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V. Rajagopal Vs. Salem Provident Society Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtChennai High Court
Decided On
Case NumberA.A.O. Nos. 119 and 165 to 168 of 1960
Judge
Reported inAIR1963Mad287; [1963]33CompCas446(Mad); (1953)1MLJ270
ActsCompanies Act, 1956 - Sections 155 and 467
AppellantV. Rajagopal
RespondentSalem Provident Society Ltd.
Appellant AdvocateE.R. Krishnan, Adv.
Respondent AdvocateV.N. Venkatavardachariar, Adv.
DispositionAppeal dismissed
Cases ReferredBank of Hindustan Ltd. v. Suryanarayana Rao
Excerpt:
company - contributory - sections 155 and 467 of companies act, 1956 - appellant challenged decision which upheld inclusion of his name in contributory lists - objection of appellant that shares allotted to him after petition for winding up filed - official liquidators issued notices to all shareholders before final list of contributors drawn - on application of liquidator district judge directed appellant to pay unpaid share amounts payable by him on company - appellant did not avail benefit of opportunity of removing himself from list of contributories - appeal dismissed. - - 26 of 1948 on 23rd march, 1948, in the district court, salem, to liquidate the company on the ground that there has been a technical defect in the finances of the company and it failed to implement within the.....venkatadri, j. 1. these appeals arise out of liquidation proceedings in the salem provident society ltd., which was formed as a private limited company and registered both under the insurance-act and the indian companies act, 1913, on 12-2-1935 with its head office at salem. the-society originally had 2000 shares of which 1020 shares were thrown open for subscription and 980 shares were not allotted to anybody. at the time of the formation of the company the petitioner v. rajagopal had taken 50 shares. when the company was in difficulties the board of directors passed a resolution that the remaining 980 shares should be made available to the public. at that time v. rajagopal took 45 shares of rs. 10 each, but the remaining shares were not allotted to anybody; nor any member of the public.....
Judgment:

Venkatadri, J.

1. These appeals arise out of liquidation proceedings in the Salem Provident Society Ltd., which was formed as a private limited company and registered both under the Insurance-Act and the Indian Companies Act, 1913, on 12-2-1935 with its head office at Salem. The-society originally had 2000 shares of which 1020 shares were thrown open for subscription and 980 shares were not allotted to anybody. At the time of the formation of the company the petitioner V. Rajagopal had taken 50 shares. When the company was in difficulties the Board of directors passed a resolution that the remaining 980 shares should be made available to the public. At that time V. Rajagopal took 45 shares of Rs. 10 each, but the remaining shares were not allotted to anybody; nor any member of the public offered to take them. By another resolution Rajagopal allotted to himself 406 shares and allotted to his wife 160 shares. In the first instance he paid a sum of eight annas for each share. Thus Rajagopal became possessed of 501 shares of this company.

2. At the itme of the formation of the company the petitioner Rajagopal constituted himself as Chairman of the Board.

3. As the affairs of the company were far from satisfactory the Superintendent of Insurance presented a petition O. P. No. 26 of 1948 on 23rd March, 1948, in the District Court, Salem, to liquidate the company on the ground that there has been a technical defect in the finances of the company and it failed to implement within the time fixed for the purpose, the proposals suggested to it, viz., either write down the policy contracts for putting the company on a sound financial basis and prevent the company from working at a deficit, by which is meant reducing the amount payable on the insured amounts under each policy or bringing about a revised premium table increasing the premium payable in respect of the several policies so that the company might not work at a loss in deficit in working the company.

This petition was stoutly opposed not only by V. Rajagopal, but also by other directors of the company. It was during the pendency of the liquidation proceedings that V. Rajagopal allotted to himself and his wife 566 shares. The allotment was made on 30th March, 1948. The winding up order was passed on 4th August, 1950, and it was finally confirmed on 21st November, 1951. The Official liquidator started proceedings under Section 184 for the settlement of contributories. He followed the procedure laid down in Rule 92 to 107. On 14-5-1952 he gave notice to all the contributories. Rajagopal was one such contributory and he took objections to the inclusion of his name in the list of contributories, as the allotment of shares to him was made after the filing of petition for winding up the company and the allotment itself was irregular and invalid.

