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Bennet Coleman and Co. Vs. Union of India and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtMumbai High Court
Decided On
Case NumberAppeal Nos. 153 and 154 of 1969 in Company Petition No. 114 of 1967
Judge
Reported in[1977]47CompCas92(Bom)
ActsCompanies Act, 1956 - Sections 9, 36, 181, 197A, 255, 255(2), 262, 265, 298, 397, 398, 398(2), 399, 400, 401, 402, 402, 403, 404, 404(1), 404(2), 405, 406, 407, 408, 409 and 635B
AppellantBennet Coleman and Co.
RespondentUnion of India and ors.
Appellant AdvocateM.N. Phadke and ;S.D. Parekh, Advs.;G.A. Thakkar, ;A.K. Sen and ;A.M. Shah, Advs.
Respondent AdvocateP.P. Khambatta and; M.N. Phadke, Advs.
Excerpt:
(i) company - maintainability of appeal - companies act, 1956 - appellants challenged order of judge directing reconstitution of board of directors - respondents objected to maintainabililty of appeal - appellants had lost right to appeal on ground that it had submitted to orders of court - company cannot prefer an appeal through its shareholders unless resolution passed by board of directors was set aside by proper proceedings by shareholders - preliminary objection regarding maintainability of apppeal. (ii) reconstitution - sections 255, 398, 402 and 408 of companies act, 1956 - appellant challenged reconstitution of board of directors as it contravened provisions of section 255 - order of judge immuned 2/3 of directors from retiring by rotation - further board fixed period of seven.....tulzapurkar, j. 1. these appeals have been preferred by respondent no. 1-company represented by its shareholders and by original respondents nos. 8 and 10 in their capacity as directors of the company, principally challenging the judgment and order passed by nain, j. on august 28, 1969, whereby the learned judge directed reconstitution of the board of directors for the company in the manner done for a period of seven years. both the legality as well as propriety of the order directing reconstitution of the said board have been challenged on certain grounds. in appeal no. 154 of 1969, mr. khambatta appearing for the union of india raised a two-fold preliminary objection to the maintainability of the appeal. according to him, this appeal by respondent no. 1-company is incompetent, inasmuch.....
Judgment:

Tulzapurkar, J.

1. These appeals have been preferred by respondent No. 1-company represented by its shareholders and by original respondents Nos. 8 and 10 in their capacity as directors of the company, principally challenging the judgment and order passed by Nain, J. on August 28, 1969, whereby the learned judge directed reconstitution of the board of directors for the company in the manner done for a period of seven years. Both the legality as well as propriety of the order directing reconstitution of the said board have been challenged on certain grounds. In appeal No. 154 of 1969, Mr. Khambatta appearing for the Union of India raised a two-fold preliminary objection to the maintainability of the appeal. According to him, this appeal by respondent No. 1-company is incompetent, inasmuch as the company had submitted to the orders of the court without any objection, subject to certain reservations that were made by it while submitting to the orders of the court. Secondly, he contended that this appeal which has been preferred in the mane of the company cannot be filed through the shareholders, especially, when there was no allegation that any wrong was done to the company. So far as Appeal No. 153 of 1969 is concerned, both Mr. Khambatta and Mr. Phadke appearing for the Union of India and respondent No. 1-company respectively raised a preliminary objection to the maintainability of that appeal on the ground that respondents Nos. 8, 10 who had preferred the appeal were not the shareholders but only the directors against whom no order had been made by the learned judge and who in fact had been continued on the reconstituted board as directors of the company for a period of seven years and they had submitted to the orders if the court subject to certain reservations that were made by them. Before dealing with these appeals on merits, therefore, it would be convenient to deal with the preliminary objections that were raised by Mr. Khambatta and Mr. Phadke to the maintainability of these appeals.

2. In amplification of the preliminary points that were raised by them, in Appeal No. 154 of 1969, Mr. Khambatta pointed out to us the relevant contents of the letter dated August 16, 1969, addressed by Messrs. Chimanlal Shah & CO., attorneys, who were acting as attorneys for the company in the proceedings, to the chairman of respondent No. 1-company and he relied upon the statement that was made by counsel who appeared for respondent No. 1-company on August 28, 1969, before the learned judge. According to him, the proceedings in the main petition were getting protracted and the parties before the learned judge were desirous of putting an end to those proceedings in proper manner so as to avoid leading of considerable evidence and waste of their time. On August 14, 1969, almost all the respondents who were appearing before the learned judge except respondent No. 1-company had made certain statements to the court such as that they would be submitting to the orders of the court subject, however, to certain reservations made by each. After such statements were made, Messrs. Chimanlal Shah & Co. addressed a letter dated August 16, 1969, to the chairman of the company by which the attorneys gave information as to what had transpired in the court and in particular the attorneys had stated that during the course of hearing of the petition, some days ago, a suggestion was made that if all the parties submitted to the order of the court, the court would make an appropriate order for reconstitution of the board of directors of the company for future management. By this letter the attorneys also clarified as to what was meant by 'submitting to the order of the court' and it was stated by them that submitting to the order of the court meant that the could would make such order as it though fit in the circumstances of the case and no party would have any right of appeal against such order. After pointing out further what statements were made by the other respondents to the court and after pointing out what submissions had been made by counsel for the Union of India before the court the attorneys sought instructions from respondent No. 1-company as to what should be done in the matter. Mr. Khambatta then referred us to the minutes of proceedings of the adjourned extraordinary general meeting of the shareholders which was held at Calcutta on August 26, 1969, where the aforesaid letter of Messrs. Chimanlal Shah & Co., attorneys, dated August 16, 1969, was placed before them and considered by them. It appears that this meeting was adjourned to enable the members to consider the whole matter fully and the said meeting was adjourned to August 27, 1969. At this meeting the members passed certain resolutions which were moved by the chairman. By the first resolution the shareholders indicated that they were of the unanimous view that all possible efforts should be made to bring to an end the proceedings under section 398 of the Companies Act which were pending before the court and that counsel on their behalf should submit before the court to consider the terms of settlement already agreed to by the members with the Government (meaning the settlement said to have been arrived at on August 20, 1969). By the second resolution the shareholders resolved that the company's counsel should submit on behalf of the members of the company that a board be constituted by the High Court to manage the affairs of the company consisting of three representatives of the shareholders excepting those against whom there were allegations of mismanagement in the petition and four independent directors, the chairman being one of the representatives of the shareholders and with no nominee of the Government on the board. It was also decided at this meeting that it should be submitted before the court that the term of the reconstituted board should be as short as possible and the same should not be for more than two years and in any case not more than three years, considering the fact that the company had been under the management other than that of the shareholders for well over five years. Mr. Khambatta further pointed out that these resolutions which were passed by the members of the company were then considered by the board of directors at their meeting held on August 28, 1969, at 10 a.m. where, after considering the proceedings of the adjourned extraordinary general meeting of the shareholders held on August 26, 1969, and August 27, 1969, expressing the views of the shareholders in respect of matters pending before the High Court, the board of directors passed two resolutions; by the first resolution the board resolved that the company should submit to the orders of the court in Petition No. 114 of 1967 and that counsel for the company should be requested to convey to the court the wishes expressed by the shareholders at their meeting held on August 27, 1969, and by further resolution the board resolved that it should be made clear to the court that any order passed by it in the petition should not prejudice in any manner the appeal filed by the company under section 635B against the Company Law Board's objection in regard to the five officers of the company and the High Court suit filed by the company against respondent No. 2 and other employees, being Suit No. 603 of 1967. Mr. Khambatta further pointed out that it was pursuant to these resolutions that were passed by the board of directors at its meeting held on August 28, 1969, counsel on behalf of respondent No. 1-company on August 28, 1969, stated to the court that respondent No. 1-company would submit to the orders of the court without prejudice to the company's appeal in regard to the employees and civil suit filed by it against respondent No. 2 and certain other employees and it was after such submission was made on behalf of respondent No. 1-company what the learned judge proceeded to deliver his judgment and passed necessary orders disposing of the petition. In other words, according to Mr. Khambatta, since respondent No. 1-company had submitted to the orders of the court subject to certain reservations made in the matter of the company's appeal in regard to the employees and civil suit filed by it against respondent No. 2 and certain other employees, it was not open to respondent No. 1-company to prefer this appeal to this Court. In support of his contention Mr. Khambatta relied upon two decisions - one reported in Sayad Zain v. Kalabhai Lallubhai [1899] 1 Bom LR 366 : ILR 23 Bom 752 and the other in Venkateswarulu v. Narasi Reddy : AIR1961AP71 . In the former case Sayad Zain v. Lakabhai Lallubhai [1899] 1 Bom LR 366 : ILR 23 Bom 752 the parties to a suit referred the matter in dispute to the subordinate judge, before whom the suit was pending, for a settlement of the dispute between the parties. The subordinate judge passed a decree accordingly when one of the parties, viz., the defendant, preferred an appeal, the court held that the judgment of the subordinate judge was in the nature of an arbitrator's award against which an appeal could not be entertained and that the fact that the subordinate judge gave his award in the form of a decree would not make it a decree from which a regular appeal could lie. ILR[1899] Bom 752 the court observed as follows :

