Khetan Industries Pvt Ltd. v. Manjuravindra Prasad (1965) 16 CLA 169

The case mentioned is concerned with the dilemma about the jurisdiction of the court with reference to Indian Trusts Act, 1982. The current petition is filed over a dispute for the maintainability of a suit and the right jurisdiction for the same.
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Introduction

The case mentioned is concerned with the dilemma about the jurisdiction of the court with reference to the Indian Trusts Act, 1982. The current petition is filed over a dispute for the maintainability of a suit and the right jurisdiction for the same. The next question put up before the court revolved around whether the removal of a director of a company should be a matter of the dispute decided by the company based on its internal policies or as per the Indian Companies Act, 1956 therefore, it must be referred for the proper perusal to know the scope of the matter.

This case was particularly for the decision of not a concrete legal problem which needed legal assistance rather the one which required guidance for the right direction being given to the case along with clarity for redressal forum. It required the input of the court to resort to the Act to seek relief and an order to appeal before the right jurisdiction. The case comment being analysed is the revision application of the first order about the same case which has been challenged.

Facts

A petition was filed before the trial court of Bombay by Manjuravindra Prasad (defendant), who was the plaintiff in the original suit for the declaration and injunction from acting trustees of the company and remove them from the post of the directors along with the prayer to stop them from the dealing or disposal of any asset of the same against Khetan Industries Private Ltd. (respondent) defendants originally.  The plaintiff wanted the disclosure of the dealings done by the directors in respect of the Rs. 66 lakhs and any interest accrued on it in consideration for the sale of the Dye House of the company.

The defendants contended that the suit of removal of defendants from the trusteeship and restraining them from functioning as trustees in view of the provisions of sections 73 and 74 of the Indian Trusts Act, 1982 is not maintainable since the proper forum for such relief is the High Court of Bombay. Now for the removal of directors in view of the provisions of the Companies Act, no suit is maintainable since the remedy is provided under the mentioned act. But the decision was negative in favour of the defendants and the court held that it had jurisdiction to try and decide both the issues. Thus the defendants challenged the given order.

Eventually in the current petition[1] by the respondent (Khetan Industries Private Ltd.) it was decided that Bombay High Court is the principal court in reference to the principal court stated in the Trusts Act and not the Civil Court according to The Bombay City Civil Court Act, 1948. In light of the second contention it was decided that the Civil Court has no right to interfere in the internal management of a company and the Companies Act already provides for the removal of directors. Therefore, it will also provide for the machinery to seek relief.

Issues

  1. Which court has the jurisdiction pertaining to the removal of trustees under the Chapter 7 of the Indian Trusts Act, 1982 in Bombay?
  2. Whether the court or a private company has the power to decide for the removal of the directors under the Companies Act, 1956?

Relevant Laws

  1. Chapter 7 of Indian Trusts Act, 1982

This section deals with the vacating of the office of the trustee.

Section 73[2]– It deals with the appointment of new trustees on death, etc.

“Whenever any person appointed a trustee disclaims, or any trustee, either original or substituted, dies, or is for a continuous period of six months, absent from 1[India] or leaves 1[India] for the purpose of residing abroad, or is declared an insolvent, or desires to be discharged from the trust, or refuses or becomes, in the opinion of a principal Civil Court of original jurisdiction, unfit or personally incapable to act in the trust, or accepts an inconsistent trust, a new trustee may be appointed in his place.”

Section 74[3]– It deals with the appointment of a new trustee by the court created by such a vacancy.

“Whenever any such vacancy or disqualification occurs and it is found impracticable to appoint a new trustee under section 73, the beneficiary may, without instituting a suit, apply by petition to a principal Civil Court of original jurisdiction for the appointment of a trustee or a new trustee, and the Court may appoint a trustee or a new trustee accordingly”.

  1. Section 169

Chapter XI of Companies Act, 2013 deals with the appointment and qualifications of the directors. It also has the provision for removal of the directors of the company.

“Directors as defined by companies act as a person elected or appointed to the board of directors of the company, who with other directors have the responsibility of determining and implementing the company’s policy”.

This section is corresponding to section 284 (Removal of directors) of the 1956 Act. All other provisions of the current act are similar except for the penalty and eligibility criteria. The punishment for contravention of this section has now been increased. Earlier members having only one share could give special notice for the removal of director but now in accordance with section 115 of the new act[4] a specific limit has been imposed for the members to send special notice to pluck the misuse. The effect of proviso to section 284(1) of the old act, 1956 has been removed in the new act, 2013.

This section comes into use when a director is to be removed from the company. It lays down the procedure for the removal of the director which needs to be followed for a valid and legal removal. Along with that it also gives an opportunity to the directors for proper representation against the charge and thus protects their rights of being wrongfully terminated.

