TMI Blog1975 (5) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... to this petition are somewhat interesting but one or two questions of law of some nicety also arise for consideration. On the record, as admitted by the O.L., there is only one application for shares which was given the mark "A" initially "C.W.1", has been written on it probably by the Commissioner who was appointed to examine the petitioner as a witness. According to the petitioner the said form of application for shares was signed by him in blank. Many of the columns have been filled in later in type, the form itself being a cyclostyled (typed) one. The figure 50,000 has been written in manuscript in paragraph 1 which speaks of an application for those shares being made after having read the statement in lieu of prospectus relating to equity shares. In paragraph 3 the figure of Rs. 5 lakhs has been entered. Even the manner in which the same was paid is not apparent from it because all the three modes of payment in the form, namely, cash/cheque/draft, appear to have been scored out. What is particularly intriguing is even though a sum of Rs. 5 lakhs was said to have been enclosed along with the form it was stated Rs. 5 per share was payable on application per share of Rs. 10 ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fused at first but agreed to consult his own solicitors in Bombay but R-2 insisted and prevailed on him saying that the company will, in that case, be in great trouble. At the insistence of R-2, the petitioner had agreed to consult his solicitors in Bombay, M/s. Hooseini Doctor Co. The person, Mr. T. S. Doctor, whom he had consulted, has been examined as PW-5, The solicitor advised the petitioner to obtain some papers and not to sign the draft letter marked "B". The petitioner attended a meeting of the board of directors of the company when the minutes of a previous meeting of the board of directors held on February 28, 1963 (at which he was not present), were read out for confirmation. One of the resolutions at that meeting, dated February 28, 1963, was that 50,000 shares which had been allotted on April 30, 1962, be cancelled. The petitioner was surprised to learn about this for the pretext given for cancellation, namely, that the cheque for the share money had been returned, was false. But the petitioner was assured that the accountant had made a wrong entry and that for this and other acts he had been dismissed. The petitioner was assured that since the allotment of shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Mining Co. Ltd. (LR 4 KL 64) which constituted authority for the proposition that where a person on the register of members has a right to rectification, and the company itself recognises that right, it is not essential for a valid rectification of the register that an order of the court should be sought and obtained. I wish to say nothing to encourage directors to carry out rectification of a company's register without an order of the court being obtained in proceedings in which the right to rectification is duly established. The protection of the court's order is in the ordinary case essential to any rectification of the register by the removal of the name of a registered holder of shares, but in this case it was inevitable that the matter should come before the court, because it involved the sanction of the court to the issue of shares at a discount. I am satisfied that no one will be prejudiced, and I shall not require what would be a mere formality, that is to say, a motion to rectify the register". (Emphasis added) Cozens-Hardy L.J. had earlier put the matter thus when he agreed with the other learned judges in In re Sussex Brick Company [1904] 1 Ch. D. 598, 609 (CA) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r was a contract between Baillie and the company voidable by him on the ground of the misrepresentations which were made to him, but something which was void ab initio . In other words, there never was any contract at all. When Baillie made his application and received his certificate he thought that the company he was dealing with was the old Auctioneers' Institute, and those who were acting for the liquidating company knew of this belief and distinctly deceived him. Under circumstances like these there is no contract, as is shown by the observations of Lord Cairns, Lord Hatherley and Lord Penzance in Cundy v. Lindsay [1878] 3 App. Cas. 459 (HL) That being so, Baillie is entitled to the relief which he claims, and it is no objection to his claim that he took no steps to have it declared that he was not under liability before the winding-up took place. It has been suggested that, whatever the effect of Cundy v. Linsday [ 1 878] 3 App. Cas. 459 (HL) may be where the contract is not in writing, where the terms are contained in writing the parties cannot deny that there was a contract. In Cundy v. Lindsay [1878] 3 App. Cas. 459 (ML) what was alleged to be a contract appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court was essential only when the company disputes the right to rectification. There is no reason why the directors, if they bona fide agree that the shareholder has a right to avoid the contract, should not thereupon assent to the rescission of the contract and rectify the register in an appropriate manner. An order of the court is not necessary in such a case. To this category belong In re London and Mediterranean Bank (known as Wright's case [1872] LR 7 Ch. App. 55), Reese River Silver Mining Co. v. Smith [1869] LR 4 HL 64, 67 and In re Poole Firebrick and Blue Clay Corn-any (known as Hartley's case [1875] 10 Ch. App. 157). In the last mentioned case Lord Cairns L.C. pointed out that an application for rescission could not be made after winding up and, if even made before winding up, the case will have to be proved strictly. In re Hull and County Bank (Burgess's case [1880] 1 5 Ch. D 507 (Ch. D.)) did not allow an application for rescission of shares on the ground of misrepresentation by the promoter after winding up, even though there were sufficient assets in the hands of liquidators. All these cases when examined would be seen to be cases where allotment was ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gister" which is not according to what has been prescribed in the Appendix. In respect of the petitioner there is an entry on page 20 with date April 30, 1962. Regarding 50,000 shares alone the distinctive share numbers have been given as 16503 to 66502 and there is a credit in respect of Rs. 5 lakhs. It is surprising that if the petitioner had subscribed also for 500 shares (about which there is no dispute) there is no mention of them. On its face the said register is not free from suspicion. Even the presumption which is available under section 164 of the Companies Act, in respect of the register of members, among