The Official Liquidator overruled his contentions and settled the contributory list including Rajagopal's name in the list and thus making ham liable to pay the call money in respect of the shares held by him. After the settlement of the list of contributories under Rule 98 of the Company rules the Official liquidator once again served a notice on V. Rajagopal informing him the number of shares held by him in the company and stating that if he had any objection, he was at liberty to file an application either to the Judge or the Registrar within 21 days from the date of the service of the notice. But V. Rajagopal did not avail himself of the opportunity of removing himself from the list of contributories by filing an application as set forth in the notice.

After the prescribed period mentioned in the Rule 98 notice the Official Liquidator made an application I. A. No. III of 1954 praying the Court to grant the Official Liquidator special leave to make a call on each and every member of the entire amounts due as mentioned in the list attached to the petition. The learned District Judge passed an order on 23-3-1954, granting permission to the Official liquidator to make a call on each and every contributory as prayed for.

As stated above, before this order was passed, the Official liquidator followed the procedure laid down both under the Insurance Act and the Companies Act. It has been proved that notice was served on Rajagopal in pursuance of the order passed by the learned District Judge, Salem. Time was given to all the contributories till 1st June, 1954. As no payment was made by Rajagopal and others the Official liquidator filed an application I. A. No. 343 of 1954 under Section 187 and Section 246(2) of the Companies Act and Sections 91(2) and 12 of the Insurance Act praying for an order directing the contributories set out in the schedule to the affidavit to pay the unpaid share amounts noted against each as due and payable within two weeks from the date of the order or within four days of service of the order of the Court. An order was made accordingly on 15th July, 1954, by the District Judge, Salem.

In pursuance of the direction made by the District Judge notice was served upon V. Rajagopal calling upon him to pay the amount due and payable by him to the company. As V. Rajagopal did not pay the amount, the Official Liquidator began to execute the order passed by the District Judge, Salem, under Section 190 of the Companies Act. It was only then that V. Rajagopal filed an application along with four others for stay of further proceedings in regard to the calling up of the unpaid share capital. That application was numbered as I. A. No. 389 of 1954. It was alleged in the affidavit in support of that application that the allotment of shares to Rajagopal was itself illegal and invalid as it was subsequent to the filing of O. P. No. 26 of 1948 and that even assuming that the shares were allotted to Rajagopal validly, the allotment was subsequently cancelled at a meeting of the new Board of directors and that Rajagopal had already raised objections on 2nd April, 1954 before the Official liquidator and the Official liquidator failed to give him notice at the time of settling the final list of contributories.

The Official Liquidator strenuously opposed this application and denied all the allegations made by Rajagopal in the affidavit. He categorically stated in his counter affidavit that notices were given to each and every contributory before drawing up the final list of contributories, that as a matter of fact notices were taken to each of the petitioners that the first notice was dated 14th May, 1952, fixing 31st May, 1952, as the date to settle the list of contributories that in that notice the character and the number of shares of each of the petitioners were mentioned, that the objections filed by the first petitioner (Rajagopal) and others before the Official Liquidator were rejected, that the second notice was dated 16th June, 1952, and it intimated the settlement of the list of contributories and the list contained the names of the petitioners, that petitioners 2 to 5 were served by registered post, that the notices sent to the first petitioner by registered post was returned on the ground that he was absent, though his wife was served personally on the very same address, that by way of abundant caution another similar notice was sent by ordinary post to his address given to the company and found in its registers and that letter was not received back, that certificate of posting has been taken on 19th June, 1952, for this notice, that in that notice 21 days time was given to the petitioners in accordance with law to move the Court for the exclusion of their names from the list of contributories, but no steps were taken by the petitioners for deletion of their names, that the list of contributories became final after the date fixed, that again a third notice dated 2nd April, 1954, was sent after taking the permission of the Court to make calls on the contributories and this notice was served on all the petitioners by registered post on 9th April, 1954, separately and that in addition a notice by ordinary post was sent to the first petitioner, that in that notice it was specifically mentioned that the Court had granted special leave to make a call on the contributories and that the payment had to be made on or before 1-6-1954 and a copy of the order was attached to each of the said notices, and that the petitioner did not do anything to have the proceedings set aside.

