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TMI Blog1988 (1) TMI 277X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1956. The appellant was also one of the subscribers to the memorandum of the hotels company and under article 11 of the articles of association of the hotels company, the appellant became and was named as one of the first directors thereof. On July 14, 1978, a scheme of amalgamation was approved and sanctioned by this court in Company Petition No. 196 of 1978 connected with Company Application No. 39 of 1978 whereby the business and undertaking including all property, assets and liabilities of the freight company was directed to be transferred and vested in the hotels company on the terms and conditions of the said scheme. After such transfer and vesting, the freight company was directed to be dissolved. It was provided in the said scheme that the hotels company would take over the services of the existing managing director of the freight company, i. e., the appellant, on the same terms and conditions. The name of the hotels company was subsequently altered to Sinclairs Hotels and Transportation P. Ltd. Subsequent to the amalgamation, the appellant continued as a managing director of the hotels company. On May 1, 1981, the appellant was reappointed as the managing direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... additional director up to the date of the said meeting. In the directors' report it was also stated that the appellant had retired as the managing director of the said company on April 30, 1986, but had continued as the chairman. Pursuant to article 111 of the articles of association of the said company, the appellant will hold his office up to the date of the next annual general meeting. At a meeting of the board of directors of the company held on November 24, 1986, a resolution was passed again appointing the appellant as the managing director and chairman of the said company for a period of three years with effect from January 1, 1987. On or about December 22, 1986, one Gopal Vyas, a shareholder of the company, instituted a suit in this court against the said company and others, being Suit No. 934 of 1986, entitled Gopal Vyas v. Sinclairs Hotels and Transportation Ltd. (Suit No. 934 of 1986 22-12-1986), challenging, inter alia , the proposed appointment of the appellant and others as directors of the said company and the annual general meeting proposed to be held on December 29, 1986. On the same date, an ad interim order was passed in the said suit whereby it was d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting or holding themselves out or acting or functioning as directors of the said company in any way and from interfering or inter meddling in the management and affairs of the latter. ( b )An injunction restraining the appellant and the respondent No. 2 from entering or attending the offices of the said company. The Case of respondent No. 1 in his pleadings was, inter alia , that the appellant was appointed as a managing director of the said company for a period of five years from May 1, 1981. On April 30, 1986, the appellant ceased to be the managing director of the said company. On the basis of the minutes of the meeting of the board of directors held on August 18, 1986, and the said notice of the annual general meeting of the said company dated November 24, 1986, the appellant was claiming to have been appointed as an additional director of the said company on August 16 1986. It would be apparent from the minutes of the said meeting of the board of directors held on August 16, 1986, that the appellant was not appointed as an additional director of the said company at the said meeting. In any event, the appointment of the appellant as an additional director, if at all, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lders at an extraordinary general meeting held on January 11, 1983. The said appointment was also approved by the Central Government. It was contended that the appellant was not appointed as a director, additional or otherwise, at the general meeting of the board of directors of the said company held on August 16, 1986. The appellant was already a director on that date. After the expiry of his appointment as the managing director of the said company, the appellant continued as a director thereof. The termination of the office of the managing director did not bring to an end the office of the appellant as a director. This position was reiterated and reaffirmed at the said meeting of the board. The notice of the annual general meeting to be held on November 24, 1986, the explanatory statement thereto and the relevant portions of the directors' report for the said meeting had to be construed in the context of the aforesaid and to the extent the same were inconsistent with the aforesaid would be of no consequence. The same would be subject to suitable correction and the said meeting had been adjourned under orders of this court. It was contended in the alternative that the descri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was no evidence that the appellant was ever appointed a director by the shareholders. The learned judge recorded that the articles of association of the said company as also those of its predecessors in force at the relevant time in 1971 were not produced. The subsequent articles of association adopted by the said company, it was held, were not relevant. The learned judge came to the conclusion that the appellant had failed to establish that he was a director appointed by the shareholders or that he had been appointed as an additional director of the said company on August 16, 1986, or at any other meeting. The present appeal is from the said judgment and order dated November 19, 1987. At the instance of the parties, the appeal was treated as in the day's list and was heard along with the application filed in the appeal. The appearing respondents waived service of the notice of the appeal. Service of such notice on the non-appearing respondent was dispensed with. By consent of the appearing parties, filing of paper book was dispensed with and the undertaking given in that behalf was directed to stand discharged. The records and pleadings before the first court