Skip to content


Cricket Club of India Ltd. and ors. Vs. Madhav L. Apte and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtMumbai High Court
Decided On
Case NumberSpecial Case No. 254 of 1974
Judge
Reported in[1975]45CompCas574(Bom)
ActsCompanies Act, 1956 - Sections 2(3), 2(4), 6, 9, 29, 31, 36, 165, 169, 169(6), 252, 252(4), 255(1), 255(2), 273, 274, 274(1), 274(3), 283, 283(1), 283(3) and 293
AppellantCricket Club of India Ltd. and ors.
RespondentMadhav L. Apte and ors.
Appellant AdvocateS.J. Sorabjee, Adv.
Respondent AdvocateA.B. Diwan, Adv.
Excerpt:
company - disqualification of directors - sections 169, 274 (3) and 283 of companies act, 1956 - section 274 (3) empowers private companies to adopt additional grounds for disqualification of directors - applying principle of necessary implication public companies are prohibited from adopting additional grounds for disqualification of directors. - maharashtra scheduled castes, scheduled tribes, de-notified tribes (vimukta jatis), nomadic tribes, other backward classes and special backward category (regulation of issuance and verification of) caste certificate act (23 of 2001), sections 6 & 10: [s.b. mhase, a.p. deshpande & p.b. varale, jj] caste certificate petitioner seeking appointment against the post reserved for member of schedule tribe his caste certificate was invalidated.....s.k. desai, j.1. this is a special case filed for the opinion of this court under the provisions of order 36 of the civil procedure code. three questions have been asked at the end of the special case; but before refereeing to them or discussing them, the facts which are not in dispute may be briefly stated. 2. the 1st plaintiff to the special case is a sports and social club (hereinafter referred to as the 'cricket club' for the sake of brevity), registered as a company limited by guarantee, having no share capital. it is incorporated under the provisions of the indian companies act, 1913, and today functions under the provisions of the companies act, 1956. plaintiffs nos. 2 to 17 have been described as members of the executive committee of the 1st plaintiff, and the powers and functions.....
Judgment:

S.K. Desai, J.

1. This is a special case filed for the opinion of this court under the provisions of order 36 of the Civil Procedure Code. Three questions have been asked at the end of the special case; but before refereeing to them or discussing them, the facts which are not in dispute may be briefly stated.

2. The 1st plaintiff to the special case is a sports and social club (hereinafter referred to as the 'Cricket Club' for the sake of brevity), registered as a company limited by guarantee, having no share capital. It is incorporated under the provisions of the Indian Companies Act, 1913, and today functions under the provisions of the Companies Act, 1956. Plaintiffs Nos. 2 to 17 have been described as members of the executive committee of the 1st plaintiff, and the powers and functions of this executive committee are admittedly analogous to those of the board of directors of a company under the Companies Act, 1956.

3. Articles 69 to 92 of the articles of association of the Cricket Club provide for the executive committee and article 74 of these articles provides for the retirement from office of one-third members of the executive committee at the annual general meeting of the Cricket Club, excluding the nominated and ex-officio members who are not subject to retirement under the articles. There is provision in the said article to the effect that a member retiring at any such meeting shall be eligible for re-election and shall retain office as a member of the executive committee until the close of the meeting at which he retires.

4. On 3rd August, 1973, the Cricket Club received from 591 of its members, including the defendants to the special case, a requisition, dated 3rd August, 1973 (hereinafter referred to as 'the requisition' for the sake of brevity). By the requisition the requisitionists desired the convening of an extra-ordinary general meeting of the Cricket Club to consider and, if thought fit, to amend its articles of association by passing a resolution, which may be fully set out :

'Resolved that article 74 of the articles of association be amended as follows by adding the following at the end of the words 'he retires' :

Provided however that a member shall not be eligible to stand for re-election to the office of the executive committee if he has been a member of the executive committee for a continuous period of six years.

Provided further that a member who has been a member of the executive committee for a continuous period of six years may seek election after the expiry of a period of three years from the date of the six years' period as mentioned in this article.

For the purpose of this article, a member of the executive committee who retires or otherwise ceases to be a member of the committee at any time after being such a member for a continuous period of five years shall be deemed to have been a member of the executive committee for a continuous period of six years.'

After receipt of the requisition the same was considered by the executive committee of the Cricket Club at its meeting held on 9th August, 1973, and after some discussion the said committee resolved to obtain opinion thereon of counsel on the validity and legality of the resolution proposed to be considered and passed at the requisitioned meeting under the requisition. It appears that pursuant to the said resolution of the executive committee, the attorneys for the Cricket Club obtained opinion of two counsel who independently opined that the resolution, for consideration of which the requisition had been received, would not be valid in law and, further, that the requisition was not a valid requisition. On the other hand, the defendants, presumably acting on behalf of the requisitionists, obtained opinion of three other counsel who arrived at a contrary conclusion. In view of the conflicting opinions expressed by counsel on points on which their advice had been sought, the executive committee of the Cricket Club and the requisitionists mutually agreed to submit a special case and the present special case arises from the mutual agreements as aforesaid.

5. Very briefly stated, according to the plaintiffs, the resolution proposed for consideration by the requisition would be hit by the provisions of section 274 read with section 9 of the Companies Act, 1956, and any such amendment of the articles contemplated would be invalid. Further, according to the executive committee, section 169(6) only comes into operation on the deposit of a valid requisition and the requisition proposing for consideration a resolution which would be illegal and invalid if carried, would not be a valid requisition within the contemplation of the said sub-section. According to them, therefore, the executive committee is not bound to call an extraordinary general meeting, which has been described by the plaintiffs as an 'exercise in futility'.

