SECTION 113

 

Issue of Certificates

SHARE CERTIFICATE [SECTION 113]

SUPREME COURT

Companies Act

Supreme Court of India

H.V. Jayaram

v.

Industrial Credit & Investment Corpn. of India Ltd.

K.T. Thomas and M.B. Shah, JJ.

Crl. Appeal Nos. 1353-57 of 1999

December 15, 1999

 

Section 113, read with section 53, the Companies Act, 1956 - Limitation of time for issue of share certificates - Whether cause of action for failure to deliver share certificate would  arise where registered office of company is situated and as such complaint for offence punishable under section 113(2) can be filed only where registered office of company is situated - Held, yes

Facts

The appellant had lodged criminal cases before the Special Court for Economic Offences in Karnataka at Bangalore on the allegation that the respondent-companies had committed offences punishable under section 113(2). The order passed by the Trial Court reject­ing applications for discharge and issuing summons to companies after taking cognizance of the offence was questioned on the ground that the Magistrate had no territorial jurisdiction to try the alleged offences as the registered offices of the respondent-companies were not located in the State of Karnataka but were located either at Bombay or Gujarat. The appellant’s case was that he was a permanent resident of Bangalore and letters
re­questing the company to transfer shares and to send memorandum, articles of association, balance sheets, etc., were sent from Bangalore to the registered offices of the companies and, there­fore, cause of action also arose at Bangalore. The High Court held that as the documents were sent to the respondents by post, the cause of action would  arise only where the head office was situated. The High Court, therefore, concluded that the Magis­trate was required to return the complaint for presentation before the proper court.

On appeal to the Supreme Court :

Held

Reading sections 113 and 53 together, share certificates are to be delivered in accordance with the procedure laid down in sec­tion 53. A document is to be served either personally or by sending it by post at registered address within India. Sub-section (2) specifically mentions that where a document is sent by post, such service thereof shall be  deemed to be effected by properly addressing, prepaying and posting the letter containing the document. Hence, once there is a statutory mode of delivering the document by post and deeming provision of such delivery, the place where such posting is done is the place of performance of statutory duty and the same stands discharged as soon as the document is posted. Hence, the cause of action for default of not sending the share certificates within stipulated time would arise at the place where the registered office of the company is situ­ated as from that place the share certificates can be posted and are usually posted. If the addressee is available at the same locality where the registered office of the company is situated, it is reasonable to think that service of documents may be ef­fected by personally delivering to him. But if the addressee is residing at a distant place, it is unreasonable to expect the company to depute somebody to travel up to that distance to per­sonally deliver it to him. The only usual mode which any company would then adopt is to send it to him by post. For such default as contemplated under section 113(1), there is no question of any cause of action arising at the place where the complainant was to receive postal delivery. What is punishable under sub-section (2) of section 113 is non-delivery in accordance with the provision laid down under section 53 of the certificates of shares within prescribed time. So, if the documents are posted within stipulat­ed time, there would be compliance of section 113 and there would not be any offence.

Thus, the cause of action for failure to deliver the share certif­icates or documents within prescribed time would arise where the registered office of the company is situated. Therefore, com­plaint for the offence punishable under section 113(2) could be filed only where registered office of the company is situated and not where the complainant is residing.

 

Case Review

Decision of the Patna High Court in Upendra Kumar Joshi v. Manik Lal Chatterjee [1982] 52 Comp. Cas. 177 approved.

Decision of the Karnataka High Court in ICICI v. H.V. Jayaram [1998] 18 SCL 68 affirmed.

Decision of the Rajasthan High Court [in respect of jurisdiction to entertain complaint under 113(2)] in Ranbaxy Laboratories Ltd. v. Smt. Indra Kala 12 SCL 288 im­pliedly overruled.

 

Cases referred to

Ranbaxy Laboratories Ltd. v. Smt. Indra Kala [1997] 24 CLA 203/12 SCL 288 (Raj.), Upendra Kumar Joshi v. Manik Lal Chatterjee [1982] 52 Comp. Cas. 177 (Pat.) and H.P. Gupta v. Hiralal 1970 (1) SCC 437.

 

Judgment

Shah, J. - Leave granted.

2.         The only question involved in these appeals is whether the complaint for the offence punishable under section 113(2) of the Companies Act, 1956, could be filed only where the registered office of the company is situated or where the complainant is residing.

The appellant had lodged criminal cases before the Special Court for economic offences in Karnataka at Bangalore on the allegation that the respondent-companies had committed offences punishable under section 113(2). Criminal Petition Nos. 240, 1485, 1548, 1848 and 1849 of 1996 before the High Court of Karnataka at Bangalore challenged the order passed by the Trial Court reject­ing applications for the discharge on the ground that the Magis­trate had no territorial jurisdiction to try the alleged of­fences. In some cases, companies straightway approached the High Court questioning the order passed by the learned Magistrate issuing summons to them after taking cognizance of the offence. It was pointed out that admittedly the registered offices of the respondent-companies are not located in the State of Karnataka but are located either at Bombay or at Gujarat. As against this, the appellant who is a practising advocate contended that he was a permanent resident of Bangalore and letters requesting the company to transfer the shares and to send memorandum, articles of association, balance sheets, etc., were sent from Bangalore to the registered offices of the companies and, therefore, cause of action also arose at Bangalore. The High Court after considering the various decisions relied upon by the learned counsels for the parties arrived at the conclusion that under the provision of section 53 of the Companies Act, two modes are prescribed for serving the documents, one to serve personally and the other by post. As the documents were sent to the respondent by post, as requested by him, the cause of action would arise only where the head office is situated. The Court, therefore, arrived at the conclusion that having regard to section 201 of the Code of Criminal Procedure, 1898, the Magistrate is required to return the complaint for presentation before the proper court with an endorsement to that effect.

3.         The learned counsel appearing on behalf of the appellant (complainant) strenuously contended that the order passed by the High Court is, on the face of it, erroneous because admittedly, the appellant is residing at Bangalore. Being purchaser of the shares, he was entitled to get the share certificates at Banga­lore and, therefore, cause of action would arise at Bangalore also. For this purpose, he relied upon the decision rendered by the Rajasthan High Court in Ranbaxy Laboratories Ltd. v. Smt. Indra Kala [1997] 12 SCL 288.

As against this, the learned senior counsel, Mr. Desai, submitted that the order passed by the High Court is in accordance with the provision of section 113, read with section 53. He referred to the decision rendered by the Patna High Court in Upendra Kumar Joshi v. Manik Lal Chatterjee [1982] 52 Comp. Cas. 177. He submitted that the litigation is frivolous and it should be discouraged.

4.         For appreciating the contention raised by the learned counsels for the parties, we would refer to the relevant parts of sections 53 and 113, which are as under :

“53. Service of documents on members of company.—(1) A document may be served by a company on any member thereof either personal­ly, or by sending it by post to him to his registered address, or if he has no registered address in India, to the address, if any, within India supplied by him to the company for the giving of notices to him.

(2)  Where a document is sent by post,—

        (a)      service thereof shall be deemed to be effected by properly addressing, prepaying and posting a letter containing the document, provided that where a member has intimated to the company in advance that documents should be sent to him under a certificate of posting or by registered post with or without acknowledgement due and has deposited with the company a sum sufficient to defray the expenses of doing so, service of the document shall not be deemed to be effected unless it is sent in the manner intimated by the member; and” [Emphasis supplied]

“113. Limitation of time for issue of certificates.—(1) Every company, unless prohibited by any provision of law or of any order of any Court, Tribunal or other authority, shall, within three months after the allotment of any of its shares, debentures or debenture stock, and within two months after the application for the registration of the transfer of any such shares, deben­tures or debenture stock, deliver, in accordance with the proce­dure laid down in section 53, the certificates of all shares, debentures and certificates of debenture stocks allotted or transferred :

**                                                          **                                           **

(2) If default is made in complying with sub-section (1), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees for every day during which the default continues.”

Section 113, inter alia, requires that within three months after the allotment of any shares and within two months after the application for the registration of the transfer of any such shares, every company shall deliver, in accordance with the procedure laid down in section 53, the certificates of all shares allotted or transferred. Sub-section (2) provides punishment if default is made in complying with sub-section (1). Reading sec­tions 113 and 53 together, share certificates are to be delivered in accordance with the procedure laid down in section 53. A document is to be served either personally or by sending it by post at registered address within India. Sub-section (2) specifi­cally mentions that where a document is sent by post, such serv­ice thereof shall be deemed to be effected by properly address­ing, prepaying and posting the letter containing the document. Hence, once there is a statutory mode of delivering the document by post and deeming provision of such delivery, the place where such posting is done is the place of performance of statutory duty and the same stands discharged as soon as the document is posted. Hence, the cause of action for default of not sending the share certificates within stipulated time would arise at the place where the registered office of the company is situated as from that place the share certificates can be posted and are usually posted. If the addressee is available at the same locali­ty where the registered office of the company is situated, it is reasonable to think that service of documents may be effected by personally delivering to him. But if the addressee is residing at a distant place, it is unreasonable to expect the company to depute somebody to travel up to that distance to personally deliv­er it to him. The only usual mode which any company would then adopt is to send it to him by post. For such default, as contem­plated under section 113(1), there is no question of any cause of action arising at the place where complainant was to receive postal delivery. What is punishable under sub-section (2) of section 113 is non-delivery, in accordance with the provision laid down under section 53, of the certificates of shares within prescribed time. So, if the documents are posted within stipulat­ed time, there would be compliance of section 113 and there would not be any offence.

5.         In H.P. Gupta v. Hiralal 1970 (1) SCC 437, the Court considered a similar provision of section 207 of the Companies Act, which provides for payment of dividend within 42 days of its declaration by a company and its non-payment within stipulated period is punishable. Section, inter alia, provides that where dividend is declared by the company but has not been paid, or warrant in respect thereof has not been posted within 42-days from the date of its declaration, to any shareholder entitled to the payment of dividend, then it would be an offence punishable under section 207. In that case, the Court also considered sec­tion 205(5)(b), which is similar to section 53, which, inter alia, provides that any dividend payable may be paid by cash or a cheque or a warrant sent by post directed to the registered address of the shareholder entitled to the payment of the divi­dend. The Court held that when the company posts the dividend warrant at the registered address of the shareholder, the post office becomes the agent of the shareholder and the loss of a dividend warrant during the transit thereafter is at the risk of the shareholder. The
Court further held that the place where the dividend warrant would be posted is the place where the company has its registered office and
the offence under section 207 would also occur at the place where the failure to discharge that obligation arises, namely, the failure to post the dividend warrant within 42-days. In the facts of that case, the Court observed thus :

“. . . The venue of the offence, therefore, would be Delhi and not Meerut, and the Court competent to try the offence would be that Court within whose jurisdiction the offence takes place, i.e. Delhi. This should be so both in law and common-sense, for, if held otherwise, the directors of companies can be prosecuted at hundreds of places on an allegation by shareholders that they have not received the warrant. That cannot be the intention of the Legislature when it enacted section 207 and made failure to pay or post a dividend warrant within 42 days from the declara­tion of the dividend an offence.”

Same would be the position for the offence punishable under section 113. Cause of action for failure to deliver the share certificates or documents within prescribed time would arise where the registered office of the company is situated.

6.         However, the learned counsel for the appellant relied upon the decision of the Rajasthan High Court in Ranbaxy Laboratories Ltd.’s case (supra). In the said case, complaint was filed before the Judicial Magistrate at Jaipur in Rajasthan for the offences punishable under section 113 against the directors and officers of the company alleging that the complainant had purchased 200 shares of the company and had duly sent such shares to the head office of the company for registration of the transfer in its books, but despite repeated requests, reminders and efforts made by her, the company did not register the transfer of the shares in her name. Registered office of the company was at Delhi. The High Court negatived the contention of the company that Judicial Magistrate at Jaipur did not have jurisdiction to deal with the case by holding thus :

“Company collects money from the public at large by selling its shares and transactions of sale and purchase are governed by the provisions of the Companies Act. Registration of the transferred shares is one of the duties of the company in the course of conducting its business according to the provisions of law. Therefore, the interest of the members of the public transacting such business cannot be allowed to be defeated on the plea that relief to the aggrieved persons can be granted only at the place where the office of the company is located.”

7.         In our view, it appears that the attention of the learned Judge was not drawn to the decision rendered by this Court in H.P. Gupta’s case (supra) and also to section 113, which, inter alia, provides that the company shall deliver the documents, such as, certificates of shares, debentures and certificates of debenture stocks allotted or transferred in accordance with the procedure laid down in section 53. Section 53 prescribes the mode of deliv­ery, inter alia, by sending the document by post at registered address and sub-section (2) is the deeming provision for delivery of such letter. In Upendra Kumar Joshi’s case (supra) the Patna High Court has followed the decision rendered by this Court in the case of H.P. Gupta (supra) and has rightly arrived at the conclusion that the cause of action would arise at the place where registered office of the company is situated.

8.         In the result, the aforesaid appeals are dismissed.

 

Delhi High Court

COMPANIES ACT

[1999] 22 SCL 33 (DELHI)

HIGH COURT OF DELHI NESTLE INDIA LTD.

Nestle India Ltd.

v.

State

J.B. GOEL, J.

CRL. M.(M.) NO. 76 OF 1993

JULY 1, 1999

 

Section 113 of the Companies Act, 1956 - Share Certificates - Asstt. ROC, during inspection found that certain shares and debentures of petitioner company were lodged with them by transferee two years back but same were neither transferred in transferee's name nor those were remitted to transferee within stipulated period of two months - Asstt. ROC filed a complaint and petitioners were summoned - Whether for purpose of section . 113 an aggrieved person would be one who is directly affected by acts of commission or omission of another person and, therefore, transferee of shares and debentures who had made application for registration of transfer in its name, would be aggrieved person if its shares etc. were not registered and transferred in its name within time and therefore Asstt. ROC could not be said to be an aggrieved person - Held, yes - Whether, since aggrieved person, which was UTI, had not lodged any complaint within stipulated period of six months of its knowledge of commission of offence, same would be barred by time - Held, yes - Whether, therefore, complaint in question and summons required to be quashed - Held, yes

The Asstt. ROC, while carrying out inspection of records of the petitioner-company, found that certain shares and debentures of the petitioner-company which were lodged with the company for transfer in the name of the UTI were not transferred and/or remitted to UTI after registering the transfer within the period of two months prescribed under section 113(1). He, therefore, subsequently, filed a complaint with the Addl. Chief Metropolitan Magistrate who summoned petitioners. The petitioners filed petition seeking quashing of the said proceedings, alleging that complaint was barred by limitation under section 468 of the Code and for this purpose, only UTI would be considered the aggrieved person and not Asstt. ROC who had filed the complaint.

HELD

When an offence is committed against a person the Court takes cognizance of the offence either on a police report or on the complaint of the aggrieved person. In both these cases a complaint could be made within six months of the commission of the offence. Section 469 (1)(b) makes a distinction between an aggrieved person and a police officer; obviously the police officer is not an aggrieved person. He is an officer who is enjoined by law to take steps to bring the offender to book. The position of the Company Prosecutor who was the complainant in the instant case was akin to that of a police officer. If a police officer is not the 'aggrieved person', the Registrar of Companies would also not be an aggrieved person. An aggrieved person would be one who is directly affected by the acts of commission or omission of another person. In this case the UTI who, as transferee of the shares and debentures, had made application for the registration of transfer in their name was the aggrieved person if its shares etc. were not registered and transferred in its name within time and not the Registrar of the Companies.

In the case of Sulochana v. State Registrar of Chits Investigation and Prosecution 1978 Crl LJ. 116 it was held that the words 'person aggrieved by the offence' occurring in section 469(1)(b) of the Code should be given a limited or restricted coverage which would be one who is personally and directly affected by an offence and not any member of the public or even an officer who is charged with the duty of enforcing prohibitory regulations under the Statute.

Under section 469(1)(b) the period of limitation will start from the earliest date of knowledge either by the aggrieved person or the police officer. As the UTI was the only aggrieved person or in any case also the aggrieved person, the period would start when it got knowledge. Its knowledge dated back when the offence was committed The result was that the complaint having been filed after a lapse of over two years in respect of shares and after almost about two years in respect of debentures, was time barred

A complaint could be quashed if it suffers from fundamental legal defects such as want of sanction, or absence of complaint by legally competent authority and the like. The period of limitation would be one of the circumstances on which a complaint could be quashed.

The law is clear that it is the bounden duty of the Court to interfere in the matter and quash the prosecution at the initial stage if it would either amount to abuse of the process of the Court or otherwise if the ends of justice so require. In this case the complaint had been filed after about two years of the occurrence. At that late stage possibly some of the relevant evidence would not be available. In the facts and circumstances, it was a fit and proper case to exercise inherent power to quash the proceedings. Even otherwise offence was too trivial and the aggrieved person, i.e., the UTI, had not thought it proper to make a grievance of the defaults, if any, on part of the petitioners. Therefore, it would be a futile exercise to pursue the proceedings. As a result the petition was allowed

CASES REFERRED TO

Sulochana v. State Registrar of Chits (Investigation and Prosecution) 1978 Crl. LJ. 116, Smt. Nagawwa v. Veeranna Shivalingappa Konjalgi [1976] 3 SCC 736, State of Punjab v. Sarwan Singh AIR 1981 SC 1054, Madhorao Scindia v. Sambhaji Rao AIR 1988 SC 709, State of Karnataka v. L. Muniswamy AIR 1977 SC 1489 and Hindustan Steel Ltd. v. State of Orissa AIR 1970 SC 253.

Suman K. Khaitan, Vikas Dhawan and Ajay Bhargava for the Petitioner. U. Hazarika for the Respondent.

JUDGMENT

1.         The three petitioners have been summoned by the learned Addl. Chief Metropolitan Magistrate (ACMM) in a complaint filed by respondent No. 2 for an offence under section 113 of the Companies Act, 1956 ('the Act'). In this petition under section 482 of the Code of Criminal Procedure, 1898 ('the code'), they are seeking quashing of the said complaint and the summoning order. The petitioner No. 1 is a company, petitioner Nos. 2 and 3 are its Managing Director and the Company Secretary respectively.

Food Specialities Ltd. who was incorporated on 28-3-1959 changed the name of the present petitioner No. 1 which was registered on 29-3-1990.

2.         Briefly, the facts as alleged in the complaint are that the Asstt. Registrar of Companies (Delhi & Haryana) had carried out inspection of the records of the petitioner-company on 22/23-7-1992 and found the following irregularities/breaches, i.e., delay in registering the shares/debentures and remitting to the transferee.

(a)            10,000 (wrongly mentioned as 1,10,000) shares lodged on 7-8-1990 were despatched on 9-10-1990-A/c UTI.

        (b)            12 Non-convertible debentures lodged on 30-11-1990 despatched on 20-2-1991-A/c UTI.

(c)            270 Non-convertible debentures lodged on 15-11-1990 transferred on 28-10-1991 (date of despatch not available) - A/c UTI.

These are alleged to be offences under section 113(1) and punishable under section 113(2) of the said Act. A show-cause notice dated 4-8-1992 was served on the petitioners Nos. 1 and 3. (Petitioners have alleged that a reply dated 10-8-1992 was sent.) The complaint was filed before the ACMM on 5-11 -1992 who took cognizance and summoned the petitioners. The petitioners are seeking quashing of the said proceedings. I have heard the learned counsel for the parties.

3.         First plea is that the complaint is barred by limitation under section 468 read with section 469 of the Code, as it has been filed after six months of the offence. The learned counsel for the State has contested this and has contended that the complaint has been filed on behalf of the Registrar of Companies who is competent to institute the prosecution and thus is the aggrieved person within the meaning of section 469(1)(b); this complaint was filed within six months of his knowledge of commission of the offence on 23-7-1992 after inspection of the records of the accused company. This is disputed by the learned counsel for the petitioner who has contended that the complainant company prosecutor or the Registrar of company is not the aggrieved person and the Unit Trust of India being the transferee of the shares and debentures in question is the aggrieved person for the delay, if any, in registering the same and the offence, if any, is committed, was known to the UTI when it was committed; as per allegations made in the complaint the offence about transfer of shares was committed in October, 1990 and in respect of debentures in January, 1991; and the complaint having been filed on 5-11-1992 is beyond six months is time barred and liable to be quashed. He has placed reliance on Sulochana v. State Registrar of Chits (Investigation and Prosecution), [1978] Crl. LJ. 116, (Mad.).

4.         The offence alleged is that certain shares and debentures of the petitioner-company which were lodged with the accused company for transfer in the name of the UTI were not transferred and/or remitted to the UTI after registering the transfer within the period of two months prescribed under section 113(1).

5.         Section 113, so far as relevant, reads as under:

"Limitation of time for issue of certificates.—(1) Every company, unless prohibited by any provision of law or of any order of any court. Tribunal or other authority, shall, within three months after the allotment of any of its shares, debentures or debenture stock, and within two months after the application for the registration of the transfer of any such shares, debentures or debenture stock, deliver, in accordance with the procedure laid down in section 53, the certificates of all shares, debentures and certificates of debenture stocks allotted or transferred:

**        **        **

(2) If default is made in complying with sub-section (1), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees for every day during which the default continues.

(3) If any company on which a notice has been served requiring it to make good any default in complying with the provisions of sub-section (1), fails to make good the default within ten days after the service of the notice, the Company Law Board may, on the application of the person entitled to have the certificates or the debentures delivered to him, make an order directing the company and any officer of the company to make good the default within such time as may be specified in the order; and any such order may provide that all costs of and incidental to the application shall be borne by the company or by any officer of the company responsible for the default."

As this case is about transfer of the shares/debentures, the period for registration of the transfer is two months on receipt of application made according to the procedure laid down under section 53 of the Act for such transfer. As mentioned in the complaint, shares are alleged to have been lodged on 7-8-1990; 12 non-convertible debentures were lodged on 30-11-1990 and 270 non-convertible debentures were lodged on 15-11-1990. Assuming these as the correct dates when the shares and debentures were actually delivered to the petitioner-company, the registration/transfers under section 113 should have been made within two months, Le., by 7-10-1990 in respect of shares and by 31-1-1991 and 15-1-1991 in respect of the debentures. The offence thus would have been committed on the expiry of 7-10-1990, 31-1-1991 and 15-1-1991 and this fact must be known to the owner of the shares, i.e., UTI on that day or at any rate within a reasonable time thereafter. The reasonable time would be the time that would be taken in normal course of transit either by personal delivery or through the postal agency, which would be couple of days or at the most one week thereafter. The offence is punishable under section 113(2) with fine only. The period of limitation for initiating action is six months under section 468(2)(a), read with section 469(a) of the Code from the date when offence was committed. The Learned counsel for the State obviously is invoking clause (b) of section 469(1) which provides as under:

"Commencement of the period of limitation.-(1) The period of limitation, in relation to an offender, shall commance,—

        (a)    on the date of the offence; or

(b)    where the commission of the offence was not known to the person aggrieved by the offence or to any police officer, the first day on which such offence comes to the knowledge of such person or to any police officer, whichever is earlier; or"

The question is whether the complainant, i.e., the company prosecutor or the Registrar of Companies is an 'aggrieved person'.

6.         When an offence is committed against a person the Court could take cognizance of the offence either on a police report or on the complaint of the aggrieved person. In both these cases a complaint could be made within six months of the commission of the offence. Clause (b) of subsection (1) of section 469 makes a distinction between an aggrieved person and a police officer, obviously the police officer is not an aggrieved person. He is an officer who is enjoined by law to take steps to bring the offender to book. The position of the Company Prosecutor who is the complainant in the present case is akin to that of a police officer. If a police officer is not the 'aggrieved person', the Registrar of Companies would also not be an aggrieved person. An aggrieved person would be one who is directly affected by the acts of commission or omission of another person. In this case the UTI who as transferee of the shares and debentures had made application for the registration of transfer in their name is the aggrieved person if its shares etc. were not registered and transferred in its name within time and not the Registrar of the Companies.

7.         Similar question came for consideration before the Madras High Court in the case of Sulochana (supra) relied on behalf of the petitioners. In that case, the petitioner was conducting chit funds, one of the subscribers reported to the Registrar of Chits (Investigation and Prosecution), Madras ('the Registrar') on 27-3-1976 that the petitioner had not paid the chit amount due to her. During investigation, the Registrar found that the petitioner had conducted the chit without registration of the bye-laws and without obtaining a certificate of commencement of business, which was in contravention of sections 3 and 7 of the Tamil Nadu Chit Funds Act, 1961 punishable under section 56(1) of that Act. Consequently, the Registrar filed a complaint on 9-6-1976 before the Metropolitan Magistrate, Madras for that offence. The question before the learned Judge was whether the Registrar could be termed as a 'person aggrieved' by the offence alleged to have been committed by the petitioner. After referring to the relevant scheme of the Code and the case law, it was held that the Registrar could not be said to be a 'person aggrieved' by the offences so as to claim the benefit of extended limitation provided under section 469(1)(&) and (c) of the Code; The Registrar had come forward with the complaint in performance of his official duty and not on account of any grievance felt or sustained by him personally in the contraventions committed by the petitioner. Complaints preferred in discharge of one's official duty are vastly different in character and nature from complaint preferred by persons aggrieved by commission of the offences and they distinctly fall in two different categories and the former is not to be confused with the latter. It was accordingly held that the words 'person aggrieved by the offence' occurring in section 469(1)(b) should be given a limited or restricted coverage which would be one who is personally and directly affected by an offence and not to any member of the public or even an officer who is charged with the duty of enforcing prohibitory regulations under the Statute. With respect I agree with this legal position.

8.         It may also be mentioned that under section 469(1)(b) the period of limitation will start from the earliest date of knowledge either by the aggrieved person or the police officer. And as the UTI is the only aggrieved person or in any case also the aggrieved person, the period would start when it got knowledge. Its knowledge dates back when the offence was committed. The result is that the complaint having been filed after a lapse of over two years in respect of shares and after almost about two years in respect of debentures is time-barred.

9.         The principles governing scope of the power of the High Court for quashing a complaint/FIR/prosecution under section 482 are well established.InSmt.Nagawwa v. Veeranna Shivalingappa Konjalgi [1976] 3SCC 736 it was held that, inter alia, in the following four categories of cases, complaint could be quashed:

"(1)  Where the allegations made in the complaint or the statements of the witnesses recorded in support of the same taken at their face value make out absolutely no case against the accused or the complaint does not disclose the essential ingredients of an offence which is alleged against the accused;

(2)    where the allegations made in the compliant are patently absurd and inherently improbable so that no prudent person can ever reach a conclusion that there is sufficient ground for proceeding against the accused;

(3)    where the discretion exercised by the magistrate in issuing process is capricious and arbitrary having been based either on no evidence or on materials which are wholly irrelevant or inadmissible; and

(4)    where the complaint suffers from fundamental legal defects such as, want of sanction, or absence of complaint by legally competent authority and the like.”

In category (4), a complaint could be quashed if it suffers from fundamental legal defects such as want of sanction, or absence of complaint by legally competent authority and the like. The period of limitation would be one of the circumstances on which a complaint could be quashed.

10.       The scope and object of prescribing bar of limitation under section 468 has been considered in State of Punjab v. Sarwan Singh AIR. 1981SC 1054 wherein it has been observed as under:

"This object of Criminal Procedure Code in putting a bar of limitation on prosecutions was clearly to prevent the parties from filing cases after a long time, as a result of which material evidence may disappear and also to prevent abuse of the process of the court by filing vexatious and belated prosecutions long after the date of the offence. The object which the statute seeks to subserve is clearly in consonance with concept of fairness of trial as enshrined in article 21 of the Constitution. It is, therefore, of the utmost importance that any prosecution, whether by the State or a private complainant must abide by the letter of law or take the risk of the prosecution failing on the ground of limitation." (p. 1054)

In that case the prosecution against the respondent was barred by limitation. Consequently his conviction and sentence as also the proceedings culminating in the conviction was held to be non est and were quashed. The present proceedings thus being time-barred are liable to be quashed. The learned counsel for the petitioner has also contended that even on the merits, no offence has been committed and the prosecution is illegal, and no conviction could be based in the facts and circumstances of the case. He has also contended that the alleged default is too trivial which would not justify the prosecution which if allowed would rather be persecution of the petitioners. In respect of the shares, the learned counsel has contended that shares had been lodged on 10-8-1990 and not on 7-8-1990. These were registered on 9-10-1990, i.e., within 60 days prescribed under section 113(1). The learned counsel has contended that a show-cause notice dated 4-8-1992 was served on petitioner Nos. 1 to 3 to which a reply dated 10-8-1992 (Annexure 'F') was sent wherein it was pointed out that the shares would have been lodged on 10-8-1992 and not as 7-8-1992. In the complaint, though it was alleged that no reply to this show-cause notice was received, however, in para 12 of this petition it is alleged that a reply to show-cause notice was given by letter dated 10-8-1992 (copy at Annexure 'F') to which there is no specific denial in the counter dated 19-3-1993 filed on behalf of the respondents. Obviously, no efforts were made to verify the correctness of the explanation given by petitioners. There is also no material placed on record to prima facie show that the shares were actually lodged on 7-8-1990. Thus it cannot be said with certainty that any default has been committed in registering these shares.

11.       As regards transfer of 270 non-convertible debentures, it is alleged in this reply that these debentures were lodged with their Registrar-cum-Transfer Agents on 12-1 -1991 as per endorsement made about lodgement and not on 15-11-1990, and that these debentures were transferred on 28-2-1991. Again the correctness of this statement has not been verified and no material has also been placed on record either to rebut this statement or to show that these debentures were actually lodged on 15-11-1990 and not on 12-1-1991. As regards 12 non-convertible debentures which perhaps formed part of bigger lot of 1,000 debentures, it is alleged that the letter dated 30-11-1990 from Stock Holding Corporation of India Ltd, Bombay, (apparently the agents of UTI), was addressed to SRG Financial & Management Consultants (P.) Ltd., Qutab Road, New Delhi who were not Registrar and Transfer Agents for debentures of the petitioners. This fact also has not been rebutted by any reliable material nor any material has been placed on record to show that these debentures were lodged with the company or its duly authorised agent on 30-11 -1990. When before any action is taken a show-cause notice is given, it is incumbent on the person giving the show-cause notice to consider the reply, if any, submitted thereto. In this case, as already noticed, a reply was given but that has not been considered. Obviously, the complaint was filed without application of mind and without finding out the correctness of the facts alleged in the show-cause notice. In the case of Madhorao Scindia v. Sambhaji Rao AIR 1988 SC 709 (para 7), it has been observed as under:

"The legal position is well-settled that when a prosecution at the initial stage is asked to be quashed the test to be applied by the Court is as to whether the uncontroverted allegations as made prima facie establish the offence. It is also for the Court to take into consideration any special features which appear in a particular case to consider whether it is expedient and in the interest of justice to permit a prosecution to continue. This is so on the basis that the Court cannot be utilised for any oblique and where in the opinion of the Court chances of an ultimate conviction are bleak and, therefore, no useful purpose is likely to be served by allowing the criminal prosecution to continue, the Court may while taking into consideration the special facts of the case also quash the proceeding even though it may be at a preliminary stage."

12.       In State of Karnatakav. L. Muniswamy AIR 1977 SC 1489, also it has been held as under:

"In the exercise of this wholesome power, the High Court is entitled to quash a proceeding if it comes to the conclusion that allowing the proceedings to continue would be an abuse of the process of the Court or that the ends of justice require that the proceedings ought to be quashed. The saving of the High Court's inherent powers, both in Civil and Criminal matters is designed to achieve a salutary public purpose which is that a Court proceeding ought not to be permitted to degenerate into a weapon of harassment or persecution...." (p. 1492)

The law thus is clear that it is the bounden duty of the Court to interfere in the matter and quash the prosecution at the initial stage if it would either amount to abuse of the process of the court or otherwise if the ends of justice so requires. In this case the complaint has been filed after about two years of the occurrence. At that late stage possibly some of the relevant evidence may to be available. In the facts and circumstances, in my view, it is a fit and proper case to exercise inherent power to quash the proceedings. Even otherwise, the offence is too trivial and the aggrieved person, that is the UTI, has not though it proper to make a grievance of the defaults, if any, on the part of the petitioners.

13.       In Hindustan Steel Ltd v. State of Orissa AIR 1970 SC 253, there was failure to register as a dealer under the Sales tax Act which could entail penalty. However, it was held that the imposition of penalty will not be always necessary. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circum stances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act. In the facts and circumstances, it seems, it would be a futile exercise to pursue the proceedings.

14.       For all these reasons this petition is allowed. Complaint filed by respondent No. 2 against the petitioners for offence under section 113(2) and also the order of summoning the petitioners are accordingly hereby quashed.

 

SUPREME COURT

Companies Act

Supreme Court of India

Registrar of Companies

v.

Rajshree Sugar & Chemicals Ltd.

K.T. Thomas, D.P. Mohapatra and Ruma Pal, JJ.

CrL. Appeal No. 483 of 2000

May 11, 2000

 

Section 113, read with section 611, of the Companies Act, 1956 and sections 468 and 469 of the Code of Criminal Procedure, 1973 - Share certificate - Time limit for issue of - Whether words ‘person aggrieved’ as used in section 469(1)(b) of Code of Criminal Procedure can be interpreted restrictively, in context of offence under section 113 of the Companies Act, to mean a shareholder only - Held, no - Whether these words would include, a Registrar of Compa­nies also - Held, yes - Whether, therefore, Registrar of Compa­nies is person aggrieved and competent to file complaint for offence under section 113 - Held, yes - Whether commencement of period of limitation of six months for initiating prosecution is to be computed from date of knowledge about commission of offence under section 113 - Held, yes

Facts

The company was sent share transfer certificates along with applications for transfer in two batches — on 23-11-1990 and 18-12-1990. The first batch of applications for transfer was received by the company on 11-12-1990, approved on 29-3-1991 and des­patched on 6-4-1991. The second batch of applications was re­ceived on 26-12-1990 approved by the company on 3-4-1991 and despatched on 16-4-1991. Apparently, section 113(1) was not complied with. This came to the knowledge of the appellant - ROC only on 20-7-1992 when the appellant - ROC inspected the books of account of the company under section 209A(1)(i). The complaint was filed by the appellant on 20-8-1992. The CJM dismissed the complaint prima facie on the ground that the complaint was filed beyond the period of limitation of six months. On appeal the High Court, upholding decision of CJM, further held that the appellant - ROC was not an ‘aggrieved person’ for a non-compliance of section 113 and as such he was not competent to file the complaint.

On appeal :

Held

Under section 621(1) the appellant - ROC was competent to file a written complaint in respect of offences under, inter alia, sec­tion 113.

The phrase, ‘person aggrieved’ has not been defined in the Code. However, as far as offences under the Companies Act are concerned, the words must be understood and construed in the context of section 621. If the word ‘person aggrieved’ are read to mean only ‘the person affected’ by the failure of the company to transfer the shares or allot the shares, then the only ‘person aggrieved’ would be the transferee or the allottee, as the case may be. Under section 621 no Court can take cognizance of an offence against the Companies Act except on the complaint of a shareholder, the Registrar or the person duly authorised by the Central Government. Where the transferee or allottee is not an existing shareholder of the company, if the words ‘person aggrieved’ are read in such a limited manner, it would mean that section 469(1)(b) of the Code would be entirely inapplicable to of­fences under section 113 of the Companies Act. There is, in any event, no justification to interpret the words ‘person aggrieved’ as used in section 469(1)(b) restrictively particularly when, as in this case, the statute creating the offence provides for the initiation of the prosecution only on the complaint of particular person. Having regard to the clear language of section 621 there was no manner of doubt that the appellant ROC would be a ‘pe­rson aggrieved’ within the meaning of section 469(1)(b) of the Code in respect of an offence (except those under section 545) against the Companies Act.

Apart from overlooking the provisions of section 621 , the High Court erred in construing the provisions of section 113(2) with reference to section 113(3). The latter deals with the civil liability of the company and its officers for a breach of section 113(1) at the instance of the transferee of the shares. Section 113(2) deals with the criminal liability arising out of a viola­tion of section 113(1). The objects of the two sub-sections are disparate. Section 113(3) is primarily compensatory in nature whereas section 113(2) is punitive. An application under section 113(3) can only be made by the transferee. And as already seen, a transferee who is not an existing share-holder of the company cannot file a complaint under section 113(2) at all.

For the reasons stated, the appellant ROC as a person aggrieved would be entitled to the benefit of the provisions of section 469(1)(b) of Code.

It was not in dispute that the appellant came to know of the offences on 20-7-1992. The commencement of the period of limitation of six months for initiating the prosecution would have to be calculated from that date. The complaint was filed on 20-8-1992 well within the period specified under section 468(2).

In the circumstances, the decisions of the High Court as well as the CJM were to be set aside and the matter remanded to the CJM for being decided on merits.

Cases referred to

State of UP v. Bahadur Singh AIR 1983 SC 845, Vasantlal Chandulal Majmudar v. Navinchandra Manilal 22 Guj. LR 436, Sulochana v. State of Registrar of Chits (Investigation and Prosecution) [1978] Crl. LJ. 116 (Mad.), Bhagabati Prasad Tantia v. Asst. Registrar of Companies [1983] 53 Comp. Cas. 56 (Cal.), Sushil Kumar Lahiri v. Registrar of Companies [1983] 53 Comp. Cas. 54 (Cal.) and Abdul Rahim v. State represented by the Chit Registrar Nagapathinam [1978] 1 L.W. Cl. 195 (Mad.).

Judgment

Ruma Pal, J. - Leave granted.

2.         This appeal has been preferred from the decision of the High Court of Madras dated 17-3-1998. The appeal was filed on 26-7-1999 after a delay of 406 days. The application for condonation of delay filed by the appellant shows that the Department of Legal Affairs took up the matter only on 16-12-1998. No explanation whatsoever has been given for the appellant’s inaction during this period of nine months. The observation of this Court in State of UP v. Bahadur Singh AIR 1983 SC 845 regarding the lati­tude to be shown to the Government in deciding questions of delay, does not give a licence to the Officers of the Government to shirk their responsibility to act with reasonable expedition. However, since the matter has been permitted to be argued on merits, it would not be appropriate to dismiss the appeal on the ground of delay, but our disapproval of the conduct of the appel­lant in this regard will be reflected in the costs which we intend to award against the appellant in favour of the respond­ents, irrespective of our decision on merits.

The issue to be decided in this appeal relates to an offence allegedly committed by the respondents under section 113 of the Companies Act, 1956 (‘the Act’). The complaint was filed by the appellant against the respondents on 28-8-1992 alleging that the respondents had, in violation of section 113 defaulted in trans­fer of shares within the time specified in that section. The Chief Judicial Magistrate, Coimbatore by his order dated 30-3-1993 dismissed the complaint on the ground that it was barred by limitation under section 468 of the Code of Criminal Proce­dure, 1973 ‘the Cr. PC.’)

3.         The appellant filed a petition under sections 397 and 401 of the Cr. P.C. before the High Court of Madras praying for revision of the order dated 30-3-1993. The High Court by the impugned judgment not only upheld the order of the trial court but also held that the appellant was incompetent to file a complaint in respect of an offence under section 113.

4.         Section 113, sub-section (1) requires a company to deliver the share certificates to the allottee or transferee within three months after the allotment and within two months after the appli­cation for registration of transfer of the shares. The period is extendable in certain circumstances on an application by the company to the Company Law Board (CLB) subject to a maximum period of nine months.

5.         Sub-section (2) of section 113 provides that if default is made in compliance with sub-section (1) the company and every officer of the company who is in default shall be punishable with find which may extend to Rs. 500 for every day during which the default continues. In addition to this criminal liability for punishment, under section 113(3) a person entitled to have the shares delivered to him, may apply to the CLB for a directive on the company to deliver the certificates or the debentures to the complainant. The CLB is authorised to pass an order directing the company and any officer of the company ‘to make good the default’ within such time as may be specified and also provide for the costs of and incidental to the application to be paid to the complainant by the company or any officer of the company who may be responsible for the default.

6.         In this case, the complaint filed by the appellant was under section 113(2). It was alleged in the complaint that the company was sent share transfer certificates along with applications for transfer in two batches; — 23-11-1990 and 18-12-1990. The first batch of applications for transfer was received by the company on 11-12-1900, approved on 29-3-1991 and despatched on 6-4-1991. The second batch of applications was received on 26-12-1990 approved by the company on 3-4-1991 and despatched on 16-4-1991. Apparent­ly, section 113(1) was not complied with. This came to the knowledge of the appellant only on 20-7-1992 when the appellant inspected the books of account of the company under section 209A(1)(i) of the Act. The complaint was filed by the appellant on 20-8-1992 before the Chief Judicial Magistrate, Coimbatore.

7.         As already noted, the Chief Judicial Magistrate dismissed the complaint relying on section 468, which provides :

“Bar to taking cognizance after lapse of the period of limita­tion.—(1) Except as otherwise provided elsewhere in this Court, no Court shall take cognizance of an offence of the category specified in sub-section (2), after the expiry of the period of limitation.

(2)                    The period of limitation shall be—

                  (a)        six months, if the offence is punishable with fine only;”

The date on which period of limitation is to commence has been provided for in section 469 of the Cr. PC in the following manner :

“Commencement of the period of limitation.—(1) The period of limitation, in relation to an offender, shall commence,—

                  (a)        on the date of the offence; or

(b)        where the commission of the offence was not known to the person aggrieved by the offence or to any police officer, the first day on which such offence comes to the knowledge of such person or to any police officer, whichever is earlier.”

8.         It is unnecessary to decide whether the offence under section 113 of the Companies Act is a continuing one under section 472 of the Cr. PC on the facts of this case. Even if the offences were a continuing one, the offence, if any, continued upto the date when the deliveries were in fact effected under section 113, viz., on 6-4-1991 and 16-4-1991. As the offence of delayed delivery is punishable with a fine, the time to initiate proceedings under section 468 would expire at the latest in October, 1991. The appellant, in fact, filed the complaint almost a year later.

9.         According to the appellant, the Magistrate overlooked the provisions of section 469(1)(b) which provides for the computa­tion of the period of limitation from the first day on which the offence comes to the knowledge of “the person aggrieved by the offence or to the police officer”. The High Court rejected the submission holding that the appellant was neither the person aggrieved nor a police officer and that the prosecution under section 113 could be launched only on the application of an affected shareholder. According to the High Court, this was clear from sub-section (3) of section 113.

10.       It is contended by the learned counsel appearing for the respondents that the view of the High Court has also been taken by a learned Single Judge of the Gujarat High Court in Vasantlal Chandulal Majmudar v. Navinchandra Manilal 22 Guj. LR 436; by a learned Single Judge of the Delhi High Court in Nestle India Ltd. v. State 1994(4) Comp. L.J. 446 (sic) as well as by a learned Single Judge of the Madras High Court in Sulochana v. State of Registrar of Chits (Investigation and Prosecution) 1978 Crl. L.J. 116.

11.       A contrary view has been expressed by two Division Bench judgments of the Calcutta High Court in Bhagabati Prasad Tantia v. Assistant Registrar of Companies [1983] 53 Comp. Cas. 56; Sushil Kumar Lahiri v. Registrar of Companies [1983] 53 Comp. Cas. 54 with reference to
section 113.

12.       As far as the decision of the Gujarat High Court is con­cerned, it dealt with the provisions of the Gujarat Co-operative Societies Act, 1967, the provisions of which are not before us. As far as the decision of the High Court of Madras is concerned, the decision of the learned Single Judge in Sulochana’s case (supra) has been expressly over-ruled by the Division Bench of the Madras High Court in Abdul Rahim v. State represented by the Chit Registrar Nagapattinam 1978 (1) L.W. Crl. 195. The Division Bench has held that the Registrar of Chits was a ‘person aggrieved’ within the meaning of section 469(1)(b) and was competent to initiate prosecution for an offence under the Tamilnadu Chit Funds Act, 1961, Sulochana’s case (supra) was also distinguished in the two Calcutta High Court’s  decisions noted earlier.

13.       The only decisions cited by the respondents which is on section 113 is the decision in Nestle India Ltd.’s case (supra). Neither the learned Judge in his decision in Nestle India Ltd.’s case (supra) nor the High Court in the judgment under appeal considered the provisions of section 621(1) of the Act, which provides :

“Offences against Act to be cognizable only on complaint by Registrar, shareholder or Government.—(1) No Court shall take cognizance of any offence against this Act (other than an offence with respect to which proceedings are instituted under section 545), which is alleged to have been committed by any company or any officer thereof, except on the complaint in writing of the Registrar, or of a shareholder of the company, or of a person authorised by the Central Government in that behalf.”

Under this section, therefore, the appellant is competent to file a written complaint in respect of offences under, inter alia, section 113.

14.       The phrase ‘person aggrieved’ has not been defined in the Cr. PC. However, as far as offences under the Companies Act are concerned, the words must be understood and construed in the context of section 621 of the Act. If the words ‘person aggrieved’ are read to mean only ‘the person affected’ by the failure of the company to transfer the shares or allot the shares, then the only ‘person aggrieved’ would be the transferee or the allottee, as the case may be. Under section 621, no Court can take cognizance of an offence against the Companies Act except on the complaint of a shareholder, the Registrar or the person duly authorised by the Central Government. Where the transferee or allottee is not an existing shareholder of the company, if the words ‘person aggrieved’ is read in such a limit­ed manner, it would mean that section 469(1)(b) of the Cr. PC would be entirely inapplicable to offences under section 113. There is, in any event, no justification to interpret the words ‘person aggrieved’ as used in section 469(1)(b) restrictively particularly when, as in this case, the statute creating the offence provides for the initiation of the prosecution only on the complaint of particular persons. Having regard to the clear language of section 621 of the Act, we have no manner of doubt that the appellant would be a ‘person aggrieved’ within the meaning of section 469(1)(b) of the Cr. PC in respect of offence (except those under section 545) against the Companies Act.

