1951 (1) TMI 23 - HC - Companies Law

Power of court to rectify register of members and Winding up Liability as contributories of present and past members

Summary

Issues Involved:
1. Validity of the appellant's application for shares.
2. Validity of the allotment of shares to the appellant.
3. Applicability of Section 101 of the Indian Companies Act to private companies.
4. The doctrine of holding out and its implications.
5. The effect of delay in seeking rectification of the share register.
6. The impact of the company's resolution dated 15th June, 1947, regarding forfeiture of shares.

Issue-wise Detailed Analysis:

1. Validity of the appellant's application for shares:
The appellant admitted signing an application for five shares of Rs. 1,000 each in Sri Films Ltd. on 31st March, 1946. However, he contended that he did so nominally and without any intention of taking any shares, merely to lend prestige to the company. The appellant argued that there was no valid application as he did not remit any amount with the application, which he claimed was required under section 101(3) of the Indian Companies Act. The court found that this contention was not raised before Mack, J., and noted that section 101, which applies only to public companies, was not applicable to the private company in question.

2. Validity of the allotment of shares to the appellant:
The appellant argued that there was no valid acceptance of his application and no valid allotment of shares by resolution of the company or the directors. He cited several rulings to support his position that the mere entry of shares in the register of shareholders does not constitute proof of a valid allotment. The court found that the managing agent had the power to allot shares and that there was no need to produce an order of allotment to validate the entry in the register. The court also noted that the liability of a member to be included in the list of contributories arises by reason of their name appearing on the register of members, not by the validity of the allotment.

3. Applicability of Section 101 of the Indian Companies Act to private companies:
The appellant's argument that section 101(1) to (6) should apply to private companies was rejected. The court clarified that section 101 expressly applies only to public companies, and the exclusion of sub-section (7) for private companies did not imply the applicability of the other sub-sections to private companies.

4. The doctrine of holding out and its implications:
The court held that even if there was no valid allotment, the appellant was liable under the doctrine of holding out. This doctrine states that if a person's name is on the register with their consent and they delay in exercising their right to have it removed, they forfeit that right. The court cited authoritative texts and rulings, including a Privy Council decision, to support this position. The appellant's knowledge and inaction for over three years were deemed sufficient to hold him liable.

5. The effect of delay in seeking rectification of the share register:
The court emphasized that the appellant's delay in seeking rectification of the register was fatal to his case. The court referenced Gentle, J.'s ruling that prompt action is required to remove one's name from the register if there are grounds to do so. The appellant's delay of more than three years, coupled with his knowledge of being held out as a shareholder, precluded him from contesting his liability.

6. The impact of the company's resolution dated 15th June, 1947, regarding forfeiture of shares:
The appellant argued that his shares should have been forfeited and his name removed from the register based on the company's resolution. The court found that the shares were not actually forfeited and that the company continued to treat the appellant as a shareholder. The court agreed with Gentle, J.'s ruling that the appellant could not object to being included in the list of contributories based on the unexecuted resolution.

Conclusion:
The appeal was dismissed with costs, affirming the appellant's inclusion in the list of contributories for Rs. 5,000 in respect of his five shares. The court found that the appellant's arguments lacked merit and that his liability was established by his name appearing on the register of members and his failure to act promptly to rectify it.