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N.K. Agarwal Vs. Hanuman Mills Private Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtAllahabad High Court
Decided On
Case NumberCompany Petition No. 9 of 1972
Judge
Reported in[1977]47CompCas644(All)
ActsCompanies Act, 1956 - Sections 108, 108(1), 111, 155 and 467; Limitation Act, 1908 - Schedule - Articles 120 and 181; Limitation Act, 1963 - Schedule - Article 137; Code of Civil Procedure (CPC) - Order 21, Rule 77
AppellantN.K. Agarwal
RespondentHanuman Mills Private Ltd.
Appellant AdvocateKameshwar, Adv.
Respondent AdvocateJ.D. Prabhakar, ;O.P. Agarwal, ;R.R. Gupta and ;S.K. Dhugra, Advs.
Excerpt:
.....steps to summon such witnesses as they liked to produce in the case. when a person has become the owner of shares as a result of a court auction, he is entitled to be recorded as a member of the company, and if the company, without any sufficient cause, refuses to record him as a member he can maintain an application under section 155. as such the application cannot be thrown out on the ground that the applicant has failed to avail of the procedure provided under sections 108 to 111 to the act. i am satisfied that the petitioner has established that he became the auction purchaser of the 342 shares, which were the property of damodar das agarwal, the judgment-debtor. 17. learned counsel for the managing director relied upon order 21, rules 79 and 80 of the code of civil procedure, and..........of transmission of shares as a result of an order of a court of law. when a person has become the owner of shares as a result of a court auction, he is entitled to be recorded as a member of the company, and if the company, without any sufficient cause, refuses to record him as a member he can maintain an application under section 155. as such the application cannot be thrown out on the ground that the applicant has failed to avail of the procedure provided under sections 108 to 111 to the act.10. issue no. 2.--the question raised by this issue is whether the, petition is barred by limitation. in this case the order of winding up of the company was passed on 19th may, 1972. thereafter, on 15th july, 1972, the petitioner made an application that the court has to settle the list of.....
Judgment:

Satish Chandra, J.

1. On 11th May, 1972, Sri N.K. Agarwal, the petitioner, filed an application under Section 155 of the Companies Act, 1956, for the rectification of the register of members of Messrs. Hanuman Mills Private Ltd., Fatehpur, by entering the name of the petitioner as a shareholder in respect of 342 shares mentioned in paragraph 2 of the petition. Soon after, on 19th May, 1972, this court passed an order of winding up of Messrs. Hanuman Mills Private Ltd., Fatehpur. Thereafter, on 15th July, 1972, the applicant moved another application praying that after the winding-up order this court has jurisdiction under Section 467 of the Companies Act to settle the list of contributories and in that regard to direct the rectification of the register of members of the company under winding up. He prayed that his earlier application moved on 11th May, 1972, be treated as one under Section 467 of the Companies Act.

2. The petitioner's case is that he held a decree in Suit No. 4 of 1959 dated 14th December, 1959, for Rs. 10,901.35 against one, Damodar Das Agarwal. He was the younger brother of Sri Shyam Sundar Agarwal, the managing director of the company. The decree was put into execution (Case No. 12 of 1960). Three hundred and forty-two shares held by the judgment-debtor, namely, Damodar Das Agarwal, were put up for auction on 18th July, 1963. They were purchased by the petitioner-decree-holder with the permission of the court for Rs. 4,000 in the partial satisfaction of the decree. The sale was confirmed by the execution court on 30th January, 1965, and became final.

3. On 9th February, 1965, the execution court intimated the company of the transmission of the aforesaid 342 shares to the petitioner. The execution court issued a sale certificate to the petitioner on 31st July, 1965, certifying that he was the owner of the aforesaid shares, and directing the name of the petitioner to be substituted in place of Damodar Das Agarwal. But, in spite of it, the managing director of the company did not comply with the direction of the court. Consequently, the applicant has prayed that his name be entered as a shareholder of the 342 shares in place of Sri Damodar Das Agarwal in the register of members of the company.

4. In the application the petitioner states that he became the owner of the following shares :

(1) Two shares of Rs. 100 each standing in the name of Damodar Das Agarwal.

(2) 100 shares in the name of Baldeo Prasad.

