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Mahomed Akbar Abdulla Fazalbhoy Vs. the Official Liquidator - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtMumbai
Decided On
Case NumberO.C.J. Appeal No. 82 of 1948
Judge
Reported inAIR1950Bom217; (1950)52BOMLR40
ActsCompanies Act, 1913 - Sections 38, 38(1) and 156
AppellantMahomed Akbar Abdulla Fazalbhoy
RespondentThe Official Liquidator
Appellant AdvocateY.B. Rege and ;H.D. Banaji, Advs.
Respondent AdvocateH.M. Seervai, Adv. for Respondent 1
DispositionAppeal dismissed
Excerpt:
.....to contend or to prove that there was an omission on the part of the purchaser to get his name registered as a member of the company. one has to bring home to the company an omission which in law would amount to a sufficient cause within the meaning of section 38(a) or would amount to default or unnecessary delay within the meaning of section 38(6);we proceed to the alternative ground urged by the union, viz. that the employees should be paid compensation or granted relief on the lines or on the analogy of the recommendations of the central and the local government made when there were stoppages due to shortage of coal and raw material owing to war conditions. it is perfectly true that having regard to standing order no. 16 applicable to textile mills in khandesh, no wages can..........on your register i am not liable because i have sold my shares to a purchaser who has not got his name registered in the register of shareholders of the company. mr. rege has relied on a decision of the english court reported in ward's case, in re, london hamburg, and gontintenal exchange bank, 1866 2 eq. 226, in that case the registered owner of certain shares sold them long before the winding up order, but in consequence of disputes between the purchaser his name had not been removed from the register. in this case a deed of transfer was executed in the name of the purchaser, the purchaser deposited it with the company, applied that the shares be registered in his name, and this could not be done because a third party who claimed to be interested in the shares gave notice to the.....
Judgment:

Chagla, C.J.

1. This is an appeal from an order of Tendolkar J. dismissing a summons taken out by the appellant. The summons was for altering the list 'A' of contributories by excluding the name of the applicant therefrom in respect of 876 shares of the A. B. C. company and by substituting therein for the name of the applicant-appellant the name of Casamalli Munjee in respect of 676 shares and the name of Dr. Jivraj N. Mehta in respect of 200 shares and also for altering the list 'B' of the contributories of the company by excluding the name of the appellant in respect of 15 shares of the company shown therein and by substituting therein for the name of the appellant the name of Gasamalli Munjee.

2. The appellant was a director of the Associated Banking Corporation, Ltd., which is now in liquidation, and he applied for and was allotted 1000 shares of the company on 18th August 1942. He had one more share, being the signatory to the memorandum of association and that share was given to him in that capacity. The case of the appellant was that he only needed 500 shares as the qualifying shares for being a director of the company, and with regard to the other 500 he had applied for them at the request of Casamalli Munjee who was the chairman of the board of directors, and as soon as he got these 500 shares he executed the necessary blank transfer forms in respect of these 500 shares and he gave them to Casamalli Munjee in the presence of the secretary of the company Mr. M. G. Jhavery. With regard to the 501 shares, the case of the appellant was that he sold these shares in August 1945 and he was paid in respect of the same Rs. 18,386-8-0. This amount was received on 20th August 1945. The amount was paid to him by Casamalli Munjee. When ho sold the shares he executed the necessary blank transfer forms. He then received dividends in respect of 891 shares for the year ended 30th June 1945. He then found out from an officer of the bank that 301 shares had been retained by Casamalli Munjee and 200 shares out of the 501 had been sold to Dr. Jivraj Mehta. The appellant thereupon sent a cheque in respect of the 200 shares to Dr. Jivraj Mehta and a cheque in respect of 301 shares to Casamalli Munjee. Dr. Jivraj Mehta wanted the necessary certificate for income-tax refund and thereupon on 13th August 1946, the appellant asked the bank to split up the certificate which he had received in respect of 891 shares into three certificates, for 200, 301 and 390 shares. That was done by the bank on 17th August 1946, and the appellant sent one certificate in respect of 200 shares to Dr. Jivraj Mehta and another certificate for 301 shares to Casamalli Munjee.

3. Mr. Rege before us has contended him-self with arguing the appeal of the appellant only in respect of these 501 shares, because there is no satisfactory evidence before us as to whom the other shares transferred by the appellant to Casamalli Munjee were in fact sold with the exception of 110 shares. With regard to the remaining 390 shares, but for the statement of the appellant that he sold the shares to Casamalli Munjee and executed the necessary transfer forms, we have nothing on the record which would satisfy us that these shares were in fact sold to any particular purchasers, and therefore what we have to consider in this case is whether the appellant has made out a case for the alteration of the list of contributories with regard to these 501 shares.

