P L D 1967 Karachi 496 (PLP)

In these cases it was held that in exercising its discretion the Court should decide the question of impracticability or other wise of calling a meeting within section 79(3) primarily in the light of the Articles of Association of the Company, unless such Articles contravened any mandatory provision of the Act or there were no relevant Articles of Association governing the matter. In the Calcutta case it was further held that in the above provision of law the word "impracticable" means impracticable from a reasonable point of view. In the Madras case it was observed as under:‑ "Though an election of directors is ordinarily a non‑con troversial subject in respect of a Company whose affairs are running smoothly, it cannot be called a formal subject where there are factions in the share‑holders. It is an, important item of business and the Court may appoint an independent Chairman to preside over the general meeting of the share holders. Such an appointment cannot be objected to as an interference by the Court with the internal Management of the company as sections 76 and 79(3) expressly empower the Court to call a general meeting which also includes a power to appoint a person to preside over it." According to these decisions where a meeting cannot be held in accordance with the Articles of Association then in law the holding of a meeting would be impracticable, and, in such circumstances, it is open to the Court, on taking a common sense view of the matter, to call a meeting under section 79(3) for carrying out the object of a limited company.

8. On the other hand, Mr. Muhammad Ali Saeed, the learned counsel for respondent No. 2, has contended that in the case of a private limited company it is to be treated more or less as a partnership and the Courts should apply the same principles in the conduct of its business as in disputes to respect of Partnership matters. In this connection the learned counsel placed reliance on a decision of the Supreme Court in Ladli Prasad Jaiswal v. The Karnal Distillery Co. Ltd. (PLD1965SC221). In that case their Lordships observed as under.‑ In the case of‑a private limited Company the tendency of the Court hats uniformly been to treat it more or less as a partnership and to apply the same principles in the winding up of a private limited company as would entitle a partner to have a partnership firm dissolved. Commonly the exclusion of a partner from the Management of the firm, the existence of a state of deadlook between the partners or the justifiable lade of confidence in the Management have been regarded as just and proper grounds for dissolving a private limited company." In my opinion this contention helps the petitioner rather than the contesting respondent because if a private limited company is treated on the same basis as partnership business, in case there is deadlock between 'the partners it would be the duty of the Court to protect the interest of the partners who have the majority of the shares and if there is no other obstacle to see that tote objects of the partnership business are fulfilled in accordance with the wishes of the majority of the partners.

9. Mr. Muhammad Ali Saeed further contended that for applying the provisions of section 79(3) the Court must have reason to be satisfied that it is impracticable to call a meeting of the company or to hold or conduct the meeting of the company in the manner prescribed by the Act or the Articles. Secondly, the power vested in the Court is discretionary. It is not a power which the Court must exercise. It is not a manda tory obligation upon the Court. It is an alternative remedy to be applied only when the normal machinery of Company Management fails. The learned counsel relied on another Indian decision Bengal and Assam Investors Ltd. v. J. K Eastern Industries Private Ltd. (A I R 1956 Cal. 658). In that case Mukherji, J., observed as under:‑ "It is not the purpose of section 186 that the Court should intervene to conduct a company meeting not in the manner prescribed by the Act or by the Article of the company and to override the express provisions thereof. Naturally enough when the Court directs a meeting to be held under section 186 of the Act it must necessarily modify or supplement the Articles or the Act acid that is why express provision is made for the same under section 186(1)(b) of the Act. But that provision for modifying or supplementing the Articles or the Act is only with a view to enable the Court to call, hold and conduct the meeting under section 186 of the Act which normally it cannot without contravening the Articles and the Act." The learned Judge further observed.‑‑ "The word "impracticable" appearing in section 186 must be given a practical meaning. It must be understood to be impracticable from the business point of view. It must not be held impracticable on the slightest excuse that the directors cannot agree." Later on the learned Judge observed "that the power given to the Court is great and it should be sparingly exercised." In my opinion in a case which arises under section 79(3) of the Companies Act, 1913, the only consideration for the Court would be when a question is raised that it is impracticable to call a meeting of a limited. company, whether in the particular circumstances of the case, the desired meeting of the company could, as a practical matter, be called arid conducted. In a proper case it is open to the Court to intervene in order to safeguard the interest of the majority of the share‑holders. In view of this it is abundantly clear to me that the extraordinary general meeting, which is sought to be called under Article 89 of the respondent No.1 Company, cannot be called because the two Directors are at loggerheads and are not agreeable to call a meeting in accordance with the procedure laid down in the said Article. In fact the petitioner, who is the Managing Director, is outside Pakistan, and it is only respon dent No. 2 who can call a meeting in terms of Article 89(2). Since he is not prepared to call the required extraordinary general meeting there is no doubt that it is impracticable to call it in terms of section 79(3) of the Companies Act, 1913. There being a deadlock and justifiable lack of confidence in respon dent No. 2's Management, I am inclined to call the proposed meeting provided there is no other hurdle in the way of the petitioner.

