1. On October 1, 1981, I have passed an order appointing an administrator for the Motion Pictures Association and he has assumed charge. Ordinarily, I would have passed a reasoned order if there was sufficient time left for me. But the counsel for some members of the executive committee was so persistent in my passing an immediate order that there was no alternative. He filed a separate C.A. for the purpose. His complaint was that the business of crores of rupees is affected and the management has come to a grinding halt. He also complained that the petitioners were avoiding early orders being passed. My illness and intervening holidays delayed the matter a little. The reasons for the order are now stated.
2. Motion Pictures Association is a company under 25 of the Company Act, controlling distribution and exhibition of Hindi Films (mostly) in the Northern region. The management and the working of the company are the subject-matter of innumerable proceedings in this court and subordinate courts for the last over ten years. These litigations broadly concern the complaints of mismanagement and oppression by a group of persons which is deeply entrenched in the executive committee and the sub-committee of the company. The story of Motion Pictures Association has a touch of Hitchcock Mystery. If it lacks fitness of if there are any loose ends, that is because it is local version of the original film (Bombay "Fillum" as is described by cine critics).
3. The company is unique in the sense that by itself it does not carry out any commercial or business venture but indirectly control business of crores of rupees every year. Its articles of association are so framed that every member is required to register a picture with the company. Every distributor and exhibitor is also required to register himself with the company. The members are prohibited from entering into any control for distribution and exhibition of the films to non-members. The articles also provide for resolving of disputes between the members in regard to their claims. A member who deals with the non-member or who does not pay dues of other members is liable to be removed from the membership. During the course of hearing of these matters before me and particularly in the chamber discussions, the role of black money was also openly discussed. The underlying theme of the repeated complaints in this court is that these apparently simple provisions are grossly abused by a group of people for personal ends and oppression of other members for over a decade. The powers are so formidable that the company can completely throw a member out of cinematographic business which no other company can do. This action is in restraint of trade and denial of fundamental right under art. 19 of the Constitution.
4. Unfortunately, this court has not fully and exhaustively pronounced on these complaints of mismanagement and oppression so far. The long delay in disposal of these cases results in a flagging of the interest of the complainants. Some complaints become stale by passage of time or because some further acts of oppression overtake them. Some become still born by the technique of compromise developed by the dominating group.
5. The scope of the enquiry and the relief, which can be granted under ss. 397 and 398 of the companies Act, are now exhaustively set out by the judgment of the Supreme Court in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp Case 743 (SC). The Supreme Court has summarised the decisions of the English Courts and the Supreme Court rendered so far. An oppressive conduct means a conduct which is burdensome, harsh and wrongful. The conduct of a company expected to be of utmost good faith. The jurisdiction under ss. 397 and 398 is a "just and equitable" jurisdiction. A conduct which is technically legal and correct may nevertheless be such as to justify the application of the "just and equitable" jurisdiction. An isolated act, which is contrary to law, may not necessarily and by itself support the inference that the law violated with the mala fide intention or that such violation was burdensome, harsh and wrongful but a series of illegal acts falling upon one another can, in the context, lead justifiable to the conclusion that they are part of the same transaction of which the object is to cause or commit the oppression of persons against whom those acts are directed. The Supreme Court has further summarised the scope of the powers of the company court in this regard. It has been held that the power conferred on the court to grant a remedy in an appropriate case appears to envisage reasonably wide discretion vested in the court in relation to the order sought by a complaint as the appropriate equitable alternative to a winding-up order. The Supreme Court has further held that even if a company petition fails the court is not powerless to do substantial justice between the parties and place them, as nearly as it may, in the same position as they would have been.
6. Considering the history of the litigation since 1972, and repeated complaints of mismanagement and oppression, I am convinced that at least for some time, the ruling group (sitting in the executive committee and sub-committees) which is entrenched since 1969, should be kept away from the control of the company. The general body of 1,500 members hardly meets. These are the distributors and exhibition spread all over the Northern region of India. It is difficult for them to know about the mismanagement and its extent as the general body hardly meets. On the other hand, the members are at the mercy of the small group even for their survival in their trade and business. These factual conclusions are borne out by the orders of this court from time to time ever since 1973. Strenuous efforts were made by Rangarajan J., Anand J. and Dalip Kapoor J. as company judges during the last ten years to set right the management of the company. Various remedial measures were taken and warnings given. But they have fell on deaf ears. Every time new and additional acts of mismanagement are brought to the notice of the court. The malady persists unabated. The learned judge refrained from superseding the board as they sincerely thought that the remedial measures would cure the malady. But now there seems to be no alternative but to appoint an administrator for the company, and supersession of the management. There are some reasons why I avoided this action so far.
7. It would be relevant at this stage to have an overview of the various stages of the controversy and the strains efforts made by company judges for the last decade. The first part of the remedial steps taken by the company judges from time to time has was regarding annual elections and election of office bearers. From 1969 to 1972 no elections were held. The normal pattern is not to hold elections on the due dates as required by the Companies Act or not to hold elections at all. If the articles of association or the election rules are changed on the eve of the election the members are obliged to take legal proceedings restraining the company from holding the election. The courts pass an interim order restraining the company from holding election and proceedings continue. This suits the dominant group very well because they are able to continue in power. They agree to a compromise of not holding elections. This is what happened in Suit No. 476 of 1970. In C.P. No. 30 of 1979, one member, Mr. J. S. Sood, who by that time had joined the dominating group moved the said application for the direction that the annual general meeting should not be held in June, 1979. He was elected to the executive committee on February 28, 1979, which itself was a delayed election. After the statutory period was over, that is, on August 30, 1979, the company judge passed an order that pending further orders the company would not take any steps to convene the annual general meeting. Annual general meetings for the year 1971 were held under the orders of the court. The 1972 elections for the office bearers were found to be illegal by this court and fresh elections were ordered to be held under the observations of this court. A detailed procedure for election was also laid down by this court. This is the subject-matter of the decision of this court in (In the matter of Motion Pictures Association, Delhi) [1974] 44 Comp Case 298; [1973] 2nd 2 Delhi 624. A meeting thereafter took place on October 13, 1973. No meeting was called in 1974 and, therefore, by June 30, 1974, the term of the directors/executive committee members had lapsed. Even by now the annual accounts ending 31st December, 1969, to 31st December, 1973, had remained to be adopted. In C.P. No. 106 of 1974, this court by its powers vested under s. 186 of the Act directed a meeting to be held on 1st March, 1975, further laying down the procedure for elections and appointing the court officers to conduct the election.
8. One effect of not holding the elections in time is that two sets of directors/executive committee members claim to be jure directors, adding to the mismanagement of the company. This situation was brought to the notice of this court in C.P. No. 106 of 1974 (B. R. Kundra v. Motion Pictures Association, [1975] 2nd 1 Delhi 692). The same problem cropped up again in 1976 in C.P. No. 32/76. In the first case the company judge directed new elections of the office bearers declaring that the effect of not holding the election on due date was the automatic vacation of the office by the board of directors. The court also directed fresh elections to be held under the auspices of the court. In the second case the company judge directed that the Hony. Secretary would discharge the functions of the executive committee as an interim measure. But this intervention by the court did not improve the things much.
9. The court found that some change in the articles of association would improve the situation. The company judges from time to time had expressed the need for it ? This was the second remedial measure taken by the company judge. By order dated February 20, 1978, passed in C.P. No. 32 of 1976, a number of articles were amended. The learned company judge observed :
"There are many defects in the existing articles which are partly due to multiple membership as a single person, who is a member of several different concerns, can have more than one vote. This itself leads to a kind of groupies because persons with higher financial stakes having more concerns are able to exercise a greater control over the company and they have also got an advantage in the running of the association because they are easily elected ...... further more, the rules regarding the election of office bearers, compulsory arbitration between the parties and the general running of the association including the settlement of the disputes between members and the possibility of debarring the members on account of defaults, malpractices and so on are defective in many respects."The company judge also modified partially the election rules. But for appreciating this measure we must see C.P. No. 32/76.
10. C.P. No. 32/76 was filed by B. R. Kundra and others under ss. 155, 397 and 398 of the Companies Act. The others was filed by Shri K. K. Mehra, Advocate on December 6, 1976. The grounds of mismanagement and oppression mentioned in the petition were as follows :
(1) Bye-laws were framed in direct contravention of the memorandum and articles for wholesale dismember ship on flimsy grounds.
(2) The power of dismember ship was used to eliminate dissent and opposition.
(3) The office bearers were misusing their powers to further their own ends and to take undue advantage and monetary gains at the expense of other members. For example, persons who had obtained old and repeat-run pictures were not allowed to become the members of the company. Persons close to the dominant group and particularly Joginder Singh got the benefit of registration of repeat-run pictures.
(4) If a member has defaulted in payment to another member he is removed from the membership. No member can thereafter deal with such a member and his whole business comes to a standstill. This power was abused by giving low Installments of payments to defaulting members supporting the dominant group, while the members opposing were directed to pay the whole amount in lump sum.
(5) The pictures belonging to a defaulting member are misappropriated by the ruling group and is not allowed to do business. For example, the prints of picture, "Sagina", belonging to a defaulting member were retained by the vice-president and another close associate of the general secretary. They were running the said picture and recovering their amounts by such trick.
(6) The idea behind the formation of the company was to promote the trade and safeguard the interest of persons dealing in production, distribution, exhibition and exploitation of motion pictures. But the office bearers were exploiting the members for their personal gains. For example, a number of office bearers have earned plumbs (sic) and booking of various cinemas, of as large a number as 8 to 23.
(7) The effort of the ruling groups is, on the one hand, not to make new members and, on the other hand, dismembering such persons who were opposed to them.
11. It was prayed in the said petition that Shri D. N. Gupta, Shri Joginder Singh, Shri N. B. Mathur and Shri Narain Dass who were the perpetrators of the oppression be debarred for a period of at least five years from holding any office under the Companies Act. It was also prayed that every person who is engaged in the trade of motion pictures should be permitted to become a member of the association. Articles of association should be suitably amended to see that the dominant group was not able to continue its hold on the company and to give proper representation to the minority in the board of directors, etc.
12. After the filing of the petition various company application were filed. Most of the allegations made in the main company petition and the company applications were accepted by the company judges. Some such company applications were disposed of by Anand J. on May 3, 1976. It is clear from the order that Anand J. was more than convinced about the mismanagement and oppression by the ruling group in the company. The learned judge come to this conclusion on certain undisputed facts and by perusing various reports submitted by Mr. A. L. Joshi, advocate, who was appointed as a court observer to attend the meetings of the executive committee of the company. It is worthwhile to read the said order and the reports of Mr. Joshi, advocate, in original. However, some observations made by the learned judge are pertinent for understanding the complex nature of the dispute perpetuation in the company for over a decade.
