(1) The petitioner (the Maharaja of Tehri Garhwal) had admittedly become a shareholder and director of the Indian Electrim Tools Corporation Ltd. (in liquidation), a company registered under the Companies Act, 1956 (hereinafter called the Company)- In this petition he prays that the Official Liquidator (O.L.) may be directed not to place him on the list of contributories: he had 500 fully paid up equity shares; he has also asked for the rectification of the Register of Members of the company, which is stated to reveal that he had taken 50,000 equity shares of Rs. 10 each in respect of which he had not paid anything, and not merely 500 equity shares, as admitted by the petitioner. Not only the facts leading to this petition are somewhat interesting but one or two questions of law of some nicety also arise for consideration.
(2) On the record, as admitted by the O.L., there is only one application for shares which was given the mark 'A' initially: 'C.W. 1' has been written on it probably by the Commissioner who was appointed to examine the petitioner as a witness. According to the petitioner the said form of application for shares was signed by him in blank. Many of the columns have been filled in later in type, the form itself being a cyclostyled (typed) one. The figure 50,000 has been written in manuscript in paragraph I which speaks of an application for those shares being made after having read the statement in flue of prospectus relating to equity shares. In paragraph 3 the figure of 5 lacs has been entered. Even the manner in which the same was paid is not apparent from it because all the three modes of payment in the form. namely, cash/cheque/draft appear to have been scored out. What is particularly intriguing is even though a sum of Rs. 5 lacs was said to have been enclosed along with the form it was stated Rs. 5 per share was payable on application per share of Rs. 10 each. the balance of Rs. 5 per share being payable on allotment. The date has been filled up in handwriting to read that the application was made on the 30th day of April, 1962. According to the petitioner he had applied only for 500 equity shares, he had sent an application on 25-4-1962, for the same along with a cheque (P3) of the same date for Rs. 5,000 being the full amount of the aforesaid shares through the stock and share broker, H. P. Mehta, who has been examined in this case as Public Witness 4, 500 shares were the qualifying shares for becoming a director. The said cheque for Rs. 5,000 was sent to the company for being cashed only on 2-5-1962 and was cashed later. According to the petitioner he did not give any cheque for Rs. 5 lacs, allegedly for 50,000 equity shares. Neither did he apply for the allotment of 50,000 shares, nor did he receive any notice of such allotment. On the other hand, the company which was not financially well off had requested him lo advance a loan of Rs. 10,000 in November, 1962 out of which Rs. 3,000 alone had been returned some time on 10-11-62 details of these had been mentioned by the petitioner in his letter dated 23-3-1964 to the O.L. (copy of which is Annexure C to the petition, exhibited as Ex. P. X. and marked E by the Commissioner).
(3) Some time in September/October, 1962, B, B. Lal Singhania (R-2),who was the promoter of the company, came to the petitioner and informed him that the company's Accountant had made some obviously false entries in the account books and also a false report against the company, the Accountant had been dismissed for doing so. it was then that the petitioner was informed for the first time that an entry in respect of 50,000 equity shares in the company's records had been made in his name, even though he had applied only for 500 shares. The petitioner was further informed that since the Registrar of Companies was asking for an Explanationn in this respect the petitioner may give him a reply on the terms set out in Annexure B to the petition, to the effect, that the petitioner had applied for shares worth Rs. 5 lacs, that he wanted 50,000 shares to be reserved for him. the subscription for which will be made before the public issue and that he had not enclosed any cheque with the application though he had mentioned therein that cheque was enclosed. The petitioner 'refused at first but agreed to consult his own solicitors in Bombay but R-2 insisted and prevailed on him saying that the company will, in that case, be in great trouble. At the insistence of R-2 the petitioner had agreed to consult his Solicitors in Bombay, M/s. Hooseini Doctor & Co. The person, Mr. T. S. Doctor, whom he had consulted, has been examined as Public Witness . 5. The Solicitor advised the petitioner to obtain some papers and not to sign the draft letter marked 'B'.
