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Pramod Chopra and ors. Vs. Apparels Export Promotion Council - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtDelhi High Court
Decided On
Case NumberSuit No. 873 of 1981
Judge
Reported inILR1984Delhi717
ActsCompanies Act, 1956 - Sections 25
AppellantPramod Chopra and ors.
RespondentApparels Export Promotion Council
Advocates: L.C. Goyal,; G.L. Rawal,; Sanjeev Aggarwal, Advs
Cases ReferredMira Export Promotion Council v. Gcl Juneja
Excerpt:
the companies act, 1956 - section 25 & 29--schedule i--articles of association of a company not limited by shares, whether necessarily to be in one of the forms in tables c, d and e?--provisions of section 29, whether mandatory?--the approval of the memorandum and articles of association by the government of india does not validity any provision which is in conflict with the mandatory provisions of the act; articles of association not making any provisions for the lection by ballot--provisions made in election rules--whether protected by section 263-a of the act? object of harmonious construction. the defendant council is a company limited by guarantee, incorporated under the companies act, 1956 and licensed under section 25 of the act. the articles of association of the council.....s.s. chadha, j.(1) the plaintiffs have instituted the present suit for various declarations and injunction. the two reliefs which are now pressed are for declarations that the election rules framed by the executive committee of the apparels export promotion council called 'the rules of election of the members of executive committee of the council' arc illegal, null and void and of no effect and that articles ii, 33 (in so far as it provides for poll by secret ballot). 38, 40(a) (in so far as it debars the associate members or the institute members from voting) are void and of no effect. (2) defendant no. 1, apparels export promotion council (hereinafter referred to as the council), is a company limited by guarantee, incorporated under the companies act, 1956 (hereinafter called the act).....
Judgment:

S.S. Chadha, J.

(1) The plaintiffs have instituted the present suit for various declarations and injunction. The two reliefs which are now pressed are for declarations that the Election Rules framed by the Executive Committee of the Apparels Export Promotion Council called 'The Rules of Election of the Members of Executive Committee of the Council' arc illegal, null and void and of no effect and that Articles Ii, 33 (in so far as it provides for poll by secret ballot). 38, 40(a) (in so far as it debars the Associate Members or the Institute Members from voting) are void and of no effect.

(2) Defendant No. 1, Apparels Export Promotion Council (hereinafter referred to as the Council), is a company limited by guarantee, incorporated under the Companies Act, 1956 (hereinafter called the Act) on February 22, 1978 having its registered office at 'Sahyog', 4th Floor, 58 Nehru Place, New Delhi. Since the Council fulfills the conditions laid down in Section 25 of the Act, it has been registered as a Company with limited liability without the addition to its name of the word 'limited' and is licensed 'under Section 25 of the Act. The Central Government has issued Notification No. S.O. 1578 published in the Gazette of India on July 8, 1961 directing the exemption of the companies licensed under Section 25 from the provisions of the Act specified therein. Some more exemptions have been added by Notification No. S.O. 2767 dated August, 5 1964. The objects for which the Council is established are given in the Memorandum of Association. It is, inter alia, to promote, advance, increase, develop export of all types of readymade garments excluding woolen knitwear and garments, of leather, jure and hemp; to undertake all export promotion measures including appointment of representatives, agents or correspondents in foreign markets; to con duct propaganda and publicity; to assist members; to establish design centres and to undertake training of workers and technical personnel etc. The Memorandum of Association also lays down objects incidental or ancillary to the attainment of main obiects.

(3) The Articles of Association of the Council provide, inter alia, the membership in Article 3. There are four classes of members:

(1)Ordinary Members (2) Associate Members (3) Government Nominees (4) Institution Members.