13. Justice Anand observed : "The basic hypothesis on which the petitioner justifies relief is, by and large, undisputed. It is not in dispute that the present management of the company had over the years been in the control of the group either by themselves or through their associates ...... It is also undisputed that during the last many years there has been discontent among the s of the membership of the company ..... It is also not in dispute that allegations of oppression of the minority and of mismanagement have not been made for the first time in the present proceedings and this court had occasion to consider such allegations even earlier when certain remedial direction were made by Rangarajan J." Anand J. has further observed : "The apprehension that the minority, which has taken cudgels against the majority, which is said to be in the control of the management, is likely to be subjected to vindictive action, cannot be altogether brushed aside either as unwarranted or unreasonable and in the situation that has emerged, there is a possibility that the management of the company may be conduct in a manner that may be prejudicial to the interest of the minority and, therefore, to that extent, prejudicial to the interest of the company. Such a possibility would ordinarily justify protective measure by court in proceedings of the present nature but this is more so where the membership of the company, unlike the membership of the other companies, does not involve merely the return on the capital or the right to participate in the management of the affairs of the company, but may even prejudicially affect the very right of a member to carry on trade within the certain territory."
14. In various application moved in C.P. No. 32 of 76, the following orders were passed by the court :
(1) C.A. No. 334/76 :
The company was directed to maintain status quo and was restrained from expelling any member except with the leave of the court. Mr. A. L. Joshi, advocate, was appointed as a court observer to attend the meeting of the executive committee. He attended the meetings for over a year and submitted reports on various irregularities and acts of oppression.
(2) C.A. No. 720/76, C.A. No. 103/77 and C.A. No. 4/77 :
Considering the fact that the expulsion of a member completely prohibits such a person from carrying on cinema trade, detailed directions were given regarding procedure to be followed when a member is to be expelled for non-payment of dues. A full procedure for notice, enquiry, reasonable opportunity to a member to present his case, etc., was ordered by the court. A member was also given liberty to move this court in case of unjustified expulsion.
(3) C.A. No. 736/76 :
This is application related to supersession of the executive committee or in the alternative suitable representation for the minority group on the committee. On August 30, 1976, Kapoor J. directed annual general meeting to be held which was held on September 29, 1976, Kapur J. observed : that the holding of the annual general meeting and the election of the new executive committee would not prejudice the court's power to supersede the "board", if necessary. Justice Anand found that Mr. A. L. Joshi, advocate, who was appointed as an observer could not effectively protect the interest of the minority group. It was ordered that a special meeting of the company should be held presided over by Satya Dev Sharma, advocate, and elect two members outside the executive committee members to be the additional directors. The court found that with these steps there will be no need for supersession of the executive committee.
(4) C.A. No. 180/77 :
This application related to imposition of unreasonable penalties, non-registration of a picture where a member owes some money to other members and improprieties in relation to appointment of arbitrators for setting dispute between the parties. As regards the registration of pictures where the dues are outstanding, the company promised that no discrimination would be made. No order was, therefore, found necessary. The court further directed that no penalty would be imposed on account of delay in registration of a picture without granting to the affected person reasonable opportunity of being heard. The learned judge further directed that a person interested in the picture belonging to a particular member or is hostile to him, should not be appointed as an arbitrator in his dispute with another member. The court constituted a panel of four advocated who could work as arbitrators if the company and a member do not agree on any.
15. Against the orders of Kapur J. to hold the elections, the dominant group preferred an appeal. Certain assurances were given on behalf of the executive committee members of the company to the appellate court. Mr. B. R. Kundra, represented by Mr. K. K. Mehra, advocate, compromised the matter. In terms of compromise the amendments of the articles of association were submitted to the company judge, Kapur J., by B. R. Kundra and Joginder Singh. As stated earlier, Kapur J. by his order dated February 20, 1978, approved the said amendments to the articles of association and election rules. C.P. No. 32/76 was thus disposed of by Kapur J. without taking detailed evidence in the main C.P. or pronouncing on the correctness of the allegations. Although the judge had himself observed that the board of directors can be superseded if the conditions so warrant, even after the re-elections, no order was passed in relation to the supersession of the board, or debarring the dominant group of the four people in the executive committee, namely, B. N. Gupta, Joginder Singh, K. B. Mathur, Narain Dass and others. Kapur J. perhaps thought that the minority group and the majority group have settled all their disputes. The learned judge also thought that by amending the articles all complaints of mismanagements and oppression would be over. The reading of the order as a whole would convince one that Kapur J. was proceeding on the assumption that evils of groupies, dismembering the members arbitrarily, abuse of arbitration proceeding and other malpractices exist in the management of the company. These orders would show how great effort was made by Anand J. and Kapur J. to eliminate mismanagements and oppression and to avoid supersession of the board of directors.
16. After amending the articles and some changes in the election rules, Kapur J. ordered on February 20, 1978, that the annual general meeting for the year ending 1977 should be held before 31st May, 1978. It was accordingly fixed on May 27, 1978. On June 18, 1978, Mr. B. R. Kundra, who held now joined the ruling group and was made chairman for the annual general meeting, cancelled 18 nomination papers. The petitioners claimed that these nomination papers were of the persons opposed to the ruling group and that they were rejected on frivolous and untenable grounds. C.A. No. 223/78 was thereafter field by one Khan, one of the directors of the company, for a ruling on the proper interpretation of some new articles without which elections would not have been free and fair. On May 19, 1978, Kapur J. cancelled the scheduled elections on 27th May, 1978, along with nominations because of the above illegalities and directed that the elections should be held by the end of July, 1978. The learned judge decided to further modify the Election Rules to "enable the elections to be held in a free and impartial manner without raising complications that have arisen over the past several years regarding these elections. "The learned judge also held that the postponement of the elections shall not be treated as a default under the Companies Act, but in case the Registrar of Companies has any objection, this matter may be dealt with on a formal application later, if necessary." This order was passed on May 19, 1978. The learned company judge further extended the time for holding elections and directed that they should be held before February 15, 1979, but nothing that sufficient delay had already taken place in holding the elections, the learned judge brought out some changes in the election rules.
17. This order was passed on December 11, 1978. As no date for the annual general meeting was announced by the company, the matter was again brought before the learned company judge on December 20, 1978. The company judge felt so frustrated with the tactics of postponement of the elections that he was required to administer the following warning to the company :
"It is regrettable that no date for the annual general meeting has been fixed in spite of the order passed on 11th December, 1978. As pointed out earlier, the annual general meeting was to be held on 27th May, 1978, and has been postponed by the order passed by myself on 19th May, 1978. This does not mean that the meeting should not take place at all and the interim arrangement should continue ad-infinitum. I am compelled, therefore, to take all the necessary arrangements about the annual general meeting on the assumption that a date will be fixed very shortly by the existing committee. In any case, the stay order will have to be discharged and if no meeting is held then the present office-bearers will face prosecution ..... The annual general meeting cannot be held on or before 28th February, 1979, on which date the stay order will expire and the interim arrangement will also come to an end."
18. Considering the experience of the rejection of nomination papers earlier, the learned judge directed that Mr. A. L. Joshi, advocate, would participate in the examination of the nominations and no nomination papers should be rejected without his consent. The court also indicated that Mr. C. L. Mehra, a retired deputy registrar of the court, should act as a chairman for the annual general meeting.
19. Another dispute which arose was regarding the irregularities committed by the company in matters of receiving authorisations for participation in the election by partnership firms who were the members of the company. When the articles of association were amended on February 20, 1978, an amendment in the election rules in regard to authorisation by partnership firms was also made by the company judge. The authorisation was to be done by the partnership firms on the forms prescribed by the company and which form should be sent to the partnership firms at least 45 days in advance of the election date. The application was held to be not maintainable by Kapur J. but held that if there was any illegality in the elections on this account it would be open for the aggrieved parties to raise it by way of challenge to elections in the appropriate proceedings.
20. Two appeals were filed before the Division Bench of this court. Company Appeal No. 1/79 was filed by the dominant group against the order of Kapur J. directing the elections to be held on or before February 28, 1979, and appointing Mr. A. L. Joshi, advocate, to scrutinise the nominations. Company Appeal No. 3/79 was filed by the opponents (J. L. Bhasin & others) against the order of the company judge, dismissing the application in regard to the irregularities in the matter of the authorisation by partnership firms. The Division Bench made certain clarifications in the orders but maintained other directions of Kapur J. Against the order of the Division Bench passed in Company Appeal No. 3 of 1979 Mr. Khan, who was one of the applicants before Kapur J., filed a special leave petition in the Supreme Court (S.L.P. (Civil) No. 1843 of 1979). The S.L.P. was disposed of by the Supreme Court on April 9, 1979. Nothing the observations of Kapur J. the Supreme Court clarified :
"We make it clear that if and when the validity of the election held at the meeting of 28th February, 1979, is challenged by the appellant or any other member of the first respondent-association in an appropriate proceedings, it would be open to the court to entertain and decide the charge on any grounds available to the appellant including the grounds dealt with in these observations, as if these observations had not been made at all."The observations referred to were the observations made by the Division Bench of this court which were found to be unnecessary by the Supreme Court.
21. The elections were held on February 28, 1979. Shri Kundra become the chairman for the annual general meeting and not Mr. C. L. Mehra as suggested by the company judge. The membership at that time was about 1,350. Half of the membership, that is, about 670, was of the partnership firms. Although the entire elections and the nominations for the annual general meeting held on 27th May, 1978, were cancelled by Kapur J., the authorisation forms for that meeting were treated by the company as valid authorisation forms. No new authorisation forms were sent to the partnership firms. The result was that out of 670 partnership firms only 170 could participate in the elections and 500 partnership firms were denied the right to participate in the elections. There were other alleged irregularities in the elections.
22. Number of new acts of mismanagements and oppression were continued by the dominant group as before and some additional acts were done during the period when managing committee appointed for the year ending 1976 was continuing for 2 1/2 years without elections. On this background the present Company Petition No. 58/79 was filed on June 30, 1979. The petition was admitted by the company judge. Admission and denial of the documents filed took place. The petition was amended thereafter under the orders of the court. The issues are framed and the petition is now posted for hearing.
23. The grievances in the present petition relating to mismanagement and oppression are as follows :
(1) The same group of people consisting of Shri Joginder Singh, B. N. Gupta, M. B. Mathur, Narain Das, Dinkar Desai and others, against whom Company Petition No. 32 of 1976 was filed by Mr. B. R. Kundra is perpetuating in power. The group avoids holding elections, manipulates elections, acts in disregard of the orders of the court from time to time and indulges in acts of mismanagement and oppression. The group is in power since 1969.
