Case: Oriental Metal Pressing Works (Private) Limited &amp; Others Vs. Bhaskar Kashinath Thakoor &amp; Another

1. This appeal raises an important question of construction of S.312 of the new Companies Act which section now imposes total prohibition against any assignment of his office by a Director. The prohibition applies in case of both a public and a private limited company. The facts are not in dispute nor disputable. The first appellant (original first defendant) is a private limited company incorporated on. Prior to that Dadoba Kashinath Thakoor was the sole proprietor of a business of metal pressing works which he carried on in the firm name of Oriental Metal Pressing Works. The first appellant company acquired that business as a going concern. The agreement dated5 between Dadoba and the Company states that Dadoba was appointed Managing Director of the company and was entitled to hold that office for life. Clause 7 of that agreement is as under :Mr. Thakoor shall be entitled by deed inter vivos or by will or codicil to appoint any person to be a Managing Director in his place and stead and in default of such appointment the legal representatives of Mr. Thakoor shall be entitled to exercise the said power. Any appointee as aforesaid shall whilst holding office also be designated as a Managing Director and shall be entitled to be paid by the Company the same remuneration and to exercise the same powers and authorities as are vested in Mr. Thakoor and the appointee as aforesaid shall have a power of appointing any person to be Managing Director as his successor on the remuneration of not less than Rs. 1,000 (Rupees one thousand) per month and upon some other terms and conditions as are herein containedUnder the agreement Dadoba was to be allotted a certain number of fully paid up shares of the company. Article 109 of the Articles of Association of the company is material and is as under :109 (a). The said Shri Dadoba Kashinath Thakoor shall be the first Managing Director of the company at a remuneration of Rs. 2,500 per month subject to the said remuneration being increased by the Board of Directors of the Company. He shall be entitled to hold such office for life and will not be subject to clauses 87, 88 and 91 of these Articles(b) The said Shri Dadoba Kashinath Thakoor may by deed inter vivos or by will or codicil appoint any person to be a Managing Director in his place and stead and in default of such appointment, the legal representatives of the said Shri Dadoba Kashinath Thakoor shall be entitled to exercise the power;(c) Any appointee as aforesaid shall, whilse holding office, also be designated a Managing Director and shall be entitled to the same remuneration and to exercise the same powers and authorities as were vested in the Managing Director in whose place and stead he is appointed;(d) The appointee as aforesaid shall have a power of appointing any person to be a Managing Director as his successor on the remuneration of not less than Rs. 1,000 per month and with the same powers as are vested in Shri Dadoba Kashinath Thakoor. By his will executed on, he appointed his son, the second appellant (original 2nd defendant) to be the Managing Director of the company from the date of his demise. The 1st Respondent to the appeal (plaintiff to the suit) is the brother of Dadoba. The 2nd Respondent to the appeal (original 4th Defendant) is another son of Dadoba. The first Directors of the Company were (1) Dadoba; (2) Bhaskar, and (3) Govind, one of the sons of Dadoba. The same persons continued to be directors till7 when Dadoba died. At the time of Dadobas death, the shares of the company were held as under :We are told that Dadoba died leaving 3 sons and his shares were inherited by his three sons as part of his estate2. Dispute arose between the plaintiff and the second Defendant soon after Dadobas death when the latter assumed the Managing Directorship and Chairmanship of the Board of Directors of the company on the basis of the appointment made by the will of Dadoba. Defendant No. 2 began to act as the Managing Director and the Chairman of the Board of Directors of the company and also began to draw a salary of Rs. 3,500 per month. The plaintiff addressed letters to the Second Defendant on7 and contended that the 2nd defendant had no right to act as Managing Director and/or Chairman of the Board of Directors of the Company. He also contended that the second defendant had no authority to call a meeting of the Board of Directors as he had purported to do and that the appointment of Defendant No. 2 as Managing Director of the Company by the Will of Dadoba was not valid and not binding on the plaintiff or the Company. Correspondence ensued in the course of which the second defendant contended that he was the Managing Director and entitled to call meetings and conduct the business of the Company as its Managing Director. The plaintiff contended that the power of Dadoba to appoint a Managing Director by his Will given by the Articles of Association and the Agreement was invalid, illegal