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Bengal and Assam Investors Ltd. Vs. J.K. Eastern Industries Private Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKolkata High Court
Decided On
Case NumberMatter No. 264 of 1956
Judge
Reported inAIR1956Cal658,60CWN957
ActsCompanies Act, 1956 - Sections 175 and 186
AppellantBengal and Assam Investors Ltd.
RespondentJ.K. Eastern Industries Private Ltd.
Appellant AdvocateH.N. Sanyal and ;A.C. Mitra, Advs.
Respondent AdvocateS. Chaudhuri and ;Sankar Banerji, Advs.
DispositionApplication dismissed
Cases ReferredN. V. R. Nagappa Chettiar v. The Madras Race Club
Excerpt:
- .....of share-holders one called the jatia group and the other called the singhania group. in 1954 the jatia directors appointed k. l. jatia as chairman of the board of directors. on 25-5-1954 there was a requisition for an extra-ordinary general meeting by the present applicant. on 25-8-1954 an extra-ordinary general meeting was held at which k. l. jatia acted as chairman and refused to permit the resolutions to be moved on the ground that they should be moved as special resolutions under the articles of association of the company and under the companies act then prevailing. upon that the present applicant applied on 30-8-1954 for holding a meeting of the company under the supervision of the court under the then companies act. thereafter on 16-12-1954 a suit was filed being suit no. 3603 of.....
Judgment:
ORDER

P.B. Mukharji, J.

1. This is an application by Bengal and Assam Investors Ltd. under Section 186, Companies Act of 1956. It seeks an order that the extra-ordinary general meeting of the respondent company J. K. Eastern Industries Private Ltd. required of the petitioner to be called in pursuance of requisition dated 5-6-1956 be called and held and conducted in such manner as this Court thinks fit and proper and that for the purpose of the same such ancillary and consequential directions be given as this Court may think necessary or expedient including directions regarding the date, time and place of the meeting to be held, appointment of an independent Chairman for the meeting, deposit of proxies with such Chairman and all such other directions modifying or supplementing the operation of the provisions of the Com-panies Act and of the Companies Articles relating to the calling, holding or conducting of the meeting.

The applicant also seeks for an order that at the meeting the resolutions mentioned in the re-quistion notice annexed to the petition marked 'B' be considered and if thought fit be passed with or without modifications. The further order sought by the applicant is that! the respondent company must be directed to comply with the provisions of Sub-sections (3) and (4) of Section 284, Companies Act, 1956.

2. Before I discuss the implications of an application under Section 186, Companies Act, 1956, it would be necessary to state a few facts for the better appreciation of the actual point involved. The dispute is fundamentally between two rival groups of share-holders one called the Jatia group and the other called the Singhania group. In 1954 the Jatia directors appointed K. L. Jatia as Chairman of the board of directors.

On 25-5-1954 there was a requisition for an extra-ordinary general meeting by the present applicant. On 25-8-1954 an extra-ordinary general meeting was held at which K. L. Jatia acted as Chairman and refused to permit the resolutions to be moved on the ground that they should be moved as special resolutions under the articles of association of the company and under the Companies Act then prevailing.

Upon that the present applicant applied on 30-8-1954 for holding a meeting of the company under the supervision of the Court under the then Companies Act. Thereafter on 16-12-1954 a suit was filed being suit No. 3603 of 1954 for setting aside the alteration of articles alleged to have been done on 2-8-1954. There was also another suit on 16-12-1954 being suit No. 3604 of 1954.

3. The point of dispute is that although the Jatia groun is in minority so far as the share holding is concerned, they with only about 45 per cent. of the total shares, have manoeuvred themselves into a position of control over the Singhania group who have a majority of share holding ofabout 55 per cent. This, therefore, is not the usual case where the minority is oppressed by the majority but a case where the majority alleges to be oppressed by the minority.

4. Now the two suits that I have mentioned are still pending. The allegation that the present applicant makes in the petition is that the Jatias are attempting to delay the hearing of suit No. 3603 of 1954 as long as possible. The applicant is a share-holder holding 400 ordinary shares in J. K. Eastern Industries (Private) Ltd.

5. The resolutions that are intended to be passed at the meeting demanded by the requisitionists are set out in the notice itself. The resolutions that the applicant wants to be passed are to the following effect:

(1) That K. L. Jatia be removed from the office of the director and that Lakshmipat Singhania be appointed in his place.

(2) That G. D. Jatia be removed from the office of the director and Hari Shankar Singhania be appointed in his place.

(3) That M. P. Jatia, director of the company, be removed from the 'office of director and Krishna Prasad Khaitan be appointed in his place.

(4) That D. N. Jatia be removed from the office of director and Nalini Ranjan Hazra be appointed in his place,

(5) That Pratap Sing Nawalakha, Lakshman Prasad Maitin and Ramkrishandas Gupta be appointed additional directors of J. K, Eastern Industries Private Ltd.

