Skip to content


The Saraswathi Vilasam Shanmughanandha Nidhi Ltd., by Its Secretary, T.S. Nagarathna Pillai and ors. Vs. V.S. Daivasigamani Mudaliar and anr. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtChennai High Court
Decided On
Case NumberSecond Appeal No. 654 of 1947
Judge
Reported inAIR1951Mad520; [1951]21CompCas85(Mad); (1951)IMLJ18
ActsCompanies Act, 1913 - Sections 50, 84, 85, 93 and 103 - Schedule - Regulations 70 and 77
AppellantThe Saraswathi Vilasam Shanmughanandha Nidhi Ltd., by Its Secretary, T.S. Nagarathna Pillai and ors.
RespondentV.S. Daivasigamani Mudaliar and anr.
Appellant AdvocateV.V. Raghavan, Adv.
Respondent AdvocateG.R. Jagdesa Iyer, Adv.
DispositionAppeal allowed
Excerpt:
company - share qualification - sections 50, 84, 85, 93 and 103 and regulations 70 and 77 of schedule to companies act, 1913 - validity of resolution passed by general body in issue - resolution passed in general interest of company and it could not be characterised as an oppression of minority by majority - share holders may desire to have other qualifications for a person to be a director though it may not be a share qualification - additional or different qualifications for directorships apart from holding of shares not prohibited - special resolution providing for holding of fixed deposit of rs.1000 as an additional qualification of director is intra vires and legal - held, declaration granted by lower appellate court that resolution is invalid and amendment of article is inoperative..........it was very broadly argued that no other qualification can be imposed by the articles except a share qualification. the trial court held further that the resolution was passed in the general interests of the company and it could not be characterised as an oppression of the minority by a majority. as regards the wisdom of the policy underlying the resolution as passed, the court observed that it was not for thecourt to substitute its judgment in the matter, in the place of the judgment of the shareholders. it also held that the subject-matter as mentioned in the agenda was wide enough fco permit the additional resolution that the qualification newly imposed shall be binding on the past directors as well. the action was accordingly dismissed with costs.3. on appeal by the plaintiffs,.....
Judgment:

Panchapagesa Sastri, J.

1. Defendants are the appellants. This appeal arises out of an action instituted by the two respondents who were share-holders and directors of the first appellant company known as 'The Saraswathi Vilasam Shanmu-ghanandha Nidhi, Ltd.,' Vellore. Appellants 2 and 3 who were defendants 2 and sin the lower Court were respectively the Secretary and Vice-President of the said Nidhi. The suit was for a declaration that a certain resolution passed by the general body on 30-4-1944 was invalid. The suit is a representative suit.

2. Article 5 of the Memorandum of Association of the company is as follows:

'The share capital of the company is Rs. 20,000 divided into 2000 shares of Rs. 10 each.'

The object of the company was to carry on the business of banking. The articles of association of the company provided for the management of the company. Article 21 was as follows:

'The members of the Managing Committee shall each take not less than 26 shares in the company.'

Article 20 ran as follows:

'The Managing Committee shall consist of not less than five persons and not more than ten persons inclusive of the President, Vice-President, Treasurer, Secretary and Auditor.'

On 30-3-1944, the company issued a notice of general body meeting in pursuance of a requisition under Section 78, Companies Act. The meet-ing was to be held on Sunday 30th April at the registered office. The subject npted was as follows :

'To add to Para. 21 of the Rules of the Nidhi that the directors shall each keep a sum of Bs. 1000 (one-thousand) in fixed deposit'.'

The meeting was duly held on 30th April and: the following special resolution was passed:

'That the following shall be added to Para. 21 of the Rules of the Nidhi, namely, 'the directors shall each keep a sum of Bs. 1000 (one thousand) in fixed deposit.'

It was unanimously resolved by all the members of the general body that this rale shall be binding on the directors functioning at present and the directors who may succeed them hereafter.

It was unanimously resolved by all the members of the general body that in accordance with the provisions of the Indian Companies Act, if the directors. commit default in making the fixed deposit aforesaid within 60 days from to-day they shall be removed without any notice.'

The two plaintiffs who were two of the directors then functioning filed this suit on 29-6-1944 and prayed for a declaration that the resolution of the general body is illegal and void and also that the Court may grant an injunction against the defendants restraining them from removing either the plaintiffs or such other directors who do not comply with the above resolution There was a prayer for costs and for such other relief as the Court may think fit. The contention in the plaint was that this resolution imposing an additional qualification for directors was opposed to the Companies Act and also to the provisions of the Memorandum of Association. There was a subordinate contention that the resolution making it applicable to past directors was not properly included in the subject-matter of the agenda as set out in the notice convening the meeting. The trial Court held that there was nothing in the Companies Act which prohibited a company from laying down in its articles a qualification requiring that a director should have a certain amount of fixed deposit in the company. It rejected the agreement on behalf of the plaintiffs that the only qualification which could be imposed by the articles was a requirement compelling a director to have a certain number of shares. It was very broadly argued that no other qualification can be imposed by the articles except a share qualification. The trial Court held further that the resolution was passed in the general interests of the company and it could not be characterised as an oppression of the minority by a majority. As regards the wisdom of the policy underlying the resolution as passed, the Court observed that it was not for theCourt to substitute its judgment in the matter, in the place of the judgment of the shareholders. It also held that the subject-matter as mentioned in the agenda was wide enough fco permit the additional resolution that the qualification newly imposed shall be binding on the past directors as well. The action was accordingly dismissed with costs.

