In The Matter Of Company and In The Matter Of The Aruvipuram S N D P Yogam Quilon v. .
1970-12-17
MADATHIMYALLIL UTHUP ISAAC
body1970
DigiLaw.ai
ORDER : M.U. Issac, J. 1. This is a petition under sections 397 and 398 of the Companies Act, 1956 (hereinafter referred to as the Act) with the authorisation of the Central Government under section 399 (4) by members of the Aruvipuram Sri Narayana Dharma Paripalana Yogam, popularly known as the S.N.D.P. Yogam for relief against the oppressive conduct and mismanagement of the affairs of the Yogam by its General secretary, Sri M.K. Raghavan. The petitioners are also presidents of two of the Taluk Unions of the Yogam. 2. A similar petition was formerly filed as CP. No. 6 of 1969 by 10 members of the Yogam with the written consent of 265 other members as contemplated by section 399 (3) of the Act. That petition was resisted by the present General Secretary on two grounds. One was that on the facts of the case, there was no scope for action under section 397 or 398 of the Act; and the other was that the Yogam was a company not having a share capital and that the petition was not maintainable, as it was not made by not less than one - fifth of the total number of members of the Yogam as required by section 399 (1) (b). At that time, the company had more than 40000 members. Serious allegations of mismanagement and misconduct had been made in that case against the General Secretary. I did not take any evidence in the matter; but the petition was disposed of on the admitted facts and circumstances after hearing counsel on both points, by my judgment, dated 5th September 1969 which is reported as In Re S.N.D.P. Yogam, Quilon 1970 K.L.T. 365. I have considered the matter elaborately in that judgment. On the first point, I came to the conclusion that this was an eminently fit case for relief under section, 398 of the Act, it the action was maintainable. On the second point, I rejected the petitioners contention that the Yogam is a company limited by shares, and held that the petition was not maintainable, as it was not filed by the requisite number of members as required by section 399 (b). Thereupon the two petitioners herein obtained authorisation from the Central Government under section 399 (4) of the Act; and the present petition has been filed on the basis of that authority. 3.
Thereupon the two petitioners herein obtained authorisation from the Central Government under section 399 (4) of the Act; and the present petition has been filed on the basis of that authority. 3. The main reliefs sought for in the present petition are:- (i) to remove the present General Secretary from that post; (ii) to appoint an administrator or commissioner for the purpose of forthwith convening an annual general meeting for the conduct of all the business of the annual general meeting in accordance with its articles of association and for its interim administration; (iii) to appoint a competent auditor to audit the accounts of the Yogam; and (iv) to pass such orders and to take such measures for the proper regulation of the conduct of the affairs of the Yogam in future, which are just and proper. The petitioners have also sought for some ancillary reliefs. Several allegations of misconduct and mismanagement have been made in this petition also against the General Secretary. They are more or less the same as were made in CP. No. 6 of 1969. 4. The petition was originally opposed only by the General Secretary. He has filed a very detailed counter-affidavit in reply to the petitioners' allegations against him. Both parties took steps for a number of witnesses for being examined in support of their respective cases, Then it appeared to me that in the nature of the reliefs sought for and die controversy between the parties and in the light of my findings in C.P.No.6 of 1969, there may not be any scope for or a evidence. So the witnesses were discharged; and I adjourned the case for hearing counsel on the above aspect and also on the question whether they wanted to adduct any oral evidence, and if so on what points. Accordingly counsel for both parties were heard on 22nd October 1970. 5. The management of the Yogam is vested in the Board of Directors, which has to be elected at the annual general meeting. There is also a Council elected by the Board of Directors for the internal management of the Yogam. The members of the Board hold office till the next annual meeting. The present Directors of the Board were elected at the annual general meeting held on 19th March 1966.
