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In Re: the Tata Iron and Steel Co. Ltd. - Court Judgment

LegalCrystal Citation
Decided On
Reported in(1928)30BOMLR197; 108Ind.Cas.465
AppellantIn Re: the Tata Iron and Steel Co. Ltd.
indian companies act (vii of 1913), section 153-arrangement between a company and a class of it members affecting their preferential rights-modification of the company's memorandum of association-procedure at meeting of members-proxies-court's duly in sanctioning scheme.;the memorandum of a joint shook company provided that its capital should be divided into preference, second preference, ordinary and deferred shares, and farther provided inter alia that the second preference shares should rank for dividend next after the preference shares of the company and should confer on the holders thereof the right to a fixed cumulative preferential dividend at the rate of seven and a half per cent, per annum on the capital for the time being paid up on such shares. owing to the failure of the.....crump, j.1. this is a petition by the tata iron steel company limited under section 153 of the indian companies act. the members of the company are of four kinds :-(1) first preference shareholders; (2) second preference shareholders; (3) ordinary shareholders; and (4) deferred shareholders. the first preference shareholders are entitled to a fixed cumulative dividend at the rate of six per cent, per annum calculated on the profits of the company in any one year. the second preference shareholders are entitled to a similar dividend at the rate of seven and a half per cent, per annum. after these dividends have been paid, the ordinary shareholders are entitled to a non-cumulative dividend up to eight per cent,, and then the deferred shareholders come in, and are entitled to a.....

Crump, J.

1. This is a petition by the Tata Iron Steel Company Limited under Section 153 of the Indian Companies Act. The members of the company are of four kinds :-(1) first preference shareholders; (2) second preference shareholders; (3) ordinary shareholders; and (4) deferred shareholders. The first preference shareholders are entitled to a fixed cumulative dividend at the rate of six per cent, per annum calculated on the profits of the company in any one year. The second preference shareholders are entitled to a similar dividend at the rate of seven and a half per cent, per annum. After these dividends have been paid, the ordinary shareholders are entitled to a non-cumulative dividend up to eight per cent,, and then the deferred shareholders come in, and are entitled to a non-cumulative dividend up to twenty-five per cent, per annum, That is to say, the profits, which it is determined to distribute every year are devoted to paying dividends first to first preference shareholders, then to paying the second preference shareholders, and when their claims are satisfied to paying in turn the dividends due to the deferred and the ordinary shareholders The surplus profits, if any, are to be divided half and half between the holders of the ordinary shares and holders of the deferred shares by way of additional dividends. It may be added that in winding up the preference shares rank in priority to the ordinary and deferred shares of the company both as regards capital and dividend due before the commencement of the winding up. The dividend due to the first preference shares has been practically paid off, and we are not concerned here with those shareholders or their rights. But owing to the failure of the company to earn sufficient profits no dividend has been paid on the second preference shares since April 1, 1922, and the arrears up to March 81, 1926, on such shares amount to Rs. 29-12-4 per share.

2. The facts which led up to the present application are shortly as follows:-

3. In 1924 the Indian Legislature enacted Act XIV of 1924 which 1929 is expressed to be 'An Act to provide for the fostering and development of the steel industry in British India'. Section 3 of Tata Iron that Act; provides for payment of bounties to any company & Steel Co' manufacturing steel rails and fish plates. Section 4 provides for similar bounties on railway waggons. In respect of both these bounties, speaking broadly, the condition is that these things should have been manufactured in British India from materials wholly or mainly produced from Indian iron ore or at least that substantial portion of the component parts should have been manufactured in British India. On September 15, 1925, the question of granting bounties to this company came before the Legislative Assembly of the Government of India, and pronouncements were made by the Member for Commerce and the finance Member which will be found set out in the petition. A sum of Rs. seventy lacs odd was sanctioned by the Assembly, But the announcements made by the responsible Members of the Government of India indicate quite clearly that that Government is not prepared to continue these bounties unless the company is willing to take such measures as are indicated to place their finances on a sound basis. To put it shortly, the Government of India appear to take the view that they are unwilling to allow these bounties to be devoted entirely to paying off the arrears of dividends due to second preference shares to the complete exclusion of the ordinary and deferred shareholders, It may be noted that by virtue of Section 6 of the Act a statutory inquiry is to be held as to the extent, if any, to which it is necessary to continue the protection of the steel industry and as to the duties and bounties which are necessary for the purpose of conferring such protection. It will also be seen from the terms of Sections 3 and 4 that the bounties are limited to a period of three years. The position, therefore, is that it is doubtful whether the company would continue to get any bounty unless they did something to meet the expressed wishes of the Government of India, and it is out of that position that the present petition has arisen. It will be seen that under the constitution of the company the whole of the bounty would go to paying off partially at least the arrears of dividend due to the second preference shareholders; and nothing would be left for division between the ordinary and deferred shareholders. A company faced with such a position as this must carefully consider what is the best course to follow in order to secure a continuance of those bounties. It may be said of course-and it has been said-that there is no guarantee that the bounties will continue. But though in a sense it is true, a business man in such, a case would surely do the utmost in his power to secure that the bounties should continue. The present scheme was devised by the directors of the company to meet this position T g0h and it is put forward as an arrangement for the sanction of this & Steel Co. Court under Section 153 of the Indian Companies Act.