(4) The petitioner attended a meeting of the Board of Directors of the company when the minutes of a previous meeting of the Board of Directors held on 28-2-1963 (at which he was not present) were read out for confirmation. One of the resolutions at that meeting, dated 28-2-1963, was that 50,000 shares which had been allotted on 30-4-1962 be cancelled. The petitioner was surprised to learn about this for the pretext given for cancellation, namely, that the cheque for the share money had been returned was false. But the petitioner was assured that the Accountant had made a wrong entry and that for this and other acts he had been dismissed. The petitioner was assured that since the allotment of shares had been cancelled there was nothing for him to worry.
(5) According to the reply of the O.L. filed in this petition shares worth Rs. 5 lacs were allotted to the petitioner on 30-4-1962; a total of 50,500 equity shares were allotted to the petitioner and he was intimated about the same.
In his reply affidavit dated 15-3-1966, B. B. Lal Singhania (R-2) supported in some respects the petitioner's case; he has not, however, been examined as a witness for the petitioner, it is needless, thereforee, to be detained by the averments in the said affidavit which cannot be taken us substantive evidence in the case in the absence of his being examined and cross-examined.
The following issues were framed on 18-3-1966 :
'1. Was there a valid application for the allotment of 50,000 shares of the face value of Rs. 5 lacs If not, what is its effect ?
2. Was this application accompanied by the requisite application money If not, what is its effect ?
3. Was there any valid allotment of 50,000 shares in the name of the petitioner If so, was this allotment communicated to the petitioner, and, if not, what is its effect ?
4. What is the affect of the resolution dated 28th of February, 1963, turn the cancellation of the allotment of 50,000 shares to the petitioner ?
5. Is the petitioner estopped from seeking remedy by way of rectification by reason of acquiescence or delay ?
6. Is there any liability of respondent No. 4 ?
An application by the O.L. to re-frame the issues was rejected and no appeal had been preferred against it. Issues had been framed after recording the statements of some persons.
(6) Issue No. 4 : It is needless to be detained about the effect of the resolution dated 28-2-1963 cancelling the allotment of 50,000 shares to the petitioner, in the view that the petition for winding up has been filed even earlier, namely, on 15-1-1963. The legal position cannot, I believe, be put better than what Cohen, J. said in re Derhan and Allen, Limited (1946-47 1 Chancery Division 31 at page 36) :
'IN the present case the company has taken up itself to rectify the register without any motion to the court for that purpose, and in justification of this procedure I was referred to the judgment of Jessel M. R. in In re Poole Firebrick and Blue Clay Co. Ltd., 1874 L.R. 18 Eq. 542 and to In re Reese River Silver Mining Co. Ltd. L.R. 64 10 Ch L.R. 157 which constituted authority for the proposition that where a person on the register of members has a right to rectification, and the company itself recognises that right, it is not essential for a valid rectification of the register that an order of the court should be sought and obtained. I wish to say nothing to encourage directors to carry out rectification of a company's register without an order of the court being obtained in proceedings in which the right to rectification is duly established. The protection of the court's order is in the ordinary case essential to any rectification of the register by the removal of the name of a registered holder of shares, but in this case it was inevitable that the matter should come before the court, because it involved the sanction of the court to the issue of shares at a discount. I am satisfied that no one will be prejudiced, and I shall not require what would be a mere formality, that is to say, a motion to rectify the register.'
COHENS-HARDYL.J. had earlier put the metter thus when he agreed with the other learned Judges in re Sussex Brick Company (1904 (1) CD 598 (4) :
'IT seems to me that Mr, Gore-Browne's argument is really based on this hypothesis, that the register of members is a thing which ceases to have any real operation or existence after the winding up-order ; that the only right which can be dealt with after a winding-up order is one with regard to making some change in the position of persons on the list of contributories.'
In this light it would be best to discuss issues (1) to (3) in a composite manner:
(7) Issues (1) to (3) : It would be necessary to know what is the true position that applies to the facts of this case, before discussing the facts. If there was no allotment of shares at all then no further question of any delay or latches in the matter of aplying fur relief would be of any consequence.In the language of Cohens-Hardy L.J. after a winding up order the only right which can be dealt with is one with regard to mating some change in the list of persons as contributories. This is exactly the position here; section 467 of the Companies Act of 1956 provides for it.
