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British India Corporation Ltd. Vs. Shanti Narain - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtAllahabad
Decided On
Reported inAIR1935All310
AppellantBritish India Corporation Ltd.
RespondentShanti Narain
Cases Referred and Om Prakash v. Muhammad Iahaq
Excerpt:
- interpretation of statutes definition clause: [markandey katju & h.l. dattu, jj] meaning given to an expression in one statute cannot be applied to another statute. - the objector further maintained that the directors having failed to carry out the proposed scheme of the reorganization of the share capital by consolidating the ordinary and deferred shareholders and the amendment of the memorandum and articles of association in the meeting of 25th march 1933, made a deliberate attempt to circumvent the provisions of section 54, companies act. it is one thing to say that this court has no jurisdiction to entertain an application (in revision against a particular order passed by a particular court, and it is quite another thing to say that though this court can entertain the application.....iqbal ahmad, j.1. this is an application in revision against an order of the district judge of cawnpore rejecting an application filed by the applicant, the british india corporation ltd. cawnpore, (hereinafter called the company), praying that sanction be accorded to the proposed consolidation of the deferred and ordinary shares of the company and that 'the minute suggested be approved.' the application purported to be an application under section 54(1), companies act, (act 7 of 1913). the section runs as follows:(1) a company limited by shares may, by special resolution confirmed by an order of the court, modify the conditions contained in its memorandum so as to reorganize its share capital, whether by the consolidation of shares of different classes or by the division of its shares.....
Judgment:

Iqbal Ahmad, J.

1. This is an application in revision against an order of the District Judge of Cawnpore rejecting an application filed by the applicant, the British India Corporation Ltd. Cawnpore, (hereinafter called the Company), praying that sanction be accorded to the proposed consolidation of the deferred and ordinary shares of the company and that 'the minute suggested be approved.' The application purported to be an application under Section 54(1), Companies Act, (Act 7 of 1913). The section runs as follows:

(1) A company limited by shares may, by special resolution confirmed by an order of the Court, modify the conditions contained in its memorandum so as to reorganize its share capital, whether by the consolidation of shares of different classes or by the division of its shares into shares of different classes:

Provided that no preference or special privilege attached to or belonged to any class of shares shall be interfered with except by resolution passed by a majority number of share holders of. that class holding three-fourths of the share capital of that class and confirmed at a meeting of share-holders of that class in the same manner as a special resolution of the company is required to be confirmed, and every resolution so passed shall bind all share-holders of the class.

2. The admitted facts so far as they are material for the decision of the application in revision before us are as follows : The company was incorporated in the year 1920 as a company limited by shares with an authorised capital of Rs. 10,00,00,000 (ten cores of rupees) divided into 3,00,000 (three lakhs) 8 per cent, cumulative preference shares of Rs. 100 each, 60,00,000 (sixty lakhs) ordinary shares of Rs. 10 each, and 10,00,000 (ten lakhs) deferred shares of Rs. 10 each. The company allotted 81,000 preference shares 41,40,000 of its ordinary shares and 5,50,000 of its deferred shares. The shares allotted were fully subscribed.

3. The respective rights and privileges of different classes of shareholders were specified in paras. 6 and 7 of the Me morandum of Association. The usual preference was given to preference shareholders but we are not concerned with the same in the present case. It was provided inter alia by the said paragraphs that after the preference shareholders were paid their profits the balance of the profit was to be distributed amongst the ordinary and deferred shareholders in the following manner : The ordinary shareholder is were to receive 10 per cent, dividend on their shares and if nothing was left out of the profits the deferred shareholders were to get nothing. But if some balance was left after paying the dividend on preference shares and 10 per cent, dividend to ordinary shareholders, the deferred shareholders were to get dividend upto a limit of 10 per cent. If some amount of the profits was even then: left then half of the amount so left was to be divided between ordinary shareholder? and the other half between deferred shareholders. In the case of winding up of the company the assets available for distribution after payment of the capital paid up on the preference shares with any arrears of dividend thereon was to be distributed amongst the ordinary and deferred shareholders in the following manner : (1) To pay off the capital paid up on the ordinary shares. (2) To pay off the capital paid up on the deferred shares. (3) The balance, if any, to be distributed as to one-half amongst the holders of ordinary shares and as to the other half amongst the holders of deferred shares.

4. These rights and privileges of the various classes of shareholders were however subject to the provisions of para. 8 of the memorandum and much of the argument addressed to us as regards the merits of the application before us has centred round this paragraph. It is as follows:

The right for the time being attached to saidi several classes of shares may be modified or dealt with in a manner mentioned in Clause 7 of the accompanying Articles of Association but not otherwise and that clause and also Clause 138 of the said Articles of Association shall be deemed to be incorporated herein and have effect accordingly.

