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TMI Blog2017 (8) TMI 391X X X X Extracts X X X X X X X X Extracts X X X X ..... any had filed an application with the Registrar of Companies for recording alterations of its memorandum. Accordingly, the Registrar of Companies had registered the same. In accordance with the increased share capital, new shares were distributed. It was argued that shares were even offered to the plaintiff but he declined to accept the same. The Articles of Association were amended in accordance with the provisions of Section 14 of the Act of 2013. We, therefore, find that there was reasonable and statutory compliance of the provisions of law. Alternation to the memorandum allowed. - APPEAL FROM ORDER NO. 231 OF 2017 - - - Dated:- 1-8-2017 - MR. NARESH H. PATIL AND SMT. BHARATI H. DANGRE, JJ. For The Appellants : Mr. A. V. Anturkar, Sr. Advocate a/w Mr. R. C. Barge i/by Mr. Abhay Anturkar For The Respondent : Mr. S. S. Patwardhan a/w Mr. Bhooshan R. Mandlik And Mr. Sarthak Diwan JUDGMENT [ Per Naresh H. Patil, J.] : 1. Admit. Heard finally by consent of the parties. 2. Respondent No. 1 herein Shri Ajit Arvind Marathe is the original plaintiff and the appellants herein are the original defendant nos. 1 to 3 and respondent nos. 2 to 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2/1969. The original defendant nos.2 to 5 are the directors of the Company. The defendant no.4 is a Managing Director and the defendant nos.2 to 4 are controlling the affairs of the company. 7. According to the plaintiff, the defendant nos. 2 to 5 being directors of the defendant no.1 Company called an Extra Ordinary General Meeting (EOGM) on 27/01/2015 with an agenda to bring change in the Memorandum of Association of the defendant no.1 Company to increase authorized capital of the Company from ₹ 5,00,000/- to ₹ 1,00,00,000/- and to alter the Articles of Association of the Company under the provisions of the Companies Act, 2013. It is submitted that despite strong objection raised by the plaintiff, the proposed resolution No.1 for altering the clause No.V of the Memorandum of Association for increasing authorized capital of the Company from ₹ 5,00,000/- to ₹ 1,00,00,000/- was passed by an ordinary resolution. Due to resistance made by the plaintiff and other directors of the company, the proposed resolution No.2 in respect of altering Articles of Association, including its capital clause of the Company could not be passed by securing 3/4th votes of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication dated 27/8/2015, the Registrar of Companies informed that according to the resolution passed, the Company allotted new shares to the defendant nos.2 to 4 and 6 in their meeting dated 27/4/2015 without altering the share capital clause in the Articles of Association of the Company. The plaint prescribed the said details of allotment of new shares under Rights issue. 10. Learned Senior Counsel Shri. Anturkar appearing for the appellants submits that in view of the provisions of Sections 13(1) and 61 of the Companies Act, 2013, the Company was entitled to carry out amendment in the Memorandum of Association by a simple majority. According to the learned counsel the provisions of Section 13(1) are exception to the general rule. It is submitted that the exception contemplated by Section 13(1) will operate not only in respect of Section 13(1) but also in cases of Section 13(6) as well as Section 13(9) of the Companies Act. Section 61 provides for procedure and not for power to carry out necessary amendment to the Memorandum. Learned counsel submitted that the provisions of Civil Procedure Code and principles of Order 39 Rule 1 of CPC do not attract in the facts of the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 3/4th majority to adopt a special resolution. The Counsel made reference to Section 14 of the Companies Act, which refers to alteration of articles. It was submitted that unless Memorandum of Association and Articles of Association are amended strictly in accordance with law, the resolution passed by the board cannot be implemented. The balance of convenience is in favour of the plaintiff. The trial court has considered these aspects of the matter while passing interim order which is in force since last near about two years. The Counsel places reliance on the judgment of the Supreme Court in the case of Wander Ltd. and anr. vs. Antox India P. Ltd. [1990 (Supp) SCC 727] . 14. We have perused the record, the impugned orders and the judgments cited. Provisions of Sections 13(1), 13(6), 14(1), 61(1) and 64(1) of the Companies Act, 2013 read as under :- 13. Alteration of memorandum . - ( 1) Save as provided in section 61, a company may, by a special resolution and after complying with the procedure specified in this section, alter the provisions of its memorandum. ( 2) .. ( 3) .. ( 4) . ( 5) . ( 6) Save as provided in section 64, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e date of the passing of the resolution in that behalf, have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the shares so cancelled. 64. Notice to be given to Registrar for alteration of share capital. -( 1) Where - ( a) a company alters its share capital in any manner specified in sub-section (1) of section 61; ( b) an order made by the Government under sub-section (4) read with sub-section (6) of section 62 has the effect of increasing authorised capital or a company; or ( c) a company redeems any redeemable preferece shares, the company shall file a notice in the prescribed form with the Registrar within a period of thirty days of such alteration or increase or redemption, as the case may be, along with an altered memorandum. 