Kania, C.J:— 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…”.
3. 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].
4. Between 1957 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 the 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 notice 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. 50,00,00,000 (Rupees fifty crores) divided into 50,00,000 (fifty lacs) Shares of Rs. 100 (Rupees one hundred) each’.”
5. 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 s. 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. The submissions of Mr. Parekh, learned counsel for the appellants (plaintiffs) are that the Articles of Association of the said Company do not give any authority to the shareholders to amend Clause V of the Memorandum of Association and hence that clause either could not be amended at all or could be amended only by a Special Resolution, but not by an Ordinary Resolution as has been sought to be done in the present case. The next submission of Mr. Parekh was that, in any event and, irrespective of the provisions of Clause V of the Memorandum of Association, Article 5 of the Articles of Association of the said Company limited the share capital of the Company to Rs. 10,00,00,000/- and that this Aricle could not be amended, except by a Special Resolution. It was urged by him that, even assuming that Clause V of the Memorandum of Association was validly amended, still, in view of Article 5 of the Articles of Association, no shares could be issued in excess of the limit prescribed under Article 5 of the Articles of Association. It was also submitted by him that if there is any ambiguity in the construction of the relevant Articles of Association, then the past practice of amending Article 5 by a Special Resolution suggested that it was an accepted position that on a true construction of the Articles of Association of the said Company, the authorised share capital of the Company could be increased only by passing a Special Resolution.
6. 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 off 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…”.
7. 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.”
8. 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”.
9. 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.
10. Section 13 of The Companies Act deals with the requirements with respect to Memorandum of Association. Clause (a) of sub-section (4) of s. 13 runs as follows:
“Unless the company is an unlimited company, the memorandum shall also state the amount of share capital with which the company is to be registered and the division thereof into shares of a fixed amount.”
11. Sub-section (1) of s. 16 runs as follows:
“A company shall not alter the conditions contained in its memorandum except in the cases, in the mode, and to the extent, for which express provision is made in this Act.
12. Clause (2) of s. 16 provides that only those provisions which are required by s. 13 or by any other specific provision of the companies act to be stated in the Memorandum of Association will be deemed to be the conditions contained in its Memorandum. Relevant portion of sub-section (1) of s. 31 provides as follows:
“(1) Subject to the provisions of this Act and to the conditions contained in its Memorandum, a Company may, by special resolution, alter its articles”.
13. Section 94 deals with the power of a limited company to alter its share capital. The relevant part of that section reads thus:
“94(1) A limited company having a share capital, may, if so authorised by its articles, alter the conditions of its memorandum as follows, that is to say, it may—
(a) increase its share capital by such amount as it thinks expedient by issuing new shares;
(b) ………
(c) ………
(d) ………
(e) ………
14. Section 97, inter alia, provides that where a Company having a share capital, has increased its share capital beyond its authorised capital, it shall file with the Registrar notice of the increase of capital within thirty days after the passing of the resolution authorising the increase and the Registrar shall record the increase and also make necessary alterations in the Company's memorandum or articles or both. Sub-section (1) of s. 17, inter alia, provides that if the registered office of the Company is to be changed from the place mentioned in the Memorandum of Association to another State, this can be done only by a Special Resolution and after confirmation by the Company Law Board on a petition filed for that purpose.
