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N.V. Vakharia Vs. the Supreme General Film Exchange Co., Ltd - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtMumbai
Decided On
Case NumberO.C.J. Suit No. 102 of 1946
Judge
Reported inAIR1948Bom301; (1948)50BOMLR140
AppellantN.V. Vakharia
RespondentThe Supreme General Film Exchange Co., Ltd
DispositionApplication rejected
Excerpt:
indian companies act (vii of 1913), section 130 - company-director-right to inspect account book of the company-exercise of right through agent.;section 130 of the indian companies act, 1918, entitles the director of a company to take inspection of its accounts not only personally but also through an agent, provided there is no reasonable objection to the person chosen as an agent and the agent undertakes not. to utilise the information obtained by him for any purpose other than the purpose of his principal.;bevan v. webb [1901] 2 ch. 59, webb v. keep [1909] 1 ch. 561, and dodd v. amalgamated marine workers union [1924] 1 ch. 116 applied,;any provision in the articles of association of a company contrary to the above is null and void. - - of course this decision of the court of appeal..........circumstances that the present suit is filed with the sole object of enforcing the plaintiff's right to inspection through a constituted attorney.2. mr. banaji for the plaintiff has relied upon the provisions section 130 of the indian companies act for the purpose of establishing his right to inspection of the books of account; and he has not pressed his clients' rights to inspection of other papers and documents of the company. i shall therefore proceed to deal with this suit on the basis of a suit merely for a declaration that the plaintiff is entitled to inspection of the books of account through a skilled agent.3. section 130(2) of the indian companies act is in these terms:the books of account shall be kept at the registered office of the company or at such other place as the.....
Judgment:

Tendolkar, J.

1. This is a suit filed by the plaintiff for a declaration that he is entitled to take inspection of the books of account and other papers of the first defendant company through Mr. U.S. Kaushik or some other skilled agent appointed by him. The plaintiff is a director of the first defendant company and defendants Nos. 2, 3 and 4 are his co-directors. The plaintiff gave a power-of-attorney to one Mr. Kaushik, an accountant, to attend at the registered office of the first defendant company and take inspection of the books of account and other documents of the company. The plaintiff by his letter dated December 16, 1945, informed the company that he had given such a power to Mr. Kaushik and sent a copy thereof to the company with a request that the said Mr. Kaushik should be allowed to take inspection. Mr. Kaushik attended at the office of the company on December 27, 1943, and applied for inspection; but defendant No. 2 declined to give inspection stating that the plaintiff could take inspection only personally. The company by their attorneys' letter dated January 2, 1946, addressed to Mr. Kaushik informed him that he was not entitled to take inspection and that only a director was entitled to such inspection and not his constituted attorney. By his attorneys' reply dated January 5, 1946, Mr. Kaushik pointed out that that was not the correct position in law and further gave an assurance to the company that the information which he would gather on such inspection would not be disclosed by him to any one other than the plaintiff. He therefore requested the company to reconsider the position. A reminder was sent on January 12, 1946, and by their letter, dated January 14, 1946, the company stated that they had nothing to add to their earlier letter. It is under these circumstances that the present suit is filed with the sole object of enforcing the plaintiff's right to inspection through a constituted attorney.

2. Mr. Banaji for the plaintiff has relied upon the provisions Section 130 of the Indian Companies Act for the purpose of establishing his right to inspection of the books of account; and he has not pressed his clients' rights to inspection of other papers and documents of the company. I shall therefore proceed to deal with this suit on the basis of a suit merely for a declaration that the plaintiff is entitled to inspection of the books of account through a skilled agent.

3. Section 130(2) of the Indian Companies Act is in these terms:

The books of account shall be kept at the registered office of the company or at such other place as the directors think fit, and shall be open to inspection by the directors during business hours.

It is clear therefore that every director has a right to inspect the books. The only question that I have been called upon to determine is whether this right must be exercised by a director personally or whether he can appoint an agent to take inspection on his behalf. So far as I am aware the point has not been decided either in England or in India with regard to the right of a director to take inspection. Of course the point has been decided in relation to the law of partnership where a partner has a similar right of inspection of the books of account of his firm. The leading case on the subject is the decision of the Court of Appeal in the case of Bevan v. Webb [1901] 2 Ch. 59. In that case the articles of the partnership inter alia contained a provision that each of the partners should have free access to and liberty to examine and copy or take extracts from any of the books and writing of the partnership at all reasonable times. Apart from such articles a partner was under Section 24(9) of the Partnership Act entitled to take inspection of the books of account, The question arose whether this right of inspection must be exercised by the partner personally or whether it could be exercised by him through an agent. The Court of Appeal held that the right could be exercised by him through an agent, provided there was no reasonable objection to the person appointed as agent and the agent undertook not to make use of the information which he should thus acquire except for the purpose of confidentially advising his principal. In considering whether the right of inspection conferred on the partner was an individual right or could be exercised through an agent Lord Justice Collins observed as follows (p. 68):

If the object is to enable him effectually make use of the right secured to him, and if that effectual user involves his using some means to that end-for instance, if he is a near sighted man, the use of spectacles, or if he cannot see at all and he must make use of another's eyes instead of his own, or if being empowered to take copies of documents he cannot write, having lost his hands, and must use the hands of some one else-I should say that prima facie the permission to do a thing carries with it the right to use the instrument necessary to prevent that right so conferred from being rendered ineffective, unless there is anything in the nature of the right or in the relations of the parties from which we are bound to infer that the right must be in some way limited.

