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PETITIONER: ARJUN PRASAD

       Vs.

RESPONDENT: SHANTILAL SHANKARLAL SHAH AND OTHERS(AND CONNECTED APPEAL)

DATE OF JUDGMENT: 22/12/1961

BENCH: GUPTA, K.C. DAS BENCH: GUPTA, K.C. DAS DAYAL, RAGHUBAR

CITATION:  1962 AIR 1192            1962 SCR  Supl. (2) 402

ACT:      Company-If can  be  present  "in  person"  in meeting-Meeting of  creditors-Person appointed  to represent creditor company-Person voting on behalf of company-Validity of vote-Company Judge’s order- If appeal lies to High Court-Indian Companies Act, 1913 (7  of 1913), ss. 3, 153-General Clauses Act, 1897 (10  of 1897),  s. 3(42)-Letters  Patent, cl. 10.

HEADNOTE:      Subsequent to  an order  made for the winding up  of   a  company,  the  Company  Judge  made  a direction for  action to be taken under provisions of s. 153 of the Indian Companies 403 Act,  1913.   At  the  meeting  of  the  unsecured creditors of  the company  a resolution was passed by the  creditors present,  either  in  person  or through proxy,  by majority  in number  as well as three-fourths  in   value.  At  this  meeting  the appellant  claiming   to  represent   two  of  the creditor companies cast his votes on behalf of the said companies  in support  of the  resolution. No objection was taken at the meeting to the validity of the  votes by  any of the creditors who opposed the resolution. When the matter came up for orders before the  Company Judge  an objection was raised that the  votes cast by the appellant on behalf of the  two   creditor  companies   were  not  valid, inasmuch as s. 153(2) of the Act requires that the creditors should be present either in person or by proxy at  the meeting  and that,  in  the  present case,   the    two   creditor   companies,   being corporations, could not be considered to have been present at  the meeting  "in person".  The Company Judge overruled  the objection on the grounds that it was  raised at  a late  stage and  that, in any case, the votes were valid because the appellant’s attendance  at   the  meeting   amounted  to   the attendance  of   the  companies  "in  person".  On appeal, a  Division Bench  of the Patna High Court

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rejected the  contention that no appeal lay to the High Court from the order of the Company Judge but only to  the Supreme Court and, on the merits, set aside his order. ^      Held, that: (1) the word "Court" in s. 153(7) of the Indian Companies Act, 1913, means the Court exercising original  jurisdiction, and. therefore, an appeal  from the order of the Company Judge lay to the  High Court  under cl.  10 of  the  Letters Patent;      (2) though  under the  General  Clauses  Act, 1897, a company is a "person" so that whenever the word "person"  is used  in any  statute a  company would be included thereunder, unless there is some special provision  by a law a company which is not a physical person cannot "be present" at any place "in person"; and      (3) in the present case the votes cast by the appellant were  not valid  in  law  and  it  being admitted  that  if  the  votes  were  invalid  the requisite  majority   of  three-fourths  in  value requisite under s. 153(2) of the Indian  Companies Act, 1913,  would not be obtained and therefore no further action  could be taken by the Court in the matter, the  delay in  raising the objection would not entitle  the Court  to ignore the legal defect of the votes.

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil  Appeals Nos. 201 and 202 of 1961. 404      Appeals from  the judgment  and decree  dated May, 16, 1958 of the Patna High Court in L. P. As. Nos 13 and 14 of 1957.      A. V.  Viswanatha Sastri,  R. K.  Garg, M. K. Ramamurthi, D.  P. Singh  and S.  C. Agarwala, for the appellants.      M. C. Setalvad, Attorney-General for India.      B. P.  Rajgarhia and  K. K.  Sinha,  for  the respondents.      1961. December  22. The Judgment of the Court was delivered by      DAS GUPTA,  J.-These appeals raise a question as to  the manner  in which a creditor company can validly  cast   its  vote  at  a  meeting  of  the creditors held  under the  provisions of s. 153 of the  Indian  Companies  Act,  1913.  The  question arises in  connection with  such a meeting held of the creditors  of the  Gaya Sugar  Mills  Ltd.  On November 14,  1951,  an  order  was  made  by  the Company Judge  in the  Patna High  Court  for  the winding up of the Gaya Sugar Mills Ltd. On October 6, 1953,  an order  was made  by the learned Judge for action  to be taken under s. 153 of the Indian Companies  Act.   Mr.  G.  C.  Banerjee,  who  was appointed Chairman  to hold  the  meeting  of  the creditors held separate meetings of the debenture- holders, secured  creditors and  of the  unsecured creditors. In  his Report he stated as regards the meeting of  the unsecured  creditors that  "thirty unsecured creditors  either in  person or  through

