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TMI Blog1995 (5) TMI 212X X X X Extracts X X X X X X X X Extracts X X X X ..... Nos. 1 to 5 their servants, agents and assigns from giving any effect or further effect to or acting or further acting in furtherance of the purported resolution dated 5-10-1994 of the defendant No. 1, being annexures 'M' and 'N' respectively hereto in any manner whatsoever; (e)Perpetual injunction restraining the defendant Nos. 1 to 5, their servants, agents and assigns from asserting in any manner whatso ever that the plaintiff has ceased to be the Chairman and/or removed from the chairmanship of the Board of Directors of the defendant No. 1; (f)The alleged minutes of the alleged Board meeting of the defendant No. 1 held on 5-10-1994 and the purported letter dated 6-10-1994 being annexures 'M' and 'N' respectively hereto be delivered and cancelled; (g)Temporary injunction; (h )Receiver; (i)Attachment; (j)Costs; (k)Further and/or other reliefs. 2. In the plaint it has been alleged inter alia as follows : The defendant No. 1 was originally incorporated under the provisions of the Indian Companies Act, 1913, under the name 'Indian Cable Co. Ltd.' and is now an existing company within the meaning of the provisions of the Companies Act, 1956 ('the Act'). In or about January 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ineers' company or by any other officer of that company to whom its Directors may have delegated their powers in that behalf." 6. A copy of the extract of the relevant articles of association of the defendant No. 1 has been annexed to the plaint. 7. By an agreement dated 28-1-1947, between the defendant No. 1 and the defendant No. 7, the defendant No. 7 was appointed as a Consulting Engineer of the defendant No. 1, a xerox copy whereof has been annexed to the plaint. 8. Some of the relevant clauses of the aforesaid agreement dated 28-1- 1947 are reproduced below : "(i)So long as the consulting engineers remain consulting engineers to the Indian company and so long as they hold not less than 10,000 shares of any class, in the Indian company of nominal value Rupees ten or their equivalent the consulting engineers shall be at liberty at all times and from time to time to appoint two directors of the Indian company to cancel their appointments or the appointment of either of them and upon such cancellation or the retirement or resignation of them or either of them to appoint other directors or another director so long as not more than two directors so appointed hold office as such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t less than three-fourths of the issued share capital of the Indian company for the time being and having voting rights shall be present and shall vote for such resolution." 9. The consulting engineers shall be entitled to determine this agreement by giving twelve months' notice in writing to the Indian company expiring at any time and upon the expiry of such notice this agreement shall cease and determine but without prejudice to the performance and satisfac- tion of all obligations, duties, rights and claims which shall have become binding on either party thereto or shall have accrued prior to the expiration of such notice. 10. Subsequent thereto a supplemental agreement was executed on 30-10-1951 between the defendant No. 1 and the defendant No. 7. A xerox copy of the said supplemental agreement has been annexed to the plaint. 11. In terms of the agreement between the defendant No. 1 and the defendant No. 7 and in tune with article 90 of the articles of association of the defendant No. 1 the defendant No. 7 nominates two directors on the Board of the defendant No. 1 since 1947 one of whom was also the Chairman of the Board of Directors of the defendant No. 1. 12. Till 31-1-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plaint without the enclosures. 18. It has been alleged that the said Board meeting scheduled to be held on 10-9-1994, though was held, but after some discussions remained inconclusive and was adjourned till 21-9-1994. 19. It has been alleged that the agenda of the Board meeting scheduled to be held on 10-9-1994 had no item regarding removal or resignation or cessation of the plaintiiff as Chairman of the Board of Directors of the defendant No. 1 for discussion by the Board. No leave was sought for from the plaintiff, nor any permission was given by the plaintiff to discuss any matter regarding resignation of the plaintiff as Chairman from the Board of Directors of the defendant No. 1. The defendant No. 2 as a Director of the defendant No. 1 wanted to be informed about the Consulting Engineers agreement vis-a-vis information about the ap-pointment of the plaintiff as Director and Chairman of the plaintiff. 