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In Re: the Pasari Flour Mills Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtMadhya Pradesh High Court
Decided On
Case NumberCompany Petn. No. 3 of 1960
Judge
Reported inAIR1961MP340; [1962]32CompCas896(MP)
ActsCompanies Act, 1956 - Sections 167, 181, 182, 186 and 250
AppellantIn Re: the Pasari Flour Mills Ltd.
Advocates:K.L. Mishra, ;Devendra Swaroop, Advs. for ;Keshavdeo Param Sukhdas, Adv., ;P.L. Inamdar, Adv. for ;Birmadutta Premsukhdas, Adv., ;Kanchanlal, ;Radhe Kishan, ;Mahabir Prasad, ;Bhagwandas, ;Dropdibai, ;
DispositionPetition dismissed
Cases ReferredHolt v. Catterall
Excerpt:
.....said that onus shifts exclusively and heavily on him to prove his innocence. conviction of appellant is liable to be set aside. - section 79 ot the companies act, 1913 gave the power to thecourt to call any and every kind of meeting contemplated under the companies act, so that the court could call an annual general meeting as well. i clearly see that it affords no solution for the problem. in the case before me the question precisely is whether i can brder the appointment of new directors on the assumption that there are vacancies in the board of directors because of automatic retirement of the former directors......the expression 'annual general meet-ing' in section 256 refers to a meeting which is to be held annually under the mandatory provisions contained in section 166 of the act, but where an annual meeting is not held at the scheduled time, is retirement automatic and do they cease to hold the office with effect from the last day on which the annual general meeting should have been held? in re consolidated nickel mines ltd., (1914) 1 ch. 883 the question was whether the two directors, steel and phillips were entitled to remuneration as directors.article 101 of the company provided that all directors were to retire from office at the ordinary meeting. section 49 of the companies act provided that the directors were bound to summon a general meeting of the company once in every calendar.....
Judgment:
ORDER

Shiv Dayal, J.

1. This is a petition under Section 186 or the Companies Act made by Radhelal Khaitan praying that this Court may order an extraordinary meeting of the Pasari Flour Mills Ltd., Bhilsa to be held under the directions of this Court. The Pasari Flour Mills Ltd. (hereinafter called the Company) is a public limited company which was incorporated on November 16, 1937, under the Gwalior State Companies Act of Samvat 1963. The registered office of the Company is at Vidisha (Bhilsa) in the erstwhile Gwalior State, now in the State of Madhya Pradesh. The authorised share capital of the company is 5 lakhs divided into 5000 ordinary -shares of tile face value of Rs. 100/- each. The petitioner is a share-holder. The company is now governed by the provisions of the Companies Act, 1956, (hereinafter called the 'Act').

2. It is stated in the petition that M/s. Ram Narain Prem Sukh and Sons (consisting of Birmadutt Premsukh and Keshavdeo Premsukh) were appointed managing agents of the company for a period of 31 years from the date of the incorporation, by virtue of an agreement in writing dated September 3, 1938. The managing agents were entitled to appoint and remove and reappoint from time to time two persons as directors (ex-officio). They were also given power to appoint an ex-officio chairman of the Board of Directors.

The ex-officio directors nominated by the managing agents were to hold office until retired by the managing agents; they were not bound to retire by rotation. In 1940 the managing agents appointed Birmdutt as an ex-officio director and Seth Pratap Seth alias Moti Lal Manik Chand as the ex-officio Chairman. Motilal Manik Chand resigned whereupon Shri Umadutt Nemani was appointed ex-officio chairman. In or about 1956 the managing agents intimated to the company that with effect from April 30, 1956 Birmadutt alone would be the sole ex-officio director of the company.

3. The seventeenth ordinary general meeting of the company, being the ordinary general meeting for the year ending 30th June, 1954, was held on April 7, 1956. Thereafter, no ordinary or extra-ordinary general meeting has been called or held.

