Oriental Metal Pressing Works (P.) Ltd. vs Bhaskar Kashinath Thakoor and Another

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: supreme-court

Case Number: Civil Appeal No. 10 of 1960

Decision Date: 16 December 1960

Coram: A.K. Sarkar, Syed Jaffer Imam, Raghubar Dayal

In the matter titled Oriental Metal Pressing Works (P.) Ltd. versus Bhaskar Kashinath Thakoor and another, the Supreme Court of India rendered its decision on the sixteenth day of December, 1960. The judgment was written by Justice A. K. Sarkar, who was joined on the bench by Justice Syed Jaffer Imam and Justice Raghubar Dayal. The petitioner in the case was Oriental Metal Pressing Works (P.) Ltd., while the respondents were Bhaskar Kashinath Thakoor and another individual. The decision appears in the 1961 volume of the All India Reporter at page 573 and also in the 1961 volume of the Supreme Court Reporter, third series, at page 329. The dispute concerned the interpretation of the Companies Act, 1956, specifically sections 312 and 255, as they related to the validity of a managing director appointing his successor by means of a will. The headnote of the decision stated that, according to section 312 of the Companies Act, 1956, any “assignment of his office made after the commencement of this Act by any director of a company shall be void.” The factual backdrop involved a private company whose managing director had been empowered, under the terms of his agreement with the company and the company’s articles of association, to designate a successor either by a deed executed during his lifetime or by a testamentary instrument such as a will. Upon the managing director’s death, a will was left in which he appointed one of the appellants to succeed him as managing director from the date of his demise. The Bombay High Court had interpreted the word “assignment” in section 312 to include the concept of “appointment,” thereby declaring the testamentary appointment void. The Supreme Court, however, held that section 312 could not be read in a manner that conflicted with section 255, because the language of section 312 does not compel such an interpretation. The Court clarified that “assignment” in the context of section 312 does not mean “appointment,” and that the provision was intended to make a transfer of office by a director void, not an appointment made by a director of his own successor. Moreover, the Court observed that section 255 expressly permits directors to be appointed by means other than the company itself, subject to the numerical limits prescribed therein, and that a director authorized by the company’s articles may appoint another individual to fill a vacancy caused by resignation, death, or the expiry of a term. The Court further noted that the proviso to section 86B of the earlier Companies Act did not support the argument that “assignment” in section 312 included “appointment.” The Court cited the case of Guardians of the Poor of the West Derby Union v. The Metropolitan Life Assurance Society, [1879] A. C. 647, in support of its reasoning.

The appeal was filed under Civil Appeal No. 10 of 1960, arising from the judgment and decree dated the twenty‑fourth of February, 1959, issued by the Bombay High Court in First Appeal No. 540 of 1958. The petitioners were represented by counsel comprising the Attorney‑General for India, a senior advocate, and several other advocates who acted on behalf of the appellants. The respondent did not appear before the Supreme Court. The judgment was delivered on the sixteenth day of December, 1960, by Justice A. K. Sarkar, who recounted that Dadoba Tukaram Thakoor, who carried on a business under the name and style of Oriental Metal Pressing Works, had on the twenty‑sixth of May, 1955, transferred his business to a newly incorporated private company named Oriental Metal Pressing Works Ltd., thereby becoming the managing director of that company for life and receiving the authority, by deed inter vivos or by will or codicil, to appoint any person to be a managing director in his place and stead, as set out in Regulation 109 of the company’s articles of association. The shareholders of the company at that time consisted of Dadoba, his brother, the respondent Bhaskar, and two sons, the appellant Govind and the respondent Harish, with the first three individuals serving as directors, Dadoba holding the position of managing director. This constitutional arrangement continued until Dadoba’s death on the fourteenth of January, 1957. Upon his death, Dadoba left a will purporting to appoint the appellant Govind as the managing director of the company from the date of his death, thereby giving rise to the present dispute and the legal issues addressed by this Court.