15.       Apart from overlooking the provisions of section 621, the High Court erred in construing the provisions of section 113(2) with reference to section 113(3). The latter deals with the civil liability of the company and its officers for a breach of section 113(1) at the instance of the transferee of the shares. Section 113(2) deals with the criminal liability arising out of a viola­tion of section 113(1). The objects of the two sub-sections are desperate. Section 113(3) is primarily compensatory in nature whereas section 113(2) is punitive. An application under section 113(3) can only be made by the transferee. And as already seen, a transferee who is not an existing shareholder of the company cannot file a complaint under section 113(2) at all.

16.       For the reasons stated, we are of the view that the appellant as a person aggrieved would be entitled to the benefit of the provisions of section 469(1)(b). It is not in dispute that the appellant came to know of the offences on 20-7-1992. The com­mencement of the period of limitation of six months for initiat­ing the prosecution would have to be calculated from that date. The complaint was filed on 20-8-1992 well within the period specified under section 468(2).

17.       In the circumstances, the decision of the High Court as well as the Chief Judicial Magistrate, Coimbatore are set aside and the matter is remanded back to the Chief Judicial Magistrate, Coimbatore for being decided on merits.

Because of the inordinate delay by the appellant in preferring this appeal, the appellant shall pay the cost of the        appeal to the respondents.

 

[1972] 42 COMP. CAS. 602 (CAL.)

HIGH COURT OF CALCUTTA

Asiatic Oxygen Ltd., In re

S.C. GHOSE, J.

COMPANY APPLICATION NO. 267 OF 1970

JUNE 16, 1971

JUDGMENT

S.C. Ghose, J. —This application has been made by Raigarh Trading Co. Ltd. against Asiatic Oxygen Ltd. for, inter alia, delivery of 28,500 equity shares of Rs. 10 each in the respondent, Asiatic Oxygen Ltd. (hereinafter referred to as “the company”). belonging to the petitioner ; in the alternative for issue of duplicate certificates for the aforesaid 28,500 equity shares of Rs. 10 each and delivery thereof to the applicant. This application has been made on a judge’s summons dated 8th October, 1969, under section 113 of the Companies Act, 1956.

In this application Surajmal Nagarmal, a partnership firm, was given liberty to intervene. The said firm has also filed affidavit. There is no dispute before me that Raigarh Trading Co. Ltd., the applicant, is the registered holder of the said 28,500 equity shares of Rs. 10 each in the company. The only dispute before me is as to whether the company delivered the said shares to the petitioner. The company alleges that the company duly delivered the said shares to one Dinesh Chandra Sarkar representing the applicant, who in his turn delivered the said shares to M/s. Surajmal Nagarmal through Biswanath Deora as and by way of pledge for the due repayment of loans granted by Surajmal Nagarmal to the petitioner. On the nature of affidavit evidence it is difficult to come to any conclusion as to whether the company delivered the said shares to the applicant represented by the said Dinesh Chandra Sarkar who in its turn pledged the same with Surajmal Nagarmal. For deciding the said fact this application has to be tried in evidence.

But, in my opinion, it is not necessary for me to try this application on evidence inasmuch as I am of the opinion that an application for delivery of shares under section 113 of the Companies Act, 1956, does not lie. For that the Companies Act, 1956, provides for no special remedy. A suit has to be filed for that.

Section 113 of the Companies Act reads as follows:

“(1)  Every company shall, within three months after the allotment of any of its shares, debentures or debenture-stock, and within two months after the application for the registration of the transfer of any such shares, debentures or debenture-stock, complete and have ready for delivery the certificates of all shares, the debentures, and the certificates of all debenture-stock allotted or transferred, unless the conditions of issue of the shares, debentures or debenture-stock otherwise provide.

The expression “transfer” for the purpose of this sub-section, means a transfer duly stamped and otherwise valid, and does not include any transfer which the company is for any reason entitled to refuse to register and does not register.

(2)    If default is made in complying with sub-section (1), the company, and every officer of the company who is in default, shall be punishable with fine, which may extend to five hundred rupees for every day during which the default continues.

(3)    If any company on which a notice has been served requiring it to make good any default in complying with the provisions of sub-section (1), fails to make good the default within ten days after the service of the notice, the court may, on the application of the person entitled to have the certificates or the debentures delivered to him, make an order directing the company and any officer of the company to make good the default within such time as may be specified in the. order; and any such order may provide that all costs of and incidental to the application shall be borne by the company or by any officer of the company responsible for the default.”

Sub-section (1) of the said section imposes an obligation upon the company to have ready for delivery the certificates of all shares, etc., within three months after the allotment of such shares or debentures or debenture-stock or within two months after application for the registration of transfer of any such shares, debentures or debenture-stock in the absence of any conditions of issue of the shares, debentures or debenture-stock to the contrary. Sub-section (2) of the said section provides for levy of fine up to the limit of Rs. 500 per day for the period during which the company fails to comply with the provisions of sub-section (1) upon the company and every officer of the company. Sub-section (3) of the said section authorises the person entitled to have the certificates or the debentures delivered to him to apply to the court on the failure of the company to make good the default mentioned in sub-section (1) within 10 days after the service of a notice upon the company requiring the company to comply with the provisions of sub-section (1) of the said section and make good the default in regard thereto. Upon such application the court under sub-section (3) is empowered to make an order directing the company or any officer of the company to make good the default within the time mentioned in the order.

Section 113 of the Companies Act, 1956, is in identical terms as section 80 of the English Companies Act of 1948. Rule 7 of the Rules of the Supreme Court (Companies) (No. 2), 1948, of England enumerates the applications, which shall be made by motion. Rule 8 of the said rules enumerates the applications, which have to be made by summons. Sub-rule (i) of rule 8 of the said rules enumerates applications in regard to delivery of certificates or debentures under section 80(3) of the Act. Rule il(a) of our Companies (Court) Rules, 1959, sets out the applications which shall be made by petition. Rule 11(b) of our rules provides that all other applications under the Act or under the said rules have to be made by a judge’s summons in the manner provided in the rules.

Form of the summons for such applications under English Rules was cited and relied upon by Mr. S. B. Mukherjee. The said forms appear in pages 1093 and 1094 of Palmer’s Company Precedents, Volume I, 17th edition. Mr. Mukherjee contends that the words “in regard to delivery” as appearing in rule 8 of the English Rules as well as in the form of the summons mentioned above show that sub-section (3) of section 80 of the English Act and section 113 of our Act really authorises a person entitled to the delivery of shares or debentures to apply for delivery of the same.

I am unable to accept the said contention of Mr. Mukherjee. The words “in regard to delivery” in my view means “for the purpose of delivery”. Sub-section (1) to section 113 imposes an obligation upon the company to complete and to have ready for delivery the certificates of shares, debentures or debenture-stocks allotted or transferred in the circumstances and within the time mentioned above. The failure to do so, as we have noted earlier, entails visiting with imposition of fine under sub-section (2) upon the company or any of the officers of the company who is liable for such default. Sub-section (3) of the said section empowers the court to make an order upon the company or any officer of the company only to make good the default in complying with the provisions of sub-section (1) to the said section.

The failure to comply with the requirements of sub-section (1) to the said section thus shall be visited with penal consequences. In that view of the matter, in my opinion, the said sub-section has to be construed strictly (see Pathina Ramakrishna Reddy v. State of Madras: see also Maxwell on the Interpretation of Statutes, 11th edition, pages 254-55). The said sub-section nowhere provides for delivery of the certificates of shares or debentures or debenture-stocks but only enjoins upon the company to have the same ready for delivery. The said words in the sub-section, in my opinion, should not be construed in such a way as to give an extended meaning to the words “to have them ready for delivery”. The subsection (1) does not impose an obligation upon the company to deliver the said shares, etc. Thus, in my opinion, sub-section (3) to the said section does not authorise a person to have an order for delivery of the said shares. In that view of the matter, in my opinion, this application is misconceived and must fail.

In the premises, this application is dismissed. In the facts and circumstances of this case, I do not, however, make any order as to costs.

Certified for counsel as against respective clients. All interim orders shall stand vacated. Operation of the order is stayed for four weeks.

 

[1987] 62 Comp. Cas. 414 (Mad)

High Court OF Madras

S. Sundaram Pillai

v.

P. Govindaswami

M.N. CHANDURKAR, C. J.

C.R.P. NO. 4120 OF 1984

December 14, 1984

 JUDGMENT

M. N. Chandurkar, C. J.—This revision petition is directed against a wholly unsustainable order which has the effect of divesting the petitioners of ownership of 12,387 shares by an ad interim mandatory injunction which has been almost mechanically passed by the trial court.

It is not necessary to go into the merits of the suit which the plaintiff-respondent No. 1 has filed in the City Civil Court, Madras, in which substantially the plaintiff's case is that the first and second defendants (petitioners Nos. 1 and 2) on behalf of defendants Nos. 3 to 21 (petitioners Nos. 3 to 21) in the suit had agreed to transfer to the plaintiff 16,387 equity shares of M/s. Century Flour Mills Ltd., Madras, respondent No. 2 herein.

Respondent No. 2 herein is a public limited company, hereinafter referred to as "the company", in which admittedly defendants Nos. 1 to 20 had obtained 12,387 shares in pursuance of an agreement between the plaintiff and defendants dated December 12, 1976. One of the terms of the agreement dated December 12, 1976, was that the first, second and third defendants were to be made directors, out of whom the first defendant was to be the full-time director of the company. Defendant No. 21 also owns 4,000 shares in the company. According to the plaintiff, these shares were transferred to defendant No. 1 in pursuance of an agreement under which defendant No. 21 had advanced a loan to the plaintiff, and it was agreed that defendant No. 2 was to be eligible only to the interest and other benefits arising out of these shares. The plaintiff has already filed a suit, C. S. No. 453 of 1983, on the original side of this court for a declaration of ownership of those shares and an injunction has been issued to defendant No. 21 restraining him from dealing in any manner with those 4,000 shares. That order has later been vacated, and an appeal filed by the plaintiff against the order vacating the injunction was later withdrawn.

The plaintiff's case is that at the annual general meeting held on July 22, 1983, the first three defendants were not elected as directors; and, consequently, the first defendant had automatically vacated office as wholetime director of the company. There is some dispute between the parties with regard to the meeting held on July 22, 1983, and some of the defendants, including defendant No. 21, have already filed in this court, Company Petition No. 17 of 1983.

It may be, at this stage, conveniently stated that in Company Applications Nos. 397 and 398 of 1983 in Company Petition No. 17 of 1983, by an order dated August 22, 1984, a learned single judge of this court has held that no valid annual general meeting was held on July 22, 1983, and that petitioners Nos. 1, 5 and 6 in the company petition, who are defendants Nos. 1, 2 and 3 in the suit, continued to be the directors as per the unamended article 97. The learned judge has further held that since there was no annual general meeting on July 22, 1983, the term of directors had to be reckoned from September 30, 1982. Accordingly, the learned judge made an order that the respondents in the company petition would be restrained by an injunction from interfering in any manner with the three defendants functioning as directors of the company, and the first defendant discharging his duties as a wholetime director of the company. A further injunction was issued against the first respondent in the company petition from convening or holding meeting of the board of the first respondent-company without due notice in writing by registered post to petitioners Nos. 1, 5 and 6 in the company petition. It appears that after this order was passed by the learned single judge, the suit came to be filed on September 6, 1984, in which, surprisingly, no reference has been made to the order of the learned single judge, but averments have been made to the contrary that the three defendants have ceased to be directors of the company. However, the substantial relief which is asked for in the plaint is that by way of settlement of some money transactions between the parties through the good offices of one Sri N. P. V. Ramaswami Udayar, an agreement has been arrived at between the parties, by which the first two defendants, on behalf of the remaining defendants, agreed to transfer 16,387 equity shares of the company to the plaintiff. The details of the holding of each of the defendants were given in the plaint as a schedule. These are not relevant for the purpose of this revision petition. It was also alleged that some cash payments were made, and since the defendants were not transferring the shares, the plaintiff was forced to file the suit. In the suit, as many as eight substantive reliefs had been sought. The main relief is one of declaration that the plaintiff is the owner of 16,387 equity shares of M/s. Century Flour Mills Ltd., Madras. The other relief is for a direction to the defendants to deposit the share certificates in the court. The third relief is that the defendants should deposit the share transfer forms of the shares, and the company should be prohibited from entertaining any application for transfer in the name of any person other than the plaintiff. There was also a prayer for direction to the company to issue duplicate shares in lieu of 12,387 shares standing in the name of defendants Nos. 1 to 20. In his own right, defendant No. 21 had 4,000 shares. A direction was sought against defendant No. 21 for transferring those 4,000 shares. An additional relief was sought, namely, that defendants Nos. 1 to 20 should be restrained from dealing in any manner with 12,387 shares by way of sale, hypothecation, pledge, mortgage, transfer, etc., till the final disposal of the suit. An injunction was also sought that defendants Nos. 1 to 20 should be restrained from exercising their voting rights in respect of the said 12,387 shares.

At this stage, it has to be mentioned that in Company Petition No. 17 of 1983, the plaintiff in this suit has filed an application for recording the terms of the compromise, under which, according to the plaintiff, the defendants were under an obligation to transfer the shares. This application is C. A. No. 583 of 1984 (page 10 of the paper book). In this application, the details as to how the compromise has been arrived at have been given, and it is stated that several drafts were exchanged between the parties, and the final terms arrived at between the plaintiff and defendants Nos. 1 to 3 were recited. It was stated that the defendants were unwilling to abide by the terms and that is why it became necessary to file the application for directions under rule 9 of the Companies (Court) Rules, 1959, and Order 23, rule 3, Civil Procedure Code, read with section 402 of the Companies Act to record the compromise and issue suitable directions giving effect to the terms concluded between the parties. A judge's summons was taken out. For this purpose, along with the affidavit, "memo of settlement arrived at between the petitioner and respondents" was filed. This was done in August, 1984, i.e., prior to the suit. However, this finds no reference in the plaint itself.

Now, on the day on which the suit was filed, three separate interim applications came to be filed by the plaintiff, viz., I.A. Nos. 16444, 16445 and 16446 of 1984. There is an endorsement on I.A. Nos. 16444 of 1984 that that application was received at 5 p.m. on September 6, 1984. Since chronologically, the other two applications bear later numbers, at best, they must have been received at the same time or a few minutes later. On receipt of these three applications which have endorsements of the counsel that there is no caveat in the suit register, the Registrar seems to have registered those applications and they were put up before the court almost immediately. The endorsements made by the Registrar on the three applications were, therefore, to have taken some time, and all this obviously happened after 5 p.m. The learned judge granted all the three applications by making interim orders also almost immediately after they were filed, and the three orders are identical in terms. It is enough to reproduce the order on LA. No. 16444 of 1984, which reads as follows:

"Heard. Perused case records. Satisfied that the object of granting the interim injunction would be defeated by the delay. Hence, ad interim injunction and notice 8.10.84".       Sd/……………

8.10.1984.

There is intrinsic evidence in this record to indicate how mechanically these orders have been made without any application of mind, because the order in I. A. No. 16446 of 1984 renders wholly ineffective the orders made on Applications Nos. 16444 and 16445 of 1984 on the same day and at the same time. Application No. 16444 of 1984 was intended for the relief of an ad interim injunction restraining defendants Nos. 1 to 20 from disposing of in any manner 12,387 shares by sale, mortgage, gift, pledge or otherwise till the disposal of the suit. This order which is at page 73 of the paper book had in effect frozen the shares. LA. No. 16445 of 1984 was made for an ad interim injunction restraining defendants Nos. 1 to 20 from exercising voting rights in respect of 12,387 shares of M/s. Century Flour Mills Ltd. The occasion for exercising voting rights would arise only if and when a meeting of shareholders would be held. This injunction was granted and defendants Nos. 1 to 20 were restrained from exercising voting rights in respect of the disputed shares. The combined effect of these two orders is that defendants Nos. 1 to 20 were prevented from exercising their rights as either shareholders or the first three defendants functioning as directors of the company. Also virtually, the effect of these two orders was that the order of the learned single judge in Company Applications Nos. 307 and 308 of 1983 which was made about two months prior to the date on which the trial judge granted the injunction was completely set at naught. It is also obvious that these orders were obtained by the plaintiff without disclosing the fact that there was already an order of the High Court holding that the three defendants continued to be directors of the company.

What is surprising is that after having made these orders, the learned judge has also made an order, which is challenged in this revision petition, on the same day directing Century Flour Mills Ltd., which is described as "garnishee" to issue forthwith duplicate shares in respect of 12,387 shares of M/s. Century Flour Mills Ltd. standing in the name of defendants Nos. 1 to 20 to the plaintiff. The learned judge has made a further order directing that the said 12,387 shares should be immediately transferred in the name of the plaintiff. The result of this order is that there are now no shares in respect of which the order made on the two earlier applications on which those orders can operate. The effect of this order also is that the suit filed by the plaintiff substantially stands decreed on the very day on which the suit has been filed at the end of the day. This order of mandatory injunction has been challenged in this revision petition.

When the matter came up for admission, since allegations were made against the learned judge in the memorandum of revision as well as in a complaint made to me for being dealt with administratively that the injunction order was made after court hours and without notice to the parties who would be seriously affected by such an injunction, I directed the learned judge to make a report as to how such an order came to be passed ex parte. The learned judge has sent a report that at the time when he made the order, he was satisfied that the object of granting the order would be defeated by the delay, and that he bona fide thought that an interim order could be made which could be reversed. In this report, however, he has further stated that he now realises that he should not have passed the ad interim order of mandatory injunction.

Mr. Gandhi, who appears on behalf of the original plaintiff, has, at the outset, contended that the revision petition filed by the defendants should be dismissed, because no appeal or revision petition lies against an interim order, and he has placed reliance on a Division Bench decision of this court in Abdul Shukkoor Sahib v. Umachander, AIR 1976 Mad 350. The Division Bench has, in Abdul Shukkoor's case, AIR 1976 Mad 350, held that no appeal will lie against an ex parte ad interim injunction, but the specific remedy available in Order 39, rule 4, Civil Procedure Code, has to be availed of by the interdicted party so that a final reasoned order could be obtained in the trial court itself against which the Code has provided an obvious appeal under Order 43, rule 1(r). That was a case in which against an ad interim temporary injunction restraining the defendants from interfering with the plaintiff's peaceful possession and enjoyment of the suit property, the defendants filed an appeal before the Subordinate Judge, and the Subordinate Judge passed an order suspending the interim injunction. This order of the Subordinate Judge was challenged in the revision petition. While holding that the order of ad interim injunction was not appealable, the Division Bench held that the order of the Subordinate Judge was absolutely without jurisdiction, because no appeal lay against the ad interim order, and the order of the Subordinate Judge was set aside. Now, it is true that the Division Bench has held in Abdul Shukoor's case, AIR 1970 Mad 350, that no appeal will lie against an order of ad interim injunction. But to accept the contention of the plaintiff in the present case that the defendants should first appear before the trial court and move the trial court for setting aside the injunction would really have the effect of permitting the plaintiff to have the benefit of an order which is patently erroneous and to say the least, perverse and has been obtained by suppressing material facts. In any case, the High Court, in the exercise of its revisional jurisdiction under section 115 of the Civil Procedure Code, cannot allow an order which amounts to an abuse of the powers vested in the trial court to stand once such an order comes to the notice of the High Court.

It is apparent that there are several infirmities in the order of ad interim mandatory injunction made by the trial court. The petition seeking an order of ad interim mandatory injunction purports to have been "under section 151, Civil Procedure Code, read with Order 39, rule 7". Originally, the petition appears to have been made under Order 39, rules 1, 2 and 7, but the figures "1, 2" and the word "and" have been struck off. Now, it is true that if there is power in the court to grant a relief, mention of a wrong provision of law in the petition will not deprive a party of his right to a relief if he is otherwise entitled to such relief. But when positively, a petition is filed under Order 32, rule 7, Civil Procedure Code, the learned judge should have applied his mind to the question as to whether the case before him really fell within Order 39, rule 7, Civil Procedure Code. Order 39, rule 7, Civil Procedure Code, which has the marginal heading "Detention, preservation, inspection, etc., of subject-matter of suit", enables the court to make three kinds of orders specified in clauses (a), (b)and(c). Order 39, rule 7(1), Civil Procedure Code, reads as follows :

"7 (1) The court may, on the application of any party to a suit, and on such terms as it thinks fit,—

(a)    make an order for the detention, preservation or inspection of any property which is the subject-matter of such suit, or as to which any question may arise therein;

(b)    for all or any of the purposes aforesaid authorise any person to enter upon or into any land or building in the possession of any other party to such suit; and

(c)    for all or any of the purposes aforesaid authorise any samples to be taken, or any observation to be made or experiment to be tried, which may seem necessary or expedient for the purpose of obtaining full information or evidence".

Mr. Gandhi, appearing on behalf of the plaintiff, was fair enough to concede that the ad interim mandatory injunction could not have been asked for under Order 39, rule 7, of the Civil Procedure Code at all. The learned judge has obviously not applied his mind to the correct provision of law under which the plaintiff was asking for an order of ad interim mandatory injunction.

The second infirmity in the order is that the order of ad interim mandatory injunction is made against "Messrs Century Flour Mills Limited" which is not even a party to the suit. Messrs Century Flour Mills Limited is a public limited company and merely by adding the name of Messrs Century Flour Mills Limited as respondent No. 22 in the petition for ad interim mandatory injunction, it would not empower the court to issue an injunction against Messrs Century Flour Mills Limited directing it to issue duplicate shares. In paragraph 10 of his affidavit, in support of his application in I A No. 16446 of 1984, the plaintiff has stated :

"I am taking this application impleading M/s. Century Flour Mills Ltd., having its registered office at Indian Chamber Buildings, First Floor, Esplanade, Madras 600 001, as the garnishee so as to help this Hon'ble Court to pass necessary orders directing the garnishee, M/s. Century Flour Mills Ltd., Madras, to issue duplicate shares in respect of 12,387 shares standing in the name of defendants Nos. 1 to 20 and also direct the garnishee, M/s. Century Flour Mills Ltd., Madras, to transfer the above 12,387 shares in the name of the plaintiff and save him from irreparable loss and damages".

It is not known as to how Messrs Century Flour Mills Limited was described as a "garnishee" and in what proceedings, Messrs Century Flour Mills Ltd. was a garnishee. Technically, assuming that Messrs Century Flour Mills Ltd. was under the control of the plaintiff, the trial court could not have made an order of ad interim mandatory injunction without Messrs Century Flour Mills Limited being a party to the suit. The fact that an ad interim order of mandatory injunction has been made against the company which is not even a party to the suit, and not against the defendant itself, indicates that the interim mandatory injunction has been issued in a most casual manner without any application of mind.

The learned judge seemed to have completely lost sight of the fact that the ad interim order of mandatory injunction was in this case of a very peculiar type and the right of the plaintiff to get such an ad interim injunction could not be determined without reference to the provisions of the Companies Act. The right of a party to have duplicate shares issued or to have his name entered in the register of members of a public limited company has to be determined with reference to the provisions of the Companies Act. The "shares" in a company are movable property. Section 82 of the Companies Act provides that the shares or other interest of any member in a company shall be movable property, transferable in the manner provided by the articles of the company. Transfer of shares is a matter in respect of which there is an express statutory provision in section 108 of the Companies Act. Section 106(1) which provides that the transfer of a share is not to be registered except on production of the instrument of transfer, reads as follows :

"A company shall not register a transfer of shares in, or debentures of, the company, unless a proper instrument of transfer duly stamped and executed by or on behalf of the transferor and by or on behalf of the transferee and specifying the name, address and occupation, if any, of the transferee, has been delivered to the company along with the certificate relating to the shares or debentures, or if no such certificate is in existence, along with the letter of allotment of the shares or debentures :

Provided that where, on an application in writing made to the company by the transferee and bearing the stamp required for an instrument of transfer, it is proved to the satisfaction of the board of directors that the instrument of transfer signed by or on behalf of the transferor and by or on behalf of the transferee has been lost, the company may register the transfer on such terms as to indemnity as the board may think fit :

Provided further that nothing in this section shall prejudice any power of the company to register as a shareholder or debenture holder any person to whom the right to any shares in, or debentures of, the company has been transmitted by operation of law".

This provision shows that a company is prohibited from registering the transfer of shares in the company, unless there is a proper instrument of transfer which is duly stamped and which is executed by or on behalf of the transferor and by or on behalf of the transferee is delivered to the company along with the certificate relating to the shares or debentures, as the case may be. However, under the proviso, if it is proved to the satisfaction of the board of directors that the instrument of transfer signed by or on behalf of the transferor and by or on behalf of the transferee has been lost, the company may register the transfer on such terms as to indemnity as the board may think fit, but this can be done only on an application in writing to the company by the transferee and bearing the stamp required for an instrument of transfer. However, if the shares of a company have been transmitted by operation of law, the company is entitled to register as shareholder or debenture holder, the person to whom the shares have been transmitted by operation of law. Sub-section (1A) of section 108 requires the instrument of transfer of shares to be in the prescribed form. There is an elaborate procedure prescribed under section 108 which has to be complied with before a transferee of a share could have his name registered in the books of the company. The provisions of section 108 would, therefore, show that the title of the transferee to get on the register of shareholders consists in the possession of the share certificates, together with the transfer form signed by the registered holder (see Maneckji Peslonji Bharucha v. Wadilal Sarabhai and Co. [1926] ILR 50 Bom 360; AIR 1926 PC 38). The combined effect of section 82 read with section 108 of the Companies Act is that though the shares of a company are "movable" property, in so far as the company is concerned, unless there is a valid deed of transfer in accordance with section 108 of the Companies Act, the transferee cannot claim to have his name entered in the register of members of the company.

Even so far as the issue of duplicate shares of the company is concerned, the right to get a duplicate share is regulated by section 84. Under section 84(1), a certificate, under the common seal of the company, specifying any shares held by any member, is prima facie evidence of the title of the member to such shares. Sub-section (2) of section 84 reads as follows :

"A certificate may be renewed or a duplicate of a certificate may be issued, if such certificate—

        (a)    is proved to have been lost or destroyed, or

        (b)    having been defaced or mutilated or torn is surrendered to the company".

The learned judge has not considered the effect of section 84 or section 108 of the Companies Act when he went on to make an order that duplicate shares should be issued, and the said shares should be immediately transferred in the name of the plaintiff. The learned judge was bound to consider whether he could issue an injunction against a company which is not a party, and whether the plaintiff was entitled to bypass the provisions of the Companies Act when he asked for the several reliefs as prayed in the plaint. He should have considered these matters on his own even if the plaintiff's counsel had not referred to them.

Important questions of law are involved in the suit. The plaintiff's right to get the ownership of the shares in question itself is not beyond doubt. Such a right is not founded on any document and will have to be decided only on oral evidence. It could not even be prima facie said that the plaintiff had any present undisputed right on the basis of a compromise which even according to the plaintiff himself, the concerned defendants were not accepting. There was clear suppression of facts on the part of the plaintiff when he did not disclose to the court the fact that he has applied for the alleged compromise being recorded in the company court. He has also not disclosed that there was already an adjudication in the company court before the filing of the suit and that the three defendants continue to be the directors of the company. Injunction is an equitable relief and the suppression of the above facts was, in my view, enough to deprive the plaintiff of the right to get the relief of injunction.

There are not only disputed questions with regard to the present right of the plaintiff to the ownership of the shares in question, but as already pointed out, important questions of law are involved in respect of the provisions of the Companies Act, and it was wholly improper on the part of the trial court to make an order of ad interim mandatory injunction in the present case. A mandatory injunction is an order compelling a defendant to restore things to the condition in which they were when the plaintiff's complaint was made. Salmond defines "mandatory injunction" as an order requiring the defendant to do a positive act for the purpose of putting an end to a wrongful state of things created by him or otherwise in fulfilment of the legal obligations, for example, an order to pull down a building which he had already erected to the obstruction of the plaintiff's rights "Mandatory injunctions" are dealt with in section 39 of the Specific Relief Act which reads as follows :

"When, to prevent the breach of an obligation, it is necessary to compel the performance of certain acts which the court is capable of enforcing, the court may in its discretion grant an injunction to prevent the breach complained of, and also to compel performance of the requisite acts".

A mandatory injunction can, therefore, be issued in order to compel the performance of certain acts in order to prevent the breach of an obligation which the court is capable of enforcing. It is true that the obligation may flow from a contract. But then, an agreement enforceable at law has to be there between the parties on the basis of which the obligation can be ascertained. In the instant case, the agreement on which the plaintiff is relying is itself to be established.

The object of an injunction is prevention (sic) and the maintenance of the status quo ante. Normally, this object is achieved by merely a restrictive order which forbids the carrying out of a threat of injury, or the repetition of an injurious act. In the given case, however, the acts committed by the defendant may leave an abiding injury, and it may be difficult to restore the status quo ante unless that which has been done is undone. A mandatory injunction is issued to undo the effect of an injurious act. A very familiar example of such an injury is where the defendant erected a building which causes a perpetual obstruction to the access of light to the plaintiff's house, to which amount of light he has a legal right. In such a case, it is obvious that restoration of the parties to their former condition is impossible except by ordering the demolition of the building. Sometimes in order to prevent the breach of the legal right, and to compel the performance of certain acts, the defendant is ordered to undo that which he has done. A mandatory injunction is granted only in rare cases, and normally, a mandatory injunction is granted, if at all, only to restore the status quo and not to establish a new state of things differing from the state which existed at the date when the suit was instituted. The effect of a mandatory injunction, so far as the defendant is concerned, is more serious than in the case of a prohibitory injunction, because, where by a mandatory injunction, the defendant is enjoined to do any particular act, he may be put to expenses and trouble which may be very considerable. That is why, though the power to grant injunction has to be exercised with great caution, much greater caution is necessary in the case of making an order of mandatory injunction which is very rarely granted.

The present case is an illustration of what harm a mandatory injunction can cause when passed in a casual manner, as a matter of course. The plaintiff has still to establish his right to the shares in question. The factum of the compromise in pursuance of which the plaintiff claims that the defendants had promised to transfer the shares to him is itself the subject-matter of an application under Order 23, rule 3, Civil Procedure Code, before the company court. The averments in the plaint which will have to be established before the plaintiff can claim any right to the shares in question, are disputed questions of fact on which evidence will have to be recorded when the suit goes to trial, because the main issue in the suit relate to the factum of the compromise on which the plaintiff relies. Even on the averments in the plaint, it cannot be said that the plaintiff has made out any prima facie case for a mandatory injunction, and yet the defendants have been summarily divested of the ownership of the shares in question of the value of more than Rs. 10 lakhs by one stroke of the pen of the learned judge. In the view I have taken, the order of mandatory injunction made by the trial court is set aside and Application No. 16446 of 1984 is rejected.

Before parting with the case, it is necessary to observe that the trial courts must realise that injunctions, whether prohibitory or mandatory, should not be granted as a matter of course, and the trial court must exercise extreme caution and care before an order of injunction is made, and it has to decide the question relating to the grant of an ad interim injunction according to well-established principles. The trial court, even at the stage of making an ad interim order of injunction, has to apply its mind seriously to the question whether the plaintiff has made out a prima facie case for the grant of an injunction. The circumstance that an ad interim order can be vacated after the defendant appears and contests the correctness of the order of injunction is no justification for issuing an injunction as a matter of course.

Accordingly, the order of the trial court made in I. A. No. 16446 of 1984 is set aside. The revision petition is allowed with costs. Counsel's fees are computed at Rs. 500.

I am informed that the defendants have already moved the company court for the transfer of the suit to its file. Having regard to the manner in which the trial court has dealt with the matter, it will be in the interest of justice to withdraw the suit from the court and transfer the suit to the file of the Principal Judge, City Civil Court. Till such time as the company court decides the application for transfer of the suit from the City Civil Court, the suit shall not be tried by the Principal Judge, City Civil Court, Madras. If the suit is not transferred to the High Court, the suit will continue for trial in the court of the Principal Judge.

 

[1990] 67 COMP. CAS. 491 (CAL.)

HIGH COURT of CALCUTTA

Pradip Kumar Sarkar

v.

Luxmi Tea Co. Ltd.

AJIT KUMAR SENGUPTA J.

Suit No. 670 of 1986

JULY 6, 1988

 S.B. Mukherjee and R. C. Nag for the Appellant.

Bholanath Sen, P.C. Sen and Bhaskar Sen for the Respondent.

 JUDGMENT

Ajit Kumar Sengupta J. —In this interlocutory application, the plaintiffs have, inter alia, asked for the following reliefs :

(i)             Appointment of an administrator and/or special officer over the defendant-company, the Luxmi Tea Co. Ltd. to take over its management;

        (ii)            For certain orders of injunction,—

                (a)        restraining defendants Nos. 2 to 8 from holding out or acting as directors ;

(b)        restraining defendant No. 9 from holding out or acting as the secretary of the defendant-company ;

(c)        restraining the defendants from dealing with or alienating or encumbering the company's assets or parting with its possession or from entering into any further contracts or operating the company's bank account or selling the company's tea except by public auction and restrain ing the defendant-company from allowing Carritt Moran and Co. P. Ltd. ("Carritt Moran") to act as tea-broker of the defendant-company and allowing one Debu Chatterjee to act as manager of the defendant-com pany's Narayanpur Tea Estate both pursuant to the company's board resolutions ;

(d)        injunction restraining the defendant-company from giving effect or further effect to the transfer of any of the 1,348 shares mentioned in annexure 'A' to the petition and from allowing any right to be exercised in respect of such shares including the voting rights or receiving any dividend ;

(e)        injunction restraining defendants Nos. 2 to 9 from using any funds of the defendant-company for the purpose of defending the pending proceedings under section 155 of the Companies Act, 1956 (Companies Act), and appeal pending before the Central Government under section 111 of the Companies Act;

(iii)       An order directing the administrator and/or special officer to be appointed to conduct and preside over the company's seventy-fourth annual general meeting which was for the financial year ended on March 31, 1986, with ancillary directions upon the administrator and/or special officer regarding such meeting ;

            (iv)       And for ad interim orders in terms of the aforesaid.

On the said interlocutory application which was moved on September 16, 1986, R.N. Pyne J. (as his Lordship then was) made an interim order directing that the resolution passed at the said annual general meeting due to be held shall be subject to and would abide by the results of the application and the advocates-on-record of the plaintiffs and the defendants were appointed as joint special officers for the purpose of making an inventory of the share register, share transfer register and transfer deeds relating to the said 1,348 shares.

Pursuant to the said order, the inventory has been completed in the month of September, 1986. It appears that the plaintiffs preferred an appeal. It is alleged that the company, while contesting the said application filed by the plaintiffs in the said appeal, contended that the disputed shares were not 1,348 but were only 779 shares which were described as "dead shareholders". It may be mentioned that the said 1,348 shares and 779 shares constitute 8.4% and 4 8% respectively of the paid-up capital of the company.

Orders were passed by the appellate court from time to time adjourning the said annual general meeting and eventually by an order of the appellate court dated January 28, 1987, the said adjourned annual general meeting was directed to be held on March 7, 1987, and a retired judge of this court, Mr. C.K. Banerjee, was appointed as chairman of the meeting. Direction was also given by the appellate court that votes, if cast in the abovementioned meeting in respect of the said 779 shares, would be separately shown in the chairman's report. The chairman has since then filed a report.

The suit having been instituted with leave under Order 1, rule 8 of the Code of Civil Procedure, an advertisement was published in newspapers on September 29, 1986. By several orders passed by justice Mrs. Pratibha Bannerjee in the months of November and December, 1986, on applications made under Order I, rule 8 of the Code of Civil Procedure, eleven persons who had purchased 716 shares constituting about 4.4% of the company's paid-up capital and who had made applications under section 155 of the Companies Act, five other persons who had purchased 1,149 equity shares constituting about 7.18% of the company's paid-up capital and nineteen other persons who had purchased 1,143 equity shares constituting 7.1% of the defendant-company's paid-up capital, were added as parties to the suit. As a result of the said order, persons having purchased shares constituting about 18.7% of the paid-up capital of the company were added as parties to the suit supporting the plaintiffs. Supplementary affidavits have been filed by or on behalf of such persons putting on record their support to the plaintiffs.

On September 4, 1986, the learned company judge passed an order on one of the applications made under section 155 directing rectification of the register of members of the defendant-company in respect of 56 shares purchased by one Champalal Dharewa. It is contended by the plaintiffs that in spite of such order, no rectification has been made and an application for contempt is pending in respect of the same.

On the eve of the annual general meeting, the applicants whose applications under section 155 were pending, obtained orders from Justice Mrs. Monjula Bose in the said company proceedings appointing special officers, to exercise voting rights in respect of the shares purchased by them but not registered by the company in accordance with their wishes, at the ensuing adjourned annual general meeting. The said special officers have exercised their voting rights at the annual general meeting to which I shall refer presently.

According to the plaintiffs, 49 applications under section 155 of the Companies Act were pending in respect of more than 3,000 shares constituting about 20% of the company's paid-up capital, purchased by some of the present plaintiffs and their supporters.

The present application is opposed by the company, its directors and secretary. Two sets of affidavits-in-opposition have been filed. Supplementary affidavits have also been filed by the parties in the present proceeding.

The contention of the plaintiffs is that the company was incorporated in the year 1912 with its liability limited by shares and on February 6, 1963, a new set of articles was adopted by the company following the amendment of the Companies Act in 1960, inter alia, of section 111 of the Companies Act. Under the amended articles, the board of directors of the company has no power to refuse registration of the transfer of fully paid-up shares over which the company has no lien. It is nobody's case that the company is claiming any lien over the shares which were awaiting registration in the pending proceedings under section 155 of the Companies Act or otherwise.

According to the plaintiffs, the first plaintiff purchased 12 equity shares on February 7, 1986, and the second plaintiff purchased 12 equity shares on January 24, 1986, and another 12 shares on February 9, 1986, which were registered by the company on March 5, 1986. The first, second and third plaintiffs are the registered shareholders in respect of 12, 24 and 26 equity shares respectively ; the first plaintiff claimed to have subsequently purchased a further two equity shares and lodged the same with the company for registration. The fourth plaintiff purchased six equity shares from one Durga Prasad Agarwalla and seven others who were joint-holders in respect of the said six shares and had lodged the same with the company for registration. The fifth, sixth and seventh plaintiffs claimed to have purchased respectively, 309, 210 and 546 fully paid-up equity shares and lodged the same for registration with the company, but the registration has been refused by the company. The fifth, sixth and seventh plaintiffs have already filed applications under section 155 of the Companies Act. According to the plaintiffs, 44 persons have filed three separate affidavits through three deponents, Nav Ratan Surana, Suresh Kumar Kanoi and Jaga-dish Chandra Ghosh claiming to have purchased 3,369 shares. The plaintiffs rely on an affidavit of the first plaintiff affirmed on January 6, 1987, filed before the appellate court showing that the plaintiffs have the support of persons holding 6,157 shares.

Two main disputes are involved in this application. The first dispute relates to transfer of shares and non-registration thereof. The second dispute relates to the alleged mismanagement of the affairs of the company and oppression of the plaintiffs and their supporters who have purchased shares and have allegedly failed to obtain registration thereof in alleged breach of the provisions of the Companies Act and the company's articles of association. I shall deal with these two controversies separately.

The broad facts relating to the first dispute as regards the transfer of shares and the alleged non-registration thereof are as follows :

The board of directors of the company comprised the Sahas holding only 3,690 shares out of the total paid-up capital of 16,000 shares of Rs. 100 each and the said 3,690 shares constituted only 23.06% of the total paid-up capital. Thus, the Sahas were in management on the. basis of only a minority shareholding. One Dipankar Chatterjee, the second defendant, in the month of January, 1986, obtained control of 1,652 shares held by the then director, Arun Kumar Saha, and the said shares constituted 10.3% of the total paid-up capital. According to the plaintiffs, the said Dipankar Chatterjee was in a position to dominate the board of the company and he was in de facto control of the company since January, 1986, although he became a director only on April 28, 1986. He also purchased the shares of other directors and their relatives. The allegation is that the said Dipankar Chatterjee is deemed to be a director since January, 1986, and rather even prior thereto and he has cornered a large number of shares by misrepre- sentation immediately after coming into the management. In January, 1986, the said Dipankar Chatterjee started transferring a large number of shares in his favour and in favour of his nominees even though dividends in respect of such shares remained unclaimed since 1976. The said Dipankar Chatterjee was formally co-opted as a director in the board meeting held on April 28, 1986, and at this board meeting, the transfer of a large number of shares out of the said 1,348 shares was approved. It may be mentioned that 12 shares purchased by the first plaintiff were also approved at the said meeting. The case of the plaintiffs in substance is that directors have acquired shares in their own names and in the names of the nominees by dubious and illegal methods.

In January, 1986, the shareholding in the defendant company was scattered. A large number of shareholders were either dead or not traceable or have not responded to the notices of the company for annual general meetings. For a number of years, they have not attended such meetings. According to the plaintiffs, the dividends in respect of the disputed 1,348 shares have not been encashed since last several years and are lying in deposit in the account of the Central Government under section 205A of the Companies Act, 1956.

It is also the grievance of the plaintiffs that in January, 1986, Dipankar Chatterjee and his supporters have resorted to a device for illegally acquiring the said 1,348 shares so as to create an ostensible majority in their favour. Such devices, inter alia, were issue of advertisements by the defendant company in various newspapers, stating that the original share certificates have been "reported to be lost" and if no objection was received within 15 days, duplicate share certificates would be issued. Such advertisements were issued in respect of 152 shares held by 16 shareholders. Before issuance of such advertisements, no request was made to the defendant company by the registered shareholders stating that the share certificates have been lost and duplicate share certificates should be issued in their favour. Nonetheless, such advertisements were issued in newspapers by the defendant company. It is further contended by the plaintiffs that issuance of duplicate share certificates are in violation of the Companies (Issue of Share Certificates) Rules, 1960. No board resolution of the company has been disclosed showing any authority of the board to issue either such advertisements or duplicate share certificates and yet on the basis of such duplicate share certificates transfer of about 152 shares in favour of the present management and their nominees are shown to have taken place. On these transfers, in some cases, the company claims to have taken indemnity from the persons concerned but the validity of such indemnities are in dispute by reason of lack of adequate stamp, without any affidavit, etc.

The case of the plaintiffs made in the affidavit-in-reply is that although transfers of 586 shares have been alleged by the company to have taken place prior to January, 1986, the said transfers have been deliberately antedated. In view of such allegations having been made in the affidavit-in-reply, the company, with the leave of the court, filed a supplementary affidavit through one Sukhendu Bikash Saha affirmed on March 28, 1987. The company, however, denied the allegation of antedating in the supplementary affidavit and did not rely on any records to refute the allegation or to establish that approvals of transfers of such shares in fact took place prior to January, 1986. It is also alleged that the company did not even make any reference in its pleadings in the annual return. The plaintiffs, in their supplementary affidavit-in-reply, have contended that in respect of the shares transferred in favour of Dipankar Chatterjee and his nominees in the year 1986, no dividend has been collected by the original shareholders and the same have been transferred to the account of the Central Government as late as September 20, 1986, long after the date of the transfer of shares. According to the plaintiffs, this would indicate the ante-dating of the transfer of many shares.

The further contention of the plaintiffs is that the records of the company have been fabricated and in order to conceal their detection, the same have not been referred to in the pleadings of the company. The plaintiffs have been kept at bay by refusing inspection of such records without which the plaintiffs cannot demonstrate further the wrongful acts complained of. The plaintiffs have given some illustrations regarding the alleged illegal acquisition of shares by Dipanker Chatterjee by alleged dubious methods.

One Durga Prasad Agarwalla and seven other persons jointly held six shares in the company bearing distinctive numbers 7,008 to 7,010 and 15,129 to 15,131. The fourth plaintiff purchased the said shares on May 29, 1986, from the said Durga Prasad Agarwalla and the said joint holders who executed the transfer deed lodged with the company on June 2, 1986, together with the share certificates, but the company, however, sent to the fourth plaintiff a copy of the letter addressed to Durga Prasad Agarwalla questioning the transfers and as to the reasons for not withdrawing the dividend for the year 1983-84 and lack of response to the advertisements in newspapers.

The attitude of the company, however, remains unexplained. The failure of the registered shareholder in not collecting the dividend or encashing the dividend warrant cannot be a relevant consideration in dealing with an application for transfer of shares by the company particularly having regard to the fact that even according to the company, the registered shareholder was alive and was still a member. It prima facie appears to me that this is an irrelevant consideration for the board of directors in exercising their powers of refusal to transfer the shares. Whether the defendant company and its board have power under clause 39 of the company's articles of association to refuse approval of transfer of the fully paid-up shares over which the company has no lien is a matter for the company court to decide. Suffice it to say at this stage that deciding the question about the balance of convenience, the court may take into account what would be the effect if these applications under section 155 are allowed and the applicants are treated as members of the company who would be supporting the plaintiffs. But the advertisements in newspapers can be issued only upon receipt of an application by the registered shareholder or in case of his death by his heir and legal representatives stating loss of original share certificates and asking for issue of duplicate share certificates. Prima facie the advertisements were issued unauthorisedly. Accordingly, the absence of response to such unauthorised issuance of advertisements in newspapers cannot justify such application and cannot make the issue of duplicate share certificates valid or proper particularly when the registered shareholder is alive at the time the company is considering the approval of transfer of shares by him.

The company contended that an application was made by one Madanlal Agarwaila representing himself to be the son and heir of the said Durga Prasad Agarwaila and on the basis of the said application, the shares were mutated in the name of Madanlal Agarwaila after obtaining an indemnity from him. The company has not disclosed before this court as to what steps have been taken by it to enforce such indemnity in view of the unassailable claim of the fourth petitioner to such shares by purchase. No affidavit has been affirmed by the said Madanlal Agarwaila and the supposed application of Madanlal Agarwaila has not been produced before this court. Even the supposed indemnity has not been produced. The said Madanlal Agarwaila is shown to have subsequently sold the said six shares to one Rabin Malakar who, according to the plaintiffs, is a nominee of Dipankar Chatterjee. The said Durga Prasad Agarwaila and the seven joint holders are still alive or at least are not claimed by the company to be dead. There is no explanation as to why an enquiry was not made by the company with the other seven joint holders before issuing the duplicate share certificates. The company has not produced before this court the transfer deed in favour of Rabin Malakar showing that the same was signed by the joint holders as well.

