1987 (1) TMI 492 - HC - Companies Law

Summary

Issues Involved:
1. Authority to Amend Clause V of the Memorandum of Association.
2. Validity of Amending Clause V by an Ordinary Resolution.
3. Interpretation of Article 5 of the Articles of Association.
4. Consistency between Article 5 and Article 62 of the Articles of Association.
5. Past Practice of Amending Article 5 by Special Resolution.

Detailed Analysis:

1. Authority to Amend Clause V of the Memorandum of Association:
The appellants argued that the Articles of Association did not authorize shareholders to amend Clause V of the Memorandum of Association, asserting that such an amendment could only be made by a Special Resolution. The court examined the relevant provisions of the Memorandum and Articles of Association, as well as the Companies Act, 1956. It was noted that Article 62 of the Articles of Association provided that the company could increase its share capital in a General Meeting, which implied the power to amend Clause V of the Memorandum of Association.

2. Validity of Amending Clause V by an Ordinary Resolution:
The appellants contended that the increase in share capital required a Special Resolution. The court referred to legal commentaries and precedents, including Palmer's Company Law and Gore-Browne on Companies, which indicated that in the absence of a specified type of resolution in the Articles, an Ordinary Resolution suffices. The court concluded that Article 62 did not specify the need for a Special Resolution, thereby allowing the increase in share capital through an Ordinary Resolution.

3. Interpretation of Article 5 of the Articles of Association:
Article 5 described the authorized share capital of the company. The appellants argued that this article imposed a limit on the authorized share capital, which could not be exceeded without a Special Resolution. The court, however, interpreted Article 5 as descriptive of the current state of affairs rather than imposing a limit. It was also noted that if Article 5 were to be read as limiting the share capital, it would conflict with Article 62, which allows for an increase in share capital by an Ordinary Resolution.

4. Consistency between Article 5 and Article 62 of the Articles of Association:
The court addressed the textual inconsistency between Article 5 and Article 62. It was held that to reconcile these articles, Article 5 should be read as subject to Article 62, or Article 62 should be read as overriding Article 5. This interpretation was supported by the Privy Council decision in Ram Kissendas Dhanuka v. Satya Charan Law, which allowed for such cross-references to reconcile inconsistent provisions.

5. Past Practice of Amending Article 5 by Special Resolution:
The appellants pointed to the past practice of amending Article 5 by Special Resolution as indicative of the correct interpretation. The court rejected this argument, stating that the clear provisions of the Articles allowed for the increase of authorized capital by an Ordinary Resolution as per Article 62. The past practice was deemed irrelevant in light of the clear language of the Articles.

Conclusion:
The court dismissed the appeal, holding that the resolutions passed to increase the authorized share capital and amend Clause V of the Memorandum of Association were validly passed by an Ordinary Resolution. The suit was also dismissed in accordance with the decision in the appeal. The application for leave to appeal to the Supreme Court was rejected as no substantial question of law of general importance was found to arise in the case.