TaxTMI 
TaxTMI 
1975 (5) TMI 48
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....so arise for consideration. On the record, as admitted by the O.L., there is only one application for shares which was given the mark "A" initially "C.W.1", has been written on it probably by the Commissioner who was appointed to examine the petitioner as a witness. According to the petitioner the said form of application for shares was signed by him in blank. Many of the columns have been filled in later in type, the form itself being a cyclostyled (typed) one. The figure 50,000 has been written in manuscript in paragraph 1 which speaks of an application for those shares being made after having read the statement in lieu of prospectus relating to equity shares. In paragraph 3 the figure of Rs. 5 lakhs has been entered. Even the manner in which the same was paid is not apparent from it because all the three modes of payment in the form, namely, cash/cheque/draft, appear to have been scored out. What is particularly intriguing is even though a sum of Rs. 5 lakhs was said to have been enclosed along with the form it was stated Rs. 5 per share was payable on application per share of Rs. 10 each, the balance of Rs. 5 per share being payable on allotment. The date has been filled up in....
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....ed on him saying that the company will, in that case, be in great trouble. At the insistence of R-2, the petitioner had agreed to consult his solicitors in Bombay, M/s. Hooseini Doctor & Co. The person, Mr. T. S. Doctor, whom he had consulted, has been examined as PW-5, The solicitor advised the petitioner to obtain some papers and not to sign the draft letter marked "B". The petitioner attended a meeting of the board of directors of the company when the minutes of a previous meeting of the board of directors held on February 28, 1963 (at which he was not present), were read out for confirmation. One of the resolutions at that meeting, dated February 28, 1963, was that 50,000 shares which had been allotted on April 30, 1962, be cancelled. The petitioner was surprised to learn about this for the pretext given for cancellation, namely, that the cheque for the share money had been returned, was false. But the petitioner was assured that the accountant had made a wrong entry and that for this and other acts he had been dismissed. The petitioner was assured that since the allotment of shares had been cancelled there was nothing for him to worry. According to the reply of the O.L. file....
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.... members has a right to rectification, and the company itself recognises that right, it is not essential for a valid rectification of the register that an order of the court should be sought and obtained. I wish to say nothing to encourage directors to carry out rectification of a company's register without an order of the court being obtained in proceedings in which the right to rectification is duly established. The protection of the court's order is in the ordinary case essential to any rectification of the register by the removal of the name of a registered holder of shares, but in this case it was inevitable that the matter should come before the court, because it involved the sanction of the court to the issue of shares at a discount. I am satisfied that no one will be prejudiced, and I shall not require what would be a mere formality, that is to say, a motion to rectify the register". (Emphasis added) Cozens-Hardy L.J. had earlier put the matter thus when he agreed with the other learned judges in In re Sussex Brick Company [1904] 1 Ch. D. 598, 609 (CA): "It seems to me that Mr. Gore-Browne's argument is really based on this hypothesis, that the register of members is a th....
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....g which was void ab initio. In other words, there never was any contract at all. When Baillie made his application and received his certificate he thought that the company he was dealing with was the old Auctioneers' Institute, and those who were acting for the liquidating company knew of this belief and distinctly deceived him. Under circumstances like these there is no contract, as is shown by the observations of Lord Cairns, Lord Hatherley and Lord Penzance in Cundy v. Lindsay [1878] 3 App. Cas. 459 (HL) That being so, Baillie is entitled to the relief which he claims, and it is no objection to his claim that he took no steps to have it declared that he was not under liability before the winding-up took place. It has been suggested that, whatever the effect of Cundy v. Linsday [ 1 878] 3 App. Cas. 459 (HL) may be where the contract is not in writing, where the terms are contained in writing the parties cannot deny that there was a contract. In Cundy v. Lindsay [1878] 3 App. Cas. 459 (ML) what was alleged to be a contract appears to have been in writing. But whether I am right in that view or not, there is not in this case a contract in writing, because there is no contract at al....
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....ntract, should not thereupon assent to the rescission of the contract and rectify the register in an appropriate manner. An order of the court is not necessary in such a case. To this category belong In re London and Mediterranean Bank (known as Wright's case [1872] LR 7 Ch. App. 55), Reese River Silver Mining Co. v. Smith [1869] LR 4 HL 64, 67 and In re Poole Firebrick and Blue Clay Corn-any (known as Hartley's case [1875] 10 Ch. App. 157). In the last mentioned case Lord Cairns L.C. pointed out that an application for rescission could not be made after winding up and, if even made before winding up, the case will have to be proved strictly. In re Hull and County Bank (Burgess's case [1880] 1 5 Ch. D 507 (Ch. D.)) did not allow an application for rescission of shares on the ground of misrepresentation by the promoter after winding up, even though there were sufficient assets in the hands of liquidators. All these cases when examined would be seen to be cases where allotment was made but the same was questioned later. The question, therefore, is whether there was in the present case an allotment of 50,000 shares ? If this question is answered in the petitioner's favour he would no....
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....bers have been given as 16503 to 66502 and there is a credit in respect of Rs. 5 lakhs. It is surprising that if the petitioner had subscribed also for 500 shares (about which there is no dispute) there is no mention of them. On its face the said register is not free from suspicion. Even the presumption which is available under section 164 of the Companies Act, in respect of the register of members, among other documents referred to therein, that it would be prima facie evidence of matters directed or authorised to be inserted therein by the Act would not be available to the official liquidator because the above "Share Account Register" is not the prescribed register of members to which alone the presumption referred to in section 164 applies. The petitioner's liability to be placed as a contributory cannot be fixed, therefore, on the basis of the said "Share Account Register". There is a further difficulty owing to the said entry itself reading that the said sum of Rs. 5 lakhs had been paid. It would not be permissible to fasten any liability on the petitioner as a contributory in respect of those 50,000 shares de hors the said entry which reads that Rs. 5 lakhs had been paid by t....