a private company was incorporated under the name Oriental Metal Pressing Works Ltd., hereafter referred to as the Company, for the purpose of taking over the business previously carried on by Dadoba Tukaram Thakoor. on 7 july 1955 dadoba transferred his business to the Company and, on the same day, entered into an agreement with the Company whereby he was appointed managing director for life. the agreement also granted him, by deed inter vivos, by will or by codicil, the authority to appoint any person to act as managing director in his place and stead. these provisions were reproduced in regulation 109 of the Company’s articles of association. the shareholders of the Company comprised dadoba, his brother, the respondent bhaskar, and two sons – the appellant govind and the respondent harish – of whom the first three individuals served as directors, with dadoba holding the position of managing director. this organisational structure remained in force until dadoba’s death on 14 january 1957.dadoba died leaving a will in which he purported to appoint the appellant govind as managing director of the Company effective from the date of his death.

shortly after dadoba’s death disputes arose between the appellant govind and the respondent bhaskar. the appellant govind asserted that the respondent bhaskar had ceased to be a director because he failed to attend directors’ meetings, and he also sought to co‑opt the appellant balchandra as a director. the respondent bhaskar denied that he had ceased to be a director, challenged the legality of balchandra’s co‑option, and contended that dadoba’s will‑based appointment of govind as managing director was void. on 22 november 1957 bhaskar filed a suit in the city civil court of bombay against the Company, the appellants govind and balchandra, and the respondent harish, seeking declarations that (a) the appointment of govind as managing director was void, (b) the appointment of balchandra as director was illegal and inoperative, and (c) bhaskar was and continued to be a director. the city civil court judge accepted all of bhaskar’s contentions and granted the requested declarations. the Company and the appellants govind and balchandra appealed the decision to the high court at bombay. the appeal was heard by a two‑judge bench, which disagreed on several points, leading to referral to a third judge of the same court. ultimately, the majority opinion of the high court dismissed the appeal and affirmed the decree of the city civil court. the high court nevertheless issued a certificate under article 133(1)(c) of the constitution, and the present appeal was filed by the Company, govind and balchandra on that basis. the respondents to the present appeal are bhaskar and harish.

The appeal remained pending before this Court when the respondent, Bhaskar, transferred his shareholding in the Company to the appellant, Govind, and consequently lost any interest in either the Company or the pending appeal. As a result, no party appeared to challenge the appeal in this Court, and the other respondent, Harish, seemed disinclined to do so. Under these circumstances, the questions of whether Bhaskar continued to hold the position of director and whether the appellant, Bhalchandra, had been lawfully co‑opted as a director were no longer live issues and were therefore not raised before this Court. Accordingly, the Court expressed no opinion on those specific questions. An additional, regrettable consequence of the lack of participation was that the Court was deprived of any arguments opposing the appeal. The lower courts had held that the appointment of Govind as managing director, made by the will of Dadoba, was void pursuant to section 312 of the Companies Act, 1956. That provision read: “Any assignment of his office made after the commencement of this Act by any director of a company shall be void.” The Act had come into force on 1 April 1956, and Dadoba had both executed his will and died after that date. Consequently, Govind’s appointment as managing director occurred after the commencement of the Act. Section 312 rendered the assignment of an office by a director void, but on its face it did not expressly state that an appointment made by one director of another person to fill his place would also be void. The High Court, however, interpreted the word “assignment” in the section to include “appointment,” and therefore concluded that such an appointment was void under the provision. The point that required determination was whether the High Court’s interpretation was correct.

Before addressing that issue, the Court noted that the High Court appeared to assume that the appellants had conceded that an appointment made by a director of another in his place, carried out inter vivously, amounted to an “assignment” within the meaning of section 312, and that the appellants’ only contention was that an appointment effected by a will – as in Dadoba’s case – did not constitute an assignment and therefore would not be void. The learned Attorney‑General, appearing for the appellants, clarified that the High Court’s assumption was erroneous and that no such concession had been made; he expressly withdrew any such concession. The Attorney‑General was clearly entitled to make that withdrawal. Because the High Court’s reasoning rested on a concession that had been withdrawn, the Court found it unnecessary to engage with the High Court’s supporting arguments that were based on that concession. While the Court gave the High Court’s views a respectful and careful consideration, it ultimately concluded that it could not agree with them. The Court indicated that it would set out its reasons for that conclusion shortly, but at this stage it wished to point out that, in its view, the matter did not require further analysis of the High Court’s argument that the provision only barred a director from appointing his successor, assuming “assignment” included “appointment,” nor did it prevent a managing director from appointing his successor as Dadoba had done.