20. On or about 15-9-1994, by a letter addressed to the defendant No. 1, the defendant No. 2 as Assistant General Manager of ICICI sought for certain information and documents regarding, inter alia , appointment of the plaintiff as Director and Chairman of the defendant No. 1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the question of discontinuation of the plaintiff as Chairman of the board of Directors of the defendant No. 1 did not and could not arise. At the Board Meeting of the defendant No. 1 held on 31-3-1994 an issue cropped up as to whether the plaintiff would be bringing in fresh funds as a booster to the revival package of the defendant No. 1. The plaintiff also at the said meeting and also at the meeting held on 21-9-1994 assured full co-operation with the Board for the purpose of revival of the defendant No. 1. Moreover, the plaintiff out of his own resources paid a substantial sum to the statutory and other creditors of the defendant No. 1 including the provident fund to show his bona fide in the matter of assurance of such co-operation. The question of removal or resignation or cessation of the plaintiff from the chairmanship of the defendant No. 1 did not and could not arise. 27. It has been alleged that though the plaintiff attended the Board meeting of the defendant No. 1 on 5-10-1994 but as the statutory books for holding the meeting were not there because of the absence of the Company Secretary, the meeting had again to be adjourned without transacting any business till a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 3 and 4 even if they had constituted a quorum for a meeting of the Board of Directors of the defendant No. 1 had no authority and/or jurisdiction under the articles of association to appoint and/or remove any person as Chairman of the defendant No. 1. (f)The Board of Directors of the defendant No. 1 are not entitled to act contrary to the said agreement between the defendant No. 1 and the defendant No. 7 and article 90 of the articles of association of the defendant No. 1. (g)Ability or inability to bring in fresh or further funds does not and cannot have any relation whatsoever in the matter of operation of the terms of the agreement between the defendant No. 1 and the defendant No. 7 as also in the matter of operation of the provisions of article 90 of the articles of association of the defendant No. 1. (h)Article 2 of the articles of association expressly provides that save as reproduced in the said articles of association, the regulations contained in Table A of the First Schedule to the Act would not apply to the defendant No. 1. It has also been contended that the purported removal of the plaintiff is also contrary to the provisions of article 98 of the articles of assoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 company is ultra vires, the article of the company and directly affects the plaintiff, and as such the objection raised by the contesting defendants regarding locus standi of the plaintiff to maintain the application cannot be sustained. 36. It has also been submitted that the letter dated 15-11-1994 signed by L.A. Farran, Executive Director of BICC (Consulting Engineers), ex-pressly provides that the plaintiff was nominated by BICC as Chairman of Incab the said letter is not under challenge. 37. It has been contended that in the Affidavit in opposition filed on behalf of the defendant Nos. 2 to 5 a copy of a letter dated 4-10-1994 has been annexed to show as if the plaintiff is not holding the position of Chair-man/Director of Incab as BICC's nominee. 38. The learned Advocate has further contended that the said document does not merit any credence, for the following reasons :- (i)It is not a communication to Incab. The identity of the signatory to the letter is unknown. (ii)The letter does not indicate that it was written under the authority of the Board of Directors of BICC or of its shareholders in general meeting. (iii)The provision as to the termination of the agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue in the agenda and more so when very minor issues, i.e., fixed deposit holders - repayment of principal, interest, recovery of intercorporate loans, Flat at M-11, Greater Kailash and date of next Board meeting have been detailed in the agenda. 43. It is the contention of Mr. Roy that some indication even if not in the shape of a formal agenda, should be given in advance of a Board meeting stands to reason, as importance of such an issue, may be the deciding factor for a Director to opt to attend the meeting or to attend to some other more important business, may be of the company itself. 44. It has also been contended that it is one case of not having an agenda at all and completely another, when there are as many as 29 items on the agenda and the very vital one and in fact the only one claimed to have been discussed at the relevant meeting dated 5-10-1994 was not included in the agenda. 45. Mr. Roy has also submitted that in any event, the rudimentary principles of natural justice require that before an act is done affecting the substantive rights of a person, that person be given notice of such proposed act so that he has a chance of persuading the concerned persons as to wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Directors and members of a company are bound to comply and act in accordance with the memorandum and articles of a company (section 36 of the Companies Act). 51. Accordingly, Mr. Roy had submitted that the present application should be allowed and the plaintiff should be granted redress by way of passing an order in terms of the prayers in the said petition. 