6. The defendants, on the other hand, have contended that the said requisition is a valid requisition on several different footings. According to them, in the first place, the rule of construction by necessary implication which is a basic premise of the conclusions regarding illegality and invalidity of the proposed resolution does not apply in the present case. It is submitted that what has been suggested by the proposed amendment to article 74 does not and cannot amount to a disqualification for the office of the executive committee. Secondly, it has been urged that the language of section 274 does not warrant the invocation of the rule of construction or interpretation by necessary implication. Finally, it has been urged that in order to make a provision in the articles of a company void by reason of the provisions contained in section 9 of the Companies Act, 1956, the provision must be repugnant to some express provisions in the Companies Act, and that the provisions of section 9 would not be attracted where something has to be read in any provision of the Companies Act by applying the rule of necessary implication. These, very briefly stated, are the rival contentions which were explained and justified in greater detail during the course of arguments, which arguments I propose to deal with later on in this judgment.

7. The following three questions have been posed on which the opinion of the court is sought :

'(a) Whether amendment of article 74 proposed by the resolution contained in the requisition would be invalid as being repugnant to section 274 of the Companies Act or any other provision of the said Act, or whether the same would be valid

(b) Whether the requisition is a valid requisition

(c) Whether the execution committee of the plaintiffs, viz., plaintiffs Nos. 2 to 17, are bound and liable to call an extraordinary general meeting of the members of the plaintiffs to consider and, if thought fit, to pass the said resolution as a special resolution by the requisite majority ?'

As I see the position, the question posed in prayer (a) would require consideration of the provisions of sections 9 and 274 of the Companies Act, 1956, and the questions posed in prayers (b) and (c) involve only the consideration of section 165, although it may be indicated that these sections perhaps cannot be considered in isolation and effect has to be given as far as possible on a consideration of the scheme of the Companies Act in its entirety.

8. Section 274 of the Companies Act deals, as the marginal note indicates, with the disqualification of directors. Sub-section (1) of the said section provides for six disqualifying conditions, and sub-section (3) thereof goes on to provide as follows :

'(3) A private company which is not a subsidiary of a public company may, by its articles, provide that a person shall be disqualified for appointment as a director on any grounds in addition to those specified in sub-section (1)'.

According to the plaintiffs, the doctrine of necessary implication or the rule of construction by necessary implications is brought into play or attracted by the wording of sub-section (3). Before, however, I proceed to consider the rival stands on this sub-section, reference may be made to an allied section of the Companies Act, the concerned section being section 283 which provides for vacation of office by a director. Under sub-section (1) of section 283 we have provision of 12 situations in which the office of a director shall become vacant, and sub-section (3) of the said section provides as follows :

'283(3). A private company which is not a subsidiary of a public company may, by its articles, provide, that the office of director shall be vacated on any grounds in addition to those specified in sub-section (1)'.

I have supplied certain underlining to both the sub-sections, viz., section 274(3) and section 283(3), and it can be seen that the underlined portions in both the sub-sections are in identical phraseology.

9. During the course of arguments both sides have referred me to the previous legislative history and, therefore, at the outset, reference may be made to analogous provisions under the Indian Companies Act, 1913.

10. The Indian Companies Act, 1913, as originally enacted did not contain analogous provisions. But in 1936 by the Indian Companies (Amendment) Act, XXII of 1936, section 86-I was introduced. The marginal note of that section indicated that it contained provision concerning vacation of office of directors. There was, however, significant difference between the provisions of that section and the two sections with which we are now dealing, and that was to be found in sub-section (2) which reads as follows :

'86-I. (2) Nothing contained in this section shall be deemed to preclude a company from providing by its articles that the office of director shall be vacated on grounds additional to those specified in this section.'

Thus, under an express provision of section 86-I, any company, private of public, was empowered to provide by its articles additional grounds for vacation of office. It cannot be denied that there is considerable difference between such a provision and the provisions to be found in sub-section (3) of the two sections of the Companies Act, 1956, which we are considering, viz., sections 274 and 283.

11. During the course of arguments I was referred to the report of the Company Law Committee, 1952 (Bhabha Committee) as also to certain statements to be found in the Statement of Objects and Reasons and the Notes on Clauses to Bill No. 46 of 1953. Before setting out the relevant extracts from the Bhabha Committee Report and from the Notes on clauses, I may refer to two Supreme Court decisions which have indicated the principle to be applied and the course to be adopted when the question of making such reference arises.

12. During the course of arguments I was referred to Madanlal Fakirchand Dudhediya v. Shree Changdeo Sugar Mills Ltd., where the majority judgment refers to certain amendments made in 1960 as a result of the recommendation of the Committee appointed in that behalf, as also to the extracts of the report of the Committee. The court was dealing with the provisions of the very Act which we are dealing with, i.e., the Companies Act, 1956.

13. In a fairly recent decision of the Supreme Court in State of Mysore v. R. V. Bidap the Supreme Court seems to have approved of a passage from Crawford on Statutory Construction, which is in the following terms :

'The judicial opinion on this point is certainly not quite uniform and there are American decisions to the effect that the general history of a statute and the various steps leading up to an enactment including amendments or modification of the original bill and reports of legislative committees can be looked at for ascertaining the intention of the legislature where it is in doubt; but they hold definitely that the legislative history is inadmissible when there is no obscurity in the meaning of the statute.'

14. Krishna Iyer J., speaking for the court (at page 2558), in the above report proceeds to sound a rule of caution that such extrinsic material, although admissible, should not be regarded as decisive and that resort may be had to such sources with great caution and only when incongruities and ambiguities are to be resolved.

15. Bearing in mind these words of caution, I think reference may now be made to the extracts from the Bhabha Committee's Report and the Notes in Clauses which were brought to my attention during the course of arguments.

16. Paragraphs 92, 93 and 94 of the Bhabha Committee's Report deal with its recommendations vis-a-vis the existing section 86-I of the Indian Companies Act, 1913, and in paragraph 93 is to be found the view of the said Committee which is to the effect that the enabling provision of sub-section (2) should be restricted to private companies excluding those which are subsidiaries of public companies. We are not really concerned with the basis for the recommendations which is also to be found explained in paragraph 93.

