1967 (11) TMI 52 - SC - Companies Law

Articles of association - Regulations required in case of unlimited company, company limited by guarantee or private company limited by shares, Directors Power of, Director Interested, not to participate or vote in Board s proceedings and Winding up Company when deemed unable to pay its debts

Summary

Issues Involved:
1. Validity of outstanding "futures" in gur after the Central Government notification.
2. Validity of the resolution dated March 14, 1949, due to lack of quorum.
3. Allegations of fraudulent intent in the resolution dated February 15, 1950.
4. Obligation of the company to refund deposits after repudiating contracts.
5. Whether the substratum of the company ceased to exist post-Government notification.

Detailed Analysis:

1. Validity of Outstanding "Futures" in Gur:
Counsel for the appellants argued that the notification issued by the Central Government on February 15, 1950, rendered all outstanding "futures" in gur void. The appellants relied on a press note which stated that all transactions in "futures" in sugar, gur, gurshakkar, and rab made before the commencement of the order or remaining to be fulfilled would be void and unenforceable by law. However, the court clarified that the interpretation of the Order depends on the words used therein, not on the draftsman's understanding. Clause 3(a) of the Order prohibits entering into futures in sugar or gur and the payment or receipt of any margin in connection with such futures, operating prospectively. Clause 4 invalidates options in sugar and gur entered into before the appointed day. The court noted a clear distinction between "futures" and "options," with no express provision invalidating outstanding "futures." Therefore, the outstanding "futures" in gur did not become void by the notification.

2. Validity of the Resolution Dated March 14, 1949:
The appellants contended that the resolution dated March 14, 1949, was void due to the disqualification of directors under sections 86-I(1)(h) and 91B of the Indian Companies Act, 1913. The court observed that the company had 11 directors, out of which 9 were carrying on business with the company. The resolution authorized transactions of "futures" in gur, and the directors present were those who carried on such business. The court held that Regulation 94 of Table A, deemed incorporated in the articles of association, validated acts done by directors despite subsequent discovery of disqualification. Therefore, the resolution dated March 14, 1949, could not be challenged.

3. Allegations of Fraudulent Intent in the Resolution Dated February 15, 1950:
The appellants alleged that the resolution dated February 15, 1950, was passed to serve private interests of the directors. The court found that the directors acted prudently to protect the interests of the company and its members. The resolution fixed the rate at which transactions were to be settled on the due date, considering the prohibition on reverse transactions and transportation restrictions. The court noted that the appellants' representative was present at the meeting, and the resolution was not passed to benefit the directors but to protect the company and its members.

4. Obligation to Refund Deposits:
The appellants argued that the company, having repudiated the outstanding contracts, was bound to refund the deposits. The court found no repudiation of contracts by the resolution. The contracts could be settled by payment of differences on the due date, or by actual delivery of goods if the appellants desired. The plea of frustration of contracts due to the Government Order was also dismissed, as the outstanding contracts were not affected, and settlement by payment of differences or delivery of goods was not prohibited.

5. Substratum of the Company:
The appellants claimed that the substratum of the company ceased to exist post-Government notification, making it just and equitable to wind up the company. The court held that the company was formed to carry on business in several commodities, not just "futures" in gur. The company had immovable property and liquid assets, and there was no evidence of inability to pay debts. The court concluded that the object for which the company was incorporated had not substantially failed, and the company could restart its business. Therefore, no case was made out for winding up the company.

Conclusion:
The appeals were dismissed with costs, and the court upheld the decisions of the High Court, confirming that the company was not unable to pay its debts, the resolutions were valid, and it was not just and equitable to wind up the company.