Any exporter of garments whether manufacturer exporter or merchant exporter, whether person, firm or society is eligible to become an Ordinary Member provided that his export performance of garments is of Rs. 2 lacs or more in any of the three previous years in the year of his joining. Any person, firm or company or society engaged in the trade, commerce or industry or otherwise interested in the aims and objects of the Council is eligible to become an Associate Member provided that no individual is eligible to become an Associate Member if the firm of which he is a partner or proprietor is already an Associate Member. An Associate Member is not entitled to vote at any meetings of the Council nor he or its representative is eligible for election to any office or to any Committees set up by or within the Council. Officers of the Government who may from time to time be nominated by the Government (or co-opted by the Commilce) are admitted as Government Nominees. Any institution of garment industry which is interested in the manufacture and export of readymade garments can join the Council as Institution Members, but is not entitled to vote at any meeting of the Council nor its representative is eligible for election to any .office or to any Committee set up by or within the Council. Article 38 of the Articles of Association provides that no person other than an Ordinary Member shall be entitled to vote at any meeting of the Council. Article 40(a) says that unless disqualified by any of the provision of these Articles or by the Act, all Members except Associate Members and Institution Members shall be entitled to vote at every general meeting on a show of hands and upon a poll, every such member present in person and entitled to vote shall have one vote. Article 47-provides for the eligibility. Only members who are Ordinary Members of the Council are eligible to stand for election to the Executive Committee for the subsequent year and/or propose and/or second and/or vote for such election.

(4) The plaint makes reference to these Articles of Association of the Council the effect of which is urged that Ordinary Members are, inter alia, entitled to the following rights which are not available to Associate or Institution Members, namely:

(A)to nominate members to the Executive Committee of the Council; (b) to stand for the membership of the Executive Committee; (c) to vote on all resolutions placed for consideration by the Council in its General Meetings.

The case of the plaintiff in the plaint of the suit as well as in the arguments addressed by Shri L. C. Goyal, the learned counsel for the plaintiffs at the hearing is that (here is no justification for classifying members in the manner set out above since the Act contemplates only one class of members for companies limited by guarantee. No classes of members are contemplated as would be clear from the comparison of relevant provisions of Tables 'A' and 'C' in Schedule I of the Act. In any case it is not permissible to a Company to confer different and discriminatory rights on different classes of members. The membership subscription is equally provided for Ordinary Members, Associate Members and Institution Members. The admission fee and annual subscription of Ordinary Members and Associate Members is 'the same. Each member other than Government Nominees has undertaken to contribute to the assets of the Council in the event of its being wound up for payment of the debt or liabilities, costs, charges and expenses of winding up up to a sum of Rs. 500. The submission is that the provisions contained in the Articles of Association of the Council including those contained in Articles 3, 11, 38, 40(a), and 47 debarring the Associate Members and the Institution Members from the above-said rights at (a), (b) and (c) are ultra- virus of the Act and the Table C in Schedule I of the Act.

(5) Article 49(c) provides that the Council shall have power to frame rules with regard to all matters pertaining to the election of Chairman, Vice-Chairman and the members of the Executive Committee provided that the rules framed by the Council shall not be altered except with three-fourths majority at a special meeting of the Council convened for the purpose. The case of the plaintiff both in the plaint as well as at the hearing of the suit is that in flagrant breach of the provisions of Article 49(c), the Executive Committee of the Council has framed rules, called 'The Rules of Election of the Members of the Executive Committee of the Apparels Export Promotion Council.' The stand is that the Executive Committee of the Council cannot arrogate to itself the powers which are exclusively reserved to the Council in this behalf and consequently the aforesaid rules are void and of no effect and deserve to be declared as such by this Court. Reference is also made to Article 47 of the Articles of Association of the Council wherein it is provided:

'THE election will be held as per rules framed by the Executive Committee.'

The contention is that Article 47 only relates to election of the Managing Committee referred to in the earlier part of Article 47 as and when formed. In the alternative, it is submitted that in case of conflict, which cannot be otherwise resolved. Article 49(c) shall prevail upon Article 47, being later than Article 47.

(6) Specific challenge is made to the Election Rules of the Co.uncil depriving the members other than Ordinary Members. the voting rights etc. Challenge is also made to the provisions made in the Election Rules of voting at the elections by Secret Ballot, exercisable in person/by pest/by hand.

(7) Challenge has been made on other grounds also in the plaint of the suit but no reference need be made to them as those have been either specifically given up in is 1885/82 or not pressed by the counsel for the plaintiffs at the hearing of the suit.