4. Birmadutt has filed a written statement which virtually supports the petition and inter alia it is admitted that no annual general meeting of the Company was held after April 1956as alleged by the petitioner. He has also tiled here a copy of the plaint of the suit (together with its annexures) instituted in the Court of the Additional District Judge Vidisha (Civil Suit) No. 7 of 1960) against Keshavdeo, Sajjan Kumar and Kedar Nath.

5. Keshavdeo has filed objections challenging the petition as mala fide and actuated by collusion with Birmadutt. This fact is however admitted that no annual general meeting has been held after April 7, 1956 but (sic) has fastened the blame on Birmadutt for the default He has also stated that the Board of Directors were 'taking steps to call an annual general meeting for 7th November 1960'. Allegations and counter-allegations have been made by Birmadutt and Keshavdeo against each other.

6. Kedamath has filed objections praying that the petition be dismissed on the ground in-ter alia that an application under Section 186 of the Companies Act is not maintainable.

7. No one else has filed any written statement or objection.

8. As a preliminary objection, Shri K. L. Misra contends that Radheylal has no right to file this petition inasmuch as he holds only one share and, further, he owes the Company a sum of Rs. 700/-. Reliance is placed on Articles 63, 96 and 97 of the Articles of Association of the Company. Radheylal has stated on oath that his accounts have been adjusted and he owes nothing to the Company, and that, on the contrary, when accounts will further be taken as regards the service rendered by him to the Company it will he the Company which will be found liable to pay him something.

It is unnecessary to go into the details of those allegations because even if Radheylal is indebted to the Company, I do not see how he is not a member of the Company today. Article 63 gives the Company a first and paramount lien upon the shares of a member for his debts, liabilities and engagements. Lien granted, membership is not lost. Article 63 does not debar a shareholder from being present or voting at a meeting. Article 96 deprives a member from voting or to be present at any general meeting whilst any money due from him 'in respect of any share or shares in the Company' remains unpaid'.

It is clear to me that Article 98 is irrelevant here. There is no allegation that there is any outstanding money in respect of his share. Article 97 of the Company no doubt entitles only those shareholders to be present and to vote at a meeting who hold at least 5 shares in the Company, But this Article must be held to be inoperative as it is in conflict with Section 182 of the Act. It is enacted in that section that a Company shall not prohibit any member from exercising his voting right on any ground except on the grounds set out in Section 181.

And Section 181 enables the Company to provide in its Articles that no member shall exercise any voting right in respect of 'any shares registered in his name on which any loans or other sums presently payable by him have not beenpaid or in regard to which the Company has or, will exercise any right or lien. Section, 181 does not allow any restriction to be imposed on the basis of number of shares. As such, the mandatory provisions is Section 181 render Article 97 inoperative. The preliminary objection must, therefore, be overruled.

9. It is conceded by everybody that there has been a non-compliance with the provisions of Section 166. Now, it is enacted in Section 160 of the Companies Act that every company must hold a general meeting to be styled its annual general meeting within 9 months after the expiry of each financial year and not more than 15 months shall elapse between the date of one annual general meeting and that of the next. For that reason it is urged by Shri Gupta that this is a clear case where this Court should exercise its powers under Section 186 of the Companies Act and order a meeting of the Company to be called, held and conducted in an appropriate manner.

10. From the statements made in the petition and in the affidavits of Keshavdeo and Birmadutt it appears quite clear that there are serious disputes between them. They are step-brothers and seem to be at daggers drawn. A civil suit has also been instituted in the Court of the Additional District Judge Vidisha for a declaration that Birmadutt continues to be a validly appointed ex-officio Director of the Company; that Mahavir Prasad, Radha Kishan and Sitaram are validly appointed directors and these four are the only validly appointed directors at present; that Keshavdeo has ceased to be a director of the Company from and after the 7th April, 1956 and that his appointment as also the appointment of Sajjan Kumar and Kedar Nath is illegal and ultra vires.

