Major General Shanta Shamsher ... Vs Kamani Brothers Private Ltd. and ... On 6 January, 1958

Bombay High Court
Major General Shanta Shamsher ... vs Kamani Brothers Private Ltd. And ... on 6 January, 1958
Equivalent citations: AIR 1959 Bom 201, (1958) 60 BOMLR 1024, 1959 29 CompCas 501 Bom
Bench: Mody
JUDGMENT
1. This is a suit filed by the plaintiff, who admittedly was one of the joint managing directors and a
director of the first defendant company, against the first defendant company and his co-directors for
a declaration that the resolution dated 23rd September, 1957 passed by the Board of directors of the
first defendant company is inoperative and that the plaintiff continues to be the joint managing
director and is entitled to act as such managing director and to exercise all rights and powers to
carry out all duties assigned to him as such managing director.
2. The facts relevant to the decision of the disputes herein are not in dispute, with the result that no
oral evidence whatever has been ld. The only evidence led is documentary evidence, the same being
relevant and necessary for the purpose of the decision herein. It is therefore not necessary to set out
the contentions as contained in the pleading of the parties. It will suffice to set out the facts which
give rise to the disputes herein.
3. The first defendant company is a private limited company. At all relevant times to plaintiff and
the defendants Nos. 2 to 8 have been directors of the first defendant company. The first defendant
company are the managing agents of two public limited companies, being The Kamani Metals and
Alloys Ltd. and the Kamani Engineering Corporation Ltd. The plaintiff and the 8th defendant are
directors of another private limited company called the Shanta Brothers Private Ltd., the plaintiff
being also the chairman of the Board of directors, thereof. A finance agreement which is recorded in
a writing dated 14th May, 1954 was arrived at between the said Shanta Brothers Private Ltd. and the
first defendant company, whereby the former agreed to lend to the latter a sum of Rs. 28 lacs on the
terms and conditions recorded in that writing. That agreement in writing is Ex. F before me.
4. Under the finance agreement the first defendant company agreed inter alia to pledge in favour of
the said Shanta Brothers Private Ltd. 4500 ordinary shares of the first defendant company along
with the pledge of certain other shares and an equitable mortgage of certain immoveable properties.
Clauses 7(b), (c) and (e) of the said finance agreement run as follows:-
7. So long as moneys advanced by the Lenders to the Borrowers under these presents or any interest
thereon shall remain the Borrowers shall
(a).....
(b) have subject to the approval of the Central Government if required one representative
nominated by the Lenders and approved by the Board of Directors of the Borrowers appointed as a
Director on their Board of Directors with a monthly remuneration of rupees one thousand and five
hundred and all such allowances as are allowed by the Borrowers to their other Directors in the
Indian Kanoon - http://indiankanoon.org/doc/1339373/ 1
same manner and to the same extent and such remuneration and allowances shall be paid to him so
long as he takes active interest as a Director in the management of the affairs of the Borrowers and
of the said Kamani Metals and Alloys Ltd. and Kamani Engineering Corporation Ltd. of which the
Borrowers are the Managing Agents and such appointed shall be immediately after the first advance
is made by the Lenders under these presents and such remuneration shall commence from the date
of the first advance Provided. However that if any such representative shall be a brother of Major
General Shamsher Jung Bahadur Rana, the Chairman of the Lenders or any relative or member of
his family then and in such cases he will not be required to be approved by the Board of Directors of
the Borrowers;
(c) get subject to the approval of Central Government if required Major General Shanta Shamsher
Jung Bahadur Rana the chairman of the lenders or any other person nominated by the Lenders
appointed as a Director on the Boards of Kamani Bros. Ltd., Kamani Metals and Alloys Ltd. and
Kamani Engineering Corporation ltd. Provided that no person nominated by the Lenders and not
being a relative or a member of the family of the said major General Shanta Shamsher Jung Bahadur
Rana shall be appointed as such Director unless he is approved of by the respective Board of the said
Kamani Bros. Ltd., Kamani Metals and Alloys Ltd. and Kamani Engineering Corporation Ltd. on
whose respective Boards he is to be appointed a Director;
(e) see that the respective holders of the said shares shall cast their votes at any meeting of the said
Kamani Bros. Ltd., Kamani Metals and Alloys Ltd. and Kamani Engineering Corporation Ltd. in
accordance with the directions of the Lenders and not otherwise and give their proxies to such
person or persons as they the Lenders may nominate and procure to the Lenders an undertaking in
that behalf from the respective holders of the said shares."
5. In pursuance of the said finance agreement the said Shanta Brothers Private Ltd. lend and
advanced to the first defendant company the aggregate sum of Rs. 28 lacs and created the stipulated
pledge and equitable mortgage. Towards the end of February, 1956 the said Shanta Brothers Private
ltd. nominated and the first defendant company accepted the plaintiff as the director of the first
defendant company under the provisions of Clause 7(b) of the said finance agreement and similarly
the said Shanta Brothers Private Ltd. nominated and the first defendant accepted the 8th defendant
as a director under the provisions of Clause 7(c) of the said finance agreement. The said respective
appointments of the plaintiff and of the 8th defendant became effective as from 1st March, 1956. On
the 2nd of March, 1956 the Board of Directors of the first defendant company passed a resolution
(Ex. 2) which provides as follows:-
"Resolution No. 372:
Resolved that Maj. Gen. Shanta Shamsher Jung Bahadur Rana be and is hereby appointed in the
whole-time services of the Company on a monthly remuneration of RS. 2,000/- from 1-3-1955 in the
grade of Rs. 2,000-10-2500 plus rent free house."
6. On the 1st of April, 1956 the Indian Companies Act, 1956 came into operation. As the plaintiff
held an office of profit and as Section 314 of the said Act required that the plaintiff could not hold
the said office of profit except with the previous consent of the first defendant company accorded by
a special resolution, a special resolution was passed at a general meeting of the first defendant
company held on 29-3-1956 according such consent. The appointment of the plaintiff under the said
resolution to the Board of Directors dated 2-3-1956 became effective from 2-4-1956. The second
defendant was then the Managing Director of the first defendant company and he, under his
signature, issued a memorandum on behalf of the first defendant company dated 2-3-1956 (Ex. A)
stating that it had been decided that the plaintiff would, in addition to the Secretarial and Legal
Department, look after the General Department with the functions mentioned in the said
memorandum.
7. On 15-6-1956 the Board of Directors of the first defendant company passed a resolution (Ex. 3)
whereby the plaintiff who was then a director was appointed as executive director of the first
defendant company. Thereafter on 27-6-1956 the 2nd defendant as the managing director of the
first defendant company issued on behalf of the first defendant company a circular stating that the
plaintiff had been designated as the executive director of the first defendant company on and from
15-6-1955 and that the functions and powers of the executive director would be circulated in due
course.
8. On 26-9-1956 the eleventh ordinary general meeting of the share-holders of the first defendant
company passed a special resolution whereby the then existing Articles 90 and 100 of the Articles of
Association of the first defendant company were amended. The said amended article run as follows:
"Directors may appoint Managing Directors and/or Executive Directors.
99. The Directors may from time to time appoint any one or more of their body to be Managing
Director or Managing Directors and/or Executive Director for such period and upon such terms as
they think fit, and may vest in such Managing Director or Managing Directors and/or executive
Director such of the powers hereby vested in the Directors generally as they may think fit and such
powers may be exercisable for such period or periods and upon such conditions and subject to such
restrictions, and generally upon such terms as to remuneration and otherwise as they may
determine. The remuneration of a Managing Director and/or Executive Director may be by way of
salary or commission or participation in profits, or by any or all of those modes.
"Special position of Managing Director and/or Executive Director.
100. A Managing Director or Managing Directors and/or Executive Director shall not while he
continues to hold that office be subject to retirement by rotation and he shall not be taken into
account in determining the rotation of retirement of Directors, but he shall, subject to the provisions
of any contract between him and the company be subject to the same provisions as to recognition
and removal as the other Directors of the Company and if he ceases to hold the office of Director he
shall ipso facto and immediately cease to be a Managing Director".
The Memorandum and Articles of Association of the first defendant company are Ex. 1 before me.
Both the original and the amended Articles 99 and 100 are to be found in Ex. 1. The original Articles
99 and 100 made a provision for "a managing director r managing directors". The only amendment
made in the said two Articles by the said resolution dated 26-9-1956 is the addition of the words
"and/or Executive Director" wherever they appear after the words "a Managing Director or
Managing Directors" in the above amended Articles.
9. On 24-6-1957 the Board of Directors of the first defendant company held a meeting and the
relevant portions of the minutes of the said meeting have been put in as Ex. 4. As appearing form
the said minutes, the Board passed a resolution which reads as follows:
"Resolved that the responsibilities of the Management be divided between the Managing Director
who will look after the work of Kamani Metals and Alloys Ltd., this Company and its Associates and
the Executive Director who will look after the work of Kamani engineering Corporation Ltd.,
including its branches and other activities thereto.
It is further resolved that the Executive Director be designated as Joint Managing Director."
As a result of this resolution the second defendant was designated as a managing director and the
plaintiff as a joint managing director of the first defendant company. The responsibilities of the
management were divided between them and the second defendant was to look after the said
Kamani Metals and Alloys Ltd., the first defendant company and its associates and the plaintiff was
to look after the work of Kamani Engineering Corporation Ltd. By his memorandum (Ex. C) dated
28-6-1957 issued by the second defendant as the Managing Director of the first defendant company,
the second defendant gave intimation of the passing of the said resolution dated 24-6-1957 and also
intimated that the managing director would look after the work of the Kamani Metals and Alloys
Ltd., the first defendant company and its associates and that the plaintiff as a joint managing
director would look after the work of the Kamani Engineering Corporation Ltd., with immediate
effect.
10. A meeting of the Board of directors of the first defendant company was scheduled to be held on
21-9-1957. An agenda for the said meeting as also a supplementary agenda for the same were
circulated amongst the directors of the first defendant company. The said agenda and the
supplementary agenda have been put in as Ex. D collectively. In view of the case as argued such
agenda and supplementary agenda are not at all relevant. For certain reasons which are not at all
relevant. For certain reasons which are not relevant the said Board meeting stood adjourned to
23-9-1957.
11. On 23-9-1957 the said adjourned board meeting was held. Agreed portions of the minutes of that
meeting have been put in as Ex. 5. As appearing from the said minutes the said meeting passed the
following resolution:
"In view of the consensus of opinion of the majority of the Board of Directors that the arrangement
earlier resolved of division of responsibilities between the managing Director and Joint Managing
Director having not worked as desired by the Resolution dated 24-6-1957, the Resolution of the
Board of Directors dated 15-6-1956 appointing General Shanta Shamsher J. B. R. as the Executive
Director of the Company and the Resolution dated 24-6-1957 appointing General Shanta as Joint
Managing Director of the Company be and are hereby superseded and revoked. Further resolved
that Shri P.R. Kamani do act as sole Managing Director of Company and as such he is hereby vested
with all the powers of the Board of Directors under the Articles of Association of the Company under
the Law delegatable, and he do accordingly exercise the same."
It is this resolution the validity whereof has been challenged in this suit. A glance at the minutes of
this meeting dated 23-6-1957 shows that the plaintiff and defendants Nos. 7 and 8 wee on one side
supporting the plaintiff and the other directors being defendants Nos. 2 to 6 were on the other. Even
at the hearing of this suit also the defendants No. 7 and 8 have supported the plaintiff whereas
defendants Nos. 1 to 6 have opposed the plaintiff. What transpired at the said board meeting was
circularised by the third defendant as the chairman of the first defendant company by his circular
dated 23-9-1957 (Ex., E) but the same is not relevant for the purposes of this case.
12. The only other document exhibited in this case is Ex. 6 which is a copy of the plaint in the
Bombay City Civil Court Suit No. 2851 of 1951 wherein the plaintiff and the 7th defendant are
plaintiffs and that defendants Nos. 1 to 6 and the 8th defendants are the defendants. As stated in
that plaint (Ex. 6) the subscribed and paid up capital of the first defendant company is Rs.
15,00,000/- divided into 15,000 ordinary shares of Rs. 100/- each. Out of the said 15,000 shares the
seventh defendant owns 50 shares and the remaining 14,950 shares are held by the defendants Nos.