Then his Lordship proceeded to point out (p. 70):

.there is no suggestion of any personal objection to the gentleman named by the plaintiffs to make the inspection on their behalf, and the Court would, of course, be prepared to impose a fetter upon the user by him of the information which he may acquire in that way.

Of course this decision of the Court of Appeal has been followed in subsequent decisions and is still good law with regard to the rights of a partner.

4. In the case of Norey v. Keep [1909] 1 Ch. 561 this decision was followed and applied to the case of a Trade Union where the rules of the registered union provided that its books of accounts and list of members should be open to inspection to all members. Parker J. in delivering judgment referred to the case of Bevan v. Webb, and observed as follows (p. 564):

The question raised was whether the right was a personal one, or whether it could be exercised on behalf of a partner by an agent appointed by him for the purpose, and it was held that the right was one which might be exercised not only personally, but by an agent under proper conditions.

The learned Judge proceeded to point out that if he were to hold that the right of inspection was only a personal right he would be defeating the object with which the right was given. Mr. Laud has picked out the words 'under proper conditions' from this judgment and wants me to hold that no inspection by an agent can be allowed when the principal is capable of taking effective inspection himself, and it is only when the principal is either physically unfit or intellectually not qualified to take effective inspection that inspection may be allowed by an agent. I am not prepared to put that interpretation on the passage which I have quoted above from the judgment of Mr. Justice Parker. The learned Judge was there dealing with the test laid down in the case of Sevan v. Webb and the only qualifications laid down in that case were the two which I have set out above. That was the view taken by the Appeal Court in Dodd v. Amalgamated Marine Workers' Union [1924] 1 Ch. 116.This was a case under the Trade Unions Act where a member sought to employ an accountant to exercise the statutory right to inspect the accounts of the Union. Warrington L.J. referred to the words 'under proper conditions' in the judgment of Mr. Justice Parkar in Norey v. Keep and stated (p. 121):

.those conditions...are that the agent should not be objectionable to the Union on personal grounds, and that he should give an undertaking not to disclose the information obtained except to his client.

I do not think, therefore, that the argument that a person can exercise his right of inspection through his agent only if he is unable effectively to take inspection has any substance in it. Of course it may be that in a proper case it is open to the party opposing inspection to show that the person seeking inspection is guided by improper motives, and if he succeeded in doing so the Court may refuse inspection through an agent. The principles that apply to the right of inspection of a partner arc to my mind equally applicable to the right of inspection conferred on a director under Section 130(2) of the Indian Companies Act. Steeble in his Company Law and Precedents, 3rd edn. Vol. II, at p. 909 states, 'a person entitled to inspect is prima facie entitled to employ an agent or expert to inspect at his instance.' The authorities relied upon for this proposition are the cases of Beavan v. Webb, Norey v. Keep, and Dodd v. Amalgamated Marine Workers' Union, which I have referred to earlier, I think the ratio of these cases is equally applicable to the right of a director to inspect accounts, and I, therefore, hold that under Section 130. a director is entitled to take inspection of accounts not only personally but through an agent, provided there is no reasonable objection to the person chosen as agent and the agent undertakes not to utilise the information obtained by him for any purpose other than the purpose of his principal. In this case it has not been suggested in correspondence that there is any objection to the individual chosen as agent; and as I have pointed out above the agent so chosen did by his attorneys' letter, dated January 5, 1946, give an assurance that he would not use the information obtained by him or disclose it to any one other than his principal.

5. But it is further contended by Mr. Laud that even if that may be the correct position under Section 130 of the Companies Act, under the articles of this company there is a specific provision that inspection shall not be taken by a director by employing an agent. He relies on Clause 6 of the articles of association of the company, the material portion of which runs as follows:

No shareholder or other person shall be entitled...to inspect...the books of account of the company without the permission of the directors of the company.

The director's right of inspection which is statutory is referred to in Clause 139 of the articles of association which provides

The books of account shall be kept at the office of the company or at such other place as the directors determine and shall always be open to inspection of the directors.' Now, I cannot read Clause 6 of the articles of association as relating to the right of a director to take inspection at all, because such right being a statutory right cannot be subject to any permission of the directors of the company. Clause 6 of the articles has therefore no relevance to the case before me. It is not Mr. Kaushik who is seeking the right of inspection before me. It is a director of the company. Quite obviously, therefore, Clause 6 has no application whatever to the case. But assuming that Article 6.of the articles of association was intended to prevent a director from taking inspection through an agent, I would have no hesitation in holding that it was ultra vires of the company because the company would then be restricting a statutory right conferred upon a director by Section 130 of the Act, and that right is not subject to the articles of the company unlike the right of a partne to take inspection which is subject to the contract between the partners Under Section 12 of the Partnership Act. Therefore, in any event, the plaintiff's right to obtain inspection through an agent is entirely unaffected by the articles of the company.

6. It was sought to be urged before me that the application for inspection through an agent is mala fide in this case. As I have stated above were I satisfied that the plaintiff desires inspection for some improper motive I may have been inclined not to grant him such inspection, but there is no averment in the written statement that the plaintiff is actuated by improper motives; and I cannot allow such an allegation to be made at the hearing. That being so, I am of the opinion that the plaintiff is entitled to the relief he claims.

7. There will be accordingly a declaration in terms of prayers (a) and (b) of the plaint but restricted to the books of account only and subject further to the qualification that there is no reasonable objection to the person chosen as the agent. Defendants to pay the costs of the plaintiff. Mr. Laud applies that the costs should be quantified. As I consider the conduct of the defendants wholly justified I reject the application Order accordingly.


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