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Hari Krishna Lohia Vs. Hoolungooree Tea Co. Ltd. and anr. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKolkata High Court
Decided On
Case NumberA.F.O.O. No. 135 of 1968
Judge
Reported inAIR1969Cal312
ActsCompanies Act, 1956 - Sections 17, 173(2), 368, 391, 396 and 494
AppellantHari Krishna Lohia
RespondentHoolungooree Tea Co. Ltd. and anr.
DispositionAppeal dismissed
Cases ReferredBrowne v. La Trinidad
Excerpt:
- .....be an injunction.5. it was contended by counsel for the appellant first that without a specific power of amalgamation in the memorandum the company could not amalgamate with any company. counsel for the respondent on the other hand contended that the company in the present case gave a notice that the company wanted now the bare power to amalgamate. that is why a meeting was called. it was also said on behalf of the respondent that the company would later on have to make the necessary application for actual amalgamation. the notice impeached in the suit was said by counsel for the respondent not to be anything more than a notice for the proposed power of amalgamation. the notice also suggests that the company sought the bare power to amalgamate in aid of subsequent actual amalgamation.....
Judgment:

A.N. Ray, J.

1. This appeal is against the judgment and order of Sen, J., dated 10th June, 1968. The order was made on the notice of motion dated 25th April, 1968, taken out by the plaintiff inter alia for an order of injunction restraining the defendants and each one of them, their servants, agents and assigns from holding the proposed Extraordinary General Meeting of the Company on April 29, 1968, and passing any resolution thereat pursuant to the purported notice dated March 30, 1968 and the Explanatory statement annexed thereto and also injunction restraining the defendants and each one of them, their servants, agents and assigns from holding any share-holders meeting of the company pursuant to any purported notice such as or similar to the said notice dated March 30, 1968 and the purported explanatory statement annexed thereto, and further injunction restraining the defendants from giving effect to or acting upon any resolutions which may be passed in any such meeting, and injunction restraining the defendants, their servants and agents from committing any further violation of the provisions of Section 342 of the Companies Act 1956 and from having the affairs of the defendant No. 1 managed by any person or persons other than defendant No. 2.

2. The defendant No. 1 is Hoolungooree Tea Co. Ltd. and the defendant No. 2 is Andrew Yule Co., Ltd. and the plaintiff appellant is a share-holder in the defendant Hoolungooree Tea Company. The defendant No. 2 Andrew Yule Co, Ltd. is the Managing Agent of the said Tea Company, The appellant is a registered share-holder of 300 ordinary shares of the defendant tea company. The appellant alleges that through his friends and relatives he holds more than 10 per cent shares of the Tea Company.

3. The plaintiff instituted suit No. 1009 of 1968 on 25 April 1968 inter alia for a declaration that the notice dated 30 March 1968 and the explanatory statement annexed thereto are illegal, void and not binding against the plaintiff and for an injunction restraining the defendant from holding any Extraordinary General Meeting of the company on April 29, 1968 and passing any resolution thereat pursuant to the purported notice dated 30 March, 1968 and for other injunctions. The appellant's case in short is that the defendant Andrew Yule Co. Ltd. Managing Agents are alone entitled to manage the affairs of the company. The plaintiff alleged that the defendant company mismanaged the sum of Rs. 23,10,000/-. The plaintiff challenged the notice dated 30 March 1968 whereby the Extraordinary GeneralMeeting of the company was called to be held on 29 April, 1968. The plaintiff also alleges that on a perusal of the notice and the explanatory statement it appears that the defendant No. 1 proposes to alter the Memorandum and Articles of Association and the same are sought to be altered in order to amalgamate the defendant No. 1 with three other companies viz, Basmatia Tea Co, Ltd., Murphulani Tea Co. Ltd. (Assam) and Rajgarh Tea Co, Ltd. The plaintiff alleges that the said purported notice dated March 30, 1968 and the explanatory statement annexed thereto are misleading, tricky and do not furnish the requisite or necessary information for consideration of the resolution. The notice is also impeached to be ultra vires the Companies Act and Articles of the Company. The plaintiff also alleges that the Managing Agents were to retire with effect from 1st April, 1968, but the notice dated 30th March, 1968, is not signed by the Managing Agents and therefore the notice is illegal. It was contended before the learned Judge first that the notice of the meeting was not valid as it was signed by the Director, secondly, the explanatory statement was said to be tricky and thirdly, the notice was said to be mala fide. The learned Judge repelled all the contentions advanced.

4. Counsel for the appellant contended that there was a prima facie case that the company could not act on the basis of the notice which was challenged by the plaintiff as illegal and ultra vires of the Companies Act and the Memorandum of Articles. It was said that if there was a prima facie case, there should be an injunction.

5. It was contended by Counsel for the appellant first that without a specific power of amalgamation in the memorandum the company could not amalgamate with any company. Counsel for the respondent on the other hand contended that the company in the present case gave a notice that the company wanted now the bare power to amalgamate. That is why a meeting was called. It was also said on behalf of the respondent that the company would later on have to make the necessary application for actual amalgamation. The notice impeached in the suit was said by Counsel for the respondent not to be anything more than a notice for the proposed power of amalgamation. The notice also suggests that the company sought the bare power to amalgamate in aid of subsequent actual amalgamation with three other companies.

6. It is not necessary on an interlocutory application to decide this question as to whether a company can amalgamate with other companies without specific power in the memorandum. The question is academic for the reason that thecompany seeks first to have the power to amalgamate and the company will thereafter make the necessary application for actual amalgamation.

7. Interesting and elaborate arguments were made by Counsel for both the parties as to various types of amalgamation. The various provisions of the Companies Act and in particular, Sections 391 to 396 and 494 were referred to by Counsel for both parties in aid of their rival contentions. Counsel for the appellant contended that the provisions contained in Section 17 of the Companies Act indicated that if a company wanted to amalgamate with another company and if no such power was found in the Memorandum it would not be lawful for the company to amalgamate without incorporating such power in the memorandum. Counsel for the respondent on the other hand contended that the provisions contained in Sections 391 to 396 and 494 of the Companies Act would indicate that amalgamation would be a statutory right in certain cases and in other cases amalgamation would be resorted to by the company on the strength of specific power in the Memorandum. For the purpose of the present appeal it need be only said that if a company by virtue of its power in the Memorandum desires to amalgamate with another company without coming to a Court of law such amalgamation would be valid and there could be cases where a company desiring to amalgamate would have to come to a Court of law. The power to amalgamate may flow from the Memorandum or it may be acquired by resorting to the statute. Section 17 of the Companies Act indicates that a company which desires to amalgamate with another company will take necessary steps to come before a Court for alteration of its Memorandum in aid of such amalgamation. The statute confers a right on a company to alter its Memorandum in aid of amalgamation with another company. The provisions contained in Sections 391 to 396 and 494 illustrate some instances of statutory power of amalgamating a company with another company without any specific power in the Memorandum.

8. It will again appear how a company under Section 394 of the Companies Act may apply to the Court for sanctioning of a compromise between a company and any such persons as are mentioned in Section 391 of the Act and if it is shown to the Court that the Compromise has been proposed for the purpose of or in connection with any scheme for the reconstruction of any undertaking, the Court may either by the order sanctioning the compromise or arrangement or by a subsequent order make provisions inter alia for all or any of the following matters namely,

(i) the transfer to the transferee company of the whole or part of the undertaking;

(ii) continuation by or against the transferee company of any legal proceedings pending by or against any transferor company;

(iii) The dissolution without winding up of any transferor company.

9. It was said that a company would not have in its Memorandum as one of its objects dissolution of the company. An order for dissolution of a company with-out winding up is thus made by the Court in sanctioning compromise or arrangement which are forms of amalgamation. Reference may be made to Buckley Companies Act, 12th Edn. page 592 where in a discussion under Section 287 of the English Companies Act which corresponds to Section 494 of 1956 Companies Act and Section 213 of the 1913 Companies Act and Section 208C of the 1913 Companies Act amended in 1930 it is stated that a company cannot by clauses in its Memorandum of Association take power to effect that which Section 287 authorises upon terms other than those which Section 287 imposes. The sale of some part of a company's assets may be but the sale of all its undertaking and assets and the distribution of proceeds cannot be a corporate object. Buckley therefore states that the latter cannot under a clause for that purpose Introduced into the Memorandum be made without regard to the provisions of Section 287 of the English Act. In other words the requirements of Section 287 of the English Act or Section 494 of the Companies Act are Supreme and cannot be controlled by the Memorandum.

10. In order to amalgamate there has to be a scheme of amalgamation and it is to be stated which company is to be amalgamated with which company and it is also to be stated why an amalgamation is sought for. The company in the present case has proposed a meeting to be held for a bare power of amalgamation. The company has also made an application for alteration of the Memorandum. The company will afterwards make an application under Section 391 of the Companies Act when the company will have the actual scheme of amalgamation. The Court will not consider the resolution unless 3/4th of the majority of the company will pass that resolution. There are provisions in the Companies Act for public advertisement and notice to the Central Government and everything is subject to sanction by the Court. Therefore, it cannot be said that in such cases where a company is required to obtain an order of Court there could be any amalgamation without an order of Court. In the present case, Counsel for the respondent rightly contended that a bare power wasbeing sought and if thereafter the plaintiff or any shareholder would not approve of the scheme which the company would propose there would be room for such protest. The company has not come with any actual scheme of amalgamation at the present moment.

11. It may be said that there are four - methods for effecting reorganisation of company. One of the methods is to be found in Section 391 following, a second method is compulsory amalgamation by the Government under Section 396, the third method would be what is contemplated in Section 494 of the Companies Act and the fourth method is amalgamation without coming to Court. In order to have voluntary amalgamation without coming to Court there must be power in the Memorandum for that purpose.

12. The contention on behalf of the appellant was that without power in the Memorandum there could be no amalgamation. Counsel for the respondent on the other hand contended that there could be amalgamation without coming to Court if such a power appeared in the Memorandum itself. The other method would be to come before the Court whenever there would be an amalgamation. The provisions to which reference has been made indicate that in all cases where a company desires to amalgamate under an order of Court necessary application is to be made to a Court. There are instances in the Companies Act of amalgamation by virtue of power in the statute and Sections 396 and 494 illustrate that statutory power without recourse to power in the memorandum. In the present case, the company started with a resolution asking for power to amalgamate. It also appears to be a fact that the company has made an application for alteration of objects. Counsel for the respondent company rightly contended that in view of the fact that the company was only asking for a bare power of amalgamation in the resolution and the company would later on come with the necessary application before the Court for amalgamation there was no scope for interlocutory relief of injunction.

13. It is not necessary to express any opinion on the rival contentions of the parties as to whether the plaintiff's case is correct and as to whether the plaintiff is entitled to an injunction in the suit. Suffice it for the purposes of the present appeal to say that the company has asked only for a bare power to amalgamate and that the company has also made the necessary application for amendment of the Memorandum of the Company. The shareholders and all persons affected by any proposed amalgamation will have sufficient opportunity of meeting the case of actual amalgamation when the companywill apply and the Court will issue notice to the shareholders as also to the other persons as contemplated in the Companies Act.

14. The other contention on behalf of the appellant was that the notice in the present case namely, the explanatory statement was not adequate. It has been the accepted view in various decisions starting from the decision in Henderson v. Bank of Australasia, (1890) 45 Ch D 330 as will appear also in the Bench decision in East India Commercial Co., Private Ltd. v. Raymon Engineering Works Ltd., : AIR1966Cal232 that the notice would have to be considered in the circumstances of each case as to whether it is adequate and reasonable. One of the tests is whether notice would be adequate or sufficient as far as an absent person is concerned. Another test is how the meeting itself would understand the notice. In the present case the notice stated that the company proposed to amalgamate with other companies and the company gave the names and the company also issued circulars giving information. Counsel for the appellant contended that the notice in the present case did not indicate as to whether the amalgamation was financially advisable or whether it was commercially proper. It was said that the financial position of the companies should have been given as to enable the shareholders to find out the necessity as well as the basis of amalgamation. There again, it must be said that the explanatory statement that was given was in aid of the resolution which wanted a bare power to amalgamate. When the company would make the necessary scheme for amalgamation the company would have to give proper and sufficient materials in order to enable the shareholders, to express their views. The entire scheme then would come before the Court. The Court would scrutinise it and the statute recognises adequate safeguards as to whether the scheme should be accepted. That stage has not yet arisen.

15. The third contention on behalf of the appellant was that the explanatory notice was not signed by the Managing Agents but was signed by a member of the Board. It was said relying on the articles of the company that there was management vested in the Board and by reason of Articles 124, 125, 127 and 129 the management of the whole affairs of the company was delegated to the Managing Agents and the Board could not issue any notice. Reliance was placed on the decision in the Haycroft Gold Reduction and Mining Co. case, reported in 1900-2 Ch D 230 in support of the contention. It will appear in the present case that there is no challenge as far as the notice is signed by the Board. The notice ap-pears to be by order of the Board. The notice is issued with the authority of the Board. Articles 66, 67 of the Company empower the Board to call an Extraordinary General Meeting. The Board can call a meeting and sign the notice therefor. The managing Agency Agreement further says in Clause 12 that the Managing Agents are to work subject to superintendence, control and directions of the Board. Article 137 and Section 368 of the Companies Act also state that the Managing Agents are subject to superintendence, control and directions of the Board. It was said on behalf of the respondent that the issue of notice in the present case was a ministerial act. In the present case, it appears first that there is power of the Board to issue notice, secondly, the Managing Agents are subject to control, superintendence and directions of the Board and thirdly, the notice informs the holding of the meeting and there was no violation of the statute and the Managing Agents did not complain. Counsel for the respondent rightly contended on the authority of the decision in Browne v. La Trinidad, reported in (1887) 37 Ch D 1 that if there was any irregularity it could be cured.

16. Some arguments were advancedas to the distinction between individual rights on the one hand, and corporate rights on the other with regard to the affairs of the company. It is not necessary to decide that aspect of the case. They will be decided in the suit.

17. The present appeal raises the only question whether there should be an injunction or not. The questions in suit are all left open to be decided at the trial. The other question is whether there should be an interim injunction or not pending the determination of the suit. As I have indicated, the matter which has been kept in the forefront is that the company has asked for a bare power and there is an application pending for alteration of the Memorandum and thereafter the company will take steps for amalgamation. There does not exist any necessity for injunction. Counsel appearing on behalf of the appellant also contended that the Company proceeded mala fide in the present case. It was said that certain amount or that a sum of Rs. 23,10,000/- was obtained by the Company and that there has been mismanagement. It was also said that the dividends were not declared. There is no allegation in the petition about the depression of profits or that the amalgamation is not for any real purpose but for an ulterior purpose. There is no averment that the scheme is mala fide. There is no allegation that the directors represented incorrect statement. It appears that one of the grounds in appeal is that the schemeis mala fide but there is nothing in the pleading and there is no allegation. The allegation that is made with regard to the mismanagement may be relevant in other proceedings under the Act. Further, allegation of mismanagement would not be relevant at this stage because the statute provides sufficient safeguards on the application of the company before the Court for amalgamation. Sections 17, 391, 394 of the Companies Act are statutory safeguards. The Court will investigate the matters and if relevant the Court will express its opinion on the scheme. The statute particularly, Sections 17, 391, 394 contemplate notice to Registrar in one case and notice to the Central Government in the other case.

18. For these reasons I am of opinion that the learned Judge was correct in his order. The judgment is affirmed. The appeal is dismissed. Costs of the appeal will be costs in the cause. Certified for two counsel. Interim order is vacated.

S.K. Mukherjea, J.

19. I agree.


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