Pyare Lal Gupta v. D. P. Agarwal — 1980 DIGILAW 672 (ALL)

JUDGMENT Varma, J. - This is a plaintiffs' petition directed against orders passed by the courts below refusing to grant an interim injunction to the plaintiffs restraining respondent Nos. 1A to 12 from interfering with the right of petitioner No. 1 to function as managing director of petitioner No. 2 company. 2. These are the relevant facts. Petitioner No. 2 is a public limited company Petitioner No. 1, Sri Pyare Lal Gupta, was appointed as managing director of the said company on August 14, 1975, for a term of five years. The necessary approval of the Central Govt. is also stated to have been obtained in regard to the appointment of Sri Pyare Lal Gupta under Section 269 of the Companies Act. It appears that on or about July 1, 1978, differences arose between the managing director and other directors of the company. As a result of the dispute, said to have arisen between petitioner No. 1 and other directors, a meeting of the board of directors was called by the petitioner, on the one hand, for July 1, 1978, and allegedly by the other directors also for July 1, 1978. The defendants' case is that a meeting was in fact held on July 1, 1978, to consider the removal of petitioner No. 1 as the managing director of the company and at the said meeting a resolution was passed purporting to remove Sri Pyare Lal Gupta as managing director of the company. 3. In the background of the aforesaid differences and disputes the petitioners filed a suit in the court of learned Munsif, Allahabad, for a permanent injunction restraining respondents Nos. 1A to 12 from interfering with the right of Sri Pyare Lal Gupta to function as managing director of the company. Simultaneously with the institution of the suit the petitioners also filed an application for a temporary injunction to the aforesaid effect. This application was contested by the defendants and was eventually dismissed by the trial court by its order dated February 5, 1979. The petitioners thereupon filed an appeal before the learned District Judge, but without any success. Thereafter, the petitioners filed a civil revision in this court under Section 115, CPC, but that civil revision was also dismissed as incompetent. This application was contested by the defendants and was eventually dismissed by the trial court by its order dated February 5, 1979. The petitioners thereupon filed an appeal before the learned District Judge, but without any success. Thereafter, the petitioners filed a civil revision in this court under Section 115, CPC, but that civil revision was also dismissed as incompetent. After the dismissal of the revision the petitioners have filed this petition challenging the aforesaid orders passed by the first two courts refusing temporary injunction to the petitioners. 4. In order to appreciate the controversy involved in this petition, it is necessary to set out the pleadings of the parties. Shortly stated, the plaint case was that Sri Pyare Lal Gupta had been duly appointed as the managing director of the aforesaid company for a term of five years beginning from August 14, 1975. The appointment was approved by the Central Govt. under Section 269 of the Companies Act. Petitioner No. 1 had called a meeting of the board of directors on July 1, 1978, for considering certain complaints against some of the defendants. As a counter-blast the said defendants, some of whom were directors of the company, also called a meeting of the board of directors for July 1, 1978, though they had no authority to do so and in point of fact no such meeting was either called or held. However, the defendants asserted that such a meeting was held on July 1, 1978, and at that meeting Sri Pyare Lal Gupta was removed from the managing directorship of the company. The defendants' action in purporting to remove Sri Pyare Lal Gupta was entirely unauthorised and illegal, but these defendants were interfering with the right of Sri Pyare Lal Gupta to act as managing director of the company and hence the suit. 5. The injunction application mentioned above filed by the petitioners came up for orders on August 23, 1978. The defendants not having been served by that date, an order was passed restraining the defendants from holding any meeting and directing that if a meeting was held, the same shall not be given effect to. 6. The case of the defendants, on the other hand, was that there were serious charges of misappropriation against Sri Pyare Lal Gupta giving rise to discontent among the board of directors. 6. The case of the defendants, on the other hand, was that there were serious charges of misappropriation against Sri Pyare Lal Gupta giving rise to discontent among the board of directors. As a result, a meeting of the board of directors was called for on July 1, 1978. The meeting was duly held and at that meeting a resolution was passed by the board removing Sri Pyare Lal Gupta from the managing directorship of the company. Subsequently, at an extraordinary general meeting of the company held on February 23, 1979, Sri Pyare Lal Gupta was removed even from the directorship of the company. The defendants asserted that Sri Pyare Lal Gupta had been lawfully removed from the managing directorship of the company and, therefore, he was not entitled to any injunction. 7. In support of their cases both the parties filed certain documents and affidavits. Both the parties filed minutes of the meetings said to have been called by them. The defendants filed notices and agenda of the meeting of the board of directors held on July 1, 1978, as well as of the extraordinary general meeting held on February 23, 1979. 