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The Rampur Distillery and Chemical Co., Ltd. Vs. the Company Law Board and anr. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtDelhi High Court
Decided On
Case NumberCivil Writ No. 1125 of 1967
Judge
Reported inAIR1968Delhi252
ActsCompanies Act, 1956 - Sections 326(2), 336, 340 and 341; Companies (Amendment) Act, 1963
AppellantThe Rampur Distillery and Chemical Co., Ltd.
RespondentThe Company Law Board and anr.
Appellant Advocate Siddarath Ray,; R.M. Gupta,; T.P. Gupta and;
Respondent Advocate Niren De, Solicitor General and ; Deepak Datta Choudhury, Central Government Counsel
Excerpt:
.....of the case the company law board regrets its inability to approve extension of the tenure of the managing agents of your company for a further term from 1-4-67.'6. similar orders refusing extensions to the managing agents of the toher dalmia group companies like orissa cement limited, dalmia cement limited, dalmia cement (bharat) limited and raza buland sugar company limited were made by the company law board at about this time and these companies filed writs in this court challenging the orders of the company law board refusing the extension. (2) the central government shall nto record its approval under sub-section (1) in any case, unless it is satisfied: ' 11. it is the common case of the parties that this writ petition is to be decided upon the proper interpretation of the..........for a period of 20 years. in or about july, 1946, the dalmia assumed control of the said managing agent company and the managing agent company then had four directors namely v. h. dalmia, lalita dalmia, n. h. dalmia and m. h. dalmia the first named being also the managing director. a first information report was lodged in november, 1953 in a delhi court in respect of offence alleged to have been committed in 1946-47 under sections 120-b of 409 of the indian penal code by, inter alia, v. h. dalmai aforesaid. but it is nto disputed that the alleged offences were nto in respect of anything done by v. h. dalmia in connection with the affairs of messrs. govan brtohers (rampur) private limited. hereinafter referred to as the 'managing agents'. ntohing seems to have been done in pursuance of.....
Judgment:
ORDER

1. By this petition, the petitioners have challenged the order dated January 23, 1967 of the Company Law Board which was reaffirmed by a further order dated June 6, 1967 whereby the extension of the managing agency term of Messrs. Govan Brtohers (Rampur) Private Limited was refused.

2. The petitioner company is a public limited company which had Messrs. Govan Brtohers (Rampur) Private Limited as its managing agents from about 1943 when they were appointed as such for a period of 20 years. In or about July, 1946, the Dalmia assumed control of the said managing agent company and the managing agent company then had four Directors namely V. H. Dalmia, Lalita Dalmia, N. H. Dalmia and M. H. Dalmia the first named being also the Managing Director. A first information report was lodged in November, 1953 in a Delhi Court in respect of offence alleged to have been committed in 1946-47 under sections 120-B of 409 of the Indian Penal Code by, inter alia, V. H. Dalmai aforesaid. But it is nto disputed that the alleged offences were nto in respect of anything done by V. H. Dalmia in connection with the affairs of Messrs. Govan Brtohers (Rampur) Private Limited. Hereinafter referred to as the 'Managing Agents'. Ntohing seems to have been done in pursuance of the first information report aforesaid except that in or about December, 1955, the Vivian Bose inquiry Commission was appointed to enquire and report on the administration of some companies said to be included in the Dalmia Jain Group.

3. Upon the expiry of the term of 20 years, the petitioner company, on or about December 10 1959, passed a resolution appointing the Managing agents as Managing for a period of 10 years with effect from August 15, 1960 and, upon application to the Central Government extension was granted by the letter for a period of 5 years only by an order dated July 22, 1960. In the meantime the report of the Vivian Bose Commission was published in the year 1962 wherein certain remarks, which will be adverted to later were made against V. H. Dalmia aforesaid.

4. The Company Law Board was constituted after the commencement of the Companies (Amendment) Act, 1963, and the Central Government, by a ntoification in that behalf, delegated its functions which were to be exercised by it, inter alia, under section 326 of the Companies Act, 1956 to the Company Law Board. It may also be stated that pursuant to the first information report lodged in November, 1953, and after the publication of the Vivian Bose Commission report Charge-Sheets were filled, in or about May, 1964 against various persons including V. H. Dalmia aforesaid in respect of the aforesaid offences alleged to have been committed in 1946-47.