6. Section 186 introduces new principles of company management. It is an innovation introduced by the Act of 1956. It provides power for the Court to order company meetings. The conditions under which such power of the Court to order company meetings should be exercised require analysis.

It is expressly stated in that statutory provision that if for any reason it is impracticable to call a meeting of the 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 an conducting of the meeting the operation of the provisions of this Act and of the company's articles.

7. Now the first essential condition is that the Court must have reason to be satisfied that it Is impracticable to call a meeting of the company or to hold or conduct the meeting of the company in the manner prescribed by this Act or the articles. That is the primary condition which must exist before the Court can assume powers of calling, holding and conducting meetings of companies and thereby supersede and override the right of the share-holders and their representatives the directors to call, hold and conduct company meetings which ordinarily belongs to them.

The second feature of this statutory provision is that the Court's power under Section 186, Companies Act of 1956 is discretionary. It is not a power which the Court must exercise. It is not a mandatory obligation upon the Court. It is an alternative remedy to be applied only when the normal machinery of company management fails and the Court must find, first that it is impracticable to call a meeting and secondly that to leave the parties to follow their own remedies and rights will put the company in jeopardy.

8. Now it is clear on the facts of this case that it is not impracticable at all to call a meeting of the company or even to hold a meeting of the company within the meaning of Section 186 of the Act. The very first condition of this Section la not satisfied.

In fact a notice has already been issued calling the meeting and notifying that the meeting will be held at the registered office of the company on 14-7-1956 at 11 a. m. That notice clearly sets out what resolutions the requisitionists want to be passed at the meeting. Therefore there is no impracticability in the matter of calling a meeting or in the matter of holding a meeting. In fact it has been called.

9. What, however, is suggested by the applicant is that I must hold that it is impracticable to conduct the meeting of the company in the manner prescribed by this Act or articles within the meaning of Section 186, Companies Act. I am unable to come to that conclusion. I do not find any reason to hold that it is impracticable to conduct the meeting notified to be held on 14-7-1956 in the manner prescribed by the Act and the articles of the company.

I shall state my reasons briefly. Before I do so I shall state the argument of the applicant on this point. It is argued by Mr. H. N. Sanyal learned counsel appearing on behalf of the applicant that the Chairman of the board of directors is K. L. Jatia whose conduct will be under criticism and whose removal the resolutions demand.

Mr. Sanyal's argument is that a Chairman of a meeting cannot be a Judge in his own cause and for that purpose he relied upon the case of N. V. R. Nagappa Chettiar v. The Madras Race Club, reported in ILR (1949) Mad 808 (A). There the well-settled principle is reiterated that no man can preside at his own election and return himself, and that in the case of a Chairman of a meeting whose function is to decide as to the validity of certain nominations such Chairman should not decide the validity of his own nomination.

10. In my judgment there are many answers to this argument.

11. The Court under Section 186, Companies Act of 1956 must have a good reason to hold that it is impracticable to conduct the meeting of the company in the manner prescribed by the Act or the Articles of the company.

It is, therefore, not the purpose of this section as I read it that this Court should interveneto conduct a company meeting not in the mannerprescribed by the Act or by the Articles of theCompany and to override the express provisionsthereof. Naturally enough when the Court directs a meeting to be held under Section 186 of thisAct it must necessarily modify or supplement theArticles or the Act and that is why expresss pro-vision is made for the same under Section 186(1)(b),of the Act.

But that provision for modifying or supplementing the Articles or the Act is only with aview to enable the Court to call, hold and conduct the meeting under Section 186 of the Act whichnormally it cannot without contravening the Articles and the Act. No one for a moment disputes that a person cannot be a judge in his own cause, but the Chairman of the board of directors who under the Articles of the Company is supposed to be the Chairman of this extraordinary general meeting of the shareholders called for 14-7-1958 will not be a judge in his own cause.

Unlike a Judge's decision K. L. Jatia will not decide on the validity of his own nomination at the meeting of the shareholders. It will be for the shareholders to vote for the removal of K. L. Jatia from the office of director and not for K. L. Jatia to decide it. The doctrine, therefore, that a man cannot be a judge in his own cause cannot be applied in this context at all. The facts of this case are entirely different from the facts of the Madras decision on which Mr. Sanyal relied and with whose principle there is no quarrel.

12. It was then contended by Mr. Sanyai that K. L. Jatia, Chairman of the meeting, might behave with partiality and partisanship in so conducting the meeting as to throw out the majority of the applicant. I am afraid I cannot anticipate that Mr. Jatia would act illegally and acting on that anticipation supplant the Articles of the Company and give directions for the conduct of the meeting under Section 186, Companies Act.

Should K. L. Jatia commit any illegality at the meeting then there is ample remedy open to the applicant. In fact some of the very grounds, If not all, in this application are already the subject of pending litigation and proceedings in this Court.

13. Besides, I do not see that so far as the applicant is concerned, there is anything more than his own apprehension that K. L. Jatia would act illegally at the meeting that is going to be held on 14-7-1956. I am satisfied that K. L. Jatia cannot decide on the resolutions proposed in that meeting because the resolutions will have to be voted by the shareholders. It is the shareholders who will be in control of the meeting.

