1. This application raises a short and interesting question of law regarding the right construction to be put on sections 87 to 90 of the Companies Act, 1956. These sections which relate to voting rights did not find a place in the Indian Companies Act, 1913, and have been introduced for the first time in the Companies Act, 1956. There is no provision in the English Companies Act, 1948, corresponding to these sections nor is there any authority of any High Court in this country which throws light on the interpretation of these sections. The question of construction posed by this application has, therefore, to be decided by me on the language of these sections unaided by any authority or dicta of any court in this country or in England. The facts giving rise to this application are few and for the most part undisputed and may be briefly stated as follows : The Lakhtar Ginning Company Private Limited was incorporated as a public company limited by shares in the old Lakhtar State in December, 1912, under the company law then in force in the old Lakhtar State. The company had a share capital of Rs. 32,000 divided into 128 ordinary shares of Rs. 250 each and the entire share capital was issued, subscribed and fully paid up. The voting paid up. The voting rights were prescribed by article 76 of the articles of association of the company and under that article each member of the company had one vote irrespective of the number of shares held by him. The voting rights of the members were not proportionate to their respective shares of the paid up capital of the company but were distributed equally amongst the members in the sense that each member had one vote irrespective of his share of the paid up capital of the company. At an extraordinary general meeting of the company held on August 5, 1951, a special resolution was passed whereby the old articles of association were deleted and new articles of association were adopted. Under the new articles of association each member of the company was given voting rights in proportion to his share of the paid up capital of the company in contradistinction to the voting rights given to each member by the old articles of association irrespective of his share of the paid up capital of the company. As a result of the adoption of the new articles of association the company was converted into a private limited company and hence the addition of the word 'Private' in the name of the company. Originally there were seventeen members of the company and they were divided into two groups, one group consisting of nine members and the other group consisting of the remaining eight members. The nine members who formed one group were in a position to control the affairs of the company if the voting rights remained as provided in the old articles of association. Their voting strength was, however, affected by the adoption of the new articles of association since their share in the paid up capital of the company was less than the share of the remaining members in the paid up capital of the company. These members of the company, therefore, filed a petition in the then High Court of Saurashtra under sections 397 and 398 of the Companies Act, 1956, contending, inter alia, that the extraordinary general meeting of the company held on August 5, 1951, at which the new articles of association were adopted was not a validly convened meeting nor was it validly held and conducted and that the resolutions passed at the meeting were, therefore, illegal and void. According to these members, to whom I shall refer as petitioners for the purpose of the judgment, the special resolutions passed at the extraordinary general meeting of the company held on August 5, 1951, being illegal and void, the new articles of association were not adopted by the company and the company continued to be governed by the old articles of association. The necessary corollary of this argument was that the voting rights of the members of the company remained unaffected and each member continued to have one vote irrespective of the number of shares held by him in the share capital of the company and the company also continued to be a public limited company. There were various other contentions raised in the petition but I am not concerned with those contentions for the purpose of this application and I need not, therefore, rehearse the the facts relating to those contentions. Suffice it to state that the petitioners challenged the adoption of the new articles of association which altered the voting rights enjoyed by the members of the company under the old articles of association. If the new articles of association were not validly adopted at the extraordinary general meeting held on August 5, 1951, the petitioners would be entitled to voting rights in accordance with the old articles of association, i.e., the petitioners, between themselves, would have nine votes as against eight votes of the remaining members who formed the other group and the petitioners would in that event be able to control the affairs of the company. Of course, this result would follow on the assumption that the transfer of five shares made by respondent No. 1 to respondent No. 3 and himself jointly and the transfer of five shares made by respondent No. 1 to respondent No. 4 and himself jointly on July 1, 1950, were unlawful and void as contended by the petitioners. If these transfers were valid, the members other than the petitioners would be able to control the affairs of the company, for their voting strength would be augmented by two votes of respondents Nos. 3 and 4 who became members as a result of these transfers and they would thus have ten votes as against nine votes of the petitioners. But apart from this circumstance, whether these transfers were valid or not, if the new articles of associations validly replaced the old articles of association, the petitioners would not be in a majority at a general meeting of the company, for the petitioners between themselves hold less than fifty percent of the paid up capital of the company and their voting strength would, therefore, be less than that of the remaining members who formed the other group. The struggle for power and supremacy in the affairs of the company thus depended to a large on extent on the question whether the special resolution passed at the extraordinary general meeting of the company held on August 5, 1951, was valid and the old articles of association were validly and effectually replaced by the new articles of association. The petitioners, therefore, contended that the special resolution revoking the old articles of association and adopting the new articles of association was illegal and void. The petitioners, immediately after filing the petition, made an application for an interim injunction restraining the company from holding any general meeting since the dispute as regards the validity of the special resolution which affected the voting rights of the members was involved in the petition and if any general meeting of the company was held pending determination of that dispute, it would create serious complications, for it would not be authoritatively known how the voting rights be exercised. According to the petitioners, if the voting rights were exercised in accordance with the new articles of association, the resolutions passed at the general meeting would be illegal and void and in that event grave and irreparable injury would be caused to the petitioners. The application was granted by the High Court of Bombay at Rajkot and an interim injunction was issued restraining the company from holding any general meeting pending the hearing and final disposal of the petition. The interim injunction was issued, I am told, on November 5, 1956. The petition was thereafter not heard for a considerable time and it ultimately reached hearing before me. After the petition was heard for some time, I suggested to the parties that this was pre-eminently a case fit for settlement and that they might try to see if it was possible for them to arrive at a compromise on terms mutually acceptable to them. Mr. M. P. Thakkar, learned advocate on behalf of the petitioners, thereupon asked for an adjournment since the petitioners were not in Ahmedabad and it would require some time to consult them. Mr. L. M. Zaveri, on behalf of the company, stated that he had no objection to the petition being adjourned, but that in the meantime the interim injunction granted against the company should be dissolved, since as a result of the operation of the interim injunction, the company was not in a position to hold any general meeting and this had the effect of paralysing the working of the company. Mr. L. M. Zaveri pointed out sections 87 to 90 of the Companies Act, 1956, and contended that having regard to these sections it was immaterial to consider whether the special resolution passed at the extraordinary general meeting of the company held on August 5, 1951, was valid or not, since by the operation of these sections the same result was brought about which was intended to be achieved by the special resolution in regard to voting rights. Mr. L. M. Zaveri argued that even if the special resolution was illegal and void and the old articles of association continued to govern the company, the voting rights conferred by the old articles of association came to an end from 1st April, 1956, when Companies Act, 1956, came into force or at any rate on the expiration of the period of one year from the commencement of the Companies Act, 1956, by reason of sections 87 to 90 of the
