A Chettiar v. Kaleeswarar Mills, AIR 1957 Mad 309

In this case the Madras High Court opined that a writ of Mandamus should only be issued if it is uniformity with Section 45 of The Specific Relief Act, 1877. In this case, no writ is issued because there are no rights of the plaintiff declared. Board of Directors are authorised to take appropriate decisions in the general meeting for the better functioning of the company by complying with the laid legal provisions.
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Introduction

In the A Chettiar v. Kaleeswarar Mills, a petition is filed under Article 226 of the Constitution of India for issuing the writ of Mandamus or any other appropriate writ by the Madras High Court. The court held that the power to issue writs should be applied on the basis of judicial precedents laid down. The court in the present case opined that to issue a writ of Mandamus it should fall in the ambit of Section 45 of the Specific Relief Act, 1877. Article 226 of the Constitution of India dispenses a wide range of power but it is only applicable if it is being issued to fulfil its public duty. Further, the Memorandum of Association and Article of Association is known as the constitution and the rules regulating the conduct of the company respectively. The company and its members are bound by its Memorandum and Articles of Association.

Facts of the case

The petitioners are a firm Al. Ar. Arunachalam Chettiar comprising of four other partners where as the first respondent is Kaleeswarar Mills Ltd. and there are eight more respondents who are the present directors of the company. The respondent No.1 is a limited liability company incorporated in 1903 which aimed at sustaining a business of spinning and weaving of yarn and the cloth. The petitioner firm played a huge role in the promotion of the company and to appreciate the role played by them, the company consented to include M/s. Al. Ar. Arunachalam Chettiar and the firm of Deevan Bahadur P. Somasundaram Chettiar as the Secretaries and Bankers of the company. The legal heirs, executors and administrators continue to hold the position in the company on the basis of heredity. Their positions as Secretaries and Bankers are also mentioned in the Memorandum of Association and Articles of Association of the company as Clause 6. Mr. P. Somasundaram Chettiar was also given an additional position of Local Agent for his life-time and after his death his successors will hold the position. After the death of the adopted son of Somasundaram Chettiar in March, 1950, Al. Ar. Kalairaja Chettiar was appointed as the local agent and ex-officio director. All the Secretaries and Bankers were also given commission by the company as a part of their remuneration. The positions keep on fulfilling on the hereditary basis till March, 1954, after which some noticeable and important changes were introduced in the management of company in the meeting held on 20th March, 1954.

The financial position of the company was adverse and the mill was inoperative for two weeks. The local agent also withdrew from his position for a period of two years and won’t be allowed to exercise any power. Sri P. S. S. Somasundaram Chettiar decided to advance the company with a loan of rupees 15 lakhs for mortgaging its assets. After the advancement of loan, he was designated as the General Manager of the company with all power in the management and the decision making of the mill for a period of two years or until the loan is repaid to him with interest. During this time all other Secretaries, Bankers and local agents withdrew from the managing agency whereas on 1st April 1956, new Companies Act was passed and on 7th April 1956, the Board of Directors met and passed a resolution and decided that all the Secretaries, Bankers and local agents would cease to hold the positions and all such posts would remain vacant whereas the General Manager will continue to exercise all the power assigned to him in the company. Therefore, the present petition was filed under Article 226 of the Constitution of India, to apply a pertinent writ to restrain the enforcement of resolution passed by the Board of Directors on 7th April 1956.

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Issues

  • Whether the rights of the petitioners are violated and an appropriate writ can be issued by the court.
  • Whether the resolution passed on 7th April 1956 was invalid and inoperative.
  • Whether the resolution passed is against the Memorandum of Association and Article of Association of the company.

Contentions from both the sides

Petitioners

  • The learned Counsel for petitioner contended and drew the attention of the court towards Section 36 and Section 291 of the Companies Act, 1956. He further pointed that company and its members shall be bound by the Article of Association and Memorandum of Association. Section 291 defines the powers of the Board of Directors and the acts they are authorised to do.
  • The petitioners contended that they cannot be removed from the position of Secretaries and Bankers as per Section 136 of the Companies Act, 1956 until they themselves have resigned or got involved in any fraud against the company. They also contended as long as memorandum and articles of association remains un-amended the directors cannot remove the petitioners from their positions. 

Respondents

  • The learned Counsel for respondents contended that a writ of Mandamus should not be exercised or issued under Section 50 of Specific Relief Act, 1877.  
  • The learned Counsel contended that Kalairaja Chettiar discontinues being the ex- officio director of the company because he was absent for the last two consecutive general meetings of the company.

Summary of court decision

The court, therefore, relying on several judicial precedents in A Chettiar v. Kaleeswarar Millsis of the opinion that circumstances of the case do not ask for the issue of a writ of Mandamus or any other appropriate writ. Article 226 does not provide such a wide power to the court to issue the writ against any person and for any reason. In the A Chettiar v. Kaleeswarar Mills case, it was held that wide power under Article 226 is not absolute and the writ can only be issued on the basis of well-established principles. The writ of Mandamus is only permitted if the circumstances of the case are falling under Section 45 of the Specific Relief Act, 1877. The adoption of this resolution was not a public duty exercised by the company. It was a matter between the company and the petitioners for certain private rights claimed by the petitioner. There was no sort of public duty involved in Section 45 to be applicable. Therefore, there was no violation of the rights of the petitioner and the resolution passed on 7th April 1956 was valid and operative and the petitioners are no longer the secretaries, bankers, and local agents of the company. The court further opined that the rights claimed by the petitioners are agency rights included in the Memorandum and Articles of the company and are binding upon the company and its members. The provisions in the memorandum and articles of association are a contractual agreement between the company and the petitioners in regard to its managing agency rights. Therefore, the court in A Chettiar v. Kaleeswarar Mills held that although it is incorporated in the memorandum and articles of the company, the memorandum and articles are nothing more than documented evidence.

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Analysis

The judgment delivered in A Chettiar v. Kaleeswarar Mills by the court was against the submission of the Counsel for the petitioners. The decision of the court was appropriate on the grounds that the writ of Mandamus should be issued when the issue falls in the ambit of the public domain and in the present case it was to forbear the resolution between the company and the petitioners and no public duty is involved. The decision given by the Madras High Court is in uniformity and on the basis of several judicial precedents. The petitioners primarily claimed that the resolution was invalid and inoperative and the respondents have no right to remove them from their position. The court concluded that the agreement between the company and the firm is a contractual agreement and for the issue of a writ of Mandamus it is contended that the person or company against whom it is asked must function in its public character. As per Section 291 of Companies Act, 1956  Board of Directors are authorized to take appropriate decisions in the general meeting for the better functioning of the company by complying with the laid legal provisions. The honourable court justified its decision through appropriate reasoning that as per director’s resolution the positions of Secretaries, Bankers, and Local Agents have been vacated and they were not in possession of the office and the only object of the petition was to declare the rights they alleged. 

Conclusion

Hence, as decided by the court it is clear now that power to issue writs should always be in accordance with the precedents that have been laid down. The petition filed by the petitioners was dismissed on the grounds that meeting held was valid and the resolution passed was in the limits of law. The writ of mandamus is to be issued according to Section 45 Special Relief Act, 1877 and not just to declare the rights of the plaintiff.

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