4. On August 3, 1926, the company entered into agreements with one of each of the three classes of shareholders affected. On August 16, 1926, the Court was moved to convene separate meetings of these three classes of shareholders, and on August 19 an order to that effect was made. Meetings were held on October 1, 1926, the Chairman being Sir Dorab Tata who was appointed in that behalf by the Court's order of August 19. The result of these meetings has been reported to the Court by the Chairman in accordance with the directions given in that order, and the company, by a petition dated November 10, 1926, asked the Court's sanction to the arrangement. The company are supported at the hearing by two groups of second preference shareholders who have separately engaged counsel, and the petition is opposed by two other groups of shareholders who likewise have separately briefed counsel and by one shareholder who appears in person.

5. A very large number of objections have been formulated to the scheme. They fall broadly under three divisions :-

(1) Whether the requirements of the statute are complied with ?

(2) Was there a statutory majority ?

(3) Ought the scheme to he sanctioned on its merits ?

6. Objections have been formulated in two affidavits one by Ratanchand Khimchand Motiahaw on November 26, 1926, and the other by Parashurm Detaram Shamdasani dated November 26, 1926. An objection has also been taken on the part of those shareholders who support the scheme to certain votes recorded against the scheme, and that objection has been formulated in the affidavit of E.F. Groombridge dated November 29, 1916. I may say here that in the course of the hearing a number of objections were suggested by one party or the other but I declined to entertain any point which had not been definitely formulated before the hearing. If in a matter of this kind parties are allowed to put forward objections at any stage of the proceedings the hearing could not be concluded within a reasonable time. As it was, it lasted for some sis days.

7. I will first deal with the objections falling under the first head, Th. 9 general description which I have given of this class of objections is not strictly accurate, and it is necessary to formulate 1928 them in detail before they can be considered. They are as follows :-

1. Whether the proceedings were competent? [The objection taken is that the persons who initiated these proceedings could not do so without authority from the company conferred upon them at a general meeting].

2. Whether a scheme can be sanctioned which effects alterations in the memorandum or articles of association without proceedings having been taken under the Act in the manner laid down by the Act for the purpose of effecting such alterations ?

3. Whether the meetings were duly called, held and conducted ?

8. The objection taken, so far as I was able to grasp it, was that there was insufficient notice and insufficient explanation of the scheme; also that the three classes into which the members were divided for the purpose of the three separate meetings were not classes into which they ought to have been divided, the reason being that those three classes did not correspond to the real conflicting interests. I am, however, constrained to say here that it was often difficult to understand precisely what Mr. Shamdasani meant to convey.

9. It will be convenient here to set out shortly the nature of the scheme, for what I may call the general objections last set out depend to some extent upon the question of the interests of the various classes of shareholders. The scheme is set out in Schedule of the petition. It provides for a payment of Rs. 3-12-4 per share on account of the arrears of dividend due to the second preference shareholders. The balance Rs. 26 is to carry interest at four per cent. The surplus profits, after paying six per cent, dividend and seven and a half per cent, dividend due to the first and second preference shareholders are to be divided half and half. The first half to go to pay off the arrears of the dividend due on the second preference shares amounting to Rs. 26 per share, and the other half to be divided into two equal portions and devoted to paying the dividend on the ordinary and deferred shares. The second preference shareholder gives up his preferential right to whole of the surplus profit and receives in return interest of four per cent, on the arrears. In all other respectes the rights of these three classes of shareholders appear to be unaffected and when the arrears of Rs. 26 per share have been paid off, the parties will stand on precisely the same footing as they stood, apart from the scheme now proposed. The scheme is no doubt adverse to the interests of the second preference shareholders in the sense that they get less than they would get if no such scheme was put forward. The question is whether the sacrifice is one which a prudent business man would think worthwhile in order to secure the advantage of interest of four per cent, on the arrears and in order to meet the wishes of & the Government of India, and thus secure, if possible, the continuance of the bounties. I shall refer to this matter later, ' while considering the merits of the scheme. But it is necessary to understand what it is for the purpose of judging the validity of one of the objections taken to the meeting by which it was considered.

