1938 (6) TMI 9 - Commissioner - Companies Law

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

Issues Involved:

1. Validity of Resolutions
2. Compliance with Section 55 of the Companies Act
3. Estoppel of Objection by Lala Dharam Chand
4. Locus Standi of Mussammat Ram Kaur
5. Permissibility of Additional Reduction in Share Capital

Issue-wise Detailed Analysis:

1. Validity of Resolutions:

The primary issue was whether the resolutions passed by the company were valid. The Court examined the procedural aspects of the meetings held on December 30, 1936, February 21, 1937, and March 10, 1937. The Court found that the meeting of December 30, 1936, was properly convened with the requisite seven days' notice under the old Companies Act and Article 63 of the Articles of Association. The meeting of February 21, 1937, was considered a continuation of the December 30, 1936, meeting, validly adjourned under Article 67. The Court held that the amendments to Section 81 of the Companies Act, which required a 21-day notice, did not affect the February 21, 1937, meeting. The resolutions passed at these meetings were thus deemed valid.

2. Compliance with Section 55 of the Companies Act:

The Court assessed whether the proposal to cancel 45% of the capital amounted to a refund of capital under Section 55 of the Companies Act. The Court noted that Section 55 permits capital reduction, and the company's Articles of Association also allowed for such a reduction. The Court emphasized that the reduction of capital is a domestic matter for the majority's decision, subject to Court confirmation to protect minority interests. The Court found that the reduction was justified based on the re-valuation of assets and the recommendation of the Electrical Inspector, Waziristan District, who suggested that reducing the share capital would lead to satisfactory dividends, formation of a reserve fund, and reduced electricity charges. Thus, the reduction was permissible under the law.

3. Estoppel of Objection by Lala Dharam Chand:

The issue was whether Lala Dharam Chand was estopped from raising objections. The Court noted that Lala Dharam Chand had walked out of the February 21, 1937, meeting and did not participate in the subsequent meetings. Since he did not object at the initial stages and later withdrew from the proceedings, the Court held that he was estopped from raising objections at a later stage.

4. Locus Standi of Mussammat Ram Kaur:

The Court examined whether Mussammat Ram Kaur had the locus standi to question the application. The Court found that Mussammat Ram Kaur, representing her son Kishori, had the standing to contest the application as they were legal representatives of a deceased shareholder. However, since they withdrew their objections, the Court did not delve further into this issue.

5. Permissibility of Additional Reduction in Share Capital:

The Court considered whether it was permissible for the company to reduce the share capital of the late R.B. Rochi Ram Khattar by Rs. 74,000 and Rs. 4,800. The Court found that R.B. Rochi Ram had declared his inability to repay the loan, and reducing his share capital by these amounts was a bona fide action by the company. The Court noted that this form of recovery was in the best interest of the company, as it reduced the burden of unpaid dividends. The reduction was thus sanctioned.

Conclusion:

The Court concluded that the resolutions passed by the company were valid, the reduction of capital was permissible under Section 55 of the Companies Act, and the objections raised were either estopped or withdrawn. The reduction of share capital by 45% and the specific reductions concerning R.B. Rochi Ram Khattar were sanctioned. The petition succeeded without any order as to costs. The Court also expressed strong disapproval of the company's past conduct of lending money to shareholders and recommended that the Registrar, Joint Stock Companies, monitor the company's future dealings to prevent irregularities.

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