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Nandlal More Vs. R. Mirchandani and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtMumbai High Court
Decided On
Case NumberL.P.A. No. 22 of 1961
Judge
Reported in[1968]38CompCas39(Bom)
ActsCompanies Act, 1956 - Sections 2(3), 2(24), 2(25), 2(30), 255, 256, 261, 261(1), 314, 348 and 377
AppellantNandlal More
RespondentR. Mirchandani and ors.
Excerpt:
company - appointment - sections 2 (30) and 261 (1) of companies act, 1956 - appellant elected as director - such appointment held to be invalid as he was not appointed by special resolution as required by section 261 (1) - appeal against such order - appellant was not an officer of company and not covered by section 2 (30) - appellant does not fall under clauses of section 261 (1) - disqualifications contained in section 261 (1) not applicable upon appellant - election by ordinary resolution valid. - indian succession act (39 of 1925), section 63: [s.b. sinha & cyriac joseph, jj] will validity - deceased, was a very wealthy person - he floated several companies - he left behind his daughters, s and j - he was suffering from various diseases including some neurological ones - for his.....mody, j. 1. one mirchandani filed a suit, being suit no. 3084 of 1960, in the city civil court at bombay against three defendants. the three defendants were the united mills ltd., nandlal more and kudilal seksaria. the plaintiff filed that suit in a representative capacity for himself and for and on behalf of, and for the benefit of, all the shareholders of the first defendant company, save and except the second and the third defendants and all other shareholders of the first defendant company supporting the second defendant. the main prayers in that suit were that the second defendant be restrained by an injunction from acting as director of the first defendant company and against the first defendant company from allowing the second defendant to act as its director, and for an order.....
Judgment:

Mody, J.

1. One Mirchandani filed a suit, being Suit No. 3084 of 1960, in the City Civil Court at Bombay against three defendants. The three defendants were the United Mills Ltd., Nandlal More and Kudilal Seksaria. The plaintiff filed that suit in a representative capacity for himself and for and on behalf of, and for the benefit of, all the shareholders of the first defendant company, save and except the second and the third defendants and all other shareholders of the first defendant company supporting the second defendant. The main prayers in that suit were that the second defendant be restrained by an injunction from acting as director of the first defendant company and against the first defendant company from allowing the second defendant to act as its director, and for an order against the second defendant directing him to refund to the first defendant company all amounts rec covered by the second defendant as director's fees and remuneration, etc. The main ground on which the plaintiff challenged the validity of the second defendant's appointment as director was that the second defendant had been elected as a director at a general meeting of the shareholders of the first defendant company only by a bare majority, although by reason of the provisions of section 261(1) of the Companies Act, 1956, a special resolution was necessary.

2. The suit was defended by the defendants. Judge Vimadalal of the Bombay City Civil Court heard the suit and by his judgment and decree dated the 12th January, 1961, negatived the plaintiff's contention that a special resolution was necessary and dismissed the suit with costs. The plaintiff filed an appeal against that judgment and order or dismissal of his suit, being Appeal No. 30 or 1961 on the file of this court. That appeal was heard by Mr. Justice Patel as a single judge and disposed of by his judgment and order dated 30th January, 1961 (Ramchandiram Mirchandani v. India United Mills Ltd : AIR1962Bom92 . The learned judge came to the conclusion that the second defendant could not have been appointed by an ordinary resolution, that a special resolution was necessary as required by section 261(1) and that therefore the second defendant had not been validly elected as a director. The learned judge reversed the order of the trial court and granted reliefs on the basis of his judgment in terms of prayers (a), (b) and (f) of the plaint, being the injunctions and the order for repayment. It is against that judgment and order of Mr. Justice Patel that the second defendant has filed this present Letters Patent Appeal.

3. Prior to September, 1943, the name of the first defendant-company was E.D. Sassoon United Mills, Ltd. Prior to September, 1943, E.D. Sassoon & Co. were the managing agents of the first defendant-company under an agreement between them and the first defendant-company dated the 24th February, 1920. Under that agreement the managing agency was to subsist their interest under that agreement. Pursuant to the said right of assignment, E.D. Sassoon & Co. assigned the agency and the benefit of that agreement to Agarwal & Co., a partnership firm, effective as from 1st December, 1943, for the residue of the term of thirty years then remaining outstanding. Agarwal & Co. was then constituted of twelve partners. By an agreement dated 10th September, 1946, arrived at between the first defendant-company and Agarwal & Co., however, the old agreement dated 24th February, 1930, was terminated and a new agreement for managing agency was entered into. That agreement is part of exhibit F in the suit. The parties to that agreement are the first defendant-company on the one hand and thirteen named individuals then carrying on business in partnership in the firm name and style of Agarwal & Co. on the other hand. Clause 1(c) of that agreement provides that the said thirteen persons constituting at that time the said firm of Agarwal & Co. and other partner or partners for the time being constituting the said firm of Agarwal & Co., whether the change be brought about by death, retirement, addition or otherwise of a partner of partners and their permitted assigns shall be the agents of the first defendant-company for a period of 20 years commencing from the 1st day of January, 1946. Clause 2 provides for payment of certain remuneration to Agarwal & Co. for doing the work of the agency of the first defendant-company to be called ex officio directors. Clauses 10 and 13 contain provisions, the effect of which is that despite agreement would continue to subsist as if the same had been entered into by the first defendant-company with the firm of Agarwal & Co., as it may from time to time be constituted.

4. The constitution of the firm of Agarwal & Co. underwent changes from time to time by reason of some partners going out of the firm and new partners coming into the firm. On 20th April, 1955, Agarwal & Co. was constituted of five partners, viz., (1) Rameshwarprasad Bagla, (2) Harishankar Bagla, (3) Ramkumar Shivchandrai & Sons (Private) Ltd, (4) Govindram Brothers (Private) Ltd., and (5) Bagaria More Co. Ltd.

5. The firm of Agarwal & Co., so constituted, did not undergo any further change till the 20th November, 1959, which is the date material for the purpose of the suit and this appeal.

6. The said Bagaria More Co. Ltd., which for the sake of brevity will hereafter be referred to as B. M. Co. Ltd., executed a power of attorney dated 3rd June, 1955 (exhibit A in the suit) in favour of the second defendant and one Sawalram More. By that power of attorney B. M. Co. Ltd. appointed the said two persons jointly and/or severally to be their attorneys and agents for it and in its name and on its behalf as one of the partners of Agarwal & Co., for exercising all powers and duties in connection with the said firm of Agarwal & Co. It is not necessary to set out the terms of the power of attorney in detail. It is sufficient to state that generally speaking, barring some exceptions, that power of attorney authorises the said two persons jointly and/or severally to do all the acts which B. M. Co. Ltd., could itself do by way of looking after and managing the said firm of Agarwal & Co. The terms of the said power of attorney are sufficient to authorise the second defendant alone to do all acts and things which B. M. Co. Ltd. could itself do as a partner of Agarwal & Co. by way of managing the affairs of the first defendant-company as its managing agent.

7. On the 27th July, 1956, two supplemental agreements, both being parts of exhibit F, were executed between the first defendant-company on the one had and the partners of Agarwal & Co. as partners of that firm on the other hand. Both these supplemental agreements were supplementary to the said main agency agreement dated 10th September, 1946, between the first defendant-company and Agarwal & Co. The terms of the first supplemental agreement are not material. By the second supplemental agreement it was agreed that Rameshwarprasad Bagla, Harishankar Bagla, Ramkumar Shivchandrai & Sons (Private) Ltd., Govindram Brother (Private) Ltd., and Bagaria More Co. Ltd., and the survivors or survivor of them and the other partner or partners for the time being of the said firm Agarwal & Co., whether the change be brought by death, retirement, addition or otherwise of a partner or partners and their permitted assigns, were and should continue as from 26th June, 1956, to be the managing agents of the company for the balance of the said period of 20 years commencing from 1st January, 1946, as provided in the said managing agency agreement dated 10th September, 1946, and on the terms and conditions mentioned therein, as altered or amended by the said first supplemental agreement.

8. At a general meeting of the first defendant-company held on 12th December, 1955, the second defendant was elected a director of the first defendant-company by an ordinary resolution. Having been so elected he was liable to retire by rotation. It was his turn to retire on the 20th November, 1959. The first defendant-company issued a notice to its members dated 29th September, 1959, convening its 39th annual general meeting on 20th November, 1959. One of the items on the agenda of that meeting was to elect a director in the place of the second defendant who was retiring by rotation but was eligible and offered himself for re-election. The meeting was accordingly held on the 20th November, 1959. The second defendant was elected a director at that meeting by an ordinary resolution. It was under these circumstances that the plaintiff shortly thereafter filed the above suit challenging the validity of the second defendant's election as a director.

9. This appeal mainly concerns points of law. There are some facts which are material. We will set out the admitted facts. The second defendant is a shareholder of B. M. Co. Ltd., holding 102 shares out of 7,557 issued shares. B. M. Co. Ltd. is a public company having 23 members, there being no restriction on transfer of its shares. The second defendant had no interest in B. M. Co., Ltd., other than his holding of the said shares and the said power of attorney dated 3rd June, 1955. On the basis of the said power of attorney the second defendant did exercise some powers and signed some cheques on behalf of the first defendant-company, acting for B. M. Co. Ltd. and through it for Agarwal & Co. The second defendant was not entitled to receive and has not in fact received any part of the managing agency commission earned by Agarwal & Co., nor a share of such commission received by B. M. Co. Ltd., except of course whatever may have come to him by way of dividend on his shares in B. M. Co. Ltd.

10. The provision of law most material to this appeal is contained in subsection (1) of section 261(1) of the Companies Act. It is pertinent to bear in mind that the provisions of the Companies Act which are applicable to the facts in this appeal are those as were contained in the Companies Act as at 20th November, 1959, without the amendments made in that Act subsequent thereto. The material part of sub-section (1) of section 261(1) provides as under :

'(1) If a public company, or a private company which is a subsidiary of a public company, has a managing agent and such managing agent is authorised by the articles or by an agreement to appoint any director to the board, none of the following persons shall be appointed as a director of the company whose period of office is liable to determination by retirement of directors by rotation, except by a special resolution passed by the company

(a) any person who is an officer or employee of, or who holds any office or place of profit under, the company or any subsidiary thereof :

Provided that nothing in this clause shall apply to the director of such company or subsidiary, or to the holder of any office of place of profit under such company or subsidiary which may be held by a director of the company by virtue of section 314; (b) where any office or place of profit which would disqualify a person under clause (a) read with the proviso thereto, is held by any firm, any partner in, or employee of, the firm;

(c) where any such office or place of profit is held by a private company, any member, officer or employee of such company;

(d) Where any such office or place of profit is held by a body corporate, any officer or employee of such body corporate;

(e) any person who is entitled, by virtue of any agreement, to any share of, or any amount of the remuneration received by the managing agent;

(f) any associate, or officer or employee, of the managing agent; or

(g) any person who is an officer or employee of, or who holds any office or place of profit under, any body corporate under the management of the managing agent or any subsidiary of such body corporate.'

11. The provision contained in section 261(1) can apply if certain preliminary conditions mentioned in the opening part of that sub-section are fulfilled. The preliminary conditions are that the company must be a public company or a private company which is a subsidiary of a public company, secondly, that it has a managing agent and thirdly, that such managing agent is authorised by the articles or by an agreement to appoint any director to the board. Sub-section (1) provides that if those conditions are fulfilled, none of the persons mentioned in clause (a) to (g) of that sub-section shall be appointed as a director of the company whose period of office is liable to determination by retirement of directors by rotation except by a special resolution passed by the company. The Companies Act recognises the power of a managing agent to appoint directors subject of course to the restrictions contained in section 377. The directors so appointed would be removable by the managing agent and would not be liable to retire by rotation. Section 255 however provides that at least two thirds of the total number of directors of a public company shall be persons whose period of office is liable to determination by retirement of directors by rotation. Section 256 provides as to how many and which directors shall be liable to retire by rotation. The effect of the provisions of sub-section (1) of section 261(1) is that the person mentioned in clauses (a) to (g) in that sub-section may be nominated by the managing agent as directors of the company and they would be liable to retire by rotation. But if any of the persons of those categories seek election as a director liable to retire by rotation that person can be elected only by a special resolution passed by the company, which would require at least 75 per cent. of the votes cast and not by a bare majority only. It therefore lays down a disqualification of that nature on persons of those categories. It is the contention of Mr. Nathwani, the learned counsel for the plaintiff, who is the first respondent before us, that the second defendant falls within the categories c covered by clauses (a), (d) and (f) in section 261(1), and we will consider Mr. Nathwani's arguments in respect of each of these three clauses separately.

12. As regards clause (a), Mr. Nathwani urged two main contentions. His first contention was that one who is a managing agent of a company as defined under section 2(25), be the managing agent, a person, firm, private company or body corporate, can be said to 'hold an office or place of profit under the company' for the purposes of clause (a). Mr. Nariman, the learned counsel for the second defendant-appellant, does not dispute this proposition. The second contention of Mr. Nathwani was that not only Agarwal & Co. but even the second defendant himself must be a managing agent of the first defendant-company on the facts of this case and that therefore the second defendant was an 'officer' and held and 'office' under the company.

Section 2(25) reads as follows :

'Managing agent' means any individual, firm or body corporate entitled, subject to the provision of this Act, to the management of the whole, or substantially the whole, of the affairs of a company by virtue of an agreement with the company, or by virtue of its memorandum of association, and includes any individual, firm or body corporate occupying the position of a managing agent, by whatever name called.'

13. A plain reading of this definition of managing agent shows that whether the second defendant was a managing agent is a question of fact and particularly because of the requirement of an agreement with the company and of the other requirement that he must be entitled to the management of the whole or substantially the whole of the affairs of the company. Mr. Nathwani wanted to contend that the second defendant himself was the managing agent of the first defendant-company on the facts of this case. Mr. Nariman objected to Mr. Nathwani being permitted to urge this contention. This contention or even the facts relevant for holding whether the second defendant was or was not the managing agent of the first defendant-company have not at all been pleaded in the plaint. This contention was not urged before the trial court nor even before Mr. Justice Patel. It was raised for the first time only in the arguments before us. We are of the opinion that the plaintiff cannot urge this contention for the first time at this late stage and particularly because to allow this contention to be urged would result prejudicially and unjustly to the second defendant, because he has not had any opportunity to bring on the record facts relevant to decision of this contention.

14. But even if it was open to the plaintiff to urge this contention, which we have already held is not open to the plaintiff, there is, on such materials as is already on the record, in our opinion, no substance in this contention. It is nobody's case that the second defendant was entitled to manage the affairs of the first defendant-company by virtue of any provision in the latter's memorandum or articles of association. In the absence of any such provision, section 2(25) requires that there must be an agreement between the company and the managing agent. The only agreement which can be and is relied upon by the plaintiff for this purpose is the said agreement of managing agency dated 10th September, 1946, read with the said two supplemental agreements. The parties to these agreements are the first defendant-company and Agarwal & Co. The second defendant is not even a party to the agreement. It is Agarwal & Co. which is appointed as managing agent. The second defendant is not even a partner in Agarwal & Co. Therefore, as between the second defendant and the first defendant-company there is no agreement as contemplated in the first part of section 2(25). Mr. Nathwani then contended that the second defendant held the said power of attorney and that by reason thereof the second defendant could represent B. M. Co. Ltd. in the affairs of Agarwal & Co. In B. M. Co. Ltd.'s capacity as partner of Agarwal & Co. He further contended that the second defendant, as so representing one of the partners of Agarwal & Co., could exercise the rights and perform the duties of Agarwal & Co. as the managing agent of the first defendant-company and that therefore the second defendant was the managing agent of the first defendant-company. In our opinion, this argument is too far-fetched. What section 2(25) requires is an agreement between the company and the second defendant which could be mutually enforced by each against the other. The second defendant could unilaterally, without the concurrence of the first defendant-company, surrender his power of attorney from B. M. Co. Ltd. or B. M. Co. Ltd. could at any time withdraw that power of attorney from the second defendant. We cannot, therefore, uphold Mr. Nathwani's contention that the second defendant was the managing agent of the first defendant-company and was because of that reason an officer or held an officer under the first defendant-company.

