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S. Suppiah and anr. Vs. Century Flour Mills Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtChennai High Court
Decided On
Case NumberO.S. Appeal No. 64 of 1974
Judge
Reported in[1975]45CompCas450(Mad)
ActsCompanies Act, 1956 - Sections 167(1), 186 and 186(1)
AppellantS. Suppiah and anr.
RespondentCentury Flour Mills Ltd.
Appellant AdvocateS. Govind Swaminathan, Adv. General for ;T. Raghavan, Adv. and ;T.K. Seshadri, Adv.
Respondent AdvocateN. Panchapagesa Iyer, Adv. for ;Anand, Dasgupta & Sagar
Cases Referred(Century Flour Mills Ltd. v. S. Suppiah
Excerpt:
.....186 (1) of companies act, 1956 - petitioner sought appointment of advocate for presiding general meeting of company - reading of situation proved that proposed meeting was of importance - serious difference of opinion among shareholders of company - proposed meeting could be acrimonious, tumultuous and turbulent - court competent to appoint presiding officer for said meeting - petition allowed. - - to declare the meeting and the resolutions passed therein as of no effect whatever, we accepted the apology tendered by the alleged con-temners as it was unconditional and held in those proceedings that the meeting, its proceedings as well as the resolutions passed therein were of no effect, as they all took place contrary to and in disobedience of injunction orders of this court. the..........directors, p. govindaswami and s. p. sithambaram. the general body appointed them as such at its meeting held on april 12, 1972, and the appointment was duly approved under the companies act. in may, 1974, or thereabouts differences arose between the managing directors about the affairs of the company. govindaswami took up the stand that the other managing director had vacated office both as director and managing director, by reason of the contravention of the provisions of section 295 of the companies act. consequent to the stand taken by him he pressed that the entire expenditure incurred by the company on the car allotted to sithambaram should be debited to his account, as he would not, in the circumstances, be entitled to the car and car allowance. it was stated that as a matter of.....
Judgment:

Veeraswami, C.J.

1. This appeal by the petitioners is from an order of Sethuraman J. The petition was made under Section 186 of the Companies Act, 1956, for appointment of an advocate-chairman to preside over the requisitioned general meeting of Century Flour Mills Ltd., the respondent, to be held on September 14, 1974, and for certain other consequential or incidental reliefs. The company has been managed by two managing directors, P. Govindaswami and S. P. Sithambaram. The general body appointed them as such at its meeting held on April 12, 1972, and the appointment was duly approved under the Companies Act. In May, 1974, or thereabouts differences arose between the managing directors about the affairs of the company. Govindaswami took up the stand that the other managing director had vacated office both as director and managing director, by reason of the contravention of the provisions of Section 295 of the Companies Act. Consequent to the stand taken by him he pressed that the entire expenditure incurred by the company on the car allotted to Sithambaram should be debited to his account, as he would not, in the circumstances, be entitled to the car and car allowance. It was stated that as a matter of fact a resolution to that effect had been passed at the board meeting of the company on May 4, 1974. In this background, Sithamba-ram in O.S. No. 3778 of 1974 on the file of the City Civil Court, Madras, instituted by him, asked for a declaration that he continued to be a managing director and director and that the resolution of the board dated May 4, 1974, was void and illegal. He also prayed for an injunction restraining the company and its directors from interfering with the discharge of his functions as one of the managing directors of the company. An interim injunction granted was in operation, but it was vacated later on. The appellants, who are the shareholders of the company, asserted that they had lost confidence in Govindaswami as managing director, in view of certain facts within their knowledge. They averred that Govindaswami had been indirectly obtaining loans from the company by advancing the company's funds to other persons and taking loans from them. They further alleged that he was conducting the affairs of the company in a manner prejudical to its interest and solely for his personal benefit. It was claimed that the company was running at a loss and it would not be, according to the petitioners, in the interest of the company that Govindaswami should be a managing director. The appellants and two others who together held 2,559 shares sent a requisition under Section 169 for convening an extraordinary general meeting to consider a resolution to remove Govindaswami from office as managing director and director in accordance with the provisions of Section 234. There was another requisition dated August 5, 1974, sent up by Govindaswami, as it was stated, for considering a resolution for removal of Sithambaram from his office as director and managing director. One of the signatories to this requisition, one S. P. Mohamed, has filed O. S. No. 4010 of 1974 on the file of the City Civil Court, Madras, for a declaration that Sithambaram was no longer a managing director of the company. The board of directors accordingly convened a meeting to be held on September 14, 1974, at No. 40, Third Trust Cross Street, Madras-28, which is the residence of one Satyamurthi, a director. There was an allegation that this Satyamurthi and another Srinivasan, who is also functioning as a director, were not shareholders of the company. We understand that separate petitions have been filed questioning the transfers of shares in their favour, with which we are not concerned at the moment. It may be seen, therefore, that the resolutions proposed for the general body meeting were of an acrimonious character and vitally affected the affairs of the company and its working. In the circumstances, the petitioners, as they would have it, apprehended that unless an independent advocate-chairman presided over such a general body meeting, there would be turbulence in the holding and conduct of the meeting, which would be highly injurious to the interest of the company, This application was, as would be expected, strenuously resisted. Sethu-raman J., was aware of the importance of the projected meeting and the possible difficulties in its conduct. He considered, on an interpretation of Section 186 of the Companies Act, that though the power thereunder could be invoked even in cases where a meeting was already called, it could be exercised only where it is impracticable to hold or conduct the meeting. In his opinion, the power was an extraordinary one and since he could find no deadlock, he would not be justified in appointing an advocate-chairman. On that view, he dismissed the petition. The appeal by the petitioners is before us.

