1969 (1) TMI 42 - DSC - Companies Law

Summary

Issues Involved:
1. Authority to allot shares under the articles of association.
2. Validity of an allotment not made bona fide in the interests of the company.
3. Power of the general meeting to ratify or approve an allotment.
4. Whether an ordinary resolution can waive the voidability of an allotment made with improper motives.

Issue-Wise Detailed Analysis:

1. Authority to Allot Shares Under the Articles of Association:
The appellants contended that the power to allot shares was vested solely in the directors of Bamfords Ltd. and that the company in general meeting had no residual power to make or ratify such an allotment. The judgment clarified that while the directors had the power to allot shares, any improper exercise of this power could be ratified by the general meeting. The court emphasized that directors often act without proper authority, but such actions can be regularized by the shareholders, provided the acts are not ultra vires the company.

2. Validity of an Allotment Not Made Bona Fide in the Interests of the Company:
The court assumed that the allotment was made mala fide, primarily to thwart a take-over bid, rather than in the company's best interests. It was acknowledged that such an allotment was voidable. However, it was not a nullity and could be ratified by the company in general meeting. The judgment referenced Regal (Hastings) Ltd. v. Gulliver, where it was held that directors could retain profits from shares acquired due to their directorships if ratified by the shareholders.

3. Power of the General Meeting to Ratify or Approve an Allotment:
The court held that the general meeting could ratify the directors' actions, even if initially improper. This principle was supported by precedents such as North-West Transportation Co. v. Beally, where it was established that a voidable contract could be affirmed by the shareholders. The judgment dismissed the notion of "residual" powers of the general meeting, clarifying that the general meeting's role was to ratify, not to allot shares directly.

4. Whether an Ordinary Resolution Can Waive the Voidability of an Allotment Made with Improper Motives:
The judgment concluded that an ordinary resolution could effectively ratify an allotment made with improper motives. The court referenced Hogg v. Cramphorn Ltd., where it was held that a general meeting could ratify an issue of shares made during a take-over war. The court rejected the argument that such ratification would require a special resolution, stating that the power to allot shares was within the company's intra vires powers and could be ratified by an ordinary resolution.

Conclusion:
The appeal was dismissed, affirming that the general meeting's ratification of the allotment was valid. The court emphasized that the general meeting could forgive and approve directors' actions, provided they were not ultra vires the company. The judgment highlighted the importance of shareholder approval in rectifying directors' improper actions and maintaining the legality of company transactions.