1940 (1) TMI 3 - HC - Indian Laws

Summary

Issues Involved:

1. Validity of the formation of the companies.
2. Validity of the transfer of assets to the companies.
3. Legality of the pre-existing partnerships.
4. Effect of the certificates of incorporation.
5. Impact of minor shareholders on the validity of the company.

Issue-Wise Detailed Analysis:

1. Validity of the Formation of the Companies:
The plaintiff argued that the companies were never validly formed. The Advocate-General contended that the certificates of registration are conclusive evidence of the formation of the companies. The judgment referenced The Queen v. Registrar of Joint Stock Companies, where it was held that a body constituted merely for the purpose of obtaining incorporation is not "duly constituted by law." However, the court found that once a certificate of incorporation is granted, it is not permissible to go behind it, as per s. 24(1) of the Indian Companies Act, 1913. Thus, the court concluded that the companies were validly formed.

2. Validity of the Transfer of Assets to the Companies:
The plaintiff contended that the assets of the pre-existing partnerships were not validly transferred to the companies, arguing that a registered instrument was required under s. 54 or s. 123 of the Transfer of Property Act. The court referred to s. 263 of the Indian Companies Act, which provides that all property of a company on the date of its registration shall vest in the company upon registration. The court held that this statutory transfer does not require a registered document, thus validating the transfer of assets to the companies.

3. Legality of the Pre-Existing Partnerships:
The plaintiff claimed that the pre-existing partnerships were illegal and had no partnership property to vest in the companies. The court considered whether the partnerships had any business as required by the Partnership Act. It was noted that the only transaction contemplated was the conversion of the partnerships into limited companies, which does not constitute a business. However, the court concluded that the legality of the partnerships was irrelevant due to the conclusive nature of the certificates of incorporation under s. 24(1) of the Companies Act.

4. Effect of the Certificates of Incorporation:
The Advocate-General argued that the certificates of incorporation are conclusive evidence of the companies' formation and compliance with the Act. The court agreed, citing Hammond v. Prentice Brothers, Limited, which held that the certificate of incorporation is conclusive and precludes challenges to the legality of the companies' formation. Thus, the court held that the certificates of incorporation are conclusive and cannot be challenged in this suit.

5. Impact of Minor Shareholders on the Validity of the Company:
The plaintiff raised concerns about the validity of the earlier company, as two shareholders were minors at the time of incorporation. The court acknowledged that while the certificate of incorporation is conclusive, it does not validate transfers by individuals incapable of pooling their property. However, it was conceded that a minor can accept a gift through a natural guardian, and the guardian can fulfill conditions if it benefits the minor. The court concluded that the transactions involving minors were valid, as the minors' shares passed to the company, and the minors received a proportionate interest in the company's stock.

Conclusion:
The court dismissed the plaintiff's suit except for her admitted right to a decree for partition. The shares were declared as agreed, and costs were allocated accordingly. The Official Receiver was appointed as the receiver of the properties for partition. The court certified the case as fit for the employment of two counsel.