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Nava Samaj Limited and anr. Vs. the Registrar of Companies and anr. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtMumbai High Court
Decided On
Case NumberSpecial Civil Appln. No. 244 of 1962
Judge
Reported inAIR1966Bom218; (1965)67BOMLR362; ILR1965Bom807
ActsCompanies Act, 1956 - Sections 89, 89(1), 89(3), 89(4), 87, 88 and 90; General Clauses Act, 1897 - Sections 14 and 21
AppellantNava Samaj Limited and anr.
RespondentThe Registrar of Companies and anr.
Appellant AdvocateM.N. Phadke, ;K. Venkoba Rao, ;V.B. Mandope, ;M.W. Puranik and ;V.W. Golwalkar, Advs.;B.A. Masodkar, ;A.S. Bobde, ;V.R. Manohar, ;P.R. Mirdul, ;K.H. Deshpande and ;W.K. Sheoray, Advs.
Respondent AdvocateK.A. Bhabha, ;D.B. Padhye, Asst. Govt. Pleader, ;K.A. Bhabha, Adv.
Excerpt:
companies act (i of 1936), sections 89, 87-90, 16, 17, 31, 106, 107 - general clauses act (x of 1897), sections 21, 14--exemption granted by central government under section 89(4) of companies act--whether central government can revoke such exemption under section 89(4).;the power of exemption created under section 89(4) of the companies act, 1956, can be exercised by the central government once and finally only, and there is no right of revocation of exemption once granted under it.;juvan sinhji v. balbhadrasinhji [1963] a.i.r. guj. 209, dissented from.;state of bihar v. d.n. ganguly [1959] a.i.r. s.c. 1018, bhola prasad v. u.a. goswami [1983] a.i.r. pat. 437, k.p. khetan v. union of india [1957] a.i.r. s.c. 676, rambhau v. d.g. tatke [1969] a.i.r. bom. 538 : s.c. 61 bom. l.r. 148,.....desai, j. (1) this is petition under article 226 of the constitution challenging the validity of an order of the central government dated march 24, 1962, purported to have been passed under sub - section [4] of the section [4] of section 89 of the companies act, 1956 [1 to 1956] [hereinafter referred to as the act]. the order that was passed is annexed as document no. 7 to the petition. the substance of the order is:'............ in exercise of the powers conferred by sub section [4] of the section 89 of the said act the central government hereby rescinds its order no. 3[1] - c1. vi/57, dated 29-7-1957'.the previous order was passed also under sub section [4] of the section 89 of the act. that was an 'exemption order' granting the petitioners company an exemption form the requirements of.....
Judgment:

Desai, J.

(1) This is petition under article 226 of the constitution challenging the validity of an order of the central Government dated March 24, 1962, purported to have been passed under sub - section [4] of the section [4] of section 89 of the companies Act, 1956 [1 to 1956] [hereinafter referred to as the act]. The order that was passed is annexed as document No. 7 to the petition. The substance of the order is:

'............ in exercise of the powers conferred by sub section [4] of the section 89 of the said Act the Central Government hereby rescinds its Order No. 3[1] - C1. VI/57, dated 29-7-1957'.

The previous order was passed also under sub section [4] of the section 89 of the act. That was an 'exemption order' granting the petitioners Company an exemption form the requirements of sub - section [1], [2] and [3] of section 89.

(2) The fact lending to the filing of this petitioner are shortly as follows: The petitioners company is a joint stock company registered on May 5, 1947 under the India Companies Act, 1913 [VII of 1913]. The Memorandum of Association and the Articles of Association of the petitioner - company are annexed and document No.2 to the petition. It appears that the authorized capital of the company is Rs. Ten lakhs divided into [a] 38,000 ordinary shares of Rs. 25/- each and [b] 25, 000 Deferred shares of Rs. 2/- each. The issued and subscribed capital of the company is Rs. 7, 88,175/- divided into 31,257 ordinary shares of Rs. 25/- each and Rs. 50,000/- divided into 25,000 deferred shares of Rs. 2/- each admittedly, the Table A in the first schedule to the Indian Companies, Act 1913, was adopted in the large way, and as regard the voting right in respect of the these shares, the result was that each holder of an ordinary of share of Rs. 25/- each holder of the deferred share of Rs. 2/- was entitled to the same voting rights, namely, one vote for the each share owned by him. The whole of the deferred share capital of Rs. 50,000/- was owned by the five person. In anticipation of the coming into the force of the companies Act 1956, the petitioners company made an application to the central Government in connection with a situation of which was likely to arise by reason of the present provisions of in section 87 to 90 of the act In Pursuance of the what transpired in the correspondences between the petitioner - company and the central Government made in connection with a situation of which was like the five shares holder being the owners of the deferred shares of the capital of Rs. 50,000/- executed a deed to trust transferring all the deferred shares to the trustees of he trust who now now these shares. The managing agency right wee also made property and subjects of matter of this trust. After the personal and subject matter of this force in April 1956 the Central Government in pursuance's of the powers reserved to it under sub - section [4] of the section 89, passed an order dated March, 30, 1957 exempting the petitioners company from the requirements of sub - section [1] [2] and [3] of section 89, in respect of the above 25,000 deferred to sharer a period of three months with the effect from the April 1, 1957.

