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Suit No. 1 of 1956. Plaintiffs' Application under O. XXXIX, rule 1 C. P. C. read with section 151 C. P. C., decided on 22nd February 1956.
‑"Other"‑Used to distinguish what precedes it.
Mildmay's case, 76 Eng. Rep. 379, In re: Skeats' Settlement, 42 Ch. D. 522 and Newen v. Barnes 1894 (2) Chan. Div. 297 ref.
‑Internal management of Court will not ordinarily interfere. The Court will not interfere with internal management of a company unless there was reason that action of the company was fraudulent or against natural justice. If company's action was within its powers according to its Articles of Association, the fact that it worked hardship on some members while others benefited by it was not necessarily against natural justice.
Satyavart Sidhantalankar v. The Arya Samaj Bombay, (1946) 48 B L R 341, V. N. Bhajekar v. k. M. Shinkar and others, A I R 1934 Bom. 243 ref.
S. H. Suhrawardy, Ihsan‑ul‑Hag for Plaintiffs.
Syed Shari f uddin for Defendants.
‑This is an, application under Order XXXIX rule 1 Civil P. C. read with section 151 Civil P. C. praying that the defendants may be restrained from putting into effect a certain clarification dated 24th December 1955 regarding the price of cotton tenders, for January delivery in respect of Pakistan Cotton Contracts of the Karachi Cotton Association Limited.
The facts shortly put are these:
The plaintiffs are member of the defendants, The Karachi Cotton Association Limited, a registered Association. The plaintiffs had entered into certain Hedge contracts. The Hedge contract is given in Schedule 'A' of the By‑laws of the Karachi Cotton Association Limited. The basis for this contract is "Fine Machine Roller‑Ginned N. T. Sind". Against this contract, as would appear from Schedule 'A' the following American Seed varieties are tenderable.
(1) Fine Machine Ginned N. T. Sind Roller & Saw Basic Staple 15/16".
(2) Fine Machine Ginned 289E Punjab (Roller & Saw) Basic Staple 31/32",
(3) Fine Machine Ginned L. S. S. (Sind & Punjab Roller & Saw) Basic Staple 7/8".
(4) Fine Machine Ginned 4‑F (Sind and Punjab Roller & Saw) Basic Staple 3/4".
The contention of the plaintiffs is that the defendant Association through its Board of Directors has to fix the Spot Rate, i.e., the market rate for the day for Ready Cotton Transaction of every tenderable cotton, as mentioned in Schedule 'A' given above on every working day during the delivery period. The first delivery period commences from January 3rd 1956 and continues upto January 25th 1956. According to the plaintiffs, the value of the four varieties of cotton tenderable was to be determined according to the Spot Rate fixed during January 3rd to January 25th 1956. The parties to the Hedge Contract were to pay and receive the difference of the contracted price and the Spot Rate as fixed by the Board between January 3rd 1956 and January 25th 1956. The plaintiffs' contention appears to be that the Fine Machine Ginned N. T. variety was also subject to the Spot Rate.
In paragraph 10 of the plaint, the plaintiffs have alleged that the defendants could not issue the following notice :‑
" In the meeting of the Board of Directors of the Karachi Cotton Association Limited held oil Saturday the 24th December 1955, it has been decided to clarify By‑laws 53 and 57 (b) (2) with regard to tenders and tendering differences for the information of the Trade as follows :‑
'That when N. T. Roller is tendered there shall be no tendering differences, but in case of N. T. Saw Ginned being tendered, the tendering differences shall be calculated upon the difference between the spot rate of N. T. Saw ginned and the Official room rate of the hedge contract prevailing on the last working day previous to the day of tender.
In By‑law 27 (b) (2) on page 66, lines 11 and 12 the word 'Spot Rate of the Cotton contracted for shall mean Spot Rate of N. T. Roller."
It would appear from the plaint that the above notice has been challenged on the ground that it was beyond the powers of the Board of Directors to notify such a clarification of the By‑Laws of the Association. It is further urged that the said clarification is inconsistent with a number of By‑Laws of the Association.
I have heard at length Mr. Suhrawardy, the learned advocate for the plaintiffs and Mr. Sharifuddin Pirzada for the defendants. At the very outset. I must observe that the impugned notification, no doubt, presents some apparent difficulties when read side by side with certain by‑laws of the Association. These difficulties however, disappear when one considers the fact that the Board had admittedly the power to clarify the By‑Laws of the Association. If the Board had power to clarify the By‑Laws of the Association, the clarification must be so read along with other by‑laws that it is reconcileable.
The main contention of Mr. Suhrawardy, the learned advocate for the plaintiffs, can be resolved into two : in the first place, that the alleged clarification is beyond the power of the Board, as it is in conflict with some of the by‑laws of the Association ; in the second place, that the clarification has led to hardship. I would consider these points separately.
