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TMI Blog2006 (3) TMI 328X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1956 on 5-7-2000 as a private limited company having the authorised share capital of Rs. 10,00,000 divided into 1,00,000 shares of Rs. 10 each. Out of the same 8,900 shares of Rs. 10 each were issued and subscribed on incorporation of the company. The main object of the company is to carry on the business of manufacturing, developing and distribution of software. The appellant No. 2 herein and respondent Nos. 2, 3 and 5 before the Company Law Board who are not made parties to this appeal were the original promoters of the company. They are the subscribers to the Memorandum and Articles of Association of the company. They are also the first directors of the company. Out of the total subscribed shares of 8,900 each of the aforesaid promoters were holding one share each, i.e., in all four shares. The first appellant-company was allotted 8,896 shares, thus, the company held 99.95 per cent shares in the company. In fact, the first respondent-company had deposited in advance with the first appellant-company a sum of Rs. 1,60,885 by way of share capital for issue of further shares which is also acknowledged by the company in its balance sheet for the year ending 31-3-2002. 3. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even if article 9 is read in its entirety the ratification of the general body meeting is required only in case if the company decides to allot or otherwise dispose of the shares at discount or at premium or at par, and it does not apply to a case of allotment of additional shares and any other cases. Therefore, they contended that the allotment of additional shares is legal and valid and there is no substance in the claim put forth by the first respondent. 5. The Company Law Board on going through the pleadings of the parties, the documents relied on by them as well as the arguments addressed by the learned counsel appearing for the parties, held, that the company was bound to hold general meeting of shareholders before issue of further shares. Accordingly, the appellants should have given notice of issuance of further shares of the company; the appellants cannot be allowed to take advantage of their own wrongs by not calling the general meeting of the shareholders at the time of initial allotment of shares, and moreover, during the period of first allotment of shares there were only four shareholders and they were all directors of the respondent-company. Therefore, it proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formation, whichever is earlier, it is proposed to increase the subscribed capital of the company by allotment of further shares, then, ( a ) such further shares shall be offered to the persons who, at the date of the offer, are holder of the equity shares of the company, in proportion, as nearly as circumstances admit, to the capital paid-up on those shares at that date; ( b )the offer aforesaid shall be made by notice specifying the number of shares offered and limiting a time not being less than fifteen days from the date of the offer, within which the offer, if not accepted, will be deemed to have been declined; ( c )unless the articles of the company otherwise provide, the offer aforesaid shall be deemed to include a right exercisable by the person concerned to renounce the shares offered to him or any of them in favour of any other person; and the notice referred to in clause ( b ) shall contain a statement of this right; ( d )after the expiry of the time specified in the notice aforesaid, or on receipt of earlier intimation from the person to whom such notice is given that he declines to accept the shares offered, the Board of directors may dispose of them in such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n approved by a special resolution passed by the company in general meeting before the issue of the debentures or the raising of the loans." 10. Section 81(1) and (2) provides that where at any time after the expiry of two years from the formation of a company or at any time after the expiry of one year from the allotment of shares in that company made for the first time after its formation whichever is earlier, it is proposed to increase the subscribed capital of the company by allotment of further shares, then, such further shares shall be offered to the persons who, at the date of the offer, are holders of the equity shares of the company, in proportion, as nearly as circumstances admit, to the capital paid-up on those shares at that date. Further it provides the procedure to be followed starting from issue of notice till allotment is made. 11. However, sub-section (3) of section 81 provides that nothing contained in the aforesaid section shall apply to a private company or to the increase of the subscribed capital of a public company caused by the exercise of an option attached to debentures issued or loans raised by the company. In other words, insofar as further issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es it clear that the shares in the capital of the company shall be under the control of the Directors who may issue, allot or otherwise dispose of the same or any of them to such persons in such proportion and on such terms and conditions and either at premium or at par or at a discount and at such times as they may from time to time think fit and proper with full power subject to the sanction of the company in general meeting. Therefore, though the power to allot shares has been conferred on the Board of Directors under article 9, such power is subject to sanction of the company in general meeting irrespective of the fact whether it is allotted at premium or at par or at discount. This provision is in conformity with sections 291 and 292 of the Companies Act. 14. It is to be remembered that all the powers of the management of the affairs of the company are vested in the Board of Directors. The Board thus becomes the working of the company. In their domain of power there can be no interference, not even by the shareholders. The manner in which the directors are to exercise their powers depends on the company s articles. The Act provides that in respect of the matters listed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inconsistency in the aforesaid article and section 81 of the Act as contended by the learned counsel for the appellant. A harmonious interpretation of the various sections of the Act referred to supra and the aforesaid article 9 of the articles of association makes it abundantly clear that the Board of Directors are governed by article 9 in the matter of issue of further shares of the petitioner-company. It is in this background we are unable to read any inconsistency in the aforesaid article vis-a-vis section 81(1) and (2) of the Act as sought to be made by the learned counsel for the appellants. 15. In fact, learned counsel of the appellants also relied on a judgment of the Bombay High Court in the case of Cricket Club of India Ltd. v. Madhav L. Apate [1975] 45 Comp. Cas. 574 wherein it was held that any provision contained in memorandum, articles, agreement or resolution of a company which is repugnant to any provision of the Act, whether such provision be expressly found in any section or is to be read in the said section by necessary implication, would be clearly void. There is no dispute insofar as the aforesaid legal proposition. As noticed by us earlier, since ..... X X X X Extracts X X X X X X X X Extracts X X X X
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