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Sishu Ranjan Dutta and anr. Vs. Bhola Nath Paper House Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKolkata High Court
Decided On
Case NumberCompany Petition No. 653 of 1979
Judge
Reported in[1983]53CompCas883(Cal)
ActsCompanies Act, 1956 - Sections 2(13), 2(26), 43A, 267, 268, 269, 317, 320, 397, 398 and 402
AppellantSishu Ranjan Dutta and anr.
RespondentBhola Nath Paper House Ltd.
Appellant AdvocateS.B. Mukherjee and ;Dipak Basu, Advs.
Respondent AdvocateP.C. Sen and ;Hirak Mitter, Advs. for respondent Nos. 2 to 5 and ;Pratap Chatterjee, Adv. for respondent Nos. 6 and 7
Cases ReferredRichardson Cruddas v. Haridas Mundra
Excerpt:
- salil k. roy chowdhury, j. 1. this is an application under sections 397, 398, etc., of the companies act, 1956, for the appointment of a special officer and/or administrator and for an order or direction to be given for regulation of the conduct of the affairs of the respondent-company in future and if necessary an appropriate scheme of management to be framed by this court and also for a declaration that respondent no. 2, bishnu pada dutta, respondent no. 3, krishna pada dutta, respondent no. 6, sunder lal dutta, and respondent no. 7,madhu sudhan dutta, are not entitled to act as managing directors of the respondent-company and for various other incidental declarations and orders.2. the company is really a family concern of the duttas, who are divided into two groups each group holding.....
Judgment:

Salil K. Roy Chowdhury, J.

1. This is an application under Sections 397, 398, etc., of the Companies Act, 1956, for the appointment of a Special Officer and/or Administrator and for an order or direction to be given for regulation of the conduct of the affairs of the respondent-company in future and if necessary an appropriate scheme of management to be framed by this court and also for a declaration that respondent No. 2, Bishnu Pada Dutta, respondent No. 3, Krishna Pada Dutta, respondent No. 6, Sunder Lal Dutta, and respondent No. 7,Madhu Sudhan Dutta, are not entitled to act as managing directors of the respondent-company and for various other incidental declarations and orders.

2. The company is really a family concern of the Duttas, who are divided into two groups each group holding 50% shares in the company as would appear from para. 14 of the petition. The genealogical table of the family to which the Duttas belong is set out in para. 9 of the petition from which it appears that one Sri Bhola Nath Dutta, who had four sons and the present Dutta petitioners and respondents, are the descendants of the third and fourth sons of Sri Bhola Nath Dutta, being Sri Bireswar Dutta and Sri Bibhuti Bhusan Dutta both since deceased. The petitioners' group really constituted of the descendants of Sri Bireswar Dutta along with petitioner No. 2, a private limited company in the name of Bireswar Dutta Estate Pvt. Ltd., and they together hold half share in the capital of the respondent-company being Sri Bhola Nath Paper House Limited and the sons of Sri Bibhuti Bhusan Dutta, being respondents Nos. 2 to 5, hold the other half shares in the capital of the respondent-company.

