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TMI Blog1966 (8) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... o act as its director, and for an order against the second defendant directing him to refund to the first defendant company all amounts recovered by the second defendant as director's fees and remuneration, etc. The main ground on which the plaintiff challenged the validity of the second defendant's appointment as director was that the second defendant had been elected as a director at a general meeting of the shareholders of the first defendant company only by a bare majority, although by reason of the provisions of section 261(1) of the Companies Act, 1956, a special resolution was necessary. The suit was defended by the defendants. Judge Vimadalal of the Bombay City Civil Court heard the suit and by his judgment and decree dated the 12th January, 1961, negatived the plaintiff's contention that a special resolution was necessary and dismissed the suit with costs. The plaintiff filed an appeal against that judgment and order of dismissal of his suit, being Appeal No. 30 of 1961 on the file of this court. That appeal was heard by Mr. Justice Patel as a single judge and disposed of by his judgment and order dated 30th January, 1961 (Ramchandiram Mirchandani v. India United Mill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of January, 1946. Clause 2 provides for payment of certain remuneration to Agarwal Co. for doing the work of the agency of the first defendant-company. Clause 8 provides that Agarwal Co. shall be entitled to have three nominees on the directorate of the first defendant-company to be called ex officio directors. Clauses 10 and 13 contain provisions, the effect of which is that despite the change of partners in the firm of Agarwal Co., the agency agreement would continue to subsist as if the same had been entered into by the first defendant-company with the firm of Agarwal Co., as it may from time to time be constituted. The constitution of the firm of Agarwal Co. underwent changes from time to time by reason of some partners going out of the firm and new partners coming into the firm. On 20th April, 1955, Agarwal Co. was constituted of five partners, viz., (1) Rameshwarprasad Bagla, (2) Harishan-kar Bagla, (3) Ramkumar Shivchandrai Sons (P.) Ltd., (4) Govind-ram Brothers (P.) Ltd., and (5) Bagaria More Co. Ltd. The firm of Agarwal Co., so constituted, did not undergo any further change till the 20th November, 1959, which is the date material for the purposes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentioned therein, as altered or amended by the said first supplemental agreement. At a general meeting of the first defendant-company held on 12th December, 1955, the second defendant was elected a director of the first defendant-company by an ordinary resolution. Having been so elected he was liable to retire by rotation. It was his turn to retire on the 20th November, 1959. The first defendant-company issued a notice to its members dated 29th September, 1959, convening its 39th annual general meeting on 20th November, 1959. One of the items on the agenda of that meeting was to elect a director in the place of the second defendant who was retiring by rotation but was eligible and offered himself for re-election. The meeting was accordingly held on the 20th November, 1959. The second defendant was elected a director at that meeting by an ordinary resolution. It was under these circumstances that the plaintiff shortly thereafter filed the above suit challenging the validity of the second defendant's election as a director. This appeal mainly concerns points of law. There are some facts which are material. We will set out the admitted facts. The second defendant is a shareholder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ember, officer or employee of such company; ( d )where any such office or place of profit is held by a body corporate, any officer or employee of such body corporate ; ( e )any person who is entitled, by virtue of any agreement, to any share of, or any amount out of the remuneration received by the managing agent; ( f )any associate, or officer or employee, of the managing agent; or ( g )any person who is an officer or employee of, or who holds any office or place of profit under, any body corporate under the management of the managing agent or any subsidiary of such body corporate." The provision contained in section 261(1) can apply if certain preliminary conditions mentioned in the opening part of that sub-section are fulfilled. The preliminary conditions are that the company must be a public company or a private company which is a subsidiary of a public company, secondly, that it has a managing agent and thirdly, that such managing agent is authorised by the articles or by an agreement to appoint any director to the board. Sub-section (1) provides that if those conditions are fulfilled, none of the persons mentioned in clauses ( a ) to ( g ) of that sub-section shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as an "officer" and held an "office" under the company. Section 2(25) reads as follows: " 'Managing agent' means any individual, firm or body corporate entitled, subject to the provision of this Act, to the management of the whole, or substantially the whole, of the affairs of a company by virtue of an agreement with the company, or by virtue of its memorandum or articles of association, and includes any individual, firm or body corporate occupying the position of a managing agent, by whatever name called." A plain reading of this definition of managing agent shows that whether the second defendant was a managing agent is a question of fact and particularly because of the requirement of an agreement with the company and of the other requirement that he must be entitled to the management of the whole or substantially the whole of the affairs of the company. Mr. Nathwani wanted to contend that the second defendant himself was the managing agent of the first defendant-company on the facts of this case. Mr. Nariman objected to Mr. Nathwani being permitted to urge this contention. This contention or even the facts relevant for holding whether the second defendant was or was not