1976 (5) TMI 79 - HC - Companies Law

Summary

Issues Involved:
1. Validity of the forfeiture of shares.
2. Preliminary objections regarding delay and maintainability of the petition.
3. Compliance with Articles of Association regarding notice requirements.
4. Consequences of the forfeiture and subsequent sale of shares.
5. Allegations of mala fide intent and benami ownership.

Issue-wise Detailed Analysis:

1. Validity of the Forfeiture of Shares:
The primary issue in this case was whether the forfeiture of the petitioner's shares by the respondent-company was valid. The petitioner claimed that the forfeiture was illegal and violated Articles 42, 43, and 45 of the company's Articles of Association. The court found that the company did not comply with the requisite notice requirements stipulated in these articles. Specifically, Article 42 requires a notice to be served on the shareholder to pay unpaid calls, and Article 43 mandates that the notice should specify a date at least 14 days after the notice for payment. Article 45 requires a notice of the resolution of forfeiture to be given to the member. The court concluded that the company failed to make adequate inquiries to ascertain the correct address of the petitioner, especially when the petitioner was the daughter of the managing director. This failure to serve proper notice rendered the forfeiture void.

2. Preliminary Objections Regarding Delay and Maintainability of the Petition:
The respondent-company raised preliminary objections, including the significant delay in filing the petition and the maintainability of the petition itself. The petition was filed in April 1975, while the forfeiture occurred about ten years earlier. The court acknowledged the delay but referred to precedents stating that mere laches or delay would not disentitle a shareholder to equitable relief. The court also addressed the respondent's claim that the petition was not signed by the petitioner but by someone else who forged her signatures. The court accepted the petition as valid, noting that the petitioner's affidavit accompanied the petition and she resided in America.

3. Compliance with Articles of Association Regarding Notice Requirements:
The court emphasized the strict compliance required for forfeiture of shares as per the Articles of Association. The respondent-company's claim that the notice was sent but returned unserved was deemed insufficient. The court held that the company was bound to make proper inquiries regarding the shareholder's address. The failure to serve the notice properly, especially given the relationship between the petitioner and the managing director, indicated an attempt by the company to forfeit the shares improperly.

4. Consequences of the Forfeiture and Subsequent Sale of Shares:
The court examined the consequences of the improper forfeiture and the subsequent sale of the shares. Article 56 of the Articles of Association states that the validity of the sale shall not be impeached by any person, and the remedy for any aggrieved person shall be in damages against the company exclusively. The court interpreted this to mean that while the sale to third parties could not be invalidated, the petitioner must still be recognized as a shareholder if the forfeiture was invalid. The company was directed to restore the petitioner's name to the register of members for the forfeited shares, and the company could re-allot other shares to the purchasers.

5. Allegations of Mala Fide Intent and Benami Ownership:
The respondent-company alleged that the petition was filed with mala fide intent and that the shares were claimed to be benami by the petitioner's father, Shri K.C. Aggarwal. The court dismissed these allegations, stating that the petition should be judged on its own merits. The court found no evidence of mala fide intent merely because Shri K.C. Aggarwal appeared in court. The court noted that the company could not claim the shares belonged to neither the petitioner nor Shri K.C. Aggarwal. The forfeiture was deemed invalid regardless of the ownership claim, as proper notices were not sent.

Conclusion:
The court allowed the petition, directing the respondent-company to restore the petitioner's name, Miss Promila Aggarwal, to the register of members for the 1,738 preference shares. The company was permitted to enforce any outstanding calls on these shares. The court rejected all preliminary objections and did not award costs to the petitioner due to the delay in filing the petition.