If the applicant has on its side 55 per cent. of the votes of the shareholders, I do not see Why they should be at all frightened. The Chairman's power is very limited. He has a vote as a shareholder and director. That gives him no special position to control the meeting. He has, in the event of an equality of voles between two rival groups, a casting vote. But on the applicant's own showing there is no question of equality of votes in this case because the applicant's group is much larger than the respondent's group.

Therefore, even the possibility of a casting vote is remote. The only other scope of intervention by the Chairman is in the matter of poll. But even a poll may be demanded under Article 118 by any member if not more than 7 members are personally present, and if more than 7 members are present, then by any two members, so that even in the matter of poll the Chairman cannot exclude a poll.

All that the Chairman can do under Article 102 is that if a poll is demanded, the Chairman will direct it to be taken either at once or after an interval or adjournment or otherwise and shall determine the time and place and the manner in which it shall be taken. It is only in case of a dispute as to the admission or rejection of a vote that the Chairman is given power under Article 102 to determine the same.

But then such determination in order to be conclusive under Article 102 of the Companies Act,has to be in good faith. Therefore, whatever is not done in good faith will be open to challenge. The same is again true with regard to proxies or admission of proxies. If the Chairman does something which is illegal in this respect, the Companies Act provides ample remedies to the applicant. But the applicant under Section 186 cannot anticipate that the Chairman will act illegally.

14. Lastly, Article 97 provides that the Chairman of the board of directors shall be entitled to take the chair at every General Meeting. But if he is unwilling to act, the members present shall choose another director. It may also be that by convention the Chairman of the Board of Directors will not participate in the vote. That is the usual rule and the practice followed in Company matters.

15. I see no reason whatever to hold that it is impracticable to conduct a meeting of the Company in the manner prescribed by the Act under the Articles of the Company.

16. Were I to accede to a request that this Court should call or hold and conduct Company meetings because one set of shareholders or directors are quarrelling with another set of shareholders or directors, then I shall be opening the easy door for every kind of officious intervention because then the easiest way for any one, be he of the majority or of the minority in the Company, will be to make an allegation against any of the existing directors in an application under Section 186, Companies Act asking this Court to call, hold and conduct such meetings. I do not think that that was the intention of the Act, and I am also satisfied that that is not the construction of the expressions appearing in Section 186, Companies Act.

17. The word 'impracticable' appearing in that section muse certainly be given a practical meaning. It must be understood to be impracticable from the business point of view. It must not be held impracticable on the slightest excuse that the directors cannot agree.

Section 186, Companies Act, 1956 has not made this Court a director or shareholder of every company. My interpretation is that in spite of Section 186, Companies Act, this Court will not easily intervene in any company meetings either in holding or calling or in conducting such meetings. This section is a piece of incongruous paternalism of an outside agency, the Court, in the self-government of joint stock companies whose main principle is management by their own directors and shareholders who are the most interested and responsible persons in the good government of Companies.

It is an extraordinary power in the historical context of the evolution of company law when one recalls the ordinary principle of company law that a company which cannot carry on its own management and there is a deadlock, the traditional course is to wind up the company. This new power is also unsuited to the Court because its substance is a purely executive function of calling, holding and conducting a meeting.

The Court can discharge that function only vicariously through a chairman or president whom it appoints. Judicial work of Court through a delegate is never an efficient innovation in jurisprudence. Section 186, Companies Act, 1956 introduces this power which is also by its nature irresponsible. It is irresponsible power because even after the Court has called, held and conducted meetings it is not made responsible for the consequences that follow in the sense that it is left with no standing machinery to see to their proper working.

As the power is great, unsuitable and irresponsible, the discretion granted under Section 186 of the Companies Act must be very sparingly used and it should be used with great caution, so that this Court does not become either a Shareholder or a Director of the Company trying to participate in the intervecine squabbles of the Company.

18. On the question 6f what is 'impraciteable', Mr. Sanyal relied on two decisions of this Court, both reported in 55 Cal WN, one being In re Lothian Jute Mills & Co., 55 Cal WN 646 (B), and the other being In re Malhati Tea Syndicate Ltd., reported in 55 Cal WN 653 (C). The latter decision lays down the obvious principle that the word 'impracticable' means 'impracticable from the reasonable point of view' and the Court should take a commonsense view of the matter and must act as a prudent man of business. I respectfully agree with that principle. I should have thought that the word 'practicable' or 'impracticable' always means, that.

But a prudent person of business has not a sensitive, officious view of intervention in case of every rivalry between two groups of Directors. I should have thought prudence demands that this Court should ordinarily keep itself aloof from participating in such squabbles. In In re Malhati Tea Syndicate Ltd (C), there was doubt as to the existence of the Board of Directors validly appointed. That case, therefore, on that ground is distinguishable from the present case.

19. The application must, therefore, fail and is dismissed with costs.


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