5. Article 7 of the Articles, of Association prescribed the method and procedure by which the special rights attaching to any class of shares may be 'varied, abrogated or affected.' Article 138 is immaterial for the decision? of the application in revision before us. The capital of the company was reduced from time to time and the ultimate reduction in capital was made on, 21st November 1932, by an order of the District Judge of Cawnpore dated 21st November 1932, in accordance-with which the following minute was-recorded by the District Judge:

The capital of the British India Corporation-Ltd., henceforth is Rs. 3,65,00,000 (three crores-sixty-five lakhs) divided into 3,00,000 cumulative preference shares of Rs. 100 each, 60.00,000'' ordinary shares of Re. 1 each and 10,00,000 deferred shares of Rs. 0-8-0 each. At the time of the-registration of this minute 81,000 cumulative-preference shares, 41,40,000 ordinary shares and 5,50,000 deferred shares had been issued. The-sum of Rs. 100 has been and is to be deemed to-have been paid up on each of the said 81,000 preference shares. 'The sum of Re. 1 has been and is to be deemed to have been paid up on each of the said 41,40,000 ordinary shares. The sum of Rs. 0-8-0 has been and is to be deemed to have-boon paid up on each of the said 5,50,000 deferred shares. The remaining 2,19,000 preference-shares, 18,60,000 ordinary shares and 4,50,000 deferred shares are unissued.

6. It would be apparent from the above question that from 21st November 1932 the nominal value of each ordinary share was Re. 1 and the nominal value of each deferred share was annas; 8 and that all the issued ordinary and; deferred shares were to be deemed to-be fully paid up.

7. In or about the year 1933 it was, considered desirable to do away with the distinction between ordinary and deferred shares and to put the rights and privileges attaching to these classes of shares on an identical footing. With this object in view extraordinary general meetings of : (a) the deferred shareholders, (b) the ordinary-shareholders, and (c) of the share-holders of the company were held on 2nd August 1933, and extraordinary resolutions were passed by all the meetings approving the consolidation of the deferred share capital in such a manner that every 2 of the existing deferred shares of the nominal value of annas 8 should constitute one new share of the nominal value of Re. 1. In order to deal with the case of people whose deferred shares of the old class might amount to an odd number, a special class of holders of fractional share certificates was created, and these entitled to dividends but not to any other rights. The resolution further provided that in lieu of the existing rights conditionally attached to the deferred share capital by paras. 6 and 7 of the memorandum, each one newly consolidated a deferred share of the nominal value of Re. 1 shall be placed on the same footing in all respects as each ordinary share of the nominal value of Re. 1. The extraordinary resolution passed by the extraordinary general meeting of the shareholders of the company on 2nd August 1933, was passed as a special resolution by the shareholders at a meeting held on 18th August 1933. In order to obliterate the distinction even in name between the two classes of shares the following extraordinary resolution, was passed by the deferred shareholders of the company on 11th October 1933.

That this meeting of deferred share-holder of the Corporation, in view of the fact that the ordinary and deferred shares respectively now carry the same rights in all respects as regards dividend, on winding no and voting, considers it expedient that the capital of the Corporation be re-organized by the consolidation of the ordinary and deferred shares, and that the Directors of the Corporation be, and they are, hereby declared at liberty to take such action as may be necessary to effect such consolidation and to obtain any necessary sanction of the Court thereto.

8. Identically worded extraordinary re solutions were passed on the date, viz., on 11th October 1933, at extraordinary general meetings of the ordinary shareholders and of the shareholders of the company. It was also resolved by the extraordinary general meeting of the shareholders that suitable alterations specified in the resolution be made in the memorandum and Articles of Association so as to give effect to the resolution quoted above. The extraordinary resolutions passed by the shareholders of the company were passed as special resolutions at a general meeting of the shareholders on 27th October 1933.

9. Having passed the resolutions referred to above the company decided to register the following minute:

The capital of the British India Corporation, Ltd., Cawnpore henceforward is Rs. 3,65,00,000 divided in to 3,00,000 cumulative preference shares of Rs. 100 each and 05,00,000 ordinary shares of Re. 1 each,

and filed an application before the District Judge praying that the minute suggested be approved and that sanction be accorded to the consolidation of the deferred and ordinary shares under Section 54, Companies Act, and in support of the application filed an affidavit detailing the facts and the resolutions noted above.

