TaxTMI 
TaxTMI 
1969 (11) TMI 60
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....r the hearing of the suits. I propose to set out first the material facts necessary for understanding the matters in controversy between the parties and deal with the other facts while considering the rival contentions under each head of controversy raised before me. The company was incorporated on January 20, 1960, as a result of collaboration between the plaintiffs, The Firestone Tyre and Rubber Company, a company incorporated under the laws of the State of Ohio in the United States of America and Tulsidas Kilachand and others to whom, for the sake of convenience, I will hereinafter refer as "the Kilachand group ". The Kilachand group consists of Tulsidas and his three brothers, Ramdas, Ambala and Chinubhai, and their relatives and other concerns and companies owned or controlled by the Kilachand family. The main object of the company is to manufacture and deal in synthetic rubber and it is the only company in India which manufactures synthetic rubber. The authorised share capital of the company is Rs. 15,00,00,000 divided into 15,00,000 shares of Rs. 100 each. The issued and subscribed share capital of the company is Rs. 5,75,00,000 divided into 5,75,000 equity shares of Rs. 100....
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....ons as a special resolution and the second as an ordinary resolution : "Resolved that pursuant to section 314 and other applicable provisions of the Companies Act consent be and is hereby given to the appointment as the sole selling agents of the company for all the territories comprised within the Republic of India, Nepal, Bhutan and Sikkim, of Messrs. Kilachand Devchand and Company Private Ltd., a company in which Mr. Tulsidas Kilachand and Mr. Ramdas Kilachand, directors of this company, are interested as directors and members". Resolved that pursuant to section 294 and other applicable provisions of the Companies Act, Messrs. Kilachand Devchand and Co. Pvt. Ltd. be and they are hereby appointed the sole selling agents of the company for all the territories comprised within the Republic of India, Nepal, Bhutan and Sikkim for a period of five years commencing on the 1st October, 1963, and that the terms and conditions as to remuneration and otherwise contained in an agreement, the draft thereof has been placed before the meeting and for the purpose of identification initialled by the chairman of this meeting be and the same are hereby approved. "Resolved that the board of dire....
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....ld directly by the company the private company was to be paid such commission as the board of directors might decide, not exceeding the said rate of 2 per cent, on the net selling price. The account of commission was to be made up at the end of each quarter in each financial year. The said agreement further provided that if and when any goods manufactured by the company were sold outside the said territories during the period of the said agreement, the board of directors of the company and the private company would decide mutually whether any commission on such sales should be paid by the company to the private company and the rate of such commission, if any. Clause 13 of the said agreement provided as follows : "The terms of this agreement may be modified by mutual agreement of the board of directors of the company and the selling agent except that the rate of commission payable to the selling agents as provided in clause 12 hereof shall not be so modified". It appears that the plaintiffs were not happy at the idea of granting a sole selling agency and had protested against the same. The plaintiffs, however, did not oppose the passing of the said resolutions.company started comm....
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....the private company was Rs. 14,88,318, Rs. 16,86,971, Rs. 19,86,250 and Rs. 22,50,440, respectively. Thus, the total amount of commission paid to the company for the period of the said agreement dated September 24, 1963, aggregated to Rs. 84,63,849.appears that in 1965 some correspondence took place between the Company Law Board and the company. Ultimately, by its letter dated July 28, 1965, the Company Law Board intimated to the company that after careful consideration of the information furnished by the company it appeared to the Company Law Board that the terms of appointment of the company's sole selling agents were prejudicial to the interest of the company and the company was required to show cause why the Company Law Board should not, in exercise of the powers conferred upon it under section 294(5)(c) of the Companies Act, 1956, read with the Government of India, Ministry of Finance, Department of Revenue, Notification No. G.S.R. 178, dated February 1, 1964 See[1964] 34 Comp Cas (Statutes ) 95, vary the terms and conditions of appointment of the private company as sole selling agents. The variations proposed by the Company Law Board were to make the private company liable to....
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....eir letter of even number dated the 28th July, 1965, read with their letter of even number dated the 18th September, 1965 ". The letter of September 18, 1965, merely corrects some typographical errors in the earlier letter of July 28, 1965.a letter dated April 4, 1968, the private company intimated to the company that the company had suffered a considerable increase in their expenses due to the high price of imported alcohol and that the company had made very strenuous efforts with the Government of India to be allowed an increase in the selling price in order to offset the increased cost, but the selling price fixed by the Government of India with effect from April 1, 1968, did not offset such increased cost. It was further stated in the said letter that, in the interest of the company and in order to tide over the difficult situation of the company and in the mutual interest of both the parties and as a matter of commercial expediency, the private company was prepared to continue to charge selling agency commission as from April I, 1968, at the rate of 2 per cent, on the net selling price of the company's products as prevailing on November 5, 1967, exclusive of Government excise....
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....execution by the company, in the presence of any two directors of the company and the secretary of the company, Mr. K.B. Dabke, who do sign the same but before such execution a clarification be endorsed or attached to such agreement duly signed by or on behalf of the selling agents in terms of their letter dated 4th April, 1968". The solicitor-director, Kirloskar and Ruia voted in favour of the resolution, while Reighley and Warner voted against it. Tulsidas and Ramdas, being interested in the said resolution, abstained from voting. I may mention at this stage that all through there has been a dispute between the parties as to whether the minutes of the board of directors of the company have been correctly recorded. It is not necessary for the purpose of these motions to go into the details of this controversy. All that is necessary to set out is that at the meeting of the board of directors held on February 3, 1969, the minutes of the board meeting held on November 14, 1968, were confirmed and Reighley read out a statement on behalf of Warner and himself requesting that it should be made a part of the minutes. By his letter dated February 4, 1969, Reighley has reproduced the text....
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.... the territories comprised within the Republic of India and Nepal, Bhutan and Sikkim made by the board of directors of the company by a resolution passed at their meeting on 14th November, 1968, be and the same is hereby not approved". The plaintiffs also set out the statement which they desired to have included in the explanatory statement to be annexed to the notice convening the said meeting. This letter came up for the consideration of the board at its meeting held on March 21, 1969, when it was resolved that the matter should be placed for the consideration of the board at the next meeting thereof to be held on March 27, 1969. At the meeting of the board held on March 27, 1969, the following resolution was passed by a majority, Reighley and Warner voting against the same. That resolution is as follows: "Resolved that pursuant to the provisions of section 294 and other applicable provisions of the Companies Act, if any, the company hereby approve the appointment of M/s. Kilachand Devchand and Co. Private Ltd. as the sole selling agents of the products of the company for all the territories comprised within the Republic of India, Nepal, Bhutan and Sikkim for a period of 5 year....
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....ountants. The third defendant is a partner in the firm of chartered accountants who are the company's auditors, while the fourth defendant is a partner in Messrs. Ford, Rhodes, Parks and Company, chartered accountants, who are the auditors of the said Firestone Tyre and Rubber Company of India Private Ltd. After the poll was taken at the meeting of April 28, 1969, Tulsidas announced that the result of the poll would be declared by May 26, 1969, by an announcement in newspapers. Similarly, after the poll was taken at the meeting held on April 29, 1969, Tulsidas announced that the result of the poll would be declared 15 days after the result of the poll taken at the meeting held on April 28, 1969. Thereafter, by an announcement in newspapers, the announcement of the result of the poll of the meeting of the 28th April was postponed to the end of June, 1969. June 3, 1969, the plaintiffs filed Suit No. 522 of 1969. In this suit the plaintiffs have challenged the validity of both the initial appointment of the private company as the sole selling agents of the company as also their appointment as such sole selling agents for a further term. The plaintiffs have also challenged the validity....
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....intiffs filed Suit No. 681 of 1969. In this suit they have challenged the validity of the said notices convening the meetings, the conduct of the said meetings, the manner in which the result of the poll taken at the meeting of the 28th April was arrived at and the result of such poll. In the said suit the plaintiffs have prayed for a declaration that the said meeting held on the 28th April and the declaration of the result of the poll taken thereat were illegal and void and that the said meeting was not properly held as required by law. In the alternative they have prayed that the court should give directions for scrutinising the votes, proxies and letters of revocations in respect of the said two extraordinary general meetings and should appoint a fit and proper person to scrutinise them and to determine and decide the result of the said meetings and should remove Tulsidas and defendants Nos. 3 and 4 as the chairman and scrutineers respectively of the said meeting of the 29th April. In the said Suit No. 681 of 1969 the plaintiffs took out a notice of motion on July 17, 1969. In the said motion they have prayed for an interim order and injunction restraining Tulsidas and the scrut....