'Here the parties agreed that they would abide (manya karave) by the decision of the subordinate judge. The fact that the express provisions of Chapter XXXVIII of the Civil Procedure Code were knowingly disregarding shows that the proceedings were extra cursum curiae, and thus the judgment of the subordinate judge was in the nature of an arbitrator's award, against which an appeal cannot be entertained if the competency of the appellate court is objected to by the party holding the judgment.'

3. In the other decision of the Andhra Pradesh High Court (Venkateswarulu v. Narasi Reddy : AIR1961AP71 [FB], the test as to whether a party had lost his right of appeal has been stated thus (page 75) :

'Therefore, the only test for determining whether the right is lost to the party appealing should not be the agreement express or implied, not to appeal. Where such an agreement exists the right is of course lost. On the other hand, the enquiry in order to be complete should further ascertain whether the party adversely affected had acquiesced in the procedure that has put the court entirely out of its course and should such an acquiescence be proved the ground for the right to appeal being lost would be established.

Nor could the party adversely affected complain of any injustice; for having consented to the procedure he should abide by the inevitable consequences of such enquiry. Therefore, the correct test for judging whether the right to appeal be lost is to ascertain what procedure the original court had followed because of the agreement. Should because of the agreement the procedure for reaching the decision be fundamentally different to that usually followed by courts, the right of appeal would be lost.'

4. Mr. Khambatta contended that the tests laid down in both these decisions were applicable to the facts of the present case. In the first place, he contended that by an implied agreement it should be held that respondent No. 1-company had waived its right of appeal because it was after being pointed out to the company by their attorneys that submitting to the order of the court would mean that the company would have no right of appeal that the company at its meeting of the board of directors decided to submit to the order of the court. He further contended that, in any event, in this case, having regard to the course of conduct adopted by the parties, particularly by all the respondents who were appearing, the court was obliged to follow a procedure which was fundamentally different from that which would have generally been followed. By submitting to the orders of the court after making certain reservations to the effect that any order that may be passed by the court should not amount to any admission in respect of any allegations in the petition on the part of the respondents and that the same should not amount to any finding against them the respondents induced the court to decide the matter on the assumption that the allegations contained in the petition against all the respondents were true. Thereby the respondents enabled the court to pass appropriate orders under section 402 of the Companies Act on the footing that the conditions of section 398 of the Companies Act which conferred jurisdiction upon the court had arisen or had existed. In fact, the respondents, did not desire that the court should record the entire evidence or should adjudicate and give its findings on the issue involved in the case and by their conduct the parties prevented the court from taking on record the entire evidence that would have been otherwise led by the petitioners and further prevented the court from recording any finding on any of the issues involved in the case. In other words, the parties, particularly respondent No. 1-company, obliged the court to deviate from the normal procedure which would have been otherwise followed and the decision that was given was obviously extra cursum curiae. It that be so, according to Mr. Khambatta, the respondents had lost their right of appeal. In fact, we may indicate here that even on merits the precise grounds on which the main decision and order were sought to be challenged were that there was no material before the court which indicated that the company's shareholdings were closely held by respondent No. 2 or that the past directors had been guilty of mismanagement, misfeasance and other offences which were said to have been committed by them but it was by reason of the aforesaid conduct that the original respondents prevented the court from taking on record whatever evidence the petitioners wanted to lead. In our view, there is considerable force in Mr. Khambatta's contention that in the present case, having regard to the course of conduct which was adopted by all the respondents in submitting to the orders of court, though subject to certain reservations, to which we have already referred earlier, the respondents, and particularly respondent No. 1-company, had lost their right of appeal.

5. Mr. Sen, appearing for respondent No. 1-company, represented by its shareholders, contended that on a fair construction of the statement which was made on behalf of the respondent No. 1-company to the court on August 28, 1969, it should be held that by that statement respondent No. 1-company had offered to be court that any order passed by the court would be accepted but the offer was a limited one, namely, that grounds conferring jurisdiction on the court to make appropriate orders under section 402 should be taken to have existed but that did not enable the court to pass any improper order or a wrong order in law and if the order passed by the court was either improper or wrong, it was always appealable. It is difficult to accept this submission of Mr. Sen for the simple reason that the statement made on behalf of respondent No. 1-company to the court on August 28, 1969, is abundantly clear and that statement was to the effect that in view of the resolution passed by the board of directors of the company the company submitted to the orders of the court, of course without prejudice to the company's appeal in regard to the employees and the civil suit filed by it against respondent No. 2 and several other employees. No reservation whatsoever was made as to the nature of the order which the court was invited to pass when respondent No. 1-company submitted to the orders of the court. Besides, this statement was made after being warned that such course would leave no right of appeal to the company. Moreover, having regard to the manner in which all the parties including respondent No. 1-company had submitted to the orders of the court and invited the court to pass such appropriate order as it thought fit, it seems to us clear that the parties, including respondent No. 1-company, induced the court to make its decision extra cursum curiae and as such respondent No. 1-company must be taken to have lost its right to appeal to challenge the impugned order on merits. Neither the propriety nor the validity of the order can be challenged by any party except if the illegality goes to the root of the court's jurisdiction to make the order. In other words, if respondent No. 1-company is in a position to satisfy us that the impugned directions or orders are without jurisdiction altogether, then, of course, the same will have to be set aside but subject to this reception that the propriety and/or validity of the impugned orders cannot be allowed to be challenged in appeal at the instance of any party, including respondent No. 1-company, who has submitted to the orders of the court. The contention of Mr. Khambatta against the maintainability of the appeal on merits on the above ground will have to be upheld.

6. The other ground on which the maintainability of appeal by respondent No. 1-company was attacked pertains to the capacity of the shareholders to act on behalf of the company while preferring the appeal against the impugned judgment and order. In this behalf Mr. Khambatta has urged that normally any appeal which is to be filed on behalf of a limited company will have to be filed through its directors and not the shareholders and in this behalf be invited our attention to the provisions of section 291 of the Companies Act and articles 114 and 115 of the articles of association of the company, and particularly to article 115(5), which deals with the express powers of the board of directors. Article 115(5) runs as follows :

'115. Express powers of the Board. - Without prejudice to the general powers conferred by the last preceding article and so as not in any way to limit or restrict those powers, and without prejudice to the other powers conferred by these presents, it is hereby expressly declared that the directors shall have the following powers, that it so say, power :- (5) To institute, conduct, defend, compound or abandon any legal proceedings by or against the company or its officers or otherwise concerning the affairs of the company, and also to compound and allow time for payment or satisfaction of any debts due, and of any claim or demands by or against the company, and to refer any differences to arbitration, and observe and perform any awards made thereon.'

