PETITIONER:
THE PUBLIC PASSENGER SERVICE LIMITED
Vs.
RESPONDENT:
M. A. KHADER AND TWO OTHERS
DATE OF JUDGMENT:
30/08/1965
BENCH:
BACHAWAT, R.S.
BENCH:
BACHAWAT, R.S.
SUBBARAO, K.
MUDHOLKAR, J.R.
CITATION:
1966 AIR 489 1966 SCR (1) 683
ACT:
Companies Act (1 of 1956), s. 155–Scope of.
HEADNOTE:
The respondents were shareholders in the appellant company.
As they did not pay the call money on their shares, a notice
under Art 29 of the Articles of Association was issued and
as the respondents defaulted in the payment demanded, their
shares were forfeited under Art. 30. The respondents filed
a petition under ss. 402 and 237 of the Companies Act, 1956,
and obtained. interim orders directing stay of collection of
the moneys and restraining forfeiture of the shares, before
the forfeiture by the appellant; but, as the call money was
not paid into court as directed the interim order was
vacated and the petition was finally dismissed. Thereafter,
the respondents filed an application under s. 155 praying
that the forfeitures may be set aside -and the necessary
rectifications made in the share register. The High Court
on its original side and in Patent Appeal allowed the
application, holding that the notice under Art. 29 wag
defective and therefore the forfeiture was invalid.
In the appeal to this Court,
HELD : The forfeiture was invalid, and therefore the names
of the respondents were omitted from the share register
without sufficient cause and the jurisdiction of the High
Court under s. 155 was attracted and rightly exercised. [687
B]
A proper notice under Art. 29 is a condition precedent to
forfeiture under Art. 30. The object of the notice under
Art. 29 is to give the shareholder an opportunity for
payment of the call money, interest and expenses. In the
absence of particulars of expenses, the respondents were not
in a position to know the precise amount which they were re-
quired to pay and that slight defect in the notice
invalidated it and was fatal to the forfeiture. [685 D-G]
Section 155(1)(a)(ii) allows rectification of the share
register if the name of any person after having been entered
in it, is without sufficient cause, omitted therefrom The
issue under the section is not whether the shareholder has
sufficient cause to approach the Court, but whether his name
has been omitted from the register without sufficient cause.
[686 D: 687 A]
Where by reason of its complexity or otherwise the matter
can more conveniently be decided in a suit, the court may
refuse -relief under s. 155 and relegate the parties to a
suit. But having found summaribly that the notice was
defective and the forfeiture invalid, the Court could not
arbitrarily refuse relief to the respondents. The
unwarranted proceedings under ss. 402 and 237 and other
vexatious proceedings started by the respondents have no
relation to the invalidity of the forfeiture and the -relief
of rectification and were not valid grounds for refusing,
relief, even if it was an equitable one. [688 B-D]
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 202 and 203
of 1965.
684
Appeals from the judgment and decree dated December 21, 1961
of the Madras High Court in O. S. Appeals Nos. 55 and 56 of
1959.
K. K. Venugopal and R. Gopalakrishnan, for the appellant.
A. V. Viswanatha Sastri, P. Ram Reddy and A. V. V. Nair,
for respondent No. 1.
The. Judgment of the Court was delivered by
Bachawat, J. The appellant is a limited Company carrying on
transport business in South Arcot District. M. A. Khader,
the contesting respondent in Civil Appeal No. 202 of 1965,
holds 13 shares and his brother, M. A. Jabbar, the
contesting respondent in Civil Appeal No. 203 of 1965, holds
163 shares in the Company. Articles 29 and 30 of the
Articles of Association of the Company read:
“29. The notice shall name a future day, not
being less than seven days from the service of
the notice, on or before which such all or
other money and all interest and expenses that
may have accrued by reason of such non-payment
are to be paid and the place where payment is
to be made, the place so named being either
registered office of the Company are usually
made payable and shall state that in the event
of non-payment at or before the time and at
the place appointed the share in respect of
which such payment is due, will be liable to
be forfeited.
30. If the requisition-, of any such notice
as aforesaid be not complied with, any share
in respect of which such notice has been given
may, at any time thereafter before payment of
all money due thereon with interest and
expenses, be forfeited by a resolution of the
Directors to that effect.”
