1952 (12) TMI 22 - SC - Companies Law

Supreme Court Restores Trial Court Order on Share Ownership Dispute

The Supreme Court set aside the High Court's judgment and restored the trial court's order, directing the mills to rectify their register by inserting the ... Whether the company had by the conduct of its two members abandoned its right to challenge the forfeiture? Whether the form of the order could not be supported as one validly made under section 38 of the Indian Companies Act? Held that:- In our opinion there is no evidence of abandonment of the company's right to challenge the validity of the purported forfeiture he mills had also reduced its capital by having the face value of the 84,000 shares which had been issued reduced by repaying to the shareholders ₹ 5 in respect of each of those shares. There were, however, 16,000 unissued shares of ₹ 10 each which were not affected by the reduction. While, therefore, it was clearly impossible for the court to direct that the company should be replaced on the register in respect of its original shares, the court could, under section 38, give notice to the persons to whom the shares had been re-allotted or those claiming under them and make them parties to the proceedings and then make an appropriate order for rectification and, if necessary, also direct the mills to pay damages under that section. Principle to the present application under article 181. If article 181 applies then time began to run after the company came to know of its right to sue. It is not alleged that the company had any knowledge of the forfeiture between the 5th September, 1941, when the resolution of forfeiture was passed and the 9th September, 1941, when the company became defunct. After the last mentioned date and up to the 16th February, 1945, the company stood dissolved and no knowledge or notice can be imputed to the company during this period. Therefore, the company must be deemed to have come to know of its cause of action after it came to life again and the present application was certainly made well within three years after that event happened on the 16th February, 1945. If article 181 does not apply then the only article that can apply by analogy is article 120 and the application is also within time. In either view this application cannot be thrown out as barred by limitation. The result, therefore, is that this appeal must succeed. We set aside the judgment and decree of the High Court in appeal and restore the order of the trial court. Issues Involved:1. Rectification of the register of Jawahar Mills Ltd.2. Validity of the forfeiture of shares.3. Application of estoppel, acquiescence, and laches.4. Limitation period for the application.5. Form of the order for rectification.Detailed Analysis:1. Rectification of the Register of Jawahar Mills Ltd.The case arose from an application under Section 38 of the Indian Companies Act by the Official Receiver representing Sha Mulchand & Company Ltd. (in liquidation) to rectify the register of Jawahar Mills Ltd. The company sought to have its name restored to the register in respect of 5,000 shares that had been forfeited by the mills.2. Validity of the Forfeiture of SharesThe forfeiture of the 5,000 shares was contested on the grounds that the notice dated 15th March 1941, which was posted on 17th March 1941 and delivered on 20th March 1941, did not conform to Articles 29 and 30 of the company's Articles of Association requiring 14 clear days' notice. Both the trial court and the appeal court found the forfeiture invalid. The appeal court, however, considered whether the forfeiture was void or merely voidable and whether the company had waived its right to challenge it.3. Application of Estoppel, Acquiescence, and LachesThe mills argued that the company was precluded from challenging the forfeiture based on estoppel, acquiescence, and laches. Both the trial court and the appeal court rejected these defenses. The appeal court introduced the concept of abandonment of the right, suggesting that the conduct of the company's two members had induced the mills to believe that the forfeiture was accepted, thus precluding the company from challenging it. However, the Supreme Court found that no such plea of abandonment had been raised initially and that the facts did not support such a plea. The court emphasized that abandonment of right is akin to estoppel and requires evidence of conduct leading to a change in position to the detriment of the other party.4. Limitation Period for the ApplicationThe mills contended that the application was barred by limitation. The trial court and the appeal court held that Article 49 of the Limitation Act did not apply and that Article 120, which prescribes a six-year period, would apply by analogy. The Supreme Court agreed, stating that the application was within time as the company was dissolved from 9th September 1941 to 16th February 1945 and could not have known about the forfeiture during this period.5. Form of the Order for RectificationThe trial court directed the mills to rectify the register by inserting the company's name as the owner of 5,000 unissued shares and required the company to pay Rs. 25,000 for the calls in arrears. The appeal court reversed this decision, questioning the consent of the mills' advocate to the form of the order. The Supreme Court found that the mills' advocate had agreed to the form of the order without prejudice to the mills' right to appeal on the merits. Therefore, the mills could not challenge the form of the order if they failed on the merits.Conclusion:The Supreme Court set aside the judgment of the High Court and restored the order of the trial court, directing the mills to rectify their register by inserting the company's name as the owner of 5,000 unissued shares and requiring the company to pay Rs. 25,000 for the calls in arrears. The appeal succeeded, and the appellant was entitled to the costs of the appeal in the High Court and the Supreme Court.