2. Pending disposal of the appeal, this court had granted an ad interim injunction, though called a stay, forbidding holding of the meeting as convened. Though notice of this order was duly served in the registered office of the company, the meeting nevertheless was held and certain resolutions were passed. In other proceedings for contempt and in an application. to declare the meeting and the resolutions passed therein as of no effect whatever, we accepted the apology tendered by the alleged con-temners as it was unconditional and held in those proceedings that the meeting, its proceedings as well as the resolutions passed therein were of no effect, as they all took place contrary to and in disobedience of injunction orders of this court. There was an application taken out by the respondents to have the appeal dismissed on the view that it has become infructuous since the meeting has already taken place. But this application has been earlier dismissed by us following our view that the meeting and the resolutions passed therein were of no effect. Order in CMP No. 10347 etc. of 1974 in OSA 64/74 dated 11-3-1975--Century Flout Mills Ltd. v. S. Suppiah : AIR1975Mad270 .

3. In considering the appeal, there is no difficulty in realising that the meeting that was called for will be of great importance and consequence and it is not difficult also to see that the proceedings will be acrimonious, tumultuous and turbulent. The resolutions which we have already referred to tabled for consideration at the meeting would seriously affect the rights of those concerned and eventually the interest of the company as well. There is no permanent chairman nominated under the articles and, in view of the faction, even the election of the chairman in the meeting would be caught in a whirlwind of factionalism. In the circumstances, therefore, in our opinion, it will be imperative and necessary to have an advocate-chairman appointed to act as an independent person to dispassionately, hold and conduct the meeting as and when it will take place.

4. But the question is whether this court has power to make such an appointment. We have no doubt that this court has the power under Section 186 of the Companies Act, 1956. That section reads :

' 186 (1) If for any reason it is impracticable to call a meeting of a company, other than an annual general meeting, in any manner in which meetings of the company may be called, or to hold or conduct the meeting of the company in the manner prescribed by this Act or the articles, the court may, either of its own motion or on the application of any director of the company, or of any member of the company who would be entitled to vote at the meeting,--

(a) order a meeting of the company to be called, held and conducted in such manner as the court thinks fit; and

, (b) give such ancillary or consequential directions as the court thinks expedient, including directions modifying or supplementing in relation to the calling, holding and conducting of the meeting, the operation of the provisions of this Act and of the company's articles.

Explanation.--The directions that may be given under this subsection may include a direction that one member of the company present in person or by proxy shall be deemed to constitute a meeting.

(2) Any meeting called, held and conducted in accordance with any such order shall, for all purposes, be deemed to be a meeting of the company duly called, held and conducted. '

5. This section is substantially the same as Section 79(3) of the Companies Act, 1913, except that the annual general body meeting is excluded from the purview of Section 186 of the 1956 Act. At the first blush it may appear that an order calling for a meeting is a pre-requisite for giving ancillary and consequential direction; but on a closer scrutiny of Sub-section (1) of Section 186, it seems clear to us that the court is not circumscribed or limited in the exercise of its power under that section. Power under the section may be exercised either for calling a meeting or when a meeting has already been called, to hold it, and if it is apprehended that it is not going to be held in a proper way, then give directions for the due conduct of the meeting. This is because the first part of Sub-section (1) of Section 186 furnishes one ground for invoking the power, namely, where it is impracticable to call a meeting of the company in any manner in which the meeting of the company may be called, the power may be exercised. The power may also be exercised though a meeting might have been called, to hold or conduct the meeting of the company in the manner prescribed by the Act or the articles. These are two independent grounds and the power can be exercised on any one of those grounds being established. If a meeting has not been called, the court may call for a meeting and give directions as to the holding and conducting thereof. That is clear from Clause (a) of Sub-section (1) of Section 186. Where a meeting has been called and no direction of the court is, therefore, necessary, still the power is available for the court to give directions as to the holding and conduct of the meeting and any order ancillary or consequential to that direction can also be made under Clause (b) of Sub-section (1). A comparison of Section 167(1) with Section 186(1) also lends support to our view as to the scope of Sub-section (1) of Section 186.

