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Golconda Industries Private Ltd. Vs. Registrar of Companies - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtDelhi High Court
Decided On
Case NumberLetters Patent Appeal No. 23-D of 1966, from judgment and order of Jindra Lal, J. in CW No. 66-D of
Judge
Reported inAIR1968Delhi170; [1968]38CompCas165(Delhi)
ActsIndian Contract Act, 1872 - Sections 11; Hindu Minority and Guardianship Act, 1956 - Sections 41, 75(1) and 609; Hindu Minority and Guardianship Regulations - Regulation 17 and 17(2); Companies Act, 1956 - Sections 75, 75(1), 125 to 132, 155, 234, 235, 609 and 614
AppellantGolconda Industries Private Ltd.
RespondentRegistrar of Companies
Appellant Advocate S.V. Gupte, Sr. Adv., Ravinder Narain and; Keshav Dayal, Advs
Respondent Advocate Prakash Narain and ; B.N. Kirpal, Advs.
Cases ReferredEstates (Private) Ltd. v. Sri B. P. Roy
Excerpt:
.....respect thereof--no power in him to decide validity or legality of transaction incorporated in the return-return, neither defective nor incomplete-registrar must register it--companies act, section 75 (1). the registrar is competent to call for any information or explanationn with respect to the matters to which various documents, including the return of alltoment, which a company is required to submit to him under the act, relate. the power to call for information under section 234 is 'with respect to any matter to which such document purports to relate.' under regulation 17 the registrar is required to examine or cause to be examined the document received in his office. his duty, thereforee, extends to the examination of the return of alltoment and if the return is toherwise complete,..........principally on the ground that there was no statutory obligation on the registrar to accept the return of alltoment of 9th april, 1963. jindra lal, j. formulated two questions for consideration - (1)can shares be alltoted to a minor? (2) assuming that no shares can be alltoted to a minor, can a registrar under the act refuse to accept a return which discloses that shares have been alltoted to a minor? (3) the learned judge answered the first question against the appellant-company on the ground that under section 41 of the said act a person can be a member of a company only if he agrees to do so in writing and since a minor cannto enter into a contract, no alltoment can be made in favor of a minor. it was, however, nto disputed before the learned single judge that a minor can be a.....
Judgment:

Kapur, J.

1. Golconda Industries Private Limited (hereafter referred to as the appellant-company) alltoted 496 shares of the face value of Rs. 100 each to various persons, some of whom, at the time of alltoment, were minors. It is claimed on behalf of the appellant-company that all the alltoments made to the minors were in pursuance of contracts entered into by them through their guardians. Pursuant to section 75(1) of the Companies Act, 1956, the appellant-company submitted a return of the alltoments of the said 496 shares to the Registrar of Companies, respondent on April 9, 1963. The Registrar of Companies treated the return as defective on the ground that certain shares had been alltoted to minors and, thereforee, declined to register the return. This was done by the Registrar in pursuance of the purported exercise of power under Regulation 17(2) of the Companies Regulations framed by the Central Government. The Regulations have been framed under section 609 of the said Act which empowers the Central Government to appoint Registrars etc. and 'make regulations with respect to their duties.' It is appropriate to read the said Regulation -

'17. (1) The Registrar shall examine, or cause to be examined, every document received in his office which is required or Authorised by or under the Act to be registered, recorded or filed by or with the Registrar.

(2) If any such document is found to be defective or incomplete in any respect, the Registrar shall direct the company to rectify the defect or complete the document and no such document shall be registered, recorded or filed until the defect has been so rectified or the document has been completed, as the case may be.'

2. Aggrieved by this refusal by the Registrar, the appellant-company filed a petition in the Punjab High Court under Article 226 of the Constitution. By order dated 3rd December, 1965, Jindra Lal, J. Dismissed the petition principally on the ground that there was no statutory obligation on the Registrar to accept the return of alltoment of 9th April, 1963. Jindra Lal, J. Formulated two questions for consideration -

(1)Can shares be alltoted to a minor?

(2) Assuming that no shares can be alltoted to a minor, can a Registrar under the Act refuse to accept a return which discloses that shares have been alltoted to a minor?

(3) The learned Judge answered the first question against the appellant-company on the ground that under section 41 of the said Act a person can be a member of a company only if he agrees to do so in writing and since a minor cannto enter into a contract, no alltoment can be made in favor of a minor. It was, however, nto disputed before the learned Single Judge that a minor can be a share-holder of a company if the shares devolve upon him by operation of law, or by inheritance, or by transmission. On the second question, the learned Single Judge decided that Regulation 17 (2) was of sufficient amplitude and entitled the Registrar to decline the registration of the return.

