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In Re: the Indian Companies Act Vii of 1913 - Court Judgment

LegalCrystal Citation
CourtChennai
Decided On
Judge
Reported in74Ind.Cas.966
AppellantIn Re: the Indian Companies Act Vii of 1913;In Re: Coimbatore Mercantile Bank Ltd. by Its Secretary
Respondent; ;The Coimbatore Mercantile Bank Ltd. by Its Secretary Mt. T. Ramaswamy Aiyengar
Cases ReferredAshbury v. Watson (sec
Excerpt:
.....12 - memorandum of association--appointment of person as agent, secretary and director, whether 'object' or 'condition'--resolution of company deleting clause--application to court fur confirmation, maintainability of--discretion of court. - t.n. district police act, 1859 [act no. 24/1859]. section 10 & tamil nadu special police subordinate service rules, rule 14(b), clause (iv) explanation (1); [a.p. shah,c.j., f.m. ibrajhim kalifulla & v. ramasubramanian, jj] rule 14(b),ci.(iv) explanation (1) providing that a person acquitted or discharged on benefit of doubt shall be treated as person involved in criminal case - validity being questioned - held, the impugned rule 14(b) ci.(iv) explanation (1) has been issued in exercise of the power conferred upon the government under the tamil..........indeed have been one of the most important reasons guiding people to become shareholders in the company. i think, it is a condition within the meaning of section 10 and is, therefore, unalterable. if it were not a condition and it is not one of the objects it is at the least a statement of fact solemnly made in the memorandum, namely, that this man has undertaken this business and is given these powers, and how a court can be asked to delete from a memorandum or how the company by its resolution can delete a statement of fact like this, i do not see. i find no provision in the companies act permitting it and i see no ground on which the resolution of the company so doing could be sustained. it follows, in my judgment, that this petition mast fail and ought to have been dismissed. i.....
Judgment:

Walter Schwabe, C.J.

1. This is an appeal from an order of Phillips, J., on a petition made under Section 12 of the Indian Companies. Act asking the Court to confirm the special resolution of a Company for an alteration in the Memorandum of Association. Clause 7 of the memorandum is in the following words. 'T.R. Venketaramana Aiyrr has been appointed Agent, principal, secretary and Director to the Bank and given powers to enter on the responsibility of this Bank into an agreement or transaction with the register Banks in the following places and that places and with business and Industry Concerns of local traders with a view to the Bank's earning commission or profit. The actual words are in Tamil and the translation given above, I think, adequate; represents the meaning.

2. The only power that the Court has to confirm resolutions of a Company ii regard to an alteration of the Memorandun of Association is in respect of matter; covered by Section 12; for Section 10 enact: that a Company shall not alter the conditions contained in its Memorandum except in the cases and in the mode and to the extent for which express provision is made in this Act. Other specific condition; of the Memorandum can be altered in tin manner provided for in 'other party of the Act. It is not contended that this clause comes under any of them. It is contended that it comes under 'Section 12 as being' which respect to the objects of the Company which may be alter in this way 'so far as may be required to enable it to carry on its business more economically or more efficiently or to restrict or abandon any of the objects specified in the Memorandum. In my judgment, this is not an object of the Company at all. The object of tie Company, as stated in clause 3 of the Memorandum, is to carry on banking business and things ancilliary there to, and the appointment of this gentleman as Agent, Secretary and Director is a method of carrying out the object of the Company but it is not in itself an object at all. If, however, it ought to be regarded as one of the objects of the Company, the question would arise whether the Court ought to confirm the resolution of the Company putting an end to it. I call attention to this, because the confirmation or otherwise of such a resolution is a matter of discretion, and, in this case, it is clear that no discretion has teen exercised at all because the learned Judge says that he 'is satisfied that this is an alteration that can be made by the Company and, therefore, order the alteration as prayed.' He gives no reasons for exercising his discretion t in that way, but apparently treats it as 7 a matter which, if the Company has the power to do, it is the duty of the Court r to assist the Company in so doing, and I think, it desirable to point out that that is not the intention of the legislature at all. The intention of the Legislature is, as indeed is clearly stated in Section 14, that the Court should exercise a discretion having regard to the interest of the various persons, share-holders, creditors and others. Now, if this were one of the objects of the Company, and the resolution has, therefore, to be confirmed by the Court and I had to exercise my discretion upon it without any hesitation, I should refuse and for this reason, that the Company, has made a contract with this man. in the most solemn form that the Company can, namely, by putting it into its Memorandum, and I can see no justification for a Court; so to speak, to unmake the contract or to permit the Company to unmake the contract by altering its Memorandum of Association. Nor. indeed, do I think it would have the least effect, because if there is such a contract the man has his contractual rights and the fact that the Company purports t revoke, with the consent of the Court, that contract does not, as between that man and the Company, interfere in any way with his rights.

3. But there are other things that can be put into a Memorandum of Association than the object and the matters set out in the Companies Act, such as name, capital, address, etc. They have been described as conditions. A very common one is a provision for the rights inter se of preferential and ordinary share-holders. It has been held that in respect of such condition no power given in the English Companies Act, which corresponds completely with the Indian Companies Act on the point, to alter the conditions to the Such a condition is unlaterat by the Company or by the (sec) Cor See Ashbury v. Watson (sec) (1) approved in In re Welsback Incandescent Gas Light-Co., Ltd. (sec)(2).

4. It is, however, argued that this is no t a condition but something else. It was suggested in Ashbury v. Watson (sec)(1) by Lord Justice Fry that there might be some details of management of a Company contained in the Memorandum which would be alterable not being conditions. No case of this kind has ever arisen, and I am quite satisfied that this clause is not a detail of management at all. Condition for this purpose is also described as stipulation and, in my judgment, this is one. It is a very important provision. It is not necessary to discuss now the duration of that agreement. That maybe a matter for discussion elsewhere, but at any rate for the time there was a man set up with, aid he agreed himself to have, almost unlimited powers of control in the affairs of this Company; and share-holders, who took their shares in the face of the Memorandum would know that they were to have the advantage of that man's efforts. It may indeed have been one of the most important reasons guiding people to become shareholders in the Company. I think, it is a condition within the meaning of Section 10 and is, therefore, unalterable. If it were not a condition and it is not one of the objects it is at the least a statement of fact solemnly made in the Memorandum, namely, that this man has undertaken this business and is given these powers, and how a Court can be asked to delete from a Memorandum or how the Company by its resolution can delete a statement of fact like this, I do not see. I find no provision in the Companies Act permitting it and I see no ground on which the resolution of the Company so doing could be sustained. It follows, in my judgment, that this petition mast fail and ought to have been dismissed. I think, it is desirable to saying that we are saying will affect (sic.)under the contract as between(sic). taramana Iyer and the Company.(sic)fact he has resigned in a binding(sic)is alleged by the Company,(sic) has been guilty of misconduct as is alleged by the Company, whether the Company has broken their contract by dismissing him or refusing to employ him further, are questions which can be determined in the ordinary course of law; and it does not assist anyone to arrive at a resolution of those questions to apply to the Court in this way or for the Company to pass special resolutions as they purport to have done in this case. These matters are entirely open and remain for decision in any suit that has been instituted or may be instituted between the parties.

5. This appeal must be allowed with costs on the higher scale.

Ramesam, J.

6. I agree.


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