were produced and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eneral meeting which was initially scheduled to be held on December 29, 1986, has not yet been concluded. By reason of the orders passed in the said Suit No. 934 of 1986 instituted by Gopal Vyas, the meeting stands adjourned from time to time and the appellant continues to be a director of the said company. Learned advocate for the appellant also submitted that at a meeting of the board of directors of the said company held on November 24, 1986, the appellant has been reappointed as the managing director and chairman of the board of directors of the said company for a further period of three years with effect from January J, 1987. Learned advocate submitted further that in the facts and circumstances, no prima facie case has been made out by respondent No. 1 that the appellant has ceased to be a director of the said company and as such respondent No. 1 was not entitled to the interim order in his suit under appeal. This interim order has resulted in the ouster of the appellant from his office. By the said interim order, the suit of respondent No. 1 stands decreed in part at the initial stage. On the ground of balance of convenience also, such an interim order should not have be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nary general meeting of the company was held on December 10, 1959, when two of the directors retired but there was no election of new directors. A committee of shareholders was appointed to investigate into the affairs of the company and submit a report to the general meeting which was adjourned to a future date. In the meantime, notice was given to the company by a member stating that at the adjourned meeting he proposed to move for election of four directors. At the adjourned meeting, it was held by the chairman that the subsequent notice for election of directors was invalid and he left the meeting. Thereafter, the shareholders appointed a new chairman and elected four new directors. On an application by the shareholders for an interim injunction to restrain the former two directors, who had retired earlier, from continuing to act as directors, it was held that the date of the election of the directors within the meaning of the said article was the date of the adjourned meeting and that the notice for election of the four new directors was in compliance with the articles. It was held that the said directors had been duly elected at the adjourned meeting and the directors who had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for all time. Such a deemed office would necessarily come to an end when directors would be duly appointed by the companies involved at their annual general meeting under section 255 of the Companies Act, 1956. Learned advocate for respondent No. 1 next submitted that even though the appellant was nominated as one of the first directors in the hotels company as also the freight company, he could not continue in his office as a director in the said companies indefinitely on the strength of his nominations. Construing sections 254, 255 and 256 of the Companies Act, 1956, learned advocate for respondent No. 1 submitted that even in a private company, as a rule, directors were meant to be appointed in general meetings. The first directors of a private company nominated in the articles would be in the same position as the deemed directors of such a company under section 254 of the Companies Act, 1956, and they would cease to hold their office at the first general meeting where regular directors were to be appointed. If the first directors were not reappointed or re-elected as directors at the annual general meeting of the company held after its incorporation, they would cease to hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der passed by the first court under appeal was a proper and valid order and should be sustained. It was submitted last that the said company might be a proper party in the proceedings but it could not be held that it was a necessary party in the absence of which the suit of respondent No. 1 was bound to fail. In the instant case, an effective order could be made restraining the appellant from continuing to act as a director of the said company in the absence of the latter. In support of his contentions, learned advocate for respondent No. 1, relied on what he stated to be an official circular published in Company News and Notes, dated July 1, 1963, on section 256 of the Companies Act, 1956, as follows: Section 256 : Retirement of directors : ( b )It is open to a private company which is not a subsidiary of any public company to provide in its articles, the manner of appointment and the vacation of office of all its directors. Thus it is permissible for such a private company to provide in its articles that none of its directors is liable to retire by rotation. In the absence of anything to the contrary in the articles of association, however, all the first directors of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against the provisions of the articles of association or otherwise illegal, any shareholder of the company could insist on strict observance of the legal rules, statutory provisions and the provisions of the memorandum and articles which could not be waived even by a majority of the shareholders. In such a case, a suit and action initiated by the shareholders would be maintainable. ( d ) Comptroller of Customs v. Western Lectric Co. Ltd. [1966] AC 367 (PC). This decision was cited for the proposition laid down by the Privy Council that an admission by a man, of something of which he knew nothing was of no real evidential value and the admission made by a person on the basis of documents on record was of no more evidential value than the record itself. ( e ) Ram Autar Jalan v . Coal Products P. Ltd. [1970] 40 Comp Cas 715 (SC). In this case, a suit was instituted by a company alleging that the defendant was wrongfully and without authority purporting to act as one of its directors. An application was filed in the suit for an injunction restraining the defendant from acting as director and from operating a bank account of the company. The company produced its share regist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve construction ( i.e., contemporaneous construction placed by administrative or executive officers charged with executing a statute) generally should be clearly wrong before it is overturned; such a construction, commonly referred to as a practical construction although not controlling, is nevertheless entitled to considerable weight as it is highly persuasive". In reply, learned advocates for the appellant and respondent No. 7 submitted that under section 255 of the Companies Act, 1956, directors could be appointed by the shareholders of a private company at a general meeting. This might be the general rule. But, in the section itself, an exception was provided that in a private company the articles of association could provide for appointment of directors otherwise than in a general meeting by the shareholders and if such a provision was made, the articles would override the section. In the instant case, the articles of association of the freight company as also the hotels company not only provided for but actually appointed the appellant as a director of both the companies by nomination. The articles did not provide as to how long the appointment of such first directors wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iary of a public company, shall ( a )be persons whose period of office is liable to determination by retirement of directors by rotation; and ( b )save as otherwise expressly provided in this Act, be appointed by the company in general meeting. (2) The remaining directors in the case of any such company, and the directors generally in the case of a private company which is not a subsidiary of a public company, shall, in default of and subject to any regulations in the articles of the company, also be appointed by the company in general meeting". " Section 256 ( 1 ) : At the first annual general meeting of a public company, or a private company which is a subsidiary of a public company, held next after the date of the general meeting at which the first directors are appointed in accordance with section 255 and at every subsequent annual general meeting, one-third of such of the directors for the time being as are liable to retire by rotation, or if their number is not three or a multiple of three, then, the number nearest to one-third, shall retire from office". " Section 260 : Nothing in section 255, 258 or 259 shall affect any power conferred on the board of directo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Company Law Board is also contradictory to the pleadings of the appellant in this suit. Such contradictory stands of the appellant as to his office and status cannot in our view affect the actual legal position which is to be ascertained prima facie from the entire facts and circumstances. It stands established from article 111 of the articles of association of the hotels company that the appellant was initially appointed as one of its first directors. Such appointment was not as an additional director. The said article also did not prescribe any time limit up to which the appellant would continue in his office. The appointment of the appellant as a director of the freight company was made by and recorded in the articles of association of the said company in an identical manner. When the freight company was amalgamated with the hotels company, the appellant continued to be a director of the amalgamated company. Both the hotels company and the freight company were private companies and their articles did not provide for retirement of their directors and as such there was no question of retirement of the appellant from his office at any subsequent annual general meeting. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ides, inter alia , also for retirement of directors of a public company. The section also provides for appointment of directors in both public companies and private companies. So far as a private company is concerned, which is not a subsidiary of a public company, the section provides that the directors of such a company are to be appointed in a general meeting as in a public company but such appointment would be subject to the articles which may provide otherwise. It appears to us on a plain reading of the section that if the articles are silent as to the appointment of directors in a private company, or do not specifically provide for appointment of directors otherwise than in a general meeting, then the directors of a private company are to be appointed by the shareholders at general meeting. In the instant case, article 111 of the articles of association of the hotels company and freight company provided for and appointed the appellant as one of its first directors. Under section 256 of the said Act read with section 26 thereof, such an article may be held to prescribe, and constitute a regulation. This article, in our view, constituted an exception to the general rule l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contention of the appellant that the appellant continued to be a director of the said company which had become a public company by November 4, 1981, and was liable to be retired at the next annual general meeting scheduled to be held on December 29, 1986. This meeting was held partially on December 29, 1986, but was not concluded and the meeting was restrained from considering or passing resolutions pertaining to retirement, appointment or reappointment of directors which were directed to be considered at an adjourned date. Following the principles laid down in Ambari Tea Co. Ltd. (Appeal No. 260 of 1984 22-11-85 (Cal)), we hold that the question of retirement of the appellant would only arise at the adjourned date of the said annual general meeting of the company when the said meeting is held and not before that. It follows that on the date when the present suit was instituted, the appellant prima facie was a director of the said company and was entitled to act as such. This prima facie position arises from the undisputed facts on record and cannot be affected or detracted by statements or declarations to the contrary by the parties concerned or the said company. A legal posi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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