TMI Blog1949 (3) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 shares numbering 15048 to 20047. Jawahar Mills Ltd., are the appellants in this appeal. The application was filed by the liquidator of Sha Mulchand and Co, Ltd., Salem, which was ordered to be wound up by an order of this Court in O. P. No. 199 of 1944. 2. Jawahar Mills Ltd., the appellant, is a company registered under the Companies Act. Sha Mulehand and Co. Ltd., were the managing agents of Jawahar Mills Ltd., from the starting of the company till 30-6-1939 on which date they resigned the managing agency. On that day Sha Mulehand and Co. Ltd., held 5000 ordinary shares of ₹ 10 each in Jawahar Mills Ltd., bearing Nos. 15048 to 20047 in respect of which shares ₹ 5 was paid by that date, i.e., ₹ 2 along with the application and ₹ 3 on allotment. The respondent company owed to Jawahar Mills a sum of ₹ 25,804-12-1 on the date of resignation of the managing agency which sum included the allotment money of ₹ 15,000 in respect of the shares. 3. The respondent company is a private limited company and at all material times, it consisted of only two members T. V. T. Govindarajulu Chetty and K. N. Sundara Ayyar. On 20-8-1939 the appellant compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion under Section 38, Companies Act. By an order of the Assistant Registrar of Joint Stock Companies dated 28-8-1941, Sha Mulchand and Co., Ltd., was struck off the register under Section 247, Companies Act, and the order was published in the Gazette of 9-9-1941. The ground, on which the order was made was that the company ceased to function and had become defunct. In this Govindarajulu Chetti, the managing director of the company and Sundara-Ayyar, the director-shareholder, concurred and the order of the Assistant Registrar shows that it was on their statements that the company was not functioning and became defunct that the order under Section 247 was passed. The publication of the notice in the Fort St. George Gazette operates to dissolve the company: vide Section 247 (5). Govindarajulu Chetti was adjudicated insolvent on 23-1-1940 and under the provisions of the Companies Act, his office as director was thereby vacated in law though, in fact, be was conducting himself as if he continued as the managing director notwithstanding his bankruptcy. The notice of forfeiture was issued by Jawahar Mills on 10-9-1941, addressed to the registered address of the respondent company. After ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive claim for damages against the Jawahar Mills which was defendant 1 and defendant 4 Palaniappa, for a sum of ₹ 23,000. This Palaniappa, it must be mentioned here, was a partner of the firm which succeeded as the managing agent of Jawahar Mills after Sha Mulchand Co. resigned on 30-6-1939. On 29-6-1939, an agreement was entered into between Sundara Ayyar and Govindarajulu Chetti on the one hand and Palaniappa on the other, whereunder it was agreed by Sundara Ayyar and Govindarajulu Chetti that the 5000 shares of Sha Mulchand and Co., Ltd., should be transferred to Palaniappa and that Palaniappa should pay the further calls due in respect of those shares to Jawahar Mills Ltd. In the plaint it was claimed that by reason of the default of Palaniappa in not carrying out the terms of that arrangement, the shares became forfeited and that therefore they were entitled to claim damages. This suit was dismissed on 17-11-1943 by the Sub-Court on the ground that Sundara Ayyar was not entitled to maintain the suit as Sha Mulchand and Co. Ltd., ceased to exist and the shares were held by Sha Mulchand and Co. Ltd., in its corporate character and not by Sundara Ayyar in his individual capa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the forfeiture was irregular as the notice of 15-3-1941 did not comply with the requirement of the articles as it was short by one day. The pleas of the appellant regarding limitation, waiver, acquiescence and laches were all overruled. Notwithstanding the re-allotment of the shares by Jawahar Mills Ltd. after the forfeiture and notwithstanding that there was a reduction of the capital of Jawahar Mills, with the approval of the Court on 11-8-1944 in O. P. No. 84 of 1944, the learned Judge was of opinion that Sha Mulchand and Co. should be registered in respect of 5000 unissued ₹ 10 shares out of the 16,000 unissued ₹ 10 shares available with the company under the reduction scheme, though the learned Judge did not think fit to grant any interest to Jawahar Mills in respect of the calls (Rs. 25,000) or direct Jawahar Mills Ltd. to pay the dividends in respect of the shares forfeited. There was a direction that the respondent company should pay a sum of ₹ 25,000 after the insertion of their name in the register as the owner of 5000 unissued shares. 