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Raghu Nandan Neotia Vs. Swadeshi Cloth Dealers Ltd. and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKolkata High Court
Decided On
Case NumberSuit No. 573 of 1963
Judge
Reported inAIR1964Cal247,68CWN302
ActsCompanies Act, 1956 - Sections 9, 166, 173, 186, 210, 211, 216, 217, 217(1) and 219; ;Specific Relief Act, 1877 - Section 42; ;Company Law; ;Code of Civil Procedure (CPC) , 1908 - Order 1, Rule 8
AppellantRaghu Nandan Neotia
RespondentSwadeshi Cloth Dealers Ltd. and ors.
Cases ReferredAshhury Railway Carriage and Irons Co. v. Riche
Excerpt:
- a.n. ray, j. 1. this is a suit for a declaration that the notice dated march 1, 1963, is null and void, and that the resolutions mentioned in the purported notice dated march 1, 1963, are illegal, unlawful and ultra vires the articles of the defendant company. a further declaration is asked for that the general meeting of the company held on march 30, 1063 and the resolutions purported to be passed thereat are illegal and ultra vires and of no effect, and not binding on the plaintiff and other share-holders. an injunction is asked for to restrain the defendants from holding meeting and a further injunction to restrain the defendants from implementing or giving effect to the resolution which may be passed at the meeting. an injunction is also asked for to restrain in defendants from.....
Judgment:

A.N. Ray, J.

1. This is a suit for a declaration that the notice dated March 1, 1963, is null and void, and that the resolutions mentioned in the purported notice dated March 1, 1963, are illegal, unlawful and ultra vires the articles of the defendant company. A further declaration is asked for that the general meeting of the company held on March 30, 1063 and the resolutions purported to be passed thereat are illegal and ultra vires and of no effect, and not binding on the plaintiff and other share-holders. An injunction is asked for to restrain the defendants from holding meeting and a further injunction to restrain the defendants from implementing or giving effect to the resolution which may be passed at the meeting. An injunction is also asked for to restrain in defendants from implementing or giving effect to the resolutions which were purported to be passed at the meeting.

2. The plaintiff is a share-holder of the defendant Swadeshi Cloth Dealers 'Ltd., and others hereinafter referred to as the company. Defendants Nos. 2, 3, 4 and 5 are directors of the company. They are impleaded in the suit because of allegations that they are giving effect to the resolutions though the Companies Act does not empower those defendants to recommend the payment of any dividend for the financial years ending the 31st March, 1961, and the 31st March, 1962. Those defendants are further impleaded on the allegation that neither the Companies Act nor the Articles of Association of the defendant company empower, authorise or permit those defendants as the Board of Directors of the company to issue any notice or to declare any dividend as payable to the shareholders of the company in the manner proposed in the alleged notice.

3. The suit was instituted on March 29, 1963. An interim order was asked for and an interim order was made. On March 30, 1963, the notice of motion was made returnable. The interim order was modified to some extent. At that time the only parties to the suit were the plaintiff and the company and the directors were the defendants. The Jaipuria defendants and the Poddar defendants were added as parties to the suit under orders dated May 21 and 18th June, 1963, respectively.

4. The suit came up for trial and it was contended on behalf of the Jaipuria defendants that by reason of the fact that the meeting had been held the plaintiff's suit as constituted was not competent. Thereafter Counsel for the plaintiff applied for adjournment of the suit in order to apply for amendment of the plaint. Certain amendments as indicated in paragraph 24 (a) of the plaint and in prayers (ee) and (hh) were allowed.

