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Vidyasagar Cotton Mills Ltd. Vs. Mt. Nazmunnessa Begum - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKolkata High Court
Decided On
Case NumberA.F.O.O. No. 195 of 1961 (Co. Petn. No. 25 of 1961)
Judge
Reported inAIR1965Cal34,68CWN702
ActsCompanies Act, 1956 - Sections 111, 155 and 155(1); ;Companies (Amendment) Act, 1960
AppellantVidyasagar Cotton Mills Ltd.
RespondentMt. Nazmunnessa Begum
Appellant AdvocateSamaren Sen, ;R. Chaudhuri and ;Mookerjee, Advs.
Respondent AdvocateS. Choudhury, ;R.C. Deb and ;S.C. Ghosh, Advs.
DispositionAppeal dismissed
Cases ReferredRajahmundry Electric Supply Corporation Ltd. v. A. Nageswara Rao
Excerpt:
- .....and her son mohamad riaz is the holder of another 7,881 fully said up ordinary shares. mohamad basir, nazmunnessa and one manzoor ahmed were the directors of the managing agents company. upon the death of mohamad basir, on or about the 14th march, 1960 nazmunnessa was appointed the managing director of the managing agents company and manzoor ahmed, as the nominee of the managing agents company became an ex officio director of the appellant company. on the i7th march, 1960 nazmunnessa was co-opted as the director of the appellant company in place of mohamad basir. nazmunnessa, manzoor ahmed and several other persons are at present the directors of the appellant company. on the 24th december, 1960 the board of directors of the appellant company resolved to hold the annual general.....
Judgment:

Bachawat, J.