17. We now turn to Bill No. 46 of 1953. The Statement of Object and Reasons of that Bill indicate that the Bill was largely based on the recommendations of the Company Law Committee, modified in a few respects. Clause 252 of the said Bill provided for disqualification of directors, the provision being analogous with the present section 273; and clause 261 of the Bill contained the provision concerning vacation of office by directors, the said clause being comparable to the present section 283. Sub-clause (4) of section 252 had provisions identical with sub-section (3) of the present section 274, and sub-clause (3) of clause 261 had provisions identical with sub-section (3) of section 283.

18. The Notes on Clauses on clauses 252 and 261 may now be set out :

'252. This lays down initial disqualifications corresponding to the disqualifications which, under section 86-I of the existing Act, entitle the vacation of office by a director. Sub-clause (2) takes power to remove any disqualification arising from conviction of from failure to pay calls. Sub-clause (4) corresponds to section 86-I(2) of the existing Act. It is considered necessary to confine the power of a company to add to the disqualifications imposed by the Bill to private companies which are not subsidiaries of public companies.

261. This is based on section 86-I of the existing Act. See paragraphs 92 and 93 of the Company Law Committee's Report and the summary at page 265. Power has been given to the company to remove the director by an ordinary resolution as in section 184(1) of the English Act. Sub-clause (2) is a consequential provision, which seems to be clearly necessary. Sub-clause (3) corresponds to sub-section (2) of the existing section 86-I but confines the operation of the sub-section to private companies which are not subsidiaries of public companies. Compare clause 252(4) ante.'

It may be mentioned, as this aspect was emphasised during arguments by learned counsel for the defendants, that in its report the Bhabha Committee had not considered grounds of disqualification as distinguished from found in paragraph 93 of the said report was restricted to additional grounds of vacation, and its opinion was that the public companies and private companies which are subsidiaries of public companies ought not to be allowed to have articles of association containing additional grounds of vacation of office by directors.

19. As stated earlier, the three questions posed for the consideration of the court fall into two parts; the first dealing with the interpretation and construction of section 274 primarily, and the second with the interpretation and construction of section 169. As the latter point is, in my opinion, one which is fairly easy to answer and does not admit of detailed arguments, I propose to deal with the provisions of that section first and express my views on questions (b) and (c) of the special case, which are based on the provisions of section 169. After this is done, I propose to revert to the somewhat difficult question of construction of section 274.

20. Under the Indian Companies Act, 1913, the provisions as regards calling of extraordinary general meetings on requisition were to be found contained in section 78 of the said Act. Under those provisions the directors of a company which has a share capital were enjoined on the requisition of the holders of not less than one-tenths of the issued share capital of the company, upon which all calls had been paid, to call an extraordinary general meeting of the company. The scheme was substantially similar to the scheme of section 169 of the Companies Act, 1956. Sub-section (2) of section 78 provided for the contents of the requisition and the mode of its deposit; and sub-sections (3) to (5) provided for calling of a meeting by the requisitionists on failure by the directors to cause a meeting to be called for after deposit of a requisition. In sub-section (3) of section 78, however, the words used were 'date of the requisition being so deposited'. Under section 169(6) of the Companies Act, 1956, one finds a change in the terminology, the provision being that the requisitionists may themselves call a meeting (subject to other provisions, with which we are not concerned) if the board does not call a meeting 'within twenty-one days from the date of deposit of a valid requisition'. Now, it was urged by learned counsel for the plaintiffs that the additional word 'valid' indicated clearly that the requisition which was made must be valid and lawful; in other words, that a requisition which was for consideration of something which would be illegal or invalid could not per se be considered to be a valid requisition, and if such requisition was deposited with the directors of a company the directors were not required to call a general meeting although the numerical requirement provided for in the earlier part of the said section was satisfied. Now, it may be pointed out that whereas under section 78 of the Indian Companies Act, 1913, the power to call an extraordinary general meeting was restricted to companies having a share capital, under section 169 of the Companies Act, 1956, such power can be exercised by the members of the company having a share capital as also by members of a company not having a share capital, and the requirements in the latter case are to be found in clause (b) of sub-section (4). Other requirements of a proper requisition have also been spelt out in greater detail in section 169; and, in my opinion, it would be proper to understand the word 'valid' used in sub-section (6) of section 169 as having reference to the provisions of the earlier five sub-sections of that section rather than indicating compliance with any other requirements or provisions of the Companies Act. In other words, to put it shortly, all that is required to be seen before the provisions of sub-section (6) of section 169 become applicable would be to consider whether the requisition deposited was in accordance with the provisions of section 169 as to its contents, the number of signatories and similar matters, and it would not be open to the board of directors of a company to refuse to act on a requisition on the ground that, although such requisition was in accordance with the requirements of section 169, it was otherwise invalid. This learned counsel for the plaintiffs emphasised the mischief that in his opinion would be caused by an otherwise invalid requisition being made which would be caused by an otherwise invalid requisition being made which would put the company to considerable financial loss for what he called would be an exercise in futility. On the other hand, the question to be considered would be whether the board of directors of a company can be allowed to ignore a requisition which complies with all the requirements laid down in section 169 of the Companies Act, 1956, on the ground that the object of the requisition was illegal or otherwise invalid and, therefore, the requisition which ground may ultimately be found to be unsustainable. In my view, the word or the adjective 'valid' in section 169 has no reference to the object of the requisition but rather to the requirements in that section itself. If these requirements indicated in the earlier part of the section are satisfied, then the requisition deposited with the company must be regarded as a valid requisition on which the directors of a company must act. If the directors fail to act within the period specified by sub-section (6), then, in my opinion, the requisitionists would be entitled to proceed under the latter provisions of that sub-section and the other sub-sections of section 169.

21. Before I proceed to express my view on sub-section (3) of section 274, as ultimately the conclusion on question (a) must tune on the correct interpretation of that sub-section, I may proceed to dispose of one argument based on the provisions of section 9 of the Companies Act, 1956, to which I have already referred whilst indicating briefly the rival contentions.

