the Board of Directors of the subsidiary had a majority of four directors from outside the Anand family who thus lost control of the management of the subsidiary. The members of the Anand family could no longer hope to keep the assets of the subsidiary out of the clutches of the creditors-controlled Board of Directors of the holding company. ( 4. ) On December 16, 1966, the holding company filed C.A.32-D of 1966 purporting to be under section 397 and 398 but substantially under section 391 of the Companies Act submitting a new arrangement for the sanction of the Court in the form of a memorandum of agreement. This memorandum is so worded as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany plus S. L. Anand also neither filed any appeal against the order of July 29, 1968 which virtually took away the right of management from it nor did it object to the said arrangement in any way. On September 12, ,1973, the New Bank of India, a secured creditor of the holding company, filed C.A. 596 of 1973 under section 392 seeking directions in and modifications of the arrangement sanctioned on July 29, 1968 as the Court may consider necessary for the proper working of the said arrangement. On behalf of the subsidiary, its General Manager R. P. Anand purported to contest this application principally on the ground that the order of this Court dated July 29, 1968 was a nullity because the arrangement sanctioned thereby was without jurisdiction so far as it related to the subsidiary whose registered office was at Bombay. This objection was negatived by Sachar, J. on February 7, 1974 on the ground that the subsidiary had itself invited the decision of this Court in C.A. 32-D of 1966 and C.A. 128 of 1968 and had acquiesced in the injunction granted in C.A. 114-D of 1966 without pressing the objection to the jurisdiction which it was now raising. Sachar, J. also confirmed the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directors of the subsidiary appointed R. P. Anand as General Manager for five years by a resolution of November 15, 1966 conferring on him the powers exercisable by Managing Agents. Article 50, however, contravenes section 289 of the Companies Act inasmuch as it does not provide for the circulation of the draft resolution to all the directors present in India at their usual addresses for approval by a majority of them. According to section 9, the provisions of the Act override the provisions of the Memorandum and the Articles of Association insofar as the latter are repugnant to the former. Article 50 is, therefore, void as being ultra vires of section 289 read with section 9 of the Companies Act. The resolution of November 15, 1966, therefore, could not confer any power on R. P. Anand. By the order of July 29, 1968 this Court ordered that the Board of Directors of the holding company plus S. L. Anand were to be the Board of Directors of the subsidiary. No appeal was filed aaginst this order. But in opposing C.A. 596 of 1973, R. P. Anand purporting to act as General Manager of the subsidiary contended that the order of July 29, 1968 was without jurisdiction. In this appeal before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horise his counsel to file an appeal on behalf of the subsidiary. Subject to the decision on the question as to the validity of the order dated July 29, 1968, therefore, we hold that R. P. Anand did not have the authority either to oppose C. A. 596 of 1973 or to file this appeal or to authorise Shri Chadha to file the appeal. 2.The jurisdiction of this Court under the Companies Act is ordinary original civil jurisdiction as held by the Supreme Court in Jyoti Bhushan Gupta v. The Banaras Bank Ltd., (1962) Supp. 1 S.C.R. 310, (2), Even an interlocutory order passed by he Court is Judge lay to a Division Bench of this Court under Clause 10 of the Letters Patent of the Punjab High Court. Therefore, the same appeal is now competent under section 5(1) of the Delhi High Court Act. The decision by a learned single Judge acting under the jurisdiction given to him by section 10 of the Companies Act is in the same position as the decision by him in any other ordinary original civil proceeding. This does not, however, mean that every order passed by a Company Judge is appealable. As observed, by the Supreme Court in Central Bank of India v. Gokal Chand. (1967)1 S.C.R. 310, (2). even an i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company Law Board, ILR (1972) II Delhi 369 at 379, (7), a judgment means a decision in an action whether final, preliminary interlocutory which decides either wholly or partially, but conclusively in so far as the Court is concerned the controversy which is the subject of the action. On the other hand is the view of the Calcutta and the Madras High Courts. The locus classicus is the decision of the High Court of Calcutta in Justice of the Peace for Calcutta v. Oriental Gas Co.. (1872) 8 Bengal Law Reports 433, (8), where Sir Richard Couch, C. J. observed:- We think that 'judgment' means a decision which affects the merits of the question between the parties by determining some right or liability. It may be either final or preliminary, or interlocutory............... It would be seen that the meaning of judgment according to the second view is wider than the meaning placed upon it by the first view. Having considered both the views, the Supreme Court has preferred the wider to the narrower view in Shanti Kumar's