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1961 Supreme(P&H) 69
PUNJAB & HARYANA HIGH COURT
Tek Chand, J.
Mohan Lal Chandumall
Versus
Punjab Company Ltd., Bhatinda
Civil Original No. 49 of 1959,
Decided On : MARCH 21, 1961
The voting rights of shareholders are fundamental statutory rights that cannot be taken away by any alteration in the memorandum of association or by passing of any resolution in that behalf.
Headnote:
COMPANIES ACT - SECTION 397 - OPPRESSION - NON-TRADING SHAREHOLDERS - VOTING RIGHTS - ARTICLES OF ASSOCIATION - FORWARD CONTRACTS (REGULATION) ACT, 1952 - SECTION 9-A - RECOGNITION OF ASSOCIATION - AMENDMENT OF ARTICLES - APPROVAL OF CENTRAL GOVERNMENT - WINDING UP - PURCHASE OF SHARES OF NON-TRADING MEMBERS - SECTION 402(B) AND (C).
Fact of the Case:
Petition under Sections 397, 393, 402 and 403 of the Companies Act, 1956 by 29 petitioners against the Punjab Company Limited Bhatinda, alleging oppression of non-trading members by the company's directors and seeking relief under the Act.
Finding of the Court:
The impugned amendments to the Articles of Association of the company, which deprived non-trading shareholders of their voting rights and other fundamental statutory rights, were oppressive and in violation of the provisions of the Companies Act, 1956. The Forward Contracts (Regulation) Act, 1952, Section 9-A, which empowered recognized associations to restrict voting rights to members interested in the trade, did not extend immunity to the Articles of Association that gave umbrage. The non-trading shareholders had been deprived of their right to vote, to call meetings, to elect directors and auditors, and to declare or receive dividends.
Issues: Whether the impugned amendments to the Articles of Association of the company were oppressive and in violation of the provisions of the Companies Act, 1956. Whether the Forward Contracts (Regulation) Act, 1952, Section 9-A, extended immunity to the Articles of Association that gave umbrage. Whether the non-trading shareholders had been deprived of their fundamental statutory rights.
Ratio Decidendi: The provisions of the Companies Act, 1956, were supreme and overrode the memorandum, articles, agreements, or resolutions of the company. The right to vote was a proprietary right that could not be taken away by any alteration in the memorandum of association or by passing of any resolution in that behalf. The voting rights had been effectively entrenched by the statute and could not be taken away by any alteration in the memorandum of association or by passing of any resolution in that behalf. The taking away of the voting right of a shareholder, especially in a case where the non-trading shareholders who far outnumbered the trading shareholders had no voice in the affairs of the concern, amounted to oppression.
Final Decision: The petition was allowed, and the company was directed to purchase the shares or interests of non-trading members within three months of the date of the order, with the consequent reduction of the company's share capital. The parties were left to bear their own costs.
Tek Chand, J.
1. This is a petition under Sections 397, 393, 402 and 403 of the Companies Act, 1956 on behalf of 29 petitioners against the Punjab Company Limited Bhatinda.
2. Besides the Company, 11 other respondents have also been impleaded. The Punjab Company Limited Bhatinda which will hereinafter be refer-red to as the company was incorporated in the year 1941 under the Patiala Companies Act 1996 Kk. as a public company limited by shares and it is; therefore, a company within the meaning of Section 3 of the Companies Act 1956 with its registered office at Bhatinda.
3. The nominal capital of the company is five lacs divided into five thousand shares of Rs. 100/-each. Its subscribed capital consists of 963 shares of Rs. 100/- each fully paid up; 659 shares on which Rs. 50/- per share have been paid. The amount of the paid-up capital therefore comes to Rs. 129,250/-. The Company when floated had a large number of businesses but it has been in the main engaged in doing forward contract business in grains, in particular in rapeseeds and mustard seeds.
The petitioners feel aggrieved with the mannet in which tbe affairs of the company have been conducted which according to them, is oppressive in relation to the non-trading members. They feel that the directors of the company are behaving in a manner prejudicial to the interests of the company.
4. At the meeting of the Board of Directors held on 14th of December, 1957, it was resolved that the following notice and resolution be circulated along with the following explanatory statement as required by Section 173 of the Companies Act, 1956 :
"Notice is hereby given that an extra-ordinary General meeting of the share-holders of the Company will be held on Thursday, the 9th January, 1958, at 2 p.m. at the registered office of the Com-pany to pass the following resolution with or without modification : SPECIAL RESOLUTION : Resolved that instead of the existing Articles of Association of the Company and the Articles us amended vide Resolution No. 2 of 19-4-57 the following Articles of Association be substituted. EXPLANATORY STATEMENT under Section 173 of the Companies Act, 1956 . In Order to bring the Articles of Association in conformity with the amended memorandum of Association of the Company and Forward Contracts (Regulation) Act, 1952 and suggestions of the Forward Markets Commission and to make the Articles more comprehensive for the benefit of the Trade and to run the companys business more efficiently and on firm and sound footing, it has become essential to alter, add and amend the Articles of Association of the Company."
5. On 9th of January, 1958, a resolution was passed by the shareholders of the company in an extraordinary general meeting at which 28 shareholders out of the total of 237 were present. This resolution runs as under:
"Resolved unanimously that the Articles of Association of the company circulated among the shareholders, for substitution instead of the existing Articles and the Articles as amended vide Resolution No. 2 of 18-4-57, with modificatioas and amendments moved by the Chairman, and passed in this meeting are hereby approved and adopted and be substituted instead of the existing Articles of Association of the Company and the Articles as amended vide Resolution No. 2 of 19-4-57.
6. It was also resolved to send a copy of the resolution to the Forward Markets Commission, Bombay for their approval and to the Registrar of Companies, Jullundur for registration.
7. The petitioners consist of non-trading and also trading members of the company. The contention on behalf of the non-trading members is that the substituted Articles of Association have deprived them of their elementary right as shareholders ot the company under the Act. I may now consider the amendments brought by some of the impugned articles.
8. In Article 2 which gives definitions, "member" means "a shareholder and a trading member" and "a shareholder" means "a person who is registered w