1. This is an appeal by the Vidyasagar Cotton Mills Ltd. from an order directing rectification of its share register. The subscribed capital of the company consists of 1158 cumulative preference shares and 70,277 ordinary shares. The company is managed by its managing agents Messrs. United Commercial Agents (Private) Limited. 11,825 fully paid up ordinary shares and 591 fully paid up cumulative shares of the company stood in the name of one Mohamad Bashir. Mohamad Basir died intestate on the 11th, March, 1960 leaving behind him his widow Nazmunnessa Begum and other persons as his heirs. Nazmunnessa as administratrix to the estate of Mohamad Basir applied for rectification of the share register by placing her name therein in place of Mohamad Basir. It appears that Nazmunnessa in her own right is the holder of 7,800 fully paid up ordinary shares and her son Mohamad Riaz is the holder of another 7,881 fully said up ordinary shares. Mohamad Basir, Nazmunnessa and one Manzoor Ahmed were the directors of the managing agents company. Upon the death of Mohamad Basir, on or about the 14th March, 1960 Nazmunnessa was appointed the managing director of the managing agents company and Manzoor Ahmed, as the nominee of the managing agents company became an ex officio director of the appellant company. On the I7th March, 1960 Nazmunnessa was co-opted as the director of the appellant company in place of Mohamad Basir. Nazmunnessa, Manzoor Ahmed and several other persons are at present the directors of the appellant company. On the 24th December, 1960 the Board of directors of the appellant company resolved to hold the annual general meeting on the 9th February, 1961. Nazmunnessa was a party to this resolu-tion. The notices of the meeting issued by order of the board stated that amongst other persons Nazmunnessa offered herself for reappointment as a director, and that the share transfer book of the appellant company would be closed from the 26th January to the 9th February, 1961. On the 20th January, 1961 Nazmunnessa obtained a grant of the letters of administration to the estate of Mohamad Basir. On the same date her attorneys wrote to the appellant company requesting registration of the shares formerly held by Mohamad Basir in her name. The original sharescrips, the original letters of administration as also a separate notice signed by Nazmunnessa intimating her election to be registered as the holder of the shares were duly lodged with the appellant company. The letter dated the 20th January was received by the appellant company on the 21st January. The 21st, 22nd, 23rd and 26th January were holidays. It may be mentioned that in the letter dated the 20th January Nazmunnessa's attorneys stated that the shares held by Mohamad Basir were a substantial portion of the ordinary shares of the company having voting rights and that Nazmunnessa desired that her name should be recorded in the register of the company in time to enable her to vote at the next general meeting of the company to be held on the 9th February. Nazmunnessa as the managing director cf the managing agents of the company purported to call a meeting of its board of directors on the 25th January to consider her application for rectification of the share register. There is some dispute as to what precisely happened at the meeting. The case of the appellant company is that the meeting had not been duly convened because Manzoor Ahmed and Altap Hossain two of the directors had not been given due notice of the meeting and also because the requirements of Article 45 of the Articles of Association of the company had not been complied with. In spite of this meeting the appellant was unable to obtain rectification of the share register. The snare register remained closed from the 26th January upto the 9th February. The closure was not in accordance with law because the requisite notice under Section 154(1) of the Companies Act, 1956 had not been given. On the 28th January the appellant company wrote to Nazmunnessa's attorneys stating that her application would be placed at the next meeting of the board of divectors. The letter added that the share transfer book of the company had been closed from the 26th January up to the 9th February both days inclusive as the annual general meeting of the company was due to be held on the 9th February. It appears that the company had in the meantime received two letters one from Manzoor Ahmed dated the 29th December, 1960 and another from his advocate dated the 27th January, 1961 claiming that Manzoor Ahmed was entitled to registration of his name in the register of members as a co-sharer of the shares standing in the name of Mohamad Basir. Nazmunressa moved her application for rectification of the share register on the 30th January, It appears that she received the letter of the appellant company dated the 28th January after her application was filed in court. On the 8th February, S. P. Mitra, J., passed an order restraining the company and its directors from holding the annual general meeting on the 9th February except for the purpose of adjourning the same and directing the company to held a meeting of its board of directors on the 14th February for the purpose of considering the application of Nazmunnessa for rectification of the share register and taking a final decision thereon and giving liberty to file further affidavits. An appeal by the company from this order has been dismissed. Further affidavits were filed pursuant to the directions given in the order dated the 8th February. From those affidavits it appears that Manzaor Ahmed had applied on the 14th February for revocation of the grant of letters of administration of the estate of Mohamad Basir deceased to Nazmunnessa. On the 14th February a meeting of the board of directors was field pursuant to the order dated the 8th February. The meeting resolved that the application of Nazmunnessa be adjourned till the decision of the court in respect of Manzoor Ahmed's application for revocation of the letters of administration. We are informed by learned counsel on both sides that Manzoor Ahmed's application for revocation of the grant of the letters of administration was dismissed on the 10th April, 1961. An application by Manzoor Ahmed for his addition as a party to the application of Nazmunnessa for rectification of the share register was dismissed by S. P. Mitra, J. on the 24th April, 1961. On the 28th September, 1961 the application of Nazmunnessa was allowed and the court directed rectification of the share register by inserting her name as holder of the shares standing in the name of Mohamad Basir, deceased in his place and stead.

2. In view of Article 1 of the Articles of Association of the company and in view of Section 28 of the Indian companies Act 1956 regulations 25 to 28 of Table A of Schedule 1 of the Act regulating the registration of the transmission of shares must be deemed to be the part of the articles of the Company, there being nothing in its articles to exclude or modify those regulations. Article 24 of Its articles of association defines the powers of its board of directors in case of transfer of shares and reads thus: 'The Board may subject to the right of appeal conferred by Section III decline to register any transfer of shares upon which the Company has a lien, and in the case of shares not fully paid up and may decline to recognise, any instrument of transfer unless a fee of Rs. 2/- is paid to the Company In respect thereof and the instrument of transfer is accompanied by the certificate of the shares to which it relates and such evidence as the Board may reasonably require.' Under Article 28, the company has a Hen on all shares whether fully paid or not for the debts, liabilities and engagements of the members concerned.