(8) The defense of the Council in the written statement as well as in the submissions of Shri G.L. Rawal, the learned counsel for the defendants at the Bar is that the right of vote is subject to the provisions of the Articles of Association and subject to the Election Rules framed and adopted by the Executive Committee from time to time in terms of Articles 47 of the Articles of Association. Reference is made to Article 11 which lays down that all rights and privileges of members shall be laid down in the bye-laws framed by the Committee from time to time. The averments arc also that basically the Council was constituted to represent the interest of actual exporters and only those actual exporters with. the qualifications as referred to in the Articles of Association are enrolled as Ordinary Members having right to vote to elect the members of the Executive Committee. They are based on the conception of electing the members on democratic system. There is justification for classifying member's in the manner done in the Articles of Association and not conferring the right of voting on members other than an Ordinary Member, It is urged that the Form of Articles of Association provided in Table C in Schedule T is only a model form to be adopted with such modifications and amendments as the fact demand and it is permissible to depart from those provision as they are not mandatory but only directory.

(9) As regards the framing of the rules by the Executive Committee, the stand taken is that concurrent powers have been conferred on the Executive Committee as well as the Council to frame rules for election of the members of the Executive Committee. It is mentioned that the rules of election were framed for holding first election which took place in the year 1979 and those rules were framed by the then Executive Committee. It is pleaded that Article 49 does not in any manner over-ride the provisions of Article 47 of the Articles of Association.

(10) It is also denied that the election of the members of the Executive Committee is not permissible by ballot till exemption is granted in terms of Section 263-A of the Act, The Election Rules provide the manner of holding the 'lection by means of the ballot. Preliminary mode of election is settled and all those members who are declared successful in the preliminary mode of election which takes place by ballot are subject to approve at the ensuing annual general meeting in accordance with law.

(11) On the pleadings of the parties the following issues were framed:

'1. Whether the Election Rules framed by the Executive Committee of the Council called 'the Rules of Election of the Members of Executive Committee of the Council' are illegal, null and void and of no effect?

2.Whether the Articles 11,33, 38 and 40(a) or any part thereof are void and of no effect

3.Whether there is no cause of action for the suit

4.Whether the suit is barred by virtue of Section 10 of the Companies Act inasmuch the matter relates to the internal affairs of the Company

5.Whether the suit has been properly valued for the purples with regard to validity of rules for the reasons effect ?

6.Whether the plaintiffs are estopped from raising the pleas with regard to validity of rules for the reasons alleged ?

7.Relief.'

(12) The suit was set down for trial. No oral evidence has been led by the plaintiffs. The documents, namely, the Memorandum and Articles of Association of the Council, and the Election Rules of the Council were filed by the plaintiffs and admitted by the defendants. They are Exs. P-l and P-2 respectively. The defendants produced Secretary of the Council as Public Witness I. His testimony is in conformity with the Articles of Association and the conduct of the elections according to the Election Rules. He admits that there are about 1,600 Ordinary Members, about 20 or 25 Institution Members and the rest are Associate Members out of the total membership of about 5,000 of the Council. He affirms that Associate Members and Institution Members are not having the right to vote. Counsel for the defendants on whose objections issues 3 to 6 were framed does not press those issues and are decided against the defendants. Issue NO. 2

