1973 (3) TMI 152 - HC - Companies Law

Summary

Issues Involved:
1. Reconstitution of the Board of Directors of Bennett Coleman & Co. Ltd.
2. Dismissal of the Judge's Summons for recording a compromise.
3. Legality of the reconstituted Board under Sections 255 and 408 of the Companies Act.
4. Propriety of the reconstituted Board.
5. Injunction against certain individuals from becoming directors or interfering with the company's affairs.

Issue-wise Detailed Analysis:

1. Reconstitution of the Board of Directors of Bennett Coleman & Co. Ltd.:

The High Court reconstituted the Board of Directors of Bennett Coleman & Co. Ltd., directing that the new Board should consist of eleven directors: three shareholder directors, three nominated by the Central Government, and five appointed by the Court. This reconstituted Board was to operate for seven years. The Court also modified certain Articles of Association to effectuate this reconstitution, ensuring that the Articles could not be altered without the Court's permission.

2. Dismissal of the Judge's Summons for recording a compromise:

Respondent No. 2 took out a Judge's Summons to record an alleged compromise between the Union of India and the Company. The learned Judge dismissed this application on several grounds:
- The two letters relied upon did not constitute a concluded and complete agreement.
- The shareholders could not represent the Company in entering into such a settlement.
- The shareholders were not parties to the proceedings.
- The conduct of Respondent No. 2 in submitting to the Court's orders should prevail over the alleged settlement.
- The compromise was not in public interest.

3. Legality of the reconstituted Board under Sections 255 and 408 of the Companies Act:

The appellants argued that the reconstituted Board violated Sections 255 and 408 of the Companies Act. Section 255 mandates that two-thirds of the directors must retire by rotation, which was not adhered to in the reconstituted Board. The Court, however, held that its powers under Sections 397, 398, and 402 were broad enough to override these provisions in cases of mismanagement and oppression. The Court's order was found to be within its jurisdiction and not violative of the Companies Act.

4. Propriety of the reconstituted Board:

The appellants contended that the reconstituted Board curtailed the shareholders' rights to manage the Company. The Court, however, justified the reconstitution, stating that it was necessary to prevent future mismanagement and to protect public interest. The period of seven years was deemed reasonable given the pending criminal and taxation proceedings against certain respondents.

5. Injunction against certain individuals from becoming directors or interfering with the company's affairs:

The Court issued an injunction against Respondent No. 2 and others, barring them from becoming directors or interfering with the Company's affairs. This was based on serious allegations of mismanagement, misfeasance, and embezzlement against them. The Court felt that such a measure was necessary to ensure proper management of the Company in the future.

Conclusion:

The High Court's judgment aimed to address the mismanagement and protect public interest by reconstituting the Board of Directors and issuing necessary injunctions. The Court's powers under Sections 397, 398, and 402 were interpreted broadly to allow for such measures, even if they contravened other provisions of the Companies Act. The appeals challenging the reconstitution and the injunctions were dismissed, upholding the Court's orders as both legal and proper.