MIHEER HEMANT MAFATLAL Vs. MAFATLAL INDUSTRIES LTD

JUDGEMENT

(1.) THIS is an appeal against a judgment and order of a learned single judge dated October 20, 1986 dismissing the Appellants' Notice of Motion No. 2264 of 1986 taken out in the aforesaid Suit No. 2614 of 1986 filed on the Original Side of this Court. Although the appeal is against the dismissal of Notice of Motion, it is agreed by counsel that the decision in this appeal will govern the decision of the suit, and that the suit should be treated as disposed of by the decision in this appeal. Counsel on behalf of both the parties agreed that the suit shall be disposed of as aforesaid without leading any oral evidence and that all points not taken up before us were expressly given up.

(2.) THE facts giving rise to this appeal lie within a fairly narrow compass. The respondent Company, namely Mafatlal Industries Limited (referred to hereinafter as 'the said Company') is a Public Limited Company incorporated under the provisions of the Indian Companies Act, 1913. The said Company was incorporated on January 20, 1913. Clause V of the Memorandum of Articles of the said Company, as it stood before the amendment which is challenged in the suit, provided thus: The Authorised Capital of the Company is Rs. 10,00,00,000/ - divided into 8,00,000 shares of Rs. 125/ - each with power to increase or decrease the Capital of the Company or to decrease the number of shares or to increase or decrease the face value of the shares in accordance with the Act in force from time to time.... Article 5 of the Articles of Association of the Company, as it stood prior to the disputed amendment, provided, inter alia, as follows: The Authorised Capital of the Company is Rs. 10,00,00,000 (Rupees ten crores) divided into 6,48,000 (six lacs forty -eight thousand) Equity Shares of Rs. 125 (Rupees one hundred twenty -five) each and 1,52,000 (One lac fifty -two thousand) Unclassified Shares of Rs. 125/ - (Rupees one hundred twenty -five) each.... (underlining supplied) [herein indicated in italics -Editor]. Between 1557 and 1973 the Authorised Capital of the Company was increased on a number of occasions. On each of these occasions the increase was effected by the passing of a Special Resolution amending Article 5 of the Articles of Association of the said Company. The position at the time when the disputed amendments were effected was that ths authorised share capital of the said Company was Rs. 10,00,00,000/ - (Rupees ten crores) and the actual issued share capital was Rs. 8,10,00,000/ - consisting of 6,48,000 shares of Rs. 125/ -each. On June 26, 1986 a notice was given by the said Company convening an annual general meeting of the shareholders to be held on August 23, 1986, inter alia, to consider certain resolutions for the amendment of the Memorandum of Association and to increase the authorised capital of the said Company from Rs. 10,00,00,000/ - to Rs. 50,00,00,000/' -. Item 10 of the said notica proposed that an ordinary resolution should be passed providing, inter alia, that each of the existing equity shares of Rs. 125/ - in the capital of the Company on which the sum of Rs. 125/ - is credited as. paid -up be sub -divided into one full Equity share of Rs. 100/ -, upon which the sum of Rs. 100/ - shall be credited as paid -up and a fractional certificate of Rs. 25/ - representing one -fourth of an equity share of Rs. 100/ - resulting upon such sub -division, upon which the sum of Rs. 25/ - shall be credited as paid -up. Resolution No. 11 was to the effect that the Authorised Share Capital of the Company should be increased to Rs. 50,00,00,000 divided into 50,00,000 shares of Rs. 100/ -each. Item 12 of the said Notice was as follows: 12. To consider and, if thought fit, to pass the following Resolution as an ORDINARY RESOLUTION, with or without modifications: Resolved that the Memorandum of Association of. the Company be and is hereby altered as follows: In Clause V of the Memorandum of Association the figures and words Rs. 10,00,00,000 divided into 8,00,000 shares of Rs. 125 each' be substituted by the figures and words Rs. 50,03,00,000 (Rupees fifty crores) divided into 50,00,000 (fifty lacs) Shares of Rs. 100 (Rupees one hundred) each. Item 13 was to consider passing a resolution that the existing Article 5 of the Articles of Association should be deleted. On August 22, 1986 it was decided that no resolution would be proposed at the annual general meeting for deleting Article 5 of the Articles of Association. On August 23, 1986 the Annual General Meeting of the said Company was held and the aforesaid resolutions at item Nos. 10, 11 and 12 were passed as Ordinary Resolutions. The resolution proposed at item 13 for deleting Article 5 was dropped. On the same day the defendant Company gave notice to the Registrar of Companies setting out that by the aforesaid resolutions the capital of the Company was increased and the changes should be made by the Registrar in accordance with the provisions of Section 97 of the Companies Act. 1956. On September 24, 1986 the present suit No. 2614 of 1986 was filed by the plaintiffs as shareholders holding 26% of the share capital of the said Company in which it was contended that the said resolutions set out in items 10, 11 and 12 of the said notice dated June 26. 1986 were illegal, null and void and not binding. In the said suit the plaintiffs took out the aforesaid Notice of Motion for restraining the defendant Company, namely the said Company from implementing the aforesaid resolutions at items 10. 11 and 12 of the said notice,' a copy of which is annexed as Exhibit 'C to the plaint. This Notice of Motion was dismissed by the learned trial Judge by the impugned judgment and order and the plaintiffs have come in appeal against the said judgment and order.

(3.) IN order to consider the submissions of Mr. Parekh it is desirable to take note of certain provisions in the Memorandum of Association and Articles of Association of the said Company and of the relevant provisions of the Companies Act, 1956. We have already referred to the provisions of clause V of the Memorandum of Association and Article 5 of the Articles of Association. The relevant portion of Article 10 of the Articles of Association runs as follows: Subject to the provisions of Section 81 of the Act and these Articles the Shares in the Capital of the Company for the time being shall be under the control of the Directors who may allot or otherwise dispose oft' the same or any of them to such persons, in such proportion and on such terms and conditions...as they may from time to time think fit.... Article 62 of the Articles of Association is material. That Article comes under the heading 'Increase, Reduction and Alteration of Capital' and runs as follows: 62. The Company may from time to time in General Meeting increase its Share Capital by the issue of new shares of such amount as it thinks expedient.' Marginal note against this Article is 'Increase of Capital'. Article 63 deals with the conditions subject to which new shares may be issued and Clause (3) of that Article runs as follows: Except so far as otherwise provided by the conditions of issue or by these presents any Capital raised by the creation of new shares shall be considered part of the original Capital, and shall be subject to the provisions herein contained with reference to the payment of calls and instalments, transfer and transmission, forfeiture, lien, surrender voting and otherwise. Article 66 deals with the power of division and sub -division of the Share Capital. That Article confers the said power on the Company in General Meeting to be exercised by Ordinary Resolution subject to the conditions of its Memorandum.