M/S. Mazda Theatres Pvt. Ltd., And Another Petitioners v. M/S. New Bank Of India Ltd., And Others S

V.S Deshpande, J.:— By its very definition in section 4 (1) of the Companies Act, 1956, a holding company controls the management of its subsidiary. The distinction between the Board of Directors and members of these companies holds good in law but becomes unreal when the members are a small group of closely knit persons. When the management of a holding company comes to be controlled by the Court in the interests of its creditors, the Court controlled management would try to control the management of the subsidiary controlled by the members. A conflict of interests may then develop between the two. It is this conflict which explains the present litigation.

The holding company is Anand Finance Private Limited with its registered office in Delhi while the subsidiary company is Mazda Theatres Private Limited with its registered office in Bombay. The holding company was floated in 1953 with a paid up equity capital of Rs. 15 lakhs only. Its shareholders were and are the members of a single family consisting of Gurditmal Anand, his five sons namely, R. L. Anand, S. L. Anand, T. R. Anand, H. R. Anand and R. P. Anand along with one S. C. Anand and Sumitra Devi. On this small capital the holding company borrowed deposits and other loans amounting to over a crore of rupees. The subsidiary had existed as an independent company owning a very valuable property in the shape of a cinema theatre in Bombay with a capital of Rs. 15 lakhs divided in 1000 ordinary shares of Rs. 100/- each and 500 preference shares of Rs. 100 each. In 1962 the holding company bought 889 ordinary shares of Mazda Theatres while the remaining 111 ordinary shares were bought by the individual members of the Anand family. Mazda Theatres thus became a subsidiary wholly owned by the members of the Anand family in realty though in the eye of law the overwhelming majority of shares belonged to the holding company and the minority of shares belonged to the individual members of the Anand family. The 500 preference shares are held by some one else who has neither figured in this litigation nor claimed any voting rights. The major part of the financial resources of the holding company having been invested in the acquisition of the shares of the subsidiary, the holding company could not pay its debts. On May 11, 1966, a creditor filed a winding up petition No. 34-D of 1966 against the holding company. To avoid the winding up, the holding company filed petition No. 42-D of 1966 under section 391 of the Companies Act on May 19, 1966 offering an arrangement for payment of the debts of its unsecured creditors. The Anand family Board of Directors of the holding company resigned and on May 25, 1966 Gurdev, Singh, J. appointed a new Board of five directors of the holding company, four being representatives of the creditors and the fifth being experienced in hire purchase which was supposed to be the business of the holding company. The members of the Anand family till then had controlled the Board of Directors of the subsidiary also. But as a gesture to the creditors all directors of the subsidiary except R. L. Anand and S. L. Anand resigned on June 13, 1966 and three new directors from outside the family were co-opted, namely, Motawara, R.B Ganga Saran and Ved Prakash, the latter two being from among the new directors who had been appointed Try the Court on the Board of Directors of the holding company.

Notices had been sent by the Court to all the unsecured creditors of the holding company. One of these creditors was the subsidiary. Separate meetings of the unsecured creditors in which the subsidiary did not participate and of the members of the holding company were held on August 27, 1966. The creditors and the members passed separate resolutions which differed from each other. But the creditors' resolution provided that alterations in it may be made by the Court on the application made by the management of the holding company. Similarly, the members' resolution provided that alterations may be made in it by the Court on the application of the management in so far as the resolution related to the payment of debts to the creditors. Other modifications acceptable to R. L. Anand and S. L. Anand authorised to represent the members could also be made by the Court. On October 3, 1966 the Board of Directors of the subsidiary resolved to exercise the lien of the subsidiary on the 889 shares of the holding company under Article 23 of the Articles of Association of the subsidiary. On October 19, 1966, therefore, the holding company filed C.A 114-D of 1966 in this Court under section 391 (6) of the Companies Act for injuncting the subsidiary from exercising the lien. A temporary injunction was granted by this Court. The subsidiary at first objection to it on the ground that this Court had no territorial jurisdiction. But this objection was not pressed and the injunction continued to operate against the subsidiary. On October 20, 1966, the Company Law Board appointed M. N. Kaul and Sardar Singh as Government directors of the subsidiary. Thereafter the Board of Directors of the subsidiary had a majority of four directors from outside the Anand family who thus lost control of the management of the subsidiary. The members of the Anand family could no longer hope to keep the assets of the subsidiary out of the clutches of the creditors-controlled Board of Directors of the holding company.

On December 16, 1966, the holding company filed C.A 32-D of 1966 purporting to be under section 397 and 398 but substantially under section 391 of the Companies Act submitting a new arrangement for the sanction of the Court in the form of a memorandum of agreement. This memorandum is so worded as to show the complete identity of the members of the two companies and the partial identity of their Boards of Directors though in law the companies as such were separate legal entities. The opening clause of the memorandum states that it seeks to settle the disputes in relation to the affairs of the holding company and the subsidiary. Paragraph 2 states that it is arrived at between M.N Kaul and Ganga Saran, Directors of the company acting on behalf of the Board of Directors, and R.L Anand and S.L Anand acting on behalf of the general body of shareholders. Since Kaul and Ganga Saran were Directors of both the companies and R.L Anand and S.L Anand were members of both the companies, this paragraph is so worded as to be an agreement between the members and the Directors of both the companies. In paragraph 6 of the agreement, the disputes between the holding company and the subsidiary were settled, inter alia, on the following terms: —

(a) The Board of Directors of the subsidiary was to consist of the Board of Directors of the holding company and S. L. Aanad to represent the minority shareholders of the subsidiary;

(b) Article 50 of the Articles of Association of the subsidiary was to be deleted;

(c) A general meeting of the members of the subsidiary was to be called to give effect to the terms of this agreement.

