1956 (1) TMI 14 - HC - Companies Law

Shares capital Reduction of ,Meeting and Proceedings Length of notice for calling meeting

Summary

Issues Involved:
1. Validity of the meetings held on 27th November 1955.
2. Applicability of Section 81(2) of the Indian Companies Act, 1913.
3. Compliance with statutory provisions for reduction of share capital under Sections 55 and 81 of the Indian Companies Act, 1913.
4. Whether the proposed scheme involved reduction of share capital.

Detailed Analysis:

1. Validity of the meetings held on 27th November 1955:

The primary issue in this case was whether the meetings of the preference shareholders and ordinary shareholders held on 27th November 1955 were valid. The appellants argued that these meetings were illegal due to the failure to provide at least 21 days' notice as required by Section 81(2) of the Indian Companies Act, 1913. Notices were posted on 10th November 1955 and received by many shareholders only by 16th November 1955, giving them insufficient notice. The court held that the meetings were indeed illegal and invalid due to non-compliance with the statutory notice period.

2. Applicability of Section 81(2) of the Indian Companies Act, 1913:

The appellants contended that Section 81(2) was applicable because the proposed resolution involved a reduction of share capital, which necessitates a special resolution requiring 21 days' notice. The respondents argued that Section 153 of the Act, which governs schemes of arrangement and compromise, was self-contained and allowed the Company Judge to set the notice period. The court disagreed with the respondents, stating that the special formalities required under Section 81(2) could not be overridden by the directions given under Section 153. Therefore, Section 81(2) was applicable, and its requirements had to be met.

3. Compliance with statutory provisions for reduction of share capital under Sections 55 and 81 of the Indian Companies Act, 1913:

The court emphasized that both Sections 55 and 81 deal with special matters and are equally important. The formalities prescribed by these sections must be complied with if a scheme involves the reduction of share capital. The court cited the case of In re White Pass and Yukon Rly. Co. Ltd. and Buckley on the Companies Act to support the view that any arrangement involving a reduction of share capital must adhere to the statutory requirements for such reduction. The court concluded that the meetings held on 27th November 1955 violated these provisions, rendering them illegal.

4. Whether the proposed scheme involved reduction of share capital:

The respondents argued that the modified scheme did not involve a reduction of share capital, and thus the statutory provisions of Sections 55 and 81 were not applicable. However, the court found that the draft resolution proposed at the meetings on 27th November 1955 involved redeeming 40% of the face value of preference shares in cash and issuing redeemable preference shares for the remaining 60%. This constituted a reduction of share capital, as defined under Section 55. The court referred to authoritative texts and case law, including Buckley on the Companies Act and In re St. James Court Estate Ltd., to affirm that such transactions are equivalent to a reduction of share capital. Consequently, the special formalities under Sections 55 and 81 had to be followed.

Conclusion:

The court held that the meetings of the preference shareholders and ordinary shareholders held on 27th November 1955 were illegal due to non-compliance with the statutory notice period required under Section 81(2) of the Indian Companies Act, 1913. The proposed scheme involved a reduction of share capital, necessitating adherence to the special formalities prescribed by Sections 55 and 81. Therefore, the order of Jamuar J. dated 4th January 1956 was set aside, and the appeal was allowed. No order as to costs was made in the special circumstances of the case.