major general shanta shamsher ... vs kamani brothers private ltd. and ... on 6 january, 1958

8/11/2019 Major General Shanta Shamsher ... vs Kamani Brothers Private Ltd. and ... on 6 January, 1958

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Bombay High CourtMajor General Shanta Shamsher ... vs Kamani Brothers Private Ltd. And ... on 6 January, 1958Equivalent citations: AIR 1959 Bom 201, (1958) 60 BOMLR 1024, 1959 29 CompCas 501 BomBench: Mody

JUDGMENT

1. This is a suit filed by the plaintiff, who admittedly was one of the joint managing directors and adirector of the first defendant company, against the first defendant company and his co-directors fora declaration that the resolution dated 23rd September, 1957 passed by the Board of directors of thefirst defendant company is inoperative and that the plaintiff continues to be the joint managingdirector and is entitled to act as such managing director and to exercise all rights and powers tocarry out all duties assigned to him as such managing director.

2. The facts relevant to the decision of the disputes herein are not in dispute, with the result that nooral evidence whatever has been ld. The only evidence led is documentary evidence, the same beingrelevant and necessary for the purpose of the decision herein. It is therefore not necessary to set outthe contentions as contained in the pleading of the parties. It will suffice to set out the facts whichgive rise to the disputes herein.

3. The first defendant company is a private limited company. At all relevant times to plaintiff andthe defendants Nos. 2 to 8 have been directors of the first defendant company. The first defendantcompany are the managing agents of two public limited companies, being The Kamani Metals and Alloys Ltd. and the Kamani Engineering Corporation Ltd. The plaintiff and the 8th defendant aredirectors of another private limited company called the Shanta Brothers Private Ltd., the plaintiff

being also the chairman of the Board of directors, thereof. A finance agreement which is recorded ina writing dated 14th May, 1954 was arrived at between the said Shanta Brothers Private Ltd. and thefirst defendant company, whereby the former agreed to lend to the latter a sum of Rs. 28 lacs on theterms and conditions recorded in that writing. That agreement in writing is Ex. F before me.

4. Under the finance agreement the first defendant company agreed inter alia to pledge in favour of the said Shanta Brothers Private Ltd. 4500 ordinary shares of the first defendant company along with the pledge of certain other shares and an equitable mortgage of certain immoveable properties.Clauses 7(b), (c) and (e) of the said finance agreement run as follows:-

7. So long as moneys advanced by the Lenders to the Borrowers under these presents or any interestthereon shall remain the Borrowers shall

(a).....

(b) have subject to the approval of the Central Government if required one representativenominated by the Lenders and approved by the Board of Directors of the Borrowers appointed as aDirector on their Board of Directors with a monthly remuneration of rupees one thousand and fivehundred and all such allowances as are allowed by the Borrowers to their other Directors in the

Major General Shanta Shamsher ... vs Kamani Brothers Private Ltd. And ... on 6 January, 1958

Indian Kanoon - http://indiankanoon.org/doc/1339373/ 1


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same manner and to the same extent and such remuneration and allowances shall be paid to him solong as he takes active interest as a Director in the management of the affairs of the Borrowers andof the said Kamani Metals and Alloys Ltd. and Kamani Engineering Corporation Ltd. of which theBorrowers are the Managing Agents and such appointed shall be immediately after the first advanceis made by the Lenders under these presents and such remuneration shall commence from the dateof the first advance Provided. However that if any such representative shall be a brother of MajorGeneral Shamsher Jung Bahadur Rana, the Chairman of the Lenders or any relative or member of his family then and in such cases he will not be required to be approved by the Board of Directors of the Borrowers;

(c) get subject to the approval of Central Government if required Major General Shanta ShamsherJung Bahadur Rana the chairman of the lenders or any other person nominated by the Lendersappointed as a Director on the Boards of Kamani Bros. Ltd., Kamani Metals and Alloys Ltd. andKamani Engineering Corporation ltd. Provided that no person nominated by the Lenders and not being a relative or a member of the family of the said major General Shanta Shamsher Jung BahadurRana shall be appointed as such Director unless he is approved of by the respective Board of the saidKamani Bros. Ltd., Kamani Metals and Alloys Ltd. and Kamani Engineering Corporation Ltd. on whose respective Boards he is to be appointed a Director;

(e) see that the respective holders of the said shares shall cast their votes at any meeting of the saidKamani Bros. Ltd., Kamani Metals and Alloys Ltd. and Kamani Engineering Corporation Ltd. inaccordance with the directions of the Lenders and not otherwise and give their proxies to suchperson or persons as they the Lenders may nominate and procure to the Lenders an undertaking inthat behalf from the respective holders of the said shares."

5. In pursuance of the said finance agreement the said Shanta Brothers Private Ltd. lend andadvanced to the first defendant company the aggregate sum of Rs. 28 lacs and created the stipulatedpledge and equitable mortgage. Towards the end of February, 1956 the said Shanta Brothers Privateltd. nominated and the first defendant company accepted the plaintiff as the director of the firstdefendant company under the provisions of Clause 7(b) of the said finance agreement and similarly the said Shanta Brothers Private Ltd. nominated and the first defendant accepted the 8th defendantas a director under the provisions of Clause 7(c) of the said finance agreement. The said respectiveappointments of the plaintiff and of the 8th defendant became effective as from 1st March, 1956. Onthe 2nd of March, 1956 the Board of Directors of the first defendant company passed a resolution(Ex. 2) which provides as follows:-

"Resolution No. 372:

Resolved that Maj. Gen. Shanta Shamsher Jung Bahadur Rana be and is hereby appointed in the whole-time services of the Company on a monthly remuneration of RS. 2,000/- from 1-3-1955 in thegrade of Rs. 2,000-10-2500 plus rent free house."

6. On the 1st of April, 1956 the Indian Companies Act, 1956 came into operation. As the plaintiff held an office of profit and as Section 314 of the said Act required that the plaintiff could not hold




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the said office of profit except with the previous consent of the first defendant company accorded by a special resolution, a special resolution was passed at a general meeting of the first defendantcompany held on 29-3-1956 according such consent. The appointment of the plaintiff under the saidresolution to the Board of Directors dated 2-3-1956 became effective from 2-4-1956. The seconddefendant was then the Managing Director of the first defendant company and he, under hissignature, issued a memorandum on behalf of the first defendant company dated 2-3-1956 (Ex. A)stating that it had been decided that the plaintiff would, in addition to the Secretarial and LegalDepartment, look after the General Department with the functions mentioned in the saidmemorandum.

7. On 15-6-1956 the Board of Directors of the first defendant company passed a resolution (Ex. 3) whereby the plaintiff who was then a director was appointed as executive director of the firstdefendant company. Thereafter on 27-6-1956 the 2nd defendant as the managing director of thefirst defendant company issued on behalf of the first defendant company a circular stating that theplaintiff had been designated as the executive director of the first defendant company on and from15-6-1955 and that the functions and powers of the executive director would be circulated in duecourse.

8. On 26-9-1956 the eleventh ordinary general meeting of the share-holders of the first defendantcompany passed a special resolution whereby the then existing Articles 90 and 100 of the Articles of Association of the first defendant company were amended. The said amended article run as follows:

"Directors may appoint Managing Directors and/or Executive Directors.

99. The Directors may from time to time appoint any one or more of their body to be Managing

Director or Managing Directors and/or Executive Director for such period and upon such terms asthey think fit, and may vest in such Managing Director or Managing Directors and/or executiveDirector such of the powers hereby vested in the Directors generally as they may think fit and suchpowers may be exercisable for such period or periods and upon such conditions and subject to suchrestrictions, and generally upon such terms as to remuneration and otherwise as they may determine. The remuneration of a Managing Director and/or Executive Director may be by way of salary or commission or participation in profits, or by any or all of those modes.

"Special position of Managing Director and/or Executive Director.

100. A Managing Director or Managing Directors and/or Executive Director shall not while hecontinues to hold that office be subject to retirement by rotation and he shall not be taken intoaccount in determining the rotation of retirement of Directors, but he shall, subject to the provisionsof any contract between him and the company be subject to the same provisions as to recognitionand removal as the other Directors of the Company and if he ceases to hold the office of Director heshall ipso facto and immediately cease to be a Managing Director".