5. The substance of the suit is that the notice dated March 1, 1963, whereby an extraordinary meeting was called to be held on March 30, 1963, for passing resolution that dividends for the year ending 31st March 1961, at Rs. 10/- per share subject to deduction of tax and for the year ending 31st March, 1962, at Rs. 80/- per share subject to deduction of tax was bad, illegal and ultra-vires the powers of the company. The grounds of which the notice is assailed are set oat in paragraph 15 of the plaint. The grounds are first that by reason of the provisions of the Companies Act and particularly Sections 166, 186, 210, 211 and 217 and the provisions in Schedule VI, Part II, Clause 3 (XIV) no dividend can or could be declared excepting at an annual general meeting; secondly, according to the true construction of the Articles of Association declaration of dividend it a matter pertaining to the Board of the company for the relevant year and the recommendation for the declaration of any dividend for any particular year has to be made by the Board of Directors of the Company for that very year, and because the defendant? Nos. 2 to 5 purported to issue the notice or to recommend the declaration of dividend in their capacity as members of the present Board they have no power or authority to do so; thirdly it is contended that no dividend was recommended or declared by the relevant Board of Directors for the financial years ending 31st March, 1961 and 31st March, 1962 and the defendants Nos. 2 to 5 constituting the present Board of Directors could not and cannot recommend the declaration of any dividend for the financial years ending 31st March. 1061 and 31st March, 1962: fourthly, as no dividend was declared for the financial years ending 31st March, 1961 and 31st March, 1962 and as the accounts and the balance-sheets in respect thereof were considered and passed at the annual general meeting of the Company held on December 1, 1961 and October 29, 1962, it is beyond the powers of the defendants Nos. 2 to 5 under the Articles of Association of the Company or under the Companies Act to recommend now the declaration of any dividend for the financial years ending on March 31, 1961 and March 31, 1962; fifthly, it is contended that the Companies Act does not empower the defendants Nos. 2 to 5 to recommend any dividend as suggested in the notice.

6. The further allegation in the plaint is that on or about March 30, 1963, a general meeting of the share-holders of the company was held and resolutions were passed recommending dividend for the year ending 31st March, 1961, at Rs. 10/- per share and for the year ending 31st March, 1962, at Rs. 80/- per share and that the said resolutions and meeting are illegal, ultra vires the Companies Act, and are not binding OB the plaintiff.

7. There are written statements filed on behalf of the company and on behalf of the directors. The company denies in the written statement that the notice dated March 1 is bad or illegal or ultra vires. The defendant company denies that it is beyond the powers of the defendants Nos. 2 to 5 to recommend declaration of dividend, and the defendant company does not admit that the Companies Act or the Articles of Association do not empower or authorise or permit the defendants Nos. 2 to 5 to issue any notice or to declare any dividend. The defendant, company denies the other allegations in the plaint.

8. The defendant directors filed separate written statements. The director defendants have taken pleas similar to those of the company.

9. The added defendants, Jagadish Prosad Poddar, Sriprokash Poddar, Sm. Radha Devi Poddar and Sm. Sushila Devi Poddar filed joint written statement and thereafter additional written statement in answer to the amendments of the plaint. The other added defendants are Ramlal Jaipuria, Damodarlal Jaipuria, Banwarilal Jaipuria, Babulal Jaipuria, Motilal Jaipuria, Sm. Bi-mala Devi Jaipuria, Sm. Kusumlata Jaipuria, Sm. Jhimmi Devi Jaipuria, Sm. Santosh Devi Jaipuria filed a joint written statement and thereafter additional written statement in answer to the amendments of the plaint. The contentions raised in the written statements, of these added defendants are broadly, first, that the declaration of dividend is lawful and valid, secondly, that the articles permit such declaration of dividend; thirdly, that the declaration of dividend is not ultra vires the Companies Act, and fourthly, that the plaintiff is not competent to maintain the suit by reason of absence of fresh leave under Order 1, Rule 8, at the time of obtaining amendments in the suit.

10. The following issues were framed on July 10, 1963, when the suit came up for hearing: -

(1) Could dividends be declared only at an Annual General Meeting of the defendant company?

(2) Is Article 178 of the Articles of Association of the defendant company ultra vires and of no effect?

(3) Was the Board of Directors of the defendant company not authorised or empowered to issue the notice dated March 1, 1963?

(4) Is the said notice bad and illegal on the grounds alleged in paragraph 15 of the plaint?

(5) As the resolutions in question have been passed after the institution of this suit, is this salt maintainable?

(6) Has the plaintiff been set up by the defendants Nos. 1 to 5 to institute the suit?

(7) To what reliefs, if any, is the plaintiff entitled?

11. Counsel for the defendant company raised only issues Nos. 2 and 4 of the aforesaid 7, issues.

12. I have already indicated that the suit was adjourned at the instance of the plaintiff for amendment of the plaint. After the plaint was amended, the added defendants raised the following issues:-

(1) Was the meeting dated 3oth March, 1063 ultra vires and illegal as alleged in paragraph 24 (a) of the plaint?

(2) Is this suit maintainable in the absence offresh leave under Order 1 Rule 8 of the Code ofCivil Procedure?