It was further stated in the affidavit of the liquidator that he filed I. A. No. 343 of 1954 requesting the Court to direct the contributories to pay the unpaid share amounts and when the application was ordered on 15-7-1954 once again the Official liquidator sent a fourth notice to the petitioner and that the petitioner had admitted that he received this notice. The Official liquidator therefore contended that it was not open to the petitioner to avoid payment of the money due to the company in respect of the shares held by him, as he did not take proceedings to delete his name from the list of contributories even though he knew fully well that his name was in the list.

When the petition filed by Rajagopal and others (I. A. No. 389 of 1954) came before the learned District Judge he dismissed the petition holding that the petitioners are not entitled to stay of the proceedings taken by the Official Liquidator to collect the unpaid capital amount. V. Rajagopal and others preferred an appeal C. M. A. No. 207 of 1955 against that order. The appeal came up before Ramaswami J. and the learned Judge dismissed the appeal holding that it was too late for the petitioners to come and ask for relief. The petitioners had also filed C. M. P. No. 6756 of 1956 in the said appeal for leave to file additional grounds, viz, that the claim is barred by limitation etc. Ramaswami J. while dealing with that C. M. P. observed,

'In order to get over this legal impediment the learned advocate has filed an application C. M. P. No. 6756 of 1956 for raising additional grounds which seems to be like locking the stable doors after the horse had been stolen. The matter has been settled in 1952, and the petitioner never took any steps so far and they cannot be allowed to rake up the matter now by means of an application raising additional grounds and this application is dismissed'.

The appeal C. M. A. No. 207 of 1955 was dismissed on 25-10-1956.

4. Now the petitioner has filed I. A. No. 179 of 1956 for rectification of the share register, I. A. No. 178 of 1956 for rectification of the list of contributories and I. A. No. 177 of 1956 for leave to object to the list of contributories. The learned District Judge of Salem allowed all these applications and directed the Official Liquidator to delete the name of the petitioner to the extent of 406 shares held by him on the ground that the allotment of the shares itself was void and illegal and that this matter was not brought to the notice of the Court by the Official liquidator at the time of the settlement of the list of contributories.

The learned District Judge in allowing the application relied on the decision in In re Onward Building Society 1891 2 QB 463, which held that the Court can exercise the jurisdiction at any time to set aside a wrong order passed by it and settle the list of contributories afresh by deleting certain names therefrom. It is against the order passed by the District Judge, that the Official liquidator files C. M. A. Nos. 168, 165 and 167 of 1960.

Now the simple question arises in these appeals whether the petitioner Rajagopal is entitled to file an application either for rectification of the share register or for rectification of the list of contributories. It is proved beyond doubt that his name has been included in the list of contributories as early as on 14-5-1952. Till he filed the present application he did not file an application of this nature to delete his name from the list of contributories. There was a delay of seven years in making these applications. He was aware that he is possessed of 501 shares of the company. He himself alloted 406 shares to himself by resolution passed by the Company on the 30th March 1948. He himself applied to the Controller of Insurance on 3rd June 1948 to validate the irregularities in the allotment of shares. In effect the Controller of Insurance recognised this allotment (See Ex. B. 5). Soon after the 406 shares were allotted to him, his name was placed in the share register of the company. He is holding himself to the public that he is possessed of 501 shares of the company which is made up of the shares that were originally allotted to him and those allotted to him subsequently. When there is a provision for him to apply to the court for deletion of his name from the list of contributories at the earliest opportunity he did not avail himself of such provision; nor did he take any proceedings even after the notices were served on him.