Ancillary reliefs have also been prayed for. It is also said that Keshavdeo has transferred some of his shares. It is alleged by Keshavdeo that Birmadutt went away to Bombay in the year 1958; the books of the Company upto that year are with him; on the appointment of new directors (himself, Sajjan Kumar and Kedar Nath) they are running the mills, and with profit,

11. Before a meeting can be ordered to be held under Section 186 of the Companies Act the Court must find that it has become 'impracticable' to call a meeting in the ordinary manner. It is quite unnecessary to consider in this petition, which of the parties is responsible for the disputes and who is acting in a high-handed manner. The fact remains that there are factions. Birmadutt and Keshavdeo, step-brothers, have formed two groups. Each of them has at least two more persons with himself who claim to be rightful directors.

12. 'Impracticablie' and 'impossible' are not same. This distinction was considered in Re El-Sombrero Ltd., (1958) 3 All ER I, at page 4, and it was observed:

'Examine the circumstances of the particular case and answer the question whether, as practical matter, the desired meeting of the company can be conducted, there being no doubt, of course, that it can be convened and held'.

It is undoubted that here all the parties have themselves made out a clear case of 'impracti-cability'. In re Lothian Jute Mills Co. Ltd., 55 Cal WN 646; Indian Spinning Mills Ltd. v. Lt. General Madan Shamsher Jang Bahadur 'Rana, AIR 1953 Cal 355 and Bal Krishna v. Uma Shan-'ker, AIR 1947 All 361 (FB) may also be seen. Shri K. L. Misra candidly admits that having regard to the circumstances of this case, no onecan reasonably object to a meeting of the Company being called.

13. This brings me to the question whether a meeting, if held by an order under Section 186 of the Act, will serve any useful purpose. When I read Sections 167 and 186 side by side, there is no doubt that in the present Act there is a clear bifurcation of the power to call the different lands of meetings of a Company. Section 79 ot the Companies Act, 1913 gave the power to theCourt to call any and every kind of meeting contemplated under the Companies Act, so that the Court could call an annual general meeting as well. Under the 1956 Act, it is only the Central Government which is empowered to call or direct the calling of an annual general meeting.

Sub-section (2) of Section 167 makes it clear that such a meeting would be deemed to be an annual general meeting of the Company. Section 167 of our Act is analogous to Section 131 (2) of the English Companies Act 11 and 12 Geo VI, C. 38 of 1948 which provides that if default is made in holding the annual general meeting, a member may apply to the Board of Trade to call or direct the calling of such meeting and on such application the Board has power to call a meeting and to give such directions as appear to it expedient in relation to the calling, holding and convening of the meeting.

14. In Section 186 of the 1956 Act, whichempowers the Court to call meetings, an annual general meeting is excepted. It comes to this Court has power to call or direct the calling ot only an -extraordinary general meeting of a Company, but not an annual general meeting.

15. The main object for which the petitioner wants the meeting to be called is that the new directors may be elected. If this can be done only at an annual general meeting, but not at an extraordinary general meeting, an order under Section 186 will bear no fruit in this case; but if that business can be transacted at a meeting other than an annual general meeting, the result would be different.

16. Shri Gupta seeks aid from Section 173 of the Act. I clearly see that it affords no solution for the problem. Clause (a) of Section 173(1) categorises all business into two broad heads : (1) Special; and (2) other than special. In the case of annual general meeting, four things numbered (i), (ii), (iii), and (iv) are not included in the expression 'special', so that at an annual general meeting those four things will constitute 'ordinary business' (if I may coin that expression for 'business which is not special').

All other business to be transacted at the annual general meeting is deemed to be special. For special business a longer notice is requiredand it has to fulfil certain formalities. In the case of an extraordinary general meeting all business, irrespective of the categories, is deemed special. In other words, whatever business is transacted at an extraordinary general meeting is 'special' and requires the aforesaid preliminaries. But it is altogether a different question what business can be transacted at an extraordinary general meeting and, in particular, whether directors can be appointed at an extraordinary general meeting. This has to be determined from the relevant provisions in the Act and in the Articles of the Company.

