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TMI Blog1984 (5) TMI 227X X X X Extracts X X X X X X X X Extracts X X X X ..... became functus officio on September 30, 1982, and could not legally function beyond that date. The annual general meeting had already been delayed and it was prayed that certain articles and rules should be changed or amended to bring about a fair and legal meeting and elections. It was also prayed that the register of members should be corrected first and bogus members be removed. Furthermore, it was claimed, the elections should be held under the supervision of the court with an impartial and independent chairman. This application was decided on July 22, 1983, by the impugned order. The appellants have challenged the various directions made in the order as well as the changes made in the articles of association and election rules of the company. It must here be stated that disputes relating to the motion pictures association have been before the court almost continuously since the year 1973 and various orders of various company judges have been passed during the pendency of these petitions and other proceedings before the company court regarding the holding of the annual general meeting. The order under appeal is, however, somewhat different from orders made in the past, be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the court. The elections are to be conducted by this committee at Delhi, Kanpur and Allahabad. The dates for voting have to be decided by the committee. Before the elections can actually be held, the voters' list is to be correctly made to represent the membership. An authenticated list of members is to be prepared and objections invited. The list is first to be corrected up to January 12, 1982, and then a separate list made of persons who have become members after that date and objections also invited to that list. Members who are in arrears of subscription are required to make up their deficiency and elections to be conducted in accordance with the election rules as amended by the court. Though these directions may appear innocuous, they are actually drastic departures from the Companies Act and it is difficult to see how this committee can hold the annual general meeting at three places under the Companies Act. The next set of directions in the judgment are the amendments to the election rules. The changes are with regard to how a representative of a company or a representative of a partnership firm can vote or stand for election. According to the first amendment, such represe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be authorised by a resolution of the company as provided by section 187 of the Companies Act. There is no difficulty about such persons. The difficulty is about partnership firms which are not normal members and companies as they are not legal persons for the purpose of holding shares. In this company, a partnership firm can be a member, and the question has arisen as to who can vote for such a firm and how. The procedure prescribed by the election rules is that all the members of the firm should jointly authorise one person to vote, who can then exercise the vote. The form for this is set out as annexure "E" to the existing election rules. It is an authorisation for a specific annual general meeting and allows the authorised person to vote at the annual general meeting and also at the elections at that meeting. The amendment made by the court in Company Petition No. 32 of 1976 was that the secretary shall issue a letter of authorisation to partnerships concerned to nominate a partner and all the partners should sign that authorisation letter. There is also a date fixed, i.e ., 45 days before meeting when that letter is to be issued. There seems to be some difficulty in working ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debar a person from standing for elections, if he wants to. There has to be a specific decision of the members to introduce a special article to create such a bar. If a meeting of the company amends the article to this effect, it will be a moot point whether the amendment will be valid. But, assuming it is valid, it must have the support of the requisite majority of the members. This is a drastic alteration of the democratic right of every member to stand for election. In the case of companies and partnership firms, the bar is created by the fact that the firm is the member and not the partner and in the case of the companies, the company is the member and not its director or manager. To explain this, section 187 of the Companies Act, 1956, has only to be referred to. It states that a body corporate whether a company under the Act or not can authorise such persons as it thinks fit to act as its representative at the meeting and such person can exercise the power of vote as if he was an individual member. This section is limited to companies and body corpo-rates and does not apply to partnership firms. It, therefore, comes about that a partner, who is a member of a firm which is its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cutive committee. In a company which has a share capital, the fate of the elections is determined by a majority of the votes determined from the shareholding. Thus, even if there is one member owning a large number of shares, he can outvote every person holding lesser shares because each share has one vote. In a company, like the present, there is only one vote per member because there are no shares. Thus, the annual general meeting to be held under the Act has to include not only the elections of the new executive committee but also the other ingredients of an annual general meeting. Various provisions of the Companies Act, like sections 166, 167 and 168, indicate that the annual general meeting has to be held and the consequences of not holding it may be a criminal offence. Section 173 indicates that the annual general meeting has to have its normal business, the consideration of the accounts, the balance-sheet and reports of the board of directors and auditors, the declaration of dividend, the appointment of directors and the appointment of auditors. The appointment of directors has, therefore, to be done at an annual general meeting and not otherwise. The