IN RE: MIRZA AHAMAD NAMAZI Vs. AND

JUDGEMENT

(1.) This is a Judge's Summons, to show cause why the alleged surrender of the shares, hold by respondents 1 and 2, and the forfeiture of the shares, held by respondents 3 to 6, should not be declared to be invalid, and why all the respondents herein should not be directed, to pay to the liquidators, the respective call amounts, and allotment monies, due in respect of the shares, held by them and for incidental reliefs. There are 9 respondents to this application. Respondents 2, 7 and 9 do not appear and they are declared ex parte. The 3 respondent is dead and the application is withdrawn as against him. The eighth respondent admits his liability and his letter is filed as Ex. K.

(2.) The contention of the first respondent is that he surrendered the shares to the company and the surrender was accepted by the directors. On behalf-of tht liquidator, who has taken out this Judge's summons, it is alleged that there were 4 directors in Madras, at the time when the resolution accepting the surrender was passed, and three only signed the resolution. There is no evidence that a fourth director was present in Madras at the time; for the evidence of Bhanu Prasad on the point is only hearsay. But under Rule 107 of the Articles of Association of the Madras Taxi and Transport Service Limited, 4 is the quorum for a Directors Meeting. The resolution which was parsed in circulation accepting the surrender of the 1 respondent's shares was signed by only three persons. On behalf of that respondent, Mr. Narasimhachari contends that Rule 114 says that a resolution in writing signed by all the Directors present in Madras, shall be, as valid and effectual, as if it had been passed, at a meeting of the Directors, duly called and constituted and so a resolution passed in circulation and signed by only three persons is valid. The argument that Rule 114 cuts down the number required for a quorum is opposed to common sense; for, if that contention is good, a resolution may be passed by two directors in circulation. When Rule 107 provides that the quorum for a meeting of the directors for despatch of business shall be 4, it can not be said that it was intended that the quorum should be cut down to any number less than 4, if there is no meeting, for the despatch of business, and if it is to be transacted by getting the consent of the directors in circulation.

(3.) Granting for argument's sake that the resolution is according to the rules, I am unable to accept the contention that the surrender of shares is permitted by law, so as to enable the directors, or the company, to reduce its capital Rule 118(5) gives power to the directors to accept surrender of shares by share-holders; bat this power which is an unusual power, granting that it is valid, is subject to restrictions. Table A of the Indian Companies Act does not contain any clause, empowering any company to accept surrender of shares. The Indian Companies Act permits forfeiture of shares on certain grounds; but to give an unlimited or wide power to a company to accept surrender of shares is, I think, opposed to the principle that a company cannot buy its own shares and to the principle that a company can reduce its capital, only with the permission of the Court and on such terms and conditions as it may impose. The power given by Rule 118(5) is very wide. It is in these terms: To accept from my member on such term and conditions as shall agreed a surrender of his shares or stock, or part thereof.