Feedback   New User   Login      
Tax Management India. Com TMI - Tax Management India. Com
Acts / Rules Notifications Circulars Tariff/ ITC HSN Forms Case Laws Manuals Short Notes Articles SMS News Highlights
        Home        
Extracts
Home List
← Previous Next →

Manabendra Shah Versus The Official Liquidator, Indian Electric Tools Corporation Ltd. and Ors.

1975 (5) TMI 90 - DELHI HIGH COURT

Civil Petition Appeal No. 13D of 1965 and Civil Appeal No. 448 of 1974 - Dated:- 5-5-1975 - S.I. Rangarajan, J. Ved Vyas, R.C. Beri and P.C. Khanna, Advs JUDGMENT S.I. Rangarajan, J. (1) The petitioner (the Maharaja of Tehri Garhwal) had admittedly become a shareholder and director of the Indian Electric Tools Corporation Ltd. (in liquidation), a company registered under the Companies Act, 1956 (hereinafter called the Company)- In this petition he prays that the Official Liquidator (O.L.) may be .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

se for consideration. (2) 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 50,00 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

o have been enclosed along with the form it was stated ₹ 5 per share was payable on application per share of ₹ 10 each. the balance of ₹ 5 per share being payable on allotment. The date has been filled up in handwriting to read that the application was made on the 30th day of April, 1962. According to the petitioner he had applied only for 500 equity shares, he had sent an application on 25-4-1962, for the same along with a cheque (P3) of the same date for ₹ 5,000 being t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

receive any notice of such allotment. On the other hand, the company which was not financially well off had requested him to advance a loan of ₹ 10,000 in November, 1962 out of which ₹ 3,000 alone had been returned some time on 10-11-62 details of these had been mentioned by the petitioner in his letter dated 23-3-1964 to the O.L. (copy of which is Annexure C to the petition, exhibited as Ex. P. X. and marked E by the Commissioner). (3) Some time in September/October, 1962, B, B. Lal .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

petitioner was further informed that since the Registrar of Companies was asking for an Explanation in this respect the petitioner may give him a reply on the terms set out in Annexure B to the petition, to the effect, that the petitioner had applied for shares worth ₹ 5 lacs, that he wanted 50,000 shares to be reserved for him. the subscription for which will be made before the public issue and that he had not enclosed any cheque with the application though he had mentioned therein that .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the draft letter marked 'B'. (4) 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 28-2-1963 (at which he was not present) were read out for confirmation. One of the resolutions at that meeting, dated 28-2-1963, was that 50,000 shares which had been allotted on 30-4-1962 be cancelled. The petitioner was surprised to learn about this for the pretext given for cancellation, namely, that the c .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

r and he was intimated about the same. In his reply affidavit dated 15-3-1966, B. B. Lal Singhania (R-2) supported in some respects the petitioner's case; he has not, however, been examined as a witness for the petitioner, it is needless, Therefore, to be detained by the averments in the said affidavit which cannot be taken us substantive evidence in the case in the absence of his being examined and cross-examined. The following issues were framed on 18-3-1966 : "1. Was there a valid ap .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

