1955 (12) TMI 20 - HC - Companies Law

Summary

Issues Involved:
1. Removal of Kesavaraman Chettiar and other directors from management.
2. Appointment of an administrator for the company.
3. Amendment of articles of association.
4. Adequacy of notice for the hearing.
5. Validity of the consent order.
6. Authority of counsel to enter into a compromise.

Detailed Analysis:

1. Removal of Kesavaraman Chettiar and Other Directors from Management:
The petitioners sought the removal of Kesavaraman Chettiar and other directors from the management of the company. Despite various attempts to resolve internal dissensions, including the appointment of a commissioner to oversee elections and potential amendments to the articles of association, the disputes persisted. Ultimately, Ramaswami Goundar J. passed an order on 23rd March 1955, which resulted in the amendment of article 13, reducing the share qualification of directors from five to four, and the deletion of articles 15 and 16. This effectively ceased Kesavaraman Chettiar's role as an irremovable managing director, making him an ordinary director instead.

2. Appointment of an Administrator for the Company:
The petitioners also requested the appointment of an administrator to manage the company. Ramaswami Goundar J. directed that a general body meeting be held in March 1956 and, pending that, constituted a board of administrators comprising Kesavaraman Chettiar, Pandian Chettiar, Krishnan Chettiar, Minakshisundaram Chettiar, and Shaik Dawood. This decision was taken by consent after discussions with the learned counsel on both sides.

3. Amendment of Articles of Association:
The petitioners sought to amend the articles of association, specifically targeting articles 13, 15, 16, and 18. The court's order on 23rd March 1955 included amendments to these articles, which were intended to restructure the management and governance of the company. Article 17 was replaced with a new article stating, "The whole affairs of the company shall vest in, and be managed by, the board of directors."

4. Adequacy of Notice for the Hearing:
The petitioners in Application No. 2452 of 1955 contended that the notice for the hearing was inadequate. Rule 14 of the rules framed under the Indian Companies Act requires that every petition be advertised not less than fourteen days before the hearing date. In this case, the advertisement in the "Swadesamitran" was made only twelve days before the hearing, and in the Fort St. George Gazette only five days before. The court found this omission to comply with the statutory requirement significant, rendering the notice insufficient and the subsequent order invalid.

5. Validity of the Consent Order:
The order passed by Ramaswami Goundar J. on 29th March 1955 was a consent order. The petitioners argued that any alteration to the articles of association by compromise should follow the procedure laid down in section 153 of the Act. The court agreed, stating that neither the directors nor the shareholders could bypass the statutory requirements by merely consenting to an order. The order explicitly stated that it was passed by consent after discussions with counsel, and this statement was conclusive.

6. Authority of Counsel to Enter into a Compromise:
The petitioners in Application No. 3110 of 1955 argued that the counsel representing Kesavaraman Chettiar did not have the authority to enter into a compromise. The court found that the vakalat filed by the counsel did not confer the authority to compromise. Referring to precedents, the court held that a pleader cannot enter into a compromise without express authority. Consequently, Kesavaraman Chettiar and the directors supporting him were not bound by the compromise. Although it was argued that Kesavaraman Chettiar ratified the compromise by acting as an administrator, the court did not find sufficient evidence of ratification.

Conclusion:
The court allowed prayers (i), (ii), and (iii) in Application No. 2452 of 1955, permitting the applicants to be brought on record, set aside the order made on 29th March 1955, and contest the petition. However, the court did not grant prayer (iv), which sought to restrain the board of administrators from managing the company's affairs. Additionally, the court appointed Mr. K. Ramachandran as an administrator in place of Sheik Dawood Sahib and directed him to act as the chairman of the board of administrators.