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PETITIONER: ORIENTAL METAL PRESSING WORKS (P.)LTD.

       Vs.

RESPONDENT: BHASKAR KASHINATH THAKOOR &ANOTHER

DATE OF JUDGMENT: 16/12/1960

BENCH: SARKAR, A.K. BENCH: SARKAR, A.K. IMAM, SYED JAFFER DAYAL, RAGHUBAR

CITATION:  1961 AIR  573            1961 SCR  (3) 329

ACT: Company-Managing  director appointing his successor by  will Validity--’As signment’, Meaning of--Companies Act, 1956  (1 of 1956), ss. 312, 255.

HEADNOTE: By s. 312 of the Companies Act, 1956, "Any assignment of his office made after the commencement of this Act by any direc- tor of a company shall be void." 42 330 The managing director of a private company, empowered by the terms  of the agreement between him and the company and  the articles thereof to appoint, by deed or by will, any  person to  be  the managing director in his place and  stead,  died leaving  a will whereby he appointed one of  the  appellants the  managing  director in his place from the  date  of  his death.   The  High  Court  took  the  view  that  the   word ’assignment’  in the section included ’appointment’  and  as such the appointment in question was void. Held,  that  S. 312 of the Companies Act,  1956,  cannot  be interpreted in such a way as to bring it into conflict  with S. 255 of the Act since its language does not compel such an interpretation.  The word ’assignment’ in that section  does not mean appointment and the section is intended to render a transfer  of  his  office  by a director  void  and  not  an appointment by him of his successor. Section 255 of the Act, which expressly permits directors to be appointed otherwise than by the company, shows that, sub- ject  to  the  limit  as to  numbers  prescribed  by  it,  a director,  authorised  by the articles of the  company,  can appoint  another to take his office when rendered vacant  by his resignation or death or on expiry of his term of office. The proviso to s. 86B of the old Act cannot lend any support to the argument that the word ’assignment’ in s. 312 of  the new Act includes ’appointment’. The  Guardians  of the Poor of the West Derby Union  v.  The Metropolitan  Life  Assurance  Society, [1879]  A.  C.  647, referred to.

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JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 10 of 1960. Appeal from the judgment and decree dated February 24, 1959, of the Bombay High Court in First Appeal No. 540 of 1958. M....C.  Setalvad, Attorney-General for India, A. P.  Bhatt, Rameshwar  Nath,  S.  N.  Andley, P.  L.  Vohra  and  J.  B. Dadachanji, for the appellants. The respondent did not appear. 1960.  December 16.  The Judgment of the Court was delivered by SARKAR,  J.-Dadoba  Tukaram Thakoor carried  on  a  business under  the name and style of Oriental Metal Pressing  Works. On May 26,1955, a private company was incorporated under the name of Oriental Metal Pressing Works Ltd., hereafter called the Company, 331 to  take  over  the aforesaid business.  On  July  7,  1955, Dadoba transferred his business to the Company.  On the same date,  an agreement was made between him and the Company  by which he was appointed the managing director of the  Company for life and was given the power "by deed inter vivos or  by will  or  codicil  to appoint any person to  be  a  managing director  in  his place and stead".  Regulation 109  of  the articles  of the Company reproduced these  provisions.   The shareholders  of the Company were Dadoba, his  brother,  the respondent  Bhaskar, and his two sons, the appellant  Govind and the respondent Harish, of whom the first three were  the directors,   Dadoba  being  the  managing  director.    This constitution of the Company continued till Dadoba’s death on January 14, 1957. Dadoba  had  died  leaving a will whereby  he  purported  to appoint  the appellant Govind the managing director  of  the Company  in his place from the date of his  death.   Shortly after  Dadoba’s death, disputes arose between the  appellant Govind and the respondent Bhaskar.  The appellant Govind was contending  that the respondent Bhaskar had ceased to  be  a director on account of his failure to attend the  directors’ meetings.   He also purported to co-opt the appellant  Bhal- chandra  as  a director.  The respondent  Bhaskar  contended that  be had not ceased to be a director and challenged  the legality of the appointment of the appellant Bhalchandra  as a  director.  He further contended that the  appointment  of the appellant Govind as the managing director of the Company by the will of Dadoba, was void.  On November 22, 1957,  the respondent  Bhaskar filed a suit in the City Civil Court  of Bombay  against  the  Company,  the  appellants  Govind  and Bhalchandra  and  the respondent Harish  for  the  following declarations and for reliefs incidental thereto: (a)..the appointment of the appellant Govind as the managing director was void; (b)..the   appointment  of  the  appellant  Bhalchandra   as director was illegal and inoperative; and (c)..he  (the respondent Bhaskar) was and continued to be  a director. 332 The  learned Judge of the City Civil Court accepted all  the contentions   of  the  respondent  Bhaskar  and   made   the declarations claimed. The  Company  and  the  appellants  Govind  and  Bhalchandra appealed  from  this decision to the High Court  at  Bombay. The appeal came up for hearing before a bench of two learned Judges  of  that Court.  These learned Judges  having  taken different views, the matter was referred to another  learned Judge  of  the  same High Court.   In  the  eventual  result