The recitals in the order refer to the application made by the petitioners - Company for exemption and also to the act that the central Government was of the opinion that he exemption was 'required in the public interest'. By a further order of exemption of also passed under subsection [4] of the section 89 of the act on July 29 ,1957 the Central Government against exemption of petitioners - company from the requirements of the sub -section [1], [2] and [3] of section 89 in respect of the above 25,000 deferred shares. There are no conditions attached to the above exemption order as regards the period or any others matter. In this order also, one of the recitals Is that the Central Government was the opinion that the exemption was 'required in the public interest'.

(3) It appears that in February 1960 and thereafter - representations were made to the Central Government making certain allegations of regarding the management of the company and requesting the Central Government in withdraw the exemption. In response to the correspondence addressed the petitioners - company gave detailed replies regarding all these representations and submitted the same to the central Government. Ultimately by the impugned order dated March 24, 1962, it was recited that sufficient time to consolidate its position had been given to the petitioner - Company and that the exemption of who no longer required in the public interest, and on the basis of these recitals and in purported exercise of the powers reserved to it under sub - section [4] of the section 89, the central Government of rescinded on the order of exemption dated July 29, 1957 certain correspondence and representations of behalf of the petitioners - Company were therefor addressed to the central Government details of which it is unnecessary to refer here. Having not succeeded in its representations the petitioners company ultimately filed in this petition of July 4, 1962, Challenging the validity of the above order of rescission of the exemption dated March 24, 1962.

(4) The substances of the main contention made in the petition is as follows: There is no power under sub - section [4] of section 89 of the act in the Central Government to revoke and withdraw an exemption of granted under the sub -section.

Having regard to the time - limit mentioned in sub - section [1] and [3] of section 89 and in respect whereof exemption could be granted under sub - section [4] upon expire of the time limit specified in sub - section [1] there can be no power express or limped to revoke order of exemption previously made. The order of revocation having been passed long after the expire of the time -limit specified in sub - section [1] a situation had been created which resulted into impossibility of carrying out the obligations mentioned in sub - section [1] and [3] The order therefore is arbitrary and without jurisdiction. The petitioners have also made certain other contentions in the petition., but in the view which we are taking we find it unnecessary torrent those contentions here.

(5)After the Fifteenth Amendment to the constitution was passed, the Union of the India was jointed in this petition as respondent No.2. The Union of India has not filed any separate return in reply to the contentions made in the petitioner. The case of the respondent No.1 and 2 is to be found in the return filed by the respondents No.1 in this return field by the respondent No.1 has denied the contentions of raised by the petitioners in the petition. Apart from by the certain preliminary contentions made in his return the reply the respondents of as appearing in the return filed by the respondents No.1 is that the power to grant exemption under sub section [4] of section 89 of the Act implied the power to withdraw that exemption of and also obviously the order of exemption. Reliance is strongly placed in that connection of the provisions of in section 14 and 21 of the General Clauses the Act. The respondents No.1 also contends that the exemption having been withdrawn, the petitioner company is now bound to comply with the substantive requirement of sub section [1] and [3] of section 89 within a reasonable time. He denies that the order of the by the petitioners company. He also genes petitioner connection that the deferred shares are protected by the provisions of section 90 read with section 106 of the Indian Companies act here in referred to as the act. The main defense to the petition is that having regards to the provisions in section 14 and 21 of the General Clauses Act, there was implied power in the Central Government to withdrew the exemption granted under sub section [4] of the section 89. It admitted that there is no express powers given by the Central Government to withdraw or cancel exemptions granted under sub - section [4] of the section 89.

* * * * * *

(6) Counsel for both sides have developed their arguments in connection with the contentions made in the petition on the footing of the contents of section 85 to 90 of the Act. The arguments advanced have all been about the true effect and constructions of the provision of in Section 89. It is therefore convenient to refer in to these section first before mentioned how to the arguments of were developed. These section fallen part IV of the act relating to 'share Capital and Debentures'. This part begins with S. 82. The first three sections relate to the nature of the shares. Numbering of shares and certificate of shares. The headings of the portion beginning with section 85 is 'Kinds of the share capital' Section 85 defines 'preference share capital' and 'equity share capital' section 86 provides that the share capital of a company limited by shares formed after the commencement of this act, or issue after the such commencement shall be of two kinds only, namely [a] equity share capital and[b] preferences of share capital section 85 to 89 have a bearing and affect of voting rights attached to bearing and inter ail deferred to shares issued i.e. brought into existence's prior of the date of the commencement of the Act. These voting right are specifically referred to in section 90 which mentions the extend of which voting rights attached to these shares would continue to be protected. For that reason, in section 90 it is provided that nothing in section 90 it is provided that nothing in section 85 to 89 shall affect these rights 'except as otherwise provided in section 89'.

Section 87 relates to voting rights and provides by sub - section [1] as follows:

'87 [1] subject to the provisions of section 89................. [a] every member of a company limited by Shares and holding of any equity share capital therein shall have a right to vote, in respect of such capital on every resolution place before the company and.

[B] his Voting right on a poll shall be in proportion to his share of the paid up equity capital of the company.'

It is not necessary to refer to the further sub section of that section. It is sufficient to emphasize that the intent and purposes of section 87 is that every share - holders holding equity of share capital of should be entitled to have a vote, and on a poll should be entitled to have voting right in the poll should be entitled to have voting right in proportion of in his share of and / or contribution to the paid up equity capital of the company. This section we are and concerned in this petition. Section 88 provides inter alia, that no company shall issue any shares which carry with voting rights or right in the which carry voting right s or rights in company as to deviant capital or otherwise which is are disproportionate to the rights attaching to the holder of other shares.

(6a) The relevant parts of the section 89 run as follows:

'89 [1] It at the commencement of this act any shares by whatever name called, of any existing company limited by shares carry voting right in excess of the voting right attaching under sub - section [1] of section 87 to equity shares in respect of [1] of the section which the same amount of capital has been paid up the company of shall within the period of the year from the commencement of this act, reduce of the voting rights is respect of the shares first mentioned so as to bring of them in to conformity of with the voting rights attached to such equity shares under sub - section [1] of the section 87.

[2] Before the voting right are brought into such conformity, the holders of the shares in question shall not exercise in respect of therefore voting rights in excess of what would have been exercisable by the if the capital paid up on respect of the following resolutions of placed before the company.

[The resolutions of mentioned relate to the appointment of a director or of a managing agent of the secretaries and treasurers of agreements in respect of the these matters to the appointment of buying or selling agents, and to the grant of loan's such other matter.]

' [3] If by reason of the failure of the requisite of proportion of the any class of members of the agree it is not found possible to comply with the provisions of sub section [1] the company shall within one month of the expiry of the period of one year mentioned in that sub - section apply to the court for an order specifying the manner in which the provisions of the that sub section shall be complied with and any sub section shall be complied with behalf of shall bind the company and all its share holder.

If default is made in complying with this sub section the company of any ever y officer of the company who is in default, shall be punishable with fine which may extend to one of thousand rupees.

[4] The Central Government of may in respect of the any shares issued by the company before of the 1st day of the December 1949, exempt the company from the requirement of sub section [1], [2]and [3] wholly on part if the in opinion of the central Government the exemption of the is required either in the public interest or in the interest of he company or of any class of share - holders therein or of the creditor or any class of the creditors thereof.

Ever order of exemption made by the Central Government under this sub - section shall be laid before the Houses of Parliaments of as soon as may be after the it is made.'

'90 Nothing in section 85 to 89 shall.-

[a] in the case of any shares issued before the commencement of this act, affect any voting rights attached to the Shares save as other wise provided in section 89, or any rights attached to the shares as to dividend, capital or other wise or

[b] apply to private company unless of it is subsidiary of public company.

(7) The main question that arises in this petition is whether under sub - section [4] of the section 89 of the act there is power in the Central Government of revoke rescind and / or of withdraw an exemption of order once made. Mr. Phadke for the petitioners has in this connection advanced arguments of on two footings. He submitted that on a true constructions of the provision in the section 87 to 90, it is clear that once created under sub - section [1] of the section 89 there is not powers left in the central Government to withdraw the exemption. The exemption must also must always in this submission of refer to all the liability and obligations created under sub section [1], [2],and [3] of section 89. The nature of the obligations of is such that is could only be discharged in manner and the within the time prescribed in sub - section [1] of and[3]. The manner anytime prescribed is such that the exemptions off once granted cannot be with drawn. The powers once to exempt as contained in sub -section [4] relates of property rights, being voting's rights in this case of deferred share - holders. The power once exercised of affected and deals with the share -holders the exemption of the once granted affects this such a manner that it cannot be permissible to retrace step of the exemption of once taken. The power is to exercised on the fulfillment of the constitution mentioned in sub section [4]. These conditions is one fulfilled apply to the facts and circumstances of 'at the date of the commencement of the act'. These circumstances is granted. He submitted at one stage that the orders of exemption of would be quasi - judicial orders but has at a later stage of the proceedings not pressed that contention. His submission is that the power of exemption vested under sub - section [4] in the central government to be exercised for the interest of the company is to be exercised for the reasons of [I] public interest, or [ii] the interests of the company, or [iii] of any class of shares - holders and this powers when exercised decides finally matter which cannot be reconsidered. These adjudications of and opinion, deal, finally and once for all with rights to property and for the reason there can be no warrant for revoking and / or rescinding them. In developing his arguments, he has mainly emphasized the consequences of the period of the one year mentioned in sub section [1] and [3]. He relied upon the fact that the orders made on the Table of the Parliament. He relied upon the provisions of in section 25[3][b] and 250[5] of the act. He has relied upon section 637-A which was pointed out in reply by Mr. Bhabha for the respondents. His further contention was that the mischief of in sought to be dealt with by the provisions in section 87 relates of oppression of minority by majority. It relates is mismanagement of by minority of the affairs of the company. There are often alternative provisions of like section 397 and 408 which are available of deal with such mischief. He again laid great emphasis of the language of the provisions of in section 90, which according to him, saved voting of previously existing deferred share - holders.

