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TMI Blog1999 (2) TMI 660X X X X Extracts X X X X X X X X Extracts X X X X ..... ares of which 175 shares were subscribed in the following manner: Satya Bhusan -- 100 shares Shanti Bhusan -- 25 shares Kanti Bhusan -- 25 shares Phani Bhusan -- 25 shares 5. A return was filed with Registrar of Companies showing the details of the share holding as aforesaid. 6. On 13th January. 1950 Satya Bhusan died at the age of 38 years leaving behind him his widow Roma aged about 26 years and his two daughters, the appellants herein, who were then aged about 5 and 1 1/2 years respectively. 7. After Salya Bhusan's death, a return of allotment was filed on 30th January, 1950 by Shanti Bhusan with the Registrar of Companies. According to this return, prior to Satya Bhusan's death, on 24th December 1949, 500 shares were allotted amongst the six brothers, According to the return of allotment, on 24th December, 1949 the following allotments were made : Satya Bhusan -- 100 shares Shanti Bhusan -- 80 shares Kanti Bhusan -- 80 shares Phani Bhusan -- 80 shares indu Bhusan -- 80 shares Banga Bhusan -- 80 shares 8. Satyabhusan's shares were transferred to his widow who transferred 25 shares each to the appellant. According to the appellants neither they nor t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... share capital of the company. Even if only the balance amount of shares had been allotted, this was violative of section 105C of the Act. .Consequently, whatever the fact, the 1949 allotment was illegal, null and void. According to them neither of the reasons given by the Company Law Board for dismissing the application for rectification were tenable. They have contended that there was no bar to filing a suit, that the scope of the suit was in any event limited as no rectification of the company's share register was asked for and that in any event they were witling to undertake to withdraw the suit. On the question of delay, it was submitted that the Limitation Act did not apply to proceedings before the Company Law Board. As such the application could not be dismissed on the ground of delay. It is further urged that the allotment being a nullity there was no question of delay. Finally it is said that there was in fact no delay as they had come to know of the illegality of the 1947 allotment only in 1996. 12. All the brothers of Satya Bhusan are dead. Their interests are being represented by their heirs. The company, the son of Indu Bhusan (respondent No. 3) and the widow of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res could not be decided in summary proceedings. It is submitted that proceedings under section 111 were summary and disputed questions of fact could not be resolved. It is submitted that the CLB was Justified in not going into the merit of the matters. Several decisions have been cited in this context. It is submitted that CLB had the jurisdiction to refuse to hear the case on merit particularly when there was a pending suit covering the same subject matter. In the circumstances the appellants were not persons aggrieved and in any event the discretion of the C.LB should not be interfered with. 15. On the question of limitation it is argued that the Company Law Board was a court and that the Limitation Act would therefore apply. Reliance has been placed on recent decisions of the Supreme Court being Canara Bank v. Nuclear Power Corporation of India Ltd. : (1995) Supp. 3 SCC 81; M/s. Fair Air Engineers Pvt. Ltd. Anr. v. W.K. Modi ; ; Minoo Mehta v. Shavak D. Mehta . 16. The respondent Nos. 4.5,6 and 7 representing the Estate of indu Bhusan and the respondent Nos. 10, 11, 12 and 14 representing the estate of Phani Bhusan have submitted that the appellants did not have the loc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llenging issuance of shares when such issuance of shares is altogether illegal, null and void, as not maintainable? (f) Whether an application under section 111 can be dismissed by the Company Law Board without going into the merits, on the ground of delay. (g) Whether a pray can be held guilty of delay or laches without first deciding and holding that the party was aware of the impugned allotment of shares. 20. In addition is the question raised by the respondents in their cross objection namely, whether the Limitation Act is applicable to proceedings before the Company Law Board. 21. Finally is the question raised by some of the respondents as to the focus standi of the appellants to file the application under section 111 of the Act at all. 22. The objection of locus standi being preliminary in nature, the same is taken up at the outset before decision. The relevant extract of section 111 of the Companies Act provides : Section. 111. Power to refuse registration and appeal against refusal.- (1)xxxxx (4) if- (a) the name of any person- (i) is without sufficient cause, entered in the register of members of a company, or (ii) after having been entered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rson aggrieved but also any member of the Company may apply to the court for a rectification of the register of members. If the intention of the Legislature was to confine the remedy only to the aggrieved persons as contented by Shri Chagla, then there was no need to add a further category of any member of the company after giving such right to the person aggrieved . The clear provisions, of the section, therefore, militate against accepting the limited construction sought to be placed by Shri Chagla on the provisions of the said section. Secondly, the object of the said provisions does not support his contention. Read as a whole, it appears that one of the intentions of the Legislature is no ensure a register of members, which reflects reality at any particular point of time. That is why the legislature has extended this right to any member of the Company without compelling him to show a particular point of time. That is why the Legislature has extended this right to any member of the Company without compelling him to show a particular or a special prejudice caused to him by an incorrect or a wrong register of members. Hence, to confine the right to file the application only to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter in totality, we find that the petitioners have not been able to satisfy us properly regarding the inaction for about 50 years in moving this petition and as such, on account of delay and laches, this petition should be dismissed despite the inapplicability of the Limitation Act in the proceeding before Company Law Board. Moreover, the petitioners have already pursued alternative remedy by instituting a title suit before the Learned 4th Munsif at Alipore on the self same reliefs, which is now pending before that court. Accordingly, without going into the merits of the various contentions raised by the parties in regard to the impugned allotment of shares made in December, 1949, we dismiss this petition on the ground of inordinate delay and as such the same is not maintainable. 