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TMI Blog1961 (12) TMI 108X X X X Extracts X X X X X X X X Extracts X X X X ..... t Dt. The share capital of the company under its a articles in Rs., one lakh divided in to 500 ordinary shares of ₹ 100 each and 500 preference shares of al like value. It is stated that subsequently the capital of the company was reduced, but no details are now available in regard to the same. In respect of the ordinary shares of ₹ 75 per share had been paid up and what remained due from the members was only ₹ 25 per share. M. A. Khader, the first respondent in O. S. A. No. 55 of 1959, held 13 ordinary shares in the company of the value of ₹ 1300 and M. A. Jabbar, his brother first respondent in the other appeal O. S. A. No. 56 of 1959, held 162 shares of the value of ₹ 16200. 3. Originally the company had four route permits with buses, but due to various reasons three routes with buses had been sold away and the company had only one route with one bus and a spare bus permit at the relevant time. The Regional Transport Officer, condemned even this one bus subsequently as unfit. Therefore, in order to avoid the closing down of the company and to prevent the authorities concerned from taking drastic action against the company and forfeiting the route ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r proceedings in pursuance of the call notice was passed by Balakrishna Aiyar J., on 18-1-1957. Hussain Khan received this letter only on 21-1-1957. 4. Before the Managing Director of the Company received this letter on 21-1-1957, the company issued a notice on 20-1-1957 to all the shareholders informing them that the call amount of ₹ 25 for every share still remains unpaid and calling upon them to pay the call amount at the registered office of the company on or before Wednesday the 30th January 1957 together with interest at six per cent and any expenses that might have accrued by reasons of such non-payment, failing which their shares will be forfeited without further notice and without prejudice to any legal action that may be taken against them for recovering the balance amount due. 5. On receipt of the communication from the first respondent's advocate about the order of stay dated 18-1-1957, the company took prompt steps for vacating the stay and applied to the court for permission to collect the call money from the shareholders as it was absolutely necessary for the company to realise the money for the purchase of a new bus in the place of the condemned bus. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the company had not right to issue that notice especially when there was an order dated 18-1-1957 by Balakrishna Aiyar J., staying all further proceedings in pursuance of the notice dated 3-1-1957. The Board of directors which met on 11-2-1957 and passed the resolution forfeiting the shares was not duty constituted and was incompetent to act. The first respondent herein therefore prayed that the forfeiture of the share should be set aside and also expressed willingness to pay the unpaid call money. 8. The appellant company in its counter stated that money was urgently required for the needs of the company and for replacing with a satisfactory vehicle the bus which was condemned by the authorities as unfit and that when there was reserve balance of capital available to be collected from the shareholders, it would not be in the interest of the company to raise a loan in the open market and borrow at a heavy rate of interest, and that in the interest of the shareholders and in the interests of the company the Board of Directors thought it fit to collect the balance of capital amount from all the share holders to run the company in a prudent manner. They further contended that h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orfeiture is provided in the articles of a company, it is like other powers of Director fiduciary and it is to be exercised for the benefit of the company. When the company forfeits the shares, the shareholder whose shares are forfeited ceases to be a member of the company. He loses the privileges and rights of the membership. The money he paid on the shares is irrecoverable. But on the other hand, he continues to remain liable to pay to the company the moneys which are due and payable by him on the date of forfeiture in respect of his shares and he becomes a qua debtor of the company. Forfeiture, being a penalty and sometime a very sever one, the greatest care should be taken to comply exactly and minutely with all the provisions relating to it in the articles. Any irregularity in the procedure or any departure from the rules laid down however slight will as against the company invalidate the forfeiture. 12. Therefore, this power to forfeit is a trust, the execution of which will be scanned by the court. Where a power of forfeiture exists, it is to be treated as strictissimi juris. A very little inaccuracy in complying with conditions precedent to a forfeiture is as against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egard to forfeiture is thus summarised: In the matter of forfeiture of shares, technicalities must be strictly observed. Accordingly as against the company the shareholders resist forfeiture on the ground that the conditions precedent to forfeiture have not been strictly complied with..... 18. In Handbook of Joint Stock Companies by Gore Browne, 41 Edn, there is the following passage at page 535-536. When a forfeiture is about to be made the directors must see, first, that they have power to forfeit, and, secondly, that they conform very strictly to all the preliminaries prescribed by the articles... Forfeiture must be preceded by all the proper notices, contained in all the matters prescribed by the articles, and giving all the time required, but if the forfeiture is regular, the omission to inform the member, or to strike his name off the register, will not invalidate it. If the notice claiming payment claims too much, a forfeiture based on such notice will be bad; e.g., if interest is claimed from too early a date. 19. Report R. Pennington in his book Principles of Company Law, 1955 Edn., states at page 212: The procedure prescribed for forfeiture must be strictly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he rules of procedure when issuing notice to the shareholders. Therefore learned Judge, (Ramachandra Iyer J.) was right in holding on this ground alone, that, as the notice was defective and did not contain particulars about interest and expenses, the forfeiture of the shares was invalid and should be set aside. We entirely agree with the learned Judge in the conclusion arrived at by him on this point. 