4. Now, the case that has been put to us by Mr. Rege is that the real owners of these 501 shares were Dr. Jivraj Mehta with regard to 200 shares and Casamalli Munjee with regard to 301 shares. Mr. Rege contends that the appellant sold these shares, received the consideration money, actually paid the dividend warrants tothese two purchasers, and these two purchasers accepted the position that they were the purchasers of these shares. On these facts, Mr. Rege wants us to hold that in the list of contributories as far as these 501 shares are concerned his name ought not to be included but that the names of Dr. Jivraj Mehta and Casamalli Munjee should be included.

5. Turning to the law on the subject, when we look at the Indian Companies Act, Under Section 184, power is given to the Court as soon as may be after making a winding up-order to settle the list of contributories and the power is also given to rectify the register of members. But that power is limited to those cases where rectification is required in pursuance of this Act, and the only section which empowers the Court to rectify the register of members is Section 38. That section provides for two cases in which the rectification of the register may be made and those two cases are:

(a) where the name of any person is fraudulently or without sufficient cause entered in or omitted from the register of members of the company; or

(b) where default is made or unnecessary delay takes place in entering on the register the fact of any person having ceased to be a member.

It is perfectly clear that if there is no rectification of the register, then the liability of a member of the company in the event of its being wound up arises Under Section 156. That liability is not ex contractu but ex lege. It is by reason of the fact that the name of a certain person appears on the register of a company that he becomes liable as a contributory. The Privy Council in Hansraj Gupta v. N. P. Asthana have emphasised this position. In that case the executors were contending that the contract on the part of the testator to take certain shares was void and therefore the executors were under no liability in respect of these shares and therefore they applied to have their names removed from the list of contributories. The Privy Council assumed for the purposes of the judgment that the contract was void. But even so, they expressed the opinion that the liability of the testator and ultimately of the executors Under Section 156 in respect of the shares was absolute and flowed from the fact of his being on the register in respect of these shares. The original contract might supply the reason for his name having been placed on the register in respect of the shares, but after the winding up his liability in respect of the shares arose ex lege and not ex contractu. Therefore what we have really to consider in this appeal is whether the appellant has made out a case for the rectification of the register. If the register could not be rectified and if the appellant is not entitled to have the rectification of the register, then his name as a contributory has been rightly put in the list of contributories. Without the rectification he is a member of the company and as such his liability is absolute Under Section 156.

6. Now, in order to succeed in having the register rectified, the appellant has got to satisfy us that the name of Dr. Jivrai Mehta or of Casamalli Munjee was omitted from the register of members without sufficient cause, or that default was made or unnecessary delay took place in entering on the register the fact that the appellant had ceased to be a member of the company. Under both these Sub-clauses of Section 38 what the appellant has got to establish is some omission on the part of the company. It is not sufficient for him to contend or to prove that there was an omission on the part of the purchasers to get their names registered as members of the company. He has to bring home to the company an omission which in law would amount to a sufficient cause within the meaning of Sub-clause (a) or would amount to default or unnecessary delay within the meaning of Sub-clause (b); and therefore the question that we have to determine narrows itself down to this: has the appellant established that there was on the part of the company some omission which gives him a right to ask for a relief Under Section 38 of the Indian Companies Act?

7. It is urged by Mr. Rege that both Casamalli Munjee who was the chairman of the board of directors and Mr. Jhaverj who wag the secretary knew that these shares had been sold by the appellant and that he was no longer the owner of these shares. In our opinion, it is not sufficient to impute the knowledge with regard to the change of ownership of the shares to the chairman of the board of directors or to the secretary. Some thing much more has to be established before it can be held that the company was in default in not making the necessary alterations in its register. Reliance is placed on a letter written by the appellant to the company on 13 September 1945. In that letter he pointed out to the company that he has gold 500 shares and had received payment in full and that he was no longer a shareholder of the bank. Having written this letter, the appellant failed to follow it up by taking any further action. Not only he did not follow it up, but what is more, he received the dividends of the subsequent year ended 30th June 1945, and these dividends he kept to himself not with the intention of appropriating them but without taking the necessary action of sending the dividends to Dr. Jivraj Mehta and Casamalli Munjee. It is difficult to understand how the appellant ever expected the company to act upon his letter of 13th, September 1945. No company can proceed to alter its register of shareholders and, substitute the name of one shareholder for another without the proper transfer forms duly stamped being lodged with the company for that purpose, and in this case no transfer forms were at any time deposited by the purchasers with the company. Under the articles of the company, it would have been open to the appellant himself to have the transfer deeds deposited or to have taken the necessary legal action to compel the purchasers to lodge necessary transfer forms. But he did nothing excepting writing this letter and allowing the things to drift. Therefore at no time was a stage reached when the company could even have thought of making the necessary alterations in the register of shareholders. Therefore, on this evidence, we cannot hold that there was any omission on the part of the company which would entitle the appellant to call for the rectification of the register at our hands.

