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Rattan Singh and ors. Vs. Managing Director of the Moga Transport Company, Moga and anr. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtPunjab and Haryana High Court
Decided On
Case NumberCivil Original Side No. 79 of 1958
Judge
Reported inAIR1959P& H196
ActsCompanies Act, 1956 - Sections 3(1), 67, 67(3), 397 and 397(2)
AppellantRattan Singh and ors.
RespondentManaging Director of the Moga Transport Company, Moga and anr.
Appellant Advocate H.S. Doabia and; Raj Kumar Aggarwal, Advs.
Respondent Advocate B.R. Tuli, Adv.
DispositionPetition dismissed
Cases ReferredIn Rajahmundry Electric Supply Corporation Ltd. v. A. Nageshwara Rao
Excerpt:
.....of constitution, if any order/judgment/decree is passed in exercise of jurisdiction under article 226, a writ appeal will lie. but, no writ appeal will lie against a judgment/order/decree passed by a single judge in exercising powers of superintendence under article 227 of the constitution. - the petitioners complain that the resolution reproduced above was never communicated to all the share-holders and those share-holders who did not belong to the group of respondent no. 4. on behalf of the company and the managing director the petition was opposed on merits as well as on preliminary grounds. we agree with the appellant that before taking action under section 153-c, the court must be satisfied that circumstances exist on which an order for winding up could be made under section..........under order 39, rule 4 and section 151, civil procedure code. it was stated, that a notice to all shareholders was given on 21st of july, 1958, informing them that the company has decided to issue further shares at the rate of one share for every four shares held by each share-holders. fraction upto 1/2 was to be ignored and more than 1/2 share was to be treated as one share.notice was given after the order of this court dated 8th of august, 1958, by the company to all the share-holders of the company from whom there had been no response to the previous offer. this offer was made on 12th of august, 1958. it was stated, that the petitioners and the shareholders who belonged to their group, had not chosen to buy the shares, whereas, all the shareholders belonging to the group of the.....
Judgment:
ORDER

Tek Chand, J.

1. This is a petition made under Section 397 of the Companies Act of 1956 by three petitioners who are share-holders of Moga Transport Company, Private Limited, respondent No. 2.

2. The facts giving rise to this petition are that on 16th of June, 1958, the Board of Directors of the respondent -- Company passed a resolution to the effect that the capital or the Company would he increased by Rs. 35,000/-. The resolution which is annexure A runs as under:

'After detailed discussion it was unanimously resolved that in order to improve the financial position of the Co., and to meet the liabilities of the Co., 350 shares of Rs. 100/- each be allotted. The shares may, in the first instance, be offered to the present share-holders in the ratio of one share for every four shares held by each shareholder, fraction up to 1/2 share to be ignored and more than 1/2 share to be counted as one share. The existing share-holders may be asked to send their applications within 15 days of the date of the notice and to pay Rs. 10/- per share with application. They should be informed that the balance amount of Rs. 90/- per share will have to be paid by them within one week of the receipt of the letter of allotment, and that in case the application for purchase of shares of any shareholder is not received by the Co., within the period of 15 days aforesaid, it will be deemed that the share-holder has declined to purchase the shares offered and the board of directors will be at liberty to dispose of these shares to any person or persons they approve of. The Managing Director of the Co., is authorised to issue necessary notices and receive the applications along with the application money and he is further directed that the said money if and when received be 'deposited in the United Commercial Bank Limited, Moga.'

3. It was then alleged that notices offering shares were issued to those share-holders who were the party-men of Chanan Singh, Managing Director of the Company, respondent No. 1, and this was done with a view to get new share-holders of his own choice. The object of doing so was to increase Chanan Singh's own strength as shares were sought to be sold to persons belonging to his own group.

The petitioners complain that the resolution reproduced above was never communicated to all the share-holders and those share-holders who did not belong to the group of respondent No. 1 were kept in the dark. It was stated that the memorandum and articles of association of this Company do not authorise the issue of shares to strangers and the additional capital could be distributed among the existing share-holders only.

It was prayed that the resolution and the notices issued to some of the share-holders of the Company be quashed and the respondents be directed not to act upon the said resolution, and an interim stay order be also passed staying the operation of the resolution till the final disposal of this petition.