While considering the question that the said clarification is ultra vires the powers of the Board, as it is in conflict with certain By‑Laws of the Association, a distinction must be drawn between the power of the Board to clarify a certain by‑law of the Association and the clarification being iii conflict with the by‑laws of the Association. If the Board had the power to clarify a certain by‑law, the clarification by itself cannot be held to be "ultra vires of the powers of the Board" as claimed in the relief simply because it is not reconcileable with some of the By‑Laws of the Association. The mere inconsistency would not, in my opinion, be a ground for holding that the Board has acted without jurisdic tion. In the present case, as would appear from paragraph 10 of the plaint, the Board had the power to give their interpretation, and that the interpretation so given would be a By‑Law within the meaning of By‑Law No. 2 (b) of the By‑Laws of the Association. By‑Law 2 (b) reads as under :‑
" The By‑Laws' means the By‑law of the Association for the time being in force and shall include any ruling or interpretation in relation to one or more By‑Laws given by the Board : "
If the Legislature, for instance, has power to legislate a certain enactment, the mere fact that some of the provisions of that enactment are inconsistent with each other, would be. no ground for holding that the enactment is ultra vires the powers of the legislature. Moreover, in the present case. I am of the opinion that the alleged conflict is only superficial and is reconcileable. Considering the question of inconsistency with the By‑Laws of the Association, Mr. Suhrawardy contended that there was conflict between By‑Laws No. 57 (b) (2), 62 and 142 of the By‑Laws of Association and the clarification notified by the Board. So far as By‑Law No. 57 (b) (2) is concerned I have gone through the By‑Law. It is very difficult for me to find how the clarification made by the Board on December 24th 1955 is not reconcileable. By‑Law No. 57 (b) (2) deals with the buyer's right if a tender is not approved. By‑Law No. 62 reads as under
" For the purposes of tenders against the Hedge Contract, Machine Ginned Cotton shall mean roller‑ginned cotton and shall include saw‑ginned cotton."
The contention of Mr. Suhrawardy was that saw‑ginned cotton is included in machine‑ginned cotton, and therefore, saw‑ginned cotton could‑ not be dealt with separately from machine‑ginned cotton, as would appear from the clarification of the Board. From By‑Law No. 62, no doubt, it appears that machine‑ginned cotton is the same as saw‑ginned cotton, but By‑Law No. 62 does not in any way take away the power of the Board as regards the fixing of tendering differences of machine‑ginned cotton and saw‑ginned cotton. The purport of By‑Law No. 62 appears to be that different varieties of cotton would be interchangeable, but it does not mean that the price of these various varieties of cotton also would be the same. So far as By‑Law No. 142 of the By‑Laws of the Association is concerned, it deals with the tendering of cotton against Hedge contracts. It specifies the time and place where the tender has to be made and what other details have to be given by the person tendering cotton. Lastly, this By‑Law states that the difference between the standard basis of the contract and the particular description of cotton tendered should be calculated on the spot values as fixed and dealt with under By‑Laws 53 and 84. By‑Law 84 is not necessary to consider. It states that the seller has to declare the standard under which his cotton is to be surveyed. The important By‑Law is By‑Law No. 53 according to which the difference is to be calculated. This By‑Law 53 had necessitated the clarification put by the Board. The relevant portion of the By‑Law reads :‑
" The tendering differences between the standard and the spot value of the cotton tenderable under the contract shall be calculated upon the spot value fixed by above on the last working day previous to the date of tender."
From the above portion of By‑Law No. 52 it is clear that the basis of the contract is not subject to the spot value and the spot rate.
The most important question for consideration would appear in my view to be whether the defendant‑Association had the power to clarify By‑Laws 53 and 57 (b) (2) of the By‑Laws of the Association as regards the tenders and tendering differences. If the answer is in the affirmative, the contention that the clarification presents much difficulty in interpreting the other By‑Laws would be no ground to declare the clarification ultra vires the powers of the Board. I would presently consider this question while considering the contentions raised by Mr. Sharifuddin, the learned advocate for the defendants.
Mr. Sharifuddin, the learned advocate for the defendants, contended in the first place that the suit for injunction was not maintainable, as the plaintiffs were entitled to claim damages. His next contention was that the Court as a rule does not interfere with the internal management of a company unless the impugned action is beyond the powers of the company. It was urged lastly by Mr. Shatifuddin that the balance of convenience lay in favour of the defendants. I do not propose to express any view so far as the present application is concerned regarding the maintainability of the suit, as the consideration of the other two points is sufficient to dispose of the present application.
