Case: M/S. Chandulal &amp; Company Limited &amp; Others Vs. Natwarlal Chunilal Bhalakia &amp; Others

of the Managing Agent shall be a sum based on a fixed percentage of the net annual profits of the company, with provision for a minimum payment in the case of absence of or inadequacy of profits, together with an office allowance to be defined in the agreement of management. Now, S. 87C was inserted in the Indian Companies Act by the Amendment Act 22 of 1936, which came into operation on 15-1-1937, and it is urged that since defendant 5, Seth Narottamdas, was appointed as Managing Agent on 15-11- 1937, the provisions of S. 87C would apply to his appointment and no extra-remuneration could be paid to him, unless it was sanctioned by a special resolution of the company. Exhibit 97 is the resolution passed at the meeting of the Board of Directors of defendant No. 1 Company on 15-11-193 7. It recorded that in place of the deceased Seth Jethalal Purshottamdas, Seth Narottamdas Jethalal (defendant 5) was to work with all the rights as Secretary, Treasurer and Agent of the deceased Seth Jethalal Purshottamdas, as his legal representative in virtue of his own right and in virtue of his nomination, as contemplated by the agreement made between the Bhalakia Mills Company Ltd. and the defendant No. 1 Company. It cannot, therefore, be said that defendant No. 1 Company had appointed defendant 5 as its Managing Agent after the commencement of the Indian Companies (Amendment) Act, 1936, that is to say after 15-1-193 7. Defendant 5 replaced the deceased Seth Jethalal as a Managing Agent of defendant No. 1 Company by virtue of the provisions in the Memorandum and Articles of Association of defendant No. 1 Company and as per agreement made between defendant No. 1 Company and Seth Jethalal. If that be so, in our opinion, the provisions of S. 87C, Indian Companies Act have no application and would not require defendant No. 1 Company to pass a special resolution for payment of extra remuneration to its Managing Agent. 10. It was also urged that the notice dated 21-6-1949 of the general meeting, sent to the plaintiff was not valid in so far as item No . (5) was concerned, and that therefore the resolution regarding payment of extra remuneration was illegal. Mr. Munshi relied, in support of his contention regarding the validity of the notice, on - Narayanlal v. Manekji Petit Manufacturing Co. Ltd., AIR 1931 Bom 354 (D), which held that the resolutions passed by the company in that case were not valid and binding on the company as the notice convening the meeting and the circular accompanying it did not give a sufficiently full and frank disclosure of the facts upon which the shareholders were asked to vote. Mr. Munshi make a similar grievance of the notice in the present case (Ex. 91A) and says that item (5) on the agenda or business did not contain a frank and full disclosure of all that was going to be presented at the meeting regarding the subject of additional remuneration to the Companys Agent. We do not think that there is any substance in this argument. As soon as the notice was received, the present plaintiffs seem to have immediately moved in the matter and plaintiff 6. Jiwanlal Purshottamdas, gave a notice to the Chairman of the Board of Directors objecting to the inclusion of item (5) on the agenda of the meeting. To that notice, as already stated, defendant No. 1 Company gave a reply that the inclusion of the item was quite proper and legal, and before the meeting could be held the present suit came to be filed on 16-7-1949 by plaintiff 1 for self and other shareholders who agreed with him. In our opinion therefore, the finding of the trial Court that the notice convening the annual genera meeting, so far as item (5) was concerned, was illegal is not correct. 1 1. No other points were urged en behalf of the respondents in support of the decree of the trial Court. We may point out that after the present appeal was filed by the original defendants, defendant 5 Seth Narottamdas, died, and his heirs and legal representatives have been duly brought on record. It is not urged that the appeal would in any way be affected on account of the death of the original defendant 5. 12. We, therefore, allow First Appeal No. 134 of 1951, set aside the decree of the trial Court and dismiss the plaintiffs suit with costs throughout, costs to be paid by respondent 6 (original plaintiff 6). The cross objections also fail and are dismissed with costs. 13. First Appeal No. 549 of 1951 was allowed to stand over on the request of Mr. A.S. Pradhan, who pleaded want of instructions from his clients and therefore wanted an adjournment. When the appeal was again fixed for hearing Mr. Karlekar on behalf of the respondents urged a preliminary objection that the appeal had become incompetent on account of the death of respondent 5 (original defendant 5) and though his heirs and legal representatives were brought on record, the plaintiffs could have no cause of action against them and could not prosecute the appeal. In the suit out of which this appeal has arisen, the plaintiffs challenged the validity of the appointment of Seth Narottamdas Jethalal as the Managing Agent of Chandulal and Company Ltd., (defendant 1) and prayed for a declaration that defendant 5 was not validly and legally appointed Managing Agent of defendant No. 1 Company and for an injunction restraining defendant 5 from acting as such. The trial Court held that the plaintiffs were not entitled to such a declaration and injunction, and dismissed the plaintiffs suit with costs. As the original defendant 5 Seth Narottamdas Jethalal is now dead, it is obvious that the plaintiffs right to sue does not survive against either defendant No. 1 Company or the heirs and legal representatives of defendant 5. This position has been conceded by Mr. Munshi. 1

