9911796707
TMI Blog1955 (11) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... rise to the suit may be shortly stated as follows : In 1927, one Chandulal Karsandas Mashruwala, Chhotalal Bhalakia and some others thought of erecting a textile mill at Ahmedabad, and with that object in view they floated Chandulal and Co. Ltd., the present defendant 1 which was to be appointed to manage the textile mill. The share capital of the defendant No. 1 company was Rs. 640 divided into 128 ordinary shares of Rs. 5 each representing 0-0-1 pie of a rupee. 72 of these shares were allotted to the said Chandulal and his nominees who had agreed to manage the affairs of the defendant No. 1 company and on its behalf to act as secretaries, treasurers and agents of the textile mill and 56 shares were allotted to subscribers of the capital of the Bhalakia Mills Co. Ltd., and each of those persons who agreed to subscribe ,171 ordinary shares, each of Rs. 100 in the capital of the Bhalakia Mills Co. was allotted one ordinary share of the defendant No. 1 company. Chandulal and Co. Ltd. was formed on 4th January, 1928, and Bhalakia Mills Co. Ltd., was also registered on the same date. For the sake of brevity, the Bhalakia Mills Co. Ltd., will hereafter be referred to as "the Mills ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Jethalal Purushottamdas Bhalakia and/or in such other person or persons as he nominates and in case of his death without nominating his successors in the person nominated from amongst themselves by his heirs, executors, administrators, assigns or legal representatives, etc ." The said Jethalal worked as managing agent of defendant No. 1 company till his death, which took place on 12th November, 1937. Thereafter, he was succeeded by Seth Narottam Jethalal, defendant 5 in the suit, by virtue of his nomination under the terms of the above article, and the directors of defendant No. 1 company recognised that nomination and passed a resolution at a meeting held on 15th November, 1937, stating that the said Seth Narottamdas Jethalal was to work in place of the deceased Seth Jethalal Purushottamdas with all the rights as secretary, treasurer and agent which vested in the deceased Jethalal and as per agreement made between defendant No. 1 company and the said deceased Jethalal. That resolution is at Exhibit 97. The working of the two companies continued under this arrangement and on 21st June, 1949, the defendant No. 1 company issued a notice calling the 22nd annual ordinary general ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be given a commission of 9 annas in the rupee in the profits of the Mills Co. and that was done by allotment of 72 shares of defendant No. 1 company and that it was of the essence of the incorporation of the defendant No. 1 company that the managing agents were not to be given any remuneration for the said management beyond this. According to the plaintiffs, the action of the board of directors of defendant No. 1 company, in proposing the resolution to give any remuneration to the managing agents, was ultra vires, illegal and against the objects and constitution of the company. According to the plaintiffs, the managing agents of the defendant No. 1 company were not entitled to claim, and the company was debarred from paying, any remuneration because the managing agents had agreed, in consideration of the commission of 9 annas, to manage the affairs of the defendant No. 1 company. It was also urged that the notice calling the meeting so far as item (5) of the business on the agenda of the meeting was concerned, was vague, illegal and invalid. The defendants resisted the suit on several grounds. They stated that the court had no jurisdiction to entertain the suit because th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 1 company with the articles of association and Schedule A annexed. As already stated above, in the resignation of Seth Chandulal Mashruwala as the managing agent, Seth Jethalal Purushottamdas came to be appointed in his place and the original clause (15) in paragraph III of the objects of the defendant No. 1 company was substituted by a new paragraph. The board of directors of defendant No. 1 company were authorised therein to execute an agreement in connection with the terms and conditions of appointment and the remuneration of the said Jethalal. That agreement is Exhibit 126 and article 2 of the same is in these terms : "The remuneration payable by this company to the managing agent is included in the management commission mentioned in the agreement dated 24th February, 1932, between the Bhalakia Mills Co. Ltd., and the company, viz., nine annas share in a rupee of sixteen annas out of the total net amount of commission receivable by this company from the Bhalakia Mills Company Ltd. and the shares of this company representing the said nine annas commission have already been allotted to Seth Chandulal Karasandas and Seth Jethalal Purushottamdas Bhalakia and/or the