17. Shri K. L. Misra calls attention to Sections 210, 221 and 256. Under Section 210 the Board of Directors of a company is required to lay before the company a balance sheet and a profit and loss account at 'every annual general meeting'. Section 224 requires every company to appoint an auditor at an annual general meeting. Section 256 deals with the ascertainment of Directors retiring by rotation and the filling of vacancies. The argument is that a Director who is liable to retire by rotation can retire only at an annual general meeting and the vacancy so created can also be filled up only at the annual general metting by re-appointing the retired Director or by appointing some other person. Emphasis is on the words 'the' and 'annual'.

18. The expression 'annual general meet-ing' in Section 256 refers to a meeting which is to be held annually under the mandatory provisions contained in Section 166 of the Act, But where an annual meeting is not held at the scheduled time, is retirement automatic and do they cease to hold the office with effect from the last day on which the annual general meeting should have been held? In Re Consolidated Nickel Mines Ltd., (1914) 1 Ch. 883 the question was whether the two directors, Steel and Phillips were entitled to remuneration as directors.

Article 101 of the Company provided that all directors were to retire from office at the ordinary meeting. Section 49 of the Companies Act provided that the directors were bound to summon a general meeting of the company once in every calendar year. However, no meeting was held after 1905 and the two directors continued to act. It was held that they vacated the office on December 31, 1906, that is, the last day on which the annual meeting should have been held. They were disentitled to remuneration after that date.

19. In Kanssen v. Rialto (West End) Ltd., 1944 Ch. 346 the point for decision was whether the allotment of shares made at a director's meet-ing held on March 30, 1942, was valid. The allotment was made by Cromie and Strelits who purported to act as directors. The latter claimed to have been appointed a director at a meeting held on February 1, 1940, It was found that there was no meeting or appointment. Cromie was one of the original directors but he was to retire at the annual meeting and the last date on which such a meeting should have been held was December 31, 1911. It was held by the Courtof Appeal, relying on the case of Consolidated Nickel Mines, 1914-1 Ch. 883:

'Neither Mr. Cromie nor Mr. Strelitz was then (on 30-3-42) a director of the Company. Mr. Cromie had been a director but he had vacated the office On 31-12-41 by reason of Article 73 of the Company's Articles of Association.'

This decision was affirmed by the House of Lords in Morris v. Kanssen, (1946) AC 459 where it was held that since no general meeting had been held in 1941, by the effect of Article 73 of Table A as varied by Article 22 of the Company's Articles oi Association, there were thereafter no de Jure directors.

20. It is stated in Buckley on Companies Act: ''If in any calendar year an annual meeting is not held under an article in this form those directors who would have retired at the meeting had the same been held will vacate office on the meeting had the same been held will vacate office on the last date of the year (12th Edn. page 882).'

21. The dictum laid down in the above authorities was followed by Rajamannar, C. J. and Venkatarama Ayer in Ananthalakshmi v. Indian Trades and Investments Ltd., ILR (1953) Mad 508: (AIR 1953 Mad 467). The Madras decision has recently been followed in Krishna Prasad Jwaladutt v. Colaba Land and Mills Co. Ltd., AIR 1960 Bom 312. In that case the annual general meeting for the year 1955 of the Colaba Land and Mills Ltd. was held on March 20, 1956.

Annual general meeting for the year 1956 was not called although the time for holding that meeting was extended by the Registrar up to March 31, 1958. Two directors (Jainti Lal Patel and Soloman Moses) would have retired it a meeting was held in 1957. It was contended before the Bombay High Court that despite non-compliance with the provisions of Section 166 they continued to be directors of the Company and were entitled to act as such until an annual general meeting of the company was held.

