1966 (8) TMI 49 - HC - Companies Law

Directors - Right of person other than retiring director to stand for directorship and Manging agent

Summary

Issues Involved:

1. Validity of the second defendant's appointment as director.
2. Application of section 261(1) of the Companies Act, 1956.
3. Interpretation of "managing agent" under section 2(25) of the Companies Act.
4. Interpretation of "officer" under section 2(30) of the Companies Act.
5. Whether the second defendant holds an office or place of profit under the company.
6. Whether the second defendant is an officer or employee of B.M. Co. Ltd.
7. Whether the second defendant is an associate of B.M. Co. Ltd.
8. Costs and representation of the third defendant.

Issue-wise Detailed Analysis:

1. Validity of the Second Defendant's Appointment as Director:
The plaintiff challenged the validity of the second defendant's appointment as director of the first defendant company, arguing that a special resolution was necessary under section 261(1) of the Companies Act, 1956. The trial court dismissed the suit, but the single judge on appeal reversed this decision, holding that a special resolution was required. The present appeal was filed against this judgment.

2. Application of Section 261(1) of the Companies Act, 1956:
Section 261(1) stipulates that certain persons cannot be appointed as directors liable to retire by rotation except by a special resolution. The court examined whether the second defendant fell within any of the disqualifying categories listed in clauses (a) to (g) of section 261(1).

3. Interpretation of "Managing Agent" under Section 2(25) of the Companies Act:
The court considered whether the second defendant could be deemed a managing agent. The definition of "managing agent" requires an agreement with the company or a provision in the company's memorandum or articles of association. The court found that the second defendant was not a party to the managing agency agreement and thus could not be considered a managing agent.

4. Interpretation of "Officer" under Section 2(30) of the Companies Act:
The court analyzed whether the second defendant was an officer of the first defendant company. Section 2(30) includes partners of a firm acting as managing agents. However, the court held that the second defendant, who held a power of attorney from B.M. Co. Ltd., was not an officer under this definition because the power of attorney created a principal-agent relationship, not an employer-employee relationship.

5. Whether the Second Defendant Holds an Office or Place of Profit under the Company:
The court assumed, without deciding, that the second defendant held an office or place of profit due to the power of attorney. However, it concluded that this office or place of profit was not held "under the company" since any remuneration would come from B.M. Co. Ltd., not directly from the first defendant company.

6. Whether the Second Defendant is an Officer or Employee of B.M. Co. Ltd.:
The court rejected the argument that the second defendant was an officer or employee of B.M. Co. Ltd. The power of attorney did not establish an employer-employee relationship, and there was no evidence that the second defendant managed the whole or substantially the whole of B.M. Co. Ltd.'s affairs.

7. Whether the Second Defendant is an Associate of B.M. Co. Ltd.:
The court found that the second defendant was an associate of B.M. Co. Ltd. because he was a shareholder. However, it also determined that B.M. Co. Ltd. was not a managing agent of the first defendant company. Therefore, the second defendant did not fall within the disqualifying categories of section 261(1).

8. Costs and Representation of the Third Defendant:
The court ordered the plaintiff to pay the costs of the first and second defendants throughout the proceedings. The third defendant, who was sued in a representative capacity, was ordered to bear his own costs. The court noted that there was no justification for the third defendant to appear separately from the second defendant.

Conclusion:
The appeal was allowed, and the judgment and order of the single judge were reversed. The trial court's judgment dismissing the suit was restored. The court held that the second defendant did not fall within any of the disqualifying categories under section 261(1) and was validly elected by an ordinary resolution.