VENKATARAMIAH, J. - (1.) THE Judgment of the court was delivered by
(2.) THIS appeal by special leave is filed against the order dated 7/08/1984 passed by the High court of Allahabad in Civil Misc. Application No. 10968 of 1984 in Special Appeal No. 2 of 1982 on its file. The dispute involved in this case relates to the validity of an extraordinary general meeting of the Swadeshi Polytex Ltd. (hereinafter referred to as 'the Polytex Company') a company governed by the Companies Act, 1956 (hereinafter referred to as 'the Act') held pursuant to a notice dated 11/02/1984 issued under S. 169 of the Act by some of its members. The controlling interest in the Swadeshi Cotton Mills Company Ltd. (hereinafter referred to as 'the Cotton Mills Company') which is also governed by the Act was acquired by Mangturam Jaipuria and his family in 1946. Sitaram Jaipuria is the adopted son of Mangturam Jaipuria. After his adoption Mangturam Jaipuria got a natural son, Rajaram. In or about the year 1964, Sitaram Jaipuria became the Chairman and Managing Director of the Cotton Mills Company. In 1970, the Jaipuria family decided to promote another company and accordingly the Polytex Company was established. In 1970, Rajaram became the Managing Director of the Cotton Mills Company and Sitaram continued as its Chairman. Sitaram became the Chairman and Managing Director of the newly established Polytex Company in which the Cotton Mills Company had acquired 10 lacs shares of Rs. 10.00 each. From about 1975-76 on account of a very serious setback in its financial position the Cotton Mills Company could not meet' the wage bill, the dues of the U.P. Electricity Board and several other monetary claims against it. There were serious labour troubles in its factory and its work virtually became paralysed. The total liability of the Cotton Mills Company was in the order of Rs. 2.34 crores in the year 1977. On 27/10/1977, the Collector of Kanpur passed an order under S. 182-A of the U.P. Land Revenue Act, 1901 (hereinafter referred to as 'the Land Revenue Act') read with S. 5 of the Uttar Pradesh government Electrical Undertakings (Dues Recovery) Act, 1958 appointing a Receiver in respect of the Cotton Mills Company for a period of six months with various powers specified therein and in particular to seize I lac of shares of the Polytex Company of the face value of Rs 10 lacs held by the Cotton Mills Company and to pledge them in favour of the State government of Uttar Pradesh against a loan for the purpose of meeting the dues payable to the employees of the Cotton Mills Company and he made a further order under S. 149 of the Land Revenue Act read with S. 5 of the U.P. government Electrical Undertakings (Dues Recovery) Act, 1958 attaching the remaining 9 lacs shares of the Polytex Company held by the Cotton Mills Company 173 and empowering the Receiver to seize them. Both the order appointing the Receiver and the order attaching 9 lacs shares were incorporated in the same document, the relevant part of which read thus: ORDER Whereas electricity dues are payable by M/s Swadeshi Cotton Mills Co. Ltd., Kanpur, to the U.P State Electricity Board and recovery certificates for the amount enumerated below have been received for realisation of the dues above-mentioned from the said consumer: 8 Recovery certificates dated 29-9-1976, 1,06,22,423.17 31/12/1976; 16/12/1976, 29/12/1976, 16/7/1976,17/9/1976 and 3/10/1977 JUDGEMENT_167_2_1985Html1.htm And whereas, for the expeditious recovery of the dues outstanding as above, without affecting adversely the running of the mills, it is just and proper that a Receiver be appointed over the mills at Kanpur, belonging to M/s Swadeshi Cotton Mills Co. Ltd. Now, therefore, I, K.K. Baksi, Collector, Kanpur, in exercise of the power under Ss. (1) of S. 182-A of U.P. Land Revenue Act of 1901 read with S. 5 of U.P. Government Electrical Undertakings (Dues Recovery) Act, 