There is also a Council elected by the Board of Directors for the internal management of the Yogam. The members of the Board hold office till the next annual meeting. The present Directors of the Board were elected at the annual general meeting held on 19th March 1966. The next annual general meeting was held on 29th October 1967; and it could not transact any business, as it turned violent and had to be dispersed for that reason. Thereafter no general meeting could be held. The Board of Directors and the Council also have not been functioning due to inter se disputes. Very large powers are vested in the General Secretary; and he has been carrying on the affairs of the Yogam since his last election in 1966 without being subject to the control or supervision of the Board of Directors or the Council According to the petitioners, the General Secretary has been creating obstacles and refraining from convening the general meeting with the object of clinging to the office and exploiting the large administrative powers attached thereto. According to the General Secretary, he has been, always prepared to convene the general meeting and conduct the election; but he could not do so on account of the order of injunction issued by the Munsiff's Court, Ernakulam in O.S. No. 13 of 1968. The petitioner's case is that it is a collusive action, instituted at the instance of the General Secretary. It is unnecessary for me to go into these controversies, as both parties agree that an annual general meeting has to be convened in accordance with the provisions of the articles of association for electing the members of the Board of Directors and for transacting other business of the Yogam. If the present General Secretary is not re-elected, he automatically goes out; and if he is re-elected there is no question of removing him from office. There is no need for the court to appoint an auditor for the auditing of the accounts, as it can be done by the general meeting, if one is convened. There is also no need to pass any orders or to take any measures for the conduct of the affairs of the Yogam in future; as the articles of association contain sufficient and detailed provisions for that purpose.
There is also no need to pass any orders or to take any measures for the conduct of the affairs of the Yogam in future; as the articles of association contain sufficient and detailed provisions for that purpose. All that is necessary is to have a proper annual general meeting convened, and the business of the Yogam transacted in accordance with its articles of association. These positions were discussed and accepted by counsel on both sides. I also expressed the view at the hearing that in view of the accute difference of opinion between the two factions led by the President and the General Secretary, and the fact that the General Secretary has lost the confidence of a large section of the members of the Yogam he cannot be entrusted with the responsibility of convening the annual general meeting for conducting the election and transacting other business of the yogam. The case was adjourned to 31st October 1970 for further consideration as to what orders should be passed respect of the appointment of an administrator or commissioner for convening; the annual general meeting, and whether any interim arrangement should be made for the manage affairs of the Yogam till the election of the new Board of Directors is conducted. 6. At this stage I have to refer to a controversy raised by two members of the Yogam in O.S. No. 13 of 1968 of the Ernakulam Munsiff's Court regarding the constitution of the general meeting of the Yogam. The original articles of association were altered and substituted by fresh articles by a special resolution adopted at an extraordinary general meeting of the Yogam on 27th March 1948. I shall refer to these articles as the 1948 articles. They were again altered and substituted by new articles by a special resolution adopted at an extraordinary general meeting held on 19th March 1966. I shall refer to these articles as the 1966 articles. A booklet containing the memorandum of association and the 1966 articles has been produced by the petitioner marked as Ext. P-1. The provisions relating to the constitution of the general meeting are contained in article 45 of the 1948 articles and article 47 of the 1966 articles. There is difference between the two provisions to which I shall have to refer later.
P-1. The provisions relating to the constitution of the general meeting are contained in article 45 of the 1948 articles and article 47 of the 1966 articles. There is difference between the two provisions to which I shall have to refer later. According to the plaintiffs in O.S. 13 of 1968, article 47 of the 1966 articles is bad under law, as it is violative of the provisions of the Companies Act, 1956. But neither the said plaintiffs nor any other members of the Yogam raised such a contention before me either in OP. No. 6 of 1969 or in the present case. However to put the matter beyond doubt I asked counsel for the General Secretary what his position was; and he submitted that the General Secretary was a party to the special resolution which adopted the 1966 articles, that he convened the general meeting on 29th October 1967 in accordance with the said articles, and that he stood by them. In the meanwhile, one P. C. Aravindhan, a member of the Yogam entered on the scene on 28th October 1970. He filed art affidavit in opposition to the petition. He contends that Article 47 of 1966 articles is bad under law, as it is violative of the provisions of the Act, that the general meeting of the Yogam has to be convened in accordance with 1948 articles, that such a meeting can be convened by the General Secretary himself or by the court under section 186 of the Act, and that the petitioners are not entitled to any reliefs, as there is no scope for the interference of the Court under section 397 or 398 of the Act. 7. It is now more than four years that the 1966 articles have been adopted and acted on by the Yogam. This member has not so far raised any objection to their validity. It is obvious that he has now raised this belated objection with the object of creating impediments in convening a general meeting for election of the Board of Directors in accordance with the articles of association in force and thereby enabling the General Secretary to continue in office as he has been doing for the last more than four years.