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....e in September, 1963, has been challenged, Mr. Nariman for the purposes of these notices of motion did not argue this point at the hearing of these motions. I may also mention that all parties before me are agreed and further applied to me that it would be in the interest of the parties if the hearing of both these suits were expedited, a view which I too am inclined to take. It was also not disputed by any of the defendants that an interim injunction may be granted restraining Tulsidas and the scrutineers in terms of prayer (a) of the said notice of motion in Suit No. 681 of 1969,. namely, restraining Tulsidas and the scrutineers from proceeding further with exercising any power as chairman or scrutineers at the said extraordinary general meeting of the company held on April 29, 1969, in connection with the scrutiny or examination of the proxies, revocations of votes cast thereat in connection with the declaration of the result of the poll taken thereat. The reason for this is obvious. Either the company had validly approved the further appointment of the private company at the meeting held on April 28, 1969, and the resolution moved thereat was duly passed, assuming an ordinary r....
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....or concern, the plaintiffs all throughout knew about the same and did not raise any objection to the solicitor director taking part in the discussion or voting at the said meeting of the board held on November 14, 1968, and the plaintiffs are, therefore, estopped from taking up this contention. The relevant provisions of law are to be found in sub-sections (1) and (4) of section 299 and sub-sections (1), (3) and (4) of section 300 of the Companies Act, 1956. These provisions are as follows: "299. Disclosure of interests by director.-(1) Every director of a company who is in any way, whether directly or indirectly, concerned or interested in a contract or arrangement, or proposed contract or arrangement, entered into or to be entered into, by or on behalf of the company, shall disclose the nature of his concern or interest at a meeting of the board of directors... (4) Every director who fails to comply with sub-section (1) or (2) shall be punishable with fine which may extend to five thousand rupees". "300. Interested director not to participate or vote in board's proceedings.-(1) No director of a company shall, as a director, take any part in the discussion of, or vote on, any c....
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....shall his presence count for the purpose of forming a quorum at the time of any such vote ; and if he does so vote, his vote shall not be counted :............ (2) Every director who contravenes the provisions of sub-section (1) shall be liable to a fine not exceeding one thousand rupees". In addition to the penal consequences provided for by section 299(4), a director who acts in contravention of section 299 vacates his office as such director under section 283(1)(i) of the Companies Act, 1956. It may be mentioned that article 184B(1) of the articles of the company reproduces the provisions of section 300(1).facts which are said to make the solicitor-director an interested director within the meaning of section 300 may now be stated. These facts are all admitted by the defendants. The solicitor-director is a partner in the firm of solicitors, Messrs. Daphtary, Ferreira and Diwan. He and his firm have for several years been acting as general solicitors for the Kilachand family and in particular for Tulsidas and Ramdas and for all Kilachand concerns. They were and are solicitors for the said Kesar Corporation Private Ltd., which is the holding company of the private company, the s....
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....btained were in favour of Tulsidas or failing him the solicitor-director or failing the solicitor-director the said Ruia or failing the said Ruia the said Kirloskar. Along with the said Ruia and the said Kirloskar the solicitor-director issued to the shareholders of the company a printed circular asking them to vote in favour of the resolutions to be moved at the said extraordinary general meeting of the 28th April. It is contended by the plaintiffs that the said firm of Messrs. Daphtary, Ferreira and Diwan and the solicitor-director as a partner in that firm have earned and are earning large sums of money as solicitors from the Kilachand family and the Kilachand concerns and companies and that as a result of his long association with the Kilachand family the solicitor-director is a family solicitor and also a close friend and a person in the confidence of the Kilachand family. It is, accordingly, submitted by the plaintiffs that the solicitor director was concerned or interested, if not directly, at least indirectly, in the further appointment of the private company and that by reason of his long association and professional relationship and close friendship with the Kilachand fam....
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.... obvious principles of good sense that it is difficult to suppose that there could be any system of law in which it would not be found. In Transvaal Land Company's case [1914] 2 Ch. 488, 502 (CA) it was held at page 503 that: "Where a director of a company has an interest as shareholder in another company or is in a fiduciary position towards, and owes a duty to, another company which is proposing to enter into engagements with the company of which he is a director, he is in our opinion within this rule. He has a personal interest within this rule or owes a duty which conflicts with his duty to the company of which he is a director. It is immaterial whether this conflicting interest belongs to him beneficially or as trustee for others" This rule was characterised by Lord Cairns L.C. in Parker v. McKenna [1874] LR 10 Ch. App. 96, 118 as not a technical or arbitrary rule but a rule founded upon the highest and truest principles of morality. Thus, this rule applies not only where there is a conflict of interest or conflict of interest and duty but also where there is a conflict of two duties. It is immaterial whether the interest is a personal interest or arises out of a fiduciary c....
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....not ' concerned in the contract' in the sense in which the Act uses the words. To interpret words of this kind, which have no very definite meaning, and which perhaps were purposely employed for that very reason, we must look at the object to be attained. The object obviously was to prevent the conflict between interest and duty that might otherwise inevitably arise". In Barnacle v. Clark [1900] 1 QB 279 the respondent was a member of a school board. He sold sand and gravel to a builder who had entered into a contract with the board for the building of a school. At the time of the sale the respondent was aware that the sand and gravel were intended to be used, as they were in fact used, in the building of the school. The respondent was prosecuted under section 34 of the Elementary Education Act, 1870, under which a member of a school board who, inter alia, "shall in any way share or be concerned in the profits of any bargain or contract with or any work done under the authority of such school board "was liable to a penalty and his office became vacant. The justices for the county of Northampton holding that the respondent was not guilty of any offence dismissed the in formation. U....
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....ection of a man for his son ; it must be a pecuniary or, at least, a material interest; but it need not be a pecuniary advantage. On the facts of the case the Court of Appeal held that the defendant had a pecuniary interest of an adverse kind in the contract and that it could properly be held that the defendant had a pecuniary advantage, or a reasonable expectation of a pecuniary advantage, from the contract, for in any event this helped to advertise his business. In K.F. Narintan v. Municipal Corporation of Bombay [1923] 25 Bom LR. 689, 696, 697; AIR 1923 Bom 305, 308, Mulla J. had to construe clause (p) of section 36 of the City of Bombay Municipal Act, 1888, as that Act was then entitled. That clause provided: "A Councillor shall not vote or take part in the discussion of any matter before a meeting in which he has, directly or indirectly, by himself or by his partner, any share or interest such as is described in clauses (g) to (1) both inclusive of section 16, or in which he is professionally interested on behalf of a client, principal or other partner". After referring to England v. Inglis case (supra ), Mulla J. said that it therefore followed that, where there is a pecuni....
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....ion which will create this obligation, and, secondly, as to the nature of the obligation created. Where the relation of solicitor and client occurs in the very transaction attacked it will, in my view, be almost, if not quite impossible to avoid the obligation, and an independent solicitor should be employed by the client. It is called ' putting him at arm's length'. It might perhaps also be effected by a clear declaration of the position by the vendor, such as this : ' Mind, I am going to get the highest price I can; be on your guard;' but the position would have to be made very clear in order to relieve the solicitor of obligations far exceeding those of an ordinary vendor, and is a position to be avoided. More difficult questions arise when the employment as solicitor has been in other matters more or less numerous or recent, and the transaction in question is a separate transaction in which the solicitor does not act as such. It is a question of degree in every case......The relation may then be an actual relation of solicitor and client in the transaction impugned, or such an antecedent relation as gives rise to the influence by the solicitor and confidence by the client the e....
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.... further submitted that the Companies Act was a complete code and no disqualification would be imported into sections 299 and 300 unless such disqualification could be found in the sections themselves and the scope of the sections cannot be enlarged on any equitable principles which may have applied prior to the enactment of the sections. It was further submitted that an interest in the contract or arrangement which the sections require must be a pecuniary or a material interest. It must relate to the contract or arrangement itself and must be such as creates a conflict between the interest of the director concerned as a director of the company and his own interest in the contract and not any one else's. Before considering these arguments I may mention that in the present case assuming the solicitor-director had a concern or an interest in the appointment for a further term of the private company, he had not at any time made a disclosure thereof under section 299.my opinion, it is not strictly correct to say that section 300 is a disqualifying section. It is a prohibitory section. What section 300 does is to prohibit a director of a company holding a particular character from doing....
