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The Public Passenger Service Limited Vs. M.A. Khader and Two ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtSupreme Court of India
Decided On
Judge
Reported inAIR1966SC489; [1966]36CompCas1(SC); [1966]1SCR683
ActsIndian Companies Act, 1956 - Sections 155, 155(1), 237 and 402
AppellantThe Public Passenger Service Limited
RespondentM.A. Khader and Two ors.
Excerpt:
.....invalid for want of undisclosed expenses - supreme court in appeal opining that slight defect in notice invalidates forfeiture - held, relief to respondents not to be refused arbitrarily. - - 437 and theregulations relating to calls are followed by regulations relating toforfeiture like arts. the appellant cannot now complain that the pleading were vague. we also fail to see how the order of the court datedjanuary 30, 1957 can amount to a notice under art. but the point as to theinvalidity of the notice dated january 20, 1957, could well be decidedsummarily, and the courts below rightly decided to give relief in the exerciseof the discretionary jurisdiction under section 155. having found that thenotice was defective and the forfeiture was invalid, the court could notarbitrarily..........art. 29is defective, and the condition precedent is not complied with. the slightdefect in the notice invalidates it and is fatal to the forfeiture. the courtsbelow, therefore, rightly declared that the forfeiture was invalid. 6. section 155(1)(a)(ii) of the indian companies act allows rectificationof the share register if the name of any person after having been entered inthe register is, without sufficient cause, omitted therefrom. there is nosufficient cause for the omission of the name of the shareholder from theregister, where the omission is due to an invalid forfeiture of his shares, andno finding that the forfeiture is invalid, the court has ample jurisdictionunder section 155 to order rectification of the register. the high court saidthat the shareholder may approach the.....
Judgment:

Bachawat, J.

1. The appellant is a limited Company carrying on transport business inSouth Arcot District. M. A. Khadar, the contesting respondent in Civil AppealNo. 202 of 1965, holds 13 shares and his brother M. J. Jabbar, the contestingrespondent in Civil Appeal No. 203 of 1965, holds 163 shares in the company.Articles 29 and 30 of the articles of association of the Company read :

'29. The notice shall name afuture day, not being less than seven days from the service of the notice, onor before which such call or other money and all interest and expenses that mayhave accrued by reason such non-payment are to be paid and the place wherepayment is to be made, the place so named being either the registered office ofthe company..... are usually made payable and shall state that in the event ofnon-payment at or before the time and at the place appointed the share inrespect of which such payment is due, will be liable to be forfeited.

30. If the requisitions of anysuch notice as aforesaid be not complied with, any share in respect of whichsuch notice has been given may, at any time thereafter before payment of allmoney due thereon with interest and expenses, be forfeited by a resolution ofthe directors to that effect.'

2. On January 2, 1957, the board of director of the Company passed aresolution calling the unpaid amount of Rs. 25/- on each share. On January 3,1957, a call notice was issued to the shareholders requesting payment on orbefore January 19, 1957. The call notices were duly served on the contestingrespondents. As the call monies remained unpaid, the company issued thefollowing notice dated January 20, 1957, to the respondents under Article 29 :

'Sir,

As the call amount of the balanceof Rs. 25/- for every share held by you remains unpaid in respect of the noticedated 3rd January, 1957, issued in pursuance of the resolution of the Board, Ihereby issue this notice calling upon you to pay the called amount at theregistered office of the company on or before Wednesday the 30th January, 1957,together with interest at six per cent. and any expenses that might haveaccrued by reason of such non-payment.

Take further notice that in theevent of non-payment as mentioned above, the shares registered in your namewill be liable to be, once for all, forfeited without further notice andwithout prejudice to any legal action that may be taken against you forrecovering the balance amount due from you treating the same as a debt due toand recoverable as such by the company under Article 14.

By order of theBoard

(Signed) A. R.Hassain Khan

Managing Director.'

3. In spite of this notice, the respondents did not pay the call monies, andon February 11, 1957, the board of directors passed a resolution under article30 forfeiting the shares held by them. On November 8, 1957, the respondentsfiled two separate applications under section 155 of the Companies Act, 1956,in the High Court of Madras praying that the forfeitures be set aside and thenecessary rectifications be made in the share register of the company.Ramachandra Iyer J. allowed the applications, and passed conditional orders forrectification of the register, and his decision was affirmed by the appellatecourt. The courts below held that, in the absence of particulars of interestand expenses, the notice dated January 20, 1957, was defective and theforfeiture was invalid. The Company now appeals to this court on a certificategranted by the High Court.

4. In all standard articles of a company, the regulations, relating to callsprovide for payment of interest on the unpaid call money at a certain rate fromthe date appointed for its payment up to the time of actual payment, seeregulation 14 of Table A in the first Schedule to the Indian Companies Act,1913, regulation 16 of Table A in .the first Schedule to the Indian CompaniesAct, 1956 and Palmer's Company Precedents, 17th Edn., Part I, p. 437 and theregulations relating to calls are followed by regulations relating toforfeiture like Arts. 29 and 30 of the appellant Company. In the light of Art.29 read with similar regulations relating to calls, we would have no difficultyin holding that the notice dated January 20, 1957 required payment of intereston the call money from the date appointed for the payment thereof, that is tosay, January 19, 1957 up to the time of the actual payment. Unfortunately, allthe regulations of the Company relating to payment of calls have not beenprinted in the paper book, and in the present state of the record, we expressno opinion on the question whether the notice is defective in respect of thedemand for interest.