(2) Shri B. R. Kundra and Shri J. S. Sood, who had moved Company Petition No. 32/76, for removal of the said dominant group from power are won over by the group and are now the parties to mismanagement and oppression. Shri Kundra, without consulting 260 members, who had filed Company Petition No. 32/76, agreed to a compromise in Company Appeal No. 26 of 1977. Shri Joginder Singh without authorisation from the company agreed to the said compromise. By practicing this fraud Shri Kundra and Shri Joginder Singh avoided the enquiry in the mismanagement and oppression of the members raised in Company Petition No. 32 of 1976. They had agreed to the changes in the articles of association in their individual capacity with the said fraudulent arrangement.
(3) The changes in the articles of association and the election rules regarding authorisation of representative by the partnership firms were unauthorised and were not binding on the members of the association. The changes were made with a view to enable the dominant group to further oppress the members.
(4) Annexure 11 (Regarding authorisation by the partnership firms) is approved by the court on February 20, 1978, was also void because it seriously affected the voting rights of the members.
(5) The election held on February 28, 1979, were illegal because they were in breach of various directions issued by the company court on May 19, 1978, December 11, 1978, and December 20, 1978.
(6) The said election are illegal because voting right was denied to 500 partnership firms by not issuing fresh authorisation forms for the said election.
(7) The elections were so manipulated that out of 1,350 members, about 320 members only could attend the meeting and vote.
(8) The said elections are bad in law because the nomination papers of certain members representing joint stock companies were illegally rejected.
(9) There is misappropriation/reckless spending of about Rs. 21 lakhs by the dominant group deposited by the members with the company in trust. There are serious instances of the sub-committees oppressing the members who are opposed to the ruling clique, and of favoring the members who are with the ruling group. There is misuse of what is called D.R. Rules of the association in regard to the recovery of dues of the members. Number of instances are quoted in the petition.
(10) There is misuse of powers resulting in acts of oppression of the members in regard of registration and de-registration of pictures. Number of instances are cited. Provisions of art. 25 regarding calling of the meeting of the executing committee are misused to see that the opposition members are not able to attend the meetings.
(11) Illegal collections are made from the members and heavy penalties are imposed on the members opposing the ruling group.
(12) Provisions regarding membership and arbitration under article 68(1) are continuously misused.
(13) The members of the association are exploited and pressurised for the personal gains of the ruling group. Number of instances are quoted.
(14) The changes in the election rules made by the executive committee on May 19, 1979, were illegal and ultra vires the articles of association and the Indian Companies Act. They were made with a view to disentitle the company members and the partnership firms from contesting elections. These changes were made to supersede the rules framed by this court from time to time and as late as December 11, 1978.
(15) The attempt to postpone the elections for the year ending 1978 made by the ruling group with the Register of Companies was illegal. C.P. No. 30/79, filed for the same purpose collusively by Shri J. S. Sood was fraudulent.
(16) The financial year was illegally changed with retrospective effect, by the executive committee on May 29, 1979, so as to continue the unauthorised rule by the dominant group.
24. In the said petition under ss. 397, 398 and s. 156, the following reliefs are claimed :
(1) That the erring members of the Motion Pictures Association the erring office bearers/directors of respondent No. 1, namely, Joginder Singh, Narain Das, P. N. Gupta, M. B. Mathur, Dinkar R. Desai, respondents Nos. 2 to 6, respectively, perpetrators of mismanagement, misappropriation and oppression be disqualified, debarred and expelled for a period of at least five years from the membership and their holding any office of membership of the executive committee of respondent No. 1.
(2) The respondent-company may be restrained in any manner from amending or tampering with the articles of association or to make rules, bye-laws or regulations of the association and more particularly in admitting temporary provisional members. The amendment of articles effected by Shri Joginder Singh and Shri B. R. Kundra in their individual capacity and as ordered by the court by its order dated February 20, 1978, may be set aside and that the articles be amended after having representation from all the members of the association. The amended election rules as circulated on May 24, 1978, may be held invalid.
(3) Free and fair elections of the respondent-company for the year ending 1978 be directed to be held under the supervision and control of this court and the illegally elected executive committee on February 28, 1979, be superseded.
(4) An interim board for managing the affairs of the company should be appointed.
(5) Effective representation should be given to minority members on the board of directors.
25. C.A. No. 455/79 & C.A. No. 610/79 were thereafter moved by the petitioners for supersession of the executive committee. The new allegation of oppression and mismanagement are quite serious. Supersession is also a relief claimed in the main C.P. The company judge rejected them. Company Appeals Nos. 3 and 5 of 1980, which arose out of the said petitions, were dismissed by the Divisions Bench on April 22, 1980. The Division Bench held that the matter raised there would be fully gone into in the main C.P. and as such no interim orders were called for. One year and a half has elapsed since then and the main C.P. is not yet heard. Both parties now want that I should not wait for the hearing of the C.P. but should pass appropriate orders immediately. By a separate order in C.A. No. 53/81, I have held that the executive committee and office bearers elected on August 30, 1980, were not legally elected.
26. This application with other (53/81) was heard by me in the months of March and April, 1981. Appointment of an administrator and superseding an elected body is an extreme step. It should not be normally resorted to if the elections are free and fair. Even though there are persistent allegations since 1969 regarding the manipulation of the elections by small groups of members, I refrained from passing the order as in my discretion I thought that the disposal of the main C.P. expeditiously would be a better course to follow. The experience regarding the company work, particularly in regard to Motion Pictures Association, is that the allegations of mismanagement, oppression or manipulation of elections develop a colour of staleness due to passage of time and inability of the company judge to decide the matters expeditiously due to pendency of work in this court. No C.P. can be disposed of within one year's time with all the company applications. The company court directs the elections to be held and provides also assistance with the hope that free and fair elections would be held and the problems would be resolved but the real question of an oppression by a group remains unresolved. Injustice mounts over another injustice and relations between the groups get further strained.
27. Faced with this difficulty during the course of the hearing and at various turns of the arguments, the question of settlement of disputes through a compromise was mooted by me. Both the parties readily agreed. My suggestion was to refer the entire pending dispute to an arbitrator with liberty to the parties to raise other agreed issues before the arbitrator. This was acceptable to both the parties. It was agreed that each party should separately meet me in chamber without lawyers. Thereafter, the lawyers would join so as to give the formal form to the formula. I passed an order to this effect in C.A. No. 53 of 1981, on April 7, 1981. During the month of April, 1981, some chamber sitting were held with the parties. They agreed upon the arbitration by a retired judge of this court. The question which remained unresolved was what arrangement to be made for the interregnum. The petitioner's group suggested that an administrator should be appointed. The group which now controls the company insisted that the management should be handed back to them. Mr. Joginder Singh represented that group. He, after consulting his advocates, Mr. K. K. Mehra and Mr. G. L. Rawal, finally confirmed that unless the management was reverted to his group the proposal of arbitration was not acceptable. I had withheld passing of any order in the three C.As., which I had heard as I was exploring the possibility of compromise.
28. After the failure of the compromise talks for a relatively lasting solution I proceeded with the writing of the orders. A most unmistakable fact which is apparent through the protracted rounds of litigation In re motion Pictures Association, is that every order, interim or final, becomes subject matter of appeals before the Division Bench or the Supreme Court. Naturally, the hearing of the main C.P. again is pushed back. Another difficulty was of the overlapping nature of the disputed questions of fact and law in the said C.As. and the main C.P. A court should refrain from pronouncing on such disputed question before the evidence is taken and arguments advanced in support of legal submissions in the C.P. If this is not done with discriminating mind, number of difficulties are created in the future course of litigation. This can be seen from the Division Bench judgment in Company Appeals Nos. 3 and 5 of 1980. The question whether the executive committee deliberately avoided the holding of elections for the years 1977 and 1978 or whether the meetings could not be held because of the order of the company judge dated August 30, 1979, is a question seriously raised in the main C.P. So also is the question regarding alleged misappropriation. The Division Bench rightly observed at a number of places that the said questions cannot be finally decided without leading evidence in the main C.P. However, the observations made for the limited purpose of the disposing of the C.As. by the Division Bench are utilised by the counsel for the company almost in every subsequent C.A. as if the matters were finally concluded by the Division Bench judgment in the said appeals. The Supreme Court order rejecting the S.L.P. (expressly keeping the question of the illegalities of the elections open) is also utilised for the same purpose. This tendency of the parties to overuse the previous judgment in C.As. was another reason why I decided not to pass any orders in the said C.As. During the course of hearing of these petitions, several times, I had made observations to that effect and the parties and their counsel always gave me an impression that they agreed that the course of action I was following was the only course open in the circumstances.
29. I finally decided not to pronounce any order in the said C.As. but to expedite the hearing of the main C.P. On May 11, 1981, I listed the matter for framing of the issues in the main C.P. on May 20, 1981. Counsel for the petitioner filed his draft issues on May 20, 1981. Mr. Mehra appearing for the company requested for further time to file the draft issues. The matter was, therefore, adjourned twice. Thereafter, the draft issues were discussed and finalized and the matter is now set for the affidavits of the parties by way of evidence.
30. By my decision not to pass on order in the said C.As., the petitioner should have felt aggrieved because they wanted immediate relief. The respondent-company or the members of the executive committee should not have any grievance. However, it is surprising that C.A. No. 1 of 1981, which is filed by Shri Joginder Singh, Shri Dinkar Desai and two other members of the executive committee, the grievance is made of the fact that I decided not to pass any order in C.A. No. 94/81 before the C.P. was decided. The company, which is respondent No. 4 in the said appeal, had no such grievance. I would whether my efforts for compromise and difficulties in passing orders in C.As. were brought to the notice of the Division Bench or not.
31. In the said appeal it is agreed by the parties that I should pronounce my order in C.A. No. 94 of 1981, without waiting for the decision in the C.P. because hearing of the C.P. and the decision is likely to take longer time. Even if the parties co-operate earnestly, decision in C.P. will take some time. I am of the considered opinion that an administrator should be appointed immediately to run the company.
32. The suit (438/81) filed by M/s. Navrang Theatres (P.) Ltd. for permanent injunction restraining the executive committee members, from acting as office bearers and restraining the executive committee from amending the rules of the association, is pending in the trial court. Mainly, the legality of elections held on August 30, 1980, are challenged. An order in the nature of interim injunction restraining the executive committee from acting as office bearers and from amending the rules of the association is in operation. The executive committee members preferred a writ petition (C.M. (M.) 233 of 1980) under art. 277 against the said ad interim injunction. This court granted stay of the said interim order while admitting the said petition. The interim order passed by this court was vacated by me on February 17, 1981, with other directions. As the trial court hurriedly passed an order suspending the interim injunction order, of its own, without following the directions given by me. I stayed that order on February 20, 1981. The result is that the original interim injunction order passed by the trial court is in full operation. That order was an interim order passed by me pending notice. The company as well as the executive committee members are taking different stands in the different petitions as to whether this order has finally disposed of C.M. (M) No. 233/80 or not. However, this is not of much consequence since C.M. (M) No. 233/80, is now withdrawn by the petitioners therein on August 14, 1981. The position in law, therefore, is that the executive committee members and the company are left with no complaint against the interim injunction passed by the trial court and themselves want to contest the matter finally in the suit. Mr. K. K. Mehra, their counsel, showed such an anxiousness of the hearing of the said suit on the last date of hearing that he has moved an application for the return of the suit record to the trial court immediately. My order dated February 20, 1981, can no more be a matter of controversy either to the members of the executive committee or to the company. That order was passed only to reinforce the original order of the trial court restraining the executive committee members from acting as office bearers or for changing the rules of the association. A substantive writ petition, C.M. (M) No. 223/80, against the original order of the said trial court is now withdrawn. This is another reason why I have found if fruitless to pass any order in this matter.