The Court observed that it was unnecessary to consider the argument raised in the lower court that the statutory provision only prohibited a director from appointing his own successor, assuming that the term “assignment” encompassed appointment, but did not bar a managing director from assigning his office or appointing his successor, as had been done by Dadoba. The Court noted that if the provision did not forbid a director from appointing his successor—a conclusion the Court did not accept—there would be nothing in the provision to support the view that a managing director could not appoint his own successor.

The provision expressly states that a director shall not be able to assign his office. The lower court suggested that, besides the meaning “transfer,” the word “assignment” might also be understood as “appointment.” However, the Court found that a plain reading of the language did not allow “assignment” to be interpreted as “appointment.” The provision refers to the “assignment of his office” by a director, and the pronoun “his” indicates that the office in question is one presently held by the director at the time of the assignment. An appointment can occur only when an office is vacant; therefore, the Legislature’s use of the word “his” implied that a director’s appointment to an office he formerly held but did not hold at the time of appointment was not meant to fall within the term “assignment.” The Court further held that the provision was intended to render void a transfer of a director’s office. If the provision had been meant solely to prevent a director from appointing his successor, it would have been expressed in those terms rather than using the word “assignment.” Consequently, even if “assignment” could be read to include “appointment,” the provision would have to give the term both meanings of “transfer” and “appointment,” as the lower court attempted. This dual interpretation would produce an odd result because transfer and appointment are fundamentally distinct concepts. Transfer, by its nature, involves the passing of something from one person to another; a transfer cannot occur without the thing transferred moving to a new holder, even where the thing is an office. Appointment, on the other hand, involves filling a vacant position and entails no passage of an existing thing. The acts that constitute a transfer and those that constitute an appointment are therefore entirely dissimilar, and it would be unusual for a statute to use a single word to prohibit both distinct actions. The Court concluded that such a construction was not permissible.

Section 255 of the Companies Act allowed one‑third of the total number of directors of a public company and all directors of a private company to be appointed in a manner other than by the company at a general meeting, provided that the articles of association made such a provision. The provision therefore expressly permitted directors to be appointed without a general meeting. Accordingly, within the numerical limits prescribed by the section, the articles could legitimately confer on any person – including a sitting director – the power to appoint directors. The Act expressly authorised the conferral of such a power. In order for a director to exercise this power, a vacancy in the office of director had to exist. A director could create such a vacancy by resigning from his office, and a vacancy could also arise by reason of the director’s death or the expiry of his term. The Act therefore contemplated that a director might appoint another individual to fill the vacancy created by his own resignation, death, or the end of his term. Nothing in the statute rendered illegal an appointment made under a director’s will in the event of his death. It would be inappropriate to interpret section 312 so that its language conflicted with the provisions of section 255. If the word “assignment” in section 312 were read to include “appointment,” it would prevent a director from appointing his successor when section 255 expressly permitted such an appointment. Accordingly, the Court concluded that the term “assignment” in section 312 does not mean “appointment.”

The High Court had held that, unless the term “assignment” were taken to include “appointment,” the object of the provision would be defeated. It expressed the view that the intention of the section was to restrain a director from installing a replacement by any act of his. The High Court further observed that the new Companies Act was intended to eradicate the serious mischief caused in the past by the principle of perpetual management of companies. It feared that reading section 312 as limited to a “transfer of office” and excluding the appointment of a successor would thwart that aim, because allowing a director to choose his successor could enable management to remain concentrated in a single hand, which the Act purported to prevent. The Court, however, did not find that the Act intended to bar such appointments. By enacting section 255, the Act demonstrated that it did not disapprove of a person having the power to appoint a succession of directors, even the entire board in a private company. Consequently, the Act did not regard perpetual management by an outsider, or by a director, as an evil requiring prevention. This was illustrated in the present case, where the petitioner exercised “perpetual management” while holding approximately forty‑three percent of the company’s shares, making it inconceivable that such management could be detrimental to the company. Accordingly, the Court was unable to agree that the purpose of the Act or of section 312 was to prevent a director from appointing his successor. In view of the clear provisions of section 255 the Court does