10. Shanti Narain the opposite party before us, filed an objection to the application of the company. He stated in his objection that the company originally wanted to put up a scheme of amendment of the memorandum and Articles of Association and the consolidation of the ordinary and deferred shares at an extraordinary general meeting called for 25th March 1933,, but in that meeting the chairman of the meeting pointed out that the proposed amendment was in the opinion of the legal advisers of the company governed by the provisions of Section 54-of the Act and, as the requisite majority of the shareholders provided for by the proviso to Section 54 was not available, the resolution could not be considered by the meeting. Accordingly the extraordinary general meetings of the ordinary and deferred shareholders' convened for 25th March 1933, were dissolved. The objector further maintained that the directors having failed to carry out the proposed scheme of the reorganization of the share capital by consolidating the ordinary and deferred shareholders and the amendment of the memorandum and Articles of Association in the meeting of 25th March 1933, made a deliberate attempt to circumvent the provisions of Section 54, Companies Act. In this connection he pointed out that, as the directors could not by the consolidation, of ordinary and deferred shares modify the conditions contained in. the memorandum, so as to re-organize the share capital of the company, they resorted to the device of attaining the object, in view by splitting up the proposed scheme into two parts, viz., firstly to consolidate the deferred shares into shares of Re. 1 each and to put the same on a par in all respects with ordinary shares, and secondly by special resolution to consolidate the ordinary and deferred shares and amend the memorandum and Articles of Association. The objector maintained that what the company could not do by a single step it could not accomplish in two steps. In short, the chief objection of the objector was that the division of the original scheme of reconstruction and reorganization of the share capital and of amending the memorandum and Articles of Association into two parts by the management was for the purpose of evading the mandatory provisions of Section 54 and thereby a effecting adversely the rights and privilege attached to the holders of the deferred shares.

11. The learned Judge held that the scheme referred to above was a fair and equitable scheme and 'should be sanctioned on the merits.' He however held that the two sets of resolutions passed on 2nd August and on 11th October cannot be split up and that both the resolutions must be read and taken into consideration together. In this view of the matter he held that it was not open to the applicant company to ask for the confirmation of the resolution of 11th October and not for the resolution of 2nd August. In other words, he held that the two resolution must be read together and the scheme treated as a single scheme and sanction should be accorded or refused to the scheme as a whole. His conclusion was that he was not competent to grant the application of the company under Section 54 of the Act as the effect of the two resolutions passed on the two dates mentioned above was to reorganize the share capital of the company by consolidation of the shares of different classes, and the re-organization had the effect of interfering with the preference or special privileges attaching to ordinary shares and the majority of the shareholders contemplated by the proviso to Section 54 was not present at the meetings on which those resolutions were passed. In the alternative he held that:

if the object that the company has in view can be obtained without modifying the conditions contained in its memorandum of association, then no sanction of the Court is necessary,

and, as such, no sanction ought to be accorded. In the result be dismissed the application of the company. The company has come up in revision to this Court.

12. A preliminary objection has been raised to the hearing of this application by the learned Counsel for the opposite party on the ground that the order of the Court below cannot be revised by this Court. He has formulated his objections on the following three alternative grounds : (1) That this Court has no jurisdiction to revise orders passed by a District Court under the Indian Companies Act, (2) that a district Court exercising jurisdiction in company matters is not a Court subordinate to the High Court within the meaning of Section 115, Civil P.C., and (3) that the Court below had jurisdiction to hear and decide the application before it and it did not exercise its jurisdiction illegally or with material irregularity.

13. So far as the third objection is concerned it is really not in the nature of a preliminary objection. It is on the other hand an objection touching the merits of the revision application before us. A preliminary objection is one that challenges the competence of a Court to hear and decide a particular cause before it and the third objection noted above far from doing so necessitates the consideration by this Court of the question whether or not the Court below exercised its jurisdiction illegally or with material irregularity. This is tantamount to the consideration of the revision application on its merits. It is one thing to say that this Court has no jurisdiction to entertain an application (in revision against a particular order passed by a particular Court, and it is quite another thing to say that though this Court can entertain the application in revision it ought to reject the same as in passing the order sought to be revised the Court below did not assume jurisdiction that it did not possess, or failed to exercise a jurisdiction that it did possess, or acted in the exercise of its jurisdiction with material irregularity. AH that is necessary to bring into play the revisional jurisdiction of this Court under Section 115, Civil P.C., is that : (1) there be a case decided, (2) the decision be of a Court subordinate to this Court, and (3) the decision be not appealable.

14. If these conditions are satisfied this Court has undoubtedly the revisional jurisdiction conferred on it by Section 115, Civil P.C., and is vested with the discretion to exercise that jurisdiction provided the case falls within Clause (a) or Clause (b) or Clause (c), Section 115, Civil P.C. But the moment this Court proceeds to consider whether a particular case does or does not fall within either of those clauses it necessarily considers the revision application on its merits. We therefore propose to consider the third objection of the learned Counsel while dealing with the merits of the application before us.

