TMI Blog1988 (12) TMI 300X X X X Extracts X X X X X X X X Extracts X X X X ..... une 5, 1984, Company Petition No. 2 of 1984 was presented in this court by Ram Kishan, Jagat Narain and Smt. Sumitra Devi. The petition contained a prayer for the winding up of Kanwar Papers P. Ltd. mainly on the ground that the company was indebted to the three petitioners to a huge extent. The amount that was due to the petitioners from the company till April 20, 1984, was Rs. 1,44,000, Rs. 60,000 and Rs. 75,000. The case of the petitioners is that the company stood in need of loan and its managing director, who was very closely related to one of the petitioners, obtained loans of Rs. 1,44,000, Rs. 60,000 and Rs. 75,000 over which interest at the rate of 18% per annum, as orally agreed, was due. The loans were given by the petitioners between February, 1981, and May, 1981. The first petitioner gave it since the managing director of the company was closely related to him. Smt. Sumitra Devi was treated as a dharam behan by the managing director. On the insistence of the managing director and on being induced and persuaded by him, Sumitra Devi borrowed money on the security of a plot of land which she possessed at Delhi, and gave it by way of loan to Kanwar Balbir Singh, who had g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Company' ) , 10 ( Jagat Ram v. The Company ) and 11 (Ram Kishan v. The Company ) of 1984. To each of these three applications, a reply has been filed separately by the respondent-company, which is supported by an affidavit of Balbir Singh. In Company Petition No. 2 of 1984 also, a written statement has been filed by the respondent-company. In addition, the parties have exchanged some affidavits as well. They have also filed some documents. On September 13, 1988, counsel for the parties made a statement before the court that evidence of the parties in the form of documents and affidavits is to be found on the record of Company Petition No. 2 of 1984 and that the said evidence may be taken into consideration as evidence of the parties also for purposes of the disposal of the three company applications. Counsel were heard on various dates before orders were reserved in the case on October 5, 1988. Section 155 of the Companies Act (for short "the Act") was omitted by the Companies (Amendment) Act, 1988. Prior to its omission, this provision read as under : "155. Power of court to rectify register of members. (1) If ( a )the name of any person ( i )is without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... randum of a company shall be deemed to have agreed to become members of a company, and on its registration, shall be entered as members in its register of members. (2) Every other person who (agrees in writing) to become a member of a company and whose name is entered in its register of members, shall be a member of the company". The words "agrees in writing" mentioned in sub-section (2) were substituted for the word "agrees" by Parliamentary Act 65 of 1960. The Companies (Amendment) Bill, 1959, contained a note on clause (14) which says that "the proposed amendment is intended to avoid the improper fastening of liability as contributories on person who never applied for shares", and refers to paragraph 38 of the report of the Companies Act Amendment Committee. The report, in paragraph 38, said that: "It has been brought to our notice that in some cases, on the verge of liquidation, entries are made in the register of members of the names of persons who never applied for shares, in order to fasten liability on these persons as contributories. To avoid this contingency, we suggest the addition of the words 'in writing' after the word 'agrees' in section 41(2)". It is not in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e relevant time. The amendment was not brought about in section 41(2), according to the submission of Shri Sood, as a matter of public policy so as to make its waiver by the person concerned contrary to law and render the inclusion of the names of the three applicants in the register of members, without a request by them, in writing, per se illegal. In Gherulal Parakh v. Mahadeodas Maiya, AIR 1959 SC 781, the Supreme Court was called upon to answer the question whether in India a definite principle of public policy has been evolved or recognized invalidating wager. The question regarding public policy was considered by the Supreme Court, which spoke through Subba Rao J., in some detail in paragraphs 21 to 23 of the report. After referring to a number of text books on the Law of Contract Halsbury's Laws of England and several decisions of the English and Indian courts, the doctrine of public policy was summarised thus (at page 795) : "...Public policy or the policy of the law is an illusive concept; it has been described as 'untrustworthy guide', 'variable quality', 'uncertain one', 'unruly horse', etc.; the primary duty of a court of law is to enforce a promise which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... almost useless if it were to remain in fixed moulds for all time". and that (at page 1930) : "If it is variable, if it depends on the welfare of the community at any given time, how are the courts to ascertain it ? The judges are more to be trusted as interpreters of the law than as expounders of public policy. However, there is no alternative under our system but to vest this power with judges .... The judges must look beyond the narrow field of past precedents, though this still leaves open the question, in which direction he must cast his gaze .... The judges must consider the social consequences of