2 to 6 and their relations and nominees who form what may be called, "The Kamani group". Out of
the said 14,950 shares 4,500 shares have been pledged as aforestated to the said Shanta Brothers
Private Ltd., and by reason of the provisions of Clause 7(e) of the said finance agreement the voting
right in respect of 4,500 shares are controlled by the said Shanta Brothers Private Ltd., of whose
Board of directors the plaintiff is the chairman and the 8th defendant is a member.
13. It is common ground that at all relevant times as also at present the Kamani group controlled the
voting rights in respect of 10,450 shares whereas the group of the plaintiff and the defendants Nos. 7
and 8 effectively control the voting rights in respect of 4,500 shares.
14. At the hearing of the suit, after the pleading were read, five issues only were raised originally, the
same being as suggested by Mr. Munshi on behalf of the first defendant company. The respective
counsel appearing for the defendants NO.s 2 to 6 joined in these issues. A reading of the pleadings
shows that he same contains statements of fact on which the plaintiff wants to rely. But there are
very few submissions of law which would clearly indicate what exactly is the plaintiff's cause of
action. Undoubtedly it was not necessary that the plaint should contain any submissions of law. The
result however was that the contesting defendants did not know what would be the exact cause of
action which the plaintiff would formulate at the hearing on the basis of this plaint. Para 17 of the
plaint does contain certain submissions of law on behalf of the plaintiff. From these submissions ad
the prayers in the plaint at least one thing is clear, viz., that the plaintiff challenged the said
resolution dated 23-9-1957 passed by the Board of Directors of the first defendants company as
being ultra vires the board of directors. Now, it should be remembered that the plaintiff is not a
share-holder of the first defendant company, but was a special director of the first defendant of the
defendant company appointed because of the provisions of the said Clause & (c) of the said finance
agreement. Not being able to ascertain from the plaints the exact cause of action which the plaintiff
would make out at the hearing and as the plaintiff was not a share-holder but still challenged the
said resolution dated 23-9-1957 as ultra vires, certain technical defences were taken in paras 2, 2
and 3 of the written-statement of the first defendant to the effect that the suit as framed is not
maintainable. That contention is the subject-matter of issue No. 1. The burden so far as issue No. 1 is
concerned being on the contesting defendants, Mr. Munshi the learned Counsel for the first
defendant company argued first, confining his arguments to that issue only. Mr. Munshi argued that
the suit is not maintainable because Courts have no jurisdiction to interfere with the internal
management of the company, that if the company acts ultra vires, i.e., outside the ambit of its
memorandum of Association or in definance of its Articles, share-holder under certain
circumstances is entitled to have the act declared void and seek relief to compel the company to act
within its powers, that no such suit would lie even at the instance of a share-holder in respect of
unauthorised acts of the directors if the company could ratify the same and that no such suit can lie
at the instance of a person who is not a share-holder as the cause of action of a non-member can
only be in breach of contract or tort, his remedy being in damage. Mr. Munshi further argued that
when a non-member is appointed a managing director the same amounts only to a contract of
employment and in such an event the appointment of the managing director would be under that
contract, but that no such contact express or implied, has been mentioned in the plaint. He cited
several authorities in support of his contentions and developed his point as to why the suit was not
maintainable. Thereafter Mr. Bhatt, the learned Counsel for the plaintiff, opened the case of the
plaintiff and pointed out what according to the plaintiff is the cause of action in this suit. According
to him this suit is under Section 42 of the Specific Relief Act, that the plaintiff is entitled to a "legal
character", that that legal character of the plaintiff has been denied and that therefore the plaintiff is
entitled to the declaration and injunction prayed for. he stated that the cause of action as read in the
plaint by Mr. Munshi was not the correct cause of action. In as much as Mr. Munshi had however
advanced the said arguments, Mr. Bhatt advanced an argument to distinguish the same by stating
that the wrong complained of in the plaint was an individual wrong, that the arguments advanced
and the authorities cited by Mr. Munshi had no application and that therefore the plaintiff was in
any event entitled to maintain the suit In support of this contention that the wrong suffered by the
plaintiff was an individual wrong and that therefore the plaintiff was in any event entitled to
maintain the suit Mr. Bhatt cited another string of authorities. When Mr. Bhatt however stated that
the only cause of action according to the plaintiff, was under the Said Section 42 of the Specific
Relief Act, Mr. Munshi pointed out that in view of that contention of the plaintiff his own earlier
contentions were no longer necessary. Thereupon Mr. Bhatt stated that if Mr. Munshi was not
relying upon his said contention in support of issue No. 1 it was no longer necessary for the plaintiff
to rely upon the said contentions about the suit being maintainable and the wrong which the
plaintiff had suffered being an individual wrong. The position that emerges is that issue No. 1 is now
confined to the only cause of action stated by Mr. Bhatt as having been mae out in the plaint, viz.,
the one under the said Section 42 of the Specific Relief Act.
15. No oral evidence has been led and only certain documentary evidence has been tendered and
admitted. On behalf of the various parties arguments were addressed by their respective counsel. As
arguments developed and proceeded from time to time it became apparent that the issues as
originally framed were not adequate. As the arguments progressed applications were made on
several occasions for framing additional issues. I have separately noted such applications as and
when made and may orders thereon. As a result of these applications several issues have been added
from time to time. What now appear as issues Nos. 6, 7 and 8 were added first. Thereafter issue No.
9 was added and thereafter the said issue No. 8 was amended and two more issues were added, the
same being issues Nos. 10 and 11. When issues Nos. 6, 7 and 8 were added, it was contended by
some of the parties that the addition of those issues may necessitate the taking of further evidence.
It appeared to me however that the addition of those issues was merely for crystallising the
contentions which emerged from the arguments of Counsel and that no further evidence would be
necessary. As some of the parties however contended that they may have to lead further evidence, I
specifically gave liberty to all parties to lead further evidence if the same relevant and necessary. I
should record however that thereafter none of the parties applied for leading any further evidence,
either oral or documentary, and that as a matter of fact towards the conclusion of the hearing I had
to ask the parties whether any of them desired to lead evidence in pursuance of the said liberty given
by me in that behalf. And it was at that stage that counsel stated that none of them desired to lead
any further evidence.
16. The first point for consideration is whether the plaintiff is entitled to a "legal character" within
the meaning thereof in Section 42 of the Specific Relief Act. The said Section 42 provides that any
person entitled to any legal character, or to any right as to any property, may institute a suit against
any person denying, or interested to deny, his title to such character or right. This section therefore
applies when a person is entitled to any legal character or to any right as to any property. The phrase
"legal character" occurs in two Statutes, viz., in section 42 of the Specific Relief Act and in Section 41
of the Indian Evidence Act, but that phrase has not been defined in either of the said two Acts. There
appears to be no decided case which defines "legal character" or lays down general principles for
determining the same. I will therefore first reproduce the arguments of Mr. Munshi and Mr. Bhatt
as to what is legal character and then proceed to see whether it is possible to define what is "legal
character" or whether there are any general principles which would help in determining what is
"legal character".
17. Mr. Bhatt in his opinion relied upon paragraphs 9 to 14 of the plaint and Exs. 3, B, Articles 99
and 100 of the Articles of the first defendant company (Ex. 1), and Exs. 4 and C. He pointed out that
as stated in paragraph 9 of the plaint and shown by Exhs. 3 and B, the plaintiff was appointed
Executive Director from 14th June, 1956 and acted as such and that as stated in paragraphs 12 and
13 of the plaint and Exhs. 4 and C the plaintiff was appointed joint Managing Director on 24th June,
1957 and acted as such. he also referred to Section 2(26) of the Indian Companies Act, 1956 which
states that "Managing Director" means a director who by virtue of an agreement with the company
or by a resolution passed by the company in general meeting or by its Board of Directors or by virtue
of its Memorandum or Articles of Association, is entrusted with any powers of management which
would not otherwise be exercisable by him and includes a director occupying the position of a
managing director, by whatever name called."
He contended that under the circumstances the plaintiff was appointed and acted as Managing
Director and was entrusted with certain powers as such Managing Director and that therefore the
plaintiff was entitled to a "legal character" within the meaning thereof in the said Section 42. By way
of an analogy he said that the position of the plaintiff was exactly like that of a person who has been
appointed as a trustee, who is informed that he has been so appointed and who accepts office as
such trustee. Mr. Bhatt however did not point out in detail how far the position of the plaintiff as the
joint Managing Director was analogous to that of a trustee under the said circumstances.
18. Mr. Munshi in his reply argued that the plaintiff has no right to sue for the declaration under
prayer (a) of the plaint because as the joint Managing Director the plaintiff has no legal character
within the meaning thereof under Section 42 nor had the plaintiff any interest in property. Now, so
far as the latter is concerned, the same does not at all arise for consideration in this case. Even Mr.
Bhatt has not claimed or argued that the plaintiff has, as joint Managing Director, "any right as to
any property" and in my opinion quite rightly so because as joint Managing Director the plaintiff
had certain rights only to manage the property and the first defendant company and not the plaintiff
who owned the property. As regards Section 2(26) of the Indian Companies Act, 1956 Mr. Munshi
pointed out that the entrustment of the smallest power, e.g., like signing cheques or being sent to
Indore for buying 100 bales of cotton, to a director of the first defendant company would make him
a Managing Director within the meaning thereof under Section 2(26). he further argued that the
definition of "officer" under Section 2(30) of the Indian Companies Act, 1956, would not include a
Managing Director and that this shows that the office fundamentally is that of a director only, that
there is no separate office of a Managing Director and that only when certain extra powers are
delegated to a Director that the Director is for certain purposes termed a "Managing Director".
19. As regards the meaning of "legal character" Mr. Munshi relied upon K.P. Ramakrishna Pattar v.
K.P. Narayana Pattar, ILR 39 Mad 80 : (AIR 1915 Mad 584), which is a judgment of a Division
Bench of the Madras High Court. One of the contentions in that suit was that the plaintiff's suit to
declare that he had contractual rights as against the first defendants did not fall under Section 42 of
the Specific Relief Act because it was not a suit to declare a right to a legal character or a right to
property. In respect of this contention, the following passage from the judgment appearing at p. 82
(of ILR): (at pp. 584-585 of AIR) was relied upon by Mr. Munshi, viz., "We take it that a man's "legal
character" is the same thing as a man's status. "A man's status or "legal character" is constituted by
the attributes which the law attaches to him in his individual and personal capacity, the distinctive
mark or dress, as it were, with which the law clothes him apart from the attributes which may be
said to belong to normal humanity in general". According to Holland, the chief varieties of status
among natural persons may be referred to the following causes:- (1) sex, (2) minority, (3) 'patria
potestas' and 'manus', (4) coverture, (5) celibacy, (6) mental defect, (7) bodily defect, (8) rank, caste
and official position, (9) slavery, (10) profession, (11) civil death (12) illegitimacy, (13) heresy, (14)
foreign nationality and (15) hostile nationality (see Banerjee's Lectures on Specific Relief). We think
that a declaration that a valid personal contract still subsists between the plaintiff and the first
defendant is not a right declare a title to a legal character or a title to right to property".
The above passage contains a quotation from S.C. Banerjee's Law of Specific Relief in British India
(1909 edition) page 617-618. It will be noticed that "legal character" has been taken in this judgment
to mean the same thing as a man's status.
20. Another case relied upon by Mr. Munshi was that of Madanlal v. State of Madhya Bharat, (S)
AIR 1955 MB 111. In that case there was a contract between A and B and B was claiming some
moneys as due in respect of that contract. According to the plaintiff it was A who was liable to B in
respect of that claim and not the plaintiff, but B demanded those moneys form the plaintiff. Under
the circumstances, the plaintiff filed by the suit for a declaration that according to the contract it was
A who was liable to B and not the plaintiff and for an injunction against B restraining B from
claiming from the plaintiff any amount in respect of the said contract. It was held that 'legal
character' under Section 42 is the same as legal status, i.e., a position recognized by law and that a
suit for a declaration that under a certain contract the plaintiff is not liable is not a suit for a
declaration that he is entitled to a legal character or any right as to any property. This case again
shows that "legal character" under Section 42 is the same as legal status.
