TMI Blog1985 (11) TMI 235X X X X Extracts X X X X X X X X Extracts X X X X ..... t the defendants Nos. 2 to 8 and each one of them have ceased to be the directors of the defendant No. 1 and cannot act as such; an injunction restraining the defendants No. 2 to 8 from holding out or acting as directors of the defendant No. 1; the Board of Directors of the defendant No. 1 be superseded and a Receiver or Special Officer or Administrator be appointed to conduct the management and affairs of the defendant No. 1 vested with the full powers of the Board of Directors of the defendant No. 1. 2. The case of the plaintiffs in the plaint is, inter alia, that- (a) The defendant No. 1 is an existing limited company within the meaning of the Companies Act, 1956 and owns and runs a tea garden known as Ambari Tea Estate in the District of Jalpaiguri of West Bengal. (b) The plaintiffs are share-holders of the defendant No. 1. (c) Article 102 of the Articles of the defendant No. 1 is as follows; At each Annual General Meeting of the company one third of such of the Directors for the time being as are liable to retire by rotation if their number is not three or a multiple of three then the number nearest to one-third shall retire from office. An additional Director a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 983 by operation of the mandatory provisions of the Companies Act there are no lawful Directors of the defendant No. 1. (h) The Annual General Meeting of the defendant No. 1 to consider the accounts for the year ended 31st December 1980 ought to have been convened and held within the 30th September 1981. Taking into account the extension of three months which in law could be granted by the Registrar of Companies, at the maximum. The Board of Directors of the defendant No. 1 had no power to convene or hold an Annual General Meeting to consider the accounts of the defendant No. 1 for the year ending the 31st December 1980 or to transact other business to be considered at such a meeting after the 30th September 1981. (i) After the 30th September 1981 only the Central Government was empowered to convene an Annual General Meeting of the company under Section 167 of the Companies Act, 1956. (j) No Annual General Meeting of the defendant No. 1 has been convened or held in 1982 and 1983. (k) Three notices all, dated the 23rd April 1984, have been issued in the name of the defendant No. 1 purporting to call the 74th, 75th and 76th Annual General Meeting of the company for the ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 155 of the Companies Act, 1956. Appeals have also been filed before the Company Law Board under Section 111 of the Companies Act. (q) The defendants Nos. 2 to 8 have no right to act or hold themselves out as directors of the defendant No. 1 but they are acting as such directors and are misappropriating the funds and assets of the defendant No. 1. Tea produced by the defendant No. 1 are being sold at gross undervalue. 3. On a notice taken out sometime in May 1984 the plaintiffs made an application in the suit for the following orders: (a) An injunction restraining the defendants Nos. 2 to 8 from acting as members of the Board of Directors and the defendant No. 9 from acting as the Chief Executive of the defendant No. 1; (b) An injunction restraining the defendants Nos. 2 to 9 from dealing with of disposing of or encumbering the assets of the defendant No. 1 in any manner; (c) An injunction restraining the defendants Nos. 2 to 9 from operating the banking accounts of the defendant No. 1 or dealing with the money or funds of the latter. (d) An injunction restraining the defendant Nos. 2 to 9 from holding the Annual General Meetings of the defendant No. 1 sch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 76th Annual General Meetings of the defendant No. 1 as the same were not ready and as such it was an item in the agenda that the passing of the said accounts would be adjourned. Unless auditors were appointed in the 74th Annual General Meeting to audit the accounts and submit their report, the audited accounts for the next year could not be made ready or completed. Similarly, unless auditors were appointed at the 75th Annual General Meeting the 76th Annual General Meeting could not be held effectively and the accounts passed. It was necessary to hold the 74th Annual General Meeting for the year ending the 31st December 1981 to finalise the accounts of the said year so that the subsequent accounts could be made ready. (f) The plaintiffs and their supporters constituted a minority in the defendant No. 1, as admitted by the plaintiffs in the said suit No. 156 of 1984. (g) The defendant No. 1 was obliged to publish an advertisement whenever there was a complaint by any share-holder that share scripts had been lost. Publication of such advertisement was required under the articles of the defendant No. 1 before any duplicate share could be issued. (h) The defendant No. 1 had re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged that the certificate obtained from the Chartered Bank was a procured one. No quotation was disclosed by the defendant No. l from any recognised tea purchaser to show what was the price of the said quality of tea. The bankers of the defendant No. 1 were not in any event in a position to certify the quantum of tea produced by the defendant No. 1. 