6. Turning to the decided cases: A. Ananthalakshmi Ammal v. Tiffin's Barytes, Asbestos & Paints Ltd., : AIR1952Mad60 ., did not directly decide this question because there was an application for calling for, holding and conducting a meeting. The point, therefore, did not call for decision in that case. Rajamannar C. J. and Panchapakesa Iyer J. gave directions under Section 79(3) of the 1913 Act to call for, hold and conduct a meeting. V. Selvaraj v. Mylapore Hindu Permanent Fund Ltd, [1968] 38 CC154 (Mad).. , a decision of a learned single judge of this court, ordered appointment of a chairman to supervise and preside over an annual general meeting to be called by the board of directors. Though the learned judge did not discuss elaborately the scope of Sub-section (1) of Section 186, he purported to follow an earlier judgment of another learned single judge in C.A. No. 138 of 1963. But there the learned judge relied on the inherent power in the court to give directions asked for. But that is not the view that we hold about Section 186. There is no need to invoke the inherent power of this court at all. We express no view as to whether such a power exists. It will suffice to say that Section 186 itself confers on the court ample power, as we have already expressed, to call for a meeting, or, if that is not necessary, to give directions for holding and conducting a meeting.

7. For the respondent it is contended that the order made by Sethu-raman J. was but an administrative order which could be hardly regarded as a judgment within the meaning of Clause 15 of the Letters Patent and that, therefore, the appeal is incompetent. In support of this contention reliance was placed on Shankarlal Aggarwala v. Shankarlal Poddar, : [1964]1SCR717 .. We do not think that this case is of particular assistance in deciding this matter. That decision only points out the distinction between an administrative and judicial order. If the test is decision on rights, it cannot be pretended in this case that the projected meeting would not have any effect or consequence upon rights of shareholders. In fact, the resolutions given notice of were of a serious character and would have far-reaching effect both in respect of the office held in the company and the rights of the shareholders. Whether an advocate chairman should be appointed or not will depend on a decision on facts alleged for and against, which will have their root in the rights of parties. In our opinion, therefore, the order under appeal cannot be regarded as a mere administrative order. We think that it is a judgment for purposes of Clause 15 of the Letters Patent.

8. The other contention for the respondent is that, since the meeting has already been called, held and conducted and resolutions passed, there is nothing further to be done, so that this appeal is pointless, as there is to be no meeting nor a new meeting is necessary. This contention wholly overlooks the position that the meeting which was held and the resolutions that were passed therein have been declared to be of no effect whatever, Order in CMP Nos. 10347, etc., of 1974 in OSA No. 64 of 1974 dated 11-3-1975 (Century Flour Mills Ltd. v. S. Suppiah)-- : AIR1975Mad270 .. In consequence, it follows that only the requisition for the extraordinary general body meeting remains. It is no doubt true that the meeting was called for for a fixed date which has now passed. But this is because of the inhibitory order that we granted pending disposal of the appeal. Once it is clear that because of it no meeting could be legally held on that day, we cannot leave the matter at that and accept the argument of the respondent which would have the consequence of practically dismissing the appeal by that means. Since the meeting fixed for a date could not take place because of the orders of this court, we think that it is necessary for this court now to direct that the meeting called for will be held on a date to be fixed by the board of management and be proceeded with to consider the resolutions of which notices have already been given.

9. There will be an advocate-chairman, who will preside, hold and conduct the meeting pursuant to the notice calling for a meeting. The board of directors will implement that notice by fixing a date within two months from to-day for the holding of the meeting. The appeal is accordingly allowed. In the particular circumstances of this case, we make no order as to costs.

10. Mr. M. R. Narayanaswami, advocate of this court, is appointed as the advocate-chairman to hold and conduct the meeting. The meeting will take place at the premises of the registered office of the company. The chairman will have all the powers by virtue of his office as chairman and other powers under the Companies Act. He will also carry out the necessary things in respect of prayer (b) in paragraph 19 of the appellant's petition. The remuneration of the chairman will be fixed at Rs. 1,500 which will come out of the funds of the company.


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