Major R.S. Murgai (Decd.) ... vs Ex-Servicemen, Airline ...
1998 Latest Caselaw 555 Del

JUDGMENT

K.S. Gupta, J.

1. Major R.S. Murgai (Retd.) filed this suit alleging that he was appointed as managing director-cum-chairman till the conclusion of the fifth annual general meeting of the defendant-company by a resolution of the board of directors dated February 6, 1978 (ought to have been 1974), read with Article 26 of the articles of association of the company at a salary of Rs. 2,500 p.m. plus other perquisites as noted in the resolution itself. The plaintiff continued to act as de jure managing director-cum-chairman of the defendant from February 6, 1974, to May 23, 1975, and drew salary, etc., for the period. On May 23, 1975, in C. P. No. 29 of 1975, the court appointed an administrator of the defendant-company and it was only on April 28, 1978, that the plaintiff administrator was removed in the said petition. The plaintiff is, therefore, entitled to salary from June 1, 1975, till the date of the filing of the suit and that amount comes to Rs. 90,000 besides interest thereon at 12 per cent, per annum, totalling Rs. 15,000. It was prayed that a decree for Rs. 1,05,000 be passed in favour of the plaintiff and against the defendant.

2. In the written statement, the defendant alleged that there is no resolution available by virtue of which the plaintiff may have been appointed as managing" director-cum-chairman for a period of five years on the salary of Rs. 2,500 per month plus other perquisites as alleged. By the order dated May 23, 1975, the Director-General Resettlement or his nominee was appointed as administrator of the defendant-company by the court keeping in view the ill-health of the plaintiff, nature of the serious allegations made against him and his admitted non-control over the branches of the company in Bombay, Calcutta and also the mis management of the company. By yet another order dated April 28, 1978, passed in C. P. No. 29 of 1975, the plaintiff was removed from acting as managing director-cum-chairman of the defendant-company. It is denied that the plaintiff is entitled to the amount claimed towards salary and interest. It is further alleged that by the order dated October 15, 1975, in C. A. No. 222 of 1975 in C. P. No. 29 of 1975, this court appointed an interim board of which the plaintiff was one of the directors. However, the plaintiff later on resigned on January 27, 1976. It is stated that the plaintiff got himself enrolled as an advocate and because of the enrolment he was rendered disentitled to be a managing director and he is thus not entitled to claim any salary from the defendant-company.

3. On the pleadings of the parties, the following issues were framed :

1. Whether the plaintiff is entitled to the amount claimed ? OPP

2. What is the effect of the enrolment of the petitioner as an advocate in 1975 ? OPD

3. Whether the plaintiff is entitled to claim any interest 1 If so, on what amount, at what rate and for what period ? OPP

4. Relief.

4. A note is appended to the said issue No. 1 that this issue will cover the objection of the defendant with regard to the genuineness of the resolution (minute No, 5, dated February 6, 1974).

Issues Nos. 1 and 3.--As is manifest from the order dated February 13, 1996, counsel for the parties made a statement that there was no necessity to record oral evidence and they were willing to give consent to exhibiting the certified copies of the documents filed by the parties. Accordingly, the certified copies of the documents were exhibited on January 17, 1997. However, before the said dates, the statements of Anil Seth, working as UDC in the office of the Registrar of Companies, P.W.-l and Champai Lalchandani, working as UDC in the company branch of this court, P.W.-2 had been recorded on September 3, 1993. In his statement, P.W.-1 proved the certified copies of Form No. 23 (exhibit P.W.-1/1) and the articles of association of the defendant-company (exhibit P.W.-1/2). P.W.-2 only produced in court the record in C. P. No. 2 of 1980, R. S. Murgai v. Ex-Servicemen Airline Transport Services Pvt. Ltd. Exhibit P.W.-l/l proves that in the meeting of the board of directors of the defendant-company held on February 6, 1974, Major R. S. Murgai was appointed as managing director-cum-chairman of the company on a remuneration of Rs. 2,500 per month with effect from February 6, 1974, with all other perquisites the company may give to him from time to time. Article 26 in exhibit P.W.-1/2 provides that one of the directors of the company shall be the first managing director who shall also perform the duties of the chairman for the first five years and he shall hold the office of the managing director-cum-chairman till the conclusion of the fifth annual general meeting of the company. The said resolution coupled with Article 26 establish that Major R. S. Murgai was appointed as managing director-cum-chairman of the defendant-company on February 6, 1974, on a salary of Rs. 2,500 per month plus other perquisites till the conclusion of the fifth annual general meeting of the defendant-company as alleged. It is the admitted case of the parties that in the aforesaid C. P. No. 29 of 1975 filed by Major P. N. Kaushik (Retd.) and others, the Director-General of Resettlement or his nominee was appointed as administrator of the defendant-company by the order dated May 23, 1975. The said company petition was finally disposed of by the order dated April 28, 1978, with the following directions :

