C. Balchand vs Devashola (Nilgiri) Tea Estates Co. Ltd.

K.N. Mudaliar, J.—This is a petition filed by one C. Balchand praying for quashing the proceedings in C. C. No. 1178 of 1971 on the file

of the Sub-Divisional Magistrate, Gudalur. The accusation against the petitioner herein is that he has wrongfully and illegally obtained possession of

the property of the company and is wrongfully and illegally withholding the same.

In my view, such an accusation does not flow from the allegations found in the complaint itself filed by Devashola (Nilgiri) Tea Estates Co. Ltd.,

the complainant in the case. From the records supplied by both the parties, it emerges clearly that on July 31, 1962, Balchand was re-elected as

director. The term of his directorship is for three years. By efflux of time, he must have retired as a director on July 31, 1965. But, at the annual

general meeting of the company on July 30, 1964, a resolution was passed appointing Balchand as a managing director with effect from 27th day

of June, 1962, for five years. It is true that there was no re-election of Mr. Balchand as a director with effect from July 30, 1965. On 28th May,

1968, the board of directors of the complainant-company re-appointed Mr. Balchand as managing director of the company for a further period of

five years on the expiry of his present term of office on the same terms. In pursuance of the resolution dated 28th May, 1968, the board of

directors at the annual general meeting of the complainant-company approved the re-appointment and remuneration of the petitioner as the

managing director by another resolution dated 26th June, 1968. On the basis of these resolutions, the company sent a letter dated 31st July, 1968,

seeking for approval of the Central Government (Company Law Board). The Central Government (Company Law Board), New Delhi, in its

communication No. 2(15) CL. VII/67, dated September 2, 1968, drew the attention of the company for seeking the board of directors'' approval

under Sections 198(4) and 309(3) of the Companies Act. The chairman of the complainant-company addressed a letter dated February 24, 1970,

to the petitioner stating that he ceased to be a director of the company on 30th July, 1965, and therefore, ipso facto vacated office as managing

director. The letter further says that his continuance thereafter as managing director was thus wholly without authority and that the board has a duty

as trustee for the shareholders to ask him to pay back all remuneration, benefits, etc.

The petitioner, accused, replied stating that he held the office of managing director properly all along and that the remuneration, etc., has been

properly paid to him for services rendered as such. Undoubtedly, his services were accepted by the company. The complaint was laid by the

company against Balchand, the petitioner, for contravention of Section 630 of the Companies Act. The petitioner seeks to quash the proceedings

solely on the ground that the ingredients of Section 630(1)(a) or (b) are not satisfied on the basis of the allegations found in the complaint.

Section 630 of the Companies Act reads as follows:

Penalty for wrongful withholding of property.--(1) If any officer or employee of a company--

(a) wrongfully obtains possession of any property of a company ; or

(b) having any such property in his possession, wrongfully withholds it or knowingly applies it to purposes other than those expressed or directed in

the articles and authorised by this Act ;

he shall, on the complaint of the company or any creditor or contributory thereof, be punishable with fine which may extend to one thousand

rupees.

(2) The court trying the offence may also order such officer or employee to deliver up or refund, within a time to be fixed by the court, any such

property wrongfully obtained or wrongfully withheld or knowingly misapplied, or in default, to suffer imprisonment for a term which may extend to

two years.

The learned counsel for the petitioner argued that the ingredient "" wrongfully "" is not satisfied by the averments found in the complaint filed

against the petitioner. In other words, his argument is that Mr. Balchand functioned as a managing director on the basis of the two resolutions

passed at the annual general meeting of the complainant-company, i.e., on June 30, 1964, and June 26, 1968. All the directors of the board of the

company must be presumed to have been conversant with the provisions of the Companies Act and any one of them certainly could have

questioned the irregularity in the reappointment of the accused-petitioner as managing director for two successive terms on the basis of the two

resolutions passed at the annual general body meeting of the company. It is not as though Mr. Balchand played the role of an imposter or an

usurper or personated the office of managing director unlawfully. He rendered services as managing director and his services were accepted by the

board at the general body meeting of the company from time to time and from year to year.

The learned counsel for the respondent-company drew my attention to Sections 2(26), 256 and 630 of the Companies Act. Interpreting the

sections, the learned counsel for the respondent-company argued that when Mr. Balchand failed to get re-elected as a director on July 31, 1965,

he could not function as managing director in accordance with the provisions of the Companies Act, despite the two resolutions passed at the

general body meeting of the company. Even assuming that Mr. Balchand could not function in law as managing director in the absence of his re-

election as a director on or about July 31, 1965, I am unable to hold that the ingredients of Section 630(1)(a) or (b) have been satisfied. Mr.

Balchand rendered services as managing director in open day light on the basis of the authority derived from the resolutions passed at the genera]

body meetings of the company dated July 30, 1964, and June 26, 1968. Therefore, I am unable to hold that Mr. Balchand wrongfully obtained

possession of any property of the company at all. There is absolutely no basis to hold that Mr. Balchand wrongfully withheld any property of the

company, on the basis of the allegations found in the complaint. The learned counsel for the petitioner brought to the notice of the court about the

high praise lavished by the company on the services rendered by Mr. Balchand, the petitioner, in the audit report of the year, 1969. The learned

counsel for the respondent-company actually endorsed it as found in the printed annual report of the directors.

I cannot but hold that this complaint is both misconceived and ill-conceived. The averments and the allegations found in the complaint of the

company do not satisfy the ingredients of Section 630(1)(a) or (b). In my view, this complaint is wholly groundless.

The proceedings in C.C. No. 1178 of 1971, on the file of the Court of Sub-Divisional Magistrate, Gudalur, are quashed.