9911796707
TMI Blog1971 (6) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... evant to this petition are not in controversy and may be briefly stated. The company was incorporated in England on 31 August, 1910. It has a place of business and its head office in Bombay. Its authorised capital is 200 lakhs shares of the nominal value of 1 s. 6 d. each. Its issued and paid up capital is 37,50,000 shares, and 95 per cent, its shareholders are in India. The main and dominant object for which the company appears to have been started is set out in clause 3(1) of its memorandum and is prospecting for, refining, production of and dealing in petroleum and other mineral oils and in particular to acquire three existing Indian companies carrying on that business in Burma, viz., Aungaban Oil Co. Ltd., Rangoon Refinery Co. Ltd. and Rangoon Oil Co. Ltd. There were prior to 8th December, 19, in the memorandum other object clauses some of which were ancillary to the main object, some were powers to enable the company to achiee the main object, many were such as would in any case be implied and some were inflated objects which it has become customary for draften to insert, which were never needed by the company. Draftsmen resort to this device to avoid the cumbersome proced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under article 106 of the articles of association of the company. On that day, the newly appointed directors did not hold qualification shares, viz ., 2,500 shares each. They did not acquire the qualification shares within two months from the date of their appointment. They, however, acquired the qualificaion shares after the said period of two months. They however continued to function as directors and appeared to have got themselves re-elected from time to time not as newly proposed directors after a proper notice that they would be so proposed, but without any notice as if they were validly elected directors who had retired and were eligible for re-election. The appointment of these three newly elected directors has been challenged by the petitioners in this petition as well as in Suit No. 862 of 19, which is pending in this court. The petitioners allege that after taking control of the company on 5th April, 1966, Jagdish Kapadia, B. L. Kapadia, T. L. Shah and M. C. Kapadia began to utilise the funds of the company for granting badli loans to shareholders of various other companies against the pledge of shares and in purchase of shares of other limited companies. It is all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he business of import and export and dealing in shares. The company also introduced the usual "independent construction clause" and provided that the several objects clauses shall be deemed to be substantive and independent main objects clauses and that their construction will not be restricted by the name of the company. We shall consider the effect of these alterations a little later. It must, however, be mentioned that the company being a British company under section 5 of the English Companies Act, 1948, the resolution of alteration was not required to be confirmed by court and came into effect without such confirmation. Thereafter, on 30th November, 1970, some of the shareholders of the company other than the petitioners filed a suit in this court being Suit No. 862 of 1970, inter alia , for declarations: ( a ) that the alteration of memorandum of association at the meeting of 8th December, 1970, was void, and ( b ) that Jagdish Kapadia, M. C. Kapadia, B. L. Kapadia and S. N. Kapadia were not validly elected directors. The plaintiffs also sought the necessary injunctions in the suit. . The said suit is pending. I shall first deal with a preliminary objection as to the juris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar and destruction of the company's properties in Burma that business came to an end. From 1942 to 1965 the company carried on no business. It was engaged in litigation and other efforts for recovery of compensation for destruction of its property. This was a necessary and useful activity and would have been a good ground for not winding up the company during that period. But, in my opinion, this was not a business falling within the objects clauses of the company. It can, therefore, be said that from 1942 to 1965 the company did not carry on any business. After 1965 up to 1967 the company admittedly carried on babli business of advancing money on security of shares of other companies. From 1967 to 1970 the company has invested its capital principally in the shares of National Rayon Corporation Ltd. and Killick Industries Ltd. We have to consider whether badli business and the business of investing in shares of other companies was intra vires the company or ultra vires the company If the said business was intra vires, it cannot be said that the company has ceased to carry on business. If on the other hand the said business was ultra vires , it was not business within the mea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n shares but is qualified by the condition that it must be for carrying out the objects of the company. Clause 19 permits investment of moneys of the company not immediately required for its general purposes. This contemplates the existence of its principal business and obviously a power for investment of surplus funds and not an objects clause enabling the company to invest its entire funds in other companies with a view to control them. Clause 22 is an ancillary clause providing for doing all things incidental to the objects of the company. In order to avoid the cumbersome procedure for subsequent alteration of the objects of companies, it has become customary for companies to inflate the objects clause by adding to their principal objects a large number of objects many of which would in any case be implied and many of which are never needed by the company. Added to this catalogue of possible or conceivable objects is normally a sub-clause which provides that each of the objects specified in the clause would be regarded as independent objects, and shall not be limited or restricted either by reference to any other objects clause or the name of the company. Such an independent c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ajority of those who remained desired to continue the company which was in solvent circumstances. It was held that the substratum of the company had failed and it was impossible to carry out the objects for which it was formed and therefore that it was just and equitable that the company should be wound up although the petition was presented within a year of its incorporation. In In re Haven Gold Mining Company [1882] 20 Ch. D. 151 (CA) the company was established for working a gold mine in New Zealand, and it turned out that the company had no title to the mine and had no prospect of obtaining possession of it except as to a small portion for a few months. The court was satisfied that the subject-matter of the business for which the company was formed had substantially ceased to exist although there were general words in the memorandum of association enabling the company to purchase and work other mines in New Zealand and large majority of the shareholders wished to continue the company. The court made an order of winding-up. In both the cases of German Date Coffee's case ( supra ) and Haven Gold Mining's case (supra), the court referred to the name of the company for dete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and order on winding-up petition could be made, it had shown the intention of carrying on another engineering business. The court refused to make a winding-up order. In my opinion, this case has no application. The company has not shown that it has acquired other oil installations with which it could continue the business for which the company was started. Another case cited was In re Taldua Rubber Co. Ltd. [1946] 2 All. ER 763 (Ch. D.). In that case the court found that the paramount object of the company was to carry on the business of rubber estates and that it was not limited to the business of carrying on the particular estate. The memorandum also contained the independent construction clause. The company had disposed of a particular estate and showed an intention to carry on business by acquiring another estate. Although the company had no concrete scheme before the court for dealing with the proceeds of the sale of the first estate, the court refused to make a winding-up order. In the case of In re Eastern Telegraph Co. Ltd. [1947] 2 All. ER 104 ; [1948] 18 Comp. Cas. 46 (Ch. D.) the company was formed for acquiring the undertakings of telegraph lines. In 1929 its t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 961] 31 Comp. Cas. 38 . (QBD) Salmon J. took the view that Mysore Reefs' case ( supra ) was no longer good law. I must, however, point out that in Cotman v. Broughamm [1918] AC 514 (HL) as well as in the case before Salmon J. the question was of ultra vires of certain acts of the company and not the question of substratum. There is considerable difference in construction when one is considering whether a particular act is ultra vires the company and when one is considering whether the substratum of the company is gone. It may perhaps yet be argued in England either in the Court of Appeal or before the House of Lords that the Mysore Reefs' case ( supra ) is still good law. In India in the case of Lawang Tshang v. Goenka Commercial Bank Ltd. [1961] 31 Comp. Cas. 45 ; AIR 1961 Cal. 144 G.K. Mitter J. (later a judge of the Supreme Court of India) took a view quite contrary to the view of Salmon J. and he held that, notwithstanding the independent construction clause, the main and paramount object of the company in that case was still contained in the first few clauses. P. N. Bhagwati J. has taken a view contrary to the Calcutta view in Mohanlal Dhanjihhai Mehta v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meeting shall, unless recommended by the directors for election, be eligible for the office of a director at any general meeting unless not less than seven nor more than forty-two clear days before the day appointed for the meeting, a notice in writing is given by a qualified member of his intention to propose such person. This previous notice does not apply to a retiring director who is eligible for re-election. It appears that at all subsequent general meetings, the three directors other than Jagdish Kapadia have been elected without any notice given under article 105 on the footing that at the date of the general meeting, they were retiring directors. In view of the fact that I have come to the conclusion that these persons ceased to be directors on 5th June, 1966, and were not directors at any subsequent general meeting, they were, in my opinion, not retiring directors and were not entitled to be elected without a previous notice in writing prescribed by article 105. Prima facie it appears to me that directors other than Jagdish Kapadia were invalidly elected from time to time. The only validly elected director was Jagdish Kapadia and he alone could not function as the board ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... put the offer of his clients to buy up the minority before a general meeting to be convened for the purpose. I refused this adjournment. The application was made at a late stage. Besides, after the petition is admitted and advertised, all the shareholders would be before the court. It will be open to them to consider the offer at the final hearing. The petitioners alleged that the acquisition of shares of National Rayon Corporation Ltd. and/or Killick Industries Ltd. by Kapadia group is for ulterior purposes. In my opinion, an act of a company within the scope of powers expressed in its memorandum is not ultra vires , because its directors had a foreign purpose in mind when on the company's behalf they performed the act in question. This has been held in Charterbridge Corporation v. Lloyds Bank Ltd. [1970] Ch. 62 ; [1969] 2 All. ER 1185 ; 39 Comp. Cas. 824 (Ch. D.). In view of the fact that I have taken the view that the business carried on by the company from 1965 to 1970 was ultra vires , the question of ulterior purpose in carrying on such business is also a matter that will have to be inquired into at the final hearing of the petition. It appears to me prima facie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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