1941 (12) TMI 21 - HC - Companies Law

Summary

Issues Involved:
1. Rectification of the share register under section 184 of the Indian Companies Act.
2. Legal capacity of a limited liability company to purchase its own shares.
3. Validity of the purchase of shares by a foreign corporation.
4. Estoppel against a company for ultra vires acts.

Issue-wise Detailed Analysis:

1. Rectification of the Share Register:
The applicant sought rectification of the share register by removing his name and substituting it with Messrs. Kothari & Sons, claiming that he sold and delivered the shares to them in April 1938. The affidavit from Kothari & Sons claimed they acted solely as brokers and sold the shares to the Bank, believing the order was for an undisclosed principal. However, it was admitted that the Bank purchased the shares for itself and not for a customer.

2. Legal Capacity of a Limited Liability Company to Purchase Its Own Shares:
The judgment extensively discusses the incapacity of a limited liability company to purchase its own shares, referencing several cases:
- In re Dronfield Silkstone Coal Co. [1881] 17 Ch. D. 76: Held that a company could not purchase its own shares as it goes beyond the memorandum of association, is void on general grounds, and reduces the company's capital.
- Trevor v. Whitworth [1888] 12 Assessee-company 409: Established that a company has no power under the Companies Act to purchase its own shares, making such a purchase ultra vires and void.
- The memorandum of association of the Bank did not authorize the purchase of its own shares, making the transaction ultra vires and void.

3. Validity of the Purchase of Shares by a Foreign Corporation:
The contention that the purchase by a foreign corporation (the Bank) outside its territorial limits would be valid was rejected. The court held that the legal incapacity of a company to purchase its own shares is not dependent on the location of the purchase but is beyond the scope of its constitution. The judgment referenced:
- Lindley on Companies, Vol. 2: Stated that the capacity of a corporation to acquire rights and incur obligations is limited by its objects and must be regarded whenever and wherever the extent of corporate powers is judicially decided.
- Copin v. Adamson [1874] 9 Ex. 345: Established that a shareholder in a foreign company is subject to the law of the country where the company is incorporated.

4. Estoppel Against a Company for Ultra Vires Acts:
The applicant's argument based on estoppel was rejected. The court noted:
- Halsbury's Laws of England, Vol. 13: A corporate body cannot be estopped from denying that it has entered into a contract which it was ultra vires for them to make.
- The purchase of shares by the Bank was ultra vires and void, and thus, the Bank could not be estopped from denying the validity of the purchase.
- The evidence showed that Kothari & Sons were aware that the Bank was purchasing the shares for itself and not for its constituents, negating any basis for estoppel.

Conclusion:
The applications were dismissed. The applicant and H.C. Kothari were held to remain the legal owners of the shares, and their names could not be removed from the share register. The court allowed for the determination of any rights the applicant may have against Kothari & Sons to be referred to a regular suit. The judgment emphasized the importance of the matter to the creditors and permitted their participation in the proceedings.