Appeal No 10 of 1960
Appeal from the judgment and decree dated February 24 1959 of the Bombay High Court in First Appeal No 540 of 1958
M C Setalvad Attorney General for India A P Bhatt Rameshwar Nath section N Andley P L Vohra and J B Dadachanji for the appellants
The respondent did not appear
December 16
The Judgment of the Court was delivered by SARKAR J
Dadoba Tukaram Thakoor carried on a business under the name and style of Oriental Metal Pressing Works
On May 261955 a private company was incorporated under the name of Oriental Metal Pressing Works Ltd hereafter called the Company 331 to take over the aforesaid business
On July 7 1955 Dadoba transferred his business to the Company
On the same date an agreement was made between him and the Company by which he was appointed the managing director of the Company for life and was given the power by deed inter vivos or by will or codicil to appoint any person to be a managing director in his place and stead
Regulation 109 of the articles of the Company reproduced these provisions
The shareholders of the Company were Dadoba his brother the respondent Bhaskar and his two sons the appellant Govind and the respondent Harish of whom the first three were the directors Dadoba being the managing director
This constitution of the Company continued till Dadoba s death on January 14 1957
Dadoba had died leaving a will whereby he purported to appoint the appellant Govind the managing director of the Company in his place from the date of his death
Shortly after Dadoba s death disputes arose between the appellant Govind and the respondent Bhaskar
The appellant Govind was contending that the respondent Bhaskar had ceased to be a director on account of his failure to attend the directors  meetings
He also purported to co opt the appellant Bhal chandra as a director
The respondent Bhaskar contended that be had not ceased to be a director and challenged the legality of the appointment of the appellant Bhalchandra as a director
He further contended that the appointment of the appellant Govind as the managing director of the Company by the will of Dadoba was void
On November 22 1957 the respondent Bhaskar filed a suit in the City Civil Court of Bombay against the Company the appellants Govind and Bhalchandra and the respondent Harish for the following declarations and for reliefs incidental thereto a the appointment of the appellant Govind as the managing director was void b the appointment of the appellant Bhalchandra as director was illegal and inoperative and c he the respondent Bhaskar was and continued to be a director
332 The learned Judge of the City Civil Court accepted all the contentions of the respondent Bhaskar and made the declarations claimed
The Company and the appellants Govind and Bhalchandra appealed from this decision to the High Court at Bombay
The appeal came up for hearing before a bench of two learned Judges of that Court
These learned Judges having taken different views the matter was referred to another learned Judge of the same High Court
In the eventual result according to the opinion of the majority of the learned Judges the appeal was dismissed and the decree of the City Civil Court was confirmed
The High Court however granted a certificate under article 1331c of the Constitution and the present appeal has been filed by the Company Govind and Balchandra pursuant thereto
The respondents to this appeal are Bhaskar and Harish
It appears that while the appeal was pending in this Court the respondent Bhaskar sold his holding in the Company to the appellant Govind and has now no interest in the Company or the appeal
No one has consequently appeared to contest the appeal in this Court the respondent Harish apparently not being interested in doing so
In these circumstances the questions whether the respondent Bhaskar continues to be a director and whether the appellant Bhalchandra was legally co opted as a director are no longer live issues and have not been canvassed in this appeal
On those questions therefore we express no opinion
Another result rather unfortunate has been that we have not had the advantage of arguments against the appeal
The Courts below held that the appointment of the appellant Govind as managing director by the will of Dadoba was void in view of the provisions of section 312 of the 
That section reads thus section 312 Any assignment of his office made after the commencement of this Act by any director of a company shall be void
 The Act came into force on April 1 1956 and Dadoba had both made his will and died after that date
The appointment of the appellant Govind as managing 333 director was therefore made after the commencement of the Act
Now section 312 makes the assignment of his office by a director void
It does not on the face of it say that an appointment by a director of another person as the director in his place would be void
The High Court however took the view that the word assignment in the section included appointment and so such an appointment would also be void under the section
What we have to decide is whether the High Court was right in this view
Before we proceed to examine this question we have to point out one thing
It appears that the High Court thought that the appellants had conceded that an appointment by a director of another in his place by act inter vivous be an assignment of the office of a director within section 312 and had only contended that such an appointment by will which is what had been done by Dadoba would not be an assignment and would not therefore be rendered void by the section
The learned Attorney General appearing for the appellants said that in this the High Court was in error and no such concession had been made
He further expressly withdrew that concession
This he was clearly entitled to do
It therefore becomes unnecessary for us to deal with the seasonings of the High Court in support of the view accepted by it which were based on the concession
We have given the views of the High Court a most respectful and anxious consideration but we do not find ourselves able to agree with them
