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In Re: M.F.R.D. Cruz, a Shareholder of the The Garland Petroleum Company - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtChennai
Decided On
Reported in(1939)2MLJ122
AppellantIn Re: M.F.R.D. Cruz, a Shareholder of the The Garland Petroleum Company
Cases ReferredCentral Railway Company of Venezuela v. Kisch
Excerpt:
.....has been written in english and all the documents in this case signed by him are also in that language. learned counsel on behalf of the objector has said that the company was in a very bad way from the middle of 1937 onwards and the registered office was difficult to find and for that reason his client took no steps, though he must have known by 1st september, 1937, or shortly after that his name was in the register. if he had at that time a right to repudiate his shares, it was a right which, in my opinion, might be waived ;and if asserted, could not be asserted with effect unless asserted promptly and distinctly. in my view, that contention must fail. by reason of the objector standing by in the way he did, i am quite satisfied that it was with full knowledge that his name was on..........proceedings. rs. 8,000 was paid in the first instance as a first contribution towards the 4,000 shares, namely, rs. 2 per share. the objector is a man of some position and substance who is accustomed to dealing with and engaging in money transactions. having sent to the company an application form for 4,000 shares in june, 1934, and not having had any communication regarding it, one would have expected that he would have written to the company long before the expiration of four years in respect of the money he paid and the non-receipt of shares or non-allotment of shares, unless he had been a party to an arrangement by which he was to have shares transferred to him in place of allotted shares.5. thirdly, the other factors relied upon are that on occasions the objector inspected the.....
Judgment:
ORDER

Gentle, J.

1. This is the objection by Contributory No. 93, Mr. D. Balarama Reddi, against his name being included in the list of contributories. There is also an application by him for rectification of the Company's register of members by removal from the register of his name. His name appears in this register as the holder of 4,000 ordinary shares of the nominal value of Rs. 10 each, representing a total of Rs. 40,000. In respect of this, an amount of Rs. 8,000 has been paid and there remains a liability of a sum of Rs. 32,000. The shares of which he is recorded in the register as the holder were not allotted to him. 3,500 shares were originally standing in the name of one R.S. Pillai and 500 in the name of Ranganatha Mudaliar. The objector contends that none of these shares have been legally transferred to him, that he made an application to the Company for allotment by the Company to him of 4,000 shares, and instead of allotment, the managing director has caused his name to be entered in the register as a transferee. That by reason of those facts he is entitled to have his name removed from the list of contributories.