13. The only oral evidence on the part of the plaintiff is that of Surajnarain Mundra who produced the Minute Book and proved the entry. The oral evidence of the added defendants is that of Babulal Jaipuria and Banwarilal Jaipuria. Babulal Jaipuria is a share-bolder of the defendant company and he holds 210 shares. Banwarilal Jaipuria is a share-holder of the company and he holds 400 shares. Babulal Jaipuria said that some time in the month of March, 1963 an application was made in this Court by Banwarilal Jaipuria as a share-holder and that application was under Section 397 of the Companies Act. The application was made on March 25, 1063. When that application' was moved Babulal Jaipuria saw Sankarlal. Secretary of the Company, Kasiprosad and J. C. Mukherji. Babulal Jaipuria said that there after he had conversation with Raghunandan Neotia. The conversation was on Sunday, March 31, 1963, when Raghunandan Neotia came to Jaipuria house, Babulal Jaipuria said, 'In the morning at about 9 o'clock there he (Raghunandan Neotia) told me,

'I have been unnecessarily forced to file a suit by the company and in case I would not have done it Mangturam Jaipuria would have been annoyed with me and I might be seriously Affected with the dealership' ' (Q. 7).

Babulal Jaipuria said that a meeting of the share holders was held on March 30, 1063. At the meeting all the share-holders including Raghunandan Neotia voted by show of hands. Babulal gave a version of what happened in the meeting.

14. Banwarilal Jaipuria said that after receiving notice on or about March 9 be consulted lawyers as the company in spite of having made Rs. 50,00,000/- profit had not declared any dividend and had not increased any new business. His further evidence was that the call for right shares was nothing else but for harassing the, Jaipuria added defendants and reducing their proportionate right id the company. Banwarilal Jaipuria said that he filed an application under Section 397 in this Court. After that Raghnnandan Neotia told Banwarilal Jaipuria that on or about the 27th Raghunandan Neotia had been instructed by Sankar Thard that certain legal proceedings would be taken to stop dividends in the hands of Banwarilal Jaipuria group, and that those proceedings would be taken in his name. Banwarilal Jaipuria said that he told Raghunandan Neotia, 'Why you involve yourself into our various disputes'' To that Raghunandan Neotia's answer, according to Banwarilal Jaipuria, was as follows:

'He said that if he cannot act according to instruction his distributorship from this company at Kanpur where he makes a profit of about Rs. 30,000/- to Rs. 40,000/- every year will be affected and also that he may not be allowed to sit in the shop. J said in view of the family relation you should not involve yourself. That is the discussion I had with him.'

I have referred to the oral evidence because an argument was founded on the oral evidence that the plaintiff had been set up by the defendant company, and secondly that the suit was instituted not for legitimate purposes, but for subserving certain ends and therefore the plaintiff was not entitled to any declaration under Section 42 which was a discretionary relief granted by the Court. I shall deal with this aspect of the case later on.

15. The question in the forefront is whether the company has power to declare dividends at the extraordinary general meeting. Counsel fox the added Jaipuria defendants stated that if Article 178 had not existed in the present case Counsel would not have contended that the company had any right to declare dividend at an extraordinary general meeting. The right of a company to declare dividend at an extraordinary general meeting came up for consideration in the decision of Nicholson v. Rhodesia Trading Co., 1897-1 Ch 434. It was held in that case that on a construction of the articles a dividend is to be sanctioned only it the annual ordinary general meeting of the company. The relevant articles in Nicholson's case, 1897-1 Ch 434 are set out at p. 435 of the report. Counsel for the Jaipuria defendants distinguished Nicholson's case, 1897-1 Ch 434 by contending that the articles in the present case conferred power on the company to declare dividend at an extraordinary general meeting whereas in Nicholson's case, 1897-1 Ch 434 there was no such comparable articles.

16. This question of the right of the company to declare dividend also came up for consideration in the case of Biswanath Prasad v. New Central Jute Mills Co. Ltd., 64 Ca1 WN 970. The case was heard by me. The question arose there as to whether after the declaration of dividend at the annual general meeting any further dividend could be declared. The relevant articles in that case are set out in the judgment. I referred to Nicholson's case, 1897-1 Ch 434 and came to the conclusion that on a construction of the articles of the New Central Jute Mills there could not be a declaration of further dividend at the extraordinary general meeting. Counsel appearing for the Jaipuria defendants accepted the decision to be correct and contended that New Central Jute Mills company case, 64 Cal WN 970 was an authority for the proposition that on the articles in that case there could be no declaration of further dividend. New Central Jute Mills company case. 64 Cal WN 970 was distinguished by Counsel on behalf of Jaipuria defendants by contending first, that there was no article comparable to Article 178 in the present case, and secondly, that it was a decision on the question as to whether there could be further dividend after dividends had been declared at an annual general meeting.