'467(1). As soon as may be after making a winding up order, the Court shall settle a list of contributories, with power to rectify the register of members in all cases where rectification is required in pursuance of this Act, and shall cause the assets of the company to be collected and applied in discharge of its liabilities :
Provided that, where it appears to the Court that it will not be necessary to make calls on, or adjust the rights of, contributories, the Court may dispense with the settlement of a list of contributories. (2) In setting the list of contributories, the Court shall distinguish between those who are contributories in their own right and those who are contributories as being representatives of, or liable for the debts of, others.'
The position in India, in this respect, is thus the same as in England.
It may also be instructive to refer to the observations of Wright, J. in re International Society of Auctioneers and valuers 1898 C D110 (5).
'UNDER these circumstances, is Baillie to be allowed to repudiate his liability, or rather to say that he never contracted with the company now in liquidation In my judgment the case is governed by the principles laid down in Cundy v. Lindsay 3 App. Cas. 459 (6). The evidence satisfies me that there never was a contract between Baillie and the company, voidable by him on the ground of the misrepresentations which were made to him, but, something which was void ab initio. In other words, there never was any contract at all. When Baillie made his aplication and received his certificate he thought that the company he was dealing with was the old Auctioneers' Institute, and those who were acting for the liquidating company knew of this belief and distinctly deceived him. Under circumstances like these there is no contract, as is shown by the observations of Lord Cairns, Lord Hatherley and Lord Penzance in Cundy v. Lindsay. That being so, Baillie is entitled to the relief which he claims, and it is no objection to his claim that he took no steps to have it declared that he was not under liability before the winding up took place. It has been suggested that, whatever the effect of Cundy v. Lindsay may be where the contract is not in writing, where the terms are contained in writing the parties cannot deny that there was a contract. In Cundy v. Lindsay what was alleged to be a contract appears to have been in writing. But whether I am right in that view or not, there is not in this case a contract in writing, because there is no contract at all.'
GORE-BROWNSon Companies, 42nd Ed. (Boyle & Sykes) states, on page 503, as follows :
'IF there is in fact no contract, or the contract under which the alleged shareholder is supposed to have taken his shares is void from the beginning and not merely avoidable, his name may be removed from the register even after a winding up has commenced; for he never agreed to fake the shares [Oakes v. Turquand, 1867 L.R. 2 H.L. 325; Alabaster's case (1868), 7 Eq. 273; Baillie's case, (1898) 1 Ch. 110 (9) ; and in such a case delay is not a bar to the claim to rectify the register (Gorrissen's case 1873 8 Ch. App. 507 , Wynne's case (1873) 8 Ch. App. 1002](11); Beck's case, (1874) 9 Ch. App. 392(12); Baillie's case, (1898), 1 Ch. 100(9) as it is where relief is sought on the ground of mis-representation. '
The case of no contract at all has been treated differently from a case where a contract is one which has to be repudiated; if it is of the later kind prompt steps to have his name removed, from the register of the company would be necessary. In First National Reinsurance Company, Ltd., v. Greenfield. 1921 (2) K.B. 260(13) McCardie J. referred to Oakes v. Turquand 1867 L.R. 2 H.L. 3251(14) and the Explanationn given by Lord Granworth therein as to why the Companies Act of 1862 opened the register to the inspection of all the world; it is obvious that no creditor could safely trust the company without having the means of first ascertaining who the shareholders might be, and secondly, to what extent they would be liable. The shareholders also, in the same way, had an interest in knowing who are liable and to what extent. If the applicant for shares had done nothing till winding up, Oakes v. Turquand laid down the principle, there is no right to avoid a contract to take shares after winding up commences. In other words, the avoidance is not possible unless there has been either proceedings constituted before the winding up or an agreement that the shareholder shall be bound by the result of other proceedings which have been taken for the avoidance of a contract to take shares. McCardie J. also added that with regard to the rectification of the register an application to the court was essential only when the company disputes the right to rectification. There is no reason why the directors, if they bona fide agree that the shareholder has a right to avoid the contract, should not thereupon assent to the rescission of the contract and rectify the register in an appropriate manner. An order of the court is not necessary in such a case. To this category belong In re London and Mediteranean Bank (known as Wright's case, 1817 2 L.R. 7 Ch. 55(15). Rcese River Silver Mining Co. v. Smith L.R. 4 H.L. 64 and In re Poole Firebrick and Blue Clay Company [known as Hartley's case (1874) LR 10 Ch. App. 157] (17). In the last mentioned case Lord Cairns L. C. pointed out that an application for rescission could not be made after winding up and, if even made before winding up, the case will have to be proved strictly. I re Hull and County Bank (Burgess's case, (1880) Ch. Div. 507 (18) did not allow an application for rescission of shares on the ground of misrepresintation by the promoter after winding up, even though there were sufficient assets in the hands of the liquidators. All these cases when examined would be seen to be cases where allotment was made but the same was questioned later.