22. Section 9 of the Companies Act, 1956, reads as under :

'9. Save as otherwise expressly provided in the Act -

(a) the provisions of this Act shall have effect notwithstanding anything to the contrary contained in the memorandum or articles of a company, or in any agreement executed by it, or in any resolution passed by the company in general meeting or by its board of directors, whether the same be registered, executed or passed, as the case may be, before or after the commencement of this Act; and

(b) any provision contained in the memorandum, articles, agreement or resolution aforesaid shall, to the extent to which it is repugnant to the provisions of this Act, become or be void, as the case may be.'

23. It has been urged on behalf of the defendants in the statement of case and it was also urged in the course of arguments that section 9 would render articles or resolution invalid only if there was conflict with an express provision under the Companies Act, 1956, and unless there was such express provision no question of repugnancy could arise. In other words, it was submitted that the terminology employed in section 9 was such as to exclude any provision in the articles being rendered invalid by what was not expressly provided in the Companies Act or in any of its provisions, but which had to be read in the same provision by necessary implication. In my opinion, this submission is not one which can be accepted. It is impossible to read the expression 'provisions of this Act' in section 9 as indicative merely of the express provisions and exclude the meanings which have to be read in the provisions of the Act by the rule of necessary implication. In my view, any meaning which has to be read in any section of the Act by the rule or principle of necessary implication is as much a provision of the Act as something expressly provided. In this view of the matter any provision contained in the memorandum, articles, agreement or resolution of a company which is repugnant to any provision of the Act, whether such provision be expressly found in any section or is to be read in the said section by necessary implication, would be clearly void.

24. I may also dispose of, since it is not a matter capable of any great elaboration, the argument that that was intended by the requisitionists was not addition of aground of disqualification at all, but what was expressed in the argument as non-qualification. The learned counsel for the defendants urged that he several grounds of disqualification to be found in sub-section (1) of section 274 had an aspect of unfitness, defect or blemish connected therewith and what was sought to be done by the proposed amendment of article 74 of the articles of association of the Cricket Club had no such incidence inasmuch as it was sought to be specifically provided that the person concerned may seek re-election after the expiry of a period of three years from the date of the six-year period as mentioned in the article (after amendment). In connection with this branch of the argument I was referred to the meanings given to the word 'disqualification' and 'disqualified' in dictionaries such as Murray's and Random House Dictionaries, as also to some judgments which were under the Representation the People Act, 1951. In my opinion, it is not possible to accept this submission made by learned counsel for the defendants. Having considered the various meanings in the dictionaries which were cited and which meanings are unnecessary to set out in this judgment, the word 'disqualified' used in sub-section (3) of section 274 must be understood in it plain natural meaning, which in the context would be 'not qualified' and not in the limited sense in which the learned counsel for the defendants has wished me to understand it, viz., as restricted to some incapacity as a result of defect, unfitness or blemish. A person may be unfit for a particular office not only by reason of any defect or blemish but also because he is not qualified for that office, and in that sense any requirement which non-qualifies a person, although for a limited period of three years only, must be regarded as a disqualification within the meaning of that expression. And a ground of disqualification would be a ground to disqualify the person within the meaning of sub-section (3) of section 274.

25. The question which remains for consideration and to which an answer must now be given is whether there is prohibition on public companies and private companies which are subsidiaries of public companies against their adopting an article containing additional grounds of disqualification other than those found in sub-section (1) of section 274.

26. It is clear that the provisions to be found in sub-section (3) of section 274 are not couched in a happy or direct language. There would not have been any occasion to resort to the doctrine of necessary implication if sub-section (3) of section 274 had been framed as containing an express prohibition to operate directly against the companies which were sought to be prohibited form having additional grounds rather than in the form of an enabling provision, which, surely, is not an example of good legislative draftsmanship. Merely by was of interest I had been referred by learned counsel to operate directly against the companies which were sought to be prohibited from having additional grounds rather than in the from of an enabling provision, which, surely, is not an example of good legislative draftsmanship. Merely by way of interest I had been referred by learned counsel to observations of this court in D. B. Godbole v. Kunwar Rajnath (?) where Chagla C.J. had occasion to refer to certain other provisions of the Companies Act, 1956, which were similarly couched in unhappy and imprecise language. It is with this handicap that I must now proceed to give some meaning, if at all a meaning can be given, to the provisions of sub-section (3) of section 274. Here, it may be stated that it is not necessary for the court to give some meaning to a legislative provision although it would be normal to presume that the legislature did intend to provide for something when it enacted the sub-section. It can be that there was some intention of the legislature, but that intention has not been given effect to by reason of the unhappy of defective terminology employed in the legislative provision. It is the terminology which has to be construed and given effect to and not the intention of the legislature which, one may assume, is indicated in the Notes on Clauses. It may be mentioned here that it was submitted - and there is some force in the argument - that the Notes on Clauses need not necessarily indicate the intention of the legislature but merely explain what these draftsmen of the legislative provision had in mind.

27. As stated earlier, the question, very shortly put but which may require elaborate consideration, is whether the apparently enabling provision is sub-section (3) of section 274 in favour of private companies is required to be construed as a prohibition on public companies and private companies which are subsidiaries of public companies by the rule or principle of necessary implication.

28. It has been urged on behalf of the plaintiffs that the provisions of sub-section (3) (of section 274, although expressed in affirmative language, must be construed as having a negative implication. In this connection I was referred to the observations to be found in Craies on Statute Law, 7th edition, at pages 264 to 266. The entire passage from Craies may be usefully set Out :

'(v) Inferences from affirmative language. - Statutory enactments, although expressed in affirmative language, are sometimes treated as having a negative implied, and that their provisions, 'though', as Lord O'Hagan said in R. v. All Saints, Wigan (Churchwardens), 'affirmative in words, are not necessarily so, if they are absolute, explicit and peremptory'. In Viner's Abr. Tit. Negative, A. Pl. 2, the following rule is laid down : 'Every statute limiting anything to be in one form, although it bespoke in the affirmative, yet includes in itself a negative'; and in Bacon's Abr. Tit. Statute G., the rule given is that 'if an affirmative statute which is introductive of a new laws direct a thing to be done in a certain way, that thing shall not, even if there be no negative words, be done in any other way'.'