10. As to the first of these three general objections the steps necessary to be taken appear from the section. First, there must be an arrangement proposed between the company and a class of its members. Here the affidavit upon which the Court's order to hold meetings was obtained is accompanied by copies of three agreements one on behalf of each of the three classes of members affected. Those agreements bear the common seal of the company and are executed on behalf of the company pursuant to a resolution of the directors passed at a meeting of the board. Next there must be an application by the company. The application here is based upon an affidavit made by Mr. J.D. Ghandy dated August 13, 1926, setting out the above proposals. It was upon this affidavit that the Court directed meetings to be held by its order of August 19, 1926. Then followed the petition of November 10, 1926, asking the Court to sanction the scheme. This petition sets out the proposals, the result of the meetings ordered by the Court and prays for the Court's sanction. It is signed by Mr. J.D. Ghandy, one of the directors of Messrs, Tata Sons Limited, the managing agents for the petitioning company. The validity of these proceedings is challenged. It is said that the directors had no power to initiate the proposal, and that the managing agents had no power to make the application. As to the proposal it is argued that it involves an alteration of the memorandum of association or the articles of association or both and, therefore, a resolution of a general meeting was necessary before it could be initiated by the directors. It is of course a complete error to suppose that the proposal per se effects any change of the kind, and no authority is cited for the proposition that the power of the directors can be limited on any such ground if they have that power aliunde. To decide if they have that power we must look to the articles. In my opinion Article 122 is wide enough to enable the directors to make a proposal such as is contemplated by Section 153 of the Act. It is unnecessary to consider the question of any alteration of the articles or the memorandum. We are not concerned with that at this stage. It may be that the proposal, if the Court decides upon it to direct a meeting and if the statutory majority approves it and if the Court then sanctions it, may in the result involve such alteration. But that consideration cannot be invoked to out down the wide powers conferred upon the directors by Article 122. I am not impressed by the argument sought to be deduced from the words 'The management of the business of the company'. It may be necessary for the purposes of such management to make a proposal under Section 153. The directors can do whatever the company can do subject to the restrictions expressed in the articles, There is nothing in the articles or-in the law to require that a bare proposal to alter the memorandum or the articles shall be made by the company in general meeting Whether without a resolution made at a general meeting the Court can, under Section 153, sanction a scheme which involves an alteration of the memorandum or the articles is a distinct question. I have been referred to Palmer's Precedents, Vol. II, p. 965, for the procedure to be followed, and I can find no indication that a meeting of the company is a condition precedent to a proposal. Indeed, in a Scotch case (Bruce Peebres Co. v. Bain (William) & Co [1918] S.C. 781 it was held that the directors had power to initiate proposals under Section 120 of the Statute of 1908.

11. I hold that the proposal was made by the directors and that they had power to make it on behalf of the company. Therefore, there is a proposal by the company validly made, and placed before a meeting by the order of the Court. The petition for sanction of the scheme is made by the managing agents. Their powers are defined in Articles 129 to 182 and in the agreement which is schedule B to the articles. Para 4 of that agreement gives them power inter alia 'to institute, conduct, defend, compromise, refer to arbitration and abandon legal and other proceedings and claims by and against the said company'. I see nothing in the constitution of this company or in the law by which companies are governed to deprive these words of any of the force which prima facie they possess. They are amply sufficient to confer upon the managing agents authority to make this petition. It is unnecessary to consider the position of the firm pf managing agents or their director Mr. Gandhy as members of the petitioning company and the right to petition in that capacity.

12. I now come to the second of the general objections. It is urged that the company must take proceedings to alter the memorandum and the articles before the Court can sanction a scheme involving such alteration, The Act is capable of a construction which may seem to favour this argument, but there is authority go clear upon the point that it is unnecessary to discuss it at length. It is enough to point out that Section 153 does not contain any express requirement of this nature, and it would be most inconvenient were its terms cut down by Section 10. But to come to the authorities. The case of In re Palace Hotel, Limited [1912] 2 Ch. 438 is one where a scheme was put forward which involved an alteration of the memorandum of association (vide p. 443). The question considered was whether the scheme fell within Section 45 the conditions of which had not been complied with. (The references are to the English statute) That section is identical with Section 54 of the Indian Act. It was held that as Section 45 was inapplicable the scheme could be sanctioned under Section 120. The question whether this could have been done had Section 45 been applicable was left open. The next case upon the point is In re Schweppes Limited [1914] 1 Ch. 322. Though the scheme did not in fact involve an alteration of the memorandum the Court held that even if an alteration had been involved the scheme could have been sanctioned under Section 120 so long as it was outside Section 45. The last case is In re J. A, Nordberg, Limited. [1915] 2 Ch. 439

13. Neville J. followed the previous decisions. He says (p. 441):-

As I understand the authorities you can under Section 120 alter the rights con-ferred by the memorandum upon preference shareholders, provided that in so doing you avoid consolidating shares of different classes or dividing shares into shares of different classes.

He regarded Section 45 (p. 441) 'not an enabling section as its form would suggest, but a section limiting the generality of the power under a 120 to make arrangements with regard to capital which alter the terms of the memorandum of association.'

14. The general result appears to be this, that where the Act lays down an express procedure for altering the memorandum it is doubtful whether it is not necessary to follow that procedure) before applying for sanction under Section 120, but where that is not so the Court can under Section 120 sanction a scheme which alters the memorandum. I have considered the other cases cited, but those discussed are the most recent authorities upon the point. I follow these cases, This objection, therefore, fails.

