1983 (6) TMI 135 - HC - Companies Law

Summary

Issues Involved:
1. Rectification of the register of members under Section 155 of the Companies Act, 1956.
2. Legality of forfeiture of shares for alleged losses incurred by shareholders.
3. Applicability of lien on shares for unpaid dues.
4. Jurisdiction and appropriateness of the remedy sought in the petition.

Detailed Analysis:

1. Rectification of the Register of Members under Section 155 of the Companies Act, 1956:
The petitioners sought rectification of the register of members of New Samundri Transport Co. (P.) Ltd., Ferozepur, claiming that their shares were wrongfully forfeited and transferred to other individuals. The petition was initially filed by eight petitioners, but due to various reasons, it proceeded with five remaining petitioners.

2. Legality of Forfeiture of Shares for Alleged Losses Incurred by Shareholders:
The core issue was whether the shares could be forfeited for losses incurred by shareholders while managing the company. The petitioners argued that the forfeiture was neither justified under the law nor under the articles of association, and no notice of forfeiture was served. They contended that the forfeiture procedure under regulations 29 to 35 was not followed, rendering the forfeiture void ab initio.

The respondents defended the forfeiture, claiming that the petitioners had incurred significant losses while running the company separately and had not paid the due amounts, justifying the forfeiture. However, the court found considerable force in the petitioners' contention that shares could not be forfeited for such losses. The court emphasized that the losses incurred during the period of separation were the company's losses and had to be met out of the company's assets.

3. Applicability of Lien on Shares for Unpaid Dues:
The court examined regulations 9 and 10 of Table "A", Schedule I of the Companies Act, 1956, which deal with the company's lien on shares. Regulation 9 provides that the company has a lien on shares for unpaid dues, but this applies only to shares that are not fully paid up. Regulation 10 allows the company to sell shares on which it has a lien, provided certain conditions are met.

The court concluded that the petitioners could not be considered debtors for the alleged losses, as the losses were incurred by the company during the period of separation. The petitioners' shares were not subject to lien for these losses, and the board of directors could not legally forfeit the shares without determining individual liabilities and providing separate notices.

4. Jurisdiction and Appropriateness of the Remedy Sought in the Petition:
The respondents argued that the petitioners should seek their remedy in a civil court due to the involvement of complicated questions of fact. However, the court found that no complicated questions of fact were involved and that the matter could be decided on a pure question of law. The court rejected the respondents' contention and held that the petition was appropriately filed under Section 155 of the Companies Act, 1956.

Conclusion:
The court allowed the petition, directing that the names of the petitioners be restored in the register of members and the names of the respondents be deleted. The necessary rectification in the register of members was ordered without any costs.