and inoperative on the ground that in the meantime the new Indian Companies Act had come into force and the provisions of that enactment rendered any such power invalid and illegal. The plaintiff also contended that defendant No. 2 was acting in his own interest and in a manner detrimental to the interest of the company. He made reference to the Agenda of a meeting dated7 which included an item viz. To consider the provision for bonus to late Shri Dadoba Kashinath Thakoor in his capacity as the Managing Director. The plaintiff also contended that defendant No. 2 claimed to be the beneficiary under the Will of Dadoba and his attempts were to add to the estate of Dadoba to the detriment of the company. In the last week of June, 1957 the plaintiff received a letter dated7 from the second defendant alleging that the plaintiff had ceased to be a Director of the Company under S. 283 (g) of the Companies Act and Art. 85 (f) of the Articles of Association of the Company owing to his absence without leave at three consecutive meetings of the Board of Directors and/or at all such meetings for a continuous period of three months. The plaintiff brought a suit for a declaration that he was and continued to be a Director of the first Defendant Company and was entitled to act as such. He also sought a declaration that the appointment of the second defendant as a Managing Director and/or Chairman of the Board of Directors of the first defendant Company was void, invalid and inoperative. He also sought a declaration that the appointment of the third defendant as a Director was invalid, illegal and inoperative. It seems that some time before the suit was filed, the second defendant in the purported exercise of his powers hadd the third defendant as a Director of the Company. The plaintiff also sought relief by way of certain injunctions in that suit. He asked for an injunction restraining defendant No. 2 from acting as Managing Director of the Company and for an injunction against defendant No. 3 restraining him from acting as a Director of the Company. He also sought a further injunction restraining the defendants from holding an annual general meeting of the company which was proposed to be held on. In the suit, he impleaded the company as Defendant No. 1. Defendant No. 3 to the suit (appellant No. 3) as I have already mentioned, wasd by defendant No. 2 as a Director of the Company. Various issues were raised by the learned Judge, City Civil Court, who tried the suit. It is not necessary for the purpose of the present narrative to state them and it will suffice to observe that the main question which had to be determined by the learned Judge was whether the appointment of Defendant No. 2 as the Managing Director of the Company by the Will of Dadoba was invalid and ineffective in law by operation of S. 312 of the new Companies Act. That section, as I shall have occasion to point out little later appears under the heading Miscellaneous provisions and is as under :Prohibition of assignment of office by a director.Any assignment of his office made after the commencement of this Act by any director of a company shall be voidIt will be convenient here to set out S. 9 of the new Companies Act which is as under :Act to override memorandum, articles, etc. Save as otherwise expressly provided in the Act(a) the provisions of this Act shall have effect notwithstanding anything to the contrary contained in the memorandum or articles of a company, or in any agreement executed by it, or in any resolution passed by the company in general meeting or by its Board of Directors, whether the same be registered, executed or passed, as the case may be, before or after the commencement of this Act; and(b) any provision contained in the memorandum articles, agreement or resolution aforesaid shall, to the extent to which it is repugnant to the provisions of this Act, become or be void, as the case may beThe expressions director and managing director are defined in the Act. I shall refer to those definitions a little later when examining one of the arguments urged on behalf of the appellants. It will be noticed that the marginal note to S. 312 suggests that the section lays down a prohibition of assignment of office by a Director and the section is in terms of such prohibition. The learned Judge took the view that the object of the Legislature in imposing the prohibition laid down in S. 312 was that a Director should not be clothed with the power to transfer his office to any person whether by an act inter vivos or by a testamentary instrument. He reached the conclusion that the expression assignment in the section should not be given a restricted meaning but must be read in a broad sense as applicable also to an appointment of any person as Managing Director of the Company made by his Will by a Managing Director to come into effect on his demise. He upheld the contentions of the plaintiff and gave the declarations and the injunctions sought by him. The Company and defendants Nos. 2 and 3 have now come to this Court in this appeal.