15. I now turn to the third of the general objections. It is said:-& Steel Co.

(i) There was not sufficient information given to enable the shareholders to understand the scheme.

(ii) There was no sufficient explanation given at the meeting.

(iii) There was a conflict of interest between the second preference shareholders inter se.

16. There is nothing in all this. Shareholders are presumed to know their own rights. The proposal is not a difficult one to understand. The notice to the shareholders was accompanied by a statement giving sufficient particulars to enable any shareholder to inform himself fully of that which was intended. It was in no way the duty of the chairman appointed by the Court to reply to such queries as Mr. Shamdasani chose to put to him, The chairman made a statement which was sufficient in view of what had already been done. The proceedings followed the ordinary form appropriate to such cases.

17. It is said that some second preference shareholders also held ordinary shares, and it is part of Mr. Shamdasani's grievance that the meeting did not consist of what he terms 'pure preference shareholders', He has cited certain cases where it has been held that it was wrong to place in one class two groups of creditors or members whoso interests were obviously in conflict. But in such a case as this there is no clear line of demarcation and no other grouping is practicable, as a very little reflection will show. For instance, is it possible to exclude second preference shareholders who hold ordinary shares? Are they not entitled to be heard? Is there to be another meeting of those persons? The plain fact is that it is not practically possible to meet such meticulous argument? as these, and Mr. Shamdasani could suggest nothing beyond a meeting of pure second preference shareholders '. The leading case as to schemes of this nature is In re Alabama, New Orleans, Texas and Pacific Junction Railway Co. 0 At page 289 Lindley L.J. says with reference to a similar argument:-

Now, it is said, and said with truth, that some of the majority held second debentures; and it is also said that some of the majority were shareholders holding a considerable amount of shares; and it is urged that they voted not simply as first debenture-holders and were not looking at the matter from the point of view of first debenture-holders, but from the point of view of second debenture-holders, and of interested shareholders. That state of complicated interest would not prevent them from voting, but it would necessarily induce the Court to look with caution and card at the effect of what was done at that meeting.

18. That is all that need be said upon thin matter. I would only add that these objections were not urged by Mr. Munshi in his full and careful argument.

19. I now turn to objections of the second class and the question of the statutory majority. I am not concerned here with any-thing more than a numerical majority. It is conceded that in point of value there is something very much more than the three-fourths required by the statute in favour of the scheme. The majority which I have to consider is the numerical majority at the meeting of the second preference shareholders. The chairman has reported that the majority in favour of the scheme is 24. That majority, according to the requirements of Section 153, must be a majority of those present at the meeting either in person or by proxy. It follows that any person present and not voting counts as a vote against the scheme. And if any individual vote of any such person is disallowed that too will count as a vote against the scheme. But where a member is present by proxy only if a proxy is successfully impeached the vote given on that proxy simply goes out for the proxy being invalid the voter is not present at all.

20. The following are the objections raised to the votes given in favour of the scheme :-

(a) Persons who were present but did not vote and whose votes were given on their behalf by their proxies.

(b) Persons who voted on the amendment proposed but did not vote on the substantive proposal but whose votes on the substantive proposal were recorded on their behalf by their proxies.

(c) Proxies signed by (1) receivers, (2) executors, and (3) liquidators.

(d) Proxies given by Fazalbhai Ibrahim and Company Limited in favour of Abdulla I. Rahimatulla a director of the said company. This also involves the question whether if the proxy be invalid the said company can be held to have recorded a valid vote through its directors.

(e) Proxies which were alleged to be conditional.

(f) Proxies signed by one only of the joint holders of a share. (g) Proxies given or votes recorded by certain persons holding powers-of-attorney from shareholders.

(h) Undated proxies.

(i)Proxies signed by shareholders who subsequently signed other proxies as explained in para. 18 of Motishaw's affidavit dated November 28, 1926.

(j) Proxies given by persons who were debtors to the company.

(k) Proxies which are alleged to be not stamped in accordance with the requirements of the Indian Stamp Act.

(l) Proxies which are not in the form approved by the Court.

21. A question arises before these points can be determined, that is to say, how far the articles of association can be invoked as regulating the procedure to be followed at the meeting. Section 153 of the Indian Companies Act says that the meeting shall be 'called, held and conducted in such manner as the Court directs'. In this respect it differs from the corresponding section Section 120 of the English Act. The orders of the Court in this case contain certain directions as to the conduct of the meeting, but in many minor matters no directions have been given. On those matters what is the position? For the company it is urged that we must be guided by the articles of association, for the objectors that we should have recourse to the common law. There is no authority upon the point. This is not a case of a creditors meeting, but of a meeting of the holders of second preference shares-Meetings of this kind are within the scope of the articles being indeed specially provided for in Article 14 and by virtue of e. 21 of the Act the members of the company are bound inter s& to observe all the provisions of the articles. This being so though 'Court meetings' are subject to the directions of the Court where no express direction is given the articles must be looked to so far as they are applicable. Putting the matter another way if the Act did not give the Court any power to make directions for the conduct of the meeting what would be the procedure? The answer must, I think, be that the articles must be looked to. That is also what the Court must be taken to intend where no special directions are given. It is no answer to say that certain of the articles cannot be applied to a meeting of this nature. I am of opinion that where they are applicable they should be applied. The hearing of this matter will be apparent when the specific objections come to be considered.