This rule is borne out by the following cases :

In Stradling v. Morgan, the question was whether an action founded upon a statute could be commenced elsewhere than before the justices of Glamorgan, at their sessions, for by the laws in Wales Act, 1542, it was enacted that 'all actions founded upon any statute shall be sued by original writ, to be obtained and sealed with the said original seal returnable before the justices at their sessions, within the limits of their authorities, in manner and form before declared'. It was contended that these words had a negative meaning, that it to say, that the statute appoints the place, order and form of such suits, and that the plaintiff cannot sue in any other place or form, and, therefore, that this action, founded upon a statute, which is appointed to be returned before the justices of Glamorgan, at their sessions, cannot be sued or returned, elsewhere or before any other justices. And so it was decided by the court, and a verdict which had been found for the plaintiff was set aside. In Amy Towsend's case, the question was whether the Statute of Uses, ss. 1, 2, which was expressed affirmatively, contained an implied negative. By this statute it was enacted that persons entitled to a sue of lands should have the same estate, both according to quantity and quality, in the lands as they had in the use. It was argued that these words contained in themselves a negative, i.e., that the cestui qua use had an estate in no other quantity or quality than they had in the use, and the reason given was that there is a diversity between a statute which makes an ordinance by affirmative words touching a thing which was before at the common law, and a statute which makes an ordinance by affirmative words touching a thing which was not before at the common laws, and that where, as here, a statute appoints the manner of a thing which was not before at the common law, then, although it be expressed in the affirmative, it implies a negative. This argument the court adopted, and decided that the enactment must be strictly adhered to. In Trott v. Hughes, Lord Cranworth held that where rules, framed by virtue of a statute for the regulation of benefit binding societies, provided that any dispute which might arise between the society and any of its members should be referred to and decided by the directors of the society, the provision was equivalent to enacting that no such dispute was to be made the subject of litigation in a court of law, and consequently he dismissed a suit which arose out such a dispute. This view was adopted in Municipal Permanent Investment Building Society v. Kent. In Ex. p. Stephens, the question was whether a mere word or distinctive combination of letters was a trade mark within the meaning of the Trade Marks Registration Act, 1875. By section 10 of that Act it was enacted that a trade mark might consist of (among other things) 'any special and distinctive word or words or combination of figures or letters used as a trade mark before the passing of this Act'. It was thus held that a word which had not been used as a trade mark before the passing of the Act could not be used as a trade mark after the passing of the Act. 'Otherwise' said Jessel M.R., 'it would be contravening the well-known rule, that when there is a special affirmative power given which would not be required because there is a general power, it is always read to import the negative, and that nothing else can be done. Therefore, the power to use as a trade mark a word used before the passing of the Act clearly negatives the conclusion that a distinctive word can be so used if the word was not so used before the passing of the Act'.'

I was also referred in this connection to Stroud's Judicial Dictionary (4th edition), at page 1739, where the expression 'necessary implication' and 'necessary intendment' are dealt with. I was also referred to several authorities cited in Stroud's Judicial Dictionary for a clearer exposition of these two expressions. It is obvious that the expression 'necessary' means something stronger than 'possible' and the implication must be one which is so strong and irresistible that the alternative is not one that would appeal to a rational mind.

29. In Cork County Council and Richard Burke v. Commissioners of Public works in Eyre, The Minister for Finance and the Attorney-General, there are observations as to the phrase 'necessary implication' which may be quoted :

'But what is 'necessary implication' in the construction of a statute I may cite the words of Lord Eldon in Wilkinson v. Adam, where, after stating that in construing a will, a particular intention must appear by necessary implication upon the will itself, he continues : 'With regard to that expression 'necessary implication', I will repeat what I have before stated from a Note of Lord Hardwick's judgment in Coriton v. Hellier, that in construing a will, conjecture must not be taken for implication, but necessary implication means not natural necessity, but so strong a probability of intention, that an intention contrary to that which is imputed to the testator cannot be supposed'.'

In William Hill and W. C. Simmons v. Alice Sarah Crook and Earnest William Crook, the same passage from Wilkinson v. Adam is set out with approval, and although the passage deals with the construction of a will the sentiments expressed are, in my opinion, equally apposite in the construction of a statue. The material passage (which has already been quoted as part of a passage from an Irish case - supra) reads :

'In construing a will, conjecture must not be taken for implication, but necessary implication means, not natural necessity, but so strong a probability of intention that an intention contrary to that which is imputed to the testator cannot be supposed.'

As stated earlier, in my opinion, the passage would be quite appropriate and applicable to the facts in our case, if for the word 'testator' the word 'legislature' was substituted in the same.

30. On the other hand, on behalf of the defendants, it was urged that the principle or rule of interpretation by necessary implication ought not to be lightly applied in the instant case, and the following principles of interpretation were submitted for the consideration of the court. These principles may be briefly referred to :

(1) There is a presumption against the alteration of well-settled law by implication and such a change should be either by explicit or express words or only if such inference of alteration is irresistible.

(2) If the matter is evenly balanced or fairly arguable on either side, then that interpretation should be preferred which would involve the least alteration of the existing law.

(3) If one of the two possible constructions would lead to startling or bizarre results, or to any absurd or harsh consequences, then that construction is one which ought not to be preferred and is one which ought to be avoided.

(4) The intention of the legislature is primarily to be gathered from the actual words used and not form any words not to be found in the statute, but which are required to be added to make the statute clear and to bring out the policy intention.

