1949 (3) TMI 24 - HC - Companies Law

Summary

Issues Involved:
1. Validity of the Forfeiture of Shares.
2. Limitation for Rectification of the Register.
3. Delay, Acquiescence, Waiver, and Estoppel.
4. Impossibility of Rectification.
5. Conduct of Shareholders and Corporate Personality.

Detailed Analysis:

1. Validity of the Forfeiture of Shares:
The respondent company challenged the forfeiture of 5000 shares by Jawahar Mills Ltd., arguing it was invalid due to non-compliance with the notice requirements under Article 25 of the company's regulations. The notice was short by one day. The court held that the forfeiture was irregular but not void, making it voidable. The power to forfeit shares must be exercised strictly as per the company's regulations, and any irregularity makes the forfeiture voidable at the instance of the shareholder.

2. Limitation for Rectification of the Register:
There is no specific period of limitation prescribed for rectification under Section 38 of the Companies Act. However, it was agreed that if a suit for rectification is barred by limitation, the relief under Section 38 should be refused. The court applied Article 120 of the Limitation Act, which provides a six-year period for filing such claims. The cause of action accrued on 5-9-1941, and the application was filed on 5-3-1946, within the six-year period, making the claim timely.

3. Delay, Acquiescence, Waiver, and Estoppel:
The appellant argued that the respondent company's delay of nearly five years in seeking rectification disentitled them to relief. The court noted that mere delay is not a bar unless it leads to an inference of abandonment or actual prejudice to the opposing party. The court found no evidence of acquiescence, waiver, or estoppel but emphasized that the long delay caused prejudice to Jawahar Mills Ltd., which had acted on the assumption that the forfeiture was valid.

4. Impossibility of Rectification:
The court highlighted that Jawahar Mills Ltd. had re-allotted the forfeited shares to various persons and reduced its capital with court approval. As the shares were not available in specie, rectification was deemed impossible. The learned Judge's order to substitute 5000 unissued shares for the forfeited ones was found to lack a legal basis. The court concluded that it could not order rectification in the absence of third parties whose rights would be affected.

5. Conduct of Shareholders and Corporate Personality:
The court examined the conduct of the shareholders, who had opposed the restoration of the company in earlier proceedings and acted on the assumption that the forfeiture was valid. The court applied the modern doctrine of "lifting the corporate veil," considering the conduct of individuals behind the corporate entity. The court found that the shareholders' conduct, which caused prejudice to Jawahar Mills Ltd., justified denying the relief sought.

Conclusion:
The appeal by Jawahar Mills Ltd. was allowed, and the order of the learned Judge was set aside. The court directed the refund of the amount paid by the respondent company in compliance with the impugned order. The appeal by Govidarajulu Chetty concerning the forfeiture of 1000 shares was dismissed, as the notice issued met the requirements of the articles and was valid.