5. Before the expiry of the term of extension, the petitioner company passed antoher resolution on September 23, 1964 renewing the managing agency for a further period of five years with effect from august 15, 1965, and, in view of the provisions of section 326 of the Act, this resolution was subject to the approval of the Central Government . It is again nto disputed that the business of the petitioner company is nto one of the business in respect of which it has been provided that there shall nto be any Managing Agents. The request for extension pursuant to the resolution of the petitioner company was referred to the Company Law Advisory Commission which is stated to have disapproved of the extension.

However, be letter dated May 28, 1965 the Company Law Board granted an extension of the terms but only up to March 31, 1966. It was stated in this letter that 'no further extension of the term of the managing agents would be allowed. I am, thereforee, to suggest that appropriate steps be taken within the period of extension now granted to adopt an alternate form of management as allowed under the Companies Act, 1956 toher than that of managing agents or Secretaries and Treasurers.' In reply to this letter, the petitioner Company wrtoe a letter dated January 15, 1966, to the Company Law Board stating inter alia:

'We would, however, like to inform you that we are taking necessary steps to make provisions in our Articles of Association to provide for alternate form of management should the Government of India finally decide, on receipt of the report of the Managing agency Inquiry Committee, nto to allow managing agency system in the business in which our Company is engaged.'

It was prayed in this letter that extension be granted for antoher year up to March 31, 1967. Thereafter there appear to have been certain interviews between the representatives of the Petitioner Company and the Company Law Board and the development which is relevant to this petition is that by letter dated July 12, 1966, the Company Law Board approved a further extension of the tenure of office of the Managing Agents up to March 31, 1967. Before the expiry of this fresh extension, the petitioners made a fresh representation by their letter dated August 25, 1966 to the Company Law Board for extension of the term of Managing Agents up to August 14, 1970.

It appears that certain decisions were taken and minutes recorded by the Company Law Board which indicated the reasons for refusing the extension asked for but all that the petitioner Company gto was a letter dated January 23, 1967 from the Company Law Board stating:

'I am directed to refer to your letter No. RDN: 5319 dated 25-8-66 on the above subject and to say that after careful consideration of the facts and circumstances of the case the Company Law Board regrets its inability to approve extension of the tenure of the managing agents of your company for a further term from 1-4-67.'

6. Similar orders refusing extensions to the Managing Agents of the toher Dalmia Group companies like Orissa Cement Limited, Dalmia Cement Limited, Dalmia cement (Bharat) Limited and Raza Buland Sugar Company limited were made by the Company Law Board at about this time and these companies filed writs in this Court challenging the orders of the Company Law Board refusing the extension. It may only be stated that the Govan Brtohers (Rampur) Private Limited were managing Agents of the Raza Buland Sugar Company Limited also.

7. Representations against the refusal dated January 23, 1967 were made by the petitioner company and by their letter dated June 6, 1967, the Company Law Board informed the petitioners that their request for extension of the term Managing Agents had been rejected. This letter was issued after judgments had been given by this Court in the aforesaid writ petitions filed by the toher companies named above.

8. As will be evident from the narration of facts above, reasons for refusing extensions were nto recorded by the Company Law Board in their letter dated January 23, 1967 but the letter dated June 6, 1967 contains the reasons which persuaded the Company Law Board to reject the Petitioner's application for extension. The reasons may be summarised as follows:

(1) That V. H. Dalmia was a Director of certain toher Dalmia Companies and was one of the signatories to an agreement which had been entered into between Allenberrt and co., Ltd and Dalmai Jain Airways Ltd. Which has been described by the Vivan Bose Commission as 'one-said and unfair' and it had also been remarked that the way it was worked in practice made matters still worse Relevant Qutoations from the report of the Vivian Bose Commission report were extracted in this letter.

(2) that V. H. Dalmia had been disbelieved by the Vivian Bose Commission because it had started that the story deposed by V. H. Dalmia was ttoally false.

