In Re: Lothian Jute Mills Co. Ltd.

Sinha, J.—This is an application by three share-holders of the Lothian Jute Mills Co., Ltd. (hereinafter called the Company), for an order that a meeting of the share-holders of the Company be called to consider and if thought fit to pass with or without amendment or modification the resolution set out in Annexure ''B'' of the petition and for directions as to the manner in which the meeting should be called and conducted. In order to appreciate the nature of this application it is necessary to relate the ''history of a litigation which ended with a judgment of the Privy Council delivered on December 15. 1949.

The Company is a public limited company and Messes. Andrew Yule & Co. Ltd. are its Managing Agents.

On January 3, 1945, the Company had 4 Directors, namely, Dr. Satya Charan Law, Mr. H.D. Camberbatch, Mr. Champlain Jethia and Sir David Ezra. By resolutions passed at a requisitioned general meeting of the company held on that date the number of directors was increased from 4 to 11 and the following seven persons were appointed directors, in addition to the existing directors :

(1) Ramkissendas Dhanuka, (2) Hanumanprosad Dhanuka, (3). Rameswarprosad Bajoria, (4). Laxminarayan Modi, (5) Mriganka Kumar Roy, (6) Santiprosad Jain, (7). B.P. Khaitan, and the appointment of Andrew Yule & Co. Ltd. as Managing Agents was terminated With effect from the expiry of 15 years from October 30, 1929. and in any event they were forthwith removed from their office. On January 5, 1945, Mr. Law filed a suit in this Court being suit No. 28 of 1945 challenging the validity of the said resolution and claiming appropriate reliefs. The Company was added as a plaintiff in that suit.

Mc Nair, J., who heard the suit passed judgment on March 8. 1945, and held that the resolutions were invalid and granted an injunction restraining the defendants (who were the seven newly appointed directors) from acting as Directors of, or dealing with the funds or of the seal of or otherwise interfering in the management and affairs of the company except when validly appointed. He also granted an injunction restraining the defendants from interfering or intermeddling in the management of the Company, until the termination of the contract of Andrew Yule & Co. Ltd. in conformity with the Company''s articles.

At the Annual General Meeting of the Company held on March 9, 1945, Mr. Rameshwar Prosad Bajoria was elected a Director in place of Sir David Ezra who retired by rotation.

The judgment of Mc Nair, J., was upheld on appeal. On December 20, 1945, an appeal was preferred to the Judicial Committee of the Privy Council from the judgment of the Court of Appeal. On December 15, 1949, the Privy Council delivered judgment and held that the resolution increasing the number of Directors and appointing the 7 persons whom I have mentioned as Directors was a valid resolution and dissolved the injunction restraining the defendants from acting as Directors or dealing with the funds of the Company. The Privy Council, however, held that the resolution terminating the appointment of Andrew Yule & Co. Ltd., and removing them from their office was invalid and dissolved the injunction restraining the defendants from interfering in the Management of the Plaintiff Company until the valid termination of the contract of Andrew Yule & Co. Ltd. The Privy Council further held that the name of the Company should be struck out from the category of plaintiffs and it should be made a defendant, the appellants (who were the seven directors) as the majority of the Board of Directors, formally by their Counsel consenting to that course.

His Lordship then referred to the events during this period of litigation and then proceeded as follows:

After the judgment of the Privy Council was delivered on December 15, 1949, a requisition was sent by 5 shareholders of the company holding in the aggregate more than 10th of its issued capital addressed to the directors and requiring item to convene an extraordinary General Meeting for the purpose of considering and if thought fit passing with or without amendment or modification the following resolution:--

Resolved that Mr. Ramkissendas. Dhanuka, Hanumanprosad Dhanuka, Santiprosad Jain, Rameshwarprosad Bajoria, Laxminarain Modi, Mriganka Kumar Roy and B.P. Khaitan have not ceased to be and are still the Directors of the Company and in any event the number of Directors of the Company be and is hereby increased to 11 and the said gentlemen are appointed directors of the company in addition to the present directors.