The Court observed that the Companies Act does not object to a person being empowered to appoint a successive line of directors, and in a private company it even permits the appointment of an entire succession of directors. Such a power may result in what is described as “perpetual management,” yet the statute does not treat this situation as an evil that must be prohibited. The Court reasoned that if perpetual management by an external individual is not regarded as harmful, then perpetual management exercised by a director of the company cannot be considered harmful either. This point was illustrated by the facts of the present case, where the individual named Dadoba exercised perpetual management while also holding approximately forty‑three percent of the company’s shares, and the company’s whole undertaking was essentially a largesse from him. It was therefore inconceivable that his perpetual management could have operated to the detriment of the company. Accordingly, the Court held that it could not accept the proposition that the purpose of the Act, or of section 312, was to bar a director from appointing his own successor. Turning to the statutory provisions, the Court noted that section 255 clearly allows such appointments, and therefore it could not be said, as the High Court had, that sections 254 and 317 of the Act implied a prohibition on perpetual management. Section 254 merely provides that a corporation or an association of persons is ineligible to act as a director; this restriction is not founded on the avoidance of perpetual management but on the principle that the composition of a corporation or association must vary over time, and that the office of director carries a degree of trust which requires a readily identifiable individual who can be held accountable, something difficult to achieve with a corporate or collective director. Regarding section 317, the Court observed that it limits the appointment of a managing director to a term not exceeding five years at a time, but section 315 renders this limitation inapplicable to private companies. Consequently, section 317 cannot be invoked to argue that the Act seeks to prevent perpetual management in private companies. Moreover, even for public companies, section 317 does not forbid a managing director from being reappointed after a term expires; such reappointment would result in continuous management, which the statute does not intend to prohibit. Finally, the Court emphasized that section 317 concerns the tenure of managing directors, whereas section 312 deals with the appointment of directors, and therefore the two sections address different matters. The Court then turned to consider another argument concerning the scope of section 312.

In the present case, the Court observed that even if section 312 of the Companies Act did not expressly forbid a director from appointing his own successor, the director could simply appoint a person as his successor in office rather than actually transferring the office to that person, thereby rendering the prohibition ineffective. The Court therefore held that the question of whether section 312 barred such an appointment was largely academic because the director could legally and effectively appoint his successor only to the extent that the company’s articles of association allowed, and, in the case of a public company, subject to the maximum term prescribed by section 255. The Court further explained that an appointment made in accordance with the articles did not constitute an evasion of section 312, since that provision could not have been intended to prohibit a transaction that another provision of the same Act expressly authorized. Conversely, an appointment made outside the powers conferred by the articles was wholly ineffective; such a purported appointment was not an appointment at all and consequently could not be said to evade section 312.

The Court then turned to an argument based on the first proviso to section 86B of the Companies Act of 1913. The main part of that old provision was analogous to the present section 312, rendering a director’s assignment of his office to another person void unless the assignment received approval by a special resolution of the company. Under the new Companies Act, the assignment was made void outright, even if a special resolution were obtained. The proviso of the 1913 provision stated that if a director exercised a power to appoint an alternate director to act for him during an absence of at least three months from the district where directors ordinarily met, and such appointment received the board’s approval, the act would not be deemed an assignment of office within the meaning of the section. The High Court had held that this proviso indicated that, in certain circumstances, an appointment made by a director in his own place might be treated as an assignment, and because the new Act was a consolidating statute, it should be read as continuing the earlier policy, thus interpreting “assignment” in section 312 to include “appointment.”

However, the Attorney‑General pointed out that the new Companies Act contained no such proviso, and the rule of construction employed by the High Court—presuming that a proviso could expand the meaning of a main provision—could not be applied to the new legislation. In the new Act, the substance of the old proviso had been enacted as an independent provision, namely section 313, which granted the power to appoint an alternate director to the board rather than to the individual director who intended to be absent. Consequently, there was no longer any “deeming” provision analogous to that of the 1913 Act. The Attorney‑General argued that this departure from the earlier arrangement demonstrated that Parliament did not intend to continue the previous policy, and therefore the High Court’s interpretation should not be followed.

The Attorney‑General further observed that the original proviso was, in substance, a statement that the appointment by a director of an alternate director might, in certain circumstances, be treated as an assignment. He emphasized that the use of the term “deemed” in the proviso made clear that such an appointment was not a genuine transfer of the office but only a fictional construction for limited purposes. According to his contention, this fictional treatment could be applied only to cases that fell squarely within the scope of the proviso and could not be extended to situations outside that narrow scope. The Court considered these observations to be arguments of considerable weight. The Court then turned to section 313 of the new Act, which has replaced the original proviso to section 86B of the old Act. Section 313 vests the power to appoint an alternate director in the board of directors rather than in the individual director who wishes to be absent. Consequently, there is no longer any “deeming” provision comparable to that found in the 1913 Act. Because the power now resides with the board, an argument based on the old proviso to section 86B cannot be invoked in relation to the present statutory scheme. Moreover, the Court found that the old proviso does not demonstrate an intention to broaden the meaning of the word “assignment” in the principal part of the section so as to include the concept of “appointment.”

