1945 (1) TMI 12 - HC - Companies Law

Legal Decision on Share Allotments and Member Status: Register Rectification and Cost Awarded

PV. Damodara Reddi Versus Indian National Agencies Ltd.

The court addressed the validity of share allotments made without proper authority, ruling that once names are entered in the register of members, ... Shares – Allotment of ,Power of court to rectify register of members and Meetings & proceedings - Annual General Meeting Issues:Rectification of share register due to cancellation of allotted shares without proper authority.Analysis:The case involved two applicants who applied for shares in a company and were allotted shares, subsequently removed from the register without proper authority. The company claimed the allotments were invalid as they were made without the consent of the company in a general meeting, as required by the articles of association. The court noted that the removal of the applicants' names from the register was illegal, as there was no provision allowing such alterations without court approval under Section 38 of the Companies Act. The court decided to address the validity of the allotments rather than the removal of names.The company argued that the allotments were void as they were made without the required consent of the general meeting, as per the articles of association. However, the court held that once a person's name is entered in the register of members, they become a member of the company, provided they agreed to become a member. The court found that the applicants had agreed to become members by submitting written applications, which constituted an offer accepted by the company through allotment.The court applied the rule from The Royal British Bank v. Turquand, stating that persons dealing with a company are bound to read the registered documents but need not inquire into the regularity of internal proceedings. The court held that the applicants were entitled to assume regularity in the directors' actions and the general meeting's sanction. Additionally, the court considered the unique circumstances of the company, where all members were directors, and held that the board meeting and general meeting were essentially the same body. Citing a similar case, the court concluded that the unanimous agreement of the members, acting as shareholders, was binding on the company.Based on the above analysis, the court allowed the petitions, directing the rectification of the register by re-entering the applicants' names from the date of wrongful removal. The applicants were also awarded costs for the applications.