We will presently state our reasons for this conclusion but now we wish to point out that in the view that we have taken of the matter it will not be necessary for us to deal with the argument advanced in the High Court that the section only forbade a director from appointing his successor assuming assignment included appointment but it did not prevent a managing director from assigning his office or appointing his successor which was what Dadoba had done
If the section did not prevent a director from appointing his successor which we do not think it did then clearly there is nothing 334 in it which can justify the view that a managing director cannot appoint his successor
The section says that a director shall not be able to assign his office
It may be as the High Court pointed out that apart from transfer another meaning of the word assignment is appointment
But on a plain reading of the language used in the section it does not seem to us possible to hold that the word assignment in it can mean appointment
First the section talks of assignment of his office by a director
The word his would indicate that the office contemplated was one held by the director at the time of assignment
An appointment to an office can be made only if the office is vacant
It is legitimate therefore to infer that by using the word his the Legislature indicated that an appointment by a director to the office which he previously held but did not hold at the date of the appointment was not to be included within the word assignment
Again there can be no doubt that the section was intended to render void a transfer of his office by a director for if the section had intended only to avoid an appointment by a director of his successor it would have clearly said so and would not have used the word assignment
Therefore even if it is possible for the word assignment to have the meaning of appointment then it would have to be given both the meanings of transfer and appointment in the section
This is what the High Court did
That would produce a curious result
Transfer and appointment are clearly entirely different things
Even apart from considerations arising from the law of conveyance which the High Court was unable to entertain in connection with the transfer of an office a transfer from its very nature inevitably imports the passing of a thing from one to another a transfer without the passing of the thing transferred even when that thing is an office cannot be conceived
An appointment on the other band has nothing to do with anything passing from one to another it connotes the putting in of someone in a vacancy
The acts constituting a transfer and an appointment are 335 therefore wholly dissimilar
It would be an unusual statute which by the use of a single word intended to prohibit at the same time two wholly different acts
We do not think that a construction leading to such a result is permissible
Secondly section 255 of the Act permits one third of the total number of directors of a public company and all the directors of a private company to be appointed otherwise than by the company at a general meeting if the articles make provision in this regard
The Act therefore expressly permits directors to be appointed otherwise than by the company
It follows that within the limit as to the number prescribed by the section a power of appointment of directors can be legitimately conferred by the articles on any person including one who holds the office of a director
The Act expressly permits such power being conferred
In order however that a director may exercise this power of appointment there must be a vacant office of a director
He may himself bring about that vacancy by resignation of his office
The vacancy would again be caused by his death or by the expiry of the term of his office
It would follow that the Act contemplates an appointment by a director of another person as director to take his office when made vacant by his resignation or death or the expiry of the term of his office
There will be nothing illegal if the power is exercised in the case of the death of the director by an appointment made by his will
It will not be right so to interpret section 312 when its language does not compel it as to bring in conflict with the provisions of section 255
This would happen if the word  assignmentin section 312 was interpreted as including appointment and thereby making it prevent a director from appointing his successor when section 255 permits him to do that
Therefore again we think that in section 312 the word assignment does not mean appointment
The High Court was of the view that unless assignment included appointment the object of the Act would be defeated
It was said that the intention and the object of the section was to restrain and 336 prevent a director from putting some one in his place and stead by any act on his part
This point was further expressed more clearly in the following words It is now well understood that the new  aims at eradicating many serious mischief which the principle of perpetual management of companies had caused in the past
The High Court felt that it would be defeating that aim by reading section 312 as if the words assignment of his office only meant a transfer of office and did not include the appointment of his successor by a director
Apparently the High Court thought that by making it possible for a director to choose his successor the management of the company would be permitted to remain all along in one hand and this the Act wanted to prevent
It does not seem to us that the Act wanted to prevent this
The act by enacting section 255 shows that it does not disapprove of a person having power to appoint a succession of directors and in the case of a private company a succession even of all the directors
Such a person would have what has been described as per petual management
It would follow that the Act did not consider this as an evil which required prevention
If perpetual ma nagement by an outsider is not an evil nor would such management by one who is a director of the company be so
This aspect is very clearly illustrated by the case in hand
Dadoba had this perpetual management