30. The Company Law Board has in fact decided the case on merits. It has rejected the case of nullity as argued by the appellants otherwise delay would not be a relevant factor. It has also been held that the cause of action arose in 1949. Keeping in view the principles enunciated by Supreme Court noted earlier it cannot be said, in the circumstances, that the questions raised by the appellants do not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re under a mandate to offer the new shares in the first instance to its members in proportion to the existing shares held by them (See : R. Mathalone v. Bombay Life Assurance Co. Ltd. ). An obligation is cast upon the directors that if new shares are issued, then they should be offered to the members in proportion to the existing shares held by each shareholder. The object obviously of the section is that there should be an equitable distribution of shares and that the holding of shares by each shareholder should not be affected by the issue of new shares. The section also makes it incumbent upon the directors to inform the share holders of the number of shares to which each share holder is entitled and also limiting the time within which the offer if not accepted would be deemed to be declined [See : Nanalal Zaver v. Bombay Life insurance Co. AIR (1949) Bombay 56.1 The Directors do not have the power to act contrary to this mandate and any issue of shares contrary to this mandate would be invalid. 35. This section has been substantially reproduced in Articles 8, 9 of the Articles of Association of the Company. The Articles of Association of the Company bind both the Company and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g shares in-the Company in 1947. 42. The decision in in re : Calcutta Stock Exchange Assocn. Ltd. militates against the submission of the respondents regarding the scope of allotment. The learned single Judge in construing the requirements of filing a return of allotment under section 75 of the 1956 Act said : allotment of shares has a special technical meaning. It means, in my opinion, division of the entire share capital into definite shares, each of particular value and also of the different classes and an assignment of such shares singly or numerously to different persons. The central core of the word 'allotment' is the notion of a 'lot'. The true meaning of the word 'allot' must, therefore, be first the creation of lots of shares and then the division of them into value and classes and lastly, allocation of them individually or numerously to particular applicant or applicants... 43. The decision of the learned single Judge was affirmed by the Supreme Court in Sri Copal Jalan Co. v. Calcutta Stock Exchange Association Limited . The Supreme Court clarified that in Company Law allotment means the appropriation out of the previously unappropria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecede the issue of shares. 48. Whereas special procedures have been prescribed for allotment and issue of new shares, as far as subscribers to the Memorandum of Association are concerned they are placed in a separate category. Allotment and issuance of shares to the subscribers of the Memorandum takes place and is complete upon registration of the Memorandum. In Ghosh's Indian Companies Act (3rd Edition) at page 115 it has been said that the shares subscribed to by the signatories to the memorandum of association are deemed to be issued when the company is registered and in the case of a subscriber to the memorandum of association neither allotment nor entry on the registry is necessary. 49. This is also the view held in In re : Calcutta Stock Exchange Association Limited (supra) where the learned single Judge said : Subscribers become shareholders without either the mode of transfer or by the mode of allotment. What in fact the law does in their case is that their subscription to the Memorandum takes the place of an application for shares and the registration of the Memorandum operates as the acceptance of the application by the Company. 50. This is clear from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in Ambika Prasad Thakur and Ors. v. Ram Ekbal Rai : AIR 1966 SC 605 para 15 applies only in case where the document correctly reflects a state of affairs. That is the very issue which needs determination by the Company Law Board. 54. The appellants have submitted in support of their argument that there was an over issue of shares that the 1947 issue was totally ignored when the shares were issued in 1949 by referring to the distinctive numbers of the share certificates. If the 1947 issue of 147 shares had been taken into consideration, according to them, the shares should have numbered from 176 onwards. His stated that in fact the share numbering started from 1 in 1949. In fact persons who are not subscribers to the Memorandum of Association in 1947 were issued share certificates bearing distinctive numbers, which according to the appellant clearly showed that there was an over-issue of shares in 1949. That 500 shares were allotted on 24.12.1949. They have referred to the 1950 Return of allotment to establish this which shows : I) Indu Bhusan Bose -- 80 shares -- (formerly holding no shares) II) Phani Bhusan Bose -- 80 shares -- (formerly holding 25 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provision