Arjun Prasad (Dead) ... v. Smt Madhurbhasini De...

Das gupta, J.— These appeals raise a question as to the manner in which a creditor company can validly cast its vote at a meeting of the creditors held under the provisions of Section 153 of the Indian Companies Act, 1913. The question arises in connection with such a meeting held of the creditors of the Gaya Sugar Mills Ltd. On 14-11-1951, an order was made by the Company Judge in the Patna High Court for the winding up of the Gaya Sugar Mills Ltd. On 6-10-1953 an order was made by the learned Judge for action to be taken under Section 153 of the Indian Companies Act. Mr G.C Banerjee, who was appointed Chairman to hold the meeting of the creditors held separate meetings of the debenture-holders, secured creditors and of the unsecured creditors. In his report he stated as regards the meeting of the unsecured creditors that “thirty unsecured creditors either in person or through proxy attended and took part in the meeting”, and that ultimately a resolution proposed by one of the creditors, the Standard Vacuum Oil Company and seconded by another creditor Shri K.C Agarwal was passed “by the creditors present by majority in number as well as three-fourths in value”. It appears that at this meeting one Arjun Prasad claiming to represent two creditor companies viz. Bhandani Bros., and the Hindustan Coal Company Ltd., cast his votes on behalf of these two Companies, in support of the resolution. No objection was taken at the meeting to the validity of these votes by any of the creditors who opposed the resolution and the Chairman proceeded on the basis that these votes were validly cast. It is not disputed that if these votes were not validly cast the requisite majority of three-fourths in value would not be obtained.

2. When the application came up for final hearing before the court an objection was taken on behalf of creditors who opposed the scheme that the votes cast by Arjun Prasad on behalf of the two creditor Companies viz. Bhandani Brothers and the Hindustan Coal Company were not valid votes and so the requisite majority of three-fourths in value of the creditors had not been obtained. The Company Judge was of the opinion that there was no sufficient explanation as to why the objection as to the validity of the votes was not taken earlier and so the objection raised at the late stage could not be entertained. On the merits also he held that the resolution passed by the creditor Companies authorising Arjun Prasad to attend the meeting of the unsecured creditors of the Gaya Sugar Mills Ltd., and vote on behalf of the Companies, were sufficient in law to make his attendance at the meeting the attendance of the Companies “in person” and his voting on behalf of the Companies valid voting of the Companies. Accordingly, he rejected this objection.

3. On appeal a Division Bench of the Patna High Court has allowed the objection, being of opinion that the delay in raising the objection would not entitle the Court to ignore the legal defect of the votes and that in law the votes cast by Arjun Prasad were not valid votes of these two creditor Companies viz. Bhandani Brothers and the Hindustan Coal Company. A contention that no appeal lay to the High Court from the order of the Company Judge was rejected. Therefore, the learned Judges set aside the order of the Company Judge as to this part of the case. They, however, gave a certificate that as regards the value and nature of the case, it fulfils the requirements of Article 133(l)(a) of the Constitution and is a fit one for appeal to this Court. On this certificate the present appeals have been filed.

4. Three points were raised before us by Mr Sastri in support of the appeals. The first is that from the decision of the Company Judge, an appeal lay to this Court and not to the High Court. Secondly, it was urged that the objection to the validity of the votes not having been taken earlier should not be allowed to be raised for the first time during arguments at the final hearing of the application. Lastly, it was urged that the votes were valid.

5. As regards the first point it is to be noticed that sub-section (7) of Section 153, which was added in 1936 provides that an appeal shall lie from any order made by the court exercising original jurisdiction under the section to the authority authorised to hear appeals from the decisions of the court. It therefore could not be disputed and was not disputed that an appeal did lie from the order made by the Company Judge on 6-10-1953. The controversy is whether the appeal lay to this Court or the High Court. In other words, the question is, which is the authority authorised to hear appeals from the decisions of the court? The “court” here cannot but mean the court exercising original jurisdiction. When the Company Judge exercises the jurisdiction he does it under the provisions of Section 3 of the Companies Act which says that the court having jurisdiction under this Act shall be the High Court having jurisdiction in the place at which the registered office of the company is situate. The authority authorised to hear appeals from appealable decisions of a Single Judge of the Patna High Court when exercising original jurisdiction lie to the High Court and not to this Court. (Vide clause 10 of the Letters Patent). It necessarily follows that the appeal from the order of the Company Judge lay to the High Court and not to this Court. There is, therefore, no substance in the first point raised on behalf of the appellant.

6. The next contention that the objection cannot be entertained for the first time at the final hearing of the application appears to us to be equally unsound. It is undoubtedly true that the opposing creditors were guilty of negligence in not drawing the attention of the Chairman to what they considered to be a defect in the voting on behalf of the two creditor Companies viz. Bhandani Brothers and the Hindustan Coal Co., and no less negligent in not bringing this to the court's notice at the earliest opportunity. Laches on the part of some creditors cannot however justify the Chairman or the court in disobeying the requirements of the Act. If in law the two votes cast by Arjun Prasad for these two creditor Companies were not validly cast the three-fourth majority requisite under Section 153, sub-section 2 would not be there and so no further action under Section 153 could be taken by the court in the matter. How can the court turn a blind eye to the fact, if proved, that on the basis of valid votes at the meeting the requisite majority was not obtained, merely because the Chairman's attention was not drawn to the defect or it was not brought to the court's notice earlier? In our opinion, the learned Judges who heard the appeal were right in thinking that however deplorable the delay by opposing creditors in raising the objection might be, that would not be a sufficient reason for refusing to entertain the objection.