It was declared that both Jaintilal Patel and Soloman Moses had ceased to be the directors of the Company on the last date on which the annual general meeting for the year 1956 should have been held. The High Court posed a question: 'whether the tenure of the elected directors can continue after the expiry of the statutory period laid down for calling an annual general meeting'? This was answered with reference to the various provisions of the 1956 Act thus:

'In our judgment it (Section 256) speaks of directors who till the date of the actual calling of the meeting continued to be directors in accordance with the provisions of law. A person who is to cease to be a director by retirement at the expiry of a stated time cannot claim to have escaped such retirement simply because an annual general meeting had not been called as required by law within that time. Section 256 does not include those who vacated their office, It only applies to directors who had not already vacated their office or ceased to be directors by Operation of any provision of law.

It has nothing to do with the tenure of the office of a director in the proper sense of that expression. The marginal note of Section 256, which we may look at for the purpose of seeing the trend of the section, speaks of ascertainment of directors retiring by rotation and filling of vacancies. It does not lay down any substantive rule as to the tenure of the office of a director. It is not the only section which has to be considered. We have to ascertain the tenure of the office of an elected director not merely from that section but from the language of Sees, 166, 255 and 256 read together,'

22. There is a Calcutta decision which takes a con-trary view. Kailash Chandra v. Jogesh Chandra, AIR 1928 Cal 868. It was urged in that case by the learned counsel for the respondent that the directors could hold office only for one year from the date of their appointment and if no general meeting was held at the lapse of one year the directors automatically vacated their office. The learned judge who decided the case rejected the said contentions in these words :

'I am unable to accept this contention of the learned advocate as it seems to me that it would be unreasonable to hold that this is the true meaning of the Articles of Association.'

The Bombay High Court has dissented from this view.

23. In the Companies Act of 1913 under which the Madras case was decided, there was no provision corresponding to Section 256 of the 1956 Act but regulation 78 of Table A, read with Section 17(2) of that Act, laid down substantially the same law. In that case, however, the High Court was not considering the question of appointment of directors. Nor did that question arise in the Bombay case. In the case before me the question precisely is whether I can brder the appointment of new directors on the assumption that there are vacancies in the Board of Directors because of automatic retirement of the former directors.

24. Section 255 provides that not less than two-third of the total number of directors of a public company shall be persons whose period of office is liable to terminate by retirement by rota-tion. Such directors are to be appointed in a general meeting, save as otherwise provided in the Act. The remaining one-third of the total number of directors shall be appointed in general meeting, subject to the articles of the Com-Pany.

25. No tenure of office has been fixed in the Act during which a director shall act. But Section 256 provides that one-third of the directors who are liable to retire by rotation, shall retire from office at the first and at every subsequent annual general meeting. The directors to retire shall be those who have been longest in office. Vacancies so created at the general meeting at which some of the directors retire as above, shall be filled up by reappointing the retiring directors-or by appointing fresh directors.

The places so vacated are to be filled up in the same meeting, and if not so filled up an adjourned meeting is to be held on the same day of the next week. If at the adjourned meetingalso fresh directors are not appointed as provided, in Sub-section (4) the retiring directors shall be deemed to have been reappointed at the adjourned meeting. There are five exceptions to this deeming provision, none of which is applicable here.

26. I think these provisions in our Companies Act of 1956 were made in order to resolve controversies which arose in a number of English decisions. In the case of Robert Batchellor and Sons v. Batcheller, (1945) Ch. 169 the Articles of the Company provided:

'Save as hereinafter provided if at any meeting at which an election of directors ought to take place, the places of the retiring directors or some of them are not filled up, the retiring direc-tors or such of them as have not had their place filled up, shall, if willing to - act, be deemed to have been re-elected.'

A similar view was taken in Spencer v. Kennedy, (1926) Ch. 125. Article 124 of this company is almost in identical terms. It runs thus .

'If at any Ordinary General Meeting at which an election of Directors ought to take place, the place of any retiring Director is not filled up, the retiring Director as has not had his place filled up, shall, if willing, continue in office until the first Ordinary meeting in the next year and so on from year to year until his place is filled up, unless it shall be determined at such meeting on due notice to reduce the number ot Directors or leave any vacancy unfilled.'

