TMI Blog1938 (6) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,21,000. The shareholders paid this amount to R.B. Rochi Ram and the company came into existence. R.B. Rochi Ram became its chairman. It so happened that R.B. Rochi Ram Khattar could not pay off the loan of about Rs. 92,000 which according to the arbitrator's decision was left for him to pay. He therefore asked the company to lend his some money. The company advanced a lakh of rupees to him to pay off the debt. The company seems to have thereafter begun to lend money freely to its share-holders and the share-holders continue to be indebted to it to the present day. In 1930, 10 per cent. of the capital was reduced by the company and was. confirmed by this Court. On December 16, 1936, a meeting of the directors took place. The following two resolutions were passed at this meeting: "( a )Definite proposal regarding the reduction of the assets and capital of the company be placed before the share-holders by the chairman. ( b )That a loan up to the extent of 45 per cent. of the share money be advanced to each share-holder at the rate of 1 per cent. per annum with a view to ultimate reduction of the share capital to the same extent. The previous advances paid to the shareholders to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... By a notice date February 23, 1937, another extraordinary general meeting of the share-holders was called for March 10, 1937. It was summoned in order to confirm the reduction of capital agreed upon by the meeting of February 21, 1937. Seven shareholders were present on March 10, 1937 ; Lala Dharam Chand Khera had absented himself. The reductions proposed were confirmed subject to the sanction of the Court of the Judicial Commissioner. It was also resolved that the re-valuation of the assets of the company be carried out in consultation with the Electrical Inspector, Waziristan District. In pursuance of these proceedings this application has been presented to this Court by the company far sanction to be accorded to the three proposals passed by the meeting of the share-holders on February 21, 1937, and confirmed by a second meeting of the share-holders held on March 10, 1937. The re-valuation of the assets of the company was also carried out with the assistance of the Electrical Inspector, Waziristan District. The usual notices were issued by this Court and a date fixed for settling the list of creditors. Mr. Baldev, who represented one of the share-holders, appeared on the date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Ram Khattar. The case was closed by the company. Mr. J. L. Kapur, Counsel for the representatives of R.B. Rochi Ram Khattar, addressed the Court and very ably explained the facts and the law bearing on the application. Section 55, Companies Act, permits the reduction of capital by a company and clause ( c ) of the section applies to the present application. Article 8 of Articles of Association of this company also runs thus: "The company, from time to time (may) by special resolution, reduce its capital in any manner for the time being authorised by law and in particular, capital may be paid off on the footing that it may be called up again or otherwise. This article is not to derogate from any power this company would have if it were omitted." It follows, therefore, that the company is well within its rights in resolving to reduce its capital. The only questions which arise for decision, however, are : (1) Whether the company has by a valid resolution resolved that the reduction should be carried out, and (2) whether the Court should accord its sanction to the proposed reduction. As regards the fact that the resolutions were passed by the share-holders who were present at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the adjourned meeting is a continuation of the previous meeting although fresh notices with the agenda had been sent round. In the alternative Counsel took up the position that all the share-holders except Sundar Das deceased having been present at the beginning of the meeting of February 21, 1937, and no one having objected to the validity of the meeting the right to object had been lost. He asked the Court to consider Sundar Das nonexistent. He quoted Allen v. Gold Reefs of West Africa, Ltd., in support of this allegation. It lays down that no notice need be sent to the representatives of a deceased share-holder of a company when their names have not been entered in the register of members. Counsel emphasized the facts that all the share-holders present knew full well the purpose for which they had assembled and unanimously passed the resolutions put before them. He maintained that in the circumstances the criticism that the meeting of December 30, 1936, was called as an ordinary meeting and that due notice was not given for convening the meeting of February 21, 1937, lost all importance and pressed that it should be presumed that the share-holders present had impliedly c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n force. But it is apparent that the old Act was no longer the law when the meeting of February 21, 1937, was held. Consequently I hold that the confirmatory meeting was unnecessary, and the logical result of this finding is that the decision of the meeting of February 21, 1937, became final on that very day. Now I will turn to the second question relating to the reduction of capital. I understood from the learned Counsel who argued the case that there is no reported Indian authority on this point. The English authorities which were quoted by the learned Counsel may, for convenience, be grouped together as follows : Buckley, 1930 Edition, p. 120, British American Trustee and Finance Corporation v. John Couper, In re Credit Assurance Guarantee Corporation Ltd., In re Welsbach Incandescent Gas Light Co. Ltd., Poole v. National Bank of China, Ltd., In re Louisian Southern States Real Estate Mortgage Co., Neal v. City of Birmingham Tramways Co., In re De La Rue Co. Ltd., and In re Barrow Hasmatite Steel Co. These authorities lay down the following principles : 1. That a company has the power to reduce its capital much more so if the power is conferred by the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owe only Rs. 10,000 more than which is a part of a loan raised after this application was filed (he died during the pendency of these proceedings), and L. Ganpat Rai will remain a debtor only to the extent of about Rs. 11,000. The letters from the Punjab National Bank produced by Mr. Ghosh show that the company has got enough money in that bank to meet its requirements. A sum of Rs. 39,785-13-1 was in the floating account on April 26, 1938, and a sum of Rs. 22,000 which was in the fixed deposit became payable on May 29, 1938. The reduction of 45 per cent. capital does not appear therefore to be likely to have any disturbing effect on the equilibrium of the company's finances. For the reasons given above, I have no objection to the reduction of the company's capital by 45 per cent. and hereby accord my sanction to the proposal. I must note, however, in passing that Article 13 of the Articles of Association of the company lays down as follows : "None of the funds of the company shall be applied in the purchase of or lent on the share of the company." I therefore take this opportunity of expressing my strong disapproval of the conduct of the company in lending money to its share-holde ..... X X X X Extracts X X X X X X X X Extracts X X X X
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