2. Companies Act, 1956, and from that date each member of the company was entitled to exercise voting rights in proportion to his share of the paid up capital of the company. If that was the position, argued Mr. L. M. Zaveri, it was futile to continue the interim injunction, for whatever be the fate of the special resolution substituting the new articles of association for the old articles of association, the voting rights at general meeting of the company held after 1st April, 1956, or at any rate after 1st April, 1957, were required to be exercised by the members in proportion to their respective shares of the paid up capital of the company and were not restricted to one vote per member irrespective of his share of the paid up capital of the company. Mr. M. P. Thakkar disputed this construction and effect of sections 87 to 90 of the Companies Act, 1956, and contended that these sections did not have the effect of abrogating the voting rights conferred by the old articles of association and that despite these sections the voting rights continued to be as provided in the old articles of association. These were the rival contentions urged by the parties parties on the on the question of interpretation of sections 87 to 90 of the Companies Act, 1956, and both Mr. L. M. Zaveri and Mr. M. P. Thakkar invited me to decide the question and agreed that if it was held by me that as a result of the operation of these sections the voting rights could not be exercised as provided in the old articles of association but were required to be exercised in proportion to the respective shares of the members in the paid up capital of the company from 1st April, 1956, or at any rate from 1st April, 1957, the interim injunction should be dissolved but if it was held that these sections did not affect the voting rights provided in the old articles of association and that even after 1st April, 1957, each member could have one vote irrespective of his share of the paid up capital of the company, the interim injunction should not be dissolved. The sole question which, therefore, arises on this application is : What is the true interpretation and effect of sections 87 to 90 of the Companies Act, 1956
3. Sections 87 to 90 occur in Part IV under the heading 'Kinds of Share Capital'. These sections are preceded by sections 85 and 86 which also occur under the same heading. Section 85 divides the share capital of a company into two classes, namely, preference share capital and equity share capital. 'Preference share capital' is defined as meaning that part of the share capital of a company which fulfils the requirements set out in section 85(1). These requirements are nothing more than the normal feature of preference shares as known to company law even prior to the commencement of the Companies Act, 1956, and the definition of 'preference share capital' with reference to these requirements does not constitute any departure from the ordinary concept of preference share capital but merely re-states the concept in precise and accurate language. There was no definition of preference share or preference share capital in the Indian Companies Act, 1913, and the preference shares were described as such by reason only of the fact that they carried some preferential rights in relation to other classes of shares, particularly in relation to ordinary shares. These preferential rights were of great variety but referred normally to one or two of the principal rights carried by the shares, namely, the right to divided and the right, on winding up, to receive the amount of the capital paid up or deemed to have been paid up. Now by section 85(1) a more precise and accurate definition is introduced and these characteristics are made the statutory tests for determining the preference share capital. The tests are whether the share capital fulfils the following requirements namely :
'(a) that, as respects dividends, it carries or will carry a preferential right to be paid a fixed amount or an amount calculated at a fixed rate, which may be either free of or subject to income-tax; and
(b) that as respects capital, it carries or will carry, on a winding up or repayment of capital, a preferential right to be repaid the amount of the capital paid up or deemed to have paid up, whether or not there is a preferential right to the payment of either or both of the following amounts, namely :
(i) any money remaining unpaid, in respect of the amounts specified in clause (a), up to the date of the winding up or repayment of capital; and
(i) any fixed premium on any fixed scale, specified in the memorandum or articles of the company.'
4. It is also declared by section 85(1) that the fact that a preference share is entitled, in addition to the preferential right to the fixed dividend, to a portion of the dividend depending upon the quantum of the profits or that on a winding up it carries, in addition to the preferential right to repayment of capital, a right to participate in the surplus assets after the entire capital has been paid in full, will not have effect of making the definition of 'preference share capital' inapplicable to the case. 'Equity share capital' is defined by section 85(2) as meaning all share capital which is not preference share capital. The definition of 'equity share capital' is thus an exclusive definition and comprehends within its scope all share capital other than preference share capital. There are, therefore, now under the Companies Act, 1956, only two kinds of share capital, namely preference share capital and equity share capital. Prior to the enactment of the Companies Act, 1956, it was not unusual to divide the shares in the capital of a company into two or more classes as, for example, preference shares and ordinary shares or preference shares and A ordinary shares and B ordinary shares or ordinary shares and deferred shares, or preference shares, ordinary shares and founders' shares and so on and so forth and to attach various special rights, privileges and conditions to such shares. Where a company divided its share capital into different classes, the classes were usually given distinguishing descriptions and the company was at liberty to attach to them such descriptions as appeared appropriate. The classes were often described as 'ordinary shares', 'preference shares', 'deferred shares' and 'founders' shares', as mentioned above, but sometimes a more complicated terminology was also used by the company such as 'first preference shares' 'ordinary preference shares', etc. The law did not attache a rigid uniformly applicable meaning to these descriptions and the rights carried by the shares were not dependent upon the deceptions but were always to be gathered from the terms of issue which normally reproduced the relevant provisions of the memorandum and articles of association. These different descriptions are, however, now abolished by the Companies Act, 1956. That part of the share capital of the company which satisfies the requirements set out in section 85(1) is now described as 'preference share capital' and the rest of the share capital is described as 'equity share capital' and the rest of the share capital is described as 'equity share capital' no matter what its description or nomenclature was before the commencement of the Companies Act, 1956. Even if any shares issued as deferred or founders shares or any other description of of shares prior to the commencement of the Companies Act, 1956, they would be considered as equity shares for the purpose of the Companies Act, 1956, unless they fall within the definition in section 85(1) in which event they would be considered as preference shares. All the share capital issued before the commencement of the Companies Act, 1956, must therefore, fall in either of the two classes, namely, preference share capital or equity share capital, and the incidents of the one or the other of the two classes must attach to such share capital. This insistence upon classification of share capital into preference share capital and equity share capital is also to be found in regard to future issue of share capital, for section 86 prescribes that the share capital of a company formed after the commencement of the Companies Act, 1956, or issued after such commencement, shall be of two kinds only, namely, preference share capital and equity share capital. The scheme of the Companies Act, 1956, therefore, is that there should be only two kinds of share capital, namely, preference share capital and equity share capital, and it is in relation to these two kinds of share capital that voting rights are prescribed by sections 87 to 90. If this contextual background of sections 87 to 90 is borne in mind, the interpretation of those sections does not present any difficulty.
