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Gur Prasad Kapoor and ors. Vs. L. Rameshwar Prasad and ors. - Court Judgment

LegalCrystal Citation
SubjectCompanies
CourtAllahabad
Decided On
Reported inAIR1933All344
AppellantGur Prasad Kapoor and ors.
RespondentL. Rameshwar Prasad and ors.
Excerpt:
- - , which is clearly applicable, gives a very wide power to the court to give protection against injury to the plaintiffs during the pendency of the suit. the circumstance that he failed to secure his election at the general meeting merely implied that he was not elected for a longer term. the words 'until otherwise determined by a general meeting' clearly imply that it was open to the share-holders to alter the number of directors mentioned in article 98. if the share-holders do alter it their action is in pursuance of article 98 and not otherwise......singh, plaintiff 8), and mr. sri kishen. khanna. sometime afterwards, but before the next general meeting of the shareholders, sri kishen khanna resigned. on 21st march 1931, l. harcharan das, defendant 2, was elected by the board of directors in place of sri kishen khanna. the general meeting of the, shareholders took place at 18th april 1931, when the appointment of gur prasad, ranjit singh and harcharan das was brought up for confirmation, gur prasad and harcharan das were duly elected by the share-holders, but ranjit singh was not. it should be mentioned at this stage that the election of a person by directors as a director entitles him to hold office till the next general meet-ting, while if he' is elected at the ge-neral meeting of the share-holders, he is entitled to hold.....
Judgment:

Niamatullah, J.

1.This is an appeal from an order of temporary injunction passed by the learned Additional District Judge, Cawnpore, in a pending suit brought by the plaintiff-respondents for certain reliefs to be presently mentioned. The suit was instituted by eight plaintiffs for themselves and for plaintiff 9, a limited liability company styled as Ramchand Gurshahiman Cotton Mills Co., Ltd., registered under the Companies Act, of which the first eight plaintiffs claimed to be the directors. Eight persons were impleaded as defendants. B. Panna Lal Burman, defendant 8, was the general manager of the company; but the plaintiffs allege that he was lawfully dismissed in July 1932. Defendants 1 to 7 claimed to be the directors of the company-a fact which is denied by the plaintiffs, according to whom most of the defendants had either never been appointed directors by any lawful authority or had ceased to be such prior to the institution of the suit. The plaintiffs' case, as set forth in the plaint, is that the defendants have practically excluded the plaintiffs from participation in the management of the affairs of the company, the actual control of the business being with defendant 8, who is in collusion with defendants 1 to 7. The reliefs prayed for in the plaint include one for a declaration that plaintiffs 1 to 7 are directors of the company. The position of plaintiff 8 as a lawfully appointed director was never disputed by the defendants but the plaintiffs pray for a declaration that plaintiff 8 is also the chairman of the board of directors. A further declaration is sought to the effect that defendants 1 to 6 are not the directors of the company and that defendant 8 is no longer the general manager thereof.

2. The suit was instituted on 18th August 1932. On 3rd September 1932, the plaintiffs presented an application asking for a temporary injunction in somewhat indefinite terms. In substance they prayed for an injunction directing all the defendants to refrain from interfering with the plaintiffs' management of the affairs of the company, defendant 8 to refrain from acting as the general manager of the company and Gur Prasad and defendant 1, to refrain from acting as the chairman of the board of directors, a position which he claimed as against plaintiff 8. The application was supported by an affidavit, and the parties produced a number of documents which enable the learned Additional District Judge to arrive at findings on certain questions haying an important bearing on the plaintiffs' application for injunction. That plaintiffs 1 to 7 are directors of the company is denied by the defendants. If the determination of the question had depended upon facts seriously controverted, it would not have been desirable for the Court to prejudge the case; but facts, either admitted or proved by unimpeachable evidence, enabled the learned Judge to determine the question at an early stage of the case. We were addressed on that question at length and reference was made to facts admitted or sufficiently proved, and weare in a position to safely pronounce an opinion on the question already referred to for the purposes of these proceedings.