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....d [1938] 8 Comp. Cas. 137 (PC) and by the Supreme Court in Narayandas Sreeram Somani v. Sangli Bank Ltd [1965] 35 Comp. Cas. 596 (SC) with reference to the old sections 91A and 9IB, the sections contain concise statement of the general rule of equity fully considered and accepted by the Court of Appeal in Transvaal Lands Company v. New Belgium ( Transvaal) Land and Development Company.[1914] 2 Ch. 488 As pointed out by Upjohn L.J., while sitting in the Court of Appeal in Boulting v. Association of Cinematograph, Television and Allied Technicians [1963] 2 QB 606, 635, 636; [1963] 2 WLR 529; 33 Comp. Cas. 475, 494, 495 (CA) "The principle is one of the most firmly established in our law of equity and it has been repeatedly recognised and applied by the Lord Chancellors and by the House of Lords...............The rule is not directed at corrupt or fraudulent bargains (though, of course, it brings them within its umbrella) The rule is one of principle which depends not at all on any corrupt mens rea in the mind of the person holding the conflicting capacity ........ This rule extends to all manner of relationships and the reports are full of examples of its application to many differ....
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....rest on behalf of another person is a professional interest. The concern or interest described in section 300(1) is not subject to any such restriction. In that case with respect to certain councillors it was alleged that they were shareholders of the Bombay Electric Supply and Tramways Company Ltd. which owned and conducted tramways in the city of Bombay. Mulla J. held that if a councillor was also a shareholder of the said company and had a beneficial interest in the shares, he was disqualified from voting. He, however, held that where the shares stood in the name of a councillor who had no beneficial interest in them but was a mere trustee for another, he was not disqualified from voting, because though he was under an obligation to his cestui que trust to vote at meetings of the said company in a manner beneficial to the interest of the beneficiaries, as he did not owe the membership of the corporation to his being a shareholder of the said company, it was no part of his duty to vote at any meeting of the corporation as his beneficiary would have him to do. If, therefore, no such duty was imposed upon him by law, it could not be said to be a case of conflict between two duties ....
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.... indirect, and in this connection reference may again be made to the observations of Lindley L.J. in Wilson case (supra)of Darling J., in Barnacle v. Clark [1900] 1 QB 279 and of Romer J., in Victors Ltd. v. Lingard [1927] 1 Ch. 323 referred to above.was next submitted that the interest of the solicitor-director in the private company was at the highest a sentimental interest as, for example, that of a father in his son or of a man in a relative of his and that he was under no legal duty to protect or advance the interest of the private company and cannot therefore amount to an "interest" under section 300 and in support of this, reliance was placed upon the judgment of a learned single judge of the Rajasthan High Court in Ramji Lai Baisiwala v. Baiton Cables Ltd ILR [1964] 14 Raj. 135, 195, 196. In that case it was held that concern or interest in a contract did not include the concern or interest of a relative. Of course, there is no question of the solicitor-director being a relative of any of the Kilachands, but what was said was that, if a man has no higher than a sentimental interest in the welfare of his relative, he cannot have a higher interest in the welfare of his friend....
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....ance was placed upon Mohan Lai v. Grain Chambers Ltd AIR [1959] All 276., which was affirmed in appeal by the Supreme Court in Selh Mohan Lai v. Grain Chambers Ltd. [1968] 38 Comp. Cas. 543;[1968] 2 SCR 252; AIR 1968 SC. 772 In that case the board of directors of the Grain Chambers Ltd. an association of grain merchants, passed a resolution containing the terms upon which an entry of transactions in future in gur were to be effected. This resolution was passed in pursuance of the general policy of the company in carrying on its business and functions. It provided how future transactions in gur were to take place. The question whether directors of that company were interested within the meaning of the old section 91B arose for consideration of the court in petitions filed for winding up of that company. It was held that the word "arrangement" in section 91B did not cover a general scheme of the type under which at the time when the scheme was approved by the board of directors, no rights or liabilities accrued or were incurred by the members of the company, the directors or the company itself; the word "arrangement "as used in the section being intended to cover such transactions in....
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....of the parties in all matters.must again be emphasised that section 300(1) refers not only to an "interest "but also to a "concern". Here reference may usefully be made to Baits Combe Quarry Ltd. v. Ford [1943] Ch. 51;13 Comp. Cas. 211,213 (CA) relied upon by Mr. Nariman, learned counsel for the plaintiffs. In that case the vendors of the Batts Combe Quarry covenanted with the purchasers "that they would not within ten years either solely or jointly with or as agent, officer, manager, servant, director or shareholder of any other person or company, directly or indirectly, carry on or assist in carrying on or be engaged, concerned, interested or employed in the business of a quarry within 75 miles as the crow flies of Batts Combe Quarry". One of the vendors within ten years provided a sum of money to enable his three sons to purchase the Chelms Combe Quarry in the immediate neighbourhood of the Batts Combe Quarry and for working capital. He also took part on his sons' behalf in preliminary negotiations for the purchase of machinery and equipment for the Chelms Combe Quarry. He was not a partner in the sons' business nor in any way financially interested in it and he took no part in ....
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....Now, it cannot be denied that there are statements in the plaint and on the record as stated by the contesting defendants. The effect of these statements now falls to be considered. On behalf of the contesting defendents reliance was placed on T.R. Pratt ( Bombay) Ltd. v. M.T. Ltd. [1938] 8 Comp. Cas. 137:40 Bom. LR. 1109; AIR. 1938 P.C. 151, Narayandas Sreeram Somani v. Sangli Bank Ltd. [1965] 35 Comp. Cas. 596 (SC) and Ramji Lai Baisiwala v. Baiton Cables Ltd [1964] ILR. 14 Raj. 135. In T.R. Pratt (Bombay ) Ltd. case (supra) it was held that the old section 91 B did not operate to deprive of the benefit of his contract with the company a third party who had no notice of the defect in the directors' authority, for to so hold would be contrary to principle and, therefore, such a person was entitled to assume that the internal mangement of the company had been properly conducted. The question before the Judicial Committee was the interest of directors in the execution of a deed of equitable mortgage by Pratts Ltd. and by M.T. Ltd., of their property in favour of E.D. Sassoon and Co. Ltd. to secure loans advanced by that company to Pratts Ltd. through M.T. Ltd. The question arose in ....
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.... re-call the loan to Ramnath, Ramnath repaid the entire balance of Rs. 1,04,198-8-0 due by him. Out of this a sum of Rs. 1,00,000 was paid on behalf of Ramnath by Narayandas who on the same date obtained a loan of Rs. 1,00,000 from the company by executing a promissory note in the said sum as collateral security along with a letter of pledge in respect of cloth, saris, etc., valued at Rs. \ ,50,000. Narayandas failed to repay the loan. Further, in order to comply with the requirements of section 277, the directors of the company including Narayandas decided that they or their nominees would subscribe for a large number of shares and accordingly Narayandas decided to subscribe for 2,000 shares in the names of his wife and mother and the wife of Ramnath, and shares were accordingly allotted to these three ladies. The allotment moneys were not paid in cash but by hundis drawn in favour of the company. In suits filed against Narayandas and Ramnath for recovery of the various amounts it was contended that the allotment of the said 2,000 shares was illegal inasmuch as Narayandas was present at the board meeting at which the said shares were allotted and had voted for the allotment. The S....
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....ointment of the private company for a further term was in fact passed. Even the result of the poll as declared by Tulsidas shows that nearly 48 per cent, of the shareholders have voted against the resolution. A large number of proxies obtained by the plaintiffs have been rejected by Tulsidas as being invalid. Similarly, a large number of proxies in favour of Tulsidas, in respect of which letters of revocation were obtained by the plaintiffs and filed with the company, have been held to be not validly revoked and treated as valid by Tulsidas. If, as mentioned in the latter part of the judgment while dealing with the extraordinary general meeting of April 28, 1969, some of the decisions given by Tulsidas on the validity of proxies and revocations are contrary to law and in respect of some others there is strong reason to believe that they were not given bona fide, it can hardly be said that the company has affirmed the contract. In any event, in Narayandas case (supra ) the company affirmed the contract with full knowledge of the fact that Narayandas was an interested director. In the present case the shareholders were never made aware that the solicitor-director had an interest or c....
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....irector, the contract would not be carried through or without him there would be no quorum, then the contract was voidable at the option of the company. On facts, however, it was held that two directors formed a quorum, and out of the three directors of the company, the two who voted had no concern or interest. In the present case, without the vote of the solicitor-director the board's resolution of November 14, 1968, would not have been passed as there would have been no majority and the question of the company affirming it, as pointed out above, cannot arise, assuming the contract is voidable. It is true that today, at the hearing", the company is supporting this resolution, but then the persons fighting the litigation on behalf of the company are its board of directors or rather the majority of the board of directors which is controlled by Tulsidas and they cannot be said to represent or reflect the opinion of the company acting through its shareholders. It is also pertinent to note that section 300(1) makes a significant departure from the language used in the old section 91B. While section 91B provides "and if he does so vote, his vote shall not be counted ", section 300(1) e....
