1951 (3) TMI 16 - HC - Companies Law

Promoters denied special benefits in share sale proceeds under Article 100. Legal ruling clarifies entitlement rules.

The High Court ruled that promoters were not entitled to special benefits under Article 100 from the sale proceeds, as they were considered capital, not ... Winding up - Distribution of property of company Issues Involved:1. Entitlement of promoters to special benefits under Article 100 in the absence of a declared dividend.2. Claim of special benefits by promoters who have sold their shares.3. Entitlement of legal representatives or assignees of deceased promoters to special benefits.4. Procedure for dealing with shareholders whose whereabouts are unknown or who are deceased without legal representatives claiming their shares.Issue-wise Detailed Analysis:1. Entitlement of Promoters to Special Benefits Under Article 100:The court examined whether promoters could claim special benefits under Article 100 of the company's articles of association without a declared dividend. The court below had held that promoters were entitled to these benefits even though the profits were from the sale of the entire estate, not from regular business operations. The High Court, however, found that the price realized from the sale of the estate could not be considered 'profits' within the meaning of the articles and memorandum of association. The court noted that the articles of association did not provide for the distribution of assets post-liquidation, which meant the rules applied only while the company was functioning. Therefore, the promoters were not entitled to special benefits from the sale proceeds, which were considered capital, not profits.2. Claim of Special Benefits by Promoters Who Have Sold Their Shares:The court addressed whether promoters who had sold their shares could claim special benefits. The lower court had affirmed this entitlement. However, the High Court emphasized that the articles of association did not extend special benefits to promoters who no longer held shares at the time of claiming such benefits. The court ruled that the special benefits were tied to shareholding status, and once shares were sold, the entitlement to special benefits ceased.3. Entitlement of Legal Representatives or Assignees of Deceased Promoters:The question was whether legal representatives or assignees of deceased promoters could claim the same benefits. The lower court had answered affirmatively. The High Court supported this view, acknowledging that legal representatives or assignees could step into the shoes of the deceased promoters and claim any benefits that would have been due to the deceased, provided the benefits were valid under the articles of association.4. Procedure for Dealing with Shareholders Whose Whereabouts Are Unknown or Who Are Deceased:The court examined the procedure for handling cases involving shareholders whose whereabouts were unknown or who were deceased without their legal representatives coming forward. The lower court had directed that such amounts be deposited in the Anchal Savings Bank. The High Court modified this directive, stating that the liquidator should deposit unclaimed amounts in the court below to the credit of Company Petition No. 6 of 1120. These funds would then be remitted to the treasury as a Civil Court Deposit, allowing shareholders or their legal representatives to claim the amounts by applying to the court.Conclusion:The High Court allowed the appeals of the liquidator and the ordinary shareholder, ruling that the promoters were not entitled to special benefits from the sale proceeds, which were considered capital. The court directed that unclaimed funds be deposited in the court below and remitted to the treasury, ensuring that shareholders or their legal representatives could claim the amounts in due course. All parties were awarded costs from the assets in the hands of the liquidator.