1935 (11) TMI 19 - HC - Companies Law

Reduction of share capital Application to Tribunal for confirming order, objections by creditors, and settlement of list of objecting creditors and Company Membership of

Summary

Issues Involved:
1. Whether there was any evidence of loss of capital as averred by the company.
2. Whether the resolution passed on 20th January 1935 and confirmed on 4th February 1935 was valid in law.

Issue-wise Detailed Analysis:

1. Evidence of Loss of Capital:

The respondent opposed the company's application on the ground that there was no evidence before the Court of any loss of capital as claimed by the company. The Court referred to the principles laid down by Lord Macnaghten in Poole v. National Bank of China, Ltd., which stated that the jurisdiction of the Court arises whenever the company seeking reduction has duly passed a special resolution to that effect. The Court noted that it is prudent to proceed on some evidence of loss when the reduction of capital is based on the ground that capital has been lost or is unrepresented by available assets. In this case, the Court found clear evidence of loss of capital. The company's petition dated 7th February 1935, verified by Motilal Lath, stated the loss, which was not disputed by Goenka. Goenka's affidavit even acknowledged the loss, attributing it to the mismanagement by the Managing Director. Therefore, the Court concluded that there was sufficient evidence of loss of capital and the learned Judge in the Court below should have acted upon this evidence.

2. Validity of the Resolution:

The respondent also challenged the validity of the resolution on the grounds that certain persons who voted for the resolution were not duly qualified as shareholders. The Court examined the allegations that the transfers of shares made by Motilal Lath to his relatives were not genuine. The Court found that Goenka had not taken any steps to have the register of members corrected under section 38 of the Companies Act, which allows for rectification of the register if names are fraudulently or without sufficient cause entered or omitted. The register of members is prima facie evidence of the matters directed or authorised to be inserted therein under section 40 of the Companies Act. The Court concluded that since no steps were taken to alter or rectify the register, the persons whose names appeared therein were qualified shareholders and entitled to vote at the meetings. Consequently, Goenka failed to show any cause why the company's application for the reduction of capital should not be granted.

Conclusion:

The appeal was allowed, and the order made by Cunliffe, J., was set aside. The prayers contained in the company's petition were granted. The company was directed to bear its own costs in the lower Court, but the respondent was ordered to pay the costs of the appeal to the appellant company.