SRIVILLIPUTTUR PERMANENT FUND LIMITED Vs. STATE

JUDGEMENT

(1.) THIS is a petition on behalf of the Srivilliputtur Permanent Fund Ltd. under Section 12 of the Indian Companies Act for confirmation of the special resolutions Nos. 1 and 2 altering the memorandum of association. The capital of the company was originally Rs. 1, 09, 956 divided into 1, 309 shares of Rs. 84 each to be paid in monthly instalments of one rupee and this was subsequently raised to Rs. 21, 00, 000 divided into 25, 000 shares. Under the rules of the company, the shareholders who subscribe regularly at Rs. 1 per month for 84 months should be paid a sum of Rs. 100, the difference between Rs. 84 and Rs. 100 representing the interest on the Deposits of Re. 1 which they pay every months towards the share capital.

(2.) THIS is what is generally termed as recurring deposits in Nidhis and funds where a subscriber who subscribes one rupee a month for 84 months would be entitled to receive from the company a sum of Rs. 100. The result is that the share capital so formed is liable to be repaid to the shareholders, whereas under the Indian Companies Act, such shares cannot be repaid on demand since they form the capital of the company. In view of this anomaly and since the Nidhi was registered under the Indian Companies Act, the attention of the company was drawn to this defect in the memorandum of association and they were asked to rectify it by providing for a permanent share capital and the present amendments to the memorandum of association, it is stated, will satisfy the requirements of the Indian Companies Act. There can be no doubt that this system of holding share capital is not in accordance with law and the provisions of the Indian Companies Act. If recurring depositors who are wrongly termed as shareholders after completion of the 84 months demand what they are entitled to and recover Rs. 100 each and if there are no other recurring depositors, there will be no share money with the company to constitute its capital. It has therefore become necessary for this company to alter the capital structure and to provide for a permanent capital.The present alteration is to substitute in para. 5 of the memorandum the following, viz., "that the share capital of the company was to be 1, 00, 000 divided into 1, 00, 000 shares of rupee on each". The second resolution is that the Fund may increase or reduce its share capital is such modes as they may be deemed necessary from time to time. By reason of the aforesaid alterations the company can not be assured of a share capital of Rs. 1, 00, 000 which would not be repayable to the depositors as is now the case. This is one of the defects, as pointed out by COUTTS TROTTER, C.J., in The Madras Native Permanent into limited companies, because their articles are usually drawn without regard either to the provisions of the memorandum or to the general law embodied in the Companies Act. It is to rectify this defect that the company has called for a meeting and passed the resolutions altering the memorandum of association. The respondents are husband and wife and they claim to be members of the company. They oppose the application on two grounds firstly that the extraordinary meeting has not been properly called for and no notices of the meeting as required have been served on the members, that the respondents had no notice and that therefore the resolutions passed at such a meeting are irregular and the same should not be approved. The second objection is that the result of the alteration of the memorandum of association is in fact to reduce the capital and the proper procedure should be to file an application under Section 55 of the Indian Companies Act when notice of the meeting should be given not only to members but also to creditors and depositors and the question of reduction of share capital could be gone into.

(3.) I am satisfied that the alterations of the memorandum of association are necessary in the interests of the company and its creditors and depositors, since there is now a permanent share capital assured to those whose interests may be considered to be safe. The resolutions stated in the petition are therefore confirmed. Prayer (a) is ordered. Petitioner will have its taxed costs from out of the estate.Ordered accordingly.