Relying upon the authority given to the Court by the creditors' and members' resolutions of August 27, 1966 to modify the said resolutions and on the agreement of December 16, 1966 signed by R. L. Anand and S. L. Anand, the holding company filed C.A 128 of 1968 on May 27, 1968 submitting to the Court for sanction (apparently under section 391) an arrangement which consisted partly of the creditors' and members' resolutions of August 27, 1966 with suggested modifications to be approved by the Court and partly of the agreement dated December 16, 1966 signed by R. L. Anand and S. L. Anand. A notice of this petition was published by advertisement by the Court and as no creditor or member opposed it, the Court (Andley, J.) on July 29, 1968 sanctioned the arrangement proposed in C.A 128 of 1968

In pursuance of the arrangement so sanctioned, the unsecured creditors were partly paid off by the holding company. The subsidiary whose Board of Directors was to be the same as the Board of Directors of the holding company plus S. L. Anand also neither filed any appeal against the order of July 29, 1968 which virtually took away the right of management from it nor did it object to the said arrangement in any way. On September 12, 1973, the New Bank of India, a secured creditor of the holding company, filed C.A 596 of 1973 under section 392 seeking directions in and modifications of the arrangement sanctioned on July 29, 1968 as the Court may consider necessary for the proper working of the said arrangement. On behalf of the subsidiary, its General Manager R. P. Anand purported to contest this application principally on the ground that the order of this Court dated July 29, 1968 was a nullity because the arrangement sanctioned thereby was without jurisdiction so far as it related to the subsidiary whose registered office was at Bombay. This objection was negatived by Sachar, J. on February 7, 1974 on the ground that the subsidiary had itself invited the decision of this Court in C.A 32-D of 1966 and C.A 128 of 1968 and had acquiesced in the injunction granted in C.A 114-D of 1966 without pressing the objection to the jurisdiction which it was now raising. Sachar, J. also confirmed the order of Dileep Kapur, J. passed on November 29, 1973 by which a suit filed in the name of the subsidiary in the Bombay High Court for the sale of the shares of the holding company for the realisation of the debt owed by the holding company to the subsidiary was stayed. Sachar, J. further held that the arrangement sanctioned on July 29, 1968 had not come to an end even though the time specified therein for the payment of debts by the holding company had expired. The learned Judge than injuncted K. C. Aanad, S. L. Anand and Smt. Nirmal Anand from functioning on the Board of Directors of the subsidiary and removed R. L. Anand from the Board of Directors of the holding company and restrained him from functioning as a director of the subsidiary. R. P. Anand was also removed from the post of General Manager of the subsidiary and was restrained from interfering with the working of the subsidiary. Sarvashri K. K. Mehra and Ramesh Kapur were appointed to the Board of Directors of the holding company and in terms of the order dated July 29, 1968 it was stated that the Board of Directors of the subsidiary shall consist of the Board of Directors of the holding company and S. L. Anand. The present appeal purporting to be by the subsidiary and R. P. Anand who was removed from the post of General Manager is filed by Shri S. S. Chadha, Advocate, against the order of Sachar, J. dated February 7, 1974.

Shri Ved Vyas for the New Bank of India urged the following preliminary objections to the appeal, namely: —

1. R. P. Anand had no authority on behalf of the subsidiary to file the appeal or to authorise Shri S. S. Chadha to do so;

2. The order dated February 7, 1974 is not an appealable one;

3. The order dated February 7, 1974 has been superseded by the order dated February 19, 1974; and

4. The appeal is incompetent in the absence of certain necessary parties.

The preliminary objections are disposed of as follows: —

1. The present appeal has been filed by Shri S. S. Chadha, Advocate, acting on a power of attorney given by R. P. Anand purporting to be the General Manager of the subsidiary. The authority to the General Manager could be given only by the Board of Directors. This is one of the powers exercisable by Managing Agents under Article 45 of the Articles of Association of the subsidiary. Acting under Article 50 of the Article of Association only two directors of the subsidiary appointed R. P. Anand as General Manager for five years by a resolution of November 15, 1966 conferring on him the powers exercisable by Managing Agents. Article 50, however, contravenes section 289 of the Companies Act inasmuch as it does not provide for the circulation of the draft resolution to all the directors present in India at their usual addresses for approval by a majority of them. According to section 9, the provisions of the Act override the provisions of the Memorandum and the Articles of Association insofar as the latter are repugnant to the former. Article 50 is, therefore, void as being ultra vires of section 289 read with section 9 of the Companies Act. The resolution of November 15, 1966, therefore, could not confer any power on R. P. Anand.

By the order of July 29, 1968 this Court ordered that the Board of Directors of the holding company plus S. L. Anand were to be the Board of Directors of the subsidiary. No appeal was filed against this order. But in opposing C.A 596 of 1973, R. P. Anand purporting to act as General Manager of the subsidiary contended that the order of July 29, 1968 was without jurisdiction. In this appeal before us Shri Parpia further contends that the said order was contrary to section 391 and was, therefore, a nullity. This contention will be considered later. At this stage, it is sufficient to observe that unless the order of July 29, 1968 is now held by us to be a nullity, the Board of Directors of the subsidiary was to be the Board of Directors of the holding company plus S. L. Anand. In this context, any other persons purporting to act as the Directors of the subsidiary after July 29, 1968 would be acting without authority. On October 12, 1973 a meeting of the Board of Directors of the subsidiary is alleged to have been held. In this meeting R. L. Anand was said to have been voted to the chair. He said there were four vacancies in the Board of Directors which should be filled up. He proposed and S.C Anand seconded the appointments of Smt. Nirmala Anand and Kakkar as Directors to the Board. These four persons acting as Directors decided to continue the services of R. P. Anand as General Manager for five years with effect, from November 15, 1971 on the same terms and conditions as before. Firstly, these persons could not act as Directors in view of the order dated July 29, 1968. Secondly, two Directors could not appoint two more persons as Directors. The only power given to the Directors by Article 72 (1) of Schedule I of the Companies Act is to appoint a person as an additional director. But they had no power to appoint regular directors who could be elected only by members. In terms of the order dated July 29, 1968 only S. L. Anand could act as a director along with the directors of the holding company. R. L. Anand was not a director nor could Smt. Nirmala Anand and Kakkar be directors of the subsidiary. The resolution of November 26, 1973 was passed by unauthorised, persons and, therefore, could not confer any powers on R. P. Anand. In the appeal, the authority of R. P. Anand was said to be based on another resolution passed by two persons purporting to act as directors in December 1973 and January 1974. These two persons purported to act under Article 50 which is, as shown above void. Any resolution passed by them could not empower R. P. Anand to act as General Manager. He did not, therefore, derive any powers of the Managing Agents including the power to defend the suit or file an appeal on behalf of the subsidiary. He did not, therefore, have the power to authorise his counsel to file an appeal on behalf of the subsidiary. Subject to the decision on the question as to the validity of the order dated July 29, 1968, therefore, we hold that R. P. Anand did not have the authority either to oppose C. A. 596 of 1973 or to file this appeal or to authorise Shri Chadha to file the appeal.