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.... facts on the record do not make out a case of estoppel apart from the position that there cannot be an estoppel against a statute. When the draft minutes of the meeting held on November 14, 1968,were circulated to the directors, Reighley altered the said draft minutes. The minutes then came up for approval before the meeting of the board of directors held on February 3, 1969. At that meeting Reighley read out a memorandum on behalf of himself and Warner and requested that the said memorandum should be made a part of the minutes. Reighley and Warner voted against confirmation of the said minutes as written in the minutes book. The solicitor-director, Ruias and Kirloskar voted for confirming the said minutes and the minutes as written in the minutes book and approved by the majority of the directors were confirmed and signed, Tulsidas and Ramdas were also present at this meeting but abstained from voting. This is shown by the minutes of the meeting held on February 3, 1969. On the next day, by his letter dated February 4, 1969, Reighley reproduced the said memorandum which clearly states that the vote of the solicitor-director could not be considered as he was at all material times ....
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....is of a personal and private nature. There is a clear distinction between a contractual or a statutory right created in favour of a person for his own benefit and a right which is created on the ground of public interest and policy. The rule of waiver cannot apply to a prohibition based on public policy (see Post Master-General, Bombay v. Gangaram Babaji Chavan [1941] 43 Bom. LR 758,766). The prohibitions contained in section 300(1) are prescribed in public interest and policy to safeguard the interests of the shareholders. It was, however, urged on behalf of the contesting defendants that the proposition that there is no estoppel against a statute is too wide and that principle has not been accepted in several cases. In support of this submission reliance was, however, sought to be placed upon only one case, namely, Towers v. African Tug Company [1904] 1 Ch. 558 (CA). That case arose under peculiar circumstances. The secretary and manager of a company who was a party to the payment of an interim dividend out of capital had received dividend on shares held by him. He and another shareholder who had also received dividend on the shares held by him filed a suit on behalf of themselve....
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....Ramdas were directors and members of the private company, section 314 applied to the appointment of the private company as sole selling agents. Under section 189(2) of the Companies Act, 1956, a resolution is a special resolution when, inter alia, the intention to propose the resolution as a special resolution has been duly specified in the notice calling the general meeting or other intimation given to the members of the resolution and the votes cast in favour of the resolution (whether on a show of hands, or on a poll, as the case may be) by members who, being entitled so to do, Vote in person, or where proxies are allowed, by proxy, are not less than three times the number of the votes, if any, cast against' the resolution by members so entitled to vote; The notice convening the extraordinary general meeting of April 28, 1969, however, specifies the intention to propose the resolution in question as an ordinary resolution nor are the votes cast in favour of the requisite majority required by section 189(2), the votes in favour of the resolution as declared by Tulsidas being a little over 52 per cent, of the votes cast both in person and by proxy. Since the plaintiffs who opposed....
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....al meeting held after the date on which the appointment is made. (2A) If the company in general meeting as aforesaid disapproves the appointment, it shall cease to be valid with effect from the date of that general meeting.......". "314. Director, etc., not to hold office or place of profit.-(1) Except with the consent of the company accorded by a special resolution,- (a)no director of a company shall hold any office or place of profit, and (b)no partner or relative of such a director, no firm in which such a director or relative is a partner, no private company of which such a director is a director or member, and no director; managing agent, secretaries and treasurers, or manager of such a private company shall hold any office or place of profit carrying a total monthly remuneration of five hundred rupees or more, except that of managing director, managing agent, secretaries and treasurers, manager, legal or technical adviser, banker or trustee for the holders of debentures of the company,- (i)under the company; or (ii)under any subsidiary of the company, unless the remuneration received from such subsidiary in respect of such office or place of profit is paid over to the c....
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....viso was inserted so as to now provide for the passing of the special resolution according consent at the first general meeting held after the appointment. The Explanation was added to sub-section (1) by the Companies (Amendment) Act, 1960. It is the plaintiffs' case that a sole selling agency is an office or place of profit and that, since Tulsidas and Ramdas were and are members and directors of the private company, the provisions of section 314 were attracted by reason of the Explanation to sub-section (i) and as the consent of the company was not accorded by a special resolution, the private company vacated its office from April 29, 1969, and is also liable to refund to the company any commission received. by it for the period October 1, 1968, to April 28, 1969, in respect of such sole selling agency. In support of this contention Mr. Nariman, learned counsel for the plaintiffs, has relied upon Shalagram Jhajharia v. National Company Ltd. case (supra) in which A.N.Ray J. of the Calcutta High Court held that a sole selling agency is an office of profit for the purposes of section 314. On behalf of the contesting defendants it was urged that section 314 had no application to the ....
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....that a sole selling agency was not an office or place, and, assuming it was an office or place, it was in any event not an office or place under the company. It was submitted that in ordinary parlance the word "office "means a particular place or position with duties attached to it and the words "office or place "used in conjunction with the word "under "implies subordination and, consequently, a relationship of employer and employee. It was further submitted that under the agreement dated February 18, 1969, as also under the earlier agreement dated September 24, 1963, the private company as sole selling agents was not a subordinate or employee of the company but had independent functions to perform and that the said agreements were as between principal to principal and under them the private company was an independent contractor. In support of these submissions reliance was placed on Guru Gobinda Basu v. Sankari Prasad Ghosal [1963] 33 Comp. Cas 1132; [1964] 4 SCR 311; AIR 1964 SC. 254. The question which arose in the case was whether the appellant was disqualified from being chosen as, and from being a member of the House of the People under article 102(1)(a) of the Constitution.....
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.... that all the factors enumerated should co-exist was expressly rejected. Further, this submission is not even justified by the terms of the agreement. By clause (1) of the agreement dated February 18,1969, as also of the earlier agreement dated September 24, 1963, the company expressly appointed the private company as its sole selling agents. It is thus an appointment which was made by these agreements. Section 294 of the Companies Act also speaks of appointment of sole selling agents by a company. Thus, the test laid down by the Supreme Court to be the decisive test is satisfied in the present case. The other clauses of the agreements also show that the company is to exercise control over the private company in respect of the working of the sole selling agency. It is the board of directors of the company which is to fix from time to time the selling price of the company's products and the terms and conditions of sale. The private company is to obtain orders for purchases at the prices and on the terms and conditions thus determined and forward them to the company's office for acceptance. Such orders are to be binding on the company for execution only when and to the extent confirm....
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....-section (1) expressly excludes some, of the offices and places of profit which would not be office or place of profit if the contention of the contesting defendants were correct. Amongst the offices and places so excluded are those of banker and trustee for the holder of debentures. In Astley v. New Tivoli Ltd. [1899] 1 Ch.151 (Ch. D.), the articles of association of the defendant-company provided that the office of a director would be vacated if he accepted or held any other office or place of profit under the company, except that of a managing director. The plaintiff, a director-of the defendant-company, was by resolution of the board of directors appointed one of the trustees for the holders of debentures issued by the company. Under the trust deed the trustees were to receive annually a sum of money as remuneration. The question which arose for determination was whether the plaintiff, by reason of his being a trustee of the trust deed relating to debentures issued by the company, had vacated his office by reason of the aforesaid article. It was held that the trusteeship was a place of profit under the company though there may be difficulty in saying that it was an office under....
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....s appointed to an office or place of profit under the company and that since two of the directors of the company, namely, Tulsidas and Ramdas, were both directors and members of the private company, it would be an office or place of profit under the company within the meaning of section 314.question still remains as to whether in the case of appointment as sole selling agents of the private company for a further term, a special resolution was necessary. The answer to this question depends upon the true construction to be placed upon the Explanation to sub-section (1). This Explanation was introduced by the Amendment Act of 1960. Under that Explanation, a special resolution would be required for every appointment in the first instance to an office ot place of profit. It is also required in the case of "every subsequent appointment to such office or place of profit on a higher remuneration not covered by the special resolution, except where an appointment on a time scale has already been approved by the special resolution ". On behalf of the plaintiffs it was submitted that the only "subsequent appointment" contemplated by the latter part of the Explanation was where the special reso....