1958, do hereby appoint Shri L.N. Batra, A.D.M., Kanpur as Receiver of the said mills belonging to M/s Swadeshi Cotton Mills Co. Ltd., for a period of six months with immediate effect and direct that the Receiver shall exercise the following powers: 1. The Receiver shall exercise supervision over the sales of products of the said mills and the disbursement of receipts from day to day. 2. That the Receiver shall ensure that the receipts of the said mills are, after the payment of labour dues and other essentials for the running of the mill, appropriated towards recoverable arrears against M/s Swadeshi Cotton Mills Co. Ltd. as land revenue. 3. That the Receiver shall, if necessary, for the running 174 of the said mills borrow money from State government or other financial institutions and other appropriate arrangement in this behalf for the repayment of the amount and the recovery thereof as arrears of land revenue. 4. That the Receiver shall seize the shares held by M/s Swadeshi Cotton Mills Co. Ltd., of M/s Swadeshi Polytex Ltd. of the face value of Rs. 10.00 lacs (Ten lacs) and shall be competent to pledge, the same by way of security for the borrowings referred to above. 5. That the Receiver shall be competent also to make payment to the Punjab National Bank against the guarantee dated 16/12/1976 and relieve the State government of its liabilities thereunder correspondingly. 6. That in the event of guarantee furnished by the State government in favour of Punjab National Bank dated 16/12/1976, being invoked, the Receiver shall be competent to make the payment to the State government against the liability accruing therefrom. 7. That the Receiver shall have access to all books of accounts, ledger, cash books, stock books and all other documents kept or maintained by M/s Swadeshi Cotton Mills Co. Ltd. in course of business. 8. That the Receiver shall be competent for the reasons to be recorded also to put a restraint against any transaction being entered into by M/s Swadeshi Cotton Mills Co. Ltd.. involving the business and assets of the mills and which are not in the interest thereof or may be detrimental to the same in his opinion. 9. That the Receiver shall have all powers incidental or ancillary for carrying out of the functions and the powers referred to above. 10. That subject to the above and to any directions that I may, hereafter issue from time to time, the present management of the said mills shall continue to run the mill and business. In view of the urgency the order is being made ex parte with the direction, however, that a notice to show cause shall issue to M/s Swadeshi Cotton Mills Company Ltd. for 15/11/1977. And further, in exercise of the power under S. 149 of U.P. Land Revenue Act, 1901 read with S. 5 of U.P. government Electrical Undertakings (Dues Recovery) Act of 1958, I hereby direct attachment and sale of shares held by 175 M/s Swadeshi Cotton Mills Co. Ltd. in M/s Swadeshi Polytex of the face value of Rs. 90.00 lacs (Ninety lacs) and hereby empower the Receiver to seize the same. Sd. Dated : Kanpur (K.K. Baksi) 27/10/1977. Collector, Kanpur. On the same date i.e. on 27/10/1977 the Receiver pledged I lac of shares as per the order of the Collector in favour of the government of Uttar Pradesh against a loan of Rs. 13.5 lacs. The Receiver also took possession of 9 lacs shares as per the order made under S. 149 of the Land Revenue Act. Subsequently the Receiver pledged on 9/11/1977,1 lac shares out of the-above 9 lacs shares in favour of the government of Uttar Pradesh against a loan of Rs. 15.00 lacs and on 4/01/1977, 1.5 lacs shares against a further loan. Thus out of the 10 lacs shares of the Polytex Company of the face value of Rs. 1 crore held by the Cotton Mills Company, 3.5 lacs shares stood pledged in favour of the government of Uttar Pradesh and the remaining 6.5 lacs shares of the face value of Rs. 65 lacs remained with the Receiver.
