WALCHANDNAGAR INDUSTRIES LTD Vs. RATANCHAND KHIMCHAND MOTISHAW

JUDGEMENT

(1.) This appeal raises a very interesting and important question as to the construction of Section 86F, Companies Act. The facts are proved and not disputed. The respondent was a director of the Walchandnagar Industries, Ltd. In June 1951 he entered into a contract with the company for the supply of one tin of ghee, and the question that arises is whether by reason of the respondent entering into this contract he has ceased to be a director of the company. Section 86F imposes a personal disability upon a director of the company and the disability is that a director of the company, or the firm of which he is a partner or any partner of such firm, or the private company of which he is a member or director is precluded from entering into any contracts for the sale, purchase or supply of goods and materials with the company. The disqualification is not absolute, because the section provides that with the consent of the directors, a director can enter into contracts which are prohibited under this section. It is clear that in enacting this provision, which is a novel provision and finds no place in the English Companies Act, the Legislature wanted to suppress a particular mischief had a particular object in mind. A director of a company occupies a responsible position and the Legislature wanted that while occupying that position he should not be placed in a situation where there would be a conflict between his interest and his duty. His duty would be to his company of which he is director. His interest would be to enter into a profitable contract with the company. It is also clear that a director holding the position that he does can obtain undue benefit by entering into profitable contracts with the company, and in order to suppress that mischief and to achieve the object which the Legislature had in mind, Section 86F was enacted. It is a well settled canon of construction that when we are considering a remedial measure, we must give to the provision of law as wide an interpretation as possible, of course consistently with the language used by the Legislature, and if Section 36F is remedial in its nature, which it undoubtedly is, then it would be wrong to give it a restricted construction. On the contrary we should try and give it as wide an interpretation as possible.

(2.) Now, the very short- question that arises on this appeal is whether the consent contemplated, by Section 86F is a general consent or a consent which is referable to a particular or specific contract or contracts. The contention of Mr. Mody on behalf of the respondent is that the language used by the Legislature is general and there is no reason why we should limit the expression "consent" by adding to it the adjective "specific". Mr. Mody says that if we were to construe the section in that light, we would really be re-writing Section 86F. Now, if Section 86F imposes a personal disability upon the directors, then to construe Section 86F in the manner suggested by Mr. Mody, viz. that by a general resolution the board of directors can remove the personal disability imposed upon the directors of the company under Section 86F, would be in effect to give the power to the board of directors to repeal Section 86F if they were so minded. They could write off Section 86F from the Companies Act. That would be a construction entirely inconsistent with the object of the section and the mischief aimed at. Further, "consent" must imply a knowledge of the necessary facts and materials which leads to the consent. Consent cannot be given in the abstract or in vacuo. It can only be given in reference to the particular contract which a director intends to enter into. Therefore, Section 86F requires that the board of directors should consider both the nature of the contract that the director wants to enter into and also the case of the particular director who wants to enter into that contract before the consent is given. It is only on a consideration of both these factors, viz the nature of the contract and the qualifications of the director, that a proper consent within the meaning of Section 86F can be given for entering into a contract. If Mr. Mody's contention were to be accepted, the board of directors, without considering what the nature of the contract was, without considering the value, without considering the particular material in respect of which the contract was to be entered into, in application and generally can agree to a director or directors entering into contracts with the company. In other words, power is given according to Mr. Mody under Section 86F to remove the personal disability which the Legislature has imposed upon the directors by Section 86 F. In our opinion, the Legislature having imposed a personal disability upon the directors under Section 86 F, the only power that is given to the board of directors is not to remove that personal disability generally, but to remove the personal disability with regard to a particular contract or contracts with regard to which the board of directors has applied its mind.

(3.) The facts in this particular case are extremely striking and significant. The respondent wrote to the company on 30-4-1941, giving a list of the companies of which he was a director and also a list of the firms of which he was a partner for the purpose of giving particulars under Section 87 (1). Further, he gave a general notification under Section 91 A that he should be considered interested in any subsequent transactions with the companies and firms whose names he had mentioned. It should be noted that the respondent never applied for any consent under Section 86 F and yet at the meeting of the board of directors of 27-5-1941. It was resolved that as required by Section 86 F, Companies Act the directors should give their consent to various directors including the respondent to enter into a contract for sale, purchase or supply of goods and materials with the company. Therefore, this is a striking instance which goes to show that the board of directors never applied their mind to the requirements of Section 86 P, that they gave a consent when the consent was not asked for by the respondent, and high theartedly, without proper thought or consideration, a grave personal disability imposed upon the directors by the Legislature was removed by a stroke of the pen by the board of directors. If we were to accept Mr. Mody's contention, the result would be that the board of directors of all the companies in India can pass general resolutions of this character removing the disability from all the directors and permitting directors to enter into as many contracts with the company as they liked and any control over such transactions would be removed as far as the directors are concerned,