21. Mr. Munshi also cited tow other case, viz., Deokali Koer v. Kedar Nath, ILR 39 Cal 704 and
Sheoparsan Singh v. Ramnandan Prasad Singh, ILR 43 Cal 694: (AIR 1916 PC 78). Although the
said two cases relate to Section 42 of the Specific Relief Act, the decisions therein are confined to the
facts of the particular case. The judgments do not contain any general discussion as to the meaning
of "legal character" nor do they lay down any general principles for guidance as to what would
amount to "legal character" under the said Section 42.
22. Mr. Munshi then referred to Section 41 of the Indian Evidence Act which provides as under:
"A final judgment, order or decree of a competent Court, in the exercise of probate, matrimonial,
admiralty or, insolvency jurisdiction, which confers upon or takes away from any person any legal
character, or which declares any person to be entitled to any such character, or to be entitled to any
specific thing, not as against any specific person but absolutely, is relevant when the existence of any
such legal character, or the title of any such person to any such thing, is relevant."
In this section also the words "legal character" have been used, although in a different context. The
said words "legal character" as occurring in section 41 have been construed in Punjab National Bank
v. Balikram Kissenchand . In that case Sen J. in his judgment at page 227 of the said report observes
as follows:
"The words used are "declares any person be entitled to a legal character". A declaration of a legal
right is a different thing from a declaration of a legal character. The word "character" means status,
it is something more than a mere right. The declaration of a person's right operates as against a
particular person of group of persons against a particular person or group of persons against whom
the right is claimed, whereas a man's status is something which defines his position not in relation
to any particular person or group of persons but in relation to the rest of the world; his status
distinguishes him from the rest of the world. To say that a person is not a partner of a firm is not to
declare his status or legal character, it is merely to declare his position with respect to the particular
firm".
This judgment also says that "character" means status and that it is some thing more than a mere
right. Mr. Munshi also cited two English cases being Pulbrook v. Richmond Consolidated Mining
Co. (1878) 9 Ch. D 610, and Hayas v. Bristol Plant Hire Lt., (1957) 27 Com. Cas 442. In neither of
these two cases did the words "legal character" have to be construed and neither is even of any help
in construing the said words. Mr. Munshi concluded his arguments on this point by stating that no
definition of "legal character" was possible but that it could only be negatively said that the words
"legal character" would not include any interest in property or legal rights under a contract, and that
legal character must be a legal status against the whole world and not against an individual or a
group of individuals only, a status a declaration in respect whereof would be a judgment in rem
under Section 41 of the Indian Evidence Act. he argued that a Managing Director would be the
creature of a contract between the Managing Director and the Company or a mere agency arising by
reason of the delegation of powers to a director and would not be "legal character" within the
meaning thereof under Section 42.
22A. Mr. Bhatt in his reply to Mr. Munshi agreed with Mr. Munshi that it was difficult to define
"legal character". As regards the said three tests mentioned by Mr. Munshi, he stated that as regards
the test that an interest in property would not be included in "legal character", he pointed out that
the same was obvious from the said Section 42 it self, because that section provides for a declaration
being made for two categories of rights, viz., legal character and any right as to any property, and
therefore the said two categories of rights were obviously meant to be separate and distinct from
each other. As regards the said second negative test suggested by Mr. Munshi, he pointed out that
the same also could not be correct because under most systems of law marriage is a contract and
therefore the status of husband and wife would be the result of a contract and yet, even according to
Mr. Munshi, the status of husband or of wife would be legal character. He argued that therefore all
rights rising under a contract were not in any event excluded from "legal character". As regards the
said test suggested by Mr. Munshi that legal character would include only such status a declaration
whereof would be a judgment in rem under the said Section 41, he pointed out that the same was not
at all a correct test because Section 43 of the Specific Relief Act itself provides that a declaration
under Chapter VI of the Act, which chapter includes Section 42, would be binding only on the
parties to the suit and persons claiming under them. Mr. Bhatt also relied upon Sat Narain Gurwla
v. Hanuman Parshad, AIR 1946 Lah 85. In that case the right of franchise and the right of being
elected as a Municipal Commissioner were held to be "legal character" within the meaning of the
said Section 42 as appears from the following passage at page 94 of the Report from the judgment of
Mahajan J., (as a Puisne Judge of the Punjab High Court as he then was), viz:
"The only other matter that I wish to mention before concluding this judgment is that in my opinion
the right conferred on a subject, i.e., a right of vote or a right to stand as a candidate for being
elected as a Municipal Commissioner is a very valuable right and a suit for a declaration that a
person's nomination paper has been illegally rejected and that the defendant had not been elected as
a member of the Municipal Committee can be entertained by the Civil Court even under the
provisions of Section 42, Specific Relief Act. The words, "legal character" are wide enough to include
the right of franchise and the right of being elected as a Municipal Commissioner. The defendant
was the person interested who denied the right of the plaintiff to such a legal character. A suit can,
therefore, be properly brought under the provisions of Section 42, Specific Relief Act".
It will be noticed that there are no general tests or reasons mentioned by reason whereof the said
right of franchise was held to be "legal character", the only reasons stated being that the same was a
very valuable right. Mr. Bhatt further pointed out that "Managing Director" is not only defined in
Section 2(26) of the Companies Act, 1956 but that in Section 316(3) of that Act what a Managing
Director occupies has been referred to as "office", that Managing Directorship is an office recognised
by law, that therefore a Managing Director has by law been clothed with certain attributes as stated
by Banerjee and that therefore managing directorship is a legal status or legal character. Mr. Bhatt
also argued that the distinction made by Mr. Munshi that in the case of a trustee the legal ownership
would vest in the trustee and that the trustee may, therefore, sue for a declaration under Section 42,
because he would be entitled to a right as to property and not because he was entitled to a legal
character was not proper, because Courts have made declarations under the said Section 42 even in
the case of persons who did not own any property but were entitled only to a right to management of
property, e.g., a director of policy-holders in a life insurance Company in Subramania Aiyar v.
United India Life Insurance Co. Ltd., AIR 1928 Mad 1215, Mutawali in Mahomed Jafar Husain v.
Mohammad Taqi, AIR 1933 Oudh 517, and in Ali Shah v. Fateh Mohammad Mutawalli, AIR 1935
Lah 657, and a trustee of a temple who was entitled only to management, the ownership being in the
deity, in K.R. Swaminatha Iyer v. A. Ramier, AIR 1925 Mad 421. Mr. Bhatt also cited Chapsey v.
Jethabhai, 9 Bom LR 514, where the plaintiff and the defendant were trustee appointed under a
deed of trust executed by members of a casts. The defendant, relying upon a resolution said to have
been passed by the general committee of the caste purporting to remove the plaintiff from the
trusteeship, exclude the plaintiff from the management of the trust properties. The plaintiff
thereupon filed a suit against the defendants as co-trustees for a declaration of his trusteeship and
for an injunction to restrain the defendants from interfering with his rights as a trustee.
Chandavarkar J., held that the plaintiff's legal character being denied, he was entitled, according to
Section 42 of the Specific Relief Act, to institute the suit against any person denying such character.
I may state that in this case there is no discussion at all a what is the meaning of "legal character" or
as to why trusteeship is "legal character". The judgment assumes that the trustee was entitled to
"legal character".
23. From the above arguments and the cases cited on either side, it is clear that there has yet not
been formulated any definition of "legal character" or any general test for ascertaining what the
same is. Section 42 provides for a declaration being made in respect of a legal character and a right
as to any property. These two categories, viz., legal character and a right as to any property, have
been separately mentioned and would therefore prima facie appear to be distinct, separate and
exclusive. Section 42 provides for making a declaratory decree, i.e., making a decree declaring a
man's rights, which would mean legal rights, and it would therefore appear that both the said
categories mentioned in Section 42 are species of the same genus, viz., "legal rights". "Legal
character" however does not appear to be a phrase common to jurisprudence nor does it appear to
have been used in Statutes, except in Section 42 of the Specific Relief act and Section 41 of the
Indian Evidence Act. In at least three judgments mentioned above, viz., "legal character" has been
taken to meant, "legal status" a phrase known to jurisprudence. When the legislature used the
phrase "legal character" in the said two sections it is legitimate to assume that the legislature was
using the same in respect of some known legal concept and the context in Section 42 of the Specific
Relief Act indicates that what was intended to be meant by "legal character" was "legal status". It is
necessary to ascertain what is meant by "rights", "legal rights" and "legal status"?
24. Now, what is a "right"?
According to Salmond (Salmond on Jurisprudence, 10th Edition, page 229), "a right is an interest
recognised and protected by a rule of right. It is any interest, respect for which is a duty, and the
disregard of which is a wrong."
"All that is right or wrong, just or unjust, is so by reason of its effects upon the interest of mankind,
that is to say, upon the various elements of human well-being, such as life, liberty, health,
reputation, and the uses of material objects. If any act is right or just, it is so because and in so far as
it promotes some from of human interest. If any act is wrong or unjust, it is because the interests of
men are prejudicially affected by it. Conduct which has no influence upon the interests of any one
has no significance either in law or morals."
"Every wrong, therefore, involves some interest attacked by it, and every duty involves some interest
to which it relates, and for whose protection it exists.....
The interests which thus receive recognition and protection from the rules of right are called rights."
25. According to Holland (Holland's Elements of Jurisprudence, 12th Edition, page 82) a right "is
one man's capacity of influencing the acts of another, by meant, not of his own strength, but of the
opinion or the force of society."
26. Now, what is a "legal right"?
27. According to Salmond (page 230):
"A legal right is an interest recognised and protected by a rule of legal justice-an interest the
violation of which would be a legal wrong done to him whose interest it is, and respect for which is a
legal duty".
28. According to Holland (Page 83):
"A legal right is a capacity residing in one man of controlling, with the assent and assistance of the
State, the actions of others".
29. Therefore, according to both Salmond and Holland, every interest or right which is recognised
and protected by the State, i.e., by the laws of the State, is a legal right and every such legal right
involves a legal duty or obligation.
30. Again, according to both Salmond (page 233) and Holland (Page 91), a legal right has the
following four characteristics or elements;
(1) A person who is the owner of the right. The person in whom the right resides, or who is clothed
with the right. The person who is benefited by its existence. Salmond calls him the person of
inherence.
(2) A person against whom the right is available. The person whose duty it is to act or forbear for the
benefit of the person who is entitled to the right. Salmond calls him the person of incidence.
(3) In many cases, though not in all, an object or subject-matter over which the right is exercised.
(4) Acts or forbearances which the person in whom the right resides is entitled to exact. It obliges
the person bound to an act or omission in favour of the person entitled. Salmond calls it the content
of the right.
31. For the above four, Salmond uses the word "characteristics" while Holland uses the word
"elements", but the analysis of a legal right of both Salmond and Holland is identical. According to
Salmond, however, there is a fifth characteristic of a legal right, viz., every legal right has a title, that
is to say, certain facts or events by reason of which the right has become vested in its owner. It is
clear that the title to a right would be a characteristic of a legal right, but it is not an element of a
legal right.
32. Salmond illustrates these five characteristics by the following example:
"Thus if A buys a piece of land from B, A is the subject or owner of the right so acquired. The persons
bound by the correlative duty are persons in general, for a right of this kind avails against all the
world. The content of the right consist in non-interference with the purchaser's exclusive use of the
land. The object or the subject-matter of the right is the land. And finally the title of the right is the
conveyance by which it was acquired from this former owner." But, as pointed out by Holland, there
are rights in which the third element, viz., object, or subject-matter may be absent. For example, B is
A's servant. Here A is the 'person of inherence', reasonable service is the "act" to which he is entitled,
and B is the "person of incidence" against whom the right is available.
33. Now, the possible modes of classifying rights as also legal rights are almost infinite, but only
some are of greater importance. Various modes of classifying rights would, it should be observed,
have nothing to do with one another; they would be only cross divisions. If a certain type of
distinguishing characteristic is taken as the basis of classification, the right would divide themselves
into two classes as judged by the distinguishing characteristics. For example, based on the incidence
of correlative duties, a right may be a right in rem when it corresponds to a duty imposed upon
persons in general or the right may be a right in personam when it corresponds to a duty imposed
upon determine individuals. It may here be mentioned that as will appear hereafter this particular
classification of legal rights into rights in rem and rights in personam is of no relevance for the
purpose of ascertaining "legal character", that is, "legal status".
