B.N. VISWANATHAN AND ANR. Vs. TIFFINS BARYT ASBESTOS AND PAINTS LTD. BY THEIR AGENTS AND SECRETARIES, THE INDIAN TRADES AND INVESTMENTS LTD. AND ORS.
HIGH COURT OF MADRAS
B.N. Viswanathan And Anr.
Tiffins Baryt Asbestos And Paints Ltd. By Their Agents And Secretaries, The Indian Trades And Investments Ltd.
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Venkatarama Ayyar, J. -
(1.) THE question that arises for determination in this appeal is the validity of the election of the respondents as directors of a company called "Tiffin's Barytes Asbestos and Paints Limited", at a meeting of the general body held on 26 -2 -1051. The facts are not in dispute. The company was incorporated in 1945 and its first directors were five persons named in Article 49. One Veeramani was co -opted as a director and the strength of the directorate was thus raised to six. At the first annual meeting which was held on 24 -6 -1946 all the directors retired as provided in Article 53 and were re -elected. Before the next general body meeting which was held on 27 -8 -1947 three of the directors had resigned and a fourth resigned at that meeting with the result that the strength of the directorate became reduced to two. The next general body meeting was held on 30 -12 -1948 and thereafter no annual meeting was called. It was in this state of affairs that one of the shareholders Mrs. Ananthalakshmi Animal filed Appln. No. 3898 of 1950 under Section 79 (3), Indian Companies Act for a direction that a general body meeting might be convened by a Commissioner and that an independent chairman might be appointed to preside over the meeting.
On 27 -11 -1950 Krishnaswami Nayudu J. passed an order that the annual general body meeting be held on 28 -1 -1951 in accordance with the articles of association of the company, Ex. P -1. He, however, refused the prayer for the appointment of an independent chairman to preside over the meeting and against this portion of the order Mrs. Ananthalakshmi Ammal preferred O. S. A. No. 118 of 1950. By the order which was passed in the said appeal on 11 -1 -1951 an advocate Mr. Sanjeevi Naidu was appointed as chairman of the meeting with power to scrutinise the proxies. The company then took out an application, Appln. No. 139 of 1951 for postponing the meeting which had been fixed for 28 -1 -1951 to a later date on the ground that the accounts were not ready. On 16 -1 -1951 Krishnaswami Nayudu J. passed on order directing the meeting to be held on 18 -2 -1951.
On that date the Commissioner proceeded to the premises of the Company for the purpose of holding the meeting. Plaintiff 1 moved that the meeting be adjourned. The register of members, the share transfer books of the company and the proxies were in the possession of Veeramani who had been functioning as a director and he refused to hand them over to the chairman with the result that it became impossible for the chairman to proceed with the meeting. He accordingly adjourned it to 26 -2 -1951 and applied to the Court for directions in the matter. On 22 -2 -1951 Mack, J. passed an order directing the company to produce all the books at the meeting on 26 -2 -1951.
On that date the books of the company were produced; the meeting was actually held and at that meeting defendants 2 to 7 were elected as directors. The plaintiffs then filed Appln. No. 1135 of 1951 for setting aside the election, on various grounds. On 27 -3 -1951 Krishnaswami Nayudu J. dismissed this application and referred the petitioners to a suit. The present suit has accordingly been filed by the plaintiffs who are two share -holders of the company on behalf of themselves and other share -holders of tie company for a declaration that the election of defendants 2 to 7 as directors at the meeting held on 26 -2 -1951 was void on the several grounds set out in the plaint. Balakrishna Ayyar J., who heard the suit disagreed with the contentions put forward on behalf of the plaintiffs and dismissed the suit with costs. Against that decision the plaintiffs have preferred this appeal.