The Memorandum and Articles of Association of the first defendant company are Ex. 1 before me.Both the original and the amended Articles 99 and 100 are to be found in Ex. 1. The original Articles




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99 and 100 made a provision for "a managing director r managing directors". The only amendmentmade in the said two Articles by the said resolution dated 26-9-1956 is the addition of the words"and/or Executive Director" wherever they appear after the words "a Managing Director orManaging Directors" in the above amended Articles.

9. On 24-6-1957 the Board of Directors of the first defendant company held a meeting and therelevant portions of the minutes of the said meeting have been put in as Ex. 4. As appearing formthe said minutes, the Board passed a resolution which reads as follows:

"Resolved that the responsibilities of the Management be divided between the Managing Director who will look after the work of Kamani Metals and Alloys Ltd., this Company and its Associates andthe Executive Director who will look after the work of Kamani engineering Corporation Ltd.,including its branches and other activities thereto.

It is further resolved that the Executive Director be designated as Joint Managing Director."

As a result of this resolution the second defendant was designated as a managing director and theplaintiff as a joint managing director of the first defendant company. The responsibilities of themanagement were divided between them and the second defendant was to look after the saidKamani Metals and Alloys Ltd., the first defendant company and its associates and the plaintiff wasto look after the work of Kamani Engineering Corporation Ltd. By his memorandum (Ex. C) dated28-6-1957 issued by the second defendant as the Managing Director of the first defendant company,the second defendant gave intimation of the passing of the said resolution dated 24-6-1957 and alsointimated that the managing director would look after the work of the Kamani Metals and AlloysLtd., the first defendant company and its associates and that the plaintiff as a joint managing

director would look after the work of the Kamani Engineering Corporation Ltd., with immediateeffect.

10. A meeting of the Board of directors of the first defendant company was scheduled to be held on21-9-1957. An agenda for the said meeting as also a supplementary agenda for the same werecirculated amongst the directors of the first defendant company. The said agenda and thesupplementary agenda have been put in as Ex. D collectively. In view of the case as argued suchagenda and supplementary agenda are not at all relevant. For certain reasons which are not at allrelevant. For certain reasons which are not relevant the said Board meeting stood adjourned to23-9-1957.

11. On 23-9-1957 the said adjourned board meeting was held. Agreed portions of the minutes of thatmeeting have been put in as Ex. 5. As appearing from the said minutes the said meeting passed thefollowing resolution:

"In view of the consensus of opinion of the majority of the Board of Directors that the arrangementearlier resolved of division of responsibilities between the managing Director and Joint ManagingDirector having not worked as desired by the Resolution dated 24-6-1957, the Resolution of theBoard of Directors dated 15-6-1956 appointing General Shanta Shamsher J. B. R. as the Executive




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Director of the Company and the Resolution dated 24-6-1957 appointing General Shanta as JointManaging Director of the Company be and are hereby superseded and revoked. Further resolvedthat Shri P.R. Kamani do act as sole Managing Director of Company and as such he is hereby vested with all the powers of the Board of Directors under the Articles of Association of the Company underthe Law delegatable, and he do accordingly exercise the same."

It is this resolution the validity whereof has been challenged in this suit. A glance at the minutes of this meeting dated 23-6-1957 shows that the plaintiff and defendants Nos. 7 and 8 wee on one sidesupporting the plaintiff and the other directors being defendants Nos. 2 to 6 were on the other. Evenat the hearing of this suit also the defendants No. 7 and 8 have supported the plaintiff whereasdefendants Nos. 1 to 6 have opposed the plaintiff. What transpired at the said board meeting wascircularised by the third defendant as the chairman of the first defendant company by his circulardated 23-9-1957 (Ex., E) but the same is not relevant for the purposes of this case.

12. The only other document exhibited in this case is Ex. 6 which is a copy of the plaint in theBombay City Civil Court Suit No. 2851 of 1951 wherein the plaintiff and the 7th defendant areplaintiffs and that defendants Nos. 1 to 6 and the 8th defendants are the defendants. As stated inthat plaint (Ex. 6) the subscribed and paid up capital of the first defendant company is Rs.15,00,000/- divided into 15,000 ordinary shares of Rs. 100/- each. Out of the said 15,000 shares theseventh defendant owns 50 shares and the remaining 14,950 shares are held by the defendants Nos.2 to 6 and their relations and nominees who form what may be called, "The Kamani group". Out of the said 14,950 shares 4,500 shares have been pledged as aforestated to the said Shanta BrothersPrivate Ltd., and by reason of the provisions of Clause 7(e) of the said finance agreement the votingright in respect of 4,500 shares are controlled by the said Shanta Brothers Private Ltd., of whoseBoard of directors the plaintiff is the chairman and the 8th defendant is a member.

13. It is common ground that at all relevant times as also at present the Kamani group controlled the voting rights in respect of 10,450 shares whereas the group of the plaintiff and the defendants Nos. 7and 8 effectively control the voting rights in respect of 4,500 shares.

14. At the hearing of the suit, after the pleading were read, five issues only were raised originally, thesame being as suggested by Mr. Munshi on behalf of the first defendant company. The respectivecounsel appearing for the defendants NO.s 2 to 6 joined in these issues. A reading of the pleadingsshows that he same contains statements of fact on which the plaintiff wants to rely. But there are very few submissions of law which would clearly indicate what exactly is the plaintiff's cause of action. Undoubtedly it was not necessary that the plaint should contain any submissions of law. Theresult however was that the contesting defendants did not know what would be the exact cause of action which the plaintiff would formulate at the hearing on the basis of this plaint. Para 17 of theplaint does contain certain submissions of law on behalf of the plaintiff. From these submissions adthe prayers in the plaint at least one thing is clear, viz., that the plaintiff challenged the saidresolution dated 23-9-1957 passed by the Board of Directors of the first defendants company as being ultra vires the board of directors. Now, it should be remembered that the plaintiff is not ashare-holder of the first defendant company, but was a special director of the first defendant of thedefendant company appointed because of the provisions of the said Clause & (c) of the said finance




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agreement. Not being able to ascertain from the plaints the exact cause of action which the plaintiff would make out at the hearing and as the plaintiff was not a share-holder but still challenged thesaid resolution dated 23-9-1957 as ultra vires, certain technical defences were taken in paras 2, 2and 3 of the written-statement of the first defendant to the effect that the suit as framed is notmaintainable. That contention is the subject-matter of issue No. 1. The burden so far as issue No. 1 isconcerned being on the contesting defendants, Mr. Munshi the learned Counsel for the firstdefendant company argued first, confining his arguments to that issue only. Mr. Munshi argued thatthe suit is not maintainable because Courts have no jurisdiction to interfere with the internalmanagement of the company, that if the company acts ultra vires, i.e., outside the ambit of itsmemorandum of Association or in definance of its Articles, share-holder under certaincircumstances is entitled to have the act declared void and seek relief to compel the company to act within its powers, that no such suit would lie even at the instance of a share-holder in respect of unauthorised acts of the directors if the company could ratify the same and that no such suit can lieat the instance of a person who is not a share-holder as the cause of action of a non-member canonly be in breach of contract or tort, his remedy being in damage. Mr. Munshi further argued that when a non-member is appointed a managing director the same amounts only to a contract of employment and in such an event the appointment of the managing director would be under thatcontract, but that no such contact express or implied, has been mentioned in the plaint. He citedseveral authorities in support of his contentions and developed his point as to why the suit was notmaintainable. Thereafter Mr. Bhatt, the learned Counsel for the plaintiff, opened the case of theplaintiff and pointed out what according to the plaintiff is the cause of action in this suit. Accordingto him this suit is under Section 42 of the Specific Relief Act, that the plaintiff is entitled to a "legalcharacter", that that legal character of the plaintiff has been denied and that therefore the plaintiff isentitled to the declaration and injunction prayed for. he stated that the cause of action as read in theplaint by Mr. Munshi was not the correct cause of action. In as much as Mr. Munshi had however

advanced the said arguments, Mr. Bhatt advanced an argument to distinguish the same by statingthat the wrong complained of in the plaint was an individual wrong, that the arguments advancedand the authorities cited by Mr. Munshi had no application and that therefore the plaintiff was inany event entitled to maintain the suit In support of this contention that the wrong suffered by theplaintiff was an individual wrong and that therefore the plaintiff was in any event entitled tomaintain the suit Mr. Bhatt cited another string of authorities. When Mr. Bhatt however stated thatthe only cause of action according to the plaintiff, was under the Said Section 42 of the SpecificRelief Act, Mr. Munshi pointed out that in view of that contention of the plaintiff his own earliercontentions were no longer necessary. Thereupon Mr. Bhatt stated that if Mr. Munshi was notrelying upon his said contention in support of issue No. 1 it was no longer necessary for the plaintiff to rely upon the said contentions about the suit being maintainable and the wrong which theplaintiff had suffered being an individual wrong. The position that emerges is that issue No. 1 is now confined to the only cause of action stated by Mr. Bhatt as having been mae out in the plaint, viz.,the one under the said Section 42 of the Specific Relief Act.

