2003 (2) TMI 336 - HC - Companies Law

Summary

Issues Involved:
1. Validity of the election bye-laws not approved by the Annual General Meeting.
2. Voting rights of members admitted under an interim court order.
3. Alleged malpractices in the elections.
4. Continuation of directors contrary to section 255 of the Companies Act, 1956.

Detailed Analysis:

1. Validity of the Election Bye-Laws:
The appellants contended that the election bye-laws framed by the managing committee were not approved by the Annual General Meeting, rendering the elections illegal and void. The court noted that the appellants alleged that the election of the office bearers was illegal, null, and void, and sought an injunction against the continuation of the elected directors. However, the court did not find merit in this contention and dismissed the appeal.

2. Voting Rights of Members Admitted Under Interim Court Order:
The appellants argued that only members of the B.C.A. Garware Club House as of December 4, 1989, were entitled to vote, and those admitted subsequently under an interim order had no right to vote. The court examined the order which allowed the enrollment of new members subject to the final result of the suit and concluded that the rights and liabilities of these members would be governed by the provisions of the Companies Act and the articles of association of the company. Since their names were entered in the register of members, they had the right to vote under section 87 of the Act. The court rejected the appellants' contention, stating that there was no court order restricting their right to vote.

3. Alleged Malpractices in the Elections:
The appellants initially raised the issue of malpractices in the elections but did not press this ground of challenge in the appeal. Consequently, the court did not consider this issue.

4. Continuation of Directors Contrary to Section 255 of the Companies Act:
The appellants contended that the continuation of the directors was contrary to section 255 of the Companies Act, 1956, which mandates the retirement of directors by rotation. The court noted that the articles of association of the respondent company did not provide for the retirement of all directors every year. Instead, they provided for the election of directors once every five years. The court referred to sections 255 and 256 of the Act, which outline the retirement and appointment of directors by rotation. The court also considered section 263A, which allows certain companies not carrying on business for profit to elect directors by ballot.

The court further examined sub-section (6) of section 25 of the Companies Act, which allows the Central Government to exempt a company from certain provisions of the Act. The respondent company had obtained a licence under section 25, and its articles of association, including the provision for five-year elections, were approved by the Central Government. The court concluded that the approval of the articles by the Central Government implied an exemption from sections 255 and 256 to the extent of the repugnancy between the articles and the Act.

The court held that the respondent company was exempted from the application of sections 255 and 256 by necessary implication, as following these sections would violate the approved articles and the terms of the licence. Therefore, the court rejected the appellants' contention regarding the continuation of directors.

Conclusion:
The court dismissed the appeal, finding no merit in the appellants' contentions regarding the validity of the election bye-laws, the voting rights of members admitted under an interim court order, and the continuation of directors contrary to section 255 of the Companies Act. The court upheld the legality of the elections and the continuation of the directors as per the approved articles of association and the licence granted under section 25 of the Companies Act. The appeal was dismissed without any order as to costs.