The company subsequently filed an interpleader suit in the City Civil Court, Calcutta, and obtained an order of injunction restraining the parties including the fourth plaintiff from initiating any proceedings against the company and its officers relating to the transfer of the said six shares. The transfer of the said shares in favour of Rabin Malakar is thus prima facie not tenable in view of the circumstances in which the duplicate share certificates were issued and on the basis of which the transfer in his favour was made and approved. No doubt the number of shares involved is small. It will not tilt the balance one way or the other. But the method by which the transfer of the said shares has been brought about discloses a serious mismanagement in the affairs of the company. This fact has to be taken into account in dealing with the allegations regarding mismanagement in the affairs of the company. It also lends support to the grievance of the petitioner that Dipankar Chatterjee, by illegal methods, has been trying to acquire more shares in the company and bring about registration thereof in his name and in the name of his nominees with a view to create a semblance of majority in his favour.

The company, in its affidavit-in-opposition filed before the appellate court, produced a list of transfers of 286 shares which, according to the company, were approved by the board and mutation took place in the year 1986. A copy of the said list has been included in the affidavit-in-reply to the present application. This list, however, was not filed by the company in its affidavit-in-opposition to the instant application. According to the plaintiffs, the said list discloses the transfers of shares in two cases and their approval by the board in the year 1986, but even in such cases, they suffer from incurable infirmities undecided hereinafter.

Pritheswar Misra and nine others held 12 shares in the company. On the basis of two affidavits affirmed by Saileswar Misra and six others on December 13, 1985, and Nikhileswar Misra also on the same date and the death certificate of Pritheswar Misra, the transmission of the said shares in the name of one Asha Misra was approved by the board on January 7, 1986. In the first affidavit, it has been alleged that out of ten persons, six persons were dead and yet the death certificate of only one person has been disclosed. There is no indispensable death certificates in the case of the other five persons. The indemnities obtained by the company from the so-called legal heirs, according to the plaintiffs, are understamped and are liable to be impounded. The company has, however, contended that Smt. Asha Misra sold the said 12 shares to Arun Kumar Saha and Purnima Saha on December 16, 1985. The plaintiffs in their supplementary affidavit- in -reply have challenged the factum and validity of such transfer on the ground of lack of competency of Smt. Asha Misra to sell the said shares on December 16, 1985, when she was not a registered shareholder in respect of the said 12 shares, the said shares having been mutated in her favour by reason of transmission only on January 7, 1986. No transfer deed executed by the said Asha Misra has been produced before this court.

Four shares previously standing in the name of Smt. Durga Bewa were transmitted in favour of one Ram Lal Agarwalla and were approved by the board on April 21, 1986, which, in turn, has transferred the shares to one Rabindra Nath Malakar who, according to the plaintiffs, is a nominee of Dipankar Chatterjee. The said Ram Lal Agarwala has affirmed an affidavit on the above mentioned impugned transaction on the basis of which the transfer of the said shares in his favour was approved by the board. In my view, no reliance can be placed in the said affidavit. It is alleged in the said affidavit that share certificates in respect of the said four shares were "issued"to the said Ram Lal Agarwala and the same were "lost or destroyed" "though those were returned"to him by the company. The said Ram Lal Agarwala has further stated in the said affidavit that he has "filed a request to the company" for issuance of duplicate certificate for the said shares. The meaning of such statements is not at all clear. A company can issue share certificates or even duplicate share certificates only to a registered shareholder and that too only if the duplicate share certificates have been issued lawfully and properly, of which there is no proof or evidence in the instant case. It is not also clear as to why the share certificates should have been returned to Ram Lal Agarwala which necessarily indicates that the share certificates were previously made over to the company. If so, by whom and its purpose is not at all clear. This document purports to give an indemnity and is understamped and liable to be impounded.

The contention of the defendants is that the first, second and third plantiffs held only 62 shares. The other plaintiffs are not yet members of the company and have filed applications under section 155 of the Companies Act which were pending. Hence, until the names of such other persons are mutated, they can have no cause of action in the plaint. There is no prayer for rectification of the share register in respect of the impugned transfer of the shares nor is there any decree for cancellation of the transfers of shares. There is only a prayer for prospective injunction in respect of the impugned transfers of 1,348 shares in the plaint. As most of the shares in question have already been transferred and mutated in the books of the company, no relief can be asked for in respect of the shares already mutated.

It is also the contention of the defendants that the instant application was moved on September 16, 1986, and the order was passed on the following day. The plaintiffs took a chance by preferring an appeal against the ad interim order and the appellate court also directed that the votes cast in respect of 779 shares need to be shown separately. Even according to the report of Mr. P.K. Jhunjhunwala; the advocate-on-record of the plaintiffs, as to the results of the voting, the defendants have won at the election and hence there is no room for restraining the elected majority from managing the affairs of the company. Ultimately, the minority has to sell their shares to the majority and the defendants constituting the majority are prepared to purchase the shares of the plaintiffs at a fair price.

It is also contended that the plaintiffs alleged that the 1,348 shares are ineffective shares. The advertisements were published in relation to only 16 shareholders who, according to the plaintiffs, held only 159 shares. Thus, the dispute is not as to 1,348 shares but only to 159 shares.

Although the plaintiffs suspected foul play with regard to the transfers of the shares, some of them wrote letters offering very high prices of Rs. 3,000 per share.

Mr. Dipankar Chatterjee became a director of the company only in April, 1986, and has nothing to do with the transfers which took place in 1984 or 1985. The complaint in the suit is confined to transfer of shares which took place in the affidavit-in-reply of the plaintiffs that the transfers have been ante-dated. It is a matter of record that in 1986, only 286 shares out of 1,348 shares were transferred and approved and the annual returns would also support this. The transferors of such shares have voted at the annual general meeting after mutation of the said shares and it is not possible to ante-date the transfer of such shares as alleged by the plaintiffs. It may be mentioned that the plaintiffs took objection to this contention that the annual return, not referred to in any pleadings of the defendants, would support the contention of the company.

The appellate court directed the votes in respect of 779 shares to be recorded separately. One does not know how the votes in respect of the balance 569 shares out of 1,349 shares were cast, inasmuch as the report of the chairman is silent on this point. In any event, only 286 shares had been transferred during the year 1986. It may be mentioned here that the plaintiffs have taken serious objection to this contention inasmuch as the defendants did not disclose any records of the company in support of this contention.

Regarding the shares of Durga Prasad Agarwalla and seven other joint holders, it was contended that only a small lot of six shares was involved in the transaction and under the articles, the directors had a discretion to approve the transfers without a succession certificate. Madanlal Agarwalla, claiming to be the son of Durga Prasad Agarwalla, approached the company and the company, relying on his representation, accepted the transmission of the shares in his favour. Thereafter, Smt. Iva Bose, plaintiff No. 4, contacted the company. The company wrote to everybody. It was accepted by the defendants that some foul play had been done by somebody and hence the inter-pleader suit has been filed in the city civil court. The defendants laid stress on the fact that the said Smt. Iva Bose purchased the shares after advertisement. According to the defendants, apart from the above, no other incident has been complained of by the plaintiffs.

Regarding the ten shares of one Swapan Kanti Bagchi purchased by Dipankar Chatterjee, the allegation is merely that he was induced to sell the shares at a low price but there was no dispute regarding the ownership of the shares.

Regarding the shares purchased by Smt. Asha Mishra, it was contended that there was nothing wrong in a transmission and a transfer taking place on the same day. The application for transmission of the heirs of Pritish-war Misra in favour of Asha Misra having been entertained by the company, thereafter the sale was approved. It was further contended by the defendants that this procedure has been followed in all cases where transmission of shares was accepted and followed by transfer of the shares and its approval by the board.

Regarding Durga Bewa, the submission was that it involved only four shares.

The company, in its supplementary affidavit-in-opposition, has referred to three cases where applications for transmission of shares were made and approved and applications were also made for issue of duplicate share certificates on the basis of which transfers of shares were made and approved by the company, viz., Pijush Kanti Datta, Debendra Nath Roy and Chanchal Biswas. The plaintiffs have joined issue as to the validity of transmission of such shares.

In the case of Pijush Kanti Datta, the plaintiffs contend that the identity, included at page 31 of the supplementary affidavit-in-reply, is under-stamped, stamp of only Rs. 5 having been put although a stamp of Rs. 30 was necessary and, as such, the said identity is liable to be impounded. Further, the document has not been affirmed before any Magistrate or a notary public and does not bear any date and is without any jurat. The plaintiff's further complaint is that it appears from the endorsement made on the said document that the company has issued duplicate share certificates on the basis of the said illegal and improper document.

One Bhabesh Chandra Roy made an application to the company on February 27, 1987, for mutation of two shares standing in the name of his deceased father, Debendra Nath Roy, but he could not produce the original share certificate along with his application for transmission on the ground that the same was mislaid. Strangely enough, he subsequently forwarded the share certificates to the company after he came to know that the notice sent by the company in the year 1982 by registered post with acknowledgment due had been returned by the post office to the company on February 26, 1987, with the remarks "addressee deceased". A strong comment was made on behalf of the plaintiffs on this letter to the effect that by no stretch of imagination, the said Bhabesh Chandra Roy could come to know of the return of the said letter by post office to the company and particularly on February 26, 1987, and on the very next day, i.e., on February 27, 1987, he could not have sent the share certificate in support of his previous application made nearly five years earlier on September 20, 1982, for transmission. This shows that the said shares remained inactive for about five years and suddenly came to life on the basis of inspired correspondence.

One Chanchal Biswas made an application to the company on the basis of a succession certificate for mutation of two shares that stood in the name of Kalipada Biswas, a deceased member, and the mutation of the said shares has taken place. The plaintiffs' comments with regard to the transfer of these shares are that the said two shares are not included in the list of 286 shares which are claimed to have been transferred during the year 1986, although the succession certificate is dated August 28, 1986. No votes were exercised in respect of the said two shares at the said annual general meeting and significantly, the said two shares were valued at Rs. 50 only and the company has accepted the said valuation. The company, however, has taken a point of inadequate stamping of the transfer deeds in respect of many of the shares of the plaintiffs and their supporters that were the subject-matter of the applications under section 155 of the Companies Act.

Having considered the submissions of the learned advocates appearing for the parties and in the light of the facts and circumstances narrated herein-above, I am prima face satisfied that the conduct of the company makes it clear that many of the transfers have been improperly executed. No documents were disclosed by the company in support of its contention that only 286 shares were transferred in the year 1986. The company and its board appear to have taken a partisan attitude in the matter of approval of the transfer of such shares. The allegation of the plaintiffs that, with regard to the shares transferred in favour of Dipankar Chatterjee and his supporters, the documents were always found to be in order notwithstanding the serious infirmities indicated, has substance. In the case of transfer of shares in favour of the plaintiffs and their supporters, it appears that the company found it unable to approve the transfer of the shares. Even when an order has been passed in one application under section 155 allowing rectification, the mutation has not taken place resulting in a contempt application.

The results of voting at the annual general meeting can have no bearing on the question as to the legality and validity of the impugned transfers of the shares. The appellate court did not enter into any controversy as to the legality and validity of the impugned transfers of the shares. The said question has been left open to be decided by the trial court at the time of hearing of the suit. At this stage, I am only concerned with whether the impugned transfers and/or transmissions of shares are valid and legal. The appeal court directed the votes to be recorded separately in the case of disputed transfer of shares. At this stage, it cannot be decided finally as to whether the transfers and transmissions of shares are valid and legal or not The direction of the appeal court, as it appears is to ascertain, pending the prima facie adjudication of the question as to the legality and validity of the impugned transfer of shares, whether the management in office has a clean and substantial majority to warrant their continuance in office. This exercise is more relevant for the purpose of considering the balance of convenience rather than the prima facie adjudication of the question of legality and validity of the transfer of shares.

It appears from the scrutineer's report by Mr. P.K. Jhunjhunwala, accepted on behalf of the company for the purpose of argument, that votes in respect of 7,518 shares excluding part of the disputed 779 shares were cast in favour of Dipankar Chatterjee. Out of these 7,518 shares, 14 shares are also disputed on other grounds and 569 shares form part of the 1,348 shares disputed by the plaintiffs. If the aggregate of 583 shares are deducted from 7,518 shares, it would appear that Dipankar Chatterjee and his group have the support of only 6,935 shares.

It has been argued on behalf of the respondents that the present management has the support of one Tushar Baran Sana who holds 350 shares and his votes were rejected by the scrutineer nominated on behalf of the petitioners on the ground that the signature on the ballot paper differed from the admitted signature. At the hearing, it was also submitted that if necessary, the present management can file an affidavit of Tushar Baran Saha to the effect that he is supporting the present management. It is, however, significant to note that the chairman has not made any comments on this aspect. In view of conflicting reports, the chairman has not decided whether the votes cast by Tushar Baran Saha should be accepted or not. No attempt has been made on the part of Tushar Baran Saha to intervene in the present proceedings. Except a verbal submission made at the hearing, there is nothing on record to show that Tushar Baran Saha supports the present management or that his votes were wrongly rejected by the scrutineer. In that view of the matter, the votes cast by Tushar Baran Saha cannot be taken into consideration. In the premises, the present management has the support of only 6,935 undisputed shares. The petitioners, however, claimed that they have the support of persons holding 7,007 shares. It has been contended on behalf of the respondents that the said shares include 144 shares in respect of which the Custodian of Enemy Property has cast votes and about 4,278 shares in respect of which the special officer had exercised voting rights. In so far as exercise of voting rights by the Custodian of Enemy Property is concerned, the chairman has merely raised a doubt but has not decided the matter. It has been urged on behalf of the petitioners that the Custodian of Enemy Property is lawfully entitled to exercise voting rights in respect of the shares, although his name may not be recorded in the register of members.

Under section 5 of the Enemy Property Act, 1968, the enemy property vests in the Custodian of Enemy Property. It is, therefore, seen that the Custodian of Enemy Property is the legal owner of the shares. Reliance has been placed by the petitioners on the articles of the company and more particularly article 78 read with articles 44 and 45, whereunder, the executor and legal representative of a deceased member, any committee or guardian of a lunatic or minor member or any person entitled to transfer in consequence of death, bankruptcy or insolvency of any member, is entitled to exercise voting rights, although not a member. On the same analogy, the Custodian of Enemy Property is also entitled to exercise voting rights since the property in the shares vests absolutely in him. There is no infirmity in the Custodian of Enemy Property exercising voting rights in respect of the said 144 shares.

There is also ho infirmity in the special officer exercising voting rights. The special officers have exercised voting rights in pursuance of various orders passed in company proceedings to which the respondent company is a party. The company judge must have been satisfied as to the right, title and interest of the respective applicants and, thereafter, the orders were passed. In any event, and it is well-settled that equity exists between transferor and transferee and the transferor is obliged to exercise voting rights in accordance with the wishes of the transferee. In this connection, reference may be made to the decision of the Supreme Court in R. Mathalone v. Bombay Life Assurance Co. Ltd. [1954] 24 Comp Cas 1 ; [1953] AIR 1953 SC 385, where the Supreme Court held that on the transfer of shares, the transferee becomes the sole beneficial owner of those shares sold by the transferor the legal title to which is vested in him. Thus, the relation of trustee and "cestui que trust" is thereby established between them. The transferor holds the shares for the benefit of the transferee to the extent necessary to satisfy the demands of section 94, Indian Trusts Act, 1882. As the transferee holds the whole beneficial interest and the transferor has none, the transferor must comply with all reasonable directions that the transferee may give. In this situation, if he becomes a trustee of dividends, he is also a trustee of the right to vote because the right to vote is a right to property annexed to the shares and as such the beneficiary has a right to control the exercise by the trustee of the right to vote.

The relationship arises by reason of the circumstance that till the name of the transferee is brought on the register of shareholders, in order to bring about a fair dealing between the transferor and the transferee, equity clothes the transferor with the status of a constructive trustee and this obliges him to transfer all the benefits of property rights annexed to the sold shares to the "cestui que trust". That principle of equity cannot be extended to cases where the transferee has not taken active steps to get his name registered as a member on the register of the company with due diligence and in the meantime, certain other privileges or opportunities arise for purchase of new shares in consequence of the ownership of the shares already acquired.

It has been further argued on behalf of the respondents that the constituted attorney of one Nityananda Saha holding 351 shares voted in favour of the petitioners and the said Nityananda Saha having renounced the world, the power of attorney executed by Nityananda Saha stood revoked and extinguished and his constituted attorney was not entitled to exercise voting rights. In this context, it may be mentioned that the chairman has not decided on the validity of the votes cast by the said constituted attorney of Nityananda Saha. It has not been conclusively proved that Nityananda Saha has renounced the world ; on the other hand, the petitioners have contended that Nityananda Saha, although a Sanyasi, has not renounced the world. Dividends are being received and collected by Nityananda Saha and there is no reason why the votes cast by Nityananda Saha should be rejected.

The next head of grievance of the plaintiffs is mismanagement of the affairs of the defendant company by Dipankar Chatterjee and the members of his group. According to the plaintiffs, the working results of the defendant company have deteriorated since the assumption of control by Dipankar Chatterjee and his group. This would be apparent even from the partially disclosed working results of the company and from the previous audited balance-sheets of the defendant company. For the year ended March 31, 1984, the company made a profit of Rs. 57 lakhs and declared dividends at the rate of 30 per cent. For the following year ending on the March 31, 1985, the profits fell to Rs. 47.36 lakhs but the dividend went up to 40 per cent. For the next year ended on March 31, 1986, the profits dropped to Rs. 17 lakhs and the dividend fell to 15 per cent. According to the plaintiffs, Dipankar Chatterjee became a de facto director of the defendant-company in or about the month of January, 1986, and the accounts for the said year ending March 31, 1986, were finalised after he and his nominees became directors.

In the course of the hearing of the interlocutory application, the company applied for appointment of auditors and submitted that the accounts for the year ended on March 31, 1987, were ready. The plaintiffs contend that the company deliberately suppressed the results for the year ended on March 31, 1987, and the accounts remained unpublished obviously because the results were poor. By an order passed on May 20, 1987, on an agreed basis on this application, Price Waterhouse and Co. were appointed as auditors to audit the accounts of the said year ended on March 31, 1987. But subsequently, upon mentioning by the company, the order has been kept in abeyance. The results thus appear to be that the accounts for the financial year ended on March 31, 1987, remained unaudited, unpublished and unapproved by the members. In the meantime, another financial year has run by, viz., the financial year ended on March 31, 1988. Although the company obtained or agreed to the order for the appointment of Price Waterhouse and Co. for auditing the accounts for the year ended on March 31, 1987, the same were not placed before the court for its perusal and for refuting, if possible, the allegations of depressing the working results of the company. In the absence of such accounts being produced before the court, prima facie, the allegation of mismanagement of the working results stand approved and remains unrebutted.

It is contended by the company that the manager of the tea gardens has been changed only since the last two months and the replacement of the broker of the company for selling tea by Carritt Moran shows better working results. The claim of the company remains unsupported by any tangible evidence. The company contends that the former brokers of the company, Tea Brokers P. Ltd., was involved in company proceedings under section 397 but the implication of this contention is not at all clear. It is accepted by the defendants that the said Carritt Moran have given loans to Dipankar Chatterjee for buying shares in the company and one finds that the said Carritt Moran has replaced the previous tea brokers. Such replacement has been rewarding and profitable for the new tea broker, Carritt Moran. The satisfaction of Carritt Moran as to the solvency of Dipankar Chatterjee for the loans incurred is no answer to the allegation of mismanagement of the affairs of the defendant company. The allegation is not that the company has received any loans from Carritt Moran without having the means to repay. Hence, the satisfaction, if any, of Carritt Moran as to the solvency of Dipankar Chatterjee to repay the loans is beside the point.

As a further instance of mismanagement, the plaintiffs have contended that the value of 21,633 kgs. of tea dust lying in stock during the year 1984-85 has been valued in the balance sheet for the year ended on March 31, 1985, at Rs. 1,29,798, but the value of the stock of 10,548 kgs. of tea dust in the following year 1985-86 has been shown to be nil in the balance-sheet for the said year. There is no explanation for such a state of affairs and strangely enough, the auditors of the company, Lovelock and Lewes, have also failed to ask for any explanation for qualifying their report. The abovementioned balance-sheets were produced before this court by the plaintiffs and no explanation could be given by the defendants. In view of such absence of explanation, the criticism of the defendants as to the defective verification of the petition or failure of the plaintiffs to identify records of the company which will substantiate the charges in the petition is not at all meritorious and is not acceptable. Further, as laid down by the Supreme Court in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp Cas 743 (SC), even if the charge of oppression is not made out, the court is not powerless to do substantial justice between the parties and technical objections indicated above cannot be permitted to defeat the exercise of equitable jurisdiction.

In this interlocutory application, the court is concerned with the broad question as to whether there are reasonable grounds to come to a prima facie finding as to the manipulation of the transfer of shares which would justify an order for investigation and at the trial of the suit pending such investigation, the supersession of the board. It is no doubt true that 1,348 shares are the balance shares and if the transfer of such shares impugned by the plaintiffs is ultimately upheld at the trial, the present management cannot be said to have the support of the majority. In view of the rival contentions of the parties and pending such investigation, it is difficult, to prima facie accept the claims of the defendants that they have the support of the majority.

Thus, the balance of convenience cannot be said to be in favour of the defendants for allowing them to continue in office in the face of serious prima facie infirmities of several transfers and transmissions of shares followed again by transfers resulting in mutation. The complaint of the plaintiffs in this respect requires further probe and investigation and cannot be dismissed as frivolous. Pending such investigation which is possible, at the trial of the suit, the question arises as to what further interim protection can and should be granted. The first ad interim order passed on September 17, 1986, has left the question of the validity of the annual general meeting to abide by the results of this application. In view of the absence of prima facie evidence being produced by the company in support of the impugned transfers of 1,348 shares and having regard to the unsatisfactory evidence produced in respect of the transfers and/or transmissions of some of the shares, it cannot be said that the votes in respect of the said 1,348 shares or a part thereof, in favour of the present management, were validly cast. As a result, the support of the majority, claimed by the management, cannot be upheld. Hence, it is not possible to allow the defendants to give effect to the results of the said annual general meeting as claimed by them at this stage.

In view of the aforesaid facts and circumstances, it is just and proper that the interest of the petitioners, their supporters and all other shareholders of the company should be protected. Sections 397 and 398 of the Companies Act, 1956, confer a right on the shareholders who have the requisite qualification under section 399 of the said Act to apply to the court for appropriate reliefs. These sections do not oust the jurisdiction of the civil court to entertain suits on the same subject-matter and where shareholders complain of mismanagement or oppression and of acts prejudicial to the interest of the company or prejudicial to public interest, the civil court may entertain a suit by shareholders and grant appropriate reliefs. On a construction of the provisions of section 2(11) and section 10 of the Companies Act, 1956, it has been held by the Division Bench of this court in Asansol Electric Supply Co. v. Chunnilal Das, [1972] 75 CWN 704, that the Companies Act does not exclude the jurisdiction of the civil court. Moreover, unless a statute, by express provision or by necessary implication, ousts the jurisdiction of the civil court, the civil court will have jurisdiction to try all suits of a civil nature. The ouster of jurisdiction of the civil court shall not be readily inferred. Sections 397 and 398 of the Act do not exclude, either expressly or by necessary intendment, the jurisdiction of the civil court.

It is the complaint of the petitioners that a large number of shares have been purported to be transferred and/or transmitted in violation of section 108 of the Companies Act. These transfers have been effected in favour of the present management, that is to say, the group of Dipankar Chatterjee. Any transfer effected in violation of section 108 of the Companies Act is illegal and void.

In Mannalal Khetan v. Kedar Nath Khetan [1977] 47 Comp Cas 185 (SC) ; AIR 1977 SC 536, an agreement was entered into for exchange of blocks of shares in the company. A contention was raised that the transfer of shares in the company's register had been made illegally and without authority because no proper instruments of transfer duly stamped and executed by and/or on behalf of the appellants were delivered to the respondent company. It was contended before the High Court of Allahabad that the transfers were in contravention of the mandatory provisions of section 108 of the Act. The High Court held that the provisions contained in section 108 of the Act were directory because non-compliance with section 108 of the Act is not declared an offence. The Supreme Court repelled that contention and held that the provisions contained in section 108 of the Act are mandatory. It was also held that where a contract, express or implied, is expressly or by implication forbidden by statute, no court can lend its assistance to give effect to it. Therefore, the company, by registering the transfer of shares, was obviously permitting the transfer and such action on the part of the company, being in violation of the prohibition, is contrary to law.

It is an admitted fact that a large number of shares have been transmitted and, thereafter, transferred on the same day. It appears that the persons in whose favour the shares were transmitted executed the transfer deeds even prior to their becoming registered members although they had no absolute interest in the shares on the date when the transfer deeds were executed. Such transfer deeds are, therefore, invalid and not in compliance with the provisions of section 108 of the Companies Act, 1956. In this connection, the case of Asha Misra may be referred to. On the date of execution of the transfer deeds, Asha Misra had no absolute title to the shares in question and consequently the transfer of shares in favour of Arun Kumar Saha and Purnima Saha is invalid and void.

On the one hand, the persons in management are increasing in strength day by day by execution of several invalid and/or void transfers and, on the other hand, are deliberately refusing registration of transfer of large number of shares purchased by the petitioners and their supporters. It has been prima facie established that the register of members of the company does not reveal the true and correct state of affairs and calls for further probe and investigation.

The petitioners and their supporters, on being wrongfully refused by the company to be registered as shareholders, had to apply under section 155 of the Companies Act for the rectification of the register of members. Prior to the holding of the last annual general meeting of the company, these petitioners had to apply for appropriate directions from the court for appointment of special officers to exercise voting rights in respect of the shares purchased by them.

The question, therefore, is what order will protect the interests of the two groups. The contention that the present management is wrongfully seeking to remain in power and is arbitrarily and wrongfully seeking to refuse registration of transfer of shares in order to perpetuate their control over the company cannot be said to be without substance. The allegation of mismanagement, although not proved to the hilt, are allegations and these allegations cannot be determined finally one way or the other until the accounts are audited. In the circumstances, the court has the power to restrain the board or supersede the board or otherwise to change the management of the company. The contention that the directors represent the majority shareholders and, therefore, hold a sacrosanct position is wholly untenable in facts and in law in the instant case. In a proper case, there is no impediment in the exercise of power by the court to supersede the board which has the support of the majority if it is found that they are acting illegally, mala fide or in a manner oppressive to the minority shareholders or in a manner prejudicial to the interests of the company or prejudicial to public interest. The court always has jurisdiction to prevent abuse of majority power. In fact, it is incumbent on the court to interfere in such matters and to temporarily take over the management of the company until the legitimate grievances of the shareholders regarding the management of the affairs of the company are set right.

In the case of T.S. Sivaprakasa Mudaliar v. K.M. Samarapuri [1949] 19 Comp Cas 292 (Mad), the Division Bench of the Madras High Court held as follows (at page 294 of 19 Comp Cas) :

"Very many points have been argued on behalf of respondent No. 3 and the two members of his faction who filed I. A. No. 54 of 1949. The first is that the court had no jurisdiction to appoint a receiver in a going concern like Ramaswami and Co. Their learned advocate seeks as authority for that contention a brief dictum to be found at the conclusion of the judgment of Greaves J. in Kailashchandra Dutta v. Saddar Munsif, Silchar [1925] ILR 52 Cal 513 at page 521 ; AIR 1925 Cal 817. There, the learned judge said without giving any reasons :

'. . . there is no jurisdiction in a court to appoint a receiver of a company. If it is necessary to protect the assets of a company, other means must be sought which are provided by the provisions of the Companies Act.'

We find no provision in the Companies Act which excludes the jurisdiction of a court to appoint a receiver ; though since the Companies Act makes provision for dealing with the circumstances in which a company is mismanaged, it should not be necessary in the vast majority of cases to appoint a receiver. It might even be improper to do so in certain circumstances. Our attention has been drawn to a number of instances in which receivers have been appointed; and although the particular case that we are here considering does not fall within one of the categories of cases in which receivers have been appointed by courts, we think this is a case in which, if the allegations are accepted, the appointment of a receiver would be the most satisfactory way of dealing with the temporary difficulty that exists during the pendency of the suit. If the allegations of respondent No. 1 be true, he is kept out of possession and management by respondent No. 3 and seeks in his suit to have it declared that he is entitled to participate equally with respondent No. 3 in the management of Ramaswami and Co. Ltd."

In the case of Raghunath Prasad Tandon v. Budaun Electric Supply Co. Ltd., AIR 1949 All 112, the Division Bench of the High Court held as follows

"The simple question thus which we have to consider is whether, in view of the cirumstances of this case, it is just and convenient to uphold the order of the lower court appointing a receiver in the suit now pending before it. In Benoy Krishna Mukerjee v. Satish Chandra Giri [1928] 55 ILR 720 ; AIR 1928 PC 49, their Lordships of the Judicial Committee of the Privy Council made the observation set out below (at p. 50) :

'On an interim application for a receivership such as this, the court has to consider whether special interference with the possession of a defendant is required, there being a well-founded fear that the property in question will be dissipated, or that other irreparable mischief may be done unless the court gives its protection. Such an order is discretionary, and the discretion is, in the first instance, that of the court in which the suit itself is pending.' 'On the facts before them, their Lordships came to the conclusion-that there were various wastes and therewas a danger of loss or injury to the properties in question if they remained in unrestricted control of the defendant Mahant. In the present suit, there are allegations supported by an affidavit, which have not been rebutted by any counter-affidavit on behalf of the defendant, of waste, falsification of accounts, of destruction of accounts, of removal of machinery and embezzlement of money on the part of the plaintiffs. In view of these allegations, the strained relations between the parties and the various litigations, civil and criminal, to which reference has been made by us before, we are not able to say that the learned civil judge did not exercise a proper and judicial discretion in appointing a permanent receiver in this case. The interim receiver operated for a period of nine months and the permanent receiver has been working for another nine months. The appellant's counsel has not been able to show that the management of the undertaking has in any way suffered by the financial control which the lower court has vested in the receiver. We are not oblivious of the fact that the company in question is a public utility concern, but that by itself is, in our opinion, no sufficient ground for refusing to provide a check in the shape of a receiver over the financial management of the concern, the title of which is seriously in dispute between the plaintiffs and the defendant. The learned civil judge came to the conclusion that it was just and convenient in the interest of the safety of the property and its preservation from destruction and dissipation that a receiver should be appointed. We are not disposed to say, on the material before us, that the trial court was in error in taking this view."

In the case of Ratan Lal v. Jagadhri Light Railway Co. Ltd., AIR 1946 Lahore 193, the short question for decision was whether a company judge exercising jurisdiction under the Companies Act has jurisdiction to appoint a receiver to take over the management and possession of the company and also take over possession of its property pending decision of an application. There, the Division Bench observed as follows :

"It is, no doubt, true that ordinarily, when the affairs of a company reach a deadlock, then the appropriate procedure is the one provided for in the winding up chapters of the Companies Act and by the appointment of an ad interim liquidator. But there may be cases where winding up is not just and equitable and, otherwise, there are no grounds to wind up the company which is solid and yet the court may have to protect the property from being alienated and wasted owing to mutual bickerings and troubles among the directors and the court may be called upon to hold a meeting of the company in exercise of the powers given to it in the Act in order to elect new directors or to undo the effect of certain ultra vires resolutions. .

I am further supported in this view by the fact that there are several English cases in which a receiver has been appointed to conduct the business of a company. Reference in this connection may be made to the cases in Stanfield v. Gibbon [1925] WN 11 ; 159 LT 29, Featherstone v. Cooke [1874] 16 Eq 298; 21 WR 835 and Trade Auxiliary Co. v. Vickers [1874] 16 Eq 303 ; 21 WR 836. These were no doubt cases in which the receiver was appointed in an action and not in summary proceedings. But I see no difference in the exercise of court's powers to appoint a receiver, where the matter comes to it in exercise of its ordinary civil jurisdiction. Therefore, in my view, it is possible in suitable cases under the Companies Act to appoint a receiver who may take up the business of the company and the management of its property and its affairs, pending the decision of the court in that litigation".

These authorities support the proposition that the court can temporarily take over the management of the affairs of the company by the appointment of a receiver or a special officer. Even the court may not appoint a receiver or a special officer for all times to come but it may, for a limited period and for limited purpose, appoint a receiver or a special officer to take over the management.

The present management is bent upon remaining in power by any means. They have rejected registration of transfer of shares for the said purpose so that no change takes place in the composition of the board of directors. If the present board is allowed to continue, they will resist such transfers being registered perpetually and remain in power as long as they want to. The conduct of the present board does not inspire confidence.

Before I part with this case, I must dispose of another contention which has been raised by the defendants. The objection of the defendants as to the non-joinder of necessary parties, i.e., the persons in whose names the shares have been transferred and which is being challenged by the plaintiffs, for the purpose of the present interlocutory application, cannot be upheld for the simple reason that without investigation into the impugned transactions of transfer of shares, the full particulars as to the persons in whose favour the shares Have been transferred, as to that number of shares, date of transfer and mutation, the share distinctive numbers, etc., cannot be ascertained. These are matters for the trial of the suit upon proper discovery and inspection and, if necessary, after interrogatories are administered.

For the reasons aforesaid, this application is allowed. The present board of directors of the respondent-company is superseded and is restrained from functioning any further.

Mr. Chandan Kumar Banerji, a retired judge of this court, is appointed special officer of the company. The management of the company shall be conducted by a committee or a board of management consisting of two representatives from each side headed by the special officer. The company shall not conduct or hold any general meeting, whether an annual general meeting or an extraordinary general meeting, until further order of this court.

There will also be an order in terms of prayer (g) of the notice of motion. The existing interim orders are confirmed.

The special officer will be entitled to a remuneration of 200 G. Ms. per month to be paid by the respondent-company. The special officer will be at liberty to engage a clerk or a manager to assist him. The special officer will also be at liberty to appoint any member of the Bar to assist him, if he so desires. The remuneration of the clerk or the manager or any member of the Bar junior to him shall be determined by the special officer and will be paid out of the funds of the company. No effect shall be given to the resolutions passed in the annual general meeting.

The suit is expedited as follows :

The defendants shall file their written statement, if any, within four weeks from the date of service of this, signed copy of the operative part of this judgment and order. Cross-order for discovery within a fortnight thereafter and inspection forthwith thereafter. Liberty to mention for early hearing.

The special officer shall get the accounts audited by any auditor, preferably Price Waterhouse and Co. to be appointed by him and not by the auditor of the company. All the accounts shall be audited from April 1, 1985, onwards.

It is stated that the rectification application was allowed by the company court and an appeal was preferred by the company. The said appeal has been dismissed by the Division Bench against which a special leave petition has been filed before the Supreme Court and special leave has been granted.

Mr. Sen, appearing for the company, asks for stay. Having regard to the facts and circumstances of the case, stay is refused.

The special officer and all parties shall act on a signed copy of the operative portion of this judgment and order upon usual undertaking.

 

[1990] 68 COMP. CAS. 36 (MAD.)

HIGH COURT OF MADRAS

Ghanshyam Chaturbhuj

v.

Industrial Ceramics P. Ltd.

MRS. PADMINI JESUDURAI J.

CRL. R.C. NO. 409 OF 1987

JANUARY 19, 1988

 Prakash Gokulaney for the petitioner.

JUDGMENT

Padmini Jesudurai J.—The petitioner whose complaint against the respondents for an offence under section 113 of the Companies Act, 1956 (hereinafter referred to as "the Act"), for failure to issue to him share certificates had been dismissed by the Additional Chief Metropolitan Magistrate (E.O.I.), Egmore, Madras, under section 203, Criminal Procedure Code, has preferred this revision, challenging the above order of dismissal.

The facts briefly are: The petitioner filed a complaint under section 200, Criminal Procedure Code, before the above court against the respondents, for an offence under section 113(2) read with section 621 of the Act on the allegation that he is the holder of 466 equity shares, 236 preference shares and 2069 redeemable preference shares, that share certificates for the above shares have not been issued to him even though the ordinary and preference shares had been transferred to him even on December 2, 1963, and the redeemable shares were allotted to him on December 13, 1963. Despite several letters requesting the respondents to issue certificates, the respondents, while admitting the fact that the petitioner was the owner of the above shares, expressed inability to issue the necessary certificates due to lack of funds to incur expenses for printing the share certificates. This was in violation of section 113 of the Act and since the offence was a continuing offence, the petitioner preferred the above complaint. The first respondent is the company and respondents Nos. 2 to 5 are the directors.

The learned Magistrate dismissed the above complaint under section 203, Criminal Procedure Code, on the following grounds:

(i)             that an offence under section 113 of the Act is not a continuing offence and the complaint, therefore, was barred by limitation under section 468, Criminal Procedure Code.

(ii)            that since the offence is not a continuing offence, respondents Nos. 3 to 5 who are the directors only for the last three years, could not be held liable for an offence committed 13 years earlier and the second respondent, who was the managing director, has sent an explanation that the share certificates could not be printed due to lack of funds. The learned Magistrate also placed reliance on certain decisions.

Thiru Prakash Gokulaney, learned counsel for the petitioner, contended that the offence under section 113(2) of the Act is a continuing offence, that the complaint is saved by section 472, Criminal Procedure Code, and that, therefore, both the findings of the lower court are untenable. The decisions relied on by the learned Magistrate are no longer good law.

The short question that arises for consideration is whether the offence under section 113 of the Act is a continuing offence.

The term "continuing offence" has not been defined either in the Criminal Procedure Code or in any other statute. However, judicial pronouncements of the Supreme Court and other High Courts under different statutes give us certain guidelines. The Supreme Court in State of Bihar v. Deokaran Nenshi [1973] Crl. L. J. 347; AIR 1973 SC 908, while holding that the offence mentioned under section 66 of the Mines Act, 1932, in failing to furnish returns and notice within the prescribed time, is not a continuing offence, observed as follows (at page 909 of AIR):

"A continuing offence is one which is susceptible of continuance and is distinguishable from the one which is committed once and for all. It is one of those offences which arises out of failure to obey or comply with a rule or its requirement and which involves a penalty, the liability for which continues until the rule or its requirement is obeyed or complied with. On every occasion that such disobedience or non-compliance occurs and recurs, there is the offence committed."

Again in Bhagirath Kanoria v. State of M. P., AIR 1984 SC 1688, the Supreme Court, when considering the question whether the non-payment before the due date of the employer's contribution to the provident fund punishable under section 14(2A) of the Employees' Provident Fund and Family Pension Fund Act (19 of 1952), is a continuing offence or not, made the following observations (at page 1692):

"The question whether a particular offence is a continuing offence must necessarily depend upon the language of the statute which creates that offence, the nature of the offence and, above all, the purpose which is intended to be achieved by constituting the particular act as an offence".

It was held that the above offence was a continuing offence, because though the contribution was required to be paid within the specified date, the liability to pay the contribution continued despite the expiry of the date, so long as the contribution remained unpaid.

In a recent decision in Maya Rani Punj v. CIT [1986] 157 ITR 330, the Supreme Court, while holding that section 271(1)(a) of the Income-tax Act, 1961, was a continuing offence, laid down the acid test to determine the above issue (at page 341):

"If a duty continues from day-to-day, the non-performance of that duty from day to day is a continuing wrong. We are of the view that the legislative scheme under section 27(1)(a) of the 1961 Act, in making provision for a penalty coterminous with the default to be raised, provides for a situation of continuing wrong".

It, therefore, follows that if the penalty is made coterminous with the default, then the offence is a continuing offence.

The Companies Act has been enacted in the interest of the general public who would be contributing shares to the floating of a company and who would, therefore, be entitled to receive certain benefits therefrom. Safeguards, therefore, have been provided in the Act to prevent exploitation of the shareholders and to ensure proper administration, subject to certain checks and controls by statutorily constituted authorities. Elaborate procedure, therefore, has been laid down with regard to formation of companies, their management and administration and, finally, the winding up of companies. Certain violation of the provisions of the Act have been made penal. In the scheme of the Act, in the matter of awarding punishments, we find three different categories of punishments provided under the Act. For certain offences, the punishment provided is a maximum for every offence. In this category, we find sections 105, 108F, 166, 218, 232, 233, 248, 295(4) and other offences. In this second category, under section 162 of the Act, we find offences:

"...shall be punishable with fine which may extend to fifty rupees for every day during which the default continues."

In this category is included offences falling under sections 159, 160, 161, 220 and 142(1) and other offences. In the last category, under sections 168 and 234 of the Act and other sections, we find:

"...shall be punishable with fine which may extend to rupees and in the case of a continuing default with a further fine which may extend to rupees for every day after the first during which such default continues."

In this category are included offences under sections 166, 167, 234 and other offences. It is, therefore, clear that the Legislature intended certain offences under the Act which were committed once and for all, to be non-continuing offences, while certain other offences, because the default continued were to be treated as a continuing offence, continuing so long as the default continued Categories 2 and 3, therefore, in spite of the difference in the language, would fall within the category of continuing offences. Offences under sections 159, 160, 161 and 220, made punishable under section 162 of the Act, relate to failure to file certain documents before the Registrar of Companies. Filing of the above documents before the Registrar is required in the interest of the welfare of the shareholders. While furnishing a false statement to the Registrar, either in the annual returns or in the balance-sheet, is made punishable under section 628 of the Act, is punishable merely with a fine of rupees (sic) for the commission of the offence, thereby indicating that the offence is not a continuing offence, failure to furnish annual returns and audited balance-sheet to the Registrar under sections 159 and 220 of the Act and made punishable under section 162 of the Act, entails a fine of rupees for every day during which the default continues, thereby indicating the clear distinction between the two kinds of offences with reference to the same documents.

It would now be useful to extract the relevant part of section 113 of the Act for a better appreciation of the legal issue involved: —

"(1) Every company shall, within three months after the allotment of any of its shares, debentures or debenture stock and within two months after the application for the registration of the transfer of any such shares, debentures or debenture stock, complete and have ready for delivery the certificates, of all shares, the debentures and the certificates of all debenture stock allotted or transferred, unless the conditions of issue of the shares, debentures or debenture stock otherwise provide.

The expression 'transfer' for the purposes of this sub-section, means a transfer duly stamped and otherwise valid, and does not include any transfer which the company is for any reason entitled to refuse to register and does not register.

(2)        If default is made in complying with sub-section (1), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees for every day during which the default continues."

The object of requiring share certificates to be issued is relevant. The share certificate is a declaration by the company that the person in whose name the certificate is issued is a shareholder in the company and the object of issuing the certificate is to enable the person to use it as proof of the ownership of the shares and also to enable others to act upon that certificate either for a sale or transfer of shares. The share certificate is the only documentary evidence of title in the possession of the shareholder. It is with this object that the company is required to issue share certificates and a minimum time of three months after the allotment of any share, and two months after the transfer of any share, is given to the company to get ready to issue the share certificates. Once this period is over, the liability of the company to issue the share certificates commences and continues so long as the share certificate is actually delivered to the shareholder. So long as the share certificates are not delivered to the shareholder, the default continues and the offence also continues. A reading of section 113(2) of the Act also indicates the mind of the Legislature that the penalty of Rs. 500 for every day during which the default continues has been provided since the offence is a continuing one. The mere fact that in the penal part of sections 168, 234 and certain other provisions a lump sum fine is indicated for the first day of the commission of the offence, and a lesser sum for every subsequent day during which the default continues, would not indicate that the offence under section 113(2) of the Act is not a continuing offence.

The trial court has relied upon a Bench decision of the Calcutta High Court in National Cotton Mills v. Assistant Registrar of Companies, West Bengal [1984] 56 Comp Cas 222, which had overruled a decision of the single judge of the same court in Ajit Kumar Sarkar v. Asst. Registrar of Companies [1979] 49 Comp Cas 909 and held that the offences punishable under section 162 of the Companies Act are not continuing offences. It is, however, significant that in Maya Rani Punj v. CIT [1986] 157 ITR 330, the Supreme Court has referred with approval to the decision of the single judge of the Calcutta High Court in Ajit Kumar Sarkar v. Asst. Registrar of Companies [1979] 49 Comp Cas 909. Further, in Kalaimagal Corporation Limited v. Assistant Registrar of Companies, (Order in Crl. R. C. Nos. 390 to 394 of 1984, dated July 28, 1987). I have disagreed with the view of the Division Bench of the Calcutta High Court in National Cotton Mills v. Asst. Registrar of Companies [1984] 56 Comp. Cas 222 accepting the view of the single judge of the same court in Ajit Kumar Sarkar v. Asst. Registrar of Companies [ 1979] 49 Comp Cas 909, and held that the failure to file annual returns under section 159 of the Act and balance-sheet under section 220 of the Act punishable under section 162 of the Act are continuing offences. The decision of the Division Bench of the Calcutta High Court, referred to above, relied on by the learned Magistrate, therefore, cannot be accepted. It, therefore, follows that the offence under section 113(2) of the Act is a continuing offence.

In view of the above findings, neither of the grounds put forward by the learned Magistrate in dismissing the complaint under section 203, Criminal Procedure Code, can be legally sustained. The petition is allowed and the order of dismissal is set aside and the complaint is sent back to the trial court for disposal according to law.

 

[1990] 68 COMP. CAS. 36 (MAD.)

HIGH COURT OF MADRAS

Ghanshyam Chaturbhuj

v.

Industrial Ceramics P. Ltd.

MRS. PADMINI JESUDURAI J.

CRL. R.C. NO. 409 OF 1987

JANUARY 19, 1988

 Prakash Gokulaney for the petitioner.