15. Mr. Nathwani then contented that the second part of section 2(25) provides that the term 'managing agent' include any individual, firm or body corporate occupying the position of a managing agent by whatever name called. He argued that, if an individual, firm or body corporate occupies the position of a managing agent, it is not necessary that there must be any provision under the company's memorandum or articles of association, nor is it necessary that there should be an agreement with the company entitling the person to the management of the whole or substantially the whole of the affairs of the company. According to Mr. Nathwani, this second part applies to the individual firm or body corporate who occupies the position of a managing agent, that is, who in fact manages the whole or substantially the whole of the affairs of the company, although he may be so managing without any agreement between him and the company. He contented that, because of the said power-of-attorney granted to him, the second defendant was in fact managing the whole or substantially the whole of the affairs of the company. Though it has not been disputed that the second defendant was by virtue of the power-of-attorney managing some of the affairs of the first defendant-company, there is no plea or evidence that he was managing the whole or substantially the whole of the affairs of the first defendant-company. There is, therefore, no foundation of facts to support this contention of Mr. Nathwani. But what is more, this contention of Mr. Nathwani as to the construction of the second part of section 2(25) is not sound. What the second part means is that, if an individual, firm or body corporate is in fact occupying the position of a managing agent, but is called by any other name, that person must be held to be a managing agent within the meaning thereof under section 2(25). What is to be ignored is any name other than 'managing agent' by which the individual, firm or body corporate is called. But that person must occupy the position of a managing agent and 'managing agent' here must mean as defined in the first part of section 2(25), which requires that there must be either a provision in the memorandum or articles of association of the company or there must be an agreement as mentioned therein.

16. There is another ground against the contention of Mr. Nathwani. Clause (a) disqualifies a person who is an officer or employee of or who holds any office or place of profit under the company. The words 'or any subsidiary thereof' and the proviso under clause (a) do not have any application in this case and will therefore be totally ignored. Now all that is relied upon in this connection is that the second defendant held the said power-of-attorney from B. M. Co. Ltd. We have already dealt with the question whether the second defendant could be said to be an officer of the first defendant-company. It is not even canvassed by Mr. Nathwani that the second defendant was an employee of the first defendant-company, because he was not appointed by the first defendant-company, nor was he paid any remuneration by the first defendant-company. The question which then remains is whether the second defendant held any office or place of profit under the first defendant-company. It was hotly contested before us whether the second defendant can at all be said to have held, by reason of the power-of-attorney, any office or place of profit. For the purposes of the contentions in respect of clause (a), we need not and we therefore do not decide it. For the purpose of this particular question we will assume, without in fact so holding it, that the second defendant did, by reason of the said power-of-attorney, hold an office or place of profit. But even so the question remains whether that office or place of profit was held by the second defendant 'under the company'.

17. The second defendant held that power-of-attorney from B. M. Co. Ltd., the power-of-attorney may authorise the second defendant to act on behalf of B. M. Co. Ltd. in the affairs of Agarwal & Co. as representing B. M. Co. Ltd., as one of the partners of Agarwal & Co. The power-of-attorney may further enable the second defendant as representing B. M. Co. Ltd. and then as representing Agarwal & Co., to act on behalf of Agarwal & Co., in Agarwal & Co.'s capacity as the managing agent of the first defendant-company and in that manner perform acts of management as the managing agent of the first defendant-company. But the 'profit', that is, the remuneration if any, which the second defendant would get, would be from B. M. Co. Ltd. but none from the first defendant-company itself. There is nothing on the record to show that the second defendant himself was to get anything whatever from the first defendant-company directly for acting in pursuance of the power-of-attorney in the affairs of the first defendant-company. Therefore, even if it be assumed as aforesaid that the second defendant held any office or place of profit, it cannot be held that he held it 'under the company'.

18. Under all these circumstances we hold that the second defendant does not fall under the category of persons mentioned in clause (a).

19. We now turn to clause (d). It divides itself into two parts. The first requires that any office or place of profit under the company is held by a body corporate, and the second provides that if such a requirements is fulfilled, the disqualification will attach to any officer or employee or such body corporate. Mr. Nathwani contended that firstly, in this case B. M. Co. Ltd., body corporate, held an office or place of profit under the first defendant-company, and further secondly, that the second defendant was an 'officer' and 'employee' of B. M. Co. Ltd.

