PETITIONER:
ORIENTAL METAL PRESSING WORKS (P.)LTD.
Vs.
RESPONDENT:
BHASKAR KASHINATH THAKOOR &ANOTHER
DATE OF JUDGMENT:
16/12/1960
BENCH:
SARKAR, A.K.
BENCH:
SARKAR, A.K.
IMAM, SYED JAFFER
DAYAL, RAGHUBAR
CITATION:
1961 AIR 573 1961 SCR (3) 329
ACT:
Company-Managing director appointing his successor by will Validity–’As
signment’, Meaning of–Companies Act, 1956 (1
of 1956), ss. 312, 255.
HEADNOTE:
By s. 312 of the Companies Act, 1956, “Any assignment of his
office made after the commencement of this Act by any direc-
tor of a company shall be void.”
42
330
The managing director of a private company, empowered by the
terms of the agreement between him and the company and the
articles thereof to appoint, by deed or by will, any person
to be the managing director in his place and stead, died
leaving a will whereby he appointed one of the appellants
the managing director in his place from the date of his
death. The High Court took the view that the word
‘assignment’ in the section included ‘appointment’ and as
such the appointment in question was void.
Held, that S. 312 of the Companies Act, 1956, cannot be
interpreted in such a way as to bring it into conflict with
S. 255 of the Act since its language does not compel such an
interpretation. The word ‘assignment’ in that section does
not mean appointment and the section is intended to render a
transfer of his office by a director void and not an
appointment by him of his successor.
Section 255 of the Act, which expressly permits directors to
be appointed otherwise than by the company, shows that, sub-
ject to the limit as to numbers prescribed by it, a
director, authorised by the articles of the company, can
appoint another to take his office when rendered vacant by
his resignation or death or on expiry of his term of office.
The proviso to s. 86B of the old Act cannot lend any support
to the argument that the word ‘assignment’ in s. 312 of the
new Act includes ‘appointment’.
The Guardians of the Poor of the West Derby Union v. The
Metropolitan Life Assurance Society, [1879] A. C. 647,
referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 10 of 1960.
Appeal from the judgment and decree dated February 24, 1959,
of the Bombay High Court in First Appeal No. 540 of 1958.
M….C. Setalvad, Attorney-General for India, A. P. Bhatt,
Rameshwar Nath, S. N. Andley, P. L. Vohra and J. B.
Dadachanji, for the appellants.
The respondent did not appear.
1960. December 16. The Judgment of the Court was delivered
by
SARKAR, J.-Dadoba Tukaram Thakoor carried on a business
under the name and style of Oriental Metal Pressing Works.
On May 26,1955, a private company was incorporated under the
name of Oriental Metal Pressing Works Ltd., hereafter called
the Company,
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to take over the aforesaid business. On July 7, 1955,
Dadoba transferred his business to the Company. On the same
date, an agreement was made between him and the Company by
which he was appointed the managing director of the Company
for life and was given the power “by deed inter vivos or by
will or codicil to appoint any person to be a managing
director in his place and stead”. Regulation 109 of the
articles of the Company reproduced these provisions. The
shareholders of the Company were Dadoba, his brother, the
respondent Bhaskar, and his two sons, the appellant Govind
and the respondent Harish, of whom the first three were the
directors, Dadoba being the managing director. This
constitution of the Company continued till Dadoba’s death on
January 14, 1957.
Dadoba had died leaving a will whereby he purported to
appoint the appellant Govind the managing director of the
Company in his place from the date of his death. Shortly
after Dadoba’s death, disputes arose between the appellant
Govind and the respondent Bhaskar. The appellant Govind was
contending that the respondent Bhaskar had ceased to be a
director on account of his failure to attend the directors’
meetings. He also purported to co-opt the appellant Bhal-
chandra as a director. The respondent Bhaskar contended
that be had not ceased to be a director and challenged the
legality of the appointment of the appellant Bhalchandra as
a director. He further contended that the appointment of
the appellant Govind as the managing director of the Company
by the will of Dadoba, was void. On November 22, 1957, the
respondent Bhaskar filed a suit in the City Civil Court of
Bombay against the Company, the appellants Govind and
Bhalchandra and the respondent Harish for the following
declarations and for reliefs incidental thereto:
(a)..the appointment of the appellant Govind as the managing
director was void;
(b)..the appointment of the appellant Bhalchandra as
director was illegal and inoperative; and
(c)..he (the respondent Bhaskar) was and continued to be a
director.