5. There is also another rule of interpretation which is no less important and which affords considerable guidance in the interpretation of sections 87 to 90. That is the rule in Heydon's case ((1584) 3 Co. Rep. 7a; 76 E.R. 637.). It is a sound rule of construction established firmly in England as far back as 1584, when Heydon's case ((1584) 3 Co. Rep 7a; 76 E.R. 637.) was decided, that :
'......... for the sure and true interpretation of all Statutes in general (be they penal or beneficial, respective or enlarging of the common law) four things are to be discerned and considered :
1st. What was the common law before the making of the Act,
2nd. What was the mischief and defect for which the common law did not provide,
3rd. What remedy the Parliament hath resolved and appointed to cure the disease of the Commonwealth, and
4th. The true reason of the remedy; and then the office of all the judges is always to make such construction as shall suppress the mischief, and advance the remedy, and to suppress subtle inventions and evasions for continuance of the mischief, and pro privato commodo, and to add force and life to the cure and remedy, according to the true intent of the makers of the Act, pro bono publico.'
6. This rule was reaffirmed by the Earl of Halsbury in Eastman Photographic Materials Co. Ltd. v. Comptroller-General of Patents, Designs and Trade-Marks ([1898] A.C. 571.) in the following words :
'My Lords, it appears to me that to construe the statute now in question, it is not only legitimate but highly convenient to refer both to the former Act and to the ascertained evils to which the former Act had given rise, and to the later Act which provided the remedy. These three things being compared, I cannot doubt the conclusion.'
7. In order to arrive to at a correct interpretation of sections 87 to 90, it is, therefor, necessary to consider how the matter stood immediately before the enactment of these sections, what the mischief was for which the old law did not provided and the remedy which has been provided by these sections to cure that mischief.
8.The position that prevailed prior to the commencement of the Companies Act, 1956, was that a company could make any provision it liked in the articles of association regarding voting rights in respect of various classes of shares in the share capital of the company. There was nothing in the law which required that any particular voting rights shall attach to any particular class of shares. The voting rights depended entirely on the articles of association and it was for the articles of association to determine whether any particular class of shares shall carry any votes and if so what voting rights shall attach to such class of shares. The mischief which resulted was that a few persons could control the affairs of a company through a small investment by holding shares which though of less face value carried larger voting rights. The articles of association could provide for different voting rights for different classes of shares irrespective of the amount paid up on the shares and persons holding shares carrying larger voting rights could, therefore, by owning a sufficient number of such shares, control the affirms of the company even though the amount of paid up capital on such shares was less than the amount of paid up capital on the other shares. Persons in management of the affairs of a company could also collect share capital for the company from others by issue of new shares without in any manner affecting their control of the company by the simple expedient of attaching proportionately less voting rights to such new shares. There being no requirement of the law that the voting rights should be proportionate to the amount of paid up capital on the shares, persons who had contributed less to the paid up capital of the company could enjoy greater voting rights than those who had contributed more and consequently control the affairs of the company even though their contribution to the paid up capital of the company was less than that of the others.
9. It was in order to cure this mishief that sections 87 to 90 were introduced in the Companies Act, 1956. These sections were enacted with the object of removing the inequality in the voting rights attaching to different classes of shares. This object has been achieved by the legislature by making the total paid up equity capital of the company as the pivot round which the structure of voting rights should be centred. Section 87(1) provides that subject to the provisions of sections 89 and 92(2) the voting right of every member of a company holding equity share capital shall on a poll be in proportion to his share of the paid up capital of the company. The voting right of every member holding equity share capital in a company is thus made commensurate with the extent of his holding in the equity share capital of the company so that there would be no inequality of voting rights as between members holding equity share capital in the company. The members holding equity share capital in the company would have voting rights in proportion to the amounts contributed by them to the paid up equity capital of the company. The members who have contributed less to the paid up equity capital of the company would have lesser voting rights than the members who have contributed more and there would thus be no inequality in respect of voting rights which could be brought about by any provision in the articles of association as was being done in the past. The total paid up equity capital of the company is taken as the basis or the norm and the voting rights attached to equity shares are prescribed with reference to this basis or norm, the principle laid down being that the voting rights of members holding equity shares should be in proportion to their share of the paid up equity capital of the company. Now it must be rembered that by reason of the definition contained in section 85 equity share capital includes all share capital other than preference share capital so that the provision that the voting right of every member of a company holding equity share capital in the company should be in proportion to his share of the paid up equity capital of the company applies to members holding all classes of share capital other than preference share capital, no matter what the description or nomenclature of such classes of share capital was before the commencement of the Companies Act, 1956. This provision thus strikes down in one wide sweep the inequality in voting rights attached to all shares other than preference shares and place all shares other than preference shares on the same footing as regards voting rights. Section 87(2)(c) makes a similar provision in regard to voting rights attached to preference shares and declares that the voting rights of the holder of the holder of a preference share shall, subject to the provisions of sections 89 and 92(2), be in the same proportion as the capital paid up in respect of the preference share bears to the total paid up equity capital of the company. It will be noticed that here again the total paid up equity capital of the company is taken