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according  to  the opinion of the majority  of  the  learned Judges, the appeal was dismissed and the decree of the  City Civil Court was confirmed.  The High Court however granted a certificate under Art. 133(1)(c) of the Constitution and the present  appeal  has been filed by the Company,  Govind  and Balchandra pursuant thereto.  The respondents to this appeal are Bhaskar and Harish. It appears that while the appeal was pending in this  Court, the  respondent Bhaskar sold his holding in the  Company  to the appellant Govind and has now no interest in the  Company or the appeal.  No one has consequently appeared to  contest the  appeal in this Court, the respondent Harish  apparently not  being interested in doing so.  In these  circumstances, the questions whether the respondent Bhaskar continues to be a director and whether the appellant Bhalchandra was legally co-opted  as a director are no longer live issues  and  have not  been  canvassed  in this appeal.   On  those  questions therefore  we  express no opinion.  Another  result,  rather unfortunate, has been that we have not had the advantage  of arguments against the appeal. The Courts below held that the appointment of the  appellant Govind  as managing director by the will of Dadoba was  void in  view of the provisions of s. 312 of the  Companies  Act, 1956.  That section reads thus:               S.....312.  "Any assignment of his office made               after  the  commencement of this  Act  by  any               director of a company shall be void." The Act came into force on April 1, 1956 and Dadoba had both made his will and died, after that date.  The appointment of the appellant Govind as managing 333 director was, therefore, made after the commencement of  the Act. Now, s. 312 makes the assignment of his office by a director void.   It  does  not  on  the  face  of  it,  say  that  an appointment by a director of another person as the  director in his place, would be void.  The High Court, however,  took the view that the word "assignment" in the section  included "appointment",  and  so, such an appointment would  also  be void  under the section.  What we have to decide is  whether the High Court was right in this view. Before we proceed to examine this question, we have to point out one thing.  It appears that the High Court thought  that the  appellants-  had  conceded that  an  appointment  by  a director of another in his  place by act inter vivous be  an assignment  of the office of a director within s.  312,  and had  only contended that such an appointment by will,  which is what had been done by Dadoba, would not be an  assignment and  would  not therefore be rendered void by  the  section. The learned Attorney-General, appearing for the  appellants, said  that in this the High Court was in error and  no  such concession  had  been made.  He further  expressly  withdrew that  concession.  This he was clearly entitled to do.   It, therefore,  becomes  unnecessary  for us to  deal  with  the seasonings of the High Court in support of the view accepted by it, which were based on the concession. We have given the views of the High Court a most  respectful and anxious consideration but we do not find ourselves  able to agree with them.  We will presently state our reasons for this  conclusion, but now we wish to point out that  in  the view  that  we  have  taken of the matter  it  will  not  be necessary  for us to deal with the argument advanced in  the High  Court  that the section only forbade a  director  from appointing  his  successor,  assuming  assignment   included appointment, but it did not prevent a managing director from