22. I now take the objections in detail.

(a) Persons who were present but did not vote and whom votes were given on their behalf by their proxies.

23. A person to whom a member gives a proxy is that member's agent for the purpose of voting. The authority of an agent may be revoked expressly or by implication, but unless and until it is so revoked that authority continues. Here it is argued that the conduct of the member in being present is an implicit revocation. I am unable to take that view. If a man is present and allows another to act for him presumably he approves what that other does. A vote by a member personally revokes the authority of his proxy (Halsbury, Vol. V, p. 259). That is a different matter. A member who votes indicates unmistakeably that he does not wish any other person to vote for him. These votes are good.

(b) Persons who voted on the amendments 'proposed but did not vote on the substantive proposition but whose votes on the substantive proposition were recorded by their proxies.

24. The same considerations apply here. There is no authority upon the point. The question is what inference is to be drawn from the member's conduct. The form of proxy gives authority 'To vote for me and in my name for the said scheme either with or without modification as my proxy may approve'. The amendments to the scheme were taken en bloc and certain members voted against them, but when the time came to vote on the substantive scheme they abstained from voting. It is not easy to decide what these persons meant, but the same considerations apply as to the last case. Presumably they did not desire to revoke the authority so far as it empowered the proxy to vote on the substantive scheme. I hold these votes are good.

(c) Proxies signed by (i) Receivers; (ii) Executors; (iii) Liqwdators.

25. It would seem that, apart from special provisions to the contrary, the executors or administrators of a deceased member or the trustees in bankruptcy of a bankrupt member may exercise the voting rights of the deceased or bankrupt member' (Stiebel's Company Law and Precedents, 2ndEdn (1920), Vol. I, p. 865). Article 84 of the articles of association of thin company would appear to-confine the right to vote at a general meeting to persons 'who have been duly registered for three months previous to such meeting' and by the definition in Article 2 'shareholders or members 'means the duly registered holders from time to time of shares of the company. Articles 32 and 33 provide for the registration of the names of executor?. There are thus special provisions here which prevent an executor from exercising the voting rights of a 'deceased shareholder. But it is argued that for the purpose of Section 153 this prohibition does not apply, and that the estate of a deceased shareholder cannot be bound unless the executor is entitled to vote. Reliance is placed upon Llewellyn v. Kasintoe Rubber Estates, Limited. [1914] 2 Ch. 670. I do not think that case supports the proposition. The facts there were that there was a meeting for Tab' Iron the purpose of Section 192(1) of the English Act. Certain executors did not vote at that meeting, but sought to exercise the power given to members not voting by Clause (3) of the section. It was held that they could do so. The case is no authority on the right of an executor to vote. Indeed at p. 684 of the Report Swinfen Eady L.J. says :--

It is said in this cage that the sub section can only refer to living members because it provides for the member not voting for the resolutions, and it is said that unless there is a living member there in no right to attend meetings and vote. But the estate of a deceased member can never have voted for the resolution as the executors have no right to attend the meetings.

26. The learned Judge plainly was of opinion that by reason of Article 37 of the articles of that company an executor could not exercise the voting rights of a deceased member, though he could exercise the right to dissent given by Sub-clause (3) of the section. I have already stated that the articles of association must apply as far as possible to the proceedings at this meeting. The result is that any vote given by an executor on behalf of a deceased member must be disallowed, and, in my opinion, it is not possible to distinguish the case of a liquidator or a receiver.

27. These votes are bad.

(d) Proxies given by Fazalbhai Ebrahim and Company in favour of Abdulla I. Rahitmtulla, a director of that company.

28. The company styled Fazalbhai Ibrahim and Company is a member of the Tata Iron and Steel Company. Abdulla I. Rahimtulla is a director of the former company. A proxy form was signed by him and on that proxy the vote of Fazalbhai Ibrahim and Company was recorded in favour of the scheme. It is conceded that the proxy is not valid as the seal of the company was not affixed in the presence of the directors. But it is argued that the vote is a good vote nevertheless, The argument is that Abdulla I. Ebrahim could vote for the company of which he was a director on being empowered to do so under Section 80 of the Act. That is to say, by a resolution of the directors of that company. It is conceded that at the date when the vote was recorded (October 1, 1926) there was no such resolution. But, it is said, a resolution was passed on October 27, which validated the vote. The argument is based on the principle of ratification (Indian Contract Act. Section 196). I cannot accede to it. In my opinion a vote is good or bad at the time when it is recorded and no subsequent ratification can cure the defect, Here the vote was void ab initio.

