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1947 DIGILAW 29 (ALL)

Bal Krishna Maheshwari v. Uma Shanker Mehrotra

1947-03-05

body1947
JUDGMENT Mootham, J. - This is reference to a Full Bench which arises out of a petition in revision under s. 115, Civil P.C., presented by one Bal Krishna Maheshwari, a member of the Merchants' Chamber of U.P. which is a Company limited by guarantee duly incorporated and registered under S. 26, Companies Act (7 [VII] of 1913). The petitioner challenged the validity of an order passed by the learned District Judge of Cawnpore on 26-4-1946, confirming a previous ex parte order passed by him on 28-3-1946, directing the calling of the annual general meeting of the Company on 27-4-1946. The challenge was made on the ground that the said order of the learned District Judge of Cawnpore was beyond his jurisdiction and on that basis the petitioner claimed the relief that the said order and the annual general meeting of the Company held in pursuance thereof should be declared to be null and void. The matter came up for consideration before a Bench of this Court and from the argument addressed by the parties two questions haying an important bearing on the administration of the Company law arose for determination. In view of the importance of those questions, and the fact that they were not covered by any precedent of this Court or of any other High Court the Bench seized of the matter made the present reference with the object of having those questions fully considered and finally decided by an authoritative pronouncement of this Court. 2. The material facts of the case and the points raised in the course of the argument have been set out at great length in the order of reference made by the Bench and we think it would be an obvious waste of time and labour to cover the whole ground again in the present judgment. As already stated, there are but two points of law which arise for consideration and we consider it necessary to state a few facts in order to bring out those points. Article 46 of the Articles of Association of the Company provides that an annual general meeting of the Company shall be held in every calendar year before the 31st of March. The dispute in the present case relates to the annual general meeting of the Company for the year 1946. Article 46 of the Articles of Association of the Company provides that an annual general meeting of the Company shall be held in every calendar year before the 31st of March. The dispute in the present case relates to the annual general meeting of the Company for the year 1946. It is an admitted fact that the last preceding annual general meeting of the Company had taken place on 3-2-1945. According to the Article of Association of the company referred to above, the annual general meeting of the Company for the year 1946 had to be called on some date before 31st March in that year. The management of the affairs of the Company lies in the hands of a Council of twenty one members, including a President and a Vice President, and the duty of calling the annual general meeting of the Company in every calendar year falls upon that Council. On behalf of the petitioner it is alleged that in accordance with the Articles of Association of the Company a clear fourteen days' notice for the annual general meeting in 1946 was issued and posted in due course on 13-3-1946, fixing 28-3-1946, as the date of the meeting. It is contended on the other side that though a notice was directed to be issued fixing that date, yet, in fact no notice was issued and posted to any member of the Company until 15-3-1946, so that there could be no clear fourteen days' notice of the meeting as required by Art. 49 of the Company's Articles of Association. It is further alleged that a member of the Company, who received a notice of the meeting to be held on 28-3-1946, actually raised an objection that the notice was invalid and sent a written communication to that effect to the President of the Council who thereupon proceeded to cancel the meeting on 25-3-1946, and on 28th March made an application to the learned District Judge, Cawnpore, invoking his jurisdiction under S. 79 (3), Companies Act to call the annual general meeting. The two points of law which have to be determined in the present case turn upon the true interpretation of S. 79 (3), Companies Act and it is, therefore, necessary to set out its terms in extenso. The two points of law which have to be determined in the present case turn upon the true interpretation of S. 79 (3), Companies Act and it is, therefore, necessary to set out its terms in extenso. The section runs as follows: If for any reason it is impracticable to call a meeting of a company in any manner in which meetings of that company may be called or to conduct the meeting of the company in manner prescribed by the articles or this Act, the Court may, either of its own motion or on the application of any director of the company who would be entitled to vote at the meeting, order a meeting of the company to be called, held and conducted in such manner as the Court thinks fit, and where any such order is given may give such ancillary or consequential directions as it thinks expedient, and any meeting called, held and conducted in accordance with any such order shall for all purposes be deemed to be a meeting of the company duly called, held and conducted. For the purposes of appreciating the points raised before us in the argument on behalf of the petitioner it is necessary also to set out here the terms