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assigning his office, or appointing his successor which  was what  Dadoba  had done.  If the section did  not  prevent  a director  from  appointing his successor, which  we  do  not think it did, then, clearly, there is nothing 334 in  it which can justify the view that a  managing  director cannot appoint his successor. The section says that a director shall not be able to assign his office.  It may be, as the High Court pointed out,  that apart   from   "transfer"  another  meaning  of   the   word "assignment"  is, "appointment".  But on a plain reading  of the  language  used in the section, it does not seem  to  us possible to hold that the word "assignment" in it, can  mean "appointment". First, the section talks of "assignment of his office" by  a director.   The  word "his" would indicate that  the  office contemplated  was  one held by the director at the  time  of assignment.  An appointment to an office can be made only if the office is vacant.  It is legitimate, therefore, to infer that by using the word "his" the Legislature indicated  that an  appointment  by  a  director  to  the  office  which  he previously  held  but  did  not hold  at  the  date  of  the appointment,  was  not  to  be  included  within  the   word "assignment".  Again, there can be no doubt that the section was  intended to render void a transfer of his office  by  a director  for, if the section had intended only to avoid  an appointment  by a director of his successor, it  would  have clearly   said  so  and  would  not  have  used   the   word "assignment".   Therefore,  even if it is possible  for  the word "assignment" to have the meaning of "appointment", then it  would have to be given both the meanings  of  "transfer" and  "appointment"  in the section.  This is what  the  High Court  did.  That would produce a curious result.   Transfer and appointment are clearly entirely different things.  Even apart   from   considerations  arising  from  the   law   of conveyance, which the High Court was unable to entertain  in connection  with the transfer of an office, a transfer  from its  very nature inevitably imports the passing of  a  thing from  one to another; a transfer without the passing of  the thing transferred, even when that thing is an office, cannot be  conceived.   An "appointment", on the  other  band,  has nothing to do with anything passing from one to another;  it connotes  the putting in of someone in a vacancy.  The  acts constituting a transfer and an appointment are 335 therefore wholly dissimilar.  It would be an unusual statute which  by the use of a single word intended to  prohibit  at the  same time, two wholly different acts.  We do not  think that a construction leading to such a result is permissible. Secondly,  s. 255 of the Act permits one-third of the  total number  of  directors  of  a  public  company  and  all  the directors  of  a private company to be  appointed  otherwise than  by the company at a general meeting, if  the  articles make provision in this regard.  The Act therefore  expressly permits  directors  to be appointed otherwise  than  by  the company.  It follows that within the limit as to the  number prescribed  by  the  section,  a  power  of  appointment  of directors  can be legitimately conferred by the articles  on any person including one who holds the office of a director. The  Act expressly permits such power being  conferred.   In order,  however, that a director may exercise this power  of appointment,  there must be a vacant office of  a  director. He  may himself bring about that vacancy by  resignation  of his office.  The vacancy would again be caused by his  death or by the expiry of the term of his office.  It would follow

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that  the Act contemplates an appointment by a  director  of another  person  as director to take his office,  when  made vacant by his resignation or death or the expiry of the term of his office.  There will be nothing illegal, if the  power is exercised in the case of the death of the director, by an appointment  made by his will.  It will not be right  so  to interpret  s. 312, when its language does not compel it,  as to  bring in conflict with the provisions of s.  255.   This would happen, if the word "   assignment"in   s.   312   was interpreted as including "appointment" and thereby making it prevent a director from appointing his successor when s. 255 permits him to do that.  Therefore again we think that in s. 312 the word "assignment" does not mean "appointment". The  High   Court was of the view that  unless  "assignment" included  "appointment",  the object of ,the  Act  would  be defeated.  It was said that the intention and the object  of the section was to restrain and 336 prevent  a director from putting some one in his  place  and stead  by  any  act on his part.   This  point  was  further expressed  more clearly in the following words: "It  is  now well  understood  that  the  new  Companies  Act,  aims   at eradicating  many  serious mischief which the  principle  of perpetual  management of companies had caused in the  past". The  High Court felt that it would be defeating that aim  by reading  s. 312 as if the words "assignment of  his  office" only  meant a "transfer of office" and did not  include  the appointment of his successor by a director.  Apparently  the High Court thought that by making it possible for a director to choose his successor, the management of the company would be  permitted to remain all along in one hand and  this  the Act wanted to prevent.  It does not seem to us that the  Act wanted  to prevent this.  The act by enacting s.  255  shows that  it  does not disapprove of a person  having  power  to appoint  a  succession  of directors and in the  case  of  a private  company,  a succession even of all  the  directors. Such  a person would have what has been described  as  "per- petual  management".  It would follow that the Act  did  not consider  this  as an evil which  required  prevention.   If perpetual  ma nagement  by an outsider is not an  evil,  nor would  such  management  by one who is  a  director  of  the company  be so.  This aspect is very clearly illustrated  by the  case in hand.  Dadoba had this "perpetual  management". But  the  whole of the Company’s undertaking  was  really  a largess from him.  In fact he held nearly 43% of the  shares of the Company.  It is inconceivable that perpetual  manage- ment  by  him  would have worked to  the  detriment  of  the Company.   We are therefore unable to agree that it was  the object  of the Act or of s. 312 to prevent a  director  from appointing his successor. In  view of the clear provisions of s. 255 we do  not  think that it can be said, as was done in the High Court, that ss. 254 and 317 of the Act, impliedly indicate that there should be  no  perpetual  management.   Section  254  says  that  a corporation  or  an  association of  persons  shall  not  be eligible as a director.  But this is not because, otherwise, there would be perpetual 337 management.   The persons comprising the corporation or  the association  must change from time to time and so,  even  if they  were appointed directors, there would be no  perpetual management.  We rather think that the idea behind s. 254  is that as the office of a director is to some extent an office of trust, there should be somebody readily available who can be  held responsible for the failure to carry out the  trust