What exactly is the nature of the contingency under which alone such an Article would operate has been a matter of controversy in England. In Re Great Northern Salt and Chemical Works, (1890) 44 Ch. D. 472, it was held that the true meaning of such an Article only is that if for any reason either the first meeting or the adjourned meeting does not proceed to fill up the places of the vacating directors then they are to continue in office.

Astbury, J. in Spencer's case, 1926 Ch, 125 (supra) made a passing observation suggesting that such an Article applies only where the retirement of a Director by rotation and the necessity of his re-election or replacement has been entirely lost sight of at the annual meeting. But this view was not acceptable to Maugham, J. in Holt v. Catterall, (1931) 47 TLR 332. However, in Batcheller's case, 1945 Ch. 169 (Supra) Romer, J. was inclined to agree that the operation ot such article was confined to cases of accidental omission to fill up vacancies of retiring directors.

Romer, J. dealt in detail with the word 'deem' in his judgment. In view of the clear provisions contained in Section 256 of our new Companies Act no such problem arises here. Whatever may be the reason for omission to elect fresh directors in place of those who retire, either there must be an election at the same annual general meeting or at the adjourned meeting which is to be held on the same day in the next week, otherwise the retiring directors shall be deemed to be re-elected.

27. In the present case indeed there has been no retirement of directors strictly under the provisions of Section 256(1) because an annual general meeting has not been held for the last tour years. If the dictum of the Madras and Bombay decisions is applied and it is held that during the last three years all the Directors who were liable to retire (that is to say, apart form ex-officio directors) have retired by notation (one-third in each of the 3 years), it has also to be held that under the deeming provision contained in sec-tion 256(4) they were re-appointed as directors.

Article 124 of the articles of the Company clinches the issue. That article is not in conflict with any provision of the Companies Act. By virtue of that Article, the directors whose retirement is overdue are continuing in office and shall so continue from year to year until their places are filled up. Unless an ordinary general meeting is held their places cannot be filled and unless their places are filled they continue in office. The two things are inter-dependent.

28. From whatever angle this point is examined it must be held that the directors continue in their office whether because they have not retired at an annual general meeting, or because of the deeming provision contained in Sub-section (4) of Section 256 -- and shall continue to remain in office unless there is an election at an annual general meeting. Therefore, the only remedy is that an ordinary meeting of the Company should be convened and held.

29. The Companies Act of 1913 presented no difficulty as the Court was competent to call or direct the calling of any and every kind of meeting of a Company. Under the Companies Act of 1956, however, there has been a bifurcation ot the power to call an annual general meeting and the power to call any meeting other than an annual general meeting and the two powers having been separately given to two different authorities (the former to the Central Government and the latter to the Court) they must be exercised in water-tight compartments.

30. All this leads me to say that I am prepared to call an extraordinary general meeting of the Company for which this Court is empowered under Section 186, yet I cannot direct the appointment of Directors, nor appointment or an auditor, nor the laying of balance-sheets or profit and loss accounts. And if the above business cannot be transacted it will be futile and merely ceremonial to hold a meeting of the Company, when no meeting has been held for the last four years, no accounts. have been asked by shareholders, serious disputes have arisen regarding directorship and transfer of shares and, in a word, the whole thing has been in mess.

31. The chief object of this petition is that an extraordinary general meeting of the Company-be convened and called 'to elect and appoint Board of Directors of the Company.' That relief-I am unable to give to the petitioner as discussed, above. Then it is prayed that I should direct the meeting 'to transact such other business as may be determined by this Court.' This prayer is too vague to be allowed.

At the hearing Shri Gupta did not address me as to what other business the petitioner wanted to be transacted. Since I have reached the conclusion that I have to deny the petitioner the main and substantial relief which he wanted but which I cannot give him, the question of granting ancillary and incidental reliefs does not arise. The prayer that I should direct a meeting to transact such other business as may be determined by this Court is too vague to be made subject of a direction.

32. For these reasons the petition is dismissed. In the circumstances of the case all the parties are left to bear their own costs.


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