C.G. Thorborg vs Union Of India And Ors.
1967 Latest Caselaw 162 Del

JUDGMENT

1. This judgment will dispose of F. A. O. No. 83-D./62 and Civil Revision No. 580-D/61, which have arisen out of the same application under section 20 of the Arbitration Act (hereinafter referred to as the Act) filed by Basakah Singh Wallenborg Private Ltd. and Shri C. G. Thorborg, against the Union of India, Shri Arthur Nielson, Rai Bahadur Sardar Basskha Singh and Sardar Daya Singh. The aforesaid parties have been hereinafter referred to respectively, as applicant No. 1, application No. 2, respondent No. 1, respondent No. 2, respondent No. 3 and respondent No. 4. The application was filed by Shri Rajinder Singh attorney of applicant No. 2. The allegations, relevant for the decision of the points, involved in the F. A. O. and the revision, were as under :--

2. Respondent No. 1 had set up a housing factory for the purpose of manufacturing prefabricated houses. The factory was known as Government Housing Factory. The venture proved a failure and respondent No. 1 was keen to join hands with some company who would possess technical know-how and a reasonable amount of capital to run the factory. Shri Harry Wallenborg and respondent No. 2 joined hands together and negtoiated terms and conditions with respondent No. 1 to run the housing factory in collaboration. It was agreed between respondent No. 3 and Shri Harry Wallenborg, on the toher, that Shri Harry Wallenborg and respondent No. 3 would float a private limited company under the name of Basakha Singh Wallenborg Limited and that each would invest capital and appoint his nominee or nominees to hold the shares. In pursuance of this arrangement, Basakha Singh Wallenborg Limited was incorporated. After incorporation of applicant No. 1 an agreement dated the 6th December, 1952 was entered into between applicant No. 1 and respondent No. 1. Besides toher terms and conditions, the agreement contained an arbitration clause, providing for reference of disputes of two arbitrators - one to be nominated by each party. According to the terms of the agreement, a private limited company, known as Hindustan Housing Factory Ltd, was incorporated under the Indian Companies Act. Respondent No. 1 provided the working capital and also provided machinery and technical know-how. Shri Harry Wallenborg assigned his entire interest in the above-mentioned agreement to applicant No. 2. Applicant No. 2 provided the necessary part of his capital and requisite machinery and technical know-how for operating the Hindustan Housing Factory. The Directors of Basakha Singh Wallenborg Ltd. were respondent No. 3 and his nominee, respondent No. 4, applicant No. 2 and his nominee, respondent No. 2. Respondent No. 1 did nto fully co-operate for procuring orders and in various toher matters and declined to provide finances. As a result, the Hindustan Housing Factory ran under heavy losses and respondents Nos. 3 and 4, acting in the name of applicant No. 1, handed back the factory to respondent No. 1. This was done without the consent of applicant No. 2 and respondent No. 2. Respondents Nos. 3 and 4 had no authority to hand back the factory to respondent No. 1. They had done so in order to cause substantial injury to applicants Nos. 1 and 2 and respondent No. 2. Thus, disputes had arisen between applicant No. 1, on the one hand, and respondent No. 1 on the toher, and according to the agreement of arbitration, those disputes are to be referred to arbitration. It was prayed that the agreement of arbitration may be ordered to be filed and the disputes may be referred to arbitration.

3. The application was contested on behalf on respondents Nos. 1, 3 and 4. Respondent No. 2 remained absent and was proceeded against ex parte.

4. Respondents Nos. 3 and 4, in then written statement, had admitted the incorporation of Basakha Singh Wallenborg Pvt. Ltd., applicant No. 1, and also the incorporation of the Hindustan Housing Factory Ltd. They also admitted that the factory was running at a loss and that they had handed over the factory to respondent No. 1. They denied that the factory was handed over to injure the interests of applicant No. 1. It was pleaded that respondents Nos. 3 and 4 had, in the best interest of the company, handed back the factory top respondent No. 1. It was further pleaded that respondent No. 1. It was future pleaded Chairman of the Board of Directories and respondent No. 4 was one of the directors and thus, respondents Nos. 3 and 4 were competent to act on behalf of applicant No. 1.