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....e intention of the legislature and the object sought to be attained by the enactment should be adopted, and applying these principles of construction the view which I am inclined to take today is that unless the appointment in the first instance, to which the consent of the company has been accorded by a special resolution, provides for a subsequent appointment, the subsequent appointment would also require the consent of the company to be accorded by a special resolution irrespective of the fact whether the remuneration to be received is the same or lower (sic higher).far as the present case is concerned, the appointment in the first instance under the agreement, dated September 24, 1963, to which the previous consent of the company was obtained by a special resolution passed at the general meeting held on September 23, 1963, did not contain any provision for a renewal, reappointment or continuance of the term of the sole selling agency and therefore an the construction I am inclined to adopt the consent of the company required to be accorded to the further appointment was by a special resolution. The resolution passed at the extraordinary general meeting on April 28, 1969, was an....
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....that in June 1969 the Government of India fixed prices of synthetic rubber at rates lower than those prevailing on November 5, 1967. In support of these allegations a copy of a letter dated June 4, 1969, addressed by the Government of India to the company is annexed to the said affidavit. In that letter it is stated that with effect from June 8, 1969,, the plaintiffs should market their products at the prices not exceeding those specified in the said letter. The prices so specified are lower than those prevailing on November 5, 1967. The reason for the revision as stated in the said letter is that the selling prices fixed on April 2, 1968, were on the assumption that 25 per cent, of the company's requirements of alcohol would be met from domestic sources, while the balance of 75 per cent, would have to be met from imports, but it was found that the actual proportion of indigenous alcohol to imported alcohol used by the plaintiffs worked out to 40 per cent, for indigenous alcohol and 60 per cent, for imported alcohol and that for the next 12 months the proportion would be 70 per cent, for indigenous alcohol and 30 per cent, for imported alcohol. The answer to this is to be found in ....
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....n the date of sale or on November 5, 1967, whichever are lower. In fact, under clause 13 of the agreement the terms of the agreements with respect to the rate of commission provided in clause 12 cannot be modified by mutual agreement of the board of directors of the company and the private company though other terms can be. Any revision in the rate of commission will, therefore, require the mutual consent of the company at a general meeting and the private company. To accept the submission of the contesting defendants that the words "higher remuneration" in the Explanation to section 314(1) cannot cover the case of the possibility of a higher remuneration would be to defeat the object of the section. If there is possibility in the variation of the amount of remuneration receivable by the holder of the office or place of profit under which such holder could receive a higher remuneration than what was provided at the time of the appointment in the first instance, it cannot be said that the subsequent appointment was on the same terms as to remuneration or on lower remuneration. In this view of the matter also the consent of the company to the appointment of the private company for a ....
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....hat such a construction would entail great hardship, for a board may not be able to meet by reason of the circumstances beyond its control, such as illness of directors. I am not able' to see any such hardship as; envisaged. I fail to see why a subsequent appointment should be deferred till the last moment. Even in the present case the private company asked for further appointment to be made one month before the expiry of the original term. The board could have met within that month and passed the necessary resolution. Section 204(4) expressly makes it permissible for re-appointment, re-employment or extension of the term of office or place of profit within two years preceding the date on which it is to come into force" Even otherwise, the only "hardship" is that a special resolution would be required, in my opinion, bearing in mind the object for which the section was enacted. The word "subsequent "implies a continuity without a break, and an appointment for a further term not made before or on the expiry of the earlier appointment but thereafter would not be a "subsequent appointment". I also fail to see how the board of directors of the company acquired the power to make this ap....
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.... same was provided for expressly. The explanatory statement to the notice convening the extraordinary general meeting for April 28, 1969, also does not point this fact out to the shareholders. In these circumstances, I am doubtful whether it can be said that any appointment with retrospective effect was ratified or approved by the shareholders. It was conceded that an appointment for five years from October !, 1968, cannot be read as an appointment for five years from the date of the resolution of the board or as an appointment for a period from November 14, 1968, to September 30, 1973. Under section 294(2) the approval of the company must be of an appointment made by the board. The appointment made by the board included ratification of the acts and deeds of the private company for the period October 1, 1968, to November 14, 1968. If this was not approved, then I very much doubt whether it can be said that there was an approval under section 294(2) to the further appointment of the private company.next point relates to the validity of the two notices dated March 27, 1969, convening the extraordinary general meetings on April 28, 1969, and April 29, 1969. The arguments here are base....
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....the correspondence with the Company Law Board can be said to be a material fact concerning the business to be transacted at the said meetings. Now, the first meeting was for approving the private company's appointment as sole selling agents for a further term. The second meeting, namely, the meeting requisitioned by the plaintiffs, was for not approving the said appointment. Any fact which would have a relevance or bearing upon the approval or a non-approval of the said appointment would, in my opinion, be a material fact concerning the said items of business. The facts relating to this correspondence may be briefly recapitulated from this angle. The said letter dated July 28, 1965, was a show cause notice issued by the Company Law Board under section 294(5) on the ground that it appeared to the Company Law Board that the terms of appointment of the private company were prejudicial to the interests of the company. By this letter the company was required to show cause why under section 295(5)(c) the terms and conditions of the appointment of the private company should not be varied. This matter was at that time considered so important that a sub-committee of the directors was formed....
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....he company and had expressly required the company to bear its views in mind at the time of the renewal of the agency, it cannot be said that the disclosure of the views of the Company Law Board to the shareholders at the time of further appointment on terms which contained the very features objected to by the Company Law Board was not material. The object underlying section 1 73(2) is that the shareholders may have before them all facts which are material to enable them to form a judgment on the business before them.fact which would, influence them in making up their minds, one way or the other, would be a material fact under section 173(2) and had to be set out in the explanatory statement to the notice of the meeting. The views expressed by the Company Law Board would have certainly played a part, and perhaps an important part, in enabling the company's shareholders to make up their minds whether to vote for approval of the further appointment or not.contention that the matter was closed by the said letter dated June 15, 1966, is too naive and is belied by subsequent events. By its letter dated April 9, 1969, headed "Sole selling agents ; terms and conditions of appointment under....
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....the resolution passed at that meeting be invalid". The same view was taken by a Division Bench of the Calcutta High Court in Shalagram Jhajharia v. National Co. Ltd. [1965] 35 Comp. Cas. 706,740 (Cal.) That was a case of a resolution to approve under section 294 the appointment of sole selling agents. In that case Mitter J. observed : "It is well known that if a company can sell its products without the employment of agents its profits would be substantially higher than in case where the selling was done through agents. On the other hand it cannot be ignored that selling is best done through an organization of experts and specially when sales have to be made to overseas customers the employment of an overseas agent is almost a necessity. As the legislature has thought it fit to provide that shareholders must approve of the appointment of selling agents the opportunity given to the shareholders must be full and complete and there must be a full and frank disclosure of the salient features of the agency agreement before the shareholders can be asked to give their sanction. The provision for inspection of the agreement at the registered office of the company is not enough. Few share....
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.... The Court of Appeal, accordingly, granted the injunction prayed for subject to this that it left the selling company free upon a proper notice to sanction the agreement. It is pertinent to note that section 71 of the Companies Clauses Consolidation Act was similar to section 172(1) of the Companies Act, 1956, which requires every notice of a company to contain, inter alia, a statement of the business to be transacted thereat and that there was no provision in the Companies Clauses Consolidation Act similar to the mandatory provision of section 173(2).is alleged in the affidavits in reply filed on behalf of the company and Tulsidas that the explanatory statements to the notices of the meeting held on April 28, 1968, and April 29, 1968, respectively, were placed and generally approved at the board meeting held on March 27, 1969, at which Reighley was also present, the suggestion being that Reighley and through him the plaintiffs had approved both the said explanatory statements. It was submitted that even in their requisition dated March 17, 1969, for calling an extraordinary meeting, in the explanatory statement which the plaintiffs required to be included in the notice convening ....
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....ith the Central Bank of India Ltd. and an agreement of amalgamation was entered into. A meeting of the shareholders was called for approving the scheme. The plaintiff who had in the past adopted a hostile attitude towards the bank, which attitude was known to the shareholders, opposed the scheme. On a poll being demanded, there were 5,25,249 votes in favour of the resolution, while only 369 votes were cast against, and out of these 369 votes 100 votes being of the plaintiff and 10 of his brother. The plaintiff and his brother filed a suit challenging the resolution. The plaintiff's suit and appeal were dismissed and he filed an appeal to the Privy Council which too failed. The Privy Council observed that the fact that the action was personal to the appellant was unfortunate for him as he knew before the first meeting everything about the scheme that was to be known and that he had written open letters to the shareholders and no possible complaint of the notice or circular on the ground of insufficiency was, therefore, open to him. On a perusal of the notice their Lordships came to the conclusion that it was in no way questionable. Another of the plaintiff's complaint was that he wa....