(3) 120 shares in the name of Balaram Krishna.

(4) 55 shares in the name of Bimal Kumar Agarwal.

(5) 65 shares in the name of Prakash Chandra. ___________Total 342 shares___________

5. Sri Shyam Sundar Agarwal, the erstwhile managing director of the company, has filed a counter-affidavit. He does not admit that the petitioner is the owner of the shares. He challenges the jurisdiction of the execution court to effect transmission of the aforesaid shares to the petitioner. It was pleaded that the petition was not maintainable and that it was barred by time. Sri Shyam Sundar Agarwal filed another affidavit stating that Damodar Das Agarwal was indebted to the extent of Rs. 10,000 to Sri Deoki Nandan Agarwal and his son's firm, Amrit Dal Mills. He also stated that Messrs. Salik Ram Lalta Prasad of Sitapur was a grain dealing concern of a cousin of the petitioner, Sri N. K. Agarwal. Messrs. Salik Ram Lalta Prasad was also indebted to the extent of Rs. 8,000 to Amrit Dal Mills, and when the latter pressed for its moneys due fromDamodar Das and Messrs. Salik Ram Lalta Prasad, the alleged shares were given to Amrit Dal Mills. On the filing of this affidavit the petitioner impleaded Messrs. Amrit Dal Mills through Sri Deoki Nandan Agarwal and Sri Purshottam Das Agarwal, proprietors, as respondent No. 3, and Sri Damodar Das Agarwal as respondent No. 4 to the petition. Notices of the petition were issued to them.

6. Sri Deoki Nandan Agarwal has filed an affidavit stating that he was not the proprietor of Amrit Dal Mills, which exclusively belonged to Sri Purshottam Das Agarwal. He further stated that Sri Damodar Das Agarwal borrowed Rs. 10,000 from Purshottam Das at 12 per cent. per annum interest on 15th June, 1958. He gave a pronote as collateral security for the loan. He goes on to state in his affidavit that in spite of demands when Damodar Das Agarwal could not pay the sum of Rs. 10,000 and interest, he pledged the alleged 342 shares in question to Sri Purshottam Das Agarwal on 15th July, 1960, and the said scrips are in the possession of Sri Purshottam Das Agarwal. He also stated that Damodar Das Agarwal was owner and benamidar of these shares of Hanuman Mills Ltd. and he was entitled to pledge the shares. He claimed that the petition is time-barred.

7. On the pleadings the court framed the following issues in the case:

(1) Whether the petition is not maintainable as alleged in paragraphs 5 and 23 of the counter-affidavit ?

(2) Whether the petition is barred by limitation ?

(3) Whether the petitioner is not entitled for registration of his name in the register of members of the company for the reasons alleged in paragraphs 3, 4, 19, 24 and 25 of the counter-affidavit ?

(4) Whether the petitioner is the owner of 342 shares and is entitled to get his name substituted in the register of members of the company as alleged in paragraphs 1, 5, 19 and 20 of the petition ?

(5) To what relief, if any, is the petitioner entitled

8. By the order dated 11th September, 1972, on which date the issues were framed, the court fixed 30th October, 1972, for final hearing and gave liberty to the parties to take steps to summon such witnesses as they liked to produce in the case. It may be stated that none of the parties has adduced any oral evidence.

9. Issue No. 1, relating to the maintainability of the petition, was taken up as a preliminary issue and was disposed of by the learned company judge on 13th December, 1972. It was held that the application was maintainable. The learned judge held that a person who has become the owner of the shares and has, on that account, become a member of the company, but his name has not been brought on the register of members can apply under Section 155. It was held that Section 155 is not dependent onSection 111 of the Companies Act. Section 155 is the controlling section and gives the court an overriding power notwithstanding any previous order of the Central Government. It was held that the fact that a person has not followed up the procedure mentioned in Section 108 and thus leading up to the appeal to the Central Government under Section 111 of the Companies Act does not deprive him of his right to move the court under Section 155. The learned judge further held that the prohibition contained in Section 108(1), namely, that a company shall not register a transfer of shares unless a proper instrument of transfer, duly stamped and executed by or on behalf of the transferor and the transferee has been delivered to the company along with the certificate relating to the shares, is not applicable to the case of transmission of shares as a result of an order of a court of law. When a person has become the owner of shares as a result of a court auction, he is entitled to be recorded as a member of the company, and if the company, without any sufficient cause, refuses to record him as a member he can maintain an application under Section 155. As such the application cannot be thrown out on the ground that the applicant has failed to avail of the procedure provided under Sections 108 to 111 to the Act.