th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (25) requires is an agreement between the company and the managing agent which either could subsist so long as that agreement subsisted. Here there was no agreement between the company and the second defendant which could be mutually enforced by each against the other. The second defendant could unilaterally, without the concurrence of the first defendant-company, surrender his power of attorney from B. M. Co. Ltd. or B.M. Co. Ltd. could at any time withdraw that power of attorney from the second defendant. We cannot, therefore, uphold Mr. Nathwani's contention that the second defendant was the managing agent of the first defendant-company and was because of that reason an officer or held an office under the first defendant-company. Mr. Nathwani then contended that the second part of section 2(25) provides that the term "managing agent" include any individual, firm or body corporate occupying the position of a managing agent by whatever name called. He argued that, if an individual, firm or body corporate occupies the position of a managing agent, it is not necessary that there must be any provision under the company's memorandum or articles of association, nor is it necessary th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t could be said to be an officer of the first defendant-company. It is not even canvassed by Mr. Nathwani that the second defendant was an employee of the first defendant-company, because he was not appointed by the first defendant-company, nor was he paid any remuneration by the first defendant-company. The question which then remains is whether the second defendant held any office or place of profit under the first defendant-company. It was hotly contested before us whether the second defendant can at all be said to have held, by reason of the power-of-attorney, any office or place of profit. For the purposes of the contentions in respect of clause ( a ), we need not and we therefore do not decide it. For the purpose of this particular question we will assume, without in fact so holding it, that the second defendant did, by reason of the said power-of-attorney, hold an office or place of profit. But even so the question remains whether that office or place of profit was held by the second defendant "under the company". The second defendant held that power-of-attorney from B. M. Co. Ltd.; the power-of-attorney may authorise the second defendant to act on behalf of B.M. Co. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artner of a firm of managing agent is himself a managing agent, that managing agency is an office and that, therefore, B. M. Co. Ltd. was an officer of the first defendant-company. The third ground was that, under the managing agency agreement itself read with the second supplemental agreement, on a true interpretation of the two documents, every one of the partners was appointed the managing agent of the first defendant-company. Now, in order to succeed in his contentions under clause ( d ), Mr. Nathwani must succeed in establishing, firstly, not only that B. M. Co. Ltd. held an office or place of profit under the first defendant-company, but secondly, also that the second defendant was an officer or employee of B. M. Co. Ltd. In our opinion, Mr. Nathwani's contention under clause (d) can be disposed of on the second part of his contentions. We, therefore, do not propose to decide the first part of his contentions for the purposes of clause ( d ). The second part involves the determination whether the second defendant was an "officer" or "employee" of B. M. Co. Ltd. In support of his contention that the second defendant was an officer, Mr. Nathwani urged three contentions. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meaning of the word "officer" independently of section 2(30). According to Stroud's Judicial Dictionary, "officer" means a person under a contract of service; a servant of a special status holding an appointment to an office which carries with it an authority to give directions to other servants. In In re Western Counties Steam Bakeries Milling Co., [1897] 1 Ch. 617 Lord Justice Lindley, at page 627 of the report, stated : "But to be an officer there must be an office, and an office imports a recognised position with rights and duties annexed to it, and it would be an abuse of words to call a person an officer who fills no such position either de jure or de facto, but who happens to do some of the work which he would have to do if he were an officer in the proper sense of the word." In this connection Mr. Nariman also referred us to the case of In re B. Johnson Co. ( Builders ) Ltd. [1955] 1 Ch. 634; [1955] 25 Comp. Cas. 317 . In our opinion, that judgment, however, is not very useful to us in this case. Apart from the definition contained in section 2(30), "officer" and "office" are co-related. There must be an office and the occupant of that office would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relationship of agent to principal. That inclusive definition creates a fiction and includes certain kinds of agents within the word "officer" for the purposes of the Companies Act. If, therefore, the word "officer" was not included in clause ( d ) of section 261(1), that class of officers who are really agents would not be covered by the word "employee" and would, therefore, remain out of the scope of clause ( d ). The word "officer" had, therefore, to be included in clause ( d ) to cover that class of officers who were really agents, but who were to be deemed to be officers under section 2 (30). Mr. Nathwani then contended that we must construe the word "officer" widely, so as to include even persons who are really in the position of an agent to a principal. He contended that this must be so done to give effect to the intention of the Legislature disclosed in section 261(1) to place all persons who are associates or partners or employees or interested in or under the control of the managing agent under the disqualification contained in sub-section (1) of section 261. We are unable to accept this contention of Mr. Nathwani. There appears to be no justification to include pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Mr. Nathwani