of section 118 of the Limitation Act, 1908 (Now Article 137 of the Limitation Act, 1963) held that time began to run only after the applicant came to know of its right to sue. According to the appellants they came to know of the 1947 allotment and therefore of their right to sue only in 1996. They say that this fact has not been disputed in any of the pleadings filed by the respondents before the Company Law Board. However, the Company Law Board had not come to any finding on this. 60. The scope of section 111 as set out in the notes on clauses in the Bill which preceded the Companies (Amendment) Act, 1988 says that there is no limitation period provided for making the application for rectification of Register of Members under sub-section (4) . [sce : Simret Katytal v. Bhagwan Das Co. (P) Ltd. (1994(1) Com. LJ 442, para 18]. In fact in several decision of the Company Law Board it has been consistently held that the Limitation Act does not apply to applications under section iii [See : Shiv Dayal Agarwal Ors. v. Siddhartha Polyster Pvt. Ltd. (1997) 88 Comp. Cases 705; T. G. Veela Prasad v. Rayalseema Alkalias (1997) 89 Comp. Cases 13: Dr. G. N. Byra Reddy v. Ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cquiescence or laches was insufficient to defeat the right of the applicant under section 155 of the 1956 Act unless there was an abandonment of his right inducing another to change his position to his detriment. In the last case, the applicant would be barred by estoppel. 67. In a case where shares had been transferred by a constituted attorney who was the brother of the share holder without the knowledge of the share holder to the brother's son, a learned single Judge of this High Court held that even if there was some delay that by itself could not deprive the erstwhile share holder of the right to obtain relief under section 155 of the Companies Act, 1956 or rectification of the register as the entire procedure adopted was unfair, unreasonable and surreptitious [See : Farhat Seikh v. Escman Metalo Chemical Put. Ltd. : (1991) 71 Company Cases 88], 68. The Company Law Board did not at all consider the question of delay from these perspectives. The decision of the Company Law Board on this aspect canot therefore stand. 69. We are also of the view that the Company Law Board should not have refused to exercise jurisdiction under section 111 merely on the ground that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t called upon in his work-a-day life to deal with the provisions of the Companies Act to deal with and decide it. (Shri Gulabrai Kalidas Naik v. Shri Laxmidas Hallubhal Patel of Baroda (1978) 48 Com. Cases 438 (Guj.) 73. The nature of the Jurisdiction to be exercised by the Company Law Board under section 111 has been extensively dealt with in the Full Bench decision of Delhi High Court in Amnonia Supply Corporation Private Limited v. Modern Plastic Containers Private Limited Ors, : 79 Comp. Cases 163. The finding of the court were rendered in connection with section 155 of the Act as it then stood and which has been substantially re-enacted in section 111 by the 1988 amendment. In a lucid judgment the Full Bench said : The object of section 155, in our view, is to provide remedy in non-controversial matters or in matters where a quick decision is necessary and can be rendered in order to obviate irreparable injury to a party. Section 155 is ordinarily not intended for settling controversies necessitating a regular investigation and in such cases the company court can decline to entertain petitions in exercise of its discretionary power and say that since serious dispu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 45 said : Even though the proceeding under section 155 of the Companies Act is a summary proceeding, as it is a relief provided under the statute, in a proper and appropriate case, it is open to the court to grant relief even though it may involve complicated questions of law and facts. Whether in a particular case, relief should be granted or not, because the jurisdiction is discretionary as the word used is may in section 155 of the Act, would depend upon the facts and circumstances of the case, but the exercise of Jurisdiction cannot be refused on the ground that it involves complicated questions of law and facts. (See also E. V. Swaminathan. v. KMMA Industries Roadways (P) Ltd. : (1993)1 Com. L.J. 291 (Mad.) and the reasoning of the Company Law Board in Kothari industrial Corpn. Ltd. v. Lazor detergents Put. Ltd.: 1994 Com. Law 617]. 76. In Tracstar Investments Ltd. v. Gorden Woodroffe Ltd.: [1996)87 Com. Cases 941, the Company Law Board itself decided the issue of fraud and collusion under section 111. On appeal to the High Court, it was contended that the summary procedure under section 111 was not the appropriate procedure and that the Company Law Board should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arose in 1949, and that the appellants knew of their right to challenge the 1949 allotment all along. The determination of this issue has pre-empted a decision on the issue of limitation by the civil court and the civil court would be bound to come to a finding that the suit was barred by limitation. 81. According to the appellants this court should decide the issues raised in the application under section 111 as the facts are not in dispute. Several decisions in which the appellants courts power to decide issues left undermined by the Lower Court have been cited. 82. We are not however persuaded to hold that this court should determine the several factual issues left undermined by the Company Law Board in an appeal under section 10F of the Act. 83. Before concluding there are further two aspects of the matter which need determination. The first submission of the respondents that the appellants were not parties aggrieved and as such the appeal could not be filed by them. The decisions cited by the respondents in this context are inapposite namely, Adi Phirozshah Gandhi v. H.M. Seerval and Mani Subrata Jain v. State of Haryana are inapposite. The first decision was rende ..... X X X X Extracts X X X X X X X X Extracts X X X X
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