15. A perusal of the Articles of Association of the said Company shows that there is no article in the Articles of Association referring expressly in terms to the alteration of the Memorandum of Association. The question, however, is whether this leads to the conclusion that there is no provision in the Articles of Association for amending Clause V of the Memorandum of Association as urged by Mr. Parekh. The determination of this question, in our opinion, to a large extent turns on the interpretation of Article 62. Article 62, as we have pointed out, in terms, provides that the Company may from time to time in its General Meeting increase its share capital by the issue of new shares of such amount as it thinks expedient. It was submitted by Mr. Cooper that this Article gives a power to the Company at its General Meeting to increase its Share Capital beyond the limits prescribed in the Memorandum of Association, by an Ordinary Resolution providing for the issue of new shares. It was submitted by him that the share capital referred to in this Article is the very share capital referred to in the Memorandum of Association as well as Articles of Association and that in view of this provision it was open to the Company to increase its authorised share capital by passing an appropriate Ordinary Resolution and, on the passing of such Resolution, the Memorandum would automatically stand altered in accordance with the Resolution. In the present case an Ordinary Resolution was passed expressly altering Clause V of the Memorandum of Association to provide for raising the share capital of the said Company to Rs. 50,00,00,000/-. In our view there is considerable substance in this submission. It will be noticed that s. 94 of the Companies Act deals with the powers of the limited company to alter its share capital. We have already set out the relevant part of sub-s. (1) of s. 94. A reading of that sub-section shows that it deals with the question of increase in the share capital of a Company and cl. (a) of sub-s. (1) of that section provides that this can be done by issuing new shares. It is a well settled position in law, and this is not disputed by learned counsel for the appellant, that the increase of share capital referred to in s. 94 is the increase of authorised share capital. If an authority were required for that purpose, we may refer to the decision of the Rajasthan High Court in The Mahalaxmi Mills Co. Ltd. v. State. It was held in that case that the increase of share capital within the meaning of s. 97(1) takes place by creation of new shares simpliciter and it is not necessary that to amount to such increase the new shares should have been offered, allotted or the names of the shareholders registered in the books of the company. So even though the shares have not been offered or allotted to any one, they are still “issued” within the meaning of s. 94(1)(a) when they have been created by special resolution of the Company and consequently default in giving a notice to the Registrar as required by s. 97(1) and (2) is punishable under sub-cl. (3) of the said section. Now, Article 62 in the Articles of Association of the said Company is substantially in pari materia with sub-s. (1) of s. 94 of the Companies Act and provides that the Company may in General Meeting increase its share capital by the issue of new shares. In view of the parity of language, it is, in our view, clear that the share capital referred to in this Article is the authorised share capital of the Company, and not the issued share capital, as was submitted by Mr. Parekh. The similarity in language between s. 94(1) and Article 62 would clearly lead to the conclusion that what is referred to in Article 62 was the same share capital as referred to in sub-s. (1) of s. 94, namely the Authorised Share Capital or the nominal share capital of the Company. In our view, therefore, Article 62 clearly deals with the increase in the Authorised Share Capital of the Company and provides that this can be done by the Company in its General Meeting. This Article, in our view, confers a power on the said Company to amend the capital clause, namely Clause V in its Memorandum of Association and the submission of Mr. Parekh that there is no provision in the Articles of the said Company for amending the said clause must be rejected. We may also mention that if we interpret the expression “Share Capital” in Article 62 as meaning the “Issued Capital”, and not “Authorised Share Capital”, we would render nugatory the provisions of Article 10 which clearly provides that it is open to the Directors to allot the shares which are already created but not allotted, as they may from time to time deem fit. Such an interpretation cannot be given. It is, therefore, not possible to interpret the expression “Share Capital” in Article 62 as limited to “Issued Capital” as urged by Mr. Parekh.
16. It was submitted by Mr. Parekh that even if Article 62 deals with the power to increase the Share Capital, this could be done only by a Special Resolution. It was, on the other hand, contended by Mr. Cooper that it was perfectly open to the said Company to increase the share capital, as contemplated in Article 62, by an Ordinary Resolution. A plain reading of Article 62 shows that the Article does not specify that the increase in the share capital is to be effected by any particular type of Resolution, namely whether this could be done by an Ordinary Resolution or by a Special Resolution. In this connection reference may be made to the observations in Palmer's Company Law, Twenty-Third Edition, at page 747 in paragraph 56-04. This paragraph is under the Heading “Ordinary Resolutions”, and the relevant observations run thus:
“Where it is provided that ‘the company in general meeting may’ do some act, this means that an ordinary resolution is required to be passed. There is no definition in the Acts of ‘ordinary resolution’. It means a resolution which requires a simple majority of the persons who, being present and entitled to vote upon the resolution, do vote.”