20. Mr. Nathwani supports the first part of his said contention three grounds. The first ground is that, because of the provisions of section 2(30), as B. M. Co. Ltd. was a partner of the firm of Agarwal & Co., B. M. Co. Ltd. itself was managing agent and was, therefore, an officer of the first defendant-company. He further contended that the term 'officer' necessarily involves that there is an office in respect of which one is an officer. He further contended that as section 2(30) makes B. M. Co. Ltd. itself a managing agent, the office which B. M. Co., Ltd. held was that of the managing agency of the first defendant-company. The second ground was that every partner of a firm of managing agent is himself a managing agent, that managing agency is an office and that, therefore, B. M. Co. Ltd. was an officer of the first defendant-company. The third ground was that, under the managing agency agreement itself read with the second supplemental agreement, on a true interpretation of the two documents, every one of the partners was appointed the managing agent of the first defendant-company.

21. Now, in order to succeed in his contentions under clause (d), Mr. Nathwani must succeed in establishing, firstly, not only that B. M. Co. Ltd. held an office or place of profit under the first defendant-company, but secondly, also that the second defendant was an officer or employee of B. M. Co. Ltd. In our opinion, Mr. Nathwani's contention under clause (d) can be disposed of on the second part of his contentions. We, therefore, do not propose to decide the first part of his contentions for the purposes of clause (d).

22. The second part involves the determination whether the second defendant was an 'officer' or 'employee' of B. M. Co. Ltd. In support of his contention that the second defendant was an officer, Mr. Nathwani urged three contentions.

23. His first contention was that the second defendant was a managing agent of B. M. Co. Ltd. within the meaning of section 2(25). We have already referred to these contentions when dealing with Mr. Nathwani's arguments in respect of clause (a) and we have held that these contentions involve questions of fact and that, in the absence of a plea in the plaint and in the absence of any argument till at this late stage, allowing Mr. Nathwani to urge these contentions would result to the prejudice of the second defendant and that Mr. Nathwani cannot therefore be permitted to urge the same. The position even in respect of his contentions when urged in respect of clause (d) is exactly identical.

24. The second contention urged by Mr. Nathwani was that the second defendant was an officer, because he was a manager of B. M. Co. Ltd. within the meaning of that phrase as defined in section 2(24). Section 2(24) provides as under :

'Manager' means an individual (not being the managing agent) who, subject to the superintendence, control and direction of the board of directors, has the management of the whole, or substantially the whole, of the affairs of a company, and includes a director or any other person occupying the position of a manager, by whatever name called, and whether under a contract of service or not.'

25. A simple comparison of the provisions of section 2(24) and section 2(25) shows that the position in this case in respect of the contentions under section 2(24) is identical with the contentions in respect of section 2(25). It involves a determination as to facts. There is no plea even in this respect in the plaint. It was never argued before the trial court or before Mr. Justice Patel. It has been sought to be argued for the first time only before us. It is not permissible to Mr. Nathwani now to raise this contention at this late stage.

26. The third contention urged by Mr. Nathwani was that the second defendant was an 'officer', because the second defendant was clothed with authority on behalf of B. M. Co. Ltd. to manage the partnership business of Agarwal & Co. It may be stated that Mr. Nathwani urged this contention as a contention independent of his said contentions based on the definition of 'officer' contained in section 2(30). In this behalf Mr. Nathwani relied upon the power-of-attorney. Now, for this purpose, it is necessary to ascertain what is the meaning of the word 'officer' independently of section 2(30). According to Stroud's Judicial Dictionary,'officer' means a person under a contract of service; a servant of a special status holding an appointment to an office which carries with it an authority to give directions to other servants. In In re Western Counties Steam Bakeries & Milling Co., [1897] 1 Ch. 617 Lord Justice Lindley, at page 627 of the report, stated :

'But to be an officer there must be an office, and an office imports a recognised position with rights and duties annexed to it, and it would be an abuse of words to call a person an officer who fills no such position either de jure or de facto, but who happens to do some of the work which he would have to do if he were an officer in the proper sense of the word.'

27. In this connection Mr. Nariman also referred us to the case of In re B. Johnson & Co. (Builders) Ltd. [1955] 1 Ch. 634: [1955] 25 Com.317. In our opinion, that judgment, however, is not very useful to us in this case.

28. Apart from the definition contained in section 2(30), 'officer' and 'office' are co-related. There must be an office and the occupant of that office would be the officer. Mr. Nathwani, however, referred us to a judgment of a Division Bench of this court in Deorao Laxman Anande v. Keshav Laxman Borkar : AIR1958Bom314 and particularly to the observation in the judgment of Mr. Justice Chainani, as he then was, that the word 'office' does not necessarily imply that it must have an existence apart from the person who may hold it. Cases are known in which, in order to make use of the special knowledge, talent, skill or experience of certain persons, posts are created, which does not help us in this case. It holds that the office did not exist apart from the person who occupied it. It holds that there can be an officer though no specific office existed. All that Mr. Nathwani can contend on the basis of this judgment is that, although the second defendant did not occupy a specific office as such, he was yet an officer. But basically, an 'officer', whether he occupies a specific office or not, must be in the relation of an employer or servant of a company, firm or individual who is his employer or master. Being an officer presupposes relationship of employer and employee or master and servant. All that relied upon in this case is the power-of-attorney. The power-of-attorney creates the relationship of principal and agent and not of master and servant. The distinction between the two relationships is too well-known to need elaboration. The second defendant, therefore, was not an officer in the ordinary meaning of that word.

