1. The Court has been asked to try as a preliminary question of law requiring no evidence whether Article 50 of the defendant-Company is ultra vires. In answering the question, I cannot add to the words of Article 50 either of the Memorandum or of the Articles of Association because whether that Article should properly belong to the Memorandum or to the Articles of Association is one of the chief points in dispute. For the purpose of this preliminary argument it may be taken that the defendant-Company originated in the second partnership deed of 1858 and that when the Companys Act of 1866 was passed, that partnership petitioned to be registered as a Company with limited liability under that Act and the partnership agreement became, after registration, the equivalent of Memorandum and Articles of Association.
2. The Article in dispute provides that where any proprietor wishes to dispose of his shares, he must notify the same to the other proprietors or the Board of Directors in order to give the m the first option of buying in the shares for the sum for which any outsider has made a fair and reasonable offer. In effect that comes to this that wherever a shareholder of the Company wishes to sell his shares to-day, the Board of Directors has a right of preemption to buy at the price for which the shareholder wishes to sell. The plaintiff contends that this clause is purely ultra vires, whether it be contained in the Memorandum of Association or in the Articles of Association. The defendant-Company contends that if the clause really be found in the Memorandum of Association, then it is not ultra vires. If we refer to the deed of partnership of 1858, which has now become the equivalent of the Memorandum and Articles of Association, bearing in mind at the same time what matter is proper to a Memorandum and what to Articles of Association, there can, I think, be no doubt but that that portion of the partnership-deed in the witnessing clause which ends immediately before the commencement of Rules and Regulations numbered consecutively from 1 to 62 must be considered to be the Memorandum while those numbered Rules and Regulations (made designedly alterable at the will of the shareholders) must be taken to be the Articles of Association. So that I should have to approach the question of law upon the footing of Article 50 not being in the Memorandum. And that, no doubt, would greatly tend to simplify the whole argument as bringing the case more clearly and more indisputably under the decisions of all the learned Lords who decided Trevor v. Whitworth (1887) 12 App. Cas. 409. Were it otherwise and were it held, as Mr. Setalwad would wish me to hold, that this Article 50 forms part of the Memorandum of Association, I think that I should still come to the same conclusion upon the question of law I am considering, though the argument would be then much more intricate and, I think, have to be dealt with in considerably more detail as covering many points which would not arise if this Article belonged really to the Articles of Association.
3. I will, however, briefly indicate the more salient features of the argument as a whole. In the present Companies Act VI of 1882, Section 249 provides that no Company registered under that Act has any power to buy its own shares, but Section 2, Clause (b) of the same Act expressly reserves all rights and privileges acquired under the Companies Act of 1866 or any other Act repealed by that enactment. And it would then be an arguable question whether or not this right, assuming that it appeared in the Memorandum of Association, was a right acquired under the Companies Act of 1866. Upon the point the defendant-Company has strongly relied upon a decision of Sir Charles Sargent in Bhimbhai v. Ishioardas Jugjiwandas ILR (1893) 18 Bom. 152. That eminent and learned Judge, no doubt, in dealing with this question showed a very strong inclination to differ from the observations of Lord Macnaghten in Trevor v. Whitworth. Sir Charles Sargent evidently thought that while the Act of 1882 expressly prohibited a Company buying its own shares, if a provision of that kind appeared in the Memorandum of Association of a Company registered under the earlier Act of 1866, then the power to do so would be a right of privilege acquired under that Act. And this has been the main line of argument relied upon by the defendant-Company. I do not , however, think that it would bear critical examination. It cannot be contended that the Act of 1866 confers specially any power upon Companies to buy their own shares. The furthest the argument can go is that the Act of 1866 does not expressly prohibit Companies from doing so. So that it is contended that if a Company inserted in its Memorandum of Association as being one of the contemplated objects the power to buy in its own shares and so got itself registered under the Act of 1866, then the Act containing nothing to the contrary the power so expressed in the Memorandum of Association would be good and would so become a right or privilege acquired under the Act. But the fallacy of the argument, if it be a fallacy, lies in assuming that the power not thus expressly prohibited was really more valid under the Act of 1866 than it was under the Act of 1882. The truth appears to be that it was a point of great uncertainty under the general law, so that it was thought desirable when the Act of 1882 was passed to put an end to all that uncertainty and by legislative enactment declare what the true law was. In my opinion the law was not altered but legislatively stated.
4. Having regard to the principle of the decision in Trevor v. Whitworth (1887) 12. App. Cas. 409, I cannot have any doubt that the law then became settled in England in the manner in which it has been legislatively declared by Section 249 of Act VI of 1882. By which I mean to say that Trevor v. Whitworth explained the law always to have been under the former Acts precisely what it is now clearly declared to be by the later Act upon this point. There certainly are earlier cases to which Mr. Setalvad has referred, which seem to suggest that in deciding them the learned Judges were quite prepared to accept as a legitimate part of a Memorandum of Association powers conferred upon the Company to buy its own shares. But I think after the observations of Lord Macnaghten in Trevor v. Whitworth no Court in England would have been disposed to adopt any other conclusion where the facts were of a like nature than that to which that eminent and learned Lord pointed. In all such cases it is almost inevitable that a Company should fall upon one or other horn of the dilemma indicated by Lord James and Lord Watson, namely, any such power intended to be conferred would amount to (a) trafficking in the Company's own shares which would not be a lawful purpose or (b) to a reduction of capital without the intervention of the Court, which again would be, improper and opposed to the whole spirit of Company legislation which has the protection of creditors in matters of this kind, constantly in view. So that even where a clause of this kind inserted in the Memorandum of Association and the Company had been registered under the Act of 1866, I should still be inclined to hold that the object thus designated in the Memorandum was an improper object and ultra vires of the Company. Much more so must this be the case where such a power purports to be conferred only in the Articles of Association without finding any place in the Memorandum of Association. That is, 1 think, the case here and it would hardly then be contended that the decision in Trevor v. Whitworth does not completely cover the point I have now to decide.
5. Entertaining this view I must answer the question against the defendant-Company and in the plaintiff's favour.