IHI v. SHANTILAL SHANKARLAL SHAH & Ors.

Act, 1913. At the meeting of the unsecured creditors of the company a resolution was pa8'ed by the creditors present, through proxy, by majority in number as either in person or in value. At this meeting the appel· well as three.fourths two of the creditor companies cast lant claiming to represent his votes on behalf of the said companies in support of the resolution. No objection wa• taken at the meeting to the validity of the votes by any of the creditors who opposed the the m liter came up for orders before the resolution. When Company Judge an objection was raised that the votes cast by the appellant on behalf of the two creditor companits were not valid, inasmuch ass. 153(2) of the Act requires that the creditors should be present either in pe~son or by proxy at the two creditor that, in the present case, the meeting and companies, being corporations, could not be considered to have been present at the meeting "in person". 1'he Company Judge overruled the objection on that it was stage and that, in any case, the votes were raised at a late the meeting the appellant's attendance at valid because amounted to the attendance of the companies "in person". On appeal, a Division Bench of the Patna High Court rejected the contention that no appeal Jay to the High Court from the order of to the Supreme Court and, on the merits, set aside hi! order. (I) the.word "Court" ins. 153(7) of the Tndian Companies Act, 1913, meam the Court exercising original jurhdiction, and. therefore, an appeal from the order of the Company Judge lay to the High Court under cl. IO of the Letters Patent; the Company Judge but only the grounds Held, that: (2) though under the General Clauses Act, 1897 a company is a "perso·nu so that whenever the word "pers~n" is used in any statute a company would be included there law a under, unleiS company which is not a physical person cannot "be prese~t" at any place "in penon"; and there is some special provision by a (3) in the present case the votes cast by the appellant wcte not valid in law and it being admitted that if the votes th.e requisite majority of three-fourths in value were invalid requisite under s. 153(2) of the Indian Co.mpanies Act, 1913, would not be obtained and therefore no further action could be taken by the Court in the matter, the delay in raising the the legal objection would not entitlo the Court to defect of the votes. ignore CIVIL APPELLATE JumsnICTION: Civil Appeals Nos. 201 and ~02 of 1961. 1961 Arjwi Prasad v, Slt4nlila/ Shank4Tlol Shah 404 SUPREME COURT REPORTS [1062] SOPP. Appeals from the judgment and decree dated May, Hl, I!l5S of thn Patna High Court in L. P. As. No8 I::l and 14 of HJ5i. A. V. Viswanatha Sastri, R. K. Garg, M. K. Ramamurthi, D. P. Singh and S. C. Agaru·ala, for tho appellants. 11!. C. Setalw.d, Attorne11·General for India. B. P. Rajyarhia and K. K. Sinha, for respondents. D 41 J,

#1961. December 22. The Judgment of the Court was delivered by DAs Gul'TA, J.-These appeals raison question as to the manner in which a oreditor compan,v can Yalidly cast its vote at a meeting of the creditors held under the provisions of s. J53 of the Indian Companies Ac't, 1913. The question a.riRes connection with such a meeting held of th•· rr<'ditors of the Gaya Sugar ~tills Ltd. On NoYcmbl·r 1-l, Hliil, an order was made by the Company J udQ'e in the ·Patna High Court for the windin~ up of the Gaya Sugar Mills Ltd. On October 6, l!J!i:!, an order was made by tho learned Judge for action to be taken under s. 153 of the Indian Companies Act. Mr. G. C. Banerjee, who was appointed Chairman to hold the meeting of the creditors helcl soparnte meetings of tho ciebenture·holclers, secured cr1:dit.ors and of the unsecured creditors. Jn hi>< R<'port he stated as regards the meeting of the un~ecured l'reditorH that "thirty unsecured ereclitord <'itlwr in person or through proxy attended a.nrl took p«rt in the meetin~." and that ultimately a resoluti0n pro posed by one of the creditors. the Stand.irJ V ~cuum Oil Cornpauy and seconded h,v another creditor Shri K. C. Agarwal was p~d8Pd "by the creditors prest'rrt by majority in number as well rui thre~·f1.,urth iu It appears that at this. meeting one Arjun ,-aluc." ' Pr.sad chiming to n·present two creditor C(•m· panics, Yi7.., Bhandani Bros., and the Hindustan , 1901 Arjun Prasad v. ShanlUal S hankarla1 Shah Das J, 2 S.C.R. SUPREME COURT REPORTS 405 Coal Company Ltd., cast his votes on behalf of thPse two companies, in