persons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut such a reduction. The lower court was of the view that the appointment of Seth Jethalal as the managing agent of the defendant No. 1 company and the terms and conditions of his appointment and his remuneration constituted a condition in the memorandum of association of defendant No. 1 company and the action of the company in passing a resolution giving extra remuneration to the managing agent would alter that condition, and since the alteration was not made by means of a special resolution it was ultra vires of the company. But, in our opinion, that view is not correct. Under section 10 of the Indian Companies Act, a company cannot alter the conditions contained in its memorandum, except in the cases and in the mode and to the extent for which express provision is made in the Act. But the proviso says that any provision in the memorandum relating to the appointment of the managing agent and the remuneration payable to him could not be regarded as a condition, and the defendant No. 1 company was therefore fully authorised to propose and pass a resolution for the payment of extra remuneration to the managing agent. In support of his argument he relied on the ruling in Ram ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Companies Act. It could not make a difference in the position even if the clause in the memorandum of association relating to the appointment of the managing agent was inserted among the objects of the company : see Ramachandra Lalbhai v. Chinubhai Lalbhai AIR 1944 Bom. 76 , and the remarks of Chagla J. (as he then was), at page 81. Mr. Munshi also relied in support of the trial court's view on the case of Ashbury v. Watson (1885) 30 Ch. D. 376, which held that certain resolutions which altered the conditions in the memorandum of association in contravention of section 12 of the English Companies Act, 1862, were not valid. In that case a provision with regard to the priority of shares was held to be a condition in the memorandum of association and an essential part of the constitution of the company upon which it was established because the distribution of the profits was one of the most essential parts of the constitution of the company. Mr. Munshi says that in the present case also the distribution of the profits of the Bhalakia Mills Co. Ltd., was an essential part of the defendant No. 1 company and therefore any action which tended to make a change in this respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Bhalakia Mills Co. Ltd., and the defendant No. 1 company. It cannot, therefore, be said that defendant No. 1 company had appointed defendant No. 5 as its managing agent after the commencement of the Indian Companies (Amendment) Act, 1936, that is to say after 15th January, 1937. Defendant No. 5 replaced the deceased, Seth Jethalal, as a managing agent of defendant No. 1 company by virtue of the provisions in the memorandum and articles of association of defendant No. 1 company and as per agreement made between defendant No. 1 company and Seth Jethalal. If that be so, in our opinion, the provisions of section 87C of the Indian Companies Act have no application and would not require defendant No. 1 company to pass a special resolution for payment of extra remuneration to its managing agent. It was also urged that the notice dated 21st June, 1949, of the general meeting, sent to the plaintiff was not valid in so far as item No. (5) was concerned, and that therefore the resolution regarding payment of extra remuneration was illegal. Mr. Munshi relied in support of his contention regarding the validity of the notice on Narayanlal v. Manekji Petit Manufacturing Co. [1931] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that the appeal had become incompetent on account of the death of respondent 5 (original defendant No. 5) and though his heirs and legal representatives were brought on record, the plaintiffs could have no cause of action against them and could not prosecute the appeal. In the suit out of which the appeal has arisen, the plaintiffs challenged the validity of the appointment of Seth Narottamdas Jethalal as the managing agent of Chandulal and Co. Ltd., (defendant No. 1) and prayed for a declaration that defendant No. 5 was not validly and legally appointed managing agent of defendant No. 1 company and for an injunction restraining defendant No. 5 from acting as such. The trial court held that the plaintiffs were not entitled to such a declaration and injunction and dismissed the plaintiffs' suit with costs. As the original defendant No. 5, Seth Narottam Jethalal, is now dead, it is obvious that the plaintiffs' right to sue does not survive against either defendant No. 1 company or the heirs and legal representatives of defendant No. 5. This position has been conceded by Mr. Munshi. First Appeal No. 549 of 1951 must, therefore, fail and must be dismissed. There will be no orde ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
