Shanti Prasad Jain v. Union Of India, Bombay High Court, Judgment, Law, casemine.com

Precedent	Rule or Principle Cited For	Application by the Court
Shankarlal v. New Mofussil Co. Ltd. [1946] A.I.R P.C 97	Binding oral agreement may be formed even if formal terms are left to be settled by solicitors.	Distinguished as inapplicable since the present case involved multiple unsettled important issues in a complex company management dispute.
Syed Md. Ali v. Sundaramoorthy [1958] A.I.R Mad. 587	Proceedings under ss. 397 and 398 are not ordinary private disputes; interests of company and public interest paramount; court must approve any compromise.	Applied to emphasize that the Court must consider public interest before recording any compromise in company management proceedings.
Sayad Zain v. Kalabhai Lallubhai 1899 1 Bom. L.R 366	Submission to Court's order may preclude right of appeal if it amounts to an arbitration-like award.	Applied to hold that Company submitting to Court's orders with reservations lost right to appeal on merits.
Venkateswarlu v. Narasi Reddy [1961] A.I.R A.P 71	Right of appeal may be lost by agreement or acquiescence in procedure divergent from normal court process.	Applied to reinforce that the parties’ conduct in submitting to Court’s orders precluded appeals on merits.
Hindustan Times Ltd. v. Workmen [1963] A.I.R S.C 1332	Industrial tribunal cannot grant relief contrary to express statutory provisions.	Distinguished as the present case concerns Court's wide powers under Companies Act, not conflicting statutory provisions.
Dalmia Cement Ltd. v. Their Workmen [1967] A.I.R S.C 209	Same as above with respect to statutory limits on leave benefits.	Distinguished for the same reasons as above.
R.E.S Corpn. Ltd. v. Nageshwara Rao [1956] A.I.R S.C 213	Scope of Court’s powers under s. 397 read with s. 402 of Companies Act.	Referenced to support wide powers of Court in company management cases.
Shanti Prasad v. Kalinga Tubes Ltd. [1965] A.I.R S.C 1535	Same as above.	Referenced similarly for Court’s broad powers.
Richardson & Cruddas Ltd. v. Saridas Mundhra [1959] A.I.R Cal. 695	Scope of Court’s power under s. 398 read with s. 402 to appoint advisory boards and regulate company affairs.	Applied to affirm wide discretion of Court to manage company affairs in emergent situations.
Pender v. Lushington 1877 L.R 6 Ch. D. 70	Proper plaintiff in company disputes is the company through directors; if directors fail, power reverts to general meeting.	Applied in discussion of who may file appeals on behalf of company.

Tulzapurkar, J.:— All these Appeals except Appeal No. 146 of 1969 arise out of the judgment and order passed by Nain J. on August 28, 1969 whereby he reconstituted the Board of Directors of the Bennett Coleman & Co. Ltd., and granted certain reliefs in Company Petition No. 114 of 1967 filed by the Union of India (original petitioners) under s. 398 read with s. 401 of the Companies Act (I of 1956). Appeal No. 146 of 1969, though a connected matter, arises out of an order dated September 6, 1969 passed by Nain J. dismissing the Judge's Summons dated September 1, 1969 taken out by Shri Shanti Prasad Jain (respondent No. 2 in Company Petition No. 114 of 1967) for recording a compromise or settlement said to have been arrived at during the pendency of Company Petition No. 114 of 1967 and passing orders in accordance therewith.

2. The facts leading to the filing of the Company Petition No. 114 of 1967 by the Union of India (the petitioners) against Bennett Coleman & Co. Ltd. (respondent No. 1) and others under s. 398 read with s. 401 of the Companies Act, 1956 may be stated: The Bennett Coleman & Co. Ltd. (hereinafter referred to as ‘the Company’) with its registered office in Bombay was incorporated on November 29, 1913, under the provisions of the Indian Companies Act, 1882. The Company has been principally engaged in the business of publishing the Times of India group of newspapers, Journals, Magazines and other publications. According to the petitioners (the Union of India), prior to 1955 one Ramkrishna Dalmia was the Chairman of the Company. He and his group were controlling the share-holding of the Company and in the year 1955 the controlling interest in the share-holding of the Company passed on to Shanti Prasad Jain (the son-in-law of Ramkrishna Dalmia and original respondent No. 2) and his group and he became the Chairman of the Company. According to the petitioners further, in or about July 1957 respondent No. 2 issued instructions to one J.C Jain, the then General Manager, P.K Roy, the then Business Manager, and P.L Shah, the Secretary of the Company that the things and affairs of the Company should be so arranged that he should receive unaccounted monies from the Company as he was receiving from some of his other concerns that were controlled by him, that the purchases of the Company be falsely inflated, both as to quantity and the price and the differences between the actual value and the book value should be paid to him and that the sales of the newsprint waste, plant and machinery and miscellaneous items and the sale price should be not accounted for at all or be accounted partly in the books of the Company and the unaccounted money should be passed on to him and that pursuant to the aforesaid instructions such illegal transactions were put through from August 1957 to April 1963 and unaccounted money was passed on by the subordinate staff to the superior staff and by the latter to respondent No. 2 and during the above period the sums aggregating to Rs. 17,13,625.30 were paid by the staff to respondent No. 2 as unaccounted money and were misappropriated by him. It appears that in the beginning of the year 1963 the aforesaid manner in which the business and affairs of the Company were being conducted reached the ears of the Central Government, who on the material collected by it formed the requisite opinion that there were circumstances to suggest that the business of the Company was being conducted with intent to defraud its creditors, members and other persons and that the persons concerned in the management of its affairs had in connection therewith been guilty of fraud, misfeasance or other misconduct towards the Company and therefore in exercise of its power under s. 237 of the Companies Act the Central Government by its Order dated April 11, 1963 appointed Shri S. Prakash Chopra as the Inspector to investigate the affairs of the Company for the period January 1, 1955 to April 11, 1963 and should the Inspector so consider it necessary, also for the period prior to January 1, 1955 and to report thereon to it in the manner mentioned in the Order. It further appears that the management adopted obstructive attitude during the course of investigation undertaken by Shri Chopra with a view to delay, hinder and defeat the proper investigation into the Company's affairs and the management even refused and withheld from the Inspector and prevented the disclosure of all important and relevant documents necessary for the proper investigation and the Inspector also noticed that the officers and the employees of the Company had been intimidated and coerced into giving evidence favourable to the management and to destroy and tamper with the relevant documents and evidence. It may also be stated that between September and November 1963 some representations made by the senior officers of the Company were received by late Mr. Jawaharlal Nehru, the then Prime Minister of India, complaining about serious irregularities and illegalities that had been and were being committed in the management and conduct of the Company and in particular complaining about the instructions that had been issued by Shanti Prasad Jain (respondent No. 2) and P.K Roy (the then General Manager and original respondent No. 5) directing destruction as far as possible of all important records of the Company containing details of the transactions then being investigated by the Inspector and further directing that untruthful, misleading or evasory answers be given to the Inspector so that the investigation might be obstructed and frustrated. From the said representations it also became clear that pursuant to those instructions a portion of the record had been destroyed and there was danger of further record being destroyed. During the course of investigation carried out by the Inspector a number of senior employees of the Company gave statements on oath to him and also produced documents which went to establish that the affairs of the Company had been and were being conducted for fraudulent or illegal purposes and unlawful acts had been committed and in spite of obstructive attitude adopted by the management the Inspector submitted a set of three interim reports to the Central Government. During the course of that investigation several other alleged acts of falsification of accounts, conversion of preference shares into equity shares and other acts of malversation and misfeasance (which were later on detailed in paras. 16 to 27 of the Petition) came to the notice of the Inspector. The Inspector recommended various steps that could be taken including action under ss. 388B, 397 and 398 of the Companies Act for suitable redress. On September 17, 1964 applications under s. 388b and s. 388c of the companies act were filed by the Union of India before the Companies Tribunal seeking removal of Shanti Prasad Jain, Gian Chand Jain, Alok Prasad (new-phew and son of Shanti Prasad Jain) and P.K Roy being the Chairman, two directors and General Manager of the Company respectively (respondents Nos. 2 to 5 respectively) from the respective positions held by them in the Company. But according to the petitioners, on coming to know of these proceedings against them, respondents Nos. 2 and 4 with the help of ante-dated and therefore, forged documents resigned from the Board of Directors of the Company and even the resignation of respondent No. 3 dated September 8, 1968 was not free from doubt nor above board and respondent No. 2 and respondent No. 4 arranged for appointment of new directors of their own choice who were closely associated with them and who they believed would be under their influence, namely Smt. Rama Jain, Raj Narayan Bagla, Narendra Kumar, Dr. L.M Singhvi and Mauli Chand Sharma (respondents Nos. 6 to 10 respectively) and this was done with oblique motive of stifling the proceedings under s. 388B and s. 388C of the Act and to prevent the proper enquiry into the conduct of the affairs of the Company and the determination of their fitness to hold the positions which they held in the Company and also to continue and maintain the illegal, mala fide and wrongful control, power and influence of the said S.P Jain and A.P Jain and the exercise of functions by the said P.K Roy in the Company; similarly, on or about September 25, 1964 the new Board of Directors appointed one Shri P.R Krishnamoorthy as Deputy Secretary of the Company, one Shri Nemchand Jain as Deputy Chief Accounts Officer and Shri R.P Agarwal as an Internal Auditor of the Company, all of whom were appointed by having their services on loan from other Sahu Jain concerns controlled by Shri S.P Jain and, according to the petitioners, by these appointments the wrongful control and management of the Company by the previous Directors (particularly S.P Jain and A.P Jain) was intended to be continued and confirmed.

3. In the circumstances aforesaid the Union of India seriously apprehended that the apparent change in the control and management of the Company, both by alteration in the Board of Directors and addition of the said Krishnamoorthy, Jain and Agarwal to the staff of the Company, was likely to continue and augment the mismanagement of the Company and that the affairs of the Company would also be conducted in a manner prejudicial not merely to the interest of the Company but also to public interest, inasmuch as, such management or rather mismanagement would not ensure that all the Company's profits would be brought into account so that the public revenues justly payable by the Company may be paid. With a view to bringing to an end the aforesaid mismanagement and preventing mismanagement in future which was likely to cause prejudice to public interest as well as to the interest of the Company, on or about September 30, 1964 the Union of India filed a Petition, being Company Petition No. 9 of 1964, before the Companies Tribunal under s. 398 read with s. 401 of the Companies Act seeking the following reliefs: (a) Removal of the newly appointed Directors (respondents Nos. 6 to 10) from the Board of the Company; (b) Injunction restraining respondents No. 2, 3 and 4 (the directors who had resigned) and respondents Nos. 6 to 10 (the new directors) from interfering and inter meddling in the affairs of the Company, its conduct and management; (c) Removal of respondent No. 5 (P.K Roy the General Manager) from the employment of the Company and injunction restraining him from acting or functioning in any capacity under the Company and from interfering or intermeddling in its affairs; (d) Appointment of a Special Officer to manage and conduct the affairs of the Company upon such terms and conditions and with such powers and functions and for such period as the Tribunal may consider proper; (e) Interim injunctions in terms of (b) and (c) and interim appointment of Special Officer in terms of (d); and (f) such other orders as in the premises may seem just and proper. It may be stated that there was no express prayer that if in the course of proceeding it appeared to the Tribunal that any of the respondents had misapplied or retained or become liable or accountable for any money or property of the Company or had been guilty of any misfeasance or breach of trust in relation to the Company, the Tribunal should examine into the conduct of such person and compel him to repay or restore the money or property or to contribute such sum to the assets of the Company by way of compensation as the Tribunal thought fit and this was so because no averment was made in the Petition that the Union of India was either a member of the Company or its creditor but the Petition had been filed by virtue of s. 401 of the Companies Act.

4. During the pendency of the above Petition, either before the Companies Tribunal or after its transfer to this Court upon abolition of the former, several other proceedings came to be instituted or commenced to which it will be convenient to refer to at this stage. By its letter dated January 21, 1967 the Company gave an intimation to the Company Law Board under s. 635b of the companies act of its intention to dispense with the service of five of their employees, namely P.K Roy General Manager, P.L Shah Secretary and Chief Accountant, K.C Raman Production Manager, Parameshwaran Assistant Manager and T.P George Store Superintendent on the ground that they had either been the principals, a betters or accomplices of the persons, who constituted the Board of Directors at the time of the alleged mismanagement. The Company Law Board by its reply dated February 13, 1967 placed on record its objection to the action proposed to be taken against these employees by the Company. Against such objection raised by the Company Law Board the Company filed an appeal before the Companies Tribunal being Appeal No. 72 of 1967 which appeal on being transferred to this Court was heard and disposed of by Mr. Justice Nain along with the main petition. It may also be stated that the criminal proceedings (being Cr. Case No. 485.P/69) were also instituted against respondent No. 2 and others on July 4, 1969 and those proceedings were pending when the main petition was disposed of by the trial Court. Similarly, a Civil Suit being Suit No. 605 of 1967 was also filed by the Company against respondent No. 2 and others for recovering a money claim from them arising out of mismanagement. Similarly, proceedings under the Income-tax Act and other Taxation Laws were commenced and they were also pending against respondent No. 2.