as the basis or the norm and it is with reference to this basis or norm that the voting rights attached to preference shares are prescribed. The voting rights attached to preference shares are placed on the same footing as the voting rights attached to equity shares. In both cases the total paid up equity capital of the company is taken as the standard and the voting rights are required to be in the same proportion as the capital paid up in respect of the share bears to the total paid up equity capital of the company. Section 87 thus removes the inequity in voting rights not only as between members holding equity share capital, i.e., share capital other then preference share capital, inter se, but also as between members holding equity share capital and members holding preference share capital. So far there is no dispute between the parties, but the real dispute between the parties arises when one turns to the provisions of section 89. The provisions of section 89 are very material to the determination of the question which has arisen before me and the main controversy between the parties has centred round the true interpretation of this section. Ordinarily section 87 would have applied immediately on the commencement of the Companies Act, 1956, to voting rights attached to equity shares as well as preference shares and no matter what the provision was in the articles of association the voting rights in respect of both equity shares and preference shares would have had to be exercised in accordance with the provisions of section 87 right from the date of the commencement of the Act, for section 9 provides that, save as otherwise expressly provided in the Act, the provisions of the Act shall have effect notwithstanding anything to the contrary contained in the memorandum or articles of association of company. Whatever inequality in respect of voting rights existed under the articles of association would have come to an end immediately on the coming into force of the Companies Act, 1956, by reason of the combined operation of sections 87 and 9 and the new structure of voting rights prescribed by section 87 would have become operative immediately on the commencement of the Act. Section 93, however, provides that nothing in section 85 to 89 shall, in the case of any shares issued before the commencement of the Act, affect any voting rights attached to the shares save as otherwise provided in section 89. There is thus an express provision in the Act that the provisions of section 87 shall not, in the case of any shares issued before the commencement of the Act, affect any voting rights attached to the shares save as otherwise provided in section 89. The new structure of voting rights prescribed by section 87 would not, therefore, apply to the shares issued before the commencement of the Companies Act, 1956, save to the extent provided in section 89. One must, therefore, turn to the provisions of section 89 to see how far the voting rights attached to existing shares are affected by the enactment of the Companies Act, 1956.
10. Before I proceed to discuss the provisions of section 89, I must refer to section 88 which enacts that no company formed after the commencement of Companies Act, 1956, or issuing any share capital after such commencement, shall issue any shares other than preference shares which carry voting rights which are disproportionate to the rights attaching to the holders of other shares not being preference shares. This section in express terms prohibits the issue of equity shares with disproportionate voting rights. No issue of equity shares can, therefore, be made after the commencement of the Companies Act, 1956, which would carry voting rights disproportionate to the voting rights attached to the holders of the existing equity shares. Now it is clear from this provision that the legislature does not want any equity shares disproportionate voting rights. The legislature is keen that there should be no equity shares which carry voting rights disproportionate to the voting rights attaching to other equity shares. The object of the legislature clearly is that there should be no inequity in voting rights attached to equity shares and that the voting rights should be in the proportion which the capital up in respect of the shares bears to that total paid up equity capital of the company. This object must be borne in mind while interpreting the provisions of section 89 and, if there are two possible constructions, that construction must be adopted which best carries out and effectuates this object. There is also another aspect of section 88 which must be borne in mind while interpreting the provisions of section 89. Section 88 probhibits the issue of equity shares after the commencement of the Companies Act, 1956, which carry voting rights disproportionate to the voting rights attaching to the holders of the existing equity shares. Section 88 thus requires that in the case of equity shares issued after the commencement of the Companies Act, 1956, the voting rights should not be disproportionate to the voting rights attaching to the existing equity shares. Now, how can this be possible unless the voting rights attraching to the existing equity shares are themselves proportionately uniform If the voting rights attaching to the existing equity shares are disproportionate to one another, there would be no one standard with reference to which the voting rights can be prescribed for the new shares to be issued after the commencement of the Companies Act, 1956. It is, therefore, clear that section 88 assumes that there is no inequality in voting rights attached to the existing shares and that the voting rights attached to the existing equity shares are not disproportionate to one another. It is only if the voting rights attached to the existing shares are proportionately uniform that it would be possible to give effect to section 88. The legislature has thus clearly proceeded on the assumption that, after the commencement of the Companies Act, 1956, the voting rights attached to the existing equity shares would not be disproportionate to one another and that no one class of existing equity shares would have disproportionate excessive voting rights as compared to any other class of existing equity shares. The construction to be put upon section 89 must, therefore, be such as supports this assumption for it is only by putting such a construction that full effect can be given to section 88. Of course, if the language of section 89 is clear and unambiguous and does not yield the meaning which supports this assumption, the court will not strain the language merely with a view to giving effect to the supposed intention of the legislature but will construe the words according to their plain and grammatical meaning. If, however, the language used can bear a meaning consistent with the assumption of the legislature, the court will certainly interpret the language in a manner which will carry out the intention of the legislature as gathered from the assumption made by it. Bearing these considerations in mind, I shall now proceed to examine the provisions of section 89.
