Back
2005 Supreme(SC) 1016
2005(5) Supreme 631
Supreme Court of India
(From Calcutta High Court)
S.N. Variava & Dr. AR. Lakshmanan, JJ.
Bhagwati Developers —Appellant
versus
Peerless General Finance & Investment Co. & Ors. —Respondents
Civil Appeal No. 12640 of 1996
Decided on 9-8-2005
Counsel for the Parties :
For the Appellant : C. Mukund, Ashok Jain, Pankaj Jain and Bijoy Kumar, Jain, Advocates.
For the Respondents : Ashok Desai, Bhaskar P. Gupta, Sr. Advocates, Abhijit Chatterjee S. Sukumaran, A. Deb Kumar, Ramesh Babu M.R., Ms. Radha Rangaswamy, Pradeep Malik, Advocates.
Headnote:Constitution of India—Article 136 —Directions by Reserve Bank of India to respondent Investment Company and one such direction was that depositors’ money must be shown in their balance sheet as a “liability” instead of “income”—Respondent Company issued notice calling for an AGM to consider to issue Bonus Shares out of Revaluation Reserve—Appellant filed suit and appeal to restrain respondent from issuing Bonus Shares—High Court found respondents were entitled to issue Bonus Shares out of Revaluation Reserve—Appeal—Article 182 of Articles of Association of Company—Words “available for dividends” would be applicable to all categories—High Court was wrong in concluding that words applied only to last category i.e. funds of the Company or in hands of the Company—Article 182 authorised Company to issue Bonus shares out of reserve arising from revaluation of capital assets and final conclusion reached by High Court called for no interference.
Held : For consideration of the rival arguments Article 182 would have to be broken up in the following manner:
“Any General Meeting may resolve that any amounts standing to the credit of
(a) Share Premium Account,
(b) Capital Redemption Reserve Account and
(c) any monies, investments of other assets forming part of the undivided profits including profit or surplus monies arising from (i) realization and (ii) where permitted by law, from the appreciation in value of any capital assets standing to the credit of General Reserve, Reserve or any Reserve Fund or any other Fund of the Company or in the hands of the Company and available for dividends.”
If read in this manner it is clear that the words “available for dividends” would be applicable to all categories. The High Court was thus wrong in concluding that these words only applied to the last category i.e. funds of the company or in the hands of the company. However, it must be seen that the word “Dividend” wherever it appears in the Articles also includes “Bonus”. Thus the words “available for dividends” would necessarily mean “available for dividend/bonus”. Article 182 itself provides that where the law permits issuing of bonus from appreciation of value in the capital assets the same could be done. If read in the manner suggested by the Appellants this portion of Article 182 i.e. issuing of bonus out of Revaluation Reserves would be rendered otiose. So would certain other portions of Article 182 viz. the provision regarding issuing of bonus out of Share Premium Account and Capital Redemption Reserve Account. Section 205 of the Companies Act provides that the dividend could only be issued out of profits of the company. The proviso to sub-section 3 of Section 205 permits capitalization of profits or reserve of a company for the purpose of issuing fully paid up bonus shares or paying up any amount for the time being unpaid on any shares held by the members of the company. Thus the Companies Act specifically permits utilization of reserve arising from revaluation of assets for purpose of issuing fully paid up bonus shares. When the law so permits, Article 182 authorizes the company to issue Bonus shares out of reserves arising from revaluation of capital assets. Thus, even though the interpretation given by the High Court on Article 182 is not correct, still the final conclusion that Article 182 does not prohibit issuance of Bonus shares is correct and requires no interference. It was next submitted on behalf of the Appellant that as the directions of the Reserve Bank of India had not been complied with the balance sheet of the Company did not reflect the true picture and in actual fact when the bonus shares were sought to be issued the Company was in a loss. On the other hand it was submitted on behalf of the Respondents that the Company had complied with the directions and had been granted time of 7 years to regularize its accounts. In our view it is not necessary for us to go into this controversy as it will always be open to the Reserve Bank of India to take such action as is available to it in law, if it feels that its directions were not complied with. (Paras 11, 12 and 13)
Judgment
S.N. Variava, J.—This Appeal is against the Judgment dated 23rd August, 1995 passed by the Calcutta High Court.
Briefly stated the facts are as follows :
2. The Respondents are in Investment Company. The Reserve Bank of India had issued certain directions to them. The Respondents had challenged the authority and power of the Reserve Bank of India to issue such directions. That challenge ultimately culminated in this Court. By the Judgment reported in (1992) 2 SCC 343 [Peerless General Finance and Investment Co. Limited vs. Reserve Bank of India] this Court held that the Reserve Bank of India had authority and power to issue direction in order to provide stable, identifiable and monitor able method of operation. This Court held that such directions would ensure security to the depositors at all times and also make the account of the company accurate, accountable and easy to monitor. This Court held that the directions given by the Reserve Bank of India were just, fair and reasonable not only to the depositors but, in the long run, to the very existence of the Respondent Company and its continued business itself. One of the directions was that the depositors’ monies must be shown, in their balance sheets, as a “liability” instead of “income” as had been done by the Respondent Company. As this Court held that the directions issued by the Reserve Bank of India were valid the Respondents became liable to transfer Rs. 217.34 crores to the Depositors’ A/c by debiting the Profit & Loss A/c with Rs. 217.34 crores. The Reserve Bank of India had, by a letter dated 11th March, 1992, called upon the Respondents to prepare its Balance Sheet in conformity with its earlier directions. It seems that the Respondent Company did not immediately comply with this direction but instead took a long period to show the Depositors’ money as liability.
3. The Respondent Company issued a notice calling for an A.G.M. to consider increasing the share capital of the company from Rs. 3 crores divided into 3,00,000 Equity Shares of Rs. 100/- each to Rs. 35 crores divided into 35,00,000 Equity Shares of Rs. 100/- each. The Notice also provided as follows:
“RESOLVED”
(a) That pursuant to the provisions of Article 182(1) of the Articles of Association of the Company, a sum of Rs. 31,08,36,000/- out of Rs. 73,82,87,261.60p. standing to the credit of Revaluation Reserve as per the Audited Accounts for the financial year ending on 31st March, 1994, be capitalized and accordingly, the Directors of the Company be and are hereby authorized and directed to appropriate the said sum of Rs. 31,08,36,000/- to and amongst the members of the Company whose names shall appear on its Register of Members on 7th November, 1994 being the Record Date for this purpose (hereinafter called “the said date”) in proportion to the Equity Shares held by them respectively in the Company as on the said date and to apply the said sum of Rs. 31,08,36,000/- in paying up in full of the unissued Equity Shares of the Company of Rs. 100/- each at par, such shares (hereinafter referred to as the “Bonus Shares”) be allotted, distributed and credited as fully paid up to and amongst such members in proportion of 15 (Fifteen) Bonus Shares for every existing Equity Share held by them respectively as on the said date and that the Bonus Shares so distributed shall, for all purposes be treated as an increase in the nominal amount of the Capital of the Company held by each such member and not as income.
(b) That the Bonus Shares so allotted shall always be subject to the terms and conditions contained in the Memorandum and Articles of Association of the Company and the Guidelines for Bonus Shares issued by SEBI.
(c) That such allotment of Bonus Shares to non-resident shareholders of the Company shall be subject to the approval of the Reserve Bank of India under the Foreign Exchange Regulation Act, 1973, if any.
(d) That the Bonus Shares so allotted pursuant to this resolution shall rank in all respec
