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HIGH COURT OF CALCUTTA
A. N. Ray
RAGHU NANDAN NEOTIA - Appellant
Versus
SWADESHI CLOTH DEALERS LTD. - Respondent
Suit 573 Of 1963
Decided On : AUGUST 22, 1963
COMPANIES ACT - DIVIDEND - DECLARATION - ANNUAL GENERAL MEETING - ARTICLES OF ASSOCIATION - ULTRA VIRES - INJUNCTION - REPRESENTATIVE SUIT - AMENDMENT OF PLAINT - LEAVE - FRESH LEAVE - RELIEF - COSTS.
Fact of the Case:
The plaintiff, a shareholder of the defendant company, filed a suit for a declaration that the notice dated March 1, 1963, is null and void, and that the resolutions mentioned in the purported notice dated March 1, 1963, are illegal, unlawful and ultra vires the articles of the defendant company. A further declaration is asked for that the general meeting of the company held on March 30, 1063 and the resolutions purported to be passed thereat are illegal and ultra vires and of no effect, and not binding on the plaintiff and other share-holders. An injunction is asked for to restrain the defendants from holding meeting and a further injunction to restrain the defendants from implementing or giving effect to the resolution which may be passed at the meeting. An injunction is also asked for to restrain in defendants from implementing or giving effect to the resolutions which were purported to be passed at the meeting.
Finding of the Court:
1. The declaration of dividend is a matter pertaining to the annual general meeting and the recommendation for the declaration of any dividend for any particular year has to be made by the Board of Directors of the Company for that very year. 2. The present Board of Directors could not recommend the declaration of dividends for the financial years ending 31st March, 1961, and 31st March, 1962. 3. The declaration of dividend for the financial years ending 31st March, 1961 and 31st March, 1962 could not be made retrospectively and with reference to these years accounts whereof were closed. 4. Article 178 of the Articles of Association of the defendant company is ultra vires and of no effect. 5. The notice dated March 1, 1963, whereby an extraordinary meeting was called to be held on March 30, 1963 for passing resolution that dividends for the year ending 31st March 1961, at Rs. 10/- per share subject to deduction of tax and for the year ending 31st March, 1962, at Rs. 80/- per share subject to deduction of tax was bad, illegal and ultra-vires the powers of the company. 6. The general meeting of the share-holders of the company held on March 30, 1963 and the resolutions passed recommending dividend for the year ending 31st March, 1961, at Rs. 10/- per share and for the year ending 31st March, 1962, at Rs. 80/- per share are illegal, ultra vires the Companies Act, and are not binding on the plaintiff. 7. The suit was instituted in a representative capacity and since no leave has been obtained under O. I R. 8 at the time of obtaining the amendments, the amendments are in the individual character of the plaintiff. However, no fresh leave was necessary as the amendment of the plaint is obtained in the suit and the leave enures to the benefit of the plaintiff. 8. The plaintiff is entitled to a declaration that the notice dated March 1, 1963, is null and void, and that the resolutions mentioned in the purported notice dated March 1, 1963, are illegal, unlawful and ultra vires the articles of the defendant company. A further declaration is asked for that the general meeting of the company held on March 30, 1063 and the resolutions purported to be passed thereat are illegal and ultra vires and of no effect, and not binding on the plaintiff and other share-holders. An injunction is asked for to restrain the defendants from holding meeting and a further injunction to restrain the defendants from implementing or giving effect to the resolution which may be passed at the meeting. An injunction is also asked for to restrain in defendants from implementing or giving effect to the resolutions which were purported to be passed at the meeting.
Issues: 1. Could dividends be declared only at an Annual General Meeting of the defendant company? 2. Is Article 178 of the Articles of Association of the defendant company ultra vires and of no effect? 3. Was the Board of Directors of the defendant company not authorised or empowered to issue the notice dated March 1, 1963? 4. Is the said notice bad and illegal on the grounds alleged in paragraph 15 of the plaint? 5. As the resolutions in question have been passed after the institution of this suit, is this salt maintainable? 6. Has the plaintiff been set up by the defendants Nos. 1 to 5 to institute the suit? 7. To what reliefs, if any, is the plaintiff entitled?
Ratio Decidendi: 1. The provisions of the Companies Act and the Articles of Association of the defendant company indicate that the declaration of dividend is a matter pertaining to the annual general meeting. 2. The recommendation for the declaration of any dividend for any particular year has to be made by the Board of Directors of the Company for that very year. 3. The present Board of Directors could not recommend the declaration of dividends for the financial years ending 31st March, 1961, and 31st March, 1962 as the accounts for those years have been passed at the annual general meetings and the accounts for those years are closed. 4. The declaration of dividend for the financial years ending 31st March, 1961 and 31st March, 1962 could not be made retrospectively and with reference to these years accounts whereof were closed. 5. Article 178 of the Articles of Association of the defendant company is ultra vires and of no effect as it is inconsistent with the provisions of the Companies Act. 6. The notice dated March 1, 1963, whereby an extraordinary meeting was called to be held on March 30, 1963 for passing resolution that dividends for the year ending 31st March 1961, at Rs. 10/- per share subject to deduction of tax and for the year ending 31st March, 1962, at Rs. 80/- per share subject to deduction of tax was bad, illegal and ultra-vires the powers of the company. 7. The general meeting of the share-holders of the company held on March 30, 1963 and the resolutions passed recommending dividend for the year ending 31st March, 1961, at Rs. 10/- per share and for the year ending 31st March, 1962, at Rs. 80/- per share are illegal, ultra vires the Companies Act, and are not binding on the plaintiff.