(8) Mr. Bhabha for the respondents has contended that the some of the arguments of the made on behalf of the petitioner are not relevant. He also mainly relied upon the provisions of section 87 to 90. The burden of his contention was that they only substantive provision which governed the rights of all shares holder from date of the commencement of he 1956 Act was contained in section 87[1][a] read with the section 9 of the Act. According to him after the date of the coming into force of the act the date having regards to the provisions of in section 87. It was not possible for any company to have any shares by way of equity capital wherein the voting rights were not in proportion to share holders share of the paid up equity capital of the company. Basing this further arguments of the on the above contention he submitted that the provisions sub section [1] and [3] of section 89 are merely 'Machinery that section' to bring the constitution of all the companies into conformity, as regards to voting's rights of the share - holders with the provisions of in section 87. His contention with the there is no fresh obligations of any kinds created against any company under section [1] and [3] of section 9.developing his argument, he stated that each of the sub section must be constructed as a whole and each throwing light on the other. He had to make this submission having regard to the difficult languages regarding time limit in sub section [1] and [3], his further arguments was that having regards to the well - established principle that powers to the anything's must include of power to do anything's of must include power to provisions of section 14 and 21 of the general Clauses Act is was permissible at all times of the Central Government to withdraw wards this submission of the he contended that the phrase of the sub section [3] 'shall within one month of the expiry of the period of the one years of mentioned in that sub section apply to the court' meant the should be read as 'Within one month of he expiry of the period of the one year from the revocation and / or rescission of he order the exemption'. He developed this contention by referring to some authorities of where the phrase 'the commencement of the this act' has been considered. We will presently of refer to these authorities. His case was that having regards of the provisions in section 14 of the General Clauses of act he power of contained in sub -section [4] could from time to time be exercised and that under section 21 of the same act there was implied right to withdraw orders made of previously. It is not necessary that the conditions of the time - limit of contained in sub section [1] should continue to exist for exercising the powers of exemption under sub -section [4]. He denied that the provisions of the section 637-A were held full to the petitioners.

(9) The clients of Mr. Bobde being a groups of share - holders had applied to be made parties of this petition on 8-9-1964. That application was first made in August 1964 and the Consideration of the application was adjourned to hearing. His clients wanted to raise several controversial question of rights of different groups of share - holders of the company. We have refused that the application as in out view, it is impossible that such controversies can be decided in writ jurisdiction. Even so we have permitted Mr. Bobde to advances arguments in connections of with the question raised by the petitioners and the respondents. Mr. Bobde submitted that on a true construction of sub - section [1] of section 89. It is not possible of that during the one years mentioned that sub - section any orders of exemption can become necessary or be made by the central Government. He has made by the certain submissions of section 87[1][a] which we will deal with while discussing that section.

(10) In connection with the questions raised by the parties, it has appeared to us that the real question is about the true constructions of the effect of provisions is section 87 to 90. In connection with the question of implied powers and the application of section 21 of the Central Clauses act it is first necessary to mention that in the case of state of Bihar of mention that : (1958)IILLJ634SC the same question arose. In that case in the first instance of reference to arbitration had been made by the Government of Bihar of under section 10[1] of the Industrial Disputes Act 1947. By a subsequent notification also purported, to have been made under they very same provisions of Government purported to supersede the prior notification of the reference of the arbitration. This action of the government of was challenged by the petitioners of fired before the High Courts at Patna under articles 226 of and 227 of the constitution. The contention of he petitioners was that the government of the Bihar had no powers was that the government of Bihar had no power or authority to supersede the earlier of notification. The petitioners of succeeded in the High Court and the matter were taken in appeal by the state government of the supreme court. Dr. Bannerjee for the appellant urged before the supreme court that in the dealing wit the question of about the powers of the appropriate Government under section 10[1] of the act the relevant facts which the transpired between of the parties must be borne in mind. He also argued that the power to cancel a reference of made under the section 10[1] of the act arguments of he relied upon section 21 of the General Clauses act. It is convenient to quote the section here :

'Where, by any Central Act or Regulations, a power to issue notifications orders, rules or bye - law is conferred then that powers includes a power, exercisable in the like manner and subject to the like sanction of and condition [if any], to add to, amend vary of rescind any notifications orders, rules or bye - laws so issued.'

Now, in connection with this contention the supreme court observed.

'It is well settled that this section embodies a rule of constructions of the question of whether or not it applies to the provisions of a particular statutes, would depend on the subject - matter, context, and the effect, of the relevant of provisions of the said statute. In other words it would be necessary t examine carefully the scheme of the Act, its object of the and all its relevant of material provisions of before deciding whether by the applications of the rule of construction enunciated by the Section 21, the on construction of justified that the powers to cancel the reference made under section 10[1] can be said to vest in the appropriate government by the necessary implication. If we come to the conclusions that the context and effect of the relevance provisions of the repugnance to the application of the said rule of construction the appellant would not be entitled to invoke the assistances of the said section.'

(11) The contention of the petitioners before us is that the context of and effect of the relevant of provisions of the act is must that would be repugnant of to apply the above rule of the construction t the powers of exemption of the created in favor of the central Government under sub - section [4] of the section 89. Having regard to the observations of the supreme court in the above case in connection with the this question, it will be necessary to examine the scheme of the act its objects and all relents and material provisions. If one such examination it appears to us that the powers of revocation of claimed by the way of implication would be repugnant to the provisions object and / or the scheme of the act we would be justified in holding that the contention of made by the respondents of are not tenable.

