1973 (8) TMI 89 - SC - Companies Law

what is the effect of the confirmation of the minutes of the meeting of the board of directors held on December 16, 1953, and the action of the chairman in terminating the services of the appellant by his telegram and letter dated December 17,1953, in pursuance of the invalid resolution of the board of directors to terminate his services, in the meeting of the board of directors held on December 23, 1953 ? Whether the appellant was entitled to 18 months notice before his services were terminated as, claimed by him? Held that - even assuming that the chairman was not legally authorised to terminate the services of the appellant, he was acting on behalf of the company in doing so, because he purported to act in pursuance of the invalid resolution. Therefore, it was open to a regularly constituted meeting of the board of directors to ratify that action which, though unauthorized, was done on behalf of the company. Ratification would always relate back to the date of the act ratified and so it must be held that the services of the appellant were validly terminated on Decenv ber 17, 1953. The appellant was not entitled to the declaration prayed for by him and the trial court as well as the High Court was right in dismissing the claim. There is no reason to hold that the appellant was not an employee of the respondent-company. Besides, the appellant himself has relied upon these rules for the purpose of computation of the amount due to him on account of bonus, provident fund, etc. In these circumstances it is idle to contend that the rules did not bind him In this view, it is quite unnecessary to consider the question whether, apart from the rules, one month s notice was reasonable in the circumstances of the case. Appeal dismissed.

Summary

Issues:
1. Valid termination of services of the appellant by the respondent-company.
2. Entitlement of the appellant to notice period before termination of services.

Analysis:

Issue 1: Valid Termination of Services
The appellant claimed that his services were not validly terminated by the respondent-company. The trial court and the High Court found that the services of the appellant were validly terminated by the resolution of the board of directors and the actions of the chairman. However, it was argued that the meeting of the board of directors on December 16, 1953, was not properly convened as one of the directors did not receive notice of the meeting. The absence of notice to all directors rendered the resolution invalid. The confirmation of the minutes of the meeting on December 23, 1953, did not validate the termination resolution, but it did ratify the chairman's action. The Supreme Court held that even if the chairman's action was unauthorized, it could be ratified by a properly convened meeting, which would make the termination valid. Therefore, the services of the appellant were deemed to be legally terminated on December 17, 1953, and the claim for continued employment was dismissed.

Issue 2: Entitlement to Notice Period
The appellant also claimed entitlement to 18 months' notice before his services were terminated, while the company contended that only one month's notice was required as per the company rules. The trial court and the High Court found that the company rules, specifically rule 6 of exhibit D-3, mandated one month's notice for termination. The appellant was considered an employee bound by these rules, as evidenced by his reliance on them for other claims. As the rules were held to be applicable, the question of reasonableness of the notice period outside the rules was deemed unnecessary. Consequently, the appellant was not entitled to 18 months' notice as claimed. The appeal was dismissed, and no costs were awarded in the circumstances.

This judgment clarifies the importance of proper notice in terminating services and the binding nature of company rules on employees. It emphasizes the ratification of unauthorized actions by a properly constituted meeting and the legal implications of such ratification. The decision provides a comprehensive analysis of the termination process and the employee's entitlement to notice, setting a precedent for similar cases involving employment disputes and company rules.