33. Some other details of these proceedings should be noted because they show activities of the members of the executive committee to delay and thwart the legal process so as to avoid the decision of the courts on the illegalities and mismanagement in the conduct of the company. M/s. Navrang Theatres (P.) Ltd., one of the petitioners in C.P. No. 58/79, filed a suit No. 438 of 1980, in the Court of Senior Sub-Judge, Delhi. The suit was filed against the Motion Pictures Association and the members of the executive committee. Legality of certain election rules and held pursuant to the Rules in 1980 was challenged. It was also prayed that executive committee members should be restrained from working as office bearers. It was then prayed that the circular dated November 18, 1980, whereby the plaintiff was removed from the association, should be declared as null and void. In C.P. No. 32 of 1976, the company judge, from time to time, had given elaborate orders for the procedure to be followed before a member is removed from the association. One grave consequence of the removal from the membership is that he is completely thrown out of business as no member of the association (under the articles of the association) can have any cinematographic contract with a non-member. An application for ad interim injunction under O. 31, rr. 1 and 2 read with s. 151, CPC, was also moved. By a detailed order the trial court passed an ad interim injunction order restraining the executive committee members from acting as office bearers and restraining the association from amending any rules. This order was passed on 5th December, 1980. The trial court fixed 16th December, 1980, for confirmation of the said order after notice to the defendants. The executive committee members, however, did not go before the trial court but filed C.M. (M) No. 223/80 in this court under art. 227 of the Constitution and s. 24 (for transfer of the suit) against the said interim injunction. On 8th December, 1980, Anand J. admitted the petition and stayed the interim injunction order. The main contention raised in the said C.M. was that Shri Devinder Singh, managing director of Navrang Theatres (P.) Ltd. who controls the cinema in Ghaziabad and has extensive influence there filed a frivolous suit in Ghaziabad and obtained an injunction. It was then stated that said Shri Devinder Singh who is the signatory to the present Company Petition No. 58 of 1979, under ss. 397 and 398 of the companies Act filed a criminal case at Ghaziabad. It is then stated that both in the civil suit and in the criminal case, said Devinder Singh managed to obtain orders from the courts at Ghaziabad. It was then averred that as he was frustrated in those attempts Suit No. 438 of 1981 was filed in Delhi by suppression of facts and managed to obtain the interim injunction. It is then averred that the grounds taken in the said suit were exactly similar to the grounds in the main C.P. and other applications moved in the company court. Some days after the admission of the said C.M. by this court an application was moved by said Navrang Theatres and the company before the trial court for compromise of the suit and for withdrawal of the injunction order. It appears that there is a pattern of compromising the matters in the court. I have referred to them earlier. The most glaring example was C.P. No. 32 of 1976. Mr. Kundra who was the petitioner along with 260 others and wherein gross allegations of gross mismanagement and oppression were made against Shri Joginder Singh and four others, was suddenly compromised in the appellate court. Similar is the case of Shri J. S. Sood, (who had filed earlier proceedings against the company and who has now joined the ruling group) moved a company petition in this court for not holding the elections. When this matter was brought to my notice I found that the proposal of compromise should be examined by the trial court by evidence. An application was made in the trial court by some of the petitioners that they should be imp leaded as parties in the said suit. Since the allegations in the said suit were mainly in relation to illegality of elections of the association and had a vital bearing on the main C.P. in this court, I wanted that the trial court should examine the question of impleading the said petitioners in the main C.P. as parties in the said suit. On February 17, 1981, I passed an order vacating the original stay order passed by this court on December 8, 1980, and then directed the trial court to hear the application for impleading first and then do decided the question of compromise. Another question which needed investigation was how the Navrang Pictures which was removed from the membership was suddenly readmitted to membership.
34. Against my order dated February 17, 1981, a special leave petition was filed in the Supreme Court on behalf of the members of the executive committee by the paid secretary. The matter was again brought to my notice on February 19, 1981, and it was pointed out that Navrang Pictures, the plaintiffs, had moved an application for withdrawal of their original application under O. 39, rr. 1 and 2. It was brought to my notice that the trial court had stayed its interim injunction order contrary to my orders. The trial court order will show that even the file of the suit was not before the court. On 20th February, 1981, I, therefore, passed an order staying the operation of the last order of the trial court by an interim order and directed the matter to be listed on February 26, 1981. Mr. Mehra, appearing for the executive committee members, promised to produce the order of the trial court before me on that date. On February 25, 1981, some members of the executive committee filed an appeal before the Division Bench of this court being Company Appeal No. 1 of 1981. The appeal was not admitted because it was against an interim order. Thereafter, I was hearing C.A. No. 94 of 1981, C.A. No. 53 of 1981 and other applications. I made efforts to have permanent solution by way of arbitration. I was quite hesitant to pass any order of supersession of the executive committee. It appears that these facts were not brought to the notice of the Division Bench and, therefore, the Division Bench admitted the appeal on 30th July, 1981. After admission of the appeal by the Division Bench the executive committee members withdrawn C.M. (M) 223/80, perhaps in the hope that they will get a favorable order from the appellate court. The effect of the withdrawal of C.M. (M) 223/80 was that the executive committee members were now ready to go before the trial court, which they ought to have done eight months back but instead they kept on filing the appeals and petitions for interim orders.
35. The interim injunction order restraining the executive committee from functioning was not of much restraint because they performed all the functions through the paid secretary. This led to the petition for contempt before me. The executive committee never showed any anxiety to call annual general meeting for the next year. The two applications were moved before me for permitting the company to make statutory expenses and other expenses and urgent orders were sought but neither the managing committee nor the company ever sought modification of the interim injunction order so as to enable them to call the annual genera meeting. On September 1, 1981, Company Appeal No. 1 of 1981 was disposed of by the Division Bench with an order permitting the executive committee to make certain expenses. The annual general meeting was due on September 30, 1981, but even before the Division Bench no permission was sought for holding the annual general meeting. In C.A. No. 518 of 1981, filed on September 23, 1981, for the first time the question of calling of the annual general meeting was raised before me. Even then no particular urgency or early orders were sought by Mr. Mehra on September 24, 1981, in regard to the holding of the elections. In C.M. (M) No. 223/80, under art. 227 and s. 24 of the CPC, executive committee members had prayed that the suit in the trial court should be transferred to this court. The petitioners in the main C.P. have now filed an application being C.M. (M) No. 163 of 1981 for the same relief of the transfer of the suit to this court. Considering the experience of multiplicity of proceedings created by the parties in regard to the said suit and also considering the fact that the questions of fact and law raised in the said suit are inextricably interwoven with the questions of fact and law raised in the main C.P., appropriate orders will be passed after hearing the parties. The disposal of the suit, with all evidence, will naturally take some time. I will pass separate orders on those applications.
36. There is another proceeding between the parties in the nature of contempt of court. Civil Contempt Petition No. 2 of 1981 is filed against Shri Joginder Singh, the alleged Hony. secretary for the company, and Mr. J. C. Basu, a paid secretary of the company. The allegations are that in spite of the interim injunction restraining the members of the executive committee from working as office bearers of the company, the said two gentlemen are collecting moneys in cash from the members and spending them. There are other specific allegations showing that they are in fact running the company as if no injunction is in operation. Similar allegations were made by the petitioners in the substantive proceedings arising out of the interim order passed by the trial court. The said contempt petition is heard by me and the orders are reserved. The factual averments in the petition regarding various action taken are not denied by the said contemners. The defense is that the said action could be lawfully taken by Mr. Basu and the sub-committee of the company. The action of Mr. Basu (merely a paid secretary of the company) in collecting the cash amount not depositing it in the bank and disposing of the same cannot be justified. Shri Joginder Singh has taken a stand that neither he nor any members of the executive committee had instructed Shri Basu to take the various action complained of by the petitioners. In the interest of the company and the large number of its members this state of affairs should not be allowed to continue. An immediate arrangement for setting right the administration of the company is, therefore, necessary.
37. For proper and effective disposal of the main C.P. full and truthful disclosure of the material is necessary. Considering the repeated allegations that the executive committee works as an exclusive group, in a secretive manner and for personal ends there is necessity of an independent agency to assist the court for effective and quick disposal of the main C.P.
38. There is yet another reason why an independent authority is necessary for taking immediate control of the administration of the company. The parties are not agreeable to hold the fresh elections unless the question of the legality of earlier elections and amendment of election rules published simultaneously along with the notices for the earlier election, are decided. The Division Bench, hearing appeals Nos. 3 and 5 of 1980, has referred to the impasse created by the rival stands of the parties, in this regard. If, therefore, the Central Government or this court eventually directs that the elections should be held on certain footing, it should be at the auspices of an independent authority so as to obviate the malpractices and untoward incidents in the wake of elections.
39. It is necessary to explain why the special sub-committees are also superseded along with the executive committee. The sub-committees are constituted by nomination by the members of the executive committee. The nomination of a particular group and its associates in the executive committee and sub-committees for the last decade is also note by and commented upon by Anand J. and Kapur J. in the past. It was argued before me that the sub-committees are the real functioning bodies under the articles of association and the executive committee is a mere appellate authority, without any original functions. A bare reading of the articles of association would show that is not the legal position but even assuming that the interpretation of the company is correct, the question is not of the legality. The powers may be legal but still they can be abused by way of mismanagement and oppression. The exercise of the power may lack good faith and the conduct of the sub-committees may result into harshness, serious detriment to a class of members and wrongful benefit to other members. These are the precise allegations in the company petitions and various applications moved before me. In the contempt petitions is demonstrated as to how the members are removed without proper procedure as laid down by Anand J. and also the arbitrary way registration of pictures is done. If the sub-committees are allowed to function, the executive committee will be able to do the mischief indirectly, which they are not allowed to do directly. Instead, it is better that the functions of these committees are performed by an independent committee of four members as stated in the order.