50,000 shares to the petitioner ? 5. Is the petitioner estopped from seeking remedy by way of rectification by reason of acquiescence or delay ? 6. Is there any liability of respondent No. 4 ? 7. Relief." An application by the O.L. to re-frame the issues was rejected and no appeal had been preferred against it. Issues had been framed after recording the statements of some persons. (6) Issue No. 4 : It is needless to be detained about the effect of the resolution dated 28-2-1963 cancelling t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t of Jessel M. R. in In re Poole Firebrick and Blue Clay Co. Ltd., 1874 L.R. 18 Eq. 542 and to In re Reese River Silver Mining Co. Ltd. L.R. 64 10 Ch L.R. 157 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 ca .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nt. 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." COHENS-HARDYL.J. had earlier put the matter thus when he agreed with the other learned Judges in re Sussex Brick Company (1904 (1) CD 598 (4) : "IT seems to me that Mr. Gore-Browne's argument is really based on this hypothesis, that the register of members is a thing which ceases to have any real operation or existence after t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ny delay or latches in the matter of applying fur relief would be of any consequence. In the language of Cohens-Hardy L.J. after a winding up order the only right which can be dealt with is one with regard to mating some change in the list of persons as contributories. This is exactly the position here; section 467 of the Companies Act of 1956 provides for it. "467(1). As soon as may be after making a winding up order, the Court shall settle a list of contributories, with power to rectify t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tributories in their own right and those who are contributories as being representatives of, or liable for the debts of, others." The position in India, in this respect, is thus the same as in England. It may also be instructive to refer to the observations of Wright, J. in re International Society of Auctioneers and valuers 1898 C D110 (5). "UNDER these circumstances, is Baillie to be allowed to repudiate his liability, or rather to say that he never contracted with the company now in .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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. 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 pla .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ge 503, as follows : "IF there is in fact no contract, or the contract under which the alleged shareholder is supposed to have taken his shares is void from the beginning and not merely avoidable, his name may be removed from the register even after a winding up has commenced; for he never agreed to fake the shares [Oakes v. Turquand, 1867 L.R. 2 H.L. 325; Alabaster's case (1868), 7 Eq. 273; Baillie's case, (1898) 1 Ch. 110 (9) ; and in such a case delay is not a bar to the claim to .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d be necessary. In First National Reinsurance Company, Ltd., v. Greenfield. 1921 (2) K.B. 260(13) McCardie J. referred to Oakes v. Turquand 1867 L.R. 2 H.L. 3251(14) and the Explanation given by Lord Granworth therein as to why the Companies Act of 1862 opened the register to the inspection of all the world; it is obvious that no creditor could safely trust the company without having the means of first ascertaining who the shareholders might be, and secondly, to what extent they would be liable. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ch have been taken for the avoidance of a contract to take shares. McCardie J. also added that with regard to the rectification of the register an application to the 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

oved strictly. I re Hull and County Bank (Burgess's case, (1880) Ch. Div. 507 (18) 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 the liquidators. All these cases when examined would be seen to be cases where allotment was made but the same was questioned later. (8) The question, Therefore, is whether there was in the present case an allotment of 50,000 shares .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

w 50,000 shares were allotted. The allotment of 500 shares only is admitted by the petitioner. (10) All does not seem to be well with the application dated 30-4-1962 turn the allotment of 50,000 shares. Section 41(2) of the Act prescribes that persons other than subscribers to the Memorandum of Association of the Company, who are to be entered as members in the register of members, should agree in writing to become such members and that their names should be written in the register of members. T .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

am afraid, take note of the above change introduced by the Amending Act (65) of 1960. (11) Rule 6 of the Company (Issue of Certificates) Rules, 1960 requires that the particulars of every share certificate should be entered in the register of members maintained in the form set out in the Appendix to those Rules indicating the date of issue, the person(s) to whom it has been issued along with particulars of every share certificate issued. The number and date of allotment, amounts due and on what .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

16,503 to 66,502 and there is a credit in respect of ₹ 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d. It would not be permissible to fasten any liability on the petitioner as a contributory in respect of those 50,000 shares de hors the said entry which reads that ₹ 5 lakhs had been paid by the petitioner. I am only referring to this aspect for the purpose of pointing out the sheer futility of relying on the entry in the said Share Account Register to fasten any liability on the petitioner on that basis. When, before any such liability can be fastened on him, and the petitioner wants to .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f Bacon V.C. The Official Liquidator had applied to have the name of Mr. Beck placed on the list of contributories in respect of certain shares of the company. James L.J. put the matter thus : "Mr. Beck was put on the register of shareholders without any authority from him. That was a perfectly void act as utterly unauthorised by him, and yet he is now sought to be charged with the consequences". Mr. Beck had held forty 5 shares ( 2 10 s. paid) in the Progress Insurance Company: he had .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

on which the allotment of shares had to take place. The consequence was that there was no agreement to become a shareholder. The tatter explained that Mr. Beck was only puzzled and when he wrote to the company for his certificates he only wanted to know what really the truth was. (14) The essence of the matter, Therefore, is that there should be an agreement to become a shareholder, which agreement can ripen into a concluded contract only by an offer to take certain amount of shares and the sam .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 12-5-1962. It may be recalled that on 2-5-1962 the cheque for ₹ 5,000 given by the petitioner was sent to t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e the company has been wound up ; some fraud seems to have been perpetrated. But these cannot by themselves dispense with the need for acceptable proof that there was an application by the petitioner for 50,000 shares, that there was an allotment to him of these shares and that the same was also communicated. (16) It may also be worth noticing in this context that the Police had seized the records of this company in June, 1962, including the minutes book. Item 7 of the minutes of the meeting of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