2. The jurisdiction of this Court under the Companies Act is ordinary original civil jurisdiction as held by the Supreme Court in Jyoti Bhushan Gupta v. The Banaras Bank Ltd., (1962) Supp. 1 S.C.R 310, (2), Even an interlocutory order passed by he Court is Judge lay to a Division Bench of this Court under Clause 10 of the Letters Patent of the Punjab High Court. Therefore, the same appeal is now competent under section 5 (1) of the Delhi High Court Act. The decision by a learned single Judge acting under the jurisdiction given to him by section 10 of the Companies Act is in the same position as the decision by him in any other ordinary original civil proceeding. This does not, however, mean that every order passed by a Company Judge is appealable. As observed by the Supreme Court in Central Bank of India v. Gokal Chand, (1967) 1 S.C.R 310, (2), even an interlocutory order passed by the court is subject to appeal provided it affects some right or liability of any party. Those interlocutory orders which are steps taken towards the final adjudication and for assisting the parties in the prosecution of their case in the pending proceeding merely regulate the procedure and do not affect any right or liability of the parties and would not be appealable. The Court referred to section 202 of the Indian Companies Act, 1913 corresponding to section 483 of the Companies Act, 1956 and relying upon their previous decision in Shankarlal Aggarwal v. Shankarlal Poddar, (1964) 1 S.C.R 717 at 736 (3) observed that though the words of this section were wide, they would exclude merely procedural orders or those which did not affect the rights or liabilities of the parties. An appeal, therefore, lies whenever the rights or liabilities of a party are affected by an order even if the order is an interlocutory one. By the order under appeal the suit filed by persons claiming to be entitled to manage the subsidiary at Bombay to bring to sale the 889 shares of the holding company has been stayed. R. P. Anand has been removed from the General Managership of the subsidiary. Other persons claiming to act as directors of the subsidiary were restrained from so acting. The rights of R. P. Anand and these other persons were affected and if R. P. Anand and these other persons are entitled to act as the General Manager and the directors respectively of the subsidiary, then the rights of the subsidiary are also affected. It was argued for the respondents, however, that C.A 596 of 1973 was not terminated by the order of February 7, 1974 which was not, therefore, appealable. Very recently, in Shanti Kumar R. Canji v. The Home Insurance Co. of New York, AIR 1974 S.C 1719 (September Issue), (4) the Supreme Court had occasion to consider the two views as to the meaning of a “judgment” within Clause 15 of the Letters Patent of the Bombay High Court corresponding to Clause 10 of the Letters Patent of the Punjab High Court. On the one hand was the view of the Full Bench of the Nagpur High Court in Manohar v. Baliram, AIR 1952 Nagpur 357, (5), and of a Full Bench of the Rangoon High Court in Dayabhai v. Murugappa Chettiar, AIR 1935 Rangoon 267, (6). According to the Nagpur view relied upon by a Division Bench of this Court in Gokul Chand D. Morarika v. Company Law Board, ILR (1972) II Delhi 369 at 379, (7), a judgment means a decision in an action whether final, preliminary interlocutory which decides either wholly or partially, but conclusively in so far as the Court is concerned the controversy which is the subject of the action. On the other hand is the view of the Calcutta and the Madras High Courts. The locus classicus is the decision of the High Court of Calcutta in Justice of the Peace for Calcutta v. Oriental Gas Co., (1872) 8 Bengal Law Reports 433, (8), where Sir Richard Couch, C. J. observed: —

“We think that ‘judgment’ means a decision which affects the merits of the question between the parties by determining some right or liability. It may be either final or preliminary, or interlocutory . . . .”

It would be seen that the meaning of “judgment” according to the second view is wider than the meaning placed upon it by the first view. Having considered both the views, the Supreme Court has preferred the wider to the narrower view in Shanti Kumar's case. (4) in paragraph 18 of the report. Judged by that test, it is clear to us that the merits of certain questions between the parties have been determined by the order appealed against and the rights or liabilities of the parties are affected thereby. The appeal against the said order is, therefore, competent.

3. The present appeal against the order dated February 7, 1974 was filed before the said order was further amended. The appeal was competent when filed and its competency cannot be taken away by any subsequent amendment of the order appealed against particularly when such amendment is under section 152 Civil Procedure Code to correct slips and omissions only.

4. It is elementary that the parties to the appeal must be the same as the parties before the trial Court unless for any special reason the appellate Court permits any additional parties to be joined. It is clear, therefore, that persons who were removed from the management of the subsidiary are not necessary parties to the appeal inasmuch as they were not actually parties before the learned Single Judge. The question whether they are proper parties does not arise inasmuch as they have not expressed any desire to join as parties in this appeal.

On the merits of the appeal, Shri Parpia learned counsel for the appellants advanced the following three contentions, namely: —

I. The very basis of the order under appeal, namely, the order dated July 29, 1968 was a nullity and the order under appeal falls with it.

II. The order dated July 29, 1968 had worked itself out and nothing of it was left regarding which the order under appeal could be passed.

III. The order under appeal is beyond the power conferred on the Court either by section 391 or by section 392 of the Companies Act.

CONTENTION NO. I: —

Shri Parpia attacked the order dated July 29, 1968 on the following grounds: —

(a) That the Court had no jurisdiction to make the order in view of sections 10 and 2 (11) of the Companies Act and the order was thus without jurisdiction; and

(b) The order being contrary to the fundamental provisions of sections 391 and 392 was without jurisdiction and a nullity.

(a) The concept of “jurisdiction” is basically divisible into two distinct parts. On the one hand, it means territorial or pecuniary jurisdiction. On the other hand, it means jurisdiction over the subject-matter or the person. The objection to territorial or pecuniary jurisdiction can be waived by a party who is entitled to object in any proceeding that the Court does not have the territorial or the pecuniary jurisdiction in dealing with the matter. This is the result of section 21 Civil Procedure Code and section 11 of the Suits Valuation Act (The Bahrein Petroleum Co. Ltd. v. P.J Pappu, 1966-1 S.C.R 461) (9). But the jurisdiction on the subject-matter or the person is what was called by the Supreme Court to be the “inherent jurisdiction” of a Court in Seth Hiralal Patni v. Sri Kali Nath, (1962) 2 S.C.R 747 (10). A Court must have this essential jurisdiction. If it does not have it, the consent of parties cannot confer such a jurisdiction on the Court. When there was no lack of inherent jurisdiction in the Court and the objection to territorial jurisdiction was waived, the decision of the Court would not be liable to be attacked as being without jurisdiction. It is in the light of this legal position that we have to consider sections 10 and 2 (11) of the Companies Act.

Section 10 (1) (a) is as follows: —

“The Court having jurisdiction under this Act shall be the High Court having jurisdiction in relation to the place at which the registered office of the company concerned is situate, except to the extent to which jurisdiction has been conferred on any District Court or District Courts subordinate to that High Court in pursuance of subsection (2) .”

Section 2 (11) (a) is as follows: —

“‘the Court’ means, with respect to any matter relating to a company (other than any offence against this Act), the Court having jurisdiction under this Act with respect to that matter relating to that company, as provided in section 10.”