3. The respondent-company was incorporated on the 29th of March, 1943, as a private company limited by shares but subsequently on and from 1st of July, 1976, the said respondent-company became a public limited company under the provisions of Section 43A of the Companies Act, 1956. The registered office of the company was situated at No. 21, Beadon Street, Calcutta, which was shifted later on in or about 1977 to the premises No. 32A, Brabourne Road, Calcutta. The company, inter alia, carries on business of all sorts of paper and stationery goods as would appear from its memorandum of association which is annexed to the petition and marked with the letter 'A'. It is admitted that at all material times the principal business of the company was to carry on business in all kinds of paper, paper boards, stationeries and printing ink. The company had its head office at No. 32A, Brabourne Road, Calcutta, and shop rooms and godowns and branch offices at No. 167, Old China Bazar, Calcutta, also there is a shop room and a godown at No. 134/135, Old China Bazar, Calcutta, a shop room and a godown at No. 64, Mahatma Gandhi Road, Calcutta, and a branch office. At all material times the company had four managing directors, being Sri Sundar Lal Dutta, respondent No. 6, Sri Madhu Sudhan Dutta, respondent No. 7, Sri Bishnu Pada Dutta, respondent No. 2 and Sri Krishna Pada Dutta, respondent No. 3. That is, two belong to one group and the other two to the other. The shareholdings of the company are set out in para. 11 of the petition and the said two groups have equal shares, as I have already stated as set out in para. 14 of the petition. It is admitted that from the inception of the company the said four respondents have been jointly acting as managing directors of the company and they were not liable to retire at any annual general meeting so long as they hold their office as managing directors and each of the managing directors received a sum of Rs. 1,000 per month as their remuneration. The relative provisions of the articles of association, being Articles 42, 43, 43(a), (b), (c), 44-56, are set out in para. 17 of the petition. The premises in which the registered office of the company is situated, being No. 32A, Brabourne Road, Calcutta, belongs to petitioner No. 2, Sri Bireswar Dutta Estate Private Limited, and the defendant company is a tenant along with other portions being let out to the other tenants. The company is now in occupation of about 5,000 sq. ft. in the ground floor of the said premises No. 32A, Brabourne Road, Calcutta, having a godown and a shop room there. It appears that the said two groups which have been described as group 'A' and group 'B' in the petition were participating in the management and, amongst themselves, by arrangement, respondents Nos. 2, 6 and 7 used to sit and work as managing directors of the said company in the said registered office at No. 32A, Brabourne Road, Calcutta, and the petitioner No. 1 has been looking after the sales in the head office and respondent No. 4 was in charge of the branch office at No. 64, Mahatma Gandhi Road, Calcutta, and respondent No. 5 who used to sit at the branch office had been jointly acting and respondent No. 3 was in charge of the godown and the shop room at No. 167, Old China Bazar, Calcutta, The other shop room at No. 134/135, Old China Bazar, Calcutta, was in charge and control of the head office through the employees employed therein. The company suffered a set back in 1969 and it is alleged that the same was due to the floating and formation of a new paper manufacturing company under the name and style of East India Paper Industries Ltd., out of the assets of the respondent-company and also the assets of the other shareholders of the said company who contributed by purchasing shares therein for having a controlling interest in the said paper manufacturing unit which is a duly constituted public limited company. The said company was initially in the hands of the parties in these proceedings but later on was handed over to the Jatia Group when prolonged and continuous labour trouble started therein. It is alleged that in or about 1967-68 disputes arose in the head office and stocks worth about Rs. 12-13 lakhs were transferred from the head office to the branch office and respondent No. 4 was in charge of the said stocks. The said stocks were taken for the purpose of forming capital and for facilitating the business of the branch office. In or about 1972, respondent No. 4 left the said branch office and respondent No. 3 thereafter remained in sole charge of the said branch office and one Sri Bidyut Dutta, the youngest son of respondent No. 2, along with Sri Amit Dutta, the eldest son of respondent No. 3, were posted at No. 167, Old China Bazar, Calcutta. The said Sri Bidyut Dutta has been in control of the godown and shop room there. One Sri Samit Dutta, the son of respondent No, 6, was posted and was looking after the affairs of the shop room and godown at No. 134/135, Old China Bazar, Calcutta. Sri Pradyut Dutta, the eldest son of respondent No. 2, along with Sri Rajesh Dutta, the youngest son of respondent No. 3, also started sitting in the branch office at No. 64, Mahatma Gandhi Road, Calcutta, where respondent No. 5 also used to sit. The overall management was in charge of respondent No. 3, Sri Krishna Pada Dutta. It is alleged that since then there was a total lack of co-ordination in the internal management of the company and loss of mutual confidence and trust amongst the two groups and that gradually deteriorated for the last five or six years. The company suffered tremendous financial loss and also the disputes between the parties was aggravated. From the facts pleaded in the petition and admitted by respondents Nos. 2 to 5, it now appears that the two groups, who are holding equal shares in the said company, have fallen out and there is a complete deadlock and it has become impossible to carry on the business in the present state of affairs as it is now prevalent in the management, as there are allegations of mismanagement and misappropriation against each other and, consequently, the banker of the company served a notice on the company for payment of its overdraft loan in respect of the cash credit account and all the acts of such mismanagement, misappropriation and acts prejudicial to the interest of the company and shareholders and prejudicial to the public interest has been set out in the petition and are Summarised in para. 68 and various sub-paragraphs therein and the present petition was presented on the 21st of December, 1979, and an interim order was passed in the application and, thereafter, on the representation of the parties to keep the company going in a smooth manner, the interim order was varied appointing one from each group as the administrator but it appears that that also did not work out smoothly and from time to time variation of the said interim order was asked for and at my request the matter being a family concern and one of the oldest company in Calcutta, which is very well-known and has a goodwill, the parties tried to settle the matter and to suggest a workable order to this court so that the business of the company may be smoothly carried on by both the parties and for that purpose the matter was adjourned from time to time after being part-heard, but, ultimately, the attempt failed on some flimsy grounds and the matter was heard at length on various questions which were raised in this application as I am now summarising hereinafter.

4. Regarding the question that both the groups cannot carry on the business and affairs of the company together any longer is beyond any doubt and in fact admitted by both the parties. It also appears that the business has been bifurcated and the two groups are controlling and in charge of the business, one the head office and the Old China Bazar shop room and godown and the other the Mahatma Gandhi Road branch office and other shop room and godown. It is also admitted that there is a guarantee by petitioner No. 2 for the loan granted to the respondent-company, and the banker of the company, United Industrial Bank Limited, has called upon the company to pay or liquidate the overdraft amount in the cash credit account. Therefore, there is some jeopardy so far as the guarantor, which is petitioner No. 2 company of which petitioner No. 1 and respondent No. 6 are the directors. It also appears that petitioner No. 2 is the landlord in respect of the premises No. 32A, Brabourne Road, Calcutta, and it has already filed an ejectment suit against the defendant-company which is still pending. In this state of affairs the best course, to which also the petitioner group and the respondent group agreed, that the business and assets of the respondent-company may be divided equitably so as to make it viable units and the confrontation and conflicts between the two groups will come to an end, and for that purpose both Mr. S.B. Mukherjee, appearing for the petitioners' group, being-group 'A', and Mr. P.C. Sen, appearing for the respondents' group, being group 'B', have suggested certain divisions which after careful consideration appears to the to be very reasonable and the differences seem to be not unsurmountable. Therefore, on a careful consideration of the facts of this case and the submissions on behalf of both the parties, I am of the view that the only solution and remedy available in this application is to divide the business and its assets including shop rooms, godowns, tenancy rights, etc., among the said two groups in a manner so that the company may carry on business without further difficulty.