(2.) SEVERAL contentions were urged by Mr. K. Rajah Ayyar in support of this appeal. It was firstly argued that the power which the general body has under the articles of the company is only to appoint directors in place of those who retire at the annual meeting; only one director actually retired at the meeting held on 26 -2 -1951 and that therefore the election of six directors was beyond the competence of the meeting; that there was no proper notice that six directors were to be elected at the meeting and that there was not even a resolution to that effect. Hence, it is urged, the election of defendants 2 to 7 is void. The complaint that there was not clear notice to the members that six directors were going to be elected is without substance. Ex. P -6 is the notice of the meeting to be held on 18 -2 -1951 and item 2 therein is as follows: "To elect directors. Mr. A. S. Padmanabhan retires at the meeting." It was argued that read as a whole Ex. P -6 would mean that a director is to be appointed in place of A. S. Padmanabhan who was to retire and that it would not convey the meaning that six directors were to foe elected. We are unable to agree with this contention. The retirement of A. S. Padmanabhan is stated as a fact and the notice does not state as is usual "to elect a director in place of Padmanabhan who retires." The business to be transacted under item No. 2 is generally to elect directors and not to elect a director. This objection is, therefore, overruled. A more substantial objection to the validity of the election of the defendants is that the power of the general body is limited to electing a director in the place of one who retires at the annual meeting under Article 63, that the power to appoint other directors vests under Article 58 exclusively with the Board of Directors and that in consequence the general body could appoint only one director in the place of A. S. Padmanabhan who retired at the meeting.
The Articles of the company material for the purpose of this contention are 47, 53 and 58. They are as follows:
"Article 47: "The number of directors inclusive of the Director (Ex -Officio) shall not exceed 10 nor be less than 3. The quorum for a directors' meeting is 3. The quorum of a committee meeting shall be determined by the directors."
"Article 53: "The directors nominated by the Agents and secretaries shall be Ex -Officio directors of the company and shall not be subject to retirement by rotation nor shall the clause relating to directors' share qualifications be applicable to him. The first directors of the company (except the ex -officio directors) shall hold office till the annual general meeting in 1946 when the whole of the directors shall retire from office and in every subsequent year one -third of the directors for the time being or if their number is not three or a multiple of three, then the number nearest to one -third shall retire from office. The directors to retire in every year shall be those who have been longest in office since their last election but as between persons who became directors on the same day those to retire shall (unless they otherwise agree among themselves) be determined by lot. A retiring director shall be eligible for re -election.
Article 58: "If there be any vacancy in the directorate or if it is found necessary to increase the directorate so as not to exceed the maximum number the board may from lime to time fill such vacancies by co -opting others as directors".
On these articles it is argued for the appellants that the power to appoint directors had been delegated to the board of directors under Article 58 subject only to Article 53 and that the exercise of that power by the general body was in contravention of the articles and was, therefore, void. Reliance is placed on the decision in - - 'Blair Open Hearth Furnace Co. Ltd. v. Reigart',, (1913) 108 L T 665. In that case, at an extraordinary meeting of the company, resolutions were passed increasing the number of directors and electing two additional directors. The company filed a suit for a declaration that under the articles of the association the general body had no power to appoint the two additional directors, and that the election of the defendants was, therefore, illegal. Article 82 of the Company's articles provided that the number of directors shall not be less than two or more than seven. Article 85 provided that at the ordinary meeting every year one director shall retire and the meeting at which any director shall retire shall fill up his place. Article 93 provided
"Any casual vacancy in the office of director may at all times be filled up by the board by the appointment of a director. The directors may from time to time appoint additional directors but so that the total number of directors shall not exceed the prescribed maximum."
On a construction of these articles it was held that the company had delegated its power of appointment of directors to the board and that it could not itself exercise it. The ground for the decision is thus stated by Eve J.:
"I think the express power contained in Article 93 excludes the possibility of implying a concurrent power under Article 82 and in my opinion the company has by its constitution delegated to those of its members who for the moment constitute the board the sole Fight of appointing additional directors and that is so whether such additional directors are necessary to make up the number to the maximum, number fixed by the original article or to any other number which the company may from time to time determine on as the maximum. As a matter of construction, therefore, I think that the plaintiffs are right and that it was not within the power of the company to do that which it purports to have done at the meeting of the 14th March and on this ground alone the relief sought on the motion must in my opinion, be granted."
Articles 82, 85 and 93 which were construed in - - '(1913) 108 L T 665 are substantially identical with Articles 47, 53 and 58 in the present case and the appellants accordingly argued that the reasoning and the decision in - -, (1913) 108 L T 665 would directly apply to the instant case.
(3.) NOW it is doubtful how far the decision in - -, (1913) 108 L T 665 can still be considered to be good law. Its correctness was doubted in - - 'Worcester Corsetry Ltd. v. Witting',, (1936) Ch 640 in which the articles were similar to those in - - '(1913) 108 L T 665' (A) with the difference that the company had also adopted Articles 83 and 85 in table A in the Companies Act of 1908.;
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