7. Relying on these provisions Mr. Khambatta contended that if at all any appeal was to be preferred challenging the judgment and order dated August 28, 1969, the same could have been filed by respondent No. 1-company only through its directors; but having regard to the resolution passed by the board on August 28, 1969, and having regard to the statement made by counsel on behalf of the company acting through the board on that day the board has rightly not preferred any appeal but the appeal has been preferred by the shareholders in the name of the company and he urged that such an appeal was incompetent. On the other hand, Mr. Sen relied upon the following passage occurring in Gower's Principles of Modern Company Law, third edition, at page 583, where the statement of law to the following effect is to be found :

'Normally, therefore, the company itself is the proper plaintiff, and the only proper plaintiff, in an action arising out of a dispute within the company. And the appropriate agency to start an action on the company's behalf is the board of directors, to whom this power is delegated as an incident of managing the company. However, it is well-established that if the directors cannot or will not start proceedings in the company's name (and if they themselves are the defendants they obviously will not) the power to do so reverts to the general meeting. Hence, the practice has grown up of allowing anyone connected with the company to start proceedings in the company's name subject to the risk that the defendants will challenge his right to do so. In that event, the court will stay proceedings until a general meeting has been called to decide whether or not the company shall sue. If the decision is in favour of continuing, all is well. If, however, the decision is against action the proceedings will be dismissed, and the rash individual and his solicitors on the record will be liable for the costs.'

8. The aforesaid passage is based upon the decisions in the case of Pender v. Lushington [1877] 6 Ch D 70 . He also relied upon the passage to the similar effect occurring in Buckley on the Companies Acts, 13th edition, pages 169, 170, particularly paras. 5 and 6. He, therefore, urged that in the instant case since the directors were parties to the board's resolution passed by them on August 28, 1969, whereby they had submitted to the order of the court, it was not expected that the company would file an appeal through its directors and, therefore, the power to prefer an appeal should be taken to have reverted to the general meeting and in that behalf he pointed out that at its meeting held on October 16, 1969, the reconstituted board of the company by a majority decision of the directors other than the directors representing the shareholders refused to prefer an appeal against the judgment and order dated August 28, 1969, and this refusal was there in spite of requisition in that behalf contained in the resolution passed unanimously by the shareholders of the company at the general meeting had on October, 3, 1969, and he further pointed out that this refusal was against the interest of the shareholders of the company and, therefore, in these circumstances of appeal preferred by the company through its shareholders should be held to be competent. We may, however, point out that on page 583 of Gower's Treatise at the foot of the passage based on Pender v. Lushington [1877] 6 Ch D 70 the learned author has made the following foot-note :

'Attention has already been drawn to the difficulty of reconciling this rule (meaning rule enunciated in the passage quoted above) with the strict doctrine of the separation of powers as between the board and the general meeting'

9. and reference is made to pages 136 and 137 of the book where the following passage occurs under the caption 'The directors as primary organs of the company'.

'The result of this discussion appears to be that the directors have ceased to be mere agents of the company. Both they and the members in general meeting are primary organs of the company whom the company's powers are divided. The general meeting retain ultimate control, but only through its powers to amend the articles (so as to take away, for the future, certain powers from the directors) and to remove the directors and to substitute others more to its taste. Until it takes one or there of these steps the directors can, if they are so advised, disregard the wishes and instructions of the members in all matters not specifically reserved (either by the Act or the articles) to a general meeting. And, as we shall see in a later chapter, the practical difficulties in the way of effectively exercising even this measure of supervision are very great owing to the directors' control over the proxy-voting machinery. The old idea that the general meeting alone is the company's primary organ and the directors merely the company's agents or servants, at all times subservient to the general meeting, seems no longer to be the law as it is certainly not the fact.'

10. From the above discussion it will thus appear clear that the normal rule is that in an action arising out of a dispute within the company the appropriate agency to start an action on the company's behalf is the board of directors though as an exceptional measure it has been ruled that if the directors cannot and will not start proceedings in the company's name, the power to do so reverts to the general meeting. But the manner in which the general meeting can retain the ultimate control is only through its power to amend the articles and remove the directors and to substitute others more to its taste, and until the general meeting takes one or the other step, the directors can, if they are so advised, disregard the wishes and instructions of the members in all matters not specifically reserved to a general meeting. With this position having been clarified, we will have to revert to what has been in the instant case. It is true, as has been pointed out by Mr. Sen, that after the judgment and orders were passed by the learned judge on August 28, 1969, the board of directors of respondent No. 1-company at its meeting held on October 16, 1969, in disregard of the wishes of the shareholders communicated to it through its unanimous resolution passed at their meeting held on October 3, 1969, refused to prefer an appeal. But the question is whether a mere refusal on the part of the directors to prefer an appeal and mere unanimous resolution passed by the shareholders to prefer an appeal against the impugned judgment and order is enough to come to the conclusion that an appeal in law can be preferred by the company through its shareholders. Before the matter was disposed of by the learned judge on August 28, 1969, on that very day at about 10 a.m. the board of directors in their meeting resolved that respondent No. 1-company should submit to the orders of the court, subject to certain reservations being made in regard to the company's appeal in regard to its employees and the civil suit preferred by the respondent No. 2-company and other employees and it may be stated that this resolution was unanimously passed by all the directors who were present including the directors who represented the shareholders on the board. This happened prior to the disposal of the petition by judgment and order by the learned judge in court and after the judgment and orders were passed by the learned judge the board of directors, as pointed out by Mr. Sen, passed a resolution refusing to prefer an appeal notwithstanding the shareholders' desire being communicated to it at its meeting held on October 16, 1969. In this situation we feel that unless the resolution passed by the board of directors on August 28, 1969, as also the resolution passed by the board of directors on October 16, 1969, were set aside by proper steps being taken in that behalf, it would not be open to the company to prefer an appeal through its shareholders. The resolutions of the board of directors must in the first instance be got rid of by taking proper proceedings by the shareholders in that behalf and unless that step is taken it would not be open to the shareholders to prefer an appeal to this court against the impugned judgment and order. Obviously, it would not be open to them to challenge those resolutions by way of present appeal itself which they have thought fit to file. It may be stated that even in the memo of appeal they have not sought to challenge those resolutions as being not binding on them or as being against the interest of respondent No. 1-company. It this view of the matter, we feel that the requisite steps to challenge and set aside the relevant resolutions not having been taken the present appeal preferred by the company through its shareholders would be incompetent and, in our view, the appeal must be held to be incompetent on both preliminary points urged by Mr. Khambatta before us.

11. Turning to the maintainability of Appeal No. 153 of 1969, which has been preferred by original respondents Nos. 8 and 10, in our view, the objection is clearly well-founded. It is not disputed that original respondents Nos. 8 and 10 have never been the shareholders of the company at any time and they have been merely the directors of the company at any time and they have been merely the directors of the company and the appeal has been preferred by them, obviously in their capacity as directors of respondent No. 1-company and also because they were the parties eo nomine to the original proceedings. In their case the position in abundantly clear that they were the parties to the board's resolution passed at its meeting held on August 28, 1969, at 10 a.m. to the effect that the company should submit to the orders of the court subject to reservations being made in regard to the company's appeal qua the employees and the suit filed by the company against respondent No. 2 and other employees and it must be mentioned that this particular resolution was unanimously passed by all the directors who were present at the meeting including respondents Nos. 8 and 10. In other words, respondents Nos. 8 and 10 had voted for such resolution, namely, that respondent No. 1-company should submit to the orders of the court subject to the reservations made. Having been parties to such a resolution, it would not be open to these respondents to prefer an appeal on behalf of respondent No. 1-company. Mr. Thakkar, appearing for the original respondents Nos. 8 and 10, contended before us that, as eo nomine parties to the proceeding, the statement that was made to the court on their behalf was that they denied all the allegations in the petition made against them and maintained that there was no material for the allegations against them and there was no prayer for their removal but that further stated that they were willing to submit to the orders of the court for the reconstitution of the board of directors of respondent No. 1-company. He urged that by making such statement to the court they should not be taken to have waived their right of appeal and they could point out to the appellate court that the impugned judgment and orders were improper or wrong in law. In our view, as we have already indicated in the earlier part of our judgment, unless the impugned orders are shown to be utterly without jurisdiction and beyond the powers of the court, it would not be open to these original respondents to prefer an appeal on merits of the impugned order in view of the statement that was made on their behalf to the court, subject to whatever reservations that were made while making that statement. In our view, therefore, neither in their capacity as directors of respondent No. 1-company nor as eo nomine parties to the original proceedings the original respondents Nos. 8 and 10 are entitled to prefer this appeal on merits to this court. The preliminary objection against the maintainability of this appeal must, therefore, be upheld.