8. In this appeal by Jawahar Mills Ltd. it is not now disputed that the forfeiture was irregular, but the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refers to the case of Yatalyfera Gas Co., (1887) W. N. 30 as an instance in point, but on a reference to the report the citation does not seem to be correct. There are no decisions, English or Indian, enabling us to determine the line of demarcation between the accrual of the power and the exercise of the power. That there is a distinction between the power of a company to forfeit shares and the exercise of that power is clear from the decision of the Judicial Committee in Premila Devi v. Peoples Bank of Northern India Ltd. Articles 24 to 30 entitle forfeiture of shares in Table A, in our opinion, lay down the further procedure to be followed after there was default in making the payment of a call or the instalment of a call. Article 2 empowers the directors to make calls upon the member in respect of money unpaid on the shares and lays down also the limitations under which the call should be made. A notice of at least 14 days should be given to each member specifying the time of payment and the amount payable. Article 24 authorises the directors, if there is a default in the payment of a call or the instalment of a call, to serve a notice on the member who was in default requiri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest from a wrong date, Johnson v. Lyttle's Iron Agency, (1877) 5 Ch. D. 687 : 46 L. J. Ch. 786 the omission in the notice of forfeiture to specify the place of payment and not giving correctly the dates on which the calls were due, Lakshmiah Chetty v. Adoni Electric Supply Co. Ltd AIR 1944 Mad 322 have been held to make the forfeiture invalid. As observed by James L. J., in Johnson v. Lyttle's Iron Agency, (1877) 5 Ch. D. 687 : 46 L. J. Ch. 786: It was an established rule of the Court of Chancery and of Courts of Common Law that no forfeiture of property could be made unless every condition precedent had been strictly and literally complied with. A very little inaccuracy is as fatal as the greatest. Here the notice is inaccurate; it is, therefore, bad and the forfeiture is invalid. Lord Romer observed in Premila Devi's case This may seem to be somewhat technical. But in the matter of forfeiture of shares, technicalities must be strictly observed. And it is not, as is sometimes apt to be forgotten, merely the person whose shares are being forfeited who is entitled to insist upon the strict fulfilment of the conditions prescribed for forfeiture. For the for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by limitation, the relief under Section 38should be refused. According to the appellant, the article of the Limitation Act applicable to such a case is Article 48 or Article 49. Under section 28, Companies Act, the shares or other interest of a member in a company is moveable property. The proper relief to be claimed in a suit for rectification is a declaration that the forfeiture of the shares is illegal and inoperative and a mandatory injunction directing Jawahar Mills Ltd., to restore the name of Sha Mulchand and Co., as a shareholder in the company's register. These were in fact the prayers in the plaint in O. S. No. 89 of 1942 filed by Sundara Ayyar as plaintiff. Article 48, Limitation Act, is restricted to recovery of possession of specific moveable property which has been lost or ac-quired by theft or by dishonest misappropriation or conversion. The conversion need not be dishonest--L. P. E. Pugh v. Ashutosh Sen, 8 Pat. 516: A.I.R. 1929 P. C. 69. Article 49 applies to other specific moveable property whether it is for recovery of possession or for compensation for wrongful taking or injuring the property or wrongfully detaining it. Under the terms of the Contract Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age of the non-existence of the company from 9-9-1941 till 16-2-1945 as it would have been open to the share-holders to have taken appropriate proceedings as they did in O. P. No. 199 of 1944 to revive the company earlier. They had two opportunities earlier in O. P. Nos. 10 and 11 of 1942 to revive the company, but they opposed it. It is not open to a person who had the right or the remedy to bring into existence a person capable of instituting a suit or initiating a proceeding, to extend the period of limitation by postponing the steps to bring into existence a person capable of instituting a suit or proceeding. However, it is unnecessary in this case to decide that question as even if the cause of action began to run from 5-9-1941, the present proceeding would be in time as it is within six years. We are, therefore, of opinion that the learned Judge was right in holding that the present claim is not barred by limitation and that it is governed by Article 120, Limitation Act. 13. It was next argued for the appellant that by reason of long delay of nearly five years, the respondent company is disentitled to claim rectification. Where a period of limitation is prescribed for a su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ogress of the adventure to see whether