of s. 76, Companies Act, which runs as follows: 76. (1) A general meeting of every company shall be held within eighteen months from the date of its incorporation and thereafter once at least in every calendar year and not more than fifteen months after the holding of the last preceding general meeting. (2) If default is made in holding a meeting in accordance with the provisions of this section, the company and every director or manager of the company who is knowingly and wilfully a party to the default shall be liable to a fine not exceeding five hundred rupees. (3) If default is made as aforesaid, the Court may, on the application of any member of the company, call or direct the calling of a general meeting of the company. (3) If default is made as aforesaid, the Court may, on the application of any member of the company, call or direct the calling of a general meeting of the company. We may also mention here that the learned District Judge has found as a fact upon the evidence produced before him by the parties that though a meeting of some sort was held on 28-3-1946, yet the notice calling a meeting on that date was not actually issued and posted until 15th or 16th March 1946, so that it did not leave a clear margin of fourteen days before 28-3-1946. Having arrived at that finding, the learned District Judge proceeded to hold that the meeting of some sort which had taken place on 28-3-1946, was not a valid meeting in the eye of the law and had consequently to be disregarded altogether. He thus arrived at the conclusion that the calling of a valid meeting in the manner prescribed by the Company's Articles of Association had become impracticable and he consequently proceeded on 26-4-1946, to confirm his previous ex parte order of 28-3-1946, calling a general meeting of the Company on 27-4-1946. The petition before us challenges the validity of this order and consequently of the meeting held in, pursuance thereof on the ground that it was beyond the jurisdiction of the learned District Judge. 3. It is not permissible in revision to go behind the finding of fact recorded by the learned District Judge and the argument before us has, therefore, proceeded on the assumption that though a meeting of some sort was held on 28-3-1946, yet there was no clear fourteen days notice for that meeting as required by the Company's Articles of Association. In view of the clear language of S. 79 (3), it is evident that there is a condition precedent to the exercise of the jurisdiction conferred by it and that is that it must be found that for some reason it has become impracticable to call a meeting of a company in any manner in which meetings of that company may be called. So far there is and can be no contest. On behalf of the petitioner, the challenge against the jurisdiction of the learned District Judge is sought to be supported on two grounds and they give rise to the two points of law which we have to determine. So far there is and can be no contest. On behalf of the petitioner, the challenge against the jurisdiction of the learned District Judge is sought to be supported on two grounds and they give rise to the two points of law which we have to determine. The first ground is that the question of the impracticability or otherwise of calling an annual general meeting must be decided not only in the light of the Company's Articles of Association, but also of the general provision contained in S. 76 (1), which has been cited above. It is contended on that basis that in the circumstances of the present case, the calling of the annual general meeting of the Company had not become impracticable, inasmuch as though the time limit prescribed by the Company's Articles of Association had expired, yet the wider limit laid down by S. 76 (1), was still available and having regard to the fact that the last preceding annual general meeting had taken place on 3-2-1945, the annual general meeting for the year 1946 could validly be called at any time before 3-5-1946. It has been very strenuously argued on behalf of the petitioner that in the present case a conflict had arisen between the general provision contained in S. 76 (1) and the Articles of Association of the Company and the former must prevail over the latter. In support of his argument, learned counsel for the petitioner further contended that in S. 79 (3) the phrase "in manner prescribed by the articles or this Act" must be applied to both the clauses that precede it and it must, therefore, be held that the impracticability or otherwise of calling a meeting has to be determined not only by reference to the Articles of Association of a Company, but also to the general provisions of the Act. Upon a careful analysis of the language of s. 79 (3) and of the general provision contained in S. 76, we are unable to accept this contention. In our judgment, there are two distinct and separate clauses which precede -the phrase "in manner prescribed by the articles or this Act" in S. 79 (3) and it follows, therefore, that upon a plain grammatical construction of the language of the section the phrase is applicable only to the clause which immediately precedes it. In our judgment, there are two distinct and separate clauses which precede -the phrase "in manner prescribed by the articles or this Act" in S. 79 (3) and it follows, therefore, that upon a plain grammatical construction of the language of the section the phrase is applicable only to the clause which immediately precedes it. Section 79 (3) provides for two separate matters firstly, the