11. Section 89 provides that if at the commencement of the Companies Act, 1956, any shares, by whatever name called, of any existing company carry voting rights in excess of the voting rights attaching under section 87(1) to equity shares in respect of which the same amount of capital has been paid up, the company shall, within a period of one year from the commencement of the Act, reduce the voting rights in respect of the shares first mentioned so as to bring them in conformity with the voting rights arrached to such equity shares under section 87(1). As the language shows the clear and manifest purpose of the section is to terminate disproportionately excessive voting rights of the existing shares and to bring them into conformity with the voting rights as prescribed under section 87(1). The section applies to all shares 'by whatever name called' and lays down one uniform rule for all shares with the object of removing the inequality in voting rights and bringing the voting rights attached to equity shares under section 87(1). Ordinarily the voting rights of all shares would have to be in conformity with the prescription of section 87 right from the date of the commencement of the Companies Act, 1956, by reason of the combined operation of section 87 and 9, but by section 89 a period of one year is laid down during which the existing structure of voting rights can continue even though it may the contrary to the provisions of section 87. Even if any shares carry voting rights in excess of the voting rights attaching under section 87(1) to equity shares in respect of which the same amount of capital has been paid up, the holders of such shares can exercise their disproportionately excessive voting rights for a period of one year from the commencement of the Companies Act, 1956. The structure of voting rights must be brought by the company into conformity with the requirements of section 87 before the expiration of a period of one year from the commencement of the Companies Act, 1956. Though during this period of one year the holders of the shares can exercise voting rights even if they be disproportionately excessive having regard to the provisions of section 87, such voting rights cannot be exercised in respect of certain resolutions mentioned in section 89(2). These resolutions relate to important matters and the legislature has, therefore, enacted in section 89(2) that in respect of these resolutions, the holders of shares carrying disproportionately excessive voting rights in excess of what would have been exercisable by them if the capital paid up on their shares had been equity share capital. The net effect of these provisions is that if there are at the commencement of the Companies Act, 1956, any shares of any existing company which carry voting rights in excess of voting rights attaching under section 87(1) to equity shares in respect of which the same amount of capital has been paid up, the provisions of section 87 would not immediately apply to such shares, but the company would have a period of one year within which to reduce the voting rights of such shares so as to bring them into conformity with the structure of voting rights prescribed by section 87. During this period of one year, the holders of the shares in question would be entitled to exercise the voting rights attached to such shares even though they may be disproportionately excessive but in respect of the resolutions set out in section 89(2), the holders would not be entitled to exercise such voting rights even during this period of one year, but would have to exercise voting rights in accordance with the requirements of section 87. If this is the position, it is clear that the inequality in voting rights in respect of existing shares can continue at the highest only for a period of one year from the commencement of the Companies Act, 1956, and that latest at the expiration of such period of one year, the voting rights of all existing shares would have to be brought in conformity with the requirements of section 87. The argument of Mr. M. P. Thakkar was that section 89 was intended to remove the inequality of voting rights of share capital other than equity share capital. The intention of the legislature was, argued Mr. M. P. Thakkar, to bring the voting rights in respect of such share capital into conformity with the voting rights in respect of equity share capital so that the other shares should have the same voting rights as equity shares on which the same amount of capital had been paid up. This argument was founded on a supposed contradistinction between the voting rights of shares 'by whatever name called' and the voting rights 'attaching under sub-section (1) of section 87 to equity shares in respect of which the same amount of capital has been paid up' to be found in section 89(1). The argument was that since the voting rights of the shares mentioned in section 89(1) are compared with the voting rights attaching under section 87(1) to equity shares in respect of which the same amount of capital has been paid up for the purpose of determining whether they are excessive, the shares first mentioned must be shares other than equity shares and section 89 cannot, therefore, apply so as to affect the voting rights in respect of equity shares. Mr. M. P. Thakkar contended that since section 89(1) does not apply soon as to affect the voting rights in respect of equity shares but is merely intended to bring the voting rights in respect of shares into conformity with the rights in respect of equity shares, the voting rights provided in the old articles of association in the present case continue to remain unaffected and can be exercise notwithstanding the enactment of the Companies Act, 1956. Mr. M. P. Thakkar sought to reinforce this argument by reference to the language of section 89(2) which provides that before the voting rights are brought into conformity in accordance with the requirements of section 89(1), the holders of the shares in question shall not exercise in respect thereof voting rights in excess of what would have been exercisable by them if the capital paid up on their shares had been equity share capital in respect of certain resolutions to which I have already referred a little earlier. The argument of Mr. M. P. Thakkar was that the words 'the holders of the shares in question shall not exercise in respect thereof voting rights in excess of what would have been exercisable by them if the capital paid up on their shares had been equity share capital' in section 89(2) clearly indicate that the capital paid up on the shares whose voting rights are required to be brought into conformity under section 89(1) is not equity share capital and that such shares are not equity shares. The argument was stressed in the form on an interrogation : if the shares in question are equity shares and the capital paid up on such shares is equity share capital, why should the legislature have said that the holders of such shares should not exercise in respect thereof voting rights in excess of what would have be exercisable by them if the capital paid up on their shares had been equity share capital. These words, argued Mr. M. P. Thakkar, clearly presuppose that the shares in question are not equity shares and the capital paid up on such shares is not equity share capital. If this argument of Mr. M. P. Thakkar were correct, there can be no doubt that section 89 would not apply so as to affect the voting rights of equity shares and in that event, despite the enactment of the Companies Act, 1956, the voting rights as prescribed by the old articles of association would continue to be exercisable by the members of the company, subject of course to the validity of the special resolution substituting the new articles of association for the old articles of association. This argument is, however, not only repugnant to the object of the legislature but is also defective in ignoring a number of relevant and material considerations which in my judgment weigh with the court in interpreting this section.