(13) I will first consider this issue incorporating the challenge to the denial of voting rights. It is not necessary to repeat the rival contentions since I have mentioned them in detail above. A Company incorporated under the Act means a company formed and registered under the Act or an existing company as defined in Clause (ii) of Section 3. It may be a private company or public company. A private company must have articles of its own. containing the restrictions, limitations and prohibition required by Clause (iii) of sub-section (1) of Section 3. A public company means a company which is not a private company. A. company may be a company limited by whereas or a company limited by guarantee or an unlimited company. A company is limited by shares where the liability of each of its members is limited by the nominal amount of the share held by him. The use of the word limited indicates that the liability of the members for the debts and other liabilities of the company is limited to the amount contributed or undertaken by the members towards the share capital of the company. Unlimited companies are those where the liability of the members is not limited at all. Companies limited by guarantee where the companies have no share capital are those where each member undertakes to contribute in the event of the company being wound up such amount not exceeding the specified amount in the memorandum of association. Section 87(1) of the Act confers voting right, on every member of a company limited by shares and holding any equity share capital therein, however, small it may lie. There is a legislative mandate and thus a company cannot by its Articles of Association or otherwise deny voting rights to the holders of shares. Section 87(2) confers on every member of a company limited by shares and holding any preference share capital wherein, a right to vote on the resolutions placed before the company which directly affects the right attached to his preference shares. There were excessive voting rights on share capital issued before the commencement of the Act. The disproportionately excessive voting rights have been terminated by Section 89 of the Act. Section 88 of the Act contains an absolute prohibition as regards the issue of the shares with disproportionate voting rights. The spirit behind these provisions is that the voting rights in respect of all equity shares bear the same proportion as to the amount of share capital paid-up. The Articles of Association cannot now confer disproportional voting rights on one class of share-holders. Mandatory provisions have been made in the Act itself about the right of voting in a company limited by shares. Section 28 of the Act requires that the Articles of Association of a company limited by shares may adopt all or any of the regulations contained in Table A in Schedule 1. The model articles in Table A do not contain any provisions as to voting rights for the simple reason that the Act in its sections specifically provide so.

(14) SECTION. 9 of the Act provides that save as otherwise provided in the Act, (a) the provisions of the Act shall have effect notwithstanding anything to the contrary contained in the memorandum or articles of association of a company or in any agreement executed by it, or in any resolution passed by the company in the general meeting or by its Board of Directors, whether the same be registered, executed or passed, as the case may be, before or after the commencement of the Act and (b) any provision contained in the memorandum, articles, agreement or resolution aforesaid shall, to the extent tc which it is repugnant to the provisions of the Act, become or be void, as the case may be. The ligature has clearly laid down that the Act has the over-riding effect. Section 29 of the Act reads as under:

'THE articles of association of any company, not being a company limited by shares, shall be in such one of the Forms in Tables C, D and E in Schedule I as may be applicable, or in a Form as near thereto as circumstances admit: Provided that nothing in this section shall be deemed to prevent a company from including any additional matters in its articles in so far as they are not inconsistent with the provisions contained in the Form in any of the Tables C, D and E, adopted by the company.'

Table C which is applicable to the Council contains the form of Memorandum and Articles of Association of a company limited by guarantees and not having a share capital. Clause 14 says that 'every member shall have one vote'.

(15) The legislature in Section 29 of the Act says that the Articles of Association of a company not being limited by shares shall be in such one of the Forms in Tables C, D and E in Schedule I as may be applicable or in a Form as near thereto as circumstances admit. The Schedule is as much a part of the Statute, and is as much an enactment as any other part. Schedules are tables of details appended at the end of an Act. The intention of the legislature is clear that the articles of association should be in the Form prescribed by the Act. At the same time some flexibility in the frame of the Articles of Association is given but they have to be as near thereto as the circumstances of the case may admit. The statutory provision is not worded in such a way that an undeviating conformity to the Form is required. There could be variations in the articles consistent with the model Form. The articles could also be supplemented where there was need but compatible with the prescribed Form. The divergence could not be with disharmony with the Form prescribed in the Act. It would surely be in accordance with the prescribed Form if the articles are substantially in accordance with it and they do not depart from the prescribed Form in any material respect. But if the deviation is destructive of the provision contained in the prescribed Form, then that deviation is void being ultra virus of the statutory provision. The aim and object of the Act and Form in -Table C giving every member a right of one vote would be defeated, if the direction of the legislature is not strictly observed. It is thus imperative to adopt the Form. Whether a requirement is directory or mandatory is to be decided not merely on the basis of any specific provision setting out the consequences of the omission to observe the requirement but also having regard to the purpose for which the requirement has been enacted. The provision was inserted with an object of participation in the management of the companies. That would be nullified and hence the provision would be mandatory. It is also clear from the proviso to Section 29, which was later added in the Act by Act 65 of 1960. I repeat it says that nothing in the section shall be deemed to prevent a company from including any additional matters in its articles in 80 far as they are not inconsistent with the provisions contained in the Form in any of the Tables C, D and E adopted by the company. The articles may include other matters but only those which are consistent or compatible with those given in the Table. An article which negates the valuable right recognised in the prescribed Form in the Table is inconsistent with that provision. The legislature did not in the Section of the Act provide for the voting rights of members of company limited by guarantee as was done in the case of companies limited by shares but wanted to achieve the same purpose by prescribing the Forms in the Tables in Schedule 1. A change in the wording of Section 28 and Section 29 implies a change in the contents of the two provisions. While in Section 28 the articles may adopt all or any of the regulations contained in Table A in Schedule I, but in Section 29 the articles of any company shall be in such Form or in a Form as near thereto as circumstances admit. The alteration in the language has been deliberately made for a stricter conformation to the proscribed Form.