4. On behalf of the Company and the Managing Director the petition was opposed on merits as well as on preliminary grounds. It was stated that the minority was not being oppressed by the majority, that no case for the winding up of the Company was made out in the petition, and that increase of the capital was necessary as the number of buses owned by the Company were insufficient and therefore the fleet had to be augmented as ordered by the Regional Transport Authority, under pain of suspension of company's trips on different routes. The resolution was valid and the notice had been given to all the share-holders. The shares could be sold to strangers so long as the number of share-holders did not exceed 50.

5. In the preliminary order passed by me on the 8th of August 1958, I said that the Directors were at liberty to offer and issue further shares to the present share-holders in the same proportion in which the share-holders already hold the shares, but not to strangers.

6. During the pendency of the above proceedings, an application was made on behalf of the respondents on 11th of September, 1958, under Order 39, Rule 4 and Section 151, Civil Procedure Code. It was stated, that a notice to all shareholders was given on 21st of July, 1958, informing them that the Company has decided to issue further shares at the rate of one share for every four shares held by each share-holders. Fraction upto 1/2 was to be ignored and more than 1/2 share was to be treated as one share.

Notice was given after the order of this Court dated 8th of August, 1958, by the Company to all the share-holders of the Company from whom there had been no response to the previous offer. This offer was made on 12th of August, 1958. It was stated, that the petitioners and the shareholders who belonged to their group, had not chosen to buy the shares, whereas, all the shareholders belonging to the group of the Managing Director have purchased the shares in terms of said resolution.

There were 13 shares-holders who had purchased 177 shares offered to them in accordance with the above resolution. There were 11 persons named in the application, who are said to belong to the petitioners group and who have not purchased the shares. It was also stated that the Company required additional capital in order to complete itsfleet of vehicles as required by the Regional Transport Authority.

In the meeting of the Regional Transport Authority held on the 19th of August, 1953, the Company had been required to maintain a fleet of 23 transport vehicles, and one month's notice was given to the Company to complete the fleet of 23 vehicles and by way of punishment one permit and two return trips on Moga-Kot Kapura route had been suspended for a period of one month. It was prayed, that either the petitioners and the members of their party should be directed to purchase the shares in accordance with the resolution dated 14th of June, 1958, or the order of this Court restraining the Company from allotting shares to strangers should be vacated.

7. The petitioners now do not deny that the offer was made, but they have expressed their unwillingness to purchase the shares offered. They have taken their stand on the legal ground that additional shares cannot be offered to strangers. According to the petitioners, if shares are to be given to persons other than the existing shareholders whose total number at present is 24, then the Private Company should be converted into a public Company.

8. Mr. H. S. Doabia, learned counsel for the petitioners, has drawn my attention to Section 3(1)(iii) of the Companies Act, 1956. It defines 'private company' which means a company which by its articles restricts the right to transfer its share, it any, limits the number of its members to 50, and lastly, prohibits any invitation to the public to subscribe for any snares in, or debentures of, the Company,

According to Mr. Doabia, offer of shares to any person other than the existing members of the company is tantamount to an invitation to the public to subscribe for shares which is under a statutory ban. My attention has also been drawn to Section 67(3) of the Act which runs as under:

'No offer or invitation shall be treated as made to the public by virtue of Sub-section (1) or Sub-section (2), as the case may be, if the offer or invitation can properly be regarded, in all the circumstances

(a) as not being calculated to result, directly or indirectly, in the shares or debentures becoming available for subscription or purchase by persons other than those receiving the offer or invitation; or

(b) otherwise as being a domestic concern of the persons making and receiving the offer or invitation.'

9. This provision corresponds to Section 55(2) of the English Companies Act of 1948. In Buckley on the Companies Acts, 12th Edition, at page 138, after reproducing Sub-section (2), it was observed

'As to (a) note that it is not necessary to show that the offer could not result in the way mentioned, but only that it is not calculated so to result. Presumably the reference to persons other than those receiving the offer refers to the latter as a class and not individually.'