12. The construction contended for by Mr. M. P. Thakkar ignores the crucial words 'any shares by whatever name called' occurring in section 89(1). Section 89(1) in terms applies to all 'shares by whatever name called' and affects their voting rights if such voting rights are in excess of the voting rights attaching under section 87(1) to equity shares in respect of which the the same amount of capital has been paid up. The words 'any shares by whatever name called' according to the plain and grammatical meaning would included all classes of shares as ordinary shares, preference shares, deferred shares, founders' shares, etc. Unless, therefore, there is something in the section or the context which requires that the plain and grammatical meaning of these words should be cut down and confined to any particular class of shares, I must give full effect to the plain and grammatical meaning and hold that section 98(1) applies to all classes of shares whether they are called ordinary shares or preference shares or deferred shares or founders' shares or any other class of shares. The only thing to which Mr. M. P. Thakkar could draw my attention was that section 89(1) itself has made a distinction between shares whose voting rights are sought to be affect and equity shares and that this distinction is emphasized by the words 'the holders of the shares in question shall not exercise in respect thereof voting right in excess of what would have been exercisable by them if the capital paid up on their shares had been equity shares capital' in section 89(2) and he argued that the shares to which section 89(1) applies must, therefore, be shares other then equity shares and the words 'any shares by whatever name called' must be construed not according to their plain and grammatical meaning to include all classes of shares but in a narrow and limited sense so as not to include equity shares. I cannot accept this argument of Mr. M. P. Thakkar. This argument, as I have already pointed out above, is based on a supposed contradistinction between shares whose voting rights are sought to be affected and equity shares. In my opinion there is no such contradistinction to be found either in section 89(1) or in section 89(2). Since the total paid up equity capital of the company is taken as the basis or the norm for the purpose of prescribing the voting rights in respect of equity shares as well as preference shares and the voting rights of both equity shares and preference shares are required to be in the same proportion as the capital paid up in respect of the shares bears to the paid up equity capital of the company and the voting rights of preference shares are thus placed on the same footing as the voting rights of equity shares. Section 89(1) has taken the voting rights attaching to equity shares under section 87(1) as the yardstick for the purpose of determining whether the voting rights of the existing shares are disproportionately excessive. There is no contradistinction sought to be made between existing shares whose voting rights are sought to be affected and equity shares. All existing shares are brought within the scope and ambit of section 89(1) and the question whether the voting rights of such shares are disproportionately excessive or not is to be determined with reference to the yardstick of voting rights attaching under section 87(1) to equity shares in respect of which the same amount of capital has been paid up. The existing shares must by reason of the provisions of section 85 fall in either of the two classes, namely, equity shares or preference shares. If the the existing shares are equity shares and they carry voting rights din excess of the voting rights prescribed under section 87(1) for equity shares in respect of which the same amount of capital has been paid up, their voting rights would have to be reduced and brought into conformity with the voting rights attaching to such equity shares under section 87(1). The yardstick of voting rights attaching under section 87(1) to equity shares in respect of which the same amount of capital has been paid up would apply and with reference to this yardstick the voting rights of the existing shares in question would have to be reduce so as to bring them into conformity with the requirements of section 87(1). There would equally be no difficulty in applying this yard-stick even though the existing shares be preference shares. The voting rights of preference shares are placed on the same footing as the voting rights of equity shares and the yardstick of voting rights attaching under section 87(1) to equity shares would hold good equally for preference shares. If the voting rights of existing preference shares are in excess of the voting rights attaching under section 87(1) to equity shares in the respect of which the same amount of capital has been paid up, they would equally be in excess of the voting rights attaching under section 87(2)(c) to preference shares in respect of which the same amount of capital has been paid up and when such voting rights are reduced and brought into conformity with the voting rights attaching under section 87(1) to equity shares in respect of which the same amount of capital has been paid up, they would equally be in conformity with the voting rights attaching under section 87(2)(c) to preference shares in respect of which the same amount of capital has been paid. The words 'the voting rights attaching under sub-section (1) of section 87 to equity shares in respect of which the same amount of capital has been paid up' in section 89(1) are not intended to bring out any contradistinction between equity shares and other shares, but they merely provide a yardstick with reference to which it must be determined in the case of all shares, be they equity shares or preference shares, whether their voting rights are disproportionately excessive and if such voting rights are, tested by this yardstick, disproportionately excessive, they have to be reduced and brought into conformity with the standard provided by this yardstick, which is nothing more than the requirement of section 87. There is, therefore, nothing in section 89(1) which would compel me to put narrow construction on the words 'any shares by whatever name called' so as to exclude from their scope and ambit equity shares. There is equally nothing in section 89(2) which would compel me to put such narrow construction on the words 'the holders of the shares in question shall not exercise in respect thereof voting rights in excess of what would have been exercisable by them if the capital paid up on their shares had been equity shares capital', they are again used not for the purpose of bringing out any contradistinction but merely for the purpose of describing the voting rights exercisable under section 87 so that in respect of the resolutions set out in section 89(2) the holders of the shares in question should not exercise voting rights in excess of those prescribed under section 87. The test for the purpose of determining what are the voting rights which can be exercise by the holders of the shares in respect of these resolutions is formulated by providing that the voting rights shall be such as would be exercisable by them if the capital paid up on their shares had been equity share capital and the test is so formulated because the total paid up equity capital of the company is made the basis or the norm and the voting rights in respect of the shares are required to be in the same proportion as the capital paid up on the shares bears to the total paid up capital of the company. Section 89(2) therefore says : whatever be the shares in question, treat them as equity shares and the voting rights attaching to such equity shares under section 87(1) would be voting rights which the holders of such shares would be entitled to exercise in respect of the resolutions set out in section 89(2). If the shares in question are equity shares, there is no difficulty in applying the test for the capital paid up on such shares would be equity share capital and the voting rights attaching to such shares under section 87(1) would be exercisable by the holders of such shares. If, however, the shares in question are preference shares, the voting rights in respect of such shares must be determined as if the capital paid up on such shares is equity share capital and the voting rights so determined would be exercisable by the holders of such shares. It would be noticed that the voting rights determined in this manner by reference to this test would be voting rights prescribed by section 87 so that the net effect of section 89(2) is that, in respect of the resolutions set out in that section, the holders of the existing shares cannot exercise voting rights except in accordance with the provisions of section 87. In my opinion, therefore, there is nothing in section 89(2) which requires any narrow or limited construction to be put on the words 'any shares by whatever name called' in section 89(1). These words must, therefore, be construed according to their plain and grammatical meaning to include all kinds of existing shares whether they be preference shares or equity shares.