2. Some time in the early part of the year 1934, it would seem that there were negotiations between the objector and the Company for him to become the Company's district agent for Nellore, Guntur and Cuddapah, the Company proposing to carry on the business of distributing and selling petroleum, motor oil and things of that nature and were contemplating doing this through agents. Negotiations appear to have taken place between the objector and a man named D. Bashiam Naidu. So far as this man is concerned, it was suggested that he was an agent for the objector D. Balarama Reddi; I am however quite satisfied that he was an agent for the Company or for one R.S. Mudaliar who was then its managing director and the guiding authority of the managing agents of the Company. The agreement between the Company and objector is dated 27th June, 1934, under which he is appointed district agent of the districts I mentioned and he is empowered to appoint sub-agents within the territory, and is Ex. A-3. Another document bearing the same date is Ex. A-l, an application form signed by the objector applying for 4,000 ordinary shares in respect of which the application form states that Rs. 2 per share was enclosed. These ordinary shares were payable, as to Rs. 2 on application; Rs. 3 on allotment and the balance in calls of Rs. 2-8-0 each. No shares were ever allotted to him, but his payment of Rs. 8,000 was acknowledged by the Company on 28th June, 1934, by Ex. B-1, a letter addressed to him at his native place in the Nellore District and acknowledges receipt of a cheque for Rs. 7,000 and Rs. 1,000 in cash sent through Mr. D. Bashiam Naidu. The late managingdirector, Mr. R.S. Mudaliar, and a man named Swaminathan who was an accountant or clerk of the Company, have given evidence. They both say that shortly after receipt by the Company of the application form and the sum of Rs. 8,000, the objector called at the Company's premises, and the result of the discussion with Mr. R.S. Mudaliar was that the objector agreed to have transferred to him 4,000 shares instead of the Company allotting to him that number, and Swaminathan adds that the objector himself requested that these shares should be transferred to him. It is now necessary to deal with the origin of these shares. I said earlier that 3,500 shares were standing in the name of one Section Ratnasabhapathi Pillai and 500 in the name of Ranganatha Mudaliar. In regard to the 3,500 block of shares, Mr. R.S. Mudaliar said that the original holder had not the necessary money to pay the application amounts when he obtained these shares. Rs. 2 each in respect of 3,500 shares would amount to Rs. 7,000 and this sum was advanced by him. He also said that he lent to Ranganatha Mudaliar Rs. 1,000 in connection with his 500 shares. The shares of 3,500 were allotted, according to the share registers of the Company, to Section Ratnasabhapathi. Pillai in September, 1933, and if Mr. R.S. Mudaliar is correct in his recollection, the loan by him to that gentleman had been outstanding for nearly a year in June, 1934. Mr. R.S. Mudaliar says that when the objector agreed for a transfer of shares to be made in his name instead of shares being allotted, he himself received the Rs. 8,000 which had been sent to the Company and recouped himself in respect of the loans he had made both to Section Rathnasabhapathi Pillai and Ranganatha Mudaliar. Out of these monies, a sum of Rs. 1,500 was paid to D. Bashiam Naidu as commission on the transaction. Ex. A-4 is the receipt dated 3rd June, 1934, acknowledging receipt of that sum. The receipt states:' Received from C.R. Govind', who was the agent of R.S. Mudaliar. It seems very strange that such a large sum of Rs. 1,500 should be paid as commission in respect of a transaction involving Rs. 8,000 - amounting to about 20 per cent. In my view, what was happening no doubt was, the objector was applying to the Company for shares and sent cash or its equivalent, as the first payment in respect of 4,000 shares. Mr. R.S. Mudaliar seeing an opportunity to recoup himself, did so by devoting the proceeds to himself and instead of there being any allotment by the Company--in which event of course the Company would have received the Rs. 8,000 and not R.S. Mudaliar--he effected the transfers I mentioned. In regard to the Rs. 3,500 there is a transfer form, Ex. A-5. The body of it is in the handwriting of Swaminathan and purports to bear date 1st April, 1935, and it is signed by Section Ratnasabhapathi Pillai alone, no witness attesting. There is no signature of the transferee at all, although in the body of the document, the objector's name as transferee appears. Swaminathan and R.S. Mudaliar explain this by saying that no signature was taken since there was already a signature on the application form. There is no transfer form in respect of the remaining 500 shares. Although the transactions regarding the agreement and the payment in respect of 4,000 shares was made in June, 1934, no transfer was then effected, and the objector's name was not entered in the share registers of the Company until the 1st April in the following' year. In his evidence, the objector denied entirely what R.S. Mudaliar and Swaminathan said regarding the agreement to accept transferred shares instead of an allotment. He said it was some months following the despatch to the Company of his application form that he first visited the Company's premises. If the matter rested there, since there was no allotment and if the objector was not aware that his name was in the register of shareholders as a member of the Company, there is no doubt he would be entitled to have rectification and his name expunged from the register.

