1962 (4) TMI 39 - HC - Companies Law

Summary

Issues Involved:
1. Allotment of new shares by Jay Engineering Works Limited.
2. Rectification of the register of members.
3. Rights of the petitioner as the holder of shares.
4. Validity of renunciation of new shares by previous holders.
5. Legal interpretation of "holder" vs. "member" under Section 81 of the Companies Act, 1956.
6. Bona fide purchaser for value without notice.

Issue-wise Detailed Analysis:

1. Allotment of New Shares by Jay Engineering Works Limited:
The petitioner requested that Jay Engineering Works Limited allot new shares issued by a resolution dated January 13, 1961, corresponding to the 500 shares held by the petitioner. The company had passed a resolution on October 15, 1960, for increasing share capital and another resolution on January 13, 1961, offering right shares at a ratio of two shares for every three shares held.

2. Rectification of the Register of Members:
The petitioner sought rectification of the register of members to include their name as the registered holder of the new shares corresponding to the 500 shares. The petitioner had purchased these shares in June 1960, and the shares were registered in the name of the petitioner by February 27, 1961.

3. Rights of the Petitioner as the Holder of Shares:
The petitioner argued that as the holder of the shares, they were entitled to the new shares issued by the company. The court examined the legal definition of "holder" and "member" under the Companies Act, 1956, and concluded that the petitioner, as the holder of the shares at the date of the offer, was entitled to the new shares.

4. Validity of Renunciation of New Shares by Previous Holders:
The previous holders, respondents Nos. 2 and 3, allegedly executed letters of renunciation in favor of respondents Nos. 4 and 5. The court found that the respondent No. 3 had no right to accept the offer of new shares or to execute letters of renunciation, as the petitioner was the holder of the shares at the date of the offer. Therefore, the renunciation by respondent No. 3 was invalid and inoperative, and respondents Nos. 4 and 5 acquired no rights through such renunciation.

5. Legal Interpretation of "Holder" vs. "Member" under Section 81 of the Companies Act, 1956:
The court noted a deliberate departure by Parliament in the language of Section 81, which prescribed that new shares should be offered to "holders" of equity shares rather than "members." The court emphasized that a "holder" may not necessarily be a "member" and concluded that the rights under Section 81 should be enjoyed by "holders" of shares at the date of the offer.

6. Bona Fide Purchaser for Value Without Notice:
Respondents Nos. 4 and 5 claimed to be bona fide purchasers for value without notice. However, the court found that there were no specific averments regarding the consideration paid by the purchasers. The affidavits were silent on the amount paid or the consideration that passed from the purchasers to the sellers. Consequently, the court did not entertain the plea of bona fide purchase for value without notice.

Conclusion:
The court ordered in favor of the petitioner, directing Jay Engineering Works Limited to allot the new shares to the petitioner and rectify the register of members accordingly. The petitioner was awarded costs from respondents Nos. 2 to 5, while the company was to bear its own costs.