"I am accepting the petition relating to removal of Major Murgai from the post of managing director. In fact, he was removed from this post since the administrator was appointed by the court and he has not functioned as managing director after that. In fact, he has no connection with the company now as far as I know, because he did not serve even with the interim board. He would probably be out of touch with the affairs of the company and, therefore, it would not be useful to keep him on the board, but I make it clear that I have removed him under Section 402 of the Companies Act, 1956, from the board of directors because his continuation is likely to jeopardise the future working of the company. However, this will not prevent him becoming a member of the board at a future date, but he will not be able to become managing director, because he is not a serving officer. He will, however, be qualified for appointment as managing director if no serving officer can be found and the Director-General of Resettlement together with the Syndicate Bank agree to his appointment as detailed above.

It is now necessary to make provision for some other point that has caused me to ponder about the examination of the company's articles, etc. It is stated in Article 16 of the articles that shares can be transferred to the person sponsored by the Director-General of Resettlement. The exact wording of that article is :

'The shareholders, if so desire, shall transfer his/their shares to person/persons sponsored by the Director-General of Resettlement at the value to be determined by the auditors of the company.'.

This article was brought to my notice when an attempt was being made to settle this petition. It was then under contemplation that Major Murgai may transfer his shares to some other person and something equivalent was claimed with regard to the other petitioners. The object was that all the shareholders could go out of the company and other persons could run the same. The problem at that stage was that all these persons also made claims against the company in addition to their claim for share capital. At that time, the value of the shares was very small, but I understand that due to the improved working of the company during the period of administration under this court, the value of the shares has now risen. I feel that if any of these persons wants to leave the company, then the shares should be transferred at par value to other ex-servicemen. Of course, if the company has claim against the shareholders, then that amount of the price may be withheld. From the administrator's reports, it appears that some of the assets and monies of the company were said to be unaccounted for (this refers to the period before the administrator took control). Hence, in case the shares of say Major Murgai have to be transferred to others, then the transfer should be effected at par, but the company should withhold any amount that it claims is due from Major Murgai, and similarly towards any other shareholder. In order to enable the reconstruction of the company, it was necessary to give such a direction. To clarify this point, or any other point, liberty is given to apply to this court ; otherwise, this petition now stands disposed of."

5. Admittedly, Major R. S. Murgai filed an appeal being C. A. No. 13 of 1978 against the said order which came to be decided by the Division Bench by the order dated November 5, 1979. The operative part of this order which is relevant reads thus :

"We are, therefore, of the view that the order dated April 28, 1978, passed by the learned company judge in C. P. No. 29 of 1975 is liable to be set aside. In doing so, however, we cannot overlook the effect of the working of the company under a certain management over a long passage of time of more than four years. We do not consider it in the interest of the company to upset or disturb the continuity of its present functioning save in respect of ousting and debarring the appellant from the board of directors from the post of managing director.