most important provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting" is to be conducted by three persons who are not directors. It is open to the court to appoint these three persons as directors of the company when they will be liable for the default if any. We fail to understand how they can be made responsible for holding a meeting which under law has to be held by the existing board of directors. There are two possibilities. Either the executive committee as existing cannot hold the elections in which case an order has to be sought from the Central Government under section 167, or it is the executive committee which has to hold the meeting, as they are the persons who are liable for any default under section 168. It is, therefore, essential that the executive committee should hold the elections. But, the court can make provision for the proper conduct of the elections by nominating a chairman as visualised by rule 19. We think that we should replace the direction by appointing a person to be the chairman of the actual meeting as far as the election part is concerned as visualised by rule 19 of the election rules of the company. The chairman so nominated will take over after the other business of the annual general meeting has been complete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter as to whether a person has been rightly or wrongly removed from membership. None of those persons appear to have moved the court by way of a petition under section 155 or by recourse to the civil court. We do not see why the court should make any investigation into this matter thus creating a lot of further complications in what would otherwise have been quite a simple procedure. We, therefore, think that there is no purpose in the court trying to rectify the register of members on its own initiative by a procedure which is somewhat different to that laid down in the Companies Act. This brings us to the question as to how the voters list has to be settled. There is a procedure laid down in the election rules of the company. This states in rule 18 that the register of members shall remain closed eight clear days before the holding of the annual general meeting and no person will be admitted to membership thereafter. This means that when the date of the annual general meeting is announced, more members can be enlisted or allowed to join till eight clear days before the date of the meeting. Normally, such persons would be entitled to vote at that meeting, so there is no purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proprietorship firm member ; ( b )Any one of the partners of a partnership firm member duly authorised by all other partners of such partnership firm to cast vote on behalf of the firms in writing, as per authority letter issued by the association in terms of annexure II of the articles of association passed by the Hon'ble High Court ; ( c )the managing director or any one of the directors or the secretary or any other officer of a company member duly authorised under a resolution passed by the board of directors of the company-member concerned, in terms of section 187 of the Companies Act, 1956, to cast vote on behalf of the company-member concerned (specimen copy of the resolution is attached in annexure 'F' hereto) can cast vote, provided, however, that : ( i )the required certified copy of the resolution and/or letter of authority in regard to the category of members under clause Nos. ( b ) and ( c ) above, in favour of the person authorised to cast vote, shall be filed in the office of the association at least 4 (four) clear days (excluding the due date of receipt of such resolution and/or letters of. authority and the date of the general meeting) before the date of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r as sub-clause ( c ) is concerned, there is no real objection to the same. It is retained. As far as sub-clause ( i ) of the proviso is concerned, it will remain as it is with the addition of the following words : "the resolutions or letters of authority filed in accordance with this rule shall continue to operate in all subsequent annual general meetings unless varied by a specific resolution or letter of authority, as the case may be." This change is in accordance with section 187 of the Companies Act, which provides that the resolution entitles the representative to vote. The section does not contemplate a fresh resolution being filed for every meeting. There is also sub-clause ( iv ) which deals with partnership firms where there is one major partner and a minor partner which we think may be retained as it is. But, as this rule visualises objections before the chairman, it is noted here for this purpose. We think that this amendment in the election rules will facilitate the voting by the company members and partnership members which is one of the main points of objection. Turning now to the appointment of the chairman, we think that Mr. R. K. Kaul, Joint Registrar of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be a member whose name is neither on the register of members nor on the voters list, such a person should not be permitted to vote, but it will be open to the chairman to record the person's objection, if he is so advised. (5)These directions only relate to situations we can visualise and if there are others, the chairman may exercise his discretion. Before parting with this appeal, it is useful to say that section 403 of the Companies Act visualises an interim order of the type that can be passed under section 402, with a view to bring to an end the oppression or mismanagement visualised by sections 397 and 398 of the Act. The holding of a future annual general meeting under the provisions of the Companies Act hardly qualifies to be classified as mismanagement or oppression under section 397 or 398 of the Act. So, it might be asked, how the court can pass orders altering the election rules or other procedure relating to the annual general meeting? In this case, it so happens that the type of oppression or mismanagement alleged in the petition is connected with the elections because the case of the petitioners is that fair and impartial elections are not held and the same peopl ..... 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