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TMI Blog1934 (12) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... at no preference or special privilege attached to or belonging to any class of shares shall be interfered with except by resolution passed by a majority in number of share holders of that class holding three-fourths of the share capital of that class and confirmed at a meeting of shareholders of that class in the same manner as a special resolution of the company is required to be confirmed, and every resolution so passed shall bind all the shareholders of the class. The admitted facts, so far as they are material for the decision of the application in revision before us, are as follows : The company was incorporated in the year 1920 as a company limited by shares with an authorised capital of Rs. 10,00,00,000 (ten crores of rupees) divided into 3,00,000 (three lakhs) 8 per cent, cumulative preference shares of Rs, 100 each, 60,00,000 (sixty lakhs) ordinary shares of Rs. 10 each, and 10,00,000 (ten lakhs) deferred shares of Rs. 10 each. The company allotted 81,000 preference shares, 41,40,000 of its ordinary shares and 5,50,000 of its deferred shares. The shares allotted were fully subscribed. The respective rights and privileges of different classes of shareholders were spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application in revision before us. The capital of the company was reduced from time to time and the ultimate reduction in capital was made on November 21, 1932, by an order of the District Judge of Cawnpore, dated November 21, 1932, in accordance with which the following minute was recorded by the District Judge : The capital of the British India Corporation, Ltd. hence forth is Rs. 3,65,00,000 (three crores sixty-five lakhs) divided into 3,00,000 cumulative preference shares of Rs. 100 each, 60,00,000 ordinary shares of Re. 1 each and 10,000,000 deferred shares of 8 annas each. At the time of the registration of this minute 81,000 cumulative preference shares, 41,40,000 ordinary shares and 5,50,000 deferred shares had been issued. The sum of Rs. 100 has been and is to be deemed to have been paid up on each of the said 81,ooo preference shares. The sum of Re. 100 has been and is to be deemed to have been paid up on each of the said 41,40,000 ordinary shares. The sum of 8 annas has been and is to be deemed to have been paid up on each of the said 5,50,000 deferred shares. The remaining 2,19,000 preference shares, 18,60,000 ordinary shares and 4,50,000 deferred shares are unissu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Corporation be, and they are, hereby declared at liberty to take such action as may be necessary to effect such consolidation and to obtain any necessary sanction of the court thereto." Identically worded extraordinary resolutions were passed on the date, viz., on nth October, 1933, at extraordinary general meetings of the ordinary shareholders and of the [preference] shareholders of the company. It was also resolved by the extraordinary general meeting of the shareholders that suitable alterations specified in the resolution be made in the memorandum and Articles of Association so as to give effect to the resolution quoted above. The extraordinary resolutions passed by the shareholders of the company were passed as special resolutions at a general meeting of the shareholders on 27th October, 1933. Having passed the resolutions referred to above the company decided to register the following minute : "The capital of the British India Corporation, Ltd., Cawnpore, hence-forward is Rs. 3,65,00,000 divided into 3,00,000 cumulative preference shares of Rs. 100 each and 65,00,000 ordinary shares of Re 1 each" and filed an application before the District Judge praying that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital and of amending the memorandum and Articles of Association into two parts by the management was for the purpose of evading the mandatory provisions of Section 54 and thereby affecting adversely the rights and privileges attached to the holders of the deferred shares. The learned Judge held that the scheme referred to above was a fair and equitable scheme and "should be sanctioned on the merits." He, however, held that the two sets of resolutions passed on August 2 and on October 11 cannot be split up and that both the resolutions must be read and taken into consideration together. In this view of the matter he held that it was not open to the applicant company to ask for the confirmation of the resolution of October 11 and not for the resolution of August 2. In other words, he held that the two resolutions must be read together and the scheme treated as a single scheme and sanction should be accorded or refused to the scheme as a whole. His conclusion was that he was not competent to grant the application of the company under Section 54 of the Act as the effect of the two resolutions passed on the two dates mentioned above was to reorganize the share capital of the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Court below did not assume jurisdiction that it did not possess, or failed to exercise a jurisdiction that it did possess, or acted in the exercise of its jurisdiction with material irregularity. All that is necessary to bring into play the revisional jurisdiction of this Court under Section 115, Civil Procedure Code is that ( i ) there be a case decided, ( ii ) the decision be of a Court subordinate to this Court, and ( iii ) the decision be not appealable. If these conditions are satisfied this Court has undoubtedly the revisional jurisdiction conferred on it by Section 115, C.P.C, and is vested with the discretion to exercise that jurisdiction provided the case falls within Clause ( a ) or ( b ) or ( c ) of Section 115, Civil Procedure Code. But the moment this Court proceeds to consider whether a particular case does or does not fall within eithes of those clauses it necessarily considers the revision application on its merits. We, therefore, propose to consider the third objection of the learned counsel while dealing with the merits of the application before us. In support of the first two objections noted above the learned counsel has argued that the Indian Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any is in the District of Cawnpore, and the Local Government, in exercise of the powers vested in it by the Proviso to Section 3 of the Act, has, by a notification dated 24th September, 1914, empowered the District Court of Cawnpore to exercise all the jurisdiction conferred by the Act upon this Court. The learned counsel is therefore right in contending that the District Judge of Cawnpore has exclusive original jurisdiction to decide all matters arising under the Companies Act with reference to the companies, the registered offices of which are within the district of Cawnpore. It follows that this Court cannot exercise jurisdiction under the Companies Act with reference to the companies mentioned above. But the exclusive original jurisdiction conferred on the District Court of Cawnpore can in no way oust the revisional jurisdiction that is conferred on this Court by Section 115, Civil Procedure Code, unless that jurisdiction is either expressly or impliedly ousted by the Companies Act or the District Court of Cawnpore, while exercising jurisdiction under that Act, is not subordinate to this Court within the meaning of Section 115. There is nothing in the Companies Act either exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relied on the decisions of this Court in Parbhu Narain Singh, Kashi Naresh v. Harbans Lal 14 ALJ 281 and Jamna Prasad v. Karan Singh 16 ALJ 859 . In these cases it was held that no revision lay to this Court against an appellate decree of the District Judge in suits filed in the revenue Court under the Agra Tenancy Act, II of 1901. In the Tenancy Act of 1901, apart from the provisions as regards appeals from decisions under that Act, specific provision was made as regards revisions by Section 185 of that Act. By that section the Board of Revenue was empowered to exercise revisional jurisdiction in cases decided by subordinate revenue Courts except those cases in which the decree of the revenue Court was appealable under Section 177 of the Act to the District Judge. The omission of the legislature, while making provision about revisions, to vest this Court with revisional jurisdiction was significant. Apart from this the provision of Section 167 of the Act itself was impliedly taken to bar the revisional jurisdiction of this Court. It was provided by Section 167 of that Act that 'all suits and applications of the nature specified in the Fourth Schedule of the Act shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subordinate to this High Court within the meaning of Section 115, Civil Procedure Code. It is conceded that the order sought to be revised in the present case fulfils the other requirements of the First Paragraph of Section 115, viz., that a case has been decided by the District Court and that the order is not appealable. That being so, for the reasons given above, we overrule the preliminary objection and hold that we have jurisdiction to entertain this application. On the merits we have come to the conclusion that the order of the District Court of Cawnpore cannot be sustained and that in rejecting the application filed by the applicant company that Court exercised its jurisdiction with material irregularity. We have already observed that the Court below came to the conclusion that what the company proposed to do was "fair and equitable" and that the scheme "should be sanctioned on the merits." It was pointed out by the learned counsel for the opposite party that, in the event of the company making very large profits, the removal of the distinction between the rights and privileges of the ordinary and deferred shareholders and consolidation of those classes of shares woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resolution of August 2, the case falls within the purview of Section 54, and, as those resolutions were not passed by such majority in number of shareholders as is required by the Proviso, the Court could not confirm the resolutions under Section 54. We are however of the opinion that the Court below was wrong in holding that the two resolutions must be read and considered together. Paragraph 8 of the memorandum of association clearly provided that the rights for the time being attached to several classes of shares may be modified or dealt with in the manner provided by Clause 7 of the Articles, and, that that article shall be deemed to be incorporated in the memorandum and have effect accordingly. By the resolution of August 2 the company consolidated the deferred shares and gave to the shares so consolidated the same rights and privileges as those attached to the ordinary shares. The consolidation was done in the manner provided by Clause 49 of the Articles, and, it is not suggested that there was any illegality in the procedure adopted by the company for such consolidation of deferred shares. It is also not disputed that the rights attaching to the deferred shares were modifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in accordance with Paragraph 8 of the memorandum read with Clause 7 of the Articles be varied, abrogated, or affected. The exercise of the power vested by Paragraph b did not amount to an alteration of those rights and privileges, as those rights and privileges were subject to this important condition that they could at any time be altered in accordance with Paragraph 8 of the memorandum and Clause 7 of the Articles. In other words, in the case before us, the rights and privileges attaching to different classes of shares defined by the memorandum were not rights and privileges for all time, but only for such time as they remained unaltered by any special resolution as provided by Clause 7 of the Articles. Indeed in Clause 8 they are stated to be the rights " for the time being." In other words, they were not unconditional rights of the shareholders, but rights subject to variation from time to time by special procedure laid down in the memorandum and articles. The question of the validity and effect of clauses in the memorandum and articles similar to the clauses in the present case was considered in Welsbach Incandescent Gas Light Co. Ltd.'s case ( supra ) In that cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he text-book writers, notwithstanding the introduction of the provisions of Section 54 in the English Companies Act of 1908. Reliance has been placed on behalf of the opposite party on the decision of the Bombay High Court in In re E.D. Sassoon United Mills, Ltd., In re AIR 1929 Bom. 38. That case is, in our judgment, clearly distinguishable as the facts in that case were very different from the facts in the case before us. In the Bombay case a procedure was provided in the articles of association for modifying or altering the preferential rights and privileges of certain classes of shares, but the preferential rights in the perference shares of the initial capital were, by the terms of the memorandum of association, made unalterable, and an attempt was made by means of the procedure prescribed by the artices to take away the privileges of the preference shares in the initial capital, and this the company clearly could not do. Further an attempt was made to vary the privileges attached to the ordinary shares, but the procedure laid down in the articles for such variation was not followed. Consequently the variation of the rights and privileges attached to these shares could onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Companies Act, 1900). Further, the case of Australian Estates and Mortgage Co., Ltd., In re [1910] 1 Ch. D. 414 makes it clear that after the passing of the English Companies Act of 1908, a resolution similar to the August resolution in the present case did not require the sanction of the Court, though Section 120 of the English Companies Act, 1908 was identical with Section 153 of the Indian Act. Before we leave this point we must notice the decision in J.A. Nordberg, In re [1915] 2 Ch. D. 439 which was relied upon by the learned counsel for the opposite party. In that case it was held that a scheme of arrangement which modifies the memorandum of association of a company in any way other than those specified in Section 45 of the Companies Act, 1908, (which corresponds to Section 54 of the Indian Companies Act) does not require a special resolution passed by the majority mentioned in that section, but may be validly effected under Section 120 of the Act ( viz., Section 153 of the Indian Act). That case is distinguishable on the broad ground that the scheme proposed in that case modified the terms of the memorandum of association of the company, whereas in the case b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We cannot agree with this contention. The shares still remained as ordinry and deferred shares though the special rights and privileges attaching to each class had been swept away. In our judgment, even after the August resolution a deferred share could not have been sold as an ordinary share and it follows, therefore, that a proposal to make these two classes of shares into one class did involve a consolidation of the different classes of shares. It is manifest from the observations made above that the decision of the Court below is erroneous and that the application filed by the company was wrongly rejected by that Court. But it is contended on behalf of the opposite party. that, howsoever erroneous in law the decision of the Court below may be, we cannot interfere with the same, as the Court below had undoubtedly jurisdiction to entertain and decide the application and, in the exercise of that jurisdiction, it has not acted illegally or with any material irregularity. It is settled by the decision of their Lordships of the Privy Council in Amir Hasan Khan v. Sheo Baksh Singh ILR 11 Cal. 6 and Balakrishna Udayar v. Vasudeva Ayyar ILT 40 Mad. 793 , that 'Section ..... X X X X Extracts X X X X X X X X Extracts X X X X
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