17. We may also refer to the observation in Gore-Browne on Companies, Volume I in paragraph 15.2, which deals with the topic of Increase of Capital. This observation is very material and runs as follows:
“Where a company does not by its articles specify the kind of resolution required to increase its capital, it is unnecessary to do more than pass an ordinary resolution. Where a company had no power to increase its capital, it was held that a single special resolution, purporting to make the increase, sufficed, for this in substance effected the alteration of the articles so as to authorize the increase.”
18. In the light of this legal position, in our opinion, as Article 62 does not specify that the power to increase its capital can be exercised by the said Company only by a Special Resolution, it must follow that this power can be exercised by an Ordinary Resolution. It may be mentioned that it was submitted by Mr. Parekh that in view of the provisions of Article 5 and s. 31 we should read Article 62 in such a manner that the increase of the Share Capital referred to therein can only be effected by a Special General Resolution. We see no warrant to do this. As we have already pointed out, there is ample authority to show that, where there is no particular type of Resolution referred to in the Articles of Association as required in order to enable the Company to do any particular act, an Ordinary Resolution to that effect will suffice. Merely because the amendment of Article 5 would require a Special Resolution, it cannot lead to the conclusion that the provisions of Article 62 must be read in such a manner as to so limit the power of the Company to increase the Share Capital that this can be done only by passing a Special Resolution. We may mention that if such an interpretation were given, it would practically render nugatory the provisions of Article 62; because even in the absence of Article 62 if a Special Resolution were passed increasing the Share Capital of the Company it would have the effect of amending Article 5 and duly increasing the Share Capital so that Article 62 would be rendered redundant. It is not possible to give such an interpretation.
19. We now come to the next submission of Mr. Parekh that, even assuming that the Resolutions passed as aforesaid increasing the Authorised Capital or Share Capital of the said Company have the effect of amending Clause V of the Memorandum of Association, still the provisions of Article 5 of the Articles of Association continue to remain unchanged in the absence of any Special Resolution being passed and the Ordinary Resolution passed for increasing the capital is void and inoperative as it conflicts with Article 5. It was pointed out by him that under s. 31 of the Companies Act, the Articles of Association of a Company can be amended only by a Special Resolution and as no Special Resolution was passed, Article 5 remains in its earlier form whereby the Authorised Share Capital of the said Company is limited to Rs. 10,00,00,000/-. It is true that the Articles of a Company can be altered only by passing of a Special Resolution as submitted by Mr. Parekh in view of the provisions of s. 31 of the Companies Act. In the present case, however, it is significant that Article 5 is in substance similar to Clause V of the Memorandum of Association of the said Company and it states, inter alia, that
“The Authorised Capital of the Company is Rs. 10,00,00,000/-, divided into 6,48,000 equity shares of Rs. 125/-… divided into…”.
(emphasis supplied).