support of the resolution. No objccticn was taken at the meeting to the vali dity of these votes by any of the creditors who opposed the resolution and the Chairman proceeded on tho basis th'.l.t these votes were validly cast. It is not 1isputed that if these votes were not validly cast the requisite majority of three-fourths in value would not be obtained. When the application came up for final hear ing before the Court an objectio11 was taken on behalf of C!'editors who opposed the schPme that the votes cast by, Arjnn Prasad on behalf of the two creditor companies, viz., Bhandani Brothers and the Hindustan Coal Company were not valid votes and so the requisite majority of three-fourths in value of the creditors had not been obtained. The Com p:iny Judge was of t.he opinion that there was no sufficient explanation as to why the objection as to the validity of the votes was not taken earlier and so the objection raised at the late stage could not bo entertained. On the merits also he held that the resolution passed by the creditor companies authorising Arjun Prasad to attend the meeting of the unsecured creditors of the Ga.ya Sugar Mills Ltd., and vote on behalf of the companies, were sufficient in law to make his attendance at the meeting the attendance of the companies "in person" and his voting on behalf of the companies valid voting of the companies. Accordingly, he rejected this objection. On appeal a Division Bench of the Patna High Court has allowed the objection, bliing of. opinion that the delay in raising the objection would not entitle the Court to ignore the legal defect of the votes and that in law the votes ca.st by Arjun Prasad were not valid votes of these two creditor companies, viz., Bhandani Brothers and the Hindus tan Coal Company. A contention that no appeal ' 11161 Arj•Pru•• v. Slialilal 'i•w•rl</ SW D.,J. 406 SUPREME COURT H.EPOR'.fS [1962) SUPP. lay to th" High Court from tho order of the Com· pany Judge was rejected. Therefore, the leurned Judges set aside the order of the Company Judge as to this part of the case. They, however, gave a certificate that as regards the value and nature of the case, it fulfils the requirements of Art. !33(l}(a) of the Constitution and is a fit one for appeal to this Court. On this certificate the present appeals have been filed. Three points were raised before us by Mr. Sastri in support of the appeals. The first is that from the decision of the Company Judge, an appeal lay to this Court and not to the High Court. ~ccondly, it was urged that the objection to the validity of the votes not having been taken earlier should not be allowed to be raised for the first time during arguments at the final hearing of tho application. Lastly, it was urged that the votes were valid. As regards the first point it is to Lo noticed iii3, which was added in 1936 that sub.a. 7 of s. provides that an appeal shdl lie from any order made by the court exercising original jurisdiction under the section to the authority authorised to hear appeals from the decisions of the Court. It therefore could not be disputed and was not disputed that an appeal did lie from the order made by the Cumpany Judge on October 6, 1953. The controver~y is whether the appeal lay to this Court In other words, the question or the High Court. is, which is the authority authorised to bear appeals from the decisions of the Court ? The "Court" here cannot but mean the Court exercising original juris· diction. When the Company Judge exercises the jurisdiction ne does it und ~r the provisions of s. 3 of the Companies Act which says that the Court having jurisdiction under this Act shall be the High Court having jurisdiction in the place at which the registered office of the company is situate. The authority authorised to hear appeals 1961 Arjun Pr 8ad v. Bhantilal ShankM'lal Shah DasJ. 2 S.C.R. SUPREME COURT REPORTS 407 appealable deci~ions of a Single Judge of the Pa~na jurisdiction lie High Court when exercising original to the High Court and not to this Court. (Vide Clause 10 of the Letters Patent). It necessarily follows that the appeal from the order of the Company Judge lay to the High Court and not to this Court. There is, therefore, no substance in the first point raised on behalf of the appellant. The next contention that the objection can· not be entertained for 'the first time at the final hearing of the application appears to us to be equally unsound. It is undoubtedly tme that the opposing creditors were guilty of m gligence in not