(8) The question, thereforee, is whether there was in the present case an allotment of 50,000 shares If this question is answered in the petitioner's favor he would not be held disentitled to relief on any other ground. I am unable to comprehend how if the 50,000 shares had been allotted on 30-4-1962 there was any need to allot 500 further shares on 12-5-1962.
(9) In the light of the fact that 'no other written application for shares has been produced and the only application for shares on record purport to ask for 50,000 but not 500, shares it becomes exceedingly difficult to find how 50,000 shares were allotted. The allotment of 500 shares only is admitted by the petitioner.
(10) All does not seem to be well with the application dated 30-4-1962 turn the allotment of 50,000 shares. Section 41(2) of the Act prescribes that persons other than subscribers to the Memorandum of Association of the Company, who are to be entered as members in the register of members, should agree in writing to become such members and that their names should be written in the register of members. The difference between English law and Indian law is that no such writing is required for becoming a member of a limited company. By the Companies Amending Act (65) of 1960 the words 'in writing' were inserted. The view expressed by Ramanujam, J. in Sree Ayyanar Spinning and Weaving Mills Ltd. v. V. V. V. Rajendran and another 1973 (43) CompCas 225 that a written application for alllolment of shares was not necessary and that an oral application would be enough for the purpose does not, I am afraid, take note of the above change introduced by the Amending Act (65) of 1960.
(11) Rule 6 of the Company (Issue of Certificates) Rules, 1960 requires that the particulars of every share certificate should be entered in the register of members maintained in the form set out in the Appendix to those Rules indicating the date of issue, the person(s) to whom it has been issued along with particulars of every share certificate issued. The number and date of allotment, amounts due and on what account (allotment of call etc.), date when due and other particulars mentioned in the said appendix have to be given in the register of members.
(12) What has been made available to Court by the Official Liquidator, is what is known as a 'Share Account Register' which is not according to what has been prescribed in the appendix. In respect of the petitioner there is an entry on page 20 with date 30-4-1962. Regarding 50.000 shares alone the distinctive share numbers have been given as 16,503 to 66,502 and there is a credit in respect of Rs. 5 lakhs. It is surprising that if the petitioner had subscribed also for 500 shares (about which there is no dispute) there is no mention of them. On its face the said register is not free from suspicion. Even the presumption which is available under section 164 of the Companies Act in respect of the register of members, among other documents referred to .therein, that it would be prima facie evidence of matters directed or authorised to be inserted therein by the Act would not be available to the Official Liquidator because the above Share Account Register is not the prescribed register of members to which alone the presump corporation referred to in section 164 applies. The petitioner's liability to be placed as a contributory cannot be fixed, thereforee, on the basis of the said Share Account Register. There is a further difficulty owing to the said entry itself reading that the said sum of Rs. 5 lakhs had been paid. It would not be permissible to fasten any liability on the petitioner as a contributory in respect of those 50,000 shares de hors the said entry which reads that Rs. 5 lakhs had been paid by the petitioner. I am only referring to this aspect for the purpose of pointing out the sheer futility of relying on the entry in the said Share Account Register to fasten any liability on the petitioner on that basis. When, before any such liability can be fastened on him, and the petitioner wants to guard himself against by means of this petition, it would be necessary for the Official Liquidator to show that there was an application for the said 50,000 shares by the petitioner, and that the company had accepted the same.
