PUBLIC PROSECUTOR Vs. T P KHAITAN

JUDGEMENT

(1.) THESE three appeals by the Public Prosecutor raise consideration the proper interpretation of section 91 (B) (1) of the Indian companies Act, 1913. The Magistrate before whom the accused in the several appeal were charged has held that there was no contravention of the provisions of this section and has by his judgment dated 30th January, 1956, acquitted the accused. It is from this order of acquittal that these appeals have been preferred. The learned Advocate-General appearing for the appellant urged that he desired to have a considered decision on the construction of the provision I have mentioned above, but as I was clearly of the opinion that the decision of the learned Magistrate was correct, I did not think it necessary to issue notice to the accused under section 422 of the Criminal Procedure Code The facts which have given rise to these proceedings are as follows : Messrs. Oakley Bowden and Co. ( Madras ) Ltd. , is a public company registered under the Indian Companies Act. It is managed by a board of three directors and under the articles of the company the board acts either at meetings or by resolutions passed by circulation On 2nd June, 1953, the board of directors which then consisted of T. P. Khaitan, V. S. Krishnaswami and V. S. Bhasin passed by circulation the following resolution "resolved that the Chartered Bank of India, australia and China, Madras, the Imperial Bank of India, Madras, the National bank Ltd. , Madras, the Indian Bank Ltd. , Madras, and the Eastern Bank Ltd. , madras and Bombay, be and are hereby empowered, whether the company's account is in credit or overdrawn, to honor cheques, bills of exchange, and promissory notes, drawn, accepted or made on behalf of the company, by any one of the two gentlemen : 1. Sri T. P. Khaitan 2. Sri V. S. Krishnaswami and act on any instructions and accept any receipts or other documents relating to the account transactions or affairs of the company, if so signed on behalf of the company. " *

(2.) ALL the three directors including the two named in the resolution signed in the minutes in token of the resolution being passed. On 22nd February, 1954, this resolution dated 2nd June, 1953, was cancelled and instead of the two directors named in the earlier resolution, one A. M. Khaitan, who was appointed to act on behalf of the company and on behalf of its managing agents, was directed to operate on these accounts. By another resolution passed by circulation on 22nd February, 1954, V. S. Krishnaswami was instructed to communicate A. M. Khaitain's appointment to the respective banks. I need only mention that the resolution of 22nd February, 1954, which was also passed by circulation was signed by T. P. Khaitan and V. S. Krishnaswami The Registrar of Joint Stock Companies filed the prosecutions C. C. Nos. II913 to II915 of 1955 complaining that the resolution dated 2nd June, 1953, and the two resolutions dated 22nd February, 1954, were in contravention of section 91 (B) (I) of the Indian Companies Act, bringing the concerned directors, T. P. Khaitan and V. S. Krishnaswami within the mischief of section 91 B (2 ). The resolution dated 2nd June, 1953, was the subject of complaint in C. C. No. II913 of 1955 from which Criminal Appeal No. 307 of 1956 has been filed, while the resolution dated 22nd February, 1954, canceling the resolution dated 2nd June, 1953, formed the basis of the complaint in C. C. Bo. II914 from which the Criminal Appeal No. 308 of 1956 arises and the resolution authorising V. S. Krishnaswami to communicate the resolution dated 22nd february, 1954, to the banks was the subject of complaint in C. C. No. II915 of 1955 which has led to Criminal Appeal No. 309 of I956. T. P. Khaitan and krishnaswami are the accused in C. C. Nos. II913 and II915 of 1955 while V. S. Krishnaswami who was instructed to communicate the resolution dated 22nd february, 1954 to the banks is the sole accused in C. C. No. II914 of 1955section 9ib which is said to have been contravened by the accused in the present case runs "9ib (I) No director shall, as a director, vote on any contract or arrangement in which he is either directly or indirectly concerned or interested nor shall his presence count for the purpose of forming a quorum at the time of any such vote; and if he does so vote, his vote shall not be counted Provided that the directors or any of them may vote on any contract of indemnity against any loss which they or any one or more of them may suffer by reason of becoming or being sureties or surety for the company (2) Every director who contravenes the provisions of sub-section (I) shall be liable to a fine not exceeding one thousand rupees (3) This section shall not apply to a private company Provided that where a private company is a subsidiary company of a public company, this section shall apply to all contracts or arrangements made on behalf of the subsidiary company with any person other than the holding company. " *

(3.) ILLUSTRATIONS of a similar construction of statutes designed for like purpose as sections 9ia and 9ib of the Indian Companies Act are numerous and I would refer only to two of them. Nutton v. Wilson was concerned with the construction of rule 64, Schedule II of the Public Health act, I875, which provided that a member of a local board who was in any manner concerned in any bargain or contract entered into by such board shall cease to be such member and his office as such shall thereupon become vacant and rule 70 imposed a penalty on a person "who acts as such member when disabled from acting by any provision of the Act. " A. L. SMITH J. imposed on a defendant who was a member of a local board penalties under rule 70 for being concerned in a contract with another person whose contract with the board had been accepted on a resolution moved by the defendant. The Court of Appeal dismissed the defendant's appeal and LINDLEY L. J. after pointing out that the expression "in any manner concerned" was of fairly wide import said : "to interpret words of this kind, which have no very definite meaning and which perhaps were purposely employed for that very reason, we must look at the object to be attained. The object obviously was to prevent the conflict between interest and duty that might otherwise inevitably arise. " * LOPES J. said : "it seems to me that if we held the contrary, it would be letting in the very mischief which the Act intended to prevent, and subjecting the members of local boards to the class of temptations which it was intended to remove. " * Barnacle v. Clark 2 arose under section 34 of the elementary Education Act, 1870, which provided that a member of a school board who "shall in any way share or be concerned in the profits of any bargain or contract with or any work done under the authority of such school board" was liable to a penalty and his office became vacant. The respondent, a member of a school board, sold sand and gravel to a builder who had entered into a contract with the board for the building of a school knowing at the time of his sale that these materials were intended to be used in the building of the school. RIDLEY and DARLING JJ. held that the respondent had contravened the provisions. The learned judges referred to Nutton v. Wilson 1, and stated that these provisions were intended to ensure that members of public bodies "shall be free from any suspicion of deriving profit, directly or indirectly, by reason of the position they hold. " If this was the object of the enactment, it follows that the mere carrying out the duties of a director would not amount to "being concerned in any contract or arrangement" within section 9ia or 9ib of the indian Companies Act. In this connection I will only repeat that the expression "interest in an arrangement", though somewhat elastic, must in the context receive the interpretion that it must be of such a nature as to involve a conflict between interest and duty of the same type as would arise in the case of personal interest in the contracts of the company. In both these situation, what is aimed at is the avoidance of a director who has a personal interest in a transaction of the company from getting the board of directors to agree to it without informing the co-directors of his interest and by taking part in the votingit is this conflict between the personal or self interest of the director and his duty to the company to render independent and unbiased advice, that is the mischief, which these provisions are intended to remedy. Viewed thus it would be clear that in the present case the resolutions of the board constitute but a delegation of the power of the board to certain of their members and there is no element of personal interest involved in it so as to give room for any conflict between interest and duty; and therefore no violation of section 9ib