JUDGMENT

Padmini Jesudurai J.—The petitioner whose complaint against the respondents for an offence under section 113 of the Companies Act, 1956 (hereinafter referred to as "the Act"), for failure to issue to him share certificates had been dismissed by the Additional Chief Metropolitan Magistrate (E.O.I.), Egmore, Madras, under section 203, Criminal Procedure Code, has preferred this revision, challenging the above order of dismissal.

The facts briefly are: The petitioner filed a complaint under section 200, Criminal Procedure Code, before the above court against the respondents, for an offence under section 113(2) read with section 621 of the Act on the allegation that he is the holder of 466 equity shares, 236 preference shares and 2069 redeemable preference shares, that share certificates for the above shares have not been issued to him even though the ordinary and preference shares had been transferred to him even on December 2, 1963, and the redeemable shares were allotted to him on December 13, 1963. Despite several letters requesting the respondents to issue certificates, the respondents, while admitting the fact that the petitioner was the owner of the above shares, expressed inability to issue the necessary certificates due to lack of funds to incur expenses for printing the share certificates. This was in violation of section 113 of the Act and since the offence was a continuing offence, the petitioner preferred the above complaint. The first respondent is the company and respondents Nos. 2 to 5 are the directors.

The learned Magistrate dismissed the above complaint under section 203, Criminal Procedure Code, on the following grounds:

(i)             that an offence under section 113 of the Act is not a continuing offence and the complaint, therefore, was barred by limitation under section 468, Criminal Procedure Code.

(ii)            that since the offence is not a continuing offence, respondents Nos. 3 to 5 who are the directors only for the last three years, could not be held liable for an offence committed 13 years earlier and the second respondent, who was the managing director, has sent an explanation that the share certificates could not be printed due to lack of funds. The learned Magistrate also placed reliance on certain decisions.

Thiru Prakash Gokulaney, learned counsel for the petitioner, contended that the offence under section 113(2) of the Act is a continuing offence, that the complaint is saved by section 472, Criminal Procedure Code, and that, therefore, both the findings of the lower court are untenable. The decisions relied on by the learned Magistrate are no longer good law.

The short question that arises for consideration is whether the offence under section 113 of the Act is a continuing offence.

The term "continuing offence" has not been defined either in the Criminal Procedure Code or in any other statute. However, judicial pronouncements of the Supreme Court and other High Courts under different statutes give us certain guidelines. The Supreme Court in State of Bihar v. Deokaran Nenshi [1973] Crl. L. J. 347; AIR 1973 SC 908, while holding that the offence mentioned under section 66 of the Mines Act, 1932, in failing to furnish returns and notice within the prescribed time, is not a continuing offence, observed as follows (at page 909 of AIR):

"A continuing offence is one which is susceptible of continuance and is distinguishable from the one which is committed once and for all. It is one of those offences which arises out of failure to obey or comply with a rule or its requirement and which involves a penalty, the liability for which continues until the rule or its requirement is obeyed or complied with. On every occasion that such disobedience or non-compliance occurs and recurs, there is the offence committed."

Again in Bhagirath Kanoria v. State of M. P., AIR 1984 SC 1688, the Supreme Court, when considering the question whether the non-payment before the due date of the employer's contribution to the provident fund punishable under section 14(2A) of the Employees' Provident Fund and Family Pension Fund Act (19 of 1952), is a continuing offence or not, made the following observations (at page 1692):

"The question whether a particular offence is a continuing offence must necessarily depend upon the language of the statute which creates that offence, the nature of the offence and, above all, the purpose which is intended to be achieved by constituting the particular act as an offence".

It was held that the above offence was a continuing offence, because though the contribution was required to be paid within the specified date, the liability to pay the contribution continued despite the expiry of the date, so long as the contribution remained unpaid.

In a recent decision in Maya Rani Punj v. CIT [1986] 157 ITR 330, the Supreme Court, while holding that section 271(1)(a) of the Income-tax Act, 1961, was a continuing offence, laid down the acid test to determine the above issue (at page 341):

"If a duty continues from day-to-day, the non-performance of that duty from day to day is a continuing wrong. We are of the view that the legislative scheme under section 27(1)(a) of the 1961 Act, in making provision for a penalty coterminous with the default to be raised, provides for a situation of continuing wrong".

It, therefore, follows that if the penalty is made coterminous with the default, then the offence is a continuing offence.

The Companies Act has been enacted in the interest of the general public who would be contributing shares to the floating of a company and who would, therefore, be entitled to receive certain benefits therefrom. Safeguards, therefore, have been provided in the Act to prevent exploitation of the shareholders and to ensure proper administration, subject to certain checks and controls by statutorily constituted authorities. Elaborate procedure, therefore, has been laid down with regard to formation of companies, their management and administration and, finally, the winding up of companies. Certain violation of the provisions of the Act have been made penal. In the scheme of the Act, in the matter of awarding punishments, we find three different categories of punishments provided under the Act. For certain offences, the punishment provided is a maximum for every offence. In this category, we find sections 105, 108F, 166, 218, 232, 233, 248, 295(4) and other offences. In this second category, under section 162 of the Act, we find offences:

"...shall be punishable with fine which may extend to fifty rupees for every day during which the default continues."

In this category is included offences falling under sections 159, 160, 161, 220 and 142(1) and other offences. In the last category, under sections 168 and 234 of the Act and other sections, we find:

"...shall be punishable with fine which may extend to rupees and in the case of a continuing default with a further fine which may extend to rupees for every day after the first during which such default continues."

In this category are included offences under sections 166, 167, 234 and other offences. It is, therefore, clear that the Legislature intended certain offences under the Act which were committed once and for all, to be non-continuing offences, while certain other offences, because the default continued were to be treated as a continuing offence, continuing so long as the default continued Categories 2 and 3, therefore, in spite of the difference in the language, would fall within the category of continuing offences. Offences under sections 159, 160, 161 and 220, made punishable under section 162 of the Act, relate to failure to file certain documents before the Registrar of Companies. Filing of the above documents before the Registrar is required in the interest of the welfare of the shareholders. While furnishing a false statement to the Registrar, either in the annual returns or in the balance-sheet, is made punishable under section 628 of the Act, is punishable merely with a fine of rupees (sic) for the commission of the offence, thereby indicating that the offence is not a continuing offence, failure to furnish annual returns and audited balance-sheet to the Registrar under sections 159 and 220 of the Act and made punishable under section 162 of the Act, entails a fine of rupees for every day during which the default continues, thereby indicating the clear distinction between the two kinds of offences with reference to the same documents.

It would now be useful to extract the relevant part of section 113 of the Act for a better appreciation of the legal issue involved: —

"(1)            Every company shall, within three months after the allotment of any of its shares, debentures or debenture stock and within two months after the application for the registration of the transfer of any such shares, debentures or debenture stock, complete and have ready for delivery the certificates, of all shares, the debentures and the certificates of all debenture stock allotted or transferred, unless the conditions of issue of the shares, debentures or debenture stock otherwise provide.

The expression 'transfer' for the purposes of this sub-section, means a transfer duly stamped and otherwise valid, and does not include any transfer which the company is for any reason entitled to refuse to register and does not register.

(2)              If default is made in complying with sub-section (1), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees for every day during which the default continues."

The object of requiring share certificates to be issued is relevant. The share certificate is a declaration by the company that the person in whose name the certificate is issued is a shareholder in the company and the object of issuing the certificate is to enable the person to use it as proof of the ownership of the shares and also to enable others to act upon that certificate either for a sale or transfer of shares. The share certificate is the only documentary evidence of title in the possession of the shareholder. It is with this object that the company is required to issue share certificates and a minimum time of three months after the allotment of any share, and two months after the transfer of any share, is given to the company to get ready to issue the share certificates. Once this period is over, the liability of the company to issue the share certificates commences and continues so long as the share certificate is actually delivered to the shareholder. So long as the share certificates are not delivered to the shareholder, the default continues and the offence also continues. A reading of section 113(2) of the Act also indicates the mind of the Legislature that the penalty of Rs. 500 for every day during which the default continues has been provided since the offence is a continuing one. The mere fact that in the penal part of sections 168, 234 and certain other provisions a lump sum fine is indicated for the first day of the commission of the offence, and a lesser sum for every subsequent day during which the default continues, would not indicate that the offence under section 113(2) of the Act is not a continuing offence.

The trial court has relied upon a Bench decision of the Calcutta High Court in National Cotton Mills v. Assistant Registrar of Companies, West Bengal [1984] 56 Comp Cas 222, which had overruled a decision of the single judge of the same court in Ajit Kumar Sarkar v. Asst. Registrar of Companies [1979] 49 Comp Cas 909 and held that the offences punishable under section 162 of the Companies Act are not continuing offences. It is, however, significant that in Maya Rani Punj v. CIT [1986] 157 ITR 330, the Supreme Court has referred with approval to the decision of the single judge of the Calcutta High Court in Ajit Kumar Sarkar v. Asst. Registrar of Companies [1979] 49 Comp Cas 909. Further, in Kalaimagal Corporation Limited v. Assistant Registrar of Companies, (Order in Crl. R. C. Nos. 390 to 394 of 1984, dated July 28, 1987). I have disagreed with the view of the Division Bench of the Calcutta High Court in National Cotton Mills v. Asst. Registrar of Companies [1984] 56 Comp. Cas 222 accepting the view of the single judge of the same court in Ajit Kumar Sarkar v. Asst. Registrar of Companies [ 1979] 49 Comp Cas 909, and held that the failure to file annual returns under section 159 of the Act and balance-sheet under section 220 of the Act punishable under section 162 of the Act are continuing offences. The decision of the Division Bench of the Calcutta High Court, referred to above, relied on by the learned Magistrate, therefore, cannot be accepted. It, therefore, follows that the offence under section 113(2) of the Act is a continuing offence.

In view of the above findings, neither of the grounds put forward by the learned Magistrate in dismissing the complaint under section 203, Criminal Procedure Code, can be legally sustained. The petition is allowed and the order of dismissal is set aside and the complaint is sent back to the trial court for disposal according to law.

 

KARNATAKA HIGH COURT

Companies Act

[2001] 33 scl 386 (kar.)

High Court of Karnataka

Dr. C.R. Bhansali

v.

K. Ramesh

K.R. Prasada Rao, J.

Criminal Petition No. 2681 of 1998

January 9, 2001

 

Section 113, read with sections 446(1) and 623, of the Companies Act, 1956 - Share certificates - Issue of - Respondent filed complaint in trial court at Bangalore against Chairman and director of company for failure to return share certificates with endorsement of transfer in his name within prescribed period - Whether since company’s head office was situated at New Delhi and petitioner’s address was given as resident of New Delhi, Magistrate at New Delhi alone had jurisdiction to try offence - Held, yes - Whether according to section 113(3) only CLB to whom complaint is to be made, is empowered to take necessary action to make good default - Held, yes - Whether since company was under liquidation and respondent had not taken leave of winding up court as required under section 446, criminal proceedings registered against company had to be quashed - Held, yes

Facts

The respondent filed a complaint in the trial court at Bangalore against the petitioner being the chairman and director of a company situated at New Delhi, for his failure to return the shares with the endorsement of transfer in his name within the period stipulated under section 113. The Magistrate passed orders registering the case against the petitioner.

On revision under section 482 of Code of Criminal Procedure.

Held

By virtue of section 623, since the head office of the company was situated at Delhi and since the address of the petitioner in the complaint was given as the resident of New Delhi, showing his designation as Chairman and director of the company and since the offences were alleged to have been committed by him, the Presidency Magistrate of New Delhi alone had got jurisdiction to try the above offence. So, in the first instance, the court below had no jurisdiction to entertain this complaint.

Further the provisions of section 113(3) make it clear that the complaint is to be made by the shareholder only to the CLB and the CLB is empowered to take necessary action in this regard to make good the default, if any committed by the company or by any of its officers and even the director of the company and to pay the costs to the applicant-shareholder. Further, by virtue of the amendment of section 113, by the Companies (Amendment) Act, 1988, which came into force with effect from 31-5-1991, the word ‘court’ is substituted by the ‘Company Law Board’ in the said provisions. Therefore, the jurisdiction of regular Magistrate courts to entertain the complaint was taken away by virtue of this amendment and the said powers are conferred on the CLB. So, the complaint filed by the first respondent, before the court below was also not maintainable.

It was further found from the provisions of section 446 that, without leave of the Company court, no judicial proceedings could be initiated against the company or any of its officers in respect of the company, which was under liquidation soon after the official liquidator was appointed as provisional liquidator by the company court. Since the respondent-complainant had not taken leave of the company court to file the above complaint, on this ground also the above said complaint was not maintainable.

Hence, the proceedings pending against the petitioner were quashed, and the revision petition allowed.

Basavaprabhu S. Patil for the Petitioner. K. Ramesh for the Respondent.

Judgment

1.         The petitioner who is accused No. 2 in C.C.No. 337 of 1997, filed this petition under section 482 of the Criminal Procedure Code, 1973, seeking for quashing the above proceedings registered against him by the impugned order passed by the Special Court for Economic Offences, Bangalore City.

2.         The first respondent herein filed a complaint in the trial court alleging that the petitioner herein who is the chairman and director of the CRB Capital Markets Ltd., situated at New Delhi, failed to return the shares sent by him with the endorsement of transfer in his name within two months as required under the provisions of section 113 of the Companies Act, 1956 (‘the Act’).

3.         The learned Magistrate recorded the sworn statement of the complainant and thereafter ordered for registering the case against the petitioner for the above-said offences and for issue of process to him. It is the said order which is now challenged in the present proceedings.

4.         The first respondent herein appearing in person before this Court remained absent and unrepresented.

5.         I have heard the arguments advanced by the learned counsel for the petitioner.

6.         The learned counsel for the petitioner raised the following contentions :

(i)             The court below has no jurisdiction to entertain this complaint since the head office of the above-said company is situated at Delhi from where the shares are to be sent back making endorsement of transfer on them.

(ii)            According to the procedure laid down under section 113(3), the shareholder has to first make a complaint of non-compliance with the provisions of section 113(1), before the CLB and it is the CLB which has to take necessary action for getting the transfer endorsement made on the share certificates and for returning them to the shareholder by fixing the time within which the transfer endorsements are to be made on the share certificates. The said order may also provide that all costs and expenses incidental to the application, shall be borne by the company or by any officer of the company responsible for the default.

(iii)           By virtue of the Government notification dated 15-2-1995, prosecution powers have been delegated to the SEBI officers. So, individual shareholders are not entitled to file any complaint in this regard.

(iv)           On the liquidation proceedings initiated against the above company in Company Petition No. 191 of 1997, in the company court at Delhi, an order has been passed appointing the official liquidator as provisional liquidator, copy of which is produced as Annexure C. So, without leave of the company court, no legal proceedings shall commence or if pending shall be proceeded with against the company by virtue of the provisions under section 446(1) of the Act.

7.         It is clear from the provisions of section 623 of the Act that if any offence against this Act which is punishable with fine only is committed by any person within a Presidency town, such person may be tried summarily and punished by any Presidency Magistrate of that Presidency town. Since the head office of the above-said company is situated at Delhi and since the address of the petitioner in the complaint is given as the resident of New Delhi, showing his designation as chairman and director of the above-said company and since the offences are alleged to have been committed by him, the Presidency Magistrate of New Delhi alone has got jurisdiction to try the above offence. So, in the first instance, I find that the court below has no jurisdiction to entertain this complaint. Further, as rightly pointed out by the learned counsel for the petitioner, the provisions of section 113(3), make it clear that the complaint is to be made by the shareholder only to the CLB and the CLB is empowered to take necessary action in this regard to make good the default, if any committed by the company or by any of its officers and even the director of the company and to pay the costs to the applicant-shareholder. Further, by virtue of the amendment of section 113, by the Companies (Amendment) Act, 1988, which came into force with effect from 31-5-1991, the word ‘court’ is substituted by the CLB in the said provisions. It is, therefore, clear that the jurisdiction of regular Magistrate courts to entertain the complaint is taken away by virtue of this amendment and the said powers are conferred on the CLB. So, I find that the complaint filed by the first respondent herein, before the court below is also not maintainable. It is further found from the provisions of section 446 that, without leave of the company court, non-judicial proceedings can be initiated against the company or any of its officers in respect of the company, which is under liquidation soon after the official liquidator is appointed as provisional liquidator by the company court. Since the first respondent-complainant has not taken leave of the company court to file the above complaint, I find that on this ground also the above-said complaint is not maintainable.

8.         For the above reasons, I find that the proceedings in the above case are liable to be quashed.

9.      In the result, this petition is allowed and the proceedings in C.C. No. 337 of 1997, pending against the petitioner are hereby quashed.

 

PATNA HIGH COURT

Companies Act

HIGH COURT OF PATNA

Bank of Rajasthan Ltd.

v.

State of Bihar

M.Y. EQBAL, J.

CRIMINAL MISCELLANEOUS NO. 6071 OF 1998(R)

AUGUST 26, 1999

 

Section 113, read with sections 2(11) and 10E, of the Companies Act, 1956 - Share certificates - Limitation for issue of - Whether Criminal Court has jurisdiction to enter­tain a complaint for an offence committed under section 113(2) - Held, yes

Facts

The complainant had purchased 100 shares of the petitioner - Bank and sent them for transfer in his name along with the transfer deed, duly stamped and signed. As the prescribed time of two months under section 113 had elapsed, he alleged that till date neither share certificate had been sent by the petitioner evidenc­ing transfer of shares in his name nor he had received any reply in spite of reminders and thereby the petitioner had committed offence as prescribed under section 113(2). The Magistrate took cognizance of the matter and initiated criminal proceedings against the petitioner.

On petition, the petitioner contended that the criminal court had no jurisdiction to entertain a complaint for  the offence under section 113(2).

Held

From perusal of the definition of court as defined under section 2(11), read with section 10E, it is manifest that irrespective of any matter relating to company other than any offence against the Act, the court constituted and vested with the power under section 10E shall have the jurisdiction to decide and adjudicate the matter relating to company. Section 10E refers to matters relating to company other than any offence against the Act. However, with respect to any offence against the Act, the court of a Magistrate of the Ist Class or, as the case may be, a Presidency Magistrate having jurisdiction shall decide the cases. The submission of the peti­tioner that the criminal court had no jurisdiction to entertain any complaint for the offence committed against the Act, could not be accepted.

Hence, the application was to be rejected.

B.V. Kumar for the Applicant. Biren Poddar for the Respondent.

Order

1.         In this application filed under section 482 of the Code of Criminal Procedure, 1898, the petitioner has prayed for quashing the entire criminal proceeding including the order of cognizance dated 6-10-1997 passed by the Chief Judicial Magistrate, Ranchi in complaint case No. 437 of 1997 under section 113(2) of the Companies Act, 1956  now pending before the Judicial Magistrate, Ist class, Ranchi.

2.         The prosecution case, in nut shell as per the complaint peti­tion, is that the complainant opposite party No. 2 had purchased 100 shares of the petitioner-Bank of Rajasthan by investing Rs. 23,000 at the price prevailant at that time. The details of the shares have been given in the plaint. It is alleged that on 22-5-1996 the complainant sent the aforesaid 100 shares along with transfer deed duly filled up, stamped and signed as required under law for transfer of his name on those shares to accused No. 4, namely, the Secretary of the Bank which was duly received by him on 27-5-1996. It is alleged that the limitation of time for issuing such certificate as has been prescribed under section 113 of the Companies Act, two months after the date of application for registration of the transfer of sharers. The allegation is that till date neither share certificate has been sent by the accused persons evidencing transfer of the shares in the name of the complainant nor he has received any reply inspite of remind­ers and, thereby the accused persons have committed an offence as prescribed under section 113(2).

3.         The complaint was filed on 24-9-1997. The learned Chief Judi­cial Magistrate transferred the case for inquiry under section 192 of Code of Criminal Procedure. Thereafter, the complainant was examined and then summon was issued to the accused persons for answering the charge punishable under section 113(2).

4.         Mr. B.V. Kumar, the learned counsel for the petitioner as­sailed the entire criminal prosecution as being illegal and wholly without jurisdiction. The learned counsel submitted that the criminal court has no jurisdiction to entertain a complaint for the offence under section 113(2). In this connection, the learned counsel referred to sections 10E and 10F of the Companies Act. The learned counsel then submitted that the power of prose­cution has been given to the Secretary, Enforcement Board  of India under the Companies Act.

5.         Mr. Biren Poddar, the learned counsel appearing on behalf of the complainant-opposite party No. 2 submitted that the question of jurisdiction cannot be challenged at the initial stage of the prosecution. The learned counsel further submitted that the offence committed by the accused persons are the offence against the Companies Act and, therefore, the Magistrate has jurisdiction to try such offence.

6.         The term ‘court’ has been defined under section 2(11) of the Act. It reads as under :

“2(11) ‘the court’ means,—

(a)      with respect to any matter relating to a company (other than any offence against this Act), the Court having jurisdiction under this Act with respect to that matter relating to that company, as provided in section 10.

(b)      with respect to any offence against this Act, the Court of a Magistrate of the First class or, as the case may be, a Presidency Magistrate, having jurisdiction to try such offence.”

7.         Section 10E provides that the Central Government shall, by notification in the official gazette, constitute a Board to be called the Board of Company Law Administration. Sub-section (1A) provides that the Board shall exercise and discharge such powers and function as may be conferred on it by or under this Act or any other law and shall also exercise and discharge such other powers and function of the Central Government under this Act or any other law, as may be conferred on it. The appointment of the Chairman and the Member Board is vested in the Central Government who, by notification may constitute such Board. The Board shall then constitute one or more Benches from amongst its members and authorities and each such Bench shall exercise and discharge such functions and powers of the Board, as may be specified in the notification.

8.         Sub-sections (4C) and (4D) are relevant provisions which read as under :

“(4C) Every Bench referred to in sub-section (4B) shall have powers which are vested in a court under the Code of Civil Proce­dure, 1908 (5 of 1908), while trying a suit, in respect of the following matters, namely :—

        (a)      discovery and inspection of documents or other material objects producible as evidence.

        (b)      enforcing the attendance of witnesses and requiring deposit of their expenses.

(c)      compelling the production of documents or other materi­al objects producible as evidence and impounding the same.

        (d)      examining witnesses on oath.

        (e)      granting adjournments.

        (f)       reception of evidence on affidavits.

(4D) Every Bench shall be deemed to be a civil court for the purpose of section 195 and (Chapter XXVI of the Code of Criminal Procedure, 1973 (2 of 1974), and every proceeding before the Bench shall be deemed to be a judicial proceeding within the meaning of sections 193 and 228 of the Indian Penal Code, 1860 (45 of 1860), and for the purpose of section 196 of that Code.”

9.         From perusal of the definition of court as defined under section 2(11) read with section 10E of the Act it is manifest that irrespective of any matter relating to company other than any offence against this Act, the court constituted and vested with the power under section 10E shall have the jurisdiction to decide and adjudicate the matter relating to company. However, with respect to any offence against the Act, the court of a Magistrate of the 1st class or, as the case may be, a Presidency Magistrate having jurisdiction shall decide the cases. The sub­mission of B.V. Kumar that the criminal court has no jurisdiction to entertain any complaint for the offence committed against the Act, cannot be accepted.

10.       As noticed above, section 10E refers to matters relating to company other than any offence against the Act. I am, therefore, of the opinion that the criminal courts have jurisdiction to entertain complaint for the offence against the Companies Act.

11.       For the reasons aforesaid, the impugned order needs no inter­ference by this court. This application is, therefore, dismissed.

 

SUPREME COURT

Companies Act

Supreme Court of India

H.V. Jayaram

v.

Industrial Credit & Investment Corpn. of India Ltd.

K.T. Thomas and M.B. Shah, JJ.

Crl. Appeal Nos. 1353-57 of 1999

December 15, 1999

 

Section 113, read with section 53, the Companies Act, 1956 - Limitation of time for issue of share certificates - Whether cause of action for failure to deliver share certificate would  arise where registered office of company is situated and as such complaint for offence punishable under section 113(2) can be filed only where registered office of company is situated - Held, yes

Facts

The appellant had lodged criminal cases before the Special Court for Economic Offences in Karnataka at Bangalore on the allegation that the respondent-companies had committed offences punishable under section 113(2). The order passed by the Trial Court reject­ing applications for discharge and issuing summons to companies after taking cognizance of the offence was questioned on the ground that the Magistrate had no territorial jurisdiction to try the alleged offences as the registered offices of the respondent-companies were not located in the State of Karnataka but were located either at Bombay or Gujarat. The appellant’s case was that he was a permanent resident of Bangalore and letters
re­questing the company to transfer shares and to send memorandum, articles of association, balance sheets, etc., were sent from Bangalore to the registered offices of the companies and, there­fore, cause of action also arose at Bangalore. The High Court held that as the documents were sent to the respondents by post, the cause of action would  arise only where the head office was situated. The High Court, therefore, concluded that the Magis­trate was required to return the complaint for presentation before the proper court.

On appeal to the Supreme Court :

Held

Reading sections 113 and 53 together, share certificates are to be delivered in accordance with the procedure laid down in sec­tion 53. A document is to be served either personally or by sending it by post at registered address within India. Sub-section (2) specifically mentions that where a document is sent by post, such service thereof shall be  deemed to be effected by properly addressing, prepaying and posting the letter containing the document. Hence, once there is a statutory mode of delivering the document by post and deeming provision of such delivery, the place where such posting is done is the place of performance of statutory duty and the same stands discharged as soon as the document is posted. Hence, the cause of action for default of not sending the share certificates within stipulated time would arise at the place where the registered office of the company is situ­ated as from that place the share certificates can be posted and are usually posted. If the addressee is available at the same locality where the registered office of the company is situated, it is reasonable to think that service of documents may be ef­fected by personally delivering to him. But if the addressee is residing at a distant place, it is unreasonable to expect the company to depute somebody to travel up to that distance to per­sonally deliver it to him. The only usual mode which any company would then adopt is to send it to him by post. For such default as contemplated under section 113(1), there is no question of any cause of action arising at the place where the complainant was to receive postal delivery. What is punishable under sub-section (2) of section 113 is non-delivery in accordance with the provision laid down under section 53 of the certificates of shares within prescribed time. So, if the documents are posted within stipulat­ed time, there would be compliance of section 113 and there would not be any offence.

Thus, the cause of action for failure to deliver the share certif­icates or documents within prescribed time would arise where the registered office of the company is situated. Therefore, com­plaint for the offence punishable under section 113(2) could be filed only where registered office of the company is situated and not where the complainant is residing.

Case Review

Decision of the Patna High Court in Upendra Kumar Joshi v. Manik Lal Chatterjee [1982] 52 Comp. Cas. 177 approved.

Decision of the Karnataka High Court in ICICI v. H.V. Jayaram [1998] 18 SCL 68 affirmed.

Decision of the Rajasthan High Court [in respect of jurisdiction to entertain complaint under 113(2)] in Ranbaxy Laboratories Ltd. v. Smt. Indra Kala 12 SCL 288 im­pliedly overruled.

Cases referred to

Ranbaxy Laboratories Ltd. v. Smt. Indra Kala [1997] 24 CLA 203/12 SCL 288 (Raj.), Upendra Kumar Joshi v. Manik Lal Chatterjee [1982] 52 Comp. Cas. 177 (Pat.) and H.P. Gupta v. Hiralal 1970 (1) SCC 437.

Judgment

Shah, J. - Leave granted.

2.         The only question involved in these appeals is whether the complaint for the offence punishable under section 113(2) of the Companies Act, 1956, could be filed only where the registered office of the company is situated or where the complainant is residing.

The appellant had lodged criminal cases before the Special Court for economic offences in Karnataka at Bangalore on the allegation that the respondent-companies had committed offences punishable under section 113(2). Criminal Petition Nos. 240, 1485, 1548, 1848 and 1849 of 1996 before the High Court of Karnataka at Bangalore challenged the order passed by the Trial Court reject­ing applications for the discharge on the ground that the Magis­trate had no territorial jurisdiction to try the alleged of­fences. In some cases, companies straightway approached the High Court questioning the order passed by the learned Magistrate issuing summons to them after taking cognizance of the offence. It was pointed out that admittedly the registered offices of the respondent-companies are not located in the State of Karnataka but are located either at Bombay or at Gujarat. As against this, the appellant who is a practising advocate contended that he was a permanent resident of Bangalore and letters requesting the company to transfer the shares and to send memorandum, articles of association, balance sheets, etc., were sent from Bangalore to the registered offices of the companies and, therefore, cause of action also arose at Bangalore. The High Court after considering the various decisions relied upon by the learned counsels for the parties arrived at the conclusion that under the provision of section 53 of the Companies Act, two modes are prescribed for serving the documents, one to serve personally and the other by post. As the documents were sent to the respondent by post, as requested by him, the cause of action would arise only where the head office is situated. The Court, therefore, arrived at the conclusion that having regard to section 201 of the Code of Criminal Procedure, 1898, the Magistrate is required to return the complaint for presentation before the proper court with an endorsement to that effect.

3.         The learned counsel appearing on behalf of the appellant (complainant) strenuously contended that the order passed by the High Court is, on the face of it, erroneous because admittedly, the appellant is residing at Bangalore. Being purchaser of the shares, he was entitled to get the share certificates at Banga­lore and, therefore, cause of action would arise at Bangalore also. For this purpose, he relied upon the decision rendered by the Rajasthan High Court in Ranbaxy Laboratories Ltd. v. Smt. Indra Kala [1997] 12 SCL 288.

As against this, the learned senior counsel, Mr. Desai, submitted that the order passed by the High Court is in accordance with the provision of section 113, read with section 53. He referred to the decision rendered by the Patna High Court in Upendra Kumar Joshi v. Manik Lal Chatterjee [1982] 52 Comp. Cas. 177. He submitted that the litigation is frivolous and it should be discouraged.

4.         For appreciating the contention raised by the learned counsels for the parties, we would refer to the relevant parts of sections 53 and 113, which are as under :

“53. Service of documents on members of company.—(1) A document may be served by a company on any member thereof either personal­ly, or by sending it by post to him to his registered address, or if he has no registered address in India, to the address, if any, within India supplied by him to the company for the giving of notices to him.

(2) Where a document is sent by post,—

(a)      service thereof shall be deemed to be effected by properly addressing, prepaying and posting a letter containing the document, provided that where a member has intimated to the company in advance that documents should be sent to him under a certificate of posting or by registered post with or without acknowledgement due and has deposited with the company a sum sufficient to defray the expenses of doing so, service of the document shall not be deemed to be effected unless it is sent in the manner intimated by the member; and” [Emphasis supplied]

“113. Limitation of time for issue of certificates.—(1) Every company, unless prohibited by any provision of law or of any order of any Court, Tribunal or other authority, shall, within three months after the allotment of any of its shares, debentures or debenture stock, and within two months after the application for the registration of the transfer of any such shares, deben­tures or debenture stock, deliver, in accordance with the proce­dure laid down in section 53, the certificates of all shares, debentures and certificates of debenture stocks allotted or transferred :

**                                                          **                                           **

(2) If default is made in complying with sub-section (1), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees for every day during which the default continues.”

Section 113, inter alia, requires that within three months after the allotment of any shares and within two months after the application for the registration of the transfer of any such shares, every company shall deliver, in accordance with the procedure laid down in section 53, the certificates of all shares allotted or transferred. Sub-section (2) provides punishment if default is made in complying with sub-section (1). Reading sec­tions 113 and 53 together, share certificates are to be delivered in accordance with the procedure laid down in section 53. A document is to be served either personally or by sending it by post at registered address within India. Sub-section (2) specifi­cally mentions that where a document is sent by post, such serv­ice thereof shall be deemed to be effected by properly address­ing, prepaying and posting the letter containing the document. Hence, once there is a statutory mode of delivering the document by post and deeming provision of such delivery, the place where such posting is done is the place of performance of statutory duty and the same stands discharged as soon as the document is posted. Hence, the cause of action for default of not sending the share certificates within stipulated time would arise at the place where the registered office of the company is situated as from that place the share certificates can be posted and are usually posted. If the addressee is available at the same locali­ty where the registered office of the company is situated, it is reasonable to think that service of documents may be effected by personally delivering to him. But if the addressee is residing at a distant place, it is unreasonable to expect the company to depute somebody to travel up to that distance to personally deliv­er it to him. The only usual mode which any company would then adopt is to send it to him by post. For such default, as contem­plated under section 113(1), there is no question of any cause of action arising at the place where complainant was to receive postal delivery. What is punishable under sub-section (2) of section 113 is non-delivery, in accordance with the provision laid down under section 53, of the certificates of shares within prescribed time. So, if the documents are posted within stipulat­ed time, there would be compliance of section 113 and there would not be any offence.

5.         In H.P. Gupta v. Hiralal 1970 (1) SCC 437, the Court considered a similar provision of section 207 of the Companies Act, which provides for payment of dividend within 42 days of its declaration by a company and its non-payment within stipulated period is punishable. Section, inter alia, provides that where dividend is declared by the company but has not been paid, or warrant in respect thereof has not been posted within 42-days from the date of its declaration, to any shareholder entitled to the payment of dividend, then it would be an offence punishable under section 207. In that case, the Court also considered sec­tion 205(5)(b), which is similar to section 53, which, inter alia, provides that any dividend payable may be paid by cash or a cheque or a warrant sent by post directed to the registered address of the shareholder entitled to the payment of the divi­dend. The Court held that when the company posts the dividend warrant at the registered address of the shareholder, the post office becomes the agent of the shareholder and the loss of a dividend warrant during the transit thereafter is at the risk of the shareholder. The
Court further held that the place where the dividend warrant would be posted is the place where the company has its registered office and the offence under section 207 would also occur at the place where the failure to discharge that obligation arises, namely, the failure to post the dividend warrant within 42-days. In the facts of that case, the Court observed thus :

“. . . The venue of the offence, therefore, would be Delhi and not Meerut, and the Court competent to try the offence would be that Court within whose jurisdiction the offence takes place, i.e. Delhi. This should be so both in law and common-sense, for, if held otherwise, the directors of companies can be prosecuted at hundreds of places on an allegation by shareholders that they have not received the warrant. That cannot be the intention of the Legislature when it enacted section 207 and made failure to pay or post a dividend warrant within 42 days from the declara­tion of the dividend an offence.”

Same would be the position for the offence punishable under section 113. Cause of action for failure to deliver the share certificates or documents within prescribed time would arise where the registered office of the company is situated.

6.         However, the learned counsel for the appellant relied upon the decision of the Rajasthan High Court in Ranbaxy Laboratories Ltd.’s case (supra). In the said case, complaint was filed before the Judicial Magistrate at Jaipur in Rajasthan for the offences punishable under section 113 against the directors and officers of the company alleging that the complainant had purchased 200 shares of the company and had duly sent such shares to the head office of the company for registration of the transfer in its books, but despite repeated requests, reminders and efforts made by her, the company did not register the transfer of the shares in her name. Registered office of the company was at Delhi. The High Court negatived the contention of the company that Judicial Magistrate at Jaipur did not have jurisdiction to deal with the case by holding thus :

“Company collects money from the public at large by selling its shares and transactions of sale and purchase are governed by the provisions of the Companies Act. Registration of the transferred shares is one of the duties of the company in the course of conducting its business according to the provisions of law. Therefore, the interest of the members of the public transacting such business cannot be allowed to be defeated on the plea that relief to the aggrieved persons can be granted only at the place where the office of the company is located.”

7.         In our view, it appears that the attention of the learned Judge was not drawn to the decision rendered by this Court in H.P. Gupta’s case (supra) and also to section 113, which, inter alia, provides that the company shall deliver the documents, such as, certificates of shares, debentures and certificates of debenture stocks allotted or transferred in accordance with the procedure laid down in section 53. Section 53 prescribes the mode of deliv­ery, inter alia, by sending the document by post at registered address and sub-section (2) is the deeming provision for delivery of such letter. In Upendra Kumar Joshi’s case (supra) the Patna High Court has followed the decision rendered by this Court in the case of H.P. Gupta (supra) and has rightly arrived at the conclusion that the cause of action would arise at the place where registered office of the company is situated.

8.                  In the result, the aforesaid appeals are dismissed.

 

ANDHRA PRADESH HIGH COURT

Companies Act

HIGH COURT OF ANDHRA PRADESH

Zee Telefilms Ltd.

v.

State of Andhra Pradesh

B. Sudershan Reddy, J.

Criminal Petition No. 1866 of 2000

July 28, 2000

 

Section 113, read with section 10, of the Companies Act, 1956 - Shares -  Time limit for issue of cer­tificates - Whether cause of action would arise at place where registered office of company is situ­ated, in case of offence punishable under section 113 - Held, yes - Whether, therefore, where complaint under section 113 was filed before Court at Hyderabad where shares were purchased but registered office of company was situated at Mumbai, Hyderabad Court would have no jurisdiction to entertain complaint - Held, yes

facts

The complainant purchased certain shares of the petitioner-compa­ny at Hyderabad. He sent the said shares to the registered office of the petitioner-company for effecting the transfer of the said shares in his name. The company did not deliver the said shares duly transferred in his name in spite of reminders and legal notice. Therefore, the complainant filed complaint before Court at Hyderabad against the petitioner-company and its directors for the offence punishable under section 113. The petitioner filed petition under section 482 of the Code of Criminal Procedure to quash the proceedings contending that since the registered office of the company was situated at Mumbai, the Judge for Economic Offences at Hyderabad had no jurisdiction to entertain the complaint.

Held

The Supreme Court in H.V. Jayaram v. ICICI [2000] 2 SCC 200 held that the cause of action would arise at the place where the registered office of the company is situated in case of an of­fence punishable under section 113. Thus, the question that arose for consideration was squarely covered by the decision of the Supreme Court.

Mere fact that the complainant purchased the shares of company at Hyderabad was of no consequence. Maybe, the complainant ordi­narily resided at Hyderabad and notices were sent from Hyderabad requiring the accused-petitioners to send share certificates duly transferring the same in the name of the complainant. But, admit­tedly the Registered Office of company was situated in Mumbai.

Following the judgment of the Supreme Court, it was to be held that the Special Judge for Economic Offences at Hyderabad had no jurisdiction to entertain the complaint.

Case referred to

H.V. Jayaram v. Industrial Credit & Investment Corpn. of India Ltd. [2000] 2 SCC 202.

Ch. Dhanamjaya for the Petitioner. Narayan Laxman Rao for the Respondent.

Order

1.         This is a petition filed under section 482 of the Code of Crimi­nal Procedure to quash the proceedings in S.T.C. No. 7 of 2000 pending on the file of the learned Special Judge for Economic Offences, Hyderabad. The petitioners herein are the accused in the said case.

The second respondent herein filed a complaint before the learned Special Judge against the petitioners herein for the offence punishable under section 113 of the Companies Act, 1956 (‘the Act’). It may be necessary to briefly notice the relevant facts before adverting to the question as to whether the petitioners are entitled for any relief in this petition.

2.         The parties herein shall be referred to as arrayed in the complaint.

3.         A1 is a public limited company having its registered office at Mumbai; A2 is the Chairman of A1 company; A3 is the managing director, A4 to A6 are the Directors and A7 is the Company Secre­tary of A1 company. It is the case of the complainant that he had purchased hundred shares of Zee Telefilms Ltd. on 24-7-1996 bearing distinctive numbers vide Certificate No. 164197. The said shares were purchased by the complainant on the National Stock Exchange Ltd. through Quest Fin Sec Markets Ltd. situated at Hyderabad. The complainant sent the said shares to the Registered Office of A1 company on 7-9-1996 for effecting the transfer of the said shares in his name. It is averred that the accused did not deliver the said shares duly transferring in his name. The complainant having waited for about eight months sent a reminder to the company on 23-5-1997 requesting to deliver the said shares to the complainant duly transferring the same in his name. In spite of the reminder, the accused failed to deliver the shares to the complainant duly transferring the same in his name. The complainant sent another reminder dated 7-8-1997 requesting the accused to deliver his shares. But, there was no response.

4.         It is the case of the complainant that it is mandatory and obligatory on the part of the accused to deliver the shares to the complainant within two months and its non-compliance without any valid reason is an offence punishable under section 113. The complainant got issued a legal notice dated 13-12-1999 through his counsel and sent the legal notice to all the accused persons on 18-12-1999 by registered post with acknowledgement due. The accused were put on notice to deliver the shares to the complain­ant within the stipulated time as prescribed in the notice. The accused failed to deliver the shares to the complainant. It is under those circumstances, the complainant filed the complaint before the learned Special Judge.

5.         It is clearly alleged that A2 is the Chairman of A1 company and being its Chairman he is the key person playing most impor­tant role of planning and operations of A1 company and partici­pates in day-to-day affairs and management of the company. The other accused are also alleged to be responsible for the conduct of the operations and administration of A1 company, and there­fore, all of them are in charge and responsible to A1 company for the conduct of its business. In the circumstances, they are also liable to be prosecuted and punished, is the case of the com­plainant. Then substance is the complaint.

6.         The accused in this petition deny all the allegations and averments made against them in the complaint. This aspect need not detain us any further since it would not be possible for this court to record any findings whatsoever with regard to the truth or otherwise of the allegations made in the complaint against the accused.

7.         In this petition, Shri Ch. Dhanamjaya, the learned counsel for the accused-petitioners submits that the complainant-second respondent admittedly purchased shares of the company at Hydera­bad, but the Registered Office of the company is situated at Mumbai and the complaint if any at all could have been filed where the Registered Office of the company is located and not before the learned Special Judge for Economic Offences at Hydera­bad. To be precise, it is contended that the learned Judge for Economic Offences at Hyderabad has no jurisdiction to entertain the complaint.

8.         Therefore, the question that falls for consideration is as to whether the complainant-second respondent had filed the complaint in proper court and whether the learned Special Judge for Eco­nomic Offences at Hyderabad has jurisdiction to entertain the complaint and proceed further in the matter.

9.         In my considered opinion, the question raised in this petition is not res integra. It is clearly covered by an authoritative pronouncement of the Apex Court in H.V. Jayaram v. Industrial Credit & Investment Corpn. of India Ltd. It was also a case where the complainant lodged criminal cases before the Special Court for economic offences in Karnataka at Bangalore on the allegation that the respondent-companies therein had committed offences pun­ishable under section 113(2). The complainant in the said case is a practising advocate. It was his case that he was a permanent resident of Bangalore and letters requesting the company to transfer the shares and to send memorandum, articles of association, balance sheets etc., were sent from Bangalore to the registered offices of the companies and, therefore, the cause of action also arose at Bangalore. The Karnataka High Court arrived at the conclusion that under the provisions of section 53 of the Act two modes are prescribed for serving the documents, one to serve personally and the other by post. As the documents were sent to the respondent by post, as required by him, the cause of action would arise only where the head office is situated. The court accordingly directed the learned magistrate to return the complaint for presentation before the proper court with an endorsement to that effect. The said decision was challenged in the Supreme Court. The Supreme Court after elaborate consideration of the matter held :

“Section 113, inter alia, requires that within three months after the allotment of any shares and within two months after the application for the registration of the transfer of any such shares, every company shall deliver, in accordance with the proce­dure laid down in section 53, the certificates of all shares allotted or transferred. Sub-section (2) provides punishment if default is made in complying with sub-section (1). Reading sec­tions 113 and 53 together, share certificates are to be delivered in accordance with the procedure laid down in section 53. A document is to be served either personally or by sending it by post at a registered address within India. Sub-section (2) spe­cifically mentions that where a document is sent by post, such serv­ice thereof shall be deemed to be effected by properly address­ing, prepaying and posting the letter containing the document. Hence, once there is a statutory mode of delivering the document by post and deeming provision of such delivery, the place where such posting is done is the place of performance of statutory duty and the same stands discharged as soon as the document is posted. Hence the cause of action for default of not sending the share certificates within the stipulated time would arise at the place where the registered office of the company is situated as from that place the share certificates can be posted and are usually posted. If the addressee is available at the same locali­ty where the registered office of the company is situated, it is reasonable to think that service of documents may be effected by personally delivering to him. But if the addressee is residing at a distant place it is unreasonable to expect the company to depute somebody to travel up to that distance to personally deliver it to him. The only usual mode which any company would then adopt is to send it to him by post. For such default, as contemplated under section 113(1), there is no question of any cause of action arising at the place where the complainant was to receive postal delivery. What is punishable under sub-section (2) of section 113 is non-delivery, in accordance with the provision laid down under section 53, of the certificates of shares within the prescribed time. So, if the documents are posted within the stipulated time, there would be compliance of section 113 and that there would not be any offence.” [Emphasis Supplied] (p. 205)

The Supreme Court accordingly held that the cause of action would arise at the place where the Registered Office of the company is situated in case of an offence punishable under section 113. The Supreme Court held that the cause of action for failure to deliv­er the shares and certificates or documents within the prescribed time would arise where the Registered Office of the company is situated. Thus, the question that arises for consideration is squarely covered by the decision of the Supreme Court.

10.       Mere fact that the complainant-second respondent purchased the shares of A-1 company at Hyderabad is of no consequence. May be, the complainant-second respondent ordinarily resides at Hyderabad and notices were sent from Hyderabad requiring the accused-petitioners to send share certificates duly transferring the same in the name of the complainant-second respondent. But, admittedly, the Registered Office of A-1 company is situated in Mumbai.

11.       Following the above judgment of the Supreme Court, it is held that the learned Special Judge for economic offences at Hyderabad has no jurisdiction to entertain the complaint.

12.       In this petition, the accused-petitioners have also raised a plea with regard to limitation. Having regard to the facts and circumstances of the case and since the question relating to limitation is mixed question of fact and law, the learned counsel for the accused-petitioners submits that the plea relating to the complaint being barred by limitation may be kept open for adjudi­cation by the trial court. There cannot be any objection whatso­ever to accept the submission made by the learned counsel for the accused-petitioners. In the circumstances, no opinion is ex­pressed by this Court on the question of limitation. The question is left open.

13.       This petition is, accordingly, disposed of directing the learned Special Judge for Economic Offences at Hyderabad to return the complaint to the complainant-second respondent for presentation before the proper court with an endorsement on the said complaint to that effect. It shall be open to the complain­ant-second respondent to present the complaint before the compe­tent court of jurisdiction to try the complaint in accordance with law.

