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TMI Blog1938 (10) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, were called "A" shares. In the year 1926, the capital was, increased by another 50,000 shares of Rs. 100 each, of which 25,000, called "B" shares were then issued. In 1929 some of the remaining 25,000 shares were issued and were called "C" shares, but with these the present appeals are not concerned. On the issue of the "A" and "B" shares, Rs. 60 per share had been called up. Of the Articles of Association of the Bank (before they were amended is manner hereinafter stated) those that are material for the present purpose were as follows: Article 34. -Notice requiring payment of arrears.-Whenever any call, or instalment of a call, payable by any member shall not have been paid on the appointed day, the Company may at any time thereafter during such time as such call or instalment shall remain unpaid, send a notice requiring payment by such further day, and at such place or places where the calls of the Company are usually made payable, of such calls or instalments, in arrear, with interest thereon, at the rate of 9 per cent. per annum from the day on which such call or instalment ought to have been paid, and such notice shall state, that in the event of non-payment at the time a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which such advance has been made, in addition to the dividend payable on such part of the capital as is actually called and paid up. Article 46. -Power to pay interest on advance in lieu of dividend. -If the Directors shall see fit to receive in advance any such moneys, aforesaid they may pay interest upon the same, or upon so much thereof as shall from time to time remain in advance of the calls, at such rate not exceeding 6 per cent. per annum as they shall think fit, such interest to be in lieu of the dividend provided by the preceding clause upon such moneys so paid in advance. On 29th September 1931, the Bank suspended payment. Shortly afterwards a scheme of arrangement between the Bank, its creditors-and shareholders was prepared, and after being approved in the usual way at meetings of the creditors and share-holders was duly sanctioned by the Court under section 153 of the Indian Companies Act, upon 22nd December 1931. The details of that scheme are not relevant to these appeals. But by 25th July 1932, it had become evident that the scheme was not likely to attain the end which its promoters had in view, namely the successful resuscitation of the business of the Bank, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 5 under Article 40, and such call would by virtue of the scheme become payable on 1st July 1934. No further resolution was necessary in respect of the Rs. 20. In the words of clause 6, it had "already been called." The resolution of 15th March 1932 therefore remained unaffected except that the dates for the payment of the Rs. 20 were altered. It is to be observed that one effect of the amended scheme, when it came into operation on 15th November 1932, was to make the instalment payable on 1st July 1932, a call in arrear. Another effect was that "A" and "B" shareholders who had punctually paid the call made on 12th March 1932, were probably entitled to be treated as having paid moneys on their shares in advance of calls within the meaning of Articles 45 and 46. These circumstances no doubt introduced some complication into the matter. But, it was nothing compared to the complications introduced by the subsequent proceedings of the directors to which attention must now be called. On 18th January 1933, they held a Board meeting. Their Lordships regret to say that the record of proceedings supplied to them on these appeals would seem to have been prepared with the view of making t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 20 per cent. of calls and interest due as above cited: 5¼ per cent. on all shares held by him on or before 15th June 1933, 5¼ per cent. on all shares held by him on or before 15th December 1933, 5¼ per cent. on all shares held by him on or before 15th June 1934, 5¼ per cent. on all shares held by him on or before 15th December 1934, at the Head Office of the Bank between office hours on working days and further agreeing that in the event of making a default in any of the instalments as fixed here above, the Bank's Board could take the action as provided for in Articles 34, 35 and 36 of the Bank's Articles of Association. These resolutions betray a complete Disappreciation on the part of the directors of clause 6 of the scheme. They had no right whatsoever to make the remaining call of 5 per cent. payable on or before 26th February 1933. It is moreover quite apparent that in passing this resolution they treated the clause as in no way affecting the dates originally fixed for payment of the 20 per cent. call made in March 1932, and that they were requiring payment of the whole of this call (so far as not already paid) on or before 26th February 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h April 1932 and 20th May 1932; that is to say if the dates originally fixed for payment had been altered by the scheme. The calls would not otherwise have been paid in advance. But, however this may be, the directors on 23rd January 1933 sent to the holders of the "A" and "B" shares a notice of the further call of 5 per cent. to be paid on or before 26th February 1933, stating that, in default of payment on or before that date of this further call and of the two previous calls of 10 per cent. each (which they described as payable on 30th April and 20th May 1932, respectively), with interest on such two previous calls at 9 per cent. per annum from the date of the calls to 31st January 1933, the shares would be forfeited without any further notice. It was also stated that shares could be restored after forfeiture on the basis of the compromise mentioned in resolution (b) passed on 18th January 1933. A draft copy of the compromise was enclosed with each notice. On 25th March 1933, another Board meeting was held. By resolutions passed at this meeting the shares of such shareholders (including several of the present appellants) as had neither made any payment in pursuance of the notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned Judges of the Division Bench came to a right conclusion. Upon confirmation by the Court of the amended scheme of arrangement that scheme became by virtue of section 153, of the Indian Companies Act, binding upon the creditors, the shareholders and the Bank alike. Its terms could thereafter only be varied by order of the Court after the variation had been approved at meetings of the creditors and shareholders. It was not therefore possible for the Bank or its directors or shareholders whether by resolution or ratification or otherwise to alter the dates fixed by clause 6 of the scheme for payment of the 20 per cent. called upon March 1932 or the 5 per cent. called upon 18th January 1933. It necessarily follows that the resolution of the directors on the latter date requiring the whole 25 per cent. to be paid with interest on or before 26th February 1933 was an attempt on their part to do something that was ultra vires the Bank. The offer to the shareholders of the compromise was equally beyond the powers of the Bank or its directors. For, apart from the fact that the powers conferred upon the directors by Article 37 only arise after the share has been forfeited, neither the B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ewhat technical; but in the matter of the forfeiture of shares, technicalities must be strictly observed. And it is not, as is sometimes apt to be forgotten, merely the person whose shares are being forfeited who is entitled to insist upon the strict fulfilment of the conditions prescribed for forfeiture. For, the forfeiture of shares may result in a permanent reduction of the capital of a company. It will suffice to take the present case as an example. If the forfeitures are upheld the appellants remain liable, no doubt, for the whole 25 per cent. called up in March 1932 and in January 1933. But they will escape liability altogether in respect of the uncalled 25 per cent. and this is a matter that vitally affects the creditors. These creditors cannot be deprived of their right to have this 25 per cent. made available for payment of their debts without due cause. The creditors are, therefore, entitled to see that the power of forfeiting shares is exercised strictly. Where the power of a company to forfeit shares has arisen, the Articles of Association usually contain provisions as to the sending of notices and the like that may regarded as being inserted merely for the protection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... new that they were illegal or irregular..." Much to the same effect was said by Sir Barnes Peacock in delivering the judgment of this Board in Irvine Union v. Bank of Australia at p. 375: "Their Lordships think that it would be competent for a majority of the shareholders present...at an extraordinary meeting convened for that object, and of which object due notice had been given to ratify an act previously done by the directors in excess of their authority; and they are not prepared to say that if a report had been circulated before a half-yearly meeting distinctly giving notice that the directors had done an act in excess of their authority, and that the meeting would be asked by confirming the report to ratify the act, this might not be sufficient notice to bring the ratification within the competency of the majority of the shareholders present at the half-yearly meeting." There can in truth be no ratification without an intention to ratify, and there can be no intention to ratify an illegal act without knowledge of the illegality. In the present case there is nothing whatsoever to show that in the balance sheets or reports or at any meeting, the attention of the creditors or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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