NARAYANLAL BANSILAL Vs. MANECKJI PETIT MANUFACTURING COLD

JUDGEMENT

(1.) This suit raises an important and rather difficult question, and although no evidence has been recorded, the arguments have lasted several days. This is a suit by a shareholder in the Maneckji Petit Manufacturing Company, Limited, on behalf of himself and all other shareholders against the company for a declaration that the extraordinary general meeting of February 15, 1927, was not duly convened in accordance with the law, and that the resolutions purporting to have been passed thereat are invalid and inoperative and void, and that the company, its directors, servants and agents may be restrained by an order and injunction from carrying into effect the said resolutions.

(2.) The issues are:-- 1. Whether the notice referred to in the plaint dated February 4, 1927, was insufficient, invalid or ineffective in law? 2. Whether the meeting of February 15, 1927, was duly convened in accordance with law, and whether the resolutions passed thereat are valid and operative?

(3.) The only question in this case is of the sufficiency of the notice convening the meeting. The meeting in question was convened for the purpose of adopting new articles of association and entering into an agreement with the managing agents of the company. The case for the plaintiff is that the notice convening the meeting and the circular accompanying it did not give the shareholders information that important changes were in contemplation. Consequently they did not attend the meeting, and in their absence resolutions were passed bringing into force new articles of association and sanctioning an agreement with the managing agents by which the interests of the shareholders were seriously affected to their detriment. It is admitted that three of the directors are members of the firm of the managing agents D.N. Petit Sons & Co., and it is argued that this fact was concealed from the shareholders. The managing agents of the company have admittedly been the agents for fifty years ever since the mills were started, but up till now there had been no formal agreement between them and the company. It was at this meeting that a formal agreement was entered into, and the articles of association were brought up to date. There is no doubt that the alteration of the articles of association and the agreement entered into with the managing agents are matters of the greatest importance to the interests of the company. In the course of the arguments in this case counsel had dealt in detail with the numerous articles which have been altered, and the new articles and the terms of the agency agreement. It will be necessary to go into details, but put broadly, the changes in the articles are alleged to increase the powers and lessen the responsibilities of the directors and servants of the company, imposing a corresponding obligation upon the shareholders, and with regard to the agreement with the managing agents, the two main points are, first, that an agreement for compensation in the event of the mill being wound up has been made by which the agents are entitled to receive as compensation their average bonus for seven years prior to the date of winding up, and what is almost as important, a clause has been inserted by which in the event of the mills changing hands, it is to be a condition of the sale that the purchaser should employ the same managing agents. The managing agents are also given the power to assign or transfer the agency, and the company is compelled to employ as agents their transferees or assigns. Of course, if the shareholders so desire, they can enter into any agreement they like with the managing agents, and we are only concerned with the question of notice, but in considering the sufficiency of notice it is necessary to go into some of these details, especially in view of the large number of decisions of the Court of Chancery and the Court of Appeal in England which have been quoted in this case. I shall begin by setting out the notice and the circular accompanying it, because in judging of the sufficiency of the notice, the terms of the notice and circular are material. The notice, Ex. A, states the resolutions which are to be put before the shareholders, viz., (1) the adoption of the new articles of association and sanctioning the agency agreement referred to in Art. 147 of the new articles, and (2) alteration of the provisions of the memorandum of association of the company by authorising the investment of the funds in banks. No objection has been taken to the latter. The notice states that "A copy of the new articles of association together with a copy of the said agency agreement may be inspected at the registered office of the company at any time during office hours prior to the date of the meeting", This is a provision on which very great stress has been laid by the learned counsel for the company. This notice was accompanied by a circular, Ex. B, and as the case depends to a great extent on the terms of the circular, it will be necessary to give the substance of it. The circular says: [After setting out the circular the judgment proceeded:]