drawing the attention of the Chairman to what they considered to be a defect in the voting on behalf of the two creditor companies, viz., Bh~n­ dani Brothers and the Hindustan Coal Co., and no less negligence in not bringing this to the Court's notice at the earliest opportunity. Laches on the part of some creditors cannot however justify the Chairman or the Court in disobeying the require ments of the Act. If in ·law the two votes cast by Arjun Prasad for these two creditor companies were not validly cast the three-fourth majority requisite under s. 153, sub-s. 2, would not be there and so no further action under s. 153 could be taken by the Court in the matter. How can the if proved, Court turn a blind eye to the fact, that on the basis of valid votes at the meeting the requisite majority was not obtained, merely because the Chairman's attention was not drawn to the defect or it was not brought to the Court's notice earlier ? In our opinion, the learned Judges who heard the appeal were right in thinking that however deplorable the delay by opposing credit01·a in raising the objection might be, that would not be a sufficient reason for refusing to entertain the objection. This brings us to the main question in contro· ersy, viz., 'whether the resolutions passed by the 1961 • .frjt111 PraJad v, 8 ... ti/111 S!i.nk<t</41 Shoh DasJ. 408 SUPRE~IE COURT REPOl~TS (1962] SUPP. two creditor companice, viz., Bhandani B~others and the Hindustan Coal Company, authorising Arjun Prasad to attend the meeting on their behalf and to voto there en their behalf made Arjun Prasad's voting valid voting. Section lfl3(2J of the Indian Companies A"t is in t,bese u ords :- "If a majority in number representing three-fourths in value of the creditors or class of creditors, or members or cla88 of members, as the case may be, present either in person, or by proxy at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall. if sanctioned by the Court be binding on all the creditors or the clasi:; of creditors, or on all members or class of members, as the case may be, and also on the company, or, in the case of a company in the course of being wound up, on the liqui dator and contributories of tho Company." The agreement has to be of a majority in number representing three-fourths in valuo of those who are preRi>nt either in person or by proxy at the meeting. The aprreem•mt of thosc who are not present at the meeting either in person or by proxy cannot be taken into consideration. Any creditor whether a corporation or a natuml person can be present at a meeting by proxy. A natural person can of course be: present at a meeting "in person". Can a corporatirm OH present at a meeting "in person''? It appears to us t.h'.lt unless there is some special provision by a law, a company which is not a physical person cannot "be present" at any place It is true that under the General "in person.'' Clauses Act, 18\li, a company is a "person", so that whenever the word ''pt•rson" is used in any statute ineluded thereunder. The a compa11y woul<l Le definition in the General Cl11.us~s Act can however be of no assistll.llCe in inforpn·tin~ the words "to be present in p:,ri; on'', and the diflieutty in the way of a company L<'ing pt·csent in person can Le .ubviat ed only by statut•ny provi~ions or rnles havmg the fore<' of law. 1961 Ar1un Prasad v. Shanti/al Shan/car! • J Shah DasJ. 2 s.c.R. SUPREME COURT REPORTS 409 Nor can the appellant derive any assistance from the English Case In re Kelantan Coco, L.imited and Reduwl, (') cited by the learned counsel. In that case; the Court was dealing with a petition for reduction of capital. In deciding whether speci~l resolution to reduce the capital of company had been duly passed, the Court had to consider whether there was a quorum at the con firmatory meeting, at -which one member of the company and one representative appointed under s. 68 of the Companies (Consolidation) Act, 1908, to represent a sharehold:er of the company, the Eastern Development Corporation, Limited, were present. The articles of Association provided : "two members personally present shall be a quorum.'' representative appointed under s. 68 should be taken into account in considering whether there was a quorum. The provisions of s. 68 were similar to those of s. 80 of the Indhn Coropanies Act, 1913, and there· under a company which is a member of another company may, act as its representative at any me'lting of that other company. The presence of such a representative was taken