TMI Blog1958 (9) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... shares which are of Rs. 10 each. On 16th of August, 1952, at the meeting of the directors of the company, 1205 A class shares were allotted. At the meeting of the directors held on 30th of June, 1953, 1145 A class shares were allotted. On 10th of August, 1953, 905 A class shares were allotted, and on 28th of June, 1955, the directors again allotted 750 A class shares. On 26th of February, 1956, 2085 A class shares were allotted. Thus up to the coming into force of the new Companies Act, 6090 A class shares had been allotted. After 1956 Act became law, 4075 A class shares were allotted on 22nd October, 1956, 2485 on 24th May, 1957, and 600 on 4th July, 1957. Thus the total number of A class shares allotted after 15th June, 1952, came to 13,250 as against 5000 A class shares which the directors were authorised to allot. The contention of the petitioner is, that the allotments of A class shares at the board meetings prior to the coming into force of the Companies. Act, 1956, were in contravention of section 105C of the Indian Companies Act (No. 7 of 1913) and the shares allotted after the coming into force of the new Act were against the provisions of section 81 of the Companies Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jections, although his holding is confined to B class shares. It is also said that the petitioner is actuated by malice, as at a general meeting held on 12th of October, 1957, under orders of this court, the majority of the shareholders had voted against him and his party. It was finally argued that this court, in equity, ought not to grant relief sought by the petitioner despite the irregularities having been committed as alleged by the petitioner. On the above pleadings, the following issues were framed: "1.Whether the names of the respondents are liable to be removed from the register of members? 2.Whether the petition is mala fide? 3.Whether the petitioner is estopped from challenging the allotment of shares to the respondents?" The petitioner produced five witnesses besides appearing himself. The sum and substance of the statements of his witnesses is, that a number of minors had been allotted shares which fact is not denied by the respondents. The petitioner, Dewan Singh, as P.W. 6, stated that more shares than had been originally decided upon, had been allotted by the directors, though no objections had been made to the allotment of such shares. He admitted in cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the previous Acts is unlimited, but it has always been open to the courts to allow or reject the petition, and in exercising the discretion they are guided by equitable principles. In Bellerby v. Rowland Marwood's Steamship Company, Limited [1901] 2 Ch. 265 , KEKEWICH J. at page 273 observed: "The power of rectifying the register given by the 35th section of the Act of 1862 is discretionary in this sense that the court properly can only exercise it if satisfied of the justice of the case, and on many applications the court has declined to exercise this power on the ground that it would not be fair to do so, or, to put it more technically, that the applicant has not established any equity to disturb the existing state of things. And, in considering this, the court has always had regard to the lapse of time, and to any facts and circumstances indicating acquiescence in the existing state of things by those on whose behalf the application is made to disturb it." LORD MACNAGHTEN in Trevor v. Whitworth [1887] 12 App. Cas. 409 at page 440 observed: "After winding up, the court has that power under sections 35 and 98 (of Companies Act of 1862). But it is a judicial powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; the latter, being in minority, feels disgruntled as he no longer has a dominating voice in the affairs of the company. The respondents had paid the entire consideration and as such are holders of fully paid up shares. Rectification of the register would result in the removal of their names from the register, and they would be entitled to receive back what they paid when they purchased the shares. The company opposes the petition as it does not want to return the share money to the allottees of the shares, which probably has been utilised. The allottees of the shares were contracting in good faith with the company, and they were entitled to assume, that the acts of the directors in making allotments of shares to them were within the scope of their powers conferred upon them by the shareholders of the company. They were not bound to inquire whether the acts of the directors which, as in this case, related to internal management, had been properly and regularly performed. Even where the directors exceed their powers or infringe the restrictions imposed upon them, the company may be bound; for an outsider dealing with the company is only required to see, that the transaction on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal acts purport to be performed in the mode in which they ought to be performed." In Royal British Bank v. Turquand [1855] 24 LJ QB 327, the plaintiffs had sued upon a bond under the seal of the company. It was alleged on behalf of the defendants that the directors had exceeded their authority in executing the bond. It was, however, not shown that the plaintiffs were aware of it. It was held By LORD CAMPBELL C.J. that a mere excess of authority by the directors of itself would not amount to a defence. LORD CAMPBELL said: "If the directors had exceeded their authority to the prejudice of the shareholders by executing the bond, and this had been known to the obligees, illegality, we think, would have been shown. The obligors in executing, and the obligees in accepting, the bond might be considered as combining together to injure the shareholders ..But without the scienter, and without prejudice to the shareholders or any others whatsoever, illegality is not established against the obligees. If no illegality is shown as against the party with whom the directors contract under the seal of the company, excess of authority is a matter only between the directors and the shareh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to see that the transaction is apparently regular and consistent with the articles. He need not go into internal matters, e.g., ascertain that a particular resolution has been passed, that a particular meeting has been duly held, or that particular formalities have been complied with: he is entitled to presume omnia rite acta ; but if he knows of the irregularity the case is different. " (See Palmer's Company Precedents, 16th Edition, Part I page 562). In Damodara Reddi v. Indian National Agencies Limited [1945] 15 Comp. Cas. 148 , the facts were somewhat similar. A company consisted of six members all of whom were directors. In a directors' meeting, where five were present, two outsiders were allotted shares on their Applications to that effect. The allotments were discovered to be in contravention of article 5 of the articles of association which required sanction of the general meeting. Applying the doctrine of internal management, it was held that the applicants for shares were entitled to assume that the directors were acting regularly and that the sanction of the company in general had in fact been obtained and, therefore, the allotments could not be avoided. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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