We, therefore, specifically set aside that part of the order of the learned company judge dated April 28, 1978, by which he directed alteration of the articles of association of the company so as to provide for and require that the managing director of the company would be a nominee of the Director-General of Resettlement and that such a nominee would be a serving officer if one is available.

We notice that in order to effectuate and implement the aforesaid direction of the learned company judge, clause 26 of the articles of association of the company was altered at the annual general meeting of the company held on December 27, 1978. Accordingly, we set aside the resolution of the annual general meeting in this behalf and restore and reinstate clause 26 as it stood before such amendment.

We set aside the appointment of the chairman and of the managing director of the company and leave the company free to appoint in an appropriate and democratic manner and in accordance with Article 17 of the articles of association and clause 26 of the articles of association of the company any person or persons it resolves to appoint as the managing director. We need hardly emphasise that the company is also free to change or cause to be changed any article or clause of the memorandum of the company as it may choose to, on its own and in accordance with law.

We further make it clear that the order of the learned company judge removing the appellant from the board of directors or not appointing him as director of the board of directors constituted under this order, will not have the effect of rendering him, in any way, ineligible to be elected as a director of the company or appointed as a managing director in future if the company so desires.

No further order is required in respect of the board of directors appointed by the learned company judge as the other members of the board of directors now in office are those elected at the last annual general meeting held on December 27, 1978. This is all the more so as we are told that the next annual general meeting of the company is required to be held in about two months, where the members of the company will have an opportunity to elect their directors again.

As regards the shareholding in the company, we direct that the shareholding as now will be taken as correct till duly altered in the proceedings under Section 155 of the Companies Act or any other appropriate proceedings. The parties will be free to now initiate appropriate proceeding's for the rectification of the register of members if they have a grievance in respect of any of the shares held by them on the eve of the filing of the petition (March 20, 1975) having been cancelled and the register of members of the company as today will be deemed valid unless so rectified."

6. Civil Appeal No. 77 of 1980 taken out against the aforesaid order by Major R.S. Murgai was dismissed by the Supreme Court by the order dated February 7, 1984, along with Appeals Nos. 78 and 873 of 1980. It may be noticed that the aforesaid order dated April 28, 1978, passed in C. P. No. 29 of 1975, removing Major R.S. Murgai, the plaintiff as managing director-cum-chairman of the defendant-company under Section 402 of the Companies Act was not disturbed by the Division Bench in C. A. No. 13 of 1978 but he was held to be eligible to be elected either as director or managing director in future of the defendant-company, if the company so desires.

7. The submission made by Shri Daniel Latifi, senior advocate appearing for the plaintiff was that there is a qualitative difference between the final order of the civil court based on evidence before it and an interlocutory order based on affidavits. While the former is legally binding, the latter has no value at the final stage. The orders passed in said C. P. No. 29 of 1975, C. As. Nos. 13 of 1378 and 77 of 1980, being in the nature of interlocutory orders would, therefore, not come in the way of the plaintiff in claiming the suit amount. However, I am unable to agree with the submission insofar as it relates to the nature of the aforesaid orders. It is pertinent to note that the order dated April 28, 1978, which was not disturbed in appeals removing Major R. S. Murgai as managing director-cum-chairman of the defendant-company, was not passed on prima facie view of the matter but on the merits. Further, the plaintiff himself preferred to rely upon the said orders instead of leading oral evidence on both the issues implying thereby that there is no fresh material to record the finding that his removal as managing director-cum-chairman of the defendant-company was illegal as alleged. Since Major R. S. Murgai had ceased to work in the said capacity because of the appointment of administrator by the order dated May 23, 1975, he cannot be granted salary with effect from June 1, 1975, onwards together with interest as claimed in the suit. Both the issues are answered against the plaintiffs.

Issue No 1-- In view of the findings on issues Nos. 1 and 3, no separate finding need be recorded on this issue.

Issue No. 4.--In view of the findings on the aforesaid issues, the suit is dismissed. In the circumstances of the case, the parties are left to bear their own costs.