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H. Fillunger & Company Pvt. Ltd., Achyut Dattatraya Marathe And Shobhana Achyut Marathe Versus Ajit Arvind Marathe, Mr. Mandar Achyut Marathe, Mr. Anant Shankar Pandit, And Mr. Vilas Ashok Marathe

2017 (8) TMI 391 - BOMBAY HIGH COURT

Amendment of the Memorandum of Association of the company - increasing authorized capital of the Company - Act to override memorandum, articles etc. - trial court stayed the amendment - Held that:- articles are internal regulations of a Company. It is a subordinate document to the Memorandum of Association. If companies were unable to alter their memorandum or Articles of Association to give effect to their desire changes, the corporate enterprise is likely to get frustrated and the purpose and .....

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trar of Companies for recording alterations of its memorandum. Accordingly, the Registrar of Companies had registered the same. In accordance with the increased share capital, new shares were distributed. It was argued that shares were even offered to the plaintiff but he declined to accept the same. The Articles of Association were amended in accordance with the provisions of Section 14 of the Act of 2013. We, therefore, find that there was reasonable and statutory compliance of the provisions .....

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e original plaintiff and the appellants herein are the original defendant nos. 1 to 3 and respondent nos. 2 to 4 herein are original defendant nos.4 to 6 in Special Civil Suit No. 1210 of 2015 (New Special Civil Suit No. 177 of 2016) filed in the court of Civil Judge, Senior Division, Pune. 3. The plaintiff is one of the directors of the appellant no.1 - H. Fillunger & Company Pvt. Ltd. (for short the Company). Suit was filed for declaration, cancellation, injunction and other reliefs agains .....

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ancelled and/or set aside. 4. The plaintiff sought other declarations by way of various prayer clauses as described in the plaint. Pending the hearing, the plaintiff sought temporary injunction for giving effect to the Resolution passed in the EOGM dated 27/01/2015 and from passing proposed special resolution No.1, causing alteration in the Articles of Association of the defendant no.1. Plaintiff seeks restraining order against the defendants from claiming any rights on the basis of allotment of .....

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only decided by the learned trial Judge on 3/4/2017. 6. According to the plaintiff, defendant no.1 - Company was incorporated under the provisions of the Companies Act, 1956 (Old Act) with an authorized share capital of ₹ 2,00,000/-. The Company initially was incorporated by family members and one of the uncles of the plaintiff. The authorized capital of the Company was increased from ₹ 2,00,000/- to ₹ 5,00,000/- divided into 5000 equity shares of ₹ 100/- each on 17/12/19 .....

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₹ 5,00,000/- to ₹ 1,00,00,000/- and to alter the Articles of Association of the Company under the provisions of the Companies Act, 2013. It is submitted that despite strong objection raised by the plaintiff, the proposed resolution No.1 for altering the clause No.V of the Memorandum of Association for increasing authorized capital of the Company from ₹ 5,00,000/- to ₹ 1,00,00,000/- was passed by an ordinary resolution. Due to resistance made by the plaintiff and other di .....

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ion, according to the plaintiff, was illegal, null and void. In para 18 of the plaint, it is contended by the plaintiff as under :- 18. It is further to the shock and surprise of the plaintiff that the defendant No. 2 to 5 as board of directors approved the alleged rights issue of ₹ 2,00,00,000/- (Two Crore Only) in their meeting held on 9/3/2015 without altering the share capital clause in the Articles of Association of the defendant No.1 Company, which action is grossly illegal, null and .....

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y share aggregating ₹ 2 Crore as rights issue to its members, which is in gross violation of the provisions of the Companies Act, 2013 and the same is liable to be set aside. It is submitted that the alleged letters of offer dated 9/3/2015 are issued to the plaintiff allegedly offering totally 3724 shares, which are illegal and bad in law and also the same are liable to be set aside. The said letter of offer dated 9/3/2015 is illegal and bad in law and is liable to be set aside. 9. The pla .....

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res in contravention of the Articles of Association of the Company. By communication dated 27/8/2015, the Registrar of Companies informed that according to the resolution passed, the Company allotted new shares to the defendant nos.2 to 4 and 6 in their meeting dated 27/4/2015 without altering the share capital clause in the Articles of Association of the Company. The plaint prescribed the said details of allotment of new shares under Rights issue. 10. Learned Senior Counsel Shri. Anturkar appea .....