10. It must have been noticed that the petitioner has further asked that in case this Court call the proposed extraordinary general meeting for removal of respondent No. 2 he should be permitted to be present and vote at the meeting through an attorney, agent or officer of the Court in the same manner as if the petitioner were personally present at the meeting. In this connection it will be noticed that under Article 95 of the Articles of Association two members present in person or by proxy and entitled to vote shall be a quorum for all purposes at any ‑General Meeting except as otherwise provided in the Articles. Then Article III which relates to the manner in which the right of proxy can be exercised provides as under:‑ "

111. The instrument appointing a proxy shall be in writing under the hand of the appointer or his attorney duly authorised in writing or if such appointer is a corporation, under its common seat or under the hand of an officer or attorney so authorised. No person shall be appointed a proxy who is not a member of the Company and qualified to vote, save that a corporation, being a member of the Company, may appoint as its proxy one of its officers, or some other person though not a member of this Company." Mr. Rahimtoola frankly admitted that the petitioner cannot appoint any person as proxy who is not a member of the Company. Admittedly, there are only two members of the respondent No. 1 Company, namely, the petitioner and respondent No.

2. Petitioner will not be giving the proxy to respondent No.

2. Therefore, he shall have to appoint somebody who is an outsider which is not permissible under the Articles of the Association of respondent No. It Company.

11. The other subsidiary point, therefore, that arises for consideration is whether this Court in exercise of the power vested in it under section 79(3) can settle the mode in which the proxies will be used in the proposed meeting. This question has received my anxious consideration. As already stated, there are tyro considerations which should weigh with the Courts in cases arising under section 79(3). In the first place the Court must come to the conclusion that it is impracticable to call a meeting of the Company in any manner in 'which meetings of that Company may be called. Secondly, that it is impractic able to conduct the meeting of the company in manner prescribed by the articles or the Act. I have already held that in the present case it is impracticable to call a meeting of respondent No. 1 Company in the manner in which it may be caller. Mr. Muhammad Ali Sayeed contended that no power vests in this Court to modify the Articles of Association in order to ensure the quorum of the proposed meeting or for passing an effective resolution.

12. On the other hand, Mr. Rahimtoola contended that such a power is vested in this Court. In support the learned counsel has urged that the following are the key words far exer cising this power: "Order a meeting of the company to be called, held and conducted in such manner as the Court thinks fit, and where any such order is given may give such ancillary or consequen tial directions as it thinks expedient, and any meeting called, held and conducted in accordance with any such order shall for all purposes be deemed to be a meeting of the company duly called, held and conducted." It must have been noticed earlier that even Mukherji, in the decision cited by the learned counsel for the respondent has recognised that in such cases when a Court directs a meeting to be held it must necessarily modify or supplement the articles or the Act for achieving the object of the meeting. His view is that the meeting must not be held as impracticable on the slightest excuse that the Directors cannot agree., Prima facie therefore it appeared to me that if in the circumstances of a particular case it was impracticable to conduct a meeting according to the rules provided in the Articles of Association, they could be modified. In this sub‑continent the decided case on this point has dealt with situations such as the appointment of Chairman or relaxation of rules in respect of notice or place for holding the meeting of a company. They are silent on the point of relaxation of rules for voting by proxy.

13. It seems 'to me that the answer to this problem depends on the interpretation of the words "conducted in such manner as the Court thinks fit." In its narrow sense it would only mean control or the Management of the meeting. But in its wider sense it can also include the relaxation of rule about quorum or exercise of votes by share‑holders by proxy. Supposing in a given case it is not possible to form a quorum or it is not possible for a large number of share‑holders to exercise the right of vote without proxy, which cannot be exercised because under the rules and regulations of the company it can only be given to a member and no member is available for this purpose, will it not be a good ground for exercising the above power vested in this Court? After careful consideration I have come to the conclusion that these will be good grounds for relaxation of the rules in order to remove the impracticabi lity for conducting the meeting in the manner prescribed in the Articles of Association or the Act.