On January 2, 1957, the board of directors of the Company
passed a resolution calling the unpaid amount of Rs. 25/- on
each share. On January 3, 1957, a call notice was issued to
the shareholders requesting payment on or before January 19,
1957. The call notices were duly served on the contesting
respondents. As the call monies remained unpaid, the
Company issued the
68 5
following notice dated January 20, 1957 to the respondents
under Art. 29
“Sir,
As the call amount of the balance of Rs. 25/-
for every share held by you remains unpaid in
respect of the notice dated 3rd January 1957
issued in pursuance of the resolution of the
Board, I hereby issue this notice calling upon
you to pay the called 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 reason of such non-payment.
Take further notice that in the event of non-
payment as mentioned above, the shares
registered in your name will be liable to be,
once for all, forfeited without further notice
and without prejudice to any legal action that
may be taken against you for recovering the
balance amount due from you treating the same
as a debt due to and recoverable as such by
the Company under Article 14.
By order of the Board (Signed) A. R. Hassain
Khan Managing Director.”
In spite of this notice, the respondents did not pay the
call monies, and on February 11, 1957, the board of
directors passed a resolution under Art. 30 forfeiting the
shares held by them. On November 8, 1957, the respondents
filed two separate applications under s. 155 of the Indian
Companies Act, 1956 in the High Court of Madras praying that
the forfeitures be set aside and the necessary
rectifications be made in the share register of the Company.
Ramachandra Ayyar, J. allowed the applications, and passed
conditional orders for rectification of the registers and
his decision was affirmed by the appellate Court. The
Courts below held that in the absence of Particulars of
interest and expenses, the notice dated January 20, 1957 was
defective and the forfeiture is invalid. The Company now
appeals to this Court by on a certificate granted by the
High Court.
In all standard articles of a company, the regulations
relating to calls provide for payment of interest on the
unpaid call money at a certain rate from the date appointed
for its payment up to the time of actual payment, see
regulation 14 of Table A in the
686
first Schedule to the Indian Companies Act, 1913, regulation
16 of Tabie A in the first Schedule to the Indian Companies
Act, 1956 and Palmer’s Company Precedents, 17th Edn., Part
1, p. 437 and the regulations relating to calls are followed
by regulations relating to Forfeiture like Arts. 29 and 30
of the appellant Company. In the light of Art. 29 read with
similar regulations relating to calls, we would have no
difficulty in holding that the notice dated January 20, 1957
required payment of Interest on tile call money from the
date appointed for the payment thereof, that is to say,
January 19, 1957 up to the time of the actual payment.
Unfortunately, all the regulations of the Company relating
to payment of calls have not been printed in the paper book,
and in the present state of the record, we express no
opinion on the question whether the notice is defective in
respect of the demand for interest.
But we agree with the High Court that the notice is
defective in respect of the demand for expenses. The amount
of expenses incurred by the Company by reason of the non-
payment was not disclosed. The respondents were not
informed how much they should pay on account of the
expenses. The object of the notice under Art. 29 is to give
the shareholder an opportunity for payment of the call
money, interest and expenses. The notice under Art. 30 must
disclose to the shareholder presumably conversant with the
Articles sufficient information from which he may know with
certainty the amount which he should pay in order to avoid
the forfeiture. In the absence of particulars of the
expenses, the respondents were not in a position to know the
precise amount which they were required to pay on account of
the expenses. A proper notice under Art. 29 is a condition
precedent to forfeiture, under Art. 30. Here, the notice
under Art. 29 is defective, and the condition precedent is
not complied with. The slight defect in the notice
invalidates it and is fatal to the forfeiture. The Courts
below, therefore, rightly declared that the forfeiture was
invalid.
Section 155(1) (a) (ii) of the Indian Companies Act allows
rectification of the share register if the name of any
person after having been entered in the register is, without
sufficient cause, omitted therefrom. There is no sufficient
cause for the omission of the name of the shareholder from
the register, where the omission is due to an invalid
forfeiture of his shares, and on finding that the forfeiture
is invalid, the Court has ample jurisdiction under s. 155 to
order rectification of the register. me High Court said that
the shareholder may approach the Court under s. 155 if be
has sufficient cause. This mode of expression
68 7
was rightly criticised by counsel for the appellant. The
issue under s. 155(1)(a)(ii) is not whether the shareholder
has sufficient cause but whether his name has been omitted
from the register without sufficient cause. As the
forfeiture is invalid, the names of the respondents were
omitted from the share register without sufficient cause,
and the jurisdiction of the Court under s. 155 is
attracted.