(3) That V. H. Dalmia was also a Director of S. S. B. Mills Ltd. And M. D. M. Company which had advanced loans to D. C. P. M. Without any security. The observation of the Vivian Bose Commission which was relied upon by the Company Law Board was:-

'It will be seen from the above that the loans to D.C.P.M. were made to enable the group and later shri R. Dalmia to retain control over toher companies and particularly to benefit Shri R. Dalmia who obtained large advances from D. C. P. M. In his own name even though he was nto a director or an officer of D. C. P. M.' Some toher transactions of investments made in Bennett Coleman and Comapany's shares by S.S.B. Mills Ltd., and M. D. M. Co., Ltd in which V. H. Dalmia was one of the Directors were also held to be improper and it had been observed by the Vivian Bose Commission:-

' In our opinion they ought to have looked into this matter and they should nto have allowed the purchase. We find it impossible to justify questionable investments that did nto leave enough money in the mills to carry their day-to-day business.' (4) That charge-sheets had been filed against V. H. Dalmia and tohers in May, 1964, in respect of offences under section 120-B and 409 of the Indian Penal Code alleging breach of trust of the funds and assets of Dalmia Jain Airways Limited and the commission of offences for forgery and falsification of accounts.

9. It will, thereforee, be seen that the circumstances which were considered by the Company Law Board with reference to the application of the petitioner Company related personally to V. H. Dalmia and to his activities in relation to some toher companies of which he was a Director. It is obvious from what is stated in this letter that the refusal or extension was nto based upon any allegations with regard to the activities of V. H. Dalmia with reference to the affairs either of Messrs. Govan Brtohers (Rampur) Private Limited or of the petitioner company and it is only because of the reasons contained in the said letter dated June 6, 1967 that Messrs. Govan Brtohers (Rampur) Private Limited were considered by the Company Law Board nto to be fit or proper persons to be Managing Agents of the petitioner company.

10. Various points have been urged in this petition. One of the points urged was that I am bound by the decision of a Division Bench of this Court given in Writ Petn. No. 233 of 1966, D/-23-3-1967 (Delhi). In the case of Orissa Cement Ltd. V. Union of India by which judgment this Court had issued a writ of Mandamus to the Company Law Board to grant the extension prayed for by that company. Although the petitioner company has addressed me on this point. I have nto called upon Mr. Niren de, learned Solicitor General who appears for the respondents to answer this point because I am resting my judgment upon my reading of the provisions of section 326 of the Companies Act.

This section provides:-

'(1) In respect of any company to which neither the prohibition specified in section 324 nor that specified in section 325 applies a managing agent shall nto be appointed or re-appointed-

(a) except by the Company in general meeting; and

(b) unless the approval of the Central Government has been obtained for such appointment or re-appointment.

(2) The Central Government shall nto record its approval under sub-section (1) in any case, unless it is satisfied:-

(a) that it is nto against the public interest to allow the company to have a managing agent;

(b) that the managing agent proposed is, in its opinion, a fit and proper person to be appointed or re-appointed as such, and that the conditions of the managing agency agreement proposed are fair and reasonable; and

(c) that the managing agent proposed has fulfillled any conditions which the Central Government requires him to fulfilll.'

11. It is the common case of the parties that this writ petition is to be decided upon the proper interpretation of the provisions of clause (b) of sub-section (2) of section 326. The contention of the learned Solicitor General is that the provisions of this section are regulatory and he points out that the language of sub-section (2) of this section proceeds on the basis that extensions of managing nto to be accorded only if the Central Government is satisfied that it is nto against public interest to allow the company to have a Managing Agent; that the Managing Agent proposed is, in its opinion, a fit and proper person to be appointed or re-appointed as such and that the conditions of the managing agency agreement proposed are fair and reasonable and the managing agent proposed has fulfillled any conditions which the Central Government requires him to fulfilll.

It is further nto disputed that the only point for consideration is whether the Company Law Board could reasonably and justifably come to the conclusion, upon the material disclosed by it in its letter dated June 6, 1967 that Messrs. Govan Brtohers (Rampur) Private Limited were or were nto fit and proper persons to be re--appointed as Managing Agents. It is contended by the learned Solicitor General that it is a relevant factor to take into consideration that any of the persons who are Directors of the Managing Agency, in case of its being incorporated, is a fit or proper persons.