Reasoning: 4. At first blush the argument, under the latter head, that a person cannot transfer what he has not got may perhaps seem somewhat attractive from a sheer legal point of view, however repugnant it may be to the object of the Legislature in laying down the absolute bar against the transfer of an office of a Director. But on closer examination I think it defective even from the legal standpoint in paying too little attention to a number of relevant and material considerations, which, in my judgment, must weigh with the Court on this question of interpretation of the rule which aims to prevent use and abuse of a powerNow, what Mr. Manekshaw contends for is the same principle but the contention assumes as a major premise an equivalent between the nature of a right or interest in properly and the office of a Director which by no stretch of argument can be termed as property or any interest or right inSuch an equation, to my mind, is impermissible. We have nothing to do with any right or interest in property nor are we concerned with any question of title or transmission of a title which could or could not vest in DadobaIt has not been possible for Mr. Manekshaw to dispute that if this was done during theDirector by an act inter vivos it would be an assignment and hit by S. 312, though at one stage of the argument that position was not accepted. But that line had to be abandoned in view of the language of certain sections in the Act and particularly S. 86B of the repealed Act of 1913 and the proviso to the same to which I shall refer a little laterTo my mind, there is here no justification for anyd distinction between appointment and assignment. In the first place, we are not dealing with property. We are dealing with an office which can only be the subject matter of an appointment. Whether you call it an assignment or transfer or alienation or appointment, it has the same meaning and the effect is the same. I fail to see how in such a case it can be said that what is done is not a transfer because the right to transfer was not there. Of course it was not there at the inception but it was there when the power to transfer the right was conferred. This, to my mind, is the weakness underlying the argument of learned counsel so strongly pressed for our acceptance9. To turn to the former head of the argument of Mr. Manekshaw relating to the connotation of assignment of an office within the meaning of that expression as used in S. 312. Now, it is well understood that the expressions assign and transfer are often used in our statutes to convey the same meaning and the same sense and that the primary meaning of the word assign is to legally transfer or to legally make over any property or any right. It is equally well understood that the expression transfer is one of wide import and embraces both a transfer by an act inter vivos as well as a transfer by operation of law, that is by sale in execution, forfeiture, insolvency, intestate succession or testamentary disposition. In view of this connotation of the word transfer the argument on behalf of the appellants was that a distinction must be drawn between an assignment of the office of a Director and appointment of another person as a Director by a person holding the office of Director. Learned counsel, however, had to agree that if a Director in a private company appointed for life and clothed with the power to appoint any other person in his place and stead were to exercise that power by an act inter vivos that would be an assignment of an office and hit by S. 312 even though it might be called an appointment. But it was said that appointment by a will in such a case would be wholly a different matter. It would not be within the ambit of the section because that would not be an assignment. The argument of necessity had to rest on the principle one cannot give what one has not got. 1 have already examined that argumentHere, what was being done, though called an assignment, was really an appointment to the post of the office of a Director and which had the effect of imposing the will of one person on a third party and the third party was affected. This aspect of the matter, to my mind, cannot be ignored. It is not a bilateral act pure and simple with which we are concerned in this case. We are concerned with the office of a Director in a company and one person is clothed with the power to appoint another person and the appointee is the third party. Therefore, the ordinary sense in which the expression assignment may be used in the context of transfer of property by an act inter vivos is a concept which need not be introduced in reading the expression assignment in S. 31211. In my opinion, Mr. Khambatta is right when he says that an inconsistent and incongruous position must arise if the argument urged on behalf of the appellants is to be accepted by us. Of course the Court will not attach any undue importance to this consideration but any inconsistent or incongruous position that might arise has to be borne in mind even in interpreting a statute the language of which is plain and unambiguous. Moreover it is not possible to say that the expression assignment is capable of only one meaning and one meaning alone nor has any such attempt been seriously made before to suggest that the word assignment is capable of only one meaning. The inconsistent and incongruous position that can arise if the argument for the appellants is accepted is that while a Director cannot during his life time appoint another person as a Director in his place and stead, though authorised by an agreement between him and the company and the Articles of Association to do so, he can do so by an appointment which is to be effective immediately on his demiseIt is not necessary for me however, to examine in any detail what would happen in case of a Managing Director clothed with any power as in the illustration suggested by learned counsel. But it does seem that