(e) Conditional proxies.

29. The form of proxy was settled by the Court, It contains the words 'To vote for me and in my name...the said scheme either with or without modification as my proxy may approve. In this case the word 'for' has been entered by the member signing the proxy and he has added after the word cited 'provided that the modification if any should be favourable to second preference shareholders'. There is no question of any modification, and I see no reason for questioning the vote as a vote in favour of the scheme. The added words are too vague to have any meaning. In any view the proxy acted within the authority given to him.

30. The votes are good.

(f) Proxies signed by one only of the joint holders of a share.

31. This objection is met by Article 85 of the articles of association.

(g) Proxies given or votes recorded by persons, holding powers-of-attorney from members.

32. A list of eighteen of these powers has been put in (Exhibit No. 2). In four cases the originals are produced. Three of these are admitted by Mr. Munshi to be adequate. The fourth is No. 504. Power No. 3856. It contains the following words 'Also to appear and to represent me at any meeting of any joint stock company in which I am interested as a shareholder or debenture holder or preference shareholder, or as a member or otherwise and to vote there, and also to grant proxies to any other person &c.; &c.;' These words are sufficient.

33. As to the remaining fourteen, the originals are not forthcoming. An argument has arisen as to whether secondary evidence is admissible of the contents of the originals. The matter is fairly within Section 65(c) of the Indian Evidence Act, and any secondary evidence is admissible. Here we have the affidavit of D.S. Dhabhar, and so far as he gives an account of the contents from his own knowledge his evidence is good secondary evidence. In some cases copies are produced. I do not propose to discuss each of these cases in detail. There is one which must be rejected, No. 648, para. 2 (g) of Mr. Dhabhar's affidavit. The others are, in my opinion, sufficiently proved and give the right to vote.

(h) Undated proxies :-

34. The objection is that certain proxies do not bear the date of execution. I note it but it hardly requires discussion. The proxy was lodged within the time allowed and before the date of the meeting. I can understand that an omission to state the date of the meeting may be a serious defect, but as for the date of execution lean only say 'de minimis.' No authority has been cited for questioning a proxy on such grounds.

(i) Proxies signed by shareholders who subsequently signed other proxies.

35. The case may be stated thus. A signed a proxy in favour of B. The time for lodging proxies ends two days before the meeting. The proxy in favour of B is lodged in time. A then signs a second proxy in favour of and lodges it after the expiry of the time. This proxy being out of time was rejected without scrutiny. Is the first proxy revoked ?

36. In my opinion the first proxy is not revoked unless there is notice of the second proxy. Admittedly there was no express notice. It is urged that there was constructive notice, but there was no duty to scrutinize the proxy to ascertain whether there was an earlier proxy by the same shareholder. In the cases in question the proxies were sent en bloc with a letter, but the letter contained no indication of any intention to revoke any earlier proxies. In these circumstances it is as though A had recorded to himself his intention to revoke the proxy given to B, The objection must fail.

(j) Proxies given by persons who were debtors to the company.

37. This is covered by Article 83. I see no reason to exclude the operation of this article. Such votes must be disallowed whether given in person or by proxy.

(k) Proxies which are alleged not to be stamped in accordance with the requirements of the Indian Stamp Act.

38. It is conceded that a proxy is chargeable with a duty of two annas by reason of Section 3 of the Indian Stamp Act and Article 52 of the Schedule to that Act. That is I think the correct view. The objection taken is that on certain proxies the stamp has not been 'cancelled so that it cannot be used again' and that, therefore, these proxies must be deemed to be unstamped as provided by Section 12(2). Therefore, it is urged that by virtue of the first para of Section 35 such proxies cannot be admitted in evidence or acted upon. The reply sought to be made is two-fold. First, it is argued that it is unnecessary for the company to put the proxies in evidence, or to ask the Court to act upon them. Secondly, that in fact the stamps have been cancelled in an effectual manner.

39. The first part of the argument is oversubtle. As I understand it, it proceeds thus. By Article 94B the chairman is sole judge of the validity of every vote. Section 35 of the Indian Stamp Act does not apply to the conduct of the chairman in admitting vote. The only question for the Court is whether the votes were & rightly allowed by the chairman, and in deciding that point the Court need not prima facie consider whether the proxies are stamped or not. Prima facie the chairman is right. Therefore, the company is not seeking to put the proxies in evidence or to ask the Court to act on them. The burden of proving that the votes were wrongly admitted is on the objectors, and they must make out their objection. It is they who seek to put the proxies in evidence,

40. It may be that I have not fully grasped the point but if it is as I believe it to be, the plain answer appears to me to be this. The scheme of Section 153 of the Indian Companies Act is that the Court directs a meeting and appoints such person as it thinks fit to be chairman. After the meeting is held it is for the Court to determine on the materials before it whether the arrangement is approved by a statutory majority. In so doing the Court will consider all the matters before it. It is not very profitable to consider on whom the burden of proof lies but it may be conceded that the chairman's report is prima facie proof though I must not be taken to concede that Article 94B applies to a chairman appointed by the Court. But so soon as the report is challenged by counter-proof it is for those who seek to support it to do so. Here I have an affidavit that such and such votes are invalid on the ground that the proxy is invalid. If I hold that such votes are valid and proceed to sanction the scheme I do in effect act on the proxy. That is the plain position. The objector says on oath 'The vote of A is invalid because the proxy which he signed is unstamped'. Should that objection be sustained or not? It depends on the evidence offered in rebuttal. The company may offer none, but without putting the proxy in evidence it is difficult to see how the objection can be met. What other evidence can be given except the best evidence, the proxy itself? And if they rely on the proxy they ask the Court to act on it.