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....ntiff who had a long history of dispute with the bank was in a hopeless minority. The shareholders did not appear to have put any faith in any statement made by him. They did not even desire to hear him further. The action, therefore, was, on the face of it, personal only to him and his brother, who held between them 110 out of 5,25,618 votes, but of which 5,25,249 votes were cast in favour of the resolution. The Calcutta case was of an application under section 397 of the 1956 Act, and what was contended was that failure to comply with section 173(2) made it a case of oppression in conducting the affairs of the company. The court held that it could not be oppression because breach of section 173(2) could make the meeting called invalid and no more, and if such a meeting was invalid, the Companies Act provided procedure for calling valid or regular meetings or for regularising irregular proceedings, a right which was open to every shareholder. The case of Kalinga Tubes Ltd. v. Shanti Prasad Jain AIR. 1963 Orissa. 189 was also a case under sections 397 and 398 of the Companies Act. There was no plea as to the invalidity of the notice taken in the petition or in the affidavits, but a....
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.... attack on the validity of what happened on March 29, 1958, must thus fail" Now, what Das J. in the High Court really held was that the explanatory statement was comprehensive and that there was no non-compliance with section 173(2) and that what are material facts including the nature or concern of a director were questions of fact depending on the facts and circumstances of each case. The rest of what Das J. observed was really in the nature of an obiter. Even, on the facts, the present case stands on a wholly different footing. There is no question of the plaintiffs being in a hopeless minority. They have secured, even as declared by Tulsidas himself, about 48 per cent, of the votes cast. Admittedly, the Life Insurance Corporation of India which, along with its subsidiaries held about 13,000 shares, had voted against the resolution. Looking to the slight difference between the respective shareholdings of the plaintiffs and the Kilachand group, in this case what really counted were the votes of the independent shareholders. It is with reference to the effect on them and the consequent result of the plaintiffs not being able to secure their votes that the case must be considered.....
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....ch I have already referred above, which letter was certainly known to Tulsidas but most certainly not known to the other shareholders of the company. This statement of the private company appeared in the newspaper "Indian Express" of April 15, 1969, and in the newspaper "Financial Express" of April 16, 1969, that is, after the receipt of the said letter of April 9, 1969. Secondly, in the light of what was stated in the said communication from the Company Law Board of June 15, 1966, the statement that the Company Law Board had cleared the terms of the sole selling agency was hardly a fair or a true statement. All that the Company Law Board did was to say that it had decided not to take any further action under section 294(5) at that stage but had clearly indicated that unless the objections raised by the Company Law Board were taken into account at the time of the renewal of the agreement, further action would be taken. The shareholders had thus before them a conflicting picture and at least with respect to the relevant facts a misleading picture as presented by the Kilachand group and those supporting it. The plaintiffs' objection to the validity of the notice, therefore, cannot be....
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.... let us examine the bona fides of Tulsidas. By his letters of April 9, 1969, and April 22, 1969, Reighley called upon Tulsidas as the chairman of the company to call a meeting of the board of directors immediately. Copies of these letters were sent to all the directors. It appears that these letters were written as Reighley desired that the procedure to be followed at the said extraordinary general meetings should be discussed and agreed upon at a board meeting. No meeting was, however, called until June 25, 1969. Now, if any such board meeting were called, obviously Tulsidas would have had to place this letter from the Company Law Board before the board of directors and Reighley would have come to know about it. Reighley learnt about this letter only when in the newspaper of April 30, 1969, it was reported that Mr. Fakhruddin Ali Ahmed, the Minister for Industrial Development and Company Affairs, had stated in the Lok Sabha on April 29, 1969, that the Company Law Board had recently asked the company for an explanation as to why the recommendations of the Company Law Board were not included in the agreement of February 18, 1969. Thereupon, Reighly by his letter dated April 30, 1969....
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.... knowledge of the shareholders appears, therefore, to be well founded. No one can be naive enough to believe, as Tulsidas expects it to be believed, that because no further communication had been received to the company's reply dated April 22, 1969, between April 22, 1969, and April 28, 1969, the Company Law Board had dropped the matter and it was, therefore; not necessary to apprise the shareholders about this correspondence. The contention in the affidavits-in-reply of Dabke and Tulsidas that it was for this reason that the said correspondence was not disclosed at the said extraordinary general meeting does not reflect credit upon them, and in this connection what transpired subsequently is instructive. By the letter dated August 29, 1969, a copy of which is put in by consent and marked as exhibit No. 1, the Company Law Board called upon the company under section 294(5)(a) of the Companies Act to furnish certain information regarding the terms and conditions of appointment of the private company as selling agents of the company for a further term. There are in all 16 items in respect of which such information is required to be furnished. The margin of difference between the votes....
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.... meeting, as it binds both dissentient and absent shareholders, must be a vote given with the utmost fairness-that not only must the matter be fairly put before the meeting, but the meeting itself must be conducted in the fairest possible manner". To repeat the words of Mitter J. in Shalagram Jhajharia v. National Co. Ltd. [1965]. 35. Comp. Cas. 706, 740 (Cal.): "As the legislature has though it fit to provide that shareholders must approve of the appointment of selling agents the opportunity given to the shareholders must be full and complete and there must be a full and frank disclosure of the salient features of the agency agreement before the shareholders can be asked to give their sanction". In the present case it cannot be held that the shareholders were given a full and complete opportunity or that there was a full, and frank disclosure, and I am inclined to accept the plaintiffs' case that the resolution, said to be passed at the meeting of April 28, 1969, falls in the well-known category of resolutions obtained by trick.will now deal with the other objections of the plaintiffs to the meeting of April 28, 1969. The main amongst these are that Tulsidas was not entitled to....
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....tion of the board passed at its meeting held on November 14, 1968. His interest in the item of business before the meeting was, therefore, not in his capacity as director of the company but in his capacity as director and member of the private company and as the person controlling the private company, and it was his personal interest which would be vitally affected if the resolution was not passed. I was referred to certain authorities in this connection, but I do not propose to discuss them or to go further into this question inasmuch as for the purposes of these notices of motion, I am prepared to assume that Tulsidas was entitled to take the chair. Nonetheless, I am of the opinion that any presumption of bona fides which may attach to the acts of an independent chairman cannot be applicable to Tulsidas's acts, in the present case. Similarly, I do not propose to consider the elaborate arguments advanced and the number of authorities and passages from text books cited before me as to when a poll is said to be completed. I will also assume for the purposes of the present notices of motion that Tulsidas was entitled to give his decision on the validity of the proxies and of the lett....
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....this aspect of the case require to be set out. In the plaint in Suit No. 681 of 1969 the plaintiffs have made a grievance that the company through its secretary got some data fed into the computers maintained by the Tata Consultancy Services, Bombay, and that the proxies lodged at the registered office of the company were wrongfully caused to be removed to the Tata Consultancy Services on April 26, 1969, and thereafter and that when such data was fed, neither the scrutineers nor the plaintiffs were on the scene and the fact that on that date the scrutineers were not even appointed and the data was fed into the computers was known only to Tulsidas and Dabke and that till today no one else knows the nature of such data or the accuracy or sufficiency thereof or the sufficiency or accuracy with which answers or results were obtained from the computers. The plaintiffs have submitted that for this reason the result, purported to be declared from the alleged result obtained from the said computers, is not valid and binding. Now, the position with respect to the appointment of Tata Consultancy Services is as astonishing as that relating to the Company Law Board's said letter of April 9, 19....
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....siness Machines Corporation was similarly taken for processing allotment letters and refund orders, etc., and at that time also no resolution of the board of directors was passed sanctioning such procedure, and it was the secretary and the office staff who attended thereto. Now, I fail to see what analogy there is between the two cases. Processing of allotment letters and refund orders was not a contested matter, while here there was a hotly disputed question on which the directors and shareholders were sharply divided. It is also alleged that Dabke had informed the directors of the company, including Reighley, about this arrangement. That Reighley gave his consent to it does not seem to be borne out by the record. Why this was not put before and resolved upon at a meeting of the board of directors, even though the plaintiffs were insisting that such a meeting should be called, is a question which has -not been answered in the affidavits-in-reply. According to the affidavit-in-reply made by Dabke, he got prepared a list of shareholders on the register of the company together with the folio number, number of shares held by them, the names of the joint holders, if any, and their adre....