 

RAJASTHAN HIGH COURT

Companies Act

HIGH COURT OF RAJASTHAN

Herdillia

v.

Ms. Aparajita Chauhan

P.K. Tewari, J.

SB Cr. Misc. Petition No. 827 of 1998

May 21, 1999

 

Section 113 of the Companies Act, 1956 - Share certificate, issue of - Limitation of time - Petitioner-company having its registered office in Bombay failed to deliver share certifi­cates to respondent residing at Jaipur who had paid share amount by cheque at Jaipur - Trial Court at Jaipur took cogni­zance of offence against petitioner - Whether default committed by company was a continuing offence and, therefore, complaint filed by respondent was not barred by limitation - Held, yes - Whether Special Judicial Magistrate at Jaipur had territorial jurisdiction to take cognizance against petitioner for offence under section 113(2) - Held, yes - Whether, it was a fit case in which power under section 482 of the Code of Crimi­nal Procedure, 1973, could be exercised to quash said complaint and proceedings - Held, no

Facts

The respondent and her sister having submitted a joint applica­tion seeking allotment of 200 shares each and remitted the re­quired amount by cheque, were allotted 100 shares each but the petitioner-company failed to deliver to the respondents, the share certificates within the specified period along with the refund of the balance amount. Therefore, on a complaint filed against the petitioner-company, the Magistrate, after recording the statements under sections 200 and 202 of the Code of Criminal Procedure, 1973, took cognizance of the offence under section 113(2) of the Companies Act. The Trial Court later dismissed the application filed under section 203 of the Code for reconsidera­tion of the matter. On a petition under section 482 of Cr. P.C. it was contended by the petitioner-company, inter alia, that as the registered office of the company is situated at Mumbai, the Special Judicial Magistrate, Jaipur, had no territorial jurisdiction to try the case and that the complaint had been filed after a lapse of 4-5 years and therefore, it was time barred.

Held

In the case of Herdilia Unimers Ltd. v. Smt. Renu Jain [1995] 4 Comp. LJ 45 (Raj.) it was held, inter alia, that the words ‘d­efault continues’ in section 113 makes a declaration of law that the default committed under section 113(1) is a continuing of­fence and, therefore, in the instant case it could not be said that the complaint was barred by limitation. Moreover, in the case of Mohan P. Wag v. State of Rajasthan [1998] 28 CLA 181/15 SCL 72 (Raj.) it was also held that where complainant respondent applied and paid money to the bankers of the accused at Jaipur for allotment of debentures at Jaipur on the basis of the prospectus delivered to her at Jaipur and debentures were required to be delivered to her at Jaipur as per terms of the prospectus, the entire cause of action arose at Jaipur. Thus, in the instant case, the Special Judicial Magistrate at Jaipur had territorial jurisdiction to take cogni­sance against the petitioners for the offence under section 113(2). Whether cognisance against the petitioner could be taken or not was to be decided by the Trial Court considering the material placed before it during trial. It would not be proper to express any opinion on it at this stage.

Therefore, it was not a fit case in which the power under section 482 of the Code could be exercised to quash the complaint and proceedings pending in the Court of Special Judicial Magistrate, Jaipur. This petition was accordingly dismissed.

Cases referred to

K.M. Mathew  v. State of Kerala AIR 1992 SC 2206, Hanuman Prasad Gupta v. Hira Lal AIR 1971 SC 206, Rupan Deol Bajaj v. Kanwar Pal Singh Gill [1995] 6 SCC 194, Vatsa Industries Ltd. v. Shankerlal Saraf [1996] 87 Comp. Cas. 918/9 SCL 130 (SC), Ranbaxy Laborato­ries Ltd. v. Smt. Indra Kala [1997] 88 Comp. Cas. 348/12 SCL 288 (Raj.), Herdilia Unimers Ltd. v. Smt. Renu Jain [1995] 4 Comp. LJ. 45 (Raj.) and Mohan P. Wag v. State of Rajasthan [1998] 28 CLA 181/15 SCL 72 (Raj.).

Judgment

1. This petition under section 482 of the Code of Criminal Proce­dure, 1973 (‘the Code’), has been filed to set aside the order dated 2-5-1998, and to quash the criminal complaint and proceed­ing pending against petitioners in the Court of the Special Judicial Magistrate (Economic Offences), Rajasthan, Jaipur.

2.         In short, the facts of the case are that the respondent had submitted a joint application along with her sister, Ashiya Chouhan, seeking allotment of 200 shares each and for that purpose the required amount was remitted by cheque. They were allotted 100 shares each. According to the respondent, the compa­ny failed to deliver the share certificates till the filing of the complaint whereas the company was required to deliver the shares within three months from the date of allotment by regis­tered post at the registered address of the applicant. Therefore, a complaint was filed in the Court of the Special Judicial Magis­trate (Economic Offences) Rajasthan, Jaipur, against the present petitioner and others. The learned Magistrate after recording the statement under sections 200 and 202 of the Code took cognisance of the offence under section 113(2) of the Companies Act, 1956 (‘the Act’), against the present petitioners.

3.         A petition under section 482 of the Code was filed by the petitioners before this Court for quashing the criminal proceed­ings pending before the Special Judicial Magistrate which was dismissed with the observation that the accused should approach the trial court with a proper application in view of the Apex Court judgment in the case of K.M. Mathew v. State of Kerala AIR 1992 SC 2206. In compliance with the aforesaid direction of this Court, the petitioners submitted an application under section 203 of the Code for reconsideration of the matter but that application has been dismissed by the Special Magistrate vide its order dated 2-5-1998. Therefore, this petition under section 482 has been filed in this Court.

4.         The learned counsel submitted that the share certificates along with the refund of the balance amount were sent to the complainant-respondent by registered post but on account of lapse on the part of the Post and Telegraph Department the complainant-respondent did not receive the aforesaid share certificates and refund amount. The complainant submitted an application in the prescribed form for issuance of duplicate certificates along with the indemnity bond on 3-8-1993. After observing procedural for­malities the duplicate certificates were sent by registered post to the respondent but just to pressurise the directors of the company, this criminal complaint has been filed concealing the true facts, no offence under section 113(2) is made out. He has also submitted on the basis of the pronouncement of the Apex Court in the case of Hanuman Prasad Gupta v. Hiralal AIR 1971 SC 211/206, that as per the statutory prospectus which was issued by the petitioner-company for commencement of the public issue in response to which the complainant had submitted her application for the allotment of shares, the letters of allotment and share certificates for equity shares and debentures, etc., were to be dispatched by registered post at the applicant’s sole risk. The registered office of the petitioner-company is situated at Mum­bai. Section 113, read with section 53, of the Act makes it clear that it is permissible for a company to discharge its obligation by sending the share certificates, debentures, etc. through registered post. As the registered office of the company is situated at Mumbai, the Special Judicial Magistrate, Jaipur, has no territorial jurisdiction to try the case. Only the Courts located at Mumbai had jurisdiction to entertain criminal com­plaint for the offence under section 113. It has also been sub­mitted that no complaint can be filed against the company and its chairman as the company had appointed a Registrar to the issue to handle all procedural formalities in the matter of processing of applications and dispatching of allotment letters, share certifi­cates or refund orders, etc. It was also made clear in the pro­spectus itself that the allotment orders, share certificates, refund orders etc., will be sent at the sole risk of the appli­cant. The complaint has been filed after a lapse of 4-5 years. Therefore, it is time barred. The learned counsel has submitted that to allow the proceedings in the criminal court amounts to abuse of the process of the Court, therefore, this petition must be allowed and the complaint and the proceedings pending in the Court of the Special Judicial Magistrate be quashed.

5.         On the other hand, the learned counsel appearing for the re­spondent has submitted that the complainant did not receive the share certificates and the refund within the stipulated period, therefore, the offence under section 113(2) is made out against the company and its chairman. He has also contended that the aforesaid judgment of the Supreme Court is not applicable in the present case because that was in connection with the payment of dividend under section 207 of the Act. The offence under section 113 is a continuing offence. Therefore, it cannot be said that the complaint is time-barred. The learned Magistrate has juris­diction to take cognisance of the offence under section 113 at Jaipur and the learned Magistrate has rightly taken cognisance of the offence against the present petitioners.

6.         I have perused the order passed by the learned Special Judi­cial Magistrate and the record available. Before deciding the point raised by the petitioner it would be proper to quote the observations made by the Apex Court in regards to the powers under section 482. The Apex Court in the case of Rupan Deol Bajaj v. Kanwar Pal Singh Gill [1995] 6 SCC 194 has observed as under :

“We also give a note of caution to the effect that the power of quashing a criminal proceeding should be exercised very sparingly and with circumspection and that too in the rarest of rare cases; that the court will not be justified in embarking upon an enquiry as to the reliability of genuineness or otherwise of the allegations made in the first information report or the complaint and that the extraordinary or inherent powers do not confer an arbitrary jurisdiction on the court to act according to its whim or caprice.” (p. 203)

7.         It would be useful to reproduce the relevant provisions of the Act which are required for the disposal of this  petition. Sec­tions 113, 53 and 207 are reproduced as under :

“113. Limitation of time for issue of certificates - (1) Every company, unless prohibited by any provision of law or of any order of any court, tribunal or other authority, shall, within three months after the allotment of any of its shares, debentures or debenture stock, and within two months after the application for the registration of the transfer of any such shares, deben­tures or debenture stock, deliver, in accordance with the proce­dure laid down in section 53, the certificates of all shares, debentures and certificates of debenture stocks allotted or transferred :

**                                                        **                                                     **

(2) If default is made in complying with sub-section (1), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees for every day during which the default continues.

(3) If any company on which a notice has been served requiring it to make good any default in complying with the provisions of sub-section (1), fails to make good the default within ten days after the service of the notice, the Company Law Board may, on the application of the person entitled to have the certificates or the debenture delivered to him make an order directing the compa­ny and any officer of the company to make good the default within such time as may be specified in the order; and any such order may provide that all costs of and incidental to the application shall be borne by the company or by any officer of the company responsible for the default.

53. Service of documents on members by company - (1) A document may be served by a company on any member thereof either personal­ly, or by sending it by post to him to his registered address, or if he has no registered address in India, to the address, if any, within India supplied by him to the company for the giving of notices to him.

(2) Where a document is sent by post,—

(a)      service thereof shall be deemed to be effected by properly addressing, prepaying and posting a letter containing the document, provided that where a member has intimated to the company in advance that documents should be sent to him under a certificate of posting or by registered post with or without acknowledgement due and has deposited with the company a sum sufficient to defray the expenses of doing so, service of the document shall not be deemed to be effected unless it is sent in the manner intimated by the member; and

        (b)      such service shall be deemed to have been effected -

(i)           in the case of a notice of a meeting at the expiration of forty-eight hours after the letter containing the same is posted, and

(ii)          in any other case, at the time at which the letter would be delivered in the ordinary course of post.

(3)      A document advertised in a newspaper circulating in the neigh­bourhood of the registered office of the company shall be deemed to be duly served on the day on which the advertisement appears, on every member of the company who has no registered address in India and has not supplied to the company an address within India for the giving of notices to him.

(4)        A document may be served by the company on the joint holders of a share by serving it on the joint holder named first in the register in respect of the share.

(5)        A document may be served by the company on the persons entitled to a share in consequence of the death or insolvency of a member by sending it through the post in pre-paid letter ad­dressed to them by name, or by the title of representatives of the deceased, or assignees of the insolvent, or by any like description, at the address, if any, in India supplied for the purpose by the persons claiming to be so entitled, or until such an address has been so supplied by serving the document in any manner in which it might have been served if the death or insol­vency had not occurred.

207. Penalty for failure to distribute dividends within forty-two days - Where a dividend has been declared by a company but it has not been paid, or the warrant in respect thereof has not been posted, within forty-two days from the date of the declaration, to any shareholder entitled to the payment of the dividend, every director of the company shall if he is knowingly a party to the default, be punishable with simple imprisonment for a term which may extend to seven days and shall also be liable to fine :

Provided that no offence shall be deemed to have been comitted within the meaning of the foregoing provision in the following cases, namely :

        (a)      where the dividend could not be paid by reason of the operation of any law ;

(b)      where a shareholder has given directions to the company regarding the payment of the dividend and those directions cannot be complied with;

        (c)      where there is dispute regarding the right to receive the dividend;

(d)      where the dividend has been lawfully adjusted by the company against any sum due to it from the shareholder; or

(e)      where, for any other reason, the failure to pay the dividend or to post the warrant within the period aforesaid was not due to any default on the part of the company.”

8.         First of all, it would be proper to decide whether the  Spe­cial Judicial Magistrate is competent to take cognisance of the offence against the present petitioners for the offence under section 113(2). As stated earlier according to the learned coun­sel for the petitioner, the Courts located at Mumbai only have jurisdiction to entertain the complaints against the company or its officers for the offence under section 113(2) because the registered office of the company is situated at Mumbai, on the basis of the judgment of the Supreme Court in Hanuman Prasad Gupta’s case (supra). It has been observed by the Hon’ble Supreme Court as follows :

“Section 207 casts an obligation on the company to pay dividend which is declared to the shareholder entitled within 42 days from its declaration. The offence under this section takes place when there is failure to pay or a cheque or warrant is not posted to the registered post of the shareholder. This section makes the failure to post within the prescribed period and not the non-receipt of the warrant by the shareholder, an offence. Therefore, the obligation to pay within the prescribed period is satisfied once the dividend is paid or a cheque or a warrant is posted at the registered address of the shareholder.”

9.         But section 113 casts an obligation upon the company within three months after the allotment of any of its shares, debentures or debenture stock, and within two months after the application for the registration of the transfer of any such shares, deben­tures or debenture stock, deliver in accordance with the proce­dure laid down in section 53, the certificates of all shares, debentures and certificates of debenture stocks allotted or transferred. Therefore, in my opinion, the aforesaid judgment is not applica­ble in the present case because the provisions of sections 113 and 207 are different.

10.       The learned counsel, appearing on behalf of the respondent, has cited the following judgments in support of his contention that the  Special Judicial Magistrate at Jaipur has jurisdiction to take cognisance of the offence under section 113(2) against the present petitioners though the head office of the company is situated at Mumbai. In the case of Vatsa Industries Ltd. v. Shankerlal Saraf [1996] 87 Comp. Cas. 918/9 SCL 130, the Hon’ble Supreme Court has held as under :

“Proceedings were filed in Consumer Forums and Magistrates’ courts in various States against the petitioner-company in re­spect of forfeiture of shares. The company in a transfer petition sought transfer of all the proceedings to one single court. It was held that transfer of proceedings in various States to one single court would cause hardship and unavoidable expenses to the respondents, permitted the company to move the respective High Courts to have the case within each State transferred to a single court within that State, to minimise the hardship.”

11.       It was held by this Court in the case of Ranbaxy Laboratories Ltd. v. Smt. Indra Kala [1997] 88 Comp. Cas. 348/12 SCL 288 as follows :

“The petitioner-company had its registered office in Punjab and its corporate office in Delhi. The respondent filed a complaint against the company, its managing director and three others in the Special Magistrate’s  Court at Jaipur, alleging that she had purchased 200 shares in the company from three shareholders and had duly sent such shares to the head office of the petitioner-company for registration of the transfer in its books, but despite repeated requests, reminders and efforts made by the respondents, the petitioner-company did not register the transfer of the shares in her name. After examining the respondent and her witness, and looking into the documents filed along with the complaint, the Magistrate took cognisance and issued process against the company and its managing director. On a petition to have the Magistrate’s order quashed under section 482 of the Code of Criminal Procedure :

Held, dismissing the petition, (i) that the powers of the court under section 482 of the Criminal Procedure Code are quite limit­ed and extraordinary and should be exercised with great care and caution in the rarest of rare and exceptional cases only to prevent the abuse of the process of the court or otherwise to secure the ends of justice.

(ii)**    **        **

(iii) That registration of the transferred shares was amongst the duties of the petitioner-company in the course of conducting its business according to the provisions of law applicable to its business. Once the petitioner-company and the law applicable to its functioning permitted transactions of purchase and sale of its shares throughout the breadth and length of the country for its gain, the interest of the members of the public transacting such business could not be allowed to be defeated on the plea that relief to the aggrieved persons could be granted only at the place where the office of the company was located. Such an ap­proach would frustrate the very purpose of the relevant provi­sions in the Act and in other allied Acts. The objection that the Magistrate had no jurisdiction was not sustainable.” (p. 348)

12.       This Court has held in the case of Herdilia Unimers Ltd. v. Smt. Renu Jain [1995] 4 Comp. LJ. 45 as under :

“The designation of a person as chairman cannot be considered as not falling within the definition of ‘officer who is in default’ in section 5 of the Companies Act, 1956, unless it is so proved by the memorandum and articles of association of the company and/or by an agreement entered into with him as to what are his duties. Similarly, the question as to whether clause (a), (b) or (c) of section 5 is applicable so as to exclude the other direc­tors is also to be determined with reference to the documents which may be placed before the trial court.

Section 113 of the Companies Act, 1956, contemplates delivery of share certificates, etc., within three months after the allot­ment. Section 53 provides that a document may be served by a company or any member thereof either personally or by sending it by post to him to his registered address. A presumption has been drawn that where a document is sent by post, service thereof shall be deemed to be effected by properly addressing, pre-paying and posting the letter containing the document. The presumption which has been raised under section 53 is rebutable and a share­holder may allege that he has not been delivered the share cer­tificate or it is not properly addressed. The document here refers to bulk registered receipt with the name of the addressee and post office of destination. From the above document, it is not evident as to whether it was sent to the registered address and on the basis of a document which is not complete in itself, it cannot be said that the proceedings are to be quashed at that stage.

The moment the shares are allotted and the share certificate is signed, and the name is entered in the register maintainable for the purpose, the person becomes the shareholder, whether the person receives the share certificate or not. Such a person can file a complaint under section 621 of the Companies Act, 1956. Looking to the provisions of section 113(2) of the Companies Act, 1956, it is clear that the statutory recognition has been given to the default committed under sub-section (1) of section 113 as a continuing one. It is provided that the company and every offi­cer of the company who is in default shall be punishable with fine which may extend to Rs. 500 for every day during which the default continues. The words ‘default continues’ make a declara­tion of law that it is a continuing offence by the company and, therefore, it cannot be said that the complaint is barred by limitation.”

13.       It has been held in the case of Mohan P. Wag v. State of Rajasthan [1998] 28 CLA 181/15 SCL 72 (Raj.) as under :

“In the present case though the registered office of the company is situated at Bombay and the accused persons are residing at Bombay and the disputed prospectus was published and printed at Bombay, but the said document was delivered at Jaipur and an offer was invited on the basis of this prospectus at Jaipur. The complain­ant-respondent applied and paid the money to the bankers of the accused at Jaipur for allotment of debentures at Jaipur on the basis of the prospectus delivered to her at Jaipur and the deben­tures were required to be delivered to her at Jaipur as per the terms of the prospectus. Thus, the entire cause of action in this case arose at Jaipur and, as per sections 179 and 181(4) of the Code, the trial of the offence of misrepresentation should be taken at the court of Jaipur only and in no other court....” (p. 186)

14.       A careful perusal of the above decisions of the Supreme Court and this Court show that the Special Judicial Magistrate at Jaipur has territorial jurisdiction to take cognisance against the present petitioners for the offence under section 113(2). Whether cognisance against the present petitioner can be taken or not is to be decided by the trial court.

15.       It has also been held in the case of Hardilia Unimers Ltd. (supra) that “offence under section 113 of the Companies Act is a continuing offence”, whether cognisance against the present peti­tioner can be taken or not under the present circumstances is a matter to be decided by the trial court considering the material placed before it during trial. It would not be proper for this Court to express any opinion on it at this stage.

16.       Therefore, looking through all the controversy raised before me, I am of the view that it is not a fit case in which the power under section 482 of the Code could be exercised to quash the complaint and proceedings pending in the Court of Special Judi­cial Magistrate, Rajasthan, Jaipur. This petition is accordingly dismissed.

 

RAJASTHAN HIGH COURT

Companies Act

High Court of Rajasthan

Indian Petro Chemicals Corpn. Ltd.

v.

State of Rajasthan

P.P. Naolekar, J.

S.B. Crl Misc. Petition Nos. 73 to 87 of 1999

June 1, 2000

 

Section 10, read with sections 113 and 116, of the Companies Act, 1956 - Courts - Jurisdiction of - Petitioner-Government-company with registered office in Gujarat, failed to issue share certificates within prescribed time limit to respond­ent No. 2, a shareholder situated in Rajasthan - Court below at Jaipur took cognizance of offence under sections 113(2) and 116 on com­plaint made at Jaipur - Whether since complaint for offence under section 113(2) can be filed only where registered office of company is situated and not where complainant resides court at Jaipur had no jurisdiction to entertain complaint and take cognizance of offence under section 113(2) - Held, yes

Section 621 of the Companies Act, 1956 - Offences - To be cognizable only on complaint by Registrar, shareholder or Government - Whether complaint under sections 113 and 116 against a Government company can be taken cognizance of only if it is filed by a person authorised by Central Government in that behalf except in proceedings instituted under section 545 - Held, yes - Whether on facts stated under heading ‘Issue of certificates - Limitation of time for’ since complainant was not authorised by Central Government and complaint was not filed in proceedings instituted under section 545, Court was prohibited from taking cognizance of offences under sections 113(2) and 116 on account of clear cut provisions of section 621 - Held, yes

Facts

The petitioner was a Government company incorporated under the Companies Act. Its registered office was in Gujarat. According to the respondent No. 2, she was allotted 100 equity shares but the share certificates were never delivered nor she was informed about the remaining call money. She, therefore, filed complaints in the court of Judicial Magistrate, Jaipur for non-compliance of provisions of the Act and an offence under sections 113 and 116. The Court issued process against the petitioner after conducting an enquiry. As the court rejected the objections raised, the petitioner-company filed the instant miscellaneous petitions claiming relief of setting aside the order of the Court below and quashing of criminal proceedings pending in the Court.

Held

A reading of section 113 as a whole clearly indicates that the person who has not been delivered share certificates after allot­ment as provided under section 113(1), can make a complaint before the magistrate and the magistrate can impose a penalty as provided under sub-section (2) of section 113, whereas remedy provided under sub-section (3) is independent and separate remedy wherein the person after giving the statutory notice can approach the Board for non-compliance of the provisions of sub-section (1) and the Board has an authority to issue directions to the company to deliver, within such time as may be mentioned in the order, the allotted or transferred shares. The amendment brought about in sub-section (3) by the Companies (Amendment) Act, 1988 with effect from 31-5-1991 deleting ‘court’ and substituting it by the ‘Company Law Board’ does not make any difference. Previously power under sub-section (3) was vested with the court; with the amend­ment that has been given to the Board.

The petitioner was not right in his submission that the complaint for non-compliance of section 113(1) would lie only before the Board. Sub-section (2) of section 113 provides for penalty for non-delivery of share certificates to allottee whereas sub-section (3) of section 113 provides for delivery of share certif­icates. Under sub-section (2) the court is authorised to impose penalty whereas sub-section (3) gives authority to Board to issue direction to deliver share certificate. If the complainant wants to proceed against a company under sub-section (2) of section 113 the complaint will have to be filed in the court of Registrar having jurisdiction whereas if he wants to resort to the summary remedy for delivery, he can approach the Board under sub-section (3) of section 113.

Admittedly, the petitioner-company’s registered office was situ­ated at Gujarat. The complaint of the respondent No. 2 was in respect of non-delivery of share certificates within the pre­scribed time after allotment whereby the alleged offence under section 113(2) was committed by the petitioner-company. The question raised is now finally settled by the Apex Court in a judgment in H.V. Jairam v. Industrial Credit & Investment Corpn. of India Ltd. [2000] 36 CLA 1, wherein it has been held that under the provisions of section 53 two modes are prescribed for serving the documents : one to serve personally and other by post and, therefore, where the documents are sent to the purchaser of the share by post, the cause of action would arise only where head office is situated and the complaint for offence under section 113(2) of non-delivery of the share certificates within the prescribed time can be filed only where the registered office of the company is situated and not where the complainant resides. Normally, the share certificates, debentures or debenture stock shall be sent by post to the persons who are resident of outside stations and, thus, it shall be presumed that the company shall send the share certificates by post unless, of course, the share­holders are the residents of the same place where the company’s registered office is situated. Admittedly, the plaintiffs were not the resident of place where the company’s registered office was situated and, therefore, it shall be deemed that the company was responsible to send the share certificates, debentures or debenture stock by post. The court below had no jurisdiction to entertain complaint and take cognizance of an offence under section 113(2).

The process was issued and cognizance was taken by the Court under sections 113 and 116 on a complaint made by the respondent No. 2, the shareholder. Section 617 defines ‘Government company’ which is a company in which not less than 51 per cent of the paid-up share capital is held by the Central Government or by any State Government or the Governments, or partly by Central Govern­ment and partly by one or more State Governments and includes a company which is subsidiary of a Government company. The peti­tioner-company had paid-up share capital by the Central Govern­ment of more than 51 per cent and, thus, the company was a Govern­ment company. Section 621 prohibits the court to take cognizance of the offence against the Act other than an offence with respect to which proceedings are instituted under section 545, which is alleged to have been committed by any company or any officer thereof except on a complaint in writing of the Registrar, or of a shareholder of the company or in case of Government company, by a person authorised by Central Government in that behalf. In regard to the other companies the complaint can be made in writing either by the Registrar or by a shareholder of the company or by a person authorised by the Central Government in that behalf. But so far as the complaint is against the Government company it has to be made by person authorised by the Central Government in that behalf; that is the mandate of sub-section (1) of section 621. The offences falling within section 541 are the offences in relation to company, coming to light in the course of winding-up having been committed by any officer or member and a special procedure is especially provided by that section. It appears from the comprehensive nature of the provision of section 545 that the offence mentioned therein has a relevance which has been brought to light during the winding-up proceedings only.

In the instant case the complaint made, by the respondent, who claimed herself to be the shareholder, was against the Government company, not in relation to the offence which was brought to light during winding-up proceedings and, therefore, the court was prohibited from taking cognizance of the offence under sections 113(2) and 116, on account of the clear cut provision of section 621, whereby the court has been restrained from taking cognizance of a complaint made by shareholder against the Government compa­ny. The complaint filed was not maintainable.

The Court below had committed an error in taking cognizance of an offence under sections 113(2) and 116 on a complaint made at Jaipur. The order dated 17-10-1998 of the Special Court of Judi­cial Magistrate (Economic Offences) Rajasthan, Jaipur, was set aside. The complaints made and the proceedings taken in criminal cases by the court below were quashed.

Case referred to

H.V. Jairam v. Industrial Credit & Investment Corpn. of India Ltd. [2000] 36 CLA 1 (SC).

Munindar Singh for the Petitioner. Rizwan Ali for the Respondent.

Judgment

1.         As a common question of law and facts is involved in these cases they are decided by this common judgment. (The facts in the matter of Smt. Kanta Devi are taken into consideration for decid­ing the appeals.)

2.         Petitioner No. 1—Indian Petro Chemicals Corporation Ltd. (‘the petitioner-company’) is a company incorporated under the Companies Act, 1956 (‘the Act’). It has its registered office at P.O. Petro Chemicals, Distt. Vadodara-391346 (Gujarat). Petitioner No. 2 K.G. Ramnathan is the chairman and managing director of the petitioner-company. The petitioner-company has invited applica­tions for allotment of public issue of equity shares of rupees ten each for cash at a premium of rupees one hundred fifty per share. At the relevant time when the public issue was made the Government of India held 80 per cent of the equity share capital of the company and it was declared by the company that subsequent to the proposed issue the holding of the Government of India will be 70.87 per cent of the enhanced equity. In pursuance of the invitation, the respondent No. 2 Smt. Kanta Devi Agrawal applied for allotment of equity shares. As per the respondent No. 2 although hundred shares were allotted to her, she was not deliv­ered the share certificates. She was neither informed regarding share certificates nor was informed about remaining call money nor was sent share offer forms for right shares. Complaints were filed in the Special Court of Judicial Magistrate (Economic Offences) Rajasthan, Jaipur (‘the court below’) for non-compli­ance of the provisions of the Act and thereby committing an of­fence under sections 113 and 116 of the Act. The learned court below conducted an enquiry in the matter and vide its order dated 12-7-1995 issued process against the petitioners along with some other persons after taking cognizance for an offence under sec­tions 113 and 116. The petitioners entered appearance in pursu­ance of the summons issued by the court below and submitted preliminary objections as to the maintainability of the com­plaints in the Jaipur court and of the jurisdiction of the court of taking cognizance and issuance of process on the complaint made by the respondent No. 2.

3.         The objections raised by the petitioner-company was rejected, hence, these miscellaneous petitions were filed under section 482 of the Criminal Procedure Code, 1973 claiming relief of setting aside the order of the court below passed on 17-10-1998 and quashing of criminal proceedings pending in his Court.

4.         It is submitted by the counsel for the petitioner that the complaint under section 113 could be filed before the Company Law Board (‘the Board’) only as provided under sub-section (3) of section 113, that the petitioner-company’s registered office having situated at Vadodara (Gujarat), the court below has no jurisdiction to entertain the complaint made under sections 113 and 116, that the court below has committed an error in taking cognizance on a complaint of the respondent No. 2 who claimed herself to be a shareholder for an offence under sections 113 and 116 against the petitioner-company which is a Government company. I shall deal with the submissions made by the counsel for the parties one by one.

5.         Section 113(1) (so far it is relevant for this case) provides for every company unless prohibited by any provision of law or by order of any court, tribunal or any other authority, to deliver within three months, after the allotment of shares, debentures, debenture stock, and within two months after the application for registration of the transfer of any such shares, debentures or debenture stock in accordance with the procedure laid down in section 53, the certificate of shares, debentures and certificate of debenture stocks allotted or transferred to the allottee. Therefore, the petitioner-company under sub-section (1) is re­quired to deliver the share certificate allotted or transferred by it within three months and within two months deliver, trans­ferred debentures or debenture stock. The proviso which has been added with effect from 15-7-1988 authorises the Board to extend the period provided for delivery of allotted or transferred shares. Sub-section (2) is a penal provision and if the company makes default to comply with sub-section (1) of section 113, the company or every officer of the company who is in default is punishable with fine which may extend to rupees five hundred for every day during which the default continues. The penalty for default under the section is fine which may extend to rupees five hundred for every day during which the default continues. The default in complying with the requirement of section is an of­fence and triable by the magistrate. Although the Board has been given power to extend the period of delivery of certificate, the punishment on default, if any, would be in the domain of the courts only. Sub-section (3) lays down a summary remedy of apply­ing to the Board for an order directing the company and any officer thereof to issue certificate in respect of which default of section 113(1) has been committed. The person entitled to the certificate may approach the Board for an order directing the issue of certificate. He is required to serve a notice on the company as provided under sub-section (3) and only in the event of the company failing to comply with the notice within ten days he can move the Board under sub-section (3) of section 113. Reading of section 113 as a whole clearly indicates that the person who has not been delivered share certificates after allot­ment as provided under section 113(1) can make a complaint before the magistrate and the magistrate can impose a penalty as provid­ed under sub-section (2) of section 113. Whereas remedy provided under sub-section (3) is independent and separate remedy wherein the person after giving the statutory notice can approach the Board for non-compliance of the provisions of sub-section (1) and the Board had an authority to issue directions to company to deliver, within such time as may be mentioned in the order, the allotted or transferred shares. The amendment brought about in sub-section (3) by the Companies (Amendment) Act, 1988 with effect from 31-5-1991 deleting ‘court’ and substituting it by the Board does not make any difference. Previously power under sub-section (3) was vested with the court, with the amendment that has been given to the Board.

6.         The counsel for the petitioner is not right in his submission that the complaint for non-compliance of section 113(1) would lie only before the Board. Sub-section (2) of section 113 provides for penalty for non-delivery of share certificates to allottee whereas sub-section (3) of section 113 provides for delivery of share certificates. Under sub-section (2) court is authorised to impose penalty whereas sub-section (3) gives authority to Board to issue direction to deliver share certificate. If the com­plainant wants to proceed against a company under sub-section (2) of section 113 the complaint will have to be filed in the court of magistrate having jurisdiction whereas if he wants to resort to the summary remedy for delivery, he can approach the Board under sub-section (3) of section 113.

7.         Admittedly the petitioner-company’s registered office is situated at Vadodara (Gujarat). The complaint of the respondent No. 2 is in respect of non-delivery of share certificates within the prescribed time after allotment whereby the alleged offence under section 113(2) is committed by the petitioner-company. The question raised is now finally settled by the Apex Court in a judgment in H.V. Jairam v. Industrial Credit & Investment Corpn. of India Ltd. [2000] 36 CLA 1 wherein it has been held that under the provisions of section 53 of the Act two modes are
prescribed for serving the documents; one to serve personally and other by post and, therefore, as the documents were sent to the purchaser of the share by post, the cause of action would arise only where head office is situated and the complaint for offence under section 113(2) of non-delivery of the share certificates within the prescribed time can be filed only where the registered office of the company is situated and not where the complainant resides. Normally, the share certificates, debentures or debenture stock shall be sent by post to the persons who are resident of outside stations and, thus, it shall be presumed that the company shall send the share certificates by post unless, of course, the share­holders are the residents of the same place where the company’s registered office is situated. Admittedly, the plaintiffs are not the resident of place where the company’s registered office is situated and, therefore, it shall be deemed that the company is responsible to send the share certificates, debentures or debenture stock by post. The court below has no jurisdiction to entertain complaint and take cognizance of an offence under section 113(2).

8.         The process is issued and cognizance is taken by the court under sections 113 and 116 on a complaint made by the respondent No. 2, the shareholder. Section 617 defines ‘Government company’ which is a company in which not less than 51 per cent of the paid-up share capital is held by the Central Government or by any State Government or Governments, or partly by Central Government and partly by one or more State Governments and includes a company which is subsidiary of a Government company. The petitioner-company has paid-up share capital by the Central Government more than 51 per cent and, thus the company is a Government company. Section 621 prohibits the court to take cognizance of the offence against the Act other than an offence with respect to which pro­ceedings are instituted under section 545, which is alleged to have been committed by any company or any officer thereof except on a complaint in writing of the Registrar, or of a shareholder of the company or a person authorised by Central Government in that behalf. In case of Government company by a person authorised by Central Government in that behalf. In regard to the other companies the complaint can be made in writing either by the Registrar or by a shareholder of the company or by a person authorised by the Central Government in that behalf. But so far the complaint is against the Government company it has to be made by person authorised by the Central Government in that behalf, that is the mandate of sub-section (1) of section 621. The of­fences falling within section 541 are the offences in relation to company, coming into light in the courts of winding-up having been committed by any officer or member and the special procedure is especially provided by that section. It appears from the comprehensive nature of the provision of section 545 that the offence mentioned therein has a relevance which has been brought to the light during the winding-up proceedings only.

9.         In the present case, the complaint made, by the respondent, who claimed herself to be the shareholder, is against the Govern­ment company, not in relation to the offence which is brought to light during winding-up proceedings and, therefore, the court is prohibited from taking cognizance of the offence under sections 113(2) and 116, on account of the clear cut provision of section 621, whereby the court has been restrained from taking cognizance on a complaint made by shareholder against the Government compa­ny. The complaint filed was not maintainable.

10.       The court below has committed an error in taking cognizance of an offence under sections 113(2) and 116 on a complaint made at Jaipur.
The order dated 17-10-1998 of the Special Court of Judicial Magistrate (Economic Offences) Rajasthan, Jaipur is set aside. The complaints made and the proceedings taken in criminal cases by the court below are hereby quashed.

RAJASTHAN HIGH COURT

Companies Act

HIGH COURT OF RAJASTHAN

Herdillia

v.

Ms. Aparajita Chauhan

P.K. Tewari, J.

SB Cr. Misc. Petition No. 827 of 1998

May 21, 1999

 

Section 113 of the Companies Act, 1956 - Share certificate, issue of - Limitation of time - Petitioner-company having its registered office in Bombay failed to deliver share certifi­cates to respondent residing at Jaipur who had paid share amount by cheque at Jaipur - Trial Court at Jaipur took cogni­zance of offence against petitioner - Whether default committed by company was a continuing offence and, therefore, complaint filed by respondent was not barred by limitation - Held, yes - Whether Special Judicial Magistrate at Jaipur had territorial jurisdiction to take cognizance against petitioner for offence under section 113(2) - Held, yes - Whether, it was a fit case in which power under section 482 of the Code of Crimi­nal Procedure, 1973, could be exercised to quash said complaint and proceedings - Held, no

Facts

The respondent and her sister having submitted a joint applica­tion seeking allotment of 200 shares each and remitted the re­quired amount by cheque, were allotted 100 shares each but the petitioner-company failed to deliver to the respondents, the share certificates within the specified period along with the refund of the balance amount. Therefore, on a complaint filed against the petitioner-company, the Magistrate, after recording the statements under sections 200 and 202 of the Code of Criminal Procedure, 1973, took cognizance of the offence under section 113(2) of the Companies Act. The Trial Court later dismissed the application filed under section 203 of the Code for reconsidera­tion of the matter. On a petition under section 482 of Cr. P.C. it was contended by the petitioner-company, inter alia, that as the registered office of the company is situated at Mumbai, the Special Judicial Magistrate, Jaipur, had no territorial jurisdiction to try the case and that the complaint had been filed after a lapse of 4-5 years and therefore, it was time barred.

Held

In the case of Herdilia Unimers Ltd. v. Smt. Renu Jain [1995] 4 Comp. LJ 45 (Raj.) it was held, inter alia, that the words ‘d­efault continues’ in section 113 makes a declaration of law that the default committed under section 113(1) is a continuing of­fence and, therefore, in the instant case it could not be said that the complaint was barred by limitation. Moreover, in the case of Mohan P. Wag v. State of Rajasthan [1998] 28 CLA 181/15 SCL 72 (Raj.) it was also held that where complainant respondent applied and paid money to the bankers of the accused at Jaipur for allotment of debentures at Jaipur on the basis of the prospectus delivered to her at Jaipur and debentures were required to be delivered to her at Jaipur as per terms of the prospectus, the entire cause of action arose at Jaipur. Thus, in the instant case, the Special Judicial Magistrate at Jaipur had territorial jurisdiction to take cogni­sance against the petitioners for the offence under section 113(2). Whether cognisance against the petitioner could be taken or not was to be decided by the Trial Court considering the material placed before it during trial. It would not be proper to express any opinion on it at this stage.

Therefore, it was not a fit case in which the power under section 482 of the Code could be exercised to quash the complaint and proceedings pending in the Court of Special Judicial Magistrate, Jaipur. This petition was accordingly dismissed.

Cases referred to

K.M. Mathew  v. State of Kerala AIR 1992 SC 2206, Hanuman Prasad Gupta v. Hira Lal AIR 1971 SC 206, Rupan Deol Bajaj v. Kanwar Pal Singh Gill [1995] 6 SCC 194, Vatsa Industries Ltd. v. Shankerlal Saraf [1996] 87 Comp. Cas. 918/9 SCL 130 (SC), Ranbaxy Laborato­ries Ltd. v. Smt. Indra Kala [1997] 88 Comp. Cas. 348/12 SCL 288 (Raj.), Herdilia Unimers Ltd. v. Smt. Renu Jain [1995] 4 Comp. LJ. 45 (Raj.) and Mohan P. Wag v. State of Rajasthan [1998] 28 CLA 181/15 SCL 72 (Raj.).

Judgment

1.         This petition under section 482 of the Code of Criminal Proce­dure, 1973 (‘the Code’), has been filed to set aside the order dated 2-5-1998, and to quash the criminal complaint and proceed­ing pending against petitioners in the Court of the Special Judicial Magistrate (Economic Offences), Rajasthan, Jaipur.

2.         In short, the facts of the case are that the respondent had submitted a joint application along with her sister, Ashiya Chouhan, seeking allotment of 200 shares each and for that purpose the required amount was remitted by cheque. They were allotted 100 shares each. According to the respondent, the compa­ny failed to deliver the share certificates till the filing of the complaint whereas the company was required to deliver the shares within three months from the date of allotment by regis­tered post at the registered address of the applicant. Therefore, a complaint was filed in the Court of the Special Judicial Magis­trate (Economic Offences) Rajasthan, Jaipur, against the present petitioner and others. The learned Magistrate after recording the statement under sections 200 and 202 of the Code took cognisance of the offence under section 113(2) of the Companies Act, 1956 (‘the Act’), against the present petitioners.

3.         A petition under section 482 of the Code was filed by the petitioners before this Court for quashing the criminal proceed­ings pending before the Special Judicial Magistrate which was dismissed with the observation that the accused should approach the trial court with a proper application in view of the Apex Court judgment in the case of K.M. Mathew v. State of Kerala AIR 1992 SC 2206. In compliance with the aforesaid direction of this Court, the petitioners submitted an application under section 203 of the Code for reconsideration of the matter but that application has been dismissed by the Special Magistrate vide its order dated 2-5-1998. Therefore, this petition under section 482 has been filed in this Court.

4.         The learned counsel submitted that the share certificates along with the refund of the balance amount were sent to the complainant-respondent by registered post but on account of lapse on the part of the Post and Telegraph Department the complainant-respondent did not receive the aforesaid share certificates and refund amount. The complainant submitted an application in the prescribed form for issuance of duplicate certificates along with the indemnity bond on 3-8-1993. After observing procedural for­malities the duplicate certificates were sent by registered post to the respondent but just to pressurise the directors of the company, this criminal complaint has been filed concealing the true facts, no offence under section 113(2) is made out. He has also submitted on the basis of the pronouncement of the Apex Court in the case of Hanuman Prasad Gupta v. Hiralal AIR 1971 SC 211/206, that as per the statutory prospectus which was issued by the petitioner-company for commencement of the public issue in response to which the complainant had submitted her application for the allotment of shares, the letters of allotment and share certificates for equity shares and debentures, etc., were to be dispatched by registered post at the applicant’s sole risk. The registered office of the petitioner-company is situated at Mum­bai. Section 113, read with section 53, of the Act makes it clear that it is permissible for a company to discharge its obligation by sending the share certificates, debentures, etc. through registered post. As the registered office of the company is situated at Mumbai, the Special Judicial Magistrate, Jaipur, has no territorial jurisdiction to try the case. Only the Courts located at Mumbai had jurisdiction to entertain criminal com­plaint for the offence under section 113. It has also been sub­mitted that no complaint can be filed against the company and its chairman as the company had appointed a Registrar to the issue to handle all procedural formalities in the matter of processing of applications and dispatching of allotment letters, share certifi­cates or refund orders, etc. It was also made clear in the pro­spectus itself that the allotment orders, share certificates, refund orders etc., will be sent at the sole risk of the appli­cant. The complaint has been filed after a lapse of 4-5 years. Therefore, it is time barred. The learned counsel has submitted that to allow the proceedings in the criminal court amounts to abuse of the process of the Court, therefore, this petition must be allowed and the complaint and the proceedings pending in the Court of the Special Judicial Magistrate be quashed.

5.         On the other hand, the learned counsel appearing for the re­spondent has submitted that the complainant did not receive the share certificates and the refund within the stipulated period, therefore, the offence under section 113(2) is made out against the company and its chairman. He has also contended that the aforesaid judgment of the Supreme Court is not applicable in the present case because that was in connection with the payment of dividend under section 207 of the Act. The offence under section 113 is a continuing offence. Therefore, it cannot be said that the complaint is time-barred. The learned Magistrate has juris­diction to take cognisance of the offence under section 113 at Jaipur and the learned Magistrate has rightly taken cognisance of the offence against the present petitioners.

6.         I have perused the order passed by the learned Special Judi­cial Magistrate and the record available. Before deciding the point raised by the petitioner it would be proper to quote the observations made by the Apex Court in regards to the powers under section 482. The Apex Court in the case of Rupan Deol Bajaj v. Kanwar Pal Singh Gill [1995] 6 SCC 194 has observed as under :

“We also give a note of caution to the effect that the power of quashing a criminal proceeding should be exercised very sparingly and with circumspection and that too in the rarest of rare cases; that the court will not be justified in embarking upon an enquiry as to the reliability of genuineness or otherwise of the allegations made in the first information report or the complaint and that the extraordinary or inherent powers do not confer an arbitrary jurisdiction on the court to act according to its whim or caprice.” (p. 203)

7.         It would be useful to reproduce the relevant provisions of the Act which are required for the disposal of this  petition. Sec­tions 113, 53 and 207 are reproduced as under :

“113. Limitation of time for issue of certificates - (1) Every company, unless prohibited by any provision of law or of any order of any court, tribunal or other authority, shall, within three months after the allotment of any of its shares, debentures or debenture stock, and within two months after the application for the registration of the transfer of any such shares, deben­tures or debenture stock, deliver, in accordance with the proce­dure laid down in section 53, the certificates of all shares, debentures and certificates of debenture stocks allotted or transferred :

**                                                        **                                                     **

(2)        If default is made in complying with sub-section (1), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees for every day during which the default continues.

(3)        If any company on which a notice has been served requiring it to make good any default in complying with the provisions of sub-section (1), fails to make good the default within ten days after the service of the notice, the Company Law Board may, on the application of the person entitled to have the certificates or the debenture delivered to him make an order directing the compa­ny and any officer of the company to make good the default within such time as may be specified in the order; and any such order may provide that all costs of and incidental to the application shall be borne by the company or by any officer of the company responsible for the default.

53.       Service of documents on members by company - (1) A document may be served by a company on any member thereof either personal­ly, or by sending it by post to him to his registered address, or if he has no registered address in India, to the address, if any, within India supplied by him to the company for the giving of notices to him.

