1952 (9) TMI 29 - HC - Companies Law

Summary

Issues Involved:
1. Construction of Section 86F of the Indian Companies Act.
2. General versus specific consent under Section 86F.
3. Relationship between Section 86F and Section 91A.
4. Practical difficulties and anomalies arising from the interpretation of Section 86F.

Detailed Analysis:

1. Construction of Section 86F of the Indian Companies Act:
The primary issue in this appeal is the interpretation of Section 86F of the Indian Companies Act. The section imposes a personal disability on directors, precluding them from entering into contracts for the sale, purchase, or supply of goods and materials with the company unless consent is given by the board of directors. The legislative intent behind this provision is to prevent conflicts of interest where a director might use their position to secure profitable contracts with the company, thereby achieving undue benefit. The court emphasized that Section 86F is a remedial measure and should be given the widest possible interpretation to suppress the mischief it aims to address.

2. General versus Specific Consent under Section 86F:
The crux of the matter is whether the consent required by Section 86F can be general or needs to be specific to particular contracts. The respondent argued for a general consent, suggesting that the language of the section does not necessitate specificity. However, the court held that consent must be specific and referable to particular contracts. General consent would effectively allow the board of directors to nullify Section 86F, which would be contrary to the legislative intent. Consent must be informed and based on the specific details of the contract and the director involved. The court noted that the board of directors must consider both the nature of the contract and the qualifications of the director before granting consent.

3. Relationship between Section 86F and Section 91A:
Mr. Mody contended that a restrictive interpretation of Section 86F would conflict with Section 91A, which deals with the disclosure of interest by directors. Section 91A allows directors to disclose their interest in contracts at the first board meeting after the contract is made, with the consequence of non-disclosure being a fine. In contrast, a breach of Section 86F results in the director vacating their office. The court clarified that the two sections deal with different subject matters and have different consequences for contravention. Therefore, there is no inherent conflict between them that necessitates reconciling Section 86F with Section 91A.

4. Practical Difficulties and Anomalies:
The respondent highlighted potential practical difficulties and anomalies that might arise from requiring specific consent for each contract, especially for minor transactions. The court acknowledged these concerns but emphasized that it is not the role of the judiciary to amend or alter the legislative language to address such anomalies. Instead, the court's duty is to interpret the law as intended by the Legislature. The court suggested that the Legislature could have provided a threshold for the value of contracts to mitigate practical difficulties, but it did not. Thus, the court refused to allow general consent, which would undermine the purpose of Section 86F.

Conclusion:
The court concluded that the consent required under Section 86F must be specific to particular contracts. The judgment from the lower court, which declared that the respondent had not ceased to be a director despite entering into a contract without specific consent, was overturned. The appeal was allowed, and the suit was dismissed with costs. The court emphasized the importance of directors not using their positions for personal gain and the necessity for boards of directors to apply their minds to specific instances requiring consent for contracts with the company.