1934 (3) TMI 22 - HC - Companies Law

Summary

Issues Involved:
1. Whether the resolutions passed by the directors for the dismissal of the company's agents were in contravention of the memorandum and articles of association of the company.
2. Whether the dismissal of the agents was an act ultra vires the company.
3. Whether Clause 6 of the memorandum of association constituted a vital part of the company's constitution.
4. Whether the present members of the firm of Morarjee Goculdas & Co. come within the terms of Clause 6 of the memorandum.
5. Whether the court can enforce specific performance of a contract of personal service.

Detailed Analysis:

1. Contravention of Memorandum and Articles of Association:
The plaintiff sought a declaration that the resolutions passed by the directors for the dismissal of the company's agents were in contravention of the memorandum and articles of association of the company and not binding on the members. However, the court held that it is a well-settled principle in company law that the court does not generally interfere with the internal management of the affairs of a company. If the majority of shareholders consider that a particular contract of employment should be terminated, the court would not generally consider the matter at the instance of a minority of shareholders.

2. Ultra Vires Act:
The plaintiff contended that the dismissal of the agents was an act ultra vires the company. The court acknowledged that acts ultra vires the company constitute an exception to the general rule that the court will not interfere in the management of a company. However, the court found the argument untenable, stating that it is startling to suggest that the dismissal of persons in the employment of the company is an act ultra vires the company. The court further noted that the memorandum of association does not constitute a contract between the company and a third party named therein.

3. Vital Part of Company's Constitution:
The plaintiff argued that the rights of the agents arise under the memorandum of association and cannot be altered. The court rejected this argument, stating that Clause 6 of the memorandum is not a vital part of the constitution of the company or a condition of the memorandum within the meaning of Section 10 of the Companies Act. The clause in question merely provides the remuneration the agents shall receive and does not impose any obligation of service upon the agents. The court concluded that the clause confers a power upon the company to enter into a contract of agency on the terms indicated, but it is not a vital part of the company's constitution.

4. Present Members of Morarjee Goculdas & Co.:
The court found that the present members of the firm of Morarjee Goculdas & Co. do not come within the terms of Clause 6 of the memorandum. The clause provides that the "firm of Morarjee Goculdas & Co." or "whatever member or members that firm may for the time consist of" shall be the agents. However, the court noted that the present members of the firm were never partners with the individuals who constituted the firm at the date of the incorporation of the company. The court stated that the argument seeks to endow the firm with the attributes of a corporation having perpetual succession, which is not supported by the clause.

5. Specific Performance of Contract of Personal Service:
The court held that it is well-settled that the court will not make an order to enforce specifically any contract of personal service. The court noted that even if Clause 6 of the memorandum had the effect for which the appellant contends, the company, when entering into an actual contract with the agents, would be entitled to incorporate provisions including the power to terminate the agency for sufficient reason. The court concluded that the learned judge was right in dismissing the action with costs, and the appeal must be dismissed with costs.

Separate Judgment:
Rangnekar, J. agreed with the judgment and provided additional reasoning. He emphasized that the clause in question is one-sided and does not impose any obligation on the firm of Morarjee Goculdas. He stated that the clause is nothing more than a preliminary contract and does not constitute a vital condition of the company's constitution. Rangnekar, J. also noted that the clause does not create a contract between the company and a third party and that it is unreasonable to consider it a vital condition. He further stated that the present members of the firm do not fall within the terms of the clause and that the court would be justified in refusing an injunction to enforce a contract of personal service. The appeal was dismissed with costs.