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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 ..... d for declaration, cancellation, injunction and other reliefs against the Company and its directors. The directors are from the same family. Prayer clause (a) of the Suit reads as under :- (a) It may kindly be declared that the alteration made in the share capital clause No. V and increase made in the authorized share capital from Rs. 5,00,000/- to Rs. 1,00,00,000/- in the Memorandum of Association of the defendant no.1 Company in its extra ordinary general meeting dated 27/01/2015 by the defendants are illegal, null and void and the same may kindly be cancelled and/or set aside." 4. The plaintiff sought other declarations by way of various prayer clauses as described in the plaint. Pending the hearing, the plaintiff sought temporary injunction for giving effect to the Resolution passed in the EOGM dated 27/01/2015 and from passing proposed special resolution No.1, causing alteration in the Articles of Association of the defendant no.1. Plaintiff seeks restraining order against the defendants from claiming any rights on the basis of allotment of shares (rights issue) on 27/4/2015. 5. By an order dated 23/9/2015, learned 8th Joint Civil Judge, S.D., Pune passed an interim order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a 18 of the plaint, it is contended by the plaintiff as under :- "18. It is further to the shock and surprise of the plaintiff that the defendant No. 2 to 5 as board of directors approved the alleged rights issue of Rs. 2,00,00,000/- (Two Crore Only) in their meeting held on 9/3/2015 without altering the share capital clause in the Articles of Association of the defendant No.1 Company, which action is grossly illegal, null and void on the part of the defendant No.2 to 5 being directors of the defendant No.1 Company and is liable to be set aside the same. The action of approving right issue by the defendant No.2 to 5 without altering the Articles of Association of the defendant No.1 Company cannot sustain under the provisions of law. Consequently, the defendant No.1 Company by its letter of offer dated 9/3/2015 allegedly offered alleged 10000 equity shares of Rs. 100/- each at a premium of Rs. 1900/- per equity share aggregating Rs. 2 Crore as rights issue to its members, which is in gross violation of the provisions of the Companies Act, 2013 and the same is liable to be set aside. It is submitted that the alleged letters of offer dated 9/3/2015 are issued to the plaintiff allege ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion by simple majority and thereafter called EOGM of the company on 23/3/2017 and passed special resolution, amending the Articles of Association. The counsel, therefore, submitted that either way the Articles of Association were amended and there shall not be any impediment for the company to proceed further and take necessary steps. 12. Learned counsel submitted that impugned order suffers from non application of mind. The learned trial Judge failed to provide necessary reasoning in support of the order and the interpretation in respect of the provisions of Sections 13(1) and 61 of the Companies Act. Learned counsel places reliance on the judgment of Division Bench of this court in the case of Miheer Hemant Mafatlal vs. Mafatlal Industries Ltd. [1987 (89) Bom. L.R. 86], which is applicable to the principles of law enunciated by the appellants in this case in support of their arguments. 13. Learned counsel appearing for the respondent no.1 supported the order passed by the trial court. In the view of the learned counsel, Section 13(1) specifically refers to passing of special resolution for altering provisions of Memorandum of Association. In past, Memorandum of Association was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may, by a special resolution, alter its articles including alterations having the effect of conversion of - (a) a private company into a public company; or (b) a public company into a private company: Provided that where a company being a private company alters its articles in such a manner that they no longer include the restrictions and limitations which are required to be included in the articles of a private company under this Act, the company shall, as from the date of such alteration, cease to be a private company. Provided further that any alteration having the effect of conversion of a public company into a private company shall not take effect except with the approval of the Tribunal which shall make such order as it may deem fit. 61. Power of limited company to alter its share capital.- (1) A limited company having a share capital may, if so authorised by its articles, alter its memorandum in its general meeting to - (a) increase its authorised share capital by such amount as it thinks expedient; (b) consolidate and divide all or any of its share captial into shares of a larger amount than its existing shares: Provided that no consolidation and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titled to alteration of its memorandum in the prescribed manner as provided by the said provision. In the facts of the case, provisions of Sections 13 and 61 will be material having bearing in appreciating the facts of the case. 16. The respondent no.1 - plaintiff filed the Suit on 15/3/2016. On 23/9/2015, an interim order was passed by the trial court, the operative portion of which reads as under :- "1. The defendants are hereby restrained from holding EOGM on dated 25/09/2015 as scheduled in notice dated 20/08/2015 at Pune. 2. The plaintiff is directed to comply as per Order 39 Rule 3 of Code of Civil Procedure. 