such a strange and impermissible situation can arise and it does seem that the present argument lends support to the contention pressed on behalf of the respondentsNow, this argument can have force only in case of matters which are not severable. I do not think that an appointment by a Deed inter vivos and an appointment by a Will or Codicil are matters which are not severable. Therefore, there is little scope for the present argument urged before us by Mr. Khambatta. There is, however, considerable force in the argument of learned counsel that a restricted meaning should not be given to the expression assignment in the context of the personal office of a Director of Company under our Company law. Evidently, the construction pressed for our acceptance by learned counsel for the appellants reliesto put it in his own words on the rule of literal constructionNow, Form 255 is in respect of a peculiar type of Managing Directorship and the person who holds that directorship is referred to in England as a Governing Director. It is not necessary for me to examine the Form 255 which is given in Palmers Company Precedents. No clear opinion seems to have been expressed by the editors but they say that it is not thought that sec. 204 would refer to a provision for the appointment of a successor by a governing director. They also say that the precise connotation of a power to assign office is not clear. Therefore, one thing is certain that the Editors of that Book were not inclined to state any definite opinion about the meaning of the expression to assign office in sec. 204 and left the matter as one in dubioThe, argument on behalf of the appellants leans heavily on the very insecure foundation of these observations of the learned editors made in the context of a section (204) which does not contain any proviso similar to that under the repealed sec. 86B of our Act ofWhat is more important is that sec. 204 is not in pari materia with sec. 312 with which we are really concerned and which lays down a stricter prohibition on the powers of a director. It is also noticeable that in England this point is not one of particular importance because there is no provision in the English Act similar to our sec. 312 which imposes an absolute prohibition on the assignment of the office of a director. All that is required there is a special resolution of the company. None of the two statements of the learned editors of Palmers Company Precedents ors work claim the high authority of the illustrious authors of the works and the editors also have left the matter in doubtMr. Manekshaw says that the expression quere only means that a question is put by the. To my mind, it is more than that. It is a question of the nature of objection. It is used at times to question accuracy of what has been said or written by another. In any case one thing is plain that the opinions of these editors expressed in the context of a rule which is different from the rule laid down in sec. 312 would be slender support for the construction urged on behalf of the appellantsIn the course of the arguments I put it to learned counsel for the appellants if he could suggest any reason why the Legislature should deem it necessary to prohibit a director of a company from appointing another person as a director in his place and stead by an act inter vivos, that is, during his lifetime and should not deem it necessary to prevent him from doing so by a will. No answer was given save that it would be entering the region of speculation. It would be strange indeed to attribute to the Legislature the intention to create the anomalous position that must arise if it were to be accepted that sec. 312 prohibits appointment by a director to his office of another person in his place and stead by an act inter vivos and yet permits such appointment to be made by him by his will. Moreover this incongruous position can arise not only in case of a director in a private company but also in case of a director in a public company if the construction urged on behalf of the appellants is to be accepted. It seems indubitable to me that any such appointment of a director in a public company by will is within the prohibition imposed by the section. Cadit question it is within the ambit of the prohibition in case of appointment of a director in a private company. The only answer to this suggested by learned Counsel for the appellants was that section 317 prevents appointment of a managing director of a public company for a term exceeding five years at a time. But that section has no bearing whatever on the present discussion about assignment of his office by a director. It is extremely difficult for me to see why an intention should be attributed to ther of laying down a rule the effect of which would be to rule that a director in a public or private company, authorised by the Articles of the Company, cannot make any such appointment five minutes before his deaththat would be by an act inter vivosand yet he can do it by inserting a clause to that effect in his will.It was, however, said that sec. 255(2) has the effect of permitting appointment of a director in a public or private company A. I. R. being made by a third person who may be a total outsider and not a director of the company and the argument was that an appointment made by such third person cannot be called an assignment of the office of director. The argument ran that there was no difference between any such appointment made by a third party and an appointment made by a person who happens to be ato my mind is not sound. The section speaks of assignment of his office by a director and the prohibition is evidently imposed on a person who is a director. It is the office held by a person as a director that is not permitted to be assigned by any act on his part. Therefore, there is a difference between an appointment made by a third party and one made by a director. In the former case it cannot be said that