In similar circumstances, it was observed in Scottish Petroleum Co., In re, (1883) 23 Ch. D. 413, that when once the shareholder was fully informed of the circumstances, he ought to lose no time in repudiating the claim. Similarly in Sewells case, (1863) 3 Ch. A. 131, Lord Cairns L. J. observed that when a person knew that, regularly or irregularly, rightly or wrongly he had been put upon the list of a shareholder, it was for him to have enquired about it and asserted that his name should not have been put in the list and to have disclaimed the ownership of the shares allotted to him, but that if he kept quiet even after he was aware that he was held out to the public as the holder of shares, it was too late for him to apply for rectification of the register. Again the same noble Lord observed in Lawrence case, (1867) 2 Ch. A. 412, that when a shareholder had an opportunity to repudiate his shares, he should have exercised that right promptly and distinctly, and if he failed to do so, he must be deemed to have waived that right.

5. All these three cases have been referred to by Gentle J. in the Garland Petroleum Co., (Madras) Ltd., in re : (1939)2MLJ122 . The learned Judge observed at page 130 (of Mad LJ) : (at p. 808 of AIR) :--

'From these authorities it is clear that if any person whose name is included in the register becomes aware that circumstances are such that proceedings are brought against the company he would succeed in having his name removed and the register rectified, he must do so promptly. He must not stand by and wait and then at a later stage, with knowledge he has been held out to the public as a share-holder, of the company, seek to have his name removed'.

In Lakshmi Narasa Reddi v. Official Receiver, Sree Films Ltd. : AIR1951Mad890 a Bench of this Court consisting of Rajamannar C. J. and Panchapakesa Aiyar J. held :--

'The liability of a member of a company to be included in the list of contributories under Section 156 of the Companies Act is not ex contractor but ex lege and arises by reason of the fact that the name of the person appears on the register of the members of the company, and it is therefore no answer for the contributory against the claim of the company to say, that, although his name appears on the register, he is not liable, because the allotment to him was void .... and in the absence of rectification of the register by an application by him under Section 38 soon after he conies to know that his name is entered in the register of members fraudulently or without sufficient cause, his liability becomes absolute under Section 156 of the Companies Act, all the more so when winding up also has supervened. When a person allows his name to remain on the register, without having it removed promptly . . he will be liable on the doctrine of holding over'.

6. Emphasis has been laid by Panchapakesa Aiyar J. who delivered the judgment of the Bench, on the fact that even a delay of a fortnight has been held to be fatal and he observed that the delay in the case before him was more than three years and the circumstances set up were shaky. The Bench agreed with the conclusion of Gentle J. in the case referred to above. The same view was expressed by a Bench of the Bombay High Court in Mahmood Akbar v. Official Liquidator, : AIR1950Bom217 and by a Bench of the Allahabad High Court in Shiromani Sugar Mills Ltd. v. Debi Prasad, : AIR1950All508 .

7. Further the petitioner in this case had ample opportunity of repudiating his liability before the final order was passed in the liquidation proceedings (O. P. No. 26 of 1948) on the 21st November, 1951. He could have successfully filed an application for removing his name from the register of shareholders. When the liquidation proceedings have intervened, it is difficult for him to have his name removed. In Blance Fonseca v. Jupiter Airways Ltd., : AIR1953Bom417 Tendolkar, J., observed at page 420:

'There is no doubt that in a proper case the Court may order rectification of the register after the commencement of the winding up proceedings, but it appears to me that where a shareholder seeks to avoid a contract for taking shares after the winding up, the Court will not exercise its discretion in his favour unless the contract was ab initio void. Under Section 102, Companies Act, the contract is not ab initio void. It is only voidable at the instance of the allottee. If he wishes to avoid he must take legal steps to have it avoided, and if he adopts those steps within a month from the date of the statutory meeting a winding up order made during that period will not affect his rights. But if he does not take any steps within that period, then a winding up order will debar him from coming to Court for rectification of the register, because by that time the rights of third parties have come into existence and they cannot be defeated at the instance of a shareholder to whom it was open to come to Court with promptitude due and who did not choose to do so'.

