TaxTMI 
TaxTMI 
1962 (12) TMI 16
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....t a donation of Rs. 2 lakhs be sanctioned from out of the Shareholders Dividend Account to the M.Ct. M. Chidambaram Chettyar Memorial Trust proposed to be formed with the object, inter alia, of promoting technical or business knowledge, including knowledge in insurance. Resolved further that the directors be and are hereby authorised to pay the aforesaid sum to the trustees of the aforesaid trust when it is formed." On the date of this resolution, appellants Nos. 2 and 4 were directors of the company, appellant No. 4 being the chairman of the board of directors. On December 6, 1955, five settlors (including the company) executed a deed reciting that the settlors desired to establish a charitable trust for commemorating the name of the late M.Ct. M. Chidambaram Chettyar "befitting his services to various institutions and organisations with which he was connected, and to industry, commerce, finance, art and science in general and the great encouragement he gave to education, training, research and promotion of human relationship", and with that object the settlors had declared, transferred and delivered to the trustees a sum of Rs. 25,000 and interest, rents, dividends, profits and....
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....enied liability to refund the amount, the 'Corporation applied on March 14,1958, to the Life Insurance Tribunal constituted under the Life Insurance Corporation Act for an order that the trustees be ordered jointly and severally to pay to the Corporation the sum of Rs. 2 lakhs with interest thereon at the rate of six per cent, per annum from the date of payment to the trustees. It was alleged by the Corporation that the resolution dated July 15, I955 as well as the payments made in pursuance thereof were ultra vires the company and void and of no effect in law, that the memorandum of the company did not authorise such payment, that making of such a donation was not in the interests of the company's business nor was it a generally recognised method of conducting the business and by the donation no direct or substantial advantage accrued to the company. The appellants by their written statement submitted that the directors of the company were authorised by the articles of association of the company to make donations towards any charitable or benevolent object or for any public, general or useful object, that the amount of Rs. 2 lakhs was paid out of the Shareholders' Dividend Account....
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.... to the extent to which those parties were respectively responsible for the transaction or benefited from it and all the circumstances of the case. It is necessary in the first instance to ascertain the true effect of the resolution dated July 15, 1955, and the character of the Shareholders' Dividend Account. The material clauses of the articles of association of the company relating to the constitution of the Shareholders' Dividend Account are articles 116 and ri7. Article 116 reads: "Interest on the paid-up capital at the rate of six per cent, per annum simple for each of the years covered by the valuation period shall form a first charge on and be deducted from the surplus remaining : and the said amount shall become the exclusive property of the shareholders' and shall be carried over to the Shareholders' Dividend Account " Article 117 reads: "Of the remaining surplus the shareholders shall be entitled to a one-tenth share and the amount representing the said one-tenth share shall also thenceforth become the exclusive property of the shareholders and be carried over to the Shareholders' Dividend Account." Article 119 provides for payment of dividend and/or bonus out of the....
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....e Fourth Schedule submitted to the Controller as part of the abstract referred to in section 15 as a result of an actuarial valuation of the assets and liabilities of the insurer. By sub-section (1) of section 10, every insurer carrying on life insurance business was required to maintain a separate fund of receipts in respect of such business distinct from all other assets of the insurer, and deposits made by the insurer in respect of life insurance business were to be deemed part of the assets of such fund. By sub-section (3) the life insurance fund was made absolutely the security of the life insurance policy-holders, and could not be applied directly or indirectly for purposes other than those of the life insurance business. By section 13 every such insurer was required to cause an investigation to be made in respect of all life insurance business transacted by him once in three years by an actuary into the financial condition of the business, including a valuation in respect thereto and to cause an abstract of the report of such actuary to be made in accordance with the regulations contained in Part I of the Fourth Schedule and in conformity with the requirements of Part II of ....
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....ion, determined by a resolution of the company declaring a dividend pursuant to the recommendation of the directors. The scheme of the articles of association of the company makes this abundantly clear. The power to declare a dividend is given by articles 122 and 123 to the company in general meeting, but no larger dividend can be declared than what is recommended by the directors. The right to dividend therefore depends upon the recommendation to be made by the directors and unless there is a recommendation made by the directors and the general meeting declares a dividend, the shareholders acquire no right to the fund or any part thereof, out of which dividend is when declared payable. The argument of counsel for the appellants that the meeting held on July 15, 1955, was a meeting of the shareholders, and when the shareholders resolved to donate an amount of Rs. 2 lakhs out of the Shareholders' Dividend Account they must be deemed to have resolved upon the destination of a part of the fund to which they were entitled, has therefore no force. The meeting was a meeting of the company specifically convened for considering various resolutions one of which was to make a donation of Rs....
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....t and deal with funds and assets of the company upon such securities or investments and in such manner as may from time to time be fixed by the articles of association of the company". Sub-clauses (iii) and (iv) are not material for the purposes of this appeal. By sub-clause (v) the company is authorised to do "all such other things as are incidental or conducive to the attainment of the above objects or any of them". The memorandum of association must like any other document be construed according to accepted principles applicable to the interpretation of all legal documents and no rigid canon of construction is to be applied to such a document. Like any other document, it must be read fairly and its import derived from a reasonable interpretation of the language which it employs: Egyptian Salt & Soda Company v. Port Said Salt Association [1931] AC 677. As observed in Ashbury Railway Carriage and Iron Company v. Riche [1857] LR 7 HL 653. "The covenant, therefore, is not merely that every member will observe the conditions upon which the company is established, but that no change shall be made in those conditions; and if there is a covenant that no change shall be made in the obje....
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....e authority of the director only if the company has the power under the memorandum of association to achieve the object specified, or for doing anything incidental to or naturally conducive to the objects specified. If the object is not within the competence of the company, the directors relying upon article 93(t) cannot expand the funds of the company for achieving that object. The primary object of the company is to carry on life insurance business in all its branches, and donations of the company's funds for the benefit of a trust for charitable purposes is not incidental to or naturally conducive to that object. There is fact no discernible connection between the donation and the objects of the company. Undoubtedly the memorandum of association has to be read together with the articles of association, where the terms are ambiguous or silent. As observed in Angostura Bitters and Company Ltd. v. Ker. [1933] AC 550; [1934] 4 Comp. Cas. 1 , by the Judicial Committee of the Privy Council : " ...that, except in respect of such matters as must by statute be provided for by the memorandum, it is not to be regarded as the dominant document, but is to be read in conjunction with the art....
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....Gallery, or Madame Tussaud's or any other institution in London that can be mentioned. The only ground for the suggestion that this company has the right to apply its funds, which it has been allowed to raise for specific purposes, to this purpose, is, that the Imperial Institute, if it succeeds, will very probably greatly increase the traffic of this company. If that is a good reason, then, as I pointed out during the argument, any possible kind of exhibition which, by being established in London, would probably increase the traffic of a railway company by inducing people to come up to see it, would be an object to which a railway company might subscribe part of its funds. I never heard of such a rule, and, as far as I understand the law- that clearly would not be a proper application of the moneys of a railway company. I cannot distinguish this case from that at all, though, of course, I do not mean to disparage the enormous importance of the Imperial Institute. It may be established for the highest possible objects of interest to this country, but still, the only reason given to me why this railway company thinks it right to spend part of its funds in subscribing to it is this, ....