12. However, we do not propose to dispose of these appeals by merely upholding the preliminary objections to their maintainability. We will proceed to deal with these appeals on merits on the assumption that these appeals are competent and on that basis we will proceed to deal with the contentions that were urged on behalf of respondent No. 1-company represented by its shareholders in Appeal No. 154 of 1969 and on behalf of original respondents Nos. 8 and 10 in Appeal No. 153 of 1969.

13. On merits, the impugned judgment and orders passed by the learned judge on August 28, 1969, were challenged both in regard to their legality and propriety.

14. On the question of legality it was contended that the reconstituted board for a period of seven years in the manner done by the learned judge was violative of sections 255 and 408 of the Companies Act. It was pointed out that out of the eleven directors of the reconstituted board only the three directors who are to represent the shareholders have been directed to entire in accordance with the articles of the company at each ordinary general meeting and that they should be eligible for re-election, but so far as the remaining directors are concerned, namely, three directors who are to be nominees of the Central Government, and five to be appointed by the court, they have not been subjected to retirement by rotation and it was further pointed out that instead the learned judge has directed that a vacancy among these directors should be filled up by the Central Government or the courts, as the case may be. The reconstitution of the board in the aforesaid manner, it was urged, was in contravention of the provisions of section 255 of the Companies Act whereunder it has been provided that at every annual general meeting, not less than two-thirds of the total number of directors of a public company, be persons whose period of office is liable to determination by retirement of directors by rotation. In other words, according to the direction given by the learned judge, more than 2/3rds of the total number of directors on the reconstituted board were immune from being made to retire by rotation and it was contrary to the provision of section 255. It was also contended that the period during which the reconstituted board was to operate as been fixed at seven years, which, in other words, means that the company and it shareholders have been deprived of their right to have full corporate management over its affairs and dealing for such long period of seven years, that is to say, the shareholders' right to have the affairs and dealings of the company managed through elected directors to the extent of 2/3rds of the total number has been drastically curtailed. It was further pointed out that in order to give effect to his order the learned judge had amended the original article 95 of the articles of association of respondent No. 1-company and according to the modified article 95 it has been provided that at each ordinary general meeting the directors elected by the shareholders shall retire from office and there is no provision made for retirement by rotation in regard to the remaining directors. It was contended that the court was not entitled to frame a new article 95 in the manner done which was contrary to section 255 of the Companies Act and that sections 398 and 402 under which the petition has been disposed of do not confer any authority on the court to frame such an article contrary to section 255 of the Companies Act. Mr. Sen contended that though under clauses (a) and (g) of section 402 any order passed by the court in a proceeding instituted under section 398 could provide for the regulation of the conduct of the company's affairs in future and could also provide for any other matter for which in the opinion of the court it is just and equitable that provision should be made, the section did not confer any authority or power upon toe court to frame an article which would be contrary to section 255. In other words, according to him any order making provision for the regulation of the conduct of the company's affairs in future and making provision for any other matter which in the opinion of the court it would be just and equitable to make, the court's orders and any provision made thereunder must be in accordance with the other provisions of the Act. The board as reconstituted by the learned judge was also challenged on the ground that it contravened the provisions of section 408 of the Companies Act and in this behalf it was pointed out that the said section while conferring power on the Central Government to prevent oppression or mismanagement had conferred power on that Government to appoint not more than two persons to hold office as directors of a particular public company whereas in the instant case the Central Government had been permitted by the learned judge to nominate three nominees of their own to hold office as directors on the reconstituted board. He, therefore, urged that the reconstituted board which included three members of the Central Government was contrary to section 408 of the Companies Act.

15. In support of his aforesaid contention Mr. Sen invited our attention to two or three aspects which according to him have a bearing on the contention raised by him. In the first place, he pointed out that under section 9(b) it has been provided that any provision contained in the memorandum, articles, agreement or resolution of a company shall, to the extent to which it is repugnant to the provisions of the Act, become or be void, as the case may be; in other words the provisions of the Act have an over-riding effect and would prevail over anything repugnant contained in the memorandum or articles or agreement or resolution of a company. Relying on this provision he contended that since the amended article 95 introduced as a result of the learned judge's order was contrary to the provisions of section 255 of the Companies Act, it would be hit by section 9(b) of the Act and this indicated that the court would have no power or authority to frame such an article which would be inconsistent with the provisions of the Act. Secondly, he pointed out that whenever it was intended that any provision of the Act should be overridden by anything contained in the memorandum or articles of a company appropriate language had been used in several sections of the Act and in that behalf he invited our attention to the provisions like sections 181, 197A and 265 of the Act, all of which sections commence with a non-obstinate clause. He particularly relied upon section 265 under which an option has been given to the company to adopt the principle of proportional representation for the appointment of directors and the relevant provision is to this effect that, notwithstanding anything contained in the Act, the articles of a company may provide for the appointment of not less than two-thirds of the total number of the directors of a public company according to the principle of proportional representation, whether by a single transferable vote or by a system of cumulative voting or otherwise, the appointments being made once in every three years and interim casual vacancies being filled in accordance with the provisions, mutatis mutandis, of section 262. He pointed out that neither section 398 nor section 402 of the Companies Act under which the impugned orders were passed contained any such non-obstante clause and, according to him, the absence of a non-obstante clause in these sections clearly shows that the court could not by any order passed thereunder make a provision or modify any article or insert a new article which would be contrary to section 255 of the Act. Thirdly, he strongly relied upon section 404 of the Companies Act which deals with the effect or alteration of the memorandum or articles of a company by court's order under section 397 or 398. Under sub-clause (1) of section 404 it has been provided that where an order under section 397 or 398 makes any alteration in the memorandum or articles of a company, then, notwithstanding any other provision of the Act, the company shall not have power, except to the extent, if any, permitted in the order, to make, without the leave of the court any alteration whatsoever which is inconsistent with the order, either in the memorandum or in the articles. This provision clearly shows that any alteration in the memorandum or articles made by the court while acting under section 397 or 398 read with section 402 becomes effective and operative and that such alteration cannot, notwithstanding any power conferred on the company by the Act, be further altered, modified or annulled except with the leave of the court; sub-section (2) provides that the alterations made by the court's order shall, in all respects, have the same effect as if they had been duly made by the company in accordance with the provision of this Act, and the said provisions shall apply accordingly to the memorandum or articles as so altered. Relying on the words 'the alterations ..... shall, in all respects, have the same effect' occurring in sub-section (2), he urged that the altered articles would have 'the same effect' meaning thereby that they should not be contrary to any of the provisions of the Act. Further, Mr. Sen placed reliance upon two cases decided by the Supreme Court under the Delhi Shops and Establishments Act reported in Hindustan Times Ltd. v. Their Workmen AIR 1963 SC 1392 and Dalmia Cement (Bharat) Ltd. v. Their Workmen : (1961)IILLJ130SC in support of his contention. He thus urged that, since the orders and directions reconstituting the board in the aforesaid manner were violative of the provisions of section 255 and section 408 of the Act, the same were illegal and deserved to be set aside.