15. No oral evidence has been led and only certain documentary evidence has been tendered andadmitted. On behalf of the various parties arguments were addressed by their respective counsel. Asarguments developed and proceeded from time to time it became apparent that the issues asoriginally framed were not adequate. As the arguments progressed applications were made on




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several occasions for framing additional issues. I have separately noted such applications as and when made and may orders thereon. As a result of these applications several issues have been addedfrom time to time. What now appear as issues Nos. 6, 7 and 8 were added first. Thereafter issue No.9 was added and thereafter the said issue No. 8 was amended and two more issues were added, thesame being issues Nos. 10 and 11. When issues Nos. 6, 7 and 8 were added, it was contended by some of the parties that the addition of those issues may necessitate the taking of further evidence.It appeared to me however that the addition of those issues was merely for crystallising thecontentions which emerged from the arguments of Counsel and that no further evidence would benecessary. As some of the parties however contended that they may have to lead further evidence, Ispecifically gave liberty to all parties to lead further evidence if the same relevant and necessary. Ishould record however that thereafter none of the parties applied for leading any further evidence,either oral or documentary, and that as a matter of fact towards the conclusion of the hearing I hadto ask the parties whether any of them desired to lead evidence in pursuance of the said liberty given by me in that behalf. And it was at that stage that counsel stated that none of them desired to leadany further evidence.

16. The first point for consideration is whether the plaintiff is entitled to a "legal character" withinthe meaning thereof in Section 42 of the Specific Relief Act. The said Section 42 provides that any person entitled to any legal character, or to any right as to any property, may institute a suit againstany person denying, or interested to deny, his title to such character or right. This section thereforeapplies when a person is entitled to any legal character or to any right as to any property. The phrase"legal character" occurs in two Statutes, viz., in section 42 of the Specific Relief Act and in Section 41of the Indian Evidence Act, but that phrase has not been defined in either of the said two Acts. Thereappears to be no decided case which defines "legal character" or lays down general principles fordetermining the same. I will therefore first reproduce the arguments of Mr. Munshi and Mr. Bhatt

as to what is legal character and then proceed to see whether it is possible to define what is "legalcharacter" or whether there are any general principles which would help in determining what is"legal character".

17. Mr. Bhatt in his opinion relied upon paragraphs 9 to 14 of the plaint and Exs. 3, B, Articles 99and 100 of the Articles of the first defendant company (Ex. 1), and Exs. 4 and C. He pointed out thatas stated in paragraph 9 of the plaint and shown by Exhs. 3 and B, the plaintiff was appointedExecutive Director from 14th June, 1956 and acted as such and that as stated in paragraphs 12 and13 of the plaint and Exhs. 4 and C the plaintiff was appointed joint Managing Director on 24th June,1957 and acted as such. he also referred to Section 2(26) of the Indian Companies Act, 1956 whichstates that "Managing Director" means a director who by virtue of an agreement with the company or by a resolution passed by the company in general meeting or by its Board of Directors or by virtueof its Memorandum or Articles of Association, is entrusted with any powers of management which would not otherwise be exercisable by him and includes a director occupying the position of amanaging director, by whatever name called."

He contended that under the circumstances the plaintiff was appointed and acted as ManagingDirector and was entrusted with certain powers as such Managing Director and that therefore theplaintiff was entitled to a "legal character" within the meaning thereof in the said Section 42. By way




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of an analogy he said that the position of the plaintiff was exactly like that of a person who has beenappointed as a trustee, who is informed that he has been so appointed and who accepts office assuch trustee. Mr. Bhatt however did not point out in detail how far the position of the plaintiff as the joint Managing Director was analogous to that of a trustee under the said circumstances.

18. Mr. Munshi in his reply argued that the plaintiff has no right to sue for the declaration underprayer (a) of the plaint because as the joint Managing Director the plaintiff has no legal character within the meaning thereof under Section 42 nor had the plaintiff any interest in property. Now, sofar as the latter is concerned, the same does not at all arise for consideration in this case. Even Mr.Bhatt has not claimed or argued that the plaintiff has, as joint Managing Director, "any right as toany property" and in my opinion quite rightly so because as joint Managing Director the plaintiff had certain rights only to manage the property and the first defendant company and not the plaintiff who owned the property. As regards Section 2(26) of the Indian Companies Act, 1956 Mr. Munshipointed out that the entrustment of the smallest power, e.g., like signing cheques or being sent toIndore for buying 100 bales of cotton, to a director of the first defendant company would make hima Managing Director within the meaning thereof under Section 2(26). he further argued that thedefinition of "officer" under Section 2(30) of the Indian Companies Act, 1956, would not include aManaging Director and that this shows that the office fundamentally is that of a director only, thatthere is no separate office of a Managing Director and that only when certain extra powers aredelegated to a Director that the Director is for certain purposes termed a "Managing Director".

19. As regards the meaning of "legal character" Mr. Munshi relied upon K.P. Ramakrishna Pattar v.K.P. Narayana Pattar, ILR 39 Mad 80 : (AIR 1915 Mad 584), which is a judgment of a DivisionBench of the Madras High Court. One of the contentions in that suit was that the plaintiff's suit todeclare that he had contractual rights as against the first defendants did not fall under Section 42 of

the Specific Relief Act because it was not a suit to declare a right to a legal character or a right toproperty. In respect of this contention, the following passage from the judgment appearing at p. 82(of ILR): (at pp. 584-585 of AIR) was relied upon by Mr. Munshi, viz., "We take it that a man's "legalcharacter" is the same thing as a man's status. "A man's status or "legal character" is constituted by the attributes which the law attaches to him in his individual and personal capacity, the distinctivemark or dress, as it were, with which the law clothes him apart from the attributes which may besaid to belong to normal humanity in general". According to Holland, the chief varieties of statusamong natural persons may be referred to the following causes:- (1) sex, (2) minority, (3) 'patriapotestas' and 'manus', (4) coverture, (5) celibacy, (6) mental defect, (7) bodily defect, (8) rank, casteand official position, (9) slavery, (10) profession, (11) civil death (12) illegitimacy, (13) heresy, (14)foreign nationality and (15) hostile nationality (see Banerjee's Lectures on Specific Relief). We think that a declaration that a valid personal contract still subsists between the plaintiff and the firstdefendant is not a right declare a title to a legal character or a title to right to property".

The above passage contains a quotation from S.C. Banerjee's Law of Specific Relief in British India(1909 edition) page 617-618. It will be noticed that "legal character" has been taken in this judgmentto mean the same thing as a man's status.




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20. Another case relied upon by Mr. Munshi was that of Madanlal v. State of Madhya Bharat, (S) AIR 1955 MB 111. In that case there was a contract between A and B and B was claiming somemoneys as due in respect of that contract. According to the plaintiff it was A who was liable to B inrespect of that claim and not the plaintiff, but B demanded those moneys form the plaintiff. Underthe circumstances, the plaintiff filed by the suit for a declaration that according to the contract it was A who was liable to B and not the plaintiff and for an injunction against B restraining B fromclaiming from the plaintiff any amount in respect of the said contract. It was held that 'legalcharacter' under Section 42 is the same as legal status, i.e., a position recognized by law and that asuit for a declaration that under a certain contract the plaintiff is not liable is not a suit for adeclaration that he is entitled to a legal character or any right as to any property. This case againshows that "legal character" under Section 42 is the same as legal status.