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proxy attended  and took part in the meeting," and that ultimately  a resolution  proposed by  one of the creditors, the Standard Vacuum Oil Company and seconded by  another creditor  Shri K.  C. Agarwal was passed  "by the  creditors present by majority in number  as well  as three-fourth  in value." It appears that  at this  meeting  one  Arjun  Prasad claiming  to  represent  two  creditor  companies, viz., Bhandani Bros., and the Hindustan 405 Coal Company  Ltd., cast  his votes  on behalf  of these two companies, in support of the resolution. No objection  was taken  at  the  meeting  to  the validity of  these votes  by any  of the creditors who  opposed   the  resolution  and  the  Chairman proceeded on  the  basis  that  these  votes  were validly cast.  It is  not disputed  that if  these votes were not validly cast the requisite majority of three-fourths in value would not be obtained.      When  the   application  came  up  for  final hearing before the Court an objection was taken on behalf of  creditors who  opposed the  scheme that the votes  cast by  Arjun Prasad  on behalf of the two creditor  companies, viz.,  Bhandani  Brothers and the  Hindustan Coal  Company  were  not  valid votes and  so the  requisite  majority  of  three- fourths in  value of  the creditors  had not  been obtained. The  Company Judge  was of  the  opinion that there was no sufficient explanation as to why the objection  as to the validity of the votes was not taken  earlier and  so the objection raised at the late  stage could  not be  entertained. On the merits also  he held that the resolution passed by the creditor  companies authorising  Arjun Prasad, to attend  the meeting  of the unsecured creditors of the  Gaya Sugar  Mills Ltd., and vote on behalf of the  companies, were  sufficient in law to make his attendance  at the  meeting the  attendance of the companies "in person" and his voting on behalf of the  companies valid  voting of  the companies. Accordingly, he rejected this objection.      On appeal  a Division Bench of the Patna High Court has  allowed the objection, being of opinion that the  delay in raising the objection would not entitle the  Court to  ignore the  legal defect of the votes  and that in law the votes cast by Arjun Prasad were  not valid votes of these two creditor companies,  viz.,   Bhandani  Brothers   and   the Hindustan  Coal  Company.  A  contention  that  no appeal 406 lay to  the High  Court  from  the  order  of  the Company Judge was rejected. Therefore, the learned Judges set aside the order of the Company Judge as to this  part of  the case.  They, however, gave a certificate that  as regards  the value and nature of the  case, it  fulfils the requirements of Art. 133(1)(a) of the Constitution and is a fit one for appeal to  this Court.  On  this  certificate  the present appeals have been filed.      Three points  were raised  before us  by  Mr. Sastri in  support of  the appeals.  The first  is that from  the decision  of the  Company Judge, an appeal lay  to this  Court and  not  to  the  High Court. Secondly,  it was  urged that the objection