(13) It may be of help, in this context, to refer to the discussion by James L.J. and Mellish L.J. in re United. Ports and General Insurance Company (known as Beck's case), reported in Law Reports (1873) 9 Ch App 392, made while dismissing an appeal from the judgment of Bacon V.C. The Official Liquidator had applied to have the name of Mr. Beck placed on the list of contributories in respect of certain shares of the company. James L.J. put the matter thus : 'Mr. Beck was put on the register of shareholders without any authority from him. That was a perfectly void act as utterly unauthorised by him, and yet he is now sought to be charged with the consequences'. Mr. Beck had held forty 5 shares ( 2 10 s. paid) in the Progress Insurance Company: he had been allotted 200 shares in the United Ports and General Insurance Company, in lieu of 40 shares held by him in the former company as a result of amalgamation. The amalgamation was decided to be void. Mr. Beck, who had applied for shares got certain letters which contained some fresh terms. His subsequent application for the certificates was held not to amount to acceptance of these fresh terms. Both James L.J. and Mellish L.J. found that the parties had not come to an agreement as to the terms on which the allotment of shares had to take place. The consequence was that there was no agreement to become a shareholder. The tatter explained that Mr. Beck was only puzzled and when he wrote to the company for his certificates he only wanted to know what really the truth was.
(14) The essence of the matter, thereforee, is that there should be an agreement to become a shareholder, which agreement can ripen into a concluded contract only by an offer to take certain amount of shares and the same being accepted. There is nothing on record to show that the allotment of 50,000 shares to the petitioner was even cummunicated to him. If this was not done, there was clearly no acceptance. even if there was an application for 50,000 shares, and hence there was no concluded contract either.
(15) It will be appropriate in this connection to look at the auditor's note in the balance-sheet for the period ending 30th April. 1962 (marked as Ex. R. W. 1/A), which reads as follows :
'NOTE 2. 77,500 Equity Shares have been allotted on 30-4-62 by the directors. The amount due on application and allotment was not received in cash but by cheques. The cheques have not yet been sent to Bank for collection and are in the hands of the Managing Director as uncashed'.
This report was by the company's auditors S. P. Chopra & Co. and G. S. Mathur & Co. and is dated 12-5-1962. It may be recalled that on 2-5-1962 the cheque for Rs. 5,000 given by the petitioner was sent to the Bank for collection and was cashed. The question naturally arises how if the petitioner had given a cheque for Rs. 5 lakhs in respect of 50,000 shares it was not sent to the bank for being encased The other 27,500 shares are said to have been taken by Bharat Singh (the numbers of whose shares are said to be from 67,503 to 94,002 according to the Minute Book dated 28-2-1963). No Explanationn worth the name has ever been advanced. The Official Liquidator is now under severe handicap because the company has been wound up ; some fraud seems to have been perpetrated. But these cannot by themselves dispense with the need for acceptable proof that there was an application by the petitioner for 50,000 shares, that there was an allotment to him of these shares and that the same was also communicated.
(16) It may also be worth noticing in this context that the Police had seized the records of this company in June, 1962, including the minutes book. Item 7 of the minutes of the meeting of the Board of Directors of 30th April, 1962 relates to the above 50,000 shares but the specified numbers having been allotted to the petitioner against his application. Those who were present at the meeting were B. B. Lall Singhania, Smt. Prem Vati Singhania and Mrs. U. R.. Gupta (wife and brother's wife, respectively of B. B. Lall Singhania). If shares of this value had been allotted to the petitioner on 30-4-1962 he would in all probability have been made a Director at that meeting itself; as the subsequent discussion would show the petitioner had agreed to become a director even when he says, he agreed to take 500 shares and gave a cheque for the same on 25-4-1962 itself. The same remarks would apply to Bharat Singh also who was said to have been allotted 27,500 shares against his application as per the minutes of I he said meeting.
