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Jaldu Anantha Raghurama Arya Vs. East Coast Transport and Shipping Co. (Private) Ltd., Masullpatam and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtAndhra Pradesh High Court
Decided On
Case NumberCompany Appln. No. 78 of 1960 in Original Petn. No. 11 of 1956
Judge
Reported inAIR1963AP152
ActsCompanies Act, 1956 - Sections 291, 318, 319 and 320
AppellantJaldu Anantha Raghurama Arya
RespondentEast Coast Transport and Shipping Co. (Private) Ltd., Masullpatam and ors.
Appellant AdvocateM. Seshagiri Rao and ;M. Sitarama Rao, Advs.;O. Chinnappa Reddy, Adv.
Respondent AdvocateOfficial Liquidator in person
DispositionApplication dismissed
Excerpt:
.....not binding on official liquidator of the company. - - at no time did the claimant complain that there were wrong entries except in the present claim made after the lapse of several..........of masulipatam and his family. this family may for the sake of brevity, be referred to as the presingu family and is now represented by one someswara rao, who is the applicant in this application.3. on its formation, the company entered into an agreement with sri p.v. rangayya as a consequent at which his business of stevedoring was taken over by the company as a going concern. in this application, we are not concerned with the further history of the company. it is sufficient to state that on an application filed by one of its shareholders, in o.p. no. 11 of 1956 the company was wound up by an/order dated february 6, 1957. subsequently the assets of the company were sold in public auction and were purchased by one m.v. sastri, who will hereafter be referred !o as the respondent.4......
Judgment:
ORDER

Satyanarayana Raju, J.

1. This is an application under Section 460 (6) of the Companies Act (1 of 1956) for setting aside the order of the Official liquidator, dated 35th July, 1960, rejecting claim No. 34 filed by the applicant.

2. The East Coast Transport and Shipping Company, Limited, Masulipatam (hereinafter referred to as 'the Company') was incorporated under the provisions of the Indian Companies Act in or about the year 1937. The main activity of the Company consisted in conducting the business of clearing and forwarding agents for loading goods in Masulipatam port into ships, which anchor at a distance from the shore, through country craft owned by it. Among the properties acquired by the company on its formation were the rights, interests and the benefits of all existing contracts then possessed by one P.V. Rangayya of Masulipatam and his family. This family may for the sake of brevity, be referred to as the Presingu family and is now represented by one Someswara Rao, who is the applicant in this application.

3. On its formation, the company entered into an agreement with Sri P.V. Rangayya as a consequent at which his business of stevedoring was taken over by the company as a going concern. In this application, we are not concerned with the further history of the company. It is sufficient to state that on an application filed by one of its shareholders, in O.P. No. 11 of 1956 the company was wound up by an/order dated February 6, 1957. Subsequently the assets of the Company were sold in public auction and were purchased by one M.V. Sastri, who will hereafter be referred !o as the respondent.

4. Presingu Someswara Rao, a former managing Director of the Company, filed claim No. 34 before the Official Liquidator for recovery of a sum of Rs. 1,28,000/-. It was alleged by him that the company had in and by resolution No. 3 dated 20th February, 1950 elected him as its Managing Director upto March 31, 1953. That resolution reads as follows:--

'From this day upto 31-3-1953 Sri Presingu Someswara Rao was elected as Managing Director. It is resolved that a sum of Rs. 2,000/- per year be paid towards Managing Director's remuneration. At the end of each year 10% of the net profits should be paid to the Presingu family through Sri Presingu Someswara Rao.'

5. That part of the resolution which directed the Company to pay each year 10 per cent of the net profits to the Presingu family through Someswara Rao virtually remained a dead letter by reason of the fact that the company had not earned any profits.

6. The annual general body meeting of the Company passed the following resolution on April, 27, 1952:

'(5) Regarding the remuneration resolved to be paid to the Presingu family in para 3 of the resolution passed at the share-holder's meeting on 20-3-50, as the members of the Presingu family have been working in the company and contributing towards the property of the company the resolution to pay the aforesaid remuneration to them is again approved.'

7. The claimant says that by virtue of these resolutions the Presingu family became entitled to 10 per cent of the profits and that, in fact, the resolution was implemented by the Company by the payment of certain amounts to the Presingu family. The claim now made relates to the balance of the 'remuneration' which the family is entitled to for the years 1953-54 and 1954-55 as also the subsequent years 1955-56 and 1956-57.