It is obvious that he has now raised this belated objection with the object of creating impediments in convening a general meeting for election of the Board of Directors in accordance with the articles of association in force and thereby enabling the General Secretary to continue in office as he has been doing for the last more than four years. However the objection deserves serious consideration, as it relates to a matter vitally affecting the constitution of the general meeting of a powerful institution of a large community of people in the State. 8. It is necessary to refer to some of the provisions relating to the management and constitution of the Yogam, Both under the 1948 articles and 1966 articles, a person has to take become a member of the Yogam. The value of a share is Rs. 5. Members who have paid full share value shall be permanent members, and others shall be temporary members. The shares are neither transferable nor inheritable. The Yogam will have Branches and Taluk Unions constituted in accordance with the subsidiary articles. The management of the Yogam is vested in the Board of Directors. There is also a Council elected by the Board of Directors for the internal management. The Directors of the Board are elected at the annual general meeting; and they hold office till the next annual meeting. There is difference in the provisions of the 1948 articles and 1966 articles in respect of the constitution of the general meeting, the Board of Directors and the Council. The 1948 articles provide that the general meeting shall be meeting of two elected representatives of every Branch, members of the Board of Directors, Presidents and Secretaries of the Unions and the permanent members of the Yogam. The quorum for the general meeting is 251 members. The Board shall have not more than 75 members consisting of the President, the General Secretary, and the Devaswom Secretary. The Council shall consist of the above three officers and eight directors elected by the Board of Directors. Under the 1966 articles, the members of the general meeting shall consist of the members of the Board of Directors, Presidents and Secretaries of Taluk Unions and representative of the Unions at the rate of one for every 100 permanent members and part thereof exceeding 50. The quorum for the general meeting is 150 members.
Under the 1966 articles, the members of the general meeting shall consist of the members of the Board of Directors, Presidents and Secretaries of Taluk Unions and representative of the Unions at the rate of one for every 100 permanent members and part thereof exceeding 50. The quorum for the general meeting is 150 members. The Board shall have not more than 101 members consisting of the President, the Vice-President, the General Secretary and the Devaswom Secretary. The Council shall consist of 15 members including the above tour officers. The 1966 articles have made a vital alteration regarding the constitution of the general meeting, according to which the general meeting is only a meeting of certain representatives of the members of the Yogam, while under the 1948 articles the general meeting is a meeting of all the members of the Yogam; and every one of them is entitled to vote. 9. The contention of the intervener's counsel is that under the company law, general meeting of a company means a meeting of all the members of the company, and every member has a right to vote at the general meeting subject to certain specified restrictions contained in the Act, and that the provisions of the 1966 articles in so far as they do not permit all members of the Yogam to participate in the general meeting and exercise their right of vote are bad under law. There is no authority in support of the above contention. Counsel referred to a few sections in the Act, which according to him would show that general meeting of a company is a meeting of all its members. Before I refer to those provisions, it is necessary to notice the effect of the articles of association and how far they can be altered. Section 36 of the Act provides that subject to the provisions of the Act, the memorandum and articles shall, when registered, bind the company and the members thereof to the same extent as if they respectively had been signed by the company and by each member, and contained covenants on its and his part to observe all the provisions of the memorandum and articles.
Section 31 provides that subject to the provisions of the Act and to the conditions contained in its memorandum, a company may by special resolution alter its articles, and that any alteration made shall subject to the provisions of the Act be as valid as if originally contained in the articles and be subject in like manner to alteration by special resolution. There is no dispute about the validity of the special resolution which altered the articles of association at the extraordinary meeting of the Yogam held on 19th March 1966. Then the only question is whether the altered articles, in so far as they do not recognise all members of the Yogam as members of its general meeting and provide for a smaller representative body of the members for constituting the general meeting, are violative of any provision in the Act. 10. The expression "general meeting" is not defined in the Act. Most of the provisions in the Act to which my attention was drawn by counsel for the intervener only relate to the various things which are required by the Act to be done by the general meeting. There is nothing therein to show that the general meeting shall be a meeting of all the members of the company. It is therefore, unnecessary to refer to them. Section 87 deals with the voting right of a member. Under that section, a right to vote is granted only to a member of a company limited by shares; and his voting right shall be in proportion to his share of the paid-up equity capital of the company. I have held in my Judgment in CP. No. 6 of 1969 that the Yogam is not a company limited by shares. Hence this section does not apply to the case. There is no corresponding provision in the Act giving a right of vote to a member of a company limited by guarantee or of an unlimited company. Section 171 (2) (1) of the Act refers to members entitled to vote at the general meeting. Section 176 (1) of the Act also refers to a member of a company entitled to attend and vote at a meeting of the company. There are also other provisions in the Act referring to a member entitled to vote.