5. In the Company Petition filed under s. 398 read with s. 401 of the Companies Act several interlocutory applications were made by the parties on either side and the orders passed thereon by the Tribunal became the subject-matter of appeals by respondent No. 2 and one appeal on the point whether the Petition was properly verified or not went right up to the Supreme Court with the result that the hearing of the petition was considerably delayed and got protracted. After further and better particulars were furnished on behalf of the petitioners, affidavits in reply were filed by respondents Nos. 1 to 6 and 8 to 10 resisting the Petition on various grounds. Respondent No. 7 (Raj Narayan Bagla) did not file any affidavit in reply nor did he appear at any stage of the hearing and though respondent No. 3 filed his affidavit in reply and remained present during the hearing before the Tribunal, he remained absent throughout during the time the hearing took place before the learned Judge. The hearing before the Companies Tribunal went on continuously for about 50 days till June 5, 1967 when the Tribunal was abolished; thereafter the Petition was transferred to this Court and numbered as Company Petition No. 114 of 1967 and even before Mr. Justice Nain the hearing which commenced on March 20, 1969 lasted till August 28, 1969. It may be stated that during all this period while the hearing of the petition was in progress several efforts were made by respondent No. 2 to settle the whole matter and terminate the proceedings but without any success. In all, evidence running into 1358 pages came to be recorded; 652 pages by the Companies Tribunal and about 706 pages by the learned Judge and even after recording such lengthy evidence only the first witness was still in the box when the final judgment and order was delivered by Mr. Justice Nain on August 28, 1969 in the following circumstances: While the first witness Mr. George was still in the witness box and hearing and final disposal of the petition was likely to take quite a few months, on August 14, 1969 respondent No. 2 stated to the learned Judge that if the money claim could not be entertained in this petition filed under s. 398 of the Companies Act and if the Court's order would not amount to any admission on his part or any finding against him in respect of any of the allegations contained in the petition, he would not object to an order being passed by the Hon'ble Court for reconstitution of the Board for the future management of the Company's affairs on the footing that the order would sufficiently protect him and make it clear that there was no admission on his part in respect of any of the allegations in the petition and that there would also be no finding against him and that no prejudice would be caused to him by such order in other pending proceedings. Since the efforts to settle the whole matter were in progress then, he also stated that if a compromise or settlement was reached with the Union of India, he would abide by the same and seek orders in terms of such compromise or settlement. After some discussion, all the other respondents who were appearing, except respondent No. 1 Company, also made more or less similar statements to the Court. Respondent No. 4 through his counsel pointed out that he had become a director in April 1963 and that the investigation undertaken by the Inspector was for a period prior to April 1963 and stated that he would not object to an order being passed by the Hon'ble Court for the future management of the Company's affairs on the footing that the order would sufficiently protect him and make it clear that there was no admission on his part in respect of any of the allegations in the petition and that there would also be no finding against him and no prejudice would be caused to him by the said order in any pending proceedings. Respondent No. 5 through his counsel stated that he would submit to the orders of the Court. Respondent No. 6 through her counsel intimated to the Court that she had wanted to resign on grounds of health and if the Court was disposing of the petition as mentioned above, she would resign as a director of the Company and that she would not object to an order being passed for the future management of the Company's affairs on the footing that the order would sufficiently protect her and make it clear that there was no admission on her part in respect of any of the allegations in the petition and there would be no finding against her and that no prejudice would be caused to her by such an order. Respondents Nos. 8, 9 and 10 through their counsel stated that they were denying all the allegations in the petition made against them and were maintaining that there was no material for the allegations made against them and no ground for their removal but subject to that they were willing to submit to the orders of the Court for the reconstitution of the Board of Directors of respondent No. 1 Company; counsel on behalf of respondent No. 1 Company stated that he wanted time for obtaining necessary instructions from the Board which was going to meet at New Delhi on August 19 and 20, 1969 and he applied for a short adjournment of the matter till August 21, 1969. On the respondents so stating to the Court, counsel on behalf of the petitioners also stated that the petitioners would have no objection to the Court passing such orders as it thought fit without going into the allegations contained in the petition and arriving at a finding on the issues framed by the Companies Tribunal. He also stated that he would submit to the orders of the Court subject to protection being given to the concerned employees of the Company. In other words, all the parties to the proceedings, who were appearing before the Court except respondent No. 1 Company who took time to obtain necessary instructions, made it clear to the Court that subject to the reservations that were made by each one of them as indicated above, the Court should dispose of the petition by passing such orders as it thought fit on the assumption that the allegations made by the petitioners against the respondents, that at the material time the affairs of the Company were being conducted in a manner prejudicial to public interest and to the interest of the Company and that a material change in the Board of Directors had taken place as a result of which it was likely that the affairs of the Company would be conducted in a manner prejudicial to the public interest and to the interest of the Company, were correct and that the conditions prescribed by s. 398 of the Companies Act giving jurisdiction to the Court to make appropriate orders under s. 402 had arisen and existed. The short adjournment sought by counsel for respondent No. 1 Company was granted and the matter was adjourned to August 21, 1969. When the petition came up for hearing before the learned Judge on August 21, 1969 counsel on behalf of respondent No. 1 Company stated that he had not received any instructions but that the necessary papers containing the Board's Resolution passed at the meeting held at New Delhi were on their way and he applied for time and accordingly the matter was adjourned till 2.45 p.m on that day. At 2.45 p. m. on August 21, 1969 counsel on behalf of respondent No. 1 Company placed before the Court the relevant Resolution of the Board of Directors and in view thereof submitted that it was not possible for respondent No. 1 Company to submit to the orders of the Court. However, counsel on behalf of respondent No. 2 informed the Court that a settlement had been reached with the Central Government on August 20, 1969 in regard to the orders to be passed about the future management of the Company and applied for time for making necessary application in that behalf. Counsel for the petitioners opposed the application on the ground that he had not received any instructions from the Government regarding the alleged settlement. The learned Judge, however, granted time till August 25, 1969 to enable respondent No. 2 to make application. On behalf of respondent No. 2 it was further stated that if at the time of hearing of his application the Government denied the settlement he would not press; the application. On August 25, 1969 counsel on behalf of the petitioners stated to the learned Judge that no settlement with the Government had been arrived at but the matter merely rested in certain Government proposals having been conveyed to the other side and that the said proposals provided for reconstituting the Board consisting of four Government directors and three share-holders directors excluding respondents Nos. 2, 4 and 6 and that such Board should be for a period of not less than three years and that there should be full, protection to the employees. However, at the instance of respondent No. 2 leave was granted to him to take out Judge's Summons for recording the compromise or settlement which according to him had been arrived at on August 20, 1969 and the hearing of the said Summons was fixed on August 28, 1969. Respondent No. 2 took out the requisite Judge's summons (being Company Application No. 77 of 1969) supported by his affidavit dated August 23, 1969 for recording the aforesaid alleged compromise with the Government and the same was duly served upon all the concerned parties and it came up for hearing and for recording evidence before the Court on August 28, 1969. On that day at about 11 A.M counsel for respondent No. 2 stated to the Court that there was a final agreement concluded with the Government and that the matter be adjourned for ten days in order to enable him to place the compromise before the Court. But counsel for the petitioners denied that there was any agreement as alleged and stated that an affidavit to that effect was on its way but he also stated that there were certain counter proposals which were under consideration of the Government and in the circumstances he would not object to the adjournment being granted as applied for by respondent No. 2. The learned Judge, however, refused the application for adjournment. Since counsel for the petitioners emphatically denied that there was any agreement with the Government, counsel on behalf of respondent No. 2 did not press his application (Company Appln. No. 77 of 1969) and the learned Judge dismissed the same. On this occasion counsel for respondent Nor 1 Company stated to the Court that there was no agreement between the Company and the Government and that the Board of Directors of the Company was holding a meeting which was in session and the necessary instruction were awaited by him any moment. The matter was therefore adjourned till 1 P.M in the first instance and thereafter till 2.45 P.M When the petition was taken up for hearing at 2.45 P.M counsel for respondent No. 1 Company informed the Court that the Board had passed certain resolutions, copies whereof were submitted by him to the Court; by the said Resolution respondent No. 1 Company submitted to the orders of the Court without prejudice to the Company's appeal in regard to the employees and the Civil Suit filed by it against respondent No. 2 and other employees.

6. On this occasion i.e on August 28, 1969 at 2.45 P.M according to the learned Judge, respondent No. 2 went further and stated that he would not only submit to the orders of the Court without any objection but would consent to such orders being passed whatever be the nature of the orders. We may mention that counsel for S.P Jain (original respondent No. 2) disputed before us in these appeals that any such statement was made by him or by his client to the learned Judge, but he stated that on behalf of his client he had on August 14, 1969 made a statement that his client would submit to the orders of the Court subject to reservations indicated earlier. Further, according to respondent No. 2, on this occasion counsel for the petitioners stated to the Court that he had received instructions from the Government that a settlement had been arrived at in the matter and requested for an adjournment in order to place the same before the Court and he also stated what the broad features of the settlement were but the Court did not grant the request for an adjournment and proceeded to deliver the judgment. We may mention that counsel for the petitioners in these appeals before us disputed that any such statement was made by him to the Court on this occasion or that he applied for an adjournment as alleged. But according to him, after counsel for respondent No. 1 Company stated to the Court that the Company was submitting to the orders of the Court subject to reservations indicated above, the learned Judge proceeded to deliver his judgment.

7. In view of the aforesaid statements that were made by all the parties before him (by the petitioners and respondents Nos. 2, 4, 5, 6, 8, 9 and 10 on August 14, 1969 and by respondent No. 1 Company on August 28, 1969 at about 2.45 P.M) the learned Judge felt that no useful purpose would be served by prolonging the enquiry any further and in the circumstances the best thing would be to pass such orders as he thought fit on the assumption that the allegations made by the petitioners against the respondents in the petition were correct and that the conditions prescribed under s. 398 of the Companies Act giving him jurisdiction to pass appropriate order under s. 402 had arisen and existed. He also felt that passing appropriate orders on such assumption would cause no prejudice to the respondents, inasmuch as, there was going to be no admission on the part of any of the respondents in respect of the allegations contained in the petition and no finding was being recorded by him on any of the issues framed in the case and no prejudice would be caused to such of the respondents against whom other proceedings had been instituted in the matter of those proceedings. However, with regard to the nature of the orders which he proposed to pass, he sought the assistance of counsel appearing for the parties by inviting them to make their submissions and on hearing all the submissions that were made by counsel for the respective parties he passed the following orders: (1) He directed that a reconstituted Board of Directors for the Company should consist of eleven persons, out of whom three should be shareholders' directors, three be nominated by the Central Government and the remaining five be appointed by the Court and that such reconstituted Board of Directors should operate for a period of seven years from the date of the order. As regards the personnel of the first reconstituted Board, after considering the suggestions that were made to him he directed that in such first reconstituted Board the three share-holders directors should be respondents Nos. 8, 9 and 10, that the three nominees of the Central Government should be Dr. R.K Hazari, Mr. S.M Kumarmangalam and Mr. H.M Trivedi while the five directors to be appointed by the Court should be Mr. K.T Desai, Mr. S.N Dahanukar, Mr. Kaikhashru Sohrab Engineer, Mr. Gajanan Vishnu Desai and Prof. G.D Parekh (the last one was appointed on September 1, 1969) and he further directed that Mr. K.T Desai should be the Chairman of the Company; (2) He further directed that the three directors as representing the share-holders should retire in accordance with the Articles of Association of the Company at each ordinary General Meeting but should be eligible for re-election and that a vacancy amongst such directors may until the next ordinary General Meeting be filled in by co-option by the remaining share-holders' directors. He further directed that a vacancy among the directors appointed by the Central Government shall be filled up by the Central Government while a vacancy among the directors appointed by the Court shall be filled up by the Court. This was done with a view to give a preponderating and effective majority to the directors appointed by the Court and the Government over the shareholders' directors; (3) He felt that in order to give effect to his aforesaid orders, certain Articles viz. Articles 87, 93(f), 93(g), 95 and 101 of the Articles of Association of the Company required certain modifications and Articles 92, 93(c), 94, 96, 97 and 104 required abrogation as specified in the Schedule annexed to his Order and he, therefore, directed carrying out the necessary modification and abrogation in the Articles. He further ordered that the Articles of Association of the Company shall stand modified in the manner indicated in the Schedule and that the Company shall not have the power to alter the Articles as modified by his order without the leave of the Court and any such alteration made without the leave of the Court shall to that extent be null and void. He, however, preserved the Court's power to further amend or rescind any of the Articles including the modifications made by his order as and when occasion may arise after due notice to the Central Government and other persons concerned; (4) In view of the fact that serious allegations of malversation, misfeasance and embezzlement of the funds of the Company were made against the past directors and Mrs. Rama Jain, he directed that these persons should be disqualified for becoming the directors of the Company again and therefore he issued an injunction restraining respondents Nos. 1 to 4 from interfering with or intermedding in the affairs of the Company and its conduct and management; (5) He further ordered that the services of P.K Roy do stand terminated on the passing of the order and further issued an injunction restraining P.K Roy from interfering with or inter meddling in the affairs of the Company and its conduct and management. He further ordered that this order in regard to P.K Roy shall not give rise to any claim whatever against the Company by him for damages or compensation for loss of office or in any other respect either in pursuance of the agreement or otherwise; and (6) He ordered that the cost of the petitioners of the proceedings should be borne and paid by respondent No. 2 and that respondent No. 1 Company shall bear and pay its own cost as well as the cost of respondents Nos. 8, 9 and 10, and that there shall be no order as to cost with regard to respondents Nos. 3 to 6.

8. After the petition was thus disposed of by judgment and order dated August 28, 1969 but before the judgment was signed by the learned Judge, respondent No. 2 took out a Judge's summons dated September 1, 1969 (being Company Appln. No. 78 of 1969) for recording the settlement or compromise that had been arrived at between the petitioners on the one hand and Bennett Coleman & Co. represented by its share-holders and the share-holders of the Bennett Coleman & Co. in regard to the management and regulation of the conduct of the affairs of the Company in future, more particularly set out in exh. ‘1’ to the affidavit of respondent No. 2 dated September 1, 1969 declared in support of the application and for passing orders in accordance with the said settlement or compromise. The case of respondent No. 2 was that the settlement or compromise which he wanted the Court to record was one which had been arrived at late in the evening of August 27, 1969 between the Union of India on the one hand and the Company represented by its share-holders on the other. The said summons was served on all the parties concerned and was heard by the learned Judge on September 6, 1969. It may be stated that no affidavit by way of reply was filed by the Union of India or any of the other parties to the said summons but the said application was resisted by the Union of India on several grounds. The learned Judge refused to record the alleged settlement or compromise and dismissed the Judge's summons by his Order dated September 6, 1969.

9. Feeling aggrieved by the judgment and order dated August 28, 1969 all the original respondents, except respondents Nos. 7 and 9, have preferred appeals to this Court. Appeal No. 154 of 1969 preferred by respondent No. 1 Company at the instance of the share-holders and Appeal No. 153 of 1969 preferred by respondents Nos. 8 and 10 in their capacity as directors of the Company are mainly directed against the order directing reconstitution of the Board of Directors for the Company in the manner done for a period of seven years. Appeal Nos. 149/69, 155/69, 151/69 and 147/69 have been preferred by original respondents Nos. 2, 3, 4 and 6 principally challenging the order of injunction barring them from becoming directors of the Company at any time in future. Appeal No. 150/69 has been preferred by respondent No. 5, principally against the order directing his dismissal from the employment of the Company and injunction restraining him from interfering or intermeddling with the affairs and conduct of the Company. Appeal No. 146/69 has been preferred by respondent No. 2 against the order of the learned Judge dated September 6, 1969 whereby he dismissed his application for recording the compromise and passing orders in accordance therewith.

10. In logical sequence it would be proper to deal with Appeal No. 146 of 1969 preferred by respondent No. 2 against the order passed by the learned Judge on September 6, 1969 dismissing his application for recording compromise or settlement, inasmuch as, if that appeal were to succeed in the sense that the compromise or settlement which had been put forward by respondent No. 2 were to be accepted by the Court and orders were to be passed in accordance therewith, then the judgment and order passed by the learned Judge on August 28, 1969 will have to be set aside and there will be no occasion to deal with the other appeals on merits. We shall, therefore, deal with that appeal first and thereafter we will deal with the two main appeals which have been preferred by respondent No. 2 (Appeal No. 154/69) and respondent Nos. 8 and 10 (being Appeal No. 153/69) since these are against the principal order passed by the learned Judge directing reconstitution of the Board of Directors for the Company in the manner done by him for a period of seven years and thereafter we propose to deal with other individual appeals which have been preferred by the other respondents, which are principally directed against individual orders passed by the learned Judge against each one of them. While referring to the parties in these appeals instead of referring to them as appellants and respondents, we shall prefer to refer to them by their nomenclatures in the original proceedings.

Appeal No. 146 of 1969:

This appeal has been directed against the order passed by the learned Judge on September 9, 1969 whereby he refused to record the alleged compromise or settlement that was said to have been arrived at between the Union of India on the one hand and the Company represented by its share-holders on the other late in the evening of August 27, 1969 and he dismissed the Judge's summons taken out by respondent No. 2 in that behalf with costs. While narrating the events which led to delivering of the judgment and order on the part of the learned Judge on August 28, 1969 we have already indicated several events that took place from August 21, 1969 onwards. As regards the settlement or compromise of the matter we may mention that initially respondent No. 2 for the first time suggested to the Court on August 21, 1969 that the settlement had been reached with the Central Government on August 20, 1969 in regard to orders to be passed for the future management of the Company and he applied for adjournment to make the necessary application to have that compromise recorded. The learned Judge granted him an adjournment to make the necessary application and respondent No. 2 did take out the Judge's summons for recording that compromise which was said to have been arrived at on August 20, 1969. But at the hearing of the said summons on August 28, 1969 since counsel for the Union of India had emphatically denied that there was any such settlement, respondent No. 2 did not press his application in accordance with the undertaking which he had given to the Court on an earlier occasion. That summons was, therefore, dismissed by the learned Judge on that day at about 11 A.M According to respondent No. 2, at 2.45 P.M it was counsel for the petitioners who stated to the Court that a settlement had been reached in the matter and requested for an adjournment in order to place the same before the Court and that counsel for the petitioners then indicated to the Court what the broad features of the settlement were. But the Court refused to grant an adjournment sought by counsel for the petitioners. We have already stated above, this part of respondent No. 2's case was seriously disputed before us by counsel for the petitioners in these appeals. Mr. Khambatta for the petitioners (Union of India) categorically stated to us that he had not made any such statement to the Court on August 28, 1969 and it was only after counsel for respondent No. 1 Company had submitted to the orders of the Court subject to certain reservations made by him that the learned Judge proceeded to deliver his judgment and passed the necessary orders disposing of the main petition. It is really unnecessary for us to go into this controversy for it is an admitted fact that respondent No. 2 took out the Judge's summons (Company Appln. No. 78 of 1969) for recording the compromise that was said to have been arrived at between the Union of India on the one hand and the Company represented by its share-holders and the share-holders of the Company on the other, before the learned Judge had signed the judgment which he was perfectly entitled to do. What we have to see is whether that application made by respondent No. 2 for recording the said compromise was wrongly rejected by the learned Judge and whether he wrongly refused to record the said compromise or settlement that had been arrived at between the parties. As stated earlier, the main judgment and the necessary orders were passed by the learned Judge on August 28, 1969 in Company Petition No. 114 of 1967 but before the judgment was signed by the learned Judge, on the matter being placed before him for speaking to the Minutes, the learned Judge made some corrections in the orders which he had made on August 28, 1969. Similarly, before the learned Judge signed the judgment, respondent No. 2 took out his Judge's summons on September 1, 1969 which was made returnable on September 6, 1969. According to respondent No. 2 the settlement or compromise that was arrived at between the Union of India on the one hand and the Company represented by its shareholders and the share-holders of the Company on the other was entirely different from the one which he had put forward on August 28, 1969 and that this compromise or settlement had been arrived at between the parties mentioned above late in the evening of August 27, 1969 and in regard to all that transpired in that meeting which took place in the evening of August 27, 1969 respondent No. 2 had addressed a letter on August 28, 1969 to the Government of India, Department of Company Affairs, Delhi in which he set out the broad terms of the settlement that had been arrived at between the parties. It appears that at that meeting the earlier proposal for settlement submitted by respondent No. 2 on May 26, 1969 was discussed and certain fresh amendments were suggested as a result of which broad outlines came to be agreed upon between the parties. As could be seen from the letter dated August 28, 1969 which was addressed by respondent No. 2 it was agreed that the Board of Directors should consist of nine persons, five persons (whose names were agreed between the parties) to be nominated by the Government and four persons (whose names were agreed between the parties) to be nominated by the share-holders and that Ashok Kumar Jain, the son of respondent No. 2 who was one of the persons said to have been nominated by the share-holders, should be the Chairman of the Board of Directors. It was also agreed that the above members of the Board would hold office till the annual share-holders meeting in 1972 for passing of accounts for the year 1971 would be held. It was also agreed that any casual vacancies on the Board arising between the date of the orders of the Court and the Annual General Meeting in 1972 would be filled up by nomination by mutual agreement. As regards the matter of protection sought to be given by the Government to the employees who had assisted the Government in the investigations, the appeal of the Company against the objection of the Company Law Board under s. 635B on the proposal of the Company to dismiss the employees and the connected question of payment of retirement benefits to Shri Parmeshwaran were agreed to be kept apart from the settlement and the parties were kept free to make their submissions to the Court for appropriate orders. The letter dated August 28, 1969 regarding the aforesaid compromise or settlement was annexed by respondent No. 2 to his affidavit in support of the summons dated September 1, 1969 as exh. 1. It may be stated that when the summons was actually taken out there was no confirmatory letter or writing proceeding from the Government of India on which respondent No. 2 could place any reliance. But before the summons was actually heard on September 6, 1969 a letter dated September 3, 1969 signed by II Prasad, the Secretary to the Government of India and the Chairman of the Company Law Board was received by respondent No. 2 in which R. Prasad had indicated the measure of agreement that had been arrived at between the parties on the points that were discussed at the meeting held on August 28, 1969. At the hearing of the Judge's summons for recording compromise reliance was placed upon both these letters; one dated August 28, 1969 addressed by respondent No. 2 to the Secretary to the Government of India, Department of Company Affairs and the other by way reply dated September 3, 1969 received by him from R. Prasad, Secretary to the Government of India and as Chairman of the Company Law Board and according to respondent No. 2, these two documents clearly established that there was a concluded settlement or compromise arrived at between the parties and in view of the said settlement that had been arrived at between the parties the present proceedings under s. 398 read with s. 401 of the Companies Act were to be terminated. It was this compromise or settlement that was sought to be got recorded by respondent No. 2 by the Judge's summons dated September 1, 1969. As stated earlier, no affidavit in reply was filed either on behalf of the Union of India or on behalf of any other parties to the summons but the application was resisted by the Union of India on several grounds. The learned Judge after hearing the submissions that were put forward on behalf of the parties appearing before him was of the view that there was no compromise or settlement arrived at between the parties either in fact or in law as suggested by respondent No. 2 and he therefore dismissed the application with costs. In his judgment which he delivered on September 6, 1969 he recorded as many as five reasons why he felt that the application was liable to be dismissed. In the first place, he held that in fact the two letters on which reliance was placed by respondent No. 2 did not constitute a concluded complete agreement on all the points or matters in issue arising in the proceedings before him and as such the alleged compromise could not be recorded. He also took the view that in law the share-holders could not represent the Company and enter into any such settlement or compromise but that the Company could do so only through its directors and the settlement, if the same had been arrived at, was not binding on the Company and on this ground alone the application could be rejected. He also took the view that the share-holders were not the parties to the proceedings (Company Petition No. 114/67) and therefore any agreement between the Union of India and a non-party could not be the subject-matter for recording a compromise under O. XXIII, r. 3 of the Code of Civil Procedure. Fourthly, he took the view that the alleged settlement that had been put forward had been arrived at on August 27, 1969 and on August 28, 1969 respondent No. 2 had submitted to the Court's orders obviously with full knowledge of the earlier alleged settlement and therefore his conduct in submitting to the orders of the Court should prevail over the alleged settlement; at any rate, he felt that there could be no question of recording a compromise after the matter had been disposed of by him by judgment dated August 28, 1969. Lastly, he took the view that even if the settlement could be said to have been arrived at between the parties, the Court was not bound to record the same in the proceedings under s. 398 read with s. 401 of the Companies Act, inasmuch as it was for the Court to see whether the said compromise was in public interest or not and he clearly opined that the settlement put forward by respondent No. 2 was not in public interest. On these grounds the learned Judge dismissed the Judge's summons taken out by respondent No. 2 by his order dated September 6, 1969. We may mention at this stage that to the aforesaid grounds, Mr. Khambatta appearing for the Union of India sought to add two more grounds on the basis of which he urged that this Court sitting in appeal should not entertain the so-called settlement put forward by respondent No. 2. Mr. Khambatta contended that the so-called compromise or settlement was not in legal form as required by art. 292 of the Constitution and therefore it was not a legal and valid compromise which could be recorded by the Court. He secondly contended that if the subsequent conduct of the share-holders was seen, it would appear clear that even the share-holders did not appear to have accepted this position that there was any such settlement arrived at between the Union of India on the one hand and the Company on the other. He, therefore, urged that this Court in appeal should not record the so-called compromise or settlement that has been put forward by respondent No. 2.

11. In support of his appeal Mr. J.O Bhatt counsel for respondent No. 2 challenged the various grounds on which the learned Judge had rejected the application for recording the compromise. He also contended that the two additional grounds on which Mr. Khambatta tried to resist the recording of the compromise should not be allowed to be raised in this appeal, inasmuch as, his client would be at a disadvantage to meet those points for want of sufficient material having been brought on record. He pointed out that though the first additional ground urged by Mr. Khambatta was a legal submission, since it was not raised in the trial Court proper material in the form of relevant legal authority and the relevant notifications conferring authority on Shri R. Prasad to enter into such compromise which could have been pointed out was not pointed out to the lower Court. We may mention however that on this legal submission Mr. Bhatt tried to show to us by relying upon certain sections of the Act and certain notifications that Shri Prasad might have had the authority to enter into such compromise. On the factual ground urged by Mr. Khambatta he strenuously urged that it was a question dealing with the facts and since the same was not raised in the trial Court, the same should not be allowed to be raised here in this appeal, for, if the same had been raised he would have brought sufficient material on record to show what was the real attitude of the share-holders qua the settlement. Since we felt that there was considerable force in what Mr. Bhatt has urged, we did not permit Mr. Khambatta to raise the additional grounds to sustain the learned Judge's order. Regarding the grounds on which the learned Judge had rejected the application for recording the compromise, he urged that the finding of the learned Judge that the compromise had not been established in fact or in law was erroneous, inasmuch as, according to him, the two letters on which reliance was placed by respondent No. 2 (letters dated August 28, 1969 and September 3, 1969) conclusively and clearly established a concluded contract in fact and that since the matter dealt with by the compromise was capable of being dealt with by the share-holders alone for the Company, it was the share-holders' consent which was material and that such consent of the share-holders had been obtained because during the negotiations that took place late in the evening of August 27, 1969 the share-holders were represented by Shri R.K Jain and there was no material on record to show that he had not so represented the share-holders during the said negotiations. He also contended that the learned Judge was wrong in coming to the conclusion that the compromise that had been arrived at between the Union of India on the one hand and the Company represented by its share-holders could not be the subject-matter for recording the same under O. XXIII, r. 3 of the Code of Civil Procedure. He further urged that the learned Judge was in error in taking the view that no compromise could be recorded after the matter had been disposed of and in that behalf he pointed out that on August 28, 1969 the application for adjournment for the purpose of enabling his client to take out a summons for recording the compromise had been wrongly rejected by the learned Judge and in any case the application to record the compromise had been made by his client before the judgment had been signed by the learned Judge and in these circumstances the learned Judge was under an obligation or duty bound to record the compromise if in point of fact it was so arrived at between the parties concerned. As regards the compromise being not in the public interest, Mr. Bhatt contended that the grounds on which the learned Judge felt that the compromise was not in public interest were not valid and that in any case proper weight ought to have been given to the fact that a party like the Union of India who was also supposed to safeguard the public interest while arriving at any compromise had with open eyes entered into the same with the Company represented by its share-holders and no material was brought on record to show as to whether and if so what aspects of the matter having a bearing on the public interest were omitted by the Union of India from consideration while granting its consent to the settlement. He, therefore, urged that it was a far cry to suggest that the compromise that was arrived at between the parties was not in the public interest or was against the public interest. He, therefore, contended that the learned Judge was in error in rejecting his client's application for recording the compromise and the learned Judge ought to have recorded the compromise and passed orders in accordance therewith.

12. In our view, this appeal is capable of being disposed of on two points and it is unnecessary for us to go into the other rival contentions that were urged before us by counsel for respondent No. 2 and by counsel for the Union of India in support of each one's submissions and the two points which need be considered by us are whether a concluded complete agreement was actually arrived at between the parties as suggested by respondent No. 2 in point of. fact and secondly whether even if it were assumed for the purpose of argument that such concluded agreement was arrived at between the parties, whether the same was in public interest so that the Court ought to have recorded it as contended for by respondent No. 2.

13. We have already stated above that the case of respondent No. 2 has been that this settlement was arrived at between the Union of India on the one hand and the Company represented by its share-holders on the other late in the evening of August 27, 1969 and the terms thereof have been broadly set out by respondent No. 2 in his letter dated August 28, 1969 addressed by him to the Secretary, Government of India, Department of Company Affairs, New Delhi and his confirmatory letter dated September 3, 1969 which was received by respondent No. 2 from Shri R. Prasad, Secretary to the Government of India and the Chairman of the Company Law Board. According to Mr. Bhatt, these two letters read together establish a concluded agreement or settlement between the parties and as such the same ought to have been recorded by the learned Judge. We have already indicated above that at the meeting held on August 27, 1969 an earlier proposal contained in the Memo dated May 26, 1969 (copy of which has been annexed as exh. 2 to the affidavit in reply to the Judge's summons) was discussed and certain amendments were suggested as a result of which some agreement on broad outlines was arrived at between the parties. In substance, the agreement was that the Board of Directors should consist of nine persons, the five persons (whose names were agreed between the parties) were to be nominated by the Government and the four persons (whose names were agreed between the parties) were to be nominated by the share-holders and that Shri Ashok Kumar Jain was to be the Chairman of the Board of Directors and according to respondent No. 2 further, this Board was to hold office till the annual general meeting of the share-holders was held in 1972 for passing of accounts for the year 1971 and any casual vacancies on the Board arising between the date of the orders of the Court and the Annual General Meeting in 1972 were to be filled in by mutual agreement. Since strong reliance was placed by Mr. Bhatt on the reply dated September 3, 1969 it would be desirable to set out the relevant portion of that letter, written by Shri R. Prasad to respondent No. 2. After acknowledging the receipt of respondent No. 2's letter dated August 28, 1969 which was said to have been received by him on September 1, 1969, Shri R. Prasad proceeded to state as follows:

(2) “I am directed to state that while the earlier proposals for a possible settlement of the matter were under consideration, at a meeting held late in the evening of 27th August, 1969, the following specific points were discussed:

(i) The names of five directors to be suggested on behalf of the Government and four directors to be suggested on behalf of the share-holders.

(ii) The period of the reconstituted Board.

(iii) The question of protection of the employees who had assisted the Government in the investigations.

14. Agreement was reached on points (i) and (ii), and in regard to point (iii), it was agreed that the parties shall be free to make their own submissions to the Court. The salient features of this agreement were intimated to the Court in the oral submission made by the Counsel of the Union of India on the afternoon of the 28th August, 1969.

(3) The question of chairmanship of the reconstituted Board of Directors was not specifically discussed at this meeting, though in the earlier proposals, Shri Ashok Kumar Jain was envisaged as the Chairman.

(4) With the above observations, I am directed to say that your letter under reference correctly states the outlines of the agreement arrived at between the Union of India and your side in the meeting on 27th August, 1969.”

15. According to Mr. Bhatt, the two letters—the first one dated August 28, 1969 which proceeded from respondent No. 2 to the Secretary to the Government of India and the other one dated September 3, 1969 which proceeded from the Secretary to the Government of India to respondent No. 2—go to establish that a concluded agreement or settlement was entered into between the parties. He pointed out that items (i) and (ii) mentioned in para. 2 of the letter dated September 3, 1969 were said to be the items on which agreement had been reached between the parties and in regard to item (iii) it was agreed that the parties should be free to make their own submissions to the Court. Strong reliance was placed by him on the last paragraph of this letter where Shri R. Prasad stated that subject to the observations made earlier respondent No. 2's letter under reference (meaning letter dated August 28, 1969) correctly stated the outlines of the agreement arrived at between the parties on August 27, 1969. According to Mr. Bhatt, this confirmatory letter dated September 3, 1969 clearly goes to show that the settlement had been arrived at between the parties on all important aspects of the matter and in fact Shri Prasad had recorded that whatever had been stated by respondent No. 2 in his letter dated August 28, 1969 had been stated correctly of the outlines of the agreement that had been arrived at between the parties. He pointed out that so far as three past directors, namely Shanti Prasad Jain, Gian Chand Jain and Alok Prakash Jain were concerned, they had already given an undertaking in the application filed under s. 388b and s. 388c of the companies act that they were not seeking any directorship of the Company or intermeddling with the affairs of the Company till those proceedings were disposed of. In other words, these past directors were out of picture so far as future management of the Company was concerned during the pendency of the petition filed under ss. 388b and 388c of the companies act and on the question as to how the Board should be reconstituted, the agreement clearly indicated that there should be five directors on behalf of the Central Government and four directors on behalf of the share-holders and that even as to the period of the reconstituted Board that it should be roughly for a period of three years was also agreed upon. According to Mr. Bhatt, therefore, these two letters go to establish that there was a concluded and almost complete agreement between the parties, and if any other details were required to be agreed upon, those could have been dealt with and decided upon later and non-agreement on these minor details did not negative the settlement that had been arrived at on broad outlines between the parties and in support of his contention he relied upon the decision of the Privy Council in the case of Shmkarlal v. New Mofussil Co. Ltd. . 1946 48 Bom. L.R 456, P.C, S.C [1946] A.I.R P.C 97., where in connection with an agreement of sale their Lordships have observed as follows (p. 459):

“…On the contrary, their Lordships consider that there was ample evidence to prove that both parties intended to make, and believed that they had made, a binding oral agreement. Their desire and intention to put that agreement into formal shape does not affect its validity.

It was contended by counsel for the respondent that the agreement was necessarily incomplete because it had been left to the solicitors to settle some of its terms and because (as counsel rightly submitted) a solicitor has no implied authority to make a contract on his client's behalf. Their Lordships are of opinion, however, that no question as to a solicitor's implied authority arises in this case. In their Lordships' view, it is a fair inference from the evidence that Sir Shapurji authorized Mr. Mahekshaw to put before the plaintiff for his acceptance the ‘usual’ terms. In the circumstances which have already been explained, this seems to their Lordships to have been a very natural and businesslike course for Sir Shapurji to take, and necessarily resulted, when the appellant accepted the terms, in the formation of a binding contract.”

16. In other words, according to Mr. Bhatt, when the broad outlines of the matter had been agreed upon by the parties non-agreement on certain minor details would not prevent the agreement being complete and concluded one and the Court ought to have recorded it. He, therefore, urged that the learned Judge was in error in coming to the conclusion that in fact no concluded agreement or settlement had been arrived at between the parties. In our view, it is not possible to accept any of the submissions made by Mr. Bhatt in support of his contentions for the reasons which we shall presently indicate.