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and it might be difficult to fix that responsibility if  the director  was  a corporation or an association  of  persons. Turning to s. 317, we find that it provides that a  managing director cannot be appointed for a term exceeding five years at a time.  Section 315 however makes s. 317 inapplicable to a  private company.  Therefore, s. 317 is not  available  to support  an  argument that the Act does not want  a  private company-and we are concerned with that type of a  company-to be  under perpetual management.  But indeed s. 317 does  not support  that  argument  in the case  of  a  public  company either.   It forbids an appointment of a  managing  director for  more  than  five years "at a  time".   It  permits  the managing  director to be reappointed after a term  is  over. If  he  is so reappointed, then there  would  be  "perpetual management" by him.  The Act does not, therefore, intend  by s.  317, to prevent that.  Lastly, s. 317 is  not  concerned with the directors, which s. 312 is. Another argument that has to be dealt with is that if s. 312 does  not  prohibit  an appointment by  a  director  of  his successor,  that section can easily be rendered  infructuous by  a  director adopting the simple device of  appointing  a person  as his successor in office instead  of  transferring the  office to him.  It seems to us that the  question  does not  really arise.  A director can legally  and  effectively appoint his successor only to the extent the articles permit this subject, of course, to the limit prescribed in s.  255 in the case of a public company.  An appointment so  legally made does not result in an evasion of s. 312 for, as we have earlier said, the section could not have intended to prevent what another section in the same 43 338 Act  made  legal.  An appointment made  outside  the  powers legally conferred by the articles is wholly ineffective’ and therefore is not an appointment at all and hence again, does not result in an evasion of s. 312. We  have  now  to consider an argument based  on  the  first proviso  to s. 86B of the Companies Act of 1913.   The  main part of s. 86B contained a provision analogous to that of s. 312 of the new Act.  It made an assignment of his office  by a  director to another person, under an agreement  with  the company,  void,  unless such assignment was  approved  by  a special  resolution of the company.  Under the new  Act  the assignment  has  been  made altogether void  and  would  not become valid even if approved by a special resolution of the company.  Now, the proviso laid down that the exercise by  a director of a power to appoint an alternate director to  act for him during an absence of not less than three months from the  district  in  which  meetings  of  the  directors   are ordinarily  held, if done with the approval of the board  of directors, would not be deemed to be an assignment of office within the meaning of this section.  The High Court took the view that this proviso showed that in certain  circumstances an  appointment by a director of another in his place  might be  deemed to bean assignment of his office and  that  since the  new  Act is a consolidating Act, it must be  deemed  to have continued the policy of the earlier Act and, therefore, for  the purpose of s. 312, an "assignment" must include  an "appointment". The learned Attorney-General pointed out that in the new Act there is no proviso, and therefore the rule of  construction applied  by  the  High Court, which  enables  by  raising  a presumption, something to be included in the main part of  a section by reason of a provision in a proviso to it, has  no application  to the new Act for, here the provision  in  the