31. A number of authorities were cited at the Bar in connection with these propositions. These will be referred to, if necessary, when these submissions are discussed in somewhat greater detail as I propose to do. The first two propositions submitted by learned counsel for the defendants were obviously based on the position of the previously existing law, viz., the Indian Companies Act, 1913, as this was the law in existence prior to the Companies Act, 1956. As seen earlier, under section 86-I, additional grounds (of vacation of office by directors) could be adopted by all companies, and it was submitted that if that was the state of the existing law, a change in that law ought not to be lightly inferred unless the words of the statute were clear. In Murugiah v. Jainuddin, the Privy Council has spoken approvingly of a passage in Maxwell's Interpretation of Statutes (10th edition), at page 81, entitled 'presumption against implicit alteration of law'. The said passage in the Privy Council's judgment reads as follows :

''One of these presumptions is that the legislature does not intend to make any substantial alteration in the law beyond what it explicitly declares, either in express terms or by clear implication, or, in other words, beyond the immediate scope and object of the statute. In all general matters outside those limits the law remains undisturbed. It is in the last degree improbable that the legislature would overthrow fundamental principles, infringe rights, or depart from the general system of law, without expressing its intention with irresistible clearness.'

Their Lordships agree that the law is correctly stated in the passage cited.'

Similarly, in National Assistance Board v. Wilkinson it was stated :

'............ but it may be presumed that the legislature does not intend to make a substantial alteration in the law beyond what it expressly declares.'

Similar are the observations to be found in George Wimpey & Co. Ltd. v. British Overseas Airways Corporation. It was observed in that case by Lord Reid :

'This is, therefore, an example of the uncommon situation where language not calculated to deal with an unforeseen case must nevertheless be so interpreted as to apply to it. In such cases, it is, I think, right to hold that, if the arguments are fairly evenly balanced, that interpretation should be chose which involves the least alteration of the existing law.'

It may be mentioned at this juncture that the Privy Council authority and Wilinson's Case and the passage from Maxwell have been referred to with approval by our Supreme Court in M. K. Ranganathan v. Government of Madras.

32. Similar sentiments are to be found expressed in Halsbury's Laws of England (third edition), volume 36, para. 625. According to Halsbury :

'Statutes which limit or extend common law rights must be expressed in clear unambiguous language; but, if the language is clear, there is no reason why such statutes should be construed differently form other statutes. Except in so far as they are clearly and unambiguously intended to do so, statutes should not be construed so as to make any alteration in the common law or to change any established principle of law, or to alter completely the character of the principal law contained in statutes which they merely amend.'

There is a similar passage in Craies on Statute Law (7th edition) to be found on paged 112 and 121; it is, however, not necessary to set it out.

33. In connection with these principles of interpretation certain further submissions were made. It was urged that the enabling provision in sub-section (3) must not be regarded as barring by implication the companies other than the companies mentioned in the enabling provision. I was referred to the enabling provisions contained in section 86-I(2) of the Indian Companies Act, 1913, and it was argued that such a provision was enacted for abundant caution and not because without it the companies would have been precluded from having an additional ground of vacation of office of directors by adopting suitable articles. In the same vein, it was urged, the enabling provision to be found in sub-section (3) has to be similarly construed, and there is no warrant for reading any prohibition or bar in the said enabling provision.

34. In connection with the Report of the Company Law Committee (the Bhabha Committee) it was obvious that the said report only dealt with the grounds of vacation of office, and the said Committee had not applied its mind to grounds of disqualification or the desirability or otherwise of adding to such grounds. Bearing this in mind, it was submitted that the interpretation of, or the inference sought to be drawn from, sub-section (3) of section 274 ought not to be governed by the principle of mischief sought to be avoided by the legislature. In connection with the Notes on Clauses to be found in the Bill presented to Parliament and which Notes have been referred to earlier, it was submitted that such notes may, at the highest, represent the intention of the draftsmen of the legislative measure and such intention must not be assumed to be the intention of the legislature.

35. I was, therefore, taken through the various articles of the Cricket Club and arguments were based on these articles, in particular on articles 24(c) and 84(a). It was submitted that if it was held that additional grounds of disqualification could not be adopted by a club such as the Cricket Club, peculiar if not bizarre results would follow. In this connection I need not refer to the several articles to which reference was made at the Bar, save to state that the arguments proceeded both on consideration of sub-section (3) of section 274 and of section 283. It was contended that if these two sub-sections were construed to restrict the right of public companies, including clubs such as the Cricket Club, some of the provisions contained in these articles may be hit and this would lead to unfortunate results. The submission was that unless the language of the sub-sections was clear and the inference is irresistible, that inference which was sought to be given to these sub-sections by the plaintiffs ought not to be given, as in the case of the Cricket Club and similar institutions unfortunate results might occur and some of the articles of such clubs and similar institutions which may be desirable and even absolutely necessary might be rendered invalid. In connection with this argument various illustrations were given of different types of bodies which may require some qualifications - special qualifications - for the members of their executive committees. According to the submission, if these qualifications are regarded as disqualifications, then, since such qualifications were absolutely necessary, in the view of the learned counsel for the defendants the two sub-sections ought not to be interpreted in a manner which would render such provisions or such rules imposing such qualifications as invalid in law. Apart from the specific articles of the Cricket Club which may require reconsideration, I found some of the instances given to be far-fetched, and the contingency submitted for the court's consideration by learned counsel for the defendants did not appeal to me as a reasonable and probable contingency which ought to affect the interpretation of the statutory provisions with which we are concerned.

36. Similarly, arguments were based on the principle to be found enunciated in sections 29, 31 and 36 of the Companies Act, which statutory provisions would seem to indicate the rights of the members of a company to adopt such articles as they wish to adopt, subject to the general principle that the articles or changes in the existing articles should be made bona fide. It was submitted - and there is considerable force in the submission - that such power of the members ought not to be restricted or deemed restricted unless such curtailment or restriction was provided for in express language or such language from which only one irresistible inference could be drawn. In other words, the argument was that by reason of the various points which had been made, the attempt of the legislature to prevent the mischief, even assuming there was such an attempt and that the mischief was one which was ought to be prevented, had clearly misfired and it should be so held by the court. Great stress was laid by learned counsel in this connection on the terminology employed in sub-section (3) of sections 274 and 283. In the first place, it was submitted that if the legislature had sought to restrict the rights of the members to have additional grounds of disqualification and vacation of office, the proper way to provide for the same would have been by addition of the words 'and only if' in sub-section (1) and it was pointed out that similar words are to be found in several other provisions of the Companies Act, 1956; reference may be made only to sections 2(3), 2(4) and 6. Alternatively, it was submitted that if sub-section (3) was intended to prevent additional grounds form being adopted by a public company, the language of the sub-section ought to have clearly indicated that only the companies mentioned in sub-section (1). It is true that the two sections - and I think the provisions of section 283 - are not artistically or even properly drafted. There is much to be said in the submission made as to the language of these sections by learned counsel for the defendants. I was not much impressed by the argument at the Bar in connection with harsh or bizarre consequences. But, on the other hand, arguments which were advanced based on the language of the two sub-sections as also on the principles of interpretation to which reference has been made earlier (particularly based on the principles dealing with the change in the existing law which need not be lightly inferred) were quite reasonable and fairly appealing.