8. Upon a consideration of the material on record the trial court, while dismissing the application for temporary injunction, held that the petitioners did not have any prima facie case nor was the balance of convenience in their favour. These findings have been affirmed by the learned District Judge in the appeal filed by the petitioners. 9. The learned District Judge has held, in agreement with the trial court, that the board of directors were at liberty to remove the managing director who was only an agent of the board of directors to carry out the duties assigned to him. The learned District Judge has referred to some authorities in support of his view that the authority of a person to act as a managing director could be lawfully revoked by the board of directors. The learned District Judge further observed that the fact that Sri Pyare Lal Gupta was appointed as managing director with the approval of the Central Govt. did not derogate from the right of the board of directors to remove him from the managing directorship. 10. The learned District Judge further observed that the fact that Sri Pyare Lal Gupta was appointed as managing director with the approval of the Central Govt. did not derogate from the right of the board of directors to remove him from the managing directorship. 10. Another important finding recorded by both the courts below is that the present board of directors, consisting of some of the defendants, was in effective control of the affairs and management of the company and that consequently even from the point of balance of convenience it was not a fit case for the issuance of an ad interim injunction. 11. Counsel for the petitioners first submitted that Sri Pyare Lal Gupta having been appointed with the approval of the Central Govt. under Section 269 of the Companies Act, he could not be removed by the board of directors without the concurrence of the Central Govt. However, this proposition canvassed by the learned counsel for the petitioners was not supported by any authority or any specific provision either in the Companies Act or in the articles of association of the company produced before me. I am clearly of the view that the argument advanced by the learned counsel for the petitioners cannot be accepted. The Companies Act provides for an approval of the Central Govt. only for the appointment of a director as a managing director of the company. There is no corresponding provision for the removal of the managing director. 12. The learned District Judge has referred to some authorities in support of his finding that the board of directors does have the power to revoke the authority and appointment of the managing director appointed by it. Prima facie, the view taken by the learned District Judge appears to be correct. 13. Learned counsel for the petitioners placed reliance on the provisions of Section 268 of the Companies Act which provides that no amendment can be made relating to the appointment or reappointment of the managing director, etc., in the memorandum or articles of association of a company or in any agreement entered into by it or any resolution passed by the company in a general meeting unless that amendment has been approved by the Central Govt. Obviously, this provision can have no application to the present situation. No amendment in the matters mentioned in Section 268 is being sought. Obviously, this provision can have no application to the present situation. No amendment in the matters mentioned in Section 268 is being sought. Consequently, there is no question of obtaining the approval of the Central Govt. 14. Having considered the matter at some length I am clearly of the view that the finding of the courts below that the petitioners did not have a prima facie case is perfectly correct and calls for no interference by this court. 15. The other finding recorded by the courts below that the balance of convenience does not lie in favour of the petitioner is equally unexceptionable. The courts below have adverted to circumstances which point to the conclusion that prima facie it is the defendants who are in effective control of the management and affairs of the company. It is the defendants who have been operating the bank accounts and conducting other important business of the company. In my view these are legitimate considerations for deciding whether interim injunction should be issued or not. At any rate, I see no ground for disagreeing with the view of the learned District Judge on this aspect of the matter. 16. There is another circumstance which needs mention. On the own showing of the petitioners the appointment of Sri Pyare Lal Gupta was for a term of five years which expires on August 14, 1980. That being so it is hardly a case in which this court should interfere with the orders passed by the courts below, in any view of the matter. 17. Learned counsel for the petitioners laid considerable stress on the fact that the averments made in the petition have not been denied by any of the respondents arrayed in the petition. I do not think there is any substance in this objection. The matter has to be decided on the basis of the material which was placed before the courts below and not on the basis of allegations and counter allegations made in this court. In any case, having regarded to the nature of the controversy involved in the present case, I do not think that any serious objection can be taken to the fact that none of the respondents has filed any affidavit in reply to the petition. 18. In view of what has been stated above this petition fails and is dismissed. There will be no order as to costs.