(17) Item 5 of the minutes of the Board's meeting dated 12-5-1962 contains a resolution to allot 500 shares (Nos. 97973 to 98472) to the petitioner and another 500 shares to one Lt. Gen. P Chaudhury containing certain specific numbers of shares. Even at that meeting the petitioner was not present. There are no further minutes of the Board recorded in the said minutes book which stops with the minutes dated 12-5-1962 (at page 62) though the book, pages of which are numbered, contains up to 99 pages (numbered in print) plus one page extra also. This is perhaps understandable because of the Police seeing it. The further proceedings of the Board incorporating the minutes from and after 2nd June 1962 are in a different book (marked as Ex. R. W. 3/3). It was then for the first time that a resolution was passed (item 2) that the petitioner, in addition to Lt. Gen. Chaudhury and Bharat Singh, was appointed as Director; it was stated that the consent of all of them to act as Directors had been received in the office. At this meeting an interesting record had been made as item 3 as follows :
'I was stated by the Manager that the two cheques were returned by the old Accountant Mr. G. S. Bambani to H. H. Tehri Garhwal and (ii) S. Bharat Singh which had discrepancies on 14-5-1962 and the same have not been sent back to the company.
It was resolved that in the next Board meeting they may be requested to return fresh cheques in lieu of those returned to them already i.e. H. H. Tehri Garhwal for Rs. Five lakhs and S. Bharat Singh of Rs. Two lakhs and Seventy five thousand'.
(18) It is necessary to notice in this context that there has been a publication by the manager of the company in the Hindustan Time dated 28-5-1962 (Ex. P. W. 2/1) that two cheques had been lost by the Cashier on his way from the Bank to the office; the twe cheques amounted to Rs. 7,75,000 on 23-5-1962. The finder was requested to deposit them in the registered office of the company. is passing strange how in respect of the two cheques, which were said to have been lost, a record could still have been made in the minutes of the company about their having been returned by their old accountant to the petitioner and Bharat Singh.
(19) The next meeting of the Board was on 7-6-1962 in which the petitioner was not present; Bharat Singh was, however, present. The minutes of the meeting dated 2-6-1962 were said to have been read and confirmed. Nothing is mentioned in this meeting about the further action taken in respect of those two cheques said to have been returned.
(20) There was another meeting on 31-8-1962, which was merely adjourned on the ground of inability of the other members to attend the meeting. There was yet another meeting of the Board on 7-9-1962 at which also the petitioner was not present. It was at the meeting of the Board, held on 14-11-1962, the petitioner was present for the first time. At that meeting Bharat Singh was not present; a resignation letter from him was stated to have been considered. What is of relevance to our present purpose is item (1) of the minutes, which Beads that copies of the letter of Registrar had been circulated in advance and that in the meeting it was unanimously decided that the reply a draft of which was approved by the Board, should be shown to solicitors before it was sent to the Registrar of Companies.
(21) The petitioner, when he was examined on commission, stated that he got a letter in June 1962, that he had been appointed as a Director, he having agreed after some discussion with his broker H. P. Mehta (P. W. 4) to buy 500 shares; he had sent a letter with the application from (copy of which is marked as Annexure A to the petition). The cheque which he had sent has been proved by him and was marked as Ex P. W. 3/1 bearing the same date as the letter ( 25-4-1962). He had never intended to take more than 500 shares. Apart from Ex. P. W. 3/1 he had not given any other cheque. In fact. he had loaned a sum of Rs. 10,000.00 temporarily to the Managing Director of the company, B. B. Lall Singhania in November, 1962 out of which only Rs. 3000.00 had been repaid to him some time on 10-11-62. He had occasion to contact his solicitor in Bombay some time in September/October, 1962 because the Managing Director had told him that the accountant had bungled or did something wrong on the basis of which the Registrar of Companies had started enquiries; he thereforee, wanted the petitioner to sign a paper asking him to commit himself to the fact that he had been allotted 5 lakh worth of shares. He refused to do so but ultimately he agreed to consult his solicitor on account of Sighania's insistence.