3. It is contended by the Official Liquidator that the objector did agree to shares being transferred to him. Although the informality of the method of transfer is not in any way defended, to substantiate that he had knowledge of the transfer to him of 4,000 shares and that his name was in the share register other facts are relied on. Firstly, the interview and incidents in October, 1934, three months following the alleged transactions in June, 1934, the objector went to the Company's premises. By that time, he had been appointed the district Agent and he would then be in a position to appoint sub-agents. Ex. A-2 is the counterfoil receipt book of the Company, the receipts bearing the name of the Company imprinted thereon, in which are four counterfoil receipts, Exs. A-2 (1), (2), (3) and (4) and dated 15th October, 1934.' In respect of all these, R.S. Mudaliar's and Swaminathan's evidence is as follows : The objector arrived at the Company's premises on 15th October, 1934, and requested that the Company should issue four receipts to three persons in order to give those three persons confidence. The counterfoil receipts, Ex. A-2(1), (2) purport to record a payment from j. Sreeramulu of Rs. 200 in respect of each receipt, Ex. A-2 (3) of a like sum from Mr. M. Gopalakrishnamoorthy and Ex. A-2(4) of the same amount from Mr. D. Subbarama Reddi. There is written on each of the four counterfoils that the sums of Rs. 200 were deposits of Rs. 2 per ordinary share. On the back of each counterfoil in pencil in Swaminathan's handwriting are the words 'paid to Mr. Balarama Reddi.' The two witnesses said that the objector informed them that he had arranged to transfer some of his 4,000 shares which he had obtained as transferee to the persons named in the receipts. The amounts in these counterfoils were not entered in any book of the Company, and so far as the Company is concerned, they are obviously fictitious documents, assuming the explanation is correct which R.S. Mudaliar and Swaminathan gave. The total amounts to Rs. 800, Rs. 400 from J. Sreeramulu and Rs. 200 each from the other two. The objector denied there was any such interview or that he made the requests as stated by the other two witnesses. He said he did not take away these receipts or share transfer forms as stated by the two witnesses. In answer to some questions I put he admitted he was negotiating with those three persons for them to become sub-agents of the Company and that he had notified the Company of this. He told me that unless and until he had appointed them as sub-agents there would be no need to send any communication to the party of such appointment. He also said that in respect of sub-agents they would each have to become the holders of 100 shares in respect of each taluq area. He had arranged for the appointment of Gopalakrishnamoorthy and Subbarama Reddi as sub-agents in respect of one taluq each, and Sreeramulu was to be the sub-agent for two taluqs. That means that the last named would, according to the objector's evidence, have to be the holder of 200 shares in respect of which he would have to pay Rs. 400 as application money and the others would each be the holders of 100 shares paying Rs. 200. It does seem to me a very strange coincidence that there should appear in the counterfoil receipt books of the Company the entries which I have mentioned, when no entry in respect of them appears in the books. The inference to be drawn is one of two alternatives, either, that the money which is the subject-matter had been stolen by R.S. Mudaliar or Swaminathan, or the explanation which they have both given. So far as the first is concerned, if one or other or both these persons intended to rob the Company, I think it most unlikely, j to say the least, that they would furnish evidence of this being done by recording in the counterfoil receipts the amounts which had come into their hands and make no entries in the books of the Company, as upon an audit or examination of the books the deficiency would at once become known. It might also be said there is the unlikelihood of receipts being given to persons who have not paid money to the Company but to one of the district agents. I think that the evidence of those two witnesses is corroborated by the evidence given by Mr. Balarama Reddi himself regarding the appointment of sub-agent and that before they could become the sub-agents they would have to obtain 100 shares in respect of each taluq. In the agreement, Ex. A-3, by which the objector was empowered to appoint sub-agents, there is not a word that the sub-agents would have to become shareholders of the Company. There is provision in the agreement for security deposits to be found by those sub-agents and the counterfoil receipts expressly say that the money was paid as Rs. 2 deposit in respect of a number of shares. I think that at this period the objector was trying to pass on some of his shares in order to recoup himself part of the monies he had paid.

4. Secondly, the next facts relied upon are that throughout the period following the transaction, from June, 1934 to April, 1936, when the winding up order of this Company was made, admittedly the objector never once either wrote or orally made a complaint that he had not been given shares for which he had made an application nor did he ask for the return of the Rs. 8,000 which he had paid. His explanation is that several times he saw R.S. Mudaliar at the Company's offices and spoke to him of the commencement of the Company's business and the provision of oil and petrol and other articles and was always put off by being told that shortly supplies would commence. He never made a single complaint in regard to his Rs. 8,000 being retained and his shares not having been allotted. In evidence, he said, as he expected supplies of oil he thought his Rs. 8,000 would be treated as a deposit against supplies. In considering whether one can accept that explanation, one has to bear in mind that before the winding up order he did not take up the position that he was not a shareholder and that Rs. 8,000 had been paid by way of a deposit against supplies or in respect of his agency agreement. Mr. Radhakrishnayya informed me that he was not maintaining that position although this payment of Rs. 8,000 was alleged by the objector to be a deposit in the earlier stages of these proceedings. Rs. 8,000 was paid in the first instance as a first contribution towards the 4,000 shares, namely, Rs. 2 per share. The objector is a man of some position and substance who is accustomed to dealing with and engaging in money transactions. Having sent to the Company an application form for 4,000 shares in June, 1934, and not having had any communication regarding it, one would have expected that he would have written to the company long before the expiration of four years in respect of the money he paid and the non-receipt of shares or non-allotment of shares, unless he had been a party to an arrangement by which he was to have shares transferred to him in place of allotted shares.