impracticability of calling a meeting of a company in any manner in which meetings of that Company may be called and secondly, conducting the meeting of the company "in manner prescribed by the articles or this Act." It is worthy of note that the words "in any manner" occur in cl. 1 and upon the reading suggested by the learned counsel for the petitioner the words "in manner" have to be repeated if the phrase "in manner prescribed by the articles or this Act" is applied to both the clauses that precede it. Upon a plain reading of the language of the section, we are of the opinion that the question of the impracticability or otherwise of calling a meeting has to be decided primarily in the light of the company's Articles of Association. We may here point out that the words "that company" in cl. 1, are very significant. They clearly show that the clause refers to a particular company and not to all companies; whereas the provision contained in 9. 76 (1) applies to every company. It has, however, to be borne in mind that there may be cases in which the Articles of Association either fail to make any provision for a matter which is governed by the general provisions of the Act or make a provision which is in direct conflict with some mandatory provision of the Act applicable to all companies. In the former case it would obviously be necessary to refer to the Act when deciding the question of the impracticability or otherwise of calling a meeting. In the latter case, the mandatory provision of the Act will prevail and the provision contained in the Articles of Association will have to be disregarded. Apart from these exceptional cases, the question of the impracticability or otherwise of calling a meeting must be decided only by reference to the company's Articles of Association. In the latter case, the mandatory provision of the Act will prevail and the provision contained in the Articles of Association will have to be disregarded. Apart from these exceptional cases, the question of the impracticability or otherwise of calling a meeting must be decided only by reference to the company's Articles of Association. We find further that in the circumstances of the case before us no conflict could really arise between the general provision contained in S. 76 and the Company's Articles of Association. Section 76 in sub-s. (1) lays down two mandatory provisions of general application to all companies relating to the calling of the annual general meeting, firstly, that the meeting shall be held once at least in every calendar year and secondly, that it shall be held not more than fifteen months after the holding of the last preceding general meeting. This sub-section does not prohibit any company from prescribing any time limit for the holding of its annual general meeting so long as the two mandatory conditions mentioned above are fulfilled. In the case before us, the Company laid down in Art. 46 of its Articles of Association that there shall be an annual general meeting of the Chamber which shall be held before the 31st of March, at such time and place, as the Council for the time being may determine. This provision did not contravene any one of the two conditions, prescribed by S. 76 (1) and hence no question of any conflict between S. 76 (1), and the Company's Articles of Association arises at all. In prescribing a time limit for the holding of its annual general meeting in each calendar year the Company did not infringe any provision of the Companies Act. It is not one of the exceptional cases referred to above, and it follows, therefore, that the question of the impracticability of calling the annual general meeting in 1946 had to be determined only by reference to the Company's Articles of Association. The argument on behalf of the petitioner proceeds on the assumption that S. 76 enables the calling of an annual general meeting at any time after the expiry of the time limit fixed by a Company's Articles of Association and before the expiry of the wider time limit given by S. 76 (1). The argument on behalf of the petitioner proceeds on the assumption that S. 76 enables the calling of an annual general meeting at any time after the expiry of the time limit fixed by a Company's Articles of Association and before the expiry of the wider time limit given by S. 76 (1). Upon a plain reading of the language of S. 76, we find that this assumption is not correct. An annual general meeting of a company may be called under sub-s. (3) of S. 76, on the application of any of its members, but the condition precedent is that a default must have taken place in holding the general meeting in accordance with the provisions of the section. It follows, therefore, that s. 76 can never operate for the purposes of calling an annual general meeting at any time within the limit prescribed by sub-s. (1). From this again it is clear that in the present case there could be no conflict between s. 76 on the one hand and the Company's Articles of Association on the other. Learned counsel for the petitioner contended that if the Directors of the Company had called and held the annual general meeting at any time after 31-3-1946, and before 3-5-1946, the validity of such a meeting could not possibly be challenged in view of S. 76 (1). It may have been possible for the Directors of the Company to call and hold such a meeting and that meeting may have been valid, but it could not be a meeting called and held either in accordance with the Company's Articles of Association or the provisions of S. 76. The meeting could be