34. Another classification of legal rights is to divide them into Proprietary and Personal Rights.
Salmond (Pages 256 to 258) says.
"Another important distinction is that between proprietary and personal rights. The aggregate of a
man's proprietary rights constitutes his estate, his assets, or his property in one of the many senses
of that most equivocal of legal terms.
The sum total of man's personal rights, on the other hand, constitutes his status or personal
condition, as opposed to his estate. If he owns land, or chattels, or patent rights, or the goodwill of a
business, or shares in a company or if debts are owning to him, all these rights pertain to his estate.
But if he is a free man and a citizen a husband and a father,the rights which he has as such pertain to
his status or standing in the law.
X X X It makes no difference in this respect whether a right is jus in rem or jus in personam. Rights
of either sort are proprietary, and make up the estate of the possessor if they are of economic value.
Thus my right to the money in my pocket is proprietary; but not less so is my right to the money
which I have in bank. Stock in the funds is part of a man's estate, just as much as land and houses;
and a valuable contract, just as much as a valuable chattel. On the other hand, a man's rights of
personal liberty, and of reputation, and of freedom from bodily harm, are personal, not proprietary.
They concern his welfare, not his wealth; they are judicial merely, not also economic. So, also,with
the rights of a husband and father with respect to is wife and children. Rights such as these
constitute his legal status not his legal estate. If we go outside the sphere of private into that of
public law, we find the list of personal rights greatly increased. Citizenship, honours, dignities, and
official position in all its innumerable forms, pertain to the law of status, not to that of property."
35. From the above, it is clear that a legal right must be either proprietary, i.e., in the nature of
property, or personal and it is only the latter that creates a status. For a better understanding of
what is meant by 'status', and to find out what is the demarcating line between a right which is a
proprietary right and a right which is a personal right I will now turn to Holland.
36. A right as stated above, has four elements, two of which are 'the person of inherence' and 'the
person of incidence' i.e., the person in whom the right resides and the person against whom the
right is available. Holland says (Page 94):
"Persons are subjects of Duties as well as of Rights.....Persons, i.e., subjects of Right or of Duties are
in general individual human beings; but, in imitation of the personality of human beings, the law
recognises certain groups, of men or of property, which it is convenient to treat as subjects of rights
and duties as persons in an artificial sense. A 'natural', as opposed to an 'artificial', person is such a
human being as is regarded by the law as capable of rights or duties; in the language of Roman law
as having a 'status'. As having any such capacity recognised by the law, he is said to be a person, or,
to approach more nearly to the phraseology of the Roman lawyers, to be clothed with or to wear the
mask (persona) of legal capacity".
Besides possessing this general legal capacity, or status, a man may also posses various special
capacities, such as the 'tria capita' of liberty, citizenship, and family rights. A slave having, as such,
neither rights nor liabilities, had in Roman Law. strictly speaking, no 'status', 'caput', or 'persona'."
37. Holland (page 135) says that the status of the persons concerned is a basis of the division or
rights, "that is to say, there are some rights in which the status of the persons concerned has to be
specially taken into consideration, while in others this is not the case.
38. This distinction has led to a division of law into the 'law of persons' and the 'law of things'."
39. Holland points out that the said four elements of a Right divide themselves into two class, the
first consisting of the person of inherence and the person of incidence, giving rise to the law
classified as 'the law of persons' and the second consisting of the object and/or the acts or
forbearances, giving rise to the branch of law classified as 'the law relating to things'. About the
latter, it should be noted that although the word used is 'things', 'the law relating to things' would
include 'things' proper, meaning thereby corporeal things which can be touched, such as a farm or a
slave, and also incorporeal things, which cannot be touched, consisting of rights only, such as a right
of servitude, a right of action, or a right arising out of a contract.
40. A Right varies with a variation in any one of the series of its constituent elements. The law of
Persons, as a source of variety in rights, if therefore distinct from and much smaller than the residue
of the law, which is generally called the Law of Things. If a line is to be drawn between the Law of
Things and that of Persons, where is the line to be drawn? After discussing various tests of the
characteristics of the law that ought to be treated under the latter head, Holland says pages
143-144):
"The true test is surely this. Does the peculiarity of the Personality arise from anything unconnected
with the nature of the act itself which the person of inherence can enforce against the person of
incidence?
In order to determine, for instance, whether the right of landlords should be considered under the
law of persons, we must ask whether landlords as a class have any juristic peculiarities unconnected
with the acts which they are entitled to demand from their tenants; such as the payment of rent, the
observance of covenants, etc. They clearly have not. A landlord merely means a person who is
entitled to these acts. On the other hand, suppose the landlord to be an infant; here at once a whole
set of characteristics are present, modifying the right to rent, etc. and quite unconnected with it. Nor
is it only because the same person sustains the two characters of infant and landlord that this i the
case; a man may be a pawn-broker and landlord, but the rights as landlord will not be affected by his
occupation as pawn-broker. The personality recognised in the law of persons is such as modifies
indefinitely the legal relations into which the individual clothed with the personality may enter.
Of such affections of Personality there are two classes:
(1) The person may be 'artificial' i.e., ma be not a human being.
(2) The person may be under disability, or may enjoy exemption, on account of age, sex, mental
incapacity, crime, alienage, or public station.
All of these are abnormal deviations from the ordinary case of both parties concerned in a right
being human beings, under no special and far-reaching disability or exemption. When the disability
or exemption is not of a far-reaching character, it will not be treated in practice as founding a special
status, although, upon the principles above stated, otherwise capable of being so treated. Thus, as a
rule, soldiers, or blind or illegitimate, persons are not held to occupy a status, although in several
respects, and in particular with reference to testamentary powers and rights of succeeding ab
intestato, they may respectively exhibit peculiarities which are not involved in the statement that
they are in military service, blind, or illegitimate."
41. Therefore, to repeat what Holland has said a legal right can be classified to be a Personal right
and would amount to one's Status, and is distinct from a Proprietary right, when it involves a
peculiarity of the personality arising from anything unconnected with the nature of the act itself
which the person of inherence can enforce against the person of incidence. The personality
recognised in the law of persons is such as modifies indefinitely the legal relations into which the
individual clothed with the personality may enter. This then appears to be the test of what is legal
status or "legal character" as mentioned in Section 42 of the Specific Relief Act.
42. Now, the field of law itself may be divided into Private Law, i.e., the law which regulates rights
between subject and subject, and Public Law, i.e., the law which regulates rights between the State
and its subjects omitting for the purposes of the consideration of the meaning of status the third
branch which is International law. As already seen it is the law of Persons as contrasted from the law
of Things which creates 'status'. As stated by Holland, the contrast between the law of persons and
of things, or between the law of 'normal' and of 'abnormal persons' is sharply defined only in Private
Law and not in Public Law. In Private Law, where all characteristics of law are fully present, the law
of Persons is a statement of the ways in which the general law is modified by varieties of status;
while the law of Things is a description of the various kinds of rights enjoyed is private capacities by
persons as being within the jurisdiction of a State, but not as being in any way representative of the
sovereign power in the State. In Public Law, however, which possess the characteristics of law in a
lower degree of development, the distinction is but faintly traceable. What is analogous to the law of
Persons here consists in a description of the State as a whole of its ruling body, of bodies of persons
enjoying delegated ruling power, and of its constituent members as such; in short what is usually
known as "Constitutional Law". On the other hand, the residue of Public law consisting of the
Administrative Law and the Criminal Law has its analogies to the law of Things.
43. Legal status of a subject may therefore arise in relation to Private Law or in relation to Public
law. A person's franchise or right to vote or right to a public office would constitute his Status in
relation to Public law and it was such status which was the subject matter of the said case of AIR
1946 Lah 85 and was held to be "legal character" within the meaning of Section 42 of the Specific
Relief Act.
44. As seen earlier, status arises by reason of some peculiarity of the person of inherence or the
person of incidence. The person may be a natural person, i.e., a human being or an artificial persons,
i.e., a juristic persons, like a company or what is known in English Law as a Corporation Sole. The
personality of an artificial person is different from that of a normal natural person and it constitutes
his status in law. But amongst the natural persons themselves some have certain peculiarities about
their personality and to illustrate the same, Holland stays (at page 351):
"The chief varieties of status among natural persons may be referred to the following cause; 1. sex; 2.
minority; 3. 'patria potestas' and 'manus'; 4. coverture; 5. celibacy; 6. mental defect; 7. bodily defect;
8. rank caste, and official position; 9. race and colour; 10 slavery; 11. profession; 12. civil death; 13.
illegitimacy; 14. heresy; 15. foreign nationality; 16. hostile nationality. All of the facts included in this
list, which might be extended, have been held, at one time or another, to differentiate the legal
position of persons affected by them from that of persons of the normal type".
it is this passage from Holland which has been quoted by Banerjee in his Law of Specific Relief In
British India, and which has been reproduced in the said case of ILR 39 Mad 80 : AIR 1915 Mad
584.
45. As observed by me earlier "legal character" as used in Section 42 is equivalent to legal status and
legal status in a legal right when it involves a peculiarity of the personality arising from anything
unconnected with the nature of the act itself which the person of inherence can enforce against the
person of incidence. The plaintiff claims legal character or legal status by reason of his managing
directorship. Under Section 2(26) of the Companies Act, 1956, a director is a managing director
when he is entrusted with powers of management either by virtue of an agreement with the
company, or of a resolution passed by the company in general meeting, or by its Board of directors,
or by virtue of its Memorandum or Articles of Association. On this definition of a managing director
as given by the Companies act, it is necessary to ascertain first who is the person of inherence, which
is "the act" that is the right, and who is the person of incidence. It is the plaintiff who is the person of
inherence. It is the plaintiff who as managing director claims certain rights. "The act", that is the
right or rights, are the powers entrusted to the managing director as mentioned in the above
definition. It is the company which is the person of incidence, that is the person against whom the
powers or rights as managing director would be available. It may be that not only the company, that
is, the first defendant company, but even the plaintiff co-directors may perhaps fall within the
category of persons of incidence. I do not think it necessary to analyse and ascertain whether the
plaintiff's co-directors would or would not be persons of inherence. I will assume that they do fall
within that category of persons of incidence. But to my mind it is quite clear that whatever powers or
right the managing director is entitled to are by reason of the particular entrustment. It is the
particular entrustment, that is, the particular agreement or resolution or Memorandum or Articles
of Association mentioned in the said Section 2(26), which fully determines the nature and extents of
that power or right of the managing director. The personality of a managing director has no
peculiarity and certainly no peculiarity unconnected with or independent of his said right or power
as a managing director, and therefore there can possibly be no legal right which a managing director
can have which would involve such peculiarity of personality which is independent of the right or
power itself and which the managing director can enforce against his company and against his
co-directors. The position of a managing director is totally unlike that of a minor or a wife. A minor
by the only reason of his being a minor and the wife by the only reason of her being a wife has a
peculiarity of personality which is unconnected with any right which the minor or the wife may
claim. A landlord would have certain rights against his tenants as such landlord, but if that landlord
happens to be a minor, the peculiarity of the status of the minor, which is totally independent of the
rights as a landlord, would affect and modify the otherwise normal rights as a landlord. The
personality of a minor as recognised by the law of persons is such that it modifies indefinitely the
legal relations into which the minor as having been clothed with such personality may enter. Such is
not the case of a managing director. Independently of the powers entrusted to him, he has no
peculiarity or legal status which affects or modifies his powers or rights. A managing director cannot
therefore be said to have any legal status. Now, amongst the said 16 varieties of status mentioned by
Holland are to be understood in the light of the general principles formulated by Holland, otherwise
some of the said varieties having been mentioned generally are liable to create a misunderstanding.