(16) The Articles of Association of the Council in Articles 3,38,40 (a) and 47 confer voting rights on Ordinary Members. The right to nominate members to the Executive Committee or to vote on all resolutions passed by the Council in the General Meeting is conferred only on Ordinary Members and not on other class of members. There is no material on the record within the Memorandum or Articles of Association or in the documents on the record that members other than the Ordinary Members are acting or would act to the detriment of the Council if aforesaid rights are conferred on them. The objects for which the Council is set up shows that the Ordinary Members as well as other classes of members are desirable participants in the affairs of the Council. The Form contained in Table C of Schedule I lays down that every member shall have one vote. The Council on incorporation becomes a body corporate which functions through its members. The Council would act by the Executive Committee and its members who are its agents and representatives, 'There is no basis to restrict the fulfillling of the functions of the Council by one class of its members. The voting rights are valuable rights. This right inheres in a member by virtue of his being a member of the Council. These rights can only be exercised in the meetings of the Council. By exercise of the right to vote the members) can act for the benefit of the Council and also at the same time control the conduct of the affairs of the Council by the Executive Committee. By the exercise of right the members can effectively guide the Executive Committee, in the administration and management of the Council. The existing Articles of Association of the Council has created a classification and placed different classes of members the Ordinary Members' in the position of superiority and the other classes in a position of inferiority. Members other than Ordinary Members have not been given any voting rights. There are several provisions in the Act such as Sections 17, 21, 31, 81(1-A), 224, 225, 228, 284(4), 293, 294, 309, 314 and 384 which require that certain powers of the Company should be exercised only by the Company in general meeting. The members other than the Ordinary Members of the Council cannot participate or have their say. The General Meetings of the company are always understood and considered as the meeting of all the members of the company with a right of participation and vote. It cannot be construed as a meeting of only some privileged members of the company. I am fortified in this view by the opinion expressed by a Division Bench of Kerala High Court in 'P.C. Aravindhan V. M. A. Kesavan and others' 1973 Tax L.R. 1844 (1) wherein it was held that Section 29 of the Act is mandatory, and, thereforee, it is not open to the members to deviate from the provisions contained in Table C and incorporate provisions' which are inconsistent and contrary to those therein. It was observed

'.........Every member of a company is entitled to take part in its,' administration. This right can be exercised only in the meetings of the shareholders. Such a right cannot be restricted except by the provisions of the Companies Act. When a member is entitled to take part in the administration of the company he is entitled to be present in the meeting which is called for, for the purpose of discussing the affairs of .the company. His right to attend and take part in the meeting is inherent in his membership of the com pany. It need not be specifically conferred upon him. On the other hand, one should search for a provision in the Companies Act whereby that right is expressly and specifically taken away. We do not find any such provision in the Companies Act. On the other hand, Section 181 of -the Companies Act implies that even a defaulted shareholder has got the right to attend and vote at the meeting and the said provision empowers the company to frame Articles of Association restricting the said right. The power to impose a restriction in those circumstances is specifically conferred on the company. We are, thereforee, satisfied that Regulation 47 of Ext. P-l is vocative of the provisions in Table C of Schedule I and the provisions of the Companies Act. It is, thereforee, void.'