While considering the question of non‑interference by a Court with the internal management of a company, it will be necessary to consider the power of the defendant‑Associa tion as regards the passing of by‑laws and the impugned clarification. Under Article 71 of the Articles of Association of the Karachi Cotton Association Limited, the Board has been given wide powers to pass and give effect to such by laws as may be considered in the interest of or conducive to the objects of the Association, and the Board may Jam time to time rescind, alter or add to any of the By‑laws for the time being in force. Article 72 of the Articles of Association confers power on the Board to control and regulate cotton dealings in Karachi, the regulation of the Clearing House ; the contracts and obligations in respect of which differences and other payments shall be made through the Clearing House ; the contracts for future delivery, hedge contracts and delivery contracts. In fact, it has not been contended on behalf of the plaintiffs that the Board had no power to modify or rescind the by‑laws or to give clarifica tion of the by‑laws so framed by the Board. It may be mentioned that the Board had given a notice on 25th May 1955 to the Members that By‑Law 53 was under the examina tion of the Board of Directors and may be amended, and that such amendment as may be made to By‑Law 53 will apply to all January 1956 contracts irrespective o#, the date on which the contracts were entered into. The notice further stated that the Members will be informed about the amendment, if any, by 31st July 1955. Those who entered into Hedge Contracts, therefore, cannot be said to have entered into such contracts without the knowledge that the Board of Directors had in contemplation some amendment to By‑Law 53. The amendment effected by By‑Law 53 was notified to the Members of the Karachi Cotton Association Limited on 26th July 1955. The relevant amendment so far as By‑Law 53 is concerned is as under :‑
" The tendering differences between the basis of the contract and the spot value of other varieties tenderable against the contract shall be ‑calculated upon the differences between the spot rates of these varieties and the official room rate of the hedge contract, prevailing on the last working day previous to the day of tender."
Mr. Sharifuddin, the learned advocate for the defendant, contended relying upon the above amendment that the clarification of the Board was justifiable as it is clear from the amendment that the N. T. Rollers, which is the basis of the amendment, if tendered, would not call for any difference, but other varieties tenderable under the Schedule A by the By‑Law would require differences to be adjusted.
Mr. Sharifuddin contended that the word "other" in the above amendment was very significant, and that it was used so as to distinguish what preceded it. He relied in support of his contention about the meaning of the word "other" on Mildmay's case (76 Eng: Rep. 379), In re: Skeats' Settlement (42 Ch. Div. 522) and Newen v. Barnes (1894 (2) Ch. Div. 297).
It is clear from the above Articles of Association that the Board had the power to amend By‑Law 53 so as to necessitate for the clarification that was made by the Board on 25th December 1955. It was observed in the case of Satyavart Sidhantalankar v. The Arya Samaj Bombay ((1946) 48 B L R 341) that "the Court will not interfere with the internal manage ment of companies acting within their powers and in fact has no jurisdiction to do so. To the same effect is the case of h. N. Bhajekar v K. M. Shinkar and others (A I R 1934 Bom. 243).
I would hold for the reasons given above that the Board had the power to amend the By‑Law 53 and to clarify the amendment so introduced to By‑Law 53. 1 would be reluctant to interfere with the internal management of the Association unless I had reason to hold that the action of the Board was fraudulent or against natural justice. So far as the question of fraud is concerned, it is neither alleged nor urged before me. So far as the question of its being against the natural justice is concerned all that was urged was that it was causing great hardship to the trade of cotton. So far as this question e of hardship is concerned. I do not think there is any force. The plaintiffs are the only Member who seems to be aggrieved by the action of the Board. It may be that while some Members of the Board are adversely affected, there may be others who are benefited by this clarification. This hardship to some of the members would not be the ground for holding that the action of the Board is against natural justice.
So far as the plaintiffs are concerned, the convenience of the plaintiffs alone is not to be considered. The convenience of all the Members of the Association has to be taken into consideration. The plaintiffs in fact under Article 147 of the Articles of Association are bound by the By‑laws which would include also the clarification put by the Board of Directors. They must accept the decision of the Board as others have accepted.
The present application, besides the reasons that I have given above for not entertaining the application for injunction, can also be disposed of on the ground that it has become infructuous. The plaintiffs have prayed :‑
"That this Hon'ble Court be pleased to issue temporary injunction against the defendants from putting into effect the clarification dated 24th December 1955 as circulated on 27th December 1955 concerning the differences in the Price of Cotton Tenders for January Delivery in respect of Pakistan Cotton Contracts of Karachi Cotton Association Limited and taking any further action in dealing with the tenders for January Delivery."
The application, as would appear from the above, has become infructuous, as the time for January Delivery has not passed. The present suit itself was filed on 4th January 1956, and as the application for injunction was a belated one, I issued only notice on 5th January 1956.
For the reasons given above, I dismiss the application for injunction and discharge the notice.
A.H. Application dismissed.
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