16. In our view, the submissions made by Mr. Sen on the point of legality or otherwise of the impugned orders will have to be appreciated in the context of the principal question as to what are the powers of the court when it is acting in proceedings instituted under section 397 and 298 read with section 402 of the Companies Act. The questions whether a board of directors of the type indicted in the impugned order could be reconstituted by the court or not and whether the court had power to frame an article inconsistent with the provisions of section 255 of the Act or not must in the ultimate analysis depend upon the true ambit of the powers of the court under section 397 or 398 read with section 402, for, if these sections confer upon the court jurisdiction and powers of the widest amplitude to pass appropriate orders which the circumstances of the case may require, it would be difficult to accept Mr. Sen's submissions that the impugned orders and directions are liable to be set aside on the basis that the reconstituted board or modified article 95 was not in consonance with section 255 of the Act. To correctly appreciate the ambit of the court's jurisdiction and the amplitude of the court's powers under section 397 and 398 read with section 402 of the Companies Act, 1956, it will be necessary to consider the entire scheme of the Act pertaining to corporate management of companies. At the outset, it may be stated that all these concerned provisions occur in Part VI of the Act which deals with the management and administration of companies. It may further be pointed out that in this part there are eight chapters. Chapter I contains general provisions with regard to corporate management and administration of the companies such as registered office, registers of members and debenture-holders, annual returns, meetings and proceedings, accounts, audit, investigation, etc.; Chapter II, which includes section 255, deals with directors, their qualification, disqualification and remuneration, meetings of the board, board's powers, procedure where directors are interested, etc.; Chapter III deals with managing agents, their appointment, remuneration, restrictions on their powers, etc.; Chapter IV deals with secretaries and treasurers; Chapter IV-A deals with powers of the Central Government to remove managerial personnel from office on the recommendation of the Tribunal; Chapter V deals with arbitration, compromises, arrangements and reconstructions; Chapter VI, which includes sections 397 to 409, deals with prevention of oppression and mismanagement; Chapter VII deals with constitution and powers of advisory committee and Chapter VIII contains miscellaneous provisions. It will thus be seen that section 255 on which substantially the entire argument of Mr. Sen is based is to be found in Chapter II which deals with directors and the constitution of the board, through which agency the corporate management of the affairs of a company is usually undertaken, while Chapter VI, which contains material provisions from sections 397 to 409, deals with matters, pertaining to prevention of oppression and mismanagement arising out of corporate management. In other words, it is very clear that Chapter II which includes section 255 deals with corporate management of a company through directors in normal circumstances, while Chapter VI deals with emergent situations or extraordinary circumstances where the normal corporate management has failed and has run into oppression or mismanagement and steps are required to be taken to prevent oppression and/or mismanagement in the conduct of the affairs of a company. It is in view of this scheme which is very apparent on a fair reading of the arrangement of chapter and the sections contained in each chapter which are all grouped under Part VI of the Act that the question will have to be answered as to whether the powers of the court under Chapter VI (which includes sections 397, 398 and 402) should be read as subject to the provisions contained in the other chapters which deal with normal corporate management of a company and, in our view, in the context of this scheme having regard to the object that is sought to be achieved by sections 397 and 398 read with section 402, the powers of the court thereunder cannot be so read. Further, an analysis of the sections contained in Chapter VI of Part VI of the Act will also indicate that the powers of the court under section 397 or 398 read with section 402 cannot be read as being subject to the other provisions contained in sections dealing with usual corporate management of a company in normal circumstances. As stated earlier, Chapter VI deals with the prevention of oppression and mismanagement and the provisions therein have been divided under two heads - under head A powers have been conferred upon the court to deal with cases of oppression and mismanagement in a company falling under section 397 and 398 of the Act while under head B similar powers have been given to the Central Government to deal with cases of oppression and mismanagement in a company but it will be clear that some limitation have been placed on the Government's powers while there are no limitations or restrictions on the court's powers to pass orders that may be required for bringing to an end the oppression or mismanagement complained of and to prevent further oppression or mismanagement in future or to see that the affairs of the company are not being conducted in a manner prejudicial to public interest. In other words, whenever the legislature wanted to do so it has made a distinction between powers conferred on the Government (vide section 408) and powers conferred on the court (vide section 402) while dealing with similar emergent situations or extraordinary circumstances arising in the management of a company and in the case of the Government it has placed restrictions or limitations on the Government's powers but no restrictions or limitations of anything have been prescribed on the court's powers; if the legislature had desired that the court's powers while acting under section 397 or 398 read with section 402 should be exercised subject to or in consonance with the other provisions of the Act it would have said so. Moreover, the topics or subjects dealt with by sections 397 and 398 are such that it becomes impossible to read any such restriction or limitation on the powers of the court acting under section 402. Under section 397 read with section 402 power has been conferred on the court 'to make such orders as it thinks fit' if it comes to the conclusion that the affairs of a company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members and that to wind up the company would unfairly prejudice such member or members but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up 'with a view to bringing to an end the matters complained of'. Similarly, under section 398 read with section 402 power has been conferred upon the court 'to make such orders as it thinks fit' if it comes to the conclusion that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company or that a material change has taken place in the management or control of the company by reason of which it is likely that the affairs of the company will be conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company, 'with a view to bringing to an end or preventing the matters complained of or apprehended'. Both the wide nature of the power conferred on the court and the object or object sought to be achieved by the exercise of such power are clearly indicated in sections 397 and 398. Without prejudice to the generality of the powers conferred on the court under these sections, section 402 proceeds to indicate what type of orders the court could pass and clauses (a) to (g) are clearly illustrative and not exhaustive of the type of such orders. Clauses (a) and (g) indicate the widest amplitude of the court's power : under clause (a) the court's order may provide for the regulation of the conduct of the company's affairs in future and under clause (g) the court's order may provide for any other matter for which in the opinion of the court it is just and equitable that provision should be made. An examination of the aforesaid section clearly brings out two aspects, first, the very wide nature of the power conferred on the court, and, secondly, the object that is sought to be achieved by the exercise of such power with t

17. he result that the only limitation that could be impliedly read on the exercise of the power would be that nexus must exist between the order that may be passed thereunder the object sought to be achieved by these sections and beyond this limitation which arises by necessary implication it is difficult to read any other restriction or limitation on the exercise of the court's power. We are, therefore, unable to accept Mr. Sen's contention that the court's powers under section 398 read with section 402 should be read as subject to the other provision of the Act dealing with normal corporate management or that the court's orders and directions issued thereunder must be in consonance with the other provisions of the Act.

