9911796707
TMI Blog1987 (1) TMI 492X X X X Extracts X X X X X X X X Extracts X X X X ..... incorporated on January 20, 1913. Clause V of the Memorandum of Articles of the said Company, as it stood before the amendment which is challenged in the suit, provided thus: The Authorised Capital of the Company is ₹ 10,00,00,000/- divided into 8,00,000 shares of ₹ 125/- each with power to increase or decrease the Capital of the Company or to decrease the number of shares or to increase or decrease the face value of the shares in accordance with the Act in force from time to time.... Article 5 of the Articles of Association of the Company, as it stood prior to the disputed amendment, provided, inter alia, as follows: The Authorised Capital of the Company is ₹ 10,00,00,000 (Rupees ten crores) divided into 6,48,000 (six lacs forty-eight thousand) Equity Shares of ₹ 125 (Rupees one hundred twenty-five) each and 1,52,000 (One lac fifty-two thousand) Unclassified Shares of ₹ 125/- (Rupees one hundred twenty-five) each.... (underlining supplied) Between 1557 and 1973 the Authorised Capital of the Company was increased on a number of occasions. On each of these occasions the increase was effected by the passing of a Special Resolution amending ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as held and the aforesaid resolutions at item Nos. 10, 11 and 12 were passed as Ordinary Resolutions. The resolution proposed at item 13 for deleting Article 5 was dropped. On the same day the defendant Company gave notice to the Registrar of Companies setting out that by the aforesaid resolutions the capital of the Company was increased and the changes should be made by the Registrar in accordance with the provisions of Section 97 of the Companies Act. 1956. On September 24, 1986 the present suit No. 2614 of 1986 was filed by the plaintiffs as shareholders holding 26% of the share capital of the said Company in which it was contended that the said resolutions set out in items 10, 11 and 12 of the said notice dated June 26. 1986 were illegal, null and void and not binding. In the said suit the plaintiffs took out the aforesaid Notice of Motion for restraining the defendant Company, namely the said Company from implementing the aforesaid resolutions at items 10. 11 and 12 of the said notice,' a copy of which is annexed as Exhibit 'C to the plaint. This Notice of Motion was dismissed by the learned trial Judge by the impugned judgment and order and the plaintiffs have come in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cle comes under the heading Increase, Reduction and Alteration of Capital and runs as follows: 62. The Company may from time to time in General Meeting increase its Share Capital by the issue of new shares of such amount as it thinks expedient. Marginal note against this Article is Increase of Capital . Article 63 deals with the conditions subject to which new shares may be issued and Clause (3) of that Article runs as follows: Except so far as otherwise provided by the conditions of issue or by these presents any Capital raised by the creation of new shares shall be considered part of the original Capital, and shall be subject to the provisions herein contained with reference to the payment of calls and instalments, transfer and transmission, forfeiture, lien, surrender voting and otherwise. Article 66 deals with the power of division and sub-division of the Share Capital. That Article confers the said power on the Company in General Meeting to be exercised by Ordinary Resolution subject to the conditions of its Memorandum. 5. Section 13 of The Companies Act deals with the requirements with respect to Memorandum of Association. Clause (a) of Sub-section (4) of Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no provision in the Articles of Association for amending Clause V of the Memorandum of Association as urged by Mr. Parekh. The determination of this question, in our opinion, to a large extent turns on the interpretation of Article 62. Article 62,. as we have pointed out, in terms, provides that the Company may from time to time in its General Meeting increase its share capital by the issue of new shares of such amount as it thinks expedient. It was submitted by Mr. Cooper that this Article gives a power to the Company at its General Meeting to increase its Share Capital beyond the limits prescribed in the Memorandum of Association, by an Ordinary Resolution providing for the issue of new shares. It was submitted by him that the share capital referred to in this Article is the very share capital referred to in the Memorandum of Association as well as Articles of Association and that in view of this provision it was open to the Company to increase its authorised share capital by passing an appropriate Ordinary Resolution and, on the passing of such Resolution, the Memorandum would automatically stand altered in accordance with the Resolution. In the present case an Ordinary Resol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Authorised