15. In support of the first two objections noted above the learned Counsel has argued that the Indian Companies Act is a self-contained Act containing detailed provisions as to the procedure to be adopted by a Court while exercising jurisdiction under that Act, and as revisional jurisdiction is not conferred by that Act on this Court, the present application in revision cannot be entertained. In support of this contention reference has been made to Sections 202 and 246 of the Act, Section 202 provides about appeals from certain orders made in the matter of the winding up of the company and Section 246 vests the power in this Court to make rules with the Act and with the Code of Civil Procedure, 1908, concerning the mode of proceedings to be had for the winding up of a company in the High Court and in the Courts subordinate thereto, and for giving effect to the provisions contained in the Act as to the reduction of the capital and the sub-divisions of the shares of the company. It is contended that as provisions for appeals from certain specified orders passed under the Act are made in the Act and there is no provision in the Act conferring revisional jurisdiction on this Court, this Court has no power to revise the order passed by the Court below in the present case. It is further argued that the district Court of Cawnpore is not a Court subordinate to this Court within the meaning of Section 115, Civil P.C., and, as such, the present application in revision cannot be entertained.

16. In our judgment there is no force in these contentions. The words 'the Court' are defined by the Companies Act as meaning the Court having jurisdiction under the Act and it is provided by Section 3 that, the Court having jurisdiction under the Act shall be the High Court having jurisdiction in the place at which the registered office of the company is situate. The High Court is therefore normally the Court having jurisdiction under the Act, but there is a proviso to Section 3 to the effect that the Local Government may, by notification in the local official gazette, and subject to such restrictions and conditions as it thinks fit, empower any district Court to exercise all or any of the jurisdiction by the Act conferred upon the High Court and:

in that case such district Court shall, as regarded the jurisdiction so conferred, be the Court in respect of all companies having their registered offices in the District.

17. The registered office of the applicant company is in the district of Cawnpore, and the Local Government, in exercise of the powers vested in it by the proviso to Section 3 of the Act, has, by a notification dated 24th September 1914, empowered the district Court of Cawnpore to exercise all the jurisdiction conferred by the Act up on this Court. The learned Counsel is therefore right in contending that the District Judge of Cawnpore has exclusive original jurisdiction to decide all matters arising under the Companies Act with reference to the companies the registered offices of which are within the district of Cawnpore. It follows that this Court cannot exercise jurisdiction under the Companies Act with reference to the companies mentioned above. But the exclusive original jurisdiction conferred on the district Court of Cawnpore can in no way oust the revisional jurisdiction that is conferred on this Court by Section 115, Civil P.C. unless that jurisdiction is either expressly or impliedly ousted by the Companies Act or the district Court of Cawnpore, while exercising jurisdiction under that Act, is not subordinate to this Court within the meaning of Section 115.

18. There is nothing in the Companies Act either expressly or impliedly ousting the revisional jurisdiction of this Court. In the absence of such a provision the limits of the revisional jurisdiction of this Court must be ascertained by reference to Section 115, Civil P.C. The view that, we take finds some support from the decision of their Lordships of the Privy Council in Balakrishn Udayar v. Vasudeva Ayyar 1917 P.C. 171, in that case it was held by their Lordships that the High Court has jurisdiction under Section 115, P.C., 1908 to revise an order of the District. Judge made under Section 10, Religious Endowments Act, 20 of 1863. It is conceded that by that Act exclusive original jurisdiction in the matters dealt with by the Act is conferred on the District judge and there is no provision in that Act either conferring upon or ousting the revisional jurisdiction of the High Court. It is true that, the point whether or not the absence of any express provision in the Religious Endowments Act conferring revisional jurisdiction on the High Court could be impliedly taken to oust the revisional jurisdiction of the High Court was not, argued before their Lordships. But the fact remains that their Lordships approved of the exercise of the revisional jurisdiction by the High Court, in a case that was by the special enactment referred to above within the exclusive jurisdiction of the District Judge and whose orders under the Act were not appeal-able. Similarly in the Full Bench decision of this Court in Makan Lal v. Secy. of State 1934 All. 260 this Court exercised revisional jurisdiction in a case decided by the District Judge under the Land Acquisition Act. That Act contains detailed provisions as regards the procedure to be followed by the Court (the District Judge) on a reference made by the Collector and Section 54 of the Act provides for appeals from the orders of the Court, but there is no provision in that Act authorising this Court to revise the decision of the District Judge. Notwithstanding this omission in the Act, and notwithstanding the provision as to appeals contained in the Act, this Court held that it could revise the order of the District Judge and that its jurisdiction was not impliedly ousted. This case in our judgment covers the case before us.

19. The learned Counsel for the opposite party has in support of his argument relied on the decisions of this Court in Parbhu Narain v. Harbans Lal 1916 All 266 35 I.C. 279 and Jamna Prasad v. Karan Singh 1918 All. 14. In these cases it. was held that no revision lay to this Court against an appellate decree of the District Judge in suits filed in the Revenue Court under the Agra Tenancy Act (Act 2 of 1901). In the Tenancy Act of 1901, apart from the provisions as regards appeals from decisions under that Act, specific provision was made as regards revisions by Section 185 of that Act. By that section the Board of revenue was empowered to exercise re-visional jurisdiction in cases decided by subordinate Revenue Courts except those cases in which the decree of the Revenue Court was appealable under Section 177 of the Act to the District Judge. The omission of the legislature, while making provision about revisions, to vest this Court with revisional jurisdiction was significant. Apart from this the provision of Section 167 of the Act itself was impliedly taken to bar the revisional jurisdiction of this Court. It was provided by Section 167 of that Act that:

all suits and applications of the nature specified in Schedule 4 of the Act shall be heard and determined by the Revenue Court, except in the way of appeal, as hereinafter provided, no Court other than a Revenue Court shall take cognizance of any dispute or matter in respect of which any such application might be brought; or made.