40. I have carefully gone through the efforts made by various company judges from time to time to avoid supersession of the executive committee and the sub-committees to find out a solution short of supersession and their failure. I cannot ignore their experience and herculean efforts to reduce the dominance of a particular group, to curtail arbitrariness in the matter of removal of members, to eliminate illegalities and malpractices in the election. I also cannot ignore the deliberate changes in the election rules, on the eve of elections so as to deprive the majority of members from exercising their voting right. The fact that out of about 1,400 members, only about 320 members could vote in 1979 elections and only 136 members could vote in 1980 elections speak volumes for the 'democratic character' of the elected bodies of the association. The working of the company, as disclosed before the court, has left permanent impression on the company judges that a court's intervention is urgently necessary in this company because of the business of crores of rupees is controlled by company registered under s. 25 of the Act, and that the management possesses total power of denying the constitutional rights of trade and business to its members. Taking into consideration the experience of earlier company judges and my experience I find that prima facie the management of the company lacks in good faith and probity. It has a prima facie tendency and habit of being burdensome, harsh and wrongful to the members. Equity demands that the control of the company should vest in an independent authority of an administrator so as to restore the confidence of the members in the company. I am aware that this is not a permanent solution. This order is, therefore, an interim measure till the main C.P. is disposed of. In the main C.P. also there is a prayer for an interim order superseding the board. This order has become further necessary because the term of the present executive committee and the sub-committee has come to an end on September 30, 1981. The legality of the earlier election (1979) is yet to be decided in the main C.P. In C.A. No. 53 of 1981, I have held that the amendment to election rules made on August 6, 1980, depriving about two-thirds of the members of their right to contest for the posts of office bearers and executive committee, are illegal. In oppressive election, to these offices held on August 30, 1980, based on the said amended election rules are also illegal and oppressive.
41. I am sure that with his maturity and vast experience, the administrator, will not be required to use all to powers conferred upon him. I hope, he will be able to create confidence amongst all s of the associations and provide a healing touch to the strained relations between the members.
42. I have already expedited the hearing of the main C.P. and it is at the stage of evidence.
43. Company Application No. 53 of 1981 :
S.B. Wad, J.
44. This application was filed by the petitioners in the main C.P. challenging the legality of the amendments to the election rules made on May 24, 1979, and August 6, 1980. Pursuant to these amendments in the election rules, the annual general meeting elections were held on August 30, 1980; legality of these election are also challenged in the application.
45. The application was heard by me Along with C.A. No. 94 of 1981. I reserved orders in both the matters, but, ultimately, decided to postpone the orders till the main C.P. was heard. On October 1, 1981, I pronounced an order in C.A. No. 94 of 1981 and the main C.P. because both parties wanted the order to be pronounced immediately. Parties also requested that I should pass an order in this application also.
46. The changes brought about in the relevant election rules are as follows :
The original election rules published on 2nd June, 1975, made the following provision regarding persons who cannot contest the elections or nominate any one to contest elections to the executive committee.
"Rule 6. Who cannot nominate or be nominated. - Non-members and/or attorneys or agents/representatives of neither eligible to nominate themselves as candidates to the office of the member of the executive committee, excepting authorised representatives of company members, who are eligible to nominate and/or nominated."
47. By a resolution dated May 15, 1979 (circulated to the members on May 24, 1979), the said rule was amended as follows :
"Non-members and/or attorneys or agents/representatives of any description whatever of members, in their such capacities, are neither eligible to nominate a candidate nor are eligible to be nominated themselves as candidates to the office of the member of the executive committee or the office of any one of the nine honorary office bearers of the association."
48. The rule was further amended and circulated to the members of the association on August 6, 1980. This was done along with the circular prescribing the schedule for the annual general meeting/elections to be held on August 30, 1980. After the amendment the said r. 6 read as follows :
"Non-members and/or attorneys or agents/representatives of any description whatever of members, in their such capacities, are neither eligible to nominate a candidate nor are eligible to be nominated themselves as candidates to the office of the member of the executive committee or to the office of any one of the nine office bearers of the association. Partners of partnership firm, members and representatives of body corporate, even though authorised under 187 of the Companies Act, 1956, cannot nominate or be nominated."
49. The combined effect of the amendments made by the executive committee was that partners of partnership firms and representatives of the companies were prevented from contesting elections to the executive committee or as office bearers of the association. The grave effect of these amendments is that about two-thirds of members of the association are prevented from contesting election and to take part in the management of the company. Such an amendment with serious consequences ought to have been placed before the general body before they were approved by the executive committee. The amendment had the effect of completely destroying the democratic character of the management of the company. It has enabled the small group of the people with their supporters to get unanimously elected. In the election held in 1979 and 1980 the voting figures are quite revealing. Out of about 1,400 members, about 320 voted in the elections held in 1979 and only 136 could cast their votes in the elections held in 1980.
50. These amendments are prima facie violative of ss. 187 and 253 of the Companies Act and the articles of association themselves. They are also oppressive to the members of the company. I am, prima facie, convinced that the present executive committee was not legally constituted. So is the case with the nine office bearers.
51. It may be noted that the annual general meeting held in February, 1979, was for the year ending 1977. An annual general meeting held in August, 1980, would naturally be for the year ending 1978. In the annual general meeting held in 30th August, 1980, income and expenditure account for the period January 1, 1978, to March 31, 1979, and the audited balance-sheet as on March 31, 1979, were adopted. No annual general meeting for the year ending 1979 and the year ending 1980 has been held so far. In the said meeting dated August 30, 1980, M/s. Dial & Co., Chartered Accountants, were retrospectively appointed as auditors for the period April 1, 1979, to March 31, 1980. The said annual general meeting was "adjourned" to September 30, 1980, for consideration and adoption of the accounts for period April 1, 1979, to March 31, 1980. This is clear breach of s. 210 of the Companies Act.
52. The challenge to the amendment is on the grounds that they are illegal and grossly oppressive. It is alleged that the object of the amendments was to deprive about two-thirds members of the association from participating in the management of the association by depriving them the right to contest elections. The association has a history of manipulation of election through election rules. The details are set out in the interim order in the main C.P. in C.A. No. 94 of 1981. They should be read as a part of this order.
53. The association has about 1,400 members. Out of that about half the number consist of partnership firms. About 150 members are limited companies. Kapoor J. amended the articles of association in 1978. The learned judge also changed the election rules whereby it became obligatory for a partnership member to secure a prescribed authorisation form from the associations so as to nominate its representative for the purposes of election. Elections were held on February 28, 1979. One of the main complaints about this election is that no authorisation forms were sent to partnership firms, their old authorisation forms were held to be invalid. The result was that out of about 650 partnership firms, only 177 could participate in the election. The learned company judge have taken serious note of this fact. Because of the objections raised by the members, the executive committee now amended the rules of the election on May 24, 1979. They were again amended on August 6, 1980, and representatives of partnership firms and bodies corporate were prohibited from nominating or be nominated for election to the executive committee or to be office bearers of the association.
54. Mr. K. K. Mehra, appearing for the company, argued that the questions raised in this application were already decided against the petitioners in Company Appeals Nos. 3 and 5 of 1980 and the S.L.P. filed by the petitioners in the Supreme Court. I have gone through the judgment of the Division Bench in the said company appeals. I do not find that the Division Bench has held that the amendments dated May 24, 1979, were validly made. In fact, the Division Bench, agreeing with Mr. K. K. Mehra for the company, held that the matter should be decided in the main company petition. The judgment by the Division Bench was delivered on April 22, 1980. The major amendment regarding the prohibition of the partnership firms and the companies from participating in the elections was made on August 6, 1980. This amendment was, therefore, not before the Division Bench. The general approach of the Division Bench was that these matters should be decided in the main C.P. This was confirmed by the Supreme Court by dismissing the S.L.P. Mr. Mehra pointed out that in the additions affidavit filed by the petitioners in the Supreme Court they had referred to the said amendments to elections rules. The Supreme Court decision has to be understood only in relation to the decision of the High Court and nothing more. The submission of Mr. Mehra is rejected.
55. The articles of association of this company do not lay down any qualifications for a person to be a member of the executive committee, that is, director. It was so because it is a company under, s. 25 of the Act. Anybody can be a director. articles 3, 4 and 7 of the articles of association entitle partnership firms and limited companies to become members. The articles of association are in the nature of a contract between its members and subject to the provisions of the companies act and memorandum of association constitute the working constitution of the company. There is no prohibition in the articles of association for the partnership firms and the limited companies from deputing their representatives to contest the elections to the executive committee or to be its office bearers. Indeed, there could not have been any such provision once the articles permit the firms and limited companies to be the members. That would be contrary to the fundamental principles of management recognised by the Companies Act. It would also be most undemocratic. The executive committee has, therefore, no power or competence to frame the election rules in violation of the articles of association. The amendments to election rules dated May 24, 1979, and August 6, 1980, are, therefore, ultra vires the articles of association and, therefore, void.
56. Amendment dated August 6, 1980, is further grossly violative of the Companies Act itself because it states that notwithstanding s. 187 of the Act, the representatives of the limited companies and partnership firms cannot nominate or be nominated to membership of the executive committee or to be office bearers of the company under s. 9 of the Companies Act has overriding effect on the memorandum and articles of association.
57. As stated earlier, the articles of association do not create any bar for the partnership firms and the limited companies from contesting the elections through their representatives. 253 of the Act lays down that no body corporate, association or firm, shall be appointed director of a company, and only an individual shall be so appointed. This does not prohibit one of the partners of a firm or an individual representative of a limited company from becoming a director. The only requirement of the is that a natural person can alone act as a director. Practical convenience suggests that a group of persons like partnership firms or the entire administrative difficulties in the working of the board of directors (sic).
58. The executive committee cannot create elections rules to override the provisions of articles of association and s. 253 of the Act. Mr. K. K. Mehra argued that Mr. Saxena who was appointed to assist the court's observer for the elections held on February 28, 1979, had rejected the nominations of representatives of limited companies. This argument was also raised before the Division Bench deciding Company Appeals Nos. 3 and 5 of 1980. Mr. Saxena's action might provide an excuse for the company for depriving majority of its members from contesting elections. But, that cannot be cited as an "authority" on the legal position or proper interpretation of s. 253 of the Act. The company had earlier refused to give authorisation slips to about 500 partnership firms illegally. In this background, the motive in citing Mr. Saxena's opinion is quite obvious.
59. 187 of the Companies Act enables the board of directors or other governing body to authorise representatives of the limited companies to participate in the meeting of the company. The articles of association had recognised the right of the partnership firms and the limited companies to fully participate in the management of the company. Indeed, the original election rules recognised this legitimate right of the members. Mr. Mehra argued for the company that the meeting referred to in the said are meeting of the company and not of the directors. It is difficult to agree with this interpretation. The meetings referred to are, all the meetings. The board of directors also holds meetings of a company. Other provisions are made in the Companies Act for annual general meeting and other meeting of the general body and they have a different object. The executive committee was itself aware that s. 187 permits the limited companies to have their representatives on the executive committee or to the office bearers. That is the reason why the amendment dated August 6, 1980, provides "even though authorised u/s. 187 of the Companies Act, 1956", which, of course, is illegal.
