TMI Blog1951 (8) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... ying for shares." It is then stated that the same were issued without any prospectus and that the 1st defendant company had not at that time even filed a statement in lieu of prospectus with the Registrar of Joint Stock Companies. The applicants for the shares forwarded Rs. 2-8-0 per share with their applications as application moneys in respect of the shares. It is stated thereafter that on July 20, 1946, the capital structure of the company was altered from two crores of rupees consisting of twenty lacs ordinary shares of Rs. 10 each to two crores of rupees divided into four lacs preference shares and sixteen lacs ordinary shares of Rs. 10 each; that a general meeting of the shareholders was purported to be held on July 20, 1946, where a special resolution was passed which altered the capital structure as stated above. It is thereafter averred that on September 3, 1946, the 1st defendant company filed with the Registrar of Joint Stock Companies a statement in lieu of prospectus dated September 3, 1946, and the same was registered on or about September 7, 1946, and that the 1st defendant company thereafter filed with the Registrar another statement in lieu of prospectus dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pointed on May 24, 1948, were appointed under an invalid resolution, and inasmuch as they were not validly appointed, they had no right to issue the notice calling upon the shareholders to pay up the moneys on the first call, and they further submit that the making of the second call pending the liquidation proceedings was not bona, fide, and therefore, asked for an injunction. The injunction was granted. Defendants Nos. 2 to 12 have not appeared and defended this action, but the action is defended by the official liquidator who was appointed under the petition referred to in the plaint. Before I proceed to draw attention to the issues in the suit, a short narration of dates and events which are not disputed is necessary. As stated by me above, this company was incorporated on July 13, 1946, and applications from the plaintiffs and other intending shareholders were received between July 16,1946, and August 22, 1940. On July 20, 1946, a special resolution for increasing the capital and altering the capital structure was duly passed and the same was filed With the Registrar of Joint Stock Companies on July 30, 1946. As appearing from Exhibit Q, the company obtained the consen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said allotment of shares of the first defendant company to the plaintiffs and the said class of shareholders represented by them is invalid, or in the alternative, the said class of shareholders are entitled to avoid the same. Then prayer ( b ) asks that the names of the plaintiffs and the class of shareholders may be removed from the register of members of the first defendant company, and asks for a consequential rectification of the share register of the first defendant company. Prayer ( c ) asks that the first defendant company be ordered and decreed to refund to the plaintiffs and to the said class of shareholders all the amounts respectively paid by them to the first defendant company. In the light of these allegations, a written statement was filed by the liquidator, inasmuch as leave was obtained to continue the suit against him. The contentions raised by the official liquidator are that the suit is bad for misjoinder of plaintiffs and causes of action. Alternatively, he contends that the plaintiffs are not entitled to file a representative suit. The official liquidator of the company admits that the capital structure of the company was altered as mentioned in the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or unnecessary delay takes place in entering on the register the fact of any person having ceased to be a member, then, in either of these cases, parties may apply to the court for rectification of the register. Under section 83 it is mandatory for every company to maintain minutes of general meetings and of its directors and the same to be entered in the books kept for the purpose. Under sub-section (2) every such minute shall be evidence of the proceedings, and under sub-section (3) until the contrary is proved, every general meeting shall be deemed to have been duly called and held and all proceedings had thereat to have been duly had and the proceedings deemed to be valid. In this connection, one must remember that under section 240 of the same Act, where any company is being wound up, all documents of the company and of the liquidators shall, as between the contributories of the company, be prima facie evidence of the truth of all matters purporting to be therein recorded. These sections indicate that certain presumptions have to be made that the documents are duly and properly entered, unless the contrary is shown, in other words, unless the plaintiffs prove to the contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of section 98 was not dealt with under section 102. Before dealing with the issues in the suit, I may clear the ground by making certain observations which will shorten the discussion on the different issues. It is apparent that it is nowhere alleged in the plaint that this contract, which is a voidable contract, has been avoided by the plaintiffs or any other members of the class of shareholders they represent by a due notice. As regards the invalidity of the allotment, no clear submissions appear, except that a reference is made in paragraph 5, that the statements in lieu of prospectus have not been properly filled up, and in paragraph 6, that the company made allotments between September 3 and September 5. It is further contended that the first defendant company after the date of the said applications, materially altered its capital structure, and, therefore, the statements in lieu of prospectus are materially incorrect. Thereafter, it is alleged, that the plaintiffs and the class of shareholders are therefore entitled to avoid the allotments and have their names removed, but it is nowhere pleaded that there has been any notice of recission of the contracts, which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatement is as inaccurate and lacking in frankness and fullness as any such statement could very well be. But as a matter of form it is satisfactory; it purports to be an answer to the various questions; it is signed by the proper people who were to sign it according to the Legislature; and that having been done, I cannot bring myself to believe that the effect of the Act of Parliament, in the absence of any provision similar to that which is found in prospectus cases, is that the whole thing, the allotment of shares and everything done by the company, perhaps for years afterwards, should be absolutely null and void. I