(22) T. S. Doctor (P. W, 5), Solicitor and a partner of Messrs Hooseini Doctor and Co., Bombay spoke to the fact that the petitioner saw him some time in the last week of October 1962 in connection with the letter which the company wanted from him. The draft letter was marked 'B'. When he was talking to the petitioner, B. B. Lall Singhania also came in whereupon he said he would have to consider; he asked for certain documents which he had referred in his letter dated 27-10-1962 to the petitioner. His advice to the petitioner was that he should not sign that draft letter. The letter containing the objection of the Registrar of Companies was also shown to P. W. 5 at the time the petitioner met him. The petitioner told P. W. 5 that he had purchased only 500 shares and that by some mischief an allotment of 50,000 shares had been made in the books of the company. P. W. 5 admitted that the petitioner did not seek his advice as to how to get rid of the liability in respect of 50,000 shares nor did he advise the petitioner about his having to file an application for rectification. One or two years afterwards he met the petitioner's Secretary (Verma) and asked him why the petitioner was not going in for rectification. The petitioner had not consulted P. W. 5 at the time of filling the present petition.
(23) H. P. Mehta (P. W. 4) had also supported the petitioner and stated that it was he who had asked the petitioner to purchase shares in this company and that he had agreed to purchase 500 shares. But B. B. Lall Singhania was keen on the petitioner taking more shares than the minimum qualifying shares to become a director. He also met the petitioner at this stage; Singhania did not meet him. He did not get anything for negotiating for these shares with the petitioner at the instance of Singhania. He only suggested to the petitioner to take more shares but he did not agree. The original letter dated 25-4-1962 was typed in the office of the petitioner and was taken by him from there to the company.
(24) On the same day, it may be noticed, that the company had written a letter (marked as F) to the petitioner referring to the fact that the company had been advised by H. P. Mehta about the petitioner agreeing to join the Board of Directors of the company and welcoming him. The letter also asked for the petitioner's consent in triplicate along with share application through H. P. Mehta. This refers only to a single application for shares for which a cheque, bearing the same date, was also issued for Rs. 5000.00 .
(25) Subsequently we have the minutes dated 28-2-1963 of the company wherein there is a resolution cancelling the shares ( 50,000) allotted to the petitioner as well as the other shares allotted to Bharat Singh.
(26) The entire effort of Mr. P. C. Khanna, learned counsel for the Official Liquidator, was only directed towards showing that some fraud had been perpetrated and that the conduct of the petitioner in having agreed to consult his Solicitor and even after consulting him not taking steps to apply for rectification suggests that the petitioner was himself a party to such fraud. While it seems that a bogus company had been floated, in which the petitioner had been led to take shares, the evidence falls far short of what is needed to establish that the petitioner was a party to any fraud, along with the promoter. The evidence seems consistent with the petitioner's embarrassment in having become involved in this company as a shareholder and director and not being able to take any hasty or drastic steps. He refused to sign a draft reply as per Annexure B. In this respect he is supported by the Solicitor (P. W. 5). If he had agreed to consult his Solicitor at Bombay, when the promoter was also present it was obviously to take legal advice. This is consistent with the petitioner having been anxious to avoid any further injury to himself, especially in the context of the records of the company having been seized earlier by the Police, even in June 1962.
(27) On the crucial question whether 50,000 shares had been allotted to the petitioner and whether there was a concluded contract in respect of those shares between members of the company the evidence in this case is not sufficient to support such an inference.
(28) Dealing with the powers conferred on the Court to rectify the register of members at the stage of settlement of the list of contributories given under the old section 184 corresponding to section 467 of the Act of 1956 A. N. Grover, J (as he then was), speaking for a Division Bench of the Punjab High Court, in K. P. Shankara, Official Liquidator v. Sardar Haridhan Singh and others [1967 (1) ComLJ 1511(21), observed at pages 158-59 as follows :
'.........THE Liquidator could ask for settlement of list of contributories only after the winding up had been ordered and it is at that stage that he can invoke under section 184 of the power of the Court to rectify the register of members. In my opinion the intention to specifically confer the power to rectify the register at the stage of settlement of list of contributories was with a very salutory object in view, namely, to enable the liquidator to take necessary steps in the matter of rectification when either due to fraud or collusion no one has made an application for rectification under section 38 before the winding up of the company'.