17. The relevant articles in the present case as to the declaration of dividends are to be found from Article 168 to Article 186 whereof the important articles are set out hereunder:

'168. Subject to the rights of the person (if any) entitled to shares with special right as to dividends all dividends shall be declared and paid according to the amounts paid on the shares, but if so long as nothing is paid upon any of the shares of company dividends may be declared and paid according to the amounts of the shares.

169. The profits of the Company or so much thereof as may be thought fit shall be distributed by the Company by way of dividends in payment of a dividend to the members in proportion to the amount paid up or credited as paid up thereon. Subject as aforesaid the profits of the company which it shall from time to time be determined to divide in respect of any year or other period shall be applied first in paying the fixed cumulative preferential dividend on the preference shares to the close of such year or other period and as to the residue in paying a dividend for such year on the ordinary shares.

170. No larger dividend shall be declared than what is recommended by the Directors, but the Company in General Meeting may declare a smaller dividend.

171. No amount paid on a share in advance of calls, shall while carrying interest be treated fox the purpose of the Arts. 185 and 186 as paid on the share.

No dividend shall carry interest as against the Company.

172. No dividend shall be payable except out of the profits of the year of the Company or any other undistributed profits.

173. The declaration of the. Directors as to the amount of the net profits of the Company shall be conclusive.

174. The Directors may from time to time pay to the members such interim dividends as in their judgment the profits of the Company justifies.

178. The Company in Ordinary or Extraordinary General Meeting may declare a dividend to be paid to the members according to their right and interests in profits, and any sum carried to the reserve, depreciation, or other special funds for the purpose of the equalisation carried to the reserve depreciation or other special funds may, subject to due provision being made for actual look or depreciation, be applied in payment thereof.

179. If several persons are registered as joint-holders of any share, any one of them may give effectual receipt for any dividend payable on the share.

180. Any General Meeting declaring a dividend may make a call on the members of such amount as the meeting fixes but so that the call on each member shall not exceed the dividend payable to him and so that the call be made payable at the same time as the dividend and the dividend may if so arranged between the Company and the members be set off against the call. The making of a call under this Article shall be deemed ordinary business of an Ordinary Meeting which declares dividend.

18. The other relevant articles relate to accounts which are numbered 187 to 197 whereof the important articles are 190, 191, 192 and 193 which are set out herennder:

'100. The directors shall as required by Sections 131 and 131-A of the Act, cause to be prepared and to be laid before the company in general meeting such profit and loss accounts, balance sheets and reports as are referred to in those sections.

191. At the Ordinary Meeting every year the Directors shall lay before the Company a Profit and Loss account and a balance-sheet containing & summary of too property and liabilities of the Company mode up to a date not more than nine month before the meeting from the time when the last preceding account and balance-sheet were made up. The said balance-sheet shall be in the form marked 'F' in the third Schedule to the Act or as near thereto as circumstances admit and shall be signed by at least two Directors or if there is only one Director for the time being in India by such Director. Whenever any such balance-sheet is signed by one Director only, there shall be subjoined thereto a statement signed by such one Director explaining the reason why it has not been signed by second Director.

(ii) The Auditors' report shall be attached to the balance-sheet and the report shall be read before the Company in General Meeting and shall be open to inspection by any share-holder.

193. The profit and loss account shall in addition to the matters referred to in Sub-section (3) of Section 132 of the Act, show, arranged under the most convenient heads, the amount of gross income, distinguishing the several sources from which it has been derived, and the amount of gross-expenditure distinguishing the expenses of the establishment, salaries and other like matters. Every item of expenditure fairly chargeable against the year's income shall be brought into account, so that a just balance of profit and loss may be laid before the meeting, and, in case where any item of expenditure which may in fairness be distributed over several years has been incurred in any year the whole amount of such item shall be stated, with the addition of the reasons why only a portion of such expenditure is charged against the income of the year.

193. Every such balance-sheet shall be accompanied by a report of the Directors as to the state and conditions of the company and as to the amount which they recommend to be paid out of the profits by way of dividend, or bonus to the members and the amount (if any) which they propose to carry to the Reserve Fund, and the account, report and balance-sheet shall be signed by at least two Directors.'

19. The other important articles to which reference has been made by Counsel are 89, 91, 93 and 99 which are set out hereunder:

89. A General Meeting of the Company shall be held within 18 months from the date of its incorporation and thereafter once at least in every calendar year at such time (not being more than 15 months after holding of the last preceding Annual General Meeting) and at such place as may be prescribed by the Company in the General Meeting and if no time or place are so prescribed at such time and place as may be determined by the Directors. The General Meeting referred to in this Article shall be called Ordinary General Meeting and all other meetings of the Company shall be called Extra-Ordinary General Meetings.

91. The Directors may whenever, they think fit, call an extraordinary general meeting of the Company.

93. At least fourteen days' notice (exclusive of the day on which the notice is served or deemed to be served but inclusive of the day on which notice is given) of every general meeting shall be given la writing to the members specifying the place, day and hour of meeting with a statement of business to be transacted at the meeting in the manner hereinafter provided.

99. The business of any ordinary meeting shall be:

(a) to receive and consider

(i) the profit and loss account,

(ii) the balance-sheet,

(iii) the reports of the directors, and of the auditors,

(b) to elect Directors, Auditors, and other Officers in the place of those retiring by rotation or otherwise,

(c) to declare dividends,

(d) fixing of remuneration of the auditors, and

(e) to transact any other business which under these presents ought to be transacted at any Ordinary General Meeting and any business which arises out of the reports of the directors issued with the notice concerning the meeting.'

20. Counsel on behalf of the Jaipuria defendants contended, first, that Article 178 conferred power on the company to declare dividends at an extraordinary general meeting and secondly, that there was nothing in the Companies Act to show that such a dividend could not be declared at an extraordinary general meeting. It is contended on behalf of the Jaipuria defendants that interim dividend is a matter resting with the directors and no sanction of meeting is required and final dividend can be declared either at an annual general meeting or extraordinary general meeting depending on the construction of the articles. It is also contended that recommendation has to be by directors who had authorised issue of notice pursuant to which meeting is held, and therefore those directors must be actual directors of the company at the time the notice is issued.

21. The provisions of the Indian Companies Act (hereinafter referred to as the Act) indicate, first, that at every Annual General Meeting held under Section 166 there has to be under Section 210 a balance-sheet as at the end of the period specified in Sub-section (3) of Section 210, and a profit and loss account for that period, and these accounts are to be laid before the company at every annual general meeting of the company held in pursuance of Section 166. Section 166 of the Act indicates that every company shall in each year hold in addition to any other meetings a general meeting as its annual general meeting, and shall specify the meeting as such in the notice calling it and not more than fifteen months shall elapse between the date of one annual general meeting of a company and that of the next. Section 210 of the Act further provides that the period to which the account relates is referred to in the Act as a 'financial year' and it shall not exceed fifteen months. The profit and loss account shall relate in the case of the first annual general meeting of the company, to the period beginning with the incorporation of the company and ending with a day which shall not precede the day of the meeting by more than nine months and in case of any subsequent annual general meeting of the company, to the period beginning with the day immediately the period for which the account was last submitted and eliding with a day which has not precede the day of the meeting by more than six months, or in cases where an extension of time has been granted for holding the meeting under the second proviso to Sub-section (i) of Section 166, by more than six months and the extension so granted,

22. Section 211 of the Companies Act regulates the form and contents of balance sheet and profit and loss account. This is an important section which should not be lost sight of. This section corresponds to Section 132 of the Companies Act 1913, and changes were introduced by the amending Ad of 1960. The changes are first that it is open to a company to show the balance sheet in a form other than the one set out in Schedule VI with the approval of the Central Government and secondly in drawing the balance sheet due regard shall be had as far as possible to the general instructions given at the end of Part I of Schedule VI. Section 211 states that every balance sheet of a company shall give a true and fair view of the state of affairs of the company as at the end of the financial year and shall, subject to the provisions of this section, be in the Form set out in Part 1 of Schedule VI, or as near thereto as circumstances admit or in such other form as may be approved by the Central Government either generally or in any particular case; and in preparing the balance sheet due regard shall be had as far as may be, to the general instructions for preparation of balance-sheet under the heading 'Notes' at the end of that Part. Schedule VI which is referred to in Section 211 consists of two parts. The first part sets out the form of the balance sheet and the second part contains requirements as to profit and loss accounts. Part II of Schedule VI consists of 8 clauses whereof clause III is important.

23. Another section of the Act which is important for the purpose of the present case is Section 205. Section 205 relates to dividend. It enacts that no dividend shall be declared or paid by a company for any financial year except out of the profits of the company for that year arrived at after providing for depreciation in accordance with the provisions of Sub-section (2) or out of the profits of the company for any previous financial year or years arrived at after providing for depreciation in accordance with those provisions and remaining undistributed or out of moneys provided by the Central Government or a State Government for the payment of dividend in pursuance of a guarantee given by that Government. Section 205 corresponds to Regn. 97 of Table A of the Act of 1913. The section as it originally stood merely prohibited the declaration or payment of dividends except out of profits or the moneys provided by the State or the Central Government in pursuance of any guarantee given by them. The present section while reiterating that prohibition also lays down how the profits in the different cases mentioned should be worked out by providing for depreciation out of the profits and in what cases such depreciation provision need not be made. It also lays down the different methods of arriving at the depreciation.

24. The other two relevant provisions of the Act are Sections 217 and 219. Section 217 refers to report of the Board and states that there shall be attached to every balance-sheet laid before a company in general meeting, a report by its Board of directors in respect of inter alia the amount, if any which it recommends should be paid by way of dividend. Section 219 speaks of right of a member to copies of balance-sheet and auditors' report.

25. To sum up the provisions of the Companies Act are that Section 210 provides that at every annual general meeting of a company held in pursuance of Section 166, the Board of directors of the company shall lay before the company, first a balance sheet for a period following the last accounts and secondly, the profit and loss account for that period. Under Section 217 there shall be attached to every balance-sheet laid before a company at the annual general meeting a report by its Board of directors with respect to the state of the Company's affairs, the amounts which it proposes to carry to any reserves in such balance sheet and the amount, if any, which it recommends should be paid by way of dividend. Section 219 which speaks of balance-sheet of a company and auditors' report to be placed before the shareholders fortifies that position. Non-compliance with that provision is punishable. In Section 217 of the Act it is provided that the recommendation, as to dividend should be made in the report and such report should be attached to the balance-sheet and placed before the company at if annual general meeting. Mr. Subimal C. Roy counsel for the plaintiff contended that this was necessary because the declaration of dividend was to be discussed by the share-holders and the Companies Act lays down checks and balances before the share-holders could take a decision on this question. The consideration of the balance sheet and accounts appears to be an ordinary and not a special business. Under Section 173 of the Act and under Section 211 both the balance sheet and the profit and loss account are to be prepared in accordance with Part I and Part II of Schedule VI. The cumulative effect of all the provisions of the Act is that the declaration of dividends should be made at the annual general, meeting.

26. Under the Articles in the present case particularly Article 170 it will appear that no larger dividend shall be declared than what is recommended by the directors but the company in general meeting may declare smaller dividend. In order that the share-holders at a general meeting declaring dividend, should be able to make no their mind as to quantum of dividend to be declared, they should have before them first, the entire accounts of the financial year which is just over and secondly, a report on the financial position of the company brought upto date under Section 217(i)(d). Unless these are available, the meeting cannot properly discharge its obligations. At an Extraordinary meeting neither the audited accounts nor the upto date report under Section 217 has been made available in the present case. It is contended that extra-ordinary general meeting speaks of special business and if there is special notice that is in compliance with the statutory requirements regarding a declaration of dividend because the Articles in the present case confer power on the company to declare dividend at an extra-ordinary general meeting.

27. If the Directors could obtain the sanction of a dividend at an extra-ordinary general meeting without submitting the accounts required by the Companies Act or required by the Articles it would amount to robbing the provisions in the Articles as well as in the Companies Act of the purpose and effect for which these are made for the protection of the share-holders. It is in that context that the observations of North, J. in Nicholson's case, 1897(1) Ch 434 at p. 439 are important:

'I am of opinion, therefore, that a dividend cannot be sanctioned at an extraordinary meeting: and that, even if it could be sanctioned, it would be necessary to follow the requirements of the articles, and lay before the company the matters required to be so laid before them by the Articles. In the present case they cannot do this, because the accounts are brought down only to August last, which is much more than three months ago.'

In the present case it is not disputed that there is no balance-sheet and there is no profit and loss account circulated to the share-holders to consider the passing resolution for declaration of dividend which are laid down in the Act to be circulated in considering the question of declaration of dividend. Submission of accounts and report are provided in the statute and they are intended for the protection of share-holders and they are inextricably linked with the question of declaration of dividend.

28. The Articles in the present case particularly 99, 193 and 180 show that the business of ordinary meeting shall be to declare dividends and the balance sheet is to accompany a Report of the Directors as to the state or condition of the company and as to amount which they recommend to be paid by way of dividend and where declaration of dividend and a call are made at the same time there may be provision for set-off. The making of call under Article 180 shall be deemed ordinary business of an ordinary meeting which declares dividend.

29. In the New Central Jute Mills Co. Ltd., 64 Cal WN 970 I held that Sections 166, 186, 210, 211, 217 and the provisions in Schedule VI Part II Clause 3 (XIV) of the Act indicate that the declaration of dividend is a business of the annual general meeting. Counsel for the plaintiff contended that there is an express decision to that effect in the New Central Jute Mills case, 64 Cal WN 970. Counsel for Jaipuria defendants contended that on the construction of the articles in the New Central Jute Mills case, 64 Cal WN 970, a further reason was given as to why the declaration of dividend is a matter appearing to be a business at the annual general meeting. I do not read the decision in that manner. To my mind the provisions of the Companies Act leave no doubt whatever that the matter of declaration of dividend is a business of the annual general meeting.

30. A question arose as to whether the present Board is competent to declare dividends. It was contended that there is no evidence that the Board has changed. It is an admitted feature of the case that accounts for 1961 and 1962 have been passed it annual meetings. If those Accounts have been passed the accounts for those years are closed at the relevant annual general meetings and the question arises as to whether the amount which is now declared as dividend for the year 1961 or for the year 1962 is competent. Counsel for the plaintiff in my view rightly contended that there could not be any declaration of dividend for the years 1961 and 1962 not before the balance sheets of that relevant period were re-adjusted. In other words the sum of Rs. 62,000/- and odd which was the balance carried forward from the year 1961 to 1962 would have to be put back in the account of 1961 in order to obtain that sum as available for profits of that year. It was rightly contended that the declaration of dividend for the years 1961 and 1962 could not be made by the present Board in respect of accounts for the years 1961 and 1962.

31. There is another question that many persons were not share-holders in the year 1961 and 1962 but by reason of the declaration of dividend in the year 1963 they are likely to participate by this resolution. If the accounts were closed at the annual general meetings it is rightly contended that dividends could not be declared restrospectively and with reference to these years accounts whereof were closed. The directors of the relevant year for which the accounts are placed before the share-holders and dividends are declared are the persons who have given the report and are therefore competent to speak of the financial affairs. I am not impressed by the argument on behalf of the Jaipuria defendants that there is no evidence that directors have changed. Even if the directors remain, the character and the quality of the directors change from year to year. When I say character and quality I refer to their financial duties and obligations and in particular duties to the share-holders.

32. Counsel on behalf of the plaintiff contended that by reason of Section 9 of the Companies Act if there was any Article which was inconsistent with any provision of the Companies Act the Article would be bad. Section 9 is new to the Companies Act. There was no such similar provision in the previous Companies Act. In view of my conclusion that the declaration of dividend is a matter pertaining to the annual general meeting I am of opinion that the present Article is ultra vires the Companies Act. Counsel for the plaintiff further contended that under the articles of the company in the present case no larger dividend could be declared than what was recommended by the Board and Section 217 of the Act contemplated recommendation by the Board at the annual meeting of the amount to be paid as dividend. It was therefore rightly contended first that the recommendation under the Statute had to be at the annual meeting and secondly if there were any recommendation except what would be found in Article 193 in the present case the recommendation would be beyond the provisions of the Statute and of the Articles and the recommendation would be illegal in its inception.

33. Two other questions remain to be decided. It is contended that the suit was instituted in a representative capacity and since no leave has been obtained under O. I R. 8 at the time of obtaining the amendments, the amendments are in the individual character of the plaintiff. Counsel on behalf of the Jaipuria defendants contended that the amendments were a new cause of action and therefore leave was necessary to enable the plaintiff to sue in a representative capacity in respect of that cause of action. In the first place it is not a new cause of action. Secondly it is an event subsequent to the institution of the suit. Thirdly the plaintiffs' right to sue is already there. Counsel on behalf of the plaintiff rightly contended that the Court should take notice of events happening after the institution of the suit and relied on a passage occurring in Mulla's Code of Civil Procedure, 12th Edition at page 612:

' 'Ordinarily, the decree in a suit should accord with the rights of the parties as they stand at the date of its institution. But where it is shown that the original relief claimed has, by reason of subsequent change of circumstances, become inappropriate, or that it is necessary to have the decision of the Court on the altered circumstances in order to shorten litigation or to do complete justice between the parties, it is incumbent upon a Court of Justice to take notice of events which have happened since the institution of the suit and to mould its decree according to the circumstances as they stand at the time the decree is made.'

It appears that the provisions contained in Order 1, Rule 8 permit the plaintiff to sue on behalf of or for the benefit of all persons interested. Notice has to be given of the institution of the suit. This notice does not speak of cause of action. Amendment of pleadings is procedural. It is now the settled view of this Court that in a suit instituted with leave under Clause 12 there can be amendment of the plaint without obtaining fresh leave. Similarly where a representative suit has been instituted the amendment of the plaint is obtained in the suit. Once he is clothed with that character the leave enures to the benefit of the plaintiff. T am therefore, of opinion that no fresh leave was necessary. Counsel for the plaintiff contended that if fresh leave were necessary the Court should have granted it. Counsel for the Jaipuria defendants contended that if the plaintiff had not asked for it was not a matter for the Court. The provisions of Order 1, Rule 8 are that notice has to be given of the institution of the suit. Fresh' leave or further notice is not necessary in regard to amendment because it is not institution of suit.

34. The other question is as to whether the plaintiff is entitled to any relief. Reliance was placed by counsel for Jaipuria defendants on two decisions reported in Ajaib Singh v. Sham Singh, AIR 1925 Lah 127 (i) and Khushi Ram v. Nand Lal, AIR 1933 Lah 866. In AIR 1925 Lah 127 it was held that a declaratory decree may be given if the suit is brought honestly. In the other Lahore decision, AIR 1933 Lah 866 it was held:

'There can be no doubt that the suit is purely speculative and has been instituted at the instance of his father and uncle, who have themselves acquiesced in the alienation and whose own right to contest it has become extinct by lapse of time.' In my opinion none of these decisions has any application to the facts and circumstances of the present case.

35. It is true as counsel for Jaipuria defendants contended that the yerbal evidence was not orally contradicted by the persona named by the added Jaipuria defendants. Raghunandan Neotia has not come and denied orally the statement alleged by Neotia to have been made to Jaipuria defendants. Does it follow that the evidence has to be accepted? I have no hesitation in rejecting, the evidence of Jaipurias. To my mind it is impossible to believe that a person who is alleged to be arrayed against the Jaipurias would come and state that if he does not support the company his business will be ruined. Even if he did so counsel for the plaintiff rightly contended that it should be no answer to an illegal declaration of dividend. Lord Cairns said in the Ashhury Railway Carriage and Irons Co. v. Riche, (1875) L.R 7 HL 653 that if a company could not make a contract it was void. Mr. Subimal C. Roy borrowed that proposition and rightly contended that if the declaration of dividend was beyond the competency and power of the company the plaintiff was entitled to a declaration to that effect. There cannot be any estoppel by words or by deeds against the provisions of the Companies Act.

36. I should state before I conclude that as far as counsel for the company and counsel for the directors were concerned, they stated that their clients did what they thought to be lawful but if the Court came to the conclusion that it was not lawful they would have to abide by it. That is stressing the obvious.

37. For these reasons I am of opinion that the plaintiff is entitled to succeed. This is a matter where I am of opinion that the company should pay and bear the costs of the Jaipuria defendants who came to defend the suit on the questions of law and it is because of the declaration of the dividend by the company that they have defended the suit. It is true that they were added as defendants at their risk and expense. The added defendants who contested the suit assisted the Court and therefore I am of opinion that the company should pay and bear their costs. One set of costs is to be divided amongst all persons who are contesting. There will be declaration in terms of prayer (c), (d), (e), (ee), (f) and an injunction in terms of prayer (g) (h) and (hh). The plaintiff will also get costs paid by the company because the plaintiff instituted the suit bona file and in legitimate protection of interest of shareholders. The remuneration of Mr. Khaitan the Receiver is assessed at Rs. 1,000/-. The company will pay such remuneration. Certified for two counsel for all parties.


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