60. An illegal act per se does not amount to oppression for the purpose of ss. 397 and 398 of the Act but if there is a pattern and almost continuous process of illegal actions, the said illegalities themselves amount to oppression. Apart from this, to deprive the valuable right to about 2/3rds members of the association from participating in the management of the company with its earlier background is per se oppressive. The amendment dated August 6, 1980, was circulated to the members along with the circular for the annual general meeting/elections on August 30, 1980. The motive was quite clear and, indeed, the final results of elections prove it. Out of 1,400 members, only 136 members could participate in the elections. There were no nominations apart from the exact number of the executive committee members and the office bearers. Their election was, therefore, unanimous.
61. Articles of association with election rules were extensively amended by Kapoor J. only a year back. The alleged difficulty of s. 253 was not even mooted before Kapoor J. The executive committee did not even place the matter before the general body. An amendment intended to affect the valuable right of the majority of its members should have been done only with the approval of the general body. Each member has a vital stake in the management of the company.
62. The circulars dated May 24, 1979, and August 6, 1980, and the elections held on August 30, 1980, are illegal land oppressive within the meaning of ss. 397 and 398 of the companies Act. I have already appointed an administrator as an interim measure, till the disposal of the C.P.
63. Company Appeal No. 23 of 1981 :
Rajindar Sachar J.
64. These two appeals will be disposed of by a common order because they raise the same points and facts are quit interrelated and mixed one into the other. By the said impugned orders of October 1, 1981, and October 12, 1981, the learned single judge has restrained the appellant from functioning as the executive committee of respondent No. 2 association and instead appointed an administrator of the company to take charge of the company. He has also held some amendments in election rules to be void and the election held on August 30, 1980, at which the appellants were elected, to be void.
65. 25 of the Companies Act, 1956 (hereinafter to be called as "the Act") empowers the Central Govt. if it is satisfied that an association is about to be formed as a limited company for promoting art, charity or any other useful object it may by license direct that the association may thereupon be registered accordingly and on registration shall enjoy all the privileges and (subject to the provision of this ) be subject to all the obligations of limited companies. Sub-s. (4) of s. 25 further provides that a firm may be a member of any association or company licensed under this , but on the dissolution of the firm, its membership of the association or company shall cease.
66. Respondent No. 2, the Motion Pictures Association (hereinafter to be called "the association"), is registered under s. 25 of the Act. Amongst others, the objects for which the association has been established is to promote, aid, help, encourage and develop the production, distribution and exhibition of the Indian Film or motion Pictures Industry in all possible ways. By article 3 the membership of the association will be open to persons, firms, joint stock companies carrying on business of either film distributors or film exhibitors in the State of U.P. and in the Union territory of Delhi. Article 4(b) provides that subject to the provisions of the articles of association each member of the association shall have one vote to be exercised by a person duly authorised by the members concerned as recorded in the style of article 7 and subject to the provisions of the election rules framed by the executive committee from time to time and further subject to the provision of s. 187 of the Companies Act, 1956, in the case of the company members provided further that in the case of proprietary concern members, a sole proprietor shall have only one vote. Article 7 provides that any individual firm, joint stock company or other corporation eligible under article 3 for admission as a member may become a member in their conventional or corporate name.
67. Vide article 23, all the directors of the association shall be called the members of the executive committee, the number of which shall be 18 consisting of 9 honorary office bearers, and 9 ordinary members to be elected directly at every annual general meeting.
68. Article 24 provides that at every annual meeting all office bearers, elected at the previous annual general meeting and the remaining 9 sitting members of the executive committee shall retire from office, the retiring office bearers and the retiring members of the executive committee shall be eligible for re-election in the annual general meeting in which they retire.
69. Article 28 reads as follows :
"A member who is not a retiring member of the executive committee shall be eligible for appointment to the office of a member of the committee at any general meeting if he or some other member intending to propose him has not less than fourteen days before the meeting left at the office of the association notice in writing under his hand signifying his candidature for the office of the member of the committee or the intention of such member to propose his as a candidate for that office, as the case may be."
70. As provided by Article 4(b) election rules have been framed by the executive committee from time to time. Original election rules were framed and published on June 2, 1975. One annual general meeting was held at which the executive committee was elected. Subsequently some amendments were made, especially in rule 6 as circulated on May 24, 1979, and further on August 6, 1980. The last annual general meeting was held on August 30, 1980, at which the appellants were elected office bearers and members of the executive committee. It is these amendments to the rules and the election which has been invalidated by the impugned orders resulting in the present appeals.
71. The association has not had an easy sailing for the last number of years. It is enough to mention that some time in 1976, C.P. No. 32/76 was moved in which objection was taken to the various articles of the association and ultimately Kapur J., after a great deal of looking into details and with the active assistance of the parties, framed and approved the present article of the association. Though the association had held its annual general meeting for the period ending 1976 without the same having been challenged the further holding of the general meeting ran in trouble when the company judge by his order dated May 19, 1978, directed that the meeting fixed for May 27, 1978, for the financial year ending 1977 should not be held. This bar was, however, removed by the learned judge on December 20, 1978. The meeting was thereafter held on that date, i.e., February 28, 1979, and election took place. A few months thereafter the present C.P. No. 58/79 (under s. 397/398 of the Act), was filed by respondent No. 1, G. S. Mayawala, though he had himself been elected at the meeting held on February 28, 1979.
72. Usual kind of allegation of oppression, etc., were made. Amongst others, objection was also taken that the election held on February 28, 1979, was invalid and a prayer was made that the executive committee should be superseded. C.P. No. 58/79, is still pending disposal before the company judge. When the matter was before the learned company judge an application was made being C.A. No. 610/79, with a prayer for supersession of the committee and for appointment of an interim board to take over the management during the pendency of the C.P. No. 58/79. This application was rejected by H. L. Anand J. by his order dated November 19, 1979. Aggrieved by that, Company Appeal No. 3/80 was filed by the present respondent No. 1, G. S. Mayawala. This company appeal was dismissed by the Division Bench of this court on April 22, 1980. The Bench did not find any prima facie good reason to supersede the Board or why a new interim board should be constituted. S.L.P. was taken against the judgment of the Division Bench (in C.A. No. 3/80) being S.L.P. No. 6692/80, but the same was dismissed summarily by the Supreme Court on August 28, 1980. Thereafter, annual general meeting and elections were held on August 30, 1980.
73. C.P. No. 58/79 is still pending before the learned company judge. C.A. No. 94/81 was filed on February 19, 1981, praying for the immediate appointment of an administrator and restrained the committee and all the sub-committee from functioning. Company Appeals No. 23/82 is directed against this order of October 1, 1981. As the learned judge had not given the reason for passing the order dated October 1, 1981, and the same were given by him subsequently on October 12, 1981, the said order also formed part of the record of this appeal.
74. It appears that another application, being C.A. No. 53/81, was moved on January 22, 1981, similarly making a grievance that the election held on August 30, 1980, was held by depriving the representatives firm and the company from being elected, and that, therefore, as an interim measure the board be restrained from functioning any longer. The learned judge by hid order of October 12, 1981, has found that the amendment made in rule 6 and circulated on May 24, 1979, and August 6, 1980, were illegal and, therefore, the elections held on August 30, 1980, are vitiated. He, therefore, restrained the office bearers and executive committee from functioning any further. Company Appeal No. 25/81 is directed against the said impugned order of October 12, 1981.
75. The position indisputably is that prior to the election held on February 28, 1979, every member, if he was an individual, was entitled to vote; he could also nominate and/or be nominated for election as an office bearer or member of the executive committee. Similarly, any one partner of a firm or managing director, director, etc., of a company authorised in writing by all the partners or by the board of directors could nominate and be nominated for the election as office bearers or as members to the committee. It may be noted that there are about 1,500 total members out of which about half are either partnership firms or bodies corporate. Rule 6 which was the original election rule published on June 2, 1975, permitted the authorised representative of the company as well as a partner authorised by all the partners as being eligible to nominate or be nominated for election to the executive committee. This rule, however, was amended on May 15, 1979, (but circulated on May 24, 1979). A further amendment was also made by the executive committee on August 6, 1980. The admitted result of the amended rule on the basis of which elections were held on August 30, 1980, was that the partners of the firm and the representatives of the companies could not partners of nominate or be nominated to either the 9 honorary office bearers of the association or to the membership of the executive committee. The learned judge has held that this rule was ultra vires the articles of association and also ss. 187 and 253 of the Act. He has also said that this amendment was motivated and amounts to an act of oppression and, therefore, has passed the impugned order appointing administrator.
76. In the long detailed order of October 12, 1981, giving the reason for ordering the appointment of an administrator on October 1, 1981, the learned judge has given the history of the various litigations concerning the association between different members and the various alleged acts of mismanagement and oppression which were alleged at various points of time in the previous years. We do not consider it necessary to repeat this exercise for the simple reason that almost all of these acts, allegations and events refer to the period earlier to moving of C.A. No. 610/1979, wherein the same prayer for supersession of the board was made. That application had been rejected and in the further appeal (C.A. No. 3/1980) also, the Division Bench saw no reason to supersede the board. This view was also approved by the Supreme Court when the S.L.P. against that order was dismissed. It seems to us and we say so with respect to the learned single judge that if on the basis of allegations and alleged acts of mismanagement and acts of oppression made in the earlier application the Division Bench did not consider it necessary to appoint any administrator as per its order of April 22, 1980 (the Supreme Court refused to give special leave), there would be no justification for relying on those again in order to appoint an administrator. This is because once the Division Bench and the Supreme Court had held that these did not show a prima facie reason for appointing an administrator, the same could not be again revived merely by filing fresh application. Such a course will bring uncertainty in the judicial system. That is why we think the reference to the earlier litigation and the allegations made in C.P. No. 32/1976, in C.A. No. 455/1979 or 610/1979, noticed by the learned single judge were in apposite and have no relevance for the decision of C.A. No. 94/81 or C.A. No. 53/81. The learned judge has in the impugned order commented that the annual general meeting held in January, 1979, was for the year 1977, and the one held in August, 1980, was for the year 1978, thereby suggesting that the committee deliberately did not hold in trial the meetings for these years and that there has also been lapse by not holding the meeting for 1979. It would appear that the learned judge has taken it that the committee was free to hold the meeting for these years but has deliberately abstained from so holding. Apart from the fact that the committee elected in August, 1980, cannot be faulted for any alleged irregularity committed by the earlier committee, the facts also do not support the conclusion of the learned single judge. The record reveals that the annual general meeting for the financial year ending 1977, was fixed for 27th May, 1978. At that time C.P. No. 32/76 was pending and the learned company judge by his order dated May 19, 1978, directed that the meeting fixed for May 27, 1978, should be cancelled. This order was passed in the presence of the respondent, G. S. Mayawala. No appeal was taken against the direction of the learned single judge cancelling the meeting which had been fixed for May 27, 1978, which would presumably suggest that the respondent had no objection to the postponement of the meeting. The meeting was apparently postponed because the learned company judge was seized in framing articles of association and it was ultimately on December 20, 1978, that the learned judge directed the holding of the annual general meeting by February 20, 1979. This meeting was held on the said date. Evidently the delay for holding the meeting could not be placed on the shoulders of the committee. Though the annual general meeting was called for September 27, 1979, yet the same could not be held because the learned company judge had on August 30, 1979, in C.P. No. 30/79, directed that pending consideration of the matter the company would not take any step to convene the annual general meeting. Thereafter C.P. No. 58/79 was filed which is still pending and the last meeting was held in August, 1980. The comment that no steps were taken to hold the meeting though an order had been passed for holding the annual general meeting overlooks the patent fact that since December, 1980, the executive committee was involved in litigations of injunctions, getting them vacated and again getting it revived and obviously in these state of affairs there was hardly any occasion for it to call the annual general meeting. It is not, therefore, correct to say that meeting has not been deliberately held by the committee apart from the fact that the committee elected on August 30, 1980, is a different committee in law from the earlier committees, and the fact that some or may be the majority of the members of the present committee elected on August 30, 1980, are the same as the earlier ones would not mean that the committee as such would suffer from any such disqualification because of any alleged action having been done by the earlier committee. We feel that the approach of the learned single judge in deciding whether to restrain the committee elected on August 30, 1980, on the alleged grounds of not having earlier held annual meetings in 1978 and 1979 (which in law in any case was the duty of the earlier executive committees) was proceeding on wrong principles of law, apart from the reason that in fact this assumption is not correct.
