Patna High Court
Registrar Of Companies vs Bihar Investment Trust Ltd. (In ... on 5 May, 1975
Equivalent citations: [1978]48COMPCAS579(PATNA)
JUDGMENT H.L. Agarwal, J.
1. This is a matter relating to the non-filing of statement of affairs of a company, namely, Messrs. the Bihar Investment Trust Ltd., which has been wound up by an order passed by this court on the 27th August, 1974, on an application under Section 433(e) and (f) read with Section 439(5) of the Companies Act, filed by the Registrar of Companies, Bihar, Patna, and the official liquidator was appointed to be the liquidator.
2. No statement of affairs was filed before the official liquidator by any of the persons mentioned in Section 454 of the Act of their own accord and accordingly he submitted a report to this court on the 16th of December, 1974. In his report, he mentioned the names of four persons, namely, three of the directors and the fourth as the secretary of the company who, according to him, were liable to submit the said statement. He has stated in his report that he issued registered letters to all the four persons aforesaid, but could not succeed in obtaining any information and has, accordingly, prayed for an appropriate order against the aforesaid persons.
3. The three directors mentioned in the report are, (i) Vishnu Narain Arora, (ii) Lakshmi Narain Arora and (iii) Bhagwat Narain Arora (hereafter collectively referred to as the " Aroras "), while the fourth person is Ambika Prasad Verma, the secretary. On receipt of this report, notices were issued by this court to all the aforesaid persons and all of them in their "show-cause" filed in this court have denied their obligation to comply with the requirement of filing the statement of affairs under Section 454 of the Act.
4. Broadly speaking, the stand of the aforesaid three directors is that they had resigned from their office as far back as on September 10, 1966, by a joint letter (exhibit 1/a) sent by registered post to the company and, therefore, they ceased to be the directors of the company on the relevant date and were not liable to submit the statement of affairs. Their further case is that Ambika Prasad Verma, the fourth person, who happened to be the secretary of the company and was responsible for maintaining all the books and documents of the company, might be responsible, if at all, for the said purpose. Two of the directors, namely, Vishnu Narain Arora and Lakshmi Narain Arora, have also been examined in court as witnesses Nos. 1 and 2, respectively, for the ex-directors and have supported their stand. In a question put to them in their cross-examination, they have admitted that they have no proof that their resignation was ever accepted by the company. According to their stand, however, they ceased to hold office ipso facto upon merely giving notice of resignation in writing as laid down by the articles of association of the company. Some support can be derived for this contention, no doubt, from a decision of a learned single judge of this court in the case of State of Bihar v. Sitaram Jhunjhunwala, AIR 1967 Pat 433, where a prosecution was started against a director for default in filing copies of the balance-sheet under Section 220(3) of the 1956 Act who had already given notice of his resignation in writing as laid down by the articles of association of the company much before the due date for filing the copies. It was held in that case that the said director could not be held responsible as, upon the plain terms of the articles of association, the director vacated his office as soon as he gave the notice of his resignation. This decision, however, would be of no assistance to the Aroras for the reasons given by me hereinafter and is clearly distinguishable on that account as the question that has fallen for my consideration was not raised therein.