3. The very two questions raised before the learned Single Judge have been agitated before us at the bar. Mr. S. V. Gupte, the learned counsel for the appellant-company, relying mainly on S. subrahmanyan v. K. Subba Rao, argued that if the contract is one made by the guardian on behalf of the minor within the competence of the guardian it would be valid and binding on the minor provided the contract is for the benefit of the monitor. According to Mr. Gupte, there is no absolute bar to a guardian entering to a contract on behalf of a minor and he can do so if the contract is for the minor's benefit and consequently it was nto open to the Registrar to scrutinise and pronounce upon the validity of the contract or to decline to register the return. Mr. Gupte also relied on section 8 of the Hindu Minority and Guardianship Act, 1956, in support of his plea that the guardian could validly enter into a contract for the benefit of the minor or for the realization. Prtoection or benefit of the minor's estate. The learned counsel for the respondent on the toher hand, said statute and since under that Act 'the guardian can in no case bind the minor by a personal covenant', the alltoment in this case, which was of partly paid shares, was, on the face of it, outside the competence of the guardian. Mr. Gupte's answer was that if the Registrar had no competence to pronounce upon the validity of the contracts, the question whether or nto the contracts were binding on the minors did nto arise for decision in this case. Mr. Gupte also suggested that the words 'by a personal covenant' did nto mean that partly paid shares, even though for the benefit of a minor, could nto be acquired by a guardian and these words were limited to covenants giving rise to obligations of personal nature. Various decisions were cited at the bar for and against the proposition that a minor could become a share-holder. On the view that I am taking on the second question I would rather abstain from expressing any opinion on the point whether or nto a guardian can, in given circumstances, bind the minor by a contract for purchase of shares and whether or nto such minor can be placed on the registrar of members.

4. That takes me to the second question. The return of alltoment, as I have said earlier, was filed under section 75(1) of the said Act. Under clause (a) of sub-section (1) of section 75 a company is required to file with the Registrar a return of the alltoments, stating the number and nominal amount of the shares comprised in the alltoment, the names, addresses and occupations of the alltotees, and the amount, if any, paid or due and payable on each share. Clause (b) of the said sub-section (1) of section 75 makes a further provision in the case of shares (nto being bonus shares) alltoted as fully or partly paid up toherwise than in cash. The said clause (b) requires the company to produce for the inspection and examination of the Registrar a contract in writing constituting the title of the alltotee to the alltoment together with any contract of sale, or a contract for services or toher consideration in respect of which that alltoment was made and file with the Registrar copies verified in their prescribed manner of all such contracts and a return stating the number and nominal amount of shares so alltoted, the extent to which they are to be treated as paid-up, and the consideration for which they have been alltoted. Clause (c) of sub-section (1) of section 75 enjoins the company to file with Registrar certain documents in case of alltoment of bonus shares or shares issued at a discount. Non-compliance with section 75 is made punishable. The return under section 75, it appears, is only expected to disclose the real state of facts and must correspond to the factual position in the matter of alltoment of shares. The form of alltoment has been prescribed by the Companies (Central Government's) General Rules and Forms, 1956, being Forms Nos. 2 and 3. Return of alltoment in pursuant to section 75(1) has to be filed in Form 2 and there is no obligation on the company to state in that form whether or nto an alltotee is a minor. Under section 234 of the said Act the Registrar is empowered to call for information or Explanationn with respect to any matter to which a document, required to be submitted by the company relates.

Mr. Gupte, the learned counsel for the appellant-company, disputed even the power of the Registrar to ask for information from the company whether or nto any one of the alltotees included in the return of alltoment was a minor. Mr. Parkash Narain, the learned counsel for the respondent on the toher hand, contended that section 234 nto only conferred that power on the Registrar but also the power to ascertain facts in relation thereto, and pronounce on the validity of the alltoment. Mr. Parkash Narain's argument was that inherent in the very power to call for information and Explanationn with respect to a return for alltoment was the power to scrutinise the information supplied and cone to a conclusion in the light thereof whether or nto the return incorporated valid or proper transactions and if the Registrar had that power he had necessarily the power to reject the defective return under Regulation 17. According to Mr. Parkash Narain the Legislature could nto have authorised the Registrar to call for information and Explanationn if the Registrar was nto competent to take further steps in the matter beyond gathering information.

So far as section 234 is concerned, I am of the opinion that the Registrar is competent to call for any information or Explanationn with respect to the matters to which various documents, including the return of alltoment, which a company is required to submit to him under the Act, relate. The power to call for information under section 234 is 'with respect to any matter to which such document purports to relate'. The return of alltoment is a document required to be filed with the Registrar and calling for information whether or nto and alltotee is a minor would be an information with respect to a matter to which the said return purports to relate. That, however, is nto the end of the respondent's difficulties for the question still remains as to what the Registrar can do after the return has been file and information received

As I look at section 75(1) of the said Act, it appears to me that the requirement thereof is to file a return of alltoment corresponding to the actual position of the alltoment made. If, thereforee, an alltoment has been made to a minor, the return must show the minor, the return must show the minor as an alltotee. Under Regulation 17 the Registrar is required to examine or cause to be examined the document received in his office. His duty, thereforee, extends to the examination of the return of alltoment and if the return accords with the actual facts and is also toherwise complete, it cannto be termed as 'defective or incomplete' within clause (2) of Regulation 17. The Registrar must in that situation register the document. If the Registrar is conceded the resources to examine the legality or validity of a transaction incorporated in the return of alltoment logically such resources must extend nto only to a case where the alltotees are minors but also to a case where they are alleged to be lunatic. Can it then be visualised that the Legislature conferred the power on the Registrar to call for information and come to a conclusion that an alltotee is a lunatic and decline to register the return? I think nto.

