1958 (9) TMI 45 - HC - Companies Law

Articles of association - Regulations required in case of unlimited company, company limited by guarantee or private company limited by shares, Company Membership of, Share capital - Further issue of, Power of court to rectify register of members

Issues Involved:
1. Whether the names of the respondents are liable to be removed from the register of members.
2. Whether the petition is mala fide.
3. Whether the petitioner is estopped from challenging the allotment of shares to the respondents.

Issue-wise Detailed Analysis:

1. Whether the names of the respondents are liable to be removed from the register of members:
The petitioner, a director of Minerva Films Limited, sought rectification of the register of members by omitting the names of certain individuals who were allegedly allotted shares in contravention of the Companies Act, 1956, and the Indian Companies Act, 1913. The petitioner contended that the allotments exceeded the authorized 5000 A class shares, totaling 13,250 shares, and that the procedure prescribed in section 105C of the old Act and section 81 of the new Act was not followed. It was argued that shares were not offered proportionately to existing members and proper notice was not given. Additionally, it was claimed that shares were allotted to minors, which the petitioner argued was void.

2. Whether the petition is mala fide:
The respondents alleged that the petition was mala fide, asserting that the petitioner was present and even presided over the meetings where the contested allotments were made, and raised no objections at the time. They argued that the petitioner was a consenting party to all allotments and that the allottees had paid full consideration for the shares. It was also highlighted that the petitioner's objections surfaced only after he lost favor in a general meeting held on 12th October 1957.

3. Whether the petitioner is estopped from challenging the allotment of shares to the respondents:
The respondents contended that the petitioner was estopped from challenging the allotments since he had participated in the meetings and did not object to the allotments at the time. The petitioner's own testimony confirmed his presence and role in the meetings, and that all applications for share allotments were accepted without rejection. The court noted that the petitioner had been the chairman at most meetings where allotments were made and had not raised any objections then.

Judgment Analysis:

Rectification of Register:
The court emphasized that section 155 of the Companies Act, 1956, grants wide discretionary powers to rectify the register of members but is guided by equitable principles. The court cited several precedents, including Bellerby v. Rowland & Marwood's Steamship Company, Limited, and Trevor v. Whitworth, to underline that rectification is not a matter of right but of judicial discretion, exercised only if justice demands it.

Doctrine of Indoor Management:
The court applied the doctrine of indoor management, which protects outsiders dealing with the company from internal irregularities, provided they act in good faith. Citing cases like Royal British Bank v. Turquand and Mahony v. East Holyford Mining Company, the court held that the allottees of the shares were entitled to assume that the directors' acts were within their powers and were not bound to inquire into internal management issues.

Minors Holding Shares:
The court referred to a previous judgment (Diwan Singh v. Minerva Films Limited) where it was held that there was no legal bar to minors holding fully paid-up shares in a joint-stock company, and such transactions were not void due to the minority of the transferees.

Equitable Considerations:
The court found that the petitioner had not demonstrated any prejudice suffered by him or any other shareholder due to the irregular allotments. The court noted that rectifying the register would disrupt the established state of affairs without benefiting the company or its members. The court also observed that the petition appeared to be driven by malice rather than genuine concern for the company's welfare.

Conclusion:
The court concluded that the petitioner had not made out a case for the exercise of judicial discretion in his favor. The petition was deemed mala fide, and all equities were against granting the relief sought. The court decided to maintain the status quo and dismissed the petition with costs, emphasizing that the existing state of affairs should not be disturbed.

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