41. The second question is, as I understand it, a question of fact. 'Have these stamps been cancelled so that they cannot be used again? (Vide Section 12(2) of the Indian Stamp Act).' I fail to see how this can be in any sense a question of law. 'If, as I believe, it be accurate that the question is one which is to be determined upon the facts of the case, no one case can be an authority for 1928 another' (London Joint Stock Bank v. Simmons. [1892] A.C. 201 The legislature, I take it, says what it means and that is that the stamp in its cancelled condition cannot be used again. It does not say process must be so thorough that no evilly disposed person can in any manner render the stamp fit for further use. Indeed ' the process which the legislature declares to be adequate in Section 12(3) might be defeated by criminal ingenuity. There is no doubt a decision of a Bench of this Court, Virbhadrapa v. Bhimajim I.L.R. (1904) 28 Bom. 432 6 Bom. L.R. 430 which contains this dictum (p. 483) :-

Two parallel lines drawn over a stamp are not sufficient to carry out that object (of the Legislature), because mere lines would not be effective for the purpose in view.

42. That is the ground of the decision and (with all respect) I cannot conceive that I am bound by it. I am glad to be able to come to that conclusion for in this case there can be no doubt whatever that the persons who cancelled these stamps did so in the bonafide belief that they were doing all that was necessary, and the means which they adopted are those which are employed by thousands of persons in commercial transactions. I may note that the decision in Anandrao v. Daolatrao (1888) P.J. 361 is less than obiter so far as this point goes. The Judges did not pronounce any opinion on the point. In S.A. Ralli v. Caramalli Fazal I.L.R. (1890) H Bom. 102 there was 'a small ink line upon the right side of the stamp.' Again I must point out that it is a question of fact in such case, and I am entitled to my own opinion whatever dicta may be found in the cases, In England the law is substantially the same yet in M'Mullen v. 'Sir Alfred Hickman' Steamship, Lim. (1902) 71 L J. Ch. 768 Joyce J. was of opinion that lines or a cross on the stamp might amount to sufficient cancellation. In Mahadeo Kori v. Sheoraj Ram Teli (1918) 1. L.R. 41 All. 169 the Allahabad High Court have held that a single line drawn across the stamp is sufficient. It is a matter of opinion on the facts of each case; and Lord Halsbury's dictum, which is so often cited, is apposite.

43. It is unnecessary to consider whether here as in England a proxy which as such is unstamped, can be regarded as a power-of-attorney and admitted on payment of the appropriate penalty. Probably not, for the scheme of the English Act differs materially upon this point. I note, however, that the company were willing to pay the penalty upon that basis.

44. Of the challenged proxies four have by consent been selected as typical. I have examined them. One has a single line drawn across the face of both 8tampsi the second has two parallel lines, the third three parallel lines, and the fourth two lines crossing each other at an angle. In my opinion these stamps have been Steel Co. cancelled so that they cannot be used again.

45. I would only add that those proxies which are unstamped, or upon which the stamps have not been cancelled must be excluded. Any votes recorded on the authority of such proxies go out.

(1) Proxies which are not in the form approved by the Court.

46. The Court has ample power under Section 153 to settle a form of proxy. As I have said Section 153 in wider in its terms than Section 120 of the English Act. Any substantial failure to comply with the Court's direction would, in my opinion, invalidate the proxy. The form which is objected to departs in several matters from the authorized form.

(i) It omits the marginal note (a). 'If any other proxy is preferred strike out names here inserted and add name of proxy preferred and initial the alteration.'

(ii) It omits marginal note (b). If 'for' insert 'for' if 'against' insert 'against.'

(iii) In place of the blank left for insertion of the words 'for' or 'against' as the case may be the word 'against' is printed.

(iv) It omits footnotes (3) and (4) and inserts a new footnote.