5. Thirdly, the other factors relied upon are that on occasions the objector inspected the share register. I think it most unlikely that he would have inspected it. and I am sure it is more unlikely having inspected it once he would do so on other occasions as it is suggested he did. The objector initiated a prosecution against R.S. Mudaliar. It matters not what it was for, save to mention that it was dismissed. The prosecution was in respect of the payment by the objector of Rs. 8,000, and the matters concerning the transaction were investigated by the Sub-Divisional Magistrate who, on 1st September, 1937, delivered judgment dismissing the prosecution. The objector in evidence said that he obtained a copy of this judgment a few days later. Whilst he gave evidence in a vernacular language, I am quite sure he has a good knowledge of English, one of his letters, at least, has been written in English and all the documents in this case signed by him are also in that language. In the course of his judgment, the Sub-Divisional Magistrate said that the Objector had filed this complaint after a long time from the date of Ex. A-3, the agency agreement, to avoid payment of Rs. 32,000, the further liability on the 4,000 shares which stood in the complainant's name in the Company's share register. The objector in evidence said he was unaware that his name appeared in the Company's register as a shareholder. It is quite clear that a day or two fallowing 1st September, 1937, he must certainly have been aware that his name was included as a member of the Company in the share register. In his affidavit in support of his application to rectify the register, he does not say that he was unaware that his name was in the register. What he does emphasise is, he was unaware that he was in the register as a transferee and not as an allottee of shares. The objector took no proceedings or steps at all for the removal of his name from the list of members of the Company. Learned Counsel on behalf of the objector has said that the Company was in a very bad way from the middle of 1937 onwards and the registered office was difficult to find and for that reason his client took no steps, though he must have known by 1st September, 1937, or shortly after that his name was in the register. If he wished to take proceedings, he could have done so and obtained an order for substituted service of proceedings to rectify the register. He did nothing. The winding up order was made in April, 1938, and in the ordinary course, the Official Liquidator made an application to have the list of contributories settled. So far as the facts are concerned, I think the evidence of R.S. Mudaliar and Swaminathan, with regard to Ex. A-2 series the counter foil receipts, is corroborated by evidence of the objector that he had told the three persons whom he appointed as sub-agents they would have to hold 100 shares of the Company in respect of each taluq coupled with the fact that he took no steps and made no complaint throughout a period of nearly four years. I accept their evidence that there was an arrangement by which shares were to be transferred to the objector instead of being allotted. If nothing had been said and nothing had been done, the objector would not have silently stood by. The fact that he took no steps when the criminal complaint was dismissed was because he was already aware his name was on the register. When the criminal proceedings commenced the previous April, he must have been aware of those facts at that time and in my view, he was aware very shortly after 1st April, 1935. Those being the facts, the question is what is the legal position? The objector has stood by for a long time, in my view, knowing that his name was on the register of shareholders and took no steps to have it rectified and his name removed. When a person knows that his name is included in the register of shareholders of a Company and stands by and allows his name to remain he is holding out to the public that he is a shareholder, and thereby he loses the right to have his name removed. This position has been the subject of consideration in a number of English cases, in Scottish Petroleum Company In re (1883) 23 Ch. D. 413 Baggallay, L.J., at page 434, said:

The delay of a fortnight in repudiating the shares makes it, to my mind, doubtful whether the repudiation in the case of a going concern would have been in time. No doubt where investigation is necessary some time must be allowed, as in Central Railway Company of Venezuela v. Kisch (1867) 2 H.L. 99. But where as in the present case, the shareholder is at once fully informed of the circumstances, he ought to lose no time in repudiating.

