1978 (5) TMI 131 - HC - Companies Law

Summary

Issues Involved:
1. Suit for Permanent Injunction
2. Interim Injunction Application
3. Jurisdiction of Civil Court vs. Company Court
4. Prematurity of Injunction Application
5. Validity of Board Resolution to Remove Directors
6. Legal Precedents on Removal of Managing Directors

Detailed Analysis:

1. Suit for Permanent Injunction:
The plaintiffs instituted a suit seeking a permanent injunction to restrain M/s. Sylvania & Laxman Limited and its Board of Directors from holding a meeting aimed at removing Mr. L. S. Aggarwal and Mrs. S. K. Aggarwal from their respective offices. The plaintiffs argued that the removal was beyond the power of the Board of Directors during the subsistence of their contractual terms.

2. Interim Injunction Application:
An application under Order 39, Rules 1 and 2 of the Civil Procedure Code was moved to obtain an interim injunction to restrain the holding of the said meeting. The Subordinate Judge denied the interim injunction, stating that the contract of personal service (Managing Director/Joint Managing Director) cannot be specifically enforced through an injunction, and the only remedy available was compensation for damages. The Senior Subordinate Judge, however, granted an ex-parte interim injunction restraining the meeting.

3. Jurisdiction of Civil Court vs. Company Court:
The plaintiffs also filed a petition under Sections 397 and 398 of the Companies Act, 1956, alleging oppression and prejudicial actions by the company. The jurisdiction of the Civil Court under Order 39, Rules 1 and 2, CPC, differs from that of the Company Court under Sections 397 and 398 of the Companies Act. The appeal concerning the interim injunction was transferred to the Company Judge to avoid conflicting interim orders from different courts.

4. Prematurity of Injunction Application:
The court held that the application for an injunction was premature. The calling of a meeting to discuss the removal of the Managing Director and Joint Managing Director is not the same as their actual removal. The plaintiffs could have no grievance unless a resolution was actually passed to remove them from their offices. The court emphasized that the jurisdiction to grant an injunction arises only when the Board of Directors takes positive action on the proposed resolution.

5. Validity of Board Resolution to Remove Directors:
The plaintiffs contended that the Board of Directors could not terminate the contracts during their subsistence. The court noted that if a resolution is passed to remove the Managing Director or Joint Managing Director, it could be challenged as ultra vires or wrongful, leading to claims for damages or declarations of invalidity based on the Articles of Association.

6. Legal Precedents on Removal of Managing Directors:
The court referred to two significant cases:
- Southern Foundries v. Shirlaw (1940) 2 All. E.R. 445: The House of Lords held that the termination of a Managing Director's contract was wrongful, leading to a claim for damages.
- Ram Kissendas v. Satya Charan (1949) 2 I.A. 128: The Privy Council held that a resolution removing directors was ultra vires and invalid, granting a declaration that the Articles of the company must be observed.

The court concluded that the present case was premature for an injunction as the removal had not yet taken place. The holding of a meeting is merely the first stage, and any wrongful or ultra vires action can only be challenged after it occurs.

Conclusion:
The court dismissed the appeal for an interim injunction, emphasizing that the plaintiffs' grievances could only be addressed if and when a resolution to remove them was actually passed by the Board of Directors. The decision aligns with the principles established in the cited legal precedents, affirming that premature injunctions in matters of personal service contracts are not warranted.