1988 (12) TMI 300 - HC - Companies Law

Company Membership of Power of court to rectify register of members Circumstances in which a company may be wound up

Summary

Issues Involved:
1. Rectification of the register of members under Section 155 of the Companies Act.
2. Claim for damages due to wrongful inclusion in the register of members.
3. Petition for winding up the company under Sections 433 and 434 of the Companies Act.

Issue-wise Detailed Analysis:

1. Rectification of the register of members under Section 155 of the Companies Act:

The petitioners argued that their names were entered in the register of members without sufficient cause and sought rectification to exclude their names. The respondent-company contended that the petitioners had orally requested the allotment of shares through H.K.S. Malik, and shares were allotted accordingly. The court examined the requirement under Section 41(2) of the Companies Act, which mandates an agreement "in writing" to become a member of a company. The court concluded that the absence of a written request invalidated the inclusion of the petitioners' names in the register of members. The provision was based on public policy to prevent improper fastening of liability on persons who never applied for shares. Therefore, the court directed the removal of the petitioners' names from the register of members.

2. Claim for damages due to wrongful inclusion in the register of members:

The petitioners sought damages for the wrongful inclusion of their names in the register of members. Section 155(2) allows the court to direct the company to pay damages if sustained by any party aggrieved. However, the petitioners did not specify or quantify the damages suffered nor provided evidence to support their claim. Consequently, the court rejected the claim for damages due to the lack of substantiation.

3. Petition for winding up the company under Sections 433 and 434 of the Companies Act:

The petitioners sought the winding up of the company on the grounds that they had advanced loans to the company, which were not repaid, and due to the company's financial difficulties. The respondent-company disputed the claim, arguing that the amounts were investments in shares, not loans, and that there was no demand for interest or refund prior to the statutory notice. The court noted the serious dispute on essential facts and the bona fide nature of the dispute. It emphasized that winding-up petitions should not be used to enforce payment of a debt that is bona fide disputed. The court concluded that the dispute should be resolved through appropriate civil proceedings rather than a winding-up order. Therefore, the petition for winding up the company was dismissed.

Conclusion:

The court allowed the applications for rectification of the register of members by excluding the names of the petitioners but rejected the claim for damages. The petition for winding up the company was dismissed, and the parties were directed to bear their own costs. The court refrained from expressing any opinion on the correctness of the parties' versions to avoid prejudicing future proceedings in the appropriate forum.