13. Apart from this plain and grammatical construction, there are various circumstances which militate against the construction which Mr. M. P. Thakkar wants me to place upon section 89. If section 89(1) applies to all shares other than equity shares as contended by Mr. M. P. Thakkar, the only shares to which this section can possibly apply would be preference shares for, under the Companies Act, 1956, shares are divided only into two classes, namely, equity shares and preference shares and if equity shares are excluded from the scope and ambit of this section, preference shares would be the only shares to which this section can apply. The logical conclusion of this argument would be that section 89(1) provides for termination of disproportionately excessive voting rights only in respect of preference shares and disproportionately excessive voting rights in respect of equity shares continue to remain unaffected. This result could never have been intended by the legislature. It is inconceivable that the legislature could have intended that disproportionately excessive voting rights in respect of preference shares should come to an end while disproportionately excessive voting rights in respect of equity shares which in almost all cases comprise a large bulk of the share capital should continue to remain unaffected. What possible object could the legislature have had in view in leaving out equity shares from the scope and ambit of section 89(1) I cannot think of any. If the legislature thought that disproportionate voting rights resulted in mischief for which the law as it stood prior to the commencement of the Companies Act, 1956, did not provide and that it was a defect in the law which required to be remedied and provided the remedy for such mischief and defect by enacting section 87 to 90, could it ever have been intended by the legislature that so far as the existing shares are concerned, this remedy should apply to preference shares but not to equity shares I must put such construction as will 'suppress the mischief and advance the remedy ......... and ........ add force and life to the cure and remedy, according to the true intent of the makers of the Act, pro bono publico'. If I construe section 89(1) as applying only to preference shares, the remedy provided by sections 87 to 90 would in the case of existing shares lose all meaning for, as I have pointed out above, equity shares in almost all cases constitute a large bulk of the share capital of the company and in respect of this large bulk of share capital, the members would be entitled to exercise disproportionate voting rights and the mischief resulting from such disproportionate voting rights should be perpetuated. On the other hand the construction which the company wants me to place on section 89(1) not only accords with the plain and grammatical meaning of the section but also suppresses the mischief resulting from disproportionate voting rights and advances the remedy provided for curing the mishief. The marginal note to section 89 also supports this construction. No doubt the marginal note cannot be referred to for the purpose of constructing a section but it certainly furnishes some clue as to the meaning and purpose of the section. The marginal note to section 89 clearly indicates that the object and purpose of the section is to effect termination of disproportionately excessive voting rights in existing companies. There are no words in the marginal note limiting the object and purpose of the section to termination of disproportionately excessive voting rights only in respect of preference shares. The marginal note also thus indicates that section 89(1) applies to all existing shares whether they be preference shares or equity shares.
14. These considerations would be sufficient to dispose of the contention urged by Mr. M. P. Thakkar that section 89(1) applies only to preference shares and does not apply to equity shares. But there are still two further considerations which clearly show that the construction contended for by apart Mr. M. P. Thakkar is not correct. If section 89(1) applies only to preference shares, the application of section 89(2) would also be confined only to preference shares but, if that were so, section 89(2) would be meaningless in almost all cases. The resolutions set out in section 89(2) are resolutions which ordinarily do not directly affect the rights attached to preference shares and the holders of preference shares would not therefore, be entitled to exercise any voting rights in respect of resolutions unless the dividend due on the preference shares has remained unpaid to the extent provided by section 87(2)(b).
15. Now it is not a normal feature of companies that dividend on preference shares should remain unpaid to the extent provided by section 87(2)(b). In fact such cases would be quite rare. In most of the cases dividend on preference shares would not be in arrears to the extent provided in section 87(2)(b) and the holders of preference shares would not, therefore, be entitled to exercise any voting rights in respect of the resolution set out in section 89(2). If that is that position it is difficult to see why the legislature should have made any provision in section 89(2) for restricting the voting rights of preference shares in respect of these resolution. Such voting rights would be exercisable only in the remote contingency of dividend remaining unpaid to the provided in section 87(2)(b) and the legislature could not have possible made this provision with a view to providing for such remote contingency. These resolutions are important resolutions and the legislature, therefore, obviously wanted that in respect of these resolutions the voting rights should be exercised in accordance with the provisions of section 87 right from the date of the commencement of the Companies Act, 1956, and that is why the provision was enacted in section 89(2) that the holders of the shares shall not exercise, in respect of these resolutions, voting rights in excess of what have been exercisable by them if the capital paid up their shares had been equity share capital. Now if this provision is confined only to preference shares, the whole object of the legislature would be defeated. The holders of equity shares which constitute a large bulk of the share capital would be entitled to exercise their disproportionate voting rights in respect of these resolutions and section 89(2) would have no meaning. In that event section 89(2) might as well not have been enacted, for it would not serve any useful purpose. The object of the legislature would be achieved only if section 89(2) is held to apply to all existing shares, for then, the holders of all existing shares would have to exercise their voting rights in accordance with the provisions of section 87 right from the date of the commencement of the Companies Act, 1956, in so far as these resolutions are concered. If section 89(2) applies to all existing shares, equally must section 89(1) apply to all existing shares and section 89(1) cannot in that event be construed so as to be applicable only to preference shares and not no equity shares. Apart from this the construction which includes within the scope and ambit of section 89(1) all existing shares, they be preference shares or equity shares, is consistent with the assumption made by the legislature in section 88. As pointed out by me above, section 88 assumes that the voting rights in respect of all existing equity shares would be proportionately uniform after the commencement of the Companies Act, 1956, and this would not be possible unless section 89(1) is construed so as to apply to all existing shares including equity shares. If in any particular case the existing equity shares carry disproportionate voting rights and section 89(1) does not apply to existing equity shares as contened by Mr. M. P. Thakkar, the voting rights of the existing equity shares would continue to remain disproportionate notwithstanding the enactment of the Companies Act, 1956, and in that event section 88 would be rendered meaningless and ineffectual, for there would be no one standard of comparison for the purpose of determining whether the voting rights carried by new equity shares issued after the commencement of the Companies Act, 1956, are disproportionate to the voting rights attaching to the holders of existing equity shares. Now it is a well known principle of interpretation of statutes that the court should always lean against a construction which has the effect of rendering any provision of the statute meaningless or ineffectual. All the parts of the statute must be read together so as to make as far as possible a consistent enactment of the whole statute giving full meaning and effect to every part and not rendering any part meaningless or superfluous. The construction suggest by the company accords with this well known principle of interpretation and given full meaning and effect to section 88. Section 88 clearly shown the legislative intent that the voting rights of all existing equity shares should be proportionately uniform and this legislative intent is best carried out by the construction contended for by the company. I must, therefore, hold that section 89(1) applies to all existing shares including equity shares.