The Court explained that the High Court had relied on a well‑known rule of statutory construction, which it quoted as follows: “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.” Applying that principle to section 86B, the Court held that at most the proviso would allow the court to deem an appointment of an alternate director by a director who intends to be absent as an assignment of his office, but only because the proviso itself provides for that limited treatment. To extend the principle so that every appointment of a successor by a director would be regarded as an assignment would be an unwarranted expansion. The Court further observed that, just as section 312 of the new Act does not treat an appointment as an assignment, the main part of section 86B of the old Act likewise did not treat the appointment of a successor as an assignment. This view is reinforced by the fact that section 83B of the old Act contained provisions that are substantially similar to those in section 255 of the new Act. The reasoning that led the Court to conclude that “assignment” in section 312 does not encompass “appointment” therefore leads to the same conclusion for section 86B. The Court stressed that if the operative part of the statute does not expressly forbid a director from appointing his successor, such a prohibition cannot be read into the provision by reference to a proviso. In support of this approach, the Court cited the observations of Lord Watson in The Guardians of the Poor of the West Derby Union v. The Metropolitan Life Assurance Society, emphasizing that language in the operative part of a statute cannot be supplemented by implication from a proviso.

In discussing the authority of a proviso, the Court referred to the case of the West Derby Union v. The Metropolitan Life Assurance Society, observing that when the operative part of a statute does not contain the provisions that a party claims are present, those provisions cannot be inferred merely from a proviso. The Court noted that the proviso might have been introduced as a precautionary measure, or perhaps to counter an argument that the appointment of alternate directors could be used to evade the main requirement of section 86B. Since the power to appoint alternate directors was not provided by the old Act but had to be granted by the company’s articles, the Court considered that the argument of evasion was not unlikely. Consequently, the Court concluded that the proviso to section 86B of the old Act did not support the contention that, under section 312 of the new Act, the term “assignment” should be interpreted to include “appointment”. The Court then turned to the policy underlying section 312 of the new Act. It recalled that section 255 of that Act requires a specified number of directors in a public company to be appointed by the company at a general meeting, and that a private company follows the same rule unless its articles provide otherwise. This reflects a legislative intent that, to a certain extent, directors should be selected by the shareholders as their representatives. The Court explained that if a director, once appointed by the company, were allowed to assign his office to another person, the successor would not be a representative chosen by the shareholders, thereby defeating the purpose of the statute. For that reason, the Act expressly prohibits a director from assigning his office under section 312. However, the Court observed that where a director is appointed by means other than a general meeting of the shareholders—such as an appointment made under the company’s articles—the shareholders have no role in that appointment and therefore cannot claim a right to influence the selection of the director’s successor. No statutory policy appears to be compromised by allowing such a director to appoint his own successor. Accordingly, section 312 does not address that category of appointment. Applying these principles to the case at hand, the Court found that Dadoba possessed the authority under the company’s articles to name a person as managing director succeeding him. Exercising that authority, Dadoba appointed the appellant Govind as the managing director who would succeed him after his death. This power of appointment was clearly recognized and validated by section 255 of the new Act. For the reasons previously explained, the Court held that the exercise of this power did not violate section 312.

The Court held that the exercise of the authority conferred by the articles of association to appoint a successor managing director did not violate the prohibition contained in section 312 of the Companies Act. From that conclusion the Court inferred that the appointment of the respondent, Govind, to the position of managing director had been made in accordance with the law and was therefore valid and effective. Accordingly the Court formally declared that Govind’s appointment as managing director of the company was lawful and proper, and it set aside the earlier judgments of the lower courts which had held that the appointment was invalid. The Court further observed that it had not been invited to examine any other portion of the judgment that was under appeal, and consequently it chose not to disturb any other findings or orders of those judgments. In addition, the Court noted that no party had made a request for an order regarding costs, and because no such request was made, the Court did not issue any costs order. Having made these determinations, the Court concluded that the appeal was successful and therefore allowed the appeal.