Section 171 (2) (1) of the Act refers to members entitled to vote at the general meeting. Section 176 (1) of the Act also refers to a member of a company entitled to attend and vote at a meeting of the company. There are also other provisions in the Act referring to a member entitled to vote. These provisions show that all members of a company may not be entitled to attend and vote at a meeting of the company. Counsel for the intervener placed much reliance on section 181 of the Act which reads :- "Notwithstanding anything contained in this Act, the articles of a company may provide that no member shall exercise any voting right in respect of any shares registered in his names on which any calls of other sums presently payable by him have not been paid, or in regard to which the company has and has exercised any right of lien." He contended that this section lays down the circumstances under which alone the voting right of a member of a company can be restricted by its articles of association, and that in all other cases, every member has a right to vote at the general meeting. I am unable to accept this contention. What the section provides is only an exception to any provision contained in the Act giving voting right to a member. So one has to look for any such provision in the Act. Section 87 is such a provision; but as already pointed out, that section has application only to a company limited by shares; and the Yogam is not such a company. It is, therefore, fallacious to argue on the basis of section 181 that a member of every company has a light to attend and vote at its general meeting, and that it can be restricted only under circumstances mentioned in the said section. Reference was also made to section 182 of the Act. It prohibits certain type of restrictions on the exercise of the voting right of a member; and obviously the section can apply only to a member who has got a voting right. He can have that right only under the Act or under the articles of association of the company. Section 182 does not give any right to a member.
It prohibits certain type of restrictions on the exercise of the voting right of a member; and obviously the section can apply only to a member who has got a voting right. He can have that right only under the Act or under the articles of association of the company. Section 182 does not give any right to a member. Lastly reliance was made on section 172 (2) of the Act, which provides among other things, that notice of every meeting of the company shall be given to every member of the company. From that it is argued that every member of a company is entitled to1 attend and vote at its general meeting. This section is not dealing with the voting right of members. It only deals with service of notice of a meeting of a company; and in that context the provision that notice shall be given to every member of a company can mean only that notice shall be given to every member who is entitled to vote at the meeting. At any rate, the said provision does not confer any voting right on a member of a company. 11. Counsel for the intervener also relied on section 29 of the Act in support of his contention that every member of the Yogam is entitled to vote at its general meeting. Section 29 reads:- "The articles of association of any company, not being a company limited by shares, shall be in such one of the Forms in Tables C,D and E in Schedule I as may be applicable, or in a Form as near thereto as circumstances admit : Provided that nothing in this section shall be deemed to prevent a company from including any additional matters in its articles in so far as they are not inconsistent with the provisions contained in the Form in any of the Tables C,D and E, adopted by the company." The Yogam is a company limited by guarantee and not having a share capital. So Table C in Schedule I is the appropriate Table. Article 14 of Table C provides that every member shall have one vote. Counsel contends that section 29 demands that the articles of association of the Yogam shall be in the above form or in a form as near thereto as circumstances admit.
So Table C in Schedule I is the appropriate Table. Article 14 of Table C provides that every member shall have one vote. Counsel contends that section 29 demands that the articles of association of the Yogam shall be in the above form or in a form as near thereto as circumstances admit. He also relies on the proviso to the section, and submits that the proviso shows that the articles shall not be inconsistent with the provisions contained in the form in Table C. So it is contended that Article 47 of 1966 articles in so far as it does not give voting right to all the members of the Yogam is inconsistent with Article 14 in Table C; and that it, therefore, offends section 29 of the Act. On a careful reading of this section, I am unable to accept this argument. In my view, when a statute says that a thing shall be in a certain form or "in a form as near thereto as circumstances permit," the said provision is not mandatory. There is a discretion to adopt the particular form or any other form as near thereto as circumstances permit. So if the circumstances permit, or if in the circumstances of the case it is necessary so to do, the articles of association need not necessarily adopt the forms mentioned in section 29; a different form can be adopted. The peculiar feature of the Yogam is that it had about 40,000 members, when the 1966 articles, which restricted the voting right of the members, were adopted. It was practically found most difficult to convene a meeting of such a large body of members to conduct the election of the Board of Directors and to transact the several other items of business which have to be done at a general meeting. It is under those circumstances that the articles of association were amended and the voting right of the members was restricted. It is said that the Yogam has now got about 60,000 members. Such a restriction was necessary in the circumstances of the case; and it does not, therefore offend section 29 of the Act. The proviso to the section also does net make the position different. proviso cannot nullify the section. It can only provide an exception or qualification to provision.