An application under section 391 or 392 has to be made to a High Court. This jurisdiction cannot be delegated to the District Court. The High Court thus has the inherent jurisdiction to hear such an application. It must have jurisdiction over the subject-matter of this application and the persons against whom the order thereunder is to be passed. If it does not have this essential jurisdiction, an order passed by it would be without jurisdiction. This is one part of the concept of “jurisdiction” embodied in section 10 (1) (a) read with section 2 (11) (a). The either part of the concept of “jurisdiction” embodied therein relates to the place at which the registered office of the company is situated. While on the one hand the jurisdiction is in a High Court, on the other hand the jurisdiction is particularised in that High Court which has the territorial jurisdiction over the place at which the registered office of the company is situated. In our view, sections 10 (1) (a) and 2 (11) (a) thus embody both the elements of jurisdiction, namely, (1) the essential one, and (2) the territorial one.

Shri Parpia referred to sections 13, 17 and 18 of the Companies Act to show how important the place at which the registered office of the company is situated in relation to the jurisdiction of the High Court. Under section 13 (1) (b) the memorandum of the company itself has to state the State in which the registered office of the company is situated. Under section 17 (1) a special resolution is necessary to alter the provisions of the memorandum so as to change the place of registered office from one State to another and snob alteration shall not take effect, according to sub-section (2) thereof, unless it is confirmed by the Court. Under section 18 such an alteration has to be registered with the Registrar of Companies of the State to which the office is transferred after the Registrar of Companies of the State from which the office has been transferred has so certified. Undoubtedly, the place of the registered office of the company is important. But the importance is analogous to the residence of an individual or the situation of immovable property at a particular place. Under section 16 or section 20 can be waived and the decision of a suit possession of and for certain other relief with regard to immoveable property has to be filed in the Court within the local limits of whose jurisdiction the property is situated. Similarly, a suit against a person is to be filed in a Court within the local limits of whose jurisdiction the defendant resides or carries on business or personally works for gain (section 20 Civil Procedure Code). But section 21 Civil Procedure Code ensures that the objection to territorial jurisdiction under section 16 or section 20 can be waived and the decision of a suit by a Court which lacks territorial jurisdiction under sections 16 and 20 will not be invalidated for want of such jurisdiction. Under section 3 (3) of the Companies Act, 1913, it was stated that nothing in section 3 shall invalidate a proceeding merely because of its being taken in a wrong Court. section 10 of the Companies Act, 1956 corresponds to section 3 of the Companies Act, 1913. Section 10, however, does not contain any provision corresponding to section 3 (3) of the old act. Under the old Act a proceeding in a wrong Court was not invalid apparently even in the absence of waiver of the objection to territorial jurisdiction by the party concerned. In view of the omission of this provision from section 10, therefore, the position is analogous to sections 16 and 20 read with section 21 of the Civil Procedure Code. That is to say, an objection to the jurisdiction of the Court can be taken by the company concerned. It so taken, the Court in whose jurisdiction the registered office of the company is not situated will not be able to deal with the matter. But if the objection is not taken or is waived, then the decision of a Court will not be invalidated. Rule 6 of the Companies (Court) Rules, 1959 says that “Save as provided by the Act or these Rules, the practice and procedure of the Court and the provisions of the Code so far as applicable, shall apply to all proceedings under the Act and these Rules.” The Court acting under the Companies Act was also held to be acting under its ordinary original civil jurisdiction. Section 141 Civil Procedure Code, therefore, would also apply the provisions of the Code to the proceedings under the Companies Act. The principle of section 21, therefore, applies to the proceedings under section 391 of the Companies Act.

The subsidiary received notice as a creditor when the winding up petition was filed against the holding company. It entered appearance in C.A 32-D of 1966 and C.A 128 of 1968 without any objection to the territorial jurisdiction of this Court. It also entered appearance in C.A 114-of 1968 and at first raised an objection to the territorial jurisdiction but later did not pursue it. The learned Single Judge has, therefore, rightly held that the subsidiary has waived the objection to the territorial jurisdiction of this Court in these proceedings. In fact, as the learned Single Judge puts it, it has invited the order dated July 29, 1968 in C.A 128 of 1968. It cannot, therefore, now turn round and attack that order on the ground of lack of territorial jurisdiction.

The arrangement under section 391 Companies Act may be (a) between the company and its creditors, and/or (b) between the company and its members. The arrangement submitted for the sanction of the Court in C.A 128 of 1968 expressly rested on the memorandum of agreement annexed to C.A 32-D of 1966. This arrangement had two distinct parts. The first part was concerned with the payment of the debts to the creditors by the holding company resulting from the agreement between the creditors and the holding company and also between the holding company and its members. The second part related to an agreement between the subsidiary and its members. The dispute before us relates to the second part. The reason is that the first part of the arrangement is supported by the resolutions passed in the meetings of the creditors and the members of the holding company which were modified in accordance with the powers of modification given to the Court by these resolutions. On the other hand, Shri Parpia contends that there was no meeting between the subsidiary company and its members. The members of the subsidiary have not in a meeting called by the Court voted by a three-fourths majority. Therefore, the arrangement relating to the subsidiary company and its members sanctioned by the Court on July 29, 1968 was void.

Let us examine whether the second part of the arrangement relating to the subsidiary and its members complies with the requirements of section 391. Ordinarily a company acts by its Board of Directors and the shareholders act in a general meeting of the shareholders. The meeting contemplated in section 391 is analogous to an extraordinary general meeting of the members of the company inasmuch as a three-fourths majority is required to pass the required resolution. The normal rule is that the consent of the shareholders whether it is unanimous or by a three-fourths majority must be obtained in a meeting summoned on the orders of the Court under section 391. This is in accordance with the general principle that the members must act in a general meeting.

Inroads have, however, been made on this formal doctrine. Firstly, the consent of all the shareholders given even outside a meeting is sufficient to comply with the requirement of a meeting. After this principle was established by judicial decisions, a legislative recognition was given to it by paragraph 5 of Part II of Table A of the English Companies Act, 1948 which applies to the management of a private company limited by shares and is relevant for our purpose. It runs as follows: —

“Subject to the provisions of the Act, a resolution, in writing signed by all the members for the time being entitled to receive notice of and to attend and vote at general meetings (or being corporations by their duly authorised representatives) shall be as valid and effective as if the same had been passed at a general meeting of the company duly convened and held.”

Further, section 143 of the English Companies Act, 1948 now expressly enables written resolutions which are not passed at a general meeting to be registered. This change is reflected in India also. Under section 82 of the Indian Companies Act, 1913, special and extraordinary resolutions passed at general meetings alone were capable of being registered. But section 192 of the Companies Act, 1956 enables written resolutions not passed at general meetings to be registered.