Fortunately, apart from the said general principles, Holland himself gives (page 355) illustrations of
"office" as used in the said 8th variety as follows:
"(8) The king, according to the maxim of English law, can do no wrong. No action can be brought
against him, nor indeed against a foreign sovereign, as such, or his ambassador. Certain high
officials are exempted from responsibility for the acts of their subordinates, and various public
functionaries are relieved from liability by the Statutes of Limitation at an earlier date tan other
people". The king or the high officials mentioned in this illustration have a legal status, as they have
peculiarity of personality as in the case of a minor which exists independently of any particular right
which they claim and which they can enforce against the persons of incidence. It is in this sense that
"official position" or "office" has been used in the said 8th variety and as seen earlier, managing
directorship cannot fall within it. On the general test mentioned above, it is clear that when rights
were claimed under a contract the same would not amount to "legal character" under Section 42 as
held in some of he cases I have referred to above. Nor is the question whether the judgment in a
particular case would amount to a judgment in rem a test of 'legal character' as argued by Mr.
Munshi, because the division of legal rights into rights in rem and rights in personam is of no
relevance in judging legal status or legal character. Indeed, Section 43 of the Specific Relief Act itself
states that the declaration under Chapter VI of that Act, i.e. under Section 4, would be biding only
on the parties to the suit and those claiming through them, which means that it is not a judgment in
rem. Nor is the ownership of any property or the absence of it any criterion for judging legal
character. It is the peculiarity of the personality of the person of inherence which is the determining
factor of legal character and ownership of property or the absence of it is of no relevance.
46. I therefore hold that the plaintiff is not entitled to any legal character with in the meaning
thereof in Section 42 of the Specific Relief Act. The answer to issue No. 10 will therefore be in the
negative. The plaintiff is therefore not entitled to the declaration prayed for under prayer (b) of the
plaint as that declaration is prayed for on the basis that the plaintiff is entitled to a legal character,
viz., that of the managing Director of the first defendant company and is to the effect that the
plaintiff continues to hold such legal character.
47. There is however another declaration prayed for under prayer (a) of the plaint, the same being
that the resolution dated 23rd September 1957 are void, illegal, inoperative and of no effect
whatsoever. Mr. Bhatt had repeatedly stated that the whole cause of action in the plaint is on the
basis of the plaintiff being entitled to a legal character and the suit being under Section 42 of the
Specified Relief Act. As I have held that he plaintiff, as the managing director of the first defendant
company, was not entitled to any legal character the relief claimed under prayer (a) must therefore
also fail. The plaint is not on the basis that the plaintiff was appointed as the managing director of
the first defendant company by or under any contract, express or even implied, between the plaintiff
and the first defendant company. As a matter of fat Mr. Bhatt repeatedly stated that the plaintiff's
claim was not under any contract express or implied. But apart from the point raised in this case as
to whether the plaintiff is entitled to a legal character or not, Mr. Nathwani, the learned Counsel for
defendant Nos. 2,4,5 and 6, had raised another point for my decision, viz., that in order to obtain
relief the plaintiff must, on the plaint as it stands, place reliance on the Articles of Association of the
first defendant company, but that the plaintiff is not entitled to do so as the plaintiff is not even a
share-holder of the first defendant company. Now, it is quite clear that the plaintiff must rely on the
Article of Association of the first defendant company in order to challenge the validity of the
resolutions dated 23rd September 1957. It is the plaintiff's case, as made out in the plaint, that on a
true construction of the Articles of Association of the first defendant company and particularly
Article 100, the Board of Directors of the first defendant company had no power to pass the said
resolutions and that the said resolution s are invalid because of that reason. Mr. Bhatt however
argued that reliance has to be placed on the Articles of Association of the first defendant company,
not by the plaintiff to complete the cause of action, but by the defendants to justify the plaintiff's
removal from his managing directorship. he pointed out that it has been stated in the plaint that the
plaintiff was appointed as a joint managing director and it is further stated in para 17 that "the
plaintiff continues to be the joint Managing Director of the first defendants having the powers and
responsibilities assigned to him under the said resolution dated 24th June 1957". He argued that
once the plaintiff's appointment is admitted, it is for the defendants, who allege termination, to
prove that there is a valid termination of that appointment. he argued that the plaintiff's cause of
action is complete so far as the suit under Section 42 is concerned and the plaintiff himself does not
want to rely on any Articles of Association of the first defendant company, but it is the defendants
who would have to rely on the Articles to justify the termination of the plaintiff's joint managing
directorship. In my opinion, this contention of Mr. Bhatt is not sustainable. The plaintiff's cause of
action, according to the plaintiff himself, is on the basis of a legal character under Section 42. Under
Section 42 the plaintiff can file a suit for a declaration against persons denying or interested in
denying that legal character. What the plaintiff has to prove is that the plaintiff is entitled to legal
character at the date of the suit. Therefore the plaintiff must prove that the plaintiff was validly
appointed as a managing director (assuming for this purpose that managing director-ship is legal
character) and that the plaintiff continued to be such managing director at the date of suit. The
plaintiff may not have to prove his appointment because such appointment is admitted. But merely
establishing by such admission that the plaintiff was so appointed is not sufficient. If such
appointment gives to the plaintiff a legal character the plaintiff must establish the characteristics of
such legal character by establishing the nature of such appointment, which would, amongst other
factors, include how such appointment was liable to be terminated. Once the plaintiff establishes his
legal character in all its aspects, including the mode of its termination, it would then be for the
defendants to prove that the plaintiff's appointment has been validly terminated in that mode of
termination as established by the plaintiff. For example, if the plaintiff establishes that his legal
character as joint managing director was such that it could be terminated only by a special
resolution passed by the first defendant company at a general meeting of its members, then and only
then, would it be necessary for the defendants, if they allege termination, to prove that there was a
valid special resolution passed by the first defendant company at a proper general meeting of its
members. In this case, in order to prove the plaintiff's alleged legal character as managing director,
It would be for the plaintiff to prove, amongst other things, whether such appointment of the
plaintiff was capable of being terminated, and if so, in what manner; and in order to prove the same
the plaintiff must rely on the Articles of the first defendant company. Next, it is common ground
that the plaintiff at any material time was not a share-holder of the first defendant company. Now,
even between a member and the company, the Article of Association constitute a contract only in
respect of his rights and liabilities as a share-holder, but not in respect of rights and liabilities which
he has in a capacity other than that of a member. But as between the company and outsiders, i.e.,
persons who are not share-holders, the Article do not in any circumstances constitute a contract of
which that person can take advantage. This position in law is too clear to require reference to any
authorities or even text books. The plaintiff not being a member of the first defendant company is
therefore not entitled to place any reliance on the Articles of the first defendants company. What is
more, the plaintiff's cause of action is not, a already observed by me earlier, on the basis even of an
implied contract between him and the first defendant company so that it cannot be said that the
Articles of the first defendant company or any of them impliedly form part of any contract between
the plaintiff and the first defendant company. In my opinion, therefore, the plaintiff is not entitled to
place any reliance in this suit as framed on any of the Articles of Association of the first defendant
company or to claim any reliance on the said Articles. But in order to get the declaration under
prayer (a) of the plaint, the plaintiff has to rely on the Articles of Association of the first defendant
company and particularly Article 100, of course, on the construction placed thereon a hereinafter
mentioned by the plaintiff, and without placing such reliance the plaintiff cannot get the said
declaration. The plaintiff is therefore not entitled to the declaration prayed for under prayer (a) of
the plaint. In this connection Mr. Nathwani had cited the case of Mothey Krishna Rao v. Grandhi
Anjanevulu, . In that case a secretary of the company who had been removed by the Board of
Directors from that post brought a suit for a declaration that he still continued to be the secretary,
on the ground that the Board of Directors had no power to remove him under the Articles of
association. It was held that the plaintiff's appointment as Secretary must be regarded as one dehors
the articles and it was incumbent on him to make out a contract outside and independently of the
articles, and that he had no cause of action on the articles. Mr. Bhatt sought to distinguish that case
on its facts. In view of the decision I have already arrived at as above, I do not think it necessary to
analyse the judgment in that case or to consider the distinction sought to be placed thereon by Mr.
Bhatt. But I should state that as in that case so also in this case it was argued on behalf of the
plaintiff that there is a distinction between the case of a person who has been removed by an
authority incompetent to do so and by a person wrongfully removed by a competent authority. It
was argued by Mr. Bhatt that this suit falls within the said former category and that the plaintiff
could rely upon the Articles of Association to show that the plaintiff is sought to be removed by an
authority incompetent to do so and that therefore there is no competent removal at all of the
plaintiff from his managing directorship. In respect of this argument the following passage from the
judgment in the above case appearing at p. 115 is relevant:
Mr. Thirvuvenkatachari has sought to draw a fine distinction between the case of a person who has
been removed by an authority incompetent to do so and by a person wrongfully removed by a
competent authority. In the present case, however, the in competence of the Board of Directors is
sought to be inferred from the Articles of Association themselves, which plaintiff cannot, for this
purpose invoke so as to give him a cause of action." In my opinion this passage applies with equal
force to the identical arguments advanced by Mr. Bhatt. I may repeat that in my opinion the plaintiff
is not entitled to place any reliance on the Articles of Association of the first defendant company in
support of any cause of action in this suit.
48. Prayer (c) of the plaint asks for an injunction. The injunction as prayed for therein really divides
itself into two parts. The first part is to restrain the defendants from acting upon or in pursuance of
the said resolutions dated 23-9-1957; and the second part is to restrain the defendants from
interfering with the plaintiff's right and powers as joint Managing Director under the said resolution
dated 24-6-1957.
49. So far as the said first part of the said injunction is concerned, the same is so related to the
declaration prayed for under prayer (a) of the plaint. To get such an injunction the plaintiff must
establish that the plaintiff is entitled to legal character, which I have held that the plaintiff as
managing director is not entitled to, and moreover, the plaintiff must rely on the Articles of
Association of the first defendant company, which I, have held the plaintiff is not entitled to do. The
plaintiff's prayer for that part of the injunction must therefore fail.
50. So far as the said second part of the said injunction is concerned, the same is co-related to the
declaration prayed for under prayer (b) of the plaint. On the basis that the plaintiff was entitled to
legal character as contended by him a declaration is sought as in prayer (b) and an injunction under
the said second part of prayer (c). I have held that the plaintiff is, as the joint managing director of
the first defendant company, not entitled to any legal character, the result of which would be that
the plaintiff would not be entitled to either of the said two reliefs. So far however as the said
injunction is concerned, Mr. Bhatt had further argued that even if I were to old that the plaintiff is
not entitled to a legal character, the plaintiff was in any event entitled to the said injunction. In
support of the said contention Mr. bhatt advanced no further or other arguments whatsoever save
and except relying upon the case of Kunj Behari v. Keshavlal, ILR 28 Bom 567. That case is not an
authority for the proposition that when the Court refuses to grant to the plaintiff a declaration under
Section 42 on the ground that the plaintiff is not entitled to legal character the plaintiffs is still
entitled to an injunction based on the plaintiff's claim to legal character. On the contrary that case
envisages an injunction being granted to the plaintiff on the basis that the plaintiff would succeed in
establishing the grounds on which the plaintiff claimed the declaration. it is definitely not a case
which says that when the plaintiff fails-to establish the ground son which he claims the declaration,
the plaintiff should be given an inunction but not the declaration. To my mind at least, this
proposition urged on behalf of the plaintiff is such that it has merely to be stated to be rejected. The
declaration as well as the injunction are both of them reliefs and both are based on the plaintiff's
claim that he is entitled to legal character. If that claim to legal character itself is negatived, how can
the plaintiff get either of the two reliefs? It must be remembered that the whole claim in suit is based
on the plaintiff's claim to legal character and that only. It is not the plaintiff's case, nor has ti been
argued, that the plaintiff has any claim otherwise than on the basis of legal character under Section
42. That being so, once it is held that the plaintiff is not entitled to legal character, the plaintiff
would not be entitled not only to the declaration but also the inunction prayed for. It is quite likely
that because of this clear position Mr. Bhatt did not develop his argument in this behalf and resisted
content only by citing the said case. But even that case is not an authority in any way supporting the
present contention of Mr. Bhatt. I am inclined to infer that this argument was not intended to be
seriously pressed. But whether intended to be seriously pressed or not, as I have held that the
plaintiff as the joint managing director is not entitled to any legal character, I hold that the plaintiff
is not entitled to either the declaration under prayer (b) or the said second part, of the injunction
under prayer (c) of the plaint.