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The learned Judge of the City Civil Court accepted all the
contentions of the respondent Bhaskar and made the
declarations claimed.
The Company and the appellants Govind and Bhalchandra
appealed from this decision to the High Court at Bombay.
The appeal came up for hearing before a bench of two learned
Judges of that Court. These learned Judges having taken
different views, the matter was referred to another learned
Judge of the same High Court. In the eventual result
according to the opinion of the majority of the learned
Judges, the appeal was dismissed and the decree of the City
Civil Court was confirmed. The High Court however granted a
certificate under Art. 133(1)(c) of the Constitution and the
present appeal has been filed by the Company, Govind and
Balchandra pursuant thereto. The respondents to this appeal
are Bhaskar and Harish.
It appears that while the appeal was pending in this Court,
the respondent Bhaskar sold his holding in the Company to
the appellant Govind and has now no interest in the Company
or the appeal. No one has consequently appeared to contest
the appeal in this Court, the respondent Harish apparently
not being interested in doing so. In these circumstances,
the questions whether the respondent Bhaskar continues to be
a director and whether the appellant Bhalchandra was legally
co-opted as a director are no longer live issues and have
not been canvassed in this appeal. On those questions
therefore we express no opinion. Another result, rather
unfortunate, has been that we have not had the advantage of
arguments against the appeal.
The Courts below held that the appointment of the appellant
Govind as managing director by the will of Dadoba was void
in view of the provisions of s. 312 of the Companies Act,
1956. That section reads thus:
S…..312. “Any assignment of his office made
after the commencement of this Act by any
director of a company shall be void.”
The Act came into force on April 1, 1956 and Dadoba had both
made his will and died, after that date. The appointment of
the appellant Govind as managing
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director was, therefore, made after the commencement of the
Act.
Now, s. 312 makes the assignment of his office by a director
void. It does not on the face of it, say that an
appointment by a director of another person as the director
in his place, would be void. The High Court, however, took
the view that the word “assignment” in the section included
“appointment”, and so, such an appointment would also be
void under the section. What we have to decide is whether
the High Court was right in this view.
Before we proceed to examine this question, we have to point
out one thing. It appears that the High Court thought that
the appellants- had conceded that an appointment by a
director of another in his place by act inter vivous be an
assignment of the office of a director within s. 312, and
had only contended that such an appointment by will, which
is what had been done by Dadoba, would not be an assignment
and would not therefore be rendered void by the section.
The learned Attorney-General, appearing for the appellants,
said that in this the High Court was in error and no such
concession had been made. He further expressly withdrew
that concession. This he was clearly entitled to do. It,
therefore, becomes unnecessary for us to deal with the
seasonings of the High Court in support of the view accepted
by it, which were based on the concession.
We have given the views of the High Court a most respectful
and anxious consideration but we do not find ourselves able
to agree with them. We will presently state our reasons for
this conclusion, but now we wish to point out that in the
view that we have taken of the matter it will not be
necessary for us to deal with the argument advanced in the
High Court that the section only forbade a director from
appointing his successor, assuming assignment included
appointment, but it did not prevent a managing director from
assigning his office, or appointing his successor which was
what Dadoba had done. If the section did not prevent a
director from appointing his successor, which we do not
think it did, then, clearly, there is nothing
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in it which can justify the view that a managing director
cannot appoint his successor.
The section says that a director shall not be able to assign
his office. It may be, as the High Court pointed out, that
apart from “transfer” another meaning of the word
“assignment” is, “appointment”. But on a plain reading of
the language used in the section, it does not seem to us
possible to hold that the word “assignment” in it, can mean
“appointment”.