urged that B.M. Co. Ltd. was a managing agent of the first defendant-company on three grounds and we have set out the three grounds. The first ground was that B. M. Co. Ltd. was a partner of the firm of Agarwal Co. and that, therefore, because of section 2(30), B. M. Co. Ltd. was an officer of the first defendant-company and that the office which B. M. Co. Ltd. held as such officer was that of a managing agent of the first defendant-company. Now section 2(30) does not contain a definition proper of "officer", but is merely an inclusive definition. It merely makes a partner a managing agent only for the purpose of making that partner an officer. It cannot, however, be construed to lay down that every partner of a firm is managing agent within section 2(25). Section 2(30) creates a fiction for deeming a partner an officer. But, in our opinion, there is no justification to carry that fiction still further and hold, although it is not so specifically provided, that every partner of a firm of managing agents is himself a managing agent of the company. The second ground of Mr. Nathwani was that even apart from section 2(30), under the general law of partnership every ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mployees of a managing agent have been subjected to a disqualification and that in this connection it should be particularly noticed that the definition of "associate" under section 2(3) is very wide. He urged that, although clauses ( a ) to ( d ) do not specifically refer to managing agents, the wording of each of them is wide enough to include the cases under clause ( a ) where an individual is a managing agent, under clause ( b ) where a firm is a managing agent, under clause ( c ) where a private company is a managing agent, and under clause ( d ) where a body corporate is a managing agent. He took us in detail through these seven clauses to show that the contents of the seven clauses in many cases overlap. He contended that by reason of these seven clauses every conceivable person connected with the managing agent would be covered under one or the other, if not more of them. He then posed a query for our consideration whether in these circumstances in view of the provisions of section 261(1) itself, it can be said that the Legislature intended that individual partners of a managing agent were intended to be left out from the disqualification imposed by section 261(1). In this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elf. It was held in that case that that amount should be taken into consideration for the purpose of limiting the remuneration of the managing agent under section 348. Mr. Nathwani contended that section 348 is concerned with the remuneration of only the managing agent and that, if the remuneration paid to a partner was added, it could only be on the basis that the partner himself was a managing agent. The judgment in that case does support Mr. Nathwani's present contention. It was held in that case that a firm has no legal existence and that it is only a compendious manner of describing partners carrying on a business, and that on giving full effect to the clear and emphatic language used by the Legislature in section 348, it must be held that for the purposes of section 348 the partner must be treated as a managing agent and the remuneration earned by him individually must be added to the remuneration earned by the firm for the purpose of determining the maximum provided for under section 348. The report, however, shows that unfortunately the attention of that court was not invited to the provisions of section 2(25) which defines "managing agent". We have already pointed out that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, because of the general intention of the Legislature to be gathered from the provisions of section 261(1). If the Legislature intends that for the purposes of this disqualification every partner of a firm of managing agents should himself be treated as a managing agent, the Legislature should make suitable amendments to effectuate that intention. But it is the Legislature and the Legislature alone which can do so. A court cannot in the guise of interpretation, an interpretation based on a supposed intention of the Legislature, in reality embark to legislate and usurp the functions of the Legislature. The third contention urged by Mr. Nathwani was that apart from the provisions of law, by the said managing agency agreement dated 10th September, 1946, read with the second supplemental agreement dated 27th July, 1956, B.M. Co. Ltd. itself had been appointed the managing agent of the first defendant-company. He contended that the parties to that agreement are the thirteen partners of Agarwal Co., but of course in their capacity as partners of Agarwal Co. He further contended that the parties to the second supplemental agreement similarly are the then five partners individuall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, not necessary that he ought to have been elected by a special resolution. His election by an ordinary resolution is valid. Under the circumstances, we allow the appeal, reverse the judgment and order of the learned single judge and restore the judgment of the trial court dismissing the suit. The normal rule that costs must follow the event must be followed in this case also. Mr. Nathwani has contended that the rule should be departed from because an important and complicated point of law was involved and the judgment in Ramaben A. Thanawala v. Jyoti Ltd. [1957] 27 Comp. Cas. 105 was in the plaintiff's favour. That judgment, in our opinion, does not cover all the points canvassed in this appeal, nor does that judgment directly deal with section 261(1). It is only by way of analogy that Mr. Nathwani relied upon the same. That, in our opinion, is not sufficient justification for us to depart from the normal rule. As regards the third defendant, we however feel that there was no justification why the third defendant should have appeared separately from the second defendant. The third defendant was sued in his representative capacity and it has been so specifically stated at th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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