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TMI Blog1930 (12) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... ruary 4, 1927, was insufficient, invalid or ineffective in law? 2. the meeting of February 15, 1927, was duly convened in accordance with law, and whether the resolutions passed threat are valid and operative? The only question in this case is of the sufficiency of the notice convening the meeting. The meeting in question was convened for the purpose of adopting new articles of association and entering into an agreement with the managing agents of the company. The case for the plaintiff is that the notice convening the meeting and the circular accompanying it did not give the shareholders information that important changes were in contemplation. Consequently they did not attend the meeting, and in their absence resolutions were passed bringing into force new articles of association and sanctioning an agreement with the managing agents by which the interests of the shareholders were seriously affected to their detriment. It is admitted that three of the directors are members of the firm of the managing agents, D. N. Petit Sons Co., and it is argued that this fact was concealed from the shareholders. The managing agents of the company have admittedly been the agents for fifty y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of the memorandum of association of the company by authorising the investment of the funds in banks. No objection has been taken to the latter. The notice states that "A copy of the new articles of association together with a copy of the said agency agreement may be inspected at the registered office of the company at any time during office hours prior to the date of the meeting." This is a provision on which very great stress has been laid by the learned counsel for the company. This notice was accompanied by a circular, Ex. B, and as the case depends to a great extent on the terms of the circular, it will be necessary to give the substance of it. The circular says: "Accompanying this letter is a notice convening an extraordinary general meeting of the company for February 15, 1927, to consider, and, if thought fit, to approve the adoption of new articles of association in substitution for and to the exclusion of all the existing articles of association, to approve an agency agreement between the company and the agents and to alter certain of the provisions of memorandum of association. The shareholders of the company will, no doubt, desire to know the reason for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agency and define more clearly their powers, the directors recommend to the approval of the shareholders an agreement on the lines of the draft agreement which has been prepared and has been approved by the agents and is open to inspection by any shareholder at the registered office of the company at any time during office hours, when the draft new articles of association can also be inspected. Apart from the fixing of the duration of the agency at thirty years from January I, 1927, the only real difference between the existing terms of the agency and the proposed agreement will be found in clause 17 which provides for the payment of compensation to the agents in the event of the company being wound up except for the purpose of reconstruction or amalgamation. This is in accordance with the present day practice in Bombay which practice your directors consider should be followed in the case of this company more particularly having regard to the long and valuable services extending over more than fifty years rendered by the agents and their predecessors in business to the company. As regards the proposed alteration in the memorandum of association, paras. ( o ) and ( p ) of cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls of the resolutions that are to be put before the meeting, are mentioned in the circular. Now putting all details aside, there can be no doubt that extensive changes are made in the constitution of the company by the new articles of association, and so far as the agreement with the agents of the company is concerned, the arrangement to pay seven years' average profits as compensation and the clause regarding the right to assign and the right to, require that the agency should be continued in the event of the company changing hand's are matters of the greatest importance to the shareholders, and can by no stretch, of imagination be described as formal business. Probably this was the most important meeting that the company has ever held in the course of its fifty years of existence and the question is whether the notice indicates to the shareholders in the company the importance of the subjects which were to be discussed at the meeting. If it did, then the fact that shareholders did not attend is their own fault. If it did not, that is to say, if the shareholders were misled into supposing that the matters in question were merely formal, then they are entitled to have these resolut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt alterations in the law, it goes on to say: "Your directors have, therefore, thought it advisable to bring the articles of association of the company more up to date and into line with the provisions of the Indian Companies Act, 1913, as amended up to 1920. And the next paragraph is one which has given rise to a great deal of controversy, viz.," Your directors would assure you in the first instance that no greater powers are conferred upon the board by the new articles except as regards the proposal to increase the power of investment of surplus funds, which is confined at present to Government securities so as to permit the placing of surplus funds on deposit at interest with banks."The contention of the plaintiffs is that this a misleading statement, because as a matter of fact the new articles confer greater powers upon the board, a fact which they say it is designed to conceal from the shareholders. The circular goes on to give the principal alterations in the existing articles, and the contention of the plaintiffs is that while dealing with unimportant matters, the circular omits any reference to various important changes tending to increase the power of the directors to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r this contention is correct, it will be necessary to go into the various cases quoted, of which there are many. Prima facie it would appear that where the directors give the shareholders notice of a copy of the proposed alterations including the agreement relating to the remuneration of directors (there are no managing agents in any of these English cases), that would be a sufficient notice and that it is the shareholders' own fault if they do not take the trouble to go to the office of the company and examine the proposed alterations. But unfortunately, in at least two cases where a similar notice was given, that has been held by the Court not to be sufficient, and in order to meet that difficulty very elaborate arguments have been put forward. I think that it would be better to deal separately with the question relating to the managing agents and the question relating to the new articles of association, which are referred to in separate portions of the circular and stand on rather a different basis. In my opinion, the interests of the shareholders will be more affected by the new agreement with the managing agents than by the alteration in the articles of association most of w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held, and that will be found in the first portion of the judgment, but the learned Judge was careful to say that that proposition was meant to apply to the facts of that particular case; and the point in this case is whether the changes introduced by the new agreement with the managing agents were so far-reaching that it was necessary for the directors to send a copy of the agreement or the essential portions of it to each shareholder prior to the holding of the meeting. The form of the circular, unfortunately, does not seem to be given in the report in Normandy v. Ind., Coope Co., Limited ( supra p. 389). So far as regards the changes introduced by the agreement between the managing agents and the company are concerned, prior to this meeting for fifty years there was no formal agreement, and the position of the agents was regulated by clauses 98 and 99 of the old articles. Clause 98 said: "The general management of the ordinary business affairs of the company shall, subject to the control of the board, be in persons called the agents of the company, and such agents shall be the persons, for the time being members of the firm of Messrs. Dinshaw Maneckjee Petit Sons Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n proposed to be given was calculated on the average commission for seven years. I am of opinion that inasmuch as the question of compensation to the - agents was specifically brought to the notice of the shareholders, even the clause in which it was to be found being stated, the omission to state the amount of compensation which is not a fixed amount but dependent on the average commission for seven years preceding the winding up, was not a fatal defect, and if that were the only objection on this point, I should have put aside this objection as not sufficient in law to invalidate the notice in spite of the ruling in Normandy v. Ind. Coope Co., Limited ( supra p. 389). There are numerous other rulings to which I shall refer later, in which it has been held that notices should not be too strictly construed. Unfortunately the statement in the circular that this clause as to compensation is the only real difference between the existing terms of the agency and the proposed agreement is not strictly correct in view of the clauses to which I have already referred in the agency agreement. The commission remains the same. Clause 4 of the agreement refers to the powers of the manag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such new company for the residue of the term aforesaid and with the like powers and authorities to the said firm, and on the same terms and conditions as to the remuneration emoluments and otherwise as are herein contained. And it is hereby expressly agreed and declared that save and except with such condition and stipulation as one of the terms of the sale and transfer thereof the company will not sell and transfer its business to any other company." This means that any company buying the Maneckjee Petit Mill or amalgamating with them is obliged to take the managing agents as its own managing agents and it is contended that this might seriously affect the purchase price or the terms of the amalgamation in the event of an amalgamation taking place, as the new company or the purchasing company would be compelled to take over the managing agents whether they wanted to or not. There is a third clause to which exception is taken, viz., clause 2, which gives the managing agents liberty: "To draw out of the funds of the company at the end of each half year 01a account of their commission such sum not exceeding ninety per cent. of the sum which the said firm may fairly consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 708; 38 W. R. 161; 1 Meg. 457; 6 T. L. R. 72, Grant v. United Kingdom Switchback Railways Company [1888] 40 Ch. D. 135; 37 W. R. 312; 58 L.J. 211; 60 L. T. 525; 1 Meg. 117; 5 T.L.R. 92 , and his main submissions are as follows: 1.The notice must be in conformity with the articles of each particular company. 2.Sufficiency of the notice must be decided with reference to the particular circumstances of each case. 3.Where the notices have been challenged, there was some arrangement for secret commission. 4.Except in Normandy v. Ind., Coope Company, Limited ( supra p. 394), the proposed resolutions were never offered for inspection prior to the meeting. This last statement is not quite correct, as there is at least one case, Pacific Coast Coal Mines, Limited v. Arbuthnot [1917] A. C. 607; 86 L. J. P. C. 172; 117 L. T. 613, P.C, in which the notice stated that the proposed resolutions were deposited with the Registrar of Companies at Victoria B. C, and it was held that this was not sufficient, apparently on the ground that shareholders residing in other parts of America might not be able to go to Victoria to inspect them. The plaintiff in the present case, who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the shares. The directors were drawing remuneration from the subsidiary company without the sanction of the shareholders of the principal company. An extraordinary meeting was convened to pass resolutions ratifying what had been done and authorising them to retain the remuneration received by them in the past and for the future as directors of the subsidiary company. The notice was accompanied by a circular, which set out the proposed resolutions, but neither the notice nor the circular give particulars of the amount, which was very large, of the remuneration which had been received by the directors in respect of the subsidiary company. It was held that the notice did not give a sufficiently full and frank disclosure to the shareholders of the facts upon which they were asked to vote; and that the resolutions were invalid and not binding upon the company. This was a case in which a sum of upwards of 40,000 had been received by the directors in respect of the subsidiary company, a fact which was not referred to in the circular, and it was held by the Master of the Rolls that if any attempt is to be made by the directors to get the sanction of the shareholders, it must be made on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment when they received it. Grant v. United Kingdom Switchback Railways Company ( supra p. 394), held that the resolution of the general meeting was not invalidated by the fact that the notice convening it did not suggest any reason why the contract could not be carried into effect without the sanction of a general meeting. In Parshuram D. Shamdasani v. Tata Industrial Bank ( supra p. 394), it was held by Shah, J., after a reference to most of the cases to which I have referred (page 1003 Page of 26 Bom. L.R. [Ed.]): "The net result is that where there is any secret agreement or any interest of the directors in the agreement not disclosed in the circular, or in the notice, the Court will view with strictness any omission to refer to it in the notice or in the circular accompanying the notice; and the omission to mention any secret arrangement would constitute a serious defect in the notice. But where no secret agreement is proved or suggested and where there is no indication that there was anything to conceal, the court will as far as possible take a liberal view of the terms of the notice and will not upset the proceedings taken on a notice for some defect, which migh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the proposed agreement. On the other hand, it is quite clear that the directors did give notice to the shareholders that there was to be a change in the terms on which the managing agents were working for the company by the introduction of an agreement with them which contained one important clause regarding compensation which might conceivably involve the company in a large payment, and, therefore, shareholders were put upon inquiry, and given an opportunity of examining the proposed memorandum of agreement. There is no question of any secrecy here, because any shareholder who went to the company's office to see the proposed memorandum of agreement with a view to examine the proposals regarding compensation would in all probability look at the other terms so that the other" proposals regarding assignment and the continuance of the agency would be brought to his notice. I think myself it would have been better if in the circular the directors in calling attention to clause 17 of the proposed memorandum of agreement had also called attention to the clauses regarding the powers of assignment and the compulsory continuance of the agency in all events. The question is whether this i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s fourteen clear days' notice of candidates for the office of director confer new powers. The assurance in the circular that "no greater powers are conferred upon the board by the new articles except as regards the proposal to increase the power of investment of surplus funds" is not strictly correct, because in the circumstances I have given above the new articles increased the power of the directors, although many of them such as the power of restriction on transfer, are powers which are usually exercised in modern articles of association, and it has been contended that ordinary shareholders would imagine from this notice that that the proposed alterations were merely formal, designed to modernise the articles. It has been contended that there is no disclosure of the interest of three directors in the agency agreement, but the old articles showed the names of the directors, and the names of the agency firm, and I do not think that the plaintiffs can succeed on that point. However liberal a view is taken of the notice and circular, and eliminating those of the changes in the articles of association which are more or less of a formal character or such as are usually found in mode ..... X X X X Extracts X X X X X X X X Extracts X X X X
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