Oriental Metal Pressing Works (P) Ltd.
Vs. Bhaskar Kashinath Thakoor & another [1960] INSC 302 (16 December 1960)
16/12/1960 SARKAR, A.K.
SARKAR, A.K.
IMAM, SYED JAFFER DAYAL, RAGHUBAR
CITATION: 1961 AIR 573 1961 SCR (3) 329
ACT:
Company-Managing director appointing his successor
by will Validity-'Assignment', Meaning of--Companies Act, 1956 (1 of 1956),
ss. 312, 255.
HEADNOTE:
By s. 312 of the Companies Act, 1956,
"Any assignment of his office made after the commencement of this Act by
any director of a company shall be void." 42 330 The managing director of
a private company, empowered by the terms of the agreement between him and the
company and the articles thereof to appoint, by deed or by will, any person to
be the managing director in his place and stead, died leaving a will whereby he
appointed one of the appellants the managing director in his place from the
date of his death. The High Court took the view that the word 'assignment' in
the section included 'appointment' and as such the appointment in question was
void.
Held, that S. 312 of the Companies Act, 1956,
cannot be interpreted in such a way as to bring it into conflict with S. 255 of
the Act since its language does not compel such an interpretation. The word
'assignment' in that section does not mean appointment and the section is
intended to render a transfer of his office by a director void and not an
appointment by him of his successor.
Section 255 of the Act, which expressly
permits directors to be appointed otherwise than by the company, shows that,
subject to the limit as to numbers prescribed by it, a director, authorised by
the articles of the company, can appoint another to take his office when
rendered vacant by his resignation or death or on expiry of his term of office.
The proviso to s. 86B of the old Act cannot
lend any support to the argument that the word 'assignment' in s. 312 of the
new Act includes 'appointment'.
The Guardians of the Poor of the West Derby
Union v. The Metropolitan Life Assurance Society, [1879] A. C. 647, referred
to.
CIVIL APPELLATE JURISDICTION: Civil 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, S. N. Andley, P. L. Vohra and J. B. Dadachanji,
for the appellants.
The respondent did not appear.
1960. 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 26,1955, 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 Bhalchandra 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 Art.
133(1)(c) 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 s. 312 of the Companies Act, 1956. That section reads
thus:
S.....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, s. 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
s. 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, s. 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 s. 312, when its language does not compel it, as to bring
in conflict with the provisions of s. 255. This would happen, if the word
" assignment" in s. 312 was interpreted as including
"appointment" and thereby making it prevent a director from
appointing his successor when s. 255 permits him to do that. Therefore again we
think that in s.
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 Companies
Act, 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 s. 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 s. 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 "perpetual management". It would follow that the Act did
not consider this as an evil which required prevention. If perpetual management
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 management 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 s. 312 to prevent a director from appointing his
successor.
In view of the clear provisions of s. 255 we
do not think that it can be said, as was done in the High Court, that ss. 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 s. 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 s. 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 s. 317 inapplicable to a private company.
Therefore, s. 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 s. 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
s. 317, to prevent that. Lastly, s. 317 is not concerned with the directors,
which s. 312 is.
Another argument that has to be dealt with is
that if s. 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 s. 255 in the case of a public company. An appointment so legally
made does not result in an evasion of s. 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 s. 312.
We have now to consider an argument based on
the first proviso to s. 86B of the Companies Act of 1913. The main part of s.
86B contained a provision analogous to that of s. 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 be an 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 s. 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, s. 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 s. 313 of the new Act, which
has taken the place of the first proviso to s. 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 s.
86B would not be available for the purpose of the present Act.
It further seems to us that the proviso to s.
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 s. 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 s. 312 of the new Act, so under the main part of s. 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 s. 83B, 340
provisions substantially similar to those contained in s. 255 of the new Act.,
and the reasons which have inclined us to the view that in s. 312 the word
"assignment" does not include "appointment" would equally
lead to the same conclusion in regard to s. 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 v. 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 s. 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 s. 86B of the old Act does not assist the argument that in s.
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 s. 312 of the new Act. We have earlier said
that under s. 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) [1897] A.C. 647, 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 s. 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 s. 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, s. 255 of the new Act. For the reasons earlier
stated, the exercise of such power does not offend s. 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.
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