7. The said application was disposed of in the first Court by an order, dated the 23rd July 1984, as follows: This application is disposed of by the following order: (i) Mr. A. C. Kar and Mr. D. Mukherjee Advocates of this Court are appointed Joint Special Officers in terms of prayers (e) of the Notice of Motion. (ii) The Bank account of the company will be operated jointly by the Special Officers. (iii) There will be an order of injunction in terms of prayers (a) and (d) of the Notice of Motion, confined to the respondent Nos. 2 to 8. All other officers of the Company will continue in their respective posts and will act under the supervision of the Joint Special Officers. (iv) The Joint Special Officers will submit a report recording functioning of the company to Court after five months from date. (v) The Joint Spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udge in passing the said order, it was contended, did not exercise his discretion properly or at all and that in the facts and circumstances the Appeal Court should interfere in the matter and pass suitable order. 13. Learned Counsel for the respondents contended to the contrary. It was submitted that the directors of the company involved in this case must be held to have vacated or deemed to have vacated their office after September 1988. There were decisions of this Court as also of other High Courts where the relevant provisions of the companies Act have been considered and construed and in facts and circumstances similar to those in the instant case it has been held that the directors of a company cannot continue indefinitely without calling the statutory Annual Meetings and if such meetings are not called the directors would be held to or be deemed to have vacated their once by efflux of time. 14. It was also contended that, in any event, the directors could not call the Annual General Meetings of the company lawfully or validly after the expiry of the period prescribed by the statute, when only the Central Government could call such a meeting. 15. It was contended th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a company should be held once in every year. Construing the articles and the said Section of the statute it was held by the learned Judge that the directors vacated office on the 31st December, 1906 being the last day on which the General Meeting of the year could be held and were, therefore, not entitled to any remuneration till they were validly elected. (b) Trade Auxiliary Company v. Vickers, reported in 60 Equity Cases, 303, In this case in a proceeding where dispute had arisen over the management of a company, the Court initially appointed a Receiver for a limited period so that the share register of the company could be corrected. During the pendency of the suit the share register was set right and the meeting of share-holders as ascertained was held and a new Board of Directors was appointed. It was observed by Sir Malins, V.C. as follows: ..... the Court will not interfere with the internal affairs of joint stock companies unless they are in a condition in which there is no properly constituted governing body, or there are such dissensions in the governing body that it is impossible to carry on the business with advantage to the parties interested. In such a case the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat where only two directors were left Article 94 would have no application as two cannot be a multiple of three and there was no number of directors which would not exceed one-third. 19. The contention was accepted by the learned. Judge in the Chancery Division who held that the Articles did not provide for the retirement of a director unless one or two conditions satisfied, namely, there must be a number which would be nearest to and would not exceed one-third of the total number. (e) Morris vs. Kanseen Ors. reported in L.R. 1946 A. C. 459. In this case the House of Lords considered Section 143 of the English Companies Act, 1020 and Article 88 of Table A and held where the term of an office of the director expired but he nevertheless continued to act as a director, his actions could not be validated under the said Section 143 of the statute which provided that the acts of a director or manager shall be valid notwithstanding any irregularity that may afterwards be discovered in his appointment or qualification. Article 88 of Table A of the statute provided that acts done by the directors at a meeting or by any person acting as director would be valid notwithstanding if is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eting at which a director liable to retire by rotation shall retire from office must in our judgment be understood to be a general meeting called in accordance with the mandatory provision of S.166. It is extremely difficult to see how that tenure of office can be extended simply by not calling the Annual General Meeting and taking shelter under the language of S. 256 which; as we have already said, does not lay down any substantive provision relating to the tenure of the office of an elected director. What we have to consider is the meaning and elect of the sections to which we have already made reference and reading those sections, we find little difficulty in reaching the conclusion that, a director vacates his office at the latest on the last day on which an Annual General Meeting could have been called as required by S. 166 . 20. The decision of the Calcutta High Court in Kailash Chandra Dutta, (supra) was considered and dissented from with an observation as follows:- With great respect we are unable to agree with this opinion. It appears that the attention of the learned Judges was not drawn to many aspects of the matter nor does it appear that their attention was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ily or properly, collaterally . (k) Richard P.T.J. Chow ors. vs. James Chow Wakin anr. reported in 75 C.W.N. 173. Here a suit was filed, inter alia, for a declaration that two of the defendants had not been valid elected as directors of a company or alternatively they had vacated their once or ceased to be directors of the company. In an application made in the suit an interim order of injunction was issued restraining the said defendants from holding themselves out of functioning as directors or interfering with the managements of the affairs of the company. Further injunction was issued restraining the company from holding a meeting of the Board of Directors of the company and from giving effect to the resolution passed at the last of one of such meeting. 