3. The shares in dispute admittedly stood in the name of Mohamad Basir. In view of regulation 25 of Table A upon his death his legal representative Is the only person who may be recognised by the company as having any title to his interest in the shares. Nazmunnessa has obtained a grant of letters of administration to the estate of Mohamad Basir and by Section 211 of the Indian Succession Act she Is his legal representative for all purposes and all his property vests in her as such. The legal representative of a deceased member is the legal owner of the shares held by the deceased, but he does not become a member of the company until his name Is put on its register of members. Subject to the powers of the company to decline registration of his name as a member, the legal representative of the deceased member is entitled as between him and the company to registration of his name as a member of the company in respect of the shares held by the deceased. Indeed, under regulation 25 of Table A no other person Can be recognised by the company as having any title to or interest in the shares. Nazmunnessa duly elected to be registered as the holder of the shares as required by regulation 26(1) of Table A. Under regulation 26(2) of Table A the board of directors had in such a case the same right to decline or suspend registration as it would have if Mohamad Basir had transferred the shares berpre his death. In view of Article 24, the board could, therefore, decline to register the transmission of the shares in cases where the company had a lien on the shares and also where such evidence as they might reasonably require was not produced. Nazmunnessa lodged with the company the original grant of the letters of administration to the estate of Mohamad Basir. The board could not reasonably require production of any other evidence in proof of her representative title and in fact did not require any further evidence. At no stage of the proceedings in the court below the company claimed that it had a lien on the shares of Mohamad Basir. There is no pretence of any such claim either in the correspondence or in the resolutions of the board of directors of the company or in the several affidavits filed on behalf of the company. As between the company and herself Nazmunnessa has established a clear legal right to be put on the register of members In. place and instead of Mohamad Basir, deceased. It Is true that Manzoor Ahmed made a claim for registration of his name as a co-sharer in respect of the self-same shares, but on the face of It that claim could not be entertained by the company. The case of Manzoor Ahmed is that the shares were purchased in the name of Mohamad Basir out of joint funds belonging to Mohamad Basir and Manzoor Ahmed's father. Such a claim does not appear to have been made by Manzoor Ahmed during the life time of Mohamad Bastr. The claim, assuming it to be genuine, was that Mohamad Basir held one-half of the shares as a trustee for Manznor Ahmed. If Manzoor Ahmed succeeds in establishing his claim In a court of law, he will be entitled to obtain an order upon Nazmunnessa to convey and transfer one-half of the shares to him. Mohamad Basir was the legal owner of the shares. Under Section 153 of the Indian Companies Act, 1956 no notice of any trust, express or Implied or constructive, can be entered in the register of members. In view of regulation 25 of Table A only Nazmunnessa as the legal representative of Mohamad Basir can be recognised by the company having any title to or interest in the shares. It is not pretended that Manzoor Ahmed is his legal representative. In these circumstances Nazmunnessa has fully made out her title to the shares and her right to have her name entered as a member in the register of members.