20. It was observed by one of the learned Judges in Parbhu Narain v. Harbans Lal 1916 All 266 35 I.C. 279, that it would be doing violence to the words of the last clause of Section 167 of the Act if this Court were to entertain applications in revision against the appellate decree of the District Judge-in suits filed in the Revenue Court. These decisions are of no help to the opposite party for the simple reason that in the Companies Act no provision is made as regards revisions and there is nothing like Sections 167 and 185, Tenancy Act, either expressly or impliedly ousting the jurisdiction conferred on this Court by Section 115, Civil P.C.

21. This brings us to the consideration, of the question whether the district Court of Cawnpore, exercising jurisdiction under the Companies Act to the exclusion of the High Court, is a Court subordinate to this Court within the meaning of Section 115, Civil P.C. It is argued on behalf of the opposite party that as the very jurisdiction that is conferred on this Court by the Companies Act has, by the notification referred to above, been taken away from this Court and vested in the district Court, that Court can in no sense be regarded as a Court subordinate to this Court while exercising the exclusive jurisdiction so conferred on it. In short, it is suggested that the district Court of Cawnpore exercising jurisdiction in company matters, stands in the shoes of the High Court and. it therefore can in no way be described as subordinate to the High Court.

22. The answer to this contention is furnished by Section 3, Civil P.C., which provides Court....' It is true that by reason of the notification by the Local Government the district Court of Cawnpore is empowered to exercise original jurisdiction in company matters to the exclusion of this Court, but the jurisdiction is exercised by that Court is in the capacity of a district Court and not of a High Court, and, as such, that Court is in view of the provisions of Section 3 of the Code subordinate to this High Court within the meaning of Section 115, Civil P.C. It is conceded that the order sought to be revised in the present case fulfils the the other requirements of para. 1, Section 115, viz., that a case has been decided by the district Court arid that the order is not appealable. That being so, for the reasons given above, we overrule the preliminary objection and hold that we have jurisdiction to entertain this application. On the merits we have come to the conclusion that the order of the district Court of Cawnpore cannot be sustained and that in rejecting the application filed by the applicant company that Court exercised its jurisdiction with material irregularity.

23. We have already observed that the Court below came to the conclusion that what the company proposed to do was 'fair and equitable' and that the scheme 'should be sanctioned on the merits.' ft was pointed out by the learned Counsel for the opposite party that, in the event of the company making very large profits, the removal of the distinction between the rights and privileges of the ordinary and deferred shareholders and consolidation of those classes of shares would be to the disadvantage of the deferred' shareholders. This assertion may well be true, but the figures supplied to us by the learned Counsel for the applicant company show that even in years when the profit of the company exceeded Rs. 32,00,000 no dividend could be paid to the deferred shareholders. The company has been doing business since the last 14 years. In 9 out of those 14 years no dividend could be paid to the deferred shareholders. It also appears by reference to the chart supplied to us by the counsel for the applicant that the profits have been declining from the year 1928 and even in the last year the profits amounted to only Rs. 12,96,000 which was sufficient only to pay dividend to the preference shareholders. Having regard to all the circumstances it may safely be said that there is little prospect of any dividend being paid to the deferred shareholders for some years to come, and, as such, the extraordinary resolutions passed by the company on 2nd August and 11th October 1933, are manifestly not to their disadvantage. Similarly in the event of large profits being made in the future the ordinary shareholders also stand to gain by the scheme carried out by the resolutions noted above. In considering the scheme we cannot overlook the fact that the resolutions in question were passed by the various classes of shareholders unanimously in extraordinary general meetings, which were convened after due notice, and were attended by a large number of share holders of different classes either in parson or by proxy. We must there fore approach the consideration of the case on the assumption that the cheme is fair and equitable and for the benefit of the two classes of shareholders concerned.

24. The question however remains whether the Court below was right in holding that the resolutions of 2nd August and 11th October should be read together. If those resolutions are to be read together and considered as a whole, there can be no doubt that they have the effect of modifying the conditions contained in the memorandum of the company so as to reorganize its share capital by consolidation of shares of different classics, and they have further the effect of interfering with the special privileges attached to either ordinary or deferred shares. It follows that if the Court below is right, in holding that the resolution of 11th October cannot be considered a part from the resolution of 2nd August, the case falls within the purview of Section 54, and, as those resolutions were not passed by such majority in number of shareholders as is required by the proviso, the Court could not confirm the resolutions under Section 54. We are however of the opinion that the Court below was wrong in holding that the two resolutions must be read and considered together.