8. It may be mentioned here that Presingu Someswara Rao, the former managing Director of the Company, submitted his resignation on June 20, 1955. Admittedly there was no demand made by him for the payment of the remuneration on the basis of the above resolution tin the present claim was made before the Official Liquidator.

9. It was contended before the Official Liquidator, that the family was entitled to this remuneration, totalling Rs. 1,00,000/- and that the net profits ought to be determined before the Income-tax payable by the company was deducted. This contention did not find favour with the Official Liquidator who held that profits should be ascertained after taking into account the income-tax liability.

10. It is contended on behalf of the respondent (auction-purchaser) that either the Board of Directors or the general body of the Company cannot in law grant or pay any remuneration to the Presingu family, But reliance is placed by the learned counsel for the applicant on Section 291 of the Indian Companies Act which reads:

'(1) Subject to the provisions of this Act, the Board of Directors of a company shall be entitled to exercise all such powers, and to do all such acts and things, as the company is authorised to exercise and do.

Provided that the Board shall not exercise any power or to do any act or thing which is directed or required, whether by this or any other Act or by the Memorandum of articles of the company or otherwise, to be exercised or done by the Company in general meeting.

Provided further that in exercising any such power or doing any such act or thing, the Board shall be subject to the provisions contained in that behalf in this or any other Act, or in the memorandum of articles of the company, or in any regulations not inconsistent therewith and duly made thereunder, including regulations made by the Company in general meeting.'

11. The basis on which the claim for remuneration is sought to be justified is that at the inception of the company the properties belonging to the Presingu family were acquired by the company, that one half of the total share capital was subscribed by the Presingu family, the other half having been subscribed by other individuals; and that ever since the formation of the company, the Managing Director was a member of the Presingu family and that the remuneration was granted in recognition of the services rendered by the members of the family.

12. In the first place, there is no precise specification of the members of the family who would be entitled to this remuneration. The expression 'presingu family' is vague and the resolution itself does not define which exactly the members of that family are. A genealogical table has been filed showing the descendants of one Presingu Duryodhanudu and it is said that the surviving members of this family are entitled to this remuneration.

It may be stated at the outset that in the absence of the specification of the members of the family in the resolution itself, it would not be permissible for this Court to make an investigation and find out who the beneficiaries are to be. That apart, it does not appear that the resolution to pay remuneration to the members of the family, who have been instrumental in the formation of the company, would be justified either by the provisions of Section 291 or any other provisions of the Companies Act. Section 291, which defines the Board's powers and enume rates the restrictions on those powers, itself circumscribes the scope of the power by stating that in exercising any such powers the Board shall act subject to the provisions contained in that behalf in this or any other Act or in the Memorandum of articles of association or regulations not inconsistent therewith.

13. In Chapter II the Companies Act makes provision for compensation for loss of office to managing or whole-time Directors or Directors who were managers. Section 318 provides that compensation for loss of office is nor permissible except to the managing or whole time Directors or Directors who were managers. Section 319 provides for payment to a Director for loss of office or property. Section 320 provides for payment to a Director for loss of office, etc., in connection with the transfer of shares. Nowhere in the Companies Act do we find any provision for the payment of remuneration to persons other than those provided under the aforesaid section. I am, therefore, not prepared to hold that the members of the Presingu family are entitled to be paid any remuneration.

14. There remain two other items in respect of which the applicant made a claim, and they are items 2 and 3 which comprise sums of Rs. 16,000/- and Rs. 12,000/- respectively. It is stated that these amounts represent the profits realised by Maiden and Company of which the present claimant was the Manager and that the same had been added in the books of the Company in liquidation. These alleged entries were made during the years 1951-52 and 1952-53. During those years, the present claimant was the Managing Director of the company. The balance sheets of the company were prepared under his direction and the books of account maintained by the company were audited by the auditors of the Company. At no time did the claimant complain that there were wrong entries except in the present claim made after the lapse of several years. It was rightly pointed out by the Liquidator that the claimant had not substantiated his claim by the production of any oral or documentary evidence and that he had nor even examined himself In support of the claim.

15. In these circumstances, the rejection of the applicant's claim under the aforesaid three categories is,in my opinion, correct and needs no interference, this application is, therefore, dismissed, with the taxed costs of the auction-purchaser.


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