(12) References of has been made to other authorities were the effect of section 21 of the general Clauses act is discussed. In vied the above complete observations of the supreme court regarding the true of effect of section 21 in the above decision of the we do not deem is necessary to refer to the those authorities.

(13) We will now consider the question to the true of effect and construction of the above section of companies act relied upon by the parties.

(14) it is clear on a reading of section 87 and 88 of the Act in that the intent of the provisions of the these sections was that ever y share - holders of equity capital must on a poll have a voting rights in proportion of his share of the paid up equity capital of the company. The legislature disapproved of the all the previously existing of disproportion as regards of the voting's rights of parties holdings equity capital. The intention of the legislature of disproportion as regards of voting's rights of the parties holding equity of capacity. The intention of the legislature was that the disproportion of the previously existing of must not continue. Provision about this matter having been made in section 87 and 88, provision was made for protecting of the existing voting rights of parties holding shares issued before the date of the commencement of the act. It is clear note reading of section 90 that nothing in the above two section or even section 89.' This provision of in section 90 is clear and unambiguous. In considering the rights of deferred of share - holders of any company of the courts would-be bound to give effect of the to above I saving provisions is section 90. Now it is also clear on a reading of section 90 that the voting rights of existing companies are liable to the altered in the only prescribed manner that section 89 and not otherwise. If the above is the effect of the predicate of arguments that the provisions sub section [1] and [3] of section 89 of the do not created in fresh obligations and are merely 'Machinery sections'. It is difficult to accept of this contention of the rights of the offered share holder are to not protected by section 90 and that they are infact and for all purposes having regard to the provisions section 87 and 89 of the act governed by section 87. The contention of that there is now obligations the created under section 89, and seem to us justice having regard to the languages of sub section [1] and [3] of section 89. The provisions of sub - section [1] which creates [fresh] obligation is in the phrase

'.................. the company shall .............. reduce the voting rights in respect of the shares first mentioned so as the bring them into conformity with the voting rights attached to such equity of shares under sub - section [1] of section 87'.

As the provisions in section 90 exclude altogether the application of section 87 so as to affect the voting rights attached to the shares issued before the commencement of the act, we would not be justified in holding than to such voting right or to is the shares carrying such voting right the provisions of the in section 87 are directly applicable. On the contrary it requires of to be replaced that though the police of the law is clear as regards the voting rights of the respect of he section 87 and 88 because the protections granted to the holders of share issued before the commencement of the act be section 90, the voting rights attached by and in the such shares prescribed under sub - section [1] and [2] and [3] of the section 89 of the and not otherwise.

(15) The true effect therefore of he provisions in sub - section [1] and [3] and this section is that there was an obligations on all previously existing companies of to reduce the voting rights of the deferred share holders with dis proportionately excessive voting's rights so as to ring them into conformity of with sub section [1] of section 87 with one years of from the date of the commencement of the act. Mr. Bhabha contended that the importance in sub section [1] of section 89 is to the period. According to him there is no reduce. This was so according to him because this must be a 'machinery section'. Having regards to the construction of in section 90 read with sub - section [1] of section 89 f we are unable of accept of this contention.

(16) In connection with the construction of the which we have arrived at the reference of to the period of item mentioned in sub - section [3] is the relevant. This sub - section refers [I] to the failure of the requisite proportion of any calls of members to agree and [ii] to the reduction of mentioned in sub section [1]. For that reason. If is it found impossible to comply with the provisions in the sub - section [1]it is provided that the company must make an application within the one month of the expiry of the period of one year mentioned of the that sub section. The question is. It is the permissible to construe this provisions of the read 'within one month of the expiry of he period of one years from the date of the revocation of exemption granted under sub section [4] as suggested by the Mr. Bhabha? The languages the sub section is clear. The obligations of that is cast on the defaulting companies sub section within on with in one month of the expiry of the period of one year. The provisions has relation with the next sub paragraph in the sub section which makes it an offense of not to make such an application. This phrase in the sub section directly refers to the period of the one years mentioned in sub section [1]. That period as we have already pointed out is if one years from the amendment of the Act. Obviously the date of the commencement of the act must for all purpose remain the same. In this case it was April 1, 1956 According to Mr. Bhaba, when this phrase is incorporated in sub section [3] the period of mentioned in sub section [1] is the refereed to any incorporating in sub section [3] the period of the one year has no relevancy of the date of clear commencement of the act. Having regard to the clear languages in the sub section we are unable of accept that contention made by Mr. Bhabha.