29. Mr. Nathwani then contended that in clause (d) in section 261(1) the words are 'any officer or employee of such body corporate'. He contended that if the word 'officer' was used here merely in the sense of the relationship between employer and employee, it would be but a specie of the genus 'employee'. If that was so, there was no reason for the Legislature to use the word 'officer' separately, because he would have been included in the word 'employee' in clause (d). The reason, however, why the Legislature had to use the word 'officer' in clause (d) separately is very clear. The word 'officer' has been defined in section 2(30). It is not a definition proper, but is what is called an inclusive definition. It merely states that the word includes certain persons mentioned in that sub-section. Some of the persons mentioned in that sub-section are persons who would be really agents in the relationship of agent to principal. That inclusive definition creates a fiction and includes certain kinds of agents within the word 'officer' for the purpose of the Companies Act. If, therefore, the word 'officer' was not included in clause (d) of section 261(1), that class of officers who are really agents would not be c covered by the word 'employee' and would, therefore, remain out of the scope of clause (d). The word 'officer' had, therefore, to be included in clause (d) to cover that class of officers who were really agents, but who were to be deemed to be officers under section 2(30).

30. Mr. Nathwani then contended that we must construe the word 'officer' widely, so as to include even persons who are really in the position of an agent to a principal. He contended that this must be so done to give effect to the intention of the Legislature disclosed in section 261(1) to place all persons who are associates or partners or employees or interested in or under the control of the managing agent under the disqualification contained in sub-section (1) of section 261(1). We are unable to accept this contention of Mr. Nathwani. There appears to be no justification to include persons who are agents under the word 'officer', because it would be contrary to the very basic concept of the relationship of master and servant implied by the use of the word 'officer'. To our mind, the language used in clause (d) or even in sub-section (1) of section 261(1) is not ambiguous. We must give words their ordinary meaning. Giving such ordinary meaning does not lead to any absurdity or incongruity or lack of meaning. We, therefore, would not be justified in first assuming that the Legislature intended to make a certain provision and on the basis of such assumption to give the word 'officer', not its ordinary meaning but a wider meaning. We, therefore, hold that the second defendant was not an officer of B. M. Co. Ltd.

31. The fourth contention urged by Mr. Nathwani in respect of clause (d) was that the second defendant was an employee of the body corporate, B. M. Co. Ltd. Even for this contention Mr. Nathwani relied upon nothing other than the said power-of-attorney. We have already stated that the power-of-attorney creates the relationship of principal and agent and not of employer and employee. We cannot, therefore, accept this contention of Mr. Nathwani.

32. We will now proceed to consider the contentions urged in respect of clause (f) in section 261(1). The clause would operate only in respect of an associate or officer or employee of the managing agent. The managing agent in this case, is according to Mr. Nathwani, B. M. Co. Ltd. Now we have already held in our judgment relating to the contention in respect of clause (d) that the second defendant was not an officer or employee of B. M. Co. Ltd. That leaves for consideration whether the second defendant was associate of B. M. Co. Ltd. 'Associate' is defined in section 2(3). B. M. Co. Ltd. was a body corporate having not more than 50 members. It is, therefore, clause (d) of section 2(3) which applies. Under that clause, any member, that is, shareholder, of the body corporate would be an associate of the body corporate. There is no dispute that the second defendant was a shareholder was, therefore, a member of B. M. Co. Ltd. The second defendant was, therefore, an associate of B. M. Co. Ltd.

33. The only question that therefore remains to be considered is whether B. M. Co. Ltd. was a managing agent of the first defendant-company. When dealing with clause (d) we have already stated that Mr. Nathwani urged that B. M. Co. Ltd. was a managing agent of the first defendant-company on three grounds and we have set out the three grounds.

34. The first ground was that B. M. Co. Ltd. was a partner of the firm of Agarwal & Co. and that, therefore, because of section 2(30), B. M. Co. Ltd. was an officer of the first defendant-company and that the office which B. M. Co. Ltd. held as such officer was that of a managing agent of the first defendant-company. Now section 2(30) does not contain a definition proper of 'officer', but is merely an inclusive definition. It merely makes a partner a managing agent only for the purpose of making that partner an officer. It cannot, however, be construed to lay down that every partner of a firm is managing agent within section 2(25). Section 2(30) creates a fiction for deeming a partner an officer. But, in our opinion, there is no justification to carry that fiction still further and hold, although it is not so specifically provided, that every partner of a firm of managing agents is himself a managing agent of the company.

35. The second ground of Mr. Nathwani was that even apart from section 2(30), under the general law of partnership every partner of a firm of managing agent is himself a managing agent. For this purpose, however, one must consider the provision of section 2(25). It separately mentions 'individual', 'firm' and 'body corporate'. A firm can be composed of individuals and/or bodies corporate. Mr. Nathwani's argument was that, when a firm is the managing agent, every partner of the firm can perform the acts and is liable as managing agent and that, therefore, every partner himself is a managing agent. Now the relevant consideration is not whether every partner of a firm can do the acts which a firm is entitled to do and be liable for every liability of the firm. The relevant consideration is whether, for the purposes of the Companies Act, a partner of firm, which is the managing agent, can himself be said to be a managing agent. If Mr. Nathwani's argument is correct, why does the definition in section 2(25) mention 'firm' separately and specifically. The two words 'individual' and 'body corporate' would have been sufficient because between the two of them all possible categories of partners of a firm would have been covered. It cannot be said that the Legislature introduced the word 'firm' in section 2(30) unnecessarily or redundantly. In our opinion, the presence of the word 'firm' in section 2(25) is an indication that when a partnership firm is a managing agent, every partner of that firm separately is not intended to be treated as a managing agent of the company.