(2)        Where a document is sent by post,—

(a)      service thereof shall be deemed to be effected by properly addressing, prepaying and posting a letter containing the document, provided that where a member has intimated to the company in advance that documents should be sent to him under a certificate of posting or by registered post with or without acknowledgement due and has deposited with the company a sum sufficient to defray the expenses of doing so, service of the document shall not be deemed to be effected unless it is sent in the manner intimated by the member; and

        (b)      such service shall be deemed to have been effected -

(i)           in the case of a notice of a meeting at the expiration of forty-eight hours after the letter containing the same is posted, and

(ii)          in any other case, at the time at which the letter would be delivered in the ordinary course of post.

(3)      A document advertised in a newspaper circulating in the neigh­bourhood of the registered office of the company shall be deemed to be duly served on the day on which the advertisement appears, on every member of the company who has no registered address in India and has not supplied to the company an address within India for the giving of notices to him.

(4)      A document may be served by the company on the joint holders of a share by serving it on the joint holder named first in the register in respect of the share.

(5)        A document may be served by the company on the persons entitled to a share in consequence of the death or insolvency of a member by sending it through the post in pre-paid letter ad­dressed to them by name, or by the title of representatives of the deceased, or assignees of the insolvent, or by any like description, at the address, if any, in India supplied for the purpose by the persons claiming to be so entitled, or until such an address has been so supplied by serving the document in any manner in which it might have been served if the death or insol­vency had not occurred.

207. Penalty for failure to distribute dividends within forty-two days - Where a dividend has been declared by a company but it has not been paid, or the warrant in respect thereof has not been posted, within forty-two days from the date of the declaration, to any shareholder entitled to the payment of the dividend, every director of the company shall if he is knowingly a party to the default, be punishable with simple imprisonment for a term which may extend to seven days and shall also be liable to fine :

Provided that no offence shall be deemed to have been comitted within the meaning of the foregoing provision in the following cases, namely :

        (a)      where the dividend could not be paid by reason of the operation of any law ;

(b)      where a shareholder has given directions to the company regarding the payment of the dividend and those directions cannot be complied with;

        (c)      where there is dispute regarding the right to receive the dividend;

(d)      where the dividend has been lawfully adjusted by the company against any sum due to it from the shareholder; or

(e)      where, for any other reason, the failure to pay the dividend or to post the warrant within the period aforesaid was not due to any default on the part of the company.”

8.         First of all, it would be proper to decide whether the  Spe­cial Judicial Magistrate is competent to take cognisance of the offence against the present petitioners for the offence under section 113(2). As stated earlier according to the learned coun­sel for the petitioner, the Courts located at Mumbai only have jurisdiction to entertain the complaints against the company or its officers for the offence under section 113(2) because the registered office of the company is situated at Mumbai, on the basis of the judgment of the Supreme Court in Hanuman Prasad Gupta’s case (supra). It has been observed by the Hon’ble Supreme Court as follows :

“Section 207 casts an obligation on the company to pay dividend which is declared to the shareholder entitled within 42 days from its declaration. The offence under this section takes place when there is failure to pay or a cheque or warrant is not posted to the registered post of the shareholder. This section makes the failure to post within the prescribed period and not the non-receipt of the warrant by the shareholder, an offence. Therefore, the obligation to pay within the prescribed period is satisfied once the dividend is paid or a cheque or a warrant is posted at the registered address of the shareholder.”

9.         But section 113 casts an obligation upon the company within three months after the allotment of any of its shares, debentures or debenture stock, and within two months after the application for the registration of the transfer of any such shares, deben­tures or debenture stock, deliver in accordance with the proce­dure laid down in section 53, the certificates of all shares, debentures and certificates of debenture stocks allotted or transferred. Therefore, in my opinion, the aforesaid judgment is not applica­ble in the present case because the provisions of sections 113 and 207 are different.

10.       The learned counsel, appearing on behalf of the respondent, has cited the following judgments in support of his contention that the  Special Judicial Magistrate at Jaipur has jurisdiction to take cognisance of the offence under section 113(2) against the present petitioners though the head office of the company is situated at Mumbai. In the case of Vatsa Industries Ltd. v. Shankerlal Saraf [1996] 87 Comp. Cas. 918/9 SCL 130, the Hon’ble Supreme Court has held as under :

“Proceedings were filed in Consumer Forums and Magistrates’ courts in various States against the petitioner-company in re­spect of forfeiture of shares. The company in a transfer petition sought transfer of all the proceedings to one single court. It was held that transfer of proceedings in various States to one single court would cause hardship and unavoidable expenses to the respondents, permitted the company to move the respective High Courts to have the case within each State transferred to a single court within that State, to minimise the hardship.”

11.       It was held by this Court in the case of Ranbaxy Laboratories Ltd. v. Smt. Indra Kala [1997] 88 Comp. Cas. 348/12 SCL 288 as follows :

“The petitioner-company had its registered office in Punjab and its corporate office in Delhi. The respondent filed a complaint against the company, its managing director and three others in the Special Magistrate’s  Court at Jaipur, alleging that she had purchased 200 shares in the company from three shareholders and had duly sent such shares to the head office of the petitioner-company for registration of the transfer in its books, but despite repeated requests, reminders and efforts made by the respondents, the petitioner-company did not register the transfer of the shares in her name. After examining the respondent and her witness, and looking into the documents filed along with the complaint, the Magistrate took cognisance and issued process against the company and its managing director. On a petition to have the Magistrate’s order quashed under section 482 of the Code of Criminal Procedure :

Held, dismissing the petition, (i) that the powers of the court under section 482 of the Criminal Procedure Code are quite limit­ed and extraordinary and should be exercised with great care and caution in the rarest of rare and exceptional cases only to prevent the abuse of the process of the court or otherwise to secure the ends of justice.

(ii)**    **        **

(iii) That registration of the transferred shares was amongst the duties of the petitioner-company in the course of conducting its business according to the provisions of law applicable to its business. Once the petitioner-company and the law applicable to its functioning permitted transactions of purchase and sale of its shares throughout the breadth and length of the country for its gain, the interest of the members of the public transacting such business could not be allowed to be defeated on the plea that relief to the aggrieved persons could be granted only at the place where the office of the company was located. Such an ap­proach would frustrate the very purpose of the relevant provi­sions in the Act and in other allied Acts. The objection that the Magistrate had no jurisdiction was not sustainable.” (p. 348)

12.       This Court has held in the case of Herdilia Unimers Ltd. v. Smt. Renu Jain [1995] 4 Comp. LJ. 45 as under :

“The designation of a person as chairman cannot be considered as not falling within the definition of ‘officer who is in default’ in section 5 of the Companies Act, 1956, unless it is so proved by the memorandum and articles of association of the company and/or by an agreement entered into with him as to what are his duties. Similarly, the question as to whether clause (a), (b) or (c) of section 5 is applicable so as to exclude the other direc­tors is also to be determined with reference to the documents which may be placed before the trial court.

Section 113 of the Companies Act, 1956, contemplates delivery of share certificates, etc., within three months after the allot­ment. Section 53 provides that a document may be served by a company or any member thereof either personally or by sending it by post to him to his registered address. A presumption has been drawn that where a document is sent by post, service thereof shall be deemed to be effected by properly addressing, pre-paying and posting the letter containing the document. The presumption which has been raised under section 53 is rebutable and a share­holder may allege that he has not been delivered the share cer­tificate or it is not properly addressed. The document here refers to bulk registered receipt with the name of the addressee and post office of destination. From the above document, it is not evident as to whether it was sent to the registered address and on the basis of a document which is not complete in itself, it cannot be said that the proceedings are to be quashed at that stage.

The moment the shares are allotted and the share certificate is signed, and the name is entered in the register maintainable for the purpose, the person becomes the shareholder, whether the person receives the share certificate or not. Such a person can file a complaint under section 621 of the Companies Act, 1956. Looking to the provisions of section 113(2) of the Companies Act, 1956, it is clear that the statutory recognition has been given to the default committed under sub-section (1) of section 113 as a continuing one. It is provided that the company and every offi­cer of the company who is in default shall be punishable with fine which may extend to Rs. 500 for every day during which the default continues. The words ‘default continues’ make a declara­tion of law that it is a continuing offence by the company and, therefore, it cannot be said that the complaint is barred by limitation.”

13.       It has been held in the case of Mohan P. Wag v. State of Rajasthan [1998] 28 CLA 181/15 SCL 72 (Raj.) as under :

“In the present case though the registered office of the company is situated at Bombay and the accused persons are residing at Bombay and the disputed prospectus was published and printed at Bombay, but the said document was delivered at Jaipur and an offer was invited on the basis of this prospectus at Jaipur. The complain­ant-respondent applied and paid the money to the bankers of the accused at Jaipur for allotment of debentures at Jaipur on the basis of the prospectus delivered to her at Jaipur and the deben­tures were required to be delivered to her at Jaipur as per the terms of the prospectus. Thus, the entire cause of action in this case arose at Jaipur and, as per sections 179 and 181(4) of the Code, the trial of the offence of misrepresentation should be taken at the court of Jaipur only and in no other court....” (p. 186)

14.       A careful perusal of the above decisions of the Supreme Court and this Court show that the Special Judicial Magistrate at Jaipur has territorial jurisdiction to take cognisance against the present petitioners for the offence under section 113(2). Whether cognisance against the present petitioner can be taken or not is to be decided by the trial court.

15.       It has also been held in the case of Hardilia Unimers Ltd. (supra) that “offence under section 113 of the Companies Act is a continuing offence”, whether cognisance against the present peti­tioner can be taken or not under the present circumstances is a matter to be decided by the trial court considering the material placed before it during trial. It would not be proper for this Court to express any opinion on it at this stage.

16.       Therefore, looking through all the controversy raised before me, I am of the view that it is not a fit case in which the power under section 482 of the Code could be exercised to quash the complaint and proceedings pending in the Court of Special Judi­cial Magistrate, Rajasthan, Jaipur. This petition is accordingly dismissed.

 

BOMBAY HIGH COURT

Companies Act

[2002] 40 SCL 947 (Bom.)

High Court of Bombay

State of Maharashtra

v.

Raymond Woollen Mills Ltd.

A.b. Palkar, J.

Criminal Writ Petition No. 1204 of 1995

June 5, 2002

 

Section 113 of the Companies Act, 1956 - Share certificate - Limitation of time for issue of - On a complaint filed by petitioner against respondent alleging delay in issuing share certificates, Chief Judicial Magistrate issued process and took cognizance of offence under section 113(1) and (2) - On revision petition filed by respondent-company against Magistrate’s order, Sessions Judge held that offence was punishable with fine only and prosecution was barred by limitation, and as there was no accompanying application for condonation of delay, Magistrate could not have taken cognizance of offence - Whether Magistrate’s order was liable to be set aside - Held, yes

Cases referred to

R.C. Trivedi v. A.H. Paranjape [1982] CLJ 869 (Bom.) and Subhashchandra Mohapatra v. M.S. Jaggi [1982] CLJ N.O.C. 92 (Ori.).

K.K. Kapoor for the State. Sanjog Parab and H.N. Vakil for the Respondent.

Judgment

In this petition the petitioner challenges the order dated 8-12-1993, passed by the learned Sessions Judge, Ratnagiri, in Revision Application No. 68 of 1992. The revision application was filed by the contesting respondent M/s. Raymond Woollen Mills Ltd. and Shri Anirudha Mahdav Bhat, company secretary against the order of issuing process passed by the Chief Judicial Magistrate, Ratnagiri, in Complaint No. 1243 of 1994. Process was issued and cognizance was taken of offence under section 113(1) and (2) of the Companies Act, 1956, on allegations of delay in issuing share certificates. The finding of the learned sessions judge was that the offence is punishable with fine only and the prosecution was barred by limitation. This is not disputed before me on the facts. It is not disputed that the complaint was filed beyond the period of limitation and there was no accompanying application for condonation of delay before the learned Magistrate. In the absence of any request of condonation of delay explaining the ground for delay the learned Magistrate could not have taken cognizance of the offence and, therefore, the learned Sessions Judge found that in view of the law laid down by this court in R.C. Trivedi v. A.H. Paranjape [1982] CLJ 869 the order of the learned Magistrate taking cognizance of the offence was not legally sustainable. Learned counsel appearing for the petitioner has brought to my notice another judgment of the Orissa High Court in Subhashchandra Mohapatra v. M.S. Jaggi [1982] CLJ N.O.C. 92 wherein the same view was taken.

In view of the admitted position that the complaint filed before the Magistrate was beyond the limitation, the order issuing process was liable to be set aside. The learned Sessions Judge was right in setting aside the order and there is absolutely no substance in this petition and the same is dismissed. Rule is discharged.

 

SUPREME COURT

Companies Act

Supreme Court of India

Registrar of Companies

v.

Rajshree Sugar & Chemicals Ltd.

K.T. Thomas, D.P. Mohapatra and Ruma Pal, JJ.

CrL. Appeal No. 483 of 2000

May 11, 2000

 

Section 113, read with section 611, of the Companies Act, 1956 and sections 468 and 469 of the Code of Criminal Procedure, 1973 - Share certificate - Time limit for issue of - Whether words ‘person aggrieved’ as used in section 469(1)(b) of Code of Criminal Procedure can be interpreted restrictively, in context of offence under section 113 of the Companies Act, to mean a shareholder only - Held, no - Whether these words would include, a Registrar of Compa­nies also - Held, yes - Whether, therefore, Registrar of Compa­nies is person aggrieved and competent to file complaint for offence under section 113 - Held, yes - Whether commencement of period of limitation of six months for initiating prosecution is to be computed from date of knowledge about commission of offence under section 113 - Held, yes

Facts

The company was sent share transfer certificates along with applications for transfer in two batches — on 23-11-1990 and 18-12-1990. The first batch of applications for transfer was received by the company on 11-12-1990, approved on 29-3-1991 and des­patched on 6-4-1991. The second batch of applications was re­ceived on 26-12-1990 approved by the company on 3-4-1991 and despatched on 16-4-1991. Apparently, section 113(1) was not complied with. This came to the knowledge of the appellant - ROC only on 20-7-1992 when the appellant - ROC inspected the books of account of the company under section 209A(1)(i). The complaint was filed by the appellant on 20-8-1992. The CJM dismissed the complaint prima facie on the ground that the complaint was filed beyond the period of limitation of six months. On appeal the High Court, upholding decision of CJM, further held that the appellant - ROC was not an ‘aggrieved person’ for a non-compliance of section 113 and as such he was not competent to file the complaint.

On appeal :

Held

Under section 621(1) the appellant - ROC was competent to file a written complaint in respect of offences under, inter alia, sec­tion 113.

The phrase, ‘person aggrieved’ has not been defined in the Code. However, as far as offences under the Companies Act are concerned, the words must be understood and construed in the context of section 621. If the word ‘person aggrieved’ are read to mean only ‘the person affected’ by the failure of the company to transfer the shares or allot the shares, then the only ‘person aggrieved’ would be the transferee or the allottee, as the case may be. Under section 621 no Court can take cognizance of an offence against the Companies Act except on the complaint of a shareholder, the Registrar or the person duly authorised by the Central Government. Where the transferee or allottee is not an existing shareholder of the company, if the words ‘person aggrieved’ are read in such a limited manner, it would mean that section 469(1)(b) of the Code would be entirely inapplicable to of­fences under section 113 of the Companies Act. There is, in any event, no justification to interpret the words ‘person aggrieved’ as used in section 469(1)(b) restrictively particularly when, as in this case, the statute creating the offence provides for the initiation of the prosecution only on the complaint of particular person. Having regard to the clear language of section 621 there was no manner of doubt that the appellant ROC would be a ‘pe­rson aggrieved’ within the meaning of section 469(1)(b) of the Code in respect of an offence (except those under section 545) against the Companies Act.

Apart from overlooking the provisions of section 621 , the High Court erred in construing the provisions of section 113(2) with reference to section 113(3). The latter deals with the civil liability of the company and its officers for a breach of section 113(1) at the instance of the transferee of the shares. Section 113(2) deals with the criminal liability arising out of a viola­tion of section 113(1). The objects of the two sub-sections are disparate. Section 113(3) is primarily compensatory in nature whereas section 113(2) is punitive. An application under section 113(3) can only be made by the transferee. And as already seen, a transferee who is not an existing share-holder of the company cannot file a complaint under section 113(2) at all.

For the reasons stated, the appellant ROC as a person aggrieved would be entitled to the benefit of the provisions of section 469(1)(b) of Code.

It was not in dispute that the appellant came to know of the offences on 20-7-1992. The commencement of the period of limitation of six months for initiating the prosecution would have to be calculated from that date. The complaint was filed on 20-8-1992 well within the period specified under section 468(2).

In the circumstances, the decisions of the High Court as well as the CJM were to be set aside and the matter remanded to the CJM for being decided on merits.

Cases referred to

State of UP v. Bahadur Singh AIR 1983 SC 845, Vasantlal Chandulal Majmudar v. Navinchandra Manilal 22 Guj. LR 436, Sulochana v. State of Registrar of Chits (Investigation and Prosecution) [1978] Crl. LJ. 116 (Mad.), Bhagabati Prasad Tantia v. Asst. Registrar of Companies [1983] 53 Comp. Cas. 56 (Cal.), Sushil Kumar Lahiri v. Registrar of Companies [1983] 53 Comp. Cas. 54 (Cal.) and Abdul Rahim v. State represented by the Chit Registrar Nagapathinam [1978] 1 L.W. Cl. 195 (Mad.).

Judgment

Ruma Pal, J. - Leave granted.

2.         This appeal has been preferred from the decision of the High Court of Madras dated 17-3-1998. The appeal was filed on 26-7-1999 after a delay of 406 days. The application for condonation of delay filed by the appellant shows that the Department of Legal Affairs took up the matter only on 16-12-1998. No explanation whatsoever has been given for the appellant’s inaction during this period of nine months. The observation of this Court in State of UP v. Bahadur Singh AIR 1983 SC 845 regarding the lati­tude to be shown to the Government in deciding questions of delay, does not give a licence to the Officers of the Government to shirk their responsibility to act with reasonable expedition. However, since the matter has been permitted to be argued on merits, it would not be appropriate to dismiss the appeal on the ground of delay, but our disapproval of the conduct of the appel­lant in this regard will be reflected in the costs which we intend to award against the appellant in favour of the respond­ents, irrespective of our decision on merits.

The issue to be decided in this appeal relates to an offence allegedly committed by the respondents under section 113 of the Companies Act, 1956 (‘the Act’). The complaint was filed by the appellant against the respondents on 28-8-1992 alleging that the respondents had, in violation of section 113 defaulted in trans­fer of shares within the time specified in that section. The Chief Judicial Magistrate, Coimbatore by his order dated 30-3-1993 dismissed the complaint on the ground that it was barred by limitation under section 468 of the Code of Criminal Proce­dure, 1973 ‘the Cr. PC.’)

3.         The appellant filed a petition under sections 397 and 401 of the Cr. P.C. before the High Court of Madras praying for revision of the order dated 30-3-1993. The High Court by the impugned judgment not only upheld the order of the trial court but also held that the appellant was incompetent to file a complaint in respect of an offence under section 113.

4.         Section 113, sub-section (1) requires a company to deliver the share certificates to the allottee or transferee within three months after the allotment and within two months after the appli­cation for registration of transfer of the shares. The period is extendable in certain circumstances on an application by the company to the Company Law Board (CLB) subject to a maximum period of nine months.

5.         Sub-section (2) of section 113 provides that if default is made in compliance with sub-section (1) the company and every officer of the company who is in default shall be punishable with find which may extend to Rs. 500 for every day during which the default continues. In addition to this criminal liability for punishment, under section 113(3) a person entitled to have the shares delivered to him, may apply to the CLB for a directive on the company to deliver the certificates or the debentures to the complainant. The CLB is authorised to pass an order directing the company and any officer of the company ‘to make good the default’ within such time as may be specified and also provide for the costs of and incidental to the application to be paid to the complainant by the company or any officer of the company who may be responsible for the default.

6.         In this case, the complaint filed by the appellant was under section 113(2). It was alleged in the complaint that the company was sent share transfer certificates along with applications for transfer in two batches; — 23-11-1990 and 18-12-1990. The first batch of applications for transfer was received by the company on 11-12-1900, approved on 29-3-1991 and despatched on 6-4-1991. The second batch of applications was received on 26-12-1990 approved by the company on 3-4-1991 and despatched on 16-4-1991. Apparent­ly, section 113(1) was not complied with. This came to the knowledge of the appellant only on 20-7-1992 when the appellant inspected the books of account of the company under section 209A(1)(i) of the Act. The complaint was filed by the appellant on 20-8-1992 before the Chief Judicial Magistrate, Coimbatore.

7.         As already noted, the Chief Judicial Magistrate dismissed the complaint relying on section 468, which provides :

“Bar to taking cognizance after lapse of the period of limita­tion.—(1) Except as otherwise provided elsewhere in this Court, no Court shall take cognizance of an offence of the category specified in sub-section (2), after the expiry of the period of limitation.

(2) The period of limitation shall be—

        (a)      six months, if the offence is punishable with fine only;”

The date on which period of limitation is to commence has been provided for in section 469 of the Cr. PC in the following manner :

“Commencement of the period of limitation.—(1) The period of limitation, in relation to an offender, shall commence,—

        (a)      on the date of the offence; or

(b)      where the commission of the offence was not known to the person aggrieved by the offence or to any police officer, the first day on which such offence comes to the knowledge of such person or to any police officer, whichever is earlier.”

8.         It is unnecessary to decide whether the offence under section 113 of the Companies Act is a continuing one under section 472 of the Cr. PC on the facts of this case. Even if the offences were a continuing one, the offence, if any, continued upto the date when the deliveries were in fact effected under section 113, viz., on 6-4-1991 and 16-4-1991. As the offence of delayed delivery is punishable with a fine, the time to initiate proceedings under section 468 would expire at the latest in October, 1991. The appellant, in fact, filed the complaint almost a year later.

9.         According to the appellant, the Magistrate overlooked the provisions of section 469(1)(b) which provides for the computa­tion of the period of limitation from the first day on which the offence comes to the knowledge of “the person aggrieved by the offence or to the police officer”. The High Court rejected the submission holding that the appellant was neither the person aggrieved nor a police officer and that the prosecution under section 113 could be launched only on the application of an affected shareholder. According to the High Court, this was clear from sub-section (3) of section 113.

10.       It is contended by the learned counsel appearing for the respondents that the view of the High Court has also been taken by a learned Single Judge of the Gujarat High Court in Vasantlal Chandulal Majmudar v. Navinchandra Manilal 22 Guj. LR 436; by a learned Single Judge of the Delhi High Court in Nestle India Ltd. v. State 1994(4) Comp. L.J. 446 (sic) as well as by a learned Single Judge of the Madras High Court in Sulochana v. State of Registrar of Chits (Investigation and Prosecution) 1978 Crl. L.J. 116.

11.       A contrary view has been expressed by two Division Bench judgments of the Calcutta High Court in Bhagabati Prasad Tantia v. Assistant Registrar of Companies [1983] 53 Comp. Cas. 56; Sushil Kumar Lahiri v. Registrar of Companies [1983] 53 Comp. Cas. 54 with reference to section 113.

12.       As far as the decision of the Gujarat High Court is con­cerned, it dealt with the provisions of the Gujarat Co-operative Societies Act, 1967, the provisions of which are not before us. As far as the decision of the High Court of Madras is concerned, the decision of the learned Single Judge in Sulochana’s case (supra) has been expressly over-ruled by the Division Bench of the Madras High Court in Abdul Rahim v. State represented by the Chit Registrar Nagapattinam 1978 (1) L.W. Crl. 195. The Division Bench has held that the Registrar of Chits was a ‘person aggrieved’ within the meaning of section 469(1)(b) and was competent to initiate prosecution for an offence under the Tamilnadu Chit Funds Act, 1961, Sulochana’s case (supra) was also distinguished in the two Calcutta High Court’s  decisions noted earlier.

13.       The only decisions cited by the respondents which is on section 113 is the decision in Nestle India Ltd.’s case (supra). Neither the learned Judge in his decision in Nestle India Ltd.’s case (supra) nor the High Court in the judgment under appeal considered the provisions of section 621(1) of the Act, which provides :

“Offences against Act to be cognizable only on complaint by Registrar, shareholder or Government.—(1) No Court shall take cognizance of any offence against this Act (other than an offence with respect to which proceedings are instituted under section 545), which is alleged to have been committed by any company or any officer thereof, except on the complaint in writing of the Registrar, or of a shareholder of the company, or of a person authorised by the Central Government in that behalf.”

Under this section, therefore, the appellant is competent to file a written complaint in respect of offences under, inter alia, section 113.

14.       The phrase ‘person aggrieved’ has not been defined in the Cr. PC. However, as far as offences under the Companies Act are concerned, the words must be understood and construed in the context of section 621 of the Act. If the words ‘person aggrieved’ are read to mean only ‘the person affected’ by the failure of the company to transfer the shares or allot the shares, then the only ‘person aggrieved’ would be the transferee or the allottee, as the case may be. Under section 621, no Court can take cognizance of an offence against the Companies Act except on the complaint of a shareholder, the Registrar or the person duly authorised by the Central Government. Where the transferee or allottee is not an existing shareholder of the company, if the words ‘person aggrieved’ is read in such a limit­ed manner, it would mean that section 469(1)(b) of the Cr. PC would be entirely inapplicable to offences under section 113. There is, in any event, no justification to interpret the words ‘person aggrieved’ as used in section 469(1)(b) restrictively particularly when, as in this case, the statute creating the offence provides for the initiation of the prosecution only on the complaint of particular persons. Having regard to the clear language of section 621 of the Act, we have no manner of doubt that the appellant would be a ‘person aggrieved’ within the meaning of section 469(1)(b) of the Cr. PC in respect of offence (except those under section 545) against the Companies Act.

15.       Apart from overlooking the provisions of section 621, the High Court erred in construing the provisions of section 113(2) with reference to section 113(3). The latter deals with the civil liability of the company and its officers for a breach of section 113(1) at the instance of the transferee of the shares. Section 113(2) deals with the criminal liability arising out of a viola­tion of section 113(1). The objects of the two sub-sections are desperate. Section 113(3) is primarily compensatory in nature whereas section 113(2) is punitive. An application under section 113(3) can only be made by the transferee. And as already seen, a transferee who is not an existing shareholder of the company cannot file a complaint under section 113(2) at all.

16.       For the reasons stated, we are of the view that the appellant as a person aggrieved would be entitled to the benefit of the provisions of section 469(1)(b). It is not in dispute that the appellant came to know of the offences on 20-7-1992. The com­mencement of the period of limitation of six months for initiat­ing the prosecution would have to be calculated from that date. The complaint was filed on 20-8-1992 well within the period specified under section 468(2).

17.       In the circumstances, the decision of the High Court as well as the Chief Judicial Magistrate, Coimbatore are set aside and the matter is remanded back to the Chief Judicial Magistrate, Coimbatore for being decided on merits.

Because of the inordinate delay by the appellant in preferring this appeal, the appellant shall pay the cost of the appeal to the respondents.

 

ANDHRA PRADESH HIGH COURT

Companies Act

High Court of Andhra Pradesh

Smt. G. Vijayalakshmi

v.

Securities & Exchange Board of India

Vaman Rao, J.

Criminal Writ Petition No. 355 of 2000

February 16, 2000

 

Section 5, read with sections 73 and 113 of the Compa­nies Act, 1956 - Officer who is in default - Meaning of - Whether criminal liability of ordinary directors would arise only in respect of company which has no managing director or whole time director or manager and where particular directors are not specified to be liable by company - Held, yes - Whether where company had an officer described as managing director within meaning of section 5, question of any other director being liable for criminal act, would not arise - Held, yes - Whether, there­fore, petitioners being mere directors of company, could not be fastened with criminal liability on behalf of company - Held, yes

Facts

The company floated a public issue of its shares in the year 1992, but defaulted in refunding excess share application money even after the expiry of 70th day from the closure of the issue and, thus, contravened section 73(2B). Further, the company failed to deliver the share certificates to the allottees within the period prescribed under section 113, thereby contravening section 113(2). In the criminal proceedings, the petitioners were accordingly charged for the offences of contravention of sections 73(2B) and 113(2).

On writ, the petitioners sought quashing of said proceedings on the ground that they were merely directors of the company and that there being a managing director, the liability for any criminal offence attributed to the company could not be assigned to ordinary directors.

Held

A reading of sections 73(2A) and 113(2), including the definition of the ‘Officer who is in default’ as given in section 5, would make it amply clear that the criminal liability of ordinary directors would arise only in respect of a company which has no managing director or a wholetime director or a manager and where particular directors are not specified to be liable by the compa­ny. In the instant case, a reading of the complaint would disclose that A-2 had been described as the managing director of the company. Thus, it could not be said that the company had no managing director. Thus inasmuch as the company had an officer described as managing director within the meaning of section 5 question of any other director being liable for the criminal acts of the company would not arise. Admittedly, the petitioners were mere directors of the company and as such criminal liability could not be fastened on them. In this view of the matter, it would be abuse of the process of law if these petitioners were compelled to undergo the ordeal of trial.

In the result, this petition was to be allowed and the criminal proceedings should stand quashed as far as these petitioners were concerned.

Order

1.         This petition under section 482 Code of Criminal Procedure seeks quashing of proceedings in C.C. No. 16 of 1998 on the file of the Special Judge for Economic Offences, Hyderabad in which the petitioners are sought to be prosecuted for the offence of con­travention of sections 73(2B) and 113(2) of the Companies Act, 1956 (‘the Act’).

2.         The ground on which these proceedings are sought to be quashed as contended by the learned counsel for the petitioners. Mr. V.S. Raju, is that the petitioners are merely the directors of the company which has been shown as A-1 and that in view of the defi­nition of the ‘Officer who is in default’ as given in section 5 of the Act, where there is a managing director or a whole time director or a manager or a secretary the liability for any crimi­nal offence attributed to the company cannot be assigned to ordinary directors.

3.         This is countered by the learned counsel for the respondents. Shri P.V.S.S.S. Rama Rao, and it is urged that even where a company has a managing director or a whole time director or a manager or a secretary, the question whether other directors are liable or not would depend on the facts and circumstances of the case and those facts are to be ascertained during the trial and as such proceedings cannot be quashed at this stage.

4.         The company (A1) floated a public issue of the shares in the year 1992. After the closure of the date of the public issue the company was required to refund the excess share application money by 70th day of the closure of the issue as required under section 73. The complaint against the petitioners is based on an allega­tion that the company defaulted in refunding such excess money even after the expiry of 70th day from the closure of the issue and thus contravened section 73(2B) of the Companies Act. The other allegation is that the shares of the company have been listed with the Stock Exchange of Mumbai and Hyderabad and the Company failed to deliver the share certificates to the allottees within the period prescribed under section 113 and, thus, contra­vened section 113(2).

5.         The averments in the complaint, a copy of which has been filed with the petition, would show that the company has been arrayed as A-1 and A-2 has been shown as the managing director of the company A-3, A-4, A-5 and A-6 have been shown as the directors of the company. This petition is filed on behalf of A-3 to A-6.

6.         Section 73(2B) contemplates that for every default of the provisions of sub-section (2A) the company and every officer of the company who is in default shall be punishable with fine which may extend to Rs. 5,000 and where repayment is not made within six months from the expiry of 8th day also imprisonment with a term which may extend to one year. Similarly, section 113(2) provides that in the case of contravention of the provisions of section 113(1) the company and every officer of the company ‘who is in default’ shall be punishable with fine which may extend to Rs. 500 per every day during which the default continues.

7.         Thus, the basis of fastening of liability on the officers of the company for contravention of sections 73(2A) and 113(2) is that the officer who is sought to be made liable should satisfy the definition of ‘Officer in default’. The  phrase ‘Officer  in default’ has been defined in section 5 which is extracted below :

“5. Meaning of ‘Officer who is in default’—For the purpose of any provision in this Act which enacts that an officer of the company who is in default shall be liable to any punishment or penalty, whether by way of imprisonment fine or otherwise, the expression ‘Officer who is in default’ means all the following officers of the company namely :—

        (a)      the managing director or managing directors;

        (b)      the whole time director or whole time directors;

        (c)      the manager;

        (d)      the secretary;

(e)      any person in accordance with whose directions or instructions the board of directors of the company is accustomed to act;

        (f)       any person charged by the Board with the responsibility of complying with that provision :

                  Provided that the person so charged has given his consent in this behalf to the Board ;

(g)      where any company does not have any of the officers specified in clauses (a) to (c) any Director or Directors who may be specified by the Board in this behalf or where no Director is so specified, all the Directors:

Provided that where the Board exercises any power under clause (f) or clause (g), it shall within thirty days of the exercise of such powers, file with the Registrar a return in the prescribed form.”

8.         As seen above, section 5(g) enacts that where any company does not have any officers specified in clauses (a) to (c) any direc­tor who may be specified by the Board in this behalf or where no director is so specified,  all the directors shall be held liable. Thus, a reading of the relevant provisions including the defini­tion of the ‘Officer who is in default’ as given in section 5 would make it amply clear that the criminal liability of ordinary directors would arise only in respect of a company which has no managing director or a whole time director or a manager and where particular directors are not specified to be liable by the compa­ny. In this case a reading of the complaint would disclose that A-2 has been described as the managing director of the company. Thus, it cannot be said that this A-1 company has no managing director. Thus, in this case inasmuch as A-1 the company has an officer described as managing director within the meaning of section 5, the question of any other director being liable for the criminal acts of the company abovementioned would not arise. Admittedly, the petitioners herein are the mere directors of the company and as such criminal liability cannot be fastened to the petitioners in view of the provisions above referred. In this view of the matter, it will be abuse of the process of law if these petitioners are compelled to undergo the ordeal of trial.

9.         In the result, this petition is allowed and the criminal proceedings in C.C.No. 16 of 1998 on the file of the Special Judge for economic offences, Hyderabad shall stand quashed as far as these petitioners A-3 to A-6 are concerned. The petition is finally disposed of in these terms.

 

[1990] 67 COMP. CAS. 125 (DELHI)

HIGH COURT OF DELHI

Trishla Jain

v.

Oswal Agro Mills Ltd.

S.N. SAPRA J.

Company Petition No. 37 of 1988

SEPTEMBER 13, 1989

 

 K.N. Bhat, Rakesh Sawhney and Mrs. Harkiran Kalra, for the Petitioner.

Dr. Shankar Ghosh and Sandeep Aggarwal for the Respondent.

 

JUDGMENT

S.N. Sapra J.—The present petition has been filed by Mrs. Trishla Jain, under section 113(3) of the Companies Act, 1956 (hereinafter called "the Act"), against the respondents, thereby claiming the following reliefs :

"(a)   to pass an order directing the respondent company to deliver share scrips in respect of 25,782 equity shares and 8,594 debentures to the petitioner or his duly constituted attorney ;

(b)    to direct the company to pay all the unpaid dividends and interest due to the petitioner along with a statement of such dues ;

(c)    to direct the Union of India to initiate appropriate action against the company for its failure to pay the dividends and to deliver the shares and debentures ; and

        (d)    to grant such other and further reliefs as this Hon'ble court may deem fit and proper"

For better appreciation of the contentions as made by learned counsel for the parties, it will be useful, to refer, in brief, to the facts of the case.

The petitioner is a non-resident Indian, permanently residing and working for gain at London. The petitioner subscribed to the shares and debentures of respondent No. 1 (hereinafter called "the company") and was allotted 29,000 shares, on February 15, 1983, and 13,974 shares on July 27, 1984. All these shares were equity shares of Rs 10 each.

Sometime in January and February, 1986, the company announced/offered issue of 18,14,400 equity shares and 13.5% redeemable non-convertible debentures on rights issue basis, closing on March 20, 1986.

In response to the offer, the petitioner sent in the necessary application for allotment of 25,782 equity shares, at a premium of Rs. 15 per share, and for 8,594 debentures of Rs. 100 each. The amount was paid from the Canara Bank, London Branch, by a demand draft, drawn on the Canara Bank, Foreign Department, Bhagwan Dass Road, New Delhi, and the rupee equivalent of the amount paid was Rs. 15,03,950. The aforesaid amount was duly deposited with the company's bankers to the issue, viz., Hongkong Bank, New Delhi.

By letter dated March 13, 1986, the petitioner requested the company to note the lien of the Canara Bank and also requested the company to send the shares/debentures directly to the Canara Bank, London. The company was further requested to remit the dividends/interest, in respect of the shares, directly to the Canara Bank.

Vide letter dated, March 17, 1986, the Canara Bank, London Branch, sent a photo copy of the form and acceptance of the application for new equity shares and debentures. In the letter, the bank gave notice of its charge over the aforesaid shares. The bank further requested the company to send the shares to it, directly after the allotment. The petitioner and other members of her family, constituted the Canara Bank, as their irrevocable attorney for the purpose of dealing with the shares and debentures.

Vide letter dated July 27, 1986, the bank informed the company that the dividends in respect of the shares had not been received by the bank. By another letter dated October 8, 1986, the Canara Bank, New Delhi, requested the company, inter alia, to issue the share certificates and debentures.

Thereafter, repeated requests were made to the company, both by the petitioner and the bank, to deliver the share certificates and debentures, to which they were entitled under the rights issue which closed on March 20, 1986. But the company failed to deliver the same

It appears from the register of members that on June 23, 1986, 25,782 shares were allotted to the petitioner. Similarly, from the register of debenture-holders, on the same day, 8,594 debentures were allotted to the petitioner.

Since no reply was received from the company, nor were the shares delivered either to the petitioner or the bank, the petitioner's husband addressed a letter dated February 5, 1987, to the Joint Secretary and the Controller of Capital Issues, Government of India, Department of Economic Affairs, thereby complaining of the company's failure to pay the dividends and also its failure to deliver the shares/debentures.

In response to the letter, the Joint Director, Government of India, addressed a letter dated February 25, 1987, to the President, Delhi Stock Exchange. A copy of the letter was also sent to the chairman of the company. The respondent-company, vide its letter, dated March 10, 1987, to the Joint Director to the Government of India, wrote, "we have to state that the securities of Shri P.D. Jain and others are under dispute and a stay order in this respect has been granted by the Hon'ble Sub-Judge, 1st Class, Ludhiana" On April 28, 1987, the Joint Director addressed a letter to the company, thereby requesting it to furnish a copy of the proceedings relating to the stay order having been granted by the learned Sub-Judge, at Ludhiana.

Some time in late 1987, through the Office of the Controller of Capital Issues, Government of India, the petitioner received a document purporting to be the ex parte decree dated April 30, 1987, passed in a suit filed by the company. From the decree, it appears that the company had filed a suit in the Court of the Sub-Judge, Ludhiana, on March 9,1987.

In the suit, the petitioner and five other members of her family were never served directly, but the order restrained them from disposing of their remaining shares in any manner, or from repatriating the same in any manner whatsoever. According to the petitioner, the company has abused the process of law, inasmuch as the court at Ludhiana has no jurisdiction to entertain the suit. Getting an ex parte decree, in a matter like this, by manipulating to see that no notice was sent to the addresses of the petitioner and other members of her family, who are admittedly residents in London, amounts to contempt of court.

As the petitioner has not received any reply to the demand for delivery of the shares and debentures, even though the same have been allotted, nor has the petitioner been paid dividend in respect of the earlier years, the company has clearly acted in contravention of the provisions of section 113 read with sections 205 to 207 of the Act.

In reply, the company has alleged that the petitioner is not entitled to claim the reliefs, in view of the order dated January 15, 1988, passed by the Sub-Judge, 1st Class, Ludhiana, in Civil Suit No. 17 of 1988, whereby the petitioner has been restrained, either herself and/or acting through any other person, banks or authorised representative, or power of attorney holder, from claiming the shares; debentures, dividends and interest accruing thereon.

The company is in no way concerned with the alleged lien with the Canara Bank, and in fact, it does not admit that any such lien has been created by the petitioner in respect of the shares and debentures. However, the company has admitted that a sum of Rs 15,03,950 was deposited with its bankers. The company cannot remit the dividends and/or interest to the Canara Bank. In any case, the company has not confirmed the lien, as requested by the petitioner in favour of the bank. The company does not recognise the Canara Bank, London or New Delhi, for the purposes of any correspondence, as no lien on the shares and debentures has been recognised by the company.

The petitioner, being a non-resident, it is not possible for the company to make any remittance to the Canara Bank, but the payment has to be made in accordance with the Foreign Exchange Regulation Act. It is further alleged by the company that the shares and debentures could be delivered only to the petitioner and to no other person, in accordance with the Foreign Exchange Regulation Act and that too subject to the orders of any competent court. In view of the injunction order, the petitioner is not entitled in law to obtain the shares and debentures and/or dividend and/or interest thereon.

Vide letter dated July 15, 1987, the Director of the Department of Economic Affairs, Ministry of Finance, sent a letter to the husband of the petitioner, enclosing the order of injunction passed by the civil court at Ludhiana, in Civil Suit No. 11 of 1987. In spite of that, the petitioner took no steps till date, to have the decree set aside, nor has any appeal been filed.

Thereafter, the company filed another suit, being Suit No. 17 of 1988, which is still pending before the Sub-Judge, 1st Class, Ludhiana. In the suit, the court at Ludhiana has passed an order dated January 15, 1988. In the suit, notice has already been issued to the petitioner and the petitioner has not taken any steps to defend the suit.

The aforesaid orders are, therefore, binding upon the petitioner and the petitioner is restrained, as per the orders, from dealing with the shares, debentures, dividend and interest payable thereon.

The respondent has not abused the process of law or (it cannot be said) that the court at Ludhiana has no jurisdiction to entertain the suit.

For similar reliefs, other members of the family, namely, Shri P.D. Jain, Shri Ashok Jain, Mrs. Sangya Jain, Miss Nandita Jain and Miss Rita Jain, have filed petitions, being C.P. Nos. 228 of 1987, 38 to 41 of 1988, against the respondents. The company, in its reply, in all the petitions, had raised identical grounds of challenge.

As the reply of the company was primarily based upon an injunction order passed by the learned Sub-Judge, 1st Class, Ludhiana, in Suit No. 17 of 1988, the respondent was directed to file a copy of the plaint. The same has been done.

Under orders of the court, the share scrips in question, in all the petitions, and the dividends accruing thereon, have been deposited in court.

From the copy of the plaint, in Suit No. 91 of 1987, filed by the company against the petitioner, and six others, in the civil court at Ludhiana, it appears that the company invoked the jurisdiction of the civil court at Ludhiana, on the ground that defendant No. 7 (in that suit), Shri Ganga Ram Sharma, was the authorised representative and attorney of defendants Nos. 1 to 6, and that he resided and worked for gain at Ludhiana, where the head office and factory of the company were also situated.

In the subsequent suit, as originally filed by the company, being Suit No. 17 of 1988, the jurisdiction of the Ludhiana court was invoked on similar grounds.

The statements of Shri K.L. Jain and Shri S.C. Khaneja, the director and secretary, respectively, of the company, were recorded.

The first question, arising for decision, is as to what is the meaning, object and scope of section 113 of the Act, as it stood prior to the amendment as made by the Companies (Amendment) Act, 1988.

Dr. Shanker Ghosh, learned counsel for the company, has urged that under section 113 of the Act, no delivery of shares could be claimed. The section only requires the company to keep the shares ready for delivery within 3 months after the allotment of the shares. According to him, section 113 nowhere provided that an order for delivery of the shares could be made. Section 113(2) of the Act further provides that, if default is made in not complying with sub-section (1), then, the company and the officer liable for default would be punishable with fine. Under sub-section (3), an application could be made for making good the default. Such an application can be made, only by a person entitled to have the share certificates or the debentures delivered to him and not by a stranger. Upon such application having been made, the court can make an order thereby directing the company or any officer of the company to make good the default. Therefore, Dr. Shanker Ghosh contended that the relief which the court can grant under section 113 of the Act is to make good the default, namely, the default which is referred to in sub-section (1) as also in sub-section (2) of section 113. This default is not in making the shares, ready for delivery. He has placed reliance upon the judgment in Asiatic Oxygen Ltd., In re, [1972] 42 Comp Cas 602 (Cal) ; AIR 1972 Cal 50.

Dr. Shanker Ghosh further contended that section 113 entails penal consequences. Accordingly, the section has to be construed strictly. As the section does not contain any provision for delivery of the shares, a suit has to be filed for obtaining such a relief.

Section 113 of the Act, prior to its amendment, reads as under :

"113.          Limitation of time for issue of certificates,—(1) Every company shall, within three months after the allotment of any of its shares, debentures or debenture stock, and within two months after the application for the registration of the transfer of any such shares, debentures or debenture stock, complete and have ready for delivery the certificates, of all shares, the debentures, and the certificates of all debenture stock allotted or transferred, unless the conditions of issue of the shares, debentures or debenture stock otherwise provide.

The expression 'transfer', for the purposes of this sub-section, means a transfer duly stamped and otherwise valid, and does not include any transfer which the company is for any reason entitled to refuse to register and does not register.

(2)              If default is made in complying with sub-section (1), the company, and every officer of the company who is in default, shall be punish able with fine which may extend to five hundred rupees for every day during which the default continues.

(3)              If any company on which a notice has been served requiring it to make good any default in complying with the provisions of sub-section (1), fails to make good the default within ten days after the service of the notice, the court may, on the application of the person entitled to have the certificates or the debentures delivered to him, make an order directing the company and any officer of the company to make good the default within such time as may be specified in the order; and any such order may provide that all costs of and incidental to the application shall be borne by the company or by any officer of the company responsible for the default."

In the matter of Asiatic Oxygen Ltd., In re [1972] 42 Comp Cas 602, the High Court of Calcutta was considering the scope of section 113 of the Act and held that sub-section (1) did not provide for delivery of the share scrips or debentures, but only enjoined upon the company to have them ready for delivery. The sub-section did not impose an obligation upon the company to release the shares. Thus, it did not authorise a person applying for their delivery to have an order for delivery of the shares, under this section. It was held (at page 604) :

"I am unable to accept the said contention of Mr. Mukherjee. The words 'in regard to delivery' in my view means 'for the purpose of delivery'. Sub-section (1) to section 113 imposes an obligation upon the company to complete and to have ready for delivery the certificates of shares, debentures or debenture stocks allotted or transferred in the circumstances and within the time mentioned above. The failure to do so, as we have noted earlier, entails visiting with imposition of fine under sub-section (2) upon the company or any of the officers of the company who is liable for such default. Sub-section (3) of the said section empowers the court to make an order upon the company or any officer of the company only to make good the default in complying with the provisions of sub-section (1) to the said section.