It must remembered that the powers under Regulation 17 have been given to the 'cause to be examined every document received in his office.' The Registrar may, thereforee, depute even a clerk in his office to examine the validity of the transaction returned in a document. No appeal is provided against the order of the Registrar. It is logical to think that if the Registrar had been constituted as an authority with powers to decide such vital questions, he would nto have been given power to delegate the functions and some appeal or review by a superior authority would also have been provided in the Act. In my opinion, the powers conferred under Regulation 17 are of ministerial nature. Under section 155 of the said Act power is given to the Court to rectify the register of members and that provision further shows that a similar power was nto, and could nto have been intended to be conferred on the Registrar. It is said on behalf of the respondent that the power of the Registrar to decline to register a return is nto a power ton rectify the register. That may be so, but when the substance of the matter is looked at it would appear that the Registrar by declining to register the return can compel the company to rectify its register of members by removing the names of the minors there from. Considerable reliance was placed by Mr. Parkash Narain on an unreported decision of Sinha, J. of the Calcutta High Court in Choudhury's Estates (Private) Ltd. v. Sri B. P. Roy, dated July 2, 1958 (Cal). In that case the question was about issue of debenture by way of mortgage in violation of law and the Registrar had declined to issue certificate under section 114 of Indian Companies Act, 1913. Subha, J. observed-

'In toher words, if those provisions are nto carried out, there is no valid mortgage or debenture in the eye of law. When it comes to registration under the Indian Companies Act, the provision is that a mortgage or debenture shall be registered; that means a valid mortgage or debenture and nto an invalid mortgage or debenture. If it is a mortgage or debenture which is invalid in the eye of law, then neither is the company called upon to register it nor is the Registrar called upon to register it, or to issue a certificate of registration. It follows, thereforee, that it is well within the competence of the Registrar, when he finds that as a result of the violation of an imperative provision in a statute an alleged mortgage or debenture is no mortgage or debenture in law, to refuse to register it and he may certainly refuse to issue a certificate of registration.'

May be that the position with respect to registration of mortgages and issue of certificate under section 114 of the Indian Companies Act, 1913, corresponding to section 132 of the Companies Act, 1956 is different and the Registrar is competent to refuse a certificate of the registration of any charge if the charge is invalid in the eye of law. Sections 125 to 132 of the said Act show that a company is required to file with the Registrar the prescribed particulars of the charge together with the instrument creating the charge for registration and the certificate of the Registrar is conclusive evidence that the requirements of the provision of the Act as to registration have been compiled with. Having regard to the nature of particulars to be registered and to the fact that the certificate is made conclusive, it may be possible to say that the Registrar can decline to issue such a certificate if the particulars are nto accurate or the charge nto legal, but the nature of the return, as I have already indicated, required under section 75 shows that the Registrar is nto competent to enquire into the validity of the transactions covered thereby. I need nto, however, express my opinion on the argument raised by Mr. Gupte that the Calcutta decision does nto lay down the law correctly.

5. Coming now to the argument of Mr. Parkash Narain that the Legislature could nto have intended that the Registrar should call for information and, even though satisfied that alltoment in favor of a particular alltotee is void, he should still nto insist on the defect being removed. According to Mr. Parkash Narain that will lead to defective return being registered with the Registrar and may be a source of misguidance to the public at large which have to deal with companies. The power of the Registrar to call for information extends to all documents including the balance-sheets and if the Registrar find that the information supplied calls for investigation. It is open to him to have recourse to section 2a35 of the said Act. again the information supplied to the Registrar my show the return is defective or incomplete within Regulation 17 and he may decline to register the same He may also apply under section 614 to the Court for direction upon the company to file a proper or complete return. If the transaction incorporated in the return is illegal, the shareholders may also take up the matter in the appropriate forum: but I am nto convinced that the Registrar can sit in judgment over the validity or invalidity of the transaction. No provision is made for hearing of the party affected by the impugned transaction and the Registrar may pronounce upon the transaction without even hearing such a party. It is difficult to interpret the law in a manner that concedes such a power to the Registrar. In my opinion, thereforee, the learned Single Judge was in error in taking the view that the Registrar could, in the circumstances of this case, decline to register the return I am further of the opinion that there is a statutory obligation on the part of the Registrar to register the return if it is nto defective or in complete in the sense explained by me here-in-before Regulation 17 must be interpreted in the light of the source from which it stems, and the combined reading of the statute and Regulation 17 shows that the Registrar, was, in the circumstances of this case, obliged to register the return. Regulation 17 has been framed under section 609 of the said Act under which the Regulations may prescribe 'duties' of the various officers including the Registrar. The power to decide the validity of such like transactions must, thereforee, be found elsewhere and in the Act I find no such power in the Registrar.

6. In these circumstances, I would allow the appeal and issue a direction to the Registrar of Companies to register the return of alltoment. There would, in the circumstances, be no order as to costs.

I.D. Dua C. J.

7. I agree.

T.V.R. Tatachari J.

8. I agree.

9. Appeal allowed.


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