51. As I have held that the plaintiff is not entitled to any legal character, and I have negatived the
plaintiff's said contention that the plaintiff is in any event entitled to an injunction even if it be held
that the plaintiff is not entitled to legal character, as a necessary corollary I must hold that the plaint
does disclose any cause of action. Issue No. 9 will therefore have to be answered in the negative.
52. The result of my above finding is that the plaintiff is not entitled to any relief in this suit and the
suit would have to be dismissed. In view of the said findings it is not necessary for me either to deal
with issue Nos. 2 and 3 or to deal with the issues Nos. 6, 7 and 8. As however the contentions
covered by these issues have been argued before me, I will deal with the main arguments relating to
these issues.
53. I will first deal with the contentions covered by the issues Nos. 2 and 3. It is the resolutions dated
23-9-1957 passed by the Board of directors of the first defendant company which are challenged in
this case as being ultra vires the powers of the Board. The question for consideration therefore, is,
did the Board of directors have power to revoke the appointment of the plaintiff as joint managing
director? If the Board had no such power the said resolutions dated 23-9-1957 would be ultra vires
the Board.
54. Now, under the Articles of Association of the first defendant company a person may be a director
by reason of his having been elected as such at the general meeting of the company in the ordinary
way, or if he is a nominated director having been nominated under the provisions of Article 93(a), or
if he is a director having been appointed in accordance with the provisions of Article 93(b).
Thereafter Article 99 provides that the directors may from the time to time appoint anyone of their
own body, i.e., a person who is already a director, to be a managing director and may vest in such
managing director such powers as the Board of directors itself has under the Articles of Association
of the first defendant company and such appointment as managing director is to be for such period
and upon such terms as the directors think fit. Article 99 deals with the appointment of a person
who is already a director as managing director & with vesting of powers in him. So far there is no
controversy between the parties as regards the interpretation of the relevant article. The controversy
is as to how a managing director is to be removed from his office as managing director and how are
the powers vested in him as the managing director to be removed. A managing director is, as already
seen, a director with certain additional powers vested in him as the managing director and the
controversy before me is confined only to the question of the removal of such additional powers
vested in him as managing director. This question is to be judged on the basis -- which basis is
common to both the sides -- that upon the removal of the managing director as managing director,
that is, upon the removal of his additional powers as managing director, he would be relegated to his
original position as a director and would continue to be such director with the same rights and
powers and obligations and liabilities which attached to his directorship immediately before his
appointment as a managing director. To be more specific, the plaintiff was appointed a joint
managing director by the resolution dated 24-6-1957, but immediately before the passing of that
resolution the plaintiff was a special direction appointed under Article 93(b) and was entitled to
certain remuneration under the resolution dated 15-6-1956 and it is common ground that the
resolution dated 23-9-1957 which are cancelled in this suit do not and do not even purport to
adversely affect in any way the plaintiff's said appointment as special director or his rights to
remuneration under the said resolution dated 15-6-1956. Therefore, as I said, the only question is
which is the authority which is empowered by the articles to remove a managing director i.e. the
additional powers and characteristics of a managing director, his original directorship with all the
original rights, powers obligations and liabilities remaining untouched. The plaintiff contends that
power of removal on a true construction of Article 100, is in the general meeting of the members of
the company to be exercised by a special resolution, whereas the first defendant company contends
that it is in the Board of directors themselves. It s therefore necessary to state very briefly how each
party arrives at its said conclusion.
55. According to the plaintiff it is Article 100 which contains such powers of removal. According to
the plaintiff the relevant provision of that article is "A Managing Director..... shall, subject to the
provisions of any contract between him and the Company, be subject tot he same provisions as to
...... removal as the other Directors of the Company."
There being no contract about the managing directorship between the plaintiff and the company the
said condition "subject to the provisions of any contract between him and the company" has no
application in this case. Therefore, according to the plaintiff, Article 100 provides that a managing
director can and must be removed as the other directors of the company and the provisions as
regards the other directors of the company is contained in Article 114 of the first defendant company
to the extent that it provides "the Company may be Extra-ordinary Resolution remove any ordinary
Director before the expiration of his period of office."
According to the plaintiff, the said provision of Article 114 is to be read as if it was bodily reproduced
and incorporated in Article 100. If so rad, Article 100 is to be construed as providing that a
managing director shall be subject to removal by the company by an extra-ordinary resolution. The
plaintiff further contended that since 1-4-1956 wherein the Companies Act, 1956 came into force the
said words "extra-ordinary resolution" have, by reason of Section 651 of that Act, to be read as
"special resolution," such special resolution being defined by Section 189 of that Act. The plaintiff
therefore contended that Article 100 so construed provides that it is the company which has the
power, by a special resolution, to remove a managing director in the said sense of taking away his
additional characteristics and powers as a managing director leaving his original appointment as a
director unaffected and that therefore the said resolutions dated 23-9-1957 which were passed by
the Board of Directors are of no effect, the Board having no such power to remove a managing
director.
56. On the other hand, according to the first defendant company, the said construction placed by the
plaintiff on Article 100 is incorrect and that on a correct construction of the same, Article 100
merely clarifies the position of the director as a director when he happens to have been appointed
also as a managing director. According to the first defendant company it is Article 99 which
authorises the Board to delegate its powers, all or some, from time to time, to one of themselves, and
that upon such delegation, the director to whom such powers are delegated becomes, that is, he is to
be styled as, a managing director and that it is implicit in the provision of Article 99 that the body,
namely the Board of directors, that is authorised to delegate such powers has the authority to
withdraw such powers, and if the withdrawal be of all such delegated powers, to remove the director
concerned from his managing directorship, leaving of course, his directorship untouched. According
to the first defendant company therefore the Board of directors of the first defendant company had
the power to remove the plaintiff from his managing directorship and the said resolutions dated
23-9-1957 were therefore within the powers of the Board and have been validly passed.
57. I will now proceed to examine the contentions of each side and fined out what is the true
position. Now, as pointed out by me earlier, on 26-9-1956 the company amended its said Articles 99
and 100, the only change thereby made being the introduction of the words "and/or executive
director" wherever occurring in the said two articles. It was argued on behalf of the plaintiff that this
being only an amendment, it is not as if totally new Articles 99 and 100 are introduced for the first
time, but that it is the old Articles 99 and 100, framed before the Companies Act, 1956 came into
effect, which continued, subject however to the said amendment. It was argued that the said Articles
99 and 100 are framed on the basis of regulation 72 of table A in the first schedule to the Indian
Companies Act, 1913 and that the regulation 72 divides itself into two parts, the first dealing with the
appointment of a managing director which is dealt with by Article 99 and the second dealing with
the determination of managing directorship which is dealt with by Article 100. It was further argued
that the last clause of regulation 72 provides that the appointment of a joint managing director shall
be subject to determination if the company in general meeting resolves that his tenure of office of
managing directorship be determined but that there is no such specific provision contained in
Article 100 and that is because the same has been provided for by providing that a managing
director shall be subject to removal as the other directors of the company and thereby providing for
the removal of a managing director the same mode as is provided by Article 114 for the removal of a
director. It was argued that on the parallel of regulation 72 Article 100 must be construed as
containing a provision for the removal of a managing director. This argument is intended to meet
the argument on behalf of the first defendant company that Article 100 does not in any way provide
for the determination of managing directorship at all. In my opinion this argument urged on behalf
of the plaintiff is not well founded. Undoubtedly regulation 72 must have been used as a basis or as a
precedent for drafting Articles 99 and 100. To a certain extent the subject dealt with, the provisions
and even the wording of regulation 72 and Articles 99 and 100 are common. But the wording is
materially altered and what I have to construe is the actual provisions of Articles 99 and 100, on
their own phraseology and in their context in the Articles of Association of the first defendant
company. It would be incorrect to interpret Article 100 on the assumed hypothesis that Article 100
was intended not only to provide for the same subject as is provided for by the second part of
regulation 72 but was also to contain the same or even a greatly similar provision. I cannot proceed
to interpret article 100 on an assumption that because regulation 72 provides for the determination
of the office of managing directorship, therefore Article 100 must also be assumed to provide for the
determination of the office of managing directorship. I have to take the language of Article 99 and
Article 100 as used therein, if necessary in its context with the other articles of the first defendant
company, and then interpret the same to ascertain whether Article 100 does or does not contain any
provision in connection with the determination of the powers of a managing director or for the
removal of the managing director from the office of a managing director. I will therefore proceed to
consider the provisions of Article 100 itself on that footing.
58. Article 100 was amended on 26-9-1957. As amended, that article in its opening part mentions "A
Managing Director or Managing Director and/or Executive Director," and at its end states "he shall
ipso facto and immediately cease to be a Managing Director." It is obvious that in making the said
amendment there has been an oversight, by reason whereof there has been an omission to add the
words "or Executive Director whichever he may be," or other words to that effect, at the extreme end
of that article. Article 100 in its present form, if it had to be construed in its application to an
Executive Director, would create a difficulty, because the material part of it would read "an
Executive Director.....if he ceases to hold the office of director he shall ipso facto and immediately
cease to be a Managing Director." The Executive Director cannot ease to be a "Managing Director".
It is, I believe, the lack of proper amendment as aforesaid that leads to this difficulty. Fortunately for
me this case does not require an interpretation of article 100 in relation to an Executive Director and
in construing Article 100 I will proceed to deal with it, for the purpose of this case, as if the words
"and/or Executive Director" were absent.
59. Article 100 divides itself into three parts which, without any change or omission would read as
follows:
"A Managing Director or Managing Directors shall not while he continues to hold that office be
subject to retirement by rotation and he shall not be taken into account in determining the rotation
of retirement of Directors, but he shall, subject to the provisions of any contract between him and
the Company be subject to the same provisions as to recognition and removal as the other Directors
of the Company.
and if he ceases to hold the office of Directors he shall ipso facto and immediately cease to be a
Managing Director."
60. The said first and third parts clearly provide as to the directorship of a person who is a director
and also a managing director. Articles 107 and 1008 provide for retirement by rotation and therefore
the first part of Article 100 provides that a managing director while he continues to hold the office as
managing director shall not be subject to retirement by rotation and shall not be taken into account
in determining the rotation of retirement of directors. A managing director, as already seen, is first a
director and then becomes a managing director, and therefore the third part deals with what is to
happen to the appointment of a person as managing director if that person ceased to hold his office
of director and says that if he ceases to be a director he would automatically cease to be a managing
director. Whether the words "subject to any contract between him and the company" preceding the
second part would, on a grammatical construction, be taken to be repeated in the third part also or
not appears to be arguable, but it is not necessary for the purposes of this case to decide it. It is to be
noted that both the first and the third part relate to the position of a person as director when that
person is also managing director. Now turning to the second part, it says "but, he (i.e. managing
director) shall, subject to the provisions of any contract between him and the Company, be subject
to the same provisions as to recognition and removal as the other Directors of the Company." The
use of the word "recognition" of a director in this part is in triguing. No submissions were advanced
as to its meaning and I confess that its meaning is not easy for me to comprehend. This part
containing the words "recognition & removal". The use of both these words together in this way
furnishes clue as to what was intended to be meant by "recognition." removal of a director means
when the person or body, like the company in general meeting, having authority to remove a
director exercises such authority and removes the director. In such a case there is originally a power
given for removal and thereafter there is a voluntary exercise of that power. Such exercise of power
brings about the cessation of the directorship of that director. In the case of the first defendant
company such removal so far as an ordinary director is concerned has been provided for by Article
114. But there can be other ways in which a cessation of the directorship can result these ways
having been provided for by Article 98 of the Articles of the first defendant company. All the says
under Article 98 are either the happening of a specified event like insolvency or unsoundness of
mind of the director or some voluntary act of the director like his tendering his resignation. But
what is common to all these ways under Article 98 is that on the happening of the contingency
provided for, the cessation of directorship automatically results without anything else being
required to be done thereafter. Therefore on the happening of such contingency the director can be
said to cease to be capable of being recognised as a director of the company. it is in this meaning that
the word "recognition" has been used in the second part of article 100, and recognition of a director
would mean the person's continuation in office as a director. It appears to refer to the stage when a
person continues to be in his office of a director and which stage terminates when he ceases to be a
director under Article 98 of the Article of Association of the first defendant company. This appears
to be the only possible meaning because both recognition and removal deal with a common subject,
viz., determination of the directorship, and at the same time the two would not overlap, as
"recognition" would apply in cases where such termination is brought about automatically without
requiring a voluntary act of an outside agency to bring it about, whereas "removal would require a
voluntary act of an outside agency. "Recognition" of a director refers to the stage when a person
continues to be a director and has not ceased to be a director under Article 98; and what happens to
his managing directorship when he ceases to be a director has been provided in the third part. The
third part does not contain any new provision for bringing about a cessation of his office as
managing director. the third part is really an explanation or clarification as to what effect the
cessation of his office as a director would have on his office as a managing director, such explanation
or clarification being that because he ceases to be a director, he ipso factor, i.e., automatically
without anything more, will cease to be managing director also and such cessation of managing
directorship being automatic it shall take effect immediately, that is, the cessation of directorship
will result in a simultaneous cessation of managing directorship also.
