1. The question of law which arises in this second appeal is whether the plaintiff is entitled to revoke his application for shares in a company when, before the date of the allotment, the prospectus of the company is changed in material particulars. The brief facts of the case in so far as they are necessary are that the plaintiff had applied for shares in. the respondent company on the basis of the prospectus issued on 20th January, 1937, containing, inter alia, the names of several persons as directors and specifying the sum of Rs. 40,000 as the minimum sum upon which the company would proceed to allotment of the shares. Before the allotment took place, there were changes in the directorate, on which the plaintiff appellant relied as one ground on which he. could withdraw his offer and decline allotment; the minimum subscription required before allotment was reduced from Rs. 40,000 to Rs. 10,000 and it was this proceeding which put the appellant upon enquiry. This important change was made on 9th May, 1937, and two days later an allotment letter was sent, to the plaintiff appellant. On 26th May. he wrote to the company drawing their attention to this reduction and asking for certain particulars regarding the meeting at which the change had been effected. At the same time he drew the company's attention to an announcement made in the press by some of the directors denying responsibility for the special resolution. Some correspondence ensued and eventually on 1st June the plaintiff appellant repudiated his offer to take the shares on the ground of the reduction of the minimum subscription. In his letter of repudiation he made no mention of the change in the directorate. This was mentioned for the first time in the plaint filed nearly two months later. It is clear, therefore, that the change in the directorate did not operate on his mind so as to influence him in repudiating his offer. He eventually brought this suit to recover the money paid with his application for shares, after the respondent company had refused to make any refund. Both the lower Courts found against the plaintiff.
2. As already mentioned, the change in the directorate found no place in the correspondence immediately following the allotment and since it did not affect the plaintiff's mind at the time, there is no necessity to discuss it. It is only necessary to consider whether the change in the minimum subscription required was a material change in the prospectus which the plaintiff could rely on in repudiating his offer to take shares. When one looks at the objects of the company as disclosed in the prospectus, it is surprising that the directors could have contemplated commencing business with such a ridiculously low figure as Rs. 10,000. They proposed to erect a modern factory in which to manufacture motor tubes, cycle tyres and tubes and other rubber goods required for vacuum brakes, etc., mills, printing presses, electrical departments, rubber sheetings, toys, battery cases, rubber shoes, clothing and various other articles. The annual working expenses are shown as nearly Rs. 80,000 while the capital expenditure required was over one and a half lakhs and it requires very little knowledge of the cost of modern plant and machinery to realise that Rs. 10,000 was an absurd figure on which to proceed to the allotment of shares in such a company with such an ambitious programme.
3. The principle involved is to be found in Anderson's case: In re. Scottish Petroleum Co. (1881) L.R. 17 Ch.D. 373 which has been referred to by Sundaram Chetti, J., in the case Venkataramiah v. Indian Industrial Bank, Ltd. (1929) M.W.N. 837. That was a case connected with a change in the directorate, as was Anderson's case (1881) L.R. 17 Ch.D. 373, but the principle applies equally to the facts of the present case. In dealing with the change of the directorate in Anderson's case (1881) L.R. 17 Ch.D. 373, Malins, V.C., made the following observation:
I do not think there, was dishonesty when the prospectus was Issued, because it was believed that Mr. Gibson and Mr. Ross would act; but when the company found that these gentlemen would not act, they were bound to issue a new prospectus containing other names, and to inform those who had applied for shares that before the allotment was made other directors had been appointed; and then it would be for the applicants for shares to say, under those circumstances, whether they would adhere to their offer or would withdraw it.
Sundaram Chetti, J., quoted the following passage from Lindley on Company Law:
If an application for shares is made on the faith of a statement which is true when made but which is not true when the shares are allotted, the applicant may refuse to take them.
The learned advocate for the respondent company was anxious to resist any suggestion that there had been misrepresentation but this is not the essence of the case. All that the plaintiff appellant need show is that there has been a material change in the prospectus since he made his offer and he is then entitled to decide that with this material change the prospectus of the company are not sufficiently attractive to warrant him in subscribing his money. Misrepresentation or fraud would seem to be of importance only regarding the remedies he may have against guilty directors. In the present case he has brought this suit against the company to recover the money paid and it is difficult to see on what satisfactory grounds the trial Court could hold that the suit was not maintainable. I agree with Mr. T. V. Ramanatha Aiyar, the learned advocate for the appellant, that there was a material change in the prospectus and that his client was entitled to a refund.
4. An attempt has been made to show that the appellant was guilty of delay but as he was acting with his father, with whom he formed a joint family, and his father lived elsewhere, the obvious explanation is that the intervening time was occupied in consulting his father as to what ought to be done.
5. In the result the appeal is allowed and the suit is decreed for the plaint amount together with costs throughout and subsequent interest at six per cent.
6. Leave refused.