5. Besides contesting the application on merits, respondents Nos. 3 and 4 had taken up certain preliminary objections against the maintainability of the application. One of the preliminary objections was:--

"M/s Basakha Singh Wallenborg Pvt. Ltd. is a company registered under the Indian Companies Act, 1956. According to the Memorandum and Articles of Association of the said company, Rai Bahadur S. Basakha Singh, respondent No. 3, was and is the Chairman of the Board of Directors. Respondent No. 4 is one of the Directors and the power of management of the company vested in the Board if Directors. Neither the company nor the Board has authoirsed the institution of the present application. The application, on behalf of the applicant No. 1, is thus incompetent. It is denied that the company has authorised Mr. C. G. Thorborg or Shri Rajinder Singh to institute the present application. The applicant No. 2, C. G. Thorborg, was only a share-holder of the company. The company, and nto an individual share-holder, has right to institute or take legal proceedings in respect of the agreement entered into by the company and nto by shri C. G. Thorborg in his individual capacity. Applicant No. 2 is, therefore, incompetent to make the present application."

6. Respondent No. 1 did nto file any written statement. But an application purporting to be under Order 6, Rule 5, Civil Procedure Code, was submitted on its behalf. It was stated, in that application, that the application under S. 20n of the Act did nto disclose how Shri C. G. Thorborg had authority to file the application on behalf of applicant No. 1 or Shri Rajinder Singh was authorised to file the application on behalf of the applicants. Respondent No. 1 prayed that the application may be rejected or further particulars may be ordered to be furnished so that a regular written statement may be filed.

7. On the pleadings, the trial Court framed the following preliminary issue: "Whether Shri Rajinder Singh held any power of attorney on behalf of the applicants to file the present application on 31-5-1959, the date of signing and verification of the application."

8. After recording evidence on this preliminary issue, the trial Court held that Shri Rajinder Singh held power of attorney to file the application on behalf of applicant No. 2, but the had now power of attorney or any authority to file the application on behalf of application No. 1.

9. After this decision of the Court, an application under Order 1, Rule 10 read with Order 6, Rule 17 of the Code of Civil Procedure, was filed on behalf of the applicants, that applicant No. 1 may be transposed to the array of respondent and applicant No. 2 may be permitted to make necessary amendments in the application, under section 20 of the Act. This application was dismissed by the trial Court on the ground that as the application under the Act was properly filed on behalf of applicant No. 1, it was nto a party to the application and no question of transposing it as a respondent could arise. Civil Revision No. 580-D/61 has been filed against this order of the trial Court.

10. Antoher preliminary issue was struck by the trial Court. That issue was whether applicant No. 2 had locus standi to the file the application under section 20 of the Act. The Court decided the issue against applicant No. 2 and held that as the agreement of arbitration was between applicant No. 1 and respondent No. 1 and applicant No. 2 was nto a party to that agreement, he was nto competent to make an application under section 20 of the Act. As a result of this finding, the trial Court dismissed the application. F. A. O. No. 83-D/62 has been filed against this order.

11. Respondent No. 3 died during the pendency of the proceedings in this Court. His legal representatives were brought on record.

12. As already stated, the application under section 20 of the Act, was filed on behalf of applicants Nos. 1 and 2, by Shri Rajinder Singh, attorney of applicant No. 2. It was urged, on behalf of respondents, that Shri Rajinder Singh was nto holding any power of attorney on the 31st May, 1959, the date on which the application under section 20 of the Act was signed and verified. Ex. A/1 is a power of attorney, executed by applicant No. 2, in favor of Shri Rajinder Singh on the 30th May, 1959. It was contended, on behalf of the respondents, that Ex. A/1 did nto authorise Shri Rajinder Singh to refer disputes to arbitration on behalf of applicant No. 2 and that, therefore, Shri Rajinder Singh Rajinder Singh to handle this affairs in India for and on his behalf and parti-was nto competent to file the application under section 20 of the Act. By Ex. A/1. applicant No. 2 had authorised Shri cularly to--

(a) sign court papers.

(b) make statements,

(c) reply to statements,

(d) represent applicant No. 2 before any authority,

(e) file and withdraw suits, appeals, review and revision applications.

(f) compromise suits.

(g) receive monies on behalf of applicant No. 2 and render receipts thereof,

(h) to take whatever action is necessary regarding applicant No. 2's claims.

13. It is clear that Ex. A/1 gave wide powers to Shri Rajinder Singh to act on behalf of applicant No. 2. He was authorised to look after the affairs of applicant No. 2 in India and particularly to sign Court papers, to file, compromise and withdraw suits, appeals, revisions etc., on behalf of applicant No. 2. The necessary implication from the conferment of these wide powers was that Shri Rajinder Singh was authorised to refer disputes to arbitration, on behalf of applicant No. 2.