in the above case to amount to personal presence of a member of the company. The case does not deal with the question of a creditor company. It was held that a Int.he Companies Act, 1956, a provision has been introduced under which a company which is a creditor of another company may by resolution of its directors, authorises such person as it thinks fit to act its representative at any meeting of any creditors of the company held in pursuance of the i!l this manner Act and a person authorised the same rights and shall be entitled to exercise powers (including the right to vote by proxy) on \S. 187(l)(b) and 2). No behalf of the company, such provision however is to be found in the Indian Companies Act, 11113. It is unnecessary for us to (1) 1920 Weekly Notes, Part I, p. 274. 1'61 Atjwa Prosa4 v. ShmliJ.J SNvikorl•I Shah DorJ. 410 SUPREME COURT REPORTS (1962] SUPP. consider whether under this uew provision attend~nce of a person authoris£d in this manner at a. meeting of the creditors will amount to attend· ance of the creditor company "in person". For, the present case is governed by the provisions of the Indian Companies Act, 1913 and not by this new provision'. When the Companies Act was amended iu in s. 246 which em 1936, an addition was ma.de powers the High Court to make rules, concerning the mode of proceedings inter alia "for the holding of meetings of erec!itors and members in connection with proceedings under s. 153 of this Act." Accord ingly, a number of Rules were framed by tho Patna High Court in exercise of this additional power. Rule 144 of the Rules states that a creditor or contributor may vote either in person or by proxy. Rules l '15 to 1.53 deal with various questions as regards proxies. Of these Rule 150 lays down how a proxy is to be given wherfl a creditor is a cor poratiou. Admittedly, no proxy in accordance with Ruic 150 was given by the two credit-0r com panies, Bhandani Brothers and the Hindustan Coal Company, in the present case. There is nothing in these rules which can assist Mr. Sa.stri's argu ment that a resolution by the directors of company authorising a director or ~ome other per son to represent tbP company at the creditors' meeting ma.be him a "present in person" in law for that company at the meeting. Mr. Sa.stri's last argument was that as the business of the company has to be managed by the directors and the directors can delegate any of their powers to any one of themselves, the attendance of Arjun Prasad at the meeting should reasonably be cow•trued as the attendance of all the directors and so the attendance of thP company "in person". As we have idready indi•:atl'<i it does not apprar to us that in tin· Act of I !Ha tht·re i~ a11y provi8ion 1951 .4rjun Prarad v. Sha•lital SiuJllkarl•I Shah 1961 Denmber 32. 2 S.C.R. SUPREME COURT REPORTS 411 for attendance of the company "in person", but apart from that we wish to point out that the resolution made by the two companies do not appear to us to delegate the powers of the directors to Arjun Prasad. The conclusion of the High Court that the votes cast by Arjun Prasad on behalf of the two companies., viz., Bhandani Brothers and Hindustan Coal Company, were not valid votes is, in our opinion, correct. The appeals are accordingly dismis~ed with costs. One set of hearing fee. Appeals d;ismisse,d. MAHARANA SHRI JAYVANTSINGHJI RANMALSINGHJI ETC. v. THE STATE OF GUJRAT (B. P. SINHA, c. J., s. K. DAS, A. K. SARKAR, N. RAJAGOPALA AYYANGAR and J. R. MUDHOLKAR, JJ.) Land Tenure, Abolition of-Amendment of enactment-If tenanl8-0onslitutional creates a new cla.!s of permanenl. validity-If infringes fundamental rights of erstwhile tenure· holdera--Bombay Land Tenure Abol-ition Laws (Amendment) Act, 1958 (Bom. LYII of 1958), ss. 3, 4, 6-0on•titution of India, Arts. U, 19 (1)(/), 31, 31-A. The petitioners, who were tenure-holders, challenged the constitutional validity of the Bombay Land Tenure Aboli tion Laws (Amendment) Act, 1958 and in.particular ss. 3 and 4 read withs. 6 of that Act, as infringing their fundamental rights guaranteed by Arts. 14, 19 and 31 of the Constitution. Their case in brief was that those provisions by making certain non-permanent tenants permanent as from the commencement of the Bombay Taluqdari Tenure Abolition Act, 1949, enabled them to acquire occupancy right by payment of six times the assessment or the rent under s. 5A of that Act instead of 20 timea to 200 times the as>essment under s. 32H of ~e Bombay Tenancy and Agricultural Lands Act, 1948,