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Companies Act. Section 61 provides for procedure and not for power to carry out necessary amendment to the Memorandum. Learned counsel submitted that the provisions of Civil Procedure Code and principles of Order 39 Rule 1 of CPC do not attract in the facts of the present case. The case has to be considered in the light of the object behind passing of the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015. 11. Learned counsel Mr. Anturkar submitted .....

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ssary steps. 12. Learned counsel submitted that impugned order suffers from non application of mind. The learned trial Judge failed to provide necessary reasoning in support of the order and the interpretation in respect of the provisions of Sections 13(1) and 61 of the Companies Act. Learned counsel places reliance on the judgment of Division Bench of this court in the case of Miheer Hemant Mafatlal vs. Mafatlal Industries Ltd. [1987 (89) Bom. L.R. 86], which is applicable to the principles of .....

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or passing the resolution by a 3/4th majority with a specious plea of provision of Section 13(1) and Section 61 the Companies Act. Learned counsel submitted that Section 61 of the Companies Act refers to Power of limited company to alter its share capital, whereas Section 13 prescribes mode and the procedure to alter share capital of the Company. The provisions of Section 64 relates to notice to be given to Registrar for alteration of share capital of the Company. The counsel submits that with d .....

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The balance of convenience is in favour of the plaintiff. The trial court has considered these aspects of the matter while passing interim order which is in force since last near about two years. The Counsel places reliance on the judgment of the Supreme Court in the case of Wander Ltd. and anr. vs. Antox India P. Ltd. [1990 (Supp) SCC 727]. 14. We have perused the record, the impugned orders and the judgments cited. Provisions of Sections 13(1), 13(6), 14(1), 61(1) and 64(1) of the Companies Ac .....

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the approval of the Central Government under sub-section (2), if the alteration involves any change in the name of the company. 14. Alteration of articles. - (1) Subject to the provisions of this Act and the conditions contained in its memorandum, if any, a company may, by a special resolution, alter its articles including alterations having the effect of conversion of - (a) a private company into a public company; or (b) a public company into a private company: Provided that where a company bei .....

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t may deem fit. 61. Power of limited company to alter its share capital.- (1) A limited company having a share capital may, if so authorised by its articles, alter its memorandum in its general meeting to - (a) increase its authorised share capital by such amount as it thinks expedient; (b) consolidate and divide all or any of its share captial into shares of a larger amount than its existing shares: Provided that no consolidation and division which results in changes in the voting percentage of .....

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he same as it was in the case of the share from which the reduced share is derived; (e) cancel shares which, at the date of the passing of the resolution in that behalf, have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the shares so cancelled. 64. Notice to be given to Registrar for alteration of share capital. -(1) Where - (a) a company alters its share capital in any manner specified in sub-section (1) of section 61; (b) an .....

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ion 61 . This signifies the exclusory nature of the provisions of Section 13 (1) by carving out an exception to the rest of the provisions of Section 13. The provisions of Section 61 refer to power of limited company to alter its share capital. The exception carved out under Section 13 will have to be appreciated in view of the purpose for which Memorandum of Association is to be altered. The provisions of Section 61 are clear. It indicates that a limited company having share capital may, if so .....

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ring in appreciating the facts of the case. 16. The respondent no.1 - plaintiff filed the Suit on 15/3/2016. On 23/9/2015, an interim order was passed by the trial court, the operative portion of which reads as under :- 1. The defendants are hereby restrained from holding EOGM on dated 25/09/2015 as scheduled in notice dated 20/08/2015 at Pune. 2. The plaintiff is directed to comply as per Order 39 Rule 3 of Code of Civil Procedure. 3. Issue notice to defendants as to why this order should not b .....

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h/B-16(ii)/65/Civ./2016 dated 02/08/2016. 17. It was come on record that an Extra Ordinary General Meeting of the Company was held on 27/1/2015 to increase authorized share capital of the company from ₹ 5,00,000/- to ₹ 1,00,00,000/- and to alter the Articles of Association of the company under the provisions of the Companies Act, 2013. The plaintiff contended that the notice dated 24/12/2014 of the company proposed Extra Ordinary General Meeting. The plaintiff attended and took objec .....

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; 1900/- per equity share as rights issue to its members. 18. The plaintiff further contended that he filed a complaint on 10/4/2015 to the Registrar of Companies, Pune. The defendants called an Extra Ordinary General Meeting of the company on 25/9/2015 to alter the Articles of Association of the company, which according to the plaintiff was illegal. After taking search at the office of the Registrar of the Companies, it revealed that the company and defendant nos.2 to 5 as directors of the comp .....