8. The applications filed by the petitioner Rajagopal were admittedly filed long after the winding up order which was passed on 21st November, 1951. The applications were made five years after the final order of winding up. Naturally the question will arise whether such applications are maintainable. In Oakes v. Turquand and Harding, (1867) LR 2 HL 325 it was held that a petition for rectification of the company's register of share-holders for removing the petitioner's name from the list of contributories on the ground that he had purchased shares on misrepresentations made to him by the directors should be dismissed if it was filed after winding up order.

In re Land Loan, Mortgage and Central Trust Co., of South Africa; ex parte Royle, (1885) 52 LT 50, it was held that an application for rectification would not lie after the winding up order was passed and the rights of innocent third parties, the creditors, arose. The ruling in In re, London, Hamburg and Continental Exchange Bank, Ward's case, (1866) LR 2 Eq. 226 makes it clear that the Court has got jurisdiction to rectify the register, provided the winding up order has not been passed, which means that the petition for rectification will lie after the winding up petition but before the winding up order is passed. All these cases have been reviewed by a Bench of this Court in Bank of Hindustan Ltd. v. Suryanarayana Rao : (1957)2MLJ517 , where it was held that,

'A petition for rectification will lie normally after the filing of a winding up petition and before the winding up order is passed, provided that the Court will normally reject that petition if the company is already in a notorious state of bankruptcy by the time the petition for rectification is filed.''

Therefore, there is a formidable array of authorities against the petitioner and the applications filed by him should be summarily dismissed as not maintainable on the simple ground that once the winding up order is passed, he has no right to file an application for rectification of the register.

9. Mr. E.R. Krishna Iyer, learned counsel for the respondent, contended that there was no application for allotment of shares by the petitioner, that under the Articles of Association allotment itself cannot be made of or more than 500 shares, that in all the previous proceedings the petitioner did not take objection in regard to the validity of allotment of shares but only to the notice given by the Official liquidator and that the Official Liquidator did not properly consider the question whether there was a valid allotment of shares.

All these contentions are without substance, The Official Liquidator is not concerned. either with the validity or the invalidity of the allotment of shares. He has to follow the procedure laid down in the Companies Act. His duty is to settle the list of contributories as per the register of share-holders. It is for the petitioner either to object to his inclusion in the list or to have the register rectified at the proper time. As he did not file these applications in time, I am of opinion that the contentions raised by him will have to be rejected as being without substance,

10. Mr. E.R. Krishna Iyer further contended that the Court can rectify the register at any time and he cited the decision in (1891) 2 QB 463, which was relied upon by the District Judge in allowing these petitions. But I am afraid this decision may not help the petitioner. In that case, the company, the Onward Building Society, being in financial difficulties, was ordered to be wound up. After the winding up order, the Assets Realisation Company bought a large number of shares of the building society, the assets of which were considerable, and the share-holders had not to contribute more money to the society but would receive back a part of the money they had invested. Subsequently these shares were transferred to some of the directors of the assets company and Mr. Broad, a person of substance and means, to whom some shares were transferred, applied to the liquidator to register his name in the books of the society as a transferee of the shares. The liquidator refused to register his name whereupon he made an application to the County Court and subsequently to the Division Court, which rejected his claim. Finally when the matter came before the Court of Appeal Lord Esher M. R. observed at page 476.

'Supposing that after the list of contributories has been settled, something comes to the knowledge of the Court which makes it just and desirable that it should be altered, is there anything in the Act which says that, when the list of contributories has once been settled, it cannot be resettled? I cannot find anything; on the contrary, looking at Rule 29 of the rules of 1862, which provides that the list may from tune to time by leave of the Judge be varied or added to by the Official Liquidator, it appears to me that the Act really gives power to alter the list, and there is no limit of time within which such alteration must take place. So I think that the list of contributories may be altered whenever the Court finds it just and that it should be so altered.'

