Case Law Companies Act Arjun Prasad Vs Shanti Shankarlal Shah

PETITIONER:
ARJUN PRASAD

Vs.

RESPONDENT:
SHANTILAL SHANKARLAL SHAH AND OTHERS(AND CONNECTED APPEAL)

DATE OF JUDGMENT:
22/12/1961

BENCH:
GUPTA, K.C. DAS
BENCH:
GUPTA, K.C. DAS
DAYAL, RAGHUBAR

CITATION:
1962 AIR 1192 1962 SCR Supl. (2) 402
ACT:
Company-If can be present “in person” in
meeting-Meeting of creditors-Person appointed to
represent creditor company-Person voting on behalf
of company-Validity of vote-Company Judge’s order-
If appeal lies to High Court-Indian Companies Act,
1913 (7 of 1913), ss. 3, 153-General Clauses Act,
1897 (10 of 1897), s. 3(42)-Letters Patent, cl.
10.

 

HEADNOTE:
Subsequent to an order made for the winding
up of a company, the Company Judge made a
direction for action to be taken under provisions
of s. 153 of the Indian Companies
403
Act, 1913. At the meeting of the unsecured
creditors of the company a resolution was passed
by the creditors present, either in person or
through proxy, by majority in number as well as
three-fourths in value. At this meeting the
appellant claiming to represent two of the
creditor companies cast his votes on behalf of the
said companies in support of the resolution. No
objection was taken at the meeting to the validity
of the votes by any of the creditors who opposed
the resolution. When the matter came up for orders
before the Company Judge an objection was raised
that the votes cast by the appellant on behalf of
the two creditor companies were not valid,
inasmuch as s. 153(2) of the Act requires that the
creditors should be present either in person or by
proxy at the meeting and that, in the present
case, the two creditor companies, being
corporations, could not be considered to have been
present at the meeting “in person”. The Company
Judge overruled the objection on the grounds that
it was raised at a late stage and that, in any
case, the votes were valid because the appellant’s
attendance at the meeting amounted to the
attendance of the companies “in person”. On
appeal, a Division Bench of the Patna High Court
rejected the contention that no appeal lay to the
High Court from the order of the Company Judge but
only to the Supreme Court and, on the merits, set
aside his order.
^
Held, that: (1) the word “Court” in s. 153(7)
of the Indian Companies Act, 1913, means the Court
exercising original jurisdiction, and. therefore,
an appeal from the order of the Company Judge lay
to the High Court under cl. 10 of the Letters
Patent;
(2) though under the General Clauses Act,
1897, a company is a “person” so that whenever the
word “person” is used in any statute a company
would be included thereunder, unless there is some
special provision by a law a company which is not
a physical person cannot “be present” at any place
“in person”; and
(3) in the present case the votes cast by the
appellant were not valid in law and it being
admitted that if the votes were invalid the
requisite majority of three-fourths in value
requisite under s. 153(2) of the Indian Companies
Act, 1913, would not be obtained and therefore no
further action could be taken by the Court in the
matter, the delay in raising the objection would
not entitle the Court to ignore the legal defect
of the votes.

 

JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 201 and 202 of 1961.
404
Appeals from the judgment and decree dated
May, 16, 1958 of the Patna High Court in L. P. As.
Nos 13 and 14 of 1957.
A. V. Viswanatha Sastri, R. K. Garg, M. K.
Ramamurthi, D. P. Singh and S. C. Agarwala, for
the appellants.
M. C. Setalvad, Attorney-General for India.
B. P. Rajgarhia and K. K. Sinha, for the
respondents.
1961. December 22. The Judgment of the Court
was delivered by
DAS GUPTA, J.-These appeals raise a question
as to the manner in which a creditor company can
validly cast its vote at a meeting of the
creditors held under the provisions of s. 153 of
the Indian Companies Act, 1913. The question
arises in connection with such a meeting held of
the creditors of the Gaya Sugar Mills Ltd. On
November 14, 1951, an order was made by the
Company Judge in the Patna High Court for the
winding up of the Gaya Sugar Mills Ltd. On October
6, 1953, an order was made by the learned Judge
for action to be taken under s. 153 of the Indian
Companies Act. Mr. G. C. Banerjee, who was
appointed Chairman to hold the meeting of the
creditors held separate meetings of the debenture-
holders, secured creditors and of the unsecured
creditors. In his Report he stated as regards the
meeting of the unsecured creditors that “thirty
unsecured creditors either in person or through
proxy attended and took part in the meeting,” and
that ultimately a resolution proposed by one of
the creditors, the Standard Vacuum Oil Company and
seconded by another creditor Shri K. C. Agarwal
was passed “by the creditors present by majority
in number as well as three-fourth in value.” It
appears that at this meeting one Arjun Prasad
claiming to represent two creditor companies,
viz., Bhandani Bros., and the Hindustan
405
Coal Company Ltd., cast his votes on behalf of
these two companies, in support of the resolution.
No objection was taken at the meeting to the
validity of these votes by any of the creditors
who opposed the resolution and the Chairman
proceeded on the basis that these votes were
validly cast. It is not disputed that if these
votes were not validly cast the requisite majority
of three-fourths in value would not be obtained.
When the application came up for final
hearing before the Court an objection was taken on
behalf of creditors who opposed the scheme that
the votes cast by Arjun Prasad on behalf of the
two creditor companies, viz., Bhandani Brothers
and the Hindustan Coal Company were not valid
votes and so the requisite majority of three-
fourths in value of the creditors had not been
obtained. The Company Judge was of the opinion
that there was no sufficient explanation as to why
the objection as to the validity of the votes was
not taken earlier and so the objection raised at
the late stage could not be entertained. On the
merits also he held that the resolution passed by
the creditor companies authorising Arjun Prasad,
to attend the meeting of the unsecured creditors
of the Gaya Sugar Mills Ltd., and vote on behalf
of the companies, were sufficient in law to make
his attendance at the meeting the attendance of
the companies “in person” and his voting on behalf
of the companies valid voting of the companies.
Accordingly, he rejected this objection.
On appeal a Division Bench of the Patna High
Court has allowed the objection, being of opinion
that the delay in raising the objection would not
entitle the Court to ignore the legal defect of
the votes and that in law the votes cast by Arjun
Prasad were not valid votes of these two creditor
companies, viz., Bhandani Brothers and the
Hindustan Coal Company. A contention that no
appeal
406
lay to the High Court from the order of the
Company Judge was rejected. Therefore, the learned
Judges set aside the order of the Company Judge as
to this part of the case. They, however, gave a
certificate that as regards the value and nature
of the case, it fulfils the requirements of Art.
133(1)(a) of the Constitution and is a fit one for
appeal to this Court. On this certificate the
present appeals have been filed.
Three points were raised before us by Mr.
Sastri in support of the appeals. The first is
that from the decision of the Company Judge, an
appeal lay to this Court and not to the High
Court. Secondly, it was urged that the objection
to the validity of the votes not having been taken
earlier should not be allowed to be raised for the
first time during arguments at the final hearing
of the application. Lastly, it was urged that the
votes were valid.
As regards the first point it is to be
noticed that sub-s. 7 of s. 153, which was added
in 1936 provides that an appeal shall lie from any
order made by the court exercising original
jurisdiction under the section to the authority
authorised to hear appeals from the decisions of
the Court. It therefore could not be disputed and
was not disputed that an appeal did lie from the
order made by the Company Judge on October 6,
1953. The controversy is whether the appeal lay to
this Court or the High Court. In other words, the
question is, which is the authority authorised to
hear appeals from the decisions of the Court ? The
“Court” here cannot but mean the Court exercising
original jurisdiction. When the Company Judge
exercises the jurisdiction he does it under the
provisions of s. 3 of the Companies Act which says
that the Court having jurisdiction under this Act
shall be the High Court having jurisdiction in the
place at which the registered office of the
company is situate. The authority authorised to
hear appeals from
407
appealable decisions of a Single Judge of the
Patna High Court when exercising original
jurisdiction lie to the High Court and not to this
Court. (Vide Clause 10 of the Letters Patent). It
necessarily follows that the appeal from the order
of the Company Judge lay to the High Court and not
to this Court. There is, therefore, no substance
in the first point raised on behalf of the
appellant.
The next contention that the objection cannot
be entertained for the first time at the final
hearing of the application appears to us to be
equally unsound. It is undoubtedly true that the
opposing creditors were guilty of negligence in
not drawing the attention of the Chairman to what
they considered to be a defect in the voting on
behalf of the two creditor companies, viz.,
Bhandani Brothers and the Hindustan Coal Co., and
no less negligence in not bringing this to the
Court’s notice at the earliest opportunity. Laches
on the part of some creditors cannot however
justify the Chairman or the Court in disobeying
the requirements of the Act. If in law the two
votes cast by Arjun Prasad for these two creditor
companies were not validly cast he three-fourth
majority requisite under s. 153, sub-s. 2, would
not be there and so no further action under s. 153
