1960 (6) TMI 17 - HC - Companies Law

Meetings and Proceedings Extra Ordinary General Meeting, Contents and manner of service of notice and persons on whom it is to be served

Summary

Issues Involved:
1. Competency to declare a further dividend at an extraordinary general meeting.
2. Legality of the notice convening the extraordinary general meeting.
3. Authority of the new board of directors to declare a dividend for the previous year.

Detailed Analysis:

1. Competency to Declare a Further Dividend at an Extraordinary General Meeting:

The primary issue revolved around whether it was within the company's power to declare a further dividend at an extraordinary general meeting held on March 31, 1960. The plaintiff argued that dividends could only be declared at the annual general meeting, as per the company's articles of association and the Companies Act, 1956. The articles in question, particularly Articles 82, 83, 87, 153, 154, and 155, were scrutinized. Article 87 specifies that the business of an ordinary meeting includes declaring dividends, while Article 154 allows the company in a general meeting to declare dividends. The court found that the declaration of dividends is a matter for the annual general meeting, supported by the provisions in the Companies Act, 1956, and Schedule VI, Part II, clause 3(xiv). The court referred to the decision in *Nicholson v. Rhodesia Trading Co.* [1897] 1 Ch. 434, which established that final dividends could not be sanctioned except at an annual general meeting. The court concluded that the articles did not permit the declaration of a further dividend at an extraordinary meeting, making such a declaration ultra vires.

2. Legality of the Notice Convening the Extraordinary General Meeting:

The plaintiff contended that the notice for the extraordinary general meeting was misleading and did not set out all material facts. The notice did not disclose the reasons for declaring the further dividend, as stated in the affidavit of Shyamlal Agarwal. The court referenced several cases, including *Tiessen v. Henderson* [1899] 1 Ch. 861, *Baillie v. Oriental Telephone & Electric Co.* [1915] 1 Ch. 503, and *Kaye v. Croydon Tramways Co.* [1898] 1 Ch. 358, emphasizing that notices must be fairly and intelligently framed and not misleading. The court agreed with the plaintiff that the notice was misleading and did not provide a full and frank disclosure of facts necessary for the shareholders to make an informed decision. This failure rendered the notice defective.

3. Authority of the New Board of Directors to Declare a Dividend for the Previous Year:

The plaintiff argued that the new board of directors, constituted after the annual general meeting on January 15, 1960, was not competent to declare a dividend for the year ending March 31, 1959. The court agreed, stating that the recommendation for the declaration of dividends should come from the board of directors for the relevant year. The new board's declaration of a further dividend was beyond its powers and thus ultra vires.

Judgment:

The court declared that the resolution passed at the extraordinary general meeting on March 31, 1960, was illegal, void, and ultra vires the articles of association and the Companies Act. An injunction was granted restraining the defendants from implementing or giving effect to the said resolution. The plaintiff was awarded the costs of the suit, certified for two counsel.