52. The following grounds have been mainly urged on behalf of the plaintiff in support of his case : (a)The item regarding the removal of the plaintiff as Chairman of the Board of Directors of the company was not mentioned in the agenda of the Board meeting convened to be held on 31-3-1994. (b)The grounds for removal being alleged inability to bring in Rs. 20 crores by Tapuriah is not correct and the minutes have not been properly written. (c)The removal of the Chairman by the Directors is ultra vires the powers of the Directors. 53. On the question there was no agenda for removal of the plaintiff as Chairman. 54. The plaintiff has referred to penultimate items in the agenda to the effect following : 'Any other points with the permission of the Chairman'. 55. In this connection this ground has been taken in the pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s further submitted that the plaintiff has been duly nominated by the Consulting Engineers by subsequent election at the said meeting in terms of the article 90 of the company and else in terms of the agreement and his authority to act as Chairman has not been revoked by BICC. The said nomination has been duly adopted. 63. He has further submitted only because of his subsequent re-election it cannot be said that there is no question of nomination by Consulting Engineers of BICC. In fact the subsequent election is a mode of ratification of the nomination originally made and it cannot be contended that the question of nomination does not arise. 64. Mr. S.B. Mukherjee learned advocate for respondent Nos. 2 to 5 has submitted that even if there is no specific agenda under the miscella- neous items with the permission of the Chairman any other business may be transacted. In the instant case, the respondents' contention is that the Chairman himself raised the question of his stepping down from the chairmanship of the company. This is evident from the letter dated 6-10-1994 petition, written by three of the directors who attended the meeting. In the second para of this letter it has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gineers. 73. The learned Advocate referred to section 255 of the Companies Act and section 25 of the Industrial Finance Corpn. Act, 1948. He has also submitted that articles 129 to 131 referred to the agreement between the company and the consulting engineers. Plaintiff is not a party to the agreement nor is any personal right or benefit conferred on him under the said agreement. In fact, he was nowhere in the picture when the agreement was entered into in 1947 and modified in 1951. Therefore, he cannot enforce any rights or obligations under the said agreement. 74. In support of the aforesaid contention Mr. Mukherjee has relied upon the following decisions : 1.M.C. Chackos case (supra) 2.Krishna Lal Sadhu's case (supra) 3.Punjab National Bank (supra) 75. The learned Advocate for the defendant Nos. 2 to 5 has also referred to Chapter VIII section 38 of the Specific Relief Act. He has submitted that no perpetual injunction could be claimed as under section 38(2) the provisions of Chapter II would be attracted. Under sections 14 and 15 of Chapter II no specific performance can be claimed inasmuch as mon- etary compensation would be an adequate relief and it is only a party to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bring funds of Rs. 20 crores there is lack of confidence in plaintiff by the financial institution as shareholders, and also the workers and the Bankers. 86. The learned Advocate has also submitted that in the interest of the company, the Court should not intervene in the internal management as no illegality has been committed by removal of the plaintiff. 87. In this connection he has relied upon the following decisions : (i) Bentley Steven's case ( supra) (ii) Life Insurance Corpn. of India's case (supra) 88. He has also contended that the appointment of the plaintiff was made by the Board and, as such, the removal can be also made by the Board. The plaintiff has been appointed Director by the shareholders so also L.A. Farren. 89. Apart from their question of nomination under article 90 by the consulting engineers they are not nominee directors of BICC but share holders directors duly elected at the general meeting. 90. According to Mr. Mukherjee, article 117 clearly shows that if the Chairman is not present the Directors present shall approach a Chair- man. So this is not a permanent appointment. He has referred to section 175 of the Act, which provides for power of Chairm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the meeting dated 31-3-1994 does not contain correct statement regarding his commitment to step down from the post of chairmanship of the company. 98. It has, however, been noted in the said letter that the funds required for the revival package as committed by the plaintiff are now ready. The relevant portion of the said letter is as follows : "In the meantime, I wish to inform you that the funds required for the revival package as committed by me are now ready and I would be pleased to produce before you proof of the same. May I also point out for your kind information that during the last Board meeting of the company held on 10th September, 1994, when Mr. P.K. Mukherjee asked me to step down as Chairman I had made a specific enquiry whether the financial institutions had an alternate promoter who was willing to be associated in the revival of the company. To this, the answer from the institutional nominees was evasive. You will kindly