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proviso  has  been  enacted in the form  of  an  independent section,  namely, s. 313.  According to him, this  departure from  the old arrangement of the provisions, in the new  Act shows that it was not intended to continue the policy 339 of the old Act.  He also said that the proviso in  substance stated  that the appointment by a director of  an  alternate director  might in certain circumstances be deemed to be  an assignment.  He pointed out that by using the word  "deemed" the  proviso  made  it clear that  the  appointment  of  an’ alternate  director was not a real assignment of office  but was only to be fictionally taken as one.  His contention was that  such  fiction could arise in a  case  coming  strictly within  the  proviso but could not by extension be  made  to arise  in any other case.  These seem to us to be  arguments of  weight.   Further in s. 313 of the new  Act,  which  has taken  the place of the first proviso to s. 86B of  the  old Act,  the  power to appoint an alternate director  hag  been given  to the board and not to the director who  intends  to absent himself No scope for any deeming provision as in  the Act  of 1913 remains.  Therefore again an argument based  on the proviso to s. 86B would not be available for the purpose of the present Act. It  further seems to us that the proviso to s. 86B does  not indicate that it was intended that the word "assignment"  in the  main part of the section would  include  "appointment". The  rule of construction on which the High Court relied  in arriving  at the view that it did, was put in  these  words: "It  is  a well established principle of  construction  that when  one finds a proviso to a section, the  presumption  is that  but for the proviso the enacting part of  the  section would have included the subject matter of the proviso." This rule  would enable the court to hold in regard to s. 86B  at the  most that an appointment of an alternate director by  a director  intending  to absent himself would  have  been  an assignment  of his office but for the proviso.  It would  be an unwarranted extension of this principle to hold that  all appointments  of  their  successors by  directors  would  be assignments  within  the main part of the section.   In  any case, in our view, as    in s. 312 of the new Act, so  under the main part of s. 86B of the old Act, an appointment of  a successor to   his   office  by  a  director,  was  not   an assignment  of his office by him for, the old Act  contained in s. 83B, 340 provisions  substantially similar to those contained  in  s. 255 of the new Act., and the reasons which have inclined  us to  the view that in s. 312 the word "assignment"  does  not include  "appointment"  would  equally  lead  to  the   same conclusion  in regard to s. 86B.  If the enacting  part  did not prohibit the appointment of his successor by a director, such prohibition cannot be read into it, in reliance upon  a proviso.   We may read here the observations of Lord  Watson in The Guardians of the Poor of the West Derby Union v.  The Metropolitan Life Assurance Society (1)               "I am perfectly clear that if the language  of               the  enacting  part of the  statute  does  not               contain the provisions which are said to occur               in  it, you cannot derive these provisions  by               implication from a proviso." It may be that the proviso was enacted ex abundanti  cautela or  it may be again, to prevent a possible argument that  by the  appointment  of alternate directors an evasion  of  the main  part  of s. 86B was being attempted.  In view  of  the fact  that the power to appoint alternate directors was  not

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given  by the old Act, but had to be given by the  articles, such  an argument might not have been unlikely.   Therefore, it  seems  to us that the proviso to s. 86B of the  old  Act does not assist the argument that in s. 312 of the new  Act, the word "assignment" would include "appointment". We think we ought to say something about what strikes us  to be the policy behind s. 312 of the new Act.  We have earlier said  that  under  s. 255 of that Act a  certain  Dumber  of directors  in  a public company has to be appointed  by  the company  in  a general meeting.  In the case  of  a  private company  likewise,  the  directors  have  to  be   appointed similarly  except  to  the  extent  the  articles  otherwise provide.  It would therefore appear to be the policy of  the Act  that  to  a  certain extent  the  appointments  of  the directors  have  to  be made by  the  shareholders.   It  is intended  that  a certain number of directors would  be  the chosen  representatives of the shareholders.  If a  director appointed (1)  [1897] A.C. 647, 652. 341 by the company was permitted to assign his office, then  the new incumbent would not be the chosen representative of  the shareholders,  and  the  intention  of  the  Act  would   be defeated.  It seems to us that it is to prevent this  result that the Act forbids a director by s. 312 from assigning his office.   Where  however  a  director  has  been   appointed otherwise  than  by the company in a  general  meeting,  the shareholders have nothing to do with his appointment.   Such a   director  is  not  the  chosen  representative  of   the shareholders and the shareholders cannot claim to have a say in  the  appointment of his successor.  We  can  discern  no policy  in  the Act which can. be said to be  liable  to  be defeated  by  the  appointment of the successor  of  such  a director  by him.  Therefore s. 312 was not  concerned  with such an appointment. In  the present case Dadoba had power under the articles  to appoint a person to be the managing. director in  succession to  him, and in exercise of that power he bad appointed  the appellant Govind as the managing director to hold the office after his death.  Such power was clearly recognised by,  and legal under, s. 255 of the new Act.  For the reasons earlier stated,  the exercise of such power does not offend s.  312. It  follows that the appellant Govind had been lawfully  and validly appointed the managing director of the Company. We,  therefore, declare that the appellant Govind  had  been validly appointed the managing director of the Company,  and set aside the decisions of the Courts below that he had  not been so appointed.  We have not been asked to interfere with the  rest of the judgment under appeal and we do not do  so. We also make no order for costs as no costs have been asked.                              Appeal allowed.                    ______________ 342