The second inroad on the requirement of a formal meeting is that the consent of the shareholders may be ascertained without calling any meeting at all. Further, the doctrine of lifting the veil of incorporation and looking at the reality of the action of the members of the company enables us to hold that the consent of the overwhelming majority of the shareholders outside a meeting is sufficient to show that the resolution was supported virtually by all the members of the company. Professor L. C. B. Gower calls this as “informal ratification by the members of the acts done on behalf of the company.” He draws the distinction between the formal and the informal acts as follows: —

“The law normally insists that only a resolution duly passed at a meeting of the company can be regarded as an act of the company itself. In a number of cases, however, the question has arisen whether something less formal than a resolution passed at a duly convened meeting will suffice. In other words, can the veil be lifted so as to equate a decision of the members with a decision of the company itself ?”

(The Principles of Modern Company Law, 3rd Edn., pages 206-209).

Decisions on this subject may be classified into (a) those requiring a formal compliance, and (b) those requiring only a substantial compliance.

Formal compliance: —

In Re George Newman Ltd., (1895) 1 Ch. 674, C.A, (11) it was held by Lindley L. J., that “individual assents given separately may preclude those who have given them from complaining of what they have sanctioned, but for the purpose of binding a company in its corporate capacity individual assents given separately are not equivalent to the assent of a meeting.” In Re Express Engineering Works, (1920) 1 Ch. 466 (12), and in E.B.M Co. Ltd. v. Dominion Bank, (1937) 3 A.E.R 555 (13), the decisions proceeded on the view that the consent of all the shareholders was necessary if no meeting was called.

Substantial compliance: —

In Parker & Cooper Ltd. v. Reading, (1926) Ch. 975 (14), the decisions in Re George Newmaa Ltd. (11) and in Re Express Engineering Works (12) were fully considered but were distinguished on the ground that the transactions requiring ratification in those cases were illegal. It was held that when transaction was not illegal it was not necessary that the shareholders should meet in a meeting summoned for that purpose if the transaction is an honest bona fide one entered into for the benefit of the company. In Re Duomatic Ltd., (1969) 2 W.L.R 114 (15), also no meetings of the shareholders were called. Of the transactions to be ratified one was ratified by all the shareholders but the other was not approved by the minority ordinary shareholders but only by the holder of the majority of shares. The minority shareholders did not object. The ratification was held to be valid. All the relevant case-law was reviewed before the decision was arrived at.

Do the facts of the present case warrant a holding that the provisions of section 391 were substantially complied with ? We are inclined to answer this question in the affirmative. Firstly, C.A 32-D of 1966 was obviously an arrangement between the subsidiary and its members. The subsidiary was represented by the majority of its directors, four but of seven. They may not have expressly styled them as such; but the fact that they were so cannot be ignored. Paragraphs 3 to 6 of C.A 32-D of 1966 stated as follows: —

“3. There have been serious disputes between the Directors of the Company and the previous management consisting of Mr. R. L. Anand ex-Managing Director and his brothers and associates, especially in relation to the management and control of Mazda Theatres Pvt. Ltd., Bombay, a subsidiary of the Company and the attempted exercise of lien by the said Mazda Theatres Pvt. Ltd., on the large holding of the Company in the said Mazda Theatres Pvt. Ltd.

4. Serious disputes and differences having arisen between the parties abovementioned, a prolonged and protracted litigation is threatened and in fact has already commenced at Bombay and in this Hon'ble Court.

5. The above differences are also impeding the progress of realisations of the assets of the Company, including the hire purchase loans.

6. In the above circumstances the Directors of the Company have considered it necessary, in the interest of the General Body of Creditors of the Company, to settle the outstanding disputes with the previous management and the minority share-holders of Mazda Theatres Pvt. Ltd. They have accordingly entered into an arrangement set out in a Memorandum of Agreement, annexed to this application and marked “A”.”

It is to be noted that the Court appointed directors of the holding company were acting in the interests of the creditors. They wanted to secure control over the main asset of the holding company which consisted of 889 shares in the subsidiary which owned the cinema theatre at Bombay. The members of the Anand family were trying to keep that asset away from the creditors but now agreed to make it available to them. The previous management of the holding company and the minority shareholders of the Mazda Theatres Pvt. Ltd. mentioned in the agreement meant the members of the Anand family. The dispute was between the holding company acting in the interests of the creditors and the members of the Anand family who were called the previous management and the minority shareholders of the subsidiary. The memorandum of agreement annexed to C.A 32-D of 1966 is also eloquent to show that all the members of the Anand family had agreed to it. It refers to the settlement of “various disputed matters in relation to the affairs of Anand Finance Pvt. Ltd. and its subsidiary Mazda Theatres Pvt. Ltd.” It says that the settlement has been arrived at “between Shri M. N. Kaul and R. B. Ganga Saran, Directors of the Company, acting on behalf of the Board of Directors and Shri R. L. Anand and Shri S. L. Anand acting on behalf of the general body of the shareholders.” The word “company” means the holding company which was the applicant but also includes the subsidiary company. For, the directors and the shareholders of both of them were in reality the same. In paragraph 6 (a) of the agreement it is specifically stated that “all disputes with respect to Mazda Theatres are settled on the following terms: —

“The Board of Directors of Mazda Theatres shall consist of all directors of Anand Finance Pvt. Ltd. and Shri S.L Anand a nominee of the present shareholders of the Company and representing the interests of minority shareholders of Mazda Theatres Pvt. Ltd.”

This shows that S. L. Anand acted for the minority shareholders of the subsidiary. The majority shareholders were represented by the holding company itself. It would be thus seen that all or virtually all the shareholders of the subsidiary consented to this agreement. It was, therefore, an agreement between the subsidiary represented by the directors and all or virtually all of its shareholders and the holding company represented by its directors on behalf of the Board of Directors and Shri R. L. Anand and Shri S. L. Anand representing the general body of the shareholders.

If a technical view of this arrangement is taken and it is held that the subsidiary and its shareholders did not agree to the arrangement, the members of the Anand family would be enabled to defeat the creditors of the holding company. When they were the previous management of the holding company, they accepted deposits and loans amounting to over a crore of rupees though the capital of the company was only rupees fifteen lakhs. Out of this money, they acquired the control of the subsidiary which owns the cinema theatre in Bombay which is said to be worth more than rupees sixty lakhs. This is the only asset available to the creditors of the Anand family when they were managing the holding company. The Anand family now wants to show that the subsidiary is separate from the holding company and the assets of the subsidiary should not be made available to the creditors of the holding company. There is absolutely no justification why the Anand family should be allowed to defeat the creditors and retain for themselves the money of the creditors and keep to themselves the cinema theatre which is nominally owned by the subsidiary but in reality by the members of the Anand family who constitute the holding company which holds 889 shares in the subsidiary while the rest of 111 shares were also held by the Anand family.