appreciate that while the Institutions, no doubt, have a substantial stake in the company, I, too, have a considerable interest and, therefore, any alternative proposal should, in all fairness, be disclosed to me rather than pressurising me i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... do it: but it strikes me, as it struck Lord Tenterden in Rex v. Pulsford (1), that there is an immense difference between meetings of shareholders or corporators and meetings of those whose business it is to attend to the transaction of the affairs of the company or corporation. It is not uncommon for directors conducting a company's business to meet on stated days without any previous notice being given either of the day or of what they are going to do. Being paid for their services as they generally are, and as is the case in this company it is their duty to go when there is any business to be done, and to attend to that business whatever it is; and I cannot now say for the first time that as a matter of law the business conducted at a directors' meeting is invalid if the directors have had no notice of the kind of business which is to come before them. Such a rule would be extremely embarrassing in the transaction of the business of companies." 104. In this connection it will be appropriate to note the observations of Buckley in his Companies Acts, 14th Edition, Vol. 1, page 1019 wherein it has been observed by the learned Author as follows : "But notice of the business as dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Lords said : "My Lords, this is an expulsion case, and I must briefly justify the application in such case of the just and equitable clause.............. The law of companies recognises the right in many ways, to remove a director from the board. Section 184 of the Companies Act, 1948 confers this right on the company in general meeting whatever the articles may say. Some articles may prescribe other methods, for example a governing director may have the power to remove (of Re Wondo-flex Textiles Pty Ltd.) [1951] VLR 758. And quite apart from removal powers, there are normally provisions for retirement of directors by rotation so that their re-election can be opposed and defeated by a majority, or even by a casting vote. In all these ways a particular director-member may find himself no longer a director, through removal, or non re-election; this situation he must normally accept, unless he undertakes the burden of proving fraud or mala fides. The just and equitable provision nevertheless comes to his assistance if he can point to, and prove some special underlying obligation of his fellow member(s) in good faith, or confidence, that so long as the business continues he shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oard may also express its no confidence and remove the petitioner as Chairman. The fact, he was nominated by the consulting engineers that does not mean that he will continue for ever. 114. In my view there cannot be an agreement in perpetuity; it is obvious that from the conduct of the parties and in particular BICC that they have treated the contract as having been abandoned and no longer in force nor enforceable. 115. It appears from the correspondence exchanged with BICC that BICC does not specifically express any view in the matter. It is also on record that the consulting engineers in terms of the agreement are not receiving any remuneration for long years. There is another on record to show that consulting engineers are still acting as consulting engineers. It appears from the letter written by BICC as disclosed in the proceeding that they are entirely neutral on the issue of dismissal or appointment of Chairman or any Director. There is great doubt if the said agreement can have any force still now. Moreover, they have specifically mentioned in the letter that they are not taking any side in the dispute between other directors and the Chairman. 116. In that view of the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on by Mr. Mukherjee, the learned Advocate for the petitioner may be taken note of. 125. In the aforesaid decision there was an agreement to appoint nominee of the guarantee company as directors. Clause 6 of the agreement provides as follows : "The company will appoint two persons, to be nominated by the trust, to be directors of the company and by Clause 7 the Bila Company's manager was to be replaced by another manager to be approved by the Trust Company." 126. It was held that although upon the true construction of the contract there was a right in the T. Company to nominate two directors, the nomination had not the effect of appointing the nominee directors of the B. Company and on the merits the injunction, being asked for not with the view of protecting the T. Company's security ought not to be granted. 127. In the aforesaid decision on similar facts the prayer for injunction was refused. 128. Considering the facts and circumstances of the case and the principles of law as settled by different decisions it appears to me that it will not be proper for me to interfere with the internal management of the company. Passing of interlocutory relief at this stage will really amou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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