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]As already stated above, in the resignation of Seth Chandulal Mashruwala as the Managing Agent, Seth Jethalal Purshottamdas came to be appointed in his place and the original cl. (15) in para. III of the objects of the defendant No. 1 Company was substituted by a new paragraph. The Board of Directors of defendant No. 1 Company were authorised therein to execute an agreement in connection with the terms and conditions of appointment and the remuneration of the said JethalalExhibit 133 is the Memorandum of Association of the Bhalakia Mills Company Ltd. with the Articles of Association and Sch. A annexed. The schedules annexed to Exs. 90 and 136 are identical, and the relevant portion of cl. 2(e) of the said schedule shows that out of the total net amount of the commission payable to the Agents firm a share of nine annas in a rupee of sixteen annas was to be called the Management Commission, while the remaining seven annas commission was to be called the Promoters commissionIn consideration of the work of management, 72 shares of defendant No. 1 Company representing the nine annas commission were allotted to Chandulal Karsandas Mashruwala and Seth Jethalal Purshottamdas, and on the resignation of Chandulal Karsandas Mashruwala the shares standing in his name were transferred to Seth JethalalThe remaining seven annas commission was payable to all the members of the Agents firm including Chandulal Karsandas Mashruwala and Seth Jethalal Purshottamdas and their heirs, executors, assigns and legal representatives, etc., from time to time in consideration of the help given by them in promoting and floating the Bhalakia Mills Company Ltd. subscribing to and getting subscribed a large number of shares by finding persons who will subscribe to its shares and by rendering financial helpThe lower Court was of the view that, the appointment of Seth Jethalal as the Managing Agent of the defendant No. 1 Company and the terms and conditions of his appointment and his remuneration constituted a condition in the Memorandum of Association of defendant No. It Company and the action of the company in passing a resolution givingn to the Managing AgentIn our opinion, this argument cannot be accepted. The mere fact that the appointment of the Managing Agent and the terms and conditions of his appointment and his remuneration were mentioned in the objects of the defendant No. 1 Company would not make the provisions relating to the appointment and the remuneration a condition contained in the Memorandum of association, as contemplated in S. 10 of the ActThe provision relating to the appointment of a managing agent is merely a detail concerning the management of the company and a company will be entitled to regulate that detail in such manner as it likes without going to the Court for its sanction and without recourse to a special resolution, as contemplated in S. 12, Indian Companies ActAs the judgment of Fry, L.J. at page 384 shows, provisions in the memorandum of association with regard to details as to the management of the company would not be conditions within the meaning of the Companies Act. And that is also the effect of the proviso to S. 10, Indian Companies Act. In our opinion, therefore, the view of the trial Court that defendant No. 1 Company was not authorised to pay extracould not pass a resolution in respect thereof cannot be accepted7. It recorded that in place of the deceased Seth Jethalal Purshottamdas, Seth Narottamdas Jethalal (defendant 5) was to work with all the rights as Secretary, Treasurer and Agent of the deceased Seth Jethalal Purshottamdas, as his legal representative in virtue of his own right and in virtue of his nomination, as contemplated by the agreement made between the Bhalakia Mills Company Ltd. and the defendant No. 1 Company7. Defendant 5 replaced the deceased Seth Jethalal as a Managing Agent of defendant No. 1 Company by virtue of the provisions in the Memorandum and Articles of Association of defendant No. 1 Company and as per agreement made between defendant No. 1 Company and Seth JethalalIf that be so, in our opinion, the provisions of S. 87C, Indian Companies Act have no application and would not require defendant No. 1 Company to pass a special resolution for payment of extra remuneration to its Managing AgentWe do not think that there is any substance in this argumentAs soon as the notice was received, the present plaintiffs seem to have immediately moved in the matter and plaintiff6. Jiwanlal Purshottamdas, gave a notice to the Chairman of the Board of Directors objecting to the inclusion of item (5) on the agenda of the meeting. To that notice, as already stated, defendant No. 1 Company gave a reply that the inclusion of the item was quite proper and legal, and before the meeting could be held the present suit came to be filed on9 by plaintiff 1 for self and other shareholders who agreed with him1. No other points were urged en behalf of the respondents in support of the decree of the trial Court. We may point out that after the present appeal was filed by the original defendants, defendant 5 Seth Narottamdas, died, and his heirs and legal representatives have been duly brought on record. It is not urged that the appeal would in any way be affected on account of the death of the original defendant 513. First Appeal No. 549 of 1951 was allowed to stand over on the request of Mr. A.S. Pradhan, who pleaded want of instructions from his clients and therefore wanted an adjournment. When the appeal was again fixed for hearing Mr. Karlekar on behalf of the respondents urged a preliminary objection that the appeal had become incompetent on account of the death of respondent 5 (original defendant 5) and though his heirs and legal representatives were brought on record, the plaintiffs could have no cause of action against them and could not prosecute the appealIn the suit out of which this appeal has arisen, the plaintiffs challenged the validity of the appointment of Seth Narottamdas Jethalal as the Managing Agent of Chandulal and Company Ltd., (defendant 1) and prayed for a declaration that defendant 5 was not validly and legally appointed Managing Agent of defendant No. 1 Company and for an injunction restraining defendant 5 from acting as suchThe trial Court held that the plaintiffs were not entitled to such a declaration and injunction, and dismissed the plaintiffs suit with costs. As the original defendant 5 Seth Narottamdas Jethalal is now dead, it is obvious that the plaintiffs right to sue does not survive against either defendant No. 1 Company or the heirs and legal representatives of defendant5. This position has been conceded by Mr. Munshi.