there is an assignment of his office by the person exercising the power. On a consideration of the whole matter it seems to me that having regard to the nature of the office of a director it cannot make any difference whether the act is called an assignment of his office by a director or transfer of his office by a director or appointment by such director of another person to that office in his place and stead either by a deed or will. I fail to see any reason why we should recognise thed distinction sought to be made in case of an appointment by will by attributing any restricted and technical conveyancing meaning to the expression assignment of the nature suggested on behalf of the appellants. This is not a matter of doctrinaire technicalities but a matter to be considered on broad principles and rules of interpretationI do not think that advances the contention urged on behalf of the appellants. I need not pursue the examination, of some other sections which, to my mind, support the view that the expression director when used without any qualifying words is to be read in a comprehensive sense as inclusive of a managing director and not in the exclusive sense in which we are asked to read it. These considerations, in my judgment, lead to the result that the expression director in sec. 312 includes a managing director of a public or a private companyI have read the relevant Articles 105 to 109 of the Articles of Association of the company more than once and I see no support whatever in them for the present argument. There is nothing in those articles which even faintly suggests anything like delegation nor any exercise by Dadoba of any delegated power. The present argument must therefore fail20. For all these reasons, the conclusion seems to me inescapable that the expression assignment of his office cannot be read in the narrow restricted sense in which we have been asked to read it on behalf of the appellants and sec. 312 must be read as applicable to a director including a managing director and in the comprehensive sense in which it would include appointment by any testamentary disposition or direction. In my judgment the learned Judge was right in the conclusion reached by himA few dates and facts are necessary to dispose of this contention. There was a meeting of the Board of Directors soon after the death of Dadoba which was in the nature of a condolence meeting and it was attended by the plaintiff. That was on7 the second defendant sent out a notice calling a meeting of the Board of Directors of the company for. He sent that notice as Chairman of the company. The next notice sent out by the second defendant was signed by him as a director and was on. By his letter dated7 the plaintiff protested against the notice of7 which had been sent out by the second defendant. A notice dated7 convening a meeting of the Board of Directors was sent by the second defendant as a managing director of the company. A notice dated7 was also sent by the second defendant describing himself as a managing director. A notice dated7 was also sent by the second defendant as a managing director of the company. So also a notice dated7 was sent by the second defendant as the Managing Director of the company. It will be seen that all but one of the notices relating to the convening of the meeting of Board of Directors were sent by the second defendant as Chairman or managing director and at all relevant period the plaintiff protested against the right of the second defendant to convene any meeting in his capacity as Managing Director or Chairman of the Board of Directors of the company. Since I have taken the view that the appointment of the second defendant as the Managing Director was invalid and bad in law, it must follow as a necessary corollary to that conclusion that the second defendant had in law no power to convene any meeting as a managing director of the company and if he did so, those meetings were not duly and legally convened meetings and if they were not duly and legally convened meetings, it cannot be said that the plaintiff absented himself from any properly convened meeting of the Board of Directors of the companyI do not think this argument is tenable. In express terms, the meetings were called by the second defendant in his alleged capacity as a managing director and there is nothing on the record to show that he called those meetings simply as a director of the company. It is not, therefore, necessary to examine this argument at any length. The meetings being called by him in the exercise of a capacity which he did not have, were bad and it is not open to him now to fall back on his position as a director of the company. I may also refer to Article 94 of the Articles of Association of the company which deals with the question as to when a director may summon a meeting. That article lays down that the managing director may at any time and shall upon request of any Director convene a meeting of the directors. The power to call a meeting of the directors is primarily with the managing director and the second defendant in terms called those meetings as managing directorThere is nothing before us to show that any contrary practice has been established and Art. 94 is the relevant article which must be taken into consideration in this matter. There is no other article in the Articles of Association of the company which can be said to deal with the matter. The present contention fails and must be negatived22. There remains to consider one more contention urged before us by Mr. Manekshaw. It is said that the appointment of the third defendant has been erroneously declared by the trial court to be bad in law. It is not necessary to refer to what I have already said in my judgment about the appointment of the second defendant as a managing director being invalid and bad in law. If his appointment was invalid and bad in law, he had no power to appoint the third defendant as a director by