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TMI Blog1967 (8) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... he said minority group of shareholders, the respondents Nos. 2 to 5 to the majority group of shareholders. It may be mentioned that the 3rd petitioner and the 8th respondent were, at the material time, directors of the 1st respondent-company along with respondents Nos. 1 to 7 and though it is a matter in controversy between the parties whether the 3rd petitioner still continues to be a director of that company, it is an admitted position that respondents Nos. 1 to 8 are even now the directors of the said company. It is the case of the petitioners that though respondents Nos. 6 and 7 do not belong to the majority group of shareholders, they are supporting them in excluding the minority group of shareholders from the control and management of the company. The annual general meeting of the shareholders of the 1st respondent-company for the year ending 31st December, 1966, was to be held on the 2nd of June, 1967, and at that meeting the 3rd petitioner was due to retire as a director by rotation, but, being eligible for reappointment, he offered himself for re-election as such. The appointment of a director in place of the 3rd petitioner, who, however, offered himself for reappointment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eting. On that application, the Companies Tribunal, while camping at Bombay, made an order on the 1st of June, 1967, the material portion of which is as follows : "In view of the serious allegations made regarding the alleged breach of the foreign exchange regulations, we direct that the rule in this application should also be served on the Reserve Bank of India, head office, at Bombay, and a copy of the application as well as affidavit supporting it should be served on the said bank. We also direct, in view of the necessity of preserving the status quo pending the hearing of this application, that the respondent-company and other respondents be restrained by an ad interim injunction from allowing the consideration of item No. 3 of the agenda of the annual general meeting of the shareholders of the company to be held on Friday 2nd June, 1967. But it will be open to the company and the other respondents to allow the said item to be adjourned pending further orders of the Tribunal in this application". By the said order, the Companies Tribunal also appointed joint receivers of all books of account, records, files, vouchers and papers of the 1st respondent-company and granted libert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, the petitioners have prayed for an injunction restraining respondents Nos. 1 to 7 from preventing the 3rd petitioner from exercising his rights as a director of the 1st respondent-company for an order directing the 1st respondent-company to withdraw or cancel the intimation given by them to the Registrar of Companies, and, if necessary, for the appointment of the 3rd petitioner as a director of the 1st respondent-company. It will be convenient at this stage to refer to the provisions of section 256 of the Companies Act, 1956. The material portion of subsection (1) of that section provides that, at each annual general meeting, one-third of the directors for the time being must retire, sub-section (2) thereof provides that the directors to retire by rotation at every annual general meeting would be those who have been longest in office, subsection (3) provides that, at the annual general meeting at which a director retires by rotation, the company may fill up the vacancy either by appointing the retiring director or some other person as director, and the material portion of sub-section (4), which is very important for the purpose of deciding the present application, reads as foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ournment of the annual general meeting, the 3rd petitioner retired by rotation. As it is common ground that the 3rd petitioner has retired by rotation, either on 8th June, 1967, as respondents Nos. 1 to 7 contend, or on 9th June, 1967, as the petitioners contend, the question as to whether the Tribunal's order of the 1st of June, 1967, should be construed as an order directing the 1st respondent-company and the other respondents to continue the 3rd petitioner as a director, does not arise. What the petitioners contend is that the annual general meeting of the 2nd of June, 1967, stood statutorily adjourned by reason of the provisions of sub-section (4)(a) of section 256, to the 9th of June, 1967, and though respondents Nos. 1 to 7 purported to adjourn it to the 8th of June, 1967, since on the 9th of June, 1967, to which date the annual general meeting stood statutorily adjourned, (1) the vacancy of the 3rd petitioner was not filled up, (2) it was not expressly resolved that the vacancy of the 3rd petitioner was not to be filled up, and (3) no resolution for the reappointment of the 3rd petitioner has been put to the meeting and lost, the 3rd petitioner must be "deemed to have been r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and was certainly not synonymous with the word 'must' and would cover the case of an ordinary general meeting at which directors retire by rotation, since, at such a meeting, election of directors would be proper, correct or naturally expected". The learned judges then proceeded to consider the other argument advanced on behalf of the defendant-respondents in the said appeal, namely, that, as a matter of construction, an article in the form of article 102 cannot, in common sense, operate, when the company intimates by express adverse vote that it does not desire the retiring director to continue as a director. In support of that contention, reliance was sought to be placed by the learned counsel for the respondents in Grundt's case (supra) on the case of Robert Batcheller's case (supra), which was strongly relied upon also by Mr. Nariman for respondents Nos. 2 to 5 before me. Articles of association in Robert Balcheller's case (supra), provided that if the places of retiring directors were not filled up, the retiring directors should be deemed to be re-elected. What happened in Robert Batcheller's case (supra), was that two retiring directors were not re-elected, but the chairman ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch do not readily present themselves to the mind of a judge". The appeal was, therefore, allowed, and it was held that the plaintiff must succeed and be entitled to the declaration that he claimed to the effect that he continued in office as a director of the said company, notwithstanding the express resolution of the company rejecting his re-election at the annual general meeting in question. Relying on the decision in Grundt's case (supra),, Mr. Bhatt for the petitioners has sought to contend before me that I must ignore the argument advanced on behalf of respondents Nos. 1 to 7 which was based on the alleged impossibility created by the order passed by the Companies Tribunal on the 1st of June, 1967, which, according to the said respondents, prevented them from either re-electing some other person in that vacancy, or resolving not to fill up the said vacancy. It may, however, be mentioned at this stage that no other person had filed his nomination paper for being elected as director in place of the 3rd petitioner, and no question of appointing any other person in the vacancy caused by the retirement of the 3rd petitioner arose at all in the present case. Mr. Bhatt has contended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nglish Companies Act, 1948, which replaced article 38 of Table A of the earlier English Companies Act of the year 1929. Whilst, therefore, the English Legislature may have considered the result of Grundt's case ( supra), to be undesirable, the fact that a change was effected in the law on the point does not, under the circumstances, mean that the decision, as a matter of construction of the plain language of the article, was thought to be erroneous. I agree with the decision in Grundt's case (supra),. In my opinion when the language is clear and unambiguous there is no scope for introducing considerations of absurdity or other like considerations for the purpose of negativing the effect of the plain language of an article or a section. Apart altogether from the view which I have taken in the preceding paragraph, namely, that impossiblity of complying with the conditions laid down in section 256(4) is no reason for holding that the result contemplated by that sub-section should not follow from its plain language, in my opinion, there was, in fact, no impossibility created by the order passed by the Companies Tribunal on the 1st of June, 1967, in complying with those statutory condi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sition of which it now complains. Though, on general principles, an adjourned meeting would be a continuation of the original meeting, it is important to bear in mind that section 256(4) provides for only one statutory adjournment of the annual general meeting as far as the item of filling the vacancy of a retiring director is concerned. That was, no doubt, the provision under article 82 of the articles of the company in the case Spencer's case (supra) on which Mr. Bhatt has relied. I, however, do not feel called upon to decide the question as to whether an annual general meeting statutorily adjourned under section 256(4)(a) can be further adjourned, without entailing the legal consequences laid down in section 256 (4)(b). Having regard to the view which I have taken above, that the Tribunal's order of 1st June, 1967, did not create any impossibility as it did not prevent the company from expressly resolving not to fill the vacancy, it is unnecessary for me to pronounce upon the interesting argument of Mr. Bhatt which I am now considering, and which was in support of the same main contention, viz., that no impossibility in complying with the conditions of section 256(4) was created ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, (1) of filling up the vacancy of the retiring director, (2) of resolving expressly not to fill up the vacancy, and (3) of resolving that the retiring director should not be re-appointed. Whatever might be the practical inconvenience or hardship that might result, I am afraid, a plain reading of sub-section (4)(b) of section 256 leaves no room for placing upon it the construction for which Mr. Khambatta and Mr. Nariman have contended, and which, as a matter of "commonsense", has, no doubt, considerable force. It was on a similar ground that, whatever be the scope of the provision, it operates only "when the known circumstances of a particular case are such as sensibly and legitimately to admit of its application", and that a construction should not be placed which amounts to a "complete absurdity", that the decision in Robert Batcheller's case (supra) was founded, but the same was disapproved by the learned judges in Grundt's case (supra ) as already stated above. I am not concerned with the question as to whether the circumstances of the present case are such as sensibly and legitimately to admit of the application of sub-section (4)(b) of section 256, but am concerned only wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of In re Lundie Brothers Ltd. [1965] 2 All ER 692, 699; [1965] 35 Comp. Cas. 827 , but it is unnecessary for me to refer to that decision in view of the fact that Mr. Nariman's analysis of the petition itself, on which this argument is founded, is not correct. It may be mentioned that Mr. Bhatt has stated that there is no provision in English company law corresponding to section 398 of our Companies Act. First of all, Mr. Nariman's argument overlooks the fact that the substantive petition is filed not by the 3rd petitioner alone, the 3rd petitioner being both a director as well as shareholder of the 1st respondent-company, but also by petitioners Nos. 1 and 2 who are mere shareholders, and that is the position in regard to the present judge's summons also. The minority group of shareholders with a holding of about 31 per cent, to which the three petitioners and the 8th respondent belong, are represented on the board of directors of the 1st respondent-company by the 3rd petitioner and the 8th respondent, who, as directors, are in a position to look after their interests and to act as a check on the alleged mismanagement by the majority group of shareholders. Moreover, as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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