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Introduction to case
The case of re Barry Artist Ltd. was decided by the Chancery Division on 3rd April 1985, by J Nourse. In the case it was held, that the court has the power to confirm the reduction of the company’s share capital, where no special resolution to that effect had been passed at a shareholders’ meeting, but instead all the members of the company signed a written resolution to that effect. It was most unlikely that in the future, the court would confirm a reduction of capital in similar circumstances applied.
Facts of case
The facts of the case are that on 12th December 1984, Barry Artist Ltd. through a petition asked for confirmation by the court of a proposed reduction in its company’s share capital, along with the cancellation of its share premium. As stated in Section 66(1) of The Companies Act 1948, no special resolution had been passed, however, the signs of all the four stakeholders of the company had been obtained to a written special resolution alleging to have the required effect.
Issue
- Whether under Section 66(1) and Section 68 of the Companies Act 1984, a company can by way of special resolution, reduce its share capital, subject to purview if authorized by its articles?
Arguments of the parties
As stated in the facts, the company had not passed any special resolution, based on the reasoning that was relied on by the company was based on the judgement given by Mr. Michael Wheeler Q.C. in the case of Cane v. Jones[1], a case on Section 10[2] of the Act. Based on this reasoning, a company approved written special resolution alleging to have the same effect signed by all its four members. It was thereof argued by the company that resolution being expressed unanimously by all its members was effective to reduce its capital and share premium amount subject to confirmation by the court. According to this reasoning, the company contended that there was no material distinction between Section 10 and Section 66 of the Companies Act 1948.
Summary of the judgement in case
The court took into consideration Section 66(1) and Section 68 of the Companies Act 1984, wherein it stated that a company can by way of special resolution, reduce its share capital, subject to purview if authorized by its articles. On observation of the articles of the company, the court found out that as per Article 48 of the company’s articles of association, it may pass a special resolution to reduce its share capital or any premium account in any way and subject to any incident authorized and consent required by law.
The court took into consideration the reasoning provided by the company and agreed that the contention of the company was correct, however, the issue was not in the hands of the court.
The court was of the opinion that the reduction of the company’s capital is not a matter for the company alone. The court held that taking into consideration the circumstances of the company, the court sanctioned and confirmed the reduction.
Analysis of the judgment
The judgment passed by the Chancery Division was a very briefly written judgment, it did not justify each detail of the given section in accordance with the given facts. It can be observed on giving a plain reading of the judgment that the judge was not satisfied by the arguments provided by the Petitioners and did not wanted to confirm the reduction of the share capital of the company, although he went ahead with it. Although he made it clear that such arguments will not be entertained in the future.
Hence this judgment can be critiqued from this point that it can be considered of being unfair and biased to the future cases. As even though reluctantly, it did allow the sanction and partially based on taking into consideration the circumstances if the case.
On comparing this provision of the Companies Act 1956 to the Companies Act 2013, there have been certain changes that have occurred. Earlier Section 100 to 104 of The Companies Act 1956 used to govern the procedure of reduction of share capital, however in Companied Act 2013, it is governed under Section 66 of the Act. Apart from this, as per Companies Act 1956, it was subject to confirmation of the High Court, whereas in the Companies Act 2013, the powers of the high court have been transferred to National Company Law Tribunal and it is subject to confirmation of the National Company Law Tribunal (NCLT).
However, the judgment was, in a way, one of a kind, as in the history, no such case had been decided on the basis of the convenience of the company and not adhering to the given statute.
Conclusion
The court agreed that there was no material distinction between Section 10 and Section 66 of the Companies Act 1948. It can be concluded by the given judgment that although the court had provided an exception in this given case, however, it was made clear by the judge that such kind of leverage shall not be given to future similar cases.
References:
[1] Cane v. Jones (1980) 1 W.L.R. 1451.
[2] The Companies Act, 1948, Section 10