(3.) THE events which have led to this appeal are, however, these : In the year 1976, the Cotton Mills Company filed a petition under S. 397 and 398 of the Act against the Polytex Company alleging oppression and mismanagement of the Polytex Company by Sitaram Jaipuria and other directors of the Polytex Company in Company Petition No. 20 of 1976 on the file of the Allahabad High court. That petition was dismissed by the Company Judge of the High court on 19/04/1982. Against his decision an appeal was filed by the Cotton Mills Company in August, 1982 in Special Appeal No. 2 of 1982 before the division bench of the High court. That appeal is still pending. On February 11, 1984, the Cotton Mills Company and four others, namely, Rajaram Jaipuria, Mahabir Prasad Dalmia, Siyaram Sharma and K.B. Agarwal who together held 10,01,950 shares of the value of Rs. 10 each sent a notice to the Polytex Company which was received by it on 15/02/1984 under S. 169 of the Act requiring the Board of Directors of the Polytex Company to call an extraordinary general meeting of the Polytex Company to consider and, if thought fit, to pass with or without modification the following as ordinary resolutions: I. RESOLVED that the appointment of Shri Sitaram Jaipuria as Managing Director of Swadeshi Polytex Ltd., be and is hereby terminated prior to the expiry of his term, in exercise of the powers conferred by Article 110 of the' Articles of Association of the Company. 176 2. RESOLVED further that Shri Sitaram Jaipuria be and is hereby removed from the office of Director and consequently from the office of the Managing Director of the Swadeshi Polytex Ltd. 3. RESOLVED further that resolution passed at the 13th Annual General Meeting of Swadeshi Polytex Ltd. in respect of item 7 "Special Business" of the Notice dated 31/01/1983 of the said 13th Annual General Meeting for the remuneration of Shri Sitaram Jaipuria as Managing Director be and is hereby rescinded. 4. RESOLVED that Shri Ashok Jaipuria be and is hereby removed from the office of Director of Swadeshi Polytex Ltd. 5. RESOLVED that in the vacancy caused by the removal of Shri Ashok Jaipuria, Shri Sitaram Singhania, be and is hereby appointed as a Director of Swadeshi Polytex Ltd. and in respect of whose appointment special notices have been received from some members indicating their intention to appoint Shri Sitaram Singhania as a Director of the Company. 6. RESOLVED that Shri B.M. Kaul be and is hereby removed from the office of Director of Swadeshi Polytex Limited. 7. RESOLVED that in the vacancy caused by the removal of Shri B.M. Kaul, Dr Rajaram Jaipuria be and is hereby appointed as a Director of Swadeshi Polytex Ltd. and in respect of whose appointment special notices have been received from some members indicating their intention to appoint Dr Rajaram Jaipuria as a Director of the Company. 8. RESOLVED that Shri P.B. Menon be and is hereby removed from the office of Director of Swadeshi Polytex Ltd. 9. RESOLVED that in the vacancy caused by the removal of Shri P.B. Menon, Shri R.D. Thapar. be and is hereby appointed as a Director of Swadeshi Polytex Ltd.. and in respect of whose appointment special notices have been received from some members indicating their intention to appoint Shri R.D. Thapar as a Director of the Company. The requisitionists of the meeting also asked the Polytex Company to treat the said notice as a special notice under S. 284(2) and (5) read with S. 190 of the Act for appointment of Sitaram Singhania. Raiaram Jaipuria and R.D. Thapar in place of Ashok Jaipuria, B.M. Kaul (who was also the Chairman of the Cotton Mills Company) and P.B. Menon respectively as Directors of the Polytex Company. They enclosed an explanatory statement as required by S. 173 of the Act to the notice containing reasons for moving the aforesaid resolutions. On receipt of the notice, an 177 emergent meeting of the Directors of the Polytex Company was held on 23/02/1984 to consider the above said notice issued under S. 169 of the Act. The following is the material part of the minutes of the said meeting: REQUISITION NOTICE The Board was informed that a notice had been received at the Registered Office of the Company on 15/02/1984 from Swadeshi Cotton Mills Co. Ltd. (SCM) and four other shareholders requisitioning an Extraordinary General Meeting of the Company under S. 169 of the Companies Act, 1956. The requisition notice received from SCM was read before the Board. The Board considered the motives behind the requisition and took serious note of the false and baseless allegations made in the explanatory note enclosed to the notice of requisition. The secretary pointed out few technical defects in the requisition notice. The draft notice and the explanatory statement was placed before the meeting. The same was perused and discussed and the following resolutions were passed: RESOLVED that an Extraordinary General Meeting of the Company, pursuant to the requisition received by the Company on 15/02/1984 under S. 169 of the Companies Act, 1956 from Swadeshi Cotton Mills Co. Ltd. and others be held at the Registered Office of the Company on Wednesday, 28/03/1984 at 40.30 a.m. RESOLVED further that the secretary be and is hereby authorised to issue notice for convening the aforesaid meeting, as per draft placed before the Board and initialed by the Chairman for the purposes of identification and to take such other steps as may be required in this regard. The Board was of the view that the financial institutions should be informed of this development and the Directors who wish to make their representation to the shareholders may be requested to do so. The secretary was directed to take necessary steps in this regard. ;