36. Mr. Nathwani contented that the scheme and the provisions of sub-section (1) of section 261(1) show that the Legislature wanted to hit at the evil of managing agents packing the board of directors by a simple majority of votes at the general meetings of the companies with its own nominees, relations or friends or persons under their control like their officers, employees, etc. He further pointed out that under clauses (a) to (g) all such persons are overed. He further pointed out that, to prevent such an evil which managing agents can create, clauses (e), (f) and (g) specifically mentioned 'managing agents'. He pointed out that under clause (e) even those who are not partners but who are entitled to a share or an amount or to a remuneration received by the managing agent have been subjected to the disqualification. He further pointed out that under clauses (f) and (g) even associates, officers and employees of a managing agent have been subjected to a disqualification and that in this connection it should be particularly noticed that the definition of 'associate' under section 2(3) is very wide. He urged that, although clauses (a) to (d) do not specifically refer to managing agents, the wording of each of them is wide enough to include the cases under clause (a) where an individual is a managing agent, under clause (b) where a firm is a managing agent, under clause (c) where a private company is a managing agent, and under clause (d) where a body corporate is a managing agent. He took us in detail through these seven clauses to show that the contents of the seven clauses in many cases overlap. He contended that by reason of these seven clauses every conceivable person connected with the managing agent would be c covered under one or the other, if not more of them. He then posed a query for our consideration whether in these circumstances in view of the provisions of section 261(1) itself, it can be said that the Legislature intended that individual partners of a managing agent were intended to be left out from the disqualification imposed by section 261(1). In this connection, he relied upon the judgment of the Supreme Court in Guru Govinda Basu v. Sankari Prasad Ghosal [1963] 33 Com.1132 in support of the proposition that, when a partnership firm holds an office of profit under the Government, it was held that every individual partner of that firm held an office of profit under the Government. Now it is true that in that case a partnership firm held an office of profit under the Government and one of the partners of that firm was held to be holding an office of profit under the Government. But it must be noticed that the Supreme Court did not itself hold that, because the partnership firm held an office of profit, therefore every partner of that firm must be held to hold an office of profit. The judgment of the Supreme Court can be better understood by referring to the judgment of the High Court, the appeal against which the Supreme Court decided. The judgment of the High Court is reported in Guru Govinda Basu v. Sankari Prasad Ghosal (1963) 67 C.W.N. 558 and the portion of the judgment at page 561 clearly shows that in that case it was conceded that a partner could be said to be holding an office of profit if his firm held the office of profit. The High Court itself, therefore, decided this point on a concession. The point having been conceded before the High Court it did no longer survive for a decision before the Supreme Court. We, therefore, cannot interpret the judgment of the Supreme Court as laying down the principal that, when a firm holds an office, be it of profit or that of a managing agent, every partner of that firm must be deemed to hold that office.

37. Mr. Nathwani also relied upon the provisions of section 348 of the Companies Act, which provide that a company shall not pay to its managing agent by way of remuneration, whether in respect of his services as a managing agent or any other capacity, any sum in excess of the maximum laid down in that section. He then invited our attention to the judgment of a Division Bench of this High Court in Ramaben A. Thanawala v. Jyoti Ltd. [1957] 27 Com.105. The point in that case was whether in calculating the maximum remuneration paid to an individual partner of a firm, which firm was the managing agent of a company, in an altogether different capacity, was to be added to the remuneration paid to the firm of the managing agent itself. It was held in that case that that amount should be taken into consideration for the purpose of limiting the remuneration of the managing agent under section 348. Mr. Nathwani contended that section 348 is concerned with the remuneration of only the managing agent and that, if the remuneration paid to a partner was added, it could only be on the basis that the partner himself was a managing agent. The judgment in that case does support Mr. Nathwani's present contention. It was held in that case that a firm has no legal existence and that it is only a compendious manner of describing partners carrying on a business, and that on giving full effect to the clear and emphatic language used by the Legislature in section 348, it must be held that for the purposes of section 348 the partner must be treated as a managing agent and the remuneration earned by him individually must be added to the remuneration earned by the firm for the purpose of determining the maximum provided for under section 348. The report, however, shows that unfortunately the attention of that court was not invited to the provisions of section 2(25) which defines 'managing agent'. We have already pointed out that on a true construction of section 2(25) the Legislature did not intend a partner of a firm of managing agent to be himself a managing agent. We feel that the judgment would have been otherwise if the court's attention in that case had been drawn to section 2(25). But there is another factor which happened subsequent to that judgment which also must be taken into consideration by us. A few years after the judgment was delivered, the Legislature amended the said section 348 by adding a new portion into it as sub-section (2) thereof. The relevant part of the amendment states that for the purposes of section 348 any payment made by way of remuneration to every partner in the firm, where the managing agent of a company is a firm, shall be deemed to be included in the remuneration of the managing agent. The fact that the amendment was made within a few years after that judgment shows that the attention of the Legislature was focused on the difficulty which would arise in cases where the managing agent happens to be a partnership firm. That judgment had held that for the purposes of section 348 the remuneration paid to a partner of a firm of managing agent must be deemed to have been paid to the managing agent himself. Nonetheless, the Legislature made the said amendment. The obvious intention of the Legislature which can be inferred from that circumstance would be that the judgment was but a judgment of one out of several High Courts in our country and that the amendment should be made to obviate the possibility of any contrary judgment being given. Now, when the Legislature amended section 348, this difficulty of a partner of a managing agent's firm not being himself treated as a managing agent came to the knowledge of the Legislature. Even with such knowledge the Legislature has not made an amendment in respect of the disqualification contained in section 261(1) so as to make every partner of a firm of managing agent himself the managing agent. The intention of the Legislature is to be gathered from the words used and the court is not entitled to travel outside the words unless sufficient reasons exists. As we have already stated, such reasons do not exist here. We cannot therefore accept this particular argument of Mr. Nathwani. But at the same time we must observe that what Mr. Nathwani has pointed out is a matter for serious consideration by the Legislature, because of the general intention of the Legislature to be gathered from the provisions of section 261(1). If the Legislature intends that for the purpose of this disqualification every partner of a firm of managing agents should himself be treated as a managing agent, the Legislature should make suitable amendments to effectuate that intention. But it is the Legislature and the Legislature alone which can do so. A court cannot in the guise of interpretation, an interpretation based on a supposed intention of the Legislature, in reality embark to legislate and usurp the functions of the Legislature.