61. Now, what is the meaning of the word "other directors of the company" occurring in this second
part"? The Articles of the first defendant company do contain a reference to "ordinary director," e.g.,
in Articles 107 and 114, although that term "ordinary director" does not appear to have been defined
anywhere in the Articles. The meaning however is obvious and it means a director appointed in the
ordinary way by election at a general meeting of the members of the company. "Ordinary director" is
in contradiction to a "nominated director" under Article 93(a) and a "special director" under Article
93(b). Now, the removal of "the other directors of the company" can be in the case of an ordinary
director under Article 114 where the removing authority is the company; whereas in the case of a
nominated director and a special director it would be under Articles 93(a) and 93(b) respectively the
removing authority being the person mentioned in the said respective articles, who are other than
the company. Therefore, the removing authorities in the case of each of the said three years of
directors are different and the method of removal would also be different. It is in the light of this
analysis that I must test the argument urged on behalf of the plaintiff, viz., that it is this second part
provides for the removal of a person from his managing directorship and for that purpose the
relevant provision of Article 114 should be read as if it was reproduced as it were, in this second part
of Article 100. As already seen, "the other directors of the company," would include at least the said
three types of directors, and the agency which can remove and the method of removal are different
in the case of each of them. If so, there is no justification or singling out only that which is applicable
to the removal of an ordinary director only and omit that which is applicable to the removal of the
other two types of directors. Why read the relevant provisions of only Article 114 into Article 100
and not those of Article 93(a) or Article 93(b)? And that raises a further question as to why this
second part of Article 100 contains such a vague provision when it mentions "other directors"
without specifying "ordinary director," if it was "ordinary director" which was intended to be
referred to here? I think this vagueness or confusion results because the very foundation of the
argument of the plaintiff is incorrect. This second part is not, in my opinion at all intended to
provide for the removal of a person from his managing directorship. The whole Article 100, that is
all its three parts, provides as to what is the position of a person as a director when that person is a
director and also a managing director. As Article 100 divides itself into three pars, it is reasonable to
assume or infer that all the three parts contain provisions relating to the same subject. Of course
such an assumption would not be justified if the language of the second part clearly indicted to the
contrary, but there is no such indication. On the contrary, if the interpretation canvassed on behalf
of the plaintiff were to be accepted the second part would appear to be vague and confusing.
Further, the second part begins with the word "but" the use whereof indicates that what follows it
and what precedes it both deal with the same idea of topic, namely, what would happen to a person's
directorship when he is also a managing director, but hat the provision which follows that word
"but" is the opposite of the provision contained in that portion of the article which precedes that
word "but". The provision preceding the word "but" is that when a director is appointed a managing
director the provision about rotation, i.e. retirement by rotation, will not apply to him so long as he
continues to be a managing director but what follows the words "but" provides the opposite, viz. that
when a director is appointed a managing director even during the subsistence of his managing
directorship his original directorship shall, unlike the termination thereof by retirement by rotation,
be liable to termination on his ceasing to be 'recognised' as a director or by his removal as a director.
Moreover the language of the second part is clearer and more appropriate if the second part if the
second part is taken as providing for what is to happen to the persons'; directorship when he is
appointed also as a managing director. The relevant words are "he (i.e., managing director) shall .....
be subject to the same provisions as to recognition and removal as the other Directors of the
Company", which would mean that a person shall, even if he is appointed as a Managing Director be
subject to the provisions as to recognition or removal as a Director as the other Directors of the
company. Mr. Bhatt on behalf of the plaintiff argued that such interpretation requires the
underlined words "as a director" to be added in the second part. It is true that normally words
should be construed as used without adding any more words therein. But this is not a case of
addition of totally new words. In the first pat itself the words "as a director" are present, but by
implication. The first part says "a Managing Director shall not while he continues to hold that office
be subject to retirement by rotation". The question arises "retirement by rotation" as what?
Certainly not as a Managing Director. neither the Companies Act, old or new, nor the articles of the
first defendant company provide for retirement by rotation of a managing director. It must mean
"retirement by rotation" as a director. A retirement by rotation as a director is provided for both by
the Companies Act and even by Articles 107 and 108 of the Article of Association of the first
defendant company itself; and even Mr. Bhatt did not dispute that the "retirement by rotation" in
the first part must be as a director. But what is more, the words "as a director" are, as I said, present
herein the first part by implication because the subsequent words in the first part itself are "and he
shall not be taken into account in determining the rotation of retirement of Directors". The use of
the last word "directors" makes it clear that the retirement by rotation mentioned in the first part is
retirement by rotation "as a director". There is also a still further reason why the second part must
be taken as a mere clarification as to what is the effect on a person's directorship when that person is
also a managing director. The possible modes of termination of a person's directorship are of three
categories, viz., by retirement by rotation under Article 107, by ceasing to hold office as mentioned
under Article 98, and by removal under Article 14 or 93(a) or Article 93(b) in the case of an ordinary
or a nominated or special director respectively. Unless the second part is construed as explaining
what is to happen to a persons' directorship when he is appointed also a managing director, i.e.
whether by reason of his appointment as a managing director his original directorship would or
would not terminate by ceasing to be a director under Article 98 or by being removed as a director
under Articles 114, 93(a) and 93(b), Article 100 would have to be taken to deal only with one kind of
termination of directorship, namely, by retirement by rotation and not by ceasing to be a director or
removal as a director. The first part clearly deals by way of clarification with one class of termination
of directorship viz., by retirement by rotation and there is therefore a greater justification to
construe the second part as dealing by way of clarification with the remaining classes of termination
of directorship viz., by ceasing to be a director or by removal as a director. I, therefore, reject the
argument urged on behalf of the plaintiff and hold that Article 100 does not lay down any provision
for removing a person from his managing directorship.
62. As Article 100 does not lay down any provision for removing a person from him managing
directorship, the next question to be considered is whether the Board of directors of the fist
defendant company did have the power to remove the plaintiff from his managing company and the
defendants Nos. 2 to 6. Now, in Article 99 the words used are "from time to time" when it says that
the directors may from time to time appoint any one or ore of their body to be managing director
and may vest in such managing director all or some of the powers vested in the directors by the
articles of Association of the fist defendant company. The word "from time to time" as occurring in
an Act of the British Parliament which authorised the Lord Chancellor from time to time to make an
order have been construed in Lawrie v. Lees, (1881) 7 AC 19, by Lord Penzances as the words 'from
time to time' are words which are constantly introduced where it is intended to protect a person who
is empowered to act from the risk of having completely discharged his duty when he has once cited,
and therefore not being able to act again in the same direction. The meaning of the words "from
time to time" is that after he has made one order he may make a fresh order to add something to it,
or take something from it, or reverse it altogether. The Act did not specifically authorise the Lord
Chancellor to revoke the order, but the words were construed to include the power to "reverse it
altogether". On the same analogy and reasoning the use of the words 'from time to time" in Article
99 indicates that the directors have been given the power not only to appoint a managing director
and to vest powers in him as mentioned in that article, but also to reverse the same, i.e., revoke his
appointment or withdraw all or some of the powers vested in him. Article 99 is merely a delegation
by the company to the directors of its powers to appoint a managing director. In Foster v. Foster
(1916) 1 C 532, Article 99 of the company in that case contained, so far as it is material for this
purpose, a provision similar to the Article 99 of the first defendant company and read as follows:
"99. The directors may, subject to the preceding clauses, from time to time appoint any one or more
of their body to be managing director or directors, fro such period, at such remuneration, and upon
such terms as the directors think fit."
In connection with that article, Peterson J. observed at page 543 as follows:
"In my view, however, the appointment by the directors of one of their body as chairman, or the
appointment by the directors of one of their number as a managing director without more, is not a
contract within Article 93, but is merely a delegation of their powers, and is very similar to the
power which they posses to appoint committees of themselves and delegate their powers to those
committees." I will deal with this case later on in greater detail, but what is material at present is
that the article is construed as merely a delegation of powers by the company to its Board of
Directors to appoint a managing director. If there is such a delegation it is merely a creation by the
company of its board of directors as its agent for doing what the article empowers the Board of
directors to do. Delegation merely creates an agency as held by Wills I. in Huth v. Clarke, (1890) 25
QBD 391 at p. 395, if therefore by this Article 99 the first defendant company has created its board
of directors as its agents to appoint a managing director, the relationship between the three parties
is that the company is the principal, the Board of Directors are the agents and the managing director
is a sub-agent. In treating this relationship as that of principal and agent, I am not obvious to the
following remarks of Lord Sankey occurring in his judgment in Regal (Hastings) Ltd. v. Gulliver,
(1942) 1 All ER 378 at p. 387:
"Directors of a limited company are the creatures of statute and occupy a position peculiar to
themselves. In some respects they resemble trustees, in others they do not. In some respects they
resemble agents, in others they do not. In some respects they resemble managing partners, in others
they do not."
For the purpose of the point under consideration, in as much as there is a delegation of powers by
the company to its Board of directors to the extent mentioned in Article 99, I think that it is safe to
say that for the purpose of considering the exercise of powers the relationship is that of principal
and agent and sub-agent as mentioned above. Looked at in that perspective, under Section 193 of
the Indian Contract Act, the agent, namely the board of directors, stands in the position of a
principal in relation to the sub-agent, namely the managing director; and under Section 203 of that
Act, subject to the exceptions and conditions mentioned in that section, with which exceptions and
conditions were are not concerned in this case, a principal can revoke the authority given to the
agent and therefore the board of directors as the principal of the managing director can always
revoke the authority of this agent the managing director. A revocation of all powers is tantamount to
removal and therefore even on this position the Board of directors of the first defendant company
has, under Article 99, a power to remove the managing director, although such a power of removal
has not been expressly given by that article.
63. I will now turn to the said case of 1961-1 Ch. 532 which I have mentioned earlier. The articles of
association of the company in that case contained an Article No. 89 which was similar to Article 101
of the first defendant company which empowered the directors to exercise all the powers which the
company itself had subject to the limitations mentioned therein. The company in that case had also
Article 99 which I have already reproduced above and which was similar to the Article 99 of the first
defendant company. Article 102 of the company in that case provided that the directors may elect a
chairman of their meetings, and determine the period for which he was to hold office. A general
meeting of the company held on 25-1-1911 appointed the plaintiff in that case as a director and later
on the same dy a meeting of the Board of directors appointed the plaintiff as the chairman of the
Board of directors. Later on 14-8-1911 the Board of Directors appointed the plaintiff as the managing
director of the company. In connection with the business of the company certain disputes arose
between the plaintiff Foster and the defendant Mrs. Foster. On 30-7-1913 the Board of Directors
passed two resolutions whereby Mrs. Foster was appointed the chairman of the Board of Directors
of the company and was also appointed a joint managing director along with the plaintiff, the
plaintiff becoming a joint managing director in place of his original position of the sole managing
director. Thereafter on 19-1-1915, the Board of Directors passed a resolution terminating the
plaintiff's appointment as director and also as joint managing director with mrs. Foster. The
plaintiff thereupon filed a suit challenging inter alia the said resolution of the Board of Directors
dated 30-7-1913 and 19th January 1915. One of the grounds of challenge, as appearing from the
arguments of Tomlin K.C., the learned counsel for the plaintiff, at page 538 was "the plaintiff can
only be removed by an extraordinary resolution." This would mean that the point taken by the
plaintiff was that the person who had the power to remove the plaintiff from his chairmanship and
also his joint managing directorship was he company itself in its general meeting and not the Board
of Directors. The decision as regards this contention of the plaintiff was that the Board of Directors
did have under the said Article 99 the power to remove the plaintiff from his managing directorship
as appears from the following passage of the judgment at pages 542-543:
"In the same way it is argued that the appointment of the plaintiff as sole managing director was for
such time as he should be a director. Here the question depends on Article 99, under which "The
directors may, subject to the preceding clauses, from time to time appoint any one or more of their
body to be managing director or directors, for such period, at such remuneration, and upon such
terms as the directors think fit.' In this case, also, it appears to me that the directors have powers
from time to time to appoint any one on more of their body to be managing director or directors,
and it does not involve as a consequence that if they are dissatisfied with the person whom they have
appointed managing director, or think that another of their body would fill the position more
adequately, they are unable to substitute a new managing director in place of the old one."
