9911796707
TMI Blog1972 (10) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... company's books as and when they accrued due, leaving it to the directors to draw it at their convenience. It is the common case of both the plaintiffs that when the total amount payable to each of them as sitting fees came to Rs. 700 the then managing director requested them to agree to accept seven preference shares of Rs. 100 each in lieu of the payment of the sum of Rs. 700, that the plaintiffs, however, were not amenable to that request but that the managing director sent the share certificates for seven fully paid preference shares which the plaintiffs firmly refused to accept and returned and that, therefore, they are entitled to get the entirety of sitting fees of Rs. 2,000 each due to them. The company resisted the suits contending that the suit claims relate to the internal administration of the company and as such it is not maintainable in a civil court. It also contended that though the directors are entitled to a sitting fees of Rs. 100, for every meeting, the company with a view to conserve the little liquid cash it had, approached the directors with a request that they should take preference shares in the company in discharge of its dues to them by way of sitting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed. Exhibits A-8 to A-16 are adjustment vouchers prepared on the same day showing that Rs. 700, towards the value of the seven shares, has been adjusted against the names of the plaintiffs. The trial court, therefore, found that the plaintiffs in both the suits were consenting parties to the allotment of preference shares to them, that they have not chosen to question the resolution in general or the allotment of shares in particular in any of the subsequent meetings held on June 22, 1967, June 22,1968, and July 17, 1969, which they had admittedly attended. It also found that the profit and loss account and the balance-sheet as on March 31, 1969, had been approved and signed by the plaintiffs and that the said balance-sheets showed the total number of shares issued and subscribed which also included the shares allotted to the plaintiffs. It, therefore, held that the plaintiffs are bound by the allotment of the shares and cannot recover the sum of Rs. 700 each adjusted as the value of the seven preference shares allotted to each of them. As regards the balance of Rs. 1,300, the trial court held that the case of the defendant that all the directors of the company agreed not to pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aintiffs to the company seeking allotment of shares. The provisions of the Companies Act nowhere provide that there must be a written application for allotment of shares and, therefore, there can be an oral application for the purpose and an allotment made on the basis of such an oral application. If there has been an oral offer from the plaintiffs for the allotment of shares which had been accepted by the company and if an allotment is made by the company on the basis of that offer, it cannot later on be questioned on the ground that there was no application in writing. In this case the plaintiffs were in the position of creditors of the company, and in the meeting of directors held on March 10, 1967, by a unanimous resolution the allotment has been made and the plaintiffs' accounts had been debited with the value of the shares. It is also significant to note that even the share certificate numbers allotted to the plaintiffs have been given in the resolution as against their names. Admittedly, the plaintiffs attended the meeting and participated in the proceedings, and the plaintiffs have nowhere stated that there was no such unanimous resolution. Even in exhibits A-3 and A-4 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duct of the plaintiffs at the time of the passing of the unanimous resolution and subsequently shows that they were willing parties for the allotment of shares If the shares had been allotted against their will, they would have questioned the same in the various meetings held subsequent to March 10, 1967, but in all the subsequent meetings they have not demurred and they have been approving the minutes as well as balance-sheets prepared after such allotment. It appears that the plaintiffs willingly agreed for the allotment of the shares on March 10, 1967, but have chosen to resile from the contract for allotment of shares with some ulterior motive. I do not, therefore, agree with the finding of the lower appellate court that the plaintiffs are not bound by the resolution to which they were parties. Jones v. Bellegrove Properties Ltd. [1949] 1 All E.R. 498 (K.B.) was a ease where the plaintiff lent a certain sum in 1936 to a company in which he was a shareholder. At the annual general meeting of the company held on December 31, 1946, at which the plaintiff was present as a shareholder, the accounts for the years 1939 to 1945 were presented. In an action by the plaintiff to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares on March 10, 1967. The above provision deals with a special situation where the directors have been given the discretion to allot shares in lieu of payment of dues to the various creditors. Such an allotment of shares cannot, in my view, come under the scope of section 81 of the Companies Act. That section applies when the company proposes to increase its subscribed capital by allotment of shares to the public. It cannot be said that in this case there has been an issue of further capital for the company. What has been done is only to tide over the financial difficulties of the company by allotting preference shares to all the creditors who were also directors of the company. In such circumstances where the shares are treated as paid up by adjusting the amounts due by the company to the various creditors, section 81 cannot have application. Thus the view of the lower appellate court that the resolution is hit by section 81 of the Companies Act appears to be erroneous. Besides, even if the allotment of shares is held to offend section 81, still it will only be voidable at the instance of shareholders who could be aggrieved against the non-allotment of shares to them. A share ..... X X X X Extracts X X X X X X X X Extracts X X X X
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