Article 84 of the Company provides that the directors shall on the requisition of the holders of not less than 1/10th of (the total issued capital of the company forthwith proceed to convene an extraordinary general meeting of the Company and if the Directors do not cause such meeting to be called within 21 days from the date of the requisition, the requisitions may themselves convene the meeting.

It appears that on January 13, 1950, a meeting of the Board of Directors was held and it was resolved by a majority that the requisitioned Extraordinary General Meeting should be held on the 6th of April, 1950. Notice of this meeting of the Board of Directors was given only to Dr. Law, Sir B.P. Singh Roy, Mr. G.A. Sim and Mr. Shyamlal Agarval. The directors who were held by the Privy Council to have been validly appointed by the resolution of January 3, 1945, to which reference has already been made were not treated as Directors and did not participate in the said meeting of the Board in the said meeting of the Board of Directors.

Another Directors'' meeting was called by Mr. Shyamlal Agarwalla of which notices were given to Dr. Law, Sir B.P. Singh Roy and Mr. Sim as also to the 7 persons who were declared to have been validly appointed by the Privy Council. There is dispute as to what happened at the meeting. According to the petitioners, Mr. Sim was present, but he withdrew before the meeting started. Dr. Law and Sir B.P. Singh Roy did not attend. It is however denied in the affidavit of Mr. Sim that he withdrew from the meeting or that Sir B.P. Singh Roy and Dr. S.C. Law did not attend the meeting. The directors present at the meeting resolved that the Extraordinary General Meeting should be called for February 8, 1950, pursuant to the said requisition.

This application was presented on January 36, 1950, for an order that a meeting of the members of the Company be called to consider and if thought fit to pass with or without amendment or modification the resolution set out in Annexure ''B'' of the petition. The application is made under the provisions of section 79 (3) of the Indian Companies Act which is in these terms :

If for any reason it is impracticable to call a meeting of a Company in any manner in which meetings of that company may be called or to conduct the meeting of the company in manner prescribed by the articles of this Act, the Court may either of its own motion or on the application of any director of the company or of any member of the company who would be entitled to vote at the meeting, order a meeting of the company to be called, held and conducted in such manner as the Court thinks fit, and where any such order is given may give such ancillary or consequential directions as it thinks expedient, and any meeting called, held and conducted in accordance with any such order shall for all purposes be deemed to be a meeting of the company duly called, held and conducted.

The position at the present moment is that there is a serious controversy as to who are the present directors of the Company, in spite of the fact that the Judicial Committee have held that the resolution of January 3, 1945, increasing the number of directors and appointing the seven persons, whom I have mentioned, as Directors was good.

It is convenient at this stage to refer to certain Aricles of Association of the Company to which reference was made. Article 121 provides for retirement from office, at the first ordinary meeting to be held in every year, of one-third of the total number of directors. Article 122 provides that those directors who have been longest in office since their last election shall retire. Article 123 provides that the retiring directors shall be eligible for re-election. Article 124 provides that the general meeting at which a director retires may fill up the vacated office by electing a person thereto. Article 125 provides that if the places of retiring directors are not filled up at the meeting, it shall stand adjourned till the same day in the next week and if at the adjourned meeting the places of Directors are not filled up, the directors whose places have not been filled up shall be deemed to be re-elected. Article 144 provides that all acts done by any meeting of the Directors shall be valid even though it may be after-bards discovered that there was some detect in the appointment of such directors or that they were or any of them was disqualified.

It is contended by the Andrew Yule Group of directors that in spite of the judgment of the Privy Council, having regard to the regulations of the Company and the events which have happened, those seven directors are no longer directors of the company and they challenge the right of the other group of directors to attend any meeting of the Board. It is, on the other hand, asserted by the other group (hereinafter referred to as the Bajoria Group) that they are still the directors in spite of the article for rotation of directors (Article 121) because they should be deemed to have retired and to have been re-elected in accordance with the provisions of the Article 125.