8. Mr. Rege has argued that his client did everything that was in his power. He sold the shares, he executed the blank transfer forms, and if there was any default at all, it was on the part of the purchasers in not having taken the necessary action to lodge the transfer forma and to get their names registered as shareholders. But that, in our opinion, does not help the appellant. Whatever rights he may have against Dr. Jivraj Mehta or Casamalli Munjee, whatever default Dr. Jivraj Mehta or Casamalli Munjee may have committed, the appellant has to furnish us with a definite answer to the claim of the company. What we are considering here is the claim of the company to enforce a liability against one of its contributories, and it is no answer for the contributory to say that although I remain on your register I am not liable because I have sold my shares to a purchaser who has not got his name registered in the register of shareholders of the company. Mr. Rege has relied on a decision of the English Court reported in Ward's case, In re, London Hamburg, and Gontintenal Exchange Bank, 1866 2 Eq. 226, In that case the registered owner of certain shares sold them long before the winding up order, but in consequence of disputes between the purchaser his name had not been removed from the register. In this case a deed of transfer was executed in the name of the purchaser, the purchaser deposited it with the company, applied that the shares be registered in his name, and this could not be done because a third party who claimed to be interested in the shares gave notice to the company not to register the shares. It was on these special facts that Lord Romilly M. R. in delivering the judgment of the Court expressed the opinion that the Court could determine who was the real owner of the shares, and, in this particular case, the Court did give relief to the registered owner of the shares although the name of the purchaser had not been entered in the register of shareholders of the company. As I said before, this is a decision which must be read in the light of its own special facts. But the real principle in fact was enunciated by the same learned Judge in a sub-sequent case reported in Walker's Case, In re, Anglo Danubian Steam Navigation and colliery Co., 1868-6 Eq. 30, In this case, a transfer was executed and the deed was handed over to the solicitor of the company and this arose out of a compromise that was brought about in a litigation initiated by the shareholder against the company and the compromise was that these particular shares were to be transferred to the name of a certain director. At the meeting of the directors, the compromise was sanctioned but nothing further took place and the deed of transfer remained with the solicitor. When the company was would up, the shareholder applied that they should be relieved from the liability as a contributory because he had executed the transfer form and acted upon the compromise; and Lord Romilly M. R. in his judgment pointed out that the shareholder had acquiesced in the position of his name continuing to remain on the register of the company, and at p. 35 the judgment states:

'In oases where there has no fault at all on the part of the transfer, or and the fault is merely that of the company, the Court directs the transfer to be made, or the register to he amended, thus doing what ought to have been done. Where there has been no fault on either side, the register remains as it was--where the fault is on both sides the register also remains as it was.''

Therefore what the shareholder has got to establish is that there was fault only on the side of the company in not registering shares which it ought to have done. The same view of the law was taken by this High Court in Indian Specie Bank Ltd., In re : Sorabji Nusserwanji v. C. A, Patwardhan 40 Bom. 134: A.i.r 1915 Bom. 1. In this case the shareholder sold his shares of the Indian Specie Bank Ltd. and the transfers were lodged with the company for registration, The company, went into liquidation before the transfers were in due course approved by the board of directors. The shareholder contended that the register of the shareholders should be rectified, and in the Court of appeal Sir Basil Scott C.J. delivering the judgment of the Court pointed out that oases in which an application for rectifying the register can be made concern the acts or omissions of the company keeping the register, In the case of an omission appearing by reason of the fact of a person having ceased to be member not being entered in the registers it is necessary to show that default has been made or unnecessary delay has taken place on the part of the company keeping the register. In all other cases, it is enough to show that the name of some person is fraudulently or without sufficient cause entered in, or omitted from, the register kept by the company. Thus the evidence in every case must be directed to the acts or omissions of the company.

9. Therefore, the position in law on these authorities is perfectly clear, As the appellant has failed to prove that there was any omission on the part of the company which resultedin delay in registering the names of Dr. Jivraj Mehta and Casamalli Munjee who had purchased the shares from the appellant, the appellant cannot succeed in having the register of the company rectified. As he cannot succeed in having the register rectified, the result must follow that the list of contributories must be settled in accordance with the register of the shareholders of the company.

10. In my opinion, therefore, the learned Judge below was right in coming to the conclusion that he did. The appeal, therefore, fails and must be dismissed with costs.


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