case (4) in paragraph 18 of the reports Judged by that test, it is clear to as that the merits of certain questions between the partics have been detormined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t have the territorial or the pecuniary jurisdiction in dealing with the matter. This is the result of section 21 Civil Procedure Code and section 11 of the Suits Valuation Act (The Bahrein Petroleum Co. Ltd. v. P. J. Pappu, 1966-1 S.C.R. 461) (9). But the jurisdiction on the subject-matter or the person is what was called by the Supreme Court to be the inherent jurisdiction of a Court in Seth Hiralal Patni v. Sri Kali Nath, (1962) 2 S.C.R. 747(10). A Court must have this essential jurisdiction. If it docs net have it, the consent of parties cannot confer such a jurisdiction on the Court When there was no lack of inherent jurisdiction in the Court, and the objection to territorial jurisdiction was waived, the decision of the Court would not be liable to be attacked as being without jurisdiction, It is in the light of this legal position that we have to consider sections 10 and 2(11) of the Companies Act. Section 10(l)(a) is as follows :- The Court having jurisdiction under this Act shall be the High Court having jurisdiction in relation to the; place at which the registered office of the company concerned is situate, except to the extent to which jurisdiction has been conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Undoubtedly, the place of the registered office of the company is important. But the importance is analogous to the residence of an individual or the situation of immovable property at a particular place. Under section 16 or section 20 can be waived and the decision of a suit possession of and for certain other relief with regard to immoveable property has to be filed in the Court within the local limits of whose jurisdiction the property is situated. Similarly, a suit against a person is to be filed in a Court within the local limits of whose jurisdiction the defendant resides or carries on business or personally works for gain (section 20 Civil Procedure. Code). But section 21 Civil Procedure Code ensures that the objection to territorial jurisdiction under section 16 or section 20 can be waived and the decision of a suit by a Court which lacks territorial jurisdiction under sections 16 and 20 will not be invalidated for want of such jurisdiction. Under section 3(3) of the Companies Act, 1913, it was stated that nothing in section 3 shall invalidate a proceeding merely because of its being taken in a wrong Court. Section 10 of the Companies Act, 1956 corresponds to section 3 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nction of the Court in C.A. 128 of 1968 expressly rested on the memorandum of agreement annexed to C.A. 32-D of 1966. This arrangement had two distinct parts. The first part was concerned with the payment of the debts to the creditors by the holding company resulting from the agreement between the creditors and the holding company and also between the holding company and its members. The second part related to an agreement between the subsidiary and its members. The dispute before us relates to the second part. The reason is that the first part of the arrangement is supported by the resolutions passed in the meetings of the creditors and the members of the holding company which were modified in accordance with the powers of modification given to the Court by these resolutions. On the other hand, Shri Parpia contends that there was no meeting between the subsidiary company and its members. The members of the subsidiary have not in a meeting called by the Court voted by a three-fourths majority. Therefore, the arrangement relating to the subsidiary company and its members sanctioned by the Court on July 29, 1968 was void. ( 13. ) Let us examine whether the second part of the arran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rwhelming majority of the shareholders outside a meeting is sufficient to show that the resolution was supported virtually by all the members of the company. Professor L. C. B. Gower calls this as informal ratification by the members of the acts done on behalf of the company. He draws the distinction between the formal and the informal acts as follows:- The law normally insists that only a resolution duly passed at a meeting of the company can be regarded as an act of the company itself. In a number of cases, however, the question has arisen whether something less formal than a resolution passed at a duly convened meeting will suffice. In other words, can the veil be lifted so as to equate a decision of the members with a decision of the company itself ? (The Principles of Modern Company Law, 3rd Edn., pages 206-209). Decisions on this subject may be classified into (a) those requiring a formal compliance, and (b) those requiring only a substantial compliance. Formal compliance :- In Re George Newman Ltd., (1895) 1 Ch. 674, C.A.,(11) it was held by Lindley L. J., that individual assents given separately may preclude those who have given them from complaining of what t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... differences having arisen between the parties abovementioned, a prolonged and protracted litigation is threatened and in fact has already commenced at Bombay and in this Hon'ble Court. 5. The above differences are also impeding the progress or realisations of the assets of the Company, including the hire purchase loans. 