6. In Sewell's case (1868) 3 Ch. Ap. 131 Lord Cairns, L.J., at page 138, in the course of his judgment, said:

Mr. Sewell, according to the conclusion I have drawn from the facts, did know in the month of May, 1864, that regularly or irregularly, rightly or wrongly, under this authority, he had been put upon the list as a shareholder for 23 shares. If he had any doubt as to the manner in which the authority had been pursued, it was for him to have inquired whether he could have asserted any right against either Mr. Sichel, or Mr. Hankey, or the Company, arising out of the mode in which the authority had been pursued. Whether he could have disclaimed the ownership of these 23 shares may be doubtful, but I assume in his favour that he might have had a case of that kind. It appears to me that not having done so, and being aware that he was held out to the public as the holder of 23 shares, it is too late for him months or years afterwards to enter into that question,

7. In Lawrence's case (1867) 2 Ch. Ap. 412 Lord Cairns, L.J., at page 423, said:

It thus appears that on the 16th of May Mr. Lawrence and his legal adviser had in their hands the whole of the documents the variance between which is the ground of the motion to remove the name of Mr. Lawrence from the register. If he had at that time a right to repudiate his shares, it was a right which, in my opinion, might be waived ; and if asserted, could not be asserted with effect unless asserted promptly and distinctly. No attempt at repudiation took place for upwards of four months, and during this time Mr. Lawrence must be taken, in my opinion, to have known, not merely that his name was on the register, and that he was so held out to the world as a shareholder in and member of the Company, but also that his son was holding communications with, and endeavouring to influence the conduct of, the directors, on the footing of Mr. Lawrence being a shareholder.

8. From these authorities, it is clear that if any person whose name is included in the register becomes aware that circumstances are such that if 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 shareholder of the Company, seek to have his name removed. In the cases which I have quoted, the grounds were that the contract under which the shares were obtained could be set aside as void. Mr. Radhakrishnayya differentiated between the principles in these cases and the present. He contended that the objector applied for 4,000 shares to be allotted to him by the Company and expected to have his name in the share register for that number of shares as allottee. Whilst he might have known that his name was in the register as a shareholder, he thought it was because he was an allottee, and until he received a communication from the Official Liquidator after the winding up started he was unaware that he was a transferee. Since he is on the share register as a transferee and not as an allottee, he is entitled now to have his name removed and the register rectified. In my view, that contention must fail. If he has assented to his name being included amongst the shareholders, then how can he now say:

Since I expected to be included as an allottee and since I find that I am included in another capacity as transferee, I am entitled to have my name removed.

9. The position in the present case is, I think, covered by Bowen, L.J., in Ex parte Sandys (1889) 42 Ch. D. 98 where the learned Lord Justice at page 117, said:

If the case stood there, there would have been an end of the matter. The original contract was not one which could have been enforced, and in giving her the share without attaching the conditions to them, which she made a portion of her offer, the Company were not giving her what she asked for. But the matter does not rest there, and this is just the point of the case. After her name was placed on the register and after she knew that her name was on the register, she did certain acts which were only consistent with an intention on her part to be treated as a member of the Company, and to treat herself as a member of the Company in respect of these particular shares which had been so appropriated to her. If that is not evidence of an agreement to be a member, [really do not know what is. I order goods of one description from a merchant; he cannot compel me to take goods of a different description, and he does not complete his contract by giving me goods of a different description; but if he sends me goods which are not according to the contract and which are not within the description of the contract, and I nevertheless elect to take them, my act with regard to them is evidence of a new contract, which the law will imply, to pay for that which have kept. It is not that I promise in so many words to pay; it is that I do acts from which the law will imply in favour of the opposite party a promise. Here it is not that she kept all these new shares promising expressly to release the Company from the original condition and to pay the entire sum, but she consented to allow her name to remain on the register and to keep the shares although they had not been allotted to her in conformity with the condition which she had imposed in her letter of application.

10. Here, the objector desired to become a member of the Company and to be on the register by having shares allotted to him; he has been included in the register by having shares transferred to him. The contention of the objector fails. In fact, he has in no way been prejudiced because the shares which would have been allotted to him would have had two rupees paid, and that is the position in regard to the share in respect of which he has been included in the register. By reason of the objector standing by in the way he did, I am quite satisfied that it was with full knowledge that his name was on the register by reason of his consent that shares should be transferred instead of being allotted to him.

11. The result is, the Official Liquidator's application succeeds and Mr. D. Balarama Reddi will be included in the list of contributories in respect of 4,000 shares. His application for rectification of the register is therefore dismissed. There will be no order for costs.


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