(17) The power of exemption of referred to in sub - section [4] must of necessity of relate to obligations mentioned in subsection [1], [2] and language of the sub -section [4]. If our constructions the sub - section [1] is correct, the exemption of he must relate to the obligations of the petitioners company to so alter its memorandum of association and articles of associations that the deferred share holders who contributed Rs. 2/- each per share should not have one vote per share contributed Rs. 25/- per shares to the equity capital would have to be altered so that the proportion of the voting rights would be equalized in proportion of the capital contribution of the whole of he capital of the company. In substances the company had to alters of its memorandum and articles so that the share shoulders has voting rights in so accordance's of with the in proportion of the contribution of the capital of the company. The change I the memorandum and the articles was to be brought of the about in accordance's with the power reserved to the company and share holders of under the articles of associations of the relevance of provisions the in the act. It is for the this reason that reference is made sub section [3] of 'if is not possible to comply with the provisions of the sub section [1]' because of 'The requisites proportion of any class of members of the amending of and company memorandum of association and articles of association of bring the voting rights in conformity with the provisions in section 87.it is necessary to remember in this connection that it is that not the attempt of the parliament to change of the memoranda of association and articled of association of the different of companies. The act provides about he manner and method in which these deeds of constitution of companies can be altered. The legislation did not forget of while enacting the provisions of the section 87 to 90 that the matter of alternation of the to be made in those documents would requires to be carried out in accordance's of with the usual procedure. It is for that reason that inspite of having made provision relating to voting rights in sections of the 87 and 88, by section 90 protection was given in respect of the previously existing companies and the direct application of these section was specified avoided. It was for this reason that in sub section [3] courts were invested with the powers which are altogether of new. The memorandum of association and articles of associations of law of the and articles of association of law at all. In regard to companies which defaulted in carrying out the obligations created by section 89, provision was made in sub - section [3] to empower the court to get the memorandum and articles altered, and in that connection, to make orders specifying the manner of in which the same had to be done. In other words the court was empowered to overlook if necessary the relevant provisions of the memorandum and articles of different of companies as also the scheme of the Act for the alternation of these documents. It is thus clear that the provisions of in section 87 were not made [directly] applicable so as to affect voting rights of the share - holders of in respect of the shares issued before the commencement of the Act.

(18) What we have discussed above goes to emphasize the fact that on the true construction of sub - section [4] of section 89 the exemption that can be granted under that sub - section must of necessity of relate to the obligations created under sub section [1] and [3] and the consequential matters referred in sub section [2]. This exemption has no relevance in our view to the period of one year mentioned in sub section [1]. To accept the contention of that this has only year would result in to the absurd position that by the executive of action of exemption the period prescribed by statute in sub - section [1] could be altered. The contention of that the exemption related only to the period of one year mentioned in sub section [1] appears to us to be far - fetched order and involving the proposition of that executive of orders could be made to enlarge of time prescribed by statute.

(19) The obligation cast on companies under sub - section [1] and [3] of could be carried out only once and related to the circumstances of company as at the commencement of the Act. For the purposes of the time of one year prescribed by sub section [1] of the only material late is that date of the commencement of the act it exemption of granted in connection in these of obligations at any time, it is difficult see what other obligations can thereafter of view. Obviously, after the expiry of the on year mentioned of the is sub section [1] on obligation can survive. Of necessity by executive of action of withdrawal of exemption of the once granted, second and new obligations of the same nature of mentioned in sub section [1] cannot be elated. The nature of the obligation of being of the above kind, it appears to us that the scheme this section is such than an exemption once cannot be withdrawn of exemption of after the period of the result in to creation of a new obligation by executive action. This circumstances of bear as to us to be of such importance's of that we come to the conclusion of that exemptions granted under sub - section [1] of cannot be able to all.

(20) In connection with the argument of that provision in section 21 of the general poses act would apply t this act, apart from above true construction of and effect of the in section in that connection it is relevant to notice that the manner of voting right up to the date of the commencement of the 1956 Act, wholly governed in respect of each company by the provisions in its memorandum of association of and articles of association. The act make specific provision relating to the method and manner of alteration of association. Reference of this connection can be made by Section 16 and 17, as also section 31. It is necessary to remember that where rights of different of classes of share holders are to be affected the provisions for alternation of articles are more stringent of as can be ascertained by reading section 106 and 107. Indirect reference of to theses section is contained in sub section [3] of section 89 and when it state 'If, by reason of the failure of the requisite of proportion of any class of members of the agree its not found possible to comply with the provisions of sub section [1].

(21) The rights of the voting in an important of right and by study of the various of relevant of section of the Act, it can with ease be ascertained that protection of such right is the subject matte of the diverse of section of the act. There is provision of for exerting right to vote so as to affect the whole administration of companies.