From this passage it is clear that when the learned Judge used the words "substituting a new
managing director in place of the old one" it was meant removing the old managing director and
appointing a new one in his place. it is not disputed even on behalf of the plaintiff before me that the
provisions of that Article 99, so far as it is material for the purpose of this case, were similar to those
of Article 99 of the first defendant company and therefore as held by Peterson J. with which I
respectfully agree -- the Board of Directors did have the power under Article 99 to remove the
plaintiff from his managing directorship. In the arguments of the plaintiff's counsel Tomlin K.C., as
appearing at p. 538 it was specifically contended on behalf of the plaintiff that the plaintiff could
only be removed by the company by an extra-ordinary resolution. This clearly indicates that it was
in that case contended that the power of removing a managing director was in the company and not
in the Board of Directors; and therefore the decision of Peterson J. that the Board had the power to
remove is unquestionably a decision of a point which directly arose for his decision in that case. Mr.
Bhatt however attempted to water down the effect of that decision by saying that as appearing at
pages 542-543 of the said report, the learned Judge first considered the position of the plaintiff in
that case as chairman and held that the plaintiff was validly removed as such chairman. Mr. Bhatt
contended that decision involved only a construction of Article 102 an a decision on the point as to
the period of his office as chairman, but not as to the point as to who had the power, whether the
company or the Board of Directors, to remove him. Mr. Bhatt argued that in the very next para of his
judgment, the learned Judge proceeds to consider the point about the determination of the
plaintiff's managing directorship, that the opening words are "In the same way" and that the first
sentence shows that the learned Judge was thinking only in terms of the period of duration of the
plaintiff's managing directorship and that therefore he learned Judge's mind was at that time no
focused on the point as to who, whether the company or the Board, had the power to remove the
plaintiff from his managing directorship. I am unable to accept this argument of Mr. Bhatt.
Undoubtedly the first sentence of the last para at p. 542 supports Mr. Bhatt's contention, but there is
no justification to assume that when the learned Judge says what he has in fact said in the above
passage quoted by me from his judgment the learned Judge was not in terms dealing specifically
with the said point actually argued before him by Tomlin K.C. that it was the company and not the
Board who had the power to remove the plaintiff from his managing directorship. This case is
therefore a direct authority for the proposition that on that article the wording whereof was
materially the same as that of Article 99 of the first defendant company, even though there is no
specific power granted to the directors for the removal of the managing director, such a power has
been impliedly granted to them by that article.
64. Mr. Bhatt relied upon the case of nelson v. James Nelson and Sons, Ld., (1914) 2 KB 770. The
articles of association of the company in that case contained Article 84 which empowered the Board
to exercise all the powers of the company subject to the limitations mentioned in the article, and
Article 85 empowered the Board to appoint from time to time any one or ore of their number to be
managing director and with such powers and authorities, and for such period as they deem fit, and
to revoke such appointment. In construing those articles Lord Reading C.J. says in his judgment at
page 776 as follows:
"One of those powers is to appoint a managing director -- I draw particular attention to these words:
-- "for such period as they deem fit." The directors therefore have under that part of the article
power to appoint a managing director for a term of years, and the words which immediately follow
-- "and may revoke such appointment" only give the directors power to take away that which they
have given provided that they have not bound themselves to give it for any period of time. The
directors have the power to appoint and the power to revoke the appointment, but the article does
not mean that they have the power to revoke at will notwithstanding any agreement into which they
may have entered for the appointment of a managing director for a term of years. I am quite unable
to give the words the construction for which the defendants contend. If those last words had not
been inserted in the article, the result would have been that the power to appoint a managing
director would have been vested in the directors, but the power to revoke the appointment would
have remained with the company".
It is the last sentence in the above quotation which was strong relied upon by Mr. Bhatt. Mr. Bhatt
conceded that sentence contains a mere obiter of the learned Judge and was not necessary for the
decision of that case. He pointed out, and with respect to the learned Judge I agree with Mr. Bhatt,
that the obiter of so eminent a Judge as Lord Reading is entitled to great respect. But looking at the
arguments of counsel as appearing in the above report and also going through the judgment of the
lower Court reported in Nelson v. James Nelson and Sons Ltd. (1913) 2 K.B. 471, I find that this
obiter though not necessary for the decision of that case was not even the result of any arguments
advanced on that point. It does not appear to be the result of full consideration having been applied
to the decision contained in those obiter dicta. In my opinion, these obiter dicta are not sufficient to
outweigh the conclusion I have arrived at earlier as mentioned above. When commenting on the
said case of 1916-1 Ch. 532 Mr. Bhatt had commented that these dicta of Lord Reading were not
even cited or considered by Peterson J. in his judgment and that shows that the point under
consideration was not properly argued before Peterson J. It is true that the said obiter dicta of Lord
Reading do not appear to have been cited before or to have been considered by Peterson J. But to
my mind it does not in any way detract possible that the above remarks of Lord Reading being mere
obiter dicta and not being the result of a full argument in the case or a considered opinion of the
learned Judge were not cited in 1916-1 Ch. 532.
65-66. Therefore, if it was necessary, I would have held that the Board of directors of the first
defendant company did have the power to revoke the appointment of the plaintiff as joint managing
director and that therefore the said resolutions dated 23rd September 1957 were not ultra vires the
powers of the Board of Directors.
67. I may mention that there were certain other points argued both by Mr. Munshi and by Mr. Bhatt.
These were however in the nature of further alternative arguments and in view of my above
judgment, I do not think it necessary to complicate my judgment further by dealing with such
further alternative arguments. One of such further alternative arguments, which was advanced by
Mr. Munshi, was that even if I were to hold that the plaintiff was entitled to a legal character within
the meaning of Section 42 of the Specific Relief Act I should not exercise my discretion under that
section in favour of granting to the plaintiff the declaration as prayed for. The reason in support of
that argument was that the Court will not in its discretion grant a decree by way of a declaration
when the same was capable of being negatived by the company in its general meeting. It appears
from the copy of the plaint Ex. 6 and indeed it is common ground that the share capital of the first
defendant company is divided into 15,000 shares in all, out of which the Kamani group holds 10,450
shares and the 7th defendant holds 50 shares and that the plaintiff in effect controls the voting right
sin respects of the remaining 4500 shares. it was argued by Mr. Munshi that looking to the array of
the parties before me even if I hold that the Board of Directors did not have the power to revoke the
plaintiff's appointment as managing director and give a declaration to that effect, the company could
call a general meeting of its members at which the Kamani group would be in a position by ordinary
resolution to ratify the said resolution dated 23rd September 1957 of its board of Directors or pass a
fresh resolution to the same effect. Mr. Bhatt in his turn counted this argument by contending that
on his submission that Article 114 should be read as it were as having been reproduced in Article 100
of the first defendant company the first defendant company would require a special resolution and
not merely an ordinary resolution to remove the plaintiff as the managing director of the first
defendant company but that the voting strength being as aforestated the Kamani group would not
be able to command the requisite majority of votes for passing a special resolution. The
consideration of even this argument requires various alternatives to be decided first. I have already
held that the plaintiff is not entitled to a legal character. But if I had held that he was entitled to a
legal character I would have further held that I ought not to have exercised my discretion in favour
of granting the declaration asked for because I have also held that the provisions of Article 114 are
not to be deemed to have been incorporated in Article 100, the result being that a mere ordinary
resolution would be sufficient, if passed by the first defendants company, to remove the plaintiff
from the managing directorship as contended by Mr. Munshi.
68. Under the circumstances my answers to the issues are:
Issue No. 1: Not pressed by Mr. Munshi I may repeat that some time after this issue was raised Mr.
Bhatt made it clear that the cause of action in the plaint was on the basis of a claim to a legal
character under Section 42 of the Specific Relief Act and thereupon Mr. Munshi did not press this
issue. Moreover, to avoid any possible misunderstanding, I may note that this issue was raised
immediately after the pleadings were read and does not cover and was not even intended to cover
the contention that the plaintiff is not entitled to rely upon the Articles of association of the first
defendant company of the reliefs claimed in the suit. This latter contention was urged by Mr.
Nathwani at a much later sage in the case and it was some time thereafter that a further issue, being
issue No. 11, was raised to cover this contention.
Issue No. 2: Unnecessary to decide. See judgment. If necessary, I would have answered this issue in
the affirmative.
Issue No. 3: Unnecessary to decide. See Judgment. If necessary, I would have answered this issue in
the negative.
Issues Nos. 6, 7 and 8: Unnecessary to decide. See judgment. If necessary I would have answered
issues Nos. 6 and 7 in the affirmative and issue No. 8 in the negative.
Issue No. 9: As I have held that the plaintiff is not entitled to any legal character, I answer this issue
in the negative.
Issue No. 10: In the negative.
Issue No. 11: In the negative.
69. The result is that the suit is dismissed.
70. As the suit has been dismissed by me the normal rule as to costs, namely, that the costs must
follow the event must also be followed in this case. The defendants Nos. 7 and 8 however have all
along supported the plaintiff and so far as their costs are concerned the position is different. I need
not however consider that position any further because their respective counsel state that they do
not press for their costs. Under the circumstances so far as defendants Nos. 7 and 8 are concerned
there will be no order as to their costs.
71. So far as defendants Nos. 1 to 6 are concerned, they have appeared in three different sets and the
question has been argued at very great length before me as to whether one or two or three sets of
costs should be allowed as between the defendants Nos. 1 to 6. After such arguments were advanced
however, the defendants Nos. 1 to 6 between them and also between them and the plaintiff, are now
agreed that in view of my above judgment the order for costs against the plaintiff should be that the
plaintiff should pay the costs of the first defendant company in one set & also a half of one set of
costs for the remaining defendants Nos. 2 to 6. Under the circumstances, with such consent, I order
that the plaintiff do pay the costs of the suit, one set to the first defendant company and half of one
set to the defendants Nos. 2 to 6.
72. On behalf of the defendants in whose favour I have made an order for costs as aforesaid an
application was made under Rule 601 of the High Court Rules on the Original Side to the effect that
I should either allow a fixed sum in excess of Rs. 2,000/- as instructions for brief or that i should
direct the Taxing Master to allow such sum exceeding Rs. 2,000/- as he may in his discretion think
proper. The hearing of this case has undoubtedly been a long one. I am told that the hearing lasted
for about 35 hours. But against that, it is also true that this case did not involve numerous or
complicated facts and moreover there was no oral and very little documentary evidence. To enable
me to exercise my said discretion what is being placed before me to-day are merely general
arguments and rough estimates and therefore there is not before me at present sufficient material to
enable me to exercise the discretion vested in me under the said Rule 601. I will be in a much better
position to judge this after the successful defendants in whose favour this after the successful
defendants in whose favour I have made an order for costs have prepared and lodged their
respective bills of costs. Under the circumstances I direct that this application under Rule 601
should be renewed after such bills of costs have been prepared and lodged with the Taxing Master.
73. Suit dismissed.

Major General Shanta Shamsher ... Vs Kamani Brothers Private Ltd. and ... On 6 January, 1958

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Major General Shanta Shamsher ... Vs Kamani Brothers Private Ltd. and ... On 6 January, 1958

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