First, the section talks of “assignment of his office” by a
director. The word “his” would indicate that the office
contemplated was one held by the director at the time of
assignment. An appointment to an office can be made only if
the office is vacant. It is legitimate, therefore, to infer
that by using the word “his” the Legislature indicated that
an appointment by a director to the office which he
previously held but did not hold at the date of the
appointment, was not to be included within the word
“assignment”. Again, there can be no doubt that the section
was intended to render void a transfer of his office by a
director for, if the section had intended only to avoid an
appointment by a director of his successor, it would have
clearly said so and would not have used the word
“assignment”. Therefore, even if it is possible for the
word “assignment” to have the meaning of “appointment”, then
it would have to be given both the meanings of “transfer”
and “appointment” in the section. This is what the High
Court did. That would produce a curious result. Transfer
and appointment are clearly entirely different things. Even
apart from considerations arising from the law of
conveyance, which the High Court was unable to entertain in
connection with the transfer of an office, a transfer from
its very nature inevitably imports the passing of a thing
from one to another; a transfer without the passing of the
thing transferred, even when that thing is an office, cannot
be conceived. An “appointment”, on the other band, has
nothing to do with anything passing from one to another; it
connotes the putting in of someone in a vacancy. The acts
constituting a transfer and an appointment are
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therefore wholly dissimilar. It would be an unusual statute
which by the use of a single word intended to prohibit at
the same time, two wholly different acts. We do not think
that a construction leading to such a result is permissible.
Secondly, s. 255 of the Act permits one-third of the total
number of directors of a public company and all the
directors of a private company to be appointed otherwise
than by the company at a general meeting, if the articles
make provision in this regard. The Act therefore expressly
permits directors to be appointed otherwise than by the
company. It follows that within the limit as to the number
prescribed by the section, a power of appointment of
directors can be legitimately conferred by the articles on
any person including one who holds the office of a director.
The Act expressly permits such power being conferred. In
order, however, that a director may exercise this power of
appointment, there must be a vacant office of a director.
He may himself bring about that vacancy by resignation of
his office. The vacancy would again be caused by his death
or by the expiry of the term of his office. It would follow
that the Act contemplates an appointment by a director of
another person as director to take his office, when made
vacant by his resignation or death or the expiry of the term
of his office. There will be nothing illegal, if the power
is exercised in the case of the death of the director, by an
appointment made by his will. It will not be right so to
interpret s. 312, when its language does not compel it, as
to bring in conflict with the provisions of s. 255. This
would happen, if the word “ assignment”in s. 312 was
interpreted as including “appointment” and thereby making it
prevent a director from appointing his successor when s. 255
permits him to do that. Therefore again we think that in s.
312 the word “assignment” does not mean “appointment”.
The High Court was of the view that unless ”assignment”
included “appointment”, the object of ,the Act would be
defeated. It was said that the intention and the object of
the section was to restrain and
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prevent a director from putting some one in his place and
stead by any act on his part. This point was further
expressed more clearly in the following words: “It is now
well understood that the new Companies Act, aims at
eradicating many serious mischief which the principle of
perpetual management of companies had caused in the past”.
The High Court felt that it would be defeating that aim by
reading s. 312 as if the words “assignment of his office”
only meant a “transfer of office” and did not include the
appointment of his successor by a director. Apparently the
High Court thought that by making it possible for a director
to choose his successor, the management of the company would
be permitted to remain all along in one hand and this the
Act wanted to prevent. It does not seem to us that the Act
wanted to prevent this. The act by enacting s. 255 shows
that it does not disapprove of a person having power to
appoint a succession of directors and in the case of a
private company, a succession even of all the directors.
Such a person would have what has been described as “per-
petual management”. It would follow that the Act did not
consider this as an evil which required prevention. If perpetual ma
nagement by an outsider is not an evil, nor
would such management by one who is a director of the
company be so. This aspect is very clearly illustrated by
the case in hand. Dadoba had this “perpetual management”.
But the whole of the Company’s undertaking was really a
largess from him. In fact he held nearly 43% of the shares
of the Company. It is inconceivable that perpetual manage-
ment by him would have worked to the detriment of the
Company. We are therefore unable to agree that it was the
object of the Act or of s. 312 to prevent a director from
appointing his successor.
