1971 (2) TMI 124 - HC - Companies Law

Summary

Issues Involved:
1. Validity of the resolutions passed by the Board of Directors and the shareholders.
2. Legality of the termination of the plaintiff's employment.
3. Maintainability of the suit for declaration and ancillary reliefs.
4. Compliance with statutory provisions under the Companies Act, 1956.

Issue-wise Detailed Analysis:

1. Validity of the Resolutions Passed by the Board of Directors and the Shareholders:
The plaintiff, an employee of the company, challenged the resolutions passed by the Board of Directors on April 24, 1963, and the shareholders on July 29, 1963, claiming they were illegal, void, and not binding. The Board's resolution on April 24, 1963, abolished the post of Supervisor and appointed the plaintiff as Store-in-Charge. However, the shareholders' meeting on July 29, 1963, passed a resolution stating that the plaintiff was not to be appointed as Store-in-Charge and had ceased to hold office from May 1, 1963. The trial court found the Board's resolution legal but invalidated the shareholders' resolution. This decision was upheld by the appellate court.

2. Legality of the Termination of the Plaintiff's Employment:
The plaintiff argued that the termination of his employment was unlawful as the shareholders' resolution was void. The trial court held that the plaintiff continued to be employed as Store-in-Charge and was entitled to salary and allowances from July 1963 to the date of filing the suit. The defendants contended that the termination was lawful and the suit was barred under the Specific Relief Act, 1877. The court, however, found that the resolution terminating the plaintiff's employment was invalid due to non-compliance with statutory provisions, thus rendering the termination unlawful.

3. Maintainability of the Suit for Declaration and Ancillary Reliefs:
The defendants argued that the suit was not maintainable as it sought enforcement of a personal contract of service, which is not permissible under Section 21(b) of the Specific Relief Act, 1877. The plaintiff countered that the suit was for a declaration that the resolution was void and ultra vires, not for wrongful dismissal. The court held that the suit was maintainable as it sought a declaration that the resolution was void due to non-compliance with mandatory statutory provisions, which is different from seeking enforcement of a personal service contract.

4. Compliance with Statutory Provisions under the Companies Act, 1956:
The plaintiff argued that the resolutions violated Sections 171 and 172 of the Companies Act, 1956, which mandate proper notice and explanatory statements for resolutions. The court agreed, stating that these provisions are mandatory, and non-compliance renders the resolutions void and ultra vires. The resolution passed on July 29, 1963, was not notified to the shareholders, violating Section 172, thus making it invalid and void.

Conclusion:
The court concluded that the suit was maintainable and the impugned resolution was void and ultra vires due to non-compliance with mandatory statutory provisions. The plaintiff was entitled to the declaration that the resolution was invalid and to the consequential reliefs, including salary and allowances. The appeal was dismissed, and the decree was stayed for three weeks.