9911796707
TMI Blog1949 (12) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... resolution it was resolved that the termination of the appointment of the managing agents of the Company, Messrs. Andrew Yule and Co., Ltd., was to be recorded and in any event that they were thereby forth with removed from their office. In the action the respondent Dr. Law on behalf of himself and all other holders of shares in the Company attacked the validity of both resolutions and sought appropriate relief. The defendants were the eight appellants and the respondent H.H. Commanding General Hiranya Shamsher Jung Bahadur Rana, another of the requisitionists, who has taken no part in the proceedings. The ground on which the validity of both resolutions was attacked was that under the articles of association of the Company they could only have been passed effectively as to No. 1 by a special and as to No. 2 by an extraordinary resolution whereas the majority by which they purported to be passed was admittedly insufficient for those purposes; and that the rights of the minority had been illegally infringed accordingly. At the trial McNair, J., held that both resolutions were invalid; he made declarations to that effect and granted consequential injunctions. This decision was affirm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) of the Act and may alter their qualification and may also determine in what rotation such increased or reduced number is to go out of office. 127. The Company may by Extraordinary Resolution remove any Director, whose period of office is liable to determination at any time by retirement of Directors in rotation, before the expiration of his period of office and may by ordinary resolution appoint another person in his stead .. 128. Any casual vacancy occurring among the Directors may be filled up by the Directors ." The judgments in the Indian Courts were based on the view that the power of the Company by ordinary resolution to "increase or reduce" the number of directors conferred by Article 126 is only exercisable within the limits set by the maximum of four and the minimum of three prescribed by Article 109; and that consequently in order that there might be more than four a special resolution was required altering Article 109. If Article 109 had stood alone there can be no doubt that this view would have been correct. In order to avoid the necessity for a special resolution a form has sometimes been used in which an article of this type is prefaced by words such a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the only scope for the operation of Article 126 lies in the area between the maximum of four and the minimum of three the question arises, what is the use of Article 126 ? If at a time when there are only three directors the company wished to appoint a fourth it could do so by ordinary resolution at a general meeting without the necessity of having a special article in that behalf. For the purpose therefore of an increase in the actual number of directors to four there is no need for the article. If, however, the company wished otherwise than by dismissal (as to which provision is made by Article 127) to reduce the number to three it could do so under the very terms of Article 109 itself and that not withstanding Article 125. Article login effect gives an option to the company to have no more than three directors. It therefore appears to their Lordships that in order to give effective content to the opening words of Article 126 it is necessary to make an appropriate implication as suggested above, either in Article 109 or in Article 126. It is moreover to be observed that the draftsman of the articles where he wished to show that the maximum number as fixed is not to be exceeded i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laint against this resolution is that under Article 132 the managing agents could only be removed by an extraordinary resolution as there mentioned and that to attempt to remove them by an ordinary resolution constituted a violation of the rights of the minority shareholders. In substance three points were argued by the appellants. First they referred to section 87-B of the Companies Act the relevant provision of which is as follows : "87-B. Conditions applicable to managing agents. Not with standing anything to the contrary contained in the articles of the company or in any agreement with the company ( f ) the appointment of a managing agent, the removal of a managing agent and any variation of managing agent's contract of management, made after the commencement of the Indian Companies (Amendment) Act, 1936 (XXII of 1936), shall not be valid unless approved by the company by a resolution at a general meeting of the company notwithstanding anything to the contrary in section 86-E." This, it was suggested, empowered the company to remove its managing agents by ordinary resolution. In their Lordships' opinion this suggestion misinterprets the provision which is directed sol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew to putting into force resolution No. 2. Their Lordships see no necessity for continuing this injunction. There appears to them to be no reason to suppose that the defendants will take any action which would be inconsistent with the declaration as to the invalidity of resolution No. 2. Moreover, this injunction might impede the board, of which the appellants are in their Lordships' opinion validly elected members, in exercising the control over the managing agents for which article 131 makes provision. It remains to mention one further point. The company was and could be made a plaintiff only on the basis that the seven appellants were not directors. As in the result they have been held to be directors the use of its name as plaintiff was unauthorised. Accordingly the company should, in their Lordships' opinion, be struck out as plaintiff. On the other hand it is necessary that the company should formally be bound by the order. Normally in a representative action by a minority shareholders the company would be made a defendant and their Lordships consider that it should be added as a defendant. The appellants as the majority of the board formally by their counsel consent to tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
