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N.P.N.M. Chithambaram Chettiar Vs. Krishna Aiyengar and ors. - Court Judgment

LegalCrystal Citation
CourtChennai
Decided On
Judge
Reported in1Ind.Cas.803
AppellantN.P.N.M. Chithambaram Chettiar
RespondentKrishna Aiyengar and ors.
Cases ReferredAndrew v. Gas Meter Company
Excerpt:
indian companies (act vi of 1882), sections 8, 12 and 76 - memorandum of association, whether can he altered by a special resolution--agreement. - - the appellant was also deprived of the keys of the bank safe. the powers and emoluments of the secretaries being set out only in the articles of association which are ordinarily alterable, the appellant must fail unless he proves the agreement he sets up......at an ordinary general meeting decided to appoint a certain person as managing agent of the bank with powers of superintendence over the appellant. the appellant was also deprived of the keys of the bank safe. the appellant, therefore, filed 0. s. no. 58 of 1907 against seven directors of the bank and the person appointed as managing agent as above-mentioned. he prayed, among other things, that the keys might be delivered over to him, that a permanent injunction might be issued to the defendants restraining them from interfering with the performance of his duties as secretary, and that the 8th defendant's appointment as managing agent might be declared invalid. he also filed an interlocutory application for a temporary injunction praying that the defendants might be restrained.....
Judgment:

1. The Tinnevelly Bank. Ld., was incorporated in 1896. According to the Memorandum of Association the appellant and another, their heirs, executors and administrators were to be secretaries of the Bank, but from 1902 the appellant alone has been doing duty as secretary. The duties and emoluments of the secretaries are set out in the articles of association, but not in the Memorandum of Association. On the 1st November 1907, the shareholders at an ordinary general meeting decided to appoint a certain person as managing agent of the Bank with powers of superintendence over the appellant. The appellant was also deprived of the keys of the Bank safe. The appellant, therefore, filed 0. S. No. 58 of 1907 against seven Directors of the Bank and the person appointed as managing agent as above-mentioned. He prayed, among other things, that the keys might be delivered over to him, that a permanent injunction might be issued to the defendants restraining them from interfering with the performance of his duties as secretary, and that the 8th defendant's appointment as managing agent might be declared invalid. He also filed an interlocutory application for a temporary injunction praying that the defendants might be restrained from doing any acts to prejudice his position and standing as secretary of the Bank, and that the 8th defendant might be restrained from in any way dealing with the funds of the Bank. There were other prayers, which, it is agreed, are not now material. After the filing of the above suit and interlocutory application an extraordinary general meeting was held on the 12th February 1908, in pursuance of the resolution of the 1st November 1907, and the special resolution, Ex. X, was passed and duly confirmed on the 8th March 1908 by Ex. X (a). By Ex. X the articles of association were modified and the powers and emoluments of the secretary curtailed. Thus the pay of the secretary was reduced from its. 250 to Rs. 25 a month, most of his powers were transferred to the newly appointed agent, and it was provided that the duties of the secretary should be determined and varied by the Directors as they might from time to time think fit. Now, although the resolution, Ex. X, was passed after the suit and application for temporary injunction were filed, it is manifest that if the resolution was within the powers of the Company, the appellant is no longer entitled to claim the powers and emoluments which he originally possessed and which by obtaining an injunction he seeks to maintain. The Court in those circumstances would entirely not now grant the injunction prayed for. The question for determination, therefore, is whether the resolution, Ex. X, is a valid resolution. It is argued for the appellants that the resolution is invalid because in effect it alters the Memorandum of Association, and because it amounts to a breach of contract by the Company with regard to the terms upon which the appellant took up the secretaryship.