14. I am fortified in this view by a decision of the Scottish Courts In re: Edinburgh Workman House Improvement Co. ((1935) S C 56). In that case it was held that the expression "Impracticable to conduct the meeting of the company in the manner prescribed by the Articles" is sufficient to cover a case in which it is impracticable owing to the terms of the articles and the state of share‑holding in the company to get a quorum present. This decision is quoted at page 503. of Vol 1 "Words and Phrases Judicially Defined" by Roland Burrows (1916 Ed.).

15. In section 153 of the Companies Act which deals with the powers of the Court to enforce a compromise between creditors and members, it is provided that where a compromise or arrangement is proposed between a company and its creditors, etc., the Court may order a meeting of the creditor or of the members of the company to be called, held and conducted in such manner as the Court directs. In that connection question has often arisen whether under this section the Court has power to settle a form of proxy. In re: Taia Iron and Steel . Co. (A I R 1928 Bom. 80), It was held that these words are wide enough to cover directions about the manner in which a proxy can be used because the form of the proxy is part of the conduct of the meeting. Similarly, in Lawrence Dawson land another v. J. Hormasji and others (A I R 1932 Rang. 144), it was held that a Court exercising power under this provision of law, possesses jurisdiction to prescribe and settle the terms of the proxy from by which proxies are to be appointed.

16. The basic authority for the above view is the decision of the English Appeal Court Ire re: English, Scottish and Australian Chartered Bank ((1893)

3. Ch. Div. 385). In that case the Judge directed meeting of the share‑holders and creditors to be held in order to ascertain their wishes as to the scheme of reconstruction of a Banking Company. It being necessary that this should be done without delay and the great majority of the shareholders being resident, in Australia, he trade an order directing a form of proxy to be sent by the Official Receiver by telegraph to Australia to be dept sited at the office of the Company in the principal cities in Australia and the particulars and number of proxies for and against the scheme to be telegraphed for counting at the London meeting. Some of the Scottish and English creditors objected that the Judge had no power to settle the form and the manner in which a proxy should be used. The Appellate Court affirmed the decision of Vaughan Williams, J., that the Court was competent to do so. In this connection Lindley L. J. at page 411 observed: "Now, it appears to me, under the authority of section 91 of the Act of 1862, this novel form of order is not be3ond the power of the Judge. He had power to direct that these proxies should be filled up in Australia, that they should be deposited in the offices which are mentioned and that the result: of the proceedings might be acted upon in this country even before the proxy papers came over. I think it was within his power to do it, and, being within his power to do it. I do not hesitate to say it is a power with which we should not dream of interfering. That is what was done. Therefore, so far as that somewhat important point is concerned, it appears to me there was nothing irregular in the proceedings at this meeting.

17. In the light of the above discussion I am satisfied that this Court is competent to settle the form of proxy and issue directions to ensure the quorum of the proposed meeting.

18. It further appears to me that the mere fact that the petitioner has settled down in. England is no ground to decline to exercise the above power vested in this Court. It is not disputed that the respondent holds only 10 shares out of 500 shares. If he is allowed to continue with the Management of the respondent company against the wishes of majority share holder, it would amount to imposing the will of a microscopic minority on the majority. "This is against the concept and principles on which private limited companies are managed. In caste of deadlock it is always desirable to carry out the wishes of the majority. I would, therefore, hold that the petitioner is entitled to both the reliefs claimed by him.

19. On the view that I have taken of the matter I would direct that an Extraordinary General Meeting of respondent No.1 Company be called for a suitable date to consider the resolution of the removal of Mr. Alex D'Souza from the office of Director of the Company. This meeting will be held after giving more than three weeks' notice to the share‑holders. I would further allow the petitioner to be present and exercise his right of vote as share‑holder by proxy in favour of an outsider in the said meeting. This meeting will be called and conducted by a gentleman appointed by this Court after taking into considera tion the suggestion made by the counsel for the parties.

20. In the result, the petition is allowed with no order as to costs. K.B.A. Petition accepted.