1951 (9) TMI 24 - HC - Companies Law

Summary

Issues:
1. Confirmation of special resolutions altering the memorandum of association under section 12 of the Indian Companies Act.
2. Proper calling of the extraordinary meeting and service of notices.
3. Whether the alteration in the memorandum of association amounts to a reduction of share capital.

Analysis:
1. The petition seeks confirmation of special resolutions altering the memorandum of association under section 12 of the Indian Companies Act. The company originally had a capital structure that allowed for repayment of share capital to shareholders, which is not in accordance with the Indian Companies Act. The amendments aim to rectify this anomaly by providing for a permanent share capital structure. The alteration substitutes the share capital to Rs. 1,00,000 divided into 1,00,000 shares of Re. 1 each, ensuring that the capital is not repayable to depositors. The alteration is deemed necessary to comply with the law and safeguard the company's capital structure.

2. The respondents, who claim to be members of the company, oppose the application on grounds of improper calling of the meeting and lack of notice. The first respondent's name was removed from the list of shareholders due to legal proceedings, while the second respondent, his wife, received notice as per the company's rules. The court finds that notice was properly served on the second respondent, and objections from the respondents, who are husband and wife, are not given significant weight due to strained relations between the first respondent and the company's management.

3. The second objection raised is whether the alteration in the memorandum of association constitutes a reduction of share capital. While the amendment changes the share capital from Rs. 21,00,000 divided into 25,000 shares to Rs. 1,00,000 divided into 1,00,000 shares of Re. 1 each, it is necessary to evaluate if the previous capital structure truly constituted share capital. The existing system allowed for repayment to depositors, potentially depleting the capital entirely. The alteration aims to establish a permanent share capital system in line with company law requirements, regularizing the irregular practices. The court concludes that the amendment does not amount to a reduction of capital but rather a necessary step to ensure a stable capital structure, benefiting the company, creditors, and depositors.

In conclusion, the court confirms the resolutions altering the memorandum of association, deeming them necessary for the efficient and lawful operation of the company. The alteration establishes a permanent share capital structure, addressing the deficiencies in the previous system and safeguarding the company's financial stability.