21. Mr. Munshi also cited tow other case, viz., Deokali Koer v. Kedar Nath, ILR 39 Cal 704 andSheoparsan Singh v. Ramnandan Prasad Singh, ILR 43 Cal 694: (AIR 1916 PC 78). Although thesaid two cases relate to Section 42 of the Specific Relief Act, the decisions therein are confined to thefacts of the particular case. The judgments do not contain any general discussion as to the meaningof "legal character" nor do they lay down any general principles for guidance as to what wouldamount to "legal character" under the said Section 42.

22. Mr. Munshi then referred to Section 41 of the Indian Evidence Act which provides as under:

"A final judgment, order or decree of a competent Court, in the exercise of probate, matrimonial,admiralty or, insolvency jurisdiction, which confers upon or takes away from any person any legalcharacter, or which declares any person to be entitled to any such character, or to be entitled to any specific thing, not as against any specific person but absolutely, is relevant when the existence of any

such legal character, or the title of any such person to any such thing, is relevant."

In this section also the words "legal character" have been used, although in a different context. Thesaid words "legal character" as occurring in section 41 have been construed in Punjab National Bank v. Balikram Kissenchand . In that case Sen J. in his judgment at page 227 of the said report observesas follows:

"The words used are "declares any person be entitled to a legal character". A declaration of a legalright is a different thing from a declaration of a legal character. The word "character" means status,it is something more than a mere right. The declaration of a person's right operates as against aparticular person of group of persons against a particular person or group of persons against whomthe right is claimed, whereas a man's status is something which defines his position not in relationto any particular person or group of persons but in relation to the rest of the world; his statusdistinguishes him from the rest of the world. To say that a person is not a partner of a firm is not todeclare his status or legal character, it is merely to declare his position with respect to the particularfirm".

This judgment also says that "character" means status and that it is some thing more than a mereright. Mr. Munshi also cited two English cases being Pulbrook v. Richmond Consolidated Mining




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Co. (1878) 9 Ch. D 610, and Hayas v. Bristol Plant Hire Lt., (1957) 27 Com. Cas 442. In neither of these two cases did the words "legal character" have to be construed and neither is even of any helpin construing the said words. Mr. Munshi concluded his arguments on this point by stating that nodefinition of "legal character" was possible but that it could only be negatively said that the words"legal character" would not include any interest in property or legal rights under a contract, and thatlegal character must be a legal status against the whole world and not against an individual or agroup of individuals only, a status a declaration in respect whereof would be a judgment in remunder Section 41 of the Indian Evidence Act. he argued that a Managing Director would be thecreature of a contract between the Managing Director and the Company or a mere agency arising by reason of the delegation of powers to a director and would not be "legal character" within themeaning thereof under Section 42.

22A. Mr. Bhatt in his reply to Mr. Munshi agreed with Mr. Munshi that it was difficult to define"legal character". As regards the said three tests mentioned by Mr. Munshi, he stated that as regardsthe test that an interest in property would not be included in "legal character", he pointed out thatthe same was obvious from the said Section 42 it self, because that section provides for a declaration being made for two categories of rights, viz., legal character and any right as to any property, andtherefore the said two categories of rights were obviously meant to be separate and distinct fromeach other. As regards the said second negative test suggested by Mr. Munshi, he pointed out thatthe same also could not be correct because under most systems of law marriage is a contract andtherefore the status of husband and wife would be the result of a contract and yet, even according toMr. Munshi, the status of husband or of wife would be legal character. He argued that therefore allrights rising under a contract were not in any event excluded from "legal character". As regards thesaid test suggested by Mr. Munshi that legal character would include only such status a declaration whereof would be a judgment in rem under the said Section 41, he pointed out that the same was not

at all a correct test because Section 43 of the Specific Relief Act itself provides that a declarationunder Chapter VI of the Act, which chapter includes Section 42, would be binding only on theparties to the suit and persons claiming under them. Mr. Bhatt also relied upon Sat Narain Gurwla v. Hanuman Parshad, AIR 1946 Lah 85. In that case the right of franchise and the right of beingelected as a Municipal Commissioner were held to be "legal character" within the meaning of thesaid Section 42 as appears from the following passage at page 94 of the Report from the judgment of Mahajan J., (as a Puisne Judge of the Punjab High Court as he then was), viz:

"The only other matter that I wish to mention before concluding this judgment is that in my opinionthe right conferred on a subject, i.e., a right of vote or a right to stand as a candidate for beingelected as a Municipal Commissioner is a very valuable right and a suit for a declaration that aperson's nomination paper has been illegally rejected and that the defendant had not been elected asa member of the Municipal Committee can be entertained by the Civil Court even under theprovisions of Section 42, Specific Relief Act. The words, "legal character" are wide enough to includethe right of franchise and the right of being elected as a Municipal Commissioner. The defendant was the person interested who denied the right of the plaintiff to such a legal character. A suit can,therefore, be properly brought under the provisions of Section 42, Specific Relief Act".




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It will be noticed that there are no general tests or reasons mentioned by reason whereof the saidright of franchise was held to be "legal character", the only reasons stated being that the same was a very valuable right. Mr. Bhatt further pointed out that "Managing Director" is not only defined inSection 2(26) of the Companies Act, 1956 but that in Section 316(3) of that Act what a ManagingDirector occupies has been referred to as "office", that Managing Directorship is an office recognised by law, that therefore a Managing Director has by law been clothed with certain attributes as stated by Banerjee and that therefore managing directorship is a legal status or legal character. Mr. Bhattalso argued that the distinction made by Mr. Munshi that in the case of a trustee the legal ownership would vest in the trustee and that the trustee may, therefore, sue for a declaration under Section 42, because he would be entitled to a right as to property and not because he was entitled to a legalcharacter was not proper, because Courts have made declarations under the said Section 42 even inthe case of persons who did not own any property but were entitled only to a right to management of property, e.g., a director of policy-holders in a life insurance Company in Subramania Aiyar v.United India Life Insurance Co. Ltd., AIR 1928 Mad 1215, Mutawali in Mahomed Jafar Husain v.Mohammad Taqi, AIR 1933 Oudh 517, and in Ali Shah v. Fateh Mohammad Mutawalli, AIR 1935Lah 657, and a trustee of a temple who was entitled only to management, the ownership being in thedeity, in K.R. Swaminatha Iyer v. A. Ramier, AIR 1925 Mad 421. Mr. Bhatt also cited Chapsey v.Jethabhai, 9 Bom LR 514, where the plaintiff and the defendant were trustee appointed under adeed of trust executed by members of a casts. The defendant, relying upon a resolution said to have been passed by the general committee of the caste purporting to remove the plaintiff from thetrusteeship, exclude the plaintiff from the management of the trust properties. The plaintiff thereupon filed a suit against the defendants as co-trustees for a declaration of his trusteeship andfor an injunction to restrain the defendants from interfering with his rights as a trustee.Chandavarkar J., held that the plaintiff's legal character being denied, he was entitled, according toSection 42 of the Specific Relief Act, to institute the suit against any person denying such character.

I may state that in this case there is no discussion at all a what is the meaning of "legal character" oras to why trusteeship is "legal character". The judgment assumes that the trustee was entitled to"legal character".

23. From the above arguments and the cases cited on either side, it is clear that there has yet not been formulated any definition of "legal character" or any general test for ascertaining what thesame is. Section 42 provides for a declaration being made in respect of a legal character and a rightas to any property. These two categories, viz., legal character and a right as to any property, have been separately mentioned and would therefore prima facie appear to be distinct, separate andexclusive. Section 42 provides for making a declaratory decree, i.e., making a decree declaring aman's rights, which would mean legal rights, and it would therefore appear that both the saidcategories mentioned in Section 42 are species of the same genus, viz., "legal rights". "Legalcharacter" however does not appear to be a phrase common to jurisprudence nor does it appear tohave been used in Statutes, except in Section 42 of the Specific Relief act and Section 41 of theIndian Evidence Act. In at least three judgments mentioned above, viz., "legal character" has beentaken to meant, "legal status" a phrase known to jurisprudence. When the legislature used thephrase "legal character" in the said two sections it is legitimate to assume that the legislature wasusing the same in respect of some known legal concept and the context in Section 42 of the SpecificRelief Act indicates that what was intended to be meant by "legal character" was "legal status". It is




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necessary to ascertain what is meant by "rights", "legal rights" and "legal status"?