18. There is another aspect of sections 397, 398 and 402 which also shows that no such limitation as is sought to be suggested by Mr. Sen can be read on the court's power while acting under the sections. Section 397 clearly suggests that the court must come to the conclusion that the company's affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members of the company and that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up before any order could be passed by it. In other words, instead of destroying the corporate existence of a company the court has been enabled to continue its corporate existence by passing such orders as it thinks fit in order to achieve the objective of removing the oppression to any member or members of a company or to prevent the company's affairs from being conducted in a manner prejudicial to public interest. Similarly, sub-section (2) of section 398 clearly provides that where the court is of the opinion that the affairs of the company are being conducted in a manner suggested in sub-section (1), then, the court may, with a view to bringing to an end or preventing the matters complained of or apprehended, make such order as it thinks fit. In other words, sections 397 and 398 are intended to avoid winding up of the company if possible and keep it going while at the same time relieving the minority shareholders from acts of oppression and mismanagement or preventing its affairs being conducted in a manner prejudicial to public interest and if that be the objective the court must have power to interfere with the normal corporate management of the company. If under section 398 read with section 402 the court is required by its order to provide for the regulation of the conduct of the company's affairs in future because of oppression or mismanagement that has occurred during the course of normal corporate management, the court must have the power to supplant the entire corporate management, or rather corporate mismanagement by resorting to non-corporate management which may take the form of appointing an administrator or a special officer or a committee of advisers, etc., who could be in charge of the affairs of the company. If the court were to have no such power the very object of the section would be defeated. We must observe in fairness to Mr. Sen that it was not disputed by him that the powers of the court under section 398 read with section 402 of the Companies Act were wide enough to enable the court to appoint an administrator or a special officer or a committee of advisers for the future management of the company and thereby supplant completely the corporate management through the board of directors and it was conceded that it should be so for the simple reason that if as a result of corporate management that has been allowed to run for a certain period oppression or mismanagement has resulted, the court should have power to substitute the entire corporate management by some form of non-corporate management and while doing so the court cannot obviously have any regard or be subject to the other provisions dealing with the corporate form of management. But what was urged by Mr. Sen was that if while acting under section 398 read with section 402 the court thought fit to have recourse to a mode of corporate type of management, for example, if the court felt proper to have a board of directors for future management, then such corporate mode of management to be provide by the court should conform to other provisions of the Act dealing with corporate management. It is not possible to accept this contention of Mr. Sen for two reasons. In the first place, if the court's power under these sections is wide enough to have the corporate management supplanted wholly or completely, it is difficult to understand why the court should not have power to make a partial inroad or encroachment and have a truncated form of corporate management if the exigencies of the case required it, and any truncated form of corporate management can never conform to all the provisions dealing with corporate management. Secondly, it will all depend upon the facts and circumstances of each case as to how, in what manner and to what extent the court should allow the voice of the shareholders' directors on the board of directors to prevail over that of the other directors and we do not think that the court's powers in that behalf could in any manner be curbed. In our view, therefore, the position is clear that while acting under section 398 read with section 402 of the Companies Act the court has ample jurisdiction and very wide powers to pass such orders and give such direction as it thinks fit to achieve the object and there would be no limitation or restriction on such power that the same should be exercised subject to the other provisions of the Act dealing with normal corporate management or that such orders and directions should be in consonance with such provisions of the Act.

19. Considerable emphasis was laid by Mr. Sen on the fact that there was absence of a non-obstante clause in any of the relevant sections, viz., section 397, 398 and 402. His contention was that whenever the legislature intended that any of the provisions of the Act should be overridden and the legislature has clearly expressed its intention by using appropriate language, namely, by user of a non-obstante clause and since there was no non-obstante clause in section 397 or section 398 read with section 402 of the Act, the court's powers thereunder could not override the other provisions of the Act but would be subject to such provisions. In the first place, like a deeming provision which is sometimes made with a view to make explicit what is obvious, a non-obstante clause is also used at times ex abundanti cautela to make explicit what is obvious and, therefore, the absence of that clause would not necessarily lead to an inference suggested by Mr. Sen. Secondly, normally, such non-obstante clause becomes necessary when the enacted provisions or enacted clause is necessarily going in conflict with the other provisions of the Act and if there would be no such conflict, then there would be no necessity to use a non-obstante clause and well shall indicate presently that there is no necessary conflict between the provisions of section 397 and section 398 read with section 402 and the provisions of section 255 of the Act and, therefore, the non-obstante clause must not have been used while enacting the relevant sections. By the very nature the provisions contained in sections 397 and 398 read with section 402 have been enacted to meet emergent situations and extraordinary circumstances while section 255 contains provisions which would operate when the normal corporate management of a company is being run. Normally, the two sets of circumstances in which the two sets of provisions would operate be mutually exclusive. Therefore, there is no question of a conflict necessarily arising between these two provisions and this, in our view, sufficiently explains the absence of a non-obstante clause in sections 397, 398 and 402 of the Act. It is true that while conferring powers on the Central Government to prevent oppression or mismanagement under section 408 a non-obstante clause has been used. But, indisputably, there is substantial difference between the powers conferred upon the court under section 397 or 398 read with section 402 and the powers conferred upon the Central Government under section 408, inasmuch as on the powers of the court no restrictions or limitations of any kind have been put while restrictions and limitations have been placed on the Government's power to grant relief in cases of oppression and mismanagement. Even the manner in which, the extent to which and the period for which relief could be granted by the Government has been indicated and on account of this the provisions of section 408 would necessarily come in conflict with the other provisions of the Act dealing with corporate management including section 255 and, therefore, a non-obstante clause was used at the commencement of section 408. We are, therefore, inclined to take the view that the absence of a non-obstante clause in sections 397, 398 and 402 does not lead to the inference suggested by Mr. Sen. Moreover, as we have already indicated, there is neither a non-obstante clause contained in any of these sections nor is there language to indicate that the court's powers under these sections are to be exercised subject to any of the other provisions of the Act. In such a situation the ambit of the court's powers must be determined by the scheme of Part VI in which all the concerned sections appear, the language employed in these relevant sections and the object sought to be achieved by them and in this context it would be useful to refer to the rule of construction enunciated in Maxwell on the Interpretation of Statute, 12th edition, page 45, to which our attention was invited by Mr. Phadke. The relevant rule of construction has been stated thus :

'If the choice is between two interpretations, the narrower of which would fail to achieve the manifest purpose of the legislation, we should avoid a construction which would reduce the legislation to futility and should rather accept the bolder construction based on the view that Parliament would legislate only for the purpose of bringing about an effective result.'

20. The above passage is based on the judgment of Viscount Simon L.C. in the case of Nokes v. Doncaster Amalgamated Collieries Ltd. [1940] AC 1014 and, in our view, the rule could be applied to the instant case. Having regard to the admitted position that there is neither a non-obstante clause contained in any of these relevant sections nor is there anything to indicate that the court's powers under these sections are to be exercised subject to any of the other provisions of the Act, there is a choice available to the court and having regard to the manifest purpose of the legislation, it will be difficult to accept the contention of Mr. Sen that the narrower construction of these sections leading to curtailment of owners conferred upon the court should be adopted simply because the provisions do not contain any non-obstante clause; instead we are inclined to adopt a broader construction, inasmuch as such construction would have the effect of achieving the desired result.

21. It was next contended by Mr. Sen that article 95 as framed by the learned judge being in contravention of section 255 would be void under section 9(b) of the Act and this indicated that the court's powers under section 398 read with section 402 should be read as subject to the other provisions of the Act. According to him, under section 9(b) of the Act any provision contained in the memorandum, articles, agreement or resolution of a company, to the extent to which it is repugnant to the provisions of the Act, is declared to be void and relying upon this provision it was urged by Mr. Sen that he court's power to frame a new article 95 and substitute the same in place of the old one, since it contravened the provision of section 255, would be hit by section 9(b) and as such it should be held that the court had no power to introduce any such article. In our view, there are two aspects of section 9(b) which have a bearing on the contention; first, section 9 commences with a saving clause, viz., 'Save as otherwise expressly provided in the Act', and, secondly, under clause (b) thereof any provision contained in the memorandum, articles, etc., is declared to be void to the extent to which it is repugnant to the provisions of this Act. In our view, essentially it is a question of true and proper construction of the court's powers under section 397 or 398 read with section 402 and having regard to the scheme of part VI which includes all the sections dealing with management and administration of companies, the language employed in the relevant sections 397, 398 and 402 and the object that is sought to be achieved by these sections if once it is held that on a true construction the court has the widest possible jurisdiction and ample powers to pass such orders as it thinks fit to bring about the desired result in the management of the affairs of a company and that the exercise of such powers is not subject to the other provisions of the Act, there would be no question of the court not being able to reframe or insert a new article which would be in conflict with some provisions of the Act. We are inclined to take the view that sections 397, 398 and 402 by their very nature and contents indicate that they are intended to operate as express provision to the contrary and would be covered by the phrase 'Save as otherwise expressly provided in the Act'. In any case, as discussed earlier, the two sets of situations in which the provisions of section 255 and provisions of Section 397 or 398 read with section 402 would respectively operate are entirely different and mutually exclusive and as such there will be no repugnancy between any article that may be reframed or inserted by the court while passing orders under section 398 read with section 402 and other provisions of the Act including section 255 which deal with normal corporate management of a company. The contention that the reframing or insertion of a new article like article 95 as done in this case will be hit by section 9(b) cannot be accepted.