17. In the first place, even in his letter dated September 3, 1969 Shri Prasad has clearly observed that “while the earlier proposals for a possible settlement of the matter were under consideration, at a meeting held late in the evening of August 27, 1969, the following specific points were discussed” and he has further gone on to add that out of three points detailed there the agreement was reached on points (i) and (ii). This observation makes the position quite clear that there were several aspects which were required to be considered while entertaining the earlier proposals for a possible settlement of the matter and out of several aspects agreement had been reached on aspects detailed in items (i) and (ii) in para. 2 of that letter. It is clearly implied that the other aspects or the other points on which agreement had not been reached had remained still to be discussed and negotiations with regard to those aspects were required to be carried on further between the parties. In other words, it is clear that except the two aspects of the matter, viz. that the newly reconstituted Board of Directors for respondent No. 1 Company should consist of nine persons, five out of whom should be Government nominees and four out of whom should be the share-holders' nominees and that the period of such reconstituted Board should be for three years, no other aspects pertaining to the proposal for over all settlement of the matter had been agreed upon. Secondly, the third paragraph of the letter dated September 3, 1969 also clearly indicates that there was no agreement or settlement between the parties as to who should be the Chairman of the reconstituted Board, though it has been observed by Shri Prasad that in the earlier proposal it was envisaged that Shri Ashok Kumar Jain should be the Chairman. This is far from saying that there was an agreement between the parties as to who should be the Chairman of the reconstituted Board. At the most it means that from the side of respondent No. 2 it had been suggested that Shri Ashok Kumar Jain should be the Chairman of the reconstituted Board. But on that aspect from the side of the Union of India there was no consent to that proposal. Thirdly, all that the last paragraph of the letter dated September 3, 1969 on which strong reliance was placed by Mr. Bhatt shows is that Shri Prasad accepted the position that respondent No. 2 in his letter dated August 28, 1969 had correctly stated “the outlines of the agreement” between the parties. An agreement between the parties on broad outlines certainly cannot take place of a concluded complete agreement touching or covering all the aspects involved in the matter. In other words, it is clear to us that these two letters on which reliance was placed by Mr. Bhatt had not exhausted all the matters that arose in the petition or all the reliefs that were sought for by the petitioners in the petition. For instance, there were reliefs asked against the past directors, the General Manager and the new directors and what was to happen to these parties against whom specific reliefs were asked for has nowhere been made clear in the settlement put forward by respondent No. 2. For instance, a specific relief was asked for against P.K Roy the General Manager that he should be dismissed from the service of the Company and injunction should be issued against him restraining him from interfering and intermeddling with the affairs and conduct of the Company in future. Similarly, there were new directors who were already working on the Board as representing the shareholders and what should happen to them has also not been made clear in the compromise or settlement. Anomalous position arising in this context could be illustrated thus: In the proposed reconstituted Board there were going to be four persons representing the share-holders and the names of these four persons had also been indicated by respondent No. 2 in his letter dated August 28, 1969, namely Ashok Kumar Jain of Calcutta, Narendra Kumar of Calcutta, Mouli Chandra Sharan of New Delhi and J.P Saxena of Bombay. As it happens these had not included two of the existing share-holders' representatives on Board viz. Dr. L.M Singhvi and Mrs. Rama Jain, the former having been nominated by the Court during the interim period and the latter having been co-opted on the Board as a new director after three past directors had resigned. The names of these two had not figured in the list of four directors whose names have been mentioned in the letter dated August 28, 1969 as being the persons who were to be the share-holders' representatives on the Board. Now what should happen to these two persons whether they will resign or how their tenure will be brought to an end, has nowhere been made clear in the proposed settlement. In other words, their rights were not settled and were not decided upon when the alleged concluded and complete settlement was said to have been arrived at. Having regard to the above aspects which we have indicated above, it seems to us clear that all that was really done at the meeting held on August 27, 1969 was that certain broad heads arising in the pending proceedings were agreed upon but other important matters which also arose in the proceedings which were pending before the Court were not covered and had not been agreed upon between the parties and in the absence of agreement on those important aspects it would be difficult to hold that there was a concluded complete agreement or settlement between the parties as suggested by respondent No. 2.

18. The observations of the Privy Council on which Mr. Bhatt has relied (in the case of Shankarlal v. New Mofussil Co. Ltd.) are, in our view, clearly inapplicable to the facts of the present case. That was a case dealing with an agreement to sell the property where the evidence showed that the parties had made a binding oral agreement between them and only the “usual terms” which are incorporated in such agreements were left to be incorporated in the formal agreement that was to be drawn up by the solicitors of the parties. In such a case all important terms having been agreed upon between the parties, the Court took the view that the agreement was not incomplete because it had been left to the solicitors to draft and settle some of its usual terms which are incorporated in such an agreement. In the case before us, the proceeding under s. 398 read with s. 401 of the Companies Act containing serious allegations of malversation, mismanagement, misconduct and embezzlement of the funds of the Company against the directors was pending before the Court and drastic reliefs were sought against the individual directors and the General Manager of the Company and the Court had to consider the question as to what steps should be taken to bring to an end the prior mismanagement and prevent future mismanagement which would have caused prejudice not merely to the interests of the Company but to public interest as well and even a prayer was included for appointment of Special Officer for future management of the Company. In such a case, unless a settlement or compromise on all important aspects of the matter covering all the issues raised in the proceeding was arrived at, it would be difficult to say that a concluded and complete agreement was arrived at between the parties by reason of what is contained in the two letters dated August 28, 1969 and September 3, 1969. In our view, therefore, the learned Judge was right in coming to the conclusion that in fact there was no concluded and complete agreement between the parties covering all the aspects and issues which arose in the proceedings before him which could be recorded as desired by respondent No. 2.

19. The other aspect of the matter is whether assuming that a concluded agreement could be said to have been arrived at between the parties on the strength of the two letters on which reliance was placed by respondent No. 2, the Court was bound to record the case, for, it is clear that unless the settlement put forward by respondent No. 2 could be regarded by the learned trial Judge as being in public interest—which was one aspect which he was bound to consider—the settlement or compromise could never have been recorded by him. On this aspect of the matter Mr. Bhatt contended before us that here was an agreement to which the Union of India was a party and according to Mr. Bhatt, the Union of India, would not have consented to such settlement or compromise unless it also regarded the same as being in public interest. He urged that the Union of India merely denied that any such settlement or compromise had been arrived at between the parties as suggested by respondent No. 2 before the learned Judge but no materials were placed by the Union of India before the learned Judge indicating any reasons as to why the agreement, which it had concluded with the share-holders of the Company, was not in public interest. At any rate, the Union of India should have fairly stated before the Court as to what particular aspects of the matter had remained to be considered or were missed by them while agreeing to such agreement or settlement, which aspects in their revised opinion rendered the settlement or compromise against the public interest and, in the absence of any such material having placed before the Court, it was not open to the Union of India to urge before us that the settlement or compromise was not in public interest. He further went on to contend that only two grounds were given by the learned Judge as to why he did not regard the compromise or settlement to be in public interest. In the first place, according to him, the learned Judge has observed that the settlement or compromise whereunder the reconstituted Board was to consist of nine persons, the five of whom were to be nominated by the Government and the remaining four of whom were to be nominated by the share-holders, would merely give a precarious majority of one and such majority when the directors nominated by the Government were acceptable to respondent No. 2 would be not in public interest and there was a serious danger and a probability of respondent No. 2 regaining control-of the Company and continuing to do what is sought to be prevented, the insinuation being that respondent No. 2 would be in a position to influence them in the future management of the affairs of the Company. Secondly, according to him, the learned Judge has observed that the reconstituted Board as per his directions would have the effect of giving a preponderating and effective majority to the independent directors and that this was necessary because the share capital of the Company was closely held by respondent No. 2 and his group including companies in which he had a controlling interest. According to Mr. Bhatt, there was no material on record warranting the insinuation contained in the first part of the observations of the learned Judge and secondly it was erroneous to suppose that because the reconstituted Board as per compromise would give a precarious majority of one it would be dangerous for the proper management and conduct of the affairs of the Company, for, according to Mr. Bhatt, even if decisions had been taken by such Board in the absence of one or two nominated directors of the Government, such decisions could always be changed later on which the full Board could meet and, therefore, the danger apprehended by the learned Judge was unwarranted. He, therefore, urged that the settlement should not have been regarded as being not in public interest and in fact the same ought to have been recorded.

20. In the first place, we would like to observe that there would be a clear distinction between the compromise that is sought to be made in the proceeding under ss. 397 and 398 of the Companies Act and the compromise effected in ordinary litigation like suits between private parties. By the very provisions contained in s. 397 and s. 398 of the Companies Act, the Court before taking any action thereunder is required not merely to take into account what would be in the interest of Company concerned but also what would be in the public interest—which aspect is not present when the Court is to consider whether the compromise between the private parties in ordinary litigation should be recorded or not and, therefore, it is not as if that when a compromise or settlement is sought to be put forward in the proceeding under s. 397 and s. 398, the Court on merely being satisfied that such a settlement or compromise has in fact been effected or arrived at, it is bound to record the same and pass orders in terms thereof. Even if a compromise or settlement is shown to have been arrived at between the parties to the proceeding, the Court has still to consider as to whether the said settlement is in public interest or not and if it is not in public interest, the Court is not bound to accept the same and is not bound to record the same. In this context it would be useful to refer to a decision of the Madras High Court in the case of Syed Md. Ali v. Sundaramoorthy . [1958] A.I.R Mad. 587.. The first head-note which is a relevant one runs as follows:

“Proceedings under ss. 397 and 398 of the Companies Act are not like Suits between private parties which could be compromised in any manner they choose. The interests of the company are paramount. Under S. 406, there is jurisdiction in Court to assess damages against delinquent directors. In such circumstances the Court should give an opportunity to the dissentient share-holders to become parties to the petition or should dispose of the matter after due notice to them.

Both under Ss. 397 and 398 the interests of the company are of paramount importance and the proceedings should not be conceived as a mere dispute between individuals. Any compromise suggested should be acceptable to the Court whose powers are set out in S. 402. A compromise which has not been agreed to, by the share-holder, one of those represented in the petition, cannot be used to stifle the enquiry of the petition in the absence of a finding that the compromise was entered into bona fide in the interests of the company as a whole.”

21. These observations, it must be noted, were made by the Madras High Court in 1958 when the amendments pertaining to consideration of public interest were not incorporated in s. 397 and s. 398 of the Companies Act. We may mention that it was by act 53 of 1963 that the words pertaining to consideration of public interest were inserted in ss. 379 and 398 of the Companies Act. This would show that even when s. 397 and s. 398 as they stood originally, the Court had to consider the question as to whether the compromise was in the interest of Company or not and such compromise could not be treated as an ordinary compromise which is effected by private parties in private litigation but the Company's interests were paramount. After the amendments that were made by act 53 of 1963 the Court has not merely to consider the interests of the Company but also whether the suggested compromise is in the public interest or not. It is, therefore, clear that it is not as if any compromise or settlement that may be put forward in the proceedings under ss. 397 and 398 that the Court must record the same if it is shown to the Court that such a compromise was in fact arrived at but the Court has to consider not merely the interests of the Company which are undoubtedly paramount but also public interest and it is after looking into these, matters that the Court has to decide whether it should proceed to record the compromise or not. Now, in our view, there are at least four or five aspects of the matter which had bearing on the public interest which the Court could take into account and the learned Judge had rightly taken into account while coming to the conclusion that the compromise or settlement put forward by respondent No. 2 was not in public interest. It is true that the Union of India would ordinarily take into account aspects of public interest before entering into any final arrangement or settlement of this kind but as we have held that the Union of India had not concluded any final settlement or compromise in the matter and, therefore, there was no question of the Union of India either placing or not placing before the Court the aspects of the matter which had a bearing on the question of public interest, but assuming that the Union of India had concluded a final settlement or compromise without having regard to aspects of public interest; it was still open and it was the learned Judge's duty to consider whether the settlement or compromise put forward by respondent No. 2 was in public interest or not. In the first place, it cannot be disputed that under the settlement or compromise put forward by respondent No. 2 the reconstituted Board was to consist of nine persons, five of whom were to be nominated by the Central Government and the remaining four were to be nominated by the share-holders and, in fact, according to respondent No. 2, the names of all these nine persons had been suggested and so far as the parties were concerned, they had been agreed upon. Now apart from the insinuation which is contained in the observation of the learned Judge that the fact that respondent No. 2 had accepted the names of the Central Government showed that he might be able to influence them in the management of the affairs of the Company, the fact remains that in the proposed compromise or settlement there would be a precarious majority of one, for, as against five nominated directors of the Central Government, the share-holders' representatives were going to be four and, in our view, the learned Judge was right in taking the view that the precarious majority of one in this fashion in an arrangement where the reconstituted Board was to function for a period of three years according to the settlement was not in public interest. If the main idea behind reconstituting the Board for the future management of the Company was that the past mismanagement should be completely stopped and in future there should be no scope for further mismanagement, it was clear that in a Company where the share-holding was closely held by respondent No. 2 and his group of companies, it was desirable that the share-holders' representatives on the Board should never get any control over the affairs of the Company or a decisive voice in the Company affairs and if they were to have a precarious majority of one it was bound to lead to a difficult situation or dangerous situation and the likelihood of the share-holders' directors getting a voice in the management of the Company in a decisive manner could not be overlooked. It was suggested by Mr. Bhatt that this danger apprehended by the learned Judge would really be no danger at all in the future management of the affairs of the Company which was director-managed Company and the decision of the Board taken at a meeting where a couple of Government nominated directors would remain absent could always be changed by the directors at the next succeeding meeting. It is not possible to accept this submission of Mr. Bhatt for the simple reason that even if it were conceded that some decisions taken by the Board at an earlier meeting could be changed at the subsequent meeting it would really cast shadow on the management of the Company and it is difficult to accept the proposition that every decision where the share-holders had a decisive voice would be allowed to be changed at the subsequently held meeting by the Board of Directors, The anomaly which might arise could also be illustrated thus: At the meeting of such Board of Directors where a couple of directors nominated by the Government have remained absent, a decision making appointments of personnel in the Company might be taken and if the appointees were to assume charge and get into the saddle, it would be difficult to reverse that decision of the appointments in the subsequent meeting or meetings attended by all the Government nominated directors; changing previous decisions on certain matters would lead to chaos. It is, therefore, not possible to accept Mr. Bhatt's contention that the apprehended danger resulting from precarious majority of one is not a real danger. Irrespective of the insinuation, therefore, the learned Judge was, in our view, right in taking the view that the precarious majority of one which was bound to be there in the reconstituted Board suggested by the compromise would have defeated the object with which the Board was to be reconstituted. The second aspect which has a bearing on the public interest is that the learned Judge felt that the reconstituted Board as per compromise put forward by respondent No. 2 would not give a preponderating and effective majority to the independent directors, which was absolutely necessary for the proper functioning of the Board in the future management of the Company and this object was sought to be achieved by the learned Judge by reconstituting the Board of eleven persons out of whom three persons would be the representatives of the share-holders, three would be the nominees of the Government and five would be independent persons who would be appointed by the Court and in such a Board a preponderating and effective majority would be given to the directors appointed by the Court over the share-holders' directors. The directors appointed by the Court would also have majority over the Government directors and the share-holders' directors taken together. The settlement or compromise put forward by respondent No. 2 envisaged five directors who were to be nominated by the Government and four directors were to be nominated by the share-holders and even this composition could be regarded as not being in public interest when dealing with a Company which is engaged in the business of publishing ‘The Times of India’ group of newspapers, magazines and other journals and periodicals where even the voice of the Government nominated directors may not be regarded as desirable and some independent directors nominated by the Court who would not be under the influence of the then ruling party would be more desirable. In this context it would not be out of place to refer to certain views that were expressed by the share-holders of the Company at a meeting held on August 27, 1969 in the context of the questions to who could be the personnel of the reconstituted Board. The view was expressed thus:

“The members are of the unanimous opinion that it will not be in the interests of the Company to have on its Board, Government Directors as that would result in virtually handing over control of the largely circulated newspapers which the Company owns, to the Government which will be against the principle of freedom of the press which is so dearly cherished a freedom as enshrined in the Constitution.”

22. Looked at from this angle the compromise or settlement put forward by respondent No. 2 which envisaged the reconstituted Board having five nominees of the Government and four nominees of the share-holders could not be regarded as being in public interest. The third aspect of the matter which also has a bearing on the question of public interest pertains to the period during which the reconstituted Board was to operate. According to the settlement put forward by respondent No. 2, the reconstituted Board consisting of five persons nominated by the Government and four persons nominated by the share-holders was roughly to operate for a period of three years or to be exact till the Annual General Meeting for the year 1972 was held for passing accounts for the year 1971. The period of three years contemplated under the settlement could not be regarded as reasonable having regard to the admitted fact that during the pendency of the petition criminal proceedings had been commenced in which evidence of some of the employees. Of the Company was intended to be led and having regard to the fact that some proceedings under the Taxation Laws were also pending against respondent No. 2. Mr. Khambatta appearing for the Union of India submitted that till these proceedings were over something was Required to be done to ensure that the witnesses, who were to give evidence, particularly in criminal proceedings, actually gave evidence in those proceedings and till then they were not victimized and lie, therefore, submitted that if the learned Judge took the view that three years period as mentioned in the settlement proposed by respondent No. 2 was not reasonable, it could not be said the proposal was wrongly regarded as not being in public interest. In our view, having regard to the fact that criminal proceedings were pending against respondent No. 2 and others in which some of the employees of the Company were to give evidence and having regard to the fact that Taxation proceedings were pending against respondent No. 2, all of which proceedings were likely to get protracted for quite some time, the period of three years during which the Board was to operate under the settlement proposed by respondent No. 2 will have to be regarded as unreasonable and not being in public interest. The learned Judge by his judgment and order dated August 28, 1969 had, therefore, prescribed a period of seven years during which the reconstituted Board as done by him was to operate—a period which in our view was rightly regarded as reasonable by him having regard to the pendency of the criminal proceedings and Taxation proceedings.