But the whole of the Company s undertaking was really a largess from him
In fact he held nearly 43 of the shares of the Company
It is inconceivable that perpetual manage ment by him would have worked to the detriment of the Company
We are therefore unable to agree that it was the object of the Act or of section 312 to prevent a director from appointing his successor
In view of the clear provisions of section 255 we do not think that it can be said as was done in the High Court that sections 254 and 317 of the Act impliedly indicate that there should be no perpetual management
Section 254 says that a corporation or an association of persons shall not be eligible as a director
But this is not because otherwise there would be perpetual 337 management
The persons comprising the corporation or the association must change from time to time and so even if they were appointed directors there would be no perpetual management
We rather think that the idea behind section 254 is that as the office of a director is to some extent an office of trust there should be somebody readily available who can be held responsible for the failure to carry out the trust and it might be difficult to fix that responsibility if the director was a corporation or an association of persons
Turning to section 317 we find that it provides that a managing director cannot be appointed for a term exceeding five years at a time
Section 315 however makes section 317 inapplicable to a private company
Therefore section 317 is not available to support an argument that the Act does not want a private company and we are concerned with that type of a company to be under perpetual management
But indeed section 317 does not support that argument in the case of a public company either
It forbids an appointment of a managing director for more than five years at a time
It permits the managing director to be reappointed after a term is over
If he is so reappointed then there would be perpetual management by him
The Act does not therefore intend by section 317 to prevent that
Lastly section 317 is not concerned with the directors which section 312 is
Another argument that has to be dealt with is that if section 312 does not prohibit an appointment by a director of his successor that section can easily be rendered infructuous by a director adopting the simple device of appointing a person as his successor in office instead of transferring the office to him
It seems to us that the question does not really arise
A director can legally and effectively appoint his successor only to the extent the articles permit this subject of course to the limit prescribed in section 255 in the case of a public company
An appointment so legally made does not result in an evasion of section 312 for as we have earlier said the section could not have intended to prevent what another section in the same 43 338 Act made legal
An appointment made outside the powers legally conferred by the articles is wholly ineffective  and therefore is not an appointment at all and hence again does not result in an evasion of section 312
We have now to consider an argument based on the first proviso to section 86B of the of 1913
The main part of section 86B contained a provision analogous to that of section 312 of the new Act
It made an assignment of his office by a director to another person under an agreement with the company void unless such assignment was approved by a special resolution of the company
Under the new Act the assignment has been made altogether void and would not become valid even if approved by a special resolution of the company
Now the proviso laid down that the exercise by a director of a power to appoint an alternate director to act for him during an absence of not less than three months from the district in which meetings of the directors are ordinarily held if done with the approval of the board of directors would not be deemed to be an assignment of office within the meaning of this section
The High Court took the view that this proviso showed that in certain circumstances an appointment by a director of another in his place might be deemed to bean assignment of his office and that since the new Act is a consolidating Act it must be deemed to have continued the policy of the earlier Act and therefore for the purpose of section 312 an assignment must include an appointment
The learned Attorney General pointed out that in the new Act there is no proviso and therefore the rule of construction applied by the High Court which enables by raising a presumption something to be included in the main part of a section by reason of a provision in a proviso to it has no application to the new Act for here the provision in the proviso has been enacted in the form of an independent section namely section 313
According to him this departure from the old arrangement of the provisions in the new Act shows that it was not intended to continue the policy 339 of the old Act
He also said that the proviso in substance stated that the appointment by a director of an alternate director might in certain circumstances be deemed to be an assignment
He pointed out that by using the word deemed the proviso made it clear that the appointment of an  alternate director was not a real assignment of office but was only to be fictionally taken as one
His contention was that such fiction could arise in a case coming strictly within the proviso but could not by extension be made to arise in any other case
These seem to us to be arguments of weight
Further in section 313 of the new Act which has taken the place of the first proviso to section 86B of the old Act the power to appoint an alternate director hag been given to the board and not to the director who intends to absent himself No scope for any deeming provision as in the Act of 1913 remains
Therefore again an argument based on the proviso to section 86B would not be available for the purpose of the present Act
It further seems to us that the proviso to section 86B does not indicate that it was intended that the word assignment in the main part of the section would include appointment