24. Now, what is a "right"?

According to Salmond (Salmond on Jurisprudence, 10th Edition, page 229), "a right is an interestrecognised and protected by a rule of right. It is any interest, respect for which is a duty, and thedisregard of which is a wrong."

"All that is right or wrong, just or unjust, is so by reason of its effects upon the interest of mankind,that is to say, upon the various elements of human well-being, such as life, liberty, health,reputation, and the uses of material objects. If any act is right or just, it is so because and in so far asit promotes some from of human interest. If any act is wrong or unjust, it is because the interests of men are prejudicially affected by it. Conduct which has no influence upon the interests of any onehas no significance either in law or morals."

"Every wrong, therefore, involves some interest attacked by it, and every duty involves some interestto which it relates, and for whose protection it exists.....

The interests which thus receive recognition and protection from the rules of right are called rights."

25. According to Holland (Holland's Elements of Jurisprudence, 12th Edition, page 82) a right "isone man's capacity of influencing the acts of another, by meant, not of his own strength, but of theopinion or the force of society."

26. Now, what is a "legal right"?

27. According to Salmond (page 230):

"A legal right is an interest recognised and protected by a rule of legal justice-an interest the violation of which would be a legal wrong done to him whose interest it is, and respect for which is alegal duty".

28. According to Holland (Page 83):

"A legal right is a capacity residing in one man of controlling, with the assent and assistance of theState, the actions of others".

29. Therefore, according to both Salmond and Holland, every interest or right which is recognisedand protected by the State, i.e., by the laws of the State, is a legal right and every such legal rightinvolves a legal duty or obligation.

30. Again, according to both Salmond (page 233) and Holland (Page 91), a legal right has thefollowing four characteristics or elements;




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(1) A person who is the owner of the right. The person in whom the right resides, or who is clothed with the right. The person who is benefited by its existence. Salmond calls him the person of inherence.

(2) A person against whom the right is available. The person whose duty it is to act or forbear for the benefit of the person who is entitled to the right. Salmond calls him the person of incidence.

(3) In many cases, though not in all, an object or subject-matter over which the right is exercised.

(4) Acts or forbearances which the person in whom the right resides is entitled to exact. It obligesthe person bound to an act or omission in favour of the person entitled. Salmond calls it the contentof the right.

31. For the above four, Salmond uses the word "characteristics" while Holland uses the word"elements", but the analysis of a legal right of both Salmond and Holland is identical. According toSalmond, however, there is a fifth characteristic of a legal right, viz., every legal right has a title, thatis to say, certain facts or events by reason of which the right has become vested in its owner. It isclear that the title to a right would be a characteristic of a legal right, but it is not an element of alegal right.

32. Salmond illustrates these five characteristics by the following example:

"Thus if A buys a piece of land from B, A is the subject or owner of the right so acquired. The persons bound by the correlative duty are persons in general, for a right of this kind avails against all the world. The content of the right consist in non-interference with the purchaser's exclusive use of the

land. The object or the subject-matter of the right is the land. And finally the title of the right is theconveyance by which it was acquired from this former owner." But, as pointed out by Holland, thereare rights in which the third element, viz., object, or subject-matter may be absent. For example, B is A's servant. Here A is the 'person of inherence', reasonable service is the "act" to which he is entitled,and B is the "person of incidence" against whom the right is available.

33. Now, the possible modes of classifying rights as also legal rights are almost infinite, but only some are of greater importance. Various modes of classifying rights would, it should be observed,have nothing to do with one another; they would be only cross divisions. If a certain type of distinguishing characteristic is taken as the basis of classification, the right would divide themselvesinto two classes as judged by the distinguishing characteristics. For example, based on the incidenceof correlative duties, a right may be a right in rem when it corresponds to a duty imposed uponpersons in general or the right may be a right in personam when it corresponds to a duty imposedupon determine individuals. It may here be mentioned that as will appear hereafter this particularclassification of legal rights into rights in rem and rights in personam is of no relevance for thepurpose of ascertaining "legal character", that is, "legal status".

34. Another classification of legal rights is to divide them into Proprietary and Personal Rights.Salmond (Pages 256 to 258) says.




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"Another important distinction is that between proprietary and personal rights. The aggregate of aman's proprietary rights constitutes his estate, his assets, or his property in one of the many sensesof that most equivocal of legal terms.

The sum total of man's personal rights, on the other hand, constitutes his status or personalcondition, as opposed to his estate. If he owns land, or chattels, or patent rights, or the goodwill of a business, or shares in a company or if debts are owning to him, all these rights pertain to his estate.But if he is a free man and a citizen a husband and a father,the rights which he has as such pertain tohis status or standing in the law.

X X X It makes no difference in this respect whether a right is jus in rem or jus in personam. Rightsof either sort are proprietary, and make up the estate of the possessor if they are of economic value.Thus my right to the money in my pocket is proprietary; but not less so is my right to the money which I have in bank. Stock in the funds is part of a man's estate, just as much as land and houses;and a valuable contract, just as much as a valuable chattel. On the other hand, a man's rights of personal liberty, and of reputation, and of freedom from bodily harm, are personal, not proprietary.They concern his welfare, not his wealth; they are judicial merely, not also economic. So, also,withthe rights of a husband and father with respect to is wife and children. Rights such as theseconstitute his legal status not his legal estate. If we go outside the sphere of private into that of public law, we find the list of personal rights greatly increased. Citizenship, honours, dignities, andofficial position in all its innumerable forms, pertain to the law of status, not to that of property."

35. From the above, it is clear that a legal right must be either proprietary, i.e., in the nature of property, or personal and it is only the latter that creates a status. For a better understanding of what is meant by 'status', and to find out what is the demarcating line between a right which is a

proprietary right and a right which is a personal right I will now turn to Holland.

36. A right as stated above, has four elements, two of which are 'the person of inherence' and 'theperson of incidence' i.e., the person in whom the right resides and the person against whom theright is available. Holland says (Page 94):

"Persons are subjects of Duties as well as of Rights.....Persons, i.e., subjects of Right or of Duties arein general individual human beings; but, in imitation of the personality of human beings, the law recognises certain groups, of men or of property, which it is convenient to treat as subjects of rightsand duties as persons in an artificial sense. A 'natural', as opposed to an 'artificial', person is such ahuman being as is regarded by the law as capable of rights or duties; in the language of Roman law as having a 'status'. As having any such capacity recognised by the law, he is said to be a person, or,to approach more nearly to the phraseology of the Roman lawyers, to be clothed with or to wear themask (persona) of legal capacity".

Besides possessing this general legal capacity, or status, a man may also posses various specialcapacities, such as the 'tria capita' of liberty, citizenship, and family rights. A slave having, as such,neither rights nor liabilities, had in Roman Law. strictly speaking, no 'status', 'caput', or 'persona'."




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37. Holland (page 135) says that the status of the persons concerned is a basis of the division orrights, "that is to say, there are some rights in which the status of the persons concerned has to bespecially taken into consideration, while in others this is not the case.

38. This distinction has led to a division of law into the 'law of persons' and the 'law of things'."

39. Holland points out that the said four elements of a Right divide themselves into two class, thefirst consisting of the person of inherence and the person of incidence, giving rise to the law classified as 'the law of persons' and the second consisting of the object and/or the acts orforbearances, giving rise to the branch of law classified as 'the law relating to things'. About thelatter, it should be noted that although the word used is 'things', 'the law relating to things' wouldinclude 'things' proper, meaning thereby corporeal things which can be touched, such as a farm or aslave, and also incorporeal things, which cannot be touched, consisting of rights only, such as a rightof servitude, a right of action, or a right arising out of a contract.

40. A Right varies with a variation in any one of the series of its constituent elements. The law of Persons, as a source of variety in rights, if therefore distinct from and much smaller than the residueof the law, which is generally called the Law of Things. If a line is to be drawn between the Law of Things and that of Persons, where is the line to be drawn? After discussing various tests of thecharacteristics of the law that ought to be treated under the latter head, Holland says pages143-144):

"The true test is surely this. Does the peculiarity of the Personality arise from anything unconnected with the nature of the act itself which the person of inherence can enforce against the person of incidence?