3. If plaintiffs 1 to 7 arc found to be-the directors of the company but are being excluded from participation in the management of the affairs of the company by the defendants, it is clear that there is a continuing invasion of the plaintiffs' rights, and the case is a fit one in which the Court should grant a temporary injunction to prevent what is undoubtedly an injury to the plaintiffs' rights. It has not been argued by the learned advocate for the defendants that the Court has no power, in the circumstances of the case, to grant a temporary injunction. Order 39, Rule 2, Civil P.C., which is clearly applicable, gives a very wide power to the Court to give protection against injury to the plaintiffs during the pendency of the suit. Under the Articles of Association of the company the maximum number of directors should be nine, with a minimum of five. It is common ground that prior to 29th March 1930 the following seven persons were the directors of the company : (1). R.B. Vikramajit Singh, plaintiff 8. (2) B. Dwarka Prasad Singh, defendant 6. (3). B. Ram Gopal, defendant 7. (4). B. Parsotam Das, since deceased. (5), L. Ram Kumar, plaintiff 6. (6). B. Behari Lal, defendant 5. (7). B. Shri Ram Khanna, since resigned.

4. Parsotam Das died some time before 29th March 1930, so that there were only six directors left, and three more could be appointed. Three new directors were elected by the board of directors on that date. They were, Mr. Gur Prasad Kapoor, defendant 1, Mr. Ranjit Singh, plaintiff 2 (who is the son of R.B. Vikramajit Singh, plaintiff 8), and Mr. Sri Kishen. Khanna. Sometime afterwards, but before the next general meeting of the shareholders, Sri Kishen Khanna resigned. On 21st March 1931, L. Harcharan Das, defendant 2, was elected by the board of directors in place of Sri Kishen Khanna. The general meeting of the, shareholders took place at 18th April 1931, when the appointment of Gur Prasad, Ranjit Singh and Harcharan Das was brought up for confirmation, Gur Prasad and Harcharan Das were duly elected by the share-holders, but Ranjit Singh was not. It should be mentioned at this stage that the election of a person by directors as a director entitles him to hold office till the next general meet-ting, while if he' is elected at the ge-neral meeting of the share-holders, he is entitled to hold office for three years. Sri Ram Khanna, who was an old director, resigned, sometime before 6th February 1932, on which date the board of directors elected Rameshwar Prasad Singh Bagla, plaintiff 1, and Ranjit Singh, plaintiff 2, to fill the two vacancies which existed; one in consequence of resignation of Sri Ram Khanna, and the other in consequence of Ranjit Singh not having been elected at the general meeting of the shareholders. There was some controversy as regards the legality of this election. It was urged as against Ranjit Singh that he, having been rejected by the share-holders was not eligible for re-election by the directors. Nothing definite was urged as against Rameshwar Prasad Bagla. We do not think that any flaw exists in the election of Ranjit Singh by the directors on 6th February 1932 in view of the provisions of Rule 100 of the Articles of Association. The circumstance that he failed to secure his election at the general meeting merely implied that he was not elected for a longer term. It did not, in any way, detract from the authority of the directors to co-opt him for the limited time which would expire on the date of the next general meeting.

5. An extraordinary general meeting of the share-holders was convened on 14th February 1932. One of the resolutions moved at that meeting was that the number of directors be increased to sixteen. The resolution was carried, and plaintiffs 1 to 5 were elected directors for a full term of three years. It is not disputed by the plaintiffs that this resolution was not a 'special resolution' within the meaning of Section 81, Companies Act. A special resolution to be valid must be confirmed at a subsequent meeting. Section 20, Companies Act, lays down that no alteration in the Articles of Association can be made except is pursuance of a special resolution. The learned advocate for the appellants contended that, in so far as the increase in the number of directors involved an alteration of Article 98 of the Articles of Association, it should have been sanctioned by a special resolution and that, in the absence of such a resolution, the number of directors could not be increased. Article 98 is worded as follows:

Until otherwise determined by a general meeting, the number of directors shall not be less than five, nor more than nine.

