1971 (11) TMI 109 - HC - Companies Law

Issues Involved:

1. Rectification of the register of members under Section 155 of the Companies Act, 1956.
2. Validity of the allotment of shares to a foreign collaborator.
3. Compliance with the collaboration agreement and Central Government's conditions under the Capital Issues Control Act, 1947.

Detailed Analysis:

1. Rectification of the Register of Members under Section 155 of the Companies Act, 1956:

The original petitions were filed by the petitioner, Punjab Distilling Industries Ltd., seeking rectification of the register of members of Biermans Paper Coating Mills Ltd. (respondent-company) concerning 10,051 fully paid-up equity shares standing in the name of G.H. Dupret (respondent No. 2). The petitioner contended that the machinery supplied by Dupret was almost worthless, and thus, the entry of Dupret's name in the register was without sufficient cause. The Tribunal dismissed the petition in limine, and the petitioner appealed the decision.

The Tribunal's decision was upheld, noting that the jurisdiction exercised under Section 155 is summary and discretionary. The Tribunal found it difficult to assess the true value of the machinery based on a survey report from a German engineer who inspected only 25% of the machinery in November 1965, while the board of directors had already assessed its value in March 1963. The Tribunal concluded that complicated questions of fact requiring technical expert opinion and cross-examination could not be resolved under Section 155.

2. Validity of the Allotment of Shares to a Foreign Collaborator:

The petitioner argued that the initial allotment of 10,051 shares to Dupret was erroneous because the machinery supplied was worthless. The Tribunal found that the resolution passed by the board of directors in March 1963, which included the petitioner's chairman, R.D. Bhagat, as a director, had treated the machinery as worth Rs. 10,05,154. The Tribunal held that it was not justified to entertain a petition for rectification on such grounds under Section 155 due to the complexity of the issues involved.

3. Compliance with the Collaboration Agreement and Central Government's Conditions under the Capital Issues Control Act, 1947:

The second appeal, F.A.O. 11 of 1966, arose from Petition No. 30 of 1965, questioning whether the allotment of shares was inconsistent with the collaboration agreement and violated the conditions imposed by the Central Government. The Tribunal admitted this petition, noting that it raised a pure question of law.

The collaboration agreement proposed issuing paid-up capital of Rs. 30 lakhs, with Dupret allotted shares worth Rs. 10.5 lakhs against machinery. The Central Government's consent letters stipulated that shares not exceeding 49% of the issued capital could be offered to Dupret. The Tribunal found that Dupret's holding was more than 49% of the subscribed capital, thus violating the Central Government's condition. The Tribunal initially declined to admit the petition, citing a pending winding-up petition before the Punjab High Court. However, the High Court allowed the appeal, directing the petition to be admitted and considered by the company judge along with other connected matters.

Conclusion:

The High Court upheld the Tribunal's dismissal of the first petition (F.A.O. 10 of 1966) due to the complexity of the factual issues involved. However, it allowed the second appeal (F.A.O. 11 of 1966) and directed the petition to be admitted for consideration of legal questions regarding the compliance with the collaboration agreement and Central Government's conditions. The case was remanded to the company judge for further proceedings, with an expectation of expedited disposal. There was no order as to costs.

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