1. This is defendant's appeal from, the reversing judgment of the Second Additional District Judge, Bilaspur, delivered on 7th April 1943. The respondent, Baheshwarnath Bali, was in the service of the Bengal Nagpur Railway and the appellant is an association of railway servants which has been organised for the purpose of affording relief to its members or their nominees on their retirement from service. It is a registered body. It is a body which is incorporated under the Companies Act, 1913, with its registered office at Nagpur. The plaintiff became a member of the All India Railwaymen's Benefit Fund, Nagpur, on his application, dated 29th April 1932. That application is in a printed form which contains the following condition:
“I have understood the Memorandum and Articles of Association of the Fund and bind myself and claimants on my behalf to abide by the Rules of the Fund as they now stand or as modified from time to time.”
2. When he was enrolled as a member he was aged 42 years.
3. He made the requisite annual payments until he retired on 6th November 1940. He then applied for the amount due to him which the defendant association found to be Rs. 1216-11-0 on 22nd December 1940. Deducting the amount of the loan due by him and other charges, about which there is no dispute, the balance of Ss. 870-6-0 was paid to him, which he acknowledged by a receipt, dated 22nd December 1940. On 25th March 1941, the plaintiff (respondent) demanded by a notice, served on the company, rendition of accounts alleging that he was entitled to receive an amount calculated under Rr. 96, 97 and 98 of the articles of association which were in force in 1932 when he was enrolled as a member and that he was not bound by the resolutions of the extra general meetings of the association passed on 23rd September 1989 and 28th April 1940 whereby the original articles had been amended. His contention is that he was governed by the articles of the association as they existed on the date of his enrolment and that the association had no power to alter the articles so as to affect his interest.
4. The defendant resisted the claim on the ground that the Insurance Act (4 of 1938) abolished the dividing scheme which was the basis of Rr. 96, 97 and 98 in force in 1932 and that it necessitated amendment thereof and the registration of the association under the Trade Unions Act of 1926. Accordingly, meetings of the members of the association were convened on 23rd September 1939 and 28th April 1940 and the resolutions making the necessary amendments were unanimously passed and further that the plaintiff as a member of the association, who had agreed to abide by the rules of the fund as modified from time to time was bound by those resolutions and the consequent amendment of the articles of association. The amendment, which the resolutions introduced, was that a scheme known as guaranteed scheme was substituted for the original dividing scheme. The lower Court affirmed the defendant's contention and dismissed the suit. The lower appellate Court took the contrary view that the guaranteed scheme was wholly inconsistent with the contract which was made on the basis of the dividing scheme between the parties and that the adoption of the new scheme constituted a breach of the contract. It therefore held that the defendant association was bound to pay an amount calculated in accordance with the original articles of association as they existed in 1932 and remanded the case to the trial Court for further pleadings on the point. The lower appellate Court overlooked materiality of the Insurance Act of 1938, and it thought that it was fortified in its opinion by the case reported in A.I.R 1925 Cal. 690.1
5. The materiality of the Insurance Act, 1938, becomes apparent when one adverts to Rr. 96, 97 and 98. Rules 96 and 97 of the articles of association are framed by the All India Railwaymen's Benefit Fund, Limited. It is unnecessary to reproduce them as it is common ground that they are based on the principle of dividing scheme. That scheme left uncertain the number of claims among whom the amount ascertained at any particular time was to be distributed. It therefore contained an element of wager. That was hit by Section 52 of the Insurance Act, (4 of 1938) which prohibited business on dividing principle. The material part of that section runs as follows:
“No insurer shall after the commencement of this Act begin, or after three years from that date continue to carry on, any business upon the dividing principle, that is to say, on the principle, that the benefit secured by a policy is not fixed but depends either wholly or partly on the results of a distribution of certain sums amongst policies becoming claims within certain time limits, or on the principle that the premiums payable by a policy holder depend wholly or partly on the number of policies becoming claims within certain time limits.”
6. Then proviso 2 to sub-s. (1) of that section is as follows:
“Provided further that an insurer who continues to carry on insurance business on the dividing principle after the commencement of this Act shall withhold from distribution a sum of not less than forty per cent of the premiums received during each year after the commencement of this Act in which such business is continued so as to make up the amount required for investment under S. 27.”