14. In this connection, it will be relevant to point out that applicant No. 2 had on the 20th January 1960, executed antoher power of attorney, Ex. A/4, in favor of Shri Rajinder Singh, Clause (h) of Ex. A/4 reads: "A petitioner under section 20 of the Indian Arbitration Act has already been filed at the Civil Court in Delhi on or about the 1st June, 1959 for a reference of dispute between Basakha Singh Wallenborg Ltd. and myself, on the hand and the Union of India, Raj Bahadur Sardar Basakha Singh, S. Daya Singh etc., on the toher hand, under the signatures of my attorney, S. Rajinder Singh. I hereby ratify this action of S. Rajinder Singh and all steps taken by him so far or to be taken hereafter in relation to theses proceedings up to the highest court in India and proceedings before the arbitration shall be deemed to be my acts and shall always stand ratified by me."

15. It is clear from the above that applicant No. 2 had ratified the filing of the application by Shri Rajinder Singh and actions done by him in that behalf. The subsequent ratification will relate back to the date of which the application was signed and verified. Even if it be assumed that Ex. A/1 did nto authorise Shri Rajinder Singh to file an application under section 20 of the Act, the subsequent ratification made the filing of the application, on behalf of applicant No. 2, valid from the date, on which it was filed.

16. Even so, it was argued, on behalf of the respondents, that a applicant No. 2 was nto a party to the agreement of arbitration and had himself no authority to refer the disputes to arbitration, the finding that Shri Rajinder Singh had authority to file the application on behalf of applicant No. 2 was of no consequence. This argument has gto substance. The arbitration clause was contained in the agreement dated the 6th December, 1952. That agreement was, admittedly, executed between respondent No. 1 and applicant No. 1, vide paragraph 5 of the application. Applicant No. 2 was nto a party of the agreement, dated the 6th December, 1952 and, therefore, nto a party to the agreement of arbitration. According to section 20 was nto a authroised to make an application under section 20 of the Act, with respect to the disputes which, according to paragraph 35 of the application, had arisen between applicant No. 1 and respondent No. 1.

17. The next question is whether the application was validly filed on behalf of applicant No. 1. It is common case of the parties that applicant No. 1 was an incorporated company. The business of the company could be conducted by the Board of Directors or by any toher person authoirsed by the Articles of Association. Article 22 of the Articles of Association of the company provided that the business of the Company will be conducted by the Board of Directories and that the Chairman will conduct business of the company subject to the supervision of the Board of Directors. Article 33 (x) authroised the Chairman of the Company to commence, institute prosecute, defend or compromise legal proceedings and actions by or against the Company. Business of applicant No. 2, including litigation, could be conducted by the Board of Directors or by the Chairman, subject to the supervision of the Board of Directors. The application under section 20 of the Act could be filed by the Chairman or by the Board of Directors. It is nto disputed that Shri Rajinder Singh was nto authorised to file the application by the Board of Directors, nor authorised by any resolution of the General Meeting. Shri Rajinder Singh had no authority to file the application under section 20 of the Act, on behalf of applicant No. 1.

18. Applicant No. 2 whose attorney Shri Rajinder Singh was, had also no authority to file the application. It was nto the case of applicant No. 2 that he had been authorised by the Board of Directories or the Chairman to file the application. The plea, on behalf of applicant No. 2 was that he was the assignee of the interest of Shri Harry Wallenborg and was thus entitled to file the application. Now Shri Harry Wallenborg could nto have filed the application without an authority from the Board of Directors as he was nto a party to the agreement of arbitration. Applicant No. 2, his assignee was nto, therefore, competent to file the application. Applicant No. 2 was merely a shareholder. There were 12 shareholders of the Company. It is only the majority of shareholders who can institute proceedings on behalf of the Company if the Directors are themselves the wrongdoers and their personal interests are in conflict with their duties, vide Dr. Satya Charan v. Rameshwar Prosad Bajoria, Air 1950 Fc 133. Applicant No. 2, a single shareholder of application No. 1, was nto competent to file application under Section 20 of the Act, on behalf of applicant No. 1. The application filed by the attorney of applicant No. 2 was nto Competent.

19. The lower Court was right in holding that applicant No. 2 had no authority to file an application under Section 20 of the Act either on his own behalf or on behalf of applicant No. 1. In this view of the matter, btoh the appeal and the revision petition are to be dismissed. Applicant No. 2 will pay the costs of respondents Nos. 1, 3 and 4 in the appeal as well as in the revision petition.

20. Appeal and Revision dismissed.