In view of the clear provisions of s. 255 we do not think
that it can be said, as was done in the High Court, that ss.
254 and 317 of the Act, impliedly indicate that there should
be no perpetual management. Section 254 says that a
corporation or an association of persons shall not be
eligible as a director. But this is not because, otherwise,
there would be perpetual
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management. The persons comprising the corporation or the
association must change from time to time and so, even if
they were appointed directors, there would be no perpetual
management. We rather think that the idea behind s. 254 is
that as the office of a director is to some extent an office
of trust, there should be somebody readily available who can
be held responsible for the failure to carry out the trust
and it might be difficult to fix that responsibility if the
director was a corporation or an association of persons.
Turning to s. 317, we find that it provides that a managing
director cannot be appointed for a term exceeding five years
at a time. Section 315 however makes s. 317 inapplicable to
a private company. Therefore, s. 317 is not available to
support an argument that the Act does not want a private
company-and we are concerned with that type of a company-to
be under perpetual management. But indeed s. 317 does not
support that argument in the case of a public company
either. It forbids an appointment of a managing director
for more than five years “at a time”. It permits the
managing director to be reappointed after a term is over.
If he is so reappointed, then there would be “perpetual
management” by him. The Act does not, therefore, intend by
s. 317, to prevent that. Lastly, s. 317 is not concerned
with the directors, which s. 312 is.
Another argument that has to be dealt with is that if s. 312
does not prohibit an appointment by a director of his
successor, that section can easily be rendered infructuous
by a director adopting the simple device of appointing a
person as his successor in office instead of transferring
the office to him. It seems to us that the question does
not really arise. A director can legally and effectively
appoint his successor only to the extent the articles permit
this subject, of course, to the limit prescribed in s. 255
in the case of a public company. An appointment so legally
made does not result in an evasion of s. 312 for, as we have
earlier said, the section could not have intended to prevent
what another section in the same
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338
Act made legal. An appointment made outside the powers
legally conferred by the articles is wholly ineffective’ and
therefore is not an appointment at all and hence again, does
not result in an evasion of s. 312.
We have now to consider an argument based on the first
proviso to s. 86B of the Companies Act of 1913. The main
part of s. 86B contained a provision analogous to that of s.
312 of the new Act. It made an assignment of his office by
a director to another person, under an agreement with the
company, void, unless such assignment was approved by a
special resolution of the company. Under the new Act the
assignment has been made altogether void and would not
become valid even if approved by a special resolution of the
company. Now, the proviso laid down that the exercise by a
director of a power to appoint an alternate director to act
for him during an absence of not less than three months from
the district in which meetings of the directors are
ordinarily held, if done with the approval of the board of
directors, would not be deemed to be an assignment of office
within the meaning of this section. The High Court took the
view that this proviso showed that in certain circumstances
an appointment by a director of another in his place might
be deemed to bean assignment of his office and that since
the new Act is a consolidating Act, it must be deemed to
have continued the policy of the earlier Act and, therefore,
for the purpose of s. 312, an “assignment” must include an
“appointment”.
The learned Attorney-General pointed out that in the new Act
there is no proviso, and therefore the rule of construction
applied by the High Court, which enables by raising a
presumption, something to be included in the main part of a
section by reason of a provision in a proviso to it, has no
application to the new Act for, here the provision in the
proviso has been enacted in the form of an independent
section, namely, s. 313. According to him, this departure
from the old arrangement of the provisions, in the new Act
shows that it was not intended to continue the policy
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of the old Act. He also said that the proviso in substance
stated that the appointment by a director of an alternate
director might in certain circumstances be deemed to be an
assignment. He pointed out that by using the word “deemed”
the proviso made it clear that the appointment of an’
alternate director was not a real assignment of office but
was only to be fictionally taken as one. His contention was
that such fiction could arise in a case coming strictly
within the proviso but could not by extension be made to
arise in any other case. These seem to us to be arguments
of weight. Further in s. 313 of the new Act, which has
taken the place of the first proviso to s. 86B of the old
Act, the power to appoint an alternate director hag been
given to the board and not to the director who intends to
absent himself No scope for any deeming provision as in the
Act of 1913 remains. Therefore again an argument based on
the proviso to s. 86B would not be available for the purpose
of the present Act.