Share Capital or the nominal share capital of the Company. In our view, therefore, Article 62 clearly deals with the increase in the Authorised Share Capital of the Company and provides that this can be done by the Company in its General Meeting. This Article, in our view, confers a power on the said Company to amend the capital clause, namely Clause V in its Memorandum of Association and the submission of Mr. Parekh that there is no provision in the Articles of the said Company for amending the said clause must be rejected, We may also mention that if we interpret the expression Share Capital in Article 62 as meaning the Issued Capital , and not Authorised Share Capital , we would render nugatory the provisions of Article 10 which clearly provides that it is open to the Directors to allot the shares which are already created but not allotted, as they may from time to time deem fit. Such an interpretation cannot be given. It is, therefore, not possible to interpret the expression Share Capital in Article 62 as limited to Issued Capital as urged by Mr. Parekh. 7. It was submitted by Mr. Parekh that even if Article 62 deals with the power lo increase the Share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion referred to in the Articles of Association as required in order to enable the Company to do any particular act, an Ordinary Resolution to that effect will suffice. Merely because the amendment of Article 5 would require a Special Resolution, it cannot lead to the conclusion that the provisions of Article 62 must be read in such a manner as to so limit the power of the Company to increase the Share Capital that this can be done only by passing a Special Resolution. We may mention that if such an interpretation were given, it would practically render nugatory the provisions of Article 62; because even in the absence of Article 62 if a Special Resolution were passed increasing the Share Capital of the Company it would have the effect of amending Article 5 and duly increasing the Share Capital so that Article 62 would be rendered redundant. It is not possible to give such an interpretation. 8. We now come to the next submission of Mr. Parekh that, even assuming that the Resolutions passed as aforesaid increasing the Authorised Capital or Share Capital of the said Company have the effect of amending Clause V of the Memorandum of Association, still the provisions of Article 5 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed the Company in a general meeting, from time to time, to increase or reduce the number of directors subject to the provisions of Section 83A(1) of the Indian Companies Act, 1913. It was held that the provisions of these two Articles were textually inconsistent, and hence they must be read subject to cross references reconciling them. It was held that in order to reconcile Articles 109 and 126 and to give effective content to the opening words of Article 126, it was necessary to imply some such opening words as subject to Article 126 in Article 109 or notwithstanding anything contained in Article 109 in Article 126. It was further held that in this view the company had the power to increase the number of directors beyond the maximum prescribed by Article 109 by an ordinary resolution and consequently special resolution altering Article 109 for the purpose was not required. In our opinion, the submission of Mr. Cooper must be accepted. As we have already pointed out, if Article 5 is to be read as an unqualified limitation on the increase in the Authorised Share Capital of the Company, it becomes inconsistent with the provisions of Article 62, as Article 62 clearly authorises a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at large.... In our opinion, the aforesaid submission of Mr. Cooper deserves to be accept ed and the limit imposed by Article 5 of the Authorised Share Capital of the said Company must be regarded as nugatory to the extent that it is inconsistent with Clause V of the memorandum, and of no legal effect. As far as the argument of Mr. Parekh on past practice is concerned, it is not possible to accept the same. In our opinion, the relevant provisions of the Articles are quite clear and permit the increase of the Authorised Capital of the Company by passing of an ordinary Resolution as contemplated by Aricle 62. In view of this, it is not necessary to consider the past practice to arrive at the correct construction of the Articles. 11. In the result, there is no merit in the appeal and it is dismissed with costs. 12. As it is agreed that the suit also should stand disposed of in accordance with the decision in this appeal, we direct that the suit will stand dismissed with no order as to costs. 13. Mr. Cooper states that the statement made by him regarding the issue of new shares will be operative till 2.00 p.m. on 16th February, 1987. 14. Mr. Parekh applies for leave t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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