4. But Mr. Sen contends that the court has no power under Section 155 of the Indian Companies Act 1956 as amended by Act LXV of 1960 to pass an order of rectification of the register of members in cases of transmission or transfer of shares. Our attention has been drawn to the definition of 'member' in Sections 41 and 2(27) of the Act and to Section 155(1)(b) which enables rectification of the register of members In cases of default or delay in entering on the register 'the fact of any person having become ....... a member', and It is argued that that a person claiming title to the shares by transfer or transmission cannot claim registration of the fact of his 'having become a member' considering that such a person Is not a member, his name never having been entered on the register of members. Mr. Sen contends that Section 155(1)(b) enables the court to make an order of rectification of the register by entering therein the names of subscribers to the memorandum of association, of the company who became members on its incorporation and whose names have been improperly omitted from the register, but the legislature has deliberately excluded from the purview of Section 155 the cases of persons claiming to be the holders of shares by virtue of transfers or transmissions and such persons can now obtain relief only by appeal to the Central Government under Section 111 or by a separate suit. At first sight Mr. Sen's argument appears to be formidable, but, on a closer examination, it appears to us that the point has no substance. A wide and liberal construction has always been given to Section 38 of the Indian Companies Act, 1913 and to the corresponding sections of the English Companies Acts. It was then well settled that where the name of the transferee or the legal representative entitled to the shares by virtue of a transfer or a transmission had been omitted from the register of members without sufficient cause and there had been default or delay in entering on the register the fact of the transferor of the deceased having ceased to be a member, the case was covered by Section 38 of the 1913 Act Section 155 of the Indian Companies Act, 1956, as it originally stood, made an Innovation by providing in Sub-section (1) (b) for the entry on the register of the fact of any person having become a member. The unamended Section 155(1)(a) corresponded to Section 38 (1) (a) of the Indian Companies Act, 1913 and it was plain that the unamerrded Section 155 (1)(a) and (1) (b) read as a whole, fully covered the case of persons claiming the shares by transfer or transmission. It is to be noticed that Section 155(1)(a), as it originally stood enabled rectification of the register in cases of improper omission of the name of any person whose name had never been entered in the register and also the name of any person whose name had been previously entered In the register. It would, therefore, appear that the provisions of Section 155 (1) (a) and (1) (b), as they originally stood, overlapped to some extent By the 1960 amendment the legislature, therefore, specifically provided in Section 155(1)(a)(ii) for the case of an omission from the register of the name of any person whose name having been entered on the register is without sufficient cause omitted therefrom. The case of the improper omission of the name of a person whose name had never been entered on the register was excluded from the purview of Section 155(1)(a) because it was thought that such a case Is welt covered by Section 155(1)(b). It appears to us that where default is made or unnecessary delay takes place in entering on the register the name of any person entitled to the shares on transfer or transmission, and in omitting therefrom the name of the transferor or the deceased member, there is default or delay in entering on the register the fact of the transferee or the legal representative having became a member and the fact of the transferor or the deceased having ceased to be a member as contemplated by Section 155(1)(b). It is true that a person whose name was never entered on the register has never be-come a member; but if he has the legal right to be a member, and he is entitled to say under Section 155(1)(b) that the company should recognize his membership and make an entry on the register of the fact of his becoming a member and his predecessor in title having ceased to be a member. The provisions of Sections 108 to 111 read with regulation 19 to 28 of Table A of Schedule 1 to the Act show that a person entitled to the shares on transfer or transmission can claim registration of the transfer or the transmission. We cannot imagine that the legislature intended to confine the summary remedy of Section 155(1)(b) to the very few cases of subscribers to the memorandum of association and to exclude from its purview the vast majority of the cases of persons claiming title to the shares by transfer or transmission. Other considerations point to the same conclusion. Under Section 155(3)(a) the court may decide any question relating to the title of any person who is a party to the application to have his name entered in or omitted from the register. The court, therefore, retains its full jurisdiction to deal with all cases of improper entries in or omissions from the register. By the newly introduced Subsection (5) the legislature extended the beneficent provisions of Section 155 to the case of debenture holders. It is plain that the intention of the legislature was to extend the scope, of Section 155 and not to abridge it by Section 467 the court continues to retain the power to rectify the register of members after the winding up of the company. The court has the same power of rectification after winding up under Section 467 as it has before winding up under Section 155. We cannot imagine any court upholding the argument that after winding up, the court is powerless to rectify the register of members by entering thereon the name of a person who became entitled to the shares by transfer or transmission before winding up and by omitting therefrom the name of any person who had before winding up ceased to hold the shares. It may be remembered that Section 38 (1) (b) of the Indian Companies Act, 1913 provided for a case where 'default is made or unnecessary delay takes place in entering in the register the fact of any person having ceased to be a member'. A rigid construction of Section 38 (1) (b) would have meant that a transferor of shares would not be within its purview, since his name continued to be on the register and it could be argued that he was still a member and there was no question of entering on the register the fact of his havi ceased to be a member. The point was noticed in the judgment of Field, J. in the case of Ex parte A. R. Shaw, in the matter of the Diamond Rock Boring Co. Ltd., (1877) 2 QBD 463 at p. 474. Nevertheless it was well settled under Section 38 of the Indian Companies Act and the corresponding sections of the English Companies Act that the cases of transfer and transmission of shares were well within the purview of Section 38 (1) (b). We are satisfied that the case of Nazmunnessa Begum is well covered by Section 155(1)(b) of the Indian Companies Act 1956 and that she is entitled to relief under that section.