The position in this respect Is the same except that the proviso to section 467(1), with which we are not concerned, was adopted from section 257 of the English Companies Act of 1948.
(29) On the sole ground, even regardless of whether the company having rectified the same, the petitioner is entitled to the relief prayed for, namely that the register of members of the company, if one exists, should be rectified so as to show that the petitioner did not subscribe for 50,000 paid up equity shares, but that he wa.s allotted only 500 paid up shares. The Official Liquidator is directed not to place the petitioner on the list of Contributories.
(30) My findings on Issues (1) to (3) are : There was no application at all for allotment of 50,000 shares by the petitioner; even if it was physically there and had been signed by the petitioner it had been filled in without the petitioner's concurrence or knowledge and contrary to his intention of subscribing for only 500 shares; the application was not accompanied by any cheque for Rs. 5 lacs: there was no allotment of 50,000 shares to the petitioner and there has been no acceptance by the company; no allotment concerning 50,000 shares had even been communicated to the petitioner, In the result there was no contract, none which had been concluded or was complete, in respect of 50,000 shares. Issue (5) : No estoppel can be pleaded against the petitioner there being no allotment of 50,000 shares.
(31) Issue (6): This issue has not even been argued before me. I do not see how such a question arises in the present petition.
(32) In particular it may be worth examining, in the light of the evils which the case on hand present whether stricter provisions concerning the allotment of shares then have been provided even under the Companies (Amendment) Act (41) of 1974 should not be thought of. Part ii of the Act has no doubt been the subject of progressive amendment aimed at controlling the evils usually encountered not only in the matter of deposits invited by limited companies (in addition to sections 58A and B recently, added to the act by Act Xli of 74. the Reserve Bank (Second Amendment) Act also regulates deposits invited by non-banking financial companies), but also by making provisions in the matter of mis-statements in prospectuses providing turn not only civil liability in respect of them (section 62) but also providing penalty (section 63) for fraudulently inducing persons to invest money (section 68) and making personation for acquisition of shares (section 68-A). Certain prohibitions regarding allotment of shares (section 69 and 70) have been imposed; the legal effect of certain irregular allotments, contravening the above provisions, has also been statutorily stated (section 71): the applicants for shares have also been given time to study the prospectuses and withdraw their offer to subscribe for shares in case they are not satisfied with the same (section 72). In the light of the evils which the present case brings to light and may further bring to light if there is going to be a deatiled probe into the affairs of this company, it may be rewarding, in the public interest, to consider whether even more stringent control and regulation than have been yet provided for are necessary not only up to the pro-registration stage but also up to the stage when the shares are finaly allotted. In this respect, a seems to me, the provisions of the German Stock Corporation Act of 1965 (sec Mueller-Galbraith : Aktiengestez, 1965. the German Stock Corporation Law in English and German) 22, in so far as they could be made applicable and modified to suit the Indian context, may be worth close attention. I may only draw attention to one provision, among many others, which requires that all transactions pertaining to shares should be gone through banks in our context, the nationalised banks. It may be possible to combat at least some if a provision is made that all applications for shares should be accompanied by cheque on a nationalised bank to the extent prescribed and that no share would be allotted unless and until the concerned bank intimates to the company in writing, that the cheque has been cashed. There are, surely, many other provisions in the German Stock Corporation law which may be useful to us and be capable of adaptation, but it is needless for me to refer to them all at the present moment. I may. however, point out that even in England, from whom wo have largely borrowed our company law. efforts are currently under way to introduce reforms in the company law in effort to gear private effort also to national growth (see Lord Watkinson's Committee report).
(33) I am directing a copy of this judgment to be sent by the Registry to the Company Law Board not only for considering what further safeguards may be provided than what have been provided so far, but also for the purpose of more needed action (I am not aware of the details of any action so far taken) being taken against the persons responsible for such a sorry state of affairs.
(34) In the result, the petition is accepted, as stated above, but in the circumstances without costs.