5. The stand of Ambika Prasad Verma, however, who also has examined himself in support of his case in court as witness No. 1 for the opposite party, is that the company in question, which was a private limited company, was almost an affair of the family of the Aroras. He joined the company in the year 1941 as a petty clerk on a monthly salary of Rs. 50 and later on he started designating himself as the manager on the mere asking of the then director, Sri Ram Narain Arora. But later on when objection was taken by the auditors regarding want of permission of the prescribed authority to his appointment as manager, in order to obviate any technical objection, he was designated by the directors as the secretary of of the company, which post did not require any such sanction from any authority. According to the evidence of the Aroras, it was this Ambika Prasad Verma who was looking after the affairs of the company and holding the records in his custody and was also responsible for filing all the returns and complying with other provisions of the Act and the rules. According to their further evidence, when they had resigned, the company had already stopped its business some time in 1964 and they had left all the books of account and other properties in the office premises itself under the charge and custody of Shri Verma and thereafter they had no manner of concern with any affairs of the company, much less with its documents and affairs. Evidence has been adduced that in some of the criminal cases filed against the three directors by the Registrar of Companies for non-compliance with certain provisions of the Companies Act, Ambika Prasad Verma was also a co-accused on account of his being a responsible officer of the company and had pleaded guilty, vide exhibits 6, 6(a) and 6(b). Some documents have also been filed to show that Ambika Prasad Verma was signing them as the secretary of the company. It is not necessary to refer to those documents in view of the plea of Ambika Prasad Verma himself as he factually does not dispute his signing of those documents as the secretary of the company, his explanation being otherwise, as already pointed out above, in other words, to be merely a name-lender as the secretary and that the actual business and affairs of the company were being controlled by the directors themselves. It is not necessary for my purpose to enter into this aspect of the controversy between the parties for the limited scope of the inquiry.
6. The company was incorporated in 1939 under the Companies Act, 1913. I would refer to some of the relevant articles of the company on which reliance has been placed on behalf of the contesting parties and which are also of some use for the view that I propose to take in the matter. In this connection articles 87, 93 and 94 are relevant, which are as follows :
" 87. Until otherwise determined by the company by general meeting the number of the directors shall not be less than three nor more than five........."
" 93. The continuing directors may act notwithstanding any vacancy in their body ; but so that if the number falls below the minimum above fixed the directors shall not, except for the purpose of filling vacancies, act so long as the number is below the minimum."
" 94. The office of a director shall ipso facto be vacated :
(a) If he becomes bankrupt or insolvent or suspends payment or compounds with his creditors.
(b) If he be found lunatic or becomes of unsound mind.
(c) If he ceases to hold the required amount of shares to qualify him for office but this proviso shall not be deemed to affect the provisions of article 92 hereof.
(d) If he be absent from the meeting of the directors during a period of three calendar months without special leave of absence from the directors.
(e) If he commits any offences punishable under the Indian Penal Code and being under the provisions of the Criminal Procedure Code non-bailable.
(f) If by notice in writing to the company he resigns his office.
(g) If he be requested in writing by all his co-directors to resign or be removed from office by an extraordinary resolution of the company."
7. It was on the basis of article 94, clause (f), that Mr. Chuni Lal appearing for the Aroras contended that by virtue of mere serving of the notice in writing by his clients, their offices will be deemed to be ipso facto vacated by them. In the 1913 Act, Section 86-I, which corresponds to Section 283 of the 1956 Act, prescribed various conditions and circumstances under which the office of a director of a company would fall vacant. Subsection (2) of Section 86-I provided that it was open to a company to provide by its articles that the office of a director shall be vacated on grounds other than those specified in that section. It is not disputed that in Clause (f) of article 94 of the company, such provision was made in the article in pursuance of the said power under Section 86-I of the 1913 Act. However, in Section 283 of the 1956 Act, no such power has been given to a company and the conditions on which the office of a director is deemed to become vacant have been all made statutory. Provision like clause (f) of the tendering of resignation by a director of a company is not to be found as one of the grounds or circumstances on which the office of a director has to fall vacant. A question was canvassed at great length as to whether, on coming into force of 1956 Act, the power under clause (f) of articles 94 would remain still operative or not. In order to answer this question, it will be necessary to refer to Section 645 of the 1956 Act which reads as follows :
" Nothing in this Act shall affect any order, rule, regulation, appointment, conveyance, mortgage, deed, document or agreement made, fee directed, resolution passed, direction given, proceeding taken, instrument executed or issued, or thing done, under or in pursuance of any previous companies law ; but any such order, rule, regulation, appointment, conveyance, mortgage, deed, document, agreement, fee, resolution, direction, proceeding, instrument or thing shall, if in force at the commencement of this Act, continue to be in force and so far as it could have been made, directed, passed, given, taken, executed, issued or done under or in pursuance of this Act, shall have effect as if made, directed, passed, given, taken, executed, issued or done under or in pursuance of this Act."