If the contention of the Bajoria Group of directors is correct, the proceedings of the extraordinary general meeting fixed for April 6, 1950, would be open to serious challenge, as it was called by directors who were not entitled to act as such. If the contention of the Andrew Yule Group of Directors be correct, the meeting fixed for February 8, 1950, would be open to question. It is not disputed that the alleged directors having called the Extraordinary General Meeting the requisitionists are not competent to call an Extraordinary General Meeting.

The shareholders want an extraordinary general meeting to be held at which they can express their views and bring to an end the controversy between two rival groups of directors so that the business of the company can be carried on by a Board of Directors whose right or authority would not be open to serious challenge, and so that the unfortunate controversy between rival sets of directors which must prejudicially affect the business of the company, can be set at rest. It is true that meetings have been convened by both the groups of directors but there is a serious question as to which of the meetings and whether any of the meetings would be a valid meeting. If those meetings are held and contrary resolutions are passed at the two meetings another series of litigation will commence which will take years to finally dispose of.

Having regard to these circumstances it is urged that the Court should exercise its powers u/s 79(3) and call a meeting the validity of which would be beyond question.

If on the materials before me I could even prima facie hold who are the present directors of the Company, I would have held that it is not impracticable to call a meeting of the Company in accordance with its Articles of Association. In fact, learned Counsel for the petitioners agreed that that would be so. Learned Counsel for the respondent however submitted that 1 should not attempt to decide the question on the materials before me and specially as suits are pending where that question along with other questions will have to be decided.

The position therefore is that the shareholders do not know nor can I say on the materials before me, who are the present directors of the company.

Can I in those circumstances say that it is practicable to call a meeting according to the Articles of the company? Under Art. 84 only the directors can call such meeting and though both the groups have called meetings it is extremely doubtful whether they are. or either of ''them is, competent to call the meeting and who can call such meeting in the events which have happened ?

Learned Counsel for the respondents submitted that it may be that if the Court does not call any meeting it may lead to inconvenient results, but he contended that that was no reason why I should hold that it was impracticable to call the meeting. It is contended on the other hand that from a business point of view and having regard to the object and purpose of the meeting, the calling of the meeting has become impracticable. It is also submitted that sec. 79(3) contemplates that the Court should step in when it is impracticable to call a valid meeting according to the Articles of the company. The validity of the meeting called by the different groups of directors would be open to serious question having regard to the uncertainty as to who are the present directors of the Company. A tangle has arisen which should be solved by the Court stepping in and exercising its powers u/s 79(3).

It is true that the powers u/s 79(3) should be exercised with caution and only when it is not practicable to call a valid meeting in exercise of the powers given by the articles. The Court would not ordinarily interfere in the domestic management of the Company which must be conducted in accordance with the powers contained in the regulations of the Company. But, where, as here, the meeting can be called only by the directors and there is serious doubt and controversy as to who are the directors and where there is possibility that one or other or both the meetings called by the quarrelling groups of directors may be invalid, the shareholders should not be exposed to the uncertainties flowing from the situation and the consequent litigation and it should he held that a position has arisen which makes it "impracticable" for the meeting being called in accordance with the articles. It is true that the "imracticabilty" contemplated in the section is as to the calling of a meeting. It appears to me however that the section also contemplates that the Court should exercise its powers where it cannot say with reasonable approach to certainty, or even prima facie, that the meeting called in exercise of the powers contained in the regulations will be valid. I think therefore that in the circumstances of this case I have the power to call the meeting and if I have the power I have no hesitation in exercising it in order to resolve the conflict and uncertainty which has arisen as the result of the quarrel between the two sets of directors.

[His Lordship then gave certain directions in the matter.]