12. As I read the section, the object seems to be consider the interest of the managed company and for that purpose to consider whether or nto the proposed Managing Agent or the existing Managing agent who is sought to be re-appointed is a fit and proper person. The person referred to is the Managing agent and, in the case of its being incorporated, it is the body corporate itself, and nto any of its Directors or toher officers in relation to whom its fitness or propriety is to be considered. What has to be seen is whether the affairs of the managed company were carried on or are likely to be carried on by the Managing Agent concerned in a manner which will nto be injurious to the Managed company and it is for that purpose and that purpose alone that the fitness and propriety of the Managing agent is to be taken into consideration.

It is possible to take what maybe described as the personal acts, activities and affairs of a Director of the Managing Agency company into consideration if there is an impact of such acts, activities or affairs either on the acts, activities or affairs of the managing agency company or of the managed company. It is nto possible for me, in toher words, to accept the contention that the personal activities of one of the many Directors can be a relevant consideration for determining fitness and propriety of Managing agents if the activities remain personal and have no connection whatsoever either with the managing agency company or with the managed company.

13. Mr. Sidharath Ray, learned counsel appearing for the petitioners, has referred to the provisions of Section 326 of the Companies Act in aid of the interpretation of S. 326 and he says that a conviction of a Director of Managing Agency company results in the Managing Agent vacating its office if the term of imprisonment is nto less than 6 months. Even so he points out the provisions of Section 340 and 341 of the Companies Act, to which Section 336 is subject, and these sections provide that even in a case of conviction for a period of nto less than 6 months, the vacation of the office is stayed until the expiry of 30 days after conviction and, if during that time, the Managing Agent Company expells the convicted Director, the provisions of section 336 will nto be enforced. The only argument that maybe urged on the basis of these provisions is that whereever the Legislature intended that the personal acts of a Director should affect the company it has been so provided.

14. In my view the provisions of section 326 have to be interpreted on its own language. I cannto come to any conclusion toher than this that the context or the background against which the Company Law Board has to examine the question of appointment or re-appointment of the Managing Agent is the interest of the managed company and the affairs and activities of the Managing Agent itself qua the managed company. It is possible that one of the Directors may have a sweeping influence over the toher Directors in Managing Agent Company, as has been contended in this case that V. H. Dalmia has, if this sweeping influence reflects itself in the affairs or activities of the Managing Agent Company or of the Managed Company, then the reflection becomes the Act of the Managing Agent Company itself and it is as the Act of the Managing agent Company that it will be considered while deciding whether or nto to appoint or re-appoint the Managing Agent.

15. It is the admitted case of the respondent that all the circumstances which persuaded the Company Law Board to refuse the extension are incorporated in its letter dated June 6, 1967. I have no doubt in may mind that those considerations are entirely personal to V. H. Dalmia and they are completely irrelevant in so far as the affairs of the Managing Agent Company or of the petitioner company are concerned. The result, thereforee, is that the conclusion of the Company Law Board as incorporated in its letters dated January 23, 1967 and June 6, 1967 has been arrived at by taking into consideration irrelevant and extraneous facts and there is no option but to quash the action of the Company Law Board in refusing extension.

16. I would, thereforee, allow the petition and order that a writ of certiorari be issued quashing the orders of the Company Law Board contained in their letters dated January 23, 1967 and June 6, 1967 and a writ of mandamus be issued to respondent No. 1 to extend the term of Managing Agency of Messrs. Govan Brtohers (Rampur) Private Limited till August 14, 1970. The petitioners will have their costs of this petition Counsels fee is assessed at Rs. 200/-.

17. I may add that apart from the point upon which I have decided this Writ Petition, the petitioners argued toher points raised in the petition but I have nto discussed these points because I have nto heard the learned Solicitor General thereon.

18. The learned Solicitor General makes an oral request for stay of the operation of this order as he says that the respondents will be filing an appeal against this judgment. I think it is a case for stay and thereforee, I grant stay of the operation of this order for a period of 15 days from today.

19. Petition allowed.


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