1951 (8) TMI 12 - HC - Companies Law

Summary

Issues Involved:
1. Misjoinder of plaintiffs and causes of action.
2. Entitlement to file a representative suit.
3. Validity of the allotment of shares and the right to have names removed from the register of members.
4. Contravention of Section 96(2) and Section 98 of the Indian Companies Act.

Issue-wise Detailed Analysis:

1. Misjoinder of Plaintiffs and Causes of Action:
The court examined whether the suit was bad for misjoinder of plaintiffs and causes of action. It was observed that the plaintiffs had different dates of allotment, dates of call moneys, and dates of application, which distinguished one shareholder's case from another. The court held that the efficacy of each contract would depend on different facts and the conduct of each party vis-a-vis the company. Therefore, the suit could not be brought under Order 1, rule 1, as it involved different claims and facts for each plaintiff.

2. Entitlement to File a Representative Suit:
The court considered whether the plaintiffs were entitled to file a representative suit under Order 1, rule 8. It was noted that identical interest could not be pleaded, and different considerations would apply to each plaintiff. The court found that the nature of the objection taken by each shareholder and whether they had waived it or not would vary. Consequently, the court concluded that the suit could not be treated as a representative suit due to the differing interests and claims of the plaintiffs.

3. Validity of the Allotment of Shares and the Right to Have Names Removed from the Register of Members:
The plaintiffs sought a declaration that the allotment of shares was invalid and requested the removal of their names from the register of members. The court referred to the relevant sections of the Indian Companies Act, particularly Section 38 (rectification of the register) and Section 102 (voidable contracts). It was determined that there was no clear submission in the plaint that the contract had been avoided by the plaintiffs. The court cited the case of Blair Open Hearth Furnace Company Limited, In re, which established that once a statement in lieu of prospectus is filed, the company can proceed to allotment despite any misstatements or omissions. The court found no evidence that the plaintiffs had rescinded the contract within the stipulated time, thus the allotment was not invalidated.

4. Contravention of Section 96(2) and Section 98 of the Indian Companies Act:
The plaintiffs argued that the issuance of application forms for shares without a prospectus contravened Section 96(2), making the contracts void. The court analyzed the provisions of Sections 96, 98, and 102 of the Act. It was concluded that Section 96(2) imposed a penalty for issuing forms without a prospectus but did not affect the contractual relationship between the shareholder and the company. The court emphasized that the contract could still be valid despite the contravention, as Section 102 only made such contracts voidable, not void. Therefore, the plaintiffs' argument that the contracts were void due to the contravention of Section 96(2) was rejected.

Conclusion:
The court dismissed the suit with costs, including the costs of the notice of motion and the chamber summons. The interim injunction was dissolved. The court found that the plaintiffs failed to prove that the company had issued any public invitation for applications for shares, and there was no evidence of avoidance of the contract by the plaintiffs. The suit was not maintainable as a representative suit or under Order 1, rule 1, due to the differing claims and interests of the plaintiffs.