77. The only new plea available was about the validity of elections held on August 30, 1980, and it is to this aspect that we now propose to refer. The fact of the amendments having been made on May 24, 1979, and August 30, 1980, are not in doubt. The reason given for making the amendments by Mr. Mehra, the counsel for the appellant, is stated to be that in the earlier elections which were held on February 28, 1979, the electoral officer who was a court official and had been appointed by the court in C.P. No. 32/1976 and C.A. No. 223/1978, to supervise the elections had objected that under the Indian Companies Act a body corporate cannot be a director of another company, and accordingly the nominations of 3 body corporate members was rejected. This plea is supported on the record. It is apparent that the occasion for amendment was provided by the observation of the electoral officer appointed by the court. Whether the committee should have acted on that advice or should not have taken a more experienced advice from some eminent counsel as urged by Mr. Parekh, the learned counsel for the respondent, is a different matter. But from the factual point it is not correct to hold (as the learned single judge has done) that there was any motive in citing Mr. Saxena the electoral of officer's opinion in this regard. We must, therefore, reject that there was any ulterior motivation in making the amendments to the Rules. Mr. Mehra had emphasised that the result of the elections have not been any different whether held under pre or post-amended Rules. Mr. Mehra had also supplied to us a list of members of the executive committee who had been elected from 1973 onwards and had emphasised that even when the Rules were unamended and the bodies corporate and firms could nominate and be nominated, most of the present members of the executive committee were being elected even then. This list was seen by the counsel for the respondent and though we gave them opportunity to point out the factual errors, none has been pointed out to us. The emphasis was by pointing out that the respondents are only crying "grapes are sour" and taking cover under the amended rule and making a grievance of deprivation of right of body corporate or of partnership firms to be nominated while in fact the position is that even when this right was admittedly available to them from 1973 to 1979, the body composition of the association was not much different. We have just noticed this because it laws so mentioned though the actual result of election has no relevance to the question which we are to answer - whether in law the bodies corporate or members of the firms could or should be on the executive committee ?
78. We may first clear the misunderstanding which seems to be spelt out from the judgment of the learned single judge wherein he has given the figures of elections held in 1979 and 1980 by pointing out that hardly 320 members voted in the elections held in 1979 and only 136 cast their votes in elections held in 1980. Though Mr. Mehra said that here figures were not on record but we may take it that they represent correctly the facts. But what was urged by Mr. Mehra strongly was that the fact this number of members voted in the elections was not due to either the partnership firms or the bodies corporate being deprived of the right to vote. It was not disputed by Mr. Parekh that levers body corporate and every partnership firms could vote if it so chose, that is to say, that none of the 1,500 or odd members of the association were disentitled under any amendment of the rule not to exercise their vote. Of course, Mr. Parekh suggested that as large number of companies and partnership firms could not nominate their representatives for being elected to the committee they were not interested in casting a vote. That is a different matter which has relevance to the eligibility of the bodies corporate and the partnership firms to be members of the executive committee but not to voting right. We must emphasise that admittedly so far as voting rights are concerned it is still available to all 1,500 members. In the election, no one is discriminated by not being allowed to vote. We may add that it was also not disputed that many partners of firms or directors of the company are members in their individual rights and could have contested the elections even under the amended rules. Thus, if a majority of 1,500 members do not want any of the appellants to be on the executive committee, the amended rules will not be able to save the latter. The majority will of 1,500 members to elect their representative is in no way thwarted by the amended rules.
79. But the question still remains whether the amended rule should operate in future, and whether the unamended rules were so illegal that they necessarily had to be amended.
80. Now, the justification pleaded by Mr. Mehra for amending the election rules by the executive committee is said to be that it is in conflict with art. 28 of the articles of association, which only makes a member to be eligible for appointment as a member of the executive committee. No doubt company can be a member of the association and so can be la firm, but Mr. Mehra urges that they cannot be a member of the executive committee, i.e., on the board of directors because of the prohibition in s. 253 of the Act, which says that no body corporate or a firm shall be appointed a director of a company and only an individual shall be so appointed. The argument proceeds that as only an individual can be a member of the board of directors and as under art. 28 only a member is eligible to be appointed on the executive committee the inevitable result is that only an individual who is a member in his own right can be on the executive committee and not an authorised representative of the firm or body corporate.
81. Now, under the Act, a body corporate or a firm as such cannot be a member of the board of directors (i.e., clearly the mandate of s. 253). Though there is no such prohibition under the English Companies Act (vide In the Bulawayo Market and Offices Co. Ltd. [1970] 2 Ch D 458) it was still emphasised that the usual practice has been that limited companies would have directors as individual but there is nothing in it which renders it ultra vires of the company to have another company as a sole manager or to have no director at all. But, as there is a prohibition under s. 253 of the Act, a body corporate or a firm, if it is a member of the association (sic). Mr. Mehra made an attempt to liken the requirement of art. 28 to the requirement of share qualification for a director laid down by the articles of the company. Though there is no statutory requirement, the articles prescribe that a director will hold a specified share qualification. In such a situation if the articles provide that no person shall be "eligible" to be a director or "qualified to become" a director, unless he held so many shares, the holding of the necessary shares is a condition precedent to election, and the appointment of a person not already holding such shares will be invalid" (Gore-Browne on Companies, 42nd edition, page 681). But we must repel the contention of Mr. Mehra that art. 28 must be equated to the possession of share qualification. In our view, art. 28 only seeks to give to a member who is not a retiring member of the executive committee a right that he shall be eligible for appointment to the office of the committee in the same manner as the right has been given to the retiring member to seek re-election, vide art. 24. However, the provision to art. 28 emphasise that in the case of such a member, who is not a retiring member, the said member has to file with the Secretary for filing it with the Registrar, his consent in writing to act as a committee member. This is the limited purpose or art. 28. We cannot accept that art. 28 as such prohibits firms or bodies corporate to nominate their authorised representatives to the executive committee. That bodies corporate or firms as such cannot be appointed directors in a separate matter from the question before us whether there is any bar on the firms or bodies corporate to duly authorise their representatives to contest the election. We do no read art. 28 as creating any such bar to giving representation to the firms and bodies corporate on the executive committee. As to how that is to be effectuated is a matter with which we shall now deal. In this connection Mr. Parekh sought to invoke s. 187 of the Act. But that is of no avail to him. 187 only permits a body corporate if it is a member of the company by a resolution of the board of directors to authorise such person as it thinks fit to act as its representative at any meeting of the company or at any meeting of any class of members of the company. Mr. Parekh reiterates the argument which found favor with the learned judge, who has held that the meetings referred to are all the meetings and the board of directors also hold a meeting of the company, and, therefore, s. 187 authorises the body corporate to be represented in this manner on the Board. We cannot agree. In our view, it is a misapprehension in law to call a meeting of the board of directors a meeting of the company. "Company" is defined in s. 2(10) to mean a company as defined in s. 3(1)(i) defines a company to mean a company formed and registered under the Act or an existing company as defined in clause (ii), whereas a board of directors is defined in s. 2(6), in relation to a company, to mean the board of director s. 252 further provides that every company other than a public company shall have at least two directors and the directors of a company collectively are referred as the board of directors or board. Thus, a meeting of the board of directors is something totally distinct from the meeting of the company. The provision for meeting is found in Chap. I, Pt. VI, while that of the board is to be found in Pt. VI, Chap. II also showing the distinctiveness. "There are four types of meetings of members of a company :
(1) the statutory meeting;
(2) annual general meeting :
(3) extraordinary general meetings;
(4) separate meetings of classes of shareholder"
(Palmer's Company Law, 21st edn., P. 462).
82. That s. 187 is only talking of representation at a meeting of the company and not at that of a board of directors is also clear from s. 187(2) which allows a person authorised to exercise the same powers (including the right to vote by proxy) which has obvious reference to s. 176 which entitles a proxy to be appointed, but only at a meeting of the company. There is no question of proxy at the meeting of the Board. The purpose of s. 187 (which is equivalent to s. 139 of the english act is obvious.
" A corporation, because of its nature, cannot attend a meeting; it cannot per se vote; it cannot show a hand; it cannot demand a poll; it cannot address the meeting and speak its mind. It appears to me that the leading purpose of this is that it is designed to enable a corporation owning shares in a company to be in the same situation for the purpose of meetings of that latter company and voting at such meetings as would be the corporation if it were an individual"- Hillman v. Crystal Bowl Amusements Ltd. [ 1973] 1 All ER 379 at 382; [ 1973] 1 WLR 162. But all these are rights at the meeting of the company. 187, therefore, cannot automatically permit a body corporate to send its re-preventatives to the board of directors of the association because it is not dealing with the right of representation on the Board. Now the bar of s. 253 is on the firm and a body corporate being appointed a director. There is, however, no bar permitting their duly authorise representatives to stand for election to the executive Committee.
