Chandrakantaraj Urs, J.
1. This is a petition under s. 107 of the Companies Act, 1956. The five petitioners are holders of 9 1/2% redeemable cumulative preference shares in the respondent company. Respondent company is a company duly incorporated under the Companies Act, 1956 (hereinafter referred to as 'the Act'). Initially, the company had divided its capital into 1,00,000 equity shares of the value of Rs. 100 each. Subsequently, by an amendment to the memorandum, art. V(a) was introduced by which the equity share capital was reduced to 75,000 equity shares of the value of Rs. 100 each and 25,000 9 1/2% redeemable cumulative preference shares of Rs. 100 each were added. The petitioners are subscribers to the class of shares mentioned above as redeemable cumulative preference shares. It is alleged that on December 23, 1981, a general meeting of this class of shareholders was held at the registered office of the company in Bellary and a resolution was passed as follows :
'Resolved that the preference share amount and the accrued preference interest/dividend at 9 1/2% from the date of allotment on respective shares up to December 31, 1981, be converted into equity shares from January 1, 1982.
2. Petitioners who were present at the meeting are aggrieved by the resolution and have, therefore, approached this court for relief, inter alia, contending that the resolution cannot be given effect to as the requisite majority for passing the resolution at the aforementioned general meeting for the special resolution had not been obtained and, therefore, the resolution is liable to be cancelled by an order of this court.
3. Respondent company has entered appearance and filed its counter- affidavit. In the counter-affidavit, the facts alleged by the petitioner in so far as they relate to the holding of the meeting and the passing of the resolution are not disputed. Certain other claims regarding mismanagement, etc., have been denied.
4. In this petition we are only concerned with whether the company by the impugned special resolution has acted in accordance with s. 106 of the Act and in accordance with art. 80 of its article of association.
5. Section 106 of the Act provides for a variation of the shareholders' rights of the different class of shareholders in a company. The rights can be varied by obtaining the consent of that class of shareholders in writing and such consent must not be less than 3/4ths of the issued shares of that class or with the sanction of a special resolution passed at a separate meeting of holders of the issued shares of that class subject to the provisions contained in sub-clause (a) or (b) of that section. Undisputedly, the consent in writing of 3/4ths of the holders of shares of that class, namely, redeemable 9 1/2% cumulative preference shares, has not been obtained by the company. They have resorted to the second method of obtaining sanction at a special general meeting of that class of shareholders.
6. Article 80 of the articles of association of the company is as follows:
'A resolution shall be a special resolution when the intention to propose the resolution as a special resolution has been duly specified in the notice calling the general meeting or other intimation given to the members of the resolution and the notice has been duly given of the general meeting and where the votes cast in favour of the resolution by the members entitled to vote are not less than three times the number of votes, if any, cast against the resolution.'
7. In other words, in conformity with what is provided in the first part of s. 106 of the Act, the majority by which the present resolution can be validly passed at a special meeting for a sanction of the alteration of the rights of that class of shareholders is also by 3/4ths majority. It is not disputed that out of those present at the meeting on December 23, 1981, of the class of redeemable cumulative preference shareholders, 1,808 votes were cast both in person and by proxy in favour of the resolution. The votes cast against the resolution was 1,430. In other words, the special resolution, the legality of which is questioned in this petition, was passed by a bare majority of 378 votes. It was not passed admittedly by 3/4ths majority as required by art. 80 of the article of association of the company.
8. In this view of the matter, this court should have no hesitation to declare that the special resolution passed at the meeting held on December 23, 1981, of the cumulative redeemable preference shareholders of the respondent company was not passed in accordance with law and, therefore, the company is not entitled to act upon the same and alter the rights of that class of shareholders.
9. For the above reason, the aforementioned special resolution is set aside as illegal and not binding on the petitioners and other redeemable cumulative preference shareholders of the company.
10. Petition is allowed with costs.
11. Advocate's fee is Rs. 100.