1968 (6) TMI 39 - HC - Companies Law

Company Service of documents on members by, Shares Power, to issue of at discount, Company Service of documents on members by, Power of court to rectify register of members

Summary

Issues Involved:
1. Validity of the forfeiture of shares.
2. Entitlement to damages.

Issue-wise Detailed Analysis:

1. Validity of the Forfeiture of Shares:

The appellants challenged the forfeiture of their shares, claiming it was illegal due to non-compliance with the procedure prescribed in articles 39 to 42 of the company's articles of association. They argued that the notice required by article 40 was not sent or received, and even if it was, it lacked the necessary particulars and did not specify the place for payment.

The respondent-company countered that the appellants were in default for not paying arrears despite multiple extensions and opportunities. They asserted that the appellants were liable to pay interest on arrears as per article 34, unless exempted by a board resolution. The company also argued that the appellants' claim was barred by limitation and that they were not entitled to any dividends.

The court examined whether the forfeiture complied with the articles of association. It found that exhibit B-3, a notice dated 20th March 1954, was posted to the appellants and presumed to have been received. The court held that the procedure in articles 39 to 42 was followed, and the appellants did not pay the arrears by the extended deadline of 31st May 1954. Therefore, the forfeiture was valid.

The appellants' contention that exhibit B-3 was fabricated was rejected based on the evidence, including the dispatch register (exhibit B-5) and the testimony of R.W. 1, an assistant in the share department. The court also noted that the normal mode of serving notices, as per section 53 of the Companies Act, was by posting, and there was no requirement for registered post unless specified by the shareholder.

The court emphasized that the procedure for forfeiture must be strictly adhered to, but certain aspects like the service of notice and fixing the time and place of payment were considered directory rather than mandatory. The court found that the appellants were adequately informed of the arrears and interest due, and the place of payment was specified as the company's registered office.

The court dismissed the argument that the resolution of 4th March 1954 was prospective, stating that it was a valid resolution for forfeiture based on existing arrears, giving shareholders additional time to pay as a concession.

2. Entitlement to Damages:

The appellants claimed Rs. 40,000 as damages for the alleged illegal forfeiture. However, the court found no merit in this claim. The forfeiture was deemed valid, and the appellants' failure to pay arrears justified the company's actions.

The court also addressed the appellants' delay in taking action, noting that the forfeiture occurred in 1954, but the petition was filed much later. This delay further weakened their case for damages.

Conclusion:

The court concluded that the forfeiture of shares was valid and complied with the prescribed procedure. The appellants were not entitled to any damages. The appeal was dismissed with costs.