the rule propounded, especially in the light of the factual evidence available as to its probable results .... Our law relies on the implied insight of the judges on such matters. It is the judges themselves, assisted by the Bar, who here represent the highest common factor of public sentiment and intelligence .... No doubt, there is no assurance that judges will interpret the mores of their day more wisely and truly than other men. But this is beside the point. The point is rather that this power must be lodged somewhere and under our Constitution and laws, it has been lodged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be determined having regard to the considerations with which the provision, in the opinion of the court, came to be enacted. The intention with which the Legislature enacted it has to be discovered by the court. There is no scope for saying that in doing so, the court should confine itself to some pre-recognized heads of public policy. The object with which the words "in writing" were introduced in section 41(2) of the Act, after the word "agrees" is more than clear from paragraph 38 of the Report of the Companies Act Amendment Committee. It was found that in some cases entries were made in the register of members, of the names of persons who had never applied for a share, when the companies were on the verge of liquidation, with a view to fasten liability on these persons as contributories. The object of the introduction of these words was to avoid improper fastening of liability on such persons. It is clear that Parliament recognized the inequity of the situation, resulting from the unscrupulous acts on the part of some of the companies, on the verge of liquidation, of trying to fasten liability, as contributories, upon persons who never were its members and whose names wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osed to public policy. Likewise, in Associated Cement Companies Ltd. v. State of Rajasthan, AIR 1981 Raj 133, it was observed by a Division Bench of that court that where a statutory provision laid down a rule of public policy, neither party to an agreement can contract out of it. It relied upon the dictum of their lordships of the Privy Council in Equitable Life Assurance Society of the United States v. Reed [1914] AC 587. In fact, the rule in this regard was stated by the Supreme Court in Murlidhar Agarwal, AIR 1974 SC 1924, in unmistakable terms when it said (at page 1930) : "Although the section is primarily intended for the protection of tenants only, that protection is based on public policy. The respondent could not have waived the benefit of the provision". If, as I have held, the requirement of there being an agreement, "in writing" in section 41(2) of the Act is founded upon the principles of public policy, the applicants could not have waived it. The argument of Shri K. D. Sood, on behalf of the respondent-company, that they could have done so as the provision was primarily intended for the benefit of investors like them cannot be countenanced in law. Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 of 1984, merit success in part. They are allowed to the extent that the register of members of the respondent-company shall be rectified by excluding the names of Smt. Sumitra Devi, Shri Jagat Narain and Shri Ram Kishan from it. The claim for damages made by the three applicants, in these applications, is, however, rejected. The applicants shall be entitled to their costs in these proceedings which is fixed at Rs. 500 in each of the three applications. The amount of costs shall be payable by the respondent- company. Coming now to Company Petition No. 2 of 1984, which seeks an order for the winding up of the company. The pleadings of the parties, as also the evidence brought on the record by them, clearly show that there is serious dispute between the parties on each essential fact. The case set up by the applicant in Company Petition No. 2 of 1984 is founded upon the fact that they had advanced various sums of money as loan to the company on the request made by Balbir Singh. It also is stated that they had done so on account of the assurances held out by Balbir Singh and on account of the close relationship which the applicant, Ram Kishan, had with him. It is unnecessary to r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matized as a scandalous abuse of the process of the court.... The modern practice has been to dismiss such petitions. But, of course, if the debt is not disputed on some substantial ground, the court may decide it on the petition and make the order (vide Buckley on the Companies Acts, 13th edition, page 451). ... If the debt was bona fide disputed, as we hold it was, there cannot be 'neglect to pay' within section 434(1)( a ) of the Companies Act. If there is no neglect, the deeming provision does not come into play and the ground of winding up, namely, that the company is unable to pay its debts, is not substantiated". The rival versions which the three applicants and the respondent-company have given in respect of the amounts said to have been given by way of loan by the applicants to the respondent-company and the failure of the company to discharge the debt, when asked to do so, necessitate that parties should go to trial about it in appropriate civil proceedings. The version of the respondent-company, summarized earlier, makes it clear that the dispute raised by it about its so called liability to refund the amount with interest claimed by the applicants, is of a bona f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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