In order to determine, for instance, whether the right of landlords should be considered under thelaw of persons, we must ask whether landlords as a class have any juristic peculiarities unconnected with the acts which they are entitled to demand from their tenants; such as the payment of rent, theobservance of covenants, etc. They clearly have not. A landlord merely means a person who isentitled to these acts. On the other hand, suppose the landlord to be an infant; here at once a wholeset of characteristics are present, modifying the right to rent, etc. and quite unconnected with it. Noris it only because the same person sustains the two characters of infant and landlord that this i thecase; a man may be a pawn-broker and landlord, but the rights as landlord will not be affected by hisoccupation as pawn-broker. The personality recognised in the law of persons is such as modifiesindefinitely the legal relations into which the individual clothed with the personality may enter.

Of such affections of Personality there are two classes:

(1) The person may be 'artificial' i.e., ma be not a human being.

(2) The person may be under disability, or may enjoy exemption, on account of age, sex, mentalincapacity, crime, alienage, or public station.




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All of these are abnormal deviations from the ordinary case of both parties concerned in a right being human beings, under no special and far-reaching disability or exemption. When the disability or exemption is not of a far-reaching character, it will not be treated in practice as founding a specialstatus, although, upon the principles above stated, otherwise capable of being so treated. Thus, as arule, soldiers, or blind or illegitimate, persons are not held to occupy a status, although in severalrespects, and in particular with reference to testamentary powers and rights of succeeding abintestato, they may respectively exhibit peculiarities which are not involved in the statement thatthey are in military service, blind, or illegitimate."

41. Therefore, to repeat what Holland has said a legal right can be classified to be a Personal rightand would amount to one's Status, and is distinct from a Proprietary right, when it involves apeculiarity of the personality arising from anything unconnected with the nature of the act itself which the person of inherence can enforce against the person of incidence. The personality recognised in the law of persons is such as modifies indefinitely the legal relations into which theindividual clothed with the personality may enter. This then appears to be the test of what is legalstatus or "legal character" as mentioned in Section 42 of the Specific Relief Act.

42. Now, the field of law itself may be divided into Private Law, i.e., the law which regulates rights between subject and subject, and Public Law, i.e., the law which regulates rights between the Stateand its subjects omitting for the purposes of the consideration of the meaning of status the third branch which is International law. As already seen it is the law of Persons as contrasted from the law of Things which creates 'status'. As stated by Holland, the contrast between the law of persons andof things, or between the law of 'normal' and of 'abnormal persons' is sharply defined only in PrivateLaw and not in Public Law. In Private Law, where all characteristics of law are fully present, the law of Persons is a statement of the ways in which the general law is modified by varieties of status;

while the law of Things is a description of the various kinds of rights enjoyed is private capacities by persons as being within the jurisdiction of a State, but not as being in any way representative of thesovereign power in the State. In Public Law, however, which possess the characteristics of law in alower degree of development, the distinction is but faintly traceable. What is analogous to the law of Persons here consists in a description of the State as a whole of its ruling body, of bodies of personsenjoying delegated ruling power, and of its constituent members as such; in short what is usually known as "Constitutional Law". On the other hand, the residue of Public law consisting of the Administrative Law and the Criminal Law has its analogies to the law of Things.

43. Legal status of a subject may therefore arise in relation to Private Law or in relation to Publiclaw. A person's franchise or right to vote or right to a public office would constitute his Status inrelation to Public law and it was such status which was the subject matter of the said case of AIR 1946 Lah 85 and was held to be "legal character" within the meaning of Section 42 of the SpecificRelief Act.

44. As seen earlier, status arises by reason of some peculiarity of the person of inherence or theperson of incidence. The person may be a natural person, i.e., a human being or an artificial persons,i.e., a juristic persons, like a company or what is known in English Law as a Corporation Sole. Thepersonality of an artificial person is different from that of a normal natural person and it constitutes




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his status in law. But amongst the natural persons themselves some have certain peculiarities abouttheir personality and to illustrate the same, Holland stays (at page 351):

"The chief varieties of status among natural persons may be referred to the following cause; 1. sex; 2.minority; 3. 'patria potestas' and 'manus'; 4. coverture; 5. celibacy; 6. mental defect; 7. bodily defect;8. rank caste, and official position; 9. race and colour; 10 slavery; 11. profession; 12. civil death; 13.illegitimacy; 14. heresy; 15. foreign nationality; 16. hostile nationality. All of the facts included in thislist, which might be extended, have been held, at one time or another, to differentiate the legalposition of persons affected by them from that of persons of the normal type".

it is this passage from Holland which has been quoted by Banerjee in his Law of Specific Relief InBritish India, and which has been reproduced in the said case of ILR 39 Mad 80 : AIR 1915 Mad584.

45. As observed by me earlier "legal character" as used in Section 42 is equivalent to legal status andlegal status in a legal right when it involves a peculiarity of the personality arising from anythingunconnected with the nature of the act itself which the person of inherence can enforce against theperson of incidence. The plaintiff claims legal character or legal status by reason of his managingdirectorship. Under Section 2(26) of the Companies Act, 1956, a director is a managing director when he is entrusted with powers of management either by virtue of an agreement with thecompany, or of a resolution passed by the company in general meeting, or by its Board of directors,or by virtue of its Memorandum or Articles of Association. On this definition of a managing directoras given by the Companies act, it is necessary to ascertain first who is the person of inherence, whichis "the act" that is the right, and who is the person of incidence. It is the plaintiff who is the person of inherence. It is the plaintiff who as managing director claims certain rights. "The act", that is the

right or rights, are the powers entrusted to the managing director as mentioned in the abovedefinition. It is the company which is the person of incidence, that is the person against whom thepowers or rights as managing director would be available. It may be that not only the company, thatis, the first defendant company, but even the plaintiff co-directors may perhaps fall within thecategory of persons of incidence. I do not think it necessary to analyse and ascertain whether theplaintiff's co-directors would or would not be persons of inherence. I will assume that they do fall within that category of persons of incidence. But to my mind it is quite clear that whatever powers orright the managing director is entitled to are by reason of the particular entrustment. It is theparticular entrustment, that is, the particular agreement or resolution or Memorandum or Articlesof Association mentioned in the said Section 2(26), which fully determines the nature and extents of that power or right of the managing director. The personality of a managing director has nopeculiarity and certainly no peculiarity unconnected with or independent of his said right or poweras a managing director, and therefore there can possibly be no legal right which a managing directorcan have which would involve such peculiarity of personality which is independent of the right orpower itself and which the managing director can enforce against his company and against hisco-directors. The position of a managing director is totally unlike that of a minor or a wife. A minor by the only reason of his being a minor and the wife by the only reason of her being a wife has apeculiarity of personality which is unconnected with any right which the minor or the wife may claim. A landlord would have certain rights against his tenants as such landlord, but if that landlord




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happens to be a minor, the peculiarity of the status of the minor, which is totally independent of therights as a landlord, would affect and modify the otherwise normal rights as a landlord. Thepersonality of a minor as recognised by the law of persons is such that it modifies indefinitely thelegal relations into which the minor as having been clothed with such personality may enter. Such isnot the case of a managing director. Independently of the powers entrusted to him, he has nopeculiarity or legal status which affects or modifies his powers or rights. A managing director cannottherefore be said to have any legal status. Now, amongst the said 16 varieties of status mentioned by Holland are to be understood in the light of the general principles formulated by Holland, otherwisesome of the said varieties having been mentioned generally are liable to create a misunderstanding.Fortunately, apart from the said general principles, Holland himself gives (page 355) illustrations of "office" as used in the said 8th variety as follows:

"(8) The king, according to the maxim of English law, can do no wrong. No action can be broughtagainst him, nor indeed against a foreign sovereign, as such, or his ambassador. Certain highofficials are exempted from responsibility for the acts of their subordinates, and various publicfunctionaries are relieved from liability by the Statutes of Limitation at an earlier date tan otherpeople". The king or the high officials mentioned in this illustration have a legal status, as they havepeculiarity of personality as in the case of a minor which exists independently of any particular right which they claim and which they can enforce against the persons of incidence. It is in this sense that"official position" or "office" has been used in the said 8th variety and as seen earlier, managingdirectorship cannot fall within it. On the general test mentioned above, it is clear that when rights were claimed under a contract the same would not amount to "legal character" under Section 42 asheld in some of he cases I have referred to above. Nor is the question whether the judgment in aparticular case would amount to a judgment in rem a test of 'legal character' as argued by Mr.Munshi, because the division of legal rights into rights in rem and rights in personam is of no

relevance in judging legal status or legal character. Indeed, Section 43 of the Specific Relief Act itself states that the declaration under Chapter VI of that Act, i.e. under Section 4, would be biding only on the parties to the suit and those claiming through them, which means that it is not a judgment inrem. Nor is the ownership of any property or the absence of it any criterion for judging legalcharacter. It is the peculiarity of the personality of the person of inherence which is the determiningfactor of legal character and ownership of property or the absence of it is of no relevance.