25. Paragraph 8 of the memorandum of association clearly provided that the rights for the time being attached to several classes of shares may be modified or dealt with in the manner provided by Clause 7 of the Articles, and, that that article shall be deemed to be incorporated in the memorandum and have effect accordingly. By the resolution of the end of August the company consolidated the deferred shares and gave to the shares so consolidated the same rights and privileges as those attached to the ordinary shares. The consolidation was done in the manner provided by Clause 49 of the Articles, and, it is not suggested that there was any illegality in the procedure adopted by the company for such consolidation of deferred shares. It is also not disputed that the rights attaching to the deferred shares were modified and dealt with in accordance with Clause 7 of the Article. It is clear then, that what the company did on 2nd August was in strict conformity with the provisions of the memorandum and articles.

26. But it is argued that notwithstanding the provisions contained in the memorandum as to the modification of the rights and privileges attached to various Masses of shares, those rights and privileges could not be altered except in accordance with the provisions of the Act. It is urged that the provisions of para. 8 of the memorandum being in conflict with the provisions of Sections 10 and 54 of the Act, the resolution of 2nd August was invalid and of no effect. Section 10 of the Act provides that a company shall not alter the conditions in its memorandum except in the cases and in the mode and to the extent for which express provision is made in the Act itself. The contention is that inasmuch as the resolution of 2nd August had the effect of altering the terms of the memorandum as regards the rights and privileges attaching to ordinary and deferred shares, the alteration could only be done in accordance with the provisions of the Act. This argument proceeds on the assumption that what was done by the company on 2nd August, amounted to an alteration in the memorandum of association, but in our judgment this assumption is not well founded.

27. Section 6 of the Act prescribes the matters that must be stated in the memorandum of a company limited by shares, and, so far as those matters are concerned, no alteration in the memorandum can be made even if power in that behalf is expressly reserved by the memorandum itself : vide In re : Welsbach Incandescent Gas Light Co., Ltd. (1904) 1 Ch. D. 87, per Stirling, L.J., (at p. 89). The provisions as regards the rights and privileges attaching to particular class of shares are not required by Statute to be inserted in the memorandum of a company, but if they are stated in the memorandum without the reservation of the power to modify or alter those rights and privileges, they cannot, in view of the provisions of Section 10 of the Act, be altered except in the mode and to the extent for which express provision is made in the Act : See Ashbury v. Watson (1885) 30 Ch. D. 376.

28. In the case before us, however we find that the rights and privileges of the ordinary and deferred shareholders were conditionally stated in the memorandum and could, in accordance with para. 8 of the memorandum read with Clause 7 of the Articles be varied, abrogated, or affected. The exercise of the power vested by. para. 8 did not amount to an alteration of those rights and privileges, as those rights and privileges were subject to this important condition that they could at any time be altered in accordance with, para. 8 of the memorandum and Clause 7 of the Articles. In other words, in the case before us, the rights and privileges attaching to different classes, of shares defined by the memorandum were not rights and privileges for all time, but only for such time as they remained unaltered by any special resolution as provided by Clause 7 of the Articles. Indeed in Clause 8 they are stated to be the rights 'for the time being.' In other words, they were not unconditional rights of the shareholders, but rights subject to variation from time to time by special procedure laid down in the memorandum-and Articles.

29. The question of the validity and effect of clauses in the memorandum and articles similar to the clauses in the present case was considered. In re : Welsbach Incandescent Gas Light Co., Ltd. (1904) 1 Ch. D. 87.

30. In that case it was held by the English Court of Appeal that the rights and privileges of the various shareholders could validly be changed by the resolution as provided in the memorandum and articles and that such resolution did not require the sanction of the Court. The case of Ashbury v. Watson (1885) 30 Ch. D. 376 cited above was distinguished upon the ground that in that case the privileges and rights attached to different classes of shares were unconditional, whereas in In re : Welsbach Incandescent Gas Light Co., Ltd. (1904) 1 Ch. D. 87 they were given conditionally ,and were subject to mo deification or alteration. To vary the conditional rights and privileges giver; to various classes of shares by the memorandum does not amount to an alteration of the conditions contained in the memorandum, because one of thee conditions in the memorandum is that the rights and privileges are subject to variation. To hold otherwise would be to ignore the condition in the memorandum providing for variation in the rights for the time being attaching to particular classes of shares. In order to ascertain the rights attaching to particular classes of shares, the memorandum must be read and given effect to as a whole, unless any particular provision of the same violates an express provision of the Statute, in which case, that particular provision will be treated as invalid.

