9911796707
TMI Blog1996 (10) TMI 372X X X X Extracts X X X X X X X X Extracts X X X X ..... a Industries Ltd. The said lease agreements were executed by Mr. M.C. Aggarwal signing on behalf of both the companies as their director except two lease agreements wherein one of the signatories was Mr. A.B. Chaugh and in the other it was Mr. M.R. Bhoomla. The rents were paid to respondent No. 1 in terms of the aforesaid lease agreements by the petitioner. Subsequently, the financial position of Mohta Industries Ltd. became precarious and, consequently, the petitioner was declared a sick industrial company under the provisions of the Sick Industrial Compa- nies (Special Provisions) Act, 1985. In 1986, the nominees of Mahavir Spinning Mills Ltd. who is the present management of the petitioner were co-opted as directors. On 28-11-1988, the Board for Industrial and Financial Reconstruction sanctioned a scheme for rehabilitation of Mohta Industries Ltd. 3. The scheme for rehabilitation envisaged amalgamation of Mohta Industries Ltd. with another public limited company, namely, Mahavir Spinning Mills Ltd. In terms of the aforesaid amalgamation the petitioner came to be owned by Mahavir Spinning Mills Ltd. The petitioner started committing defaults in the payment of monthly rentals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issue of the present petition being barred by limitation, it would be appropriate that those two issues are taken up first one after the other and thereafter to deal with and give my findings on the remaining issues. Issue No. 4: Dr. Ghosh, the learned counsel for the respondents, submitted that in an application filed by the petitioner under section 33 a contract cannot be declared to be invalid or set aside. According to the learned counsel a reference to the prayer clause of the petition would show that the petitioner had challenged the entire contract and not the arbitration clause alone. He drew my attention to the prayer clause ( a ) of the petition wherein the petitioner has prayed for a declaration that the lease agreements were fraudulent, fabricated and antedated documents and that in prayer ( b ) , the petitioner has sought for a declaration that the lease agreements are void as Shri M.C. Aggarwal had no authority to enter into the aforesaid lease agreements whereas in prayer clause ( e ) declaration has been sought for declaring the lease agreements to be void in law as there was no pre-consent, whereas in prayer ( d ) the declaration is sought for cancella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in the case of Adamjee Hajee Dawood Co. ( supra ) the Supreme Court approved the conclusion of the Calcutta High Court that section 32 does not contemplate the case of a suit challenging the validity of a contract merely because it contains an arbitration clause. The submission of the learned counsel for the petitioner that unless he seeks to challenge the parent agreement he could not have challenged the arbitration agreement, in my considered opinion is without any merit. The existence and validity of an arbitration agreement could be chal- lenged independently without there being any challenge made to the parent agreement, namely, the contract agreement itself. The main thrust of the learned counsel for the petitioner during the course of his arguments was all along that the entire contract agreement is invalid in view of the fact that the same was not entered into by a person authorised in accordance with law and that the same has been entered into on behalf of both the companies by the same person, which is not permissible in law. Therefore, there is no independent challenge to the arbitration agreement in the present suit, but the entire agreement as a whole has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation Act would be applicable for filing such an application. As has been held by the Supreme Court in the case of Kerala State Electricity Board v. T.P. Kunhaliumma AIR 1977 SC 282, article 137 of the Limitation Act applies not only to applications under the Code of Civil Procedure, 1908, but to all the applications including applications under special laws. It was held in the said decision that the words 'any other application' under article 137 cannot be said on the principle of ejusdem generis to be applications under the Code of Civil Procedure other than those mentioned in Part I of third division and that any other application under article 137 would be petition or any applica- tion under any Act. A legal notice claiming the outstanding lease dues was issued by the respondent and was served on the petitioner in the year, 1991. The learned counsel for the respondent submitted that accordingly, the present application of the petitioner filed in March, 1993, is beyond the period of three years contemplated under the provisions of article 137 of the Limitation Act if the date of knowledge is construed from the date of service of the said legal notice. Besides, according to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 1986 were all acted upon by both the petitioner and the respondents even after the representatives of the present management were appointed as directors of the petitioner company. The lease rentals were also paid. The petitioner is a legal entity and because there was a change in the management the petitioner cannot claim that the knowledge of the petitioner about existence of the aforesaid lease agreements during the aforesaid period of 1983,1984 and 1986, would commence only when the arbitrator continued with the arbitration proceeding in spite of objection raised by the petitioner. The representatives of the present management were also included in the board of management prior to November 1988, and, thereafter, also lease rentals were paid to the respondents. The respondents served a legal notice on the petitioner claiming outstanding lease rent on 28-4-1989. After service of the aforesaid notice the petitioner at least had definite knowledge about the existence of lease agreements as admittedly the management of the petitioner vested with the present management with effect from 28-11-1988. The present petition has been filed in the month of March 1993, which is apparently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to any other powers or authority conferred by these, presents on the directors or on the managing director, the directors shall have certain powers. Sub-clause ( 18 ) therein provides that the directors shall have power to enter into all such negotiations and contracts and rescind and vary all such contracts and execute and do all such acts, deeds and things in the name and on behalf of the company as they may consider expedient for or in relation to any of the matters aforesaid or otherwise for the purposes of the company. Sub-clause (22) of the aforesaid article further provides that subject to the provisions of the Act, to delegate all or any of the powers hereby conferred upon them to the managing director or to any other director or employees of the company as they may from time to time think fit, other then a power to issue debentures. 14. Relying on the aforesaid provisions, the learned counsel submitted that a director is empowered under the aforesaid provisions of the articles of association to enter into a contract in the nature of the lease agreements involved in the present case. He further submitted that there was also ratification by the petitioner of the action ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gower's Principles of Modern Company Law, Student's Edition, also laid down that validity could be vested in a person for the purpose of entering into contracts on behalf of the company either by the board of directors collectively or by the memorandum and articles of associa- tion. Mr. Shakdhar, the learned counsel for the petitioner, however, submitted that the provisions of article 121A clearly indicate that the powers referred to in article 121A(1 to 21) are those which are available to the board of directors and that no single director has the authority to exercise any of the powers stipulated in article 121A (1 to 21) till they are delegated to such director or employee by the board of directors. Accordingly, in his submissions the word 'directors' appearing in article 121A (1-21) relates to board of directors and not to individual director. The aforesaid submission of the learned counsel appears to be without force. On a reading of the aforesaid provisions it appears that the word 'directors' as is used in the aforesaid provision relates also to an individual and single director who is empowered to enter into negotiations, cont- racts and execute all such acts, deeds and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that on a harmonious reading of sections 10 and 11 of the Indian Contract Act and section 46 of the Companies Act, it is clear that no agreement is enforceable in law against a company which is entered into on its behalf by an agent i.e., the director, who does not have any authority. As has been held above a director has the company's authority to enter into and execute a contract like the lease agreements and also in view of the ratification and waiver on the part of the petitioner no challenge could be made to the action of Shri M.C. Aggarwal in executing the lease agreements on behalf of the petitioner-company. 17. Section 46 of the Companies Act provides that if a contract is "by law required to be in writing signed by the parties, then the same may be signed for the company" by any person acting under its authority, express or implied. Reference was also made to sections 10 and 11 of the Indian Contract Act to emphasise that a contract would be valid when it is entered into by persons competent to contract. In the present case, express authority to enter into contracts like the lease agreements has been given to a director and, therefore, Shri M.C. Aggarwal was c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into by two separate and distinct legal entities cannot be held to be invalid merely because the said documents were signed by one person who was the director of both the legal entities. On a consideration of all the aforesaid provisions it appears that Shri M.C. Aggarwal was authorised to enter into and execute all contracts of the nature of lease agreements and there being also ratification of the said agreements by the petitioner-company and there being also waiver and acquiescence on the part of the petitioner in respect of the aforesaid lease agreements and also taking into consideration the fact that execu- tion of a contract is a managerial act relating to indoor management and functioning of the petitioner, I hold that the lease agreements coupled with the arbitration agreements cannot be said to be invalid on that count and cannot be declared to be not binding on the petitioner. 21 . In view of the aforesaid findings arrived at by me on appreciation of the evidence on record and the submissions of the learned counsel for the parties, the petitioner is entitled to no relief and, therefore, issue Nos. 5 and 6 are answered accordingly. The petition stands dismissed with ..... X X X X Extracts X X X X X X X X Extracts X X X X
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