15. Section 13 (1) of the Act of 2013 starts with the words Save as provided in section 61 . This signifies the exclusory nature of the provisions of Section 13 (1) by carving out an exception to the rest of the provisions of Section 13. The provisions of Section 61 refer to power of limited company to alter its share capital. The exception carved out un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 2. The resolution for amending Memorandum of Association was passed by an ordinary resolution, but resolution amending Articles of Association, including its share capital clause of the company, could not secure 3/4th votes of the directors of the company. The company by its letter dated 9/3/2015 offered 10000 equity shares of ₹ 100/- each at a premium of ₹ 1900/- per equity share as rights issue to its members. 18. The plaintiff further contended that he filed a complaint on 10/4/2015 to the Registrar of Companies, Pune. The defendants called an Extra Ordinary General Meeting of the company on 25/9/2015 to alter the Articles of Association of the company, which according to the plaintiff was illegal. After taking search at the office of the Registrar of the Companies, it revealed that the company and defendant nos.2 to 5 as directors of the company allotted new shares (rights issue) to the defendant nos.2 to 4 and 6 in their meeting dated 27/4/2015 without altering share capital clause in the Articles of Association. 19. The record reflects that the amendment brought to the provisions of Memorandum of Association was taken note of by the Registrar of Companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e find substance in the submissions of the learned counsel appearing for the appellants that articles are internal regulations of a Company. It is a subordinate document to the Memorandum of Association. If companies were unable to alter their memorandum or Articles of Association to give effect to their desire changes, the corporate enterprise is likely to get frustrated and the purpose and object for which the company was formed would get defeated. 22. During the course of hearing, it was submitted that the company business had come to a standstill, because of which the company could not grow by expanding its business. The purpose of the new Companies Act, 2013 in regulating the affairs of the company will have to be considered in the light of the facts of the case and the interest of trade and commerce, as canvassed by the learned senior counsel appearing for the appellants. The company had issued additional shares on 9/3/2015 and the Registrar of Companies had already registered the amendment to the Memorandum of Association. This fact cannot be overlooked. The ad-interim relief was granted by the trial court on 21/9/2015 directing not to conduct the meeting when in the mont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent executed by it, or in any resolution passed by the company in general meeting or by its Board of Directors, whether the same be registered, executed or passed, as the case may be, before or after the commencement of this Act; and ( b) any provision contained in the memorandum, articles, agreement or resolution shall, to the extent to which it is repugnant to the provisions of this Act, become or be void, as the case may be. The provision states that save as otherwise expressly provided in this Act, the provisions of this Act, notwithstanding anything to the contrary contained in the memorandum or articles of a company shall have an overriding effect. Considering the facts of the case and provisions of Section 13(1) and Section 61 of the Act of 2013, amending Memorandum of Association by the company would not be contrary to the provisions of Section 6 of the Act. Clause 7 of the Articles of Association would not go contrary to the provisions of Section 6 of the Act as it states that the memorandum could be altered subject to the provisions of the Act and Section 94 of the Act of 1956, which corresponds to the provisions of Section 61 of the Act of 2013. 25. Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 1857, and shall also, in the case of an unlimited company formed and registered under the said Acts or either of them, extend to altering any regulations relating to the amount of capital or its distribution into shares, notwithstanding that those regulations are contained in the memorandum. 26. If we consider the provisions of Sections 16, 31 and 94 of the Act of 1956, we could notice a conscious and intentional change in the legislative approach while framing Section 13 of the Act of 2013. We cannot ignore the specific provisions of Section 13(1) so lightly. In the present case Clause V of the Memorandum of Association reads as under :- V. The share capital of the company shall consist of Rupees five lacs (Rs.5,00,000) divided into five thousand (5000/-) equity shares of Rupees one hundred (Rs.100/-) capable of being increased in accordance with the Company's regulations, and the legislative provisions for the time being in force in that behalf. The authorised capital of the company increased from ₹ 2 lacs to 5 lacs by way of special resolution passed in the extra ordinary General Meeting held on Wednesday 17 th Dec. 1969. The said clause further s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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