6. Having carefully considered the argument addressed to us on behalf of the appellants, I think that merely increasing the number of directors does not involve any alteration in Article 98, which itself gives latitude to the shareholders in that respect. The words 'Until otherwise determined by a general meeting' clearly imply that it was open to the share-holders to alter the number of directors mentioned in Article 98. If the share-holders do alter it their action is in pursuance of Article 98 and not otherwise. If the contention put forward on behalf of the appellants be accepted, the article will have to be read as if the aforesaid words were not part of it. No clear authority was quoted in support of the view urged on one side or the other. The cases that were referred to in course of the argument are those in. which the question did not directly arise and no opinion was definitely expressed. It is therefore unnecessary to, examine them in this connexion. In my opinion the right construction of the article is, as already indicated, that it is open to the share-holders to vary the number of directors therein referred to without in any way necessitating an alteration in the article itself. In the view of the case I have taken, it must be held that plaintiffs 1 and 2, who had been previously elected by the directors at their meeting of 6th February 1932, and plaintiffs 3 to 5 were validly elected for the normal term at the general meeting of share-holders held on 14th February 1932. The learned Additional District Judge has taken a different view on this part of the case, but the above conclusion affords an additional ground in support of his order. Another crucial point in the case relates to what transpired on 25th June 1932, and 22nd April 1932. At a meeting of directors, held on the former date it was resolved that R.B. Vikramajit Singh, plaintiff 8. be authorised by a power of attorney to be executed by two of the directors named in the resolution,

to appoint at his discretion, remove, or suspend agents, secretaries, managers, officers, clerks and servants of the company.

7. Such power of attorney was, in fact, executed, and Mr. Vikramajit Singh passed an order dismissing B. Panna Lal Burman, defendant 8, who was the general manager. On 22nd July 1932, the directors themselves passed a resolution terminating the services of B. Panna Lal Burman as general manager. The plaintiffs' case is that defendant 8 ceased to be the general manager on the order of dismissal passed by Mr. Vikramajit Singh and, at any rate, on 22nd July 1932, when the directors resolved to that effect. As regards the resolution of the directors passed on 22nd July 1932, dismissing defendant 8, it is pointed out by the defendants that no notice of the meeting was given to some of the directors, particularly defendants 1 and 2. It is not necessary to consider the legality or otherwise of the directors' resolution of 22nd July 1932, in reference to defendant 8, as their resolution of 25th June 1932, authorising two of their numbers to execute a power of attorney in favour of R.B. Vikramajit Singh, authorising him to dismiss servants of the company, coupled with what happened in pursuance thereof is enough to make out the plaintiffs' case as against defendant 8. It cannot be disputed that the board of directors had power to terminate the services of any of the company's servants. It is equally undeniable that they could delegate their power in this respect to one of themselves acting as their agent. There is no flaw in the argument addressed to-us on behalf of the plaintiffs, namely, that the two directors who executed a power of attorney, had the power to do so and that R.B. Vikramajit Singh became vested with the authority which was conferred on him by the power of attorney. This being so, his order terminating the services of defendant 8 as general manager is un- questionable, and defendant 8 ceased in law to be the general manager of the company from the' date of that order. It is, of course, true that some other persons, who were either directors or claimed to be such, took a different view and continued to recognize defendant 8 as the general manager, who has had the control of the affairs of the company up to date.

