1958 (1) TMI 28 - HC - Companies Law

Memorandum and articles of association Registration of, Directors - Power of and Certain persons not to be appointed as managing director

Summary

Issues Involved:
1. Whether the plaintiff is entitled to a "legal character" within the meaning of Section 42 of the Specific Relief Act.
2. Whether the board of directors had the power to revoke the plaintiff's appointment as joint managing director.
3. Whether the plaintiff can rely on the articles of association of the first defendant company for the reliefs claimed.
4. Whether the resolutions dated September 23, 1957, were ultra vires the board of directors.
5. Whether the plaintiff is entitled to the declarations and injunctions prayed for.

Issue-wise Detailed Analysis:

Issue 1: Legal Character under Section 42 of the Specific Relief Act
The plaintiff argued he was entitled to a "legal character" as a managing director under Section 42 of the Specific Relief Act. The court examined the definition of "legal character" and concluded that it is synonymous with "legal status," which involves a peculiarity of the personality arising from anything unconnected with the nature of the act itself. The court found that the managing directorship does not confer any such peculiarity of personality independent of the powers or rights as a managing director. Therefore, the plaintiff was not entitled to any legal character within the meaning of Section 42. Consequently, the plaintiff was not entitled to the declaration that he continues to be the joint managing director.

Issue 2: Power of the Board to Revoke Appointment
The court analyzed whether the board of directors had the power to revoke the plaintiff's appointment as joint managing director. Article 99 of the company's articles of association allowed the directors to appoint a managing director and vest certain powers in him "from time to time." The court interpreted this to mean that the board also had the implied power to revoke such appointments. The court referred to the case of Foster v. Foster, where it was held that the board of directors had the power to remove a managing director under similar articles. Thus, the board of directors of the first defendant company had the power to revoke the plaintiff's appointment as joint managing director.

Issue 3: Reliance on Articles of Association
The plaintiff, not being a shareholder of the first defendant company, could not rely on the articles of association to challenge the resolutions. The articles of association constitute a contract only between the company and its shareholders, not with outsiders. The court cited the case of Mothey Krishna Rao v. Grandhi Anjaneyulu, where it was held that a non-shareholder cannot invoke the articles to claim a cause of action. Therefore, the plaintiff was not entitled to place any reliance on the articles of association of the first defendant company.

Issue 4: Ultra Vires Resolutions
Given the court's findings that the board of directors had the power to revoke the plaintiff's appointment and that the plaintiff could not rely on the articles of association, the resolutions dated September 23, 1957, were not ultra vires the board. The board acted within its powers under Article 99, and the resolutions were valid.

Issue 5: Entitlement to Declarations and Injunctions
Since the plaintiff was not entitled to a legal character, he could not obtain the declaration that he continues to be the joint managing director. Furthermore, the plaintiff could not rely on the articles of association to challenge the resolutions. Consequently, the plaintiff was not entitled to the declarations and injunctions prayed for. The court also noted that even if the plaintiff had a legal character, it would not have exercised its discretion to grant the declarations, given that the company could ratify the board's actions in a general meeting.

Conclusion:
The court dismissed the suit, holding that the plaintiff was not entitled to any relief. The plaintiff was ordered to pay the costs of the suit to the first defendant company and half of one set of costs to defendants Nos. 2 to 6. The court reserved the decision on the application for costs under Rule 601 of the High Court Rules until the bills of costs were lodged with the Taxing Master.