37. As stated earlier, in my opinion, the provisions contained in section 274 would be required to be considered in just a position with the provisions to be found in sections 283, and we have already seen how the phraseology employed in the two sub-sections with which we are concerned (both being sub-section (3) to the two sections) is identical.

38. In this connection reference will now be required to be made to a judgment of this court which great reliance was placed by learned counsel for the plaintiffs. That was not a final judgment but an order at an interlocutory stage. It did not deal with the provisions of section 274 but proceeded upon a construction of section 283 of the Companies Act, 1956. But nevertheless, in my opinion, it would have a great bearing on the matter canvassed before me. Reference may immediately be made to this judgment.

39. The said judgment was given by Vimadalal J. on 10th October, in his made on the plaintiff's Notice of Motion dated 30th August, 1968, in Suit No. 552 of 1968 Atul Drug House Ltd. v. K. M. Chandaria. The Notice of Motion taken out by the plaintiffs in that suit (hereinafter referred to as 'Atul Drug House') was for an injunction restraining the 1st defendant, one Chandaria, from acting as a director and/or managing director of the 1st plaintiff-company, viz, Atul Drug House, and it was, inter alia, contended in the motion that the 1st defendant had vacated his office as a director by virtue of the provisions of article 163 of the articles of the said company. In the order the said article has been fully set out, but we are only concerned with the proviso, which is in the following words :

'Provided, however, that such Director shall vacate office if and when the East African Match Company Ltd., and/or its nominees, Messrs. Bhagwanji & Co. and/or Messrs. Premchand Brothers Ltd., cease to hold less than two-thirds of the equity share capital in the company. Shri Maganlal P. Chandaria referred to in article 142 shall be deemed to be the first director appointed by the East African Match Company Ltd., in pursuance hereof.'

40. The plaintiffs' case was that the 2nd defendant, i.e., the East African Match Company Ltd., had ceased to hold 66-2/3 per cent of the issued share capital of Atul Drug House which had resulted in Chandaria's vacation of office as a director. It was argued before the learned judge that the provisions of article 163 relating to the vacation of office of director nominated on behalf of the 2nd defendant was contrary to the provisions contained in section 283 of the Companies Act, 1956, and the said article was, therefore, void by reason of section 9(b) of the said Act. As the said judgment and order clearly indicate, learned counsel on both sides argued this pointy in great detail, and after considering the arguments the learned judge expressed his view in rather emphatic terms that the provisions of section 283(3) by clear implication that a company other than a private company could not by its articles provide for any other cases for determination of the office of a director prior to its normal tenure in any case not provided for in section 283(1). In this connection the relevant passage from the order may be fully set out :

'The tenure of office of a director is determined in accordance with the provisions of section 255(1) of the Companies Act or by the articles of the company concerned. Section 255(2) provides only for the mode of appointment of directors whose tenure does not fall within section 255(1) of the Companies Act but is fixed by the articles of the company. It does not itself have anything to do with the tenure of office of a director as such, as Mr. Thakkar has sought to contend. Section 283(1) of the Companies Act lays down that the office of a director 'shall become vacant' in certain contingencies listed therein, and sub-section (3) of that section enacts that a private company (which is not a subsidiary of a public company) could, however, by its articles provide that the office of director shall be vacated on any grounds in addition to those specified in sub-section (1). There can, in my opinion, be no doubt that section 283 deals with the vacating of the office of a director before the normal term of tenure of his appointment has expired, or in other words, that it provides for the earlier determination of his tenure on the happening of the events specified therein. It is the contention of Mr. Amin for the defendants that it is not open to a public company like the 1st plaintiff-company to provide, as it has sought to do by article 163 of its articles, for the earlier determination of the office of a director in any case which does not fall within section 283(1) of the Companies Act, and that it is only a private company which is not a subsidiary of a public company that can by its articles make any such provision by virtue of the express provision contained in subsection (3) of section 283. In answer to that contention of Mr. Amin, it was sought to be contended by Mr. Thakkar on behalf of the plaintiffs that section 283 is not exhaustive of all cases in which a director's office stands vacated before its normal tenure, and that it was open to a company to provide by its articles for other cases of the earlier determination of that office, and he sought to refer to some of the other sections of the Act in support of that argument. That argument of Mr. Thakkar is, in my opinion, clearly unsustainable and Mr. Thakkar cannot be said to have even a prima facie case in regard to the same in view of the provisions of section 283(3) which leave no room for doubt and enact by clear implication that a company other than a private company cannot by its articles provide for any other cases for the determination of the office of a director prior to its normal tenure, in any case not provided for in section 283(1). A reference to section 86-I the old Companies Act of 1913 lends emphatic support to this view in so far as the provisions contained in subsection (2) of the said section 86. I permit all companies, whether public or private, to provide by their articles for the earlier determination of the office of a director in cases other than those provided for in subsection (1) of the said section. It may be mentioned that in the present Act there is a deliberate departure from the provisions of sub-section (2) of the old section 86-I, in so far as under sub-section (3) of section 283 it is permissible to private companies not to contain any provision in their articles for the earlier determination of the office of director in cases other than those provided for in sub-section (1) of section 283. Mr Thakkar's argument that section 283(1) is not exhaustive must, therefore, be rejected. The reference to the other section of the Act cannot help Mr. Thakkar for the simple reason that even if there are other provisions in the Act itself which deal with the vacating of the office of director in certain contingencies, that cannot possibly lead to the conclusion that such a provision can be made in the articles of association notwithstanding the provisions of section 283 of the Companies Act, particularly in view of sub-section (3) thereof. In view of the provisions of section 9(b) of that Act, any provision in the articles of a company shall be void to the extent to which it is repugnant to any of the provisions of the Companies Act. 'There can, therefore, be no doubt that if article 163 does provide for determination of the office of the 1st plaintiff-company earlier than his normal tenure, it would be void ......'