Judgment and Decision

The original petition filed in trial court of Bombay by the appellants in which the injunction of the trustees and barring them from the disposal and dealings in the asset of the company along with the suit filed for the removal of the directors was maintained and the judges accepted to try both the issues.

This order was challenged by the current petitioners on the basis of the contention that the trial court is not the principal court of the original jurisdiction of Bombay under the Indian Trusts Act, 1982 according to sections 73 and 74. Along with the second question that the removal of directors is not an issue to be tried by the court since the remedy for that is already mentioned in the Companies Act, 1956.

The following judgement was given by the court on the basis of the precedent set by Chatrabhuj Mavji Merchant v. Sumati Morarjee[5] where the suit was filed for the injunction and declaration for the alleged breach of trust by the trustees, restraining them from the disposal and dealings of the property in Bombay Civil Court. The petition was dismissed and another case was filed in the High Court whether the City Civil Court had the jurisdiction to try the suit or not. It was decided that the trusts related suits have to be filed in principal courts according to the Indian Trusts Act and as far as Bombay is concerned, the ordinary civil jurisdiction is vested in the High Court. The territory covered includes the villages of Suburban Bombay District and Thane District by the original civil jurisdiction of the High Court. The Bombay City Civil Court Act, 1948, in terms, speaks of the City Court being “an additional Civil Court for Greater Bombay”. Therefore, it was decided that the principal civil court for Bombay is the High Court and the suit related to the removal or appointment of new trustees can only be maintained there.

It was decided by the court that Chapter 2 of Part VI of the Companies Act provides for the management and administration of the companies. Particularly Section 284 deals with the removal of the directors. The judgement said that the Act already embodies all the procedures of appointment and removal within it and therefore it must have its own machinery for the relief or enforcement of wrongful termination or dismissal and hence it is not the matter of the court to decide and interfere in the internal matters of the company. Thus, both the issues before the court were decided in the negative.

Analysis

After a detailed analysis of the judgement according to my opinion the order given by the court is a fairly decided matter and a proper direction given to the defendants for the application to the right forum. The court did not interfere in the matter ultra vires to its jurisdiction and also it refrained from trying such case which has the power to be decided by the Act instituted for such matters.

Also the court took several precedents into consideration including P.R. Gelani v M/s. Beharilal Beniprasad[6] which also stated the same decision and thus it became easy and clear regarding the action to be taken. Also the position of the High Court as a principal court was not affected by the enactment of the Bombay City Civil Court Act, 1948 and creation of the Bombay City Civil Court.

The judgement about the removal of directors in my regards is precise and a good one since the court has the power to give directions on the procedure followed by the company for the removal of directors is as per the guidelines and not the actual decision regarding the appointment or the removal of the same since the provisions for them have already been given in the act and they should be considered. The judiciary has no right to interfere in the internal matters of the company whose rules have been pre-set and there is a machinery for the redressal which must be given importance regardless of the legal route.

According to Section 169 of the Indian Companies Act, 2013 states the procedure for the removal of the director. Section 169 of the Companies Act, 2013 states that the shareholders can remove the director by passing an ordinary resolution in a general meeting.All the directors are responsible to the shareholders. They can remove the director even before his tenure is completed unless they are appointed by the Tribunal for the prevention of oppression and mismanagement or a director appointed proportional representation.This right cannot be taken away by the MOA, AOA, or any document or any agreement. Through this the situation of the current laws is also clear and coinciding with the previous judgement, therefore this case can be set as a precedent for upcoming cases due to its consistency with the present regulations and rules.

Therefore the Court and earlier precedents are logically and legally apt according to the current laws and ideology of the society.

Conclusion

According to me the concluding of this case by giving it a title of an ideal judgement would be the best interpretation since the court had no ulterior motives and provided for the best judgement and guidance to the respective appellants to get justice for the issue in question. The courts are required to show the right path to the people and provide for the remedy in the best possible way which was given in this judgement. It also gives a lesson to not interfere in the private matters of an institution to which it had no authority.

The case is a best example of trust related suits and provides knowledge to resort to the acts and memorandums issued in the interest of certain matters before going to the judiciary and increasing the unnecessary burden of the Indian Courts but it also gives the people an assurance that they will be led correctly and legal guidance will be provided for the procedural and technical issues.

Also read Oakbank Oil Company v. Crum


[1] Khetan Industries Pvt. Ltd. v. Manjuravindra Prasad (1995) 16 CLA 169.

[2] Indian Trusts Act, 1982.

[3] Indian Trusts Act, 1982

[4] Companies Act, 2013, No. 18, Acts of Parliament, 2(34) (2013).

[5] Chatrabhuj Mavji Merchant v. Sumati Morarjee, A.I.R. 1992  Bom.C.R. 289.

[6]  P.R. Geglani v. M/s. Beharilal Beniprasad, A.I.R. 1978 Bom. 255.