it is prosperous or the contrary, determining that they will intervene only in case the affairs of the mine should turn out prosperous, but determining to hold off if a different state of things should exist, Courts of equity have said that those are parties who are to receive no encouragement; that if they come to the Court for relief, its doors shall be closed against them; that their conduct being inequitable, they have no right to equitable relief. In Rule v. Jewell, (1881) 18 Ch. d. 660 : 29 W. R. 755, there was a delay of six years in claiming that the shares were not regularly forfeited and that they were entitled to be restored and the relief was refused on the ground that the action of the plaintiff in lying by was entirely analogous to the lying by in the case of Prendergast v. Turton, (1841) 62 E. R. 807 : 1 Y. C. C. C. 98 in order to see whether the concern would ultimately turn out sufficiently profitable to make it worthwhile to assert their claim as share-holders. These principles were also accepted by the Privy Council and applied in Jones v. North Vancour Land and Improvement Co., 1910 A. C. 317: 79 L. J. P. C. 89. That ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dea of reviving the company till 1942 and proceeded or acted on the footing that the forfeiture was valid. No doubt, the right to avoid the forfeiture was in the company Sha Mulchand and not in the share-holders. But it was open to the share-holders to bring into existence the company if they intend to question the forfeiture and they must have been well aware of the position that they themselves could not take any proceedings to get rid of the forfeiture. Jawahar Mills Ltd. were prejudiced as they had parted with the shares on the footing that the forfeiture was valid and there was also a reduction in the capital with the approval of the Court on 11-8-1944 in O. p. No. 84 of 1944. They gave up in O. P. No. 10 of 1942 the balance of the liability of Sha Mulchand to Jawahar Mills Ltd. In O. P. No. 199 of 1944, they were allowed to prove in liquidation for the balance due but even now it is not certain whether they would get sixteen annas in the rupee in the liquidation proceedings in respect of that amount. By reason of this long delay in reviving the company and in taking proceedings under Section 38, Companies Act, Jawahar Mills Ltd. have put themselves in a situation in which it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat by reason of this long delay which caused prejudice to Jawahar Mills Ltd., the respondent company should not be granted the relief now claimed. 18. Apart from this there is a more insuperable difficulty in granting the relief to the applicant. Jawahar Mills acted all along on the footing that the forfeiture was valid and effective, re-allotted the shares and transferred them to various other persons. The capital of the company was reduced with the approval of the Court on 11-8-1944 in O. P. No. 84 of 1944. The shares, therefore, are not available in specie with Jawahar Mills Ltd. The learned Judge saw this difficulty and stated in the judgment that it was agreed by both parties before him that in the circumstances it was impossible to make an order of rectification. Notwithstanding this conclusion of the learned Judge, he directed Jawahar Mills Ltd., to recognise the applicant as shareholder in respect of 5000 shares out of the 16000 unissued ES. 10 shares of Jawahar Mills which came into existence under the reduction scheme. It is difficult to find any legal basis for this substitution. The principle of substituted security recognised by decisions of the Privy Council and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is impossible to compel him to deliver possession of the specific moveable property. The only right in such an event of the party injured is to claim the value of the property. In a proceeding under Section 38, Companies Act, the Court has no jurisdiction to grant the value of the property. In a proceeding under Section 38, the company can only be ordered to pay damages wheat their register is ordered to be rectified. In other words, it is only as incidental to the relief of rectification that damages can be granted, see In re Ottos Kopja Diamond Mines Ltd., (1893) 1 Ch. 618. 20. Further, the Court cannot order rectification of the register in respect of the particular shares claimed by the applicant in the absence of third parties whose rights will be affected by the rectification. If the applicant's right is only to get the particular shares and not more, he cannot get that relief in these proceedings as he has not impleaded as parties the transferees of the shares, notwithstanding such information was available on record as the appellant filed documents furnishing the necessary information, see Ontario Jockey Club Ltd. v. McBride, 1927 A. C. 916 : A. I. R. 1928 P. C. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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