could be taken by the Court in the matter. How can
the Court turn a blind eye to the fact, if proved,
that on the basis of valid votes at the meeting
the requisite majority was not obtained, merely
because the Chairman’s attention was not drawn to
the defect or it was not brought to the Court’s
notice earlier ? In our opinion, the learned
Judges who heard the appeal were right in thinking
that however deplorable the delay by opposing
creditors in raising the objection might be, that
would not be a sufficient reason for refusing to
entertain the objection.
This brings us to the main question in
controversy, viz., whether the resolutions passed
by the
408
two creditor companies, viz., Bhandani Brothers
and the Hindustan Coal Company, authorising Arjun
Prasad to attend the meeting on their behalf and
to vote there on their behalf made Arjun Prasad’s
voting valid voting. Section 153(2) of the Indian
Companies Act is in these words :-
“If a majority in number representing
three-fourths in value of the creditors or
class of creditors, or members or class of
members, as the case may be, present either
in person, or by proxy at the meeting, agree
to any compromise or arrangement, the
compromise or arrangement shall, if
sanctioned by the Court be binding on all the
creditors or the class of creditors, or on
all members or class of members, as the case
may be, and also on the company, or, in the
case of a company in the course of being
wound up, on the liquidator and
contributories of the Company.”
The agreement has to be of a majority in
number representing three-fourths in value of
those who are present either in person or by proxy
at the meeting. The agreement of those who are not
present at the meeting either in person or by
proxy cannot be taken into consideration. Any
creditor whether a corporation or a natural person
can be present at a meeting by proxy. A natural
person can of course be present at a meeting “in
person”. Can a corporation be present at a meeting
“in person”? It appears to us that unless there is
some special provision by a law, a company which
is not a physical person cannot “be present” at
any place “in person.” It is true that under the
General Clauses Act, 1897, a company is a
“Person”, so that whenever the word “person” is
used in any statute a company would be included
thereunder. The definition in the General Clauses
Act can however be of no assistance in
interpreting the words “to be present in person”,
and the difficulty in the way of a company being
present in person can be obviated only by
statutory provisions or rules having the force of
law.
409
Nor can the appellant derive any assistance
from the English Case In re Kelantan Coco, Limited
and Reduced cited by the learned counsel. In that
case, the Court was dealing with a petition for
reduction of capital. In deciding whether the
special resolution to reduce the capital of the
company had been duly passed, the Court had to
consider whether there was a quorum at the
confirmatory meeting, at which one member of the
company and one representative appointed under
s.68 of the Companies (Consolidation) Act, 1908,
to represent a shareholder of the company, the
Eastern Development Corporation, Limited, were
present. The articles of Association provided:
“two members personally present shall be a
quorum.” It was held that a representative
appointed under s. 68 should be taken into account
in considering whether there was a quorum. The
provisions of s. 68 were similar to those of s. 80
of the Indian Companies Act, 1913, and thereunder
a company which is a member of another company
may, act as its representative at any meeting of
that other company. The presence of such a
representative was taken in the above case to
amount to personal presence of a member of the
company. The case does not deal with the question
of a creditor company.
In the Companies Act, 1956, a provision has
been introduced under which a company which is a
creditor of another company may by resolution of
its directors, authorises such person as it thinks
fit to act its representative at any meeting of
any creditors of the company held in pursuance of
the Act and a person authorised in this manner
shall be entitled to exercise the same rights and
powers (including the right to vote by proxy) on
behalf of the company, (s. 187(1)(b) and 2). No
such provision however is to be found in the
Indian Companies Act, 1913. It is unnecessary for
us to
410
consider whether under this new provision the
attendance of a person authorised in this manner
at a meeting of the creditors will amount to
attendance of the creditor company “in person”.
For, the present case is governed by the
provisions of the Indian Companies Act, 1913, and
not by this new provision.
When the Companies Act was amended in 1936,
an addition was made in s. 246 which empowers the
High Court to make rules, concerning the mode of
proceedings inter alia “for the holding of
meetings of creditors and members in connection
with proceedings under s. 153 of this Act.”
Accordingly, a number of Rules were framed by the
Patna High Court in exercise of this additional
power. Rule 144 of the Rules states that a
creditor or contributor may vote either in person
or by proxy. Rules 145 to 153 deal with various
questions as regards proxies. Of these Rule 150
lays down how a proxy is to be given where a
creditor is a corporation. Admittedly, no proxy in
accordance with Rule 150 was given by the two
creditor companies, Bhandani Brothers and the
Hindustan Coal Company, in the present case. There
is nothing in these rules which can assist Mr.
Sastri’s argument that a resolution by the
directors of the company authorising a director or
some other person to represent the company at the
creditors’ meeting makes him a “present in person”
in law for that company at the meeting.
Mr. Sastri’s last argument was that as the
business of the company has to be managed by the
directors and the directors can delegate any of
their powers to any one of themselves, the
attendance of Arjun Prasad at the meeting should
reasonably be construed as the attendance of all
the directors and so the attendance of the company
“in person”. As we have already indicated it does
not appear to us that in the Act of 1913 their is
any provision
411
for attendance of the company “in person”, but
apart from that we wish to point out that the
resolution made by the two companies do not appear
to us to delegate the powers of the directors to
Arjun Prasad.
The conclusion of the High Court that the
votes cast by Arjun Prasad on behalf of the two
companies., viz., Bhandani Brothers and the
Hindustan Coal Company, were not valid votes in
our opinion, correct.
The appeals are accordingly dismissed with
costs. One set of hearing fee.
Appeals dismissed.

 

 

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