as the subsequent discussion would show the petitioner had agreed to become a director even when he says, he agreed to take 500 shares and gave a cheque for the same on 25-4-1962 itself. The same remarks would apply to Bharat Singh also who was said to have been allotted 27,500 shares against his application as per the minutes of I he said meeting. (17) Item 5 of the minutes of the Board's meeting dated 12-5-1962 contains a resolution to allot 500 shares (Nos. 97973 to 98472) to the petition .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

oard incorporating the minutes from and after 2nd June 1962 are in a different book (marked as Ex. R. W. 3/3). It was then for the first time that a resolution was passed (item 2) that the petitioner, in addition to Lt. Gen. Chaudhury 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 : "I was stated by the Manager that the two .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t there has been a publication by the manager of the company in the Hindustan Time dated 28-5-1962 (Ex. P. W. 2/1) that two cheques had been lost by the Cashier on his way from the Bank to the office; the twe cheques amounted to ₹ 7,75,000 on 23-5-1962. The finder was requested to deposit them in the registered office of the company. is passing strange how in respect of the two cheques, which were said to have been lost, a record could still have been made in the minutes of the company abo .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ed on the ground of inability of the other members to attend the meeting. There was yet another meeting of the Board on 7-9-1962 at which also the petitioner was not present. It was at the meeting of the Board, held on 14-11-1962, the petitioner was present for the first time. At that meeting Bharat Singh was not present; a resignation letter from him was stated to have been considered. What is of relevance to our present purpose is item (1) of the minutes, which Beads that copies of the letter .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

application from (copy of which is marked as Annexure A to the petition). The cheque which he had sent has been proved by him and was marked as Ex P. W. 3/1 bearing the same date as the letter ( 25-4-1962). He had never intended to take more than 500 shares. Apart from Ex. P. W. 3/1 he had not given any other cheque. In fact. he had loaned a sum of ₹ 10,000.00 temporarily to the Managing Director of the company, B. B. Lall Singhania in November, 1962 out of which only ₹ 3000.00 had .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

is solicitor on account of Sighania's insistence. (22) 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 h .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

how to get rid of the liability in respect of 50,000 shares nor did he advise the petitioner about his having to file an application for rectification. One or two years afterwards he met the petitioner's Secretary (Verma) and asked him why the petitioner was not going in for rectification. The petitioner had not consulted P. W. 5 at the time of filling the present petition. (23) H. P. Mehta (P. W. 4) had also supported the petitioner and stated that it was he who had asked the petitioner to .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

as typed in the office of the petitioner and was taken by him from there to the company. (24) On the same day, it may be noticed, that the company had written a letter (marked as F) to the petitioner referring to the fact that the company had been advised by H. P. Mehta about the petitioner agreeing to join the Board of Directors of the company and welcoming him. The letter also asked for the petitioner's consent in triplicate along with share application through H. P. Mehta. This refers onl .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he conduct of the petitioner in having agreed to consult his Solicitor and even after consulting him not taking steps to apply for rectification suggests that the petitioner was 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' .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

context of the records of the company having been seized earlier by the Police, even in June 1962. (27) 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. (28) Dealing with the powers conferred on the Court to rectify the register of members at the stage of settlement of the list of contributo .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

er of the Court to rectify the register of members. In my opinion the intention to specifically confer the power to rectify the register at the stage of settlement of list of contributories was with a very salutary object in view, namely, to enable the liquidator to take necessary steps in the matter of rectification when either due to fraud or collusion no one has made an application for rectification under section 38 before the winding up of the company". The position in this respect Is t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

00 paid up shares. The Official Liquidator is directed not to place the petitioner on the list of Contributories. (30) My findings on Issues (1) to (3) are : There was no application at all for allotment of 50,000 shares by the petitioner; even if it was physically there and had been signed by the petitioner it had been filled in without the petitioner's concurrence or knowledge and contrary to his intention of subscribing for only 500 shares; the application was not accompanied by any chequ .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ot see how such a question arises in the present petition. (32) In particular it may be worth examining, in the light of the evils which the case on hand present whether stricter provisions concerning the allotment of shares then 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f shares (section 68-A). Certain prohibitions regarding allotment of shares (section 69 and 70) have been imposed; the legal effect of certain irregular allotments, contravening the above provisions, has also been statutorily stated (section 71): the applicants for shares have also been given time to study the prospectuses and withdraw their offer to subscribe for shares in case they are not satisfied with the same (section 72). In the light of the evils which the present case brings to light an .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 

Discussion Forum
what is new what is new
 


Share:            

|| Home || About us || Feedback || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version