The rule of construction on which the High Court relied in arriving at the view that it did was put in these words It is a well established principle of construction that when one finds a proviso to a section the presumption is that but for the proviso the enacting part of the section would have included the subject matter of the proviso This rule would enable the court to hold in regard to section 86B at the most that an appointment of an alternate director by a director intending to absent himself would have been an assignment of his office but for the proviso
It would be an unwarranted extension of this principle to hold that all appointments of their successors by directors would be assignments within the main part of the section
In any case in our view as in section 312 of the new Act so under the main part of section 86B of the old Act an appointment of a successor to his office by a director was not an assignment of his office by him for the old Act contained in section 83B 340 provisions substantially similar to those contained in section 255 of the new Act
 and the reasons which have inclined us to the view that in section 312 the word assignment does not include appointment would equally lead to the same conclusion in regard to section 86B
If the enacting part did not prohibit the appointment of his successor by a director such prohibition cannot be read into it in reliance upon a proviso
We may read here the observations of Lord Watson in The Guardians of the Poor of the West Derby Union vs The Metropolitan Life Assurance Society 1 I am perfectly clear that if the language of the enacting part of the statute does not contain the provisions which are said to occur in it you cannot derive these provisions by implication from a proviso
 It may be that the proviso was enacted ex abundanti cautela or it may be again to prevent a possible argument that by the appointment of alternate directors an evasion of the main part of section 86B was being attempted
In view of the fact that the power to appoint alternate directors was not given by the old Act but had to be given by the articles such an argument might not have been unlikely
Therefore it seems to us that the proviso to section 86B of the old Act does not assist the argument that in section 312 of the new Act the word assignment would include appointment
We think we ought to say something about what strikes us to be the policy behind section 312 of the new Act
We have earlier said that under section 255 of that Act a certain Dumber of directors in a public company has to be appointed by the company in a general meeting
In the case of a private company likewise the directors have to be appointed similarly except to the extent the articles otherwise provide
It would therefore appear to be the policy of the Act that to a certain extent the appointments of the directors have to be made by the shareholders
It is intended that a certain number of directors would be the chosen representatives of the shareholders
If a director appointed 1  652
341 by the company was permitted to assign his office then the new incumbent would not be the chosen representative of the shareholders and the intention of the Act would be defeated
It seems to us that it is to prevent this result that the Act forbids a director by section 312 from assigning his office
Where however a director has been appointed otherwise than by the company in a general meeting the shareholders have nothing to do with his appointment
Such a director is not the chosen representative of the shareholders and the shareholders cannot claim to have a say in the appointment of his successor
We can discern no policy in the Act which can
be said to be liable to be defeated by the appointment of the successor of such a director by him
Therefore section 312 was not concerned with such an appointment
In the present case Dadoba had power under the articles to appoint a person to be the managing
director in succession to him and in exercise of that power he bad appointed the appellant Govind as the managing director to hold the office after his death
Such power was clearly recognised by and legal under section 255 of the new Act
For the reasons earlier stated the exercise of such power does not offend section 312
It follows that the appellant Govind had been lawfully and validly appointed the managing director of the Company
We therefore declare that the appellant Govind had been validly appointed the managing director of the Company and set aside the decisions of the Courts below that he had not been so appointed
We have not been asked to interfere with the rest of the judgment under appeal and we do not do so
We also make no order for costs as no costs have been asked
Appeal allowed


Summary:
The appellant a non resident Banker incorporated under the National Bank Act of the United States of America with its Head Office in America was assessed under Business Profits Tax Act 147
Under the Treasury Rules of the United States of America and Instructions for preparation of reports of conditions by the National Banking Association certain sums had to be specifically allocated under section 5211 of the Revised Statute of the United States and the appellant bank was required to keep a certain sum of money under the head  undivided profits  and that was an integral part of tile capital structure
The reason for the existence of this fund was that when losses occurred according to the practice they could be charged against  undivided profits  ie profits set apart after provision for expenses and taxes etc
for continuous use in the business of the Bank
The appellant contended that in computing the amount for the purpose of  abatement  it was entitled to include the undivided profits  which fell within the word  reserves 
The question was whether the large sum of money shown as  undivided profits  was a part of the reserves
Held that the amount designated as  undivided profits was a part of the reserves and had to be taken into account when computing the capital and reserves within Rule 21 of Sch
II of the Business Profits Tax Act 1947