31. The learned Counsel for the opposite party tried to distinguish the case of In re : Welsbach Incandescent Gas Light Co., Ltd. (1904) 1 Ch. D. 87, on the ground that at the time it was decided there was no provision in the English Companies Act a analogous to the provisions of Section 54, Companies Act. It is true that provisions similar to Section 54 of the Indian Act were for the first time incorporated in the English Companies Act in the year 1908, but this fact in no way shakes the authority in In re : Welsbach Incandescent Gas Light Co., Ltd. (1904) 1 Ch. D. 87. The question that was directly and specifically in issue in that case was whether or not the variation in the rights and privileges of different classes of shareholders amounted to a modification or alteration of the memorandum when power to modify those rights and privileges was given by the memorandum itself, and the same is the question before us. We may note in passing that in England In re : Welsbach Incandescent Gas Light Co., Ltd. (1904) 1 Ch. D. 87 is still treated as a good and binding uuthority by the Courts and by a1 the text-book writers, notwithstanding the introduction of the provisions of Section 54, in the English Companies' Act of 1908.

32. Reliance has been placed on behalf of the opposite party on the decision of the Bombay High Court in Re. : E.D. Sassoon United Mills Ltd. 1929 Bom. 38. That case is, in our judgment, clearly distinguishable as the facts in that case we-e very different from the facts in the case before us. In the Bombay case a procedure was provided in the Articles of Association for modifying or altering the preferential rights find privileges of certain classes of shaes, but the preferential rights in the preference shares of the initial capital were, by the terms of the memorandum of association, made unalterable, and an attempt was made by means of the procedure prescribed by the articles to take away the privileges of the preference shares in the initial capital, and this the company clearly could not do. Further an attempt was made to vary the privileges attached to the ordinary shares, but the procedure aid down in the articles for such variation was not followed. Consequently the variation of the rights and privileges attached to these shares could only be effected in accordance with the provisions of the Act permitting such variations. In the case before us the procedure prescribed in the articles and memorandum of, association for modification or variation of the rights and privileges attaching to various classes of shares has been strictly complied with.

33. The learned Counsel for the opposite party has further argued that the resolution of 2nd of August incorporated, a compromise or arrangement between the company and its members within the meaning of Section 153, Companies Act, and therefore could only have been passed in accordance with the provisions of Clause (1) of Section 153, and that to have binding effect it needed the sanction of the Court, which admittedly was not obtained. We are of the opinion that there is no force in this contention. By the resolution of 2nd August the company modified the rights and privileges attaching to deferred shares, not by means of a compromise or arrangement arrived at between the company and its members, but in exercise of the powers vested in the company by para. 8 of the memorandum which incorporated Clause 7 of the Articles. We cannot differentiate the conditions contained in the memorandum before us from a case in which the memorandum provides that the rights of various classes of shareholders to participate in the annual profits of the company are such as shall be determined from time to time by the company. In such a case the mere fact that year after year the company, by appropriate means, varies the rights of different classes of shares cannot be tantamount to a compromise or arrangement between the company and its members or to a variation of the conditions in the memorandum of association.

34. As we have stated previously in this, judgment the English Court of appeal in In re : Welsbach Incandescent Gas Light Co., Ltd. (1904) 1 Ch. D. 87 held that a resolution similar in form to the August resolution in the present case was a valid one. Further, it is to be noticed that in that case it was not suggested that such a resolution required the sanction of the Court as a compromise or arrangement. When the case of In re : Welsbach Incandescent Gas Light Co., Ltd. (1904) 1 Ch. D. 87, was decided the English Companies Act contained provisions analogous to Section 153, Companies Act (see Section 2, Joint Stock Companies Act, 1870, as amended by Section 24, Companies Act, 1900). Further the case of In re : Australian Estates and Mortgage Co. Ltd. (1910) 1 Ch. D. 414 makes it clear that, after the passing of the English Companies Act of 1908, a resolution similar to the August resolution in the present case did not require the sanction of the Court, though Section 120, English Companies Act, 1908, was identical with Section 153 of the Indian Act.

35. Before we leave this point we must notice the decision in In re : J.A. Nordberg (1915) 2 Ch. D. 439, which was relied upon by the learned Counsel for the opposite party. In that case it was held that a scheme of arrangement which modifies the memorandum of association of the company in any way other than those specified in Section 45, Companies Act, 1908 (which corresponds to Section 54 of the Indian Companies Act), does not require a special resolution passed by the majority mentioned in that section, but may be validly effected under Section 120 of the Act (viz., Section 153 of the Indian Act). That case is distinguishable on the broad ground that the scheme proposed in that case modified the terms of the memorandum of association of the company, whereas in the case before us, in our opinion, the August resolution did not in any way modify the terms of the memorandum. On the contrary the resolution was in strict conformity with the terms of the memorandum. In short, the scheme proposed in In re : J.A. Nordberg (1915) 2 Ch. D. 439 could only be carried out by a compromise or arrangement between the company and its members, whereas in the case before us the provision was made in the charter of the company itself for variation from time to time of the special privileges and rights attaching to the various classes of shares.