A third exception to the rule that all the shareholders of a company must cast their votes in a formally called meeting is made by the doctrine of acquiescence. If all the shareholders acquiesce in a certain arrangement, the question of a meeting having been called does not arise at all, Professor R. R. Pennington in the third edition of his “Company Law” at pages 557-558 has expressed this doctrine of acquiescence in the following words: —

“The court has said in some cases that a company may be treated as bound by a resolution, even though it is not shown that it was duly passed at a general meeting or that it was assented to by all the members. Thus, it has been held that a company loses its right to rescind a contract with its promoters if substantially all its members are aware of the right to rescind and fail to act for an unreasonable length of time. (Erlanger v. New Somrero Phosphate Co. (1878) 3 A.C 1218) (16). It has also been held that a company could not sue its directors for borrowing beyond the powers conferred on them by the articles (Re Norwich Yarn Co. Ex parte Bignold (1856) 22 Beav. 143) (17), nor treat an irregular surrender of partly paid shares as void (Phosphate of Lime Co. v. Green (1871) L.R 7 C.P 43) (18), when all the members had an opportunity of discovering the irregularity, and no one had taken steps to challenge it for several years. Similarly, where members of a company which had gone into voluntary liquidation took an active part in the liquidation proceedings, fully aware of a procedural defect in the passing of the resolution to wind up the company up, it was held that neither they nor the members who voted for the resolution could challenge its validity (Re Bailey, Hay & Co. Ltd. (1971) 3 A.E.R 693) (19). Again, where no properly subscribed articles had been filed on the incorporation of a company, but it had acted for many years as though an informal document which had been filed contained its articles, it was held that the members must be taken to have adopted the informal document as the company's articles (Ho Tung v. Man On Insurance Co. (1902) A.C 232) (20). It is submitted that the first three of these cases can be explained by the fact that the company was asserting a right against the other party to the litigation which could be lost by acquiescence, and that when acquiescence by a company is alleged, it is not necessary to show that every member of it expressly or tacitly assented to what was done. The fourth case (Re Bailey, Hay & Co. Ltd.) (19) was one in which the company sought to recover money paid to the 1 members in question as a fraudulent preference, and they relied on the invalidity of the winding up resolution as a defence, clearly it is right that a member should not be able to challenge the validity of a liquidation when he has acquiesced in the liquidator's acts or has allowed it to continue without drawing the liquidator's attention to the defect of which he complains, but in the instant case the court merely treated him as estopped from pleading the invalidity as a defence, and it certainly did not rule that the winding up resolution must be deemed valid against all persons and for all purposes. The fifth case (Re Bailey, Hay & Co. Ltd.) (19), it is submitted, was merely an application of the principle that the law will presume that acts have been done regularly and properly when they appear to have been, and it is noteworthy that the court said that it was entitled to infer that all, and not merely some, of the members had assented to the adoption of the informal document as the company's articles.”

The only members of the Anand family which took part in the litigation in this Court from 1966 onwards are R. L. Anand, S. L. Anand and R. P. Anand. R. L. Anand and S. L. Anand had signed the arrangement and R. P. Anand is a beneficiary of the same inasmuch as he was appointed as General Manager of the subsidiary on Rs. 2000 per month by this arrangement. He has enjoyed this appointment till he was removed by the order appealed against. He may turn round and say that he was appointed as the General Manager by the previous directors of the subsidiary by the resolutions of 1966 and October 1973. But the resolution of 1966 under Article 50 was bad as the said Article is void. The resolution of October 1973 is void because the directors who purported to pass it could not act as directors. For, the directors of the holding company had been appointed as the directors of the subsidiary on July 29. 1968.

Lastly, it was urged against the arrangement sanctioned on July, 29, 1968 that it never came into effect but remained only a paper arrangement in regard to the subsidiary company. The answer to this argument is two-fold. On the one hand, the essential parts of the agreement relating to the subsidiary were effectuated. As stated above, even prior to July 29, 1968 the majority of directors of the subsidiary were appointed either by the Company Law Board or by this Court. The appointment of all directors except one by this Court from July 29, 1968 was not, therefore, radical change. The very fact that neither the subsidiary nor the members, of the Anand family both of which were parties to the arrangement of July 29, 1968 did not either appeal against the said order or challenge it in any other way shows that the order was acted upon. Again the subsidiary had agreed not to exercise its lien on the shares of the holding company for three years as a part of the arrangement of July 29, 1968. This was also adhered to by the subsidiary. On the other hand, it is settled law that an arrangement which has been sanctioned by the Court cannot be departed from even if all the parties to the said arrangement consented to depart from it (Premila Devi v. Peoples Bank of Northern India Ltd., 1938 — 4 All E. R. 337 P. C. (21) referred to with approval by the Supreme Court in J. K. (Bombay) Pvt. v. New Kaiser-I-Hind Spg. & Wvg. Co. Ltd., 1969-2 S.C.R 866, (22). The allegation by the New Bank of India in C.A 596 of 1973 that the arrangement of July 29, 1968 was not acted upon is not to be taken literally. What the Bank means is that its completion is being stalled by the members of the Anand family. The Bank could not deny that part of the said arrangement has been fulfilled inasmuch as 45 per cent of the debts of the creditors have been paid by the holding company. Alternatively, let us assume for the sake of argument that the arrangement sanctioned on July 29, 1968 was irregular inasmuch as a formal meeting of the subsidiary and its members had not been ordered by the Court and a resolution of the members by three-fourths majority in favour of the arrangement was not actually passed. What is the effect of such irregularity ? Judicial decisions, some of which have been referred to above, have differed in their conclusions according to the facts and circumstances of each particular case. If a transaction was illegal, ultra vires, mala fide, unjust or oppressive, the Courts have been inclined to hold that an irregularity is fatal to the validity of the transaction. On the other hand, if the transaction was bona fide, legal, intra vires and for the benefit of the company as a whole and not oppressive on the minority, then the Courts were inclined to hold the transaction as valid on the ground of ratification, acquiescence or substantial consent of the members to do substantial justice in the case particularly if technicality was being used to perpetrate fraud. Whenever a small number of persons acting in close concert are managing the holding company as well as the subsidiary as in the present case, while recognising the separate entities of the two companies, this Court cannot permit technicality to defeat justice by allowing these persons as acting for the subsidiary to defeat the creditors whom they are found to pay while acting for the holding company particularly when the assets of the subsidiary are acquired entirely from the funds borrowed by the holding company from these very creditors. The observations of Lord Wilberforce in Ebrahimi v. Westbourne Galleries Ltd., (1973) AC. 360 at 379, (23) though made in a different content, are of general importance and may be quoted: —

“My Lords, in my opinion these authorities represent a sound and rational development of the law, which should be endorsed. The foundation of it all lies in the words ‘just and equitable’ and, if there is any respect in which some of the cases may be open to criticism, it is that the courts may sometimes have been too timorous in giving them full force. The words are a recognition of the fact that a limited company is more than a mere legal entity, with a personality in law of its own: that there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure. That structure is defined by the Companies Act and by the articles of association by which shareholders agree to be bound. In most companies and in most contexts, this definition is sufficient and exhaustive, equally so whether the company is large or small. The ‘just and equitable’ provision does not, as the respondents suggest, entitle one party to disregard the obligation he assumes by entering a company, nor the court to dispense him from it. It does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations; considerations, that is, of a personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights, or to exercise them in a particular way.”

