TMI Blog1983 (5) TMI 264X X X X Extracts X X X X X X X X Extracts X X X X ..... conditions laid down in Section 25 of the Act, it has been registered as a Company with limited liability without the addition to its name of the word limited and is licensed 'under Section 25 of the Act. The Central Government has issued Notification No. S.O. 1578 published in the Gazette of India on July 8, 1961 directing the exemption of the companies licensed under Section 25 from the provisions of the Act specified therein. Some more exemptions have been added by Notification No. S.O. 2767 dated August, 5 1964. The objects for which the Council is established are given in the Memorandum of Association. It is, inter alia, to promote, advance, increase, develop export of all types of readymade garments excluding woolen knitwear and garments, of leather, jure and hemp; to undertake all export promotion measures including appointment of representatives, agents or correspondents in foreign markets; to con duct propaganda and publicity; to assist members; to establish design centres and to undertake training of workers and technical personnel etc. The Memorandum of Association also lays down objects incidental or ancillary to the attainment of main objects . (3) The Article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the following rights which are not available to Associate or Institution Members, namely: (A)to nominate members to the Executive Committee of the Council; (b) to stand for the membership of the Executive Committee; (c) to vote on all resolutions placed for consideration by the Council in its General Meetings. The case of the plaintiff in the plaint of the suit as well as in the arguments addressed by Shri L. C. Goyal, the learned counsel for the plaintiffs at the hearing is that (here is no justification for classifying members in the manner set out above since the Act contemplates only one class of members for companies limited by guarantee. No classes of members are contemplated as would be clear from the comparison of relevant provisions of Tables 'A' and 'C' in Schedule I of the Act. In any case it is not permissible to a Company to confer different and discriminatory rights on different classes of members. The membership subscription is equally provided for Ordinary Members, Associate Members and Institution Members. The admission fee and annual subscription of Ordinary Members and Associate Members is 'the same. Each member other than Gove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut no reference need be made to them as those have been either specifically given up in is 1885/82 or not pressed by the counsel for the plaintiffs at the hearing of the suit. (8) The defense of the Council in the written statement as well as in the submissions of Shri G.L. Rawal, the learned counsel for the defendants at the Bar is that the right of vote is subject to the provisions of the Articles of Association and subject to the Election Rules framed and adopted by the Executive Committee from time to time in terms of Articles 47 of the Articles of Association. Reference is made to Article 11 which lays down that all rights and privileges of members shall be laid down in the bye-laws framed by the Committee from time to time. The averments are also that basically the Council was constituted to represent the interest of actual exporters and only those actual exporters with. the qualifications as referred to in the Articles of Association are enrolled as Ordinary Members having right to vote to elect the members of the Executive Committee. They are based on the conception of electing the members on democratic system. There is justification for classifying member's in the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n led by the plaintiffs. The documents, namely, the Memorandum and Articles of Association of the Council, and the Election Rules of the Council were filed by the plaintiffs and admitted by the defendants. They are Exs. P-l and P-2 respectively. The defendants produced Secretary of the Council as Public Witness I. His testimony is in conformity with the Articles of Association and the conduct of the elections according to the Election Rules. He admits that there are about 1,600 Ordinary Members, about 20 or 25 Institution Members and the rest are Associate Members out of the total membership of about 5,000 of the Council. He affirms that Associate Members and Institution Members are not having the right to vote. Counsel for the defendants on whose objections issues 3 to 6 were framed does not press those issues and are decided against the defendants. Issue NO. 2 (13) I will first consider this issue incorporating the challenge to the denial of voting rights. It is not necessary to repeat the rival contentions since I have mentioned them in detail above. A Company incorporated under the Act means a company formed and registered under the Act or an existing company as defined in C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Articles of Association of a company limited by shares may adopt all or any of the regulations contained in Table A in Schedule 1. The model articles in Table A do not contain any provisions as to voting rights for the simple reason that the Act in its sections specifically provide so. (14) SECTION. 9 of the Act provides that save as otherwise provided in the Act, (a) the provisions of the Act shall have effect notwithstanding anything to the contrary contained in the memorandum or articles of association of a company or in any agreement executed by it, or in any resolution passed by the company in the general meeting or by its Board of Directors, whether the same be registered, executed or passed, as the case may be, before or after the commencement of the Act and (b) any provision contained in the memorandum, articles, agreement or resolution aforesaid shall, to the extent tc which it is repugnant to the provisions of the Act, become or be void, as the case may be. The ligature has clearly laid down that the Act has the over-riding effect. Section 29 of the Act reads as under: THE articles of association of any company, not being a company limited by shares, shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out the consequences of the omission to observe the requirement but also having regard to the purpose for which the requirement has been enacted. The provision was inserted with an object of participation in the management of the companies. That would be nullified and hence the provision would be mandatory. It is also clear from the proviso to Section 29, which was later added in the Act by Act 65 of 1960. I repeat it says that nothing in the section shall be deemed to prevent a company from including any additional matters in its articles in 80 far as they are not inconsistent with the provisions contained