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The Courts often have to derive implications from a particular provision where there isn’t enough matter to decide what all is included in that provision. Similarly, in this suit, the subject of whether an assignment of a post does include appointment and transfer is very well described by the Apex Court with relevant reference from the prior Companies Act and Judgments. This suit was filed originally in Civil Court of Bombay, where the parties were disputing the fact if a Director could appoint someone else for his post, as under Section 312 of the Companies Act 1956 it was stated that an assignment of his office by a Director of Company would be declared as void after the commencement of this Act. The case was further appealed in the High Court where it was stated that assignment did include appointment within its meaning and thus, the appointment of Director (appellant) was void. Further, the case was granted a certificate to appeal in the Supreme Court under Art 133(1)(c) of the Constitution, and detailed analysis regarding Section 312 was provided by the Court.
Statement of Facts
The facts of the case are, Dadoba Tukaram Thakoor was carrying a business in name of Oriental Metal Pressing Works and the private company was incorporated in name of Oriental Metal Pressing Works Ltd to take forward the above business. Dadoba was appointed as the Managing Director of the Company for life and also given the power “by Deed, inter vivos or by will or codicil to appoint any person to be Managing Director in his place and stead. The shareholders of the Company were Dadoba, his brother, Respondent Bhaskar, and his two sons, Appellant Govind, and respondent Harish. Out of these, the first three were the Directors of the Company.
When Dadoba died, he left a will stating that Appellant Govind shall be appointed as Managing Director of the Company in his place from the date of his death. But disputes between Govind and Bhaskar arose and it was stated by Govind, that Bhaskar had ceased to be Director as he failed to attend the Director’s meetings and appointed Bhalchandra in place of Bhaskar as Director. The respondent Bhaskar argued that he hadn’t ceased to be a director and challenged the legality of the appointment of Appellant Bhalchandra as Director and appointment of Govind as Managing Director by the Will of Dadoba as void. The suit was filed in Civil Court of Bombay against the Company, and the Judge accepted the prayer of Respondent Bhaskar and made him Director again, ceasing the appointment of Govind and Bhalchandra.
The Company further filed an appeal before the High Court of Bombay and it was heard by the Division Bench of two Judges and as they had different views, the case was further referred to another judge of the same High Court. Finally, the judgment came in favor of the appellant and appeal was dismissed and the decree of the Civil Court was confirmed. However, the High Court granted a certificate under Article 133(1)(c) of the Constitution to the appellant for approaching the Supreme Court. Thus, another appeal was filed before the Apex Court by the Company against the respondent Harish and Bhaskar.
But it should be noted that while the appeal was made before the Supreme Court, Bhaskar sold his shareholdings in the Company to the appellant himself and showed no interest in the Company or appeal. Even the other respondent Harish has not contested the appeal and is not interested in doing so. Thus, there have been no arguments presented against the appeal and whether Bhaskar continues to be Director or appointment of Bhalchandra was legally co-opted as Director are no longer the concerned issue. The main issue of contention is whether the appointment of appellant Govind as Managing Director by will of Dadoba was void in view of provisions of Section 312 or not. as Dadoba made his will and died after the commencement of the Companies Act 1956. Hence, these were the main facts of the case.
Issues of the Case
There are many issues involved within the case from its beginning, such as whether Bhaskar (respondent) ceased to be director, and Bhalchandra was co-opted legally as director. The major issues which were dealt by the Supreme Court are-
- Whether Section 312 of the Companies Act 1956, “assignment” includes “appointment” and “transfer” within its meaning
- Whether Section 255 and Section 312 contradict each other, if we want to consider that assignment includes “appointment”
- Whether the proviso of Section 86B of the Companies Act 1913 is analogous to Section 312 of the Companies Act 1956.
These are some of the essential issues dealt with by the Apex Court in this judgment while examining the entire issue of the case.
Contentions/ Arguments from both the sides
As Bhaskar (respondent) had sold off his holdings to Govind, he showed no interest in the appeal filed by the appellant and even Harish (respondent) was not interested in the appeal proceedings and thus no arguments were presented from the respondent’s side before the Supreme Court.
The High Court of Bombay in its decision took the word “assignment” in Section 312 to include “appointment” and thus declared that such appointment of his own office by the director of the Company would be declared as void. The contentions presented by the counsel of the appellant against the decision of the High Court are that the High Court was in error and no such concession was made and thus the decision of the High Court was not necessary to deal with as it was solely based on the concession.
The Attorney General representing the appellant respectfully disagrees with the judgment of High Court and gives reason for that as per Section 312 of the Companies Act, it only forbids the director from appointing his successors assuming that assignment does include appointment but it doesn’t prohibit a Managing Director from assigning his office or appointing his successor as done by Dadoba.
Further, the High Court noted that apart from “transfer” another meaning of “assignment” can be regarded as “appointment.” But the counsel disagreed to this point and stated that even in a plain reading “assignment” cannot mean “appointment” as “assignment of his office” would clearly mean that the office contemplated was one held by the director at the time of assignment and appointment to an office can be made only if the office is vacant. So, it can be inferred that the word “his” meant that an appointment by a director which he previously held but didn’t hold at the time of appointment couldn’t be included in the purview of “assignment.” If the section wanted to avoid appointment by the director of his successor, then it would have clearly mentioned it and not used the assignment for the meaning of appointment.
The counsel further contended that if, High Court wanted to include appointment to the meaning of assignment then it would have to give both the meaning of transfer and appointment in the section but it would lead to confusing results as both “transfer” and “appointment” are completely different in meanings. Transfer by its very basic meaning would mean the passing of a thing from one to another and appointment has nothing to do with the passing off from one to another even if it is in reference to an office; it connotes putting in someone where there is a vacancy. Thus, it would be an unfamiliar statute that would use a single word to prohibit completely two different acts. This kind of result is probably not permissible.
Further, the counsel of the appellant has also presented that Section 255 of the Companies Act has permitted one-third of a total number of directors of public companies and all directors of private companies to be appointed otherwise than by general meeting as per their Articles of the Company. Thus, even the act permits the appointment of a director apart from the company, and in order to appoint, there must be a vacancy of office which might be created by the Director himself by resigning from his office or death or by the expiry of his term. Thus, there is nothing illegal in exercising the power of appointment by the death of the director via his will and hence it won’t be right to interpret Section 312 when the language doesn’t compel to say so and also contradicts Section 255 of the Act. Thus, this is another reason to not include “appointment” within the meaning of “assignment” as it would be in contradiction to Section 255.
It was further stated that when power is given to choose his successor, the person can be described to have perpetual management. Thus, it is believed that if perpetual management is not evil by an outsider then such management by one who is already a director shouldn’t be evil too. This is very well explicit in the present case, as Dadoba was exercising his “perpetual management” as he held around 43% of the share of the company and it cannot be denied that perpetual management of his company would have been detrimental for his company. It is therefore difficult to submit that Section 312 prevented a Director from appointing his own successor.
Summary of court decision and Judgement
As the case was first filed before the City Civil Court of Bombay and High Court of Bombay, the judgment was given in favor of the respondent Bhaskar and thus, the appellant Govind and Company had to file an appeal before the Supreme Court for reversing the interpretation laid down by the High Court, that Section 312 assignment would include “appointment” within its meaning. The High Court of Bombay had relied on the first proviso of Section 86B of the Companies Act 1913 which was similar to Section 312 of the new Act. The proviso stated that “assignment of his office by a director to another person under an agreement with the company shall be void unless such assignment is approved by special resolution of the Company. But, in the new Act, there was no such proviso and it was considered void to assign the office by the director to someone else.
Thus, the Supreme Court has stated that Section 312 “assignment” couldn’t include “appointment” because if the enacting part of the provision doesn’t prohibit the appointment of his successor by the director, then such prohibition cannot be implied by reading into proviso of the Act which has been repealed. The Apex Court cited judgment with reference to the case, The Guardians of Poor of the West Derby Union v. The Metropolitan Life Assurance Society where Lord Watson stated, that if the language of the enacting part of the statute didn’t contain the provision which is said to occur in it, one cannot derive other provisions by its implication with a proviso.
As per Section 255 of the Act 1956, it has been stated that a certain number of Directors in Public company has to be appointed by the general meeting and in case of private companies, as the Articles of Company say so. But apart from general meeting appointment, it is intended that a certain number of directors should be chosen by shareholders. Thus, the director appointed by the shareholders will not have the liberty to assign his office to some other person, as it would defeat the purpose of Section 312, however, a Director who has been chosen in general meeting has nothing to do with the shareholders and the shareholders cannot claim a say in the appointment of successor of such director. Hence, Section 312 is not associated with such appointment of Director.
Thus, in the present case, Dadoba had the rightful power under the Articles of Company to appoint a person to be Managing Director after his death through the will. In exercise of such power under Section 255 of the Act, he did appoint Govind as the Managing Director to hold the office. This doesn’t affect the exercise of power under Section 312 and it can be ascertained that Govind was appointed as the Managing Director in a valid and lawful manner. The Supreme Court would hereby set aside the orders of previous Courts and the Court didn’t make any order for costs, as nothing of such has been prayed for. Therefore, the appeal is allowed by the Court.
Analysis of the case
The case in hand is a promising case with respect to provisions where there is ambiguity regarding their interpretation and the Court has to derive the appropriate interpretation of the provision in accordance with the suit filed. In this case, Section 312 of the Companies Act 1956 was in question whether “assignment” included “appointment” within its meaning. The main objective behind the provision was to restrain a Director from putting someone in his place and the section was incorporated to eradicate serious damages caused due to perpetual management of companies in the past.
As per the interpretation laid down by the High Court, it noted that the aim of Sec 312 would be defeated if “assignment” only included “transfer of office” and didn’t include ‘assignment of his office”. The main purpose of the High Court was to not keep the management in one hand and on the will of the Director. But with the appeal before the Apex Court, Section 255 of the Act 1956 was mentioned which didn’t disapprove of the director to appoint his successor, although this person would have what is known as “perpetual management”. As per the High Court, Section 254 and 317 of the Act indicate that there should be no perpetual management, section 254 states that no corporation or association of person are eligible to be the director, as “Director” is the post of trust and there should be someone readily available who can be held as responsible or liable to carry out the trust. Section 317 mentions that a Managing Director cannot be appointed for a term of more than 5 years at a time, which means he can be re-appointed. but these two provisions don’t find any relevance with respect to the case in hand.
After considering all the pointers made by the counsel of appellant, it was decided by the Apex Court, that Dadoba was capable of appointing someone for his office of Managing Director through his Will, as per the powers conferred to him under Section 255 of the Act. And the proviso of Section 86B of Companies Act 1913 was not to be relied upon for the present case of Section 312. Hence, the order passed by Supreme Court was fair and judicious in every way. The reasoning provided for the case by the appellant and Supreme Court is logical as well as supported with provisions and very much likely to influence all such judgments with regard to “appointment of Director” and “whether it is valid to appoint a Director”.
The judgment made by the Court has taken into consideration, all the points mentioned by the appellant and the reasonings given by the High Court in its previous judgment and stated that as per the Articles of the Company, Dadoba had the power to appoint a person as Managing Director as his successor and the exercise of such powers doesn’t defeat the objective of Section 312 of the Act. But the case could have got a different perspective if the respondents would have shown up and stated their counterpoints. It would have projected the view of respondents regarding how assignment could incorporate the meaning of appointment. Although, it might have not changed the judgment, but could have given a different direction to the case. Nonetheless, the present case shall act as a benchmark for other company-related judgments wherever there is the issue of whether assignment does include appointment within its meaning or not.
Thus, we can conclude that the present case turned out to be a prominent case in the genre of Company law, as it dealt with the ambiguity of Section 312 of the Companies Act, wherein the scope of the term “assignment” was interpreted by both High Court and Supreme Court but in different ways. The High Court of Bombay opined that “assignment” included the terms “transfer” and “appointment” within its meaning whereas the Apex Court had a different view and stated, that appointment could not be included within the meaning of assignment and they were totally different in meanings and if Section 312 included appointment within the scope of the assignment, then it would contradict Section 255 of the Act, which approves the appointment of someone for the office of director in case of death, expiry of the term of the previous director. Therefore, it can be said that the language of enacting part of the statute which doesn’t contain the provision is said to occur in it, then one shouldn’t derive other provisions by its implications.