It further seems to us that the proviso to s. 86B does not
indicate that it was intended that the word “assignment” in
the main part of the section would include “appointment”.
The rule of construction on which the High Court relied in
arriving at the view that it did, was put in these words:
“It is a well established principle of construction that
when one finds a proviso to a section, the presumption is
that but for the proviso the enacting part of the section
would have included the subject matter of the proviso.” This
rule would enable the court to hold in regard to s. 86B at
the most that an appointment of an alternate director by a
director intending to absent himself would have been an
assignment of his office but for the proviso. It would be
an unwarranted extension of this principle to hold that all
appointments of their successors by directors would be
assignments within the main part of the section. In any
case, in our view, as in s. 312 of the new Act, so under
the main part of s. 86B of the old Act, an appointment of a
successor to his office by a director, was not an
assignment of his office by him for, the old Act contained
in s. 83B,
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provisions substantially similar to those contained in s.
255 of the new Act., and the reasons which have inclined us
to the view that in s. 312 the word “assignment” does not
include “appointment” would equally lead to the same
conclusion in regard to s. 86B. If the enacting part did
not prohibit the appointment of his successor by a director,
such prohibition cannot be read into it, in reliance upon a
proviso. We may read here the observations of Lord Watson
in The Guardians of the Poor of the West Derby Union v. The
Metropolitan Life Assurance Society (1)
“I am perfectly clear that if the language of
the enacting part of the statute does not
contain the provisions which are said to occur
in it, you cannot derive these provisions by
implication from a proviso.”
It may be that the proviso was enacted ex abundanti cautela
or it may be again, to prevent a possible argument that by
the appointment of alternate directors an evasion of the
main part of s. 86B was being attempted. In view of the
fact that the power to appoint alternate directors was not
given by the old Act, but had to be given by the articles,
such an argument might not have been unlikely. Therefore,
it seems to us that the proviso to s. 86B of the old Act
does not assist the argument that in s. 312 of the new Act,
the word “assignment” would include “appointment”.
We think we ought to say something about what strikes us to
be the policy behind s. 312 of the new Act. We have earlier
said that under s. 255 of that Act a certain Dumber of
directors in a public company has to be appointed by the
company in a general meeting. In the case of a private
company likewise, the directors have to be appointed
similarly except to the extent the articles otherwise
provide. It would therefore appear to be the policy of the
Act that to a certain extent the appointments of the
directors have to be made by the shareholders. It is
intended that a certain number of directors would be the
chosen representatives of the shareholders. If a director
appointed
(1) [1897] A.C. 647, 652.
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by the company was permitted to assign his office, then the
new incumbent would not be the chosen representative of the
shareholders, and the intention of the Act would be
defeated. It seems to us that it is to prevent this result
that the Act forbids a director by s. 312 from assigning his
office. Where however a director has been appointed
otherwise than by the company in a general meeting, the
shareholders have nothing to do with his appointment. Such
a director is not the chosen representative of the
shareholders and the shareholders cannot claim to have a say
in the appointment of his successor. We can discern no
policy in the Act which can. be said to be liable to be
defeated by the appointment of the successor of such a
director by him. Therefore s. 312 was not concerned with
such an appointment.
In the present case Dadoba had power under the articles to
appoint a person to be the managing. director in succession
to him, and in exercise of that power he bad appointed the
appellant Govind as the managing director to hold the office
after his death. Such power was clearly recognised by, and
legal under, s. 255 of the new Act. For the reasons earlier
stated, the exercise of such power does not offend s. 312.
It follows that the appellant Govind had been lawfully and
validly appointed the managing director of the Company.
We, therefore, declare that the appellant Govind had been
validly appointed the managing director of the Company, and
set aside the decisions of the Courts below that he had not
been so appointed. We have not been asked to interfere with
the rest of the judgment under appeal and we do not do so.
We also make no order for costs as no costs have been asked.
Appeal allowed.
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