8. We are, however concerned, with the legal aspect of the matter, and, as already indicated, defendant 8 was lawfully dismissed by the order of Vikramajit Singh. (After considering the other minor points in this case, the judgment proceeded). The terms in which the injunction has been prayed for by the plaintiffs are somewhat vague and indefinite. The learned Judge has granted an injunction in terms of the application. I think he meant to pass the same order substantially as I think should be passed. In my opinion the injunction should be in precise terms. Accordingly I direct the defendants to refrain from interfering with the discharge by plaintiffs 1 to 6 and 8 of their duties, and with the exercise by them of their powers, as directors of the Ramchand Gurshaimal Cotton Mills Co., Ltd; I direct B. Panna Lal Burman, defendant 8, to refrain from performing the functions of the general manager. I further direct the defendants to refrain from interfering with R.B. Vikramajit Singh, plaintiff 8, in performing the functions of the chairman of the board of directors. B. Gur Prasad, defendant 1, is directed to refrain from acting as chairman of the board of directors. Subject to the directions set out above, I confirm the order appealed from and dismiss this appeal with costs.

Bennet, J.

9. I agree with the judgment of my learned brother and desire to add a few words on the argument of the appellants on Article 98 of the Articles of Association. The appellants correctly pointed out that, under Section 20, Companies Act, any alteration or addition to the Articles of Association must be by a special resolution. The chief points about a special resolution are that, under. Section 81, Companies Act, a special resolution must be passed by a majority of not less than three-fourths of the members entitled to vote at a general meeting, and the special resolution must be confirmed by a majority of the members entitled to vote at a subsequent general meeting under certain conditions of notice. The Act draws a distinction between the matters which are to be dealt with by special resolutions and the ordinary matters. The matters which are to be dealt with by special resolutions are those which relate to the constitution of the company, that is, its Articles of Association. The question before us is whether there was any alteration or addition to Article 98 by the resolution passed at the general meeting of 14th February 1932. The article states that, until otherwise determined by a general meeting, the number of directors shall not be less than five, nor more than then nine. The resolution altered the maximum from 9 to 16. The argument for the appellants is that, by this allegation, the1 article has been altered. No direct authority was shown for this proposition. There are the following reasons to consider that the raising of the maximum is not an alteration of the article: Firstly, the increase in the number of directors is not a matter which the Act lays down in any part as requiring a special resolution. On the contrary, we find in Schedule 1, table A, regulation 83, the following provision:

The company may from time to time in general meetings increase or reduce the number o directors....

10. The lower Court took a peculiar view that this table A was no part of the Act; but in Section 17, Sub-section 2, it is stated that Articles of Association may adopt all or any of the regulations contained in table A in Schedule 1. I consider that there is an analogy between this regulation 83 of table A and Article 98 in question. It is true that regulation 83 does not lay down the number of directors; but there is a provision in regulation 68, that the number of directors shall be determined in writing by a majority of the subscribers of the Memorandum of Association. Regulation 83 therefore contemplates a change being made in the original number of directors, and that change to be made by a general meeting and not by a special resolution. Another authority against the appellants is Palmer's Company Precedents, Edn. 13, 1927, part 1, p. 698, where there is a specimen of one of the Articles of Association exactly similar to Article 98. This specimen says:

Until otherwise determined by a general meeting, the number of directors shall not be less than three or more than seven.

11. This article gives the English practice, and apparently under this article the number of directors is altered by a general meaning, as a notice given by Palmer states that there is only a doubt in the absence of the first seven words as to whether a special resolution is necessary. Palmer therefore considers that, when these first seven words were present, there was no doubt that a general meeting could make the alteration required. Lastly, in regard to the ruling quoted by the lower Court; Navnitlal Chabildas v. Scindia Steam Navigation Co., Ltd. A.I.R. 1927 Bom. 609, that ruling has been reported more fully in 29 Bombay Law Reporter, p. 1362. In the Law Reporter the terms of the article in question are given, and we find that the words 'unless otherwise determined by a general meeting' do not appear in the article which was the subject-matter of that case. That case therefore is no authority for the case before us. For these reasons I consider that the number of directors was validly altered by the resolution, of the general meeting of 14th February 1932.


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