10. Issue No. 2.--The question raised by this issue is whether the, petition is barred by limitation. In this case the order of winding up of the company was passed on 19th May, 1972. Thereafter, on 15th July, 1972, the petitioner made an application that the court has to settle the list of contributories under Section 467, and his application dated 11th May, 1972, may be treated as one under Section 467 of the Companies Act. This application, having been moved within two months of the date of the winding-up order, cannot be said to be barred by limitation. Under Section 467 the court has to settle the list of contributories, and in that connection has the power to rectify the register of members.

11. In Shankara v. Haridhan Singh [1966] 36 Comp Cas 209 (Punj) it has been held that an application for rectification of register was not 'an application made ' within meaning of Section 3 of the Limitation Act, and so does not attract Article 181 of the Limitation Act, which is only applicable to applications under the Code of Civil Procedure. The Punjab High Court followed the decision of the Supreme Court in Sha Mulchand & Co. v. Jawahar Mitts Ltd. [1953] 23 Comp Cas 1 (SC). Article 137 of the Limitation Act, 1963, is equivalent to Article 181 of the Limitation Act, 1908. This authority will, therefore, equally apply to Article 137. Learned counsel for the managing director had placed reliance on Article 137 of the Limitation Act in support of this issue. In my opinion the decision of the Punjab High Court is applicable, and it cannot hence be said that the application was barred by time because of Article 137 of the Limitation Act.

12. In the same case the Punjab High Court further held that the application for rectification of register is not a suit instituted as defined by Section 2(1) read with Section 3 of the Limitation Act. Hence, Article 120 of the Limitation Act was not applicable. I am also ia agreement with this view.

13. The application in the present case, which, in substance, is for rectification of the register of members so as to entitle the petitioner to be placed on the list of contributories, cannot be said to be barred by time.

14. This issue is decided in the negative, against the defendants and in favour of the petitioner.

15. Issues Nos. 3 and 4.--These issues are inter-related and can be disposed of together.

16. The principal question is whether the petitioner is the owner of the 342 shares in question. Beyond pleading ignorance, the managing director, who is the only contesting respondent, does not seriously question the proceedings taken by the execution court in regard to the auction sale of the shares in question. The petitioner has filed certified copies of the various orders of auction and confirmation of sale. He has filed the sale certificate issued to him. He has filed a copy of the order issued by the court intimating the company of the sale of the aforesaid shares to the petitioner. He has also filed copies of the applications made by the benamidars, namely, Baldeo Prasad, Balaram Krishna, Bimal Kumar Agarwal and Prakash Chandra, in the course of the execution proceedings, stating that they have no interest in these shares, they were mere benamidars and the real owner of the shares was Damodar Das Agarwal. The statement of these benamidars to the same effect has been filed by the petitioner along with his rejoinder-affidavit. It cannot hence be doubted that in execution proceedings the petitioner became the auction purchaser of 342 shares, the details of which were given in paragraph 2 of the petition. These shares belonged to Sri Damodar Das Agarwal and were held by him in different names as indicated in paragraph 2 of the petition. The various persons in whose names the shares are actually registered in the register of members of the company were benamidars, the real owner being Damodar Das Agarwal, the judgment-debtor of the petitioner. I am satisfied that the petitioner has established that he became the auction purchaser of the 342 shares, which were the property of Damodar Das Agarwal, the judgment-debtor.

17. Learned counsel for the managing director relied upon Order 21, Rules 79 and 80 of the Code of Civil Procedure, and urged that since the share scrips were not in the possession of the court and since the court had not endorsed them in favour of the petitioner, the petitioner did not become the owner thereof.