22. On appeal preferred from the order a Division Bench of this Court held, inter alia, that serious disputes were raised- in the suit. The same should not be adjudicated on a summary manner on affidavits during the pendency of the suit without expressing any opinion on questions in dispute. The Division Bench set aside the order under appeal. (1) The Asansol Electric Supply Co. Ors. vs. Chunilal Daw Ors. Report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty Ltd (supra), concluded with the following observation : I should prefer to locate the language of S. 256 of the Companies Act, 1950, which I have quoted elsewhere. The crucial expression in the different sub-sections is 'meeting held'. I would give a plain and ordinary meeting to that expression that the meeting must actually be held. The Companies Act mentions about fictional meetings elsewhere but under S. 256 of the Companies Act it uses the words 'meeting held' and that can only mean that the retirement takes place at the actual meeting 'held'. To my mind S. 256 (4) makes the intention plain and clear. 25. The learned Judge held that the Board of Directors of the company concerned had been validly constituted. 26. The following decisions were- cited on the question of interlocutory discretionary orders to be passed and interference by the Appeal Court with such discretionary orders. (n) Asutosh Ghosh anr. vs. Indu Bhusan Ghose, reported in: A.I.R. 1927, Cal. 158. This decision of a Division Bench of this court was cited for the following proposition: Wherever it is necessary for the ends of justice or to prevent an abuse of the proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roductions Ltd. ors. vs. Hamilton anr. reported in 1982 (2) wlr, 322. This decision of the House of Lords was cited for the following observations from the judgment of Lord Diplock: An interlocutory injunction is a discretionary relief and the discretion whether or not to grant it is vested in the High Court Judge by whom the application for it is heard. Upon an appeal from the judge's grant or refusal of an interlocutory injunction the function of an Appellate Court, whether it be the Court of Appeal or your Lordship's House, is not to exercise an independent discretion of its own. It must defer to the judge's exercise of his discretion and must not interfere with it merely upon the ground that the members of the Appellate Court would have exercised the discretion differently. The function of the Appellate Court is initially one of review only. It may set aside the judge's exercise of his discretion on the ground that it was based upon a misunderstanding of the law or of the evidence before him or upon an inference that particular facts existed or did not exist, which, although it was one that might legitimately have been drawn upon the evidence that was bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill not be open to a member of the company to requisition an extra-ordinary general meeting of the defendant No. 1 which can be called lawfully by the directors. 29. The contention of the appellants on the other hand is that the Board of Directors of the defendant No. 1 has not ceased to exist. There is no question of retirement actual or deemed unless the annual general meeting of the defendant No. 1 is held and only at such meeting the question of retirement of old directors and re-election and election of the new directors would have to be decided. 30. The provisions of Section 256 of the Companies Act, 1956 have been noted earlier. It is categorically laid down in the section that 1/3rd of the directors as are liable to retire on rotation, shall retire from office at every subsequent Annual General Meeting. The section envisages that such Annual General Meetings would be held. It is further provided that if the vacancy caused by a retiring director is not filled up and there is no resolution for filling up the vacancy, the meeting will stand adjourned till a prescribed date and if the same position continues at the adjourned meeting, the retiring director would be deemed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tigation. In the Companies Act, 1956 presently in force, the power to call an annual general meeting has been taken away from the court and conferred on the Central Government. Under Section 167 a member of a company where a deadlock has arisen has only a right to apply to the Central Government for an Annual General Meeting to be called. The Central Government no doubt has been conferred the power to call an Annual General Meeting under the section but it cannot be spelt out from the section that a company or its members can call upon the Central Government to direct the calling of Annual General Meeting as a matter of right within any specified time. This may lead to further dispute and litigation. The management of a company cannot remain in stasis in such a situation. 37. The object of the Companies Act cannot be to create a deadlock in the management and to prevent a company from continuing its business and the provisions of the Companies Act must be construed so that the same can enable a company to function and not to cease functioning. 38. We also take note of the fact that by the ad-interim order which is under appeal the suit has virtually been decreed. The Board of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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