8. It cannot be disputed that under the provisions of the 1956 Act, no company in its articles can provide for any other contingency or ground on which the office of a director shall become vacant. Mr. Chum Lal, however, contended that there was no conflict between the provisions of Section 86-I of the 1913 Act and those of Section 283 of the 1956 Act, save and except that the powers given to a company under Sub-section (2) of Section 86-I were not incorporated in the new Act and there were no express terms by which there could be bar for a company to provide for any other ground on which an office of a director would fall vacant. Learned counsel, however, contended that it was an inherent right of any person to tender resignation and he could not be necessarily compelled against his wishes to continue to function in the office for a day longer than he desired.
9. I do not think there is any merit in either of the contentions. If it was intended by the legislature to authorise the company to enlarge the scope of the grounds or the circumstances under which the office of a director was to fall vacant beyond those enumerated in Section 283 of the 1956 Act, it must have been manifested by a similar provision as was in the 1913 Act. The deletion of the enabling provision in Sub-section (2) of Section 86-I by itself manifested the intention of the legislature that it wanted to limit the conditions and circumstances under which the office of a director of a company was to fall vacant, subject, however, to the addition of the further grounds mentioned in Section 314. As such a provision like that contained in Clause (f) of Article 94 could not be made by the company under the scheme of the 1956 Act, the said provision, in my opinion, is not saved under the saving provision contained in Section 645 of the 1956 Act. The power to remove a director in certain circumstances has, however, been contemplated by a new provision contained in Section 284 of the 1956 Act. According to the provisions of Section 252 of the 1956 Act, every public company is to have at least three directors, and every other company is to have at least two directors and they are to retire by rotation according to the provisions contained in Sections 255 and 256 of Act. As it appears from article 87 of the articles of association of the company in question, the minimum number of directors was not to be less than three. It appears from the evidence of Vishnu Narain Arora, witness No. 1 for the ex-directors, that he along with his two brothers was appointed as directors of the company in the year 1962. The fourth director at that time was one Muneshwar Narain who is now admittedly dead. It is elementary that a company cannot remain without the requisite number of directors. Any vacancy falling in the office of the director of a company must be filled up. No step was taken either by the shareholders or any other authority for filling up the vacancies on account of the purported resignation of the Aroras, (sic) the inevitable result.
10. The ground for tendering resignation by the Aroras was that the secretary, Ambika Prasad Verma, was not co-operating with them. In my opinion, the Aroras being the directors of the company, it was more desirable for them to exercise proper control over the officers of the company, rather than to tender their own resignation. Be that as it may, the justification for tendering resignation is not a question for my decision. The only question is as to whether they could exercise the option given to them under the articles of association of the company. I have already held above that the provision contained in Clause (f) of article 94 of the articles of association is not saved by Section 645 of the 1956 Act. In the case of Someshchandra Manilal Nanavati v. Jivanlal C. Chinai [1956] 26 Comp Cas 148 (Bom) Chagla C.J., who delivered the judgment for the Bench, held that a director of a company vacated office if the contingencies mentioned in Section 86-I take place. The learned judge has further observed that the articles of association cannot detract from the provisions contained in the section, but as Sub-section (2) of Section 86-I provides, nothing contained in that Section shall be deemed to preclude a company from providing by its articles that the office of a director shall be vacated on grounds additional to those specified in the said section. It has been expressly held that it was open on that account to a company to provide in the articles of association for cases other than those mentioned in Section 86-I which would render the office of a director vacant. It, therefore, cannot be doubted that in the 1956 Act, there is no right in a company to provide any additional grounds by its articles of association on which the office of a director may be vacated than those mentioned in Section 283 of the 1956 Act.