(17) A submission is made by Shri G. L. Rawal, the learned counsel for the defendants that the Memorandum and Articles of Association of the Council have been framed and approved by the Ministry of Commerce, Government of India and the certificate of incorporation has been granted by the Registrar of Companies. He urges that the management and conduct of the Council's affairs in accordance with the Articles of Association of the Council is an internal affair not liable to be interfered with by a Civil Court. It is stated to be rejected. The challenge under this issue is to the validity of the provisions contained in Articles 3. 38. 40(a) and 47 on the ground that they are ultra virus of the statutory provisions. The approval of the Memorandum and Articles of Association by the Ministry of Commerce, Government of India or the issue of a certificate of incorporation does not validate any provisions of the Council's Memorandum or Articles of Association which are in conflict with the mandatory provisions of the Companies Act, 1956. In 'Avra V. Skelsey's Adamant Cement Company Ltd.,', 21 Times Law Reports 464(2) the question arose before the Court of Appeal as to the increase of capital by a special resolution. The Articles of Association provided for a majority holding not less than four fifths of capital. The resolution was passed by the three-fourth majority mentioned in Section 51 of the Companies Act, 1862. It was held that clause in the Articles of Association was invalid and zero because it affected to alter the majority required by the said Act for passing a resolution to increase the capital of the Company. The resolution passed in accordance with the said Act was upheld. In 'Welton V. Saffery' 1897 A.C. 315 (3), it was held that an article which is ultra virus of the company clearly cannot be so enforced. In 'Re Greene' 1949 (1) All E.R. 167 (4), was a case in which the Articles of Association of the Company provided a deeming transfer of shares to director's widow on his death. It was held to be invalid as being in contravention of Companies Act, 1929 Section 63 of which provided that it should not be lawful for a company to register a transfer of shares unless proper instrument of transfer had been delivered to the company. In 'Pevaril (Gold) Mines Ltd.' 1898 (1) Ch. d. 122 (5) it was held that a right given by Section 82 of the Companies Act. 1862 to a contributory to petition for the winding up of the company cannot be excluded or limited by the Articles of Association of the company. In 'M/s. Mazda Theatres Pvt. Ltd. V. New Bank of India Ltd.' I.L.R. 1975 Delhi (6), a Division Bench of this Court held that Article 50 of that company contravened Section 289 of the Companies Act inasmuch as it does not provide for the circulation of the draft resolution to all the directors present in India at their usual address for approval by a majority of them. According to Section 9, the provisions of the Act over-ride the provisions of the Memorandum and Articles of Association in so far as the later are repugnant to the former. Article 50 was held as void as being ultra virus of Section 289 read with Section 9 of the Act.

(18) The form of Articles of Association of the Council registered under Section 25 of the Act, as a company limited by guarantee and not having a share capital need not be confined, according to the counsel for the defendants, to the Articles indicated in Table C and may include other Articles'. Reliance is placed by the counsel on Gaiman and others v. National Association of Mental Health' 1971 Ch. D. 317 (7) wherein it was held that Table C read with Section Ii of the Companies Act, 1948 is merely directory to the effect. The ratio was merely quoted with approval in Suit No. 1154/84, 'Vinay Kumar- Wohi V. Automobile Association, decided by G. C. Jain, J. on August 20, 1982(8). These are clearly distinguishable. In Gaiman's ease (supra) the articles of a mental health association, a company limited by guarantee without a share capital, provided by Article 7(B) that a member forthwith ceased to be such if requested by resolution of the Council to resign but that he could appeal against that resolution to the association in general meeting. The contention was that Article 7(B) was void under Section Ii of the Companies Act, as conflicting with the former Table C in Schedule I to the Act. It was held that the Schedule forms, including Table C were intended as' models which could be moulded to suit a company's individual needs. Section Ii of the Companies Act, 1948 provides (leaving out unnecessary words) that the form of the Memorandum and Articles of Association of a Company limited by guarantee and not having a share capital shall be in accordance with the form set out in Table C in the First Schedule to the Act, or as near thereto as circumstances admit. It may be that the forms were intended to provide models and not strait jackets and could be moulded to the needs of the company as the promoters see at that time. Table C did not contain any article resembling Article 7(B) in that case. In my opinion it is on these facts that it was observed that promoters of a company should be free to add, substract or vary as the needs suggest. The Article gave power to the Board of Directors or Managing Committee to expel a member. It was not invalid as it was not inconsistent with Table C. It was not suggested or ruled that the promoters could include those articles which are inconsistent or incompatible with those given in Schedule 'C' . An abrogation of the provisions of Table 'C' cannot be as near thereto as the circumstances admit. An absolute enactment must be obeyed or fulfillled exactly, but is sufficient if a directory enactment is obeyed or fulfillled substantially. Even if the provisions of the statute are construed as merely directory, even in that case also there has not been a substantial compliance. The substantial compliance cannot be by giving a complete go-by to the right of vote to a class of members of the Council.