Failure to comply with the requirements of sub-section (1) to the said section thus shall be visited with penal consequences. In that view of the matter, in my opinion, the said sub-section has to be construed strictly. . . . . The said sub-section nowhere provides for delivery of the certificates of shares or debentures or debenture stock but only enjoins upon the company to have the same ready for delivery. The said words in the sub-section, in my opinion, should not be construed in such a way as to give an extended meaning to the words to have them ready for delivery'. Sub-section (1) does not impose an obligation upon the company to deliver the said shares, etc. Thus, in my opinion, sub-section (3) to the said section does not authorise a person to have an order for delivery of the said shares. In that view of the matter, in my opinion, this application is misconceived and must fail."

I am in respectful disagreement with the judgment in Asiatic Oxygen Ltd., In re [1972] 42 Comp Cas 602. In my view, it was not the intention of the Legislature to impose upon the company the only obligation to complete and have ready for delivery the certificates of all shares, debentures, etc., and not to deliver the same. This intention of the Legislature has been made clear now by the Companies (Amendment) Act, 1988, where the obligation has been specifically imposed on the company to deliver, in accordance with the procedure as laid down in section 53 the certificate of all shares, debentures, etc., allotted or transferred. It was certainly not the intention of the Legislature that a person entitled to have the certificate or the debentures delivered to him shall make an application, first under section 113 of the Act, and after succeeding, shall file a suit for obtaining delivery of the certificate of shares/debentures. The words "complete and have ready for delivery" the certificate of all shares, debentures, etc., have to be given wider interpretation, more so, when these words are read with the words, as appearing in sub-section (3) to the effect that on the application of the person entitled to have the certificates or the debentures, they be delivered to him. This lacuna has now been removed by the amendment.

I am supported in my view by the commentary under section 113 of the Act, in A. Ramaiya's Guide to the Companies Act, 1956, 10th edition, 1984, at page 31-1 as follows :

"It has been held by the Calcutta High Court (Asiatic Oxygen Ltd., In re [1972] 42 Comp Cas 602 ; AIR 1972 Cal 50), that the duty under the section is only to complete and keep ready the certificate of shares and the duty does not further extend to delivering the certificate to the person entitled. This, however, is too narrow an interpretation of the words 'complete and keep ready'. Both the title to the section and the Companies (Issue of Share Certificate) Rules use the words 'issue of share certificate', which necessarily includes delivery"

I am of the view that the aforesaid words include "delivery". A person entitled to have the certificate or the debentures delivered to him under section 113(3) of the Act is also entitled to apply for delivery of the same.

Mr. K.N. Bhat, learned counsel for the petitioner, has contended that the ex parte decree dated April 30, 1987, and the order dated January 15, 1988, are not binding upon the petitioner and other members of her family, as the same have been passed by the learned Sub-Judge, 1st Class, Ludhiana, having no jurisdiction, and as such the same are nullity. According to him, the petitioner and other members of her family, who are defendants in the suits filed by the company at Ludhiana, are non-resident Indians, permanently residing in London. He, thus, has urged that the company abused the process of law, in filing the suits in the civil court at Ludhiana, when the civil court at Ludhiana has no jurisdiction to entertain the suits. Mr. Bhat has. further urged that the company has failed to place any document on the record to show that Shri Ganga Ram Sharma was acting as an attorney of any of the petitioners who have filed the present petitions under section 113 of the Act. The name of Shri Ganga Ram has been introduced with a view to invoke the jurisdiction of the learned court at Ludhiana

Mr. Bhat has also submitted that Miss Nandita Jain had already filed a petition, being C.P. No. 228 of 1987, under section 113 of the Act, thereby claiming reliefs similar to the reliefs claimed in the other petitions. Prior to the filing of Suit No. 17 of 1988, at Ludhiana, and grant of the ex parte stay order on January 15, 1988, the company was duly served and its counsel appeared before this court on January 5, 1988. The court ordered the deposit of the shares and debentures in the court by the company. The shares and debentures were deposited in court, prior to the filing of the second suit by the company at Ludhiana.

The statements of Mr. S.C. Khaneja and Mr. K.L. Jain, the secretary and the director respectively of the company, were recorded on July 27, 1988, and August 16, 1988. Both of them admitted that they did not know Shri Ganga Ram Sharma personally. They failed to produce any document on record to show that Shri Ganga Ram Sharma was acting as an attorney of the petitioner or of any other member of her family.

Mr. Bhat urged that the decree and orders, being nullity, are non est and this court should ignore the same. He has placed reliance upon the judgments in Krishna Singh v. Mathura Ahir [1981] 4 SCC 421 ; AIR 1982 SC 686, and Amrit Bhikaji Kale v. Kashinath Janardhpn [1983] 3 SCC 437 ; AIR 1983 SC 643.

Dr. Shanker Ghosh has urged that the injunction order dated January 15, 1988, granted by the learned Sub-Judge, 1st Class, Ludhiana, is binding on the petitioner, and as such, she is disentitled from claiming the shares so long as the order remains in force. A person against whom a restraint order is granted cannot disregard or treat it as a nullity, but must obey the same. If a person is aggrieved by an injunction order, then he must approach that court for discharge of the order or file an appeal against the order. Therefore, Dr. Ghosh contended that the injunction order could not be treated as anullity, so long as the same was not vacated. He has further submitted that the civil court at Ludhiana has jurisdiction to entertain the suit. Moreover, by a subsequent amendment, a part of the cause of action has also arisen within the jurisdiction of the courts at Ludhiana.

In Krishna Singh [1981] 4 SCC 421 ; AIR 1982 SC 686, their Lordships of the Supreme Court held that a judgment or an order passed by a court in defiance of and in disobedience of the clear verdict of the Supreme Court, would be non est and absolutely without jurisdiction and violative of article 141 of the Constitution of India. Such an order is absolutely non est and non existent, it need not be set aside, but would have to be completely ignored, as if no such order was ever passed or existed.

In Amrit Bhikaji Kale [1983] 4 SCC 437 ; AIR 1983 SC 643, their Lordships of the Supreme Court held (at page 647 of AIR 1983 SC).

 

"If Janardhan became the owner on April 1, 1957, all subsequent proceedings in which the Tribunal held that the date of purchase was postponed because the recorded owner Ashoklal was a minor were without jurisdiction. The Tribunal had absolutely no jurisdiction to proceed on the footing that the date of sale was postponed. It is neither an incorrect order nor an erroneous order as was sought to be made out but the Tribunal lacked the jurisdiction to proceed under section 32F because when the proceedings under section 32F were commenced, Janardhan had long since become the deemed purchaser. Therefore, all subsequent proceedings were ab initio void and without jurisdiction and the High Court was right in holding that orders passed therein were nullity.

The attempt to overcome this position by urging that the order was erroneous was rightly repelled by the High Court holding that the orders were null and void, proceeding on an erroneous assumption of a jurisdic-tional fact that the recorded owner was a minor on the tillers' day. When a Tribunal of limited jurisdiction clutches at a jurisdiction by ignoring a statutory provision and its consequences in law on the status of parties or by a decision wholly unwarranted with regard to the jurisdictional fact, its decision is a nullity and can be set up in collateral proceeding. The Tribunal clutched at a jurisdiction not vested in it and in such a situation it cannot be disputed that the Tribunal lacked the jurisdiction to entertain any proceeding purporting to be between landlord and tenant on the erroneous assumption that the tenant was still a tenant though he had long since become the deemed purchaser. The tenant has ceased to be a tenant much prior to the orders passed by the Tribunal on April 24, 1961, and July 13, 1967, holding that the date of compulsory purchase was postponed. The compulsory purchase by the operation of law had taken place as early as April 1, 1957, and that legal position cannot be washed away"

The facts in the judgments cited by learned counsel for the petitioner are different from the facts and circumstances of the present case. The main grievance of the petitioner is that the court of the learned Sub-Judge, 1st Glass, Ludhiana, has no territorial jurisdiction to entertain the suits filed by the company. The ex parte decree was passed on April 30, 1987, in Suit No. 11 of 1987. Again the company filed another Suit No. 17 of 1988, when the learned Sub-Judge, 1st Class, Ludhiana, vide order dated January 15, 1988, granted a stay order, thereby restraining the petitioner and others from dealing with the shares, debentures, dividends and interest payable thereon. If the petitioner has any grievance against the order passed by the learned Sub-Judge, 1st Class, Ludhiana, then the petitioner should approach that court by an appropriate application and raise all these contentions there. This court is not sitting in appeal over the judgment or order passed by the learned Sub-Judge, 1st Class, Ludhiana. In fact, this court has no jurisdiction to go into the merits of the ex parte decree or the order, passed by the civil court at Ludhiana. In other words, this court has no jurisdiction to decide the question, with regard to the jurisdiction of the civil court at Ludhiana, to entertain the suits filed by the company. The civil court at Ludhiana is fully competent to decide the question with regard to its jurisdiction to entertain the suits filed by the company against the petitioner and other members of her family. So long as the decree and the order passed by the learned Sub-Judge, 1st Class, Ludhiana, in the facts and circumstances of the present case, are not discharged or vacated, the same are binding upon the petitioner.

The other facet of the argument of Mr. Bhat is that under section 41(b) of the Specific Relief Act, 1963, the court has no jurisdiction to restrain a person from initiating any proceedings in a court of law. He has placed reliance upon the judgment in Cotton Corporation of India Ltd. v. United Industrial Bank Ltd. [1984] 55 Comp Cas 423 (SC).

Dr. Shanker Ghosh, on the other hand, contended that section 41(b) of the Specific Relief Act, does provide that an injunction cannot be granted to restrain any person from instituting or prosecuting any judicial proceeding in a court. But, in the present case, the proceedings have already been initiated and the petitioner is being heard. The contention of the respondent is not that the matter cannot be heard or that there is any injunction restraining the matter from being heard. According to Dr. Ghosh, section 41(b) is not a provision which renders an injunction order useless or prevents the court from passing an injunction order. This provision has nothing to do with the question whether the rights of the party can be legally restrained or not, this section only says that a party cannot be prevented from approaching the court. But, when a party approaches the court, then the court will naturally have to decide whether the party has a right on merits or whether his right is legally protected or legally restrained. A person whose right has been legally restrained can yet file a proceeding in the court, but the court will dismiss it not on the ground that he cannot approach the court, but on the ground that he has no right or that his right has been legally restrained, and as such, he has no case on merits. In other words, Dr. Ghosh has conceded that there is no restraint order against the petitioner from filing the present petition.

Dr. Ghosh has also urged that the petitioner cannot be granted the relief because her right has been curtailed by the restraint order. Unless the injunction order is vacated, the relief as prayed for cannot be granted to the petitioner. As the petitioner has been restrained from claiming the shares or debentures from the company, so, on this ground alone, this court will decline the reliefs and dismiss the petition. He has placed reliance upon the judgment in Eastern Trust Co. v. Makenzie Mann and Co. Ltd., AIR 1915 PC 106.

In the case of Cotton Corporation of India Ltd. [1984] 55 Comp Cas 423 (SC), the facts were that the United Industrial Bank Limited filed a suit on the Original Side of the Bombay High Court against the Cotton Corporation of India Ltd. and another, praying for a declaration that the acceptance and/or co-acceptance of the bill of exchange and/or hundis, listed in exhibit K by the other defendant, for and on behalf of the bank was null and void and not binding on the bank, and further, calling upon the Corporation to deliver up to the court the disputed bills of exchange and/or hundis, for the purpose of cancellation. In the suit, the United Industrial Bank Ltd., took out a notice of motion, thereby seeking to restrain by an interim injunction the Corporation from enforcing any claim, whatsoever, in any form, or from relying on or giving effect to. the bills of exchange or hundis involved in the dispute for the purpose of any suit or other proceedings including winding up proceedings under the Companies Act. In the appeal filed by the bank, a Division Bench of the Bombay High Court issued an interim injunction restraining the Corporation from presenting a winding up petition. While interpreting the provisions of section 41(b) of the Specific Relief Act, their Lordships of the Supreme Court held (at page 431):

"It is, therefore, necessary to unravel the underlying intendment of the provision contained in section 41(b). It must at once be conceded that section 41 deals with perpetual injunction and it may as well be conceded that it has nothing to do with interim or temporary injunction which as provided by section 37 are dealt with by the Code of Civil Procedure. To begin with, it can be said without fear of contradiction that anyone having a right that is a legally protected interest who complains of its infringement and seeks relief through court must have an unhindered, uninterrupted access to law courts. The expression 'court' here is used in its widest amplitude comprehending every forum where relief can be obtained in accordance with law. Access to justice must not be hampered even at the hands of the judiciary. Power to grant injunction vests in the court unless the Legislature confers specifically such power on some other forum. Now access to court in search of justice according to law is the right of a person who complains of infringement of his legally protected interest and a fortiori therefor, no other court can by its action impede access to justice. This principle is deducible from the Constitution which seeks to set Up a society governed by rule of law. As a corollary, it must yield to another principle that the superior court can injunct a person by restraining him from instituting or prosecuting a proceeding before a subordinate court. Save this specific carving out of the area where access to justice may be impeded by an injunction of the court, the Legislature desired that the courts ordinarily should not impede access to justice through court. This appears to us to be the equitable principle underlying section 41(b). Accordingly, it must receive such interpretation as would advance the intendment, and thwart the mischief it was enacted to suppress, and to keep the path of access to justice through court unobstructed.

Viewed from the slightly different angle, it would appear that the legal system in our country envisages obtaining of redressal of wrong or relief against unjust denial thereof by approaching the court set up for the purpose and invested with power both substantive and procedural to do justice that is to grant relief against invasion or violation of legally protected interests which are jurisprudentially called rights. If a person complaining of invasion or violation of his rights is injuncted from approaching the court set up to grant relief by an action brought by the opposite side against whom he has a claim and which he wanted to enforce through court, he would have first to defend the action establishing that he has a just claim and he cannot be restrained from approaching the court to obtain relief. A person having a legal right and complains of its violation or infringement, can approach the court and seek relief. When such person is injuncted from approaching the court, he has to vindicate the right and then when injunction is vacated, he has to approach the court for relief. In other words, he would have to go through the gamut over again : When defending against a claim of injunction the person vindicates the claim and right to enforce the same ; if successful he does not get relief but a door to the court which was bolted in his face is opened. Why should he be exposed to multiplicity of proceedings? In order to avoid such a situation the Legislature enacted section 41(b) and statutorily provided that an injunction cannot be granted to restrain any person from instituting or prosecuting any proceeding in a court, not subordinate to that from which the injunction is sought. Ordinarily, a preventive relief by way of prohibitory injunction cannot be granted by a court with a view to restraining any person from instituting or prosecuting any proceeding and this is subject to one exception enacted in larger public interest, namely, a superior court can injunct a person from instituting or prosecuting an action in a subordinate court with a view to regulating the proceeding before the subordinate courts. At any rate the court is precluded by a statutory provision, from granting an injunction restraining a person from instituting or prosecuting a proceeding in a court of co-ordinate jurisdiction or superior jurisdiction. There is an unresolved controversy whether a court can grant an injunction against a person from instituting or prosecuting a proceeding before itself but that is not relevant in the present circumstances and we do not propose to enlarge the area of controversy."

In Eastern Trust Co., AIR 1915 PC 106, the facts were that the defendant, by an injunction, was restrained from receiving money from the Government, which was to pay the same as subsidy, but the Government with full notice of the injunction paid the money to the defendant. The Privy Council held that when a party to a suit was restrained by an injunction from receiving money from the Government, and knowing this, the Government paid the amount, the party which received the amount was guilty of contempt of court.

The facts of the case in Eastern Trust Co., AIR 1915 PC 106, are quite different from the facts of the present case.

By an order dated January 15, 1988, passed by the learned Sub-Judge, 1st Class, Ludhiana, the defendants in that suit, including the petitioner, were restrained, either by themselves or acting through their attorney or any other person, from claiming the shares, debentures, dividends and interest accruing thereon from time to time, as the same were held by the plaintiff (the company), as security against the defendants. The learned court at Ludhiana, did not restrain, and rightly so, the petitioner and other defendants from instituting any judicial proceeding. They were restrained merely from claiming the shares, debentures, dividends and interest accruing thereon from the company. This order even does not imply that there is any restraint order against the petitioner from filing the present petition. Moreover, Dr. Shanker Ghosh has fairly conceded that the order does not restrain the petitioner from instituting the present proceedings. I am of the view that the petitioner was entitled to institute a petition under section 113 of the Act.

Now, it is, as argued by Dr. Ghosh that, on hearing the matter, the petition filed by the petitioner should be dismissed on merits, as the petitioner is a person, who so long as the stay order is subsisting, cannot claim the relief and, as such, is not entitled to have the shares delivered to her. In other words, the arguments of learned counsel for the company are that the rights of the petitioner have been legally curtailed and restrained. Though the petitioner can file proceedings in the court, the court should dismiss it, not on the ground that she cannot approach the court, but on the ground that she has no right, as there is an injunction order against her.

If I accept this argument of Dr. Ghosh, then it will mean that though there is no stay against the petitioner from instituting judicial proceedings under section 113 of the Act, after the institution, the petition should be dismissed on the ground that there is a restraint order against the petitioner.

I am not holding that the courts can ignore the decree or the order passed by the other courts. But how far such decree or the order affects the rights of a party depends upon the facts and circumstances of each case.

In the present case, if the contention made by Dr. Ghosh is correct, then the filing of the petition by the petitioner is just a formality. In other words, the petitioner can file a petition, but only to get the same dismissed on the ground that there is a stay order against her. The filing of the petition thus will be a futile exercise. It can also mean that the petitioner, in fact, could not initiate judicial proceedings for the redressal of her rights. This is against section 41(b) of the Specific Relief Act, 1963

The present petition has been filed under section 113 of the Act, thereby claiming various reliefs. This section imposes certain statutory obligations upon a company. Within three months after the allotment of any of its shares, debentures or debentures stock and within two months of the application for registration of transfer of the shares, debentures or debentures stock, every company shall complete and have ready for delivery the certificates of all shares, etc. If default is made in complying with this provision, then the company and every officer of the company who is in default shall be punishable with fine which may extend to Rs. 500 for every day during which the default continues. Under sub-section (3), if any company, on which a notice has been served, thereby requiring it to make good any default, fails to make good the default within 10 days after the service of notice, the court may, on the application of the person entitled to have the certificate or the debentures delivered to him, make an order directing the company and any officer of the company to make good the default within such time as may be specified in the order. Thus, statutory obligations as well rights arise from section 113 of the Act. If a default is committed within the meaning of sub-section (1) of section 113 of the Act, then the company and every officer of the company who is in default, is to face the penal consequences.

It is also noted that, by the order of Mahinder Narain J., the amount of dividend and the share scrips have already been deposited by the company in the court.

As held in the case of Cotton Corporation of India Ltd. [1984] 55 Comp Cas 423 (SC), access to justice must not be hampered, even at the hands of the judiciary. A person having a legal right who complains of its violation or infringement can approach the court and seek relief.

As far as the facts of the present case are concerned, following the dictum of the Supreme Court in Cotton Corporation of India Ltd., [1984] 55 Comp Cas 423 (SC), I am of the view that the present petition cannot be dismissed merely on the ground that there is an order passed by the civil court at Ludhiana against the petitioner.

Now, it is to be seen whether the petitioner is entitled to have the certificates or the debentures delivered to her under sub-section (3) of section 113 of the Act.

The petitioner had subscribed to the shares and debentures of the company and was allotted 29,000 shares on February 15, 1983, and 13,974 shares on July 27, 1984. All these shares were equity shares of Rs. 10 each. After the company announced/offered the issue of 18,14,400 equity shares and 13.5% redeemable non-convertible debentures on rights issue basis, the petitioner sent in the necessary application for allotment of 25,782 equity shares at a premium of Rs 15 per share, and for 8,594 debentures of Rs. 100 each. The amount of Rs 15,03,950 was admittedly paid from Canara Bank, London Branch, by a demand draft. This amount was duly deposited with the company's bankers to the issue, i.e., Hongkong Bank, New Delhi.

The shares and debentures were allotted to the petitioner on June 23, 1986. Under sub-section (1) of section 113 of the Act, within 3 months after the allotment of its shares or debentures, the company was under a statutory obligation to complete and have ready for delivery the certificates of all shares, debentures, etc. It' is also not in dispute that the petitioner and other members of her family who were also allotted shares, did send letters and reminders to the company, as well as to the Joint Secretary and Controller of Capital Issues, Government of India, Department of Economic Affairs, thereby demanding the delivery of the shares, either to them or to Canara Bank.

The company got the approval of the Reserve Bank of India in May, 1987.to allot shares to the non-resident Indians. In its statement, Shri K.L. Jain, a director of the company, stated that the only impediment for delivery of shares to the Jains was the injunction order which had been passed against them. In its reply, the company has also alleged that the shares could not be delivered, on account of the stay order dated January 15, 1988, passed by the learned Sub-Judge, 1st Class, Ludhiana.

In his affidavit dated August 23, 1988, Shri R.K. Singhania, a director of the company, has stated that as per the order dated July 27, 1988, passed by this court, a meeting of the board of directors was held on August 19, 1988 It was resolved that the share certificates in the name of Mr. P.D. Jain and his family members be issued in lieu of the letters of allotment dated June 23, 1986. The share certificates and the dividends have already been deposited in the court.

The entire amount towards the shares was deposited with the company. The shares were also allotted to the petitioner and other members of her family on June 23, 1986. Service of notice on the company is also admitted. Hence, the petitioner was fully entitled to move the present petition for having the certificates or the debentures delivered to her. Under the facts and circumstances of the case, I hold that the petitioner is entitled to have the certificates and the debentures delivered to her.

However, it may be observed that the ex parte decree dated April 30, 1987, passed in Suit No. 11 of 1987, by the learned Sub-Judge, 1st Class, Ludhiana, is still in force. The petitioner and other members of her family, under the decree, have been restrained from disposing of or repatriating the shares and debentures of the company. This decree is still in force.

The petitioner has also prayed for initiating appropriate action against the company for its failure to pay the dividends and to deliver the shares and debentures to her.

I am not inclined to grant this relief on the ground that the approval of the Reserve Bank of India was obtained by the company in May, 1987, to allot the shares to the non-resident Indians. According to the company, the dividends could not be paid and shares could not be delivered to the petitioner and other members of her family on account of the ex parte decree and subsequently the stay order. I accept this defence of the company.

Under the facts and circumstances of the case, the petition is partly allowed. I direct that the shares certificates, debentures and dividends, now lying in deposit in the court, be delivered and paid to the petitioner subject to her completing the other legal formalities by the registry. No order as to costs.

 

Rajasthan High Court

COMPANIES ACT

[1995] 5 SCL 59 (RAJ.)

HIGH COURT OF RAJASTHAN

BPL Sanyo Technologies Ltd.

v.

Rahul Agrawal

V.K. SINGHAL, J.

S.B. CRIMINAL MISC. PETITION NO. 907 OF 1994

MAY 1, 1995

 

Section 113, read with section 116 of the Companies Act, 1956 - Share certificates - Limitation of time for issue of - Complaint against petitioner-company alleging that share certificates sent to it for transfer were not returned to complainant but to another person who allegedly sold same to third party was taken cognizance of by Magistrate - Company's case was that certificate was mistakenly sent to another person of same name - Whether action of company being bona fide and mistake being due to failure of staff to send certificate to address given by complainant criminal proceedings against petitioner were unwarranted and were therefore to be dropped - Held, yes -Whether, on facts, since time stipulated for issue of certificate had already expired, petitioner was to give compensation of Rs. 500 to complainant, issue a duplicate share certificate and also to give all benefits that had accrued on such shares - Held, yes - Whether criminal action in terms of section 116 was to be continued against person who had received and sold share in question in impersonation - Held, yes

FACTS

A criminal complaint under section 113(2) had been filed against the petitioner-company by a shareholder (the respondent herein) on the allegation that out of 200 shares sent by him for transfer, 100 shares were sent by the company after effecting transfer to another person. It was alleged that the other person had sold the shares to a bank. Against the cognizance of the complaint by the Magistrate, the company filed the instant petition under section 482 of the Code of Criminal Procedure for quashing the proceedings. The case of the company was that another shareholder bearing the same name as the respondent had also lodged 100 shares for transfer, but the name of his father was not given in the form and, by mistake, the shares of the respondent were sent to his namesake who had received them and sold them away to a third party. The petitioner-company argued that its action was bona fide and therefore criminal proceedings against it should be dropped.

HELD

The action of the petitioner-company appeared to be a bona fide one. The only mistake which had been committed was that the staff of the company had not been careful in not despatching the share certificates on the address given by the petitioner. The limitation prescribed under section 113 had, therefore, expired. In these circumstances the petitioner was directed to make a payment of Rs. 500 by way of compensation to the complainant. The dividends, rights or bonus, if any, which had been issued on the shares from the date of purchase and despatch thereof to the company by the respondent till date, should also be given to the respondent complainant. The petitioner was also directed to assist in providing the necessary documents or other information which might be required in the Court below. The share certificate in question would be cancelled by the petitioner-company and a duplicate share certificate would be issued to the respondent within 45 days. The trial court was also directed to take cognizance against the person who received the shares in question and against the witnesses if it was found that the person who received the share certificate had signed in the name of the complainant. The action under section 116 was to be taken against the persons who were responsible for the said act of impersonation. So far as the petitioner was concerned, no further proceedings would be taken against it.

Parak Kuhad for the Petitioner. P.K. Khaitan for the Respondent.

ORDER

1.         This petition under section 482 of the Code of Criminal Procedure, 1895 has been filed against the action which is being taken by Rahul Agrawal, son of Shri Raj Kamar Agrawal, r/o 22, Sitaram Bazar, Brahmpuri, against the petitioner-company and its Chairman and Directors.

2.         The facts of the case are that Rahul Agrawal s/o Shri Raj Kumar Agrawal named above, filed a complaint in the Court of Special Judge, Economic Offences, in respect of transfer of 100 shares having share certificate No. 25308 which was sent to the company and which according to the complainant were sent by the said company after transferring the same to other person. The trial court took the cognizance of the offence and notices were issued to the accused petitioner. In the present case, the petitioner is a company which has come with a plea that the said shares were sent after transfer to Rahul Agrawal, son of (not known) B-4, Durga Path behind Jain Clinic, Ambabari. It appears that the said Rahul Agrawal was not the real owner and the person having no interest in the said share sold the said share to Canara Bank (Trustee) of Canara Bank Mutual Fund. On the statement so given notice was issued by this Court to Rahul Agrawal son of (not known), Durga Path, behind Jain Clinic, Ambabari, Jaipur and to the Canara Bank as well. The notices were served on Rahul Agrawal on whose behalf Shri Ajay Agrawal appeared on 7-3-1995 and one week's time was prayed for and the time was given. The case was listed on 14-3-1995 when again seven days' time was sought. The notices were directed to be issued to the Chairman SEBI as well. On 7-4-1995 no one appeared on behalf of Ajay Agrawal/Rahul Agrawal and because it was stated by Ajay Agrawal that Rahul Agrawal is minor and his entire work is being looked-after by him, bailable warrants were issued on 7-4-1995 to Shri Ajay Agrawal. Shri Ajay Agrawal appeared on 24-4-1995 and submitted that the shares in dispute were not received by him and have not been sent after transfer to him. He was directed to file the reply duly supported by an affidavit before the next Monday. No one has appeared on his behalf. Canara Bank was served on 13-2-1995 and in spite of service no one has appeared on their behalf.

3.         The arguments of the learned counsel for both the parties have been heard. The provisions of section 116 of the Companies Act, 1956 ('the Act') provides that if any person deceitfully personates an owner of any share of interest in a company, or of any share warrant or coupon issued in pursuance of this Act, and thereby obtains or attempts to obtain any such shares or interest or any such share warrant or coupon, or receives or attempts to receive any money due to any such owner, he shall be punishable with imprisonment for a term which may extend to three years and shall also be liable to fine.

4.         A contention has been raised by the learned counsel for the respondents and also appears to be duly supported by the argument of the learned counsel for the petitioner that the respondent Rahul Agrawal, son of Shri Raj Kumar Agrawal, has sent the shares to transfer to the petitioner-company. The petitioner-company has despatched those shares to another Rahul Agrawal and this may be because of the reason that the names of both the persons were common. It is stated by Mr. Kuhad that 200 shares were sent by Rahul Agrawal, son of Raj Kumar Agrawal, and 100 shares were sent by another Rahul Agrawal. In the transfer forms, the name of father was not given by the two Rahul Agrawal and, therefore, so far as 100 shares of Rahul Agrawal, son of Raj Kumar Agrawal, are concerned, were correctly sent and the other 100 shares of Rahul Agrawal whose father's name is not known were also correctly sent. It was the third share certificate of 100 shares which was by mistake sent to Rahul Agrawal son of (not known). It is submitted that the action of the petitioner was bona fide and mistake has occurred on account of father's name not being given.

5.         When this fact was brought to the notice of the petitioner-company, the company informed Rahul Agrawal, son of Raj Kumar Agrawal, to collect 100 shares from other Rahul Agrawal, son of (not known) and on being contacted he refused.

6.         The action of the petitioner-company appears to be a bona fide one. The only mistake which has been committed is that the staff of the company has not been careful in not despatching the share certificates on the address given by the petitioner. The limitation which has been prescribed under section 113 of the Act has, therefore, expired. In these circumstances, the petitioner is directed to make a payment of Rs. 500 by way of compensation to Rahul Agrawal. The dividends, rights or bonus, if any, which have been issued from the date of purchase and despatching it to the company by the respondent till date, the said benefit should also be given to the respondent. The petitioner shall also assist in providing the necessary documents or other informations which may be required in the Court below. The compliance of this order by the petitioner shall be made within a period of one month from today.

7.         The informations with regard to documents which are required to be submitted by the respondent Rahul Agrawal, son of Raj Kumar Agrawal, would be given by the learned counsel for the petitioner and he will send the same to the company which may be delivered within a period of 30 days from the date of receipt of the communication from the respondent.

8.         Canara Bank have not appeared in spite of service of notices. In view of the fact as stated above, it is directed that the said bank would surrender the original certificates if it is lying with them.

9.         The share certificate No. 25308 shall be cancelled by the petitioner-company and a duplicate share certificate would be issued to the respondent Rahul Agarwal, s/o Raj Kumar, within 45 days from today.

10.       The trial court would take the cognizance against Rahul Agrawal and Ajay Agrawal. The action against the witnesses would be taken, if it is found that Ajay Agrawal has signed in the name of Rahul Agrawal. The action under section 116 may also be taken against the persons who are responsible for the said act of impersonation provided under the Act. So far as petitioners are concerned, no further proceedings would be taken against them. A copy of this order be sent to the Chairman, SEBI who may formulate the proper guidelines for protection/benefit of shareholder. The proceedings against the petitioner shall stand dropped.

11.       The criminal miscellaneous petition stand disposed of in accordance with the directions given above.

 

SECTIONs 117 TO 123

Debentures

 

[1989] 65 COMP. CAS. 427 (KAR.)

HIGH COURT OF KARNATAKA (FULL BENCH)

Chief Controlling Revenue Authority

v.

Manager, State Bank of Mysore

M.P. CHANDRAKANTARAJ URS, S.R. RAJASHEKHARA MURTHY AND

M. RAMAKRISHNA JJ.

Civil Referred Case No. 13 of 1984

AUGUST 17, 1987

 V.G. Sabhahit for the petitioner.

C.B. Srinivasan for the Respondent.

JUDGMENT

Chandrakantaraj Urs, J.—This matter has come before us by way of reference made by the Chief Controlling Revenue Authority in Karnataka under section 54(1) of the Karnataka Stamp Act, 1957 (hereinafter referred to as "the Act"), for adjudication as to whether the instrument in question is an "instrument of trust" as claimed by the author of the trust, viz., the State Bank of Mysore, a subsidiary of the State Bank of India (hereinafter referred to as "the bank") or it is a "deed of mortgage" as claimed by the Revenue (State) and if not either, what instrument it is on a correct interpretation of its contents and chargeable under which entry in the Schedule to the Act?

We may at the outset state, if the instrument is but a trust deed, it is chargeable to stamp duty under the Act at Rs. 90 under article 54A in the Schedule to the Act and at the rate specified in article 34 of the Schedule to the Act on the market value of the properties secured (which is Rs 125 lakhs) if it is a deed of mortgage and duty payable will be 10 per cent, of the market value of the properties together with such surcharge as may be payable to the local authority as if it is a deed of conveyance.

The facts leading to the controversy may be stated and they are as follows:

By a deed dated March 23, 1982, executed by the bank styling itself as "debenture trustee" in favour of the Unit Trust of India (hereinafter referred to as "the UTI") concerning certain debentures issued by the New Government Electric Factory Ltd. (a company incorporated under the Companies Act) (heinafter referred to as NGEF) of the total value of Rs. 125 lakhs in two series was presented for registration before the Sub-Registrar having jurisdiction who refused to register the same and did not pass any order rejecting registration. Therefore, the bank, the UTI and the NGEF presented an appeal to the District Registrar who refused to pass any order on the appeal as there was no written order by the Sub-Registrar. Thereupon, he was moved under section 31 of the Act for adjudication of the proper stamp duty payable on the instrument in question. The District Registrar in turn referred the matter to the Chief Controlling Revenue Authority in the State under section 53(2) of the Act. The Chief Controlling Revenue Authority gave a hearing to the parties who were represented by counsel. The parties contended before him that the document in question did not transfer, create, modify, abrogate, vary or extinguish any right of any person to any specific immovable property or properties but merely declared a trust, that in considering the nature of the instrument, what was relevant was the normal and natural meaning of the words employed in the document together with its construction and intention and that article 54A in the Schedule to the Act specifically provided for the duty payable in respect of declaration of trust concerning any property when made by any writing (not being a will) subject to a maximum of Rs 90 and, therefore, there should be an adjudication accordingly. But the Chief Controlling Revenue Authority had many doubts such as that the instrument had only some characteristics of a trust as defined under the Indian Trusts Act, and not all; that the trustee (the bank) itself was being benefited by charging an annual fee till the liability of the NGEF was discharged under the debentures to the debenture-holder; that there being other benefits provided to the debenture trustee such as reimbursement of out of pocket expenses, not ascertainable, the instrument may fall to be covered by section 26 of the Act; and that the instrument had the character as the bank was to hold the debentures as security for acting as trustee for advancing money and further that the document was so drawn up so as to be covered by several entries or articles of the Schedule, and, therefore, has referred the matter to the High Court for adjudication under section 54 of the Act opining that the instrument is a deed of mortgage.

Before us, the Chief Controlling Revenue Authority (hereinafter referred to as "the Revenue") is the petitioner and the NGEF, the bank and the UTI are the respondents. Arguments for the Revenue have been advanced by the learned High Court Government Pleader, Shri V.G. Sabhahit, while Mr. C.B. Srinivasan, learned advocate appearing for the bank, has advanced the main arguments which have been adopted by the other counsel appearing for the other respondents.

For the Revenue it is contended that the instrument in question is one of mortgage or assignment of mortgage as the author of the trust, the bank, admits taking charge of all title deeds and deed of hypothecation relating to immovable properties and plant and machinery of the NGEF to hold the same for the benefit of the UTI, the debenture-holder, with power to enforce the security for the benefit of the UTI and, therefore, it should be adjudicated to be a deed of mortgage. In the alternative, it is contended, if it is not a deed of mortgage, it should be held to be a "bond" within the meaning of that expression as defined in section 2(1)(a) of the Act having regard to the undertaking given by the bank to pay the UTI the money secured by the debentures of the value of Rs 125 lakhs.

As against the above contentions, counsel for the respondents have asserted that the instrument is no more than a declaration of trust together with the obligations of the trustee clearly spelt out and what is narrated in the preamble to the document should be ignored in determining the true intent of the author of the trust as, at best, what the preamble states is no more than something which indicates the creation of mortgage by deposit of title deeds and hypothecation of plant and machinery and, therefore, cannot be construed as if the instrument created the mortgage by deposit of title deeds of immovable properties or the hypothecation of the plant and machinery.

The undisputed facts are:

(1)        The NGEF issued the debentures privately placed to the UTI on terms and conditions agreed to between them and contained in the deed of agreement dated March 23, 1982 (see paras 6 and 7 of the instrument under reference);

(2)        That on March 23, 1982, mortgage by deposit of title deeds was created by the NGEF in respect of the immovable properties owned by it in favour of ten financial institutions including the bank, the author of the trust (see para. 11 of the instrument under reference); and

(3)        That on March 23, 1982, the NGEF also executed a deed of hypothecation for consideration, namely, to secure the repayment and redemption of the debentures in question of all its movables including plant and machinery fixed, (see para. 12 of the instrument under reference) in favour of the bank which is also the debenture-trustee.

All the above documents and the one under reference were all created on the same day presumably after the debentures had been issued and paid for.

In order to appreciate the arguments advanced to further the contentions, it is necessary to understand the meaning of the terms, debenture, debenture-trust and debenture-trustee.

"Debenture "is defined as follows in the Companies Act, 1956:

"2(12) 'debenture' includes debenture stock, bonds and any other securities of the company, whether constituting a charge on the assets of the company or not;"

From the above, it is obvious that the meaning is still obscure. In Palmer's Company Law, volume I, 23rd edition, the following passage is found:

"In modern commercial usage a debenture denotes an instrument issued by the company, normally—but not necessarily—called on the face of it a debenture and providing for the payment of, or acknowledging the indebtedness in, a specified sum—say, £100—at a fixed date, with interest thereon. It usually—but not necessarily—gives a charge by way of security, and is often—though not invariably—expressed to be one of a series of like debentures.

But the term, as used in modern commercial parlance, is of extremely elastic character"

It has a historical background with which we may not now concern ourselves. The meaning of the term implies on the facts of this case that the NGEF is the debtor and the UTI is the creditor and, therefore, the debenture-holder.

The next questions we should ask ourselves are what is a debenture-trust? and who is a debenture-trustee?

Section 118 of the Companies Act, 1956, provides that any trust deed for securing any issue of debentures shall be forwarded to the holder of such debentures or any member of the company at his request within seven days of the making of the trust deed on payment of the fee specified in that section itself. It further provides the consequences of refusal to furnish copies of the trust deed and the court's power to direct such furnishing. Apart from the above, the trust deed is required to be available for inspection by any member or debenture holder on payment of a fee. Similarly, section 119 of the Companies Act provides for the liability of the trustees to debenture holders with certain consequences and exceptions.

It is stated in Pennington's Company Law, 5th edition, that trusts of registered debentures are created in the same way as trusts of shares (see page 516). The learned author has stated that trusts of shares registered in the company's register of members are created by transferring the shares to trustees upon trusts declared by the settlor in a separate document or upon trusts declared by the trustees themselves after the transfer has taken place (see page 438).

In Palmer's Company Law (volume I, 23rd edition), we notice under the heading "trust deeds", the following:

"Debentures and debenture stock are often secured by a trust or covering deed, conveying property of the company to trustees in favour of the debenture holders, charging other property and containing a number of ancillary provisions regulating the respective rights of the company and the debenture holders. Whether there should be a trust deed or not must depend on the circumstances; where the debentures are issued only for a temporary purpose, e.g., to bankers as security for an overdraft or to other persons for a short term, or are to be taken up by the directors, a deed may be dispensed with; but where the transaction is of some magnitude, in particular where large scale borrowing by companies from the public is in question, a trust deed is commonly used.

Advantages of a trust deed:

The advantages of a trust deed may be briefly summarised as follows:

1.     It constitutes trustees charged with the duty of looking after the rights and interests of the debenture-holders. Thus, they may vote as they consider best in respect of any shares which may be vested in them as trustees.

        2.     The debenture-holders can by these trustees enter and sell the property comprised in the security.

        3.     A legal estate is sometimes vested in the trustees with the protection which is conferred thereby"

From the above, it is clear that the practice in India as well as in England appears to be to ensure repayment of the debt to the debenture-holder by an instrument of trust by which the trustee ensures repayment of the interest as well as the principal advanced against the debentures to the holder of the debentures.

What emerges from what has been stated above is that the debenture-trust has to be created expressly by an instrument of trust; the author of such trust transfers the properties movable or immovable to the trust and the trustee or the trustees hold such properties in trust for the benefit of the beneficiary, viz., the debenture holder to be used in the event of default of payment of interest or principal amount of debt advanced as per terms agreed by selling such properties in the hands of the trustee or trustees. In this content, it is useful to refer to another passage in Palmer's Company Law, and it is as follows:

"A trust deed usually contains a legal mortgage of the freehold and leasehold properties, e.g., in the case of a brewery, the brewery and tied houses, and a general charge by way of floating security on the rest of the assets and undertaking. Under the Law of Property Act, 1925, section 87, the legal mortgage takes the form of a demise to the trustees for a term of years or a charge by way of a legal mortgage.

Following on the charge comes a clause specifying the various events on the happening of which the security is to become enforceable. These usually are I

        1.     default in payment of principal or interest;

        2.     winding up;

        3.     breach of covenant; or

        4.     appointment of receiver.

Other events are sometimes added.

The trust deed then provides that, when the security becomes enforceable, the trustees may, at their discretion and shall, at the request of a specified proportion of the debenture or debenture stockholders, sell the mortgaged premises, and apply the net proceeds in paying off the debentures or debenture stock and hand over the balance to the company."

We see from the above the form and contents generally in vogue in England. But, here in India, we have to assume that the form and contents are similar to the document under reference.

Therefore, it is now useful for us to set out the form and contents of the document under reference and then proceed to construe it with reference to the provisions of the Companies Act, 1956, the Indian Trusts Act, 1882, and the Act.

The bank is the sole author of the trust; it describes itself as the debenture-trustees. It refers to the trust being in favour of and for the benefit of holders for the time being of the mortgage debentures in two series totalling in value in the sum of Rs. 125 lakhs by private placement with the UTI issued by the NGEF.

In the preamble portion (paras 1 to 12), the instrument makes a reference to the encumbrances of NGEF by way of mortgages and deed of hypothecation in favour of certain financial institutions including the debenture-trustees. It also refers to an agreement between the UTI and the NGEF and the earlier correspondence between them regarding the issue and subscription of the debentures.

In para 13, it is stated that pursuant to the request of NGEF, the declaration of trust is being made and registered. We feel that the declaration in form is the crucial clause and we have, therefore, set out that portion of the instrument or recitals therein, in extenso:

"NOW THESE PRESENTS WITNESS AND IT IS HEREBY DECLARED BY THE debenture-trustees for the benefit of the UTI in respect of the said debentures as follows:

1. The debenture-trustees hereby declare that the debenture-trustees shall hold the securities created in their favour by the company under the joint mortgage by deposit of title deeds in respect of the land and other immovable properties more particularly described in the First Schedule hereunder written and under the said hypothecation of movable machinery and other assets as hereinbefore recited upon trust and with subject to the powers and provisions hereinafter declared and contained and concerning the same, that is to say, in trust for the benefit of the UTI in respect of the said debentures being 7500 Series "A" and 5000 Series "B"—11% mortgage debentures of Rs. 1,000 each for the time being issued and outstanding and entered in the register of debenture-holders maintained by the company ranking inter se pari passu without any preference or priority of one over the other or others and so that the debenture-trustees shall hold upon trust the moneys which shall arise or may be obtained by enforcement of the said securities or any part thereof or from any sale, collection, conversion or receipt by the debenture-trustees of the proceeds thereof if the said securities have become enforceable and shall in the first place pay and reimburse to themselves and to retain and discharge all the costs, charges and expenses incurred in or about the enforcement, sale, collection or conversion or exercise of the powers, of the trust of the debenture-trustees and shall apply the residue of the said moneys, subject to the prior charge of the company's stocks of raw-materials, semi-finished and finished products, consumable stores and stores and spares not relating to the plant and machinery on the security of which the company has obtained various banking facilities for working capital requirements and subject to the pari passu rights of ICICI, IDBI, IFCI. LIC, GIC, OFGI, NIC, NIA, UTI under or by virtue of the mortgages, charges and securities already created or to be created as also under or by virtue of the provisions of the inter se agreement to be hereafter executed as provided herein :

Firstly, in or towards payment of the said debentures of all arrears of interest including time overdue interest (which shall be deemed to accrue from day-to-day) remaining unpaid on the mortgage debentures held by them respectively;

Secondly, in or towards payment of all principal moneys owing on the said debentures whether the said principal moneys shall not then be due and payable; and

Thirdly, the surplus (if any) of such moneys in payment to the person or persons entitled thereto:

Provided that if the debenture-trustees are of the opinion that it is expedient so to do, payment may be made on account of principal before the whole or part of the interest due on the said debentures has been paid, but such alternative in the order of payment of principal and interest thereon prescribed shall not prejudice the right of the UTI to receive the full amount to which they have been entitled if the ordinary order of payment has been observed or any less amount which ultimately being realised from the security may be sufficient to pay."

The declaration is followed by conditions subject to which the trustees will discharge their duties and obligations and leave the NGEF to manage its affairs. There are certain rights reserved in favour of the trustees such as appointment of receivers or agents, etc., with which we may not concern ourselves.

The main contention advanced for the Revenue is that the instrument under reference creates mortgage by deposit of title deeds in favour of the bank. We should reject that contention without any hesitation. Firstly, the executant of the document is not the NGEF which is the owner of the immovable properties mentioned in the schedules. Secondly, no transfer of interest in the immovable and movable properties including the plant and machinery of NGEF is made in favour of UTI under the instrument in question.

Equitable mortgage by deposit of title deeds may be created by the mere act of depositing deeds of title or even evidence of title like tax receipts evidencing payment of property tax on immovable properties. It is not necessary to reduce to writing the transfer of interest in the immovable property by way of security as in the case of other forms of mortgage. If reduced to writing, the creation of equitable mortgage would also attract the same rigour as other mortgages, the stamp duty payment and compulsory registration under the Registration Act.