2. The resolution, Ex. X, does not alter the Memorandum of Association. It is no doubt true that although the condition inserted in the Memorandum of Association that the appellant and another, his heirs, etc., shall be secretaries of the Bank is not of the things which under Section 8 of the Indian Companies Act of 1882 a Memorandum of Association is bound to contain, nevertheless the restrictions placed by Section 12 of the Act upon modification of the conditions contained in the Memorandum of Association apply to this condition also. Vide Ashbury v. Watson 30 Ch. D. 376. But Ex. X does not purport to cancel the appointment of the appellant as secretary to the Bank, or as to take away the right of his heirs, etc., to succeed him in that office. It is contended, however, that as a condition regarding the appellant's appointment as secretary appears in the Memorandum of Association without setting out the secretary's powers, that portion of the contemporaneous articles of association which sets out the powers, etc., of the secretary, must be read as part of the Memorandum of Association. In support of this contention the following passage from Lindley on Companies, Vol. I, sixth edition, page 163, is quoted. 'If the Memorandum is ambiguous or silent on a matter which the Act does not require to be stated therein, contemporaneous articles may be looked at to explain its meaning or to control or rebut an inference which might otherwise be drawn from its silence.' In the present case there is no question of ambiguity. The question is one of silence with regard to the powers of the secretary. The case on which the relevant portion of the above passage is based is Harrison v. Mexican Railway Go. 19 Eq. Cas. 358 and what is relied upon is that portion of the head note which says: if the Memorandum and Articles of Association of a Company are silent on the subject, it is an implied condition that the shareholders are entitled to remark equally as regards dividend, with preference or priority between themselves; but such implication will be rebutted if the articles of association, contemporaneous with the Memorandum contain clear provisions as to the preference or priority of classes of shares.' The law as above set out is what was stated by Sir G. Jessel to be the effect of the second decision of Vice-Chancellor Kindorsely in Hutton v. Scarbrough Cliff Hotel Company Dr. & Sm. 521 Sma 521 a decision which was overruled in Andrew v. Gas Meter Company (1897) 1 Ch. 861 where it was pointed out that if the Memorandum of Association expressly or impliedly prescribed equality among the shareholders, the articles of association, even though contemporaneous, could not override the Memorandum of Association in that particular. There is, therefore, no reason so far as the present contention is concerned, for departing from the ordinary rule that anything which appears in the articles of association, but is not provided, for by the Memorandum of Association, may be altered by special resolution under Section 76 of the Act. We cannot, therefore, read that portion of the articles of association which sets out the powers of the secretary as part of the Memorandum of Association, and is, therefore, not liable to be altered by special resolution under Section 76.

3. The remaining question is whether the resolution, Ex. X, is invalid because it amounts to a breach of contract by the Company with regard to the terms upon which the appellant accepted the post of secretary. It is contended that it was only upon the trams set out in the articles of association as they originally stood that the appellant agreed to be secretary, it is not pretended that there is any direct evidence of the alleged agreement, nor have we been asked to have evidence recorded regarding it. What we are asked to do is to infer the agreement from the admitted facts. Under the articles of association each secretary is to hold at least 50 shares of the Bank, and from this we are asked to infer that the appellant would never have taken up 50 shares, and the post of secretary, unless it was understood that his emoluments and powers as originally fixed in the articles of association we not to be reduced by any subsequent alteration of the article. The law applicable to the question is thus laid down in Lindley on Companies, Vol. I, sixth edition, at page 463, If the rights which it is proposed to alter are not merely incidental to membership and are not conferred only by the articles, but are dependent wholly or in part on a contract, outrides the articles, of which the terms are to be found in the articles or by reference to them, the power to alter such rights by an alteration of the articles depends upon whether such alteration is or is not inconsistent with the real bargain between the parties, or in other words whether there was any express or implied agreement between them that a subsequent alteration of the articles should not affect the terms of the contract. But when considering contracts referring to the revocable articles, it must not be assumed that the contract involves as one of its terms that the articles shall not be altered and the terms of the contract thereby varied. If there is any such agreement these rights cannot be altered by an alteration of the articles; if there is no such agreement they can be so altered provided the alteration does not effect rights which have ripened into claims for something already done under the contract in its original form.' Now it is a very significant circumstance that while the appellant's right to the post of hereditary secretary is safeguarded by being made one of the conditions of the Memorandum of Association, his powers and emoluments are set out only in the articles. This seems to us to indicate prima facto that while the Company was prepared to have hereditary secretaries it meant to retain in its hands full power of control, so as to be able to limit the secretary's powers to such as experience showed, they might safely be entrusted with, and their emoluments to such as their merits or the position of the Company warranted. The powers and emoluments of the secretaries being set out only in the articles of association which are ordinarily alterable, the appellant must fail unless he proves the agreement he sets up. We do not think there is anything in the facts which would justify us in inferring the existence of such an agreement. The probabilities seem to us to point the other way. As to the condition that each secretary should hold at least 50 shares, it is to be observed that that condition is abolished by Ex. X. We are of opinion that Ex. X is a valid resolution and dismiss this appeal with costs.


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