1963 (8) TMI 20 - HC - Companies Law

Summary

Issues Involved:
1. Declaration of dividends at an extraordinary general meeting.
2. Validity and legality of the notice dated March 1, 1963.
3. Ultra vires nature of Article 178 of the articles of association.
4. Competence of the board of directors to issue the notice and recommend dividends.
5. Maintainability of the suit after the resolutions were passed.
6. Allegation of the plaintiff being set up by the defendants.
7. Reliefs to which the plaintiff is entitled.
8. Necessity of fresh leave under Order 1, Rule 8 of the Code of Civil Procedure for amendments.

Detailed Analysis:

1. Declaration of Dividends at an Extraordinary General Meeting:
The court examined whether the company has the power to declare dividends at an extraordinary general meeting. The relevant articles (168-186) and provisions of the Companies Act, particularly sections 166, 186, 210, 211, 217, and Schedule VI, Part II, clause 3(xiv), were scrutinized. It was concluded that the declaration of dividends is a matter for the annual general meeting. The court held that "the declaration of dividend is a business of the annual general meeting," and any attempt to declare dividends at an extraordinary general meeting would be ultra vires the articles of association and the Companies Act.

2. Validity and Legality of the Notice Dated March 1, 1963:
The plaintiff contended that the notice dated March 1, 1963, was illegal and ultra vires. The court agreed, stating that the notice was not in compliance with the statutory requirements regarding the declaration of dividends. The absence of a balance-sheet and profit and loss account circulated to shareholders was a significant factor in deeming the notice invalid.

3. Ultra Vires Nature of Article 178 of the Articles of Association:
Article 178 was challenged as being ultra vires the Companies Act. The court held that the article, which purported to allow the declaration of dividends at an extraordinary general meeting, was indeed ultra vires. The court stated, "In view of my conclusion that the declaration of dividend is a matter pertaining to the annual general meeting I am of opinion that the present article is ultra vires the Companies Act."

4. Competence of the Board of Directors to Issue the Notice and Recommend Dividends:
The court examined whether the current board of directors was authorized to issue the notice and recommend dividends for the financial years 1961 and 1962. It was concluded that the present board could not declare dividends for those years without readjusting the balance-sheets of the relevant periods. The court noted, "the declaration of dividend for the years 1961 and 1962 could not be made by the present board in respect of accounts for the years 1961 and 1962."

5. Maintainability of the Suit After the Resolutions Were Passed:
The court addressed the maintainability of the suit given that the resolutions were passed after its institution. It was held that the suit was maintainable and that the court should take notice of events happening after the institution of the suit to do complete justice between the parties.

6. Allegation of the Plaintiff Being Set Up by the Defendants:
The court considered the oral evidence suggesting that the plaintiff was set up by the defendants. However, the court found the evidence unconvincing and rejected the argument. It was noted that even if the plaintiff had been set up, it would not justify an illegal declaration of dividends.

7. Reliefs to Which the Plaintiff is Entitled:
The court granted the plaintiff several declarations and injunctions as prayed for in the plaint. The plaintiff was entitled to a declaration that the notice and the resolutions were illegal and ultra vires, and an injunction restraining the implementation of the resolutions.

8. Necessity of Fresh Leave Under Order 1, Rule 8 of the Code of Civil Procedure for Amendments:
The court addressed whether fresh leave was necessary for amendments made to the plaint. It was concluded that no fresh leave was necessary, as the amendments did not constitute a new cause of action but were events subsequent to the institution of the suit. The court cited Mulla's Code of Civil Procedure, emphasizing the need to take notice of events happening after the institution of the suit.

Conclusion:
The court ruled in favor of the plaintiff, declaring the notice and resolutions illegal and ultra vires. The company was ordered to bear the costs, and the plaintiff was granted the reliefs sought. The judgment emphasized the importance of compliance with statutory provisions and the protection of shareholders' interests.