1960 (12) TMI 41 - SC - Companies Law

Appointment of directors and proportion of those who are to retire by rotation, Prohibition assignment of office by director, Directors - Only individuals to be directors, Managing director Tenure of appointment

Issues Involved:
1. Validity of the appointment of Govind as managing director by the will of Dadoba.
2. Legality of the appointment of Bhalchandra as a director.
3. Continuation of Bhaskar as a director.

Detailed Analysis:

1. Validity of the appointment of Govind as managing director by the will of Dadoba:

Dadoba Tukaram Thakoor, who carried on a business under the name Oriental Metal Pressing Works, transferred his business to a private company, Oriental Metal Pressing Works Ltd., on July 7, 1955. On the same date, an agreement was made appointing Dadoba as the managing director for life, with the power to appoint a successor by deed inter vivos or by will. Upon Dadoba's death on January 14, 1957, he purported to appoint Govind as the managing director through his will.

The respondent, Bhaskar, challenged this appointment, contending it was void under section 312 of the Companies Act, 1956, which states, "Any assignment of his office made after the commencement of this Act by any director of a company shall be void." The courts below held the appointment void, interpreting "assignment" to include "appointment."

The Supreme Court, however, disagreed with this interpretation. It emphasized that the plain language of section 312 did not include "appointment" within "assignment". The Court highlighted that the word "his" in "assignment of his office" indicated an office held at the time of assignment, which would not apply to an appointment to a vacant office. Moreover, section 255 of the Act permits directors to be appointed otherwise than by the company, indicating legislative intent to allow such appointments.

The Court concluded that the term "assignment" in section 312 does not mean "appointment". It reasoned that the Act did not intend to prevent a director from appointing his successor, as evidenced by section 255, which permits such appointments. The Court also noted that the policy behind section 312 was to ensure that directors appointed by the company remain the chosen representatives of the shareholders, which did not apply to directors appointed otherwise.

Thus, the Supreme Court declared that the appellant Govind had been lawfully and validly appointed as the managing director of the company, setting aside the decisions of the lower courts.

2. Legality of the appointment of Bhalchandra as a director:

The respondent, Bhaskar, also contended that the appointment of Bhalchandra as a director was illegal and inoperative. However, during the pendency of the appeal in the Supreme Court, Bhaskar sold his holding in the company to Govind and ceased to have any interest in the company or the appeal. Consequently, the issue of Bhalchandra's appointment was no longer a live issue and was not canvassed in the appeal. The Supreme Court expressed no opinion on this matter.

3. Continuation of Bhaskar as a director:

Bhaskar contended that he continued to be a director despite Govind's claim that he had ceased to be one due to non-attendance at directors' meetings. However, similar to the issue concerning Bhalchandra, this matter was not pursued in the Supreme Court as Bhaskar had sold his interest in the company. Therefore, the Supreme Court did not express any opinion on Bhaskar's continuation as a director.

Conclusion:

The Supreme Court concluded that the appellant Govind had been validly appointed as the managing director of the company, setting aside the decisions of the lower courts. The issues concerning the appointments of Bhalchandra and the continuation of Bhaskar as a director were not addressed due to the changed circumstances, and no costs were ordered as none were requested.

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