23. Having regard to the aforesaid discussion of all the aspects which have a bearing on the question of public interest, we are clearly of the view that the settlement or compromise which was put forward by respondent No. 2 as contained in the two letters, one dated August 28, 1969 and the other dated September 3, 1969, cannot be regarded as being in public interest and if that were so, the learned Judge was right in refusing to record the said compromise or settlement, assuming one in fact had been concluded or established by the two letters. The learned Judge has categorically, observed in his impugned order to the following effect:

“Had such a compromise been arrived at and the fact and the validity of it were not in dispute, I would have rejected the compromise on the ground that it was not in public interest.”

24. We are in complete agreement with this observation made by the learned Judge and we feel that he rightly refused to record the compromise that was put forward by respondent No. 2.

25. In this view of the matter, we are of the view that the two grounds on which the learned Judge refused to record the compromise were valid grounds on which he was entitled to dismiss the Judge's summons taken out by respondent No. 2. In the result, the appeal filed by respondent No. 2 against the order dated September 6, 1969 will have to be dismissed. It is, therefore, dismissed with costs. Two counsel certified.

26. Respondents Nos. 1 and 2 will be at liberty to withdraw the sums of Rs. 500 deposited for each by the appellant for their costs in the appeal.

Appeals Nos. 154/69 and 153/69:

These appeals have been preferred by respondent No. 1 Company represented by its share-holders and by original respondents Nos. 8 and 10 in their capacity as directors of the Company, principally challenging the judgment and order passed by Nain J. on August 28, 1969 whereby the learned Judge directed reconstitution of the Board of Directors for the Company in the manner done for a period of seven years. Both the legality as well as propriety of the order directing reconstitution of the said Board have been challenged on certain grounds. In Appeal No. 154 of 1969 Mr. Khambatta appearing for the Union of India raised a two-fold preliminary objection to the maintainability of the appeal. According to him, this appeal by respondent No. 1 Company is incompetent, inasmuch as, the Company had submitted to the orders of the Court without any objection, subject to certain reservations that were made by it while submitting to the orders of the Court. Secondly, he contended that this appeal which has been preferred in the name of the Company cannot be filed through the share-holders, especially when there was no allegation that any wrong was done to the Company. So far as appeal No. 153 of 1969 is concerned, both Mr. Khambatta and Mr. Phadke appearing for the Union of India and respondent No. 1 Company respectively raised a preliminary objection to the maintainability of that appeal on the ground that respondents Nos. 8 and 10 who had preferred the appeal were not the share-holders but only the directors against whom no order had been made by the learned Judge and who in fact had been continued on the reconstituted Board as Directors of the Company for a period of seven years and they had submitted to the orders of the Court subject to certain reservations that were made by them. Before dealing with these appeals on merits therefore, it would be convenient to deal with the preliminary objections that were raised by Mr. Khambatta and Mr. Phadke to the maintainability of these appeals.

27. In amplification of the preliminary points that were raised by them, in Appeal No. 154 of 1969 Mr. Khambatta pointed out to us the relevant contents of the letter dated August 16, 1969 addressed by Chimanlal Shah & Co., attorneys, who were acting as attorneys for the Company in the proceedings, to the Chairman of respondent No. 1 Company and he relied upon the statement that was made by counsel who appeared for respondent No. 1 Company on August 28, 1969 before the learned Judge. According to him, the proceedings in the main petition were getting protracted and the parties before the learned Judge were desirous of putting an end to those proceedings in proper manner so as to avoid leading of considerable evidence and waste of their time. On August 14, 1969 almost all the respondents who were appearing before the learned Judge except respondent Company No. 1 had made certain statements to the Court such as that they would be submitting to the orders of the Court subject however to certain reservations made by each. After such statements were made, Chimanlal Shah & Co. addressed a letter dated August 16, 1969 to the Chairman of the Company by which the attorneys gave information as to what had transpired in the Court and in particular the attorneys had stated that during the course of hearing of the petition, some days ago, a suggestion was made that if all the parties submitted to the order of the Court, the Court would make an appropriate order for reconstitution of the Board of Directors of the Company for future management. By this letter the attorneys also clarified as to what was meant by ‘submitting to the order of the Court’ and it was stated by them that submitting to the order of the Court meant that the Court would make such order as it thought fit in the circumstances of the case and no party would have any right of appeal against such order. After pointing out further what statements were made by the other respondents to the Court and after pointing out what submissions had been made by counsel for the Union of India before the Court the attorneys sought instructions from respondent No. 1 Company as to what should be done in the matter. Mr. Khambatta then referred us to the minutes of proceedings of the adjourned Extraordinary General Meeting of the Share-holders which was held at Calcutta on August 26, 1969 where the aforesaid letter of Chimanlal Shah & Co., attorneys, dated August 16, 1969 was placed before them and considered by them. It appears that this meeting was adjourned to enable the members to consider the whole matter fully and the said meeting was adjourned to August 27, 1969. At this meeting the members passed certain resolutions which were moved by the Chairman. By the first resolution the share-holders indicated that they were of the unanimous view that all possible efforts should be made to bring to an end the proceedings under s. 398 of the Companies Act which were pending before the Court and that counsel on their behalf should submit before the Court to consider the terms of settlement already agreed by the members with the Government (meaning the settlement said to have been arrived at on August 20, 1969). By the second resolution the share-holders resolved that the Company's counsel should submit on behalf of the members of the Company that a Board be constituted by the High Court to manage the affairs of the Company consisting of three representatives of the shareholders excepting those against whom there were allegations of mismanagement in the petition and four independent directors, the Chairman being one of the representatives of the share-holders and with no nominee of the Government on the Board. It was also decided at this meeting that it should be submitted before the Court that the term of the reconstituted Board should be as short as possible and the same should not be for more than two years and in any case not more than three years, considering the fact that the Company had been under the management other than that of the share-holders for well over five years. Mr. Khambatta further pointed out that these resolutions which were passed by the members of the Company were then considered by the Board of Directors at their meeting held on August 28, 1969 at 10.00 A.M where after considering the proceedings of the adjourned Extraordinary General Meeting of the share-holders held on August 26, 1969 and August 27, 1969 expressing the views of the share-holders in respect of matters pending before the High Court, the Board of Directors passed two resolutions; by the first resolution the Board resolved that the Company should submit to the orders of the Court in Petition No. 114 of 1967 and that counsel for the Company should be requested to convey to the Court the wishes expressed by the share-holders at their meeting held on August 27, 1969 and by further resolution the Board resolved that it should be made clear to the Court that any order passed by it in the petition should not prejudice in any manner the appeal filed by the Company under s. 635B against the Company Law Board's objection in regard to the five officers of the Company and the High Court Suit filed by the Company against respondent No. 2 and other employees, being Suit No. 605 of 1967. Mr. Khambatta further pointed out that it was pursuant to these resolutions that were passed by the Board of Directors at its meeting held on August 28, 1969 counsel on behalf of respondent No. 1 Company on August 28, 1969 stated to the Court that respondent No. 1 Company would submit to the orders of the Court, without prejudice to the Company's Appeal in regard to the employees and Civil Suit filed by it against respondent No. 2 and certain other employees and it was after such submission was made on behalf of respondent No. 1 Company that the learned Judge proceeded to deliver his judgment and passed necessary orders disposing of the petition. In other words, according to Mr. Khambatta, since respondent No. 1 Company had submitted to the orders of the Court subject to certain reservations made in the matter of Company's Appeal in regard to the employees and Civil Suit filed by it against respondent No. 2 and certain other employees, it was not open to respondent No. 1 Company to prefer this appeal to this Court. In support of his contention Mr. Khambatta relied upon two decisions—one reported in Sayad Zain v. Kalabhai Lallubhai . 1899 1 Bom. L.R 366, S.C I.L.R 28 Bom. 752. and the other in Venkateswarlu v. Narasi Reddy . [1961] A.I.R A.P 71, F.B.. In the former case (Sayad Zain v. Kalabhai Lallubhai) the parties to a suit referred the matter in dispute to Subordinate Judge, before whom the suit was pending, for a settlement of the dispute between the parties. The Subordinate Judge passed a decree accordingly and when one of the parties, viz. the defendant preferred an appeal, the Court held that the judgment of the Subordinate Judge was in the nature of an arbitrator's award against which an appeal could not be entertained and that the fact that the Subordinate Judge gave his award in the form of a decree would not make it a decree from which a-regular appeal could lie. At page 368 the Court observed as follows:

“…Here the parties agreed that they would abide (Manya karave) by the decision of the Subordinate Judge. The fact that the express provisions of Chapter XXXVIII of the Civil Procedure Code were knowingly disregarded shows that the proceedings were extra cursum curiae, and thus the judgment of the Subordinate Judge was in the nature of an arbitrator's award, against which an appeal cannot be entertained if the competency of the Appellate Court is objected to by the party holding the judgment.”

28. In the other decision of the Andhra Pradesh High Court (Venkateswarlu v. Narasi Reddy) the test as to whether a party had lost his right of appeal has been stated thus (p. 75):

“Therefore the only test for determining whether the right is lost to the party appealing should not be the agreement, express or implied, not to appeal. Where such an agreement exists the right is of course lost. On the other hand the enquiry in order to be complete should further ascertain whether the party adversely affected had acquiesced in the procedure that has put the court entirely out of its course and should such an acquiescence be proved the ground for the right to appeal being lost would be established.

Nor could the party adversely affected complain of any injustice; for having consented to the procedure he should abide by the inevitable consequences of such enquiry. Therefore the correct test for judging whether the right to appeal be lost is to ascertain what procedure the original court had followed because of the agreement. Should because of the agreement the procedure for reaching the decision be fundamentally different to that usually followed by Courts, the right of appeal would be lost.”

29. Mr. Khambatta contended that the tests laid down in both these decisions were applicable to the facts of the present case. In the first place he contended that by an implied agreement it should be held that respondent No. 1 Company had waived its right of appeal because it was after being pointed out to the Company by their attorneys that submitting to the order of the Court would mean that the Company would have no right of appeal that the Company at its meeting of the Board of Directors decided to submit to the order of the Court. He further contended that in any event in this case having regard to the course of conduct adopted by the parties, particularly by all the respondents who were appearing, the Court was obliged to follow a procedure which was fundamentally different from that which would have generally been followed by it. By submitting to the orders of the Court after making certain reservations to the effect that any order that may be passed by the Court should not amount to any admission in respect of any allegations in the petition on the part of the respondents and that the same should not amount to any finding against them the respondents induced the Court to decide the matter on the assumption that the allegations contained in the petition against all the respondents were true. Thereby the respondents enabled the Court, to pass appropriate orders under S. 402 of the Companies Act on the footing that the conditions of s. 398 of the Companies Act which conferred jurisdiction upon the Court had arisen or had existed. In fact the respondents did not desire that the Court should record the entire evidence or should adjudicate and give its findings on the issues involved in the case and by their conduct the parties prevented the Court from taking on record the entire evidence that would have been otherwise led by the petitioners and further prevented the Court from recording any finding on any of the issues involved in the case. In other words, the parties, particularly respondent No. 1 Company obliged the Court to deviate from the normal procedure which would have been otherwise followed and the decision that was given was obviously extra cursum curiae. If that be so, according to Mr. Khambatta, the respondents had lost their right of appeal. In fact, we may indicate here that even on merits the precise grounds on which the main decision and order were sought to be challenged were that there was no material before the Court which indicated that the Company's share-holdings were closely held by respondent No. 2 or that the past directors had been guilty of mismanagement, misfeasance and other offences which were said to have been committed by them but it was by reason of the aforesaid conduct that the original respondents prevented the Court from taking on record whatever evidence the petitioners wanted to lead. In our view, there is considerable force in Mr. Khambatta's contention that in the present case having regard to the course of conduct which was adopted by all the respondents in submitting to the orders of Court, though subject to certain reservations to which we have already referred earlier, the respondents and particularly respondent No. 1 Company had lost their right of appeal.

30. Mr. Sen appearing for respondent No. 1 Company represented by its shareholders contended that on a fair construction of the statement which was made on behalf of respondent No. 1 Company to the Court on August 28, 1969 it should be held that by that statement respondent No. 1 Company had offered to the Court that any order passed by the Court would be accepted but the offer was a limited one, namely that grounds conferring jurisdiction on Court to make appropriate order under s. 402 should be taken to have existed but that did not enable the Court to pass any improper order or a wrong order in law and if the order passed by the Court was either improper or wrong, it was always appealable. It is difficult to accept this submission of Mr. Sen for the simple reason that the statement made on behalf of respondent No. 1 Company to the Court on August 28, 1969 is abundantly clear and that statement was to the effect that in view of resolution passed by the Board of Directors of the Company the Company submitted to the orders of the Court, of course without prejudice to the Company's appeal in regard to the employees and the Civil Suit filed by it against respondent No. 2 and several other employees. No reservation whatsoever was made as to the nature of the order which the Court was invited to pass when respondent No. 1 Company submitted to the orders of the Court. Besides this statement was made after being warned that such course would leave no right of appeal to the Company. Moreover, having regard to the manner in which all the parties including respondent No. 1 Company had submitted to the orders of the Court and invited the Court to pass such appropriate order as it thought fit, it seems to us clear that the parties including respondent No. 1 Company induced the Court to make its decision extra cursum curiae and as such respondent No. 1 Company must be taken to have lost its right of appeal to challenge the impugned order on merits. Neither the propriety nor the validity of the order can be challenged by any party except if the illegality goes to the root of the Court's jurisdiction to make the order. In other words, if respondent No. 1 Company is in a position to satisfy us that the impugned directions or orders are without jurisdiction altogether, then, of course, the same will have to be set aside but subject to this exception the propriety and/or validity of the impugned orders cannot be allowed to be challenged in appeal at the instance of any party including respondent No. 1 Company who had submitted to the orders of the Court. The contention of Mr. Khambatta against the maintainability of the appeal on merits on the above ground will have to be upheld.

31. The other ground on which the maintainability of the appeal by respondent No. 1 Company was attacked pertains to the capacity of the share-holders to act on behalf of the Company while preferring the appeal against the impugned judgment and order. In this behalf Mr. Khambatta has urged that normally any appeal which is to be filed on behalf of a limited Company will have to be filed through its directors and not the share-holders and in this behalf he invited our attention to the provisions of s. 291 of the Companies Act and Articles 114 and 115 of the Articles of Association of the Company and particularly to Article 115(5) which deals with express powers of the Board of Directors. Article 115(5) runs as follows:

“Express Powers of the Board. 115. Without prejudice to the general powers conferred by the last preceding Article and so as not in any way to limit or restrict those powers, and without prejudice to the other powers conferred by these presents, it is hereby expressly declared that the Directors shall have the following powers, that is to say power:—

(5) To institute, conduct, defend, compound or abandon any legal proceedings by or against the Company or its officers or otherwise concerning the affairs of the company, and also to compound and allow time for payment or satisfaction of any debts due, and of any claim or demands by or against the Company, and to refer any differences to arbitration, and observe and perform any awards made thereon.”

32. Relying on these provisions Mr. Khambatta contended that if at all any appeal was to be preferred challenging the judgment and order dated August 28, 1969 the same could have been filed by respondent No. 1 Company only through its directors; but having regard to the resolution passed by the Board on August 28, 1969 and having regard to the statement made by counsel on behalf of the Company acting through the Board on that day the Board has rightly not preferred any appeal but the appeal has been preferred by the share-holders in the name of the Company and he urged that such an appeal was incompetent. On the other hand, Mr. Sen relied upon the following passage occuring in Gower's Principles of Modern Company Law, Third edn., at p. 583 where the statement of law to the following effect is to be found:

“Normally, therefore, the company itself is the proper plaintiff, and the only proper plaintiff, in an action arising out of a dispute within the company. And the appropriate agency to start an action on the company's behalf is the board of directors, to whom this power is delegated as an incident of managing the company. However, it is well established that if the directors cannot or will not start proceedings in the company's name (and if they themselves are the defendants they obviously will not) the power to do so reverts to the general meeting. Hence, the practice has grown up of allowing anyone connected with the company to start proceedings in the company's name subject to the risk that the defendants will challenge his right to do so. In that event, the court will stay proceedings until a general meeting has been called to decide whether or not the company shall sue. If the decision is in favour of continuing, all is well. If, however, the decision is against action the proceedings will be dismissed, and the rash individual and his solicitors on the record will be liable for the costs.”