47. Are these substantial alterations? The case of In re Inter-Oceanic Railway, &c;, Limd. (1896) 3 Man 162 shows how strictly the Courts in England deal with such matters. The alterations from the Court form in that case were less material than in the case here. Yet it is fairly clear that Williams J. would not have sanctioned the scheme had there been any real contest in the matter as he was of opinion that 'It is of the utmost importance that these proxies should be in the regular form'. The same point was considered by Eve J. in a later case (In re The Magadi Soda Go., Ltd. [1025] W, N. 50. The form authorized there was the same as in this case, but certain proxies were sent out with the words 'for or against' inserted thereby conferring a discretion upon the party named to use them either for or against, the scheme. The learned Judge held that those proxies were rightly rejected. He said (pp. 51, 52):-

The object of this settled form was that the shareholders should be compelled to exercise their own judgment by informing the proxy how he was to vote. It was found to be almost impossible to save the shareholders from themselves. It was therefore of great importance that this protection should be upheld in all-available ways, and that the form settled by the Court for the sole purpose of protecting shareholders against their own neglect should be adhered to.

48. The challenged form without the marginal note (b) and with The word against' in place of the blank space leaves no room to the shareholder to exercise his own judgment. And if that defect is fatal in England a fortiori it should he so here where the forms are sent out in a language with which many of the shareholders are imperfectly acquainted, and of which some of them are totally ignorant. I hold that these proxies must be disallowed, for I see no reason for being less strict upon this matter than are the English Courts. It was suggested that the Court had no power to settle a form of proxy, but however that may be under Section 120 of the English Act the words 'to be called, held and conducted in such manner as the Court directs' in Section 153 of the Indian Act are wide enough to cover directions of this nature. In the case of In re English, Scottish, and Australian Chartered Bank [1893] 3 Ch. 385 construed similar words in Section 91 of the Companies Act 1862 as giving the Court authority to settle a form of proxy (vide pp. 410 and 411). It seems to me plain that the form of proxy is part of the conduct of the meeting.

49. The sole question which remains is whether the scheme is one which the Court ought to sanction. The duty of the Court in these cases has been laid down by Lindley L.J. in In re Alabama, New Orleans, Taxas and Pacific Junction Railway as follows (p. 238) :-

What the Court has to do is to see, first of all, that the provisions of that statute have been complied with; and, secondly, that the majority has been acting bond fide. The Court also has to see that the minority is not being over ridden by a majority having interests of its own clashing with those of the minority whom they seek to coerce. Further than that, the Court has to look at the scheme and see whether it is one as to which persona acting honestly, and viewing the scheme laid before them in the interests of those whom they represent, take a view which can be reasonably taken by business men.

50. That statement of the law was re-affirmed in a later case by the same learned Judge in In re English, Scottish, and Australian Chartered Banks [1893] 3 Ch. 385, 408

51. In this case Mr. Shamdasani has attacked the bona fides of those who have supported the scheme, but on no substantial ground so far as I could follow him. He suggested that the majority were primarily concerned with their interests as ordinary shareholders. It may be remarked that that was precisely the position in the first of the two cases last cited, and I have already drawn attention to Lindley L, J.'s remarks upon that aspect of the matter. However narrowly the scheme is scrutinized, I see no reason to say that it is not one which can reason- & ably be supported by business men. The matter lies in a nutshell. Without the bounties there is no prospect of any dividend on the second preference shares. The Government of India say in plain terms that they are not prepared to continue the bounties unless part at least of the benefit goes to the ordinary and deferred shares. The proposition is 'Let the second preference shareholders give up part of the bounty in the present in order to secure its continuance in the future'. Is it reasonable from the point of view of the holder of second preference shares who has no other interests whatever? A businessman might reasonably say ''Yes.' That is enough. I decline to enter into Mr. Shamdasani's speculations as to the financial soundness of the company. Those speculations do no more than obscure the real issue. I am aware that there is force in Mr. Munshi's argument that the continuance of the bounties is in no case certain, but that is a chance which must be taken. Were I myself a holder of second preference shares I should be disposed to vote for the scheme. I may add that Mr. Munshi suggested that the second preference shareholders might reason-ably be satisfied with seventy per cent, of the surplus profits leaving thirty per cent, for the ordinary and deferred shareholders. If the difference of opinion is merely as to the division of the surplus profits it is obvious that one man may reasonably accept fifty per cent, while another may ask for seventy per cent. I see no reason to refuse to sanction the scheme.

52. The judgment just pronounced contains no final statement on the question whether there is or is not a statutory majority as I have preferred to deal with the principle involved without embarassing myself by any considerations of that kind. I am now informed by those concerned on either Bide that the result is that there is a statutory majority in favour of the scheme, and the scheme is, therefore, sanctioned.

53. On the question of costs, the parties have arrived at an understanding which is embodied in the following order :-

54. On the respondents undertaking not to appeal, the taxed costs of R.K. Motishaw including costs of the correspondence and inspection and counsel's fees at the hearing of this petition and of Merwanji Kaikhsuru and R.D. Sethna and the Court fees paid by Shamdasani and the charges paid by him of typing and 1926 copying affidavits shall be paid by the petitioning company. This order includes costs reserved.

55. As regards costs of Mr. Jinnah's client and the client of the Advocate General, in spite of Shamdasani's argument to the contrary, they have been of material assistance to the Court in deciding the matter and their costs also should come out of the company's funds.

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