1961 (3) TMI 31 - HC - Companies Law

Meeting and proceedings Restriction on exercise of voting rights of members who have not paid calls, Etc., Ordinary and special resolutions, Oppression and Mismanagement

Issues Involved:
1. Oppression of non-trading shareholders.
2. Amendments to the articles of association.
3. Compliance with the Forward Contracts (Regulation) Act, 1952.
4. Voting rights and participation in company affairs.
5. Validity of the extraordinary general meeting and resolutions passed.
6. Powers of the court under sections 397 and 398 of the Companies Act, 1956.
7. Appropriate relief for the non-trading shareholders.

Issue-Wise Detailed Analysis:

1. Oppression of Non-Trading Shareholders:
The petitioners, comprising non-trading and trading members, claimed that the company's affairs were conducted oppressively towards non-trading members. They argued that the directors acted prejudicially to the company's interests by depriving non-trading shareholders of their fundamental rights as shareholders.

2. Amendments to the Articles of Association:
The amendments to the articles of association, particularly the definitions in Article 2, significantly altered the rights of non-trading shareholders. The changes included:
- Exclusion of non-trading shareholders from the definition of "member."
- Restriction of new shares allotment to trading members only (Article 11).
- Voting rights limited to trading members (Article 107).
- Non-trading shareholders excluded from receiving dividends (Article 159).

3. Compliance with the Forward Contracts (Regulation) Act, 1952:
The respondents contended that the amendments were necessary to comply with the Forward Contracts (Regulation) Act, 1952, as amended by Act II of 1957. The Forward Markets Commission suggested these changes to align the company's articles with the regulatory requirements for recognition under the Act.

4. Voting Rights and Participation in Company Affairs:
The non-trading shareholders were deprived of their voting rights, the ability to call meetings, elect directors and auditors, and receive dividends. This was argued to be a fundamental statutory right under sections 87, 181, and 182 of the Companies Act, 1956, which cannot be overridden by any company resolution or amendment.

5. Validity of the Extraordinary General Meeting and Resolutions Passed:
The extraordinary general meeting held on January 9, 1958, where the impugned articles were adopted, was attended by only 28 out of 237 shareholders. The respondents argued that the meeting was valid as proper notice was given, and the resolution was passed unanimously. However, the petitioners contended that the meeting was not adequately represented.

6. Powers of the Court Under Sections 397 and 398 of the Companies Act, 1956:
The court considered whether the amendments called for intervention under sections 397 and 398, which deal with the prevention of oppression and mismanagement. The court held that the non-trading shareholders were subjected to oppressive conduct, as their fundamental rights were trampled upon by the amendments.

7. Appropriate Relief for the Non-Trading Shareholders:
The court directed the company to purchase the shares or interests of the non-trading members within three months, leading to a reduction in the company's share capital. This relief was deemed appropriate under section 403 (b) and (c) of the Companies Act, 1956.

Conclusion:
The court allowed the petition, recognizing the oppressive conduct towards non-trading shareholders and the violation of their statutory rights. The company was ordered to buy out the shares of non-trading members, ensuring their exit from the company with their contributed capital. The court left the parties to bear their own costs and vacated previous orders restraining the company from holding meetings.

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