5. Under Section 155 of the Indian Companies Act, 1956 as it stood before its amendment in 1960 it was well settled that a person aggrieved by the refusal to register the transfer of shares had two remedies namely, (1) to apply to the court for rectification of the register under Section 155 and (2) to appeal against the resolution refusing to register tinder Section 111, see Harinagar Sugar Mills Ltd. v. Shyam Sunder, : [1962]2SCR339 . We are satisfied that, under the amended Act also the remedy by way of an application under Section 155 as also the remedy by way of an appeal under Section 111 are open to the aggrieved person.

6. Mr. Sen next contended that there has been no default or unnecessary delay within the meaning of Section 155(1)(b) and consequently the court has no jurisdiction to pass the order of rectification under Section 155. On the point of unnecessary delay the practice is well stated in Buckley on the Companies Acts 12th Edition, page 290 thus : 'A transfer to which no objection can be made ought to be confirmed by the Directors at the first meeting at which in the ordinary course of business it can be confirmed, and thereupon registered. If not so confirmed, there is 'unnecessary delay'.' It is difficult to say on the facts of this case that in the ordinary course of business a meeting of the board of directors of the company should have been called before the 30th January, 1961 or that there was an unnecessary delay before the application was launched. The provision of Section 155(1)(b) is, however, attracted not only in the ease of unnecessary delay but also in the case of default. The Section thus covers all cases of improper refusal or neglect. It has even been held that default on the part of the company is not essential, and that if upon deciding the question of legal title it appears that the right name is not registered, there is jurisdiction to rectify (see Buckley on the Companies Acts, 12th Edition, page 233, Ex parte, Ward (1868) 3 Ex 180 and (1877) 2 QBD 463. In the case last cited, the dispute was between two rival claimants and the company did not oppose, whereas in the case before us the company opposes the rectification. It is difficult to say in the circumstances of the instant case that the company was guilty of any default before the application was made. But the court may take notice of events which have happened since the making of the application and afford relief to the parties on the basis of those events where it is necessary to base the decision on the altered circumstances in order to shorten litigation or to do complete justice between the parties, (see Rai Charan v. Biswa Nath, 20 Cal LJ 107 : (AIR 1915 Cal 103). Mr. Sen relied upon the case of Rajahmundry Electric Supply Corporation Ltd. v. A. Nageswara Rao, (S) : [1955]2SCR1066 , where their Lordships of the Supreme Court held that the validity of a petition must be judged on the facts as they were at the time of its presentation and a petition which was valid when presented cannot, in the absence of a provision to that effect In the statute, cease to be maintainable by reason of events subsequent to its presentation. This decision is In no way inconsistent with the principles enunciated by Sir Ashutosh Mukherjee in 20 Cal U 107 : (AIR 1915 Cal 103). The subsequent events' were set forth in the further affidavits filed before S. P. Mitra, J. pursuant to his order dated the 8th February, 1961 and he was entitled to take those facts into consideration. We find that the board of directors of the appellant company had ample opportunity to consider the application of Nazmunnessa and yet they did not take any action except adjourning its consideration. On the 28th September, 1961 when S. P. Mitra, J. passed the order appealed from, there was no justification for not entering the name of Nazmunnessa on the register of members In place of Mohamad Basir. There was thus both a default and an unnecessary delay in entering on the register the fact of her becoming a member and the fact of Mohamad Basir having ceased to be a member. Nazmunnessa had made out a clear title entitling her to have her name entered on the register and It was the duty of the board of directors to make the entry asked for. The board has arbitrarily and capriciously omitted to make the entry.

7. The appeal Is dismissed with costs. Certified for two counsel.

8. Arun K. Mukherjea, J.: I agree.


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