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TMI Blog1960 (6) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... s alleged by the plaintiff. The company at its annual general meeting on January 15, 1960, wherein the balance-sheet and profit and loss account for the year ending March 31, 1959, were passed, elected directors and a dividend of Rs. 1.50 nP. per share (that is 15 per. cent.) was declared and paid for the said year. By a notice dated March 7, 1960, an extraordinary general meeting of the company was convened to he held on March 31, 1960, to declare further dividends in respect of the year ending March 31, 1959. The proposed resolution is set out in paragraph 12 of the plaint. It reads : "Resolved that a further dividend in respect of the year ended March 31, 1959, be and is hereby declared out of the general reserve No. 1 at the rate of Rs. 1.50 nP. per share (i.e., 15 per cent, without deduction of income-tax) on ordinary shares payable to the shareholders whose names stand registered in the books of the company on March 31, 1960." In paragraph 14 of the plaint the plaintiff challenges the notice as illegal and ultra vires on several grounds. The main grounds are : (i)The dividends can be declared only at the annual general meeting. (ii)The extraordinary general meeting has no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equivalent to 75 per cent. of the development rebate to be actually allowed for that year is to be debited to the profit and loss account and credited to a reserve account which cannot be utilised by the assessee for a period of ten years for distribution by way of dividend. The facts relating to the accumulated reserve, the setting up of the chemical plant in Varanasi, and the provisions regarding development rebate, it is alleged in the affidavit, are matters well-known to the shareholders and it is obvious to them that the step which has been taken by the directors is in the interest of the company and of the shareholders. The allegations made in the plaint are denied in the affidavit. The only question canvassed in this suit was whether it was competent to declare further dividend at the extraordinary meeting held on March 31, 1960. It is necessary to set out some of the articles. Table A of the Act is not to apply. Articles 82 to 86 relate to general meetings: "82. General meetings shall be held once at least in every calendar year at such time, not being more than fifteen months after the holding of the last preceding general meeting, and at such place as may be determined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance-sheets are dealt with in articles 172 to 175. "172. (1) At all ordinary meetings the directors shall lay before the company a balance-sheet and profit and loss account made up to a date not earlier than the date of the meeting by more than nine months, or if the company is carrying on business or has interest outside British India by more than twelve months, subject in either case to the right of the Registrar to extend the period for any special reason by a period not exceeding three months under section 131(1) of the Act. (2) The said balance-sheet shall be in the form marked ' F' in the Third Schedule to the Act, or as near thereto as circumstances admit. (3) The profit and loss account shall, in addition to the matters referred to in sub-section (3) of section 132 of the Act, show, arranged under the most convenient heads, the amount of gross income, distinguishing the several sources from which it has been derived, and the amount of gross expenditure, distinguishing the expenses of the establishment, salaries and other like matters. Every item of expenditure fairly chargeable against the year's income shall be brought into account, so that a just balance of profit and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dividend for the purpose alleged in the affidavit of Shyamlal Agarwal. Fourthly, the counsel contended that the board which declared dividend for the year ending March 31, 1959, had ceased to exist and the new board was incompetent to declare dividend for the same year. A person who might have been on the board of the previous year and of the following year would not have the same character of director and the power of directors to declare dividend would be of the directors constituting the board for the relevant year. Counsel for the plaintiff invited my attention to articles 82 and 83 to show as to what general and extraordinary meetings were and to article 87 as to what would be the business of ordinary meetings. Article 87 states that the business of an ordinary meeting shall be, inter alia, to receive and consider the profit and loss account, the balance-sheet and to declare dividends. Article 153 states how profits shall be divisible and it refers to the year as a unit and article 154 states that the company, in general meeting, may declare a dividend to be paid to the members and article 157 states that the declaration of the directors as to the amount of the net profit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... declare a dividend. The declaration of dividend under article 114 in Table A has been construed in Palmer's Company Law, 20th Edition, at page 624, as part of the ordinary business of the annual general meeting. The articles in the present case make a distinction between the nature and scope of ordinary general and extraordinary meetings and the declaration of dividends pertains to the ordinary general meetings. In the decision in Nicholson's case (supra) the company was incorporated on April 15, 1895. The second annual general meeting of the company was held on August 21, 1896. At that time, owing to the disturbed state of Rhodesia, where the company's business was carried on, accounts of the trading of the company had not been received, and the only accounts submitted to the meeting related to transactions in England, and were not audited. The directors of the company had issued a report to the shareholders, and by notice indorsed on the report, called an extraordinary general meeting of the company for February 11, 1897, for the purposes (1) to receive and consider the annual statement of accounts and balance-sheet and the reports of the directors and auditors thereon; (2) to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndant that there can be a declaration of dividend at an extraordinary meeting. First, the declaration of further dividend is nowhere laid down in the articles. It is beyond the power of the company. What has been permitted by the articles is declaration of interim dividend and final dividend. The declaration of dividend on March 31, 1960, is indisputably not interim dividend. As to the meaning of the word "further", if it could be contended that further meant something beyond a final dividend I am of opinion that the articles forbid such a power or such construction. Secondly, I am of opinion on the construction of the articles that the declaration of dividend is a matter pertaining to the board for the relevant year. The recommendation is to be made by the board for that particular year. The accounts were before the board and they made a recommendation for declaration of dividend at the meeting held on January 15, 1960. The declaration of further dividend by the board of directors is not the recommendation by the board of directors of the relevant year and, therefore, on a construction of the articles I am of opinion that the declaration of dividend is beyond the powers of the new ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the propositions that the notice did not fairly disclose the purpose for which it was called and, secondly, that the notice of extraordinary meeting should be one to enable the shareholder to determine if he ought to attend it. In other words, counsel for the plaintiff contended that the test would be whether the real fact was placed before the shareholders. Thirdly, counsel for the plaintiff contended that there was no full and frank disclosure of facts on which the shareholders were asked to vote. Mr. Advocate-General relied on the unreported decision of the appeal court in appeals from Original Decree Nos. 142 and 143 of 1953 where all these cases were considered. Two broad principles can be extracted from the authorities. First, that notice must be fairly and intelligently framed and it must not be misleading or equivocal. A benevolent construction cannot be applied. Secondly, some matters must be brought pointedly to the attention of the shareholders, for example, where the directors are interested in a contract or matter which is to be submitted to a meeting for confirmation or approval, it appears to be desirable and in certain cases absolutely necessary to disclose the ..... 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