46. I therefore hold that the plaintiff is not entitled to any legal character with in the meaningthereof in Section 42 of the Specific Relief Act. The answer to issue No. 10 will therefore be in thenegative. The plaintiff is therefore not entitled to the declaration prayed for under prayer (b) of theplaint as that declaration is prayed for on the basis that the plaintiff is entitled to a legal character, viz., that of the managing Director of the first defendant company and is to the effect that theplaintiff continues to hold such legal character.

47. There is however another declaration prayed for under prayer (a) of the plaint, the same beingthat the resolution dated 23rd September 1957 are void, illegal, inoperative and of no effect whatsoever. Mr. Bhatt had repeatedly stated that the whole cause of action in the plaint is on the basis of the plaintiff being entitled to a legal character and the suit being under Section 42 of theSpecified Relief Act. As I have held that he plaintiff, as the managing director of the first defendant




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company, was not entitled to any legal character the relief claimed under prayer (a) must thereforealso fail. The plaint is not on the basis that the plaintiff was appointed as the managing director of the first defendant company by or under any contract, express or even implied, between the plaintiff and the first defendant company. As a matter of fat Mr. Bhatt repeatedly stated that the plaintiff'sclaim was not under any contract express or implied. But apart from the point raised in this case asto whether the plaintiff is entitled to a legal character or not, Mr. Nathwani, the learned Counsel fordefendant Nos. 2,4,5 and 6, had raised another point for my decision, viz., that in order to obtainrelief the plaintiff must, on the plaint as it stands, place reliance on the Articles of Association of thefirst defendant company, but that the plaintiff is not entitled to do so as the plaintiff is not even ashare-holder of the first defendant company. Now, it is quite clear that the plaintiff must rely on the Article of Association of the first defendant company in order to challenge the validity of theresolutions dated 23rd September 1957. It is the plaintiff's case, as made out in the plaint, that on atrue construction of the Articles of Association of the first defendant company and particularly Article 100, the Board of Directors of the first defendant company had no power to pass the saidresolutions and that the said resolution s are invalid because of that reason. Mr. Bhatt howeverargued that reliance has to be placed on the Articles of Association of the first defendant company,not by the plaintiff to complete the cause of action, but by the defendants to justify the plaintiff'sremoval from his managing directorship. he pointed out that it has been stated in the plaint that theplaintiff was appointed as a joint managing director and it is further stated in para 17 that "theplaintiff continues to be the joint Managing Director of the first defendants having the powers andresponsibilities assigned to him under the said resolution dated 24th June 1957". He argued thatonce the plaintiff's appointment is admitted, it is for the defendants, who allege termination, toprove that there is a valid termination of that appointment. he argued that the plaintiff's cause of action is complete so far as the suit under Section 42 is concerned and the plaintiff himself does not want to rely on any Articles of Association of the first defendant company, but it is the defendants

who would have to rely on the Articles to justify the termination of the plaintiff's joint managingdirectorship. In my opinion, this contention of Mr. Bhatt is not sustainable. The plaintiff's cause of action, according to the plaintiff himself, is on the basis of a legal character under Section 42. UnderSection 42 the plaintiff can file a suit for a declaration against persons denying or interested indenying that legal character. What the plaintiff has to prove is that the plaintiff is entitled to legalcharacter at the date of the suit. Therefore the plaintiff must prove that the plaintiff was validly appointed as a managing director (assuming for this purpose that managing director-ship is legalcharacter) and that the plaintiff continued to be such managing director at the date of suit. Theplaintiff may not have to prove his appointment because such appointment is admitted. But merely establishing by such admission that the plaintiff was so appointed is not sufficient. If suchappointment gives to the plaintiff a legal character the plaintiff must establish the characteristics of such legal character by establishing the nature of such appointment, which would, amongst otherfactors, include how such appointment was liable to be terminated. Once the plaintiff establishes hislegal character in all its aspects, including the mode of its termination, it would then be for thedefendants to prove that the plaintiff's appointment has been validly terminated in that mode of termination as established by the plaintiff. For example, if the plaintiff establishes that his legalcharacter as joint managing director was such that it could be terminated only by a specialresolution passed by the first defendant company at a general meeting of its members, then and only then, would it be necessary for the defendants, if they allege termination, to prove that there was a




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valid special resolution passed by the first defendant company at a proper general meeting of itsmembers. In this case, in order to prove the plaintiff's alleged legal character as managing director,It would be for the plaintiff to prove, amongst other things, whether such appointment of theplaintiff was capable of being terminated, and if so, in what manner; and in order to prove the samethe plaintiff must rely on the Articles of the first defendant company. Next, it is common groundthat the plaintiff at any material time was not a share-holder of the first defendant company. Now,even between a member and the company, the Article of Association constitute a contract only inrespect of his rights and liabilities as a share-holder, but not in respect of rights and liabilities whichhe has in a capacity other than that of a member. But as between the company and outsiders, i.e.,persons who are not share-holders, the Article do not in any circumstances constitute a contract of which that person can take advantage. This position in law is too clear to require reference to any authorities or even text books. The plaintiff not being a member of the first defendant company istherefore not entitled to place any reliance on the Articles of the first defendants company. What ismore, the plaintiff's cause of action is not, a already observed by me earlier, on the basis even of animplied contract between him and the first defendant company so that it cannot be said that the Articles of the first defendant company or any of them impliedly form part of any contract betweenthe plaintiff and the first defendant company. In my opinion, therefore, the plaintiff is not entitled toplace any reliance in this suit as framed on any of the Articles of Association of the first defendantcompany or to claim any reliance on the said Articles. But in order to get the declaration underprayer (a) of the plaint, the plaintiff has to rely on the Articles of Association of the first defendantcompany and particularly Article 100, of course, on the construction placed thereon a hereinaftermentioned by the plaintiff, and without placing such reliance the plaintiff cannot get the saiddeclaration. The plaintiff is therefore not entitled to the declaration prayed for under prayer (a) of the plaint. In this connection Mr. Nathwani had cited the case of Mothey Krishna Rao v. Grandhi Anjanevulu, . In that case a secretary of the company who had been removed by the Board of

Directors from that post brought a suit for a declaration that he still continued to be the secretary,on the ground that the Board of Directors had no power to remove him under the Articles of association. It was held that the plaintiff's appointment as Secretary must be regarded as one dehorsthe articles and it was incumbent on him to make out a contract outside and independently of thearticles, and that he had no cause of action on the articles. Mr. Bhatt sought to distinguish that caseon its facts. In view of the decision I have already arrived at as above, I do not think it necessary toanalyse the judgment in that case or to consider the distinction sought to be placed thereon by Mr.Bhatt. But I should state that as in that case so also in this case it was argued on behalf of theplaintiff that there is a distinction between the case of a person who has been removed by anauthority incompetent to do so and by a person wrongfully removed by a competent authority. It was argued by Mr. Bhatt that this suit falls within the said former category and that the plaintiff could rely upon the Articles of Association to show that the plaintiff is sought to be removed by anauthority incompetent to do so and that therefore there is no competent removal at all of theplaintiff from his managing directorship. In respect of this argument the following passage from the judgment in the above case appearing at p. 115 is relevant:

Mr. Thirvuvenkatachari has sought to draw a fine distinction between the case of a person who has been removed by an authority incompetent to do so and by a person wrongfully removed by acompetent authority. In the present case, however, the in competence of the Board of Directors is




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sought to be inferred from the Articles of Association themselves, which plaintiff cannot, for thispurpose invoke so as to give him a cause of action." In my opinion this passage applies with equalforce to the identical arguments advanced by Mr. Bhatt. I may repeat that in my opinion the plaintiff is not entitled to place any reliance on the Articles of Association of the first defendant company insupport of any cause of action in this suit.