10. The word 'calculated' suggests design, forethought, or intention to accomplish a purpose. 'Calculated' primarily means to compute mathematically, but when applied to a human action it is used in the sense or, to intend, to design, to plan, or to adapt to achieve a purpose.

11. In Nash v. Lynde, 1929 A. C. 158, Viscount Sumner at page 169, observed

' 'The public', in the definition Section 285, is of course a general word. No particular numbers are prescribed. Anything from two to infinity may serve: perhaps even one, if he is intendedto be the first of a series of subscribers, but makes further proceedings needless by himself subscribing the whole. The point is that the offer is such as to be open to any one who brings his money and applies in due form, whether the prospectus was addressed to him on behalf of the Company or not.'

12. Section 285 of the Companies (Consolidation) Act 1908 (8 Edw. 7. c. 69) defines 'prospectus' and corresponds to Section 2(36) of Our Act. See also Burrows v. Matabele Gold Reefs and Estates Co. Ltd., (1901) 2 Ch. 23 (27),

13. It was argued on behalf of the petitioners that the Managing Director of the Company and his friends wanted the shares to be purchased by their kith and kin. If that be so, then offer to one's kith and kin cannot be considered to be an invitation to public. An offer to buy shares made to an individual as such is not within the prohibition of the word 'public' as used in Section 67 of the Act.

In die case of Private Company, the maximum number of its members cannot exceed 50. Where a company offers shares to selective persons, it cannot be said to be extending an invitation to buy shares to the 'public'. In all cases the determination of the question of an offer being made to public, depends upon the facts and language of the notice on the particular circumstances of each case.

If the attitude as has been adopted by the petitioners in this case, can be deemed to be permissive in law, then it will be virtually impossible for a company to increase its capital where the existing share-Holders are unwilling to purchase shares, or debentures of the company, even if the total number of its members is much below 50.

14. Mr. Tuli, learned counsel for the respondents, drew my attention to the provisions of Section 81 of the Companies Act dealing with further issue of capital. But that section has no application to a private company.

15. Article 7 of the articles of association of this Company has been relied upon by the learned counsel for the petitioners. It runs as under:

'When the Directors decide to further subscribe the capital, they shall be authorised to offer and issue further shares to the present share-holders in the same proportion in which the share-holders already hold the shares.'

16. The above article does not appear to have any relevancy. The word 'authorised' is understood to mean to clothe with authority or legal power. In this case, the Directors are being given a right to offer and issue further shares to the present share-holders in the same proportion in which the share-holders already hold the shares. The words in this article cannot be read to mean that the Directors are prohibited from offering and issuing further shares to outsiders, if the present share-holders do not avail themselves of the offer. This article contains permission and not prohibition.

17. Article 8(a) was also referred to. It provides

'No share-holder will be entitled to transfer his shares except to other share-holders of this company.'

18. 'Transfer' means transfer by the acts of a member. It does not apply to further issue of capital by purchase of new shares, I do not think that any article of the articles of association of the Company has been contravened in this case.

19. Lastly, it was argued on behalf of the Company that the provisions of Section 397 of the Actcannot be attracted on the allegations made in this petition. Relief can be given in cases of oppression where the Court is of the opinion that the company's affairs are being conducted in a manner oppressive to any member or members; and that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up.

No attempt has been made in this case to suggest, much less substantiate, that the making of a winding up order on the facts of this case on grounds of justice and equity, could be justified. I cannot overlook the conjunctive 'and', connecting Clauses (a) and (b) in Sub-section (2) of Section 397. Both conditions must co-exist before it is competent for a Court to grant relief under this provision. On the allegations in this petition, an order for winding up cannot be supported on just and equitable grounds.

20. In Rajahmundry Electric Supply Corporation Ltd. v. A. Nageshwara Rao, (S) AIR 1956. SC 213, it was observed at page 215

'It was next contended that the allegations in the application were not sufficient to support a winding up order under Section 162, and that, therefore, no action could be taken under Section 153C. We agree with the appellant that before taking action under Section 153-C, the Court must be satisfied that circumstances exist on which an order for winding up could be made under Section 162.'

21. For the reasons stated above, I find no force in the contention of the petitioners. The petition is without merit and it is, therefore, dismissed with costs.


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