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....im. If this was not done, there was clearly no acceptance, even if there was an application for 50,000 shares, and hence there was no concluded contract either. It will be appropriate in this connection to look at the auditor's note in the balance-sheet for the period ending 30th April, 1962 (marked as exhibit R.W.-1/A), which reads as follows : "Note 2. 77,500 equity shares have been allotted on 30-4-62 by the directors. The amount due on application and allotment was not received in cash but by cheques. The cheques have not yet been sent to bank for collection and are in the hands of the managing director as uncashed". This report was by the company's auditors, S. P. Chopra & Co. and G. S. Mathur & Co., and is dated May 12, 1962. It may be recalled that on May 2, 1962, the cheque for Rs. 5,000 given by the petitioner was sent to the bank for collection and was cashed. The question naturally arises how if the petitioner had given a cheque for Rs. 5 lakhs in respect of 50,000 shares it was not sent to the bank for being encashed ? The other 27,500 shares are said to have been taken by Bharat Singh (the numbers of whose shares are said to be from 67503 to 94002 according to the m....
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....ppointed as director ; it was stated that the consent of all of them to act as directors had been received in the office. At this meeting an interesting record had been made as item 3 as follows : "It was stated by the manager that the two cheques were returned by the old accountant, Mr. G.S. Bambani to, (i) H.H. Tehri Garhwal, and (ii) S. Bharat Singh which had discrepancies on May 14, 1962, and the same have not been sent back to the company. It was resolved that in the next board meeting they may be requested to return fresh cheques in lieu of those returned to them already, i.e., H.H. Tehri Garhwal for Rs. five lakhs and S. Bharat Singh for Rs. two lakhs and seventy-five thousand". It is necessary to notice in this context that there has been a publication by the manager of the company in the Hinduslan Times dated May 28, 1952, (exhibit P.W.-2/1) that two cheques had been lost by the cashier on his way from the bank to the office ; the two cheques amounted to Rs. 7,75,000 on May 23, 1962. The finder was requested to deposit them in the registered office of the company. It is passing strange how in respect of the two cheques, which were said to have been lost, a record could ....
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....efore, wanted the petitioner to sign a paper asking him to commit himself to the fact that he had been allotted Rs. 5 lakhs worth of shares. He refused to do so but ultimately he agreed to consult his solicitor on account of Singhania's insistence. T.S. Doctor (P.W.-5), solicitor and a partner of Messrs. Hooseini Doctor and Co., Bombay, spoke to the fact that the petitioner saw him some time in the last week of October, 1962, in connection with the letter which the company wanted from him. The draft letter was marked "B". When he was talking to the petitioner, B.B. Lall Singhania also came in whereupon he said he would have to consider ; he asked for certain documents which he had referred to in his letter dated October 27, 1962, to the petitioner. His advice to the petitioner was that he should not sign that draft letter. The letter containing the objection of the Registrar of Companies was also shown to P.W.-5 at the time the petitioner met him. The petitioner told P.W.-5 that he had purchased only 500 shares and that by some mischief an allotment of 50,000 shares had been made in the books of the company. P.W.-5 admitted that the petitioner did not seek his advice as to how to ....
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.... with the promoter. The evidence seems consistent with the petitioner's embarrassment in having become involved in this company as a shareholder and director and not being able to take any hasty or drastic steps. He refused to sign a draft reply as per annexure "B". In this respect he is supported by the solicitor (P.W. 5). If he had agreed to consult his solicitor at Bombay, when the promoter was also present, it was obviously to take legal advice. This is consistent with the petitioner having been anxious to avoid any further injury to himself, especially in the context of the records of the company having been seized earlier by the police, even in June, 1962. On the crucial question whether 50,000 shares had been allotted to the petitioner and whether there was a concluded contract in respect of those shares between members of the company the evidence in this case is not sufficient to support such an inference. Dealing with the powers conferred on the court to rectify the register of members at the stage of settlement of the list of contributories given under the old section 184 corresponding to section 467 of the Act of 1956, A.N. Grover. J. (as he then was), speaking for a D....
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....on. In particular, it may be worth examining, in the light of the evils which the case on hand presents whether stricter provisions concerning the allotment of shares than have been provided even under the Companies (Amendment) Act (41 of 1974) should not be thought of. Part II of the Act has no doubt been the subject of progressive amendment aimed at controlling the evils usually encountered not only in the matter of deposits invited by limited companies (in addition to sections 58A and 58B recently added to the Act by Act XLI of 74), the Reserve Bank (Second Amendment) Act also regulates deposits invited by non-banking financial companies, but also by making provisions in the matter of mis-statements in prospectuses providing for not only civil liability in respect of them (section 62) but also providing penalty (section 63) for fraudulently inducing persons to invest money (section 68) and making personation for acquisition of shares (section 68A). Certain prohibitions regarding allotment of shares (sections 69 and 70) have been imposed ; the legal effect of certain irregular allotments, contravening the above provisions, has also been statutorily stated (section 71); the appli....