We are not really concerned with the remaining observations in the order, though it is material to point out that the learned judge in the said order made it quite clear that his views as to that construction of article 163 were prima facie views, whereas no such reservation was made in so far as his views on section 283(3) were concerned. I am making this observation in view of the submission made by the learned counsel for the defendants as to the weight to be given to the observations of Vimadalal J. to be found in the relevant passage in the said order, which passage has been fully set out by me.

41. The learned counsel for the defendants submitted that these were the views at the Notice of Motion stage and that the views or observations made at such interlocutory stage ought not to be given that binding effect as the views expressed in a final judgment. Now, even in an interlocutory proceeding, the court may be called upon or required, for the purposes of passing an appropriate interlocutory order, to construe a statutory provision or to apply the same to a given set of facts. At that stage the observations made would, in my opinion, normally be regarded as observations made on a proper and adequate consideration of the question, unless the court were to qualify the observations by saying that the court has had not the benefit of a full argument or that the views expressed were only prima facie views subject to reconsideration at a subsequent stage which is sometimes done by using the phrase 'as at present advised'. Now, in the order the learned judge has indicated quite clearly and categorically that his views as to construction of article 163 were prima facie views and, therefore, the observations of Vimadalal J. as to the construction of that article would have only limited persuasive authority. The same would not be true about the views expressed by the learned judge as to the which section he was concerned in the said judgment. It has been indicated that the views expressed have been arrived at after full arguments, and having had the benefit of such full arguments, the opinion of the court is found expressed in rather emphatic terms, the court holding that the argument of Mr. Thakkar that it was open to a public company to provide by its articles for other cases of the earlier determination of the office of director was 'clearly unsustainable'. In my opinion, it would not be permissible nor proper to tone down the effect of these observations on the somewhat specious plea that the observations were made during the course of a judgment after the final determination of a suit. Bearing in mind the tenor of these observations and the emphatic language in which these observations are couched, these observations must be given the same weight as observations made in the course of a final judgment.

42. It is certainly true that these observations have been made with reference to sub-section (3) of section 283 and not with reference to sub-section (3) of section 274. As far as section 293 is concerned, it has been submitted that the legislature had intended to curb a mischief which was brought to its attention by the Bhabha Committee and that in view of that circumstance it would be, perhaps, appropriate to give to sub-section (3) of that section the necessary implication which Vimadalal J. had chosen to give. On the other hand, it was emphasised that there was no previous legislation dealing with disqualifications of directors as such, nor was there any recommendation in that behalf by the Bhabha Committee, so that it would not be possible to say that sub-section (3) of section 274 was enacted to prevent the type of mischief which might be presumed to be in the contemplation of the legislature when it enacted sub-section (3) of section 283. In other words, I was asked, if I regarded the observations of Vimadalal J. as having substantial persuasive authority to restrict them to sub-section (3) of section 283 and not to follow them in a case where the construction of sub-section (3) of section 274 was concerned. This approach was sought to be supported on the basis of the reasoning which had been earlier referred to and set out, part of which, as I have already expressed, cannot be considered to be devoid of substance, although there is some part which has not appealed to me. The difficulty in adopting this approach arises from the fact that the operative wordings of the two sub-sections are identical. As indicated earlier, in my opinion, it would be appropriate to consider these two sub-sections in juxtaposition and not in isolation from one another. If that is done, it would not be proper nor appropriate to give to sub-section (3) of section 283 the construction given to it by Vimadalal J. and to deny to sub-section (3) of section 274 the same construction. This line of interpretation to read in sub-section (3) of section 283 the prohibition of public companies by necessary implication and to deny that prohibition to sub-section (3) of section 274 on the ground of the reasoning suggested by learned counsel for the defendants would, in my opinion, be a totally impermissible course. It is possible to argue - and argue quite attractively and persuasively - that the language of sub-section (3) of section 274, which is also the language of sub-section (3) of section 283, would not warrant or justify the reading of the prohibition by the process of necessary implication. This would amount to rejecting the line of reasoning which appealed to Vimadalal J. and differing from him. The distinction which has been suggested which can be made by me does not appeal to me, nor am I prepared, although the arguments advanced have to be described as persuasive and not unattractive, to persuade myself to the extent of differing from the observations of Vimadalal J. In this view of the matter, I think I must hold that sub-section (3) of section 274 by necessary implication prohibits public companies and private companies which are subsidiaries of public companies from adopting by their additional grounds of disqualification, i.e., grounds other than those specified by sub-section (1) of that section.

43. In this view of the matter, the questions are answered as follows :

Question (a)

In my opinion, the amendment of article 74 proposed by the resolution contained in the requisition would be invalid as being repugnant to section 274 of the Companies Act, 1956. No other provision of the said Act has been brought to my attention which would render such resolution invalid.

Question (b) & (c)

Inasmuch as it has been conceded that the requisition satisfied the procedural and numerical requirements postulated by section 169 of the Companies Act, 1956, the requisition much be considered to be a valid requisition within the meaning of sub-section (6) of section 169. Accordingly, the executive committee of the Cricket Club would appear to be bound and liable to call the meeting as provided by the said section. I do not wish to express any opinion as to the course to be adopted by the requisitionists or by the chairman of such meeting at the meeting. This course would depend upon the answer to question (a) which I have indicated earlier.

Mr. Chinai applies for costs.

44. It is agreed that the defendants' costs, quantified at Rs. 3,000, will be paid by the 1st plaintiff-club. Order accordingly.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //