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TMI Blog1998 (9) TMI 430X X X X Extracts X X X X X X X X Extracts X X X X ..... l meeting held on 15-6-1992 are set aside and the issue of capital to 50,000 shares have been restored as also respondents 2 to 4 have been declared to be the majority shareholders in the company. 2. The facts giving raise to this appeal in brief are that: respondent Nos. 2 to 4 had 49,993 shares in the appellant-company out of the authorised capital of 50,000 shares of Rs. 10 each while the remaining shares were held by seven individuals of one each. The board of directors Wallace Ltd. ( SWC Ltd. ) on 15-5-1992 passed a resolution to increase authorised capital of the company from Rs. 5 lacs to Rs. 25 lacs and this resolution was approved by the majority of the shareholders in the extraordinary general meeting of the company held on 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al was increased and due notices were issued to all the shareholders for the extraordinary general meeting held on 15-6-1992 and they had approved the resolution of the Board. They also alleged that the increase in the authorised capital was required due to business activities of the company and in order to raise further funds. 4. The lower Court found that the appellant-company was a deemed company at the relevant time and, therefore, by virtue of the provisions of section 81 of the Act, shares should have been issued to existing share holders on proportionate basis, because, there was no special resolution under section 81(1A) of the Act for allotment of shares to outsiders. The appellant-company had not followed the provisions of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roval were set aside. 7. It is not disputed before me that the appellant-company, which was a private company had become a public company by virtue of section 43A of the Act and, therefore, was a deemed public company at the relevant time. The Apex Court in the case of Needle Industries (India) Ltd. ( supra ) after reproducing the relevant parts of sections 3,43A and 81 was pleased to observe that for interpreting these and allied provisions of the Act, it would be necessary to have regard to the relevant articles of association of Needle Industries ( supra ) especially, since the section 81(1)( c ) of the Act is subject to the qualification until the Articles of the company otherwise provides and thereafter reproducing the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... blic companies are subjected severally to the discipline of the Act. Companies of the third kind like. Needle Industries (India) Ltd. s case ( supra ) which become public companies, but which continue to include in their articles the three matters mentioned in clauses ( a ) to ( c ) of section 3(1)( iii ) are also broadly and generally subjected to the rigorous discipline of the Act. They cannot claim the privileges and exemptions to which private companies which are outside section 43A are entitled. And yet there are certain provisions of the Act which would apply to public companies but not to section 43A - Companies. It posed a question "is section 81 of the Companies Act one such provision ? and if so, does the whole of it not apply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A and which include, that is to say which retain or continue to include, in their articles of association the matters specified in section 3(1)( iii ) of the Act, as specified in the first proviso to section 43A. ****** In coming to the conclusion that clause ( c ) of section 81(1) cannot apply to section 43 A - proviso-companies, we have not taken into consideration the impact of the opening words of clause ( c ): Unless the articles of the company otherwise provide . The effect of these words is to subordinate the provisions of clause ( c ) to the provisions of the articles of association of the company. In other words, the provision that the offer of further shares shall be deemed to include the right of renunciation in favour of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (1A) can also have no application to such companies. . .." (p. 838) 8. The upshot of the aforesaid discussion is that for deciding whether the provisions of section 81 applies in the whole or not to a section 43A - Company, that is to say, to a deemed public company, the articles of association are to be looked into; in order to verify whether- such company retains or continue to include in its articles of association, the matters specified in clause ( iii ) of sub-section (1) of section 3, especially for giving full effect to clauses ( a ) and ( b ) of sections 81 and 81(1A). 9. On perusal of the impugned order it does not appear that the CLB had considered the articles of association of the appellant-company before applying the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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