18. In reply, learned counsel for the petitioner invited my attention to Philipose v. Vanchinad Rubber & Produce Co. Ltd. [1953] 23 Comp Cas 536 (Trav-Coch). In this case it was held that non-compliance with the procedure prescribed by Rules 79 and 80 of Order 21, Civil Procedure Code, did not make the suit based on sale certificate unsustainable. There is nothing in these rules to indicate that the title of the auction purchaser to the shares purchased by him will be perfected only after delivery is made by the issue of the prohibitory order as prescribed by Clause (3) of Rule 79. On the other hand, the conditions necessary for perfecting the auction purchaser's title are prescribed by Clause (2) of Rule 77 of Order 21. So far as the sale evidenced by the sale certificate was concerned, these conditions were duly complied with and satisfied. In the present case also the execution court issued the requisite sale certificate to the petitioner. That was proof of the satisfaction of the various conditions prescribed by Rule 77 for perfecting the auction purchaser's title to the subject-matter of the auction, namely, the shares. In my opinion, the proceedings in the execution court culminated in the vesting of the ownership and title to the shares in the decree-holder-petitioner.

19. The managing director has put forward the theory that Sri Damodar Das Agarwal was indebted to the extent of Rs. 10,000 to Sri Deoki Nandan Agarwal and his son's firm, Amrit Dal Mills, and that he gave these shares to Amrit Dal Mills when he was pressed for the money. No documentary or other evidence has been adduced by him to sustain these allegations. The affidavit filed by Sri Deoki Nandan Agarwal contradicts the affidavit of the managing director. Sri Deoki Nandan Agarwal dissociates himself completely from the proprietorship of Amrit Dal Mills or from the loan of Rs. 10,000 alleged to have been taken by Damodar Das Agarwal. According to him the loan was given by Purshottam Das Agarwal, who was the sole owner of Amrit Dal Mills. According to him, Damodar Das Agarwal pledged the alleged 342 shares to Sri Purshottam Das Agarwal in relation to the loan of Rs. 10,000 taken by him earlier. It is significant that Sri Purshottam Das Agarwal has not come forward to establish this alleged claim. Sri Deoki Nandan Agarwal has filed no document to prove the alleged pledge. The Amrit Dal Mills, which is alleged to be the sole proprietary concern of Sri Purshottam Das Agarwal, has also not put in appearance in spite of the service of notice of the petition. Even the affidavit of Sri Deoki Nandan Agarwal does not establish the passing of any interest in the 342 shares to Sri Purshottam Das Agarwal. At the most it makes out a case of pledge. It has not been stated as to what happened to the alleged pledge. In my opinion the whole story seems to be an after-thought, brought out only to defeat the claim of the petitioner. It is significant that even SriDeoki Nandan Agarwal admits in his affidavit that Damodar Das Agarwal was owner and benamidar of these shares.

20. It was urged on behalf of the managing director that under the proviso to Sub-section (5) of Section 111 of the Companies Act the Central Government was entitled to sell the shares to an existing member on payment of appropriate compensation. By bypassing the provisions of Sections 108 to 111 the petitioner has deprived the existing shareholders of their right to acquire the shares in dispute. It has already been held that the procedure prescribed by Sections 108 to 111 is not a condition precedent to the maintainability of an application for rectification under Section 155 of the Companies Act. The provisions of Sections 108 to 111 have not been incorporated or made applicable to the power of the court to settle the list of contributories under Section 467 of the Companies Act. Assuming, however, that that procedure was by some stretch of reasoning available in the present proceedings, none of the shareholders has come forward to purchase the 342 shares in question. So the question of applying the proviso aforesaid does not at all arise.

21. My finding is that the petitioner is the owner of 342 shares and is entitled to get his name substituted in the register of members of the company.

22. Issue No. 4 is accordingly decided in the affirmative, in favour of the petitioner and against the respondents.

23. The various points raised in issue No. 3 have already been answered in the findings recorded in the other issues. This issue is accordingly decided in the negative, against the respondent and in favour of the petitioner.

24. In the result the petition succeeds and is allowed. The register of members of the Hanuman Mills Private Ltd., Fatehpur, shall be rectified. The petitioner, Sri N. K. Agarwal, shall be entered as a member as against the 342 shares mentioned in paragraph 2 of the petition in place of Damodar Das Agarwal and his other benamidars mentioned in paragraph 2 aforesaid. The petitioner would be entitled to costs.


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