83. We have already negatived the obstacle of art. 28. As a matter of fact, art. 28 is similarly worded as s. 257 of the Act. But the applicability of s. 257 has been exempted to the association like the present which provide for election of the directors by ballot (See r. 14 of election rules), in view of the Notification of the Central Govt. No. S.O. 578, published in Gazette of India, Pt. II, s. 3(ii) on July 8, 1961. Strictly, therefore, art. 28 is superfluous apart from the fact that it creates no bar as urged by Mr. Mehra. In our view, the history of the association also shows that prior to 1979 it did not consider any bar to the representatives of firms or bodies corporate from nominating or being nominated for members of the committee. We feel that it was a correct approach. Articles provide for firms and companies being members. It would be natural to expect that all members should enjoy not only the rights to vote but also to stand for elections to the membership of the executive committee. It was obviously in pursuance of this laudable object that the unamended rules provided for individuals firms and company members (of course, subject to being duly authorised as per election rules) to stand for elections to the executive committee. Rules 1, 3, 6 as to who can nominate, who can be nominated and who cannot be nominated provided for just rights of all these three categories of members. That situation would have continued but for the doubt cast on the legality of these rules by the objection raised by the court observer when the election took place on February 28, 1979. We are prepared to accept that it was because of this objection that amendments were made bona fide on May 24, 1979, and August 6, 1980, and though the amendments cannot be said to have been motivated by any extraneous considerations, still it is our view that it would be just and in the interest of the association and the members that a large number of members like the bodies corporate and the firms should not be denied the right through their duly authorised representative as per election rules to nominate or be nominated for election as office bearers or as members of the executive committee of the association. To that extent, therefore, we feel that the amendments made on May 24, 1979, and August 6, 1980, though may not be illegal in the sense that they do not contravene the provisions of the Act or the articles of association, yet we feel that in the exercise of our equity jurisdiction and in the interest of the association the position qua the rights of body corporate and firms should be restored to what was in the election rules prior to the amendments made and circulated on May 24, 1979, and August 6, 1980, 24, 1979, and August 6, 1980, and we order accordingly. We are less diffident in so ordering because we have found no material to show that prior to May, 1979, when the old election rules permitted firms and company members to stand for elections through their duly authorise representatives, it caused any inconvenience or complexity or hurdle in the actual working of the association or was harmful to the interest of either the members or the association because it is well settled that a company whether limited by shares or guarantee is a legal entity whose power was to be exercised for the benefit of that entity and those exercising the powers were bound not merely by their duties towards the other members but also by their duty towards the company, vide Gaiman v. National Association for Mental Health [1971] Ch D 317. In our opinion, though the objection of the electoral officer at the time of the 1979 elections that (sic) as such cannot be a member of the board was correct in the limited sense, it did not automatically need any amendments to be made to the old election rules. But we also cannot say that because of the objections amendments were needed, was not a view which could not be bona fide held be the executive committee. They cannot, therefore, be faulted or found blameworthy for having made these amendments. It is a different matter that we are directing in the exercise of our equitable jurisdiction that the position be restored as under the old election rules. It is true that it is for the shareholder and not the court to determine whether or not the alteration is for the benefit of the company, and that the court will not lightly make any alteration, yet it also cannot be disputed that the power of the court when dealing with an application under s. 397/398 read with s. 402 empowers it to provide for any matter for which in the opinion of the court it is just and equitable that the provision should be made. Though the powers of the court is very wide it will normally not exercise it unless it feels it is not only just and equitable but is also in the interest of the company. It is in recognition of this that we feel that art. 28 which possible is capable of being read as was read in the report of the electoral officer when election was held on February 28, 1979, as barring the duly authorised representatives of the body corporate or the firms to be members of the committee that we should make slight alternation. This we are doing more for clarification though, in our view, even without this it would have served the purpose of permitting the bodies corporate and firm members to participate in elections to the executive committee. We would direct that an explanation be added to article 28 as follows :
Explanation - A member for the purpose of election only to the office bearers or for members of the executive committee will mean all those who by election rules can be nominated for the said elections.
84. Elections were last held on August 30, 1980. They cannot be held to be illegal because they were held on the basis of the existing election rules. We have not found these amendments illegal, are only directing future elections on the basis of old election rules because of larger consideration and in the interest of harmony amongst members. We are doing this in the hope that election will dissolve many controversies of old. The persons who will be able to contest elections will be as mentioned above. The learned judge in appointing the administrator was also influenced by the fact that in any case theorem of the present committee had come to an end on September 30, 1981. This is not correct because art. 31 provides that the retiring member or members of the executive committee shall retain office till the dissolution of the meeting at which his or their successor is/are elected. Thus, until the annual general meeting is held and elections are held, the existing executing committee continues. This consideration which weighed with the learned judge that the present members have ceased to have any right to continue is thus based on misapprehension of the legal position. That is another reason why the impugned order appointing the administration cannot be upheld.
85. We wish to make it clear that the procedure that will be followed for the elections to be held for which we are giving directions should be one which is laid down in the amended rules of August 6, 1980, from r. 7 onwards excepting that the procedure and eligibility of members to nominate and be nominated will not be as laid down in the amended rules 1 to 6 of August 6, 1980, but will be rr. 1 to 6 as they existed prior to amendment in May, 1979. This direction will permit the individuals, firms and company members not only to vote but also to exercise the right of nominating or being nominated as laid down in rr. 1 to 6 of election rules before the amendment made in May, 1979, or August, 1980. Eligibility to nominate or being nominated will be determined by the election rules as they stood before being amended in May, or August, 1980. We have said this because rr. 1 to 6 give substantive right to a person who can nominate and be nominated and that is what the real controversy is about and the rest of the procedure as to the conduct and manner of holding election and the procedural aspect of which no controversy is raised. We may also mention that the person who can nominate and be nominated has been prescribed in the original election rules and it is apparent that the forms prescribed therein will have to be used. The same, of course, will be provided to all the members by the association who wish to participate in the election. It may be mentioned that Mr. Parekh strongly urged that if we were to direct the holding of an election we should supersede the present committee and appoint an administrator to carry on the functions of the board in the meanwhile. We are not inclined to do so. We have already, while staying the operation of the order of the learned single judge, appointed Mr. S. N. Shankar, a retired judge of this court, as chairman of the committee. We have given certain directions therein which we feel would sufficiently safeguard the rights of all the members including the respondents so as to see that no unfair steps are taken against the interest of any member or the company. We must, therefore, overrule this plea of the respondents.
86. In the result we order as follows :
1. that the order of the learned single judge appointing the administrator is set aside,
2. that in place of that order our order passed on October 6, 1981, as affirmed on October 21, 1980, by which we had appointed Mr. Shankar as chairman of the board of directors and the directions given therein will be substituted for the order of the learned single judge,
3. that the elections to the executive committee will be held and completed by March 31, 1982; and
4. that in order to carry on the above directions the executive committee is directed under the chairman of Mr. Shankar to take necessary and consequential steps so as to effectuate the directions given herein.
87. In this connection we may note that under art. 30(d) the executive committee is to appoint a chairman who shall not be interest in the election either directly or indirectly. We have already directed while appointing Mr. Shankar as chairman that if any decision is taken by the executive committee and if not agreed to by the Chairman, the same will not be implemented by the chairman within one week. That direction will continue in the matters other than the election matters; but with regard to the election matters we direct that no decision of the executive committee will be implemented unless it is agreed to by Mr. Shankar, chairman of the executive committee. We are doing this not because we have any reason to feel that the other members of the executive committee will not bring to bear on the matter consideration of impartiality and fairness which is expected of them. On the contrary we have every hope that their action will be fair and impartial. But in order to remove any kind of misunderstanding, however unjustified as the parties are having litigation for long time, it seems to us that the benefit of the final views of the chairman like Mr. Shankar should prevail in the matter of elections which is to constitute the executive committee for the next year. As a matter of fact Mr. Mehra had fairly offered at the earliest stage that the appellant had no objection if the election were held under the guidance of any independent authority and it is on the basis of that assurance so readily and gracefully and correctly given that we are giving the finality to the decision of Mr. Shankar in the matter of elections only. With regard to other matters the earlier order will continue. We are confident that once the elections had been held the immediate controversy and the tension should hopefully dissolve. But that is in the lap of future and seeing the fiercest controversy disclosed during the hearing we can only hope that the steps indicated will lead to a lessening of the tension and the association will be able to function in a cooler and calmer atmosphere, and devote itself more to the objects for which it has formed.
88. At the time of passing the order on October 6, 1981, we had directed that Mr. Shankar will be paid Rs. 1,000 for every meeting of the executive committee that he attends. As we by our order are requesting Mr. Shankar to take on also the load of elections it will be natural for him not only to attend the meetings of the executive but also having to go to the office in connection with the election work or attending some other sub-committee meetings. We feel that it will be proper if instead of the earlier directions of payment of Rs. 1,000 for every meeting we should substitute it by order of payment of consolidated sum. We, therefore, order that Mr. Shankar will now be paid Rs. 5,000 per mensem as honorarium with effect from January 1, 1982. However, up to December 31, 1981, the previous order of payment of Rs. 1,000 for every executive meeting which he has attended or may attend will stand. Mr. Shankar will continue as chairman till the new chairman is elected in pursuance of elections ordered by us.
89. If for any reason the election are not completed by March 31, 1982, the matter will be listed before the court for further directions on April 5, 1982.
90. We may mention that Suit No. 438/80 was filed by M/s. Navrung Theatres (Pvt.) Ltd. for permanent injunction restraining the executive committee and other office bearers from functioning as such. Mainly the legality of elections held on August 30, 1980, is challenged in that suit. Originally an interim injunction was issued by the trial court on December 5, 1980, restraining the members of the executive committee from functioning. This order, however, was stayed by this court in CM (M) No. 223/80 on December 8, 1980. Subsequently, a number of orders were passed and ultimately the order was passed by the learned company judge on February 20, 1981, the result of which was that the interim injunction passed by the trial court became inoperative. Appeal No. 1 of 1981 was filed in this court and it was during the pendency of that C.A. No. 94/81 and C.A. No. 53/81 were disposed of by the learned single judge. The learned single judge had observed that as he had appointed an administrator and the executive committee cannot function it is unnecessary to pass any order in the matter of interim stay order passed by him on February 20, 1981. As we have dealt with the matter and as we have also directed fresh election, Suit No. 438/80, which filed to restrain the present committee from functioning, has obviously become infructuous. We wish to make it clear that any injunction given therein or the revival of that injunction because or the interim stay passed by the learned single judge on February 20, 1981, will not mean revival of injunction because the same has lost all purpose in view of the decision given by the learned single judge and now by us on appeal. We are so clarifying, lest the parties to Suit No. 438/80 should seek to contend that the power to issue an injunction to restrain the executive committee or from holding fresh election is still open for argument and seek to stall our order. As we have directed elections to be held obviously, the trial court cannot now pass any order seeking to injunct the holding of the said elections and all interim orders passed in Suit No. 438/80 seeking to restrain the committee are hereby vacated.
91. In the result, the appeal is disposed of as above. The parties are left to bear their own costs throughout.
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