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The Peoples Industrial Bank, Ld., in Liquidation Vs. B. Jalpa Prasad - Court Judgment

LegalCrystal Citation
CourtAllahabad
Decided On
Judge
Reported inAIR1921All135; 62Ind.Cas.450
AppellantThe Peoples Industrial Bank, Ld., in Liquidation
RespondentB. Jalpa Prasad
Excerpt:
.....definite evidence, to submit himself at any rate to cross-examination by the liquidator and by the court to enable the real facts to be ascertained. the court below has held both these persons free from liability as contributories, on the strange ground that they are past members and bad become past members more than a year before the liquidation. by a careful method of reasoning the court below has arrived at the conclusion that as the company attempted to forfeit the shares of these share holders and failed they, therefore, cased to become members. this view is clearly untenable. they had been advised by high authority that what they were doing could not be defended, and in the interest of the creditors as well as of the whole body of members they compromised the claim, which they..........to pay any attention to their case. in these two cases both the applicants were duly registered shareholders and were by law members of the company. in the case of partap narain he has actually received dividends. his letter is before us in his own handwriting asking the company to sell his shares for him. mr. harbans sahai says, probably rightly, that the majority of these people know little or nothing about the management or the law relating to limited companies, the courts which have to deal with these matters in winding up are necessarily placed at a great disadvantage, as is also the liquidator in a company like this, where the principal person concerned has committed suicide and the police have removed most of the relevant documents. the liquidator is very mush like a man.....
Judgment:

1. These are two appeals by the liquidator against the order of the District Judge removing the names of two respondents from the list of contributories in the Peoples Industrial Bank in liquidation. First Appeal from Order No. 72 relates to one Jalpa Prasad and First Appeal from Order No. 73 relates to one Partap Narain. There is no great difference between the two cases except that Partap Narain is shown to have received dividends. Jalpa Prasad applied for one share of Rs. 100 and paid Rs. 5 on application in 1911. He was allotted the share in June 1911, A resolution of forfeiture was passed against him in August 1913. The Company went into liquidation in February 1914 Rs. 95 still remains unpaid. The only question is whether he is bound to contribute this sum to the assets of the Company.

2. In the other case Partap Narain, a Pleader of Jaunpur, applied for six shares, which were allotted to him in November 1910. He received dividends in September 1910 and August 1911, as it appears by the counterfoil dividend warrants, but from a latter of hie, dated the 15th August 1911, it also appears that he was anxious to get rid of his shares and requested the Company to sell them for him. No sale in fact took place, but according to the entries in the Company's books it would appear that his money was returned to him in September 1911 and that his Shares were forfeited by a resolution in 1913.

3. It should be observed with regard to these and other similar cases that where persons are disputing their liability in the winding up of a Company, matters which they probably do not understand, it is clearly their business to go into the box and to give their evidence on oath, if they expect the Court to pay any attention to their case. In these two cases both the applicants were duly registered shareholders and were by law members of the Company. In the case of Partap Narain he has actually received dividends. His letter is before us in his own handwriting asking the Company to sell his shares for him. Mr. Harbans Sahai says, probably rightly, that the majority of these people know little or nothing about the management or the law relating to Limited Companies, The Courts which have to deal with these matters in winding up are necessarily placed at a great disadvantage, as is also the liquidator in a Company like this, where the principal person concerned has committed suicide and the Police have removed most of the relevant documents. The liquidator is very mush like a man hunting in the dark for something which is not there, and he can only rely on such scraps or secondhand information or copy documents as happen to have been rescued from the wreck, Under these circumstances the onus is clearly upon the applicant, who seeks relief, at least to go into the bos and, if be cannot give definite evidence, to submit himself at any rate to cross-examination by the liquidator and by the Court to enable the real facts to be ascertained. In one case we adjourned the-matter to enable the applicant to appear before us to give evidence in this Court. As far as lam concerned, I am not disposed to stretch our powers to assist parsons who will not take the trouble to help themselves in the first Court. The Court below has held both these persons free from liability as contributories, on the strange ground that they are past members and bad become past members more than a year before the liquidation. It has also held that they are free from liability under Section 61 of the old Act. There is not a scrap of evidence of any sort to support that view. The case appears to have been altogether misconceived. An attempt was made by the liquidator to set up a forfeiture. That has wholly broken down because under Article 34 of the Articles of Association, before the Company can work a forfeiture it has to issue a notice in writing to the person whose shares it proposes to forfeit and has to comply with certain conditions. It has constantly been pointed out that the Articles of Association are merely the terms of the contrast under which a member holds his share, and which he is supposed to know and to have agreed to, and the Company cannot obviously make a member liable for forfeiture otherwise than in accordance with the provisions of the Articles to which he has subscribed. There is no evidence in either of these cases that any such notice was issued, nor is there anything from which any reasonable person can draw the inference that it was issued. By a careful method of reasoning the Court below has arrived at the conclusion that as the Company attempted to forfeit the shares of these share holders and failed they, therefore, cased to become members. This view is clearly untenable. If the forfeiture were worked according to the provisions in the Articles and became effective, very serious pliabilities ensue under the Articles to the share-holders whore shares are so forfeited, but as we have said, it has not taken place in either of these instances, but if the attempt to forfeit fails matters remain as they were. There being no valid forfeiture, the status quo ante continues and a share-holder is still a shareholder whose shares have not been forfeited.