5. But we agree with the High Court that the notice is defective in respectof the demand for expenses. The amount of expenses incurred by the Company byreason of the non-payment was not disclosed. The respondents were not informedhow much they should pay on account of the expenses. The object of the noticeunder Art. 29 is to give the shareholder an opportunity for payment of the callmoney, interest and expenses. The notice under Art. 30 must disclose to theshareholder presumably conversant with the Articles sufficient information fromwhich he may know with certainty the amount which he should pay in order toavoid the forfeiture. In the absence of particulars of the expenses, therespondents were not in a position to know the precise amount which they wererequired to pay on account of the expenses. A proper notice under Art. 29 is acondition precedent to forfeiture under Art. 30. Here, the notice under Art. 29is defective, and the condition precedent is not complied with. The slightdefect in the notice invalidates it and is fatal to the forfeiture. The Courtsbelow, therefore, rightly declared that the forfeiture was invalid.

6. Section 155(1)(a)(ii) of the Indian Companies Act allows rectificationof the share register if the name of any person after having been entered inthe register is, without sufficient cause, omitted therefrom. There is nosufficient cause for the omission of the name of the shareholder from theregister, where the omission is due to an invalid forfeiture of his shares, andno finding that the forfeiture is invalid, the court has ample jurisdictionunder section 155 to order rectification of the register. The High Court saidthat the shareholder may approach the court under section 155 if he hassufficient. This mode of expression was rightly criticised by counsel for theappellant. This issue under section 155(1)(a)(ii) is not whether theshareholder has sufficient cause but whether his name has been omitted from theregister without sufficient cause. As the forfeiture is invalid, the names ofthe respondents were omitted from the share register without sufficient cause,and the jurisdiction of the Court under s. 155 is attracted.

7. Counsel for the appellant contended that the point as to the invalidityof the notice dated January 20, 1957, was not open to the respondent in theabsence of any pleading on this point. In the affidavit in support of theapplication, the respondents pleaded that the steps prescribed before there canbe a forfeiture have not been complied with. Nor further particulars weregiven, but the contention as to the invalidity of the notice dated January 20,1957, was pointedly raised in the argument in the first court. The contentionwas allowed to be raised without any objection. Had the objection been thenraised, the court might have allowed the respondents to file another affidavit.The appellant cannot now complain that the pleading were vague.

8. We may now conveniently refer to certain events which happened afterJanuary 2, 1957 when the directors resolved to make the call and February11,1957 when the shares were forfeited. On January 18, 1957, M. A. Jabbar, M.A. Khadir and other shareholders filed Application No. 119 of 1957 in theMadras High Court praying for reliefs under Sections 402 and 237 of the IndianCompanies Act, 1956, and obtained an interim order directing stay of collectionof monies pursuant to the notice dated January 3, 1957. The stay order wascommunicated to the directors on January 21, 1957 after the notice of theintended forfeiture dated January 20, 1957 was issued. On January , 30, 1957,the Court passed a modified interim order restraining the forfeiture of theshares, and directed M. A. Jabbar to pay the call money into Court within oneweek. The call money was not paid into Court, and on February 8, 1957, theCourt vacated the stay order. Application No. 119 of 1957 was eventuallydismissed on April 10, 1957. Counsel for the appellant contended that (I) byreason of the aforesaid proceedings the respondents waived and abandoned theirright to challenge the forfeiture: (2) the order dated January 30, 1957substituted a fresh notice of intended forfeiture under Art. 29 in lieu of theoriginal notice dated January 20, 1957 and in the absence of compliance withthis order, the forfeiture is valid. Neither of these contentions was raised inthe Courts below. We find nothing in the proceedings in Application No. 119 of1957 from which we can infer a waiver or abandonment by the respondents : oftheir right to challenge the validity of the notice dated January 20, 1957 andthe subsequent forfeiture. We also fail to see how the order of the Court datedJanuary 30, 1957 can amount to a notice under Art. 29. The only notice underArt. 29 is the one dated January 20, 1957, and as that notice is defective, theforfeiture is invalid.

9. Counsel for the appellant contended that the relief under section 155 isdiscretionary, and the court should have refused relief in the exercise of itsdiscretion. Now, where by reason of its complexity or otherwise the matter canmore conveniently be decided in a suit, the court may refuse relief undersection 155 and relegate the parties to a suit. But the point as to theinvalidity of the notice dated January 20, 1957, could well be decidedsummarily, and the courts below rightly decided to give relief in the exerciseof the discretionary jurisdiction under section 155. Having found that thenotice was defective and the forfeiture was invalid, the court could notarbitrarily refuse relief to the respondents.

10. Counsel for the appellant points out that the respondents are the traderivals of the appellant and are anxious to cripple its affairs, and theappellate Court recorded the finding that the respondents were acting mala fideand prejudicially to the interests of the appellant and their conduct in takingvarious proceedings against the appellant is reprehensible. Counsel then reliedupon the well-known maxim of equity that 'he who comes into equity mustcome with clean hands', and contended that the Courts below should havedismissed the applications as the respondents did not come with clean hands.This contention must be rejected for several reasons. The respondents are notseeking equitable relief against forfeiture. They are asserting their legalright to the shares on the ground that the forfeiture is invalid, and theycontinue to be the legal owners of the shares. Secondly, the maxim does notmean that every improper conduct of the applicant disentitles him to equitablerelief. The maxim may be invoked where the conduct complained of is unfair andunjust in relation to the subject-matter of the litigation and the equity suedfor. The unwarranted proceedings under Sections 402 and 237 of the Indian CompaniesAct. 1956 and other vexatious proceedings started by the respondents have norelation to the invalidity of the forfeiture and the relief of rectificationand are not valid grounds for refusing relief.

11. In the result, the appeals are dismissed. There will be no order as tocosts.

12. Appeals dismissed.


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