Bombay High Court
Rights & Issues Investment Trust Ltd. vs Stylo Shoes Ltd. And Ors. on 1 January, 1800
Equivalent citations: [1965]35COMPCAS102(BOM)
JUDGMENT Pennycuick, J.
1. By this motion the plaintiff, Rights & Issues Investment Trust Ltd., seeks against the defendant company, Stylo Shoes Ltd., and a number of individuals who are directors of the company certain injunctions relating to a special resolution and a class resolution passed by the company on October 2, 1964.
2. His Lordship stated the facts as set out above, observed that there was a very large majority in favour of each resolution, and continued: The effect of the resolutions is, of course, that the holders of the management shares, although they take up no new shares so that their proportion of the issued capital of the company is correspondingly reduced, retain approximately the same voting strength as they did previously, the percentage being now approximately 45 per cent. instead of 47 per cent. They are retaining that existing voting strength without taking up any new capital in the company.
3. Sir Milner Holland, for the plaintiff, contends that that transaction represents a discrimination or oppression against the holders of the ordinary shares, other than those of course which are held by the holders of management shares, and that the resolutions are oppressive on the holders of the ordinary shares. The holders of the management shares, it is said, are getting additional voting power in return for nothing. Mr. Brightman, for the defendants, says that there is here no discrimination or oppression; what has happened is that the holders of the ordinary shares, exclusive of those held by those holding management shares, acting bona fide and in the interests of the company as a whole, consider it desirable that the existing basis of control should be maintained and they have voted in favour of an alteration of the company's articles accordingly.
4. I am not persuaded that there has been here any discrimination against or oppression of the holders of the ordinary shares. What has happened is that the members of this company, other than the holders of the management shares, have come to the conclusion that it is for the benefit of this company that the present basis of control through the management shares should continue to subsist notwithstanding that the management shares will hence forward represent a smaller proportion of the issued capital than heretofore. That, it seems to me, is a decision on a matter of business policy to which they could properly come and it does not seem to me a matter in which the court can interfere. So far as I am aware there is no principle under which the members of a company acting in accordance with the Companies Act and the constitution of the particular company and subject to any necessary consent on the part of a class affected, cannot, if they are so minded, alter the relative voting powers attached to various classes of shares. Of course, any resolution for the alteration of voting rights must be passed in good faith for the benefit of the company ask a whole, but, where it is so, I know of no ground on which such an alteration would be objectionable and no authority has been cited to that effect. So here this alteration in voting powers has been resolved upon by a great majority of those members of the company who have themselves nothing to gain by it so far as their personal interest is concerned and who, so far as one knows, are actuated only by consideration of what is for the benefit of the company as a whole. I cannot see any ground on which that can be said to be oppressive.
5. One may perhaps illustrate this by taking the simple case where there are no separate classes of shares, but simply a single class of, let us say, 1,000 shares. Is there any reason why the holder of those shares, other than the 100 shares numbered 901 to 1,000 should not by special resolution alter the articles of the company so as to provide that hence forward those 100 shares shall be management shares with special rights? So long as the resolution is passed by the requisite majority and the majority have no other personal interests in the matter, I see no ground no which such a resolution can be said to be invalid.
6. I was referred in argument to the principles laid down in certain cases of high authority, namely, British American Nickel Corporation v. M.J. O'Brien [1927] A.C. 369; 43 T.L.R. 195, P.C.; Carruth v. Imperial Chemical Industries Ltd. [1937] A.C. 707; 53 T.L.R. 524; [1937] 2 All. E.R. 422; [1938] 8 Comp. Cas. 181, H.L. [E]; Greenhalgh v. Arderne Cinemas Ltd. [1951] Ch. 286; [1950] 2 All. E.R. 1120, C.A.; While v. Bristol Aeroplane Co. Ltd. [1953] Ch. 65; [1953] 2 W.L.R. 144; [1953] 1 All. E.R. 40, C.A.; and John Smith's Tadcaster Brewery Co. Ltd. v. Gresham Life Assurance Societ [1953] Ch. 308; [1953] 2 W.L.R. 516; [1953] 1 All. E.R. 518, C.A. I will cite only two short passages. In Carruth v. Imperial Chemical Industries Ltd. [1937] A.C. 707,65; [1938] Comp. Cas. 181. Lord Maugham L.C. said: "On an application under [section 61 of the Companies Act, 1929] the minority shareholders have to satisfy the court that the variation of rights 'would unfairly prejudice the shareholders of the class represented by the applicant.' It would seem that if an action is brought the plaintiffs would have to prove at least that the majority have unfairly oppressed the minority." Then in Greenhalgh v. Arderne Cinemas Ltd. [1951] Ch. 286, 291. Lord Evershed M.R. said: "Certain principles, I think, can be safely stated as emerging from those authorities. In the first place, I think, can be safely stated as emerging from those authorities. In the first place, I think it is now plain that 'bona fide for the benefit of the company as a whole' means not two things but one thing. It means that the shareholder must proceed upon what, in his honest opinion, is for the benefit of the company as a whole. The second thing is that the phrase, 'the company as a whole,' does not [at any rate in such a case as the present] mean the company as a commercial entity, distinct from the corporators: it means the corporators as a general body." Those principles are well established. I need not elaborate them because I do not think that in the present case there is any real dispute about them. The question is whether this particular resolution represents an oppressive act on someone, and in particular, I suppose, the plaintiffs and any shareholders who did not vote in favour of the resolution.
7. For the reasons I have sought to give, it does not seem to me that there is any oppression involved. I ought to add that Sir Milner Holland said, and this I think is right, that if the company could not validly pass the special resolution, then the defect could not be cured by means of a class meeting. So be it, but it seems to me that there is no reason why the company should not have validly passed the resolution, provided that the resolution was passed by a majority with no personal interest in the matter and where necessary received the sanction of a class meeting. It may be that in the events which happened the class resolution was an unnecessary precaution, but that clearly does not affect the validity of the resolution of the company. In the circumstances it does not seem to me that there is such a prima facie case made out by the plaintiffs that the court ought to interfere by interlocutory injection.
8. Motion dismissed.
9. Solicitors : Tilmuss, Sainer & Webb; Ashurst, Morris, Crisp & Co.