6. In the above circumstances the Directors of the Company have considered it necessary, in the interest of the General Body of Creditors of the Company, to settle the outstanding disputes with the previous management and the minority share-holders of Mazda Theatres Pvt. Ltd. They have accordingly entered into an arrangement set out in a Memorandum of Agreement, annexed to this application and marked A . ( 17. ) It is to be noted that the Court appointed directors of the holding company were acting in the interests of the creditors. They wanted to secure control over the main asset of the holding company which consisted of 889 shares in the subsidiary which owned the cinema theatre at Bombay. The members of the Anand family were trying to keep that asset away from the creditors but now agreed to make it available to them. The previous management of the hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the holding company, they accepted deposits and loans amounting to over a crore of rupees though the capital of the company was only rupees fifteen lakhs. Out of this money, they acquired the control of the subsidiary which owns the cinema theatre in Bombay which is said to be worth more than rupees sixty lakhs. This is the only asset available to the creditors of the Anand family when they were managing the holding company. The Anand family now wants to show that the subsidiary is separate from the holding company and the assets of the subsidiary should not be made available to the creditors of the holding company. There is absolutely no justification why the Anand family should be allowed to defeat the creditors and retain for themselves the money of the creditors and keep to themselves the cinema theatre which is nominally owned by the subsidiary but in reality by the members of the Anand family who constitute the holding company which holds 889 shares in the subsidiary while the rest of III shares were also held by the Anand family. ( 19. ) A third exception to the rule that all the shareholders of a company must cast their votes in a formally called meeting is made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the company sought to recover money paid to the members in question as a fraudulent preference, and they relied on the invalidity of the winding up resolution as a defence, clearly it is right that amember should not be able to challenge the validity of a liquidation when he has acquiesced in the liquidator's acts or has allowed it to continue without drawing the liquidator's attention to the defect of which he complains, but in the instant case the court merely treated him as estopped from pleading the invalidity as a defence, and it certainly did not rule that the winding up resolution must be deemed valid against all persons and for all purposes. The fifth case (Re Bailey, Hay Co. Ltd.), it is submitted, was merely an application of the principle that the law will presume that acts have been done regularly and properly when they appear to have been, and it is noteworthy that the court said that it was entitled to infer that all, and not merely some, of the members had assented to (he adoption of the informal document as the company's articles. ( 20. ) The only members of the Anand family which took part in the litigation in this Court from 1966 onwards are R. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iterally. What the Bank means is that its completion is being stalled by the members of the Anand family. The Bank could not deny that part of the said arrangement has been fulfilled inasmuch as 45 per cent of the debts of the creditors have been paid by the holding company. ( 21. ) Alternatively , let us assume for the sake of argument that the arrangement sanctioned on July 29, 1968 was irregular inasmuch as a, formal meeting of the subsidiary and its members had not been ordered by the Court and a resolution of the members by three-fourths majority in favour of the arrangement was not actually passed. What is the effect of such irregularity ? Judicial decisions, some of which have been referred to above, have differed in their conclusions according to the facts and circumstances of each particular case. If a transaction was illegal, ultra vires, mala fide, unjust or oppressive, the Courts have been inclined to hold that an irregularity is fatal to the validity of the transaction. On the other hand, if the transaction was bona fide, legal, intra vires and for the benefit of the company as a whole and not oppressive on the minority, then the Courts were inclined to hold the tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ghts, or to exercise them ia a particular way. To sum up, the order dated July 29, 1968 has been analysed above as follows :- (1) On the one hand, no meeting of the members had been called by the Court and no resolution as such was passed by a three-fourths majority of the members in such a meeting. (2) On the other hand, the written consent of more than 90 per cent majority of the members to the arrangement was submitted to the Court and all or virtually all the members acquiesced in the arrangement by their conduct from July 29, 1968 till 1973. It is in these circumstances that we have to consider Shri Parpia's contention that the said order is a nullity or without jurisdiction. Absence of jurisdiction may consist either of facts or of law. Absence of facts giving jurisdiction may