(22) The consequence of provisions in act relating to general meetings of the share holders of and the rights of voting of the share holders at these meetings and that rights of the general meetings of appoint directors of and managing agent and to decide such other matter is that a group of share holders having control of majority of votes control the business of management of and finance of the whole company. This is often done through elected directors. The result of the provisions relating to the rights of sale of shares of the having the transfer of shares registered of is that by sale of the controlling block of shares, the whole business management of and finance of a company could be completely transferred in favor of the new purchases of the that block of the shares. It is n't convenient o the that connection of the refer here to all the provisions of and section of the act. It appear to us that these of are well established the consequences of the provision of the Act. It is also permissible to take judicial notice of the fact that in the context of the modern times, large industries and businesses requiring of large finances cannot be carried of on in private of sector except of through the machinery of incorporated companies. It is in the context of these provisions, objects and scheme of and that act that we are called upon the construe of the provision in sub section [4], of section 89. It is in the context that the we have to find whether of it can justifiably be held that the to find whether of it can construction as contained in section 21 of the General of Clauses of under this sub section. The more relevant of the provisions of the section 87 to 90. If the constructions which we have arrived at as regards the true effect of he sub section [1] of the section 89, is true application the exemption of he that could be given un section [4] relates to the obligations of the companies of existing prior of the date of the commencement of the act to the their to association and articles of association so as to bring of the right of vote in the share - holders of into conformity of with the provisions in section 87. It is obvious of that the obligation of as against the companies existing, at the date of the commencement of the act, can only of be found of exist of the in the provision of in subsection [1] of the section 89. That as we have already said is the result of this phrase 'subject to the provision of section 89' in section 87, and 'nothings of is section 85 to 89' section 90, in the first part of those of companies under sub section [1] of section 89 was of apparently to deal with the mischief held of disproportionately of excessive of voting rights held by share holders by in proportion of the capital contributed by them as against other share holders who made excessive other share holders larger contribution of to the capital of the company. Even so, under sub section [4] of section 89 a right has been conferred on the Central Government to exempt of the previously of existing companies of from the obligations created under sub section [1] of section 89. The opinion of therefore the that the central Government has to from under sub section [4] primarily relates of the question as to whether for any of the reasons mentioned in sub section [4], is was desirable, inspite of the provisions of in section 87, that the previously of existing companies of should carry on the management and business of the company under the control of a few share holders having disproportionately excessive voting of rights as compared to the proportion of their capital contribution of as against the theory groups of result of exemption of to portion of capital contribution of as against the other groups or groups of share holder. The obvious result of the exemption granted under sub section [4] in the case of the petitioner - company was that a few share - holders owning the 25,000 deferred shares continued to control be exercise of their single vote in respect of each share, the whole of the business management and finances of the petitioner company. The question that the central government has therefore to consider and in fact considered was desirability for one or more of the reason mentioned in sub section [4] of allow that situation of continue of granting exemption of from the obligations created against the company under sub - section [1]. The opinion had be based in one of the four reason had be based on one of the four reasons mentioned in sub - section [4], namely [I] public interest. [Ii] interest of the company, [iii] interest of any class of share holders therein and [iv] interest of the creditors or any class of creditors of thereof. The question had in view, of the languages of sub section [4], to be decided on the fact which must exist on the date when the obligation mentioned in sub section [1] of arose and continued to exist against the petitioner - company. It should have been apparent to the central Government have regard to he above general scheme of the act that in the event of exemption being granted exist of altogether, and as from the date action of the company any its share holders proceed the to deal with their rights as reduce management, business and finances of the company and their shares of as if there was no obligation of any kind against the company to bring into voting rights of its deferred share - holders of into conformity of with the provision is section 87. It is needless to state that these are extremely of important of and serious consequences of as regards the property rights of the company on the one hand and its share holders on the other.

(23) In addition it is necessary to respect that there period of time mentioned in sub section [1] was not liable to be extended by any executive action taken under sub section [4]. The intention of the legislation was that the obligation must be carried out in the manner prescribed under sub - section [1] and [3]. The question is whether having regard to the above circumstances it is permissible to hold that the rule of construction of contained section 21 of the General Clauses Act was intended to be applicable to the power created under sub -section [4]. In our view the situation that would be created by holding exemptions of granted under sub - section [4] could be revocable would be entirely are entirely contrary and repugnance to the whole administration, management and affairs of the limited company are liable to be controlled by the group of share - holders owning majority of votes it appears to us of that it was never intended that the rule of construction in section 21 of the General Clauses act should be applicable to the power to under sub - section [4]. It is difficult to find that it was permissible fort he central Government under sub - section 14 of the General Clauses act from in time to time to pass and revoke orders of exemption under sub section [4].

(24) It needs to be repeated that the circumstances on the this where of the central Government is to form is opinion that exemption be granted under sub section [4] will be which the obligation of the case under sub section [1] commenced and continued to exist. That period must expire within one year from that date of the commencement of the Act. It is necessary of state that we do not want the rights of the court of as make orders under sub section [3], to enable a company to brings it memorandum of association of the articles of association into conformity with the provisions in section 87 even after the expiry of the above period. It is quite possible that the courts would continue to have such powers continuously and at all times. We are however not called and upon to decide that question.

(25) It is necessary is to refer here to the case of the Juvan Sinhji v. Balbhadrasinhji : AIR1963Guj209 . Having regard to the facts in evolved it become necessary in that case for Mr. Justice Bhagwati to consider the true effect of the provisions of section 87 to 90 of the act. The relevant observations in paragraph 6 at page 215 are as follows:

'Whatever inequality in respect of voting rights existed under the Articles of association would have come to an immediately on the coming into force of the companies Act 1956, be reason of the combined operation of section 87 and 9 and the new structure of voting right prescribed by section 87 would have become operative immediately on the commencement of the act. Section 90, however provides the nothings in section 85 to 89 shall in the case of any shares as otherwise provided in section 89. There is thus an express provision in the act that the provisions of section 87 shall not in the case of any shares issued before the commencement of he act affect any voting rights attached to the shares save as otherwise provided of the in section 89. The new structure of voting rights prescribed by section 87 would not therefore apply to the shares issued by before the commencement of companies act 1956 save to the extent of provided in section 89'.