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....ged that the plaintiffs had deputed their own representatives to accompany the said proxies as well as deputed their representatives to supervise the return of the said proxies. It is said that there could be no question of consulting the scrutineers when data was fed into the computers prior to April 28, 1969, since on that date no scrutineers were appointed. Prior to the date of the said meeting held on April 28, 1969, after the master tape had been so prepared from the data supplied as aforesaid, the data with respect to the proxies was fed into the computers for processing on the 26th and 27th April, 1969. After the date of the said meeting the data relating to the revocation letters received was further fed into the computers "in order that the 1st defendant company and/or the scrutineers may have a complete picture and/or a register of the proxies and revocation letters lodged with the 1st defendant company". It is further alleged that the scrutineers were present at the time the data relating to revocation letters was fed into the computers. Paragraph 42 of the said affidavit further alleges : "As a result of the feeding of this data the scrutineers and the 1st defendant co....
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....aid proxies as stated and alleged by Dabke himself in his affidavit-in-reply". In any event, it is not the case of the contesting defendants that anybody except Dabke knew what the complete data was which was fed into the computers.the hearing three registers were produced. Two of them were proxy registers, one prepared before and the other prepared after June 26, 1969. These were referred to at the hearing as the old proxy register and the new proxy register. The old proxy register was produced by the company, while the new proxy register was forwarded by the company to the scrutineers and produced by them. The third was a printed register consisting of sheets headed "Register of defective proxies and/or revocations". Admittedly, however, it is a register relating to proxies only prepared or got prepared by Dabke in the company's office. Each sheet has several columns headed "(1) Reference folio number, (2) Number of shares held, (3) Serial number, this being the serial number given to the proxy, (4) Duplicate, (5) Without date or signature, (6) Date or signature filled by rubber stamp or typed, (7) Differs from specimen signature, (8) Sig. or P/A or B/Reso. not Regd., that is, si....
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....ipt has been given to Kilachand Devchand and Company Private Ltd. by Synthetics and Chemicals Ltd. at 5-55 p.m. on 26-4-69". According to the affidavits-in-reply, at about 12-30 p.m. on the 26th April, the company received from the private company several packets containing all the proxies in favour of Tulsidas and three others, each packet containing several files of proxies. For the purposes of facilitating the passing of receipts after the counting of proxies by the company's staff the private company had attached to each file a typed list in duplicate showing the names of shareholders purporting to have issued proxies in favour of Tulsidas and others with the folio number and the number of shares held by each shareholder. All the said packets were brought by Shukla, the secretary of the private company, along with two or three other representatives of the private company and deposited with the company. The physical counting of the said proxies took a considerable time and receipts were granted in respect of the proxies contained in each file after the proxies in each file were counted as of the time when the packets were received. Arrangements had been made to receive the proxi....
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....,1969, written objections were raised by a shareholder, Kishore K. Koticha, to several proxies in favour of Reighley and others. It appears that a similar letter of objection was written by Koticha with respect to the proxies lodged for the meeting of April 29, 1969. By his letter of April 30, 1969, Koticha stated that the objections which he had. raised about the proxies in his letters of 28th and 29th April would also apply to the letters of revocation lodged by the plaintiffs. Copies of the letters of April 28, 1989, and April 30, 1969, have been exhibited by consent and the copy of the letter of April 30, 1969, bears an endorsement that three letters were received by the company on May 2, 1969. By their attorney's letter of June 10, 1969, the plaintiffs raised several objections to the proxies in favour of Tulsidas and three others. A reminder was written on June 23, 1969. The reply to this letter was only given by Tulsidas on July 2, 1969, after he declared the result of the meeting held on April 28, 1969. It is contended by the contesting defendants that the plaintiffs' attorney's letter cannot be treated as objections raised by a shareholder to the said proxies. It is not ne....
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.... which it purported to be a copy, it was found that not only the headings of the columns differed but what was filled in under the columns had no relation to the original sheet. I may mention in fairness to the attorneys of the company that this specimen copy was prepared not in their office but in the office of the company. There were also other statements made under instructions from those representing the company present in court which also did not turn out to be correct. For this reason I have refused to accept or attach any weight to any statement made from the bar which does not find a place on the record.the sixth day of the hearing, in order to answer the plaintiffs' charge that the giving of directions by Tulsidas was deliberately delayed until he could see for himself a complete picture of the proxies and revocations so as to bring about a result favourable to himself, Mr. C.K. Daphtary, learned counsel for Tulsidas, applied in Suit No. 681 of 1969 for leave to put in a further affidavit explaining why the directions were not given by Tulsidas in writing till June 26, 1969, and to show that they were given orally on June 19, 1969. The plaintiffs objected to any such furth....
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....also make it abundantly clear that these directions have been given after the papers relating to proxies, etc., had been tabulated and on the basis of such tabulations, that is, after Tulsidas had before him a clear picture as to the proxies to which a particular infirmity applied. The first decision objected to at the hearing of these notices of motion is that contained in direction l(c) under which a proxy by a company not bearing the company's seal was to be rejected. Under section 176(5)(b) of the Companies Act, 1956, an instrument of a proxy where the appointer is a body corporate, is to be under its seal or is to be signed by an officer or an attorney duly authorised by it. Article 109 of the articles of association of the company contains a similar provision. This direction is, therefore, contrary to law. It was submitted on behalf of the contesting defendants that the result of a wrong direction is a mixed question of fact and law and such direction cannot be held to be wholly bad. I am unable to follow this submission. Rejection, therefore, of proxies given by a company not under its seal but signed by one of its officers or an attorney duly authorised by it would be a wro....
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....uch as several proxies in their favour bore stamps which were not cancelled. This overlooks the fact that on the admission of both Dabke and Tulsidas, there were proxies also in favour of Tulsidas on which the stamps were not cancelled.3(b) requires proxies against which objections have been raised and which are signed by shareholders described as residing outside Maharashtra State and which do not bear the stamp of the State where the shareholder is said to reside to be rejected. This direction again cannot be supported in law. Under section 2(11) of the Indian Stamp Act, an instrument is said to be duly stamped when it bears an adhesive or impressed stamp of not less than the proper amount and when such stamp has been affixed or used in accordance with the law for the time being in force in India. Under section 10(1), all duties with which any instruments are chargeable are to be paid and such payment is indicated on such instruments by means of stamps, (a) according to the provisions contained in the said section, or (b) when no such provision is applicable thereto as the State Government may by rule direct. There is no provision in the Indian Stamp Act with respect to an instru....
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....er shown to Tulsidas. On the contrary, the affidavits-in-reply show that this work was done by the staff of the company. This is also clear from the correspondence with the scrutineers. In their letter of June 27, 1969, the scrutineers have stated that they had deleted from the proxy registers those proxies on which specimen signatures differed from that on the records of the company and all the duplicate proxies on the basis of tabulations prepared by the company and test checked by them. Further, in paragraph 50 of the affidavit-in-reply of Dabke and paragraph 31 of the affidavit-in-reply of Tulsidas there is an express admission that the signatures were verified by the staff of the company and test checked by the scrutineers. There is, therefore, no question of any such signature being shown to Tulsidas. It is the case of the contesting defendants that on a proper construction of the relevant articles in the articles of association of the company and a proper demarcation of the respective functions of the chairman of the meeting and the scrutineers, Tulsidas as the chairman of the meeting had to decide upon all questions of validity of proxies. If this submission is correct, the....
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....ions in favour of Tulsidas. They have further recorded that on May 5, 1969, Reighley and Karode were in the office of the company and had offered to assist in putting the folio numbers by a reference to the plaintiffs' internal records, but this offer was not availed of. By the said letter they requested that the assistance of Reighley and Tulsidas in placing the correct folio numbers on the said proxies and revocations should be. taken. The plaintiffs by their attorneys' letter of June 23, 1969, sent a reminder to Tulsidas. By their attorneys' another letter of the same date the plaintiffs pointed out these facts to the scrutineers and requested them to do the needful. A copy of this letter was forwarded by the scrutineers to Tulsidas. The plaintiffs sent a reminder to the scrutineers by their attorneys' letter of June 27, 1969. It appears that Reighley also handed over to the scrutineers in the presence of Dabke four files containing the information which would be useful for processing the proxies and letters of revocation in question. Along with their another letter dated June 27/1969, addressed to Tulsidas the scrutineers enclosed a copy of the said letter dated June 27, 1969, ....
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....e proxy was lodged within the time allowed and before the date of the meeting. I can understand that an omission to state the date of the meeting may be a serious defect, but as for the date of execution 1 can only say de minimis. No authority has been cited for questioning a proxy on such grounds." I fail to see why the same principle should not apply to revocation letters. Under article 113 of the articles of association of the company, a vote given in pursuance of a proxy is to be valid notwithstanding, inter alia, the revocation of the proxy provided no intimation in writing of such revocation has been received at the registered office of the company before the vote is given. All that is, therefore, required to revoke a proxy validly lodged is the receipt of a revocation letter before the vote is given; No form of revocation letter is prescribed and this insistence on date appears to be incapable of explanation except that a larger number of undated revocation letters were those of proxies in favour of Tulsidas and others. Actually in the proxy register prepared by the Tata Consultancy Services most revocation letters have been bearing the date April 28, 1969. It was said at t....