22. The only other aspect which was pressed by Mr. Sen was the one emerging from sub-section (2) of section 404. Sub-section (2) of section 404 provides that the alterations made by the court's order in the memorandum or articles of a company shall, in all respects, have the same effect as if they had been duly made by the company in accordance with the provisions of the Act. Great emphasis was laid by Mr. Sen upon the expression 'shall, in all respects, have the same effect' occurring in sub-section (2) and, according to Mr. Sen, this expression clearly suggested that the altered article should not be repugnant to any of the provision of the Act for otherwise such an article would be hit by the provisions of section 9(b) of the Act. In our view, the contention is without any substance. The expression 'shall, in all respects, have the same effect' is to be read in the light of section 36 of the Act which provides for effect of memorandum and articles. Section 36 provides that, subject to the provisions of the Act, the memorandum and articles shall, when registered, bind the company and the members thereof to the same extent as if they respectively had been signed by the company and by each member, and contained covenants on its and his part to observe all the provisions of the memorandum and of the articles. All that sub-section (2) of section 404, therefore, provides is that the altered article that may be introduce by reason of the court's order will have the same binding effect as contemplated by section 36 of the Act. In other words, the altered article will bind the company and the members thereof to the same extent as if it had been signed by the company and by each member and that it contained covenants on its and his part to observe all the provisions thereof. Besides, we have already rejected the contention that reframing or insertion of a new article by the court acting under section 398 read with section 402 will be hit by section 9(b) of the Act.

23. Having regard to the above discussion, we are clearly of the view that the court had jurisdiction to reconstitute the board in the manner done in this case and such board is not violative of section 255 of the Companies Act and we are also of the further view that the learned judge had ample powers to alter the original article 95 of respondent No. 1-company in the manner done by him while acting under section 398 read with section 402 of the Act.

24. Turning to the contention that the reconstituted board in the manner done by the learned judge was violative of section 408 of the Companies Act, it is obvious that the contention is ill-conceived. In our view, section 408, the contravention of which is complained of, is not applicable to the facts of the case, because in the instant case it is not the Central Government that has nominated its nominees as directors of respondent No. 1-company and hence no question of exceeding the limit of two directors as mentioned in the section can arise. The restrictions contemplated in the section are applicable when the Central Government exercises the power conferred on it thereunder whereas in the instant case powers have been exercised by the court under section 398 read with section 402 of the Act and as such it is difficult to accept the contention that the exercise of such power is contrary to the provisions of section 408 of the Act. In point of fact all that had happened was that the learned judge invited suggestions from counsel appearing for the Union of India to suggest names of three persons as nominees of the Central Government whom he wanted to appoint on the reconstituted board and after the names were mentioned to him he appointed those persons as Government nominees on the reconstituted board. The decision to reconstitute the board with three directors being the representatives of the shareholders, three directors being the representatives of the Central Government and five directors being appointed by the court was taken by the learned judge himself and after taking this decision he invited suggestion as to who should be the representatives of the respective parties and it is in this manner that the learned judge came to appoint the three nominees of the Central Government on the reconstituted board of respondent No. 1-company. The contention, therefore, that the reconstituted board is violative of section 408 is without any substance.

25. We may now briefly refer to the two decisions of the Supreme Court on which Mr. Sen relied. The first decision was the case of Hindustan Times Ltd. v. Their Workmen AIR 1963 SC 1392 and the other was the case of Dalmia Cement (Bharat) Ltd. v. Their Workmen : (1961)IILLJ130SC . In both the cases the court was concerned with the provisions of section 22 of the Delhi Shops and Establishments Act which fixed the maximum of sick leave or casual leave with wages to a period of 12 days and further declared that such leave shall not be accumulated and both the courts held that the relief in the matter of sick leave that had been granted by the industrial court to certain workers was in contravention of section 22 of that Act and hence was illegal and required to be set aside. In the former case, admittedly, a large number of workmen covered by the reference were governed by the provisions as regards leave in the Delhi Shops and Establishments Act and the Industrial Tribunal had fixed the period of sick leave at 15 days and had permitted accumulation, which was contrary to the express provision of section 22 of the said Act and the court took the view that it was clear that as regards those workmen to whom the Delhi Shops and Establishments Act, 1954, applied, the Tribunal had acted illegally in fixing the period of sick leave at 15 days and permitting accumulation and on that ground the court set aside that direction in the award and instead directed that the company should allow to the workmen to whom the Delhi Shops and Establishments Act applied, sickness or casual leave of a total of 12 days with full pay and allowances and that such leave shall not be accumulated. In the other case, the clerical staff in a certain establishment used to get 12 days sick leave and 12 days casual leave while the subordinate staff was getting only 12 days sick and casual leave in a year and in that situation the Tribunal accepted the workmen's contention that the discrimination was unjustified and directed that the workmen should also get sick and casual leave as enjoyed by the clerical staff. The court had held that the Tribunal could not disregard the peremptory direction of the legislature to fix a maximum of 12 days total leave for sickness or casual leave and that the fact that clerks were allowed sick and casual leave more than the maximum mentioned in section 22 did not entitle the Tribunal to disregard those provisions. The Tribunal having thus acted illegally in directing the grant to sick and casual leave more than the maximum fixed by section 22 the said directions was set aside by the court. Obviously, the Industrial Tribunal could not give directions which were contrary to the express provision of section 22 of the Delhi Shops and Establishments Act. In our view, these decisions would not be applicable to the facts of this case there the question is what is the amplitude of the powers of the court on a true interpretation of sections 397, 398 and 402 of the Companies Act when the court is called upon to meet emergent situations or extraordinary circumstances in the management of the affairs of a company where the normal corporate management has failed.

26. In the context of the above question Mr. Phadke invited out attention to three decisions having a bearing on the court's powers under section 402 of the Act, namely, Rajahmundry Electric Supply Corporation Ltd. v. Nageswara Rao [1956] 26 Comp Cas 91 (SC), Shanti Prasad Jain v. Kalinga Tubes Ltd. : AIR1962Ori202 and Richardson & Cruddas Ltd. v. Haridas Mundra [1959] 29 Comp Cas 549 (Cal). In the first two cases the question had arisen about the nature and scope of the court's power under section 397 read with section 402 (equivalent to section 153C of the old Act) while in the last case a question had arisen about the court's power under section 398 read with section 402. It will suffice if we refer to the last decision of the Calcutta High Court. In that case the question was whether the court had power to appoint an advisory board to assist the special officer who had been appointed by an earlier order under section 402 in a proceeding instituted under section 398 of the Companies Act and while dealing with the nature and scope of the powers conferred upon the court under section 402, Justice Mukharji, at page 550 of his judgment, has observed as follows :

'Now the powers of the court under section 402 of the Companies Act are wide. In fact, the court may make any order for the regulation of the conduct of the company's affairs upon such terms and conditions as may, in the opinion of the court, be just and equitable in all the circumstances of the case. Constitution of an advisory board by orders of court in a proper case of company management is, therefore, in my view within the competence of the court under section 402 of the Companies Act, 1956.' Further at page 550, the learned judge has observed as follows : 'Since the appointment of the special officer attempts are being made by him to put the company's administration on a sound basis. The corporation now makes the application to have a board of advisers to assist the special officer of this court in regulating and managing the company's affairs and its business. The pattern of the court's power of managing under section 402 has to be worked out. The section is an innovation in company administration by the court.'