22. Mr. Vasantha Pai, learned advocate for the appellant company strenuously contended that the learned judge was in error in allowing the shareholder to raise a point which has not even been suggested or alluded in the pleadings or called to the attention of the party to the action. He referred in this connection to Order 6 Rule Order 6 Rule 1 C.P.C., and Rule 6 of the Companies (Court) Rules, 1959 issued by the Supreme Court. We carefully looked into the pleadings in the case and we cannot say that the share-holder did not at all mention the defects in the notice issued by the company as now pleaded in court. The relevant portion of the pleading on this point is in paragraph 6(a) of the affidavit of Khader, and it is as follows : The steps prescribed before there can be a for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guidance. In the Jawahar Mills Ltd., Salem v. Mulchand and Co. Ltd., MANU/TN/0142/1951 : AIR 1951 Mad 572 , Satyanarayana Rao J., while dealing with a similar point observed at page 97 (of Mad LJ): (at p. 576 of AIR), There is no decided case in the reports in which the validity of a forfeiture was canvassed in a proceeding for rectification. Palmer on Company Law (1942 Edn.) at page 110 refers to the case in 1887 WN 30 as an instance in point, but on a reference to the report the citation does not seem to be correct. 25. Mr. G. Vasantha Pai argues that the trial Judge should not have allowed the shareholders to raise the point at the last moment in a summary proceeding under the guise of an application under S. 155 for rectification of the share register, and should have directed the shareholder to file a regular suit in a civil court to establish their right and to get a declaration that the forfeiture effected by the company is illegal and void. IN support of his contention he relied on the following observations of K. K. Desai J., of Bombay High Court in Jayashree Shantaram Vankudre v. Rajkamal Kalamandir Private Ltd.,AIR 1960 Bom 136 . It is not however, that complic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application. According to him the question is of a complex nature and evidence has to be let in and the point could be decided only in a proper suit brought for the purpose. We do not agree with this contention of the learned counsel. The point is very simple. The question for consideration is whether the notice issued to the shareholders contains all the minute details and particulars and whether the rules and procedure provided in the Act and the Articles of the company have been strictly complies with. No evidence need be let in. Nor do we think that the matter involved is a very complex one. The question whether a party should be referred to a separate suit or not will depend on the circumstances of each case and may be left to the discretion of the court. We think that it is unnecessary to refer the parties to a regular suit because the matter involved is a purely technical one and the question is whether the company has strictly observed all the formalities prescribed while issuing the statutory notice. 26. On the other hand, the learned Advocate General contends that the court has got jurisdiction to set aside the forfeiture when it is not properly made by the company, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when the share-holder files an application for rectification of the register. In Premila Devi's case the Official Liquidator filed an application to rectify the register so as to enable him to place the appellant in that case upon the list of contributories notwithstanding the fact that in the year 1933, the directors of the bank purported to forfeit the appellants shares and removed the appellants' names from the register of members in respect thereof. The Privy Council held that the forfeiture is bad and set aside the forfeiture made by the company and allowed the Liquidator to put the appellants in this list of contributories. This order was passed on the application filed by the liquidator. But the substance of the application was one for rectification of the register. The Judicial Committee set aside the forfeiture order in order to rectify the register of the company. Such a procedure is recognised in the courts and it is immaterial whether it is in the liquidation proceedings or in a proceeding under S. 155 of the Act. 28. In the Jawahar Mills case, AIR 1951 Mad 572 though Satyanarayana Rao J., observed that there is no decided case in the reports in which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d counsel in Clarke and Chapman v. Hart, (1858) 6 HLC 633, and our attention was invited to the following passage in the judgment at p. 656 : The case of mines has always been considered by a court of equity as a peculiar one. The property is of a very precarious description, fluctuating continually, sudden emergencies arising which require an instant supply of capital, and in which the faithful performance of engagements is absolutely necessary for the property and even the existence of the concern. And, therefore, where parties under those circumstances stand by and watch the progress of the adventure to see whether it is prosperous or the contrary, determining that they will intervene only in case the affairs of the mine should turn out prosperous, but determining to hold off if a different state of things should exists, courts of equity have said that those are parties how are to receive no encouragement ; that if they come to the court for relief, its doors shall be closed against them; that their conduct being inequitable, they have no right to equitable relief. Indeed, it has been held in the Garden Gully United Quartz Mining Co., v. Mclister, (1875) 1 AC 39 that mere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He contends that the directors passed a valid resolution in the interest of the company to collect the balance of share money with a view to purchase a bus to replace a condemned bus and that the shareholders were given an opportunity to pay their call money, but they neglected to pay the money to the company. The shareholders are not interested in promoting the interest of the company, but, on the other hand, are very particular to retain their share for their own purposes. The company also filed an affidavit with the permission of this court stating that the shareholder have got motive to retain their shares in spite of the fact that the company offered to purchase their shares at more than the preset market value, that the shareholders are the company's trade rivals and are operating a bus on the route in which the company i s running a service, that they are anxious to see that the company is crippled, that their intention in seeking the reliefs claimed in their application is not bona fide and that they want to retain their shares and, if possible, also corner the other shares with a view to have full control of the company ultimately. No doubt, there are sufficient ..... X X X X Extracts X X X X X X X X Extracts X X X X
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