Such a restriction was necessary in the circumstances of the case; and it does not, therefore offend section 29 of the Act. The proviso to the section also does net make the position different. proviso cannot nullify the section. It can only provide an exception or qualification to provision. When the proviso to section 29 is read in the light of the above principle, all that it lays down is that, if a company adopts any one of the forms in Table C, D or E which is appropriate to it, the adoption of the said Table would not prevent the company from including therein any additional matters in so far as they are not inconsistent with the articles contained in the form of the Table so adopted. That this is the meaning of the proviso is clear from its language. I, therefore, reject the argument that Article 47 of the 1966 articles is violative of section 29 of the Act, and hold that the said articles are valid and binding on the Yogam and all its members. 12. As already stated, the petitioners and the General Secretary are agreed that a general meeting of the Yogam has to be convened in accordance with the 1966 articles for election of the Board of Directors and for transacting other items of business which under the said articles and the provisions of the Act have to be done at a general meeting. The prayer for appointment of an administrator or commissioner for that purpose was also not opposed by the General Secretary. In the light of this agreement, I desired their counsel to propose the names of one or twp gentlemen, who would be agreeable to both parties for conducting the general meeting. I am very happy that the parties could agree on this matter; and they proposed the names of Shri K. Raman and Shri L. K. Ghandrasekharan for the above purpose. They are senior advocates of this Court, belonging to the Ezhava community. Conduct of the election involves a very responsible and a fairly voluminous work. Having due regard to the circumstances of the case and the nature of the work, I consider that it would be more proper to appoint these two gentlemen for the above purpose. 13.
They are senior advocates of this Court, belonging to the Ezhava community. Conduct of the election involves a very responsible and a fairly voluminous work. Having due regard to the circumstances of the case and the nature of the work, I consider that it would be more proper to appoint these two gentlemen for the above purpose. 13. The only question that now remains for consideration is whether any arrangement should be made for the management of the affairs of the Yogam till the Board of Directors is duly elected. The General Secretary has been holding the office for the last more than four years, though his normal period of office is one year. Under the articles, the management vests in the Board of Directors; and there is also the Council for the internal management. Very large executive powers are vested on the General Secretary; and he has to work under the control and guidance of the Board of Directors and the Council. Both these bodies have not been functioning for a long time due to intransigent disputes; and the whole management of the affairs of the Yogam has been thrown into the hands of the General Secretary. He is not entitled to function in that manner under the constitution of the Yogam. It is, therefore, proper and necessary to make an interim arrangement for regulating the conduct of the affairs of the Yogam, until its management is taken over by a duly constituted Board of Directors. I also consider that such an arrangement would be conducive for convening the general meeting and conducting the election of the Board of Directors and transacting all other items of business in accordance with the articles of the Yogam. 14. In the result, I appoint Shri K. Raman and Shri L. K. Chandrasekharan, the advocates above-mentioned, as Administrators for carrying on the affairs of the Yogam. The Board of Directors and the Council are hereby superseded. The, administrators are empowered to carry on and discharge all the functions, which under the articles are enjoined, in the General Secretary.
14. In the result, I appoint Shri K. Raman and Shri L. K. Chandrasekharan, the advocates above-mentioned, as Administrators for carrying on the affairs of the Yogam. The Board of Directors and the Council are hereby superseded. The, administrators are empowered to carry on and discharge all the functions, which under the articles are enjoined, in the General Secretary. The administrators shall seek the direction of this Court in all matters in which the Board of Directors or the Council has to They are directed to convene a general meeting of the Yogam in accordance with the provisions of the 1966 articles as expeditiously as possible and conduct the election of the Board of Directors and get transacted all other items of business which under the articles have to be transacted at the annual general meeting. They shall hand over management of the affairs of the Yogam to the Board of Directors as soon as the election is over. The Administrators will be paid and they shall receive out of the assets of the Yogam a monthly remuneration of Rs. 500 each. They will also be paid actual travelling expenses and a daily allowance of Rs. 25 each on days they are obliged to stay beyond a distance of 30 miles from Ernakulam for the discharge of their duties. The petitioners will have the costs of this action from the intervener Shri P. C. Aravindhan. Counsel's fee is fixed at Rs. 250. All other parties will bear their respective costs.