called and held with the consent of all the members, but the possibility of such a meeting being called and held cannot be taken into account for the purpose of deciding the question whether the calling of the annual general meeting bad or had not become impracticable on the date on which the jurisdiction of the learned District Judge under S. 79 (3) was invoked. We are, therefore, of the opinion that the general provisions contained in s. 76 of the Act, have no application to the period intervening between the time limit for calling and holding and annual general meeting fixed by a Company's Articles of Association and the wider time limit for calling and holding such a meeting prescribed by S. 76 (1). At any time before the expiry of the wider limit prescribed by S. 76 (1) the jurisdiction conferred upon the Court by S. 79 (3) comes into operation and it can be invoked by a director or a member of any company for calling the annual general meeting. We find further that the jurisdiction of the learned District Judge was rightly invoked in the present case by the President of the Council in charge of the management of the Company's affairs. 4. The second ground on which the jurisdiction of the learned District Judge has been assailed is that S. 79 (3) is only a procedural provision which does not confer any indicial power on the District Judge to enter into and decide the question of the validity or otherwise of a meeting alleged to have been held. It is contended that where the jurisdiction of the Court is invoked under S. 79 (3) of the Act, for the purpose of calling a meeting and an objection is raised that a meeting has in fact already been called and held, all that lies in the power of the Court to do in the exercise of its jurisdiction is to deckle the question of fact and if it finds that the fact of a meeting having been held has been established, it must immediately stay its hand and has no jurisdiction to proceed further to decide whether the meeting was valid or invalid. It was strenuously argued that as soon as the issue of the validity or otherwise of a meeting is raised, the Court acting under S. 79 (3) of the Act, must declare that it has no jurisdiction to proceed any further and must leave the parties to pursue their remedy in the civil Court. At one stage of the argument, learned counsel for the petitioner tried to maintain that the Court acting under S. 79 (3), ceased to have any jurisdiction as soon as an objection was raised before if that a meeting has actually been held. At one stage of the argument, learned counsel for the petitioner tried to maintain that the Court acting under S. 79 (3), ceased to have any jurisdiction as soon as an objection was raised before if that a meeting has actually been held. The claim that the jurisdiction of a Court can be ousted merely by an allegation is obviously extravagant and it was not, therefore, pressed, but the learned counsel laid great emphasis on the fact that an order passed by the Court in the exercise of its jurisdiction under S. 79 (3) of the Act, is not open to any appeal even though the order might affect valuable rights and, on this ground, we were asked to infer that the law could not possibly have intended to confer upon the Court the jurisdiction to determine the validity or otherwise of a meeting. In our judgment, the position taken on behalf of the petitioner is untenable. It is conceded that there are no express words in the statute which place the suggested limit on the jurisdiction of the Court under S. 79 (3), but it is contended that the lack of jurisdiction to decide the question of the validity or otherwise of a meeting must necessarily be inferred from the fact that no appeal has been provided from an order made by the Court in the exercise of its jurisdiction under that' section. In dealing with this question, we must first of all point out that all jurisdiction under the Companies Act has been conferred by S. 3 (1), in the first instance upon "the High Court having jurisdiction in the place at which the registered office of the company is situate." We do not think that it can be argued with any force or reason that the High Court has no jurisdiction to enter into and decide the question of the validity or otherwise of a meeting. There is further provision in the same section "that the Central Government may, by notification in the official gazette and subject to such restrictions and conditions as it thinks fit, empower any District Court to exercise all or any of the jurisdiction by this Act, conferred upon the Court, and in that case such District Court shall, as regards the jurisdiction so conferred, be the Court in respect of all companies having their registered offices in the district." The District Judge at Cawnpore exercises jurisdiction under the Companies Act in accordance with this provision and it has not been suggested that the Central Government has placed any restrictions upon his jurisdiction. It follows, therefore, that the District Judge at Cawnpore possesses the same jurisdiction which has been conferred upon the High Court by S. 3 (1) of the Act. Now, when the Court empowered under S. 3 (1) proceeds to exercise the jurisdiction conferred upon it by s. 79 (3), the very first question which it has to decide is whether the calling of a meeting has become impracticable. It is open to any party to challenge the exercise of that jurisdiction and for that purpose it may be alleged as in the present case that a meeting has actually been called and held and hence the basic