33. The aforesaid passage is based upon the decisions in the case of Pender v. Lushington . 1877 L.R 6 Ch. D. 70.. He also relied upon the passages to the similar effect occurring in Buckley on the Companies Act, 13th edn. pp. 169, 170, particularly paras. 5 and 6. He, therefore, urged that in the instant case since the directors were parties to the Board's resolution passed by them on August 28, 1969 whereby they had submitted to the order of the Court, it was not expected that the Company would file an appeal through its directors and, therefore, the power to prefer an appeal should be taken to have reverted to the general meeting and in that behalf he pointed out that at its meeting held on October 16, 1969 the reconstituted Board of the Company by a majority decision of the directors other than the directors representing the share-holders refused to prefer an appeal against the judgment and order dated August 28, 1969 and this refusal was there in spite of requisition in that behalf contained in the resolution passed unanimously by the share-holders of the Company at the general meeting held on October 3, 1969 and he further pointed out that this refusal was against the interest of the share-holders of the Company and therefore in these circumstances the appeal preferred by the Company through its share-holders should be held to be competent. We may, however, point out that on page 583 of Gower's Treatise at the foot of the passage based on Pender v. Lushington case, the learned author has made the following foot-note:

“Attention has already been drawn to the difficulty of reconciling this rule (meaning rule enunciated in the passage quoted above) with the strict doctrine of the separation of powers as between the board and the general meeting.”

and reference is made to pages 136 and 137 of the book where the following passage occurs under the caption “The directors as primary organs of the company”:

“The result of this discussion appears to be that the directors have ceased to be mere agents of the company. Both they and the members in general meeting are primary organs of the company between whom the company's powers are divided. The general meeting retains ultimate control, but only through its powers to amend the articles (so as to take away, for the future, certain powers from the directors) and to remove the directors and to substitute others more to its taste. Until it takes one or other of these steps the directors can, if they are so advised, disregard the wishes and instructions of the members in all matters not specifically reserved (either by the Act or the articles) to a general meeting. And, as we shall see in a later chapter, the practical difficulties in the way of effectively exercising even this measure of supervision are very great owing to the directors' control over the proxy-voting machinery. The old idea that the general meeting alone is the company's primary organ and the directors merely the company's agents or servants, at all times Subservient to the general meeting, seems no longer to be the law as it is certainly not the fact.”

34. From the above discussion it will thus appear clear that the normal rule is that in an action arising out of a dispute within the Company the appropriate agency to start an action on the company's behalf is the Board of Directors, though as an exceptional measure it has been ruled that if the directors cannot and will not start proceedings in the company's name, the power to do so reverts to the general meeting. But the manner in which the general meeting can retain the ultimate control is only through its power to amend the Articles and remove the directors and to substitute others more to its taste, and until the general meeting takes one or the other step, the directors can, if they are so advised, disregard the wishes and instructions of the members in all matters not specifically reserved to a general meeting. With this position having been clarified, we will have to revert to what has been in the instant case. It is true, as has been pointed out by Mr. Sen, that after the judgment and orders were passed by the learned Judge on August 28, 1969, the Board of Directors of respondent No. 1 Company at its meeting held on October 16, 1969 in disregard of the wishes of the share-holders communicated to it through its unanimous resolution passed at their meeting held on October 3, 1969 refused to prefer an appeal. But the question is whether a mere refusal on the part of the directors to prefer an appeal and mere unanimous resolution passed by the share-holders to prefer an appeal against the impugned judgment and order is enough to come to the conclusion that an appeal in law can be preferred by the Company through its share-holders. Before the matter was disposed of by the learned Judge on August 28, 1969, on that very day at about 10.00 A.M the Board of Directors in their meeting resolved that respondent No. 1 Company should submit to the orders of the Court, subject to certain reservations being made in regard to the Company's appeal in regard to its employees and the Civil Suit preferred by the Company against respondent No. 2 and other employees and it may be stated that this resolution was unanimously passed by all the directors who were present including the directors who represented the share-holders on the Board. This happened prior to the disposal of the petition by judgment and order by the learned Judge in Court and after the judgment and orders were passed by the learned Judge the Board of Directors, as pointed out by Mr. Sen, passed a resolution refusing to prefer an appeal notwithstanding the share-holders' desire being communicated to it at its meeting held on October 16, 1969. In this situation we feel that unless the resolution passed by the Board of Directors on August 28, 1969 as also the resolution passed by the Board of Directors on October 16, 1969 were set aside by proper steps being taken in that behalf, it would not be open to the Company to prefer an appeal through its share-holders. The resolutions of the Board of Directors must in the first instance be got rid of by taking proper proceedings by the share-holders in that behalf and unless that step is taken it would not be open to the share-holders to prefer an appeal to this Court against the impugned judgment and order. Obviously, it would not be open to them to challenge those resolutions by way of present appeal itself which they have thought fit to file. It may be stated that even in the Memo of Appeal they have not sought to challenge those resolutions as being not binding on them or as being against the interest of respondent No. 1 Company. In this view of the matter, we feel that the requisite steps to challenge and set aside the relevant resolutions not having been taken the present appeal preferred by the Company through its share-holders would be incompetent and in our view, the appeal must be held to be incompetent on both preliminary points urged by Mr. Khambatta before us.

35. Turning to the maintainability of Appeal No. 153 of 1969 which has been preferred by original respondents Nos. 8 and 10, in our view, the objection is clearly well-founded. It is not disputed that original respondents Nos. 8 and 10 have never been the share-holders of the Company at any time and they have been merely the directors of the Company and the appeal has been preferred by them obviously in their capacity as directors of respondent No. 1 Company and also because they were the parties eonominee to the original proceedings. In their case the position is abundantly clear that they were the parties to the Board's resolution passed at its meeting held on August 28, 1969 at 10.00 A.M to the effect that the Company should submit to the orders of the Court subject to reservations being made in regard to the Company's appeal qua the employees and the suit filed by the Company against respondent No. 2 and other employees and it must be mentioned that this particular resolution was unanimously passed by all the directors who were present at the meeting including respondents Nos. 8 and 10. In other words, respondents Nos. 8 and 10 had voted for such resolution, namely that respondent No. 1 Company should submit to the orders of the Court subject to the reservations made. Having been parties to such a resolution it would not be open to these respondents to prefer an appeal on behalf of respondent No. 1 Company. Mr. Thakkar appearing for the original respondents Nos. 8 and 10 contended before us that as eonominee parties to the proceeding the statement that was made to the Court on their behalf was that they denied all the allegations in the petition made against them and maintained that there was no material for the allegations against them and there was no prayer for their removal but they further stated that they were willing to submit to the orders of the Court for the reconstitution of the Board of Directors of respondent No. 1 Company. He urged that by making such statement to the Court they should not be taken to have waived their right of appeal and they could point out to the appellate Court that the impugned judgment and orders were improper or wrong in law. In our view, as we have already indicated in the earlier part of our judgment, unless the impugned orders are shown to be utterly without jurisdiction and beyond the powers of the Court, it would not be open to these original respondents to prefer an appeal on merits of the impugned order in view of the statement that was made on their behalf to the Court subject to whatever reservations that were made while making that statement. In our view, therefore, neither in their capacity as directors of respondent No. 1 Company nor as eonominee parties to the original proceedings the original respondents Nos. 8 and 10 are entitled to prefer this appeal on merits to this Court. The preliminary objection against the maintainability of this appeal must, therefore, be upheld.

36. However, we do not propose to dispose of these appeals by merely upholding the preliminary objections to their maintainability. We will proceed to deal with these appeals on merits on the assumption that these appeals are competent and on that basis we will proceed to deal with the contentions that were urged on behalf of respondent No. 1 Company represented by its share-holders in Appeal No. 154 of 1969 and on behalf or original respondents Nos. 8 and 10 in Appeal No. 153 of 1969.

37. On merits, the impugned judgment and orders passed by the learned Judge on August 28, 1969 were challenged both in regard to their legality and propriety.

38. On the question of legality it was contended that the reconstituted Board for a period of seven years in the manner done by the learned Judge was violative of ss. 255 and 408 of the Companies Act. It was pointed out that out of the eleven directors of the reconstituted Board only the three directors who are to represent the share-holders have been directed to retire in accordance with the Articles of the Company at each ordinary general meeting and that they should be eligible for re-election, but so far as the remaining directors are concerned, namely three directors who are to be nominees of the Central Government, and five to be appointed by the Court, they have not been subjected to retirement by rotation and it was further pointed out that instead the learned Judge has directed that a vacancy among these directors should be filled up by the Central Government or the Court as the case may be. The reconstitution of the Board in the aforesaid manner, it was urged, was in contravention of the provisions of s. 255 of the Companies Act whereunder it has been provided that at every annual general meeting, not less than two-thirds of the total number of directors of a public company, be persons whose period of office is liable to determination by retirement of directors by rotation. In other words, according to the directions given by the learned Judge more than ⅔rd of the total number of directors on the reconstituted Board were immune from being made to retire by rotation and this was contrary to the provisions of s. 255. It was also contended that the period during which the reconstituted Board was to operate has been fixed at seven years, which, in other words, means that the Company and its share-holders have been deprived of their right to have full corporate management over its affairs and dealings for such long period of seven years, that is to say, the share-holders' right to have the affairs and dealings of the Company managed through elected directors to the extent of ⅔rd of the total number has been drastically curtailed. It was further pointed out that in order to give effect to his order the learned Judge had amended the original Article 95 of the Articles of Association of respondent No. 1 Company and according to the modified Article 95 it has been provided that at each Ordinary General Meeting the directors elected by the shareholders shall retire from office and there is no provision made for retirement by rotation in regard to remaining directors. It was contended that the Court was not entitled to frame a new Article 95 in the manner done which was contrary to s. 255 of the Companies Act and that ss. 398 and 402 under which the petition has been disposed of do not confer any authority on the Court to frame such an Article contrary to s. 255 of the Companies Act. Mr. Sen contended that though under cls. (a) and (g) of s. 402 any order passed by the Court in a proceeding instituted under s. 398 could provide for the regulation of the conduct of the Company's affairs in future and could also provide for any other matter for which in the opinion of the Court it is just and equitable that provision should be made, the section did not confer any authority or power upon the Court to frame an Article which would be contrary to s. 255. In other words, according to him, any order making provision for the regulation of the conduct of the Company's affairs in future and making provision for any other matter which in the opinion of the Court it would be just and equitable to make, the Court's orders and any provision made thereunder must be in consonance with the other provisions of the Act. The Board as reconstituted by the learned Judge was also challenged on the ground that it contravened the provisions of s. 408 of the Companies Act and in this behalf it was pointed out that the said section while conferring power on the Central Government to prevent oppression or mismanagement had conferred power on that Government to appoint not more than two persons to hold office as directors of a particular public company whereas in the instant case the Central Government had been permitted by the learned Judge to nominate three nominees of their own to hold office as directors on the reconstituted Board. He, therefore, urged that the reconstituted Board which included three members of the Central Government was contrary to s. 408 of the Companies Act.

39. In support of his aforesaid contentions Mr. Sen invited our attention to two or three aspects which according to him have a bearing on the contentions raised by him. In the first place, he pointed out that under s. 9(b) it has been provided that any provision contained in the memorandum, articles, agreement or resolution of a company shall, to the extent to which it is repugnant to the provisions of the Act, become or be void as the case may be; in other words, the provisions of the Act have an overriding effect and would prevail over any thing repugnant contained in the Memorandum or Articles or agreement or resolution of a Company. Relying on this provision he contended that since the amended Article 95 introduced as a result of the learned Judge's order was contrary to the provisions of s. 255 of the Companies Act, it would be hit by s. 9(b) of the Act and this indicated that the Court would have no power or authority to frame such an article which would be inconsistent with the provisions of the Act. Secondly, he pointed out that whenever it was intended that any provision of the Act should be overridden by anything contained in the Memorandum or Articles of a company appropriate language had been used in several sections of the Act and in that behalf he invited our attention to the provisions like ss. 181, 197A and 265 of the Act, all of which sections commence with a non-obstante clause. He particularly relied upon s. 265 under which an option has been given to the Company to adopt the principle of proportional representation for the appointment of directors and the relevant provision is to this effect that notwithstanding anything contained in the Act, the articles of a company may provide for the appointment of not less than two-thirds of the total number of the directors of a public company, according to the principle of proportional representation, whether by the single transferable vote or by a system of cumulative voting or otherwise, the appointments being made once in every three years and interim casual vacancies being filled in accordance with the provisions, mutatis mutandis, of s. 262. He pointed out that neither s. 398 nor S. 402 of the Companies Act under which the impugned orders were passed contained any such non-obstante clause and according to him, the absence of non-obstante clause in these sections clearly shows that the Court could not by any order passed thereunder make a provision or modify any Article or insert a new Article which would be contrary to s. 255 of the Act. Thirdly, he strongly relied upon s. 404 of the Companies Act which deals with the effect of alteration of memorandum or articles of a company by Court's order under s. 397 or 398. Under sub-cl. (1) of s. 404 it has been provided that where an order under s. 397 or 398 makes any alteration in the memorandum or articles of a company, then, notwithstanding any other provision of the Act, the company shall not have power, except to the extent, if any, permitted in the order, to make, without the leave of the Court, any alteration whatsoever which is inconsistent with the order, either in the memorandum or in the articles. This provision clearly shows that any alteration in the memorandum or articles made by the Court while acting under s. 397 or 398 read with s. 402 becomes effective and operative and that such alteration cannot, notwithstanding any power conferred on the Company by the Act, be further altered, modified or annulled except with the leave of the Court; sub-s. (2) provides that the alterations made by the Court's order shall, in all respects, have the same effect as if they had been duly made by the Company in accordance with the provisions of this Act, and the said provisions shall apply accordingly to the memorandum or articles as so altered. Relying on the words “the alterations….shall in all respects, have the same effect” occurring in sub-s. (2) he urged that the altered articles would have “the same effect” meaning thereby that they should not be contrary to any of the provisions of the Act, Further, Mr. Sen placed reliance upon, two cases decided by the Supreme Court under the Delhi Shops and Establishments Act reported in Hindustan Times Ltd., New Delhi v. Workmen . [1963] A.I.R S.C 1332. and Dalmia Cement Ltd., New Delhi v. Their Workmen . [1967] A.I.R S.C 209. in support of his contention. He thus urged that since the orders and directions reconstituting the Board in the aforesaid manner were violative of the provisions of s. 255 and s. 408 of the Act, the same were illegal and deserved to be set aside.