To sum up, the order dated July 29, 1968 has been analysed above as follows: —

(1) On the one hand, no meeting of the members had been called by the Court and no resolution as such was passed by a three-fourths majority of the members in such a meeting.

(2) On the other hand, the written consent of more than 90 per cent majority of the members to the arrangement was submitted to the Court and all or virtually all the members acquiesced in the arrangement by their conduct from July 29, 1968 till 1973.

It is in these circumstances that we have to consider Shri Parpia's contention that the said order is a nullity or without jurisdiction. Absence of jurisdiction may consist either of facts or of law. Absence of facts giving jurisdiction may be proved when an order of an inferior Court or tribunal is challenged before a superior Court either by a vertical judicial review consisting of an appeal or by a collateral judicial review. But an order of a superior Court or of a co-ordinate Court cannot be proved to be without jurisdiction by an inquiry into the facts constituting jurisdiction. An obvious example is that of an executing Court which cannot go behind the decree. That is to say, it cannot inquire into the facts constituting the jurisdiction of the Court passing the decree. The order dated July 29, 1968 is that of a learned Single Judge of this Court. It was an appealable order but has not been appealed against. It has, therefore, become final against the subsidiary which was a party to that order. The question whether more than 90 per cent members of the subsidiary were parties to the agreement is one of fact. For, while the holding company, R. L. Anand and S. L. Anand signed the agreement, R. P. Anand did not sign it but was a beneficiary under it by being appointed General Manager on Rs. 2000/- per month. He, however, claims that his General Managership arose by resolutions passed by the Board of Directors of the subsidiary. The validity of these resolutions and whether the authority of R. P. Anand was based on them or on the order dated July 29, 1968 are questions which involve inquiry into facts. A fortiori, the question whether all the members of the subsidiary acquiesced in the order dated July 29, 1968 till 1973 is purely a question of fact. The appellants have neither made any pleading on these questions of fact nor is any evidence available as to them. Further, this Court is not sitting in appeal over the order. It is only if an order is a nullity on the face of it that its can be ignored by an executing Court. In Vasudev Dharijibhai Modi v. Rajabhai Abdul Rehman, (1970) 1 S.C.C 670 (24). The jurisdiction of the small Causes Court in making the order depended on the question whether the lease was of open land and to what user the land had been put. Even though the lease was on record, it had to be interpreted to find out answers to these questions. Even such interpretation was held to be beyond file power of an executing Court by the Supreme Court. It is only if an order is without jurisdiction on the face of it that it could be ignored by an executing Court. The instances of such apparent lack of jurisdiction given by the Supreme Court were (1) an order passed against a dead person, and (2) an order against a ruling Indian prince passed without a certificate necessary to maintain a suit against him. In so far as the challenge to the present order involves an inquiry into the questions of fact regarding the consent given to and acquiescence in the arrangement by the members of the subsidiary, it cannot be challenged as no inquiry into questions of fact is permissible.

Shri Parpia's challenge to the order was based mainly on the ground that the provision of section 391 regarding the calling of a meeting was contravened. This challenge would have been on better ground if the only way to comply with section 391 was for the Court to call a meeting of the members of the subsidiary. We have shown above that the calling of a general meeting can be dispensed with if a written resolution is passed by all the members or if the consent of all the members is given otherwise or if all the members have acquiesced in the matter by conduct even without a formal consent or a meeting. It cannot be said, therefore, that the calling of a meeting is the only manner in which section 391 could be complied with. The order could have been attacked as being without jurisdiction on the face of it for non-compliance with a mandatory legal provision only if the only question for consideration was whether the meeting under section 391 was called or not. For, the absence of the meeting is seen on the face of the record. But it is impossible to conclude merely from such absence that the order was without jurisdiction. A further inquiry would be necessary whether the absence of meeting was made good by obtaining the consent of the members of the subsidiary by other means.

The real question which the appellants must answer is whether this Court is entitled to inquire into questions of fact and after giving findings on them come to the conclusion that the impugned order was without jurisdiction. Though theoretically absence of jurisdiction can mean absence of the facts in the same way as it means absence of the law to support jurisdiction, the inquiry into facts stands on a different footing from inquiry into law. Research made by Dr. A. Rubinstein in his “Jurisdiction and Illegality” (1965) at pages 76 to 79 and 215 to 218, has shown that the practice of inquiry into the existence of jurisdictional facts as distinguished from law arose because of the absence of efficient alternative remedies. He observes that —

“The survival of this rule in an age in which its rationale has disappeared is regrettable. The harsh consequences involved in retrial of jurisdictional facts have induced some judges to attempt to mitigate the doctrine. As a result, the courts have from time to time evolved rules which clash with the notion of jurisdictional and retriable facts. These rules can be invoked in order to avoid the retrial of facts alleged to be jurisdictional.”

He mentions three tests of determining lack of jurisdiction without retrial of facts as follows: —

(a) The start of proceedings test hereby the want of jurisdiction must be determined at the initial stage when the Court assumes jurisdiction. As the High Court had the inherent jurisdiction under section 391 to, entertain a petition for the sanction of an arrangement, the initial jurisdiction was present in this Court to pass order dated July 29, 1968. According to this test, a subsequent wrong decision does not deprive the Court of jurisdiction which was once validly assumed.

(b) A decision which is based on no evidence at all. This also enables the Court to find out the lack of jurisdiction without inquiry into facts. Order dated July 29, 1968 has not been attacked on this ground:

and (c) The ex facie test. “Some decisions have indicated that facts necessary to establish want of jurisdiction can be deduced only from the record of the decision concerned. Whatever the real facts, reliance upon the record is the only permissible method of attack. Accordingly, retrial of jurisdictional facts is i again precluded, and collateral attack is limited to patent errors.” For instance, in O'Connor v. Isaacs, (1956) 2 Q. B. 288 at 303, (25) Diplock J. observed that where an order is bad on the face of it, it ceases to have the advantage which orders, although made without jurisdiction but good on their face, have, namely, that they are valid and are to be treated as valid until they have been set aside.”