condition on which the Court can proceed to exercise its jurisdiction for calling a meeting does not exist at all. Such an allegation must necessarily amount to assertion that the meeting alleged to have been held fulfils all the requirements of the law. No objector can be allowed to ask the Court to stay its hand merely with the allegation that a meeting has in fact been called and held, though it was not a valid meeting. When such an allegation is made, the issue which immediately arises for decision is : Has a valid meeting been in fact called and held ? The Court must proceed to find not only whether a meeting of some sort has been held but that the said meeting fulfilled the requirements of the law before it can refuse to exercise its jurisdiction. The Court must proceed to find not only whether a meeting of some sort has been held but that the said meeting fulfilled the requirements of the law before it can refuse to exercise its jurisdiction. The Court may find that a meeting of say nine persons was held, though the quorum required by the law was ten and the question is whether upon such a finding the Court must stay its hand and declare that it has no further jurisdiction in the matter. In our judgment, the answer is obviously in the negative. The Court cannot shut its eyes to the fact that the meeting actually held was not a meeting in the eye of the law and if it takes that fact into account, it must proceed to hold that the calling of a meeting has become impracticable provided that the time limit fixed for the calling of such a meeting by the Company's Articles of Association has expired or the calling of the meeting within that time limit in the manner prescribed by the Articles of Association has become impossible. We see no reason at all why such an issue should not be determined by the Court, There is nothing in the language of S. 79 (3) upon which the contention of the learned counsel for the petitioner can be founded. It was strenuously contended by learned counsel that the determination of such an issue might often involve the decision of complicated questions of fact and law and it must therefore, be inferred that the law did not contemplate the determination of such a question in a miscellaneous proceeding under S. 79 (3). We are not impressed at all by this argument because we do not think that in the large majority of cases any complicated questions of law and fact will arise for consideration. 5. The question of the validity or otherwise of a meeting will, in a vast majority of cases, turn upon the interpretation of the Company's Articles of Association and some general provisions of the law. We see no reason for holding that the Court acting under S. 79 (3) is for any reason less competent to try and decide such questions than the civil Court to which learned counsel for the petitioner seems to attach a peculiar sanctity. We see no reason for holding that the Court acting under S. 79 (3) is for any reason less competent to try and decide such questions than the civil Court to which learned counsel for the petitioner seems to attach a peculiar sanctity. It has to be borne in mind that the District Court empowered under s. 3 (1), Companies Act, possesses unlimited jurisdiction for trying civil suits when acting as a civil Court and we see no justification in law for placing any fetters upon it when acting in the exercise of its jurisdiction under S. 79 (3). Nor are we impressed by the argument that the law could not have intended to afford such a wide jurisdiction upon the Court acting under S.79 (3) because it did not provide for any appeal from an order passed in the exercise of that jurisdiction and also because it is always open to a party to move the civil Court for the determination of the validity or otherwise of a meeting. These considerations do not, in our judgment, justify the contention that the jurisdiction of the Court under S. 79 (3) must be of a very limited character. We may also point out that it may be said on the other hand, and perhaps with greater reason, that the law might well have presumed that the members of a company would be anxious to prevent the normal running of then: business from being brought to a stand still by protracted litigation in the civil Court and to have any disputes calculated to interfere with that business speedily settled by resorting to the Court upon which jurisdiction has especially been conferred under the Companies Act, It may be open to any party to seek relief from the civil Court, but that is no reason for holding that the jurisdiction of the Court especially empowered to deal with company matters is in any respect fettered or limited. We, therefore, hold that where upon the jurisdiction of the Court under S. 79 (3) being invoked by a party a question is raised as to the validity or otherwise of a meeting, the Court has jurisdiction to determine that question. We, therefore, hold that where upon the jurisdiction of the Court under S. 79 (3) being invoked by a party a question is raised as to the validity or otherwise of a meeting, the Court has jurisdiction to determine that question. It follows, therefore, that the order passed by the learned District Judge at Cawnpore on 26-4-1946, confirming the previous ex parte order passed by him on 28-3-1946, in pursuance of which the annual general meeting of the company was called and held on 27-4-1946, was entirely within his jurisdiction and the petitioner is not entitled to any relief. The petition in revision is accordingly dismissed with costs.