Judgment

GAJENDRAGADKAR J. : (Majority judgment : on behalf of himself and Wanchoo J.): The principal question which arises in this appeal relates to the construction of section 76(1) and (2) of the Indian Companies Act, 1956 (I of 1956) (hereinafter called the Act) before the amendment of sub-section (2) in 1960. That question arises in this way. The appellant, Madanlal Fakirchand Dudhediya, and respondents Nos. 2 and 3 and the father of respondents Nos. 7 to 10 were the promoters of the 1st respondent Co., Shree Changdeo Sugar Mills Ltd. The said Co. was incorporated in 1939 as a Private Limited Company. It was, however, converted into a Public Ltd. Co. in 1944. At the time of the original incorporation of the Co. a Promoters Agreement was arrived at whereby the Co. agreed during its existence to pay a sum equal to 3 1/8 every year out of its net profits to each of the four promoters. As a result of this agreement, the aggregate consideration payable every year to the promoters came to 12 1/2 of the net profits of the Co. Article 3 of the Articles of Association of the Co. justified the making of this agreement. In 1941 the Co. came into financial difficulties and in consequence, on the 22nd April, 1941, a tripartite Agreement was arrived at between the Company, M/s. Ardeshir Hormusji Bhiwandiwalla & Co., and the Promoters. Under this agreement, it was agreed, inter alia, to appoint the said firm of Bhiwandiwalla & Co. or its nominee as the Managing Agents of the Co. for 10 years with an option to the Co. to extend the said period upon certain terms. At this time, the earlier agreement as to the payment of the promoters commission was modified and the said commission payable to the promoters was reduced to 6 1/4 and Art. 3 of the Articles of Association was accordingly amended. Three years later, disputes arose between the parties and they led to three suits filed on the original side of the Bombay High Court. All the said suits were compromised and decrees by consent were passed in them. One of the terms of the compromise was that the promoters commission payable to the four promoters which was Rs. 1-9-0 to each of them and which came to 6 1/4 in the aggregate payable to them under the agreement entered into between them and the Managing Agents shall remain in force as in the Agreement and the promoters right of commission shall continue accordingly. Thus, as a result of the compromise, the promoters commission which was payable to them under the earlier Agreement was saved.

2. After the Act came into force on the 1st of April, 1956, the appellant received a letter from respondent No. 1 informing him that respondent No. 1 had been advised that as from the date of the commencement of the Act, the agreement between the parties as to the payment of the promoter s commission had become illegal and void and that the 1st respondent would not, therefore, pay any more commissions after April, 1956. In October, 1956 the appellant received a notice from the 1st respondent that an extraordinary general meeting of the shareholders of the 1st respondent Co. was going to be held, inter alia, for the purpose of amending certain Articles of Association of the Co. One of the amendments proposed to be put before the said meeting was to delete Article 3 from the Articles of Association of the Co. On receipt of this notice, the appellant filed the present suit on the 13th December 1956. By his plaint, he claimed a declaration that the argument between the parties was valid and legal and he asked for an injunction restraining respondent No. 1 from passing any resolution deleting Article 3 of the Articles of Association of the respondent Co. or from taking any action on the basis that the said agreement had become illegal and void. Respondent No. 1 resisted this suit. It was urged on its behalf that as a result of the provisions of Section 76(1) and (2) of the Act, the agreement in question had become void and could not be enforced. Re