36. For reasons given above we hold that the Court below was wrong in proceeding on the assumption that the resolution of 2nd August required the sanction of the Count and as such sanction was not obtained, the resolution was invalid. We further hold that the Court below was wrong in holding that the resolution of 11th October could not be considered apart from the August resolution.

37. The August resolution was, in our judgment, a perfectly valid resolution and did not require the sanction of the Court for its validity. That resolution had the effect of sweeping away the rights and privileges attaching to the ordinary and deferred shares and left those two classes of shares with precisely the same rights. That being so, all that the company proposed to do by the October resolution was to consolidate the ordinary and deferred shares, and in so doing did not in any way interfere with the preference or special, privileges attaching to either of those classes of shares, for the simple reason that no such preference or special privileges attached to either of those classes of shares at the date of the October re solution. The proviso to Section 54 had therefore no application to the present case. The October resolution however needed confirmation by the Court as by that resolution the share capital of the company was being reorganised by the consolidation of the ordinary and deferred shares and such consolidation did modify the conditions contained in para. 5 of the memorandum of the company.

38. It was contended that if the August resolutions validly took away the special rights and privileges attaching to the ordinary and deferred shares, the ordinary and deferred shares could not therefore be regarded as different classes of shares and as such required no consolidation and therefore Section 54 had no application. We cannot agree with this contention. The shares still remained as ordinary and deferred shares though the special rights and privileges attaching to each class had been swept away. In our judgment, even after the August resolution, a deferred share could not have been sold as an. ordinary share and it follows therefore that a proposal to make these two classes of shares into one class did involve a consolidation of the different classes of shares.

39. It is manifest from the observations made above that the decision of the Court below is erroneous and that the application filed by the company was wrongly rejected by that Court.

40. But it is contended on behalf of the opposite party that however erroneous in law the decision of the Court below may be, we cannot interfere with the same, as the Court below had undoubtedly jurisdiction to entertain and decide the application and, in the exercise of that jurisdiction, it has not acted illegally or with any material irregularity. It is settled by the decision of their Lordships of the Privy Council in Amir Hasan Khan v. Sheo Baksh Singh (1885) 11 Cal. 6 and Balakrishn Udayar v. Vasudeva Ayyar 1917 P.C. 171, that:

Section 115 applies to jurisdiction alone, the irregular exercise, or non-exercise of it, or the illegal assumption of it

and that:

the section is not director against conclusions of law or fact in which the question of jurisdiction is not involved.

41. It follows that if a Court has jurisdiction to deride a question, and in deciding that question arrives at an erroneous decision on a question of fact or of law, it cannot be said to have acted illegally or with material irregularity in the exercise of its jurisdiction. In other words, a mere error of law in deciding a case by a Court having jurisdiction cannot be said to be an illegal or irregular exercise of jurisdiction possessed by that Court, vide District Board of Farrukhabad v. Ikhlaque Husain 1933 All. 86 and Om Prakash v. Muhammad Iahaq 1933 All. 557.

42. The question that we have to de cide is whether or not in the present case the Court below exercised its jurisdiction illegally or with material irregularity and, after giving our best consideration to the point, we have come to the conclusion that the question must be answered in the affirmative.

43. The Court be1ow was invited by the application filed by the company to confirm the special resolution passed by the company for the consolidation of the two classes of shares. It however for the reasons assigned by it, refused to concentrate its attention on that resolution alone, and wrongly assumed that that resolution could not be considered apart from the August resolution. Having arrived at this erroneous conclusion it proceeded to consider the validity of the resolution of 2nd August, and wrongly decided that that resolution was invalid. It then proceeded to consider both the resolutions together and decided that those resolutions taken together fell within the purview of the proviso to Section 54 and, as the majority in number of shareholders required by the proviso had not passed those resolutions, it could not confirm the same. In other words, the Court below did not judicially consider what it ought to have considered, and decided something that it was not called upon to decide. Indeed the Court below deprived itself of the jurisdiction that it undoubtedly possessed under Section 54 by taking an erroneous view of the law as regards the m validity or otherwise of the August, resolution which was a matter wholly foreign to the proceedings before it. This in our judgment amounted to a material irregularity in the exercise of its jurisdiction by the Court below. The case before us is not a case in which the Court below has taken an errroneous view of the law as regards the matter in. controversy before it, but is a case in which, the Court below has denied to itself the jurisdiction to confirm the October resolution by erroneously assuming that it could not do so unless it was also competent to confirm the resolution of 2nd August. This irregularity committed by the Court below led it to the conclusion that it could not confirm the October resolution, and, as such, the case falls within the purview of Clause (c) to Section 115, Civil P.C.

44. For the reasons given above we allow this application, set aside the order of the Court below and grant the application filed by the company in terms of the reliefs contained in it. Having regard to all the circumstances of the case we direct the parties to bear their own costs both here and below.


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