38. The third contention urged by Mr. Nathwani was that apart from the provisions of law, by the said managing agency agreement dated 10th September, 1946, read with the second supplemental agreement dated 27th July, 1956, B. M. Co. Ltd. itself had been appointed the managing agent of the first defendant-company. He contended that the parties to that agreement are thirteen partners of Agarwal & Co., but of course in their capacity as partners of Agarwal & Co. He further contended that the parties to the second supplemental agreement similarly are the then five partners individually named, although of course as partners of Agarwal & Co. He further contended that the terms of the agreement show that the first defendant-company agreed to accept the survivors or even the last survivor of the various partners in the case of death, retirement, etc., of the partners. He contended that in that way if B. M. Co. Ltd. was the last sole survivor, the first defendant-company would have accepted the firm of Agarwal & Co. with B. M. Co. Ltd. as its sold surviving partner and hence its sole proprietor as its managing agent. According to Mr. Nathwani, the first defendant-company was, therefore, prepared to repose confidence even in B. M. Co. Ltd. alone for its skill, ability, financial status, etc. He contended that, therefore, each one of the named partners of Agarwal & Co. must, in addition to the firm of Agarwal & Co. itself, be deemed to be the managing agent of the first defendant-company. In our opinion, this is not a correct construction to be placed on the said agreements. It is true that thirteen partners in the one case and five partners in the other case of Agarwal & Co. have been individually named in the respective agency agreement and made parties thereto, but they have been named as constituting the firm of Agarwal & Co. The intention underlying the agreement is quite clear and that intention is that it was the firm of Agarwal & Co. which was to be the managing agent of the first defendant-company. The agreements do stipulate that the survivors of the partners or even the assigns of the partners would be managing agents. It is true that by those agreements the first defendant-company agreed to accept even B. M. Co. Ltd. solely as its managing agent in case B. M. Co. Ltd., happened to be the last surviving partner of Agarwal & Co. But that event would materialize if all the other partners die or retire or otherwise go out of the partnership. But that would not be the position so long as the other partners continue to exist as partners of Agarwal & Co. We, therefore, cannot accept this contention of Mr. Nathwani. We, therefore, hold that the second defendant does not fall within the category of persons falling under clause (f).

39. In the result, we hold that the second defendant did not fall within any of the clauses in section 261(1) and therefore did not incur the disqualification contained in sub-section (1) of section 261(1). It was, therefore, not necessary that he ought to have been elected by a special resolution. His election by an ordinary resolution is valid. Under the circumstances, we allow the appeal, reverse the judgment and order of the learned single judge and restore the judgment of the trial court dismissing the suit.

40. The normal rule that costs must follow the event must be followed in this case also. Mr. Nathwani has contended that the rule should be departed from because an important and complicated point of law was involved and the judgment in Ramaben A. Thanawala v. Jyoti Ltd.[1957] 27 Com 105 was in the plaintiff's favour. That judgment, in our opinion, does not cover all the points canvassed in this appeal, nor does that judgment directly deal with section 261(1). It is only by way of analogy that Mr. Nathwani relied upon the same. That, in our opinion, is not sufficient justification for us to depart from the normal rule. As regards the third defendant, we however feel that there was no justification why the third defendant should have appeared separately from the second defendant. The third defendant was sued in this representative capacity and it has been so specifically stated at the very inception when the plaint was filed that the third defendant was being sued for himself and all other shareholders of the first defendant-company supporting the second defendant. We, therefore, order that the plaintiff shall pay the costs of the second defendant and the first defendant-company all throughout and that the third defendant shall bear and pay his own costs all throughout.


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