5. Mr. S.B. Mukherjee, appearing with Mr. Dipak Basu, for the petitioners, submitted after drawing my attention to various paragraphs of the petition that there is a complete deadlock in the company and there is a huge claim of the bankers of the company for which demand has been made. There is an ejectment suit against the company by petitioner No. 2 and there is a huge arrears of rent. Further, one of the points urged was that the company became a public limited company under Section 43A of the Companies Act, 1956, and the managing directors' term expired without the approval of the Central Govt. It must be held that there is no valid board of the company. Mr. Mukherjee also drew my attention to various sub-paragraphs of the affidavit-in-opposition filed on behalf of respondent No. 3, Sri Krishna Pada Dutta, representing the opposing group and also to my interim order dated 1st of December, 1979, and finally summarised his contentions that in the company it is admitted that the shareholding in the respondent-company is equally held by the two groups, and that will appear from paras. 4 and 8 of the petition. It is also admitted that out of the four managing directors, two belong to the group of the petitioner, being respondents Nos. 6 and 7, and two belong to the opposing group, being respondents Nos. 2 and 3. He also submitted that there is no valid board of directors in view of the fact that the company is a public limited company under Section 43A of the Companies Act, 1956, and he referred to para. 68(g) of the petition and submitted that there is a complete deadlock and no remedy is available in the domestic forum of the company and there is complete loss of confidence and good faith and he referred to paras. 53 and 55 of the petition. Therefore, there is a ground for the winding-up of the company on just and equitable grounds, and he referred to the principles laid down in the Supreme Court decision in Hind Overseas P. Ltd. v. Raghunath Prasad Jhunjhunwalla [1976] 46 Comp Cas 91. He also submitted that the respondents have set up practically a different concern including the branch as a rival business to that of the respondent-company and he referred to paras. 7,57-59 and affidavit-in-reply para. 10(c). He also submitted that the business of the company is being mismanaged, particulars of which are set out in paras. 57 and 58 of the petition. Further, it is admitted that petitioner No. 2 being the landlord of the head office has instituted an ejectment suit against the company which is still pending. The petitioner No. 2, the company, has a large stake, being the guarantor on behalf of the defendant company for the loan granted by the banker, United Industrial Bank Limited, and is the landlord and the property of petitioner No. 2 being No. 32A, Brabourne Road, Calcutta, being the security for the said loan of about Rs. 2,00,000 advanced to the respondent-company. He submitted that the relief sought for by the petitioners should be granted as the banker has already made a claim against the company and thereby there is a jeopardy of the property of petitioner No. 2 being the guarantor whose security is charged for the loan granted to the respondent-company by the company's said banker. Mr. Mukherjee also referred to the affidavit of Sundar Lal Dutta, respondent No. 6, affirmed on the 8th of February, 1980, and at page 43, the letter dated 7th of February, 1980, and affidavit-in-opposition, para. 10(c). Therefore, he submitted that in this case the sale of shares of one group is not the solution and he submitted that an interim order should be made as it was made on 1st of December, 1979, and the subsequent valuation of the same has not worked.

6. Mr. Pratap Chatterjee, appearing for respondents Nos. 6 and 7, adopted the contentions of Mr. Mukherjee and supported the petitioners.

7. Mr. P.C. Sen, appearing with Mr. Hirak Mitter, for respondents Nos. 2 to 5, submitted that the application is not maintainable as the same is not for redress of genuine shareholders but for a collateral purpose and for putting pressure by petitioner No. 2 through the petitioner's group including respondents Nos. 6 and 7. He submitted that petitioner No. 2 is the owner of No. 32A, Brabourne Road, Calcutta, who has already filed a suit for ejectment against the company which is still pending and the said company being petitioner No. 2 is controlled by respondents Nos. 6 and 7. Mr. Sen submitted that no charges tinder Sections 397-398 of the Companies Act, 1956, has been made out in the petition or it has not been substantiated against the respondents. He referred to paras. 50 and 51 of the petition and paras. 45 and 47 of the affidavit-in-opposition. Thereafter, he dealt with the charges, made out in para. 68 of the petition and submitted that the charges in Clauses (a) and (b) are vague and there are no particulars about the same. Regarding paras, (c) and (d) he submitted that due to the small size of the petitioners' group and a larger number of members of the respondents' group the situation has been created and that cannot be called to be mismanagement or misappropriation in any way as it is only natural that the family members of the shareholders/directors will go into the business of the company. Regarding charges in Clause (e), he submitted that the said dwelling house was let out for a long time and the petitioners cannot make any grievance at this stage and regarding Clause (f), Mr. Sen submitted that the account up to 31st of March, 1978, has been accepted by the shareholders and also the petitioners and, lastly, regarding the allegations in sub-Clause (e) he submitted that the company is no longer a public limited company under Section 43(A) of the Companies Act, 1956, as the average turnover of the respondent-company has fallen below Rs. 1 crore and the petitioners' group has not made an application to the Central Govt. for approval of the Central Govt. that it has again become a private limited company under Sub-section (4) of Section 43A of the Companies Act, 1956. Therefore, the petitioners cannot take advantage of their own default. He referred to paragraph 17 of the affidavit-in-opposition.

8. But ultimately in the course of argument it was admitted that there is a complete deadlock and the two groups cannot go together and the company cannot be managed smoothly in the present situation and, therefore, it clearly follows that there is mismanagement of the company amounting to oppression of one group by the other, whichever way it may be looked at. Therefore, with a view to bringing to an end or preventing the matter complained of, a suitable order has to be made and Mr. Sen was fair enough to suggest the division of the business and its assets equitably between the two groups so that the deadlock may be removed and the business of the company may be continued if the court thinks it fit to accept the said suggestion.

9. There are really three main charges which were dealt with by Mr. Sen. Firstly, the question that there is no valid board of the company, where the facts are admitted, has become a question of law and, secondly, the bona fides of the application on the ground that the real purpose is to put pressure on the respondents by the ejectment suit which has been instituted by petitioner No. 2, the landlord, against the company through the petitioners' group, and, lastly, the danger that the security of petitioner No. 2, which is controlled by the petitioners' group, particularly respondents Nos. 6 and 7, furnished to the banker of the respondent-company, being United Industrial Bank Ltd., is sought to be enforced due to the default on the part of the company which amounts to mismanagement and oppression.