3. On appeal by the plaintiffs, the learned Subordinate Judge took the view that this resolution imposing a qualification of having a fixed deposit of RS. 1000 was ultra vires of the powers of the company. In its view, the Companies Act would not permit an article of that type. The Court was also of the opinion that it contravened Article 5 of the Memorandum of Association. On these grounds the Court declared the resolution to be illegal and void irrespective of the fact whether it was in the general interests of the share-holders or not.

4. The defendants have now come on appeal against this decree of the Subordinate Judge and contend that the special resolution was perfectly in order and there was nothing in the Companies Act to prohibit the same. On behalf of the respondents it was urged that the only qualification which could be imposed on directors was a share qualification, i. e., a requirement necessitating the holding of a certain number of shares by the director. Reference was made to various sections of the Companies Act wherein share qualification of directors is referred to, particularly Ss. 84, 93, 103 and Regn. 70 of Table A and Regn. 77. It is true that these sections and Eegulations relate to the share qualification, (if any) of the directors as required by the articles. But there is nothing in these sections or Eegulations or in any of the provisions of the Companies Act which precludes a company from having other qualifications in addition for directorship, if the article so provided. After the arguments had proceeded to some extent, learned counsel for the respondents admitted that even a share qualification was not compulsory in the sense that you can be a director without having any shares. I can find nothing in the policy of the Companies Aet or in its language which prohibits additional or different qualifications for directorship apart from the holding of shares. The holding of shares as has been already pointed out, is not a necessary sine qua non. We are aware of familiar instances of ex officio directors recognised as such and provided for in the articles without a share qualification at all. Equally it is clear to my mind that the (share-holders may well desire to have other qualifications for a person to be a director, though it may not be a share qualification.There is nothing unreasonable, for instance, inhaving a minimum age limit with a view tojustify confidence in the mature judgment ofthe person to be appointed, a literary qualification or even a technical qualification if therequirement of the company's business shouldjustify the necessity for the same in the opinionof the organisers or promoters or share-holders.Indeed, in some cases it may even be necessaryin the interests of security of the State to prohibit a non-national from being in the directorate of a concern of national importance, forinstance, one for the manufacture of atom,bombs or hydrogen bombs. The presence of an'alien' in the directorate of such a companypromoted by a State would obviously be veryundesirable. I can find nothing in the Companies Act to preclude a provision for that. Intruth the matter is left entirely to the discretion and judgment of the share-holders. I am,therefore, of opinion, differing from the viewof the Subordinate Judge and agreeing withthe view of the District Munsif, that this special resolution providing for a holding of a fixeddeposit of RS. 1000 as an additional qualification for a director is entirely intra vires andlegal. As a matter of fact, it is not uncommonto find in the Articles of Association of severalcompanies a provision that not more than onepartner of a firm consisting of more than onepartner, or not more than one member of ajoint Hindu family consisting of more thanone, can be director of a company. Nor is itunusual to find that a director of one bank cannot be a director of another bank, a provisionwhich has now been statutorily introduced inthe recent Banking Act of 1949.

5. Nor can I agree with the view of the Subordinate Judge that this provision offends Article 4 of the Memorandum of Association of this company. As already stated, that merely lays down the capital of the company and there is nothing in this new article which is consistent with Clause (5) of the Memorandum.

6. Respondents' counsel further argued that in essence this requirement for Rs. 1000 deposit would amount to an increase of capital. In my opinion, it does not amount to an increase of capital at all, This RS. 1000 is a fund which is to be kept in deposit only so long as a person is a director and continues to be a director. If he ceases to be a director, obviously, the amount has got fco be returned to him, He is entitled to call for its return. If it is share capital, that could not be the position. Indeed if it were share capital and an increase of capital, learned counsel himself had to concede that this resolution can be justified as coming within the share qualification clausewhich according to him, was not only permitted but was the only clause in respect of qualification of directors. There is no substance, therefore, in this contention either.

7. In the result it follows, in my opinion, that the declaration granted by the lower appellate Court that the resolution is invalid and the amendment of the article is inoperative should be vacated.

8. It was next argued that the portion of the resolution relating to the applicability of the new requirement to past directors was not justified. The lower appellate Court does not deal with this matter, because, in the view it had taken, the main resolution itself was illegal. The trial Court decided that the agenda was sufficiently comprehensive and the general body had every right to introduce this part of resolution also. While I do not dissent from the view of the District Munsiff, I think it is unnecessary, however, to rest this judgment on that basis, because, admittedly the term of the directors is now over and the respondents can, if at all, only stand for election under the articles as they stand now. It is not necessary, therefore, to deal with this aspect of the matter.

9. Nor is it necessary to refer to the lastcontention on behalf of the respondents that the second portion of the resolution providing that in the absence of the fulfilment of the requirement of Rs. 1000 deposit within two months, the past directors should vacate their place is not justified under Article 22, Articles of Association of the company, as they stand unamended, or under any of the provisions of the Companies Act. These matters have now become merely academic by efflux of time.

10. The second appeal is, therefore, allowed with costs here and in the lower appellate Court and the decree of the trial Court restored. (Leave refused.)


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //