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TMI Blog2003 (2) TMI 336X X X X Extracts X X X X X X X X Extracts X X X X ..... chgate, Mumbai - 400 020 and enrol its present members of all categories as members of the company and to run and manage the said B.C.A. Garware Club House and ( ii ) to promote, encourage, organise, manage or assist in the promotion, organisation or management of all forms of athletics, sports, past timers and recreations, sporting events, entertainments, exhibitions, display tour and tournaments. 3. The management of the company vests in its Board of Directors which is called as the Managing Committee. The directors are called as "the members of the managing committee" or simply "the Committee members." The names of the first committee members were mentioned in clause ( b ) of Article 25 of the Articles of Association of the company and their term was for a period of five years commencing from the date of incorporation. First election to the post of directors (committee members) was held on 25th September, 1998. The Plaintiff Nos. 1,3,4,5 and 6 in the Suit No. 5988 of 1998 contested the election. Plaintiff No. 1 was elected as an Honorary Secretary while plaintiff Nos. 3,4,5 and 6 lost the elections. Thereafter, the suit giving rise to the present appeal, bearing S.C. Suit No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The respondent or B.C.A. Garware Club House will be at liberty to enrol new members, so as to increase the total number of members only to 10,500. However, the status and rights and liabilities of such new members will be subject to the result of the appeal. No equity or right will be created in their favour by mere fact that they are made members. This will be clearly made known to the new members before they are enrolled." In pursuance of this order several persons were enrolled as the members of B.C.A. Garware Club House subject to the final result of the suit. While deciding the appeals finally, this court directed that this interim order shall continue to operate during pendency of the suit in the City Civil Court, Mumbai. The suit is still pending and the order thus continues to be in force. Learned counsel for the appellants contends that the persons who were enrolled as members of B.C.A. Garware Club in pursuance of this order of the court, had no right to vote at the election of the office bearers of the company because, their status, rights and liabilities are subject to the final result of the suit. 7. During the pendency of Suit No. 5198 of 1986, the defendant No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts which are necessary for the purpose of considering whether the continuation of the respondent Nos. 4 to 15 in the office is illegal and invalid are on record. After this point was raised, the respondents took time to file additional affidavit and have filed an affidavit dated 11th February, 2003 specifically dealing with that contention and have also tendered two compilations of relevant papers. The affidavit and the compilations contain all the necessary facts. The respondents thus had the full opportunity to meet the contention of the appellants. In view of this, the objection of the respondents for considering the submission of the appellants is overruled. 9. Sections 255 and 256 of the Act, read as under : 255. Appointment of directors and proportion of those who are to retire by rotation. (1) Unless the articles provide for the retirement of all directors at every annual general meeting, not less than two-thirds of the total number of directors of a public company, or a private company which is a subsidiary 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eappointed; ( iii )he is not qualified or is disqualified for appointment; ( iv )a resolution, whether special or ordinary, is required for his appointment or reappointment in virtue of any provisions of this Act; or ( v )the proviso to sub-section (2) of section 263 is applicable to the case. 10. Following propositions emerge from reading sections 255 and 256 and 263. In respect of a public company or a private company which is subsidiary of a public company. ( i )Not more than 1/3rd of the total number of directors can be the directors who may not be liable for retirement (like directors who are appointed under an agreement as nominee directors of financial institutions who have lent money to the company). The remaining directors (hereinafter referred to as the elected directors) have to be elected in the general meeting. ( ii )Articles may provide for retirement of all the elected directors at every Annual General Meeting (for short A.G.M.) ( iii )Unless articles provide for retirement of all the elected directors at every A.G.M. 1/3rd of the elected directors (or where number is not divisible by 3, then the number nearest to 1/3rd shall retire by rotation. The e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the election by ballot of all its directors at each annual general meeting if such company does not carry on business for profit or prohibits the payment of a dividend to its members." 13. Reliance was placed emphatically on the marginal note of section 263A which apparently says that sections 177, 255, 256 and 263 shall not apply in relation to the Companies which do not carry on business for profit or prohibit payment of dividend to its members. It is a well-settled principle of law that marginal note does not govern the interpretation of the section and cannot be looked into when the meaning of the section is clear, albeit there is some difference of opinion as to whether the marginal note can be looked into when the interpretation of the section is not clear. It is however, not necessary to look to the marginal note as the wor- ding of section 263A is clear and there is no ambiguity in its meaning. Sec- tion 263A only protects the provisions in the Articles of Association of a company for the election of all its directors by ballot. The normal rules that resolution for appointment of each director should be put to vote individually ( See section 263) and that the voting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Association of the company. 17. The promoters of the respondent No. 1 company before its incorporation made an application on 4th/18th December, 1992 to the Regional Director exercising the powers of the Central Government, for a licence to register a company, under section 25 of the Act. Along with the application, they submitted copies of the draft Memorandum of Association and draft Articles of Association of the proposed company. After exchange of correspondence, by a letter dated 19th March, 1993, the Regional Director directed the defendant No. 1 company to make certain modifications in the Articles of Association submitted by the company and further informed that the application for the licence under section 25 of the Act shall be processed further on receipt of duly corrected copies of the Memorandum of Association and Articles of Association of the proposed company. The company did carry out the amendments as directed. Thereafter, the Regional Director exercising the powers of the Government of India vide his letter/order dated 1st April, 1993 granted the licence to the defendant No. 1 company permitting it to register under section 25 of the Companies Act. Clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regarding electing all directors at every General Meeting, or to provide for retirement of 1/3rd of its directors at each Annual General Meeting. 20. It must be clarified that section 25 (6) of the Act, 1956 does not per se exempt a company licenced under section 25 from the provisions of the Act, in general or sections 255 and 256 in particular. In the normal circumstances, the exemption from any of the provisions of the Act, must be stated expressly in the terms of the licence. The normal rule that the Act, would override any contrary provisions in the Memorandum of Association or Articles of Association would apply to cases of repugnancy between the Act and the Memorandum of Association or the Articles of Association. The provisions in the Memorandum of Association or Articles of Association of a company which are contrary to any provisions of the Act would to the extent of repugnancy be void. However, it is permissible for the Central Government to grant exemption either generally or specifically to a particular company from one or more of the provisions of the Act under sub-section (6) of section 25 of the Act. Such exemption as stated earlier should normally be express ..... X X X X Extracts X X X X X X X X Extracts X X X X
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