1963 (5) TMI 30 - SC - Companies Law

Court rules reissue of forfeited shares not an allotment under Companies Act. No return needed for reissued shares.

The court dismissed the appeal, ruling that the reissue of forfeited shares does not amount to an allotment under section 75(1) of the Companies Act, ... What is the meaning to be ascribed to the word ' allotment' occurring in section 75(1) of the Companies Act, 1956 ? Held that:- The word 'allotment' in section 75(1) must be understood without reference to sub-section (5) in the same way as that word in section 104(1) had to be understood without reference to sub-section (4) of that section. It is safer to read sub-section (5) of section 75 as having been enacted ex abundant cautela, that is to say, to prevent any argument being raised that a return has to be filed of the reissued shares forfeited for non-payment of calls. We also agree with the view expressed in the High Court that the reason why only forfeiture for non-payment of calls was mentioned in section 104(4) of the Act of 1913 and section 75(5) of the present Act is, that there has always been a great deal of doubt, as will appear from the difference of opinion in the Calcutta High Court to which we have earlier referred, as to whether there can be any forfeiture of shares except for non-payment of calls which latter case had been expressly provided for by the statute. Appeal dismissed. Issues Involved:1. Meaning of 'allotment' under section 75(1) of the Companies Act, 1956.2. Requirement to file a return for reissued forfeited shares under section 75(1).3. Interpretation of sub-section (5) of section 75.Issue-wise Detailed Analysis:1. Meaning of 'allotment' under section 75(1) of the Companies Act, 1956:The primary issue in this case is the interpretation of the term 'allotment' as used in section 75(1) of the Companies Act, 1956. The section mandates that a company must file a return of the allotment of its shares with the Registrar within a month of the allotment. The appellant argued that the company failed to file this return for reissued forfeited shares. The court examined the term 'allotment' and found that it has not been defined in the Companies Act either in India or in England. However, the court noted that the meaning of 'allotment' is well understood in company law. The court cited Chitty J. in In re Florence Land and Public Works Co., who described allotment as the acceptance by the company of an offer to take shares, thus forming a binding contract. The court also referred to Farwell L.J. in Mostly v. Koffyfontein Mines Ltd., who explained that allotment involves the appropriation of shares from the unappropriated share capital of the company to a particular person. Therefore, the court concluded that 'allotment' in section 75(1) refers to the creation of shares by appropriation from the unappropriated share capital.2. Requirement to file a return for reissued forfeited shares under section 75(1):The appellant contended that the company should have filed a return for the reissued forfeited shares under section 75(1). The company argued that the reissue of forfeited shares does not constitute an allotment and thus does not require a return to be filed. The court agreed with the company, stating that the reissue of forfeited shares is not an allotment within the meaning of section 75(1). The court emphasized that allotment involves the creation of shares from the unappropriated share capital, whereas reissued forfeited shares are already existing shares. The court cited Morrison v. Trustees, etc., Insurance Corporation and Ramwell's case to support the view that the reissue of forfeited shares is a sale, not an allotment. Therefore, no return is required for reissued forfeited shares under section 75(1).3. Interpretation of sub-section (5) of section 75:Sub-section (5) of section 75 states that no return is required for the allotment of shares forfeited for non-payment of calls. The appellant argued that this implies the Act contemplates an allotment of forfeited shares, and thus the word 'allotment' in section 75(1) should include reissued forfeited shares. The court acknowledged the legitimacy of this argument but ultimately rejected it. The court reasoned that sub-section (5) likely originated from a confusion of ideas and should not alter the established meaning of 'allotment' in section 75(1). The court noted that the Companies Act of 1913 did not include a provision similar to sub-section (5) until its amendment in 1936, indicating that the meaning of 'allotment' remained consistent. The court concluded that sub-section (5) was enacted ex abundant cautela (out of abundant caution) to prevent any argument that a return is required for reissued shares forfeited for non-payment of calls. The court also noted that the mention of forfeiture for non-payment of calls in sub-section (5) was likely due to doubts about the validity of other types of forfeiture. Therefore, the court found no reason to interpret 'allotment' in section 75(1) differently due to sub-section (5).Conclusion:The court dismissed the appeal, holding that the reissue of forfeited shares does not constitute an allotment under section 75(1) of the Companies Act, 1956, and thus no return is required to be filed for such reissued shares. The court also clarified that sub-section (5) of section 75 does not alter the established meaning of 'allotment' in section 75(1). The appeal was dismissed with costs.