7. The respondent retired on 6th November 1940 and his claim accrued on that day. The Insurance Act, 1938, had already come into force on 26th February 1938. Consequently, the respondent's contract with the association on the basis of Rr. 96 and 97, as existed in 1932 when he was admitted as a member of the All India Railwaymen's Benefit Fund, became unenforceable. Assuming for the sake of argument at this stage that the association had no power to amend the rules of the association, the respondent would be governed by the above cited proviso 2 to Section 52(1) of the Insurance Act, with the result that before distribution of the ascertained amount among the various claimants the association would have to withhold a sum not less than 40 per cent of the premiums received during the year notwithstanding that the original rules of the association provided for 10 per cent, only. I have had calculations made in the light of proviso 2 to Section 52(1) of the Insurance Act, 1938, and according to the calculations the amount which would fall to the share of the respondent would be Rs. 1194-2-6 as against Rs. 1216-11-0 which the defendant association found due to the respondent. It is clear that the respondent has received more than was due to him under the law. He can therefore have no ground for any grievance.
8. This is in reality sufficient to justify reversal of the lower appellate Court's decree. I would, however, consider the other point, namely whether or not the association had power to amend the rules as they did in order to meet the situation created by the promulgation of the Insurance Act (4 of 1938). It is pertinent to observe that the association was incorporated and registered under the Companies Act of 1913. Section 20 of that Act authorises a company to alter or add to its articles by a special resolution and declares that any alteration or addition so made shall be as valid as if originally contained in the articles and be subject in like manner to alteration by special resolution. It has been held that a company cannot deprive itself of the statutory power to alter its articles of association either by statement in the articles or by a contract that they shall not be altered: (1897) 1 Ch. 361,2 33 Mad. 36,3 (1900) 1 Ch. 656,4 and (1894) 1 Ch. 200.5 Section 20 of the Indian Companies Act, is apparently based on Section 10 of the English Companies Act, 1929. The only limit that is placed on the generality of the terms contained in that section is that the section cannot be used to oppress or defraud a minority of shareholders, or so as to violate any statutory provision or principle of law but that the power, like other powers, must be exercised fairly and according to law. In (1900) 1 Ch. 656, Lindley M.R observed:
“The power thus conferred on companies to alter the regulations contained in their articles is limited only by the provisions contained in the statute and the conditions contained in the company's memorandum of association…. It must be exercised, not only in the manner required by law, but also bona fide for the benefit of the company as a whole, and it must not be exceeded. These conditions are always implied, and are seldom, if ever, expressed. But if they are complied with I can discover no ground for judicially putting any other restrictions on the power conferred by the section than those contained in it.”
9. The same view was expressed by Scrutton, L.J in (1927) 2 K.B 96 at p. 23. The principle enunciated by Lindley M.R received assent of the House of Lords in (1906) A.C 35.7 There can be no question as to the power of the All India Railwaymen's Benefit Fund to amend their articles of association as they did by the resolutions passed on 23rd September 1939 and 28th April 1940. The respondent had notice of both these meetings and he has said nothing against the regularity of the resolutions passed. The lower appellate Court misdirected itself in relying on 52 Cal. 239 as an authority endorsing its view. It permitted itself to be guided more by the decision than by the reasons for that decision. In that case the principle was accepted that a share-holder in the company is presumed to know that an alteration in the article, not inconsistent with the objects set out in the memorandum of association, and if it is made bona fide in the interest of the company, would be bound by such an Alteration. The claim in 52 Cal. 239 was to recover a definite sum of Rs. 20,000 as being the principal sum due under a policy of insurance. That was a clear contract which was binding upon the company. It was argued on behalf of the company (as will appear from p. 245) that the company was not bound to pay that sum out of its General Fund but out of the Combined Policy Holders Account which was insolvent. That contention was overruled since though the company had a right to alter its articles, the effect of the alteration of the articles was that it involved a fundamental breach of the contract which the company had previously entered into with the plaintiff and in respect of which the article was inapplicable.
10. The facts of this case are different. The contract, as originally entered into by the association with the member (the respondent in the present case), was not for payment of a definite sum but for a sum which had to be ascertained on the basis of the number of the claims arising when the member's claim matured. That contract became unenforceable except as provided by proviso 2 to Section 52(1) of the Insurance Act, (4 of 1938). Since the association, which was registered as a company under the Companies Act of 1913, had power to alter their articles in good faith for the benefit of the association as a whole, the alteration was binding upon the share-holder (member). The calculation of the respondent's claim made on the basis of that alteration was decidedly more beneficial to him (the plaintiff-respondent) than the one made in accordance with Proviso 2 to S. 52(1) ibid, which was binding on him. The result is that the lower appellate Court's order remanding the case is set aside and the decree dismissing the plaintiff-respondent's suit is restored with costs in all the Courts. Counsel's fee Rs. 50.
11. Appeal allowed.