TMI Blog1983 (12) TMI 243X X X X Extracts X X X X X X X X Extracts X X X X ..... to have been purchased by the respective petitioner from the second respondent in the respective petitions at the prevailing market rate through brokers and in respect of which, share transfer deeds duly executed by the transferors and the transferees, together with the share certificate relating to the said shares, were forwarded to the registered office of the company for registering the transfers and duly entering the names of the respective petitioners in the register of members of the company as the holders of those shares. It has been averred that the company instead of registering the said transfers of shares and entering the names of the respective petitioners as the owners of the said shares, by its letter dated January 29, 1980, informed the respective petitioners that the transfer applications were considered by the board of directors of the company at its meeting; and that the board has declined to register the transfer of shares in exercise of the powers conferred on the board under article 24 of the articles of association of the first respondent company read with section 111 of the Act; in consequence, the first respondent company returned the share certificates rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd a copy of the proposed new set of articles are attached hereto. Copies of the existing memorandum and articles of association of the company are available for inspection at the company's registered office during business hours ". The explanatory note itself was in the following terms: "As you know, this is a company registered under the Travancore Companies Act (IX of 1114 ME), which has been superseded by the Companies Act, 1956, which has brought into force far reaching changes in the law relating to companies. Further, the existing articles of the company were framed with a view to have the company managed only by managing agents. There are no managing agents at present, and it is desirable to take power in the articles for the management of the company by any type of management permitted under the Companies Act. It has, therefore, been considered necessary and desirable that the existing articles of association of the company framed under the old Travancore Companies Act (IX of 1114 M E) should be amended to make suitable provisions for the aforesaid purposes. In view of the large number of amendments required, it has been considered more convenient to frame a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct to the provisions of this Act, the memorandum and articles shall, when registered, bind the company and the members thereof to the same extent as if they respectively had been signed by the company and by each member, and contained covenants on its and his part, to observe all the provisions of the memorandum and of the articles." Sub-section (2) of section 189 of the Act is to the following effect: "(2) A resolution shall be a special resolution when ( a )the intention to propose the resolution as a special resolution has been duly specified in the notice calling the general meeting or other intimation given to the members of the resolution; ( b )the notice required under this Act has been duly given of the general meeting; and ( c )the votes cast in favour of the resolution (whether on a show of hands, or on a poll, as the case may be) by members who, being entitled so to do, vote in person, or where proxies are allowed, by proxy, are not less than three times the number of the votes, if any, cast against the resolution by members so entitled and voting ". In our view, the dismissal of the company petitions, which has given rise to these appeals, on the basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght not have been strictly necessary in view of the decision taken under issue No. 1, pointed out some of the defects noticed in the explanatory statement under section 173(2) of the Act, which might lead to a conclusion that it could not be said that there was a full and fair disclosure of all the full material facts concerning various items of business to be transacted in the annual general meeting. Apart from the fact that if, as correctly pointed out by the learned judge, the petitioner was not entitled to question the validity of regulation 24 of the articles of association (as amended in 1965), there was no purpose in conducting a postmortem on the process of amendment which took place in 1965. The learned judge has guardedly refrained from entering a definite finding on issue No. 2. We are not also persuaded to hold that the articles of association registered with the Registrar of Companies in 1965, substituting the earlier articles of association are ex facie void. A very minor defect arising out of strict non-confirmity with the provisions contained in section 173(2) might not render the amendment null and void. In any event, in our opinion, there is no scope for an elabor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry for the company court on an application made by a person, who is said to have purchased shares in 1979, to decide whether an amendment to the articles of association made as early as in the year 1965 was void or voidable, particularly in the light of the fact that the amended provisions were binding on the shareholders from whom he purchased the shares. Be that as it may, regulation 24 is one of the regulations in the articles of association registered with the Registrar of Companies, which is binding on the company and the shareholders; and it authorises the directors to decline to register the transfer of shares without assigning any reason whatsoever. The scope of the question to be decided in an enquiry under section 155 of the Act at the instance of a transferee of shares, in our opinion, would not extend to the scrutiny of matters which could not have been agitated by the transferor of the shares in a suit on account of limitation. The scope of the enquiry under section 155 has to be understood from the nature of the relief that the applicant could expect from the various clauses in sub-section (1) of section 155. It is not disputed before us that the owners of the share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any agreement, desired to have an agreement with the company, fixing the duration of the agency and dinning their powers. The directors convened an extraordinary general meeting of the shareholders to pass the necessary resolutions for carrying out the said purpose. The notice convening the meeting set out necessary resolutions and was accompanied by a circular, but sufficient particulars regarding important changes to be effected were not set out. The resolutions were passed and confirmed. In a suit by a shareholder suing on behalf of himself and other shareholders for a declaration that the resolutions were inoperative on the ground of insufficiency of notice and for injunction, the court held that the notice should have given sufficiently fully and frank disclosures of the facts and the effect of the resolutions and agreement, and consequently, the resolutions were inoperative and not binding upon the company. Reliance was also placed on the decision of the Calcutta High Court in Bimal Singh v. Muir Mills Co. [1952] 32 Comp. Cas. 248 Cal. That was a case in which there was no disclosure of particulars of the proposed changes in the articles of association. Inasmuch as a n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made without reasonableness and bona fides. The decision in Shaligram Jhajhariav. National Co. Ltd. [1965] 35 Comp. Cas. 706, Mahuraj Singhv. Vulcan Insurance Co. Ltd. [1973] 43 Comp. Cas. 177 and Gulabrai KalidasNaik v. Laxmidas Lallubhai Patel [1978] 48 Comp. Cas. 438 also have been cited, in support of the contentions put forward by the appellant-petitioners. It is true that all these decisions reiterated the principles laid down by the Bombay High Court in Maneckji's case, AIR 1931 Bom. 354. However, it has to be remembered that the question as to whether there was a full, fair, complete and frank disclosure in the explanatory statement annexed to the notice or whether the notice is a tricky notice would depend upon the facts and circumstances disclosed in each case. The facts of the present case could not be compared to those in the cases referred to above. The decision of the Gujarat High Court in Gulabrai Kalidas Naik v. Laxmidas Lallubhai Patel [1978] 48 Comp. Cas. 438, has been cited to contend for the position that the jurisdiction of the company court under section 155 of the Act is analogous to that of a civil court in a suit. The learned judge has taken n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conclusion is probably that there can be no hard and fast rule for determining when the court may or may not allow collateral challenge. In some situations, it will be suitable and in others, it will be unsuitable, and no classification of the cases is likely to prove exhaustive." The same author has also stated that a void order when quashed is deprived of all legal effect right from its inception, whereas a voidable order remains valid even when it is quashed for the period of its operation. The distinction between the jurisdictional error and errors within jurisdiction also has to be borne in mind. For about twenty years, several transactions might have taken place on the basis of Ext. A-4 articles of association, and at this distance of time, if we declare that Ext. A-4 articles of association, with particular reference to regulation 24, are null and void, the result would be that all the transactions entered into by and with the company would be rendered ineffective and unenforceable in law. Viewed from this angle also, it is not expedient or necessary for the company court to enter a finding on issue No. 2. For the foregoing reasons, we find that the appeals are without ..... X X X X Extracts X X X X X X X X Extracts X X X X
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