Final Decision: The plaintiff is entitled to a declaration that the notice dated March 1, 1963, is null and void, and that the resolutions mentioned in the purported notice dated March 1, 1963, are illegal, unlawful and ultra vires the articles of the defendant company. A further declaration is asked for that the general meeting of the company held on March 30, 1063 and the resolutions purported to be passed thereat are illegal and ultra vires and of no effect, and not binding on the plaintiff and other share-holders. An injunction is asked for to restrain the defendants from holding meeting and a further injunction to restrain the defendants from implementing or giving effect to the resolution which may be passed at the meeting. An injunction is also asked for to restrain in defendants from implementing or giving effect to the resolutions which were purported to be passed at the meeting. The company will pay and bear the costs of the Jaipuria defendants who came to defend the suit on the questions of law and it is because of the declaration of the dividend by the company that they have defended the suit. The added defendants who contested the suit assisted the Court and therefore the company should pay and bear their costs. One set of costs is to be divided amongst all persons who are contesting. The remuneration of Mr. Khaitan the Receiver is assessed at Rs. 1,000/-. The company will pay such remuneration. Certified for two counsel for all parties.
( 1 ) THIS is a suit for a declaration that the notice dated March 1, 1963, is null and void, and that the resolutions mentioned in the purported notice dated March 1, 1963, are illegal, unlawful and ultra vires the articles of the defendant company. A further declaration is asked for that the general meeting of the company held on March 30, 1063 and the resolutions purported to be passed thereat are illegal and ultra vires and of no effect, and not binding on the plaintiff and other share-holders. An injunction is asked for to restrain the defendants from holding meeting and a further injunction to restrain the defendants from implementing or giving effect to the resolution which may be passed at the meeting. An injunction is also asked for to restrain in defendants from implementing or giving effect to the resolutions which were purported to be passed at the meeting.
( 2 ) THE plaintiff is a share-holder of the defendant Swadeshi Cloth Dealers 'ltd. , and others hereinafter referred to as the company. Defendants Nos. 2, 3, 4 and 5 are directors of the company. They are impleaded in the suit because of allegations that they are giving effect to the resolutions though the Companies Act does not empower those defendants to recommend the payment of any dividend for the financial years ending the 31st March, 1961, and the 31st March, 1962. Those defendants are further impleaded on the allegation that neither the Companies Act nor the Articles of Association of the defendant company empower, authorise or permit those defendants as the Board of Directors of the company to issue any notice or to declare any dividend as payable to the shareholders of the company in the manner proposed in the alleged notice.
( 3 ) THE suit was instituted on March 29, 1963. An interim order was asked for and an interim order was made. On March 30, 1963, the notice of motion was made returnable. The interim order was modified to some extent. At that time the only parties to the suit were the plaintiff and the company and the directors were the defendants. The Jaipuria defendants and the Poddar defendants were added as parties to the suit under orders dated May 21 and 18th June, 1963, respectively.
( 4 ) THE suit came up for trial and it was contended on behalf of the Jaipuria defendants that by reason of the fact that the meeting had been held the plaintiff's
suit as constituted was not competent. Thereafter Counsel for the plaintiff applied for adjournment of the suit in order to apply for amendment of the plaint. Certain amendments as indicated in paragraph 24 (a) of the plaint and in prayers (ee) and (hh) were allowed.
( 5 ) THE substance of the suit is that the notice dated March 1, 1963, whereby an extraordinary meeting was called to be held on March 30, 1963, for passing resolution that dividends for the year ending 31st March 1961, at Rs. 10/- per share subject to deduction of tax and for the year ending 31st March, 1962, at Rs. 80/- per share subject to deduction of tax was bad, illegal and ultra-vires the powers of the company. The grounds of which the notice is assailed are set oat in paragraph 15 of the plaint. The grounds are first that by reason of the provisions of the Companies Act and particularly Sections 166, 186, 210, 211 and 217 and the provisions in Schedule VI, Part II, Clause 3 (XIV) no dividend can or could be declared excepting at an annual general meeting; secondly, according to the true construction of the Articles of Association declaration of dividend it a matter pertaining to the Board of the company for the relevant year and the recommendation for the declaration of any dividend for any particular year has to be made by the Board of Directors of the Company for that very year, and because the defendant? Nos. 2 to 5 purported to issue the notice or to recommend the declaration of dividend in their capacity as members of the present Board they have no power or authority to do so; thirdly it is contended th
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