other documents referred to therein, that it would be prima facie evidence of matters directed or authorised to be inserted therein by the Act would not be available to the official liquidator because the above "Share Account Register" is not the prescribed register of members to which alone the presumption referred to in section 164 applies. The petitioner's liability to be placed as a contributory cannot be fixed, therefore, on the basis of the said "Share Account Register". There is a further difficulty owing to the said entry itself reading that the said sum of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n into a concluded contract only by an offer to take certain amount of shares and the same being accepted. There is nothing on record to show that the allotment of 50,000 shares to the petitioners was even communicated to him. If this was not done, there was clearly no acceptance, even if there was an application for 50,000 shares, and hence there was no concluded contract either. It will be appropriate in this connection to look at the auditor's note in the balance-sheet for the period ending 30th April, 1962 (marked as exhibit R.W.-1/A), which reads as follows : "Note 2. 77,500 equity shares have been allotted on 30-4-62 by the directors. The amount due on application and allotment was not received in cash but by cheques. The cheques have not yet been sent to bank for collection and are in the hands of the managing director as uncashed". This report was by the company's auditors, S. P. Chopra Co. and G. S. Mathur Co., and is dated May 12, 1962. It may be recalled that on May 2, 1962, the cheque for Rs. 5,000 given by the petitioner was sent to the bank for collection and was cashed. The question naturally arises how if the petitioner had given a cheque for Rs. 5 lakhs i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from and after 2nd June, 1962, are in a different book (marked as exhibit R.W.-3/3). It was then for the first time that resolution was passed (item 2) that the petitioner, in addition to Lt. Gen. Chaudhuri and Bharat Singh, was appointed as director ; it was stated that the consent of all of them to act as directors had been received in the office. At this meeting an interesting record had been made as item 3 as follows : "It was stated by the manager that the two cheques were returned by the old accountant, Mr. G.S. Bambani to, ( i ) H.H. Tehri Garhwal, and ( ii ) S. Bharat Singh which had discrepancies on May 14, 1962, and the same have not been sent back to the company. It was resolved that in the next board meeting they may be requested to return fresh cheques in lieu of those returned to them already, i.e. , H.H. Tehri Garhwal for Rs. five lakhs and S. Bharat Singh for Rs. two lakhs and seventy-five thousand". It is necessary to notice in this context that there has been a publication by the manager of the company in the Hinduslan Times dated May 28, 1952, (exhibit P.W.-2/1) that two cheques had been lost by the cashier on his way from the bank to the office ; the tw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct his solicitor in Bombay some time in September/October, 1962, because the managing director had told him that the accountant had bungled or did something wrong on the basis of which the Registrar of Companies had started enquiries ; he, therefore, wanted the petitioner to sign a paper asking him to commit himself to the fact that he had been allotted Rs. 5 lakhs worth of shares. He refused to do so but ultimately he agreed to consult his solicitor on account of Singhania's insistence. T.S. Doctor (P.W.-5), solicitor and a partner of Messrs. Hooseini Doctor and Co., Bombay, spoke to the fact that the petitioner saw him some time in the last week of October, 1962, in connection with the letter which the company wanted from him. The draft letter was marked "B". When he was talking to the petitioner, B.B. Lall Singhania also came in whereupon he said he would have to consider ; he asked for certain documents which he had referred to in his letter dated October 27, 1962, to the petitioner. His advice to the petitioner was that he should not sign that draft letter. The letter containing the objection of the Registrar of Companies was also shown to P.W.-5 at the time the petitioner m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... himself a party to such fraud. While it seems that a bogus company had been floated, in which the petitioner had been led to take shares, the evidence falls far short of what is needed to establish that the petitioner was a party to any fraud, along with the promoter. The evidence seems consistent with the petitioner's embarrassment in having become involved in this company as a shareholder and director and not being able to take any hasty or drastic steps. He refused to sign a draft reply as per annexure "B". In this respect he is supported by the solicitor (P.W. 5). If he had agreed to consult his solicitor at Bombay, when the promoter was also present, it was obviously to take legal advice. This is consistent with the petitioner having been anxious to avoid any further injury to himself, especially in the context of the records of the company having been seized earlier by the police, even in June, 1962. On the crucial question whether 50,000 shares had been allotted to the petitioner and whether there was a concluded contract in respect of those shares between members of the company the evidence in this case is not sufficient to support such an inference. Dealing with the po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of 50,000 shares. Issue (5) : No estoppel can be pleaded against the petitioner, there being no allotment of 50,000 shares. Issue (6) : This issue has not even been argued before me. I do not see how such a question arises in the present petition. In particular, it may be worth examining, in the light of the evils which the case on hand presents whether stricter provisions concerning the allotment of shares than have been provided even under the Companies (Amendment) Act (41 of 1974) should not be thought of. Part II of the Act has no doubt been the subject of progressive amendment aimed at controlling the evils usually encountered not only in the matter of deposits invited by limited companies (in addition to sections 58A and 58B recently added to the Act by Act XLI of 74), the Reserve Bank (Second Amendment) Act also regulates deposits invited by non-banking financial companies, but also by making provisions in the matter of mis-statements in prospectuses providing for not only civil liability in respect of them (section 62) but also providing penalty (section 63) for fraudulently inducing persons to invest money (section 68) and making personation for ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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