9911796707
TMI Blog1958 (1) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... shares of Re. 1 each. The issued share capital of the company at all material times has been 2,00,000 ordinary shares of Rs. 10 each and 5,00,000 deferred shares of Re. 1 each. The subscribed and paid up capital of the company is as follows: ( a )20,300 ordinary shares of Rs. 10 fully paid up in cash, 1,74,475 ordinary shares of Rs. 10 each issued as fully paid up other wise than in cash aggregating in all 1,94,775 ordinary shares. ( b )5,00,000 deferred shares of Re. 1 each issued as fully paid up otherwise than in cash. The present directors of the company are six in number and their names are set out in paragraph 6 of the petition, the last two being ex officio directors appointed by the managing agents. Under the articles of association of the company, a firm known as the firm of Hazarimull Hiralal were constituted as the first managing agents of the company and it was provided that the said firm and their successors in business would continue to be the managing agents of the company. This firm was composed of three branches of the Rampuria family consisting of three brothers, each of whom had one-third share therein. The brothers were Bahadurmull, Hazarimull Hiralal a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial resolution : Clause (2). Resolved that clause (5) of the memorandum of association of the company be amended by substituting the figure '6' in the fifth line of second paragraph of the said clause in the place of the figure '10.' An explanatory statement was also appended to this special resolution No. 2 which runs as follows: "The limit of dividends to be declared on ordinary shares before any dividends can be paid to the deferred shareholders is very high. In fact, the company has paid dividends on deferred shareholders only on three occasions. The disproportionate voting rights enjoyed by the deferred shareholders are no longer possible but restrictions on dividends shall remain. In order to remove this abnormality and put the deferred shares on as far as possible equal footing with the ordinary shares, the limit of 10 per cent. is being reduced to 6 per cent." In paragraphs 19 and 20 of the petition it is stated that pursuant to the said notice a meeting was held on the 18th of May, 1957, at No. 147, Cotton Street, Calcutta. The petitioners objected to the resolution (A)(2) which purported to vary the right of the holders of ordinary shares by reducing their right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mplated in the article that any variation of a class right is permissible. In paragraph 24 of the petition it is stated as follows: "Your petitioners state that in terms of the said provisions of the articles of association the said proposed resolution which modified and/ or affected the rights of the holders of ordinary shares could only be considered at a separate meeting of the holders of the shares of that class and could not be considered at any meeting which was not a meeting exclusively of the holders of that class of shares. As will appear from the notice the said meeting was a meeting of all the shareholders of the said company. Your petitioners state that any resolution passed at any such meeting modifying or affecting the rights of the holders of the ordinary shares was wholly illegal, null and void and wholly inoperative and ineffective." In paragraph 25 of the petition it is stated as follows; "Your petitioners are holders of not less in the aggregate than 10 per cent. of the issued ordinary shares of the company and did not consent to or vote in favour of the resolution varying the rights enjoyed by the holders of ordinary shares." In paragraph 26 of the pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by means of an agreement which is annexure 'E' to the said affidavit and which was entered into between the company and Kanwarlal Rampuria and which was consented to and ratified by a large number of ordinary shareholders whose names appear as signatories to the said agreement. It has also been pointed out with reference to the correspondence which are annexed to this affidavit-in-opposition and the minutes of the meeting which was held on the 18th May, 1957, that the attention of the shareholders present at the meeting was drawn to the agreement dated 12th April, 1957, which was ratified later on, on different dates by the different signatories to the agreement and prior to the date of the meeting in which the resolution was passed altering clause 5 of the memorandum which dealt with this right of dividend of the ordinary shareholders, and the petitioners had also inspection of this agreement at the attorney's office upon appointment made for the purpose. In the affidavit in reply the factum and validity of the agreement has been challenged. But such questions which involve the taking of evidence would have to be agitated in a separate suit if the petitioners are really serious a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n contained in the memorandum, no alteration of this clause could be made even by a special resolution passed at a meeting of the shareholders as was sought to be done at the extraordinary meeting held on the 18th May, 1957. In support of his argument Mr. Sen has drawn the attention of the court to Form No. 528 given in Palmer's Precedents, 17th Edition, at page 1075 and the learned counsel has argued that no fault can be found with the petition which is before this court inasmuch as the same has been drawn exactly in the form which is set out in Palmer's book at page 1075. It may be pointed out, however, that the drafting of this Form No. 598 is based on the special nature of the article which authorises the modification of the rights of shareholders of the class concerned in that case. In paragraph 5 of the Form of the petition reference is made to article 9 of the company's articles which is set out at page 408 of Palmer's book as follows: "If at any time the share capital is divided into different classes of shares, the rights attached to any class (unless otherwise provided by the terms of issue of shares of that class) may, whether or not the company is being wound up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a heading given to that section as "variation of shareholders' rights" and in the marginal note of that section the words "alteration of rights of holders of special classes of shares" find place. Similarly, the marginal note of section 107 is to the effect "Rights of dissentient shareholders." A perusal of section 106 makes it clear that it is legitimate for a company to reserve to itself by a clause in the memorandum or articles of association the power or authority to vary the rights attached to any class of shares in the company in which the share capital is divided into different classes of shares, but this must be subject to the condition that ( a ) the specified proportion of the holders of the class of shares not being less than 3/4 ths of the issued shares of that class must consent to such variation or ( b ) such variation must be sanctioned by a resolution passed at a separate meeting of the holders of those shares and supported by the votes of holders of any specified proportion not being less than 3/4ths of these shares. In sub-section (2) of section 106 it is provided that any clause in the memorandum or articles of a company which was in force at the commencement o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given or the resolution was passed, as the case may be, " This provision for calculation of the period of limitation of 21 days from the date of consent indicates that the consent itself completes the variation. Mr. R. Chaudhuri has very rightly pointed out that the resolution which was passed at the extraordinary general meeting held on the 18th of May, 1957, altering clause 5 of the memorandum was a special resolution which it was necessary for the company; to pass for the purpose of effecting alteration of the clause in the memorandum by reason of the provision of section 16 of the Companies Act, 1956, read with section 31 of the said Act. This special resolution which was passed on the 18th of May had not the object of completing the variation but its sole object was to bring about alteration in clause 5 of the memorandum. If the argument on behalf of the petitioners to the effect that a variation is not complete and effectual until a special resolution is passed, is accepted, the persons responsible for the variation may, by postponing the passing of the special resolution for an indefinite period, and by causing the period of limitation of 21 days to expire, make it im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ention of the court to Alexander v. Thomas [1933] 3 Comp. Cas. 81 for the purpose of showing that if a memorandum prescribed the classes of shares into which the capital is to be divided and the rights to be attached to such shares respectively, the company has no power to alter that provision by a special resolution. Mr. Chaudhuri, on the other hand, has referred to the decision of the Judicial Committee reported in Ram Kissen Dhanuka v. Satya Charan Law [1950] 20 Comp Cas 133 , for the purpose of supporting his argument that as a matter of construction of the articles and memorandum read with sections 106 and 107 of the Act, it should be held that the clause in the memorandum in the present case could be altered by a special resolution. It is, however, not necessary to express any decisive opinion on this point as, in my view, passing of a special resolution is not an essential ingredient for the purpose of making the variation of a right of a class of shareholders complete. The variation becomes complete as soon as the requirements of section 106 read with section 107 of the Indian Companies Act have been fulfilled. It may be that to avoid complications and for givin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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