(19) For the above reasons, I hold issue No. 2 in favor of the plaintiffs and against the defendants. I hold that the Articles including Articles 3, Ii, 33, 38, 40(a) and 47 in so far as they restrict the right to Ordinary Members to nominate and[or second to the Executive Committee of the Council or lo stand for the membership of the Executive Committee or to vote on all resolutions placed for consideration by the Council in the General Meetings arc ultra vires. Issue No. I

(20) It is the common case of the parties that the Rules called 'Election Rules of Apparels Export Promotion Council' have been framed by the Executive Committee of the Council. Its copy is Ex.' P-2. The Memorandum and Articles of Association of the Council are Ex. P-l. Article 2 provides that the Council shall from time to time frame such rules and regulations and/or bye-laws. Article Ii provides that all rights and privileges of members shall be laid down in the bye-laws framed by the Committee from time to time. Article 47 provides for the eligibility and says. that only members who are Ordinary Members of the Council as at 31st January of the year of elections and remain so on the date of the election and who have paid their subscription up to the previous year are eligible to stand for election to the Executive Committee (Managing Committee in Article 4.7 is obviously a printing error) for the subsequent year and/or propose and/or second and/or vote for such election. It then says that 'the election shall be held as per rules framed by the Executive Committee'. Article 49(c) says that 'the Council shall have powers to frame rules with regard to all matters pertaining to the election of Chairman, Vice-Chairman and the members of the Executive Committee, provided that the rules framed by the Council shall not be altered except with three-fourths' majority at a special meeting of the Council 'convened for the purpose.

(21) The submission of Shri L. C. Goyal, the learned counsel lor the plaintiffs is that it is the Council alone which can frame Election Rules and not the Executive Committee. Relying on 'Maxwel, 12 Edn. at page 234, he says that 'shall have power' to say the least is a compulsory force. It was obligatory on the Council to make the Election Rules. The counsel for the defendants urges that on a harmonious construction of the two provisions the power vests both in the Executive Committees as well as the Council: He also contends that in case this Court comes to a conclusion that there is a conflict between the earlier article and the later article and it is not possible to give effect to the two clauses by harmonious construction: then the rule of constitution is that it is the earlier articles that must over-ride the later article and not vice versa. Reliance is placed on 'Radha Sunder v. Mohd. Jahadur Rahim', : [1959]1SCR1309 wherein the construction of a deed it was held that in case the two clauses cannot be reconciled, then the earlier provision in the deed prevails over the later.