In further considering the true effect of these sections of in paragraph 14 at page 221 the learned judge of observed:

'.................... it is obvious that the company failed to bring the voting right to the shares into conformity of the voting rights prescribed by S. 87[1] within the period of one year prescribed by section [1] of but that cannot make any difference. Even if the company did not bring the voting rights of the shares into conformity with the voting rights prescribed by section 87[1] as required bisection 89[1], the voting rights could not be exercised by the member of the company in accordance wit the old Articles of Association after the expiration of the period of one year from the date commencement of the companies act ,1956 f new of the provision of section 9. The company could not by refuting to carry out the provision voting rights provided under the old Articles of Association. It was only for a period of year from the date of the commencement of the companies act 1956 that the old voting rights could continue and therefore the with the had to exercised in accordance with the provisions of section 87.'

With respect, we regards that we are unable to agree with the observation of in the last quoted passage. The court has not given due effect to the provisions of in section 90 that the voting rights attached to the shares issued prior to the commencement of the 1956 act could not be affected except of in the manner prescribed by S. 89. The court hasn't considered that fact that connection in accordance of with the procedure of prescribed by the act.

(26) Reliance's has been placed in connection with the true effect of the provision in section 21 of the General Clauses Act on the case of the Bhola Prasad v. U.A. Goswami : AIR1963Pat437 . The observation in that case are to the effect that the provisions of section 21 contain a rule of the construction relating to powers exercised by executive authority of under what is describes as 'delegated legislative powers'. This rule of construction is not applicable of order or administrative nature. The contention on behalf of the respondents of is that the powers to give of exemption of the contained is sub section [4] of the section 89 are on nature of the 'delegation of legislative powers 'and /or' Subordinate legislation'. The rule or construction contained I section 21 is therefore applicable to these powers. We have in this connection already considered all revenant matters and find it unnecessary to further discus the question.

(27) Reference has also been made to the case of K.P. Kheton v. Union of India : (1958)IILLJ461SC , In this case also the supreme court come to consider the true effect of the provisions in section 21 of the General Clauses Act. The observations in this case are of the nature similar to the observation of in subsequent case of : (1958)IILLJ634SC which we have referred to.

(28) On behalf of the respondents of reference has been made of the case of the Rambhau v. D.G. Tatke, AIR 1959 Bom 558 and parthasarathy Mudaliar v. State of Madras : (1957)2MLJ300 . These cases relate to withdrawal of exemptions of once granted. In the first case the observations of relate to the withdrawal of exemption granted under the Minimum Wages Act, 1948. In the second case the relate to the withdrawal of exemption granted under the Madras General Sales Tax act 1939. There is no dispute between the parties that exemption granted for non - application of Minimum wages act and sales tax act is always be withdrawn. The reason for this is that the context of the legislative provisions in the cases referred to the above clearly indicates the policy to the enforced by executive authority. The context also indicate that the execution of authority must have from time to time a right to include and exclude certain industries and goods from the applicability of these Act. The question in all cases must be as observed by the supreme Court in the case of : (1958)IILLJ634SC to find out upon examination of the scheme and object of the relevant act and the context in which the power of are conferred it the rules of construction as contained in section 14 and 21 are applicable or repugnant.

(29) In connection with the true construction of the phrase 'at the commencement of this Act' as contained in section 89 Mr. Bhabha relied upon the case of the Kedar Nath v. Krishan Lal : AIR1952All500 . The question before the court in that case related to the provision in section 15 and U.P. Temporary control of Rent and Eviction Act. 1947 section 15 of that act provided:

'In all suits for eviction of tenant from any accommodation pending on the date of the commencement of this act, on decree for eviction shall be passed except on one or more of the grounds mentioned in section 3'.

The Act provided for the extension of applicability of the provisions of the Act to the case are as notification under the provisions of the Act. The suit for ejectment of related to property of situate in the area of which the Act had not been applied much subsequent to the date of the institution of the suit by a notification issued under the Act the provision of the Act were applicable of to area to in question. The question that arose before the course was whether the suit was pending on the date of the commencement of the Act. On behalf of the plaintiff it was pending on the date of the commencement of the act. On behalf of the plaintiff, it was contended that the suit was not pending'. On date of the commencement of the Act'. In that connection, the court of observed.'

'There is no valid ground to make any distinction of between 'the date of the commencement of the act. In section 15 and 'the dated when the Act is applied to a particular area'. On the footing of the above construction, the contention made on behalf of he plaintiff as rejected we do not see how that observations and effect of the phrase 'as the commencement of this Act' as contained in section 89 of the companies Act In the context of in which the phrase of is used of section 89, it is abundantly clear that it is meant to indicate the date of from which the obligation of mentioned in sub section [1] attaches and is created against all the previously existing companies. This date must for all the purposes continue of remain April 1, 1956.

(30) In that view of the matter, we find it unnecessary to discuss the various arguments advanced in connection with the true construction of section 637A behalf of the petitioner company and the respondents. As we are in favor of the petitioner on the main grounds of the true construction and effect of sub section 90 of the companies act we deem it unnecessary to decide the further questions raised on behalf of the petitioner company.

(31) The result is that we must strike down and we hereby declare the impugned order of revocation of the exemption dated March 24,1952 as invalid and of no effect. There shall be a mandamus against the respondents restraining the from enforcing a that order of the revocation of the this respondent will pay the costs of the petitioner - company.

(32) Petition allowed.


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