9911796707
TMI Blog1963 (8) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... r to restrain the defendants from implementing or giving effect to the resolutions which were purported to be passed at the meeting. The plaintiff is a shareholder of the defendant, Swadeshi Cloth Dealers Ltd. and Ors., hereinafter referred to as the company. Defendants Nos. 2, 3, 4 and 5 are directors of the company. They are impleaded in the suit because of allegations that they are giving effect to the resolution, though the Companies Act does not empower those defendants to recommend the payment of any dividend for the financial years ending the 31st March, 1961, and the 31st March, 1962. Those defendants are further impleaded on the allegation that neither the Companies Act nor the articles of association of the defendant company empower, authorise or permit those defendants as the board of directors of the company to issue any notice or to declare any dividend as payable to the shareholders of the company in the manner proposed in the alleged notice. The suit was instituted on March 29, 1963. An interim order was asked for and an interim order was made. On March 30, 1963, the notice of motion was made returnable. The interim order was modified to some extent. At that time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end was declared for the financial years ending 31st March, 1961, and 31st March, 1962, and as the accounts and the balance-sheets in respect thereof were considered and passed at the annual general meetings of the company held on December 1, 1961, and October 29, 1962, it is beyond the powers of the defendants Nos. 2 to 5 under the articles of association of the company or under the Companies Act to recommend now the declaration of any dividend for the financial years ending on March 31, 1961, and March 31, 1962; and fifthly, it is contended that the Companies Act does not empower the defendants Nos. 2 to 5 to recommend any dividend as suggested in the notice. The further allegation in the plaint is that on or about March 30, 1963, a general meeting of the shareholders of the company was held and resolutions were passed recommending dividend for the year ending 31st March, 1961, at Rs. 10 per share and for the year ending 31st March, 1961, at Rs. 80 per share, and that the said resolutions and meetings are illegal, ultra vires the Companies Act, and are not binding on the plaintiff. There are written statements filed on behalf of the company and on behalf of the directors. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stitute the suit ? (7)To what reliefs, if any, is the plaintiff entitled ? Counsel for the defendant company raised only issues Nos. 2 and 4 of the aforesaid 7 issues. I have already indicated that the suit was adjourned at the instance of the plaintiff for amendment of the plaint. After the plaint was amended, the added defendants raised the following issues : "(1) Was the meeting dated 30th March, 1963, ultra vires and illegal as alleged in paragraph 24( a ) of the plaint ? (2) Is this suit maintainable in the absence of fresh leave under Order 1, rule 8 of the Code of Civil Procedure ? " The only oral evidence on the part of the plaintiff is that of Surajnarain Mundra who produced the minute book and proved the entry. The oral evidence of the added defendants is that of Babulal Jaipuria and Binwarilal Jaipuria. Babulal Jaipuria is a shareholder of the defendant company, and he holds 210 shares. Banwarilal Jaipuria is a shareholder of the company and he holds 400 shares. Babulal Jaipuria said that some time in the month of March, 1963, an application was made in this court by Banwariial Jaipuria, as a shareholder and that application was under section 397 of the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, secondly, that the suit was instituted not for legitimate purposes, but for subserving certain ends and, therefore, the plaintiff was not entitled to any declaration under section 42 which was a discretionary relief granted by the court. I shall deal with this aspect of the case later on. The question in the forefront is whether the company has power to declare dividends at an extraordinary general meeting. Counsel for the added Jaipuria defendants stated that if article 178 had not existed in the present case counsel would have contended that the company had a right to declare dividend at an extraordinary general meeting. The right of a company to declare dividend at an extraordinary general meeting came up for consideration in the decision of Nicholson v. Rhodesia Trading Co. [1897] 1 Ch. 434. It was held in that case that on a construction of the articles a dividend is to be sanctioned only at the annual ordinary general meeting of the company. The relevant articles in Nicholson's case ( supra ) are set out at page 435 of the report. Counsel for the Jaipuria defendants distinguished Nicholson's case ( supra ) by contending that the articles in the present case c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in paying the fixed cumulative preferential dividend on the preference shares to the close of such year or other period and as to the residue in paying a dividend for such year on the ordinary shares. 170. No larger dividend shall be declared than what is recommended by the directors, but the company in general meeting may declare a smaller dividend. 171. No amount paid on a share in advance of calls shall, while carrying interest, be treated for the purpose of the articles 185 and 186 as paid on the share. No dividend shall carry interest as against the company. 172. No dividend shall be pavable except out of the profits of the year of the company or any other undistributed profits. 173. The declaration of the directors as to the amount of the net profits of the company shall be conclusive. 174. The directors may from time to time pay to the members such interim dividends as in their judgment the profits of the company justifies ... 178. The company in ordinary or extraordinay general meeting may declare a dividend to be paid to the members according to their rights and interests in profits, and any sum carried to the reserve, depreciation, or other special funds f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the most convenient heads, the amount of gross income, distinguishing the several sources from which it has been derived, and the amount of gross expenditure distinguishing the expenses of the establishment, salaries and other like matters. Every item of expenditure fairly chargeable against the year's income shall be brought into account, so that a just balance of profit and loss may be laid before the meeting, and, in case where any item of expenditure which may in fairness be distributed over several years has been incurred in any year, the whole amount of such item shall be stated, with the addition of the reasons why only a portion of such expenditure is charged against the income of the year. 193. Every such balance-sheet shall be accompanied by a report of the directors as to the state and conditions of the company and as to the amount which they recommend to be paid out of the profits by way of dividends, or bonus to the members and the amount (if any) which they propose to carry to the reserve fund, and the account, report and balance- sheet shall be signed by at least two directors, " The other important articles to which reference has been made by counsel are 89, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no sanction of meeting is required and final dividend can be declared either at an annual general meeting or extraordinary general meeting depending on the construction of the articles. It is also contended that recommendation has to be by directors who had authorised issue of notice pursuant to which meeting is held, and, therefore, those directors must be actual directors of the company at the time the notice is issued. The provisions of the Indian Companies Act (hereinafter referred to as the Act) indicate, first, that at every annual general meeting held under section 166 there has to be under section 210 a balance-sheet as at the end of the period specified in sub-section (3) of section 210, and a profit and loss account for that period, and these accounts are to be laid before the company at every annual general meeting of the company held in pursuance of section 166. Section 166 of the Act indicates that every company shall in each year hold in addition to any other meetings a general meeting as its annual general meeting, and shall specify the meeting as such in the notice calling it and not more than fifteen months shall elapse between the date of one annual general mee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le VI consists of 8 clauses whereof clause III is important. Another section of the Act which is important for the purpose of the present case is section 205. Section 205 relates to dividend. It enacts that no dividend shall be declared or paid by a company for any financial year except out of the profits of the company for that year arrived at after providing for depreciation in accordance with the provisions of sub-section (2) or out of the profits of the company for any previous financial year or years arrived at after providing for depreciation in accordance with those provisions and remaining undistributed or out of money provided by the Central Government or a State Government for the payment of dividend in pursuance of a guarantee given by that Government. Section 205 corresponds to Regulation 97 of Table A of the Act of 1913. The section as it originally stood merely prohibited the declaration or payment of dividends except out of profits or the moneys provided by the State or the Central Government in pursuance of any guarantee given by them. The present section while reiterating that prohibition also lays down how the profits in the different cases mentioned should be w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of dividends should be made at the annual general meeting. Under the articles in the present case, particularly article 170, it will appear that no larger dividend shall be declared than what is recommended by the directors but the company in general meeting may declare smaller dividend. In order that the shareholders at a general meeting declaring dividend, should be able to make up their mind as to quantum of dividend to be declared they should have before them first, the entire accounts of the financial year which is just over and secondly, a report on the financial position of the company brought up to date under section 217(1)( d ). Unless these are available, the meeting cannot properly discharge its obligatoins. At an extraordinary meeting neither the audited accounts nor the up to date report under section 217 has been made available in the present case. It is contended that extraordinary general meeting speaks of special business and if there is special notice that is in compliance with the statutory requirements regarding a declaration of dividend because the article in the present case confers power on the company to declare dividend at an extraordinary general meet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aipuria defendants contended that on the construction of the articles in the New Central Jute Mills case ( supra ) a further reason was given as to why the declaration of dividend is a matter appearing to be a business at the annual general meeting. I do not read the decision in that manner. To my mind the provisions of the Companies Act leave no doubt whatever that the matter of declaration of dividend is a business of the annual general meeting. A question arose as to whether the present board is competent to declare dividends. It was contended that there is no evidence that the board has changed. It is an admitted feature of the case that accounts for 1961 and 1962 have been passed at annual meetings. If those accounts have been passed the accounts for those years are closed at the relevant annual general meetings and the question arises as to whether the amount which is now declared as dividend for the year 1961 or for the year 1962 is competent. Counsel for the plaintiff in my view rightly contended that there could not be any declaration of dividend for the years 1961 and 1962 not before the balance-sheets of that relevant period were readjusted. In other words, the sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present case the recommendation would be beyond the provisions of the statute and of the articles and the recommendation would be illegal in its inception. Two other questions remain to be decided. It is contended that the suit was instituted in a representative capacity and since no leave has been obtained under Order I, rule 8, at the time of obtaining the amendments, the amendments are in the individual character of the plaintiff. Counsel on behalf of the Jaipuria defendants contended that the amendments were a new cause of action and therefore leave was necessary to enable the plaintiff to sue in a representative capacity in respect of that cause of action. In the first place, it is not a new cause of action. Secondly, it is an event subsequent to the institution of the suit. Thirdly, the plaintiffs' right to sue is already there. Counsel on behalf of the plaintiff rightly contended that the court should take notice of events happening after the institution of the suit and relied on a passage occurring in Mulla's Code of Civil Procedure 12th edition, at page 612 : "Ordinarily, the decree in a suit should accord with the rights of the parties as they stand at the date of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n none of these decisions has any application to the facts and circumstances of the present case. It is true as counsel for Jaipuria defendants contended that the verbal evidence was not orally contradicted by the persons named by the added Jaipuria defendants. Raghunandan Neotia has not come and denied orally the statement alleged by Neotia to have been made to Jaipuria defendants. Does it follow that the evidence has to be accepted ? I have no hesitation in rejecting the evidence of Jaipurias. To my mind, it is impossible to believe that a person who is alleged to be arraigned against the Jaipurias would come and state that if he does not support the company his business will be ruined. Even if he did so, counsel for the plaintiff rightly contended that it should be no answer to an illegal declaration of dividend.. Lord Cairns said in the Ashbury Railway case ( supra ) that if a company could not make a contract it was void. Mr. Subimal C. Roy borrowed that proposition and rightly contended that if the declaration of dividend was beyond the competency and power of the company the plaintiff was entitled to a declaration to that effect. There cannot be any estoppel by words or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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