be proved when an order of an inferior Court or tribunal is challenged before a, superior Court either by a vertical judicial review consisting of an appeal or by a collateral judicial review. But an order of a superior Court or of a coordinate Court cannot be proved to be without jurisdiction by an inquiry into the facts constituting jurisdiction. An obvious example is that of an executin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the subsidiary, it cannot be challenged as no inquiry into questions of fact is permissible. ( 22. ) Shri Parpia's challenge to the order was based mainly on the ground that the provision of section 391 regarding the calling of a meeting was contravened. This challenge would have been on better ground if the only way to comply with section 391 was for the Court to call a meeting of the members of the subsidiary. We have shown above that the calling of a general meeting can be dispensed with if a written resolution is passed by all the members or if the consent of all the members is given otherwise or if all the members have acquiesced in the matter by conduct even without a formal consent or a meeting. It cannot be said, therefore, that the calling of a meeting is the only manner in which section 391 could be complied with. The order could have been attacked as being without jurisdiction on the face of it for non-compliance with a mandatory legal provision only if the only question for consideration was whether the meeting under section 391 was called or not. For, the absence of the meeting is seen on the face of. the record. But it is impossrole to conclude merely from su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tever the real facts, reliance upon the record is the only permissible method of attack. Accordingly, retrial of jurisdictional facts is again precluded, and collateral attack is limited to patent errors. For instance, in O'Connor v. Isaacs, (1956) 2 Q. B. 288 at 303, Diplock J. observed that where an order is bad on the face of it, it ceases to have the advantage which orders, although made without jurisdiction but good on their face, have, namely, that they are valid and are to be treated as valid until they have been set aside. Regarding the above mentioned three tests. Dr. Rubinstein observes:- These are three serviceable methods whereby the unpalatable phenomenon of retrial of facts can be avoided. Each has some authority to support it; none can claim to state the present state of the law. Retrial of jurisdictional facts in collateral proceedings must still be considered as a feature of positive law. Future decisions will indicate whether the courts are prepared to forsake their traditional outlook, and by adopting one of the methods discussed above, prevent a, retrial of any fact found upon evidence by the inferior tribunal. ( 24. ) Judicial review of jurisdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1968 cannot be ignored as being without jurisdiction. As we have no power to inquire into those facts, the said order must be accepted by us as correct. ( 26. ) Shri Parpia then contended that though the majority of the members of the subsidiary consented to the arrangement of July 29, 1968, such arrangement was oppressive to the minority. He relied on the decision of the House of Lords in Scottish Co-operative Wholesale Society Ltd. v. Meyer, (1959) A.C 324, . That decision has no application to the facts of the present case for the following reason Firstly, the protection was afforded there to an independent minority . In the present case, there is no independent minority. All the members of the Anand family have been acting in concert to help each other. Secondly, R. P. Anand who alone defended C.A. 596 of 1973 and is pro,secuting this appeal is not an independent minority. He is very much a member of the consenting majority. He has been enjoying the benefit of his appointment as General Manager by the order dated July 29, 1968. Even according to the observation of Lindley L. J. in Re George Newman Ltd.,(11) cited above, individual assents given separately may preclude th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as why Dalip Kapur, J. on November, 29, 1973 and Sachar J. on February 7, 1974 restrained the subsidiary from exercising the lien. This was necessary tor the satisfactory working of the arrangement and was, therefore, justified under section 392. S. L. Anand, K. C. Anand and Smt. Nirmal Anand had tried to exercise the powers of the directors of the subsidiary. For instance, they had purported to appoint R. P. Anand as General Manager in October, 1973 even though they knew that from July 29, 1968 the Board of Directors of the holding company was to act as the Board of Directors of the subsidiary. As they actively usurped the powers of the legal Board of Directors, they obstructed the working of the arrangement of July 29, 1968 and were properly restrained from doing so to facilitate the working of the said arrangement under section 392. The same reason justifies the removal of R. L. Anand from the Board of Directors of the holding company and restraining him from functioning as a director of the subsidiary under section 392 and the removal of R. P. Anand from the post of General Manager of the subsidiary. ( 29. ) Shri Parpia contended that section 392 does not enable the Court t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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