in the Form in any of the Tables C, D and E adopted by the company. The articles may include other matters but only those which are consistent or compatible with those given in the Table. An article which negates the valuable right recognised in the prescribed Form in the Table is inconsistent with that provision. The legislature did not in the Section of the Act provide for the voting rights of members of company limited by guarantee as was done in the case of companies limited by shares but wanted to achieve the same purpose by prescribing the Forms in the Tables in Schedule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given any voting rights. There are several provisions in the Act such as Sections 17, 21, 31, 81(1-A), 224, 225, 228, 284(4), 293, 294, 309, 314 and 384 which require that certain powers of the Company should be exercised only by the Company in general meeting. The members other than the Ordinary Members of the Council cannot participate or have their say. The General Meetings of the company are always understood and considered as the meeting of all the members of the company with a right of participation and vote. It cannot be construed as a meeting of only some privileged members of the company. I am fortified in this view by the opinion expressed by a Division Bench of Kerala High Court in P.C. Aravindhan V. M. A. Kesavan and others 1973 Tax L.R. 1844 (1) wherein it was held that Section 29 of the Act is mandatory, and, Therefore, it is not open to the members to deviate from the provisions contained in Table C and incorporate provisions' which are inconsistent and contrary to those therein. It was observed .........Every member of a company is entitled to take part in its,' administration. This right can be exercised only in the meetings of the shareholders. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of Association provided for a majority holding not less than four fifths of capital. The resolution was passed by the three-fourth majority mentioned in Section 51 of the Companies Act, 1862. It was held that clause in the Articles of Association was invalid and zero because it affected to alter the majority required by the said Act for passing a resolution to increase the capital of the Company. The resolution passed in accordance with the said Act was upheld. In Welton V. Saffery 1897 A.C. 315 (3), it was held that an article which is ultra virus of the company clearly cannot be so enforced. In Re Greene 1949 (1) All E.R. 167 (4), was a case in which the Articles of Association of the Company provided a deeming transfer of shares to director's widow on his death. It was held to be invalid as being in contravention of Companies Act, 1929 Section 63 of which provided that it should not be lawful for a company to register a transfer of shares unless proper instrument of transfer had been delivered to the company. In Pevaril (Gold) Mines Ltd. 1898 (1) Ch. d. 122 (5) it was held that a right given by Section 82 of the Companies Act. 1862 to a contributory to petition for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the Act, or as near thereto as circumstances admit. It may be that the forms were intended to provide models and not strait jackets and could be moulded to the needs of the company as the promoters see at that time. Table C did not contain any article resembling Article 7(B) in that case. In my opinion it is on these facts that it was observed that promoters of a company should be free to add, subtract or vary as the needs suggest. The Article gave power to the Board of Directors or Managing Committee to expel a member. It was not invalid as it was not inconsistent with Table C. It was not suggested or ruled that the promoters could include those articles which are inconsistent or incompatible with those given in Schedule 'C' . An abrogation of the provisions of Table 'C' cannot be as near thereto as the circumstances admit. An absolute enactment must be obeyed or fulfilled exactly, but is sufficient if a directory enactment is obeyed or fulfilled substantially. Even if the provisions of the statute are construed as merely directory, even in that case also there has not been a substantial compliance. The substantial compliance cannot be by giving a complete go-by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on a harmonious construction of the two provisions the power vests both in the Executive Committees as well as the Council: He also contends that in case this Court comes to a conclusion that there is a conflict between the earlier article and the later article and it is not possible to give effect to the two clauses by harmonious construction: then the rule of constitution is that it is the earlier articles that must over-ride the later article and not vice versa. Reliance is placed on Radha Sunder v. Mohd. Jahadur Rahim , [1959]1SCR1309 wherein the construction of a deed it was held that in case the two clauses cannot be reconciled, then the earlier provision in the deed prevails over the later. (22) The object of harmonious construction is avowedly to avoid a conflict between two provisions as far as possible and to construe the two provisions in such a way that they harmonise. They should be so interpreted that, if possible, effect should be given to both. The two provisions would be repugnant to one another only if they are so contradictory that it will be impossible to carry out both of them. I feel that effect can be given to both the provisions contained in Article 47 g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions for the election by ballot. Except in Article 33 which provides that at any General Meeting a resolution put to vote of the Electing shall be decided by show of hands unless a poll by Secret Ballot is demanded etc. The provisions made in the' Election Rules do not receive any statutory recognition. Section 263A of the Act does not extend the protection to the practice contained in the rules, regulations or bye-laws framed by the company or under its authority. The Statute has, restricted the protection to the contrary provision made in the Articles of the company for the election by ballot. (25) I may notice another argument of the counsel for the defendants based on the oral testimony of D.W.I. Shri Anil Talwar. He says that in accordance with the Election Rules, the nominations are called for, scrutinised and election by secret ballot is held thereafter, that after the counting of the votes the names of the successful candidates are place before the ensuing Annual General Meeting in which they are proposed again, seconded and carried by majority vote taken by show of hands. Rule 7(c) of the Election Rules also provides that the names of the successful candidates, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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