11. Mr. Chuni Lal, lastly, wanted to save the provision contained in article 94(f) of the articles of association by application of Section 6 of the General Clauses Act and contended that the right which was available to the Aroras could not be taken away by mere repeal of the said Act. He also placed reliance upon a decision of the Supreme Court in State of Punjab v. Mohar Singh Pratap Singh, AIR 1955 SC 84. The contention of Mr. Chuni Lal is also fallacious and cannot be accepted. Section 6 of the General Clauses Act does not intend that even when an Act is repealed and the new legislation manifests an intention incompatible with or, contrary to the provision of section under the new provision, still the old provisions must have their way and would prevail notwithstanding that a contrary intention is expressly manifested in the repealing provision of the new statute. The case relied upon by Mr. Chuni Lal is itself an authority for the proposition and clearly says that whenever there is a repeal of an enactment, the consequences laid down in Section 6 of the General Clauses Act will follow, unless, as the section itself says, a different intention appears. I have already pointed out above that the saving provisions contained in Section 645 of the 1956 Act manifests a new intention in itself than that contained in the 1913 Act with regard to the grounds on which the office of a director might fall vacant and the additional grounds which the company might add to the grounds already enumerated in Section 86-I of the 1913 Act.
12. Ambika Prasad Verma, however, has stated that although he stopped going to the office of the company even a little earlier, he had resigned from his employment in the year 1970. There are no corroborative materials to support this oral statement of Shri Verma himself. It has come in the evidence of Lakshmi Narain Arora, witness No. 2 for the ex-directors, that at the time when he and his brothers resigned from the company, they had left all the books of accounts and other properties in the charge and custody of Shri Verma, and had further asserted in an answer to the court question that he was still looking after the office of the company.
13. Under Sub-section (2) of Section 454 of the 1956 Act, the statement of affairs has to be submitted and verified by one or more of the persons who are on the relevant date the directors and by the person who is at that date the manager, secretary or other chief officer of the company. Apart from these persons, the official liquidator can obtain direction of the winding-up court to submit and verify such statement by some other persons as well as those who are mentioned in the various clauses of Sub-section (2) of Section 454. One of the categories of those persons are mentioned in clause (a) who are or have been officers of the company. It cannot be disputed that all the three directors and Shri Verma fully answer this description, having been officers of the company. It is plain from the evidence adduced on behalf of both sets of objections that they were the only persons who had been holding the respective offices up to the end and are the last known persons as such.
14. Their vacancies had never been filled up and there is no other person known who can be directed to comply with this statutory requirement. Therefore, even if it could be held that they had ceased to hold their respective offices on account of their resignation and, therefore, they were not the persons who were on the relevant date the persons answering the description of those mentioned in Sub-section (2) of Section 454 of the 1956 Act, being neither directors nor the secretary, they were certainly covered within the mischief of Clause (a) of Sub-section (2) of Section 454 of the 1956 Act. In my opinion, it is only to cover the contingency like such cases that the legislature in its wisdom has already provided for a direction by the court to comply with this mandatory provision of filing statement of affairs by persons other than those mentioned in Section 454 and in its fold has tried to embrace various other classes of persons who could be made responsible for submitting the statement in question. The very object of Section 454 is to facilitate speedy administration in winding up and to enable the liquidator to get himself apprised without delay of all the relevant facts, relating to the affairs of the company. Ample powers, therefore, have been bestowed upon the court to give adequate directions to various classes or categories of persons, otherwise the winding-up order passed by a court may stand frustrated.
15. I would, accordingly, reject all the objections raised on behalf of the four objectors regarding their obligation to file the statement of affairs of the company. I would, therefore, direct (i) Shri Vishnu Narain Arora, (ii) Shri Bhagwat Narain Arora, (iii) Shri Laxman Narain Arora and (iv) Shri Ambika Prasad Verma to file the statement of affairs as required by Section 454 of the Companies Act, 1956, either jointly or singly, verified by any or more of them, to the official liquidator within the period of six weeks from to-day, failing which the consequence contemplated under the law will follow.