Decided on February 10,1995



A.R.Ramanathan, - (1.) THIS is a petition by Caledonian Jute and Industries Limited (hereinafter referred to as "the company") under section 80A of the Companies Act, 1956 (hereinafter referred to as "the Act"), seeking consent of the Company Law Board to the issue of further 111,000--9.1 per cent. redeemable cumulative preference shares of Rs. 100 each credited as fully paid-up, redeemable at par within a period of 10 (ten) years from the date of their issue, in lieu of the existing irredeemable 10,000--7 per cent. cumulative preference shares of Rs. 100 each fully paid-up. According to the company, the cumulative dividend on the preference shares is in arrears as on March 31, 1992, for 11 (eleven) years and the arrears amounted to Rs. 10,01,000. The shareholders of the company including the impugned preference shareholders have passed a resolution at the annual general meeting held on September 29, 1992, to issue further 9.1 per cent. redeemable cumulative preference shares of Rs. 100 each equal to the nominal value of the shares to be redeemed.
(2.) At the preliminary hearing of the case, the company was directed to send intimation to all the preference shareholders by registered post about the date of next hearing so that opportunity could be provided to them. On receipt of the intimation from the company, 9 (nine) preference shareholders filed their objections in writing. Certain preference shareholders also appeared before this Bench either in person or through authorised representatives. Though all of them sought immediate redemption including the arrear of dividend, some were agreeable to the arrears of dividend being settled by issue of further preference shares. Shri G. S. Asopa, advocate, appearing on behalf of the company at the various hearings held from June, 1993, to September, 1994, reiterated the stand of the company as stated in the petition and stated that as per the relevant balance-sheet as at March 31, 1992, the company is not in a position to redeem the impugned preference shares. He also emphasised that no dividend has become due tin these shares during the last 11 (eleven) years as no dividend was declared by the company. He further submitted that, according to the proviso to Section 80A(1) of the Act, it is necessary to include the dividend amount in the value of the further shares to be issued only after any dividend has become due. According to him, the word "due" has to be interpreted in the context of any dividend which has been declared. Through a subsequent affidavit filed on behalf of the company in September, 1994, the written notes of arguments submitted in the matter of Naihati Jute Mills Company Limited, was adopted by the petitioner. The substance of the written notes of arguments is as follows : (i) The word "due" used in the proviso to Section 80A(1) cannot be construed to mean "arrear". The word "due" is meant to cover cases of redemption during an accounting period. (ii) The right to receive arrears of dividend can be incorporated in the further share scrips so that such arrears could be paid as and when the company makes profits and is able to declare such dividend. (iii) If the word "due" is to be interpreted as "arrear", then, it would amount to granting certain unintended advantages to the existing preference shareholders, viz., (a) he will get further dividend on the arrear of dividend as it would become part of the nominal value of the preference shares ; (b) the voting right of the preference shares will be unduly increased by the amount of arrear of dividend, added to the nominal value.
(3.) ELABORATE submissions were made with regard to the intent of the amendment introduced by the Companies (Amendment) Act, 1988, through the insertion of Section 80A. Section 80A(1) of the Act, though makes it obligatory to redeem the irredeemable preference shares within 5 (five) years from the commencement of the Amendment Act, it does not envisage payment of arrears of dividend on such redemption. This being so, the proviso to Section 80A(1) of the Act cannot be construed to enlarge the scope of the main section to pay the dividend as well. In this connection, the decision in Duncan v. Dixon [1890] 44 Ch 211 was cited to the effect that a proviso cannot be construed as enlarging the scope of an enactment. Dividend becomes due only when the same is declared at the annual general meeting of a company, a finding in Band v. Batrow Haematite Steel Co. [1902] 1 Ch 353 which was also cited. Reference was also made to reinforce this proposition to MFR D'Cruz v. K. N. Viswanathun, AIR 1941 Mad 806. A point was also made that the word "due" though used in Section 87, has been clearly contrasted therein to include arrears by means of specific explanation which in the present case is absent. The proviso to Section 80A(1) of the Act at the most may be interpreted to require the issue of further shares including therein the right to the arrears of dividend in respect of the unredeemed shares. As such the words "the right to arrear" have to be read into the phrase in brackets (i.e., including the dividend thereon). It is further submitted that as per the principles of accountancy also the interpretation cannot stand as further shares can be issued only against a corresponding asset but in the case of arrears of dividend, there is no corresponding asset excepting a fictitious asset which cannot be permitted by any law. Moreover, the interpretation of the word "due" as equal to "arrears" would be detrimental to the rights of equity shareholders and the creditors of the company which is not the intention of the Legislature.;

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