40. In our view, the submissions made by Mr. Sen on the point of legality or otherwise of the impugned orders will have to be appreciated in the context of the principal question as to what are the powers of the Court when it is acting in proceedings instituted under ss. 397, 398 read with S. 402 of the Companies Act. The questions whether a Board of Directors of the type indicated in the impugned order could be reconstituted by the Court or not and whether the Court had power to frame an article inconsistent with the provisions of s. 255 of the Act or not must in the ultimate analysis depend upon the true ambit of the powers of the Court under s. 397 or 398 read with s. 402, for, if these sections confer upon the Court jurisdiction and powers of the widest amplitude to pass appropriate orders which the circumstances of the case may require, it would be difficult to accept Mr. Sen's submissions that the impugned orders and directions are liable to be set aside on the basis that the reconstituted Board or modified Article 95 was not in consonance with s. 255 of the Act. To correctly appreciate the ambit of the Court's jurisdiction and the amplitude of the Court's powers under ss. 397, 398 read with S. 402 of the Companies Act, 1956, it will be necessary to consider the entire scheme of the Act pertaining to corporate management of companies. At the outset, it may be stated that all these concerned provisions occur in Part VI of the Act which deals with the Management and Administration of Companies. It may further be pointed out that in this part there are eight chapters. Chapter I contains general provisions with regard to corporate management and administration of the companies such as registered office, registers of members and debenture holders, annual returns, meetings and proceedings, accounts, audit, investigation etc. chapter II, which includes s. 255, deals with directors, their qualification, disqualification and remuneration, meetings of the Board, Board's powers, procedure where directors are interested, etc.; chapter III deals with Managing Agents, their appointment, remuneration, restrictions on their powers etc.; chapter IV deals with Secretaries and Treasurers; chapter IV-A deals with powers of Central Government to remove managerial personnel from office on the recommendation of the Tribunal; chapter V deals with arbitration, compromises, arrangements and reconstructions; chapter VI, which includes ss. 397 to 409, deals with prevention of oppression and mismanagement; chapter VII deals with constitution and powers of Advisory Committee and chapter VIII contains miscellaneous provisions. It will thus be seen that s. 255 on which substantially the entire argument of Mr. Sen is based is to be found in Chapter II which deals with Directors and the constitution of the Board, through which agency the corporate management of the affairs of a company is usually undertaken, while Chapter VI, which contains material provisions from ss. 397 to 409, deals with matters pertaining to prevention of oppression and mismanagement arising out of corporate management. In other words, it is very clear that Chapter II which includes s. 255 deals with corporate management of a company through directors in normal circumstances, while Chapter VI deals with emergent situations or extraordinary circumstances where the normal corporate management has failed and has run into oppression or mismanagement and steps are required to be taken to prevent oppression and/or mismanagement in the conduct of the affairs of a company. It is in view of this scheme which is very apparent on a fair reading of the arrangement of chapters and the sections contained in each chapter which are all grouped under Part VI of the Act that the question will have to be answered as to whether the powers of Court under Chapter VI (which includes ss. 397, 398 and 402) should be read as subject to the provisions contained in the other Chapters which deal with normal corporate management of a company and in our view, in the context of this scheme having regard to the object that is sought to be achieved by ss. 397, 398 read with s. 402, the powers of the Court thereunder cannot be so read. Further an analysis of the sections contained in Chapter VI of Part VI of the Act will also indicate that the powers of the Court under s. 397 or 398 read with s. 402 cannot be read as being subject to the other provisions contained in sections dealing with usual corporate management of a company in normal circumstances. As stated earlier, Chapter VI deals with the prevention of oppression and mismanagement and the provisions therein have been divided under two heads—under head A powers have been conferred upon the Court to deal with cases of oppression and mismanagement in a company falling under s. 397 and s. 398 of the Act while under head B similar powers have been given to the Central Government to deal with cases of oppression and mismanagement in a company but it will be clear that some limitations have been placed on Government's powers while there are no limitations or restrictions on Court's powers to pass orders that may be required for bringing to an end the oppression or mismanagement complained of and to prevent further oppression or mismanagement in future or to see that the affairs of the company are not being conducted in a manner prejudicial to public interest. In other words, whenever the Legislature wanted to do so it has made a distinction between powers conferred on the Government (vide s. 408) and powers conferred on the Court (vide s. 402) while dealing with similar emergent situations or extraordinary circumstances arising in the management of a company and in the case of the Government it has placed restrictions or limitations on Government's powers but no restrictions or limitations of any thing have been prescribed on the Court's powers; if the Legislature had desired that the Court's powers while acting under s. 397 or 398 read with s. 402 should be exercised subject to or in consonance with the other provisions of the Act it would have said so. Moreover, the topics or subjects dealt with by ss. 397 and 398 are such that it becomes impossible to read any such restriction or limitation on the powers of the Court acting under s. 402. Under ss. 397 read with s. 402 power has been conferred on the Court “to make such orders as it thinks fit” if it comes to the conclusion that the affairs of a company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members and that to wind up the company would unfairly prejudice such member or members but that otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up “with a view to bringing to an end the matters complained of”. Similarly, under s. 398 read with s. 402 power has been conferred upon the Court “to make such orders as it thinks fit” if it comes to the conclusion that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company or that a material change has taken place in the management or control of the company by reason of which it is likely that the affairs of the company will be conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company “with a view to bringing to an end or preventing the matters complained of or apprehended”. Both the wide nature of the power conferred on the Court and the object or objects sought to be achieved by the exercise of such power are clearly indicated in ss. 397 and 398. Without prejudice to the generality of the powers conferred on the Court under these sections s. 402 proceeds to indicate what type of orders the Court could pass and cls. (a) to (g) are clearly illustrative and not exhaustive of the type of such orders. Clauses (a) and (g) indicate the widest amplitude of the Court's power; under cl. (a) the Court's order may provide for the regulation of the conduct of the company's affairs in future and under cl. (g) the Court's order may provide for any other matter for which in the opinion of the Court it is just and equitable that provision should be made. An examination of the aforesaid sections clearly brings out two aspects, first the very wide nature of the power conferred on the Court and secondly the object that is sought to be achieved by the exercise of such power with the result that the only limitation that could be impliedly read on the exercise of the power would be that nexus must exist between the order that may be passed thereunder and the object sought to be achieved by these sections and beyond this limitation which arises by necessary implication it is difficult to read any other restriction or limitation on the exercise of the Court's power. We are, therefore, unable to accept Mr. Sen's contention that the Court's powers under s. 398 read with s. 402 should be read as subject to the other provisions of the Act dealing with normal corporate management or that the Court's orders and directions issued thereunder must be in consonance with the other provisions of the Act.

41. There is another aspect of ss. 397, 398 and 402 which also shows that no such limitation as is sought to be suggested by Mr. Sen can be read on the Court's power while acting under these sections. Section 397 clearly suggests that the Court must come to the conclusion that the company's affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members of the company and that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up before any order could be passed by it. In other words, instead of destroying the corporate existence of a company the Court has been enabled to continue its corporate existence by passing such orders as it thinks fit in order to achieve the objective of removing the oppression to any member or members of a company or to prevent the company's affairs from being conducted in a manner prejudicial to public interest. Similarly, sub-s. (2) of s. 398 clearly provides that where the Court is of the opinion that the affairs of the company are being conducted in a manner suggested in sub-s. (1), then, the Court may with a view to bringing to an end or preventing the matters complained of or apprehended, make such order as it thinks fit. In other words, ss. 397 and 398 are intended to avoid winding up of the company if possible and keep it going while at the same time relieving the minority share-holders from acts of oppression and mismanagement or preventing its affairs being conducted in a manner prejudicial to public interest and if that be the objective the Court must have power to interfere with the normal corporate management of the company. If under s. 398 read with s. 402 the Court is required by its order to provide for the regulation of the conduct of the company's affairs in future because of oppression or mismanagement that has occurred during the course of normal corporate management, the Court must have the power to supplant the entire corporate management or rather corporate mismanagement by resorting to non-corporate management which may take the form of appointing an administrator or a special officer or a committee of advisers etc. who could be in charge of the affairs of the company. If the Court were to have no such power the very object of the section would be defeated. We must observe in fairness to Mr. Sen that it was not disputed by him that powers of the Court under s. 398 read with S. 402 of the Companies Act were wide enough to enable the Court to appoint an administrator or a special officer or a committee of advisers for the future management of the company and thereby supplant completely the corporate management through Board of Directors and it was conceded that it should be so for the simple reason that if as a result of corporate management that has been allowed to run for a certain period oppression or mismanagement has resulted, the Court should have power to substitute the entire corporate management by some form of non-corporate management and while doing so the Court cannot obviously have any regard or be subject to the other provisions dealing with the corporate form of management. But what was urged by Mr. Sen was that if while acting under s. 398 read with s. 402 the Court thought fit to have recourse to a mode of corporate type of management, for example, if the Court felt proper to have a Board of Directors for future management, then such corporate mode of management to be provided by the Court should conform to other provisions of the Act dealing with corporate management. It is not possible to accept this contention of Mr. Sen for two reasons. In the first place, if the Court's power under these sections is wide enough to have the corporate management supplanted wholly or completely, it is difficult to understand why the Court should not have power to make a partial inroad or encroachment and have a truncated form of corporate management if the exigencies of the case required it, and any truncated form of corporate management can never conform to all the provisions dealing with corporate management. Secondly, it will all depend upon the facts and circumstances of each case as to how, in what manner and to what extent the Court should allow the voice of the share-holders' directors on the Board of Directors to prevail over that of the other directors and we do not think that the Court's powers in that behalf could in any manner be curbed. In our view, therefore, the position is clear that while acting under s. 398 read with S. 402 of the Companies Act the Court has ample jurisdiction and very wide powers to pass such orders and give such directions as it thinks fit to achieve the object and there would be no limitation or restriction on such power that the same should be exercised subject to the other provisions of the Act dealing with normal corporate management or that such orders and directions should be in consonance with such provisions of the Act.

42. Considerable emphasis was laid by Mr. Sen on the fact that there was absence of a non-obstante clause in any of the relevant sections viz. ss. 397, 398 and 402. His contention was that whenever the Legislature intended that any of the provisions of the Act should be overridden the Legislature has clearly expressed its intention by using appropriate language, namely by user of a non-obstante clause and since there was no non-obstante clause in s. 397 or s. 398 read with s. 402 of the Act, the Court's power thereunder could not override the other provisions of the Act but would be subject to such provisions. In the first place, like a deeming provision which is sometimes made with a view to make explicit what is obvious a non-obstante clause is also used at times ex abundant cautela to make explicit what is obvious and therefore the absence of that clause would not necessarily lead to an inference suggested by Mr. Sen. Secondly, normally such non-obstante clause becomes necessary when the enacted provision or enacted clause is necessarily going to conflict with the other provisions of the Act and if there would be no such conflict, then there would be no necessity to use a non-obstante clause and we shall indicate presently that there is no necessary conflict between the provisions of s. 397 and s. 398 read with s. 402 and the provisions of s. 255 of the Act and, therefore, the non-obstante clause must not have been used while enacting the relevant sections. By the very nature the provisions contained in ss. 397 and 398 read with s. 402 have been enacted to meet emergent situations and extraordinary circumstances while s. 255 contains provisions which would operate when the normal corporate management of a company is being run. Normally the two sets of circumstances in which the two sets of provisions would operate would be mutually exclusive. Therefore, there is no question of a conflict necessarily arising between these two provisions and this, in our view, sufficiently explains the absence of a non-obstante clause in ss. 397, 398 and 402 of the Act. It is true that while conferring powers on the Central Government to prevent oppression or mismanagement under s. 408 a non-obstante clause has been used. But indisputably there is substantial difference between the powers conferred upon the Court under s. 397 or 398 read with s. 402 and the powers conferred upon the Central Government under s. 408, inasmuch as, on the powers of the Court no restrictions or limitations of any kind have been put while restrictions and limitations have been placed on the Government's power to grant relief, in cases of oppression and mismanagement. Even the manner in which, the extent to which and the period for which relief could be granted by the Government has been indicated and on account of this the provisions of s. 408 would necessarily come in conflict with the other provisions of the Act dealing with corporate management including s. 255 and, therefore, a non-obstante clause was used at the commencement of s. 408. We are, therefore, inclined to take the view that the absence of a non-obstante clause in ss. 397, 398 and 402 does not lead to an inference suggested by Mr. Sen. Moreover, we have already indicated that there is neither a non-obstante clause contained in any of these sections nor is there language to indicate that the Court's powers under these sections are to be exercised subject to any of the other provisions of the Act. In such a situation the ambit of the Court's powers must be determined by the scheme of Part VI in which all the concerned sections appear, the language employed in these relevant sections and the objects sought to be achieved by them and in this context it would be useful to refer to the rule of construction enunciated in Maxwell on the Interpretation of Statutes, 12th edn p. 45 to which our attention was invited by Mr. Phadke. The relevant rule of construction has been stated thus:

“‘If the choice is between two interpretations, the narrower of which would fail to achieve the manifest purpose of the legislation, we should avoid a construction which would reduce the legislation to futility and should rather accept the bolder construction based on the view that Parliament would legislate only for the purpose of bringing about an effective result.’”

43. The above passage is based on the judgment of Viscount Simon L.C in the case of Nokes v. Doncaster Amalgamated Collieries, Ld. . [1940] A.C 1014., and, in our view, the rule could be applied to the instant case. Having regard to the admitted position that there is neither a non-obstante clause contained in any of these relevant sections nor is there anything to indicate that the Court's powers under these sections are to be exercised subject to any of the other provisions of the Act, there is a choice available to the Court and having regard to the manifest purpose of the legislation, it will be difficult to accept the contention of Mr. Sen that the narrower construction of these sections leading to curtailment of powers conferred upon the Court should be adopted simply because the provisions do not contain any non-obstante clause; instead we are inclined to adopt a broader construction, inasmuch as, such construction would have the effect of achieving the desired result.

44. It was next contended by Mr. Sen that Article 95 as re-framed by the learned Judge being in contravention of s. 255 would be void under s. 9(b) of the Act and this indicated that the Court's powers under s. 398 read with s. 402 should be read as subject to the other provisions of the Act. According to him, under s. 9(b) of the Act any provision contained in the memorandum, articles, agreement or resolution of a company, to the extent to which it is repugnant to the provisions of the Act, is declared to be void and relying upon this provision it was urged by Mr. Sen that the Court's power to frame a new Article 95 and substitute the same in place of the old one, since it contravened the provisions of s. 255, would be hit by s. 9(b) and as such it should be held that the Court had no power to introduce any such article. In our view, there are two aspects of s. 9(6) which have a bearing on this contention; first s. 9 commences with a saving clause, viz. “Save as otherwise expressly provided in the Act” and secondly under cl. (b) thereof any provision contained in the memorandum, articles etc. is declared to be void to the extent to which it is repugnant to the provisions of this Act. In our view, essentially it is a question of true and proper construction of the Court's powers under s. 397 or 398 read with s. 402 and having regard to the scheme of Part VI which includes all the sections dealing with management and administration of companies, the language employed in the relevant ss. 397, 398 and 402 and the object that is sought to be achieved by these sections if once it is held that on a true construction the Court has widest possible jurisdiction and ample powers to pass such orders as it thinks fit to bring about the desired result in the management of the affairs of a company and that the exercise of such powers is not subject to the other provisions of the Act, there would be no question of the Court not being able to re-frame or insert a new article which be in conflict with some provisions of the Act. We are inclined to take the view that ss. 397, 398 and 402 by their very nature, and contents indicate that they are intended to operate as express provision to the contrary and would be covered by the phrase ‘Save as otherwise expressly provided in the Act’. In any case as discussed earlier, the two sets of situations in which the provisions of s. 255 and provisions of s. 397 or 398 read with s. 402 would respectively operate are entirely different and mutually exclusive and as such there will be no repugnancy between any article that may be re-framed or inserted by the Court while passing orders under s. 398 read with s. 402 and other provisions of the Act including s. 255 which deal with normal corporate management of a Company. The contention that the re-framing or insertion of a new article like Article 95 as done in this case will be hit by s. 9(b) cannot be accepted.

45. The only other aspect which was pressed by Mr. Sen was the one emerging from sub-s. (2) of s. 404. Sub-section (2) of s. 404 provides that the alterations made by the Court's order in the memorandum or articles of company shall, in all respects, have the same effect as if they had been duly made by the company in accordance with the provisions of the Act. Great emphasis was laid by Mr. Sen upon the expression “shall, in all respects, have the same effect” occurring in sub-s. (2) and according to Mr. Sen, this expression clearly suggested that the altered article should not be repugnant to any of the provisions of the Act for otherwise such an article would be hit by the provisions: of s. 9(1) of the Act. In our view, the contention is without any substance. The expression “shall, in all respects, have the same effect” is to be read in the light of s. 36 of the Act which provides for effect of memorandum and articles. Section 36 provides that subject to the provisions of the Act, the memorandum and articles, shall, when registered, bind the company and the members thereof to the same extent as if they respectively had been signed by the company and by each member, and contained covenants on its and his part to observe all the provisions of the memorandum and of the articles. All that sub-s. (2) of s. 404 therefore provides is that the altered article that may be introduced by reason of Court's order will have the same binding effect as contemplated by s. 36 of the Act. In other words, the altered article will bind the company and the members thereof to the same extent as if it had been signed by the company and by each member and that it contained covenants on its and his part to observe all the provisions thereof. Besides, we have already rejected the contention that re-framing or insertion of a new article by the Court acting under s. 398 read with s. 402 will be hit by s. 9(2) of the Act.

46. Having regard to the above discussion, we are clearly of the view that the Court had jurisdiction to reconstitute the Board in the manner done in this case and such Board is not violative of s. 255 of the Companies Act and we are also of the further view that the learned Judge had ample powers to alter the original Article 95 of respondent No. 1 Company in the manner done by him while acting under s. 398 read with s. 402 of the Act.

47. Turning to the contention that the reconstituted Board in the manner done by the learned Judge was violative of s. 408 of the Companies Act, it is obvious that the contention is ill-conceived. In our view, s. 408, the contravention of which is complained of, is not applicable to the facts of the case, because in the instant case it is not the Central Government that has nominated its nominees as directors of respondent No. 1 Company and hence no question of exceeding the limit of two directors as mentioned in the section can arise. The restrictions contemplated in the section are applicable when the Central Government exercises the power conferred on it thereunder whereas in the instant case powers have been exercised by the Court under s. 398 read with s. 402 of the Act and as such it is difficult to accept the contention that the exercise of such power is contrary to the provisions of s. 408 of the Act. In point of fact all that had happened was that the learned Judge invited suggestions from counsel appearing for the Union of India to suggest names of three persons as nominees of the Central Government whom he wanted to appoint on the reconstituted Board and after the names were mentioned to him he appointed those persons as Government nominees on the reconstituted Board. The decision to reconstitute the Board with three directors being the representatives of the share-holders, three directors being the representatives of the Central Government and five directors being appointed by the Court was taken by the learned Judge himself and after taking this decision he invited suggestions as to who should be the representatives of the respective parties and it is this manner that the learned Judge came to appoint the three nominees of the Central Government on the reconstituted Board of respondent No. 1 Company. The contention, therefore, that the reconstituted board is violative of s. 408 is without any substance.