(22) The object of harmonious construction is avowedly to avoid a conflict between two provisions as far as possible and to construe the two provisions in such a way that they harmonise. They should be so interpreted that, if possible, effect should be given to both. The two provisions would be repugnant to one another only if they are so contradictory that it will be impossible to carry out both of them. I feel that effect can be given to both the provisions contained in Article 47 given power to the Executive Committee and in Article 49(c) giving power to the Council in framing the Election Rules by holding that concurrent powers arc conferred on Executive Committee as well as the Council. It is possible to reconcile both the provisions. The Executive Committee can frame or amend the Election Rules as The Council is also empowered to frame the Election Rules. Once the Election Rules aic framed by the Council then they cannot be altered except with the three-fourths majority at a special meeting of me Council convened for the purpose. The exercise of power by the Council in framing the Election Rules exhausts the power of the Executive Committee. The provisions of Article 49 canal be used to defeat those of Article 47, as it is possible to effect reconciliation between the two. It is a fundamental cannon of interpretation that the interpretation which reconciles them should be adopted, and not that which will spell out a conflict or contradiction. The challenge to the power of the Executive Committee to frame the Election Rules thus fails.

(23) Election Rules of the Council in so far as they reiterate the nominations, right to propose a second or the right to vote only by Ordinary Members of the Council are held ultra virus for the same reasons as .given under Issue No. 2.

(24) There is only one additional challenge to Rule 6 of the Election Rules which provides that the voting at the elections shall be by Secret Ballot, exercisable in person ]by post/by hand. Preference is made to the provisions contained in Sections 177, 255, 256 and 263 of the Act which provide the manner of exercise of the rights by members. Section. 263-A added by Act 65 of 1960 provides that nothing captained in Sections 177, 255, 256 and 263 shall affect any provisions in the articles of a Company for the election by ballot of all its directors at each annual general meeting if such company does not carry on business for profit or prohibits the payment of a dividend to its members. This amendment was made by the legislature to give statutory recognition to the practice of electing office bearers by ballot by clubs, chambers of commerce and other associations incorporated by license under Section 25 of the Act. The Council thus could adopt in its Articles of Association the election by ballot. The Articles of Association, Ex. P-l, however, do not make any provisions for the election by ballot. Except in Article 33 which provides that at any General Meeting a resolution put to vote of the Electing shall be decided by show of hands unless a poll by Secret Ballot is demanded etc. The provisions made in the' Election Rules do not receive any statutory recognition. Section 263A of the Act does not extend the protection lo the practice contained in the rules, regulations or bye-laws framed by the company or under its authority. The Statute has, restricted the protection to the contrary provision made in the Articles of the company for the election by ballot.

(25) I may notice another argument of the counsel for the defendants based on the oral testimony of D.W.I. Shri Anil Talwar. He says that in accordance with the Election Rules, the nominations are called for, scrutinised and election by secret ballot is held thereafter, that after the counting of the votes the names of the successful candidates are place before the ensuing Annual General Meeting in which they are proposed again, seconded and carried by majority vote taken by show of hands. Rule 7(c) of the Election Rules also provides that the names of the successful candidates, shall be declared in the Annual General Meeting for approval. Reliance is placed on 'Mira Export Promotion Council v. Gcl Juneja' 1968 (1) Corn. L.J. 301 (10) wherein it was held that the validity of the election depends upon the same being confirmed at the Annual General Meeting and a confirmation at the meeting really constitutes the valid election. That case is not applicable. In that case the election results were not confirmed and the members of the Annual General Meeting adopted a consequential resolution or decision with regard to holding fresh or further elections- to fill up the vacancies. The challenge was to the further resolution parsed for holding fresh elections without an item on agenda. Agenda for confirmation of the election results was taken as an item on the agenda convening the resolution for fresh elections. It is no authority for the proposition that Election Rules providing election by secret ballot were approved or upheld. In fact there was no challenge to it.

(26) Rule 6, thereforee, is void and is of no effect. The Election Rules are so worded that the other rules cannot independently stand. For the above reasons. Issue No. 1 is held partly in favor of the plaintiffs. Issue No. 7

(27) The result is that the suit of the plaintiffs succeeds. The plaintiffs are granted a decree for declaration that the impugned Election Rules framed by the Executive Committee of the Council called 'The Rules of Election of the Members of the Executive Committee of the Council' are void and of no effect. The plaintiffs are also granted a decree for declaration that Articles 3, Ii, 33, 38, 40(a) and 47 (in so far as they debar the Associate Members or the Institution Members from voting right) are void and of no effect. In this contest, I leave the parties to bear their own costs.


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