16. There is one further aspect of this question to which I must make a reference since that also supports the construction which the company wants me to place on section 89(1). The provisions of section 87(1) regarding voting rights attaching to equity shares are expressly made subject to the provisions of section 89. If, therefore, there is any conflict between the provisions of section 87(1) and section 89(1) the provision of section 89(1) are to prevail. This, however, presupposes that the provisions of section 89(1) operate on the same field as the provisions of section 87(1) at least to some extent, for otherwise there would be no possibility of any conflict between the provisions of section 87(1) and the provisions of section 89(1). Now the provisions of section 87(1) deal only with voting rights of equity shares and it must, therefore, a fortiori follow that the provisions of section 89(1) also relate to voting rights of equity shares. The provisions of section 87(2)(c) regarding voting rights attaching to preference shares are also made subject to the provisions of section 89 and it must, therefore, be held on a parity of reasoning that the provisions of section 89(1) relate also to voting rights of preference shares. It is, therefore, obvious that section 89(1) applies to all existing equity shares whether they be preference shares or equity shares and the contention of Mr. M. P. Thakkar that section 89(1) is confined in its application only to existing preference shares and does not apply to existing equity shares must be negatived.
17. It was next contended by Mr. M. P. Thakkar that the only mischief which the legislature sought to remedy by enacting sections 87 to 90 was that arising out of the inequality of voting rights in respect of the same class of shares on which different amounts of capital might be paid up and that sections 87 to 90 would, therefore, apply only if there were shares of the same class on which different amounts of capital were paid up. The argument of Mr. M. P. Thakkar was that the emphasis throughout sections 87 to 90 was on the amount of capital paid up on the shares and voting rights were made proportionate to the amounts of capital paid up on the shares. If, therefore, there were shares on which different amounts of capital were paid up and the voting rights of such shares were not proportionate to the amounts of capital paid up on the shares, sections 87 to 90 would apply. Mr. M. P. Thakkar argued that in the present case the same amount of capital was paid up on all the shares and section 89(1) did not, therefore, apply so as to affect the voting rights of such shares. This argument of Mr. M. P. Thakkar is fallacious and cannot be accepted. Section 87 requires that the voting rights of all shares shall be in the same proportion as the capital paid up in respect of the shares bears to the total paid up equity capital of the company any by reason of section 89 the voting rights of event existing shares are required to conform to this requirement though in respect of resolutions other than those set out in section 89(2), the existing voting rights of to such shares may continue for a period of one year from the date of the commencement of the Companies Act, 1956. Even if the same amount of capital is paid up on all the shares, yet if the voting rights attached to such shares are different, the voting rights would obviously not be in the same proportion as the capital paid up in respect of the shares bears to the total paid up equity capital of the company and would thus not be in accordance with the provisions of section 87. The test is not whether the amount of capital paid up on the shares in question is the same or different. The test is whether the voting rights of the shares are in the same proportion as the capital paid up in respect of the shares bears to the total paid up equity capital of the company, no matter what the capital paid up in respect of the shares is. If the capital paid up in respect of the shares in the same, the voting rights must equally be the same, for otherwise the proportion would be violated.
18. If the capital paid up in respect of the shares is different, the voting rights must equally be different in the same proportion. Section 87 to 90 do not require as a condition of their applicability that there should be shares on which different amounts of capital have been paid up. This argument of Mr. M. P. Thakkar must, therefore, be rejected.
19. It is clear from this discussion that section 89(1) applies to the shares of the company in the present case. The question therefore is whether the shares of the company carry voting rights in excess of those prescribed under section 87(1). The answer to the question is self evident if one turns to the old articles of association. Under the old articles of association each member of the company has one vote irrespective of the number of shares held by him. The voting rights of the members are not proportionate to their respective shares of the paid up capital of the company. A member holding one share has one vote while a member holding ten shares has also only one vote, though the capital paid up in respect of the ten shares held by the latter is ten times the capital paid up in respect of the share held by the former. The voting rights carried by the shares under the old articles of association are, therefore, clearly in excess of those prescribed under section 87(1) and the company was bound to bring rights into conformity with the voting rights prescribed by section 87(1) latest at the expiration of a period of one year from the date of the commencement of the Companies Act, 1956. If the old articles of association were not validly substituted by the new articles of association as contended by Mr. M. P. Thakkar, it is obvious that the company failed to bring the voting rights of the shares into conformity with the voting rights prescribed by section 87(1) within the period of one year prescribed by section 89(1) but that cannot make any difference. Even if the company did not bring the voting rights of the shares into conformity with the voting rights prescribed by section 87(1) as required by section 89(1), the voting rights could not be exercised by the members of the company in accordance with the old articles of association after the expiration of the period of one year from the date of the commentment of the Companies Act, 1956, in view of the provisions of section 9. The company could not by refusing to carry out the provision of section 89(1) perpetuate the disproportionate voting rights provided under the old articles of association. It was only for a period of one year from the date of the commencement of the Companies Act, 1956, that the old voting rights could continue and thereafter the voting rights had to be exercised in accordance with the provisions of section 87. The period of one year expired on April 1, 1957, and each member of the company was, therefore, from after that date, not entitled to exercise voting rights in respect of the shares held by him in accordance with the old articles of association but was bound to exercise voting rights in proportion to his share of the paid up capital of the company.
20. This being the position, I vacate the interim injunction granted by the High Court of Bombay at Rajkot on November 5, 1956, restraining the company from holding any general meeting pending the hearing and final disposal of the petition. Costs of the application will be costs in the petition.
21. Interim injunction vacated.