Relying on these observations the learned District Judge committed an error in directing the Official Liquidator to rectify the register. He has not referred to the rest of the judgment and especially to the following observations of Lord Esher at page 477.

'Under the circumstances, we must now exercise the discretion which he (County Court Judge) declined to exercise as we think we ought to have exercised it, and as if we were in his place. That brings me to the facts of this case. The Assets Realisation company, being of opinion on its calculations that the estate of the society which was being wound up would produce a surplus, and therefore there would be money coming back to the members, had bought up the shares of a great many members at a time when those members probably supposed that the prospects of the liquidation were not so helpful as they appeared to be according to the calculations of the Assets Realisation Company, such members probably being oi a class to whom money offered in hand would exercise an attraction so much greater than possible money in the future as to be irrestistible. It was a speculation by this Company to obtain profit for themselves, and with a view to realising that expected profit they seek to have their nominees put on the register, and so get a preponderating vote as to the manner in which the winding up shall be conducted. Assuming that we have a discretion, we are not inclined to assist this company in their speculation in the manner desired, and we should prefer that the members of the society that is being wound up should be left with the control of the winding up.'

Finally the Court rejected the application for rectification of the register as it was not beneficial to the company.

11. This case has been commented on by Robert R. Pennington in his Principles of Company Law at page 538, thus :

'But if a transfer is executed after the commencement of the winding up, the Court wilt only order the Liquidator to register it if the transferee's membership would benefit the company or the persons entitled to share in its assets and registration will not be ordered simply because the transferor and transferee are willing that it should take place.'

Similarly in Rustomji's Company Law, 1934 Edn. it is stated at page 485,

'In the case of a sale and transfer of a share in a company after a compulsory winding up order, the transferee is not entitled to be registered as owner of the shares without the sanction of the Court; the Court has power to order the rectification of the register of the members by the insertion of such transferee's name; but the exercise of that power is discretionary, and such an order will not be made unless for strong reasons and for the benefit of the company and those interested in its assets.'

Therefore the decision relied on by the learned District Judge would not at all apply to the facts of this case. The appeals filed by the Official Liquidator C. M. A. Nos. 168, 165 and 167 of 1960 will have to be allowed and they are allowed accordingly with costs.

12. C. M. A. No. 166 of 1960 is preferred against the order passed in I. A. No. 49 of 1959, which was an application filed by three persons (T. S. Krishnaswami Iyer, Rukmani Ammal and Susheela) who obtained a transfer of shares from one L. Balasubramania Sastriar. The said transfer took place during the winding up proceedings and this would offend the statutory provisions contained in Section 227(2) of the Companies Act. The liquidator filed I. A. No. 343 of 1954 and obtained an order against the petitioners in I. A. No. 49 of 1959 for payment of the call money and in pursuance of that order the Liquidator filed E. P. No. 1224 of 1954 on the file of the City Civil Court, Madras, and also served notice on the petitioners. Unfortunately the petitioners agreed to pay the call money in monthly instalments.

Even though they consented to pay the money in instalments, I have to consider whether their names can be removed from the register of shares. It is clear that the transfer of shares was effected after the commencement of the winding up and without the sanction of the Court. This offends Section 227 Clause (2) of the Companies Act. Therefore the learned District Judge was right in directing the removal of the names of the petitioners in I. A. No. 49 of 1959 from the register. C. M. A. No. 166 of 1960 is therefore dismissed.

13. C. M. A. No. 119 of 1960 is preferred by Rajagopal against the order passed in I. A. No. 179 of 1956. He contends that his name should be removed from the register even in respect of the 50 shares originally held by him. I think there is no substance in the appeal filed by him and it has to be summarily dismissed. It is dismissed accordingly.

14. The costs of the Liquidator will come outof the assets of the company.


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