Regarding the above mentioned three tests, Dr. Rubinstein observes: —

“These are three serviceable methods whereby the unpalatable phenomenon of retrial of facts can be avoided. Each has some authority to support it; none can claim to state the present state of the law. Retrial of jurisdictional facts in collateral proceedings must still be considered as a feature of positive law. Future decisions will indicate whether the courts are prepared to forsake their traditional outlook, and by adopting one of the methods discussed above, prevent a, retrial of any fact found upon evidence by the inferior tribunal.”

Judicial review of jurisdictional facts may be permissible in India by a superior Court in its supervisory capacity reviewing the decision of an inferior Court or tribunal. But an inferior Court or a Court of co-ordinate jurisdiction cannot do so except perhaps in a proceeding properly filed to collaterally attack the decision of a superior Court as being without jurisdiction. There is no such proceeding filed before us for the setting aside of the order dated July 29, 1968. The appeal is against the order dated February 7, 1974. It is only by a sidewind that it is suggested that the order appealed against is bad because it assumes the order dated July 29, 1968 to be valid. In such a case we- are not in a position better than that of an executing Court who has to accept a decree as it stands and who has no power to go behind the decree. While we can decide the correctness of the order under appeal, we cannot decide whether the order dated July 29, 1968 is without jurisdiction by an inquiry into facts.

The general rule that a decision can always be shown to be a nullity for want of jurisdiction was referred to by the Supreme Court in Kiran Singh v. Chaman Paswan, AIR 1954 S.C 340, (26), in paragraph 6. The Court, however, did not consider the distinction between the jurisdictional facts and the jurisdictional law and did not have the occasion to consider whether the facts as well as the law regarding the jurisdiction could be inquired into by any court in considering the validity of the decision of any other court. On the other hand, the Supreme Court has already decided in Vasudev Dhanjibhai Modi's case (24) referred to above, that an executing Court cannot go into questions of fact. It must take the decree as it stands on the face of it. That principle applies, in our view, to our looking at the order dated July 29, 1968. We have, therefore, no jurisdiction to inquire into the facts on which the jurisdiction of this Court in making the order dated July 29, 1968 was based. The alleged lack of jurisdiction in making the said order cannot be decided merely on the ground that the provisions of section 391 were not literally complied with. For, the consent given by the members to the said order and their acquiescence in it are facts which could cure the formal non-compliance with section 391. Unless those facts are found in favour of the appellants, the order dated July 29, 1968 cannot be ignored as being without jurisdiction. As we have no power to inquire into those facts, the said order must be accepted by us as correct.

Shri Parpia then contended that though the majority of the members of the subsidiary consented to the arrangement of July 29, 1968, such arrangement was oppressive to the minority. He relied on the decision of the House of Lords in Scottish Co-operative Wholesale Society Ltd. v. Meyer, (1959) A.C 324, (27). That decision has no application to the facts of the present case for the following reasons: Firstly, the protection was afforded there to “an independent minority”. In the present case, there is no independent minority. All the members of the Anand family have been acting in concert to help each other. Secondly, R. P. Anand who alone defended C.A 596 of 1973 and is prosecuting this appeal is not an independent minority. He is very much a member of the consenting majority. He has been enjoying the benefit of his appointment as General Manager by the order dated July 29, 1968. Even according to the observation of Lindley L. J. in Re George Newman Ltd., (11) cited above, “individual assents given separately may preclude those who have given them from complaining of what they have sanctioned.” R. P. Anand was a party to the arrangement of July 29, 1968. At any rate, he is estopped from disputing the same. We, therefore, negative the first contention advanced on the merits of this appeal.

CONTENTION No. II: —

No time limit was fixed as to the duration of the working of the order dated July 29, 1968. The order has been only partially worked out inasmuch as the debts to the creditors have been partly paid off. It could not be fully worked out because of the obstruction caused by the members of the Anand family who tried to control the management of the subsidiary and thereby prevented the holding company from selling the 889 shares, in the subsidiary held by it. These persons acting as the management of the subsidiary also tried to exercise their lien on these shares for the recovery of their dues from the holding company. The amount due to them from the holding company is negligible compared to the amount payable by the members of the Anand family to the creditors of the holding company. The delay in the working of the arrangement was, therefore, entirely due to the conduct of the members of the Anand family. It is R. P. Anand, a member of the Anand family, who is fighting this litigation on behalf of the members of the Anand family though he is not entitled to do so inasmuch as legally the management of the subsidiary is not in the hands of the members of the Anand family and R. P. Anand was not the General Manager of the subsidiary from before and after the order dated July 29, 1968. He has been expressly removed from the General Managership by the order under appeal. This contention also, therefore, fails.

CONTENTION NO. III: —

The essence of section 392 is to make the arrangement sanctioned under section 391 workable by such directions or modifications as may be made by the Court. In the arrangement the subsidiary had agreed not to exercise its lien on the shares of the holding company for a period of three years. The period of three years was fixed apparently in the hope that the debts of the creditors would be paid off within 2-1/2 years as contemplated in the agreement. The debts were only partially paid off during that period. It was necessary, therefore, that the subsidiary should be restrained from exercising the lien for a longer period. This was why Dalip Kapur, J. on November, 29, 1973 and Sachar J. on February 7, 1974 restrained the subsidiary from exercising the lien. This was necessary for the satisfactory working of the arrangement and was, therefore, justified under section 392. S. L. Anand, K. C. Anand and Smt. Nirmal Anand had tried to exercise the powers of the directors of the subsidiary. For instance, they had purported to appoint R. P. Anand as General Manager in October, 1973 even though they knew that from July 29, 1968 the Board of Directors of the holding company was to act as the Board of Directors of the subsidiary. As they actively usurped the powers of the legal Board of Directors, they obstructed the working of the arrangement of July 29, 1968 and were properly restrained from doing so to facilitate the working of the said arrangement under section 392. The same reason justifies the removal of R. L. Anand from the Board of Directors of the holding company and restraining him from functioning as a director of the subsidiary under section 392 and the removal of R. P. Anand from the post of General Manager of the subsidiary.

Shri Parpia contended that section 392 does not enable the Court to enforce the arrangement sanctioned under section 391. There is no question of enforcing the said arrangement at all. It is only the obstructions offered by the members of the Anand family to the working of the said arrangement which are being removed under section 392. Had these obstructions not been offered, no order under section 392 would have been necessary. The order under appeal is, therefore, justified under section 392.

For the above reasons, the appeal is dismissed but in the circumstances without any order as to costs.

Appeal dismissed.