Merely because there is a recital about the creation on the same day, viz., March 23, 1982, of a joint mortgage by deposit of title deeds along with other documents in favour of certain institutions including the bank (para. 11 of the instrument under reference), the instrument under reference cannot be construed as a deed of mortgage.

This court in the case of Murugharajendra Co. v. Chief Controlling Revenue Authority [1974] 1 Kar LJ 177; AIR 1974 Kar 60, has explained when exactly an instrument of equitable mortgage, if at all, is liable to be charged to stamp duty under the Act. After adverting to the definition of the term "instrument" in section 2(j) of the Act and the decision of the Supreme Court in the case of United Bank of India Ltd. v. Lekharam Sonaram and Co. [1965] 35 Comp Cas 471 (SC), this court ruled as follows (at page 62 of AIR 1974 Kar):

"It is clear from the opinion of the Supreme Court extracted above that a mortgage by deposit of title deeds can be created by handing over the title deeds by the borrower to the lender with the intention that these documents shall constitute the security for the debt. But if the parties choose to reduce the contract to writing, that document alone would be the sole evidence of its terms. In the latter case, the document shall have to be treated as an instrument creating a right in favour of the mortgagee to recover the loan from the properties to which the title deeds relate. Such an instrument requires to be registered under section 17 of the Registration Act, as a non-testamentary instrument creating an interest of the value of Rs. 100 and upwards in immovable property. It would also become liable for stamp duty under article 6 of the Schedule to the Act. Hence, the essential factor which determines whether a document is one by which an equitable mortgage is created is the intention of the parties. The existence or otherwise of such intention can be established either by the documents produced by the parties or by oral evidence or by both"

From the above, it is obvious that the instrument which we are required to adjudicate is not executed by the owner of the immovable properties, viz., the NGEF. A mere reference to creation of joint mortgage of properties in favour of the bank and other institutions referred to in para 11 of the instrument is not evidence of NGEF depositing the title deeds. It is the bank, the executant of the instrument, which has stated a fact and no more.

Therefore, we should not hesitate to hold that the instrument is not a deed of mortgage, for the simple reason there is no mortgagor who can be said to have deposited the title deeds relating to any immovable property as owner thereof with any one else as security for loans advanced. On the other hand, what is obvious by the reference in para 11 and the contents of the declaration extracted earlier is that the bank is holding the title deeds for and on behalf of itself and the other nine financial institutions and the title deeds relate to immovable properties owned by NGEF and obviously deposited by NGEF with the bank.

In the view we have taken having regard to the enunciation of the law by the Supreme Court and our own High Court, reliance placed on the decision of the Madras High Court in the case of Secretary to the Commissioner of Salt, Abkari and Separate Revenue, Revenue Board, Madras v. Mrs. E.M. Orr and the Bank of Madras [1915] 38 ILR Mad 646, by the Revenue is not on a correct understanding of the law and certainly without reference to the facts of the case we have on hand. In the Madras case, Mrs. Orr executed the document in question which provided for the Bank of Madras advancing moneys to her to carry on her deceased husband's business against the plant and machinery belonging to the business which was entrusted to the bank as trustee with power to use, sell or employ, exchange or otherwise deal with the trust property, etc. In those circumstances, it was held by the Madras High Court that, having regard to the true intention of the parties, namely, the executant and the executee of the document, which was to give control of the properties of the business to the bank as trustee together with certain rights by way of security, the document was a deed of mortgage liable to be stamped as such. On the facts of that case, we could not have come to a different conclusion either.

This takes us to the next question, that is, whether the instrument under reference is a bond executed in favour of UTI by the bank. The term "bond" is denned in section 2(1)(a) of the Act as follows: .

"2. Definitions.—(1) In this Act, unless the context otherwise requires,—

        (a)    'bond' includes—

(i)         any instrument whereby a person obliges himself to pay money to another, on condition that the obligation shall be void if a specified act is performed or is not performed, as the case may be;

(ii)        any instrument attested by a witness and not payable to order or bearer, whereby a person obliges himself to pay money to another; and

(iii)       any instrument so attested whereby a person obliges himself to deliver grain or other agricultural produce to another;"

The learned Government Pleader, Shri V.G. Sabhahit, has contended that the instrument under reference clearly falls within the ambit of sub-clause (ii) of clause (a) of sub-section (1) of section 2 of the Act as the document read as a whole is no more than an obligation on the part of the bank to pay money to UTI and the document is attested and not payable to bearer or order and, therefore, the instrument is liable to be stamped as a "bond" falling under article 12 of the Schedule to the Act.

The argument is attractive. But, on a close scrutiny of the language employed in the declaration extracted earlier or the conditions that follow the declaration, we find that there is no obligation to pay its funds or out of its funds anything to UTI towards the unpaid interest or the principal of the debentures in question. The bank has undertaken to apply the money realised from the enforcement of securities it holds only if and when the securities become enforceable and not otherwise. What it has undertaken to do as trustee or debenture trustee is payment of money belonging to the NGEF held by it as such trustee when the contingency arises. It has no obligation to pay out of its own funds and, therefore, falls outside the ambit of the definition "bond". In other words, if the securities bring forth nothing, then there is no obligation to pay. If NGEF has paid off the debenture-holder, the bank or the debenture trustee has no obligation to pay money. It is true that the definition of the term "bond" is not exhaustive as held by some High Courts over the years (see Wadhawa Mai v. Karim Baksh, AIR 1925 Lahore 415 ; 6 Lahore 276). It is also well-settled that in deciding the question whether an instrument does or does not fall within the purview of a bond as defined in section 2(1)(a) of the Act, the instrument should be considered as a whole and it is not permissible to divide it into several parts and look at it piecemeal and then to assign each one of such parts to some other articles in the Schedule to the Act (see L.H. Sugar Factory, Pilibhit v. Moti, AIR 1941 All 243 [FB]). To be a "bond", the executor of the instrument must expressly undertake to pay money as an obligation arising out of the instrument. It shall not be a matter to be inferred.

In these circumstances, we are of the view that the instrument under reference, read as a whole, does not answer to the definition of "bond" in the Act. We have relied mainly on the language employed in the declaration to which we will make a more detailed reference later in the course of this opinion.

This takes us to the contention of the respondents before us that the document in question is a trust simpliciter notwithstanding the long preamble and its contents as well as the several provisions made in the instrument regarding the rights and obligations of the trustee/debenture trustee. However, learned Government pleader pointed out that there is no trust property or properties held by the bank as debenture-trustee as the mortgaged properties (immovable) and the hypothecated plant and machinery continue to be in the possession and control of the NGEF and with no property vesting in the trustee to hold, control and apply to the benefit of the beneficiary, the instrument cannot be considered to be a deed of trust or instrument of trust.

The fallacy in the contention or argument of the learned Government pleader lies in not noticing the language of the declaration in the instrument. The bank, the debenture-trustee, has never claimed to be in possession of any trust properties, movable or immovable. It only claims that it holds securities in respect of such properties having stated that the immovable properties are mortgaged jointly by deposit of title deeds in favour of the bank and the nine other financial institutions as well as the deed of hypothecation by which the plant and machinery is hypothecated to the bank. In other words, the force or thrust of the argument is that possession, actual and physical, of the properties of the NGEF is not necessary but securities, as above, themselves constitute the trust property or properties which is required to be applied, used or enforced for the benefit of the UTI and, therefore, it is a trust within the meaning of that term as defined in the Indian Trusts Act.

The definition of "trust" is to be found in section 3 of the said Act and it is as follows :

"3. A 'trust' is an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner:"

In order to satisfy the requirements of the above definition, there should be three things; (1) a person whose duty it is to carry out the trust, (2) property which is vested at law in the trustee and which he is bound to deal with in accordance with the provisions of the trust, (3) a person who is entitled to enforce the provisions of the trust.

The contention, as noticed earlier, is that the bank is the author of the trust as well as the trustee and it holds the securities, the mortgage as well as the deed of hypothecation of plant and machinery that are the subject of the trust and the UTI is the one to enforce the provisions of the trust if the benefit is not given to it.

That the bank is the author of the trust cannot be disputed as it is the executants debenture-trustee that has made the declaration as evidenced by the instrument itself.

Are the securities, the mortgage by deposit of title deeds and the deed of hypothecation both of which do not give possession of the properties to the bank capable of being held as properties ? The answer seems to be in the affirmative.

Mortgage of any kind under the-Transfer of Property Act is an acquisition of interest in immovable property capable of being transferred in like manner to others and, therefore, the mortgage acquired by the bank jointly constitutes its property and that of the other mortgagees who apparently have agreed that the bank shall hold the title deeds in its possession and as the bank ranks pari passu with the other institutions, it is capable of realising its securities in its own right. This is obvious to any reader of the instrument in question.

Similarly, by deed of hypothecation, the NGEF has pledged its machinery and plant with the bank while retaining possession of the same. But, then, at law, the owner is in possession only as bailee, as the pledgee is the real owner. This becomes clear having regard, to section 172 of the Contract Act. A passage from Paget on the Law of Banking, Eighth Edition, at page 566, is as follows:

"This difficulty in the way of the owner's being in a position to pledge goods in his own possession has been circumvented by the institution of letters of lien or letters of hypothecation.

The distinction seems a narrow one, but it is clear that an owner, though he cannot himself pledge, may, by agreement, change his possession into that of a bailee for the pledgee, and that the instrument constituting him as such is 'one used in the ordinary course of business as proof of the possession or control of goods' within the exception to the Bills of Sale Act, and takes the goods out of his 'order and disposition '"

From the above, it is clear that the bank is in a position to treat the securities in its possession as properties of the trust it has authored.

This becomes clearer when one looks at the origin of debenture trustee historically. A passage from Pennington's Company Law, 5th Edition, at page 475, is useful in this context and it is quoted below:

"By the end of the last century, public companies found that their issues of debentures were being subscribed for by so great a number of investors that it was inconvenient to employ the form of debenture currently in use. If the company mortgaged its assets to a thousand persons, it had to get a thousand consents when it wished to sell an asset which was specifically mortgaged, or to depart in the smallest degree from the terms of its debentures. The problem was solved by the introduction of the trust deed by which trustees were appointed to represent the interests of the debenture-holders. The trustees were given a legal mortgage of the company's fixed assets and a floating charge over its other property, were empowered to consent on the debenture holders' behalf to minor departures by the company from the terms of the debentures, and were authorised to call meetings of debenture-holders to decide whether the trustees should enforce the security given by the trust deed when a case arose for doing so, or whether the debenture-holders should agree to a modification of their rights when the company was unable to meet its obligations in full."

In the instant case, there is only one debenture-holder, viz., the UTI. That should not make any difference to the practice of creating debenture-trustees.

We have essentially relied on the language of the declaration contained in the instrument, particularly the following passages;

"....Debenture trustees shall hold the securities created in their favour.... shall hold upon trust the moneys which shall arise.... by enforcement of the said securities.... if the said securities have become enforceable........ shall apply the residue of the said moneys...... as provided herein"

First: in or towards payment of the said debentures..... etc.

That the bank is to charge a fee for its services as a trustee annually is neither breach of trust nor opposed to any provision of the Indian Trusts Act. It is but legitimate that the trustee has to defray expenses incurred by it or him or her or them while discharging its, his or her or their obligations under the provisions of the trust. In Hodgson v. Accles [1902] 51 W.R 57, it has been held that the trustees are commonly given remuneration by the deed, but, unless otherwise provided, this ranks after the debenture or debenture stock-holders. Therefore, the argument that the trustee has himself benefited has no force to construe the document or instrument for what it is, an instrument of trust.

In the result, our adjudication is that the instrument under reference is liable to be charged stamp duty under article 54A of the Schedule to the Act.

We have made a liberal approach in adopting the well-known rule of construction, the rule of "beneficial" construction. Debenture is a means of raising funds by any one but generally by companies in the interest of trade, commerce and industry. Trusts equally play an important role in the same field as well as in other fields. It is best expressed by quoting from Reeton on Trusts:

"The trust is one of the most important, and flexible, institutions of modern English Law, being rivalled in this respect only by the modern limited liability company. To some extent, moreover, the functions of these two great institutions may overlap. Many associations and organisations (including schools outside the state system) exist under trust deeds, but their objects could be carried out as effectively if some of the more active members of the governing body were incorporated under the Companies Acts, and indeed, this sometimes occurs."

 

[1946] 16 COMP CAS 31 (BOM.)

HIGH COURT OF BOMBAY

Laxman Bharmaji

v.

Emperor

LOKUR AND WESTON, JJ.

CRIMINAL REVISION APPLICATION NO. 384 OF 1944

NOVEMBER 23, 1944

 

S.S. Kavalekar, for the Accused.

S.G. Patwardhan (Assistant Government Pleader), for the Crown.

JUDGMENT

Lokur, J.—This is an application in revision against the petitioner's conviction under Section 134, Companies Act, 1913, and the sentence of a fine of Rs. 100 by the Chief Presidency Magistrate Bombay. The petitioner is one of the directors of the India Patron Bank Ltd., which is a private limited company incorporated under the Companies Act, its main business being to sell what, are called "Patron Bonds," to invest moneys realised by the sale of those bonds and to take steps to carry out the terms of the scheme of those bonds. Being a private limited company, it cannot issue an invitation to the public to subscribe for any shares or debentures, and according to Section 2(1), clause (13)(c), Companies Act, if it issues such invitation to the public, it ceases to be a private company and becomes a public company liable to fulfil the obligations imposed upon a public company by the Act and the rules. One of such obligations, from which a private limited company is exempt, is to file three copies of the annual balance-sheet and profit and loss account with the Registrar of Companies after they have been laid before the company at the general meeting, and any default in complying with this requirement is made punishable under Section 134(4) of the Act. Section 134(3) provides that where a private company has included all the necessary provisions in its articles of association, but is not complying with those or any of those provisions, it shall cease to be entitled to the privileges and exemptions conferred on private companies under the provisions of the Act, and shall be treated as if it were not a private company.

Being of opinion that the so-called Patron Bonds issued by the company to the public are in fact debentures and finding that the company had not filed with him three copies of its balance-sheet and profit and loss account for the year ending 31st March 1939, the Registrar of Companies filed a complaint against the company and its three directors in the Court of the Chief Presidency Magistrate, Bombay. One of the directors died thereafter, and the learned Magistrate, agreeing with the view of the Registrar of Companies, convicted the remaining accused under Section 134(4), Companies Act, and sentenced each of them to a fine of Rs. 100. One of the directors thus convicted, who was accused 2, has now presented this application for rivision. It is admitted that the company has not filed with the Registrar of Companies its balance-sheet and profit and loss account for the year ending 31st March 1939, and, therefore, the only point in dispute is whether the Patron Bonds issued by it are debentures such as are prohibited from being offered to the public by a private limited company. A form of the Patron Bond, is produced as Exhibit A. It bears a serial number and its title at the top is "The India Patron Bank Limited" and below it "Patron Bond, Rs. 10 only." It then goes on to say:—

"In consideration of Mr. (name of the holder) having paid Rs 10 as the purchase price of Patron Bond in the India Patron Bank Limit ed, Sholapur, it is hereby agreed and declared by the said Bank that the said Bank will pay all money to Mr. (holder) that may hereafter become due in respect of this Bond, on terms and conditions and rules and regulations printed on the reverse. In witness whereof the common seal of the Bank has been affixed and the Manager of the Bank has hereunto set his hand this…….day etc."

The bond purports to be signed by the manager of the company and sealed with the company's seal. On the reverse of the bond are set out the rules and privileges. According to those rules, every purchaser is to pay 8 annas as admission fee in addition to Rs. 10. Then, after deducting Re. 1-8-0 for initial expenses and reserving 8 annas for the reserve fund, the balance is to be invested and the interest earned is distributed among the bond-holders according to the scheme set out in clause (2) of the rules. If any of the bond-holders gets any of those prizes, his bond is cancelled, and if the bond-holder is not lucky enough to secure a prize in the distribution for 20 years, the original price of the bond, viz., Rs. 10, would be returned to him without deduction at the end of twenty distributions. In exceptional cases, if the amount is required earlier, then only Rs. 8 are repaid, if the directors are satisfied that the holder cannot do without the amount. Clause (7) provides that the reserve fund would be utilised for payment of the amounts of the bonds. Then there are other conditions which are not material for our purpose.

On a consideration of the nature and conditions of these Patron Bonds, we are clearly of opinion that they are really debentures within the meaning of Section 2(1), clause 13(c), of the Companies Act. In Section 2(1), clause (4), of the Act, a debenture is said to include debenture stock, but nowhere is to be found a legal definition of the word "debenture." In Levy v. Abercorris Slate and Slab Co., Chitty, J., defined a debenture as "any document which either creates a debt or acknowledges it," and he says that any document which fulfils either of those conditions is a debenture. In British India Steam Navigation Co. v. Commissioners of Inland Revenue, Lindley, J., hold that a document which on the face of it was called a debenture and recorded indebtedness and was one of a series was to be dealt with as a debenture under the Stamp Act. He observed (page 172):—

"Now, what the correct meaning of 'debenture' is, I do not know. I do not find anywhere any precise definition of it. We know that there are various kinds of instruments commonly called debentures. You may have mortgage debentures, which are charges of some kind on property. You may have debentures which are bonds; and, if this instrument were under seal, it would be a debenture of that kind. You may have a debenture which is nothing more than an acknowledgment of indebtedness."

It is true that the bonds issued by the accused are not styled "de bentures." But as pointed out by Chitty, J., in Edmonds v. Blaina Furnaces Co., in determining what is or is not a debenture within the section we are not bound to hold that an instrument is a debenture because it is called a debenture by the company issuing it, nor to hold it is not a debenture because it is not so called by the company. We must look at the substance of the instrument itself, and, without the assistance of any precise legal definition form the best opinion we can whether the instrument is or is not a debenture. The main features which in our opinion tend conclusively to show that these Patron Bonds are debentures are the acknowledgment of debt, the promise to return it, the fact that they form a series bearing consecutive numbers and the fact that all the holders get an equal chance to partake in the annual distribution of prizes out of the net interest realized by the company.

Mr. Kavalekar has advanced various reasons on behalf of the petitioner why they are not to be regarded as debentures. The first is that the company does not issue them as debentures but sells them for a price. It is wholly immaterial what the company calls them and the name given to them by the company does not prevent them from being debentures if in fact they are debentures. The next argument advanced is that they do not purport to be a charge on the company's assets. We find that in clause (7) of the rules and privileges it is provided that the reserve fund is to be utilised for payment of guaranteed amounts payable to the holders under clauses (5) and (6). Thus the reserve fund being ear-marked and set apart for the repayment of the amount of the bonds to the bond-holders, a charge is tacitly created on that reserve fund. There is no doubt that if the company has other assets, it may pay the bond-holders their debts out of them. But in addition to this, the reserve fund is specially set apart for that purpose, and thus it may be said that the rules of the company do provide for a charge on at least a part of its assets. Moreover a charge, though usual, is not on essential requisite of a debenture. As already pointed out, there may be a mortgage debenture or a simple debenture which does not create any charge on any of the assets of the company. It is next contended that the bonds do not contain in terms an acknowledgment of a debt simpliciter, but it is accompanied by various conditions and the debt is in fact never wholly repaid. Thus although every purchaser has to pay Rs. 10-8-0, if he is not lucky enough to draw a prize within twenty years, he may get back only Rs. 8 if the directors choose to return the amount to him within the, period of 20 years or to Rs. 10 at the end of twenty years. This only means that the company undertakes the liability of repaying only Rs. 10 at the end of twenty years. This is none the less an acknowledgment of indebtedness and the holder has aright to recover the amount from the company at the end of the stipulated period. The various more common or salient characteristics of a debenture are enumerated in Palmer's Company Precedents (14th Edition), Part III, page 3. But as pointed out by Pollock, M.R., in Lemon v. Austin Friars Investment Trust, it is not essential that all those characteristics should be present and some of them are almost the antithesis the one of the other. After considering these characteristics and in holding certain income stock certificates to be debentures, he observed (page 15):—

"Now, Sir Francis Palmer in his catalogue of the characteristics of a debenture says: 'A debenture is, as a general rule, one of a series.' This document is certainly one of a series. The term 'debenture' is applied, as a general rule, to instruments issued by a company. This instrument is issued by a company. It is not issued, it is true, under seal, A debenture usually provides for the payment of a specific principal sum at a specific date, but that, as he points out in the paragraph, is not essential, for there are millions of debentures which have not an actual provision for repayment because they are perpetual or permanent debentures. A debenture usually provides for payment of interest. This document does not; and a debenture generally contains a charge on the undertaking of the company; but from the cases that are referred to it is quite plain that there are a number of debentures in which there is no such charge; and indeed one must be careful not to confuse a debenture with a mortgage debenture."

This reasoning applies all the more strongly to the prize bonds of the accused. Many of the characteristics which did not appear in the income stock certificates, which were held by Pollock, M.R., to be debenture?, do appear in these prize bonds. The bond acknowledges a debt; it is one of a series; it is issued by a company; it bears the company's seal, it provides for the payment of interest by determining the lucky numbers and it indirectly creates a charge of the amount repayable on the reserve fund of the company. It is true that, as pointed out by Mr. Kavalekar, some other indicia usually found in ordinary debentures are absent in these bonds. But it is not necessary that every one of them must be present in every kind of debentures. The presence of the features referred to above far outweigh the absence of other indicia, and we are clearly of opinion that these prize bonds are debentures, and by issuing them to the public the company has ceased to be a private company and was bound to file its balance-sheet and the profit and loss account with the Registrar of Companies after they were laid before the company at the general meeting of the company. The admitted default of the company in complying with that requirement renders the company and its directors liable to the penalty under Section 134(4) of the. Companies Act. The petitioner's conviction must, therefore, be upheld. The rule is discharged.

 

[1990] 68 COMP. CAS. 300 (BOM.)

HIGH COURT OF BOMBAY

Narotamdas Trikamdas Toprani

v.

Bombay Dyeing and Manufacturing Co. Ltd.

MRS. SUJATA V. MANOHAR J.

NOTICE OF MOTION NO. 1365 OF 1986 IN SUIT NO. 1521 OF 1986

AUGUST 22/26, 1986

 

 

K.S. Cooper, V.C. Kotwal and A.K. Desai for the Plaintiff.

A.H. Desai, Ram Jethmalani, S. Ganesh, N.H. Seervai and Mahesh Jethmalani for Defendant.

 JUDGMENT

The plaintiff is a debenture-holder in the Bombay Dyeing and Mfg Co. Ltd., the first defendant herein. He has filed the present suit on behalf of himself and other debenture-holders of the first and third series of debentures for a declaration that the first defendant company is not entitled to issue the proposed debentures pursuant to a letter of offer dated May 5, 1986, ranking pari passu with the debentures of the first, second and third series of debentures already issued by the first defendant company, and is not entitled to secure the said issue by a first mortgage on the fixed assets of the first defendant company. The plaintiff has prayed that the first defendant company should be permanently restrained from issuing any debentures pursuant to the letter of offer dated May 5, 1986. He has also prayed that the first defendant company should be ordered to repay all application monies received by the first defendant company in respect of the proposed new debenture issue. The plaintiff has sought various other reliefs as set out in the plaint.

The present notice of motion is taken out by the plaintiff for an injunction to restrain the first defendant company from directly or indirectly using the application monies received so far pursuant to the letter of offer dated May 5, 1986, and to restrain the first defendant company from allotting and/or issuing the new debentures pursuant to this letter of offer. The notice of motion also prays that the first defendant company should be restrained from creating any mortgage and/or charge on the fixed assets of the first defendant company as set out therein.

The plaintiff holds 17 debentures of the value of Rs. 100 each in the first series of debentures which were issued by the first defendant company in August, 1979. He also holds nine debentures of Rs. 100 each in the third series of debentures which were issued in February, 1983. He has filed the present suit under Order 1, rule 8 of the Code of Civil Procedure on behalf of all the debenture-holders in the first and third series issued by the first defendant company.

It has been submitted by the first defendant company that the suit itself is not maintainable since the plaintiff has no locus standi to maintain this suit. Hence, no relief can be granted to the plaintiff on the present notice of motion. According to the first defendant company, a suit claiming reliefs of the kind prayed for can only be maintained by the trustees of the debenture trust deeds in question since the suit is essentially to preserve the securities and enforce covenants given by the first defendant company to the trustees.

In order to appreciate this contention, it is necessary to examine the terms of the relevant debenture trust deeds, letters of offer and debenture certificates.

The first series of debentures were initially issued by the first defendant company in the year 1965. These debentures which were to the extent of Rs. 2.50 crores were secured by a debenture trust deed dated June 2, 1965, which was executed by the first defendant company in favour of the trustees of the said debentures.

Under the debenture trust deed dated June 2, 1965, clause 3 deals with the powers of the company to issue further pari passu debentures. Clauses 4 and 6 contain covenants by the company with the trustees that the company will pay to the holders of debentures the amount secured by the debentures and interest thereon as set out in the said clauses. As a security for repayment of these amounts, the company under clauses 7, 8, 9, 10 and 11 has created a mortgage in favour of the trustees of various properties of the company as set out in those clauses and has also created a floating charge on the general assets of the first defendant company. Under clause 55 of the debenture trust deed, "the debenture-holders shall in general meeting have", inter alia, "the powers to sanction any modification of the rights of the debenture-holders against the company or against its property whether such rights shall arise under these presents or otherwise". Under clause 56, the trustees may, from time to time, and at any time whenever they think fit or expedient in the interest of the debenture-holders, waive, on such terms and conditions as shall deem expedient to them, any breach by the company of any of the covenants contained in the said trust deed. Under clause 66, the trustees shall not be liable for any default or omission or delay in performing or exercising any of the powers of trusts contained in the said deed of trust unless the trustees shall have been previously, by notice in writing, requested to exercise such powers, trusts or acts by the holder of at least one-half of the debentures for the time being outstanding. The clause further provides that the trustees shall not be bound to exercise such powers until sufficient moneys have been provided by the debenture-holders for any costs or expenses which the trustees may incur.

Under the said deed of trust, the trustees have been given various powers which pertain to taking possession of mortgaged security or to have a receiver appointed for the protection of the said security under various circumstances which are set out in the trust deed.

Debentures which were initially issued under the said debenture trust deed were, thereafter, reissued in 1979, and were secured under the provisions of a supplemental deed of trust dated August 9, 1979. Under the supplemental deed of trust dated August 9, 1979, the original terms of the debenture trust deed of June 2, 1965, were continued with certain modifications. The modification most relevant for the purpose of the present notice of motion is contained in the modified clause 3 of the said supplemental trust deed. Under the new clause 3 of the said supplemental trust deed, the company has given certain covenants. These are as follows:

"...(b) The company hereby covenants with the trustees that during the continuance of this security, the company shall maintain a margin of 40% (forty per cent.) or such lower margin as the trustees may agree, on the security comprising the net (depreciated) book value of the then existing fixed assets (excluding motor cars, vehicles, furniture and fixtures, goodwill, patents, etc.) of the company and the company doth hereby agree and undertake that in case, for any reason, such net (depreciated) fixed assets cover falls below 40% or such lower margin as may be agreed by the trustees, the aggregate nominal amount of Rs. 2,50,00,000 (rupees two crores and fifty lakhs) of the outstanding debentures, the outstanding amounts of the ICICI foreign currency loans, and the outstanding amounts of GBL deferred payment guarantees, the company shall give an additional cover acceptable to the trustees to the extent of such shortfall failing which the company shall forthwith redeem the debentures the nominal amounts of which are in excess of the aggregate of the nominal amount of debentures outstanding together with outstanding amounts of the ICICI foreign currency loans and the outstanding amounts of GBL deferred payment guarantees cover 60% of the net (depreciated) book value of its fixed assets (or such lower margin as may be agreed to by the trustees) then comprised in the security hereunder and to satisfy the trustees that the requisite coverage was available, the company shall furnish to the trustees twice a year within one month from the dates hereinafter specified, audited statements showing as on the 31st day of March of each year the net (depreciated) value of such assets and additions to the assets as on the 31st day of March of each year, available as and by way of security as aforesaid.

(c)During the continuance of this security, the company will be entitled to make a further issue of debentures including the said further debentures of Rs. 1,00,00,000 (rupees one crore) and/or raise further loans ranking pari passu with the existing debentures issued by the company: provided that: —

(i)     the net aggregate written down value of the fixed assets of the company forming part of the mortgage security hereunder shall be at least 166% of the value of the debentures issued and outstanding and any such further issue of debentures and the outstanding debentures/ICICI foreign currency loans/GBL deferred payment guarantees ranking pari passu secured by the aforesaid mortgaged premises;

(ii)    the average profit of the company after charging interest on loans for working capital and all expenses of working and management including maintenance and repairs but before charging interest on outstanding debentures/ICICI foreign currency loans/GBL deferred payment guarantees, depreciation, development rebate, reserves and taxes for the three accounting years for which accounts have been audited last preceding the date of any such further issue, and sufficient to cover at least twice the amount required to pay the aggregate of one year's interest on the amount of outstanding existing debentures and ICICI foreign currency loans and GBL deferred payment guarantees and on the amount of additional debentures proposed to be issued;

(iii)   such further issue of debentures/raising of further loans is made by special resolution of the debenture-holders passed in accordance with the provisions of the seventh schedule hereunder written".

Under clauses 16 and 17 of the seventh schedule (original sixth schedule in the debenture trust deed of June 29, 1965), a special resolution passed at a general meeting of debenture-holders is binding on all debenture-holders whether present at the meeting or not. A special resolution requires to be passed by a three-fourths majority of debenture-holders present and voting.

Thereafter, under a second supplemental debenture trust deed dated August 28, 1980, further debentures of the aggregate nominal value of Rs. 1,00,00,000 were issued to rank pari passu with the debentures already issued and outstanding. Under clause 3 of the second supplemental debenture trust deed dated August 28, 1980, also, it is provided that these debentures are issued pursuant to clause 3 of the principal deed which was amended as per supplemental trust deed dated August 9, 1979.

Thus, the first series of debenture-holders are beneficiaries of covenants which the first defendant company has given to the trustees of the said series, as a result of which the first defendant company is required to maintain a margin of 40% (or a lower margin as the trustees may agree upon) on the security comprising the net book value of the then existing fixed assets of the first defendant company as set out in the said clause 3. There is also a further covenant between the company and the trustees that the company, if it makes a further issue of debentures which rank pari passu with the existing issue, will maintain this margin of fixed assets in relation to the value of debentures issued and outstanding, certain other loans which are also secured by a pari passu mortgage of the said securities and such further issue of debentures (hereinafter referred to as "the fixed assets cover"). The company has also covenanted with the trustees to maintain the ratio of profits to interest required to be paid on such debentures in the proportion of 2: 1. The quantum of profits and of interest is to be calculated as set out in the said clause 3. (This is hereinafter referred to as "the profits cover").

The debenture certificates which have been issued are in forms which are annexed to these debenture trust deeds. The debenture certificates state that the first defendant company will on the dates specified therein pay to the registered holders on presentation of such certificates the amount set out therein. The certificates also state that the company will, during the continuance of security, pay to the registered holders interest as set out therein. The certificates further state that "the debenture is issued subject to the provisions of the above-mentioned trust securities whereby all remedies for the recovery of the principal monies and interest secured by the debentures are vested in the trustees on behalf of the debenture-holders and it is accordingly expressly stipulated that the debenture shall operate only according to the tenor thereof".

The third series of debentures which rank pari passu, inter alia, with the first series of debentures are issued pursuant to the letter of offer dated February 28, 1983. They are secured by a debenture trust deed dated January 15, 1985, as a result of which the first defendant company has created certain securities in favour of the trustees of the third series of debentures on terms and conditions which are set out in the said debenture trust deed. Under clause 3.4 of the said debenture trust deed, it is provided as follows:

"3.4 During the subsistence of the debentures and during the period the security in favour of the agent and trustees subsists, if the company makes a further issue of debentures and/or raises further term loans and/or avails of deferred payment or guarantee facilities on the security of its fixed assets ranking on pari passu basis with the debentures, the company shall comply with the following conditions:

(i)     the net aggregate written down value of the fixed assets of the company forming part of the mortgaged assets for the debentures shall be one and a half times the value or such lesser value as may be agreed to by the agent and trustees of the debentures issued and outstanding and the outstanding term loans, deferred payment liabilities/guarantee facilities and any such further debentures and the term loans and deferred payment facilities/guarantee facilities secured on pari passu basis as the mortgaged assets;

(ii)    the average of profits of the company after charging interest on loans for working capital and all expenses of working and management including maintenance and repairs but before charging interest on term loans/deferred payment guarantees/guarantee facilities, depreciation, development rebate, investment allowance, resources and taxes for the three accounting years for which accounts have been audited last preceding the date of any such further issue or raising of term loans or availing of deferred payment guarantee facilities sufficient to cover as far as possible, at least twice the amount required to pay the aggregate of one year's interest on the amount of the debentures issued and outstanding and the outstanding term loans, deferred payment or guarantee facilities and on the amount of further debentures, term loans, deferred payment guarantee facilities;

(iii)   such further issue of debentures, raising of further loans and/ or deferred payment or guarantee facilities are sanctioned by a special resolution of the holders of the debentures passed in accordance with the provisions contained in the regulations for a meeting of the holders of the debentures, as provided in annexure 'D' to the Companies (Central Government) General Rules and Forms, 1965, as amended and prevailing from time to time".

Debenture certificates which are issued under this debenture trust deed are substantially in the same form as the earlier debenture certificates.

It is the contention of the first defendant company that the covenants under these various debenture trust deeds which require the first defendant company to maintain a certain ratio between its fixed assets and the value of debentures as also between its profits and interest to be paid on these debentures, are covenants which are entered into between the first defendant company and the trustees. There are no such covenants between the company and any of the debenture-holders. The first defendant company, therefore, contends that a debenture-holder by himself or on behalf of the entire class of debenture-holders cannot maintain the present action which is an action for enforcement of these covenants.

Now, the rights of a debenture-holder and the obligations which the company has towards its debenture-holders, depend essentially upon the terms of the agreement between the company and its debenture-holders as also between the company and the trustees of such debentures. A debenture-holder can sue the company for the recovery of amounts payable to him as the holder of the debenture certificates because the debenture certificate, as in the present case, usually contains a covenant directly between the company and the debenture-holder that the company will pay the said amount and interest thereon to the debenture-holder. However, where there is no such direct covenant between the company and the debenture-holder, it has been held that the debenture-holder cannot maintain such an action. Thus, in Uruguay Central and Hygueritas Railway Co. of Monte Video, In re [1879] 11 Ch 372, the company had issued bonds or debentures and had created a debenture stock. There was no direct covenant between the company and the debenture stock-holders for payment of any amount to the stock-holders. The covenant was between the company and the trustees for payment of the amounts. The court held that in view of the terms of the deed, the holders of bonds were not creditors of the company; they were merely cestuique trust of a charge, having a right, no doubt, to put their trustees in motion to compel payment under the covenant, but not having any independent right to sue the company either at law or in equity.

Similarly, in Dunderland Iron Ore Co. Ltd., In re [1909] 1 Ch 446, a trust deed for securing debenture stock made between the company and the trustees for the stock-holders, provided that the company would pay the interest to the stock-holders. But the certificate delivered to each stockholder did not contain any direct covenant with the stock-holder to pay him interest. It was held that stock-holders whose interest was in arrears were not entitled to present a winding-up petition as creditors under section 82 of the English Companies Act, 1862.

In both these cases, a debenture-holder was held not to be a creditor of the company on the basis of covenants contained in the debenture certificate which was issued to him by the company. There are a number of cases, however, where English courts have construed the debenture-holder as a creditor of the company wherever there has been such a direct covenant between the company and the debenture-holder. Thus, for example, in Olathe Silver Mining Co., In re [1884] 27 Ch 278, the earlier decision in Uruguay Central and Hygueritas Railway of Monte Video, In re [1879] 11 Ch 372 was distinguished. Looking to the covenants contained in the debenture certificate, the holder of the debenture in that case to whom interest was overdue was held entitled to petition for the winding-up of the company.

Nearer home, in the case of Bachharaj Factories Ltd. v. Hirjee Mills Ltd. [1955] 25 Comp Cas 227, a Division Bench of this court distinguished the case of Dunderland Iron Ore Co. Ltd., In re [1909] 1 Ch 446 and held that in the case before the Division Bench, there were debentures and not stock certificates. The debentures contained a personal covenant by the mills to pay to the debenture-holders. Hence the circumstances which prevailed upon the court in Dunderland Iron Ore Co. Ltd., In re [1909] 1 Ch 446 were not present in the case before them and the debenture-holder was entitled to present a winding-up petition as a creditor of the company.

In view of the express provision now contained in section 439 of the Companies Act, 1956, there can be no doubt that a debenture-holder is a creditor of the company for the purpose of presenting a winding-up petition. In a later case of this High Court in Sholapur Spg. and Wvg. Co. Ltd., In re [1965] 35 Comp Cas 165, a learned single judge of this court has held that a winding-up petition by a debenture-holder was maintainable in view of the direct covenant contained in the debenture certificates between the company and the debenture-holder to pay the amount to the debenture-holder, although in that case one of the relevant conditions was to the effect that the debenture was issued subject to the provisions of the trust deed whereby all remedies for the recovery of the principal money and interest secured by the debentures were vested in the trustees on behalf of the shareholders.

All these cases deal with the right of a debenture-holder to sue the company or take steps against the company for recovery of his money claim under the debenture certificate. The present suit is somewhat different in character. The suit is for ensuring that the securities which are given under the debenture trust deeds and the covenants which are contained therein for the protection of debenture-holders are maintained by the company and not diluted in any manner. The debenture certificate only sets out that the debenture is issued subject to the provisions of the trust deed. There is no direct covenant between the debenture-holder and the company to the effect that the company would maintain either the fixed assets cover or profits cover as set out in the trust deeds. Therefore, strictly speaking, the ratio of the above cases does not help the plaintiff in the present case.

Under the terms of the deeds of trust, the covenants relating to fixed assets cover as well as profits cover are given by the company to the trustees. Under the trust deeds there are various remedies which are available to the trustees for protection and realisation of mortgage securities. Therefore, if one goes strictly by the conditions of the deeds of trust and the conditions as set out in the debenture certificates and applies the ratio of the above cases, a debenture-holder would not be entitled to enforce these covenants.

However, these covenants are given by the company to the trustees for the benefit of the debenture-holders. The covenant that the company would maintain certain ratio between the value of its fixed assets and the value of debentures as set out in the relevant clause and that it would maintain a certain ratio between its annual profits (to be calculated as set out in the debenture trust deeds) and the interest payable by the company, are meant to ensure that proper securities are available for realisation of dues of the debenture-holders under the debenture certificates. The debenture-holders are, therefore, beneficiaries under the trust deeds. In these circumstances, although the remedy to enforce these securities may vest in the trustees, the debenture-holders, as beneficiaries, would be entitled to enforce covenants which are for their benefit although they may not be directly parties to the covenants.

The right of a beneficiary under a trust to enforce contracts which are for his benefit is recognised under our law. In the case of M. C. Chacko v. State Bank of Travancore, AIR 1970 SC 504, the Supreme Court has observed as follows (at page 508):

"...It has, however, been recognised that where a trust is created by a contract, a beneficiary may enforce the rights which the trust so created has given him. The basis of that rule is that though he is riot a party to the contract, his rights are equitable and not contractual. The Judicial Committee applied that rule to an Indian case Khwaja Muhammad Khan v. Husaini Begum [1910] 37 IA 152; [1910] ILR 32 All 410.... It must, therefore, be taken as well settled that except in the case of a beneficiary under a trust created by a contract or in the case of a family arrangement, no right may be enforced by a person who is not a party to the contract".

The present case is covered by this exception. In Palmer's Company Precedents, Part 3, 16th edition, at page 410, remedies which are available to a debenture-holder with the aid of the court are discussed. Clause (c) refers to "Action against the company to restrain it from issuing debentures in priority to or ranking pari passu with the existing debentures in violation of the terms of the security". At page 416, actions to enforce secured or mortgage debentures are discussed. Under the paragraph head-ing "Claiming in writ where trust deed", it is set out as follows:

"Where there is a trust deed, the writ should claim a declaration as to, and the enforcement of, the charge, to have the trusts of the deed carried into execution, and the appointment of a receiver...".

Form 196, at page 465, sets out the form of an action by a debenture-holder on behalf of himself and by other holders of debentures. In Butter-worth's Encyclopaedia of Forms and Precedents, 4th edition, volume 6, at page 1133, it is stated as follows:

The most common mode of proceedings through the court is an action by one or more debenture-holders on behalf of all the rest....

The present suit is filed by the plaintiff on behalf of himself and all other debenture-holders in the first and third series. The trustees are also made party-defendants to the suit along with the first defendant company. In these circumstances, in my view, the suit is maintainable. Interim relief cannot be refused on the ground of non-maintainability of the suit.

Has the first defendant company committed any breach of the covenants relating to fixed assets cover and profits cover while proposing the present fresh issue of debentures? Under the debenture trust deed of the first series, the company has covenanted with the trustees to maintain a margin of 40% or such lower margin as the trustees may agree on the fixed assets and the aggregate nominal value of outstanding debentures, various other loans ranking pari passu and the proposed debentures. There is also a provision that in case the fixed assets cover falls below its margin, the company will either provide an additional cover acceptable to the trustees or will forthwith redeem such number of debentures whose nominal values would be enough to adjust the margin. There is some dispute between the parties as to whether this margin of 40% has been subsequently reduced or not. I will come to that a little later.

Under the third series of debentures, the trust deed requires that the aggregate written down value of the fixed assets shall be one and a half times the value of the debentures issued and outstanding, the specified loans ranking pari passu and proposed debentures. Mr. Cooper, learned counsel for the plaintiff, has assumed for the purpose of the motion that the ratio between fixed assets and the aggregate value of debentures, loans and proposed debentures is as set out in the third series and not the slightly higher ratio as laid down in the first series.

In order to ascertain the written down value of the fixed assets of the company and the nominal value of its outstanding debentures and other loans which rank pari passu, both the parties rely upon schedule 3 to the annual report of the first defendant company for the year 1984-85, which is annexed to the plaint. Schedule 3 sets out the various loans secured by debentures as well as other loans. The total amount of such loans taken by the first defendant company is Rs. 12,399.35 lakhs. All these loans, however, are not to be taken into account while calculating the value of outstanding loans as per the terms of the trust deeds. According to both sides, cash credit packing credit loans from banks which are of the aggregate value of Rs. 3,127.80 lakhs are not to be taken into account for calculation of the company's outstanding loans. After deduction of this figure from the total figure, the value of loans comes to Rs. 9,271.55 lakhs. It is the case of the plaintiff that these are the outstanding dues which should be covered by the fixed assets valued at one and a half times this amount. The clauses of the trust deed, however, refer only to the outstanding debentures which rank pari passu and various ICICI, foreign currency loans, outstanding amounts of GBL deferred payment guarantee, which also rank pari passu with the outstanding debentures. Hence, the various loans which are referred to in the relevant clause in the debenture trust deeds are loans which are to rank pari passu for their recovery and are secured by a first mortgage on the company's fixed assets. In my view, the first defendant company is right when it contends that only those loans which thus rank pari passu should be taken into account for calculation of the fixed assets cover. If, therefore, items Nos. 6,18, 19 and 22 in schedule 3 to the annual report of the first defendant company for the year 1984-85 aggregating to Rs. 1,974.07 lakhs are further deducted on this basis, the outstanding secured loans which need the fixed assets cover amount to Rs. 7,296.48 lakhs. To this will have to be added the nominal value of debentures which are proposed to be issued. In other words, a further amount of Rs. 8 crores requires to be added, thus bringing the total outstanding loans to approximately Rs. 81 crores. The fixed assets cover required is, therefore, approximately Rs. 121 crores.

In schedule 5 to the annual report of the first defendant company for the year 1984-85, the depreciated value of fixed assets as on September 30, 1985, is shown as Rs. 11,241.89 lakhs. The auditors' report which is annexed to the annual report records that the company has maintained proper records showing full particulars including quantitative details and situation of the fixed assets, except that the item-wise depreciation written off to date has not been recorded. It seems that the company possesses old assets and there has been some difficulty in recording item-wise depreciation. The auditors have, therefore, stated that the major portion of assets has been physically verified by the management and to their knowledge there are no serious discrepancies of verification. This note of the auditors does not in any way indicate that the depreciated value which is shown in schedule 5 is in any manner inflated or is not a correct depreciated value.

The plaintiff had asked for inspection of the first defendant company's fixed assets register and two ledger accounts in order to ascertain whether the depreciated value of fixed assets as shown is its correct value and whether there has been any increase in the value of fixed assets by bringing in of more machinery and so on. The company has refused to give such inspection on the ground that these are probing enquiries and a debenture-holder is not entitled to inspect these documents. Prima facie, there seems to be some substance in the contention of the first defendant company. The right of a debenture-holder of inspecting the company's records is extremely limited. Under section 209, sub-section (4), of the Companies Act, 1956, the books of account and other books referred to in that section can be inspected by the directors of the company. Under section 209A, the said books can be inspected by the Registrar of Companies or by an authorised officer of the Central Government. Under section 118 of the Companies Act, 1956, a debenture-holder has been given a right to inspect the debenture trust deed and to obtain a copy of it. Under section 163, sub-section (2) of the Companies Act, the register of members, register of indexes of debenture-holders, copies of all annual reports together with copies of certificates and documents annexed thereto can be inspected, inter alia, by a debenture-holder. In addition, under the articles of association of the first defendant company, a debenture-holder is also entitled to receive a copy of the profit and loss account and balance-sheet of the company. A debenture-holder is, therefore, not entitled to' a detailed inspection of the record and registers and books of account of the company. I am not prepared to draw an adverse inference against the first defendant company for not showing to the plaintiff the fixed