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to the validity of the votes not having been taken earlier should not be allowed to be raised for the first time  during arguments  at the final hearing of the  application. Lastly, it was urged that the votes were valid.      As regards  the  first  point  it  is  to  be noticed that  sub-s. 7  of s. 153, which was added in 1936 provides that an appeal shall lie from any order  made   by  the  court  exercising  original jurisdiction under  the section  to the  authority authorised to  hear appeals  from the decisions of the Court.  It therefore could not be disputed and was not  disputed that  an appeal did lie from the order made  by the  Company Judge  on  October  6, 1953. The controversy is whether the appeal lay to this Court  or the High Court. In other words, the question is,  which is the authority authorised to hear appeals from the decisions of the Court ? The "Court" here  cannot but mean the Court exercising original  jurisdiction.  When  the  Company  Judge exercises the  jurisdiction he  does it  under the provisions of s. 3 of the Companies Act which says that the  Court having jurisdiction under this Act shall be the High Court having jurisdiction in the place  at  which  the  registered  office  of  the company is  situate. The  authority authorised  to hear appeals from 407 appealable decisions  of a  Single  Judge  of  the Patna  High   Court   when   exercising   original jurisdiction lie to the High Court and not to this Court. (Vide  Clause 10 of the Letters Patent). It necessarily follows that the appeal from the order of the Company Judge lay to the High Court and not to this  Court. There  is, therefore, no substance in  the  first  point  raised  on  behalf  of  the appellant.      The next contention that the objection cannot be entertained  for the  first time  at the  final hearing of  the application  appears to  us to  be equally unsound.  It is  undoubtedly true that the opposing creditors  were guilty  of negligence  in not drawing  the attention of the Chairman to what they considered  to be  a defect  in the voting on behalf  of   the  two  creditor  companies,  viz., Bhandani Brothers  and the Hindustan Coal Co., and no less  negligence in  not bringing  this to  the Court’s notice at the earliest opportunity. Laches on the  part  of  some  creditors  cannot  however justify the  Chairman or  the Court  in disobeying the requirements  of the  Act. If  in law  the two votes cast  by Arjun Prasad for these two creditor companies were  not validly  cast he  three-fourth majority requisite  under s.  153, sub-s. 2, would not be there and so no further action under s. 153 could be taken by the Court in the matter. How can the Court turn a blind eye to the fact, if proved, that on  the basis  of valid  votes at the meeting the requisite  majority was  not obtained,  merely because the  Chairman’s attention was not drawn to the defect  or it  was not  brought to the Court’s notice earlier  ?  In  our  opinion,  the  learned Judges who heard the appeal were right in thinking that however  deplorable  the  delay  by  opposing creditors in  raising the objection might be, that

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would not  be a  sufficient reason for refusing to entertain the objection.      This  brings  us  to  the  main  question  in controversy, viz.,  whether the resolutions passed by the 408 two creditor  companies, viz.,  Bhandani  Brothers and the  Hindustan Coal Company, authorising Arjun Prasad to  attend the  meeting on their behalf and to vote  there on their behalf made Arjun Prasad’s voting valid  voting. Section 153(2) of the Indian Companies Act is in these words :-           "If a  majority in  number  representing      three-fourths in  value of  the creditors  or      class of  creditors, or  members or  class of      members, as  the case  may be, present either      in person,  or by proxy at the meeting, agree      to  any   compromise  or   arrangement,   the      compromise   or    arrangement   shall,    if      sanctioned by the Court be binding on all the      creditors or  the class  of creditors,  or on      all members  or class of members, as the case      may be,  and also  on the company, or, in the      case of  a company  in the  course  of  being      wound   up,    on    the    liquidator    and      contributories of the Company."      The agreement  has to  be of  a  majority  in number  representing  three-fourths  in  value  of those who are present either in person or by proxy at the meeting. The agreement of those who are not present at  the meeting  either in  person  or  by proxy cannot  be  taken  into  consideration.  Any creditor whether a corporation or a natural person can be  present at  a meeting  by proxy. A natural person can  of course  be present at a meeting "in person". Can a corporation be present at a meeting "in person"? It appears to us that unless there is some special  provision by  a law, a company which is not  a physical  person cannot  "be present" at any place  "in person."  It is true that under the General  Clauses   Act,  1897,   a  company  is  a "Person", so  that whenever  the word  "person" is used in  any statute  a company  would be included thereunder. The  definition in the General Clauses Act  can   however  be   of   no   assistance   in interpreting the  words "to be present in person", and the  difficulty in  the way of a company being present  in   person  can   be  obviated  only  by statutory provisions  or rules having the force of law. 409      Nor can  the appellant  derive any assistance from the English Case In re Kelantan Coco, Limited and Reduced  cited by the learned counsel. In that case, the  Court was  dealing with  a petition for reduction of  capital.  In  deciding  whether  the special resolution  to reduce  the capital  of the company had  been duly  passed, the  Court had  to consider  whether   there  was  a  quorum  at  the confirmatory meeting,  at which  one member of the company and  one  representative  appointed  under s.68 of  the Companies  (Consolidation) Act, 1908, to represent  a shareholder  of the  company,  the Eastern  Development  Corporation,  Limited,  were present. The  articles  of  Association  provided:

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"two  members   personally  present   shall  be  a quorum."  It   was  held   that  a  representative appointed under s. 68 should be taken into account in considering  whether there  was a  quorum.  The provisions of s. 68 were similar to those of s. 80 of the  Indian Companies Act, 1913, and thereunder a company  which is  a member  of another  company may, act  as its  representative at any meeting of that  other   company.  The  presence  of  such  a representative was  taken in  the  above  case  to amount to  personal presence  of a  member of  the company. The  case does not deal with the question of a creditor company.      In the  Companies Act,  1956, a provision has been introduced  under which  a company which is a creditor of  another company  may by resolution of its directors, authorises such person as it thinks fit to  act its  representative at  any meeting of any creditors  of the company held in pursuance of the Act  and a  person authorised  in this  manner shall be  entitled to exercise the same rights and powers (including  the right  to vote by proxy) on behalf of  the company,  (s. 187(1)(b)  and 2). No such provision  however is  to  be  found  in  the Indian Companies  Act, 1913. It is unnecessary for us to 410 consider whether  under  this  new  provision  the attendance of  a person  authorised in this manner at a  meeting of  the  creditors  will  amount  to attendance of  the creditor  company "in  person". For,  the   present  case   is  governed   by  the provisions of  the Indian Companies Act, 1913, and not by this new provision.      When the  Companies Act  was amended in 1936, an addition  was made in s. 246 which empowers the High Court  to make  rules, concerning the mode of proceedings  inter   alia  "for   the  holding  of meetings of  creditors and  members in  connection with  proceedings  under  s.  153  of  this  Act." Accordingly, a  number of Rules were framed by the Patna High  Court in  exercise of  this additional power.  Rule  144  of  the  Rules  states  that  a creditor or  contributor may vote either in person or by  proxy. Rules  145 to  153 deal with various questions as  regards proxies.  Of these  Rule 150 lays down  how a  proxy is  to be  given  where  a creditor is a corporation. Admittedly, no proxy in accordance with  Rule 150  was given  by  the  two creditor  companies,  Bhandani  Brothers  and  the Hindustan Coal Company, in the present case. There is nothing  in these  rules which  can assist  Mr. Sastri’s  argument   that  a   resolution  by  the directors of the company authorising a director or some other  person to represent the company at the creditors’ meeting makes him a "present in person" in law for that company at the meeting.      Mr. Sastri’s  last argument  was that  as the business of  the company  has to be managed by the directors and  the directors  can delegate  any of their  powers   to  any  one  of  themselves,  the attendance of  Arjun Prasad  at the meeting should reasonably be  construed as  the attendance of all the directors and so the attendance of the company "in person".  As we have already indicated it does

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not appear  to us that in the Act of 1913 their is any provision 411 for attendance  of the  company "in  person",  but apart from  that we  wish to  point out  that  the resolution made by the two companies do not appear to us  to delegate  the powers of the directors to Arjun Prasad.      The conclusion  of the  High Court  that  the votes cast  by Arjun  Prasad on  behalf of the two companies.,  viz.,   Bhandani  Brothers   and  the Hindustan Coal  Company, were  not valid  votes in our opinion, correct.      The appeals  are accordingly  dismissed  with costs. One set of hearing fee.                                 Appeals dismissed.