27. We are in agreement with Justice Mukharji's view that section 402 is an innovation in company administration by the court and the pattern of the court's powers of managing thereunder has to be worked out but there is no doubt having regard to the scheme a Part VI in which all the sections staining to management and administration of the company's affairs occur, the language employed in sections 397, 398 and 402 and the object sought to be achieved by these sections, the court's powers to regulate the conduct of the company's affairs in future, must of necessity be of the widest amplitude and on a rue construction of section 398 read with section 402, we are clearly of the view that no limitation of the type suggested by Mr. Sen on the court's power could be placed and the same are not subject to section 255 or the other provisions of the Act dealing with normal corporate management. The court had ample powers to reconstitute the board in the manner done and to reframe article 95 in the manner done and neither the reconstituted board nor the reframed article 95 are violative of section 255 or section 408 of the Act. The orders passed and directions given by the learned judge cannot be said to be either illegal or without jurisdiction. The contention with regard to illegality of the impugned orders and directions, therefore, must fail.

28. During the course of his argument Mr. Sen submitted that the court could have achieved its objective by reconstituting the board of respondent No. 1-company in accordance with section 255 rather than by contravening the same and in that behalf he pointed out that 1/3rd of the total number of directors who are immune from retirement be rotation could have been appointed by the court and out of the remaining 2/3rds who are liable to retire by rotation half the number drawn from public life or profession could have been elected by the shareholders but subject to approval or confirmation by the court and the other half to be elected by shareholders without the approval of the court and if this had been done, there would have been no question of either altering the existing article 95 as done by the learned judge or reconstituting the board in contravention of the provisions of section 255. On a proper reading of section 255, in our view, the aforesaid submission of Mr. Sen cannot be accepted as it would be clear that the reconstitution of the board as suggested would also contravene the provisions of section 255. In the first place, under sub-section (2) of section 255 it has been provided that the remaining directors, meaning the directors who do not retire by rotation, have also to be appointed by the company in general meeting, subject, of course, to any regulations in the articles of the company in that behalf and as such if these were to be nominated by the court it would amount to interference with shareholders' right to have corporate management through directors appointed by them; secondly, even under sub-section (1) not less than 2/3rds of the total number of directors who are liable to retire by rotation, have also to be appointed by the company in general meeting, and if half of such 2/3rds directors were to be appointed subject to approval of the court, it would amount to placing restriction on the corporate right of the shareholders conferred upon them and as such a contravention of section 255 of the Act. It is thus clear that if the learned judge thought that giving a preponderating and effective majority to directors other than the directors representing the shareholders was necessary in the facts and circumstances of the case, the same could not be done without encroaching upon the corporate right of the shareholders to manage the company's affairs and, as stated above, this is within the competence of the court acting under section 398 read with section 402.

29. On the question of propriety of the impugned orders, it was urged by Mr. Sen that after removing the past directors, namely, respondents Nos. 2, 3 and 4 and even Mrs. Rama Jain, who was regarded as closely associated with S. P. Jain, the court ought not to have reconstituted the board in the manner done but should have accepted the suggestion made on behalf of the shareholders of the company that the reconstituted board should consist of nine persons, five persons of whom could be nominated by the Government and the four persons could be elected by the shareholders. His contention was that the reconstituted board in effect resulted in drastic curtailment of the shareholders' right to have a corporate management in accordance with section 255 of the Companies Act, that is to say, a drastic curtailment of their right to have the company managed by the elected directors. He also urged that such drastic curtailment of the shareholders right is to last for a period of seven years and such drastic curtailment was not warranted. He also complained that all this was done without hearing the shareholders and therefore, the impugned order should be set aside. Similar contention were urged by Mr. Thakkar on behalf of the original respondents Nos. 8 and 9 in their appeal. So far as the propriety of the impugned orders is concerned, it must be borne in mind that, after all, the section under which the court acted confers discretion upon the court to pass such orders as it thinks fit and it was in exercise of judicial discretion conferred upon the court that the learned judge reconstituted the board in the manner done by him and further directed that such reconstituted board should operate for a period of 7 years. Now, nothing has been pointed out which will indicate that discretion has been exercised by the learned judge on any wrong principle or on considerations which were not warranted. If, therefore, the discretion was judicially and properly exercised, it would be difficult to interfere with the discretion so exercised by him and on this ground alone the propriety of the order is not liable to be questioned. Apart from this, it cannot be forgotten that, after all, serious allegations of malversation, misfeasance and embezzlement of funds and several acts of mismanagement were made against the past directors and the family members of Shanti Prasad Jain. It is true that the learned judge has proceeded on the assumption that those allegations were to be regarded as not true because that was the attitude adopted by all the respondents at the time when the final orders were passed by him. But if regard be had to the serious allegations made it will be difficult to hold that the learned judge was wrong if he felt that none of the members of the Jain family who were connected with the prior mismanagement or who in the opinion of the learned judge were likely to influence the future management of the company should be associated with the management of the company in future. The board as reconstituted by him will have to be regarded as the proper board in the circumstances of the case. It is not as if the shareholders' voice has been completely eliminated from future management and the learned judge has while reconstituting the board appointed three persons who would be the representatives of the shareholders on the board of directors and their voice would be heard in the future management of the company, but all that the learned judge was interested in seeing was that a preponderating and effective majority was available to the other directors, that is, the directors other than the shareholders' directors as far as future management of the company was concerned and as such the board as reconstituted will have to be upheld as being in the interest of the company and public interest. So far as the period of seven years during which the shareholders' right has been curtailed is concerned, we have already adverted to the facts that criminal proceedings were pending against respondent No. 2 and his co-accused and also taxation proceedings under the Income-tax Act and other taxation laws were pending and if the learned judge felt that these proceeding will take quite some time before the management could be handed over back to the shareholders' directors and that in the meanwhile interests of employees of the company should be ensured, then even the period of seven years cannot be regarded as any unreasonable period. In our view, therefore, on merits, the propriety of the order is not capable of being challenged or interfered with by this court in appeal. So far as original respondents Nos. 8 and 10 (being the appellants in Appeal No. 153 of 1969) are concerned, the position is still very clear. As eo nomine parties to the original proceedings no adverse order had been passed against them; on the contrary they have been retained on the reconstituted board and as such they can have no grievance. So far as the shareholders' right to manage the company in accordance with section 255 is concerned, we have already indicated that they had submitted to the orders of court as regards future management of the company was concerned and future management would include aspects like reconstitution of the board, its personnel, duration, manner in which members of the board should retire by rotation, etc. On all these aspects respondents Nos. 8 and 10 could be said to have submitted to the orders of the court. Moreover, we have already indicated above that they were the parties to and had actually voted in favour of the resolution passed by the board at its meeting held on August 28, 1969, at 10 a.m. to the effect that respondent No. 1-company should submit to the orders of the court. In this view of the matter, we feel that Appeals Nos. 154/69 and 153/69 deserve to be dismissed with costs. We accordingly pass the following order :

Appeal No. 154/69 is hereby dismissed with costs. Two counsel certified. Costs of the appeal of the Union of India be paid by the shareholders of the company.

30. The costs of the company represented by the board of directors who were allowed to intervene should come out of the assets of the company.

31. Attorneys for respondent No. 1 in appeal (Union of India) to withdraw the sum of Rs. 500 deposited by the appellants towards the costs.

32. Appeal No. 153/69 is hereby dismissed with costs. Costs of respondents Nos. 1 and 2 in appeal (Union of India and Bennet Coleman and Co. Ltd.) should be paid by the appellants (original respondents Nos. 8 and 10).

33. Attorneys for respondents Nos. 1 and 2 in appeal to withdraw the sums deposited by the appellants towards costs.

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