4. It is also suggested that there had been some cancellation. In the first place, nothing is to be found in the Articles of Association authorising the Directors to cancel any shares at all Forfeiture is not cancellation, although loose language may result in a person so describing it colloquially, but except by virtue of a special power of forfeiture or cancellation Directors have no newer to release the share holders; and to enable them to cancel shares there ought to be same provisions in the Articles corresponding to Article 34 which provides for forfeiture. There are no doubt exceptions to the Rule that shares cannot be released or cancelled without special power in the Articles. We merely mention that cur attention was quite properly drawn to the decision in the Chancery Court of Appeal in Noruich 1 Provident Insurance Society, In re, Bath's case (1878) 8 Ch. D. 334 : 47 L.J. Ch. 601 : 38 L.T. 267 : 26 W.R. 441. There the Judge in winding up had declined to recognise an attempt which had been made by the Company to cancel shares, or the amount of future liability under shares, as part of a compromise in litigation, but the Court of Appeal held that a Company had the same general power in compromising a suit or claim, as an individual weald have; but that case is very different to the case suggested before us. Here a share holder, having no legal claim or pretence to any legal claim against the Company, which is after all only the general body of members, enters into an arrangement with the general body of members that the Directors shall voluntarily surrender his share, or in other words make him a present of part of the capital of the Company. In the case in the Chancery Court of Appeal a Life Insurance Company, which had in part done some fire business and issued shares in respect of it, was threatened with litigation by share-holders who objected, the result of which might have been to ruin the business of the Company or seriously to injure its reputation. They had been advised by high authority that what they were doing could not be defended, and in the interest of the creditors as well as of the whole body of members they compromised the claim, which they knew they could not defend and the publicity of which might rain their business, and the Court of Appeal held that in such a compromise the Directors might reasonably cancel shares in the interest of the whole body. The resolution in this case is remarkable to say the least. At a general meeting of share-holders in September 1909, resolution No. 5 was cheerfully pasted authorising the money of three share-holders who bad not paid their allotment money and were not willing to remain as members to be returned. Such a resolution, whatever the Articles of Association might be, is dearly ultra vires. No Article of Association could possibly authorise such a procedure. It is a fundamental breach of the memorandum of association, because it is inconsistent with the conduct of a Company's business as a bank, which this Company had been formed by law to carry on. No Company, however unanimous, could possibly return its capital or any portion of it to the share-holders any more than it eon purchase the shares of its share holders. Obviously such an arrangement, independently of a winding up, by a Company not wholly solvent would be fraud upon the creditors and the depositors. It appears that in the case of Partap Narain the money was actually returned to him, as he has relied upon that fact as constituting him a past member. We think we are entitled to tale notice of it as an admitted fact and to amend the application to one calling upon him to pay net Rs. 475, but Rs. 500. He is undoubtedly liable to refund the Rs. 25. If he does not, there is no question but that the person who paid it to him is alto liable to refund it. There is no doubt that he came within the category contemplated by the resolution No. 5, as being a pert on who is not willing to remain a member of the Company, because we have his letter asking the Company to sell his shares. Bat this will not do; there are many people who are not willing to remain share holders after they have had some experience of a Company's affairs; but as has often been pointed out, they have had the advantage of investing their money with the possibility of a satisfactory return without any risk beyond the actual amount of their share money, their liability being limited by the amount of share, with the benefit of becoming partners in a going concern and sharing to an unlimited amount in the profits to the extent of their holding, if profits are made. We have no alternative but to direst that in both cases the appeals be allowed. In First Appeal from Order No. 72. Jalpa Prasad must be entered on the list of contributories for a sum of Rs. 95 with costs here and below, and in First Appeal from Order No. 73 Partap Narain must be entered on the list of contributories for a sum of Rs. 500 with costs here and below.


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