Class rights variation and share consolidation under the Companies Act may proceed without sanction when memorandum reserves that power.
The memorandum's reservation of power to vary the rights attached to different classes of shares meant that a resolution passed under the prescribed internal procedure did not amount to an amendment requiring sanction under Section 54 of the Indian Companies Act, 1913. The August 2 resolution altering deferred-share rights was therefore valid without court sanction and did not require treatment as a compromise or arrangement. Once those class rights were equalised, the October 11 resolution for consolidation of ordinary and deferred shares could be considered independently and sanctioned on its own footing, since it no longer affected any special privilege. The revisional jurisdiction of the High Court under Section 115 of the Code of Civil Procedure, 1908 was also affirmed.
Issues: (i) Whether the High Court had revisional jurisdiction under Section 115 of the Code of Civil Procedure, 1908 to interfere with the District Judge's order under the Companies Act, 1913; (ii) Whether the August 2 resolution altering the rights attached to deferred shares required sanction under Section 54 of the Indian Companies Act, 1913; (iii) Whether the October 11 resolution consolidating ordinary and deferred shares could be considered independently under Section 54 and sanctioned.
Issue (i): Whether the High Court had revisional jurisdiction under Section 115 of the Code of Civil Procedure, 1908 to interfere with the District Judge's order under the Companies Act, 1913.
Analysis: The Companies Act did not expressly or impliedly exclude revisional power. The District Court, though empowered to exercise company jurisdiction, remained a subordinate court within Section 3 of the Code of Civil Procedure, 1908. The order was a case decided and was not appealable, so the statutory conditions for revision were satisfied.
Conclusion: The High Court had revisional jurisdiction and the preliminary objection was rejected, in favour of the appellant.
Issue (ii): Whether the August 2 resolution altering the rights attached to deferred shares required sanction under Section 54 of the Indian Companies Act, 1913.
Analysis: The memorandum itself permitted variation of the rights for the time being attached to the different classes of shares through the procedure in the articles. The August resolution was passed in accordance with that reserved power and did not constitute an alteration of the memorandum requiring resort to Section 54. The resolution also did not amount to a compromise or arrangement requiring court sanction under Section 153.
Conclusion: The August 2 resolution was valid without court sanction, in favour of the appellant.
Issue (iii): Whether the October 11 resolution consolidating ordinary and deferred shares could be considered independently under Section 54 and sanctioned.
Analysis: Once the August resolution had validly equalised the rights of the two classes, the October resolution merely consolidated shares of different classes and no longer interfered with any special privilege. The proviso to Section 54 therefore did not apply, although the consolidation still required the court's confirmation because it reorganised the share capital and modified the memorandum to that extent.
Conclusion: The October 11 resolution could be sanctioned independently and the refusal to confirm it was , in favour of the appellant.
Final Conclusion: The revisional order was set aside and the company's application for consolidation of share capital was granted with costs left to be borne by the parties themselves.
Ratio Decidendi: Where the memorandum itself reserves power to vary class rights through the prescribed internal procedure, a resolution passed in conformity with that procedure does not amount to an amendment of the memorandum requiring sanction under Section 54; and a later consolidation of shares may be sanctioned on its own footing once the class rights have been validly equalised.
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