48. Prayer (c) of the plaint asks for an injunction. The injunction as prayed for therein really dividesitself into two parts. The first part is to restrain the defendants from acting upon or in pursuance of the said resolutions dated 23-9-1957; and the second part is to restrain the defendants frominterfering with the plaintiff's right and powers as joint Managing Director under the said resolutiondated 24-6-1957.

49. So far as the said first part of the said injunction is concerned, the same is so related to thedeclaration prayed for under prayer (a) of the plaint. To get such an injunction the plaintiff mustestablish that the plaintiff is entitled to legal character, which I have held that the plaintiff asmanaging director is not entitled to, and moreover, the plaintiff must rely on the Articles of Association of the first defendant company, which I, have held the plaintiff is not entitled to do. Theplaintiff's prayer for that part of the injunction must therefore fail.

50. So far as the said second part of the said injunction is concerned, the same is co-related to thedeclaration prayed for under prayer (b) of the plaint. On the basis that the plaintiff was entitled tolegal character as contended by him a declaration is sought as in prayer (b) and an injunction underthe said second part of prayer (c). I have held that the plaintiff is, as the joint managing director of the first defendant company, not entitled to any legal character, the result of which would be thatthe plaintiff would not be entitled to either of the said two reliefs. So far however as the said

injunction is concerned, Mr. Bhatt had further argued that even if I were to old that the plaintiff isnot entitled to a legal character, the plaintiff was in any event entitled to the said injunction. Insupport of the said contention Mr. bhatt advanced no further or other arguments whatsoever saveand except relying upon the case of Kunj Behari v. Keshavlal, ILR 28 Bom 567. That case is not anauthority for the proposition that when the Court refuses to grant to the plaintiff a declaration underSection 42 on the ground that the plaintiff is not entitled to legal character the plaintiffs is stillentitled to an injunction based on the plaintiff's claim to legal character. On the contrary that caseenvisages an injunction being granted to the plaintiff on the basis that the plaintiff would succeed inestablishing the grounds on which the plaintiff claimed the declaration. it is definitely not a case which says that when the plaintiff fails-to establish the ground son which he claims the declaration,the plaintiff should be given an inunction but not the declaration. To my mind at least, thisproposition urged on behalf of the plaintiff is such that it has merely to be stated to be rejected. Thedeclaration as well as the injunction are both of them reliefs and both are based on the plaintiff'sclaim that he is entitled to legal character. If that claim to legal character itself is negatived, how canthe plaintiff get either of the two reliefs? It must be remembered that the whole claim in suit is basedon the plaintiff's claim to legal character and that only. It is not the plaintiff's case, nor has ti beenargued, that the plaintiff has any claim otherwise than on the basis of legal character under Section42. That being so, once it is held that the plaintiff is not entitled to legal character, the plaintiff would not be entitled not only to the declaration but also the inunction prayed for. It is quite likely




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that because of this clear position Mr. Bhatt did not develop his argument in this behalf and resistedcontent only by citing the said case. But even that case is not an authority in any way supporting thepresent contention of Mr. Bhatt. I am inclined to infer that this argument was not intended to beseriously pressed. But whether intended to be seriously pressed or not, as I have held that theplaintiff as the joint managing director is not entitled to any legal character, I hold that the plaintiff is not entitled to either the declaration under prayer (b) or the said second part, of the injunctionunder prayer (c) of the plaint.

51. As I have held that the plaintiff is not entitled to any legal character, and I have negatived theplaintiff's said contention that the plaintiff is in any event entitled to an injunction even if it be heldthat the plaintiff is not entitled to legal character, as a necessary corollary I must hold that the plaintdoes disclose any cause of action. Issue No. 9 will therefore have to be answered in the negative.

52. The result of my above finding is that the plaintiff is not entitled to any relief in this suit and thesuit would have to be dismissed. In view of the said findings it is not necessary for me either to deal with issue Nos. 2 and 3 or to deal with the issues Nos. 6, 7 and 8. As however the contentionscovered by these issues have been argued before me, I will deal with the main arguments relating tothese issues.

53. I will first deal with the contentions covered by the issues Nos. 2 and 3. It is the resolutions dated23-9-1957 passed by the Board of directors of the first defendant company which are challenged inthis case as being ultra vires the powers of the Board. The question for consideration therefore, is,did the Board of directors have power to revoke the appointment of the plaintiff as joint managingdirector? If the Board had no such power the said resolutions dated 23-9-1957 would be ultra viresthe Board.

54. Now, under the Articles of Association of the first defendant company a person may be a director by reason of his having been elected as such at the general meeting of the company in the ordinary way, or if he is a nominated director having been nominated under the provisions of Article 93(a), orif he is a director having been appointed in accordance with the provisions of Article 93(b).Thereafter Article 99 provides that the directors may from the time to time appoint anyone of theirown body, i.e., a person who is already a director, to be a managing director and may vest in suchmanaging director such powers as the Board of directors itself has under the Articles of Associationof the first defendant company and such appointment as managing director is to be for such periodand upon such terms as the directors think fit. Article 99 deals with the appointment of a person who is already a director as managing director & with vesting of powers in him. So far there is nocontroversy between the parties as regards the interpretation of the relevant article. The controversy is as to how a managing director is to be removed from his office as managing director and how arethe powers vested in him as the managing director to be removed. A managing director is, as already seen, a director with certain additional powers vested in him as the managing director and thecontroversy before me is confined only to the question of the removal of such additional powers vested in him as managing director. This question is to be judged on the basis -- which basis iscommon to both the sides -- that upon the removal of the managing director as managing director,that is, upon the removal of his additional powers as managing director, he would be relegated to his




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original position as a director and would continue to be such director with the same rights andpowers and obligations and liabilities which attached to his directorship immediately before hisappointment as a managing director. To be more specific, the plaintiff was appointed a jointmanaging director by the resolution dated 24-6-1957, but immediately before the passing of thatresolution the plaintiff was a special direction appointed under Article 93(b) and was entitled tocertain remuneration under the resolution dated 15-6-1956 and it is common ground that theresolution dated 23-9-1957 which are cancelled in this suit do not and do not even purport toadversely affect in any way the plaintiff's said appointment as special director or his rights toremuneration under the said resolution dated 15-6-1956. Therefore, as I said, the only question is which is the authority which is empowered by the articles to remove a managing director i.e. theadditional powers and characteristics of a managing director, his original directorship with all theoriginal rights, powers obligations and liabilities remaining untouched. The plaintiff contends thatpower of removal on a true construction of Article 100, is in the general meeting of the members of the company to be exercised by a special resolution, whereas the first defendant company contendsthat it is in the Board of directors themselves. It s therefore necessary to state very briefly how eachparty arrives at its said conclusion.

55. According to the plaintiff it is Article 100 which contains such powers of removal. According tothe plaintiff the relevant provision of that article is "A Managing Director..... shall, subject to theprovisions of any contract between him and the Company, be subject tot he same provisions as to...... removal as the other Directors of the Company."

There being no contract about the managing directorship between the plaintiff and the company thesaid condition "subject to the provisions of any contract between him and the company" has noapplication in this case. Therefore, according to the plaintiff, Article 100 provides that a managing

director can and must be removed as the other directors of the company and the provisions asregards the other directors of the company is contained in Article 114 of the first defendant company to the extent that it provides "the Company may be Extra-ordinary Resolution remove any ordinary Director before the expiration of his period of office."

According to the plaintiff, the said provision of Article 114 is to be read as if it was bodily reproducedand incorporated in Article 100. If so rad, Article 100 is to be construe

major general shanta shamsher ... vs kamani brothers private ltd. and ... on 6 january, 1958

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