48. We may now briefly refer to the two decisions of the Supreme Court on which Mr. Sen relied. The first decision was the case of Hindustan Times Ltd., New Delhi v. Workmen, and the other was the case of Dalmia Cement Ltd. New Delhi v. Their Workmen. In both the cases the Court was concerned with the provisions of s. 22 of Delhi Shops and Establishments Act which fixed the maximum of sick leave or casual leave with wages to a period of 12 days and further declared that such leave shall not be accumulated and in both the Courts held that the relief in the matter of sick leave that had been granted by the Industrial Court to certain workers was in contravention of s. 22 of that act and hence was illegal and required to be set aside. In the former case admittedly a large number of workmen covered by the reference were governed by the provisions as regards leave of the Delhi Shops and Establishments Act and the Industrial Tribunal had fixed the period of sick leave at 15 days and had permitted accumulation, which was contrary to express provision of s. 22 of the said Act and the Court took the view that it was clear that as regards those workmen to whom the Delhi Shops and Establishments Act, 1954 applied the Tribunal had acted illegally in fixing the period of sick leave at 15 days and permitting accumulation and on that ground the Court set aside that direction in the award and instead directed that the Company should allow to the workmen to whom the Delhi Shops and Establishments Act applied, sickness or casual leave of a total of 12 days with full pay and allowances and that such leave shall not be accumulated. In the other case the clerical staff in a certain establishment used to get 12 days sick leave and 12 days casual leave while the subordinate staff was getting only 12 days sick and casual leave in a year and in that situation the Tribunal accepted the workmen's contention that the discrimination was unjustified and directed that the workmen should also get sick and casual leave as enjoyed by the clerical staff. The Court held that the Tribunal could not disregard the peremptory direction of the Legislature to fix a maximum of 12 days total leave for sickness or casual leave, and that the fact that clerks were allowed sick and casual leave more than maximum mentioned in s. 22 did not entitle the Tribunal to disregard those provisions. The Tribunal having thus acted illegally in directing the grant of sick and casual leave more than the maximum fixed by s. 22 the said direction was set aside by the Court. Obviously the Industrial Tribunal could not give directions which were contrary to the express provision of s. 22 of the Delhi Shops and Establishments Act. In our view, these decisions would not be applicable to the facts of this case where the question is what is the amplitude of the powers of the Court on a true interpretation of ss. 397, 398 and 402 of the Companies Act when the Court is called upon to meet emergent situations or extraordinary circumstances in the management of the affairs of a company where the normal corporate management has failed.

49. In the context of the above question Mr. Phadke invited our attention to three decisions having a bearing on the Court's powers under s. 402 of the Act, namely R.E.S Corpn. Ltd. v. Nageshwara Rao . [1956] A.I.R S.C 213., Shanti Prasad v. Kalinga Tubes Ltd. . [1965] A.I.R S.C 1535. and Richardson & Cruddas Ltd. v. Saridas Mundhra . [1959] A.I.R Cal. 695.. In the first two cases the question had arisen about the nature and scope of Court's power under s. 397 read with s. 402 (equivalent to s. 153C of the old Act) while in the last case a question had arisen about the Court's power under s. 398 read with s. 402. It will suffice if we refer to the last decision of the Calcutta High Court. In that case the question was whether the Court had power to appoint Advisory Board to assist the Special Officer who had been appointed by an earlier order under s. 402 in a proceeding instituted under s. 398 of the Companies Act and while dealing with the nature and scope of the powers conferred upon Court under s. 402, Justice Mukherji in para. 4 of his judgment has observed as follows (p. 696):

“Now the powers of the Court under S. 402 of the Companies Act are wide. In fact, the Court may make any order for the regulation of the conduct of the Company's affairs upon such terms and conditions as may, in the opinion of the Court, be just and equitable in all the circumstances of the case. Constitution of an Advisory Board by orders of Court in a proper case of Company management is therefore in my view within the competence of the Court under S. 402 of the Companies Act, 1956.”

50. Further in para. 5 the learned Judge has observed as follows (p. 696):

“Since the appointment of the Special Officer attempts are being made by him to put the Company's administration on a sound basis. The Corporation now makes the application to have a Board of visors to assist the Special Officer of this Court in regulating and managing the Company's affairs and its business. The pattern of Court's powers of managing under S. 402 has to be worked out. The section is an innovation in Company administration by the Court.”

51. We are in agreement with Justice Mukharji's view that s. 402 is an innovation in company administration by the Court and the pattern of the Court's powers of managing thereunder has to be worked out but there is no doubt having regard to the scheme of Part VI in which all the sections pertaining to management and administration of company's affairs occur, the language employed in ss. 397, 398 and 402 and the object sought to be achieved by these sections, the Court's powers to regulate the conduct of the company's affairs in future, must of necessity be of the widest amplitude and on a true construction of s. 398 read with s. 402, we are clearly of the view that no limitation of the type suggested by Mr. Sen on the Court's power could be placed and the same are not subject to s. 255 or the other provisions of the Act dealing with normal corporate management. The Court had ample powers to reconstitute the Board in the manner done and to re-frame Article 95 in the manner done and neither the reconstituted Board nor the re-framed Article 95 are violative of s. 255 or 408 of the Act. The orders passed and directions given by the learned Judge cannot be said to be either illegal or without jurisdiction. The contention with regard to legality of the impugned orders and directions, therefore, must fail.

52. During the course of his argument Mr. Sen submitted that the Court could have achieved its objective by reconstituting the Board of Company No. 1 in accordance with s. 255 rather than by contravening the same and in that behalf he pointed out that ⅓rd of the total number of directors who are immune from retirement by rotation could have been appointed by the Court and out of the remaining ⅔rds who are liable to retire by rotation half the number drawn from public life or profession could have been elected by the shareholders but subject to approval or confirmation by the Court and the other half to be elected by share-holders without the approval of the Court and if this had been done, there would have been no question of either altering the existing Article 95 as done by the learned Judge or reconstituting the Board in contravention of the provisions of s. 255. On a proper reading of s. 255, in our view, the aforesaid submission of Mr. Sen cannot be accepted as it would be clear that the reconstitution of the Board as suggested would also contravene the provisions of s. 255. In the first place, under sub-s. (2) of s. 255 it has been provided that the remaining directors, meaning the directors who do not retire by rotation, have also to be appointed by the company in general meeting, subject, of course, to any regulations in the articles of the company in that behalf and as such if these were to be nominated by the Court it would amount to interference with share-holders' right to have corporate management through directors appointed by them; secondly even under sub-s. (1) not less than ⅔rds of the total number of directors who are liable to retire by rotation, have also to be appointed by the comp any in general meeting, and if half of such ⅔rds directors were to be appointed subject to approval of the Court, it would amount to placing restriction on the corporate right of the share-holders conferred upon them and as such a contravention of s. 255 of the Act. It is thus clear that if the learned Judge thought that giving a preponderating and effective majority to directors other than the directors representing the shareholders was necessary in the facts and circumstances of the case the same could not be done without encroaching upon the corporate right of the share-holders to manage the company's affairs and as stated above, this is within the competence of the Court acting under s. 398 read with s. 402.

53. On the question of propriety of the impugned orders, it was urged by Mr. Sen that after removing the past directors, namely respondents Nos. 2, 3 and 4 and even Mrs. Rama Jain who was regarded as closely associated with S.P Jain, the Court ought not to have reconstituted the Board in the manner done but should have accepted the suggestion made on behalf of the shareholders of the company that the reconstituted Board should consist of nine persons, the five persons of whom could be nominated by Government and the four persons could be elected by the share-holders. His contention was that the reconstituted Board in effect resulted in drastic curtailment of the share-holders' right to have a corporate management in accordance with s. 255 of the Companies Act, that is to say, a drastic curtailment of their right to have the company managed by the elected directors. He also urged that such drastic curtailment of the share-holders' right is to last for a period of seven years and such drastic curtailment was not warranted. He also complained that all this was done without Bearing the share-holders and therefore the impugned order should be set aside. Similar contentions were urged by Mr. Thakkar on behalf of original respondents Nos. 8 and 9 in their appeal. So far as the propriety of the impugned orders is concerned, it must be borne in mind that after all the section under which the Court acted confers discretion upon the Court to pass such orders as it thinks fit and it was in exercise of judicial discretion conferred upon the Court that the learned Judge reconstituted the Board in the manner done by him and further directed that such reconstituted Board should operate for a period of 7 years. Now, nothing has been pointed out which will indicate that the discretion has been exercised by the learned Judge on any wrong principle or on considerations which were not warranted. If, therefore, the discretion was judicially and properly exercised, it would be difficult to interfere with the discretion so exercised by him and on this ground alone the propriety of order is not liable to be questioned. Apart from this, it cannot be forgotten that after all serious allegations of malversation, misfeasance and embezzlement of funds and several acts of mismanagement were made against the past directors and the family members of Shanti Prasad Jain. It is true that the learned Judge has proceeded on the assumption that those allegations were to be regarded as true because that was the attitude adopted by all the respondents at the time when the final orders were passed by him. But if regard be had to the serious allegations made it will be difficult to hold that the learned Judge was wrong if he felt that none of the members of Jain family who were connected with the prior mismanagement or who in the opinion of the learned Judge were likely to influence the future management of the company should not be associated with the management of the company in future. The Board as reconstituted by him will have to be regarded as proper Board in the circumstances of the case. It is not as if the share-holders' voice has been completely eliminated from future management and the learned Judge has while reconstituting the board appointed three persons who would be the representatives of the share-holders on the Board of the Directors and their voice would be heard in the future management of the company, but all that the learned Judge was interested in seeing was that a preponderating and effective majority was available to the other directors, that is, the directors other than the share-holders' directors so far as future management of the company was concerned and as such the Board as reconstituted will have to be upheld as being in the interest of the company and public interest. So far as the period of seven years during which the share-holders' right has been curtailed is concerned, we have already adverted to the facts that criminal proceedings were pending against respondent No. 2 and his co-accused and also taxation proceedings under the Income-tax Act and other Taxation Laws were pending and if the learned Judge felt that these proceedings will take quite some time before the management could be handed over back to the share-holders' directors and that in the meanwhile evidence of employees of the Company should be ensured, then even the period of seven years cannot be regarded as any unreasonable period. In our view, therefore, on merits the propriety of the order is not capable of being challenged or interfered with by this Court in appeal. So far as original respondents Nos. 8 and 10 (being the appellants in Appeal No. 153 of 1969) are concerned, the position is still very clear. As eo nominee parties to the original proceedings no adverse order has been passed against them, on the contrary they have been retained on the reconstituted Board and as such they can have no grievance. So far as the share-holders' right to manage the company in accordance with s. 255 is concerned, we have already indicated that they had submitted to the orders of Court as regards future management of the company was concerned and future management would include aspects like reconstitution of the Board, its personnel, duration, manner in which members of the Board should retire by rotation etc. On all these aspects respondents Nos. 8 and 10 could be said to have submitted to the orders of the Court, Moreover, we have already indicated above that they were the parties to and had actually voted in favour of the resolution passed by the Board at its meeting held on August 28, 1969 at 10 A.M to the effect that respondent No. 1 Company should submit to the orders of the Court. In this view of the matter, we feel that Appeals Nos. 154/69 and 153/69 deserve to be dismissed with costs. We accordingly pass the following order.

54. Appeal No. 154/69 is hereby dismissed with costs. Two counsel certified. Costs of the appeal of Union of India will be paid by the share-holders of the Company.

55. The cost of the Company represented by the Board of Directors who were allowed to intervene should come out of the assets of the Company.

56. Attorneys for respondents No. 1 in appeal (Union of India) to withdraw the sum of Rs. 500 deposited by the appellants towards the costs.

57. Appeal No. 153/69 is hereby dismissed with costs. Costs of respondents Nos. 1 and 2 in appeal (Union of India and Bennett Coleman Co. Ltd.) should be paid by the appellants (original respondents Nos. 8 and 10).

58. Attorneys for respondents Nos. 1 and 2 in appeal to withdraw the sums deposited by the appellants towards costs.

Appeal No. 149/69:

In this appeal preferred by original respondent No. 2 he has principally challenged the order of injunction barring him from becoming a director of respondent No. 1 Company at any time in future and from interfering with or intermeddling in the affairs and conduct of the company. Before dealing with the appeal on merits we may indicate that even with regard to this appeal a point had been raised with regard to its maintainability and for the reasons which we have indicated in the earlier part of our judgment, we are of the view that this appeal would be incompetent in view of the fact that the original respondent No. 2 had submitted to the orders of the Court, but the discussion on the contentions raised on merits is being done on the assumption that the appeal lies. Mr. J.C Bhatt, who appeared for original respondent No. 2 (the appellant before us), contended that the injunction issued against his client that he should not become a director of the Company at any time in future was unwarranted by the facts and circumstances of the case. Mr. Bhatt pointed out that respondent No. 2 had given an undertaking in the proceedings instituted by the Union of India under s. 388B to the effect that during the pendency of those proceedings he will not stand for election as director of the Company. He further pointed out that since the proceedings under s. 388B which commenced on September 17, 1964 are still pending and it will take some time before these are finally disposed of, the undertaking given by respondent No. 2 will remain in operation till the said proceedings come to an end and in view of this undertaking it was not necessary that respondent No. 2 should have been debarred from becoming a director of respondent No. 1 Company for all times in future. Mr. Bhatt also invited our attention to the provisions of ss. 388B and 203 of the Companies Act. He pointed out that under sub-s. (3) of s. 388B after accepting the decision of the High Court under Chapter IV-A the Central Government while passing orders under sub-s. (3) has been empowered to remove a person from office and prevent him from taking any part in the conduct and management of the affairs of a company for a period of not more than five years from the date of his removal. Similarly, he pointed out that under s. 203 even where a person was convicted of any offence in connection with the promotion, formation or management of a company, the Court had been empowered to make an order that such person shall not, without the leave of the Court, be a director of, or in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of a company, for such period not exceeding five years as may be specified in the order. Mr. Bhatt urged that the provisions of s. 388B and s. 203 clearly show the mind of the Legislature that even where the case of a person fell under either of those provisions he was to be debarred from becoming a director of a company and further debarred, from taking part in the management of the company or its affairs for a period not exceeding five years and having regard to these provisions he contended that the punishment meted out to respondent No. 2 that he shall not become a director of the Company at any time in future should be regarded as very harsh and the facts and circumstances of the case did not warrant such punishment being meted out to him.

59. It is true that respondent No. 2 has given an undertaking mentioned above in the proceedings instituted under s. 388b of the companies act and it is also true that the said proceedings are still pending. But one cannot be too sure when those proceedings would come to an end and therefore it will not be possible to take the view that because of the said undertaking the learned Judge's order debarring him from becoming a director of respondent No. 1 Company at any time in future was wrong or should not be sustained. After all, the learned Judge had before him serious allegations about malversation, mismanagement, misfeasance and embezzlement of funds etc. made against respondent No. 2. It was further alleged that he had received unaccounted money to the tune of over Rs. 17 lacs and odd and he had misappropriated the same. Having regard to this huge misappropriation alleged against him,—and respondent No. 2 persuaded the learned Judge to proceed on the assumption that those allegations were true—it cannot be said that the learned Judge was wrong in taking the view that he should be debarred from becoming a director of respondent No. 1 Company at any time in future. So far as the provisions of s. 388B and s. 203 are concerned, it seems to us that those provisions deal with different situations arising under different circumstances and in the instant case, the Court was concerned with the proceedings under s. 398 read with s. 402 and in those proceedings it was up to the learned Judge to decide for what period this respondent should be debarred from becoming a director and from interfering or indermeddling with the affairs and conduct of respondent No. 1 Company and the discretion having been exercised judicially on proper materials, it will not be possible for us to interfere with that order passed by the learned Judge.

60. Mr. Bhatt next contended that some of the observations made by the learned Judge in his judgment amount to suggesting that respondent No. 2 had admitted some of the allegations made against him and some observations amount to some sort of findings having been recorded on some issues against respondent No. 2.

61. We do not agree with this contention, for, while proceeding to dispose of the petition by judgment the learned Judge has, consistent with the reservations made by respondent No. 2 while submitting to the orders of the Court, merely proceeded on the basis that the allegations made in the petition against the respondents should be assumed to be true. Besides, the learned Judge has also clearly observed that the making of this order does not involve any admission by any of the respondents of the allegations made against them in the petition nor his giving a finding on any of the issues framed in the case.

62. In the result, the appeal fails and is dismissed with costs. Liberty to the attorneys for respondents Nos. 1 and 2 in the appeal (Union of India and respondent No. 1 Company) to withdraw the sums of Rs. 500 each deposited by the appellant towards such costs.

[The judgments in the remaining Appeals are not material to our report.]

63. Appeals dismissed.

O.C.J Appeals Nos. 146 of 1969 (in Company Application No. 78 of 1969), 147, 149, 150, 151, 153, 154 and 155 of 1969 (in Company Petition No. 114 of 1967)

Shanti Prasad Jain v. Union Of India

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Respondent No. 2's Arguments

Union of India's Arguments

Respondent No. 1 Company and Other Directors

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Shanti Prasad Jain v. Union Of India

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