7. This brings us to the main question in controversy viz. whether the resolutions passed by the two creditor Companies viz. Bhandani Brothers and the Hindustan Coal Company, authorising Arjun Prasad to attend the meeting on their behalf and to vote there on their behalf made Arjun Prasad's voting valid voting. Section 153(2) of the Indian Companies Act is in these words:

“If a majority in number representing three-fourths in value of the creditors or class of creditors, or members or class of members, as the case may be, present either in person, or by proxy at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the court, be binding on all the creditors or the class of creditors, or on all members or class of members, as the case may be, and also on the company, or, in the case of a company in the course of being wound up, on the liquidator and contributories of the company.”

8. The agreement has to be of a majority in number representing three-fourths in value of those who are present either in person or by proxy at the meeting. The agreement of those who are not present at the meeting either in person or by proxy cannot be taken into consideration. Any creditor, whether a corporation or a natural person can be present at a meeting by proxy. A natural person can of course be present at a meeting “in person”. Can a corporation be present at a meeting “in person”? It appears to us that unless there is some special provision by a law, a company which is not a physical person cannot “be present” at any place “in person”. It is true that under the General Clauses Act, 1897, a company is a “person”, so that whenever the word “person” is used in any statute a company would be included thereunder. The definition in the General Clauses Act can however be of no assistance in interpreting the words “to be present in person”, and the difficulty in the way of a company being present in person can be obviated only by statutory provisions or rules having the force of law.

9. Nor can the appellant derive any assistance from the English case In re Kelantan Coco, Limited and Reduced cited by the learned counsel. In that case, the court was dealing with a petition for reduction of capital. In deciding whether the special resolution to reduce the capital of the company had been duly passed, the court had to consider whether there was a quorum at the confirmatory meeting, at which one member of the company and one representative appointed under Section 68 of the Companies (Consolidation) Act, 1908 to represent a shareholder of the company, the Eastern Development Corporation Limited, were present. The articles of Association provided: “two members personally present shall be a quorum”. It was held that a representative appointed under Section 68 should be taken into account in considering whether there was a quorum. The provisions of Section 68 were similar to those of Section 80 of the Indian Companies Act, 1913 and thereunder a company which is a member of another company may, by resolution of the directors authorise any of its officials or any other person to act as its representative at any meeting of that other company. The presence of such a representative was taken in the above case to amount to personal presence of a member of the company. The case does not deal with the question of a creditor company.

10. In the Indian Companies Act, 1956 a provision has been introduced under which a company which is a creditor of another company may by resolution of its directors, authorise such person as it thinks fit to act as its representative at any meeting of any creditors of the company held in pursuance of the Act and a person authorised in this manner shall be entitled to exercise the same rights and powers (including the right to vote by proxy) on behalf of the company. [Section 187(l)(b) and 2]. No such provision however to be found in the Indian Companies Act, 1913. It is unnecessary for us to consider whether under this new provision the attendance of a person authorised in this manner at a meeting of the creditors will amount to attendance of the creditor company “in person”. For, the present case is governed by the provisions of the Indian Companies Act, 1913 and not by this new provision.

11. When the Companies Act was amended in 1936, an addition was made in Section 246 which empowers the High Court to make rules, concerning the mode of proceedings inter alia “for the holding of meetings of creditors and member in connection with proceedings under Section 153 of this Act”. Accordingly, a number of Rules were framed by the Patna, High Court in exercise of this additional power. Rule 144 of the Rules states that a creditor or contributor may vote either in person or by proxy. Rules 145 to 153 deal with various questions as regards proxies. Of these Rule 150 lays down how a proxy is to be given where a creditor is a corporation. Admittedly, no proxy in accordance with Rule 150 was given by the two creditor companies, Bhandani Brothers and the Hindustan Coal Company, in the present case. There is nothing in these rules which can assist Mr Sastri's argument that a resolution by the directors of the company authorising a director or some other person to represent the company at the creditors' meeting makes him a “present in person” in law for that company at the meeting.

12. Mr Sastri's last argument was that as the business of the company has to be managed by the directors and the directors can delegate any of their powers to any one of themselves, the attendance of Arjun Prasad at the meeting should reasonably be construed as the attendance of all the directors and so the attendance of the company “in person”. As we have already indicated it does not appear to us that in the Act of 1913 there is any provision for attendance of the company “in person”, but apart from that we wish to point out that the resolution made by the two companies do not appear to us to delegate the powers of the directors to Arjun Prasad.

13. The conclusion of the High Court that the votes cast by Arjun Prasad on behalf of the two companies viz. Bhandani Brothers and the Hindustan Coal Company, were not valid votes is, in our opinion, correct.

14. The appeals are accordingly dismissed with costs. One set of hearing fee.