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had approved the alteration and certified it under Section 13(9) of the Act of 2013. The record reflects that Extra Ordinary General Meeting was held on 27/1/2015 for amendment of Clause V of Memorandum of Association so as to increase share capital from ₹ 5,00,000/- to ₹ 1,00,00,000/-. On that day, first resolution was passed, and the second resolution could secure simple majority. Therefore, the counsel appearing for the respondent no.1-plaintiff submitted that the amendment of Art .....

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Association, which reads as under :- 7. Subject to the provisions of the said Act, the Company shall be entitled, to exercise the powers to alter the conditions of its Memorandum so as to increase, consolidate and divide its share capital, convert shares into stock, subdivide or cancel shares as provided in section 94 of the said Act, to reduce its share capital as provided in section 100 of the said Act, and to alter the rights of the shareholders and for that purpose to exercise the powers con .....

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its memorandum to increase its share capital in accordance with the provisions of Section 94 of the Companies Act, 1956, which corresponds to the provisions of Section 61 of the Act of 2013. 21. We find substance in the submissions of the learned counsel appearing for the appellants that articles are internal regulations of a Company. It is a subordinate document to the Memorandum of Association. If companies were unable to alter their memorandum or Articles of Association to give effect to the .....

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and commerce, as canvassed by the learned senior counsel appearing for the appellants. The company had issued additional shares on 9/3/2015 and the Registrar of Companies had already registered the amendment to the Memorandum of Association. This fact cannot be overlooked. The ad-interim relief was granted by the trial court on 21/9/2015 directing not to conduct the meeting when in the month of January 2015 itself the meeting of the Board of Directors was conducted. In fact, by retrospective ef .....

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27 of the order. It is the finding of the trial court that if the defendants want to make any alteration in the Articles of Association, it should be in consonance with the provisions of the new Act. 23. On behalf of the appellants reliance was placed on the Judgment of this court in the case of Miheer Hemant Mafatlal vs. Mafatlal Industries Ltd. (Supra) and on behalf of the respondent no.1, reliance was placed on the judgment of the Supreme Court in the case of M.S. Madhusoodhanan and anr. Vs. .....

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gistered the amended Memorandum of Association. Objection raised by the plaintiff before the Registrar was overruled and thereafter the trial court passed an ad-interim order not to hold a meeting called on 25/9/2015. By a further order, the defendants were temporarily restrained from making changes in the Articles of Association in the meeting scheduled on 30/09/2016 only. 24. Learned counsel appearing for the respondent referred to the provisions of Section 6 of the Act of 2013, which read as .....

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(b) any provision contained in the memorandum, articles, agreement or resolution shall, to the extent to which it is repugnant to the provisions of this Act, become or be void, as the case may be. The provision states that save as otherwise expressly provided in this Act, the provisions of this Act, notwithstanding anything to the contrary contained in the memorandum or articles of a company shall have an overriding effect. Considering the facts of the case and provisions of Section 13(1) and S .....

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emorandum, which reads as under : 16. Alteration of memorandum. - (1) A company shall not alter the conditions contained in its memorandum except in the cases, in the mode, and to the extent for which express provision is made in this Act. (2) Only those provisions which are required by section 13 or by any other specific provision contained in this Act to be stated in the memorandum of the company concerned shall be deemed to be conditions contained in the memorandum. (3) Other provisions conta .....

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Section 31 of the Act of 1956 refers to alteration of articles by special resolution, which reads as under :- 31. Alteration of articles by special resolution.- (1) Subject to the provisions of this Act and to the conditions contained in its memorandum a company may, by special resolution, alter its articles: Provided that no alteration made in the articles under this subsection which has the effect of converting a public company into a private company, shall have effect unless such alteration h .....

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the order of approval. (3) The power of altering articles under this section shall, in the case of any company formed and registered under Act No. 19 of 1857 and Act No. 7 of 1860 or either of them, extend to altering any provisions in Table B annexed to Act 19 of 1857, and shall also, in the case of an unlimited company formed and registered under the said Acts or either of them, extend to altering any regulations relating to the amount of capital or its distribution into shares, notwithstandi .....

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ided into five thousand (5000/-) equity shares of Rupees one hundred (Rs.100/-) capable of being increased in accordance with the Company's regulations, and the legislative provisions for the time being in force in that behalf. The authorised capital of the company increased from ₹ 2 lacs to 5 lacs by way of special resolution passed in the extra ordinary General Meeting held on Wednesday 17 th Dec. 1969. The said clause further supports the view that the share capital can be increased .....

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