Counsel for the appellant contended that the point as to the
invalidity of the notice dated January 20, 1957 was not open
to the respondents in the absence of any pleading on this
point. In the affidavit in support of the application, the
respondents pleaded that the steps prescribed before there
can be a forfeiture, have not been complied with. No
further particulars were given, but the contention as to the
invalidity of the notice dated January 20. 1957 was
pointedly raised in the argument in the firs,. Court. ‘Me
contention was allowed to be raised without objection. Had
the objection been then raised, the Court might have allowed
the respondents to file another affidavit. The appellant
cannot now complain that the pleadings were vague.
We may now conveniently refer to certain events which
happened after January 2, 1957 when the directors resolved
to make the call and February 11, 1957 when the shares were
forfeited. On January 18, 1957, M. A. Jabbar, M. A. Khadir
and other shareholders filed Application No. 119 of 1957 in
the Madras High Court praying for reliefs under ss. 402 and
237 of the Indian Companies Act, 1956, and obtained an
interim order directing stay of collection of monies
pursuant to the notice dated January 3. 1957. The stay
order was communicated to the directors on January 21, 1957
after the notice of the intended forfeiture dated January
20, 1957 was issued. On January 30, 1957, the Court passed
a modified interim order restraining the forfeiture of the
shares, and directed M. A. Jabbar to pay the call money into
Court within one week. The call money was not paid into
Court, and on February 8, 1957, the Court vacated the stay
order. Application No. 119 of 1957 was eventually dismissed
on April 10, 1957. Counsel for the appellant contended that
(1) by reason of the aforesaid proceedings the respondents
waived and abandoned their right to challenge the forfeiture
(2) the order dated January 30. 1957 substituted a fresh
notice of intended forfeiture under Art, 29 in lieu of the
original notice dated January 20, 1957 and in the absence of
compliance with this order, the forfeiture is valid.
Neither of these contentions was raised in the Court below.
We find nothing in the proceedings in Application No. 119 of
1957 from
688
which we can infer a waiver or abandonment by the
respondents of their right to challenge the validity of the
notice dated January 20, 1957 and the subsequent forfeiture.
We also fail to see how the order of the Court dated January
30, 1957 can amount to a notice under Art. 29. The only
notice under Art. 29 is the one dated January 20, 1957, and
as that notice is defective, the forfeiture is invalid.
Counsel for the appellant contended that the relief under s.
155 is discretionary, and the Court should have refused
relief in the exercise of its discretion. Now, where by
reason of its complexity or otherwise the matter can more
conveniently be decided in a suit, the Court may refuse
relief under s. 155 and relegate the parties to a suit. But
the point a,; to the ‘Invalidity of the notice dated January
20, 1957 could well be decided summarily, and the Courts
below rightly decided to give relief in the exercise of the
discretionary jurisdiction under s. 155. Having found that
the notice was defective and the forfeiture was invalid, the
Court could not arbitrarily refuse relief to the
respondents.
Counsel for the appellant points out that the respondents
are the trade rivals of the appellant and are anxious to
cripple its affairs, and the appellate Court recorded the
finding that the respondents were acting mala fide and
prejudicially to the interests of the appellant and their
conduct in taking various proceedings against the appellant
is reprehensible. Counsel then relied upon the well-known
maxim of equity that “he who conics into equity must come
with clean hands”, and contended that the Courts below
should have dismissed the applications as the respondents
did not come with clean hands. This contention must be
rejected for several reasons. The respondents are not
seeking equitable relief against forfeiture. They are
asserting their legal right to the shares on the ground that
the forfeiture is invalid, and they continue to be the legal
owners of the shares. Secondly, the maxim does not mean
that every improper conduct of the applicant disentitles him
to equitable relief. The maxim may be invoked where the
conduct complained of is unfair and unjust in relation to
the subject-matter of the litigation and the equity sued
for. The unwarranted proceedings under ss. 402 and 237 of
the Indian Companies Act, 1956 and other vexatious proceed-
ings started by the respondents have no relation to the
invalidity of the forfeiture and the relief of rectification
and are not valid Grounds for refusing relief.
In the result, the appeals are dismissed. There will be no
order as to costs.
Appeals dismissed.
689