3. Issue notice to defendants as to why this order should not be confirmed till disposal of the application below Exh.5. The Trial Court passed interim order dated 29/9/2016, the operative portion of which reads as under :- "(1) The defendant No.2 to 6 are hereby temporarily restrained from making changes in Articles of Association in respect of share capital of the company on the basis of new shareholding pattern, in the Annual General Meeting of company scheduled on 30/09/2016 only. (2) Matter be sent to the Hon'ble Commercial Court in view of Circular T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el appearing for the respondent no.1-plaintiff submitted that the amendment of Articles of Association was not at all passed in a special resolution by 3/4th majority. 20. It is clear from the record that the plaintiff did not file any suit soon after the amendment of the Memorandum of Association of the company. The suit was filed at a belated stage when the substantive steps were taken by the Board of Directors by passing resolution and taking steps to get it registered with the Registrar of Companies. It is necessary, at this stage, to refer to Clause 7 of the Articles of Association, which reads as under :- "7. Subject to the provisions of the said Act, the Company shall be entitled, to exercise the powers to alter the conditions of its Memorandum so as to increase, consolidate and divide its share capital, convert shares into stock, subdivide or cancel shares as provided in section 94 of the said Act, to reduce its share capital as provided in section 100 of the said Act, and to alter the rights of the shareholders and for that purpose to exercise the powers contained in sections 106 and 391 of the said Act. The Directors shall have powers to increase the share capital o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order. It is the finding of the trial court that if the defendants want to make any alteration in the Articles of Association, it should be in consonance with the provisions of the new Act. 23. On behalf of the appellants reliance was placed on the Judgment of this court in the case of Miheer Hemant Mafatlal vs. Mafatlal Industries Ltd. (Supra) and on behalf of the respondent no.1, reliance was placed on the judgment of the Supreme Court in the case of M.S. Madhusoodhanan and anr. Vs. Kerala Kaumudi (P) Ltd. and ors. (Supra) before us. Both these cases were cited before the trial court. The trial court referred to these cases. We have also perused the judgments cited before us (Supra). Prima facie, we find that the plaintiff approached the trial court at a belated stage. By that time, the resolution for amending Memorandum of Association was passed in the meeting held on 27/1/2015 by simple majority. Additional shares were issued on 9/3/2015. The Registrar of Companies had registered the amended Memorandum of Association. Objection raised by the plaintiff before the Registrar was overruled and thereafter the trial court passed an ad-interim order not to hold a meeting called o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rector or manager, may be altered in the same manner as the articles of the company, but if there is any express provision in this Act permitting of the alteration of such provisions in any other manner, they may also be altered in such other manner. (4) All references to the articles of a company in this Act shall be construed as including references to the other provisions aforesaid contained in its memorandum. Section 31 of the Act of 1956 refers to alteration of articles by special resolution, which reads as under :- "31. Alteration of articles by special resolution.- (1) Subject to the provisions of this Act and to the conditions contained in its memorandum a company may, by special resolution, alter its articles: Provided that no alteration made in the articles under this subsection which has the effect of converting a public company into a private company, shall have effect unless such alteration has been approved by the Central Government. (2) Any alteration so made shall, subject to the provisions of this Act, be as valid as if originally contained in the articles and be subject in like manner to alteration by special resolution. (2A) Where any alterat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 28. In the light of the discussion made above, we find that the interpretation placed by the trial court on the provisions of the law and the approach adopted in the facts of the case required to be interfered with. We do not find that the view of the trial court is reasonable one. We are, therefore, required to interfere in the order passed by the trial court. 29. The appeal is allowed. The impugned order dated 3/4/2017 passed by the Court of 8th Joint Civil Judge, Senior Division, Pune below Exhibits 5, 40 and 54 in Special Civil Suit No. 1210 of 2015 (New Special Civil Suit No. 177 of 2016) is quashed and set aside. No order as to costs. (SMT. BHARATI H. DANGRE, J.) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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