think that is aot the effect of the statute." He agreed with the view of Warrington J. and added at page 406: "However wrong the answers in the statement may be, however careless, to use no stronger word, the directors may have been, that did not of itself and in the absence of any false representation made to any individual applicant render all the allotments mere waste paper of such a nature that no liability could be imposed upon the allottee." The above reasoning is supported by the observations of Jessel M.R. in Hull and County Bank In re : Burgess's cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the public by the company, and that on one of the statements in lieu of prospectus, instead of there being the signature of Sir Allagappa Chettiar, there is the rubber stamp of Sir Allagappa Chettiar's signature. This latter point would fall under section 98, and would infringe only section 98, which would in turn make the contract voidable under section 102. But as I have indicated above there are no grounds for showing that any of the plaintiffs, or any member of the class of shareholders represented by them, has in fact rescinded the contract within a month after the statutory meeting of the company was held, so that the only point now before me is whether these application forms were issued by the company prior to the filing of the statement in lieu of prospectus, and contrary to the provisions of section 96 of the Indian Companies Act. It is on this point that a considerable body of oral evidence was led by the plaintiffs. Before referring to the evidence, one must turn to the averments in this connection. To my mind, there is no averment to the effect that these application forms were issued by the company or by any authority vested for that purpose by the company in any o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and that sharebroker told him that he had been engaged by the first defendant company to distribute forms of applications for shares. This broker has not been called to corroborate the statement of the plaintiff. This is the whole of his evidence germane to the issues in these proceedings. Then comes one Rasiklal Somabhai Vakil, who is a sharebroker trading in the name of Lalbhai Hirachand, and his evidence is relied upon with great emphasis by the plaintiffs. He says that he was employed to have the shares of the Jupiter Airways subscribed from amongst his clients by the company itself, and the company had supplied him with printed application forms, and that he was paid his brokerage. He had to admit that other brokers who also obtained subscriptions to the shares were paid exactly the same commission, and that is in accordance with the practice in Dalai Street, and all brokers would put their names in stamp on the applications sent through them. Then in further examination, he had to retrace this by saying that the brokers employed by the company would get a quarter per cent. more than the others. He admitted that there was a share mania, and that in those days clients oblige ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e inference that there was a public invitation by the issuing of these application forms by the company. The burden is heavily on the plaintiffs, and to my mind, they have failed to discharge this burden. On the facts themselves, therefore, it cannot be said that the company had issued any invitation to the public. Now, taking issue No. 8(A) first, it has been argued by Mr. Khambatta that inasmuch as section 96(2) says that it is not lawful to issue any form of application for shares unless it is issued with the prospectus complying with the requirements of section 93, and any person acts in contravention of the provisions of this sub-section, is liable to a fine. Therefore, the issuing of these forms makes the contract void, inasmuch as section 96 contemplates a counterpart of what follows, namely, allotment, and that, if the first part, namely, the offer itself is illegal or not lawful, it is in essence absent, and the sequel to it cannot follow, namely, any allotment or acceptance of the offer, namely the offer being unlawful, it must not be divorced from what follows, namely, a contract by allotment, and, therefore, there is no contract, and, in other words, the contract is v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prospectus is out, or before any statement in lieu of prospectus is filed, and they may not be used at all by any party, and yet the offence would be committed within the provisions of section 96. On the other hand no application forms may be issued by the company, and yet the offer may be made by a party on a piece of paper or a note paper. I see nothing in the provisions of the Act which would prevent a contract being formed by such an application being made before the issue of a prospectus, or the filling of the statement, and acceptance thereof after the filing of the statement. Therefore, to my mind, section 96 is only a provision for the due compliance with certain conditions to be observed by the management in floating a public limited company, and has no bearing on the contractual relationship between the intending shareholder and the company. The offer is accompanied by allotment moneys which is the consideration, and under section 23, every agreement of which the object or consideration is unlawful is void, but there is no question here of the object or consideration per se being unlawful at all, and unless the Legislature in express terms restricts the freedom of contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of laches and acquiescence, in other words, estoppel in connection with each of the parties, and, therefore, the efficacy of each contract would depend upon different facts and different conduct of parties, vis-a-vis the company, and the conduct of the company qua each shareholder. Besides it would raise the question on the nature of the objection taken by the shareholder, and whether that shareholder had waived it or not. In those circumstances, clearly to my mind, a glance at Exhibit H will show that the facts of each case would have to be differently approached and analysed, and, therefore, this is not a suit which can be brought under the provision of Order 1, rule 1. The same reasoning applies as regards the second issue, namely, the question of a representative suit under Order 1, rule 8. Identical interest cannot possibly be pleaded, and different considerations would apply to each of the plaintiffs, apart from the other shareholders, as appearing from Exhibit H. In fact, in certain cases, there are transferees, (see Exhibits 5 and 6), and, therefore, how can the plaintiffs' relief be applicable or allowed to the transferees? In fact, it is apparent that another suit is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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