1961 (12) TMI 44 - HC - Companies Law

Meeting and proceedings Restriction on exercise of voting rights of members who have not paid calls, Etc., Contents and manner of service of notice and persons on whom it is to be served

Summary

Issues Involved:
1. Validity of the Annual General Meeting (AGM) held without notice to plaintiffs.
2. Compliance with Section 158(1) of the Companies Act, 1948.
3. Voting rights at the AGM based on the state of the share register.
4. Applicability of Article 35 of Table A regarding the offering of shares.
5. Rights of unpaid vendors versus beneficial owners regarding voting at AGMs.

Detailed Analysis:

1. Validity of the Annual General Meeting (AGM) Held Without Notice to Plaintiffs:
The court examined whether the AGM held on December 30, 1958, was valid despite no notice being served to the plaintiffs. According to Article 43 of Table A, "The accidental omission to give notice of a meeting to any member shall not invalidate the proceedings at any meeting." The court, however, found that the omission was not accidental. It was argued that an omission based on a misapprehension of law or fact was accidental, referencing cases like *Barker v. Purvis* and *In re Inckcape*. The court did not accept these arguments, concluding that the omission was not accidental and thus, prima facie, the meeting was a nullity.

2. Compliance with Section 158(1) of the Companies Act, 1948:
The plaintiffs argued alternatively that the AGM was a nullity due to non-compliance with Section 158(1) of the Companies Act, 1948. The court dismissed this argument, stating there was no merit in the point raised.

3. Voting Rights at the AGM Based on the State of the Share Register:
The plaintiffs sought a declaration that the voting rights at any future AGM should be based on the share register as it stood at the expiration of the period during which the meeting was required by law to have been held. The court found no authority or statutory justification for this proposition, deeming it wrong in principle and contrary to the company's articles.

4. Applicability of Article 35 of Table A Regarding the Offering of Shares:
The plaintiffs argued that Article 35 of Table A required the 50 shares issued to the female defendant to be offered proportionately to all members. The court found that Article 35 did not apply to shares forming part of the original capital and that Article 4 of the company's articles left the allotment of shares to the board. Hence, disqualifying those 50 shares on these grounds was incorrect.

5. Rights of Unpaid Vendors Versus Beneficial Owners Regarding Voting at AGMs:
The court examined whether the plaintiffs, as unpaid vendors, had the right to decide how to exercise voting rights or whether the defendants, as beneficial owners, had the right to direct the votes. The plaintiffs contended that unpaid vendors retained the right to exercise voting powers without necessarily obeying the purchaser's instructions. The defendants argued that the vendors were trustees for the purchaser and must comply with the purchaser's wishes unless it affected the vendor's lien.

The court referred to the position of a mortgagee of shares, citing *Siemens Bros. & Co. Ltd. v. Burns* and *Puddephatt v. Leith*, establishing that the legal owner of shares (mortgagee) had the prima facie right to exercise voting rights unless restricted by contract. The court concluded that an unpaid vendor of shares on the register retained the prima facie right to vote in respect of those shares, similar to a mortgagee.

Conclusion:
The court held that the AGM held on December 30, 1958, was a nullity due to the non-accidental omission of notice to the plaintiffs. The plaintiffs, as unpaid vendors, retained the prima facie right to vote in respect of the shares and were entitled to complain about the defect in the AGM. The court dismissed the arguments regarding the applicability of Section 158(1) of the Companies Act, 1948, and the requirement to offer shares proportionately under Article 35 of Table A.