20. It was submitted by Mr. Cooper that the word “is” used in the said Article indicates that the Article is merely descriptive of the existing limit of the authorised capital of the Company, and that, in effect, the said Article is a mere statement of the existing state of affairs and is not intended to impose a limit on the Authorised Capital. It was alternatively submitted by Mr. Cooper that the said Article if read as limiting the authorised capital of the Company, would be rendered inconsistent with Article 62, which provides for the increase of Share Capital by an Ordinary Resolution. It was submitted by Mr. Cooper that in view of this we should read Article 5 as if the words “Subject to the provisions of Article 62” were added at the beginning of Article 5 or read Article 62 as if the words “Notwithstanding the provisions of Article 5” had been inserted at the beginning of that Article. In this connection Mr. Cooper placed very strong reliance on the decision of the Privy Council in Ram Kissendas Dhanuka v. Satya Charan Law. In that case Article 109 of the Articles of Association of the Company in question prescribed a maximum and a minimum number of directors without any qualifying words. Another Article, namely Article 126, authorised the Company in a general meeting, from time to time, to increase or reduce the number of directors subject to the provisions of s. 83A(1) of the Indian Companies Act, 1913. It was held that the provisions of these two Articles were textually inconsistent, and hence they must be read subject to cross references reconciling them. It was held that in order to reconcile Articles 109 and 126 and to give effective content to the opening words of Article 126, it was necessary to imply some such opening words as “subject to Article 126” in article 109 or “notwithstanding anything contained in Article 109” in Article 126. It was further held that in this view the company had the power to increase the number of directors beyond the maximum prescribed by Article 109 by an ordinary resolution and consequently special resolution altering Article 109 for the purpose was not required. In our opinion, the submission of Mr. Cooper must be accepted. As we have already pointed out, if Article 5 is to be read as an unqualified limitation on the increase in the Authorised Share Capital of the Company, it becomes inconsistent with the provisions of article 62, as article 62 clearly authorises an alteration of the Capital clause by passing an Ordinary Resolution and the two Articles would be textually inconsistent. In view of this, in our opinion, it would be proper to read Article 5 as if the words “Subject to the provisions of Article 62” were included at the beginning of that Article or we must read Article 62 as if the words “Notwithstanding the provisions of Article 5” were included at the beginning of that Article. This is clearly permissible in view of the aforesaid decision of the Privy Council in Ram Kissendas Dhanuka (supra). In view of this, we do not consider it necessary to go into the correctness of Mr. Cooper's contention that Article 5 merely describes the existing state of affairs in respect of the share capital of the said Company and is not intended to act as providing a limit on the amount of Authorised Share Capital. We may mention that Mr. Parekh referred to the decision of a learned single Judge of this Court in Navnitlal Chabildas…Plaintiff; v. Scindia Steam Navigation Co. Ltd.…Defendants., but fairly conceded that the said decision need not be considered, as it was impliedly over-ruled by the aforesaid decision of the Privy Council in Ram Kissendas Dhanuka (supra).
21. It was urged by Mr. Cooper in the further alternative that even if Article 5 were to be read as imposing a limit on the Authorised Share Capital of the Company and without any such words as aforesaid being read before it, even then, in view of the amendment of Clause V of the Memorandum, the said Article became inconsistent with Clause V of the Memorandum of Association and is of no legal effect after the amendment of Clause V of the Memorandum of Association as set out earlier and to the extent of inconsistency the said Article would have no legal effect. In this connection Mr. Cooper drew our attention to the statement in Halsbury's Laws of England, Fourth Edition, Volume VII, at page 122, which runs as follows:
“In-consistency between memorandum and articles. The articles are subordinate to the memorandum; any clause in them, if and so far as it is at variance with the memorandum, is to that extent overruled by it and inoperative, the memorandum being the charter of the company and defining its powers, while the articles of association play a subsidiary part, and define the duties, rights, and powers of the governing body as between themselves and the company at large…”.
22. In our opinion, the aforesaid submission of Mr. Cooper deserves to be accepted and the limit imposed by Article 5 of the Authorised Share Capital of the said Company must be regarded as nugatory to the extent that it is inconsistent with Clause V of the memorandum, and of no legal effect.
23. As far as the argument of Mr. Parekh on past practice is concerned, it is not possible to accept the same. In our opinion, the relevant provisions of the articles are quite clear and permit the increase of the Authorised Capital of the Company by passing of an ordinary Resolution as contemplated by Article 62. In view of this, it is not necessary to consider the past practice to arrive at the correct construction of the Articles.
24. In the result, there is no merit in the appeal and it is dismissed with costs.
25. As it is agreed that the suit also should stand disposed of in accordance with the decision in this appeal, we direct that the suit will stand dismissed with no order as to costs.
26. Mr. Cooper states that the statement made by him regarding the issue of new shares will be operative till 2.00 p.m on 16th February, 1987. Mr. Parekh applies for leave to appeal to the Supreme Court. Mr. Cooper opposes the application. In our view, no such substantial question of law of general importance arises in this case which needs to be determined at the hands of the Supreme Court. Application rejected.
27. Appeal dismissed.
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