1983 (5) TMI 264 - HC - Companies Law

Summary

Issues Involved:
1. Legality of the Election Rules framed by the Executive Committee of the Council.
2. Validity of Articles 11, 33, 38, and 40(a) of the Articles of Association.
3. Cause of action for the suit.
4. Suit barred by Section 10 of the Companies Act.
5. Proper valuation of the suit.
6. Estoppel of the plaintiffs from raising the pleas regarding the validity of rules.
7. Relief.

Issue-wise Detailed Analysis:

Issue 1: Legality of the Election Rules framed by the Executive Committee of the Council
The plaintiffs challenged the Election Rules framed by the Executive Committee, arguing that the Executive Committee lacked the authority to frame these rules, which should have been framed by the Council as per Article 49(c). The defense contended that concurrent powers were vested in both the Executive Committee and the Council. The court held that the Executive Committee and the Council have concurrent powers to frame Election Rules, but once framed by the Council, they cannot be altered except with a three-fourths majority at a special meeting. Therefore, the challenge to the power of the Executive Committee to frame the Election Rules failed. However, the Election Rules were declared ultra vires to the extent that they restricted voting rights to Ordinary Members only, as this was inconsistent with the mandatory provisions of the Companies Act.

Issue 2: Validity of Articles 11, 33, 38, and 40(a) of the Articles of Association
The plaintiffs argued that these Articles, which restricted voting rights to Ordinary Members, were ultra vires of the Companies Act and Table C in Schedule I, which mandates that every member shall have one vote. The court held that the Articles of Association must conform to the statutory provisions, and any deviation that negates the right of voting to a class of members is inconsistent with the Act. The court declared Articles 3, 11, 33, 38, 40(a), and 47, which restricted voting rights to Ordinary Members, as ultra vires and void.

Issue 3: Cause of action for the suit
The defense did not press this issue, and it was decided against the defendants.

Issue 4: Suit barred by Section 10 of the Companies Act
The defense argued that the suit was barred as it related to the internal affairs of the company. The court rejected this argument, stating that the challenge was to the validity of provisions in the Articles of Association that were ultra vires of the statutory provisions, which is a matter that can be adjudicated by a civil court.

Issue 5: Proper valuation of the suit
This issue was not pressed by the defense and was decided against them.

Issue 6: Estoppel of the plaintiffs from raising the pleas regarding the validity of rules
This issue was also not pressed by the defense and was decided against them.

Issue 7: Relief
The court granted the plaintiffs a decree for declaration that the impugned Election Rules and specific Articles of the Articles of Association were void and of no effect. The plaintiffs were also granted a declaration that Articles 3, 11, 33, 38, 40(a), and 47, in so far as they debarred Associate Members or Institution Members from voting rights, were void and of no effect. The parties were ordered to bear their own costs.

Conclusion:
The court declared the Election Rules framed by the Executive Committee and specific Articles of the Articles of Association as void and ultra vires to the extent that they restricted voting rights to Ordinary Members only. The suit was decided in favor of the plaintiffs, and the parties were ordered to bear their own costs.