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.... except where an agent has an interest in the subject-matter of the agency, the principal may revoke the authority given to his agent at any time before the authority has been exercised so as to bind the principal, and under section 207, revocation may either be expressed or implied, and under section 208, so far as regards third persons, termination of the authority takes effect when it becomes known to them. No particular form of revocation is provided for by the articles. Article 113 only requires an intimation in writing of revocation to be received at the registered office of the company before the vote is given. In the forms of revocation rejected by Tulsidas it is made expressly clear that the proxies given by the shareholder in favour of a particular individual have been revoked by him and they ought, therefore, to have been held to be valid.8(c) says that where the name of the shareholder cannot be ascertained either from the information given on the revocation letter or the signature, the revocation letter should be rejected. A large number of revocation letters obtained by Reighley and others have been rejected on this ground. Here the position is the same as in the case....
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....tor, repeatedly requested Tulsidas as well as Dabke as the secretary of the company to give him inspection of various papers. Copies of that correspondence are annexed to the plaint in Suit No. 681 of 1969. It is not necessary to refer to that correspondence in any great detail, but it cannot be disputed that several of the documents, of which Reighley required inspection in his capacity as director, were those of which he was entitled to inspection under section 209(4)(a) of the Companies Act, 1956. Nonetheless inspection was denied to him. It was said at the hearing that it was obvious that the plaintiffs were contemplating filing suits and this inspection was asked for by Reighley for the purposes of such suits. If a director is entitled to take inspection, his motive in doing so is irrelevant. In fact, among the documents, of which inspection was not given to Reighley, was the said letter of June 26, 1969, which came to the knowledge of the plaintiffs and Reighley for the first time when a copy of it was annexed to the affidavit-in-reply of Dabke as also of Tulsidas. This fact also militates against the claim of bona fides put forward by Tulsidas.several directions given by Tul....
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....(see Statement 'A') .. ... Thus, the total proxies in favour of Reighley and the number of shares which such proxies represent are reduced by 1 proxy and 6 shares respectively. I am informed by Mr. Sen, learned counsel for the company, that the initials "D.V" are the initials of the man from the Tata Consultancy Services who delivered these letters to the company and that these corrections were made by him when these further mistakes were pointed out to him by the company when the said letters of June 30, 1969, were delivered to it. Both the signed originals of the said letters have been exhibited by consent.this, it is obvious that no reliance can be placed even upon the accuracy of the result obtained through the services of the punching cards and the computer. Thus, the result obtained was based on decisions erroneous in law, not given bona fide and containing, for aught one knows, further arithmetical errors as yet undetected. The decision so arrived at cannot be said to be valid and cannot stand. It was submitted on behalf of the contesting defendants that on this position what the court should do would be to give correct directions and direct a fresh count on the basis there....
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....e conclusions I may have reached are prima facie and not final conclusions, I would have been inclined to grant an injunction as prayed for, but for the fact that all parties are agreed that the hearing of both these suits should be expedited and they should be heard and disposed of as early as possible, a view which in the interests of the parties, I am also inclined to take. I accordingly do not think it necessary at this stage to disturb the status quo ante. But what is the status quo ante? Admittedly, right from October 1, 1968, the private company has voluntarily not taken any amount for its commission. It may have done this either because the private company may have apprehended that the opposition of the plaintiffs to this appointment for a further term may prove successful or because it may have feared action by the Company Law Board. In fact, in its letter of April 9, 1969, the Company Law Board had made it expressly clear that any action taken by it would be effective as from October 1, 1968. If, therefore, the private company is to allow to continue to function as it has been doing, it can only be upon terms. It was submitted that the financial condition of the private c....
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....assessments in respect of which the private company does not expect any liability to be imposed. How far this expectation is true can only be known when the assessments are finalised, but we should bear in mind that the expectation of the private company in respect of the debts due from the Digvijay Spinning and Weaving Company Ltd. was certainly not justified. The auditors' notes also show that the bonus is paid and accounted for on cash basis and, therefore, no provision has been made in respect thereof during the year and that no depreciation is provided on land and godown and on building other than the portion used for business which aggregated to Rs. 87,827, under section 205 of the Companies Act, 1956. Further, on the assets side is shown a sum of Rs. 39,76,604 for advances and other income-tax payments and the note to it runs, "completed assessments up to Asstt. Year 1963-64, but under appeals; not adjusted therefrom". Note (B) of the company auditors' report to the shareholders states that the auditors could not, in the absence of availability of tax assessment records, ascertain the adequacy or otherwise of the liability for taxation and provision thereof. This provision i....
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....e private company refused to give inspection. The plaintiffs have denied that the expenses could be in the sum alleged by the private company. No supporting material is placed before me to show how the figures in the summary of expenses annexed to the said affidavit have been arrived at. In view of several incorrect statements made in the affidavits-in-reply, not much reliance can be placed on these figures unsupported by any other material. It is also alleged in the said affidavit that the cost of the company of setting up a separate sales organisation would be over Rs. 25,00,000 and a statement thereof is annexed as exhibit B to the said affidavit of Shukla. This exhibit B refers to an estimate as contemplated by an expert committee sent by the plaintiffs in 1965. After this affidavit was filed, by their letter dated September 10, 1969, the plaintiffs asked for inspection of the report of such estimate. No such inspection was given to the plaintiffs nor has any such report been produced before me and it is not possible at this stage to place reliance upon this estimate without a detailed picture thereof being presented. The plaintiffs in their affidavit-in-reply have pointed out ....
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....le to refund to the company any remuneration received by him for the period immediately preceding such date in respect of such office or place of profit. Thus, in law, if the plaintiffs were to succeed, the private company would not only be not entitled to receive any commission but would also be bound to refund moneys, if any, received by it by way of commission. The submission of the contesting defendants, therefore, amounts to asking the court to ignore and circumvent the mandatory provisions of the Companies Act enacted in public interest and to seek to perpetuate an illegal payment by means of a court order. This the court consistently with the law ought not to do. Since the private company has rested content with not taking any commission for a period over eight months prior to the filing of the first suit, there is no reason why it should be permitted to take any amount for the period preceding the hearing of these notices of motion. At the highest it can only be permitted to take a reasonable amount towards expenses from October 1, 1968, upon giving security and upon condition of repayment or refund and the necessary direction in that behalf will be given in the order which....
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....e blame for this lies only on them. The date for hearing which is given in respect of Suit No. 522 of 1969, is however, not a peremptory date and experience shows that the suit is not likely to come on board on December 1, 1969, or for a considerable time thereafter. These notices of motion have been argued as if the hearing thereof were the hearing of the suits, and apart from formal discovery in both suits and the written statements in Suit No. 681 of 1969, substantially what remains to be done is only inspection of the papers and documents in connection with the polls. Thereis also neither convenience nor merit in hearing Suit No. 681 of 1969 one month after Suit No. 522 of 1969. On the contrary, it is in public interest for saving public time as also in the interest of the parties that these suits should be heard one after the other and by the same judge., I grant, pending the hearing and final disposal of both Suit No. 522 of 1969 and Suit No. 681 of 1969, an injunction restraining the Synthetics and Chemicals Ltd., the first defendants in both the suits, and its officers, servants and agents from paying to Kilachand Devchand and Company Private Ltd., the second defendants in ....
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....he papers and documents in connection with the polls taken at the extraordinary general meetings of Synthetics and Chemicals Ltd. held on April 28, 1969, and April 29, 1969, respectively, including the papers and documents specified in exhibit 29 to the plaint in Suit No. 681 of 1969, except such of them as may have been marked as exhibits at the hearing of these notices of motion, but including the registers produced in court at the said hearing. The registers produced in court will be tied up in packets; sealed by the office of the prothonotary and senior master of this court and forwarded to the court receiver. The court receiver will take charge of all the other papers and documents in the presence of the attorneys of the plaintiffs and of the defendants in Suit No. 681 of 1969. Defendants Nos. 1 to 5 or defendants Nos. 1, 2, and 5 in Suit No. 681 of 1969 will be at liberty to nominate the attorneys or anyone of them to attend on their behalf for this purpose. All the papers and documents taken charge of by the court receiver will be tied up in packets and sealed with the seal of the court receiver and of the attorneys of the plaintiffs and of ;the attorneys of the defendants i....