1974 (11) TMI 67 - HC - Companies Law

Court dismisses rectification application due to share capital reduction without proper resolution

The court dismissed the application for rectification of the register of members as the company reduced its share capital without complying with legal ... Shares capital – Reduction of Issues Involved:1. Rectification of the register of shares.2. Validity of the share allotment to the Mishra group.3. Reduction of share capital without compliance with legal requirements.Detailed Analysis:1. Rectification of the Register of Shares:The petitioner sought rectification under section 155 of the Companies Act, 1956, arguing that certain names were entered in the share register without sufficient cause. The company, Rupak Ltd., had initially allotted 25,000 ordinary shares to the Mishra group, which was later contested in a money suit. The court decreed that the money given by the Mishra group was a loan, not share money, thus making the allotment improper. Consequently, the company agreed to pay back the money and deducted the amount from its subscribed capital in the balance-sheet.2. Validity of the Share Allotment to the Mishra Group:The Mishra group contended that the money provided was a loan, not share capital. The civil court upheld this claim, decreeing the allotment improper. The company appealed but later compromised, agreeing to repay the amount. The petitioner argued that since the allotment was deemed improper, the inclusion of the Mishra group's names in the share register was without good cause. However, the judgment noted that the civil court's decision was not on record, and it was unclear whether the allotment was void or voidable. Despite this, the Rs. 2,50,000 was not considered share money, effectively reducing the issued capital.3. Reduction of Share Capital Without Compliance with Legal Requirements:The Registrar of Companies objected to the reduction of capital without following legal procedures. The company admitted the reduction but claimed it was under a misconception of law. The judgment emphasized that the company had indeed reduced its paid-up capital by Rs. 2,50,000, effectively canceling those shares. The balance-sheet showed this deduction, indicating that the 25,000 shares were deemed non-existent.The judgment referred to section 100 of the Companies Act, 1956, which mandates a special resolution and court confirmation for reducing share capital. The company did not pass any special resolution for this reduction. The judgment cited various precedents, emphasizing that any reduction of share capital must comply with statutory provisions. The company's actions, resulting from a compromise, still required adherence to legal formalities.Conclusion:The court concluded that the company reduced its share capital without following the necessary legal procedures. Therefore, the application for rectification of the register of members was dismissed.