10. But, after hearing both the parties and the suggestions made on behalf of both the groups before me, I do not think that there can hardly be any dispute that there is complete lack of confidence in each other and both the groups cannot pull on together any longer and there is a complete deadlock in the management of the affairs of the company and it is not necessary to go into the question of mismanagement by one group as there are mutual allegations but the fact remains that it is a fit case where a case has been made out on just and equitable grounds for winding up the company and there is mismanagement which has inevitably followed due to mistrust and loss of confidence in each other between the members of the two groups, and, being the members of the same family, it is hardly possible to resolve the same in any way other than what the parties have suggested, that is, by equitable division of the business and the assets of the company in a proper manner so that both the groups can carry on business independently of each other and the flourishing business of the company may be fairly divided between the two groups along with its assets in an equitable, just and proper manner so that the matter complained of is brought to an end.

11. Regarding the legal question as to whether there is any valid board, as, admittedly, all the four managing directors under the articles of association of the company are the directors of the company, who were so long managing the company under the articles and, thereafter, when the company became a public limited company under Section 43A of the Companies Act, 1956, with the approval of the Central Govt. as required under Sections 268 and 269 of the Companies Act, 1956, and it is admitted that the term has expired and, therefore, they are no longer managing directors and the appointment as managing directors of the said four persons shall cease to have any effect after the date of expiry, Mr. Sen submitted that assuming they have ceased to become any longer the managing directors in view of non-approval after the expiry of their terms by the Central Govt. they continue as directors of the company; Therefore, it cannot be said that there is no board. He referred to Sections 252, 268, 269 and 317 of the Companies Act, i956, and submitted that reading those sections it does not follow, that if a managing director acted beyond the period of approval, that does not deprive him to act as a director, as, a managing director is also a director and after he ceased to be a managing director he continues as a director. Mr. Sen cited several decisions, the first one being an English decision in Craven-Ellis v. Canons Ltd. [1936] 2 All ER 1066, where in an action for the recovery of remuneration as estate agent for a company, which was formed with the plaintiff and certain others as directors, it appears that the plaintiff continued his work in connection with the estate and the company received and accepted the service rendered but after the period for obtaining the qualification shares expired, the other directors did not acquire the necessary qualification shares and thereby all became incapable of acting as directors. There was also an agreement which was executed under the seal of the company for the plaintiff to act as a managing director, passed in a resolution by the unqualified directors, stating the terms on which the plaintiff was to act as managing director of the company. The plaintiff performed the service mentioned in the agreement and brought an action for the recovery of his remuneration as set out in the agreement or alternatively for his service on quantum meruit basis. It was held that the plaintiff rendered his service not as a director but as an estate agent, and, therefore, he was entitled to recover on a quantum meruit basis. In my view, the said decision does not lay down the proposition that if one ceases to be a managing director he continues as a director, but the question was whether the plaintiff was entitled to recovery on the basis of quantum meruit for his service rendered as an estate agent to the company, although the agreement between the company and him as a managing director was held to be a nullity.

12. The next decision cited by Mr. Sen was that of a Division Bench decision of the Allahabad High Court in Kaghunath Swarup Mathur v. Har Swarup Mathur [1967] 37 Comp Cas 802, Therein, a complaint lodged against the respondent for acting as a managing director without the approval of the Central Govt. was made by the appellant against the respondent in alleged contravention of Section 269 of the Companies Act, 1956. There was a dispute in that case, whether the company was a private limited company which was subsidiary of a public limited company or whether it was a public limited company. It was held in that case that it was not proved that the company was a public limited company or a private limited company which was a subsidiary of a public limited company and, therefore, the provisions of Section 269 of the Companies Act, 1956, may not apply, and as such the complaint was held to be not maintainable. Mr. Sen also referred to a Supreme Court decision in Ram Prashad v. CIT : [1972]86ITR122(SC) . The said decision arose outof an assessment proceeding against a managing director who gave up his commission and the question arose whether the same was taxable. In dealing with the question the Supreme Court observed that the managing director of a company may have a dual capacity. He may be both a director as well as an employee and it was held that he was a managing director, although he was an employee of the company apart from being a director. Such a question can be determined only by the articles of association and the terms of employment. In my view, the said decision is not throwing any light which has arisen in this case as it is well settled that a director can be an employee of a company by a special agreement between the company and the director and so also a managing director and there cannot be a dispute that the managing director is also a director of a company, but, the question for decision in this application is whether without the approval of the Central Govt., can the managing directors continue as managing directors or directors or function as a board Mr. Sen also referred to another decision in C. Balchand v. Devashola (Nilgiri) Tea Estate Co. Ltd. [1972] 42 Comp Cas 623 (Mad), where also the same principle that the managing director is also a director arose in a prosecution case for a non-compliance with the provisions of the Companies Act, 1956, and the last decision referred to by Mr. Sen on this question was in Bengal Luxmi Cotton Mills Ltd. : 69CWN137 , where B.C. Mitra J. observed that (the question was) whether the non-existence of a valid board of directors empowers the court to exercise the power under Sections 397-98 or it amounted to an act of mismanagement or act prejudicial to the interest of the company, and it was observed that such a difficulty can easily be resolved by calling a general meeting of the company. Therefore, Mr. Sen submitted, firstly, that, there is a valid board of directors even assuming that the four managing directors have ceased to be managing directors any more and, secondly, the absence of any valid board, assuming the same to be so in this case, will not empower the court to exercise jurisdiction under Sections 397-398 of the Companies Act, 1956, as that does not amount to a mismanagement or an Act prejudicial to the interest of the company within the meaning of Sections 397-398 of the Companies Act, 1956. Mr. Sen also submitted that the written statement and the affidavit filed in the ejectment suit admitting the financial difficulties of the company is not sufficient for the purpose of determining whether the company has been mismanaged. He submitted that the motor car of the company has been used by the parties for the purpose of the company's business with the knowledge of each other and, therefore, that cannot amount to any mismanagement or acts prejudicial to the interest of the company. He further submitted that as the business of the respondent-company is well managed by respondents Nos. 2 to 5 and their sons, that has caused the disputes to be started and resulted in the present application. Therefore, after summarising the facts in the background of the relationship between the parties and also having regard to the nature of the business, its goodwill and high potentiality, the court should make a proper order for dividing the assets of the company equitably among the two groups so that they can carry on business independent of each other without hampering the goodwill and reputation of the company and its business.

13. Mr. Sen submitted a draft suggestion for such a division as it is admitted that the two groups who have got equal shares in the capital of the respondent-company, which can no longer continue the business jointly, that is, the respondent-company cannot be under the joint management of the two groups as it was before the disputes started and, therefore, he suggested that no order should be made by the court under Sections 397-98 read with Section 402 of the Companies Act, 1956. It is now well-settled that the court has ample power to pass any order for putting an end to the matter complained of.

14. Mr. S.B. Mukherjee in reply submitted that the suit for ejectment by petitioner No. 2, which has been filed in the usual course of the business of petitioner No. 2 against respondent No. 1 company, is being defended and the exercise of a legal right by petitioner No. 2 cannot be said to be a pressure on the respondents. He also submitted that the bank's dues up to date can be determined from the statements of the United Industrial Bank Ltd., the, banker of the company, and the actual stake and the jeopardy to which the petitioner and their group are put can be determined. Mr. Mukherjee submitted that respondents Nos. 2, 3, 5 and 6 are the managing directors under the articles of association of the company and it requires the approval by the Central Govt. under Section 269 and the term having expired it cannot be said that there is any valid board. He referred to Section 43A(4) and (5) and submitted that admittedly there is no application made by the respondent-company to the Central Govt. for an approval of its reverting to a private limited company under Section 43A(4) and, therefore, it is quite clear from the said provisions that until such an approval, for the reversion into a private limited company, by the Central Govt., the company must be deemed to be a public limited company under Section 43A and, consequently, Section 269 of the Companies Act, 1956, becomes operative and after the expiry of the period it must be held that all the managing directors are acting illegally and there is no valid board. Mr. Mukherjee distinguished the decisions cited by Mr. Sen, particularly the decisions in Raghunath Swarup Mathur v. Har Swarup Mathur and C. Balchand v. Devashola (Nilgiri) Tea Estate Co. Ltd. [1972] 42 Comp Cas 623 (Mad), as those were cases of prosecution for committing the offence of non-compliance with the provisions of the Companies Act, and the principles laid down therein have no application to the facts of this case. He also referred to the Supreme Court decision in Ram Prashad v. CIT : [1972]86ITR122(SC) , where it has been clearly observed that the real question was one of construction of the articles of association of the company and the agreement between the managing directors and the company for the determination of the question whether the managing director was an employee of the company and it was held that on a perusal of the said two documents the managing director was in the employment of the company as a managing director and not being that of an agent, and, therefore, the remuneration paid to the managing director as an employee was held to be salary within the meaning of Section 7 of the Indian I.T. Act. Mr. Mukherjee submitted that the said decision in Bengal Luxmi Cotton Mills Ltd., In re : 69CWN137 cannot be said to be any longer good law having regard to the various decisions as to the power of the court under Sections 397-398 as has been held in the Bombay High Court decision in Ben-net Coleman & Co.'s case [1977] 47 Comp Cas 92 and the Supreme Court decision in Cosmosleel's case [1978] 48 Comp Cas 312. Mr. Mukherjee submitted that this is a fit case where the court should intervene and pass an order so as to resolve the impasse which has arisen due to the complete deadlock between the two groups who hold equal shares in the respondent-company. Mr. Mukherjee also gave a suggested order in writing dividing the assets and business of the company between the two groups equitably as the company also carries on handling business as is clear from para. 4 of the supplementary affidavit of Krishna Pada Dutta and para. 4 of the affidavit-in-reply thereto. He also referred to the affidavit-in-opposition of Sunder Lal Dutta, respondent No. 6, who is also supporting the petitioners. In these circumstances, Mr. Mukherjee submitted that a suitable order should be made as has been suggested by the petitioners' group.

15. Considering the respective contentions very carefully it appears to me that there is a complete deadlock and grounds have been made out for the intervention of the court by exercising its extraordinary power under Sections 397-398 of the Companies Act, 1956. It is now well settled that to put an end to the matter complained of in an application under Sections 397-398 of the Companies Act, 1956, the court can make any order according to law having regard to the facts and circumstances of each particular case so that the company and its shareholders and the interest of the public are well protected and no further prejudice may be caused to any of them.

16. In this case, a question of law has been raised whether the managing directors of a public limited company after the expiry of the approval period by the Central Govt. under Section 269 of the Companies Act, can continue as mere directors on the principle that managing directors are also directors. Therefore, if the capacity and character of managing directors expire, they continue as directors. In my view that proposition seems to militate against the very spirit, object and purpose of the provisions of Sections 268 and 269 of the Companies Act, 1956. The decisions cited by Mr. P.C. Sen on behalf of the respondents, in my view, do not answer the problem which has arisen in this case as those are decisions on the question of offence committed by the managing directors for non-compliance with the provisions of the Companies Act, and also, the interpretation of the agreement between the managing directors and the company as an employee of the company, as I have already referred to earlier while dealing with the said decisions. The provisions of Sections 267, 268 and 269 of the Companies Act, specifically deal with the appointment, reappointment, etc., and the conditions to be satisfied for such appointment are clearly set out, and, it is also admitted as a fact that the said four managing directors of the respondent-company, which is a public limited company under Section 43A of the Companies Act, continue to be so, until it is reverted on the application on behalf of the company as a private limited company under Sub-section (4) of Section 43A, and no such application has been made. It is admitted that the terms of the said managing directors being respondents Nos. 2, 3, 6 and 7 have expired on June 30, 1979, and they are also carrying on as managing directors of the respondent-company without applying for the approval of the Central Govt. Therefore, it cannot be contended that their terms can be extended without a specific approval in compliance with Section 269 of the Companies Act. The contention of Mr. Sen is that, admitting that the said four managing directors have ceased to be managing directors, as no approval has been obtained for their re-appointment as managing directors of the respondent-company, they can continue as directors, and, as such, the respondent-company has a valid board of directors. He drew my attention to Sub-section (5) of Section 269 and submitted that unless rejection is communicated to the respondent company, the appointment as managing directors will continue but in my view the provisions of Sub-section (5) make it quite clear that there must be an application for the reappointment of the managing directors for a further period after the expiry of the period for which approval was accorded by the Central Govt. for appointment or reappointment as managing directors of a public limited company and then, and then only, the question of communication of the decision of the Central Govt. would arise. As, here, it is admitted that no such application for reappointment of the said respondents Nos. 2, 3, 5 and 6 as managing directors has been made to the Central Govt. under Section 269, the said Sub-section (5) of Section 269 has no application in this case. Section 317 which deals with the maximum period for which a managing director can be appointed is subject to Sections 268-269 of the Companies Act, 1956, that is, such appointment must be with the approval of the Central Govt. under Section 269 of the Companies Act, 1956. Otherwise, the provisions of Section 269 will become meaningless and render infructuous, as if once managing directors are appointed and approval is obtained they will continue for ever without obtaining the sanction of the Central Govt. as specifically required under Section 269 of the Companies Act, 1956, and in this connection the definition of a managing director in Section 2(26) of the Companies Act, includes a director occupying the position of a managing director, by whatever name he is called, who by virtue of the memorandum of association or the articles of association is entrusted with the substantial power of management which would not be exercisable by him. In this case, it is admitted that the said four directors, being respondents Nos. 2, 3, 5 and 6, acted as managing directors initially with the approval of the Central Govt. as required under Section 269 of the Companies Act, 1956, (the company) being a public limited company under Section 43A of the Companies Act, 1956, and which continues to be so even after the expiry. Further, it is made clear from the intention and object of the Companies Act, as laid down in the said Sections 267-269 and 317 and 320 that the managing director and whole-time or non-rotational directors and ordinary directors of a company are entirely separate officers having definite rights and obligations under the Companies Act, 1956, as for example, the appointment, reappointment and amendment of the terms of the managing director and whole-time director or non-rotational director requires the approval of the Central Govt. as provided under Sections 267-269 and their terms of years, remuneration and compensation for loss of office are provided in Sections 317 and 318 of the Companies Act, 1956, whereas the directors are treated separately and it has been specifically provided that no compensation can be payable to directors. Further, the definitions of a director in Section 2(13) and managing director in Section 2(26) of the Companies Act, 1956, clearly define the two and having separate and specific provisions they cannot be mixed up and treated alike. Therefore, it necessarily follows from the said provisions that if the terms of the managing directors expire, they cease to be managing directors and cannot continue as directors without being validly appointed by the company according to the relative provisions of the company law and the articles of association of the company. Otherwise, it will become that once a managing director is always a managing director which is not the purpose, object and intention of the said Sections 267 and 269 of the Companies Act, 1956. The Act must be given an efficacy and a meaning so that the intention is carried out and the object is attained and as the managing directors have got special powers and obligations they cannot occupy the dual capacity of both managing director and director. On their ceasing to be managing directors, they cease to be any officer of the company and unless their terms are extended and approved according to the said provisions of the Companies Act, they cease to be managing directors and there is no question of their continuing as ordinary directors. Any other interpretation will nullify the said specific provisions regarding a managing director referred to above. Therefore, under the specific statutory provisions they may be deemed to have vacated the office of the managing directors and, consequently, the respondent-company is without any valid board as admittedly no meeting of the respondent-company has been held to elect the directors of the company and constitute a valid board. This is an illegality which is on the face of it is being continued and, in the facts and circumstances of this case, will amount to mismanagement and prejudicial to public interest and, therefore, comes within the purview of Sections 397-398 of the Companies Article 3956.

17. Regarding the question of deadlock it is admitted that the two groups who hold equal shares in the company are not in a position to carry on the business of the respondent-company any longer and there is a complete deadlock and, therefore, there is a just and equitable ground for winding-up the company, which is a pre-requisite for exercising the power under Sections 397-398 of the Companies Act, 1956, and on the material placed before me in the pleadings and the annexures in the main application and the interim application and from the conduct of the parties it is quite clear that there are sufficient grounds for granting relief under Sections 397-398 of the Companies Act, 1956, as both the cases for mismanagement and oppression have been proved and made out by the petitioners which are practically admitted by the respondents and it will be prejudicial to public interest and, therefore, the court has ample power under Sections 397-398 of the Companies Act, for intervention and to pass a suitable order for putting an end to the matter complained of so that the business of the respondent-company may be carried on smoothly and the only way in this case appears to me to divide the assets of the respondent-company equitably between the two groups after payment of all the liabilities of the company and for that purpose a Special Officer should be appointed to administer the company and discharge the functions of a board, as there is no valid board of the respondent-company, who will run the said business till the liabilities of the respondent-company are liquidated and the guarantee of the petitioners to the respondent-company's banker, United Industrial Bank Ltd., and the charge of the property of petitioner No. 2 as guarantor, being the security for the loan granted by the said banker to the company, is released and accounts of the company are completed. It is now well-settled that the power of the court under Sections 397-98 read with Section 402 is very wide and that has been recognised in various decisions of this court; the Bombay High Court and also the latest Supreme Court decision being those in Richardson Cruddas v. Haridas Mundra [1959] 29 Comp Cas 549 (Cal), and the Bombay High Court decision in Bennet Colman's case [ 1977] 47 Comp Cas 92 and Cosmosteel's case of the Supreme Court in [1978] 48 Comp Cas 312, and, therefore, the court should exercise in this case having regard to the peculiar facts and circumstances, being a family concern of the Duttas, who are equally divided into two groups and the business being a flourishing business of long standing reputation and goodwill having high potentiality and prospect, being a concern dealing with essential commodities like paper, etc., to divide the assets and business of the company which in the facts of this case can be made conveniently on an equitable basis so that the liability of the company will be liquidated by the management of the company's affairs under a special officer to be appointed by the court and, thereafter, divide the properties and business of the company in two equal parts among the two groups and the shares of the petitioners will be surrendered to the company and thereby the capital of the company will be reduced to that extent and, thereafter, each group will be entitled to carry on business of the respondent-company, but the name of the company for the respective groups should be suitably changed. When I indicated this aspect of the matter, Mr. S.B. Mukherjee, appearing for the petitioners, and Mr. P.C. Sen, appearing for the respondents, submitted a draft form of order for equitable division of the assets and business of the company amongst the two groups so that the matter complained of may be put to an end and the business can be carried on smoothly by the two groups independently. The said suggestions are very helpful and I appreciate the reasonable attitude taken by both the parties and after considering all the facts and also the proposal given by both the parties, in my view, the proper order to be made in this application are as follows :

Mr. Trilokesh Goswamy, attorney-at-law and advocate, is hereby appointed Special Officer and administrator of the respondent-company who will discharge all the functions of the board of the respondent-company, Bhola Nath Paper House Limited, till the date hereafter mentioned. As there is no valid board of the respondent-company he will be advised by the four ex-managing directors of the said company being respondent No. 2, Sri Bishnu Pada Dutta, respondent No. 3, Sri Krishna Pada Dutta, respondent No. 6, Sri Sundar Lal Dutta, and respondent No. 7, Sri Madhusudhan Dutta. The Special Officer will be at liberty to take the assistance and advice also of the employees, managers and others already working in the company being the descendants of the two groups, when-ever required, and the said ex-managing directors and the employees and members of the Dutta family, who are working in the said respondent-company at its different offices, are directed to assist the Special Officer in the administration of the affairs of the company smoothly, efficiently and for expediting the collection of debts of the respondent-company and payment of liabilities and also a division of the properties and assets of the company as hereinafter directed so as to put an end to the matter complained of in this application.

18. The Special Officer will run the business of the company with the assistance of the said advisory board and the employees as aforesaid in all its offices including the registered office and the branch office at Mahatma Gandhi Road, Calcutta. The Special Officer is hereby authorised to engage a chartered accountant, and if required, a surveyor and a valuer for auditing the accounts of the respondent-company and a valuation of its assets whenever required and the remuneration of the said chartered accountant, surveyor and the valuer to be paid out of the funds of the company by the Special Officer. The Special Officer will ascertain the total amount due by the respondent-company in the overdraft account to the United Industrial Bank Ltd. at No. 7, Red Cross Place, Calcutta, and repay the same in such a manner so that the said amount may be cleared as early as possible and in respect of that he will consult the said ex-managing directors and other responsible employees of the respondent-company and get a release of the charge created on the premises No. 32A, Brabourne Road, Calcutta, being the property of petitioner No. 2, Birethwar Dutt Estate P. Ltd., and the personal guarantees of respondents Nos. 6 and 7. The Special Officer will also repay other dues of the said Bireshwar Dutt Estate Private Limited after ascertaining the same from the books of account of the company and holding meeting or meetings of the ex-managing directors and other employees concerned of the respondent-company. The said dues include the arrears of rent, loan with interest thereon, guarantee commission and also the repayment of the loan to Bibuti Bhusan Dutta Estate P. Ltd., out of the assets of the company for the purpose of payment of the liabilities of the company as aforesaid. The Special Officer, after consulting the said joint managing directors and responsible employees of the respondent-company, would be authorised to repay the said liabilities in a phased manner or in a manner conducive to the smooth running of the business of the respondent-company without hampering in any way the same, particularly out of the credit balances of current accounts maintained by the respondent-company with Chartered Bank at No. 54, Netaji Subhas Road, Calcutta, United Bank of India, College Street Branch, Calcutta, and Grindlay's Bank Ltd., 19, Netaji Subhas Road, Calcutta. The banking accounts of the company with the said bankers or any other banker or any new banking account if thought fit to be opened for the purpose of giving effect to this order and also for the smooth running of the company will be jointly operated by one from group (A) out of respondents Nos. 6 and 7, and one from group (B) out of respondents Nos. 2 and 3 and be countersigned by the Special Officer and the bankers of the company will be intimated about the same procedure for operating the banking accounts according to the order of this court.

19. The Special Officer will cause the following properties now belonging to the respondent-company to be allotted to group (A) in lieu of their shares held in the respondent-company and to be surrendered to the company as hereinafter ordered:

(a) The tenancy right in respect of the shop room and the godown at No. 32A, Brabourne Road, Calcutta, being the Registered Office of the company.

(b) Godown and carriage at No. 21, Beadon St., Calcutta.

(c) One room at No. 167, Old China Bazar St., Calcutta.

20. And the Special Officer will allot to group (B) representing the respondent-company the following properties of the respondent-company ;

(a) Premises No. 64, Mahatma Gandhi Road, Calcutta.

(b) Godown at No. 14/1, Beniatola Lane, Calcutta.

(c) One room at premises No. 167, Old China Bazar St., Calcutta.

(d) Shop room at godown at premises No. 134/135, Old China Bazar St., Calcutta, and four godowns at Nos. 33 and 33A, Beadon St., Calcutta.

21. In case the parties can amicably agree to accept the decision of the Special Officer regarding the said allotment and division of the properties as aforesaid, in a manner he thinks fit the matter will be settled accordingly. If there is any dispute, the Special Officer may take the assistance of the valuer and surveyor, as he thinks fit, or decide to allot the rooms at Old China Bazar St., Calcutta, to the respective groups by lot, or, if he thinks fit, will apply to the court for appropriate direction.

22. He will make an inventory and valuation of the furnitures and fittings lying at the registered office of the respondent-company at No. 32A, Brabourne Road, Calcutta, and 167, Old China Bazar St., Calcutta, and other offices and the godowns, if agreed between the parties, will be accepted by the Special Officer and equal division of the same without impairing the intrinsic value and use of the respective offices and branches will be divided equally between the two groups by the Special Officer. If the parties do not agree to the valuation, the same may be done by a competent valuer to be appointed by the Special Officer for that purpose and the remuneration of such valuer will be settled and fixed by the Special Officer in consultation with the parties and to be paid out of the funds of the respondent-company. The Special Officer will take immediate steps by appointing an income-tax lawyer to get the refund of about Rs. 28,000 from the I.T. authorities due and payable to the respondent-company as expeditiously as possible. The employees posted at the premises allotted to the respective groups will be retained by the respective groups in their employment if the said employees are so agreeable and their service conditions including provident fund, gratuity, etc., will be continued and there will be no break of service in respect of such employees with the respective groups. The shares held by the defendant company being East India Paper Industries Ltd. and India Paper Pulp Company Ltd. shall be divided equally between the two groups by the said Officer and all the necessary documents, that is, transfer deeds, etc., will be executed by the Special Officer on behalf of the company in favour of the respective groups, i.e., group A and group B, representing the respondent-company. The paper quotas along with the security deposit lying with the paper suppliers, e.g., Titagur Paper Mills Co. Ltd., India Paper Pulp Co. Ltd., Bengal Paper Mills Ltd., Ashoka Marketing Ltd. and Mandya National Paper Mills Ltd., will also be divided equally between the two groups as aforesaid by the Special Officer acting on behalf of the company and the respective suppliers will act as per directions of the Special Officer for such division. The Special Officer will also cause the realisation of the sundry debts due to the respondent-company by various debtors and collection of the assets and payment of the liabilities of the respondent-company and division and allotment of the properties as hereinbefore directed as expeditiously as possible. After the said collection of assets and payment of liabilities and division and allotment of the assets and properties of the company as aforesaid the shares belonging to the group 'A' in the capital of the respondent-company would be surrendered to the respondent-company and the capital of the respondent-company will stand reduced to that extent of the shares held by group 'A'. Thereafter, the said Special Officer will cause an extraordinary general meeting of the shareholders of the respondent-company which will be then held solely by group 'B' for electing the directors of the respondent company and on such election of the board of directors of the respondent-company, the Special Officer will hand over charge to the said Board belonging to group 'B' and they will cause the name of the respondent-company being changed from Bhola Nath Paper House Limited to Bhola Nath Paper Agencies Ltd. or such other name as may be available with the Registrar of Companies, West Bengal, according to the choice of the group 'B'. The group 'A', if so advised, would be entitled to carry on business along with the assets allotted to them as aforesaid under the name and style of Bhola Nath Paper Distributor or such other name as they may be advised and they will be entitled to incorporate a limited liability company in such name as may be available with the Registrar of Companies, West Bengal. The Special Officer is appointed at a remuneration of 100 G.Ms per month with liberty to appoint a clerk at a salary of not more than Rs. 100 per month and he will carry out the said directions and orders as aforesaid and carry on the business of the respondent-company, Bhola Nath Paper House Ltd., until the above directions are complied with in full and the change of the name of the respondent-company after surrender of the shares of group 'A' and the capital of the respondent company is reduced as aforesaid. He will try to expedite the allotment and division and collection of the debts due to the said company and payment of the liabilities of the respondent-company as aforesaid and the parties particularly the said ex-managing directors are directed to co-operate and assist the Special Officer to give effect to the said order and comply with the same, if possible, within a period of three months.

23. The Special Officer, the said respondents Nos. 2, 3, 6 and 7, the bankers of the company, United Industrial Bank Ltd. at No. 7, Red Cross Place, Calcutta, Chartered Bank at No. 54, Netaji Subhas Road, Calcutta United Bank of India, College Street Branch, Calcutta, and Grindlays Bank Ltd. at No. 19, Netaji Subhas Road, Calcutta, and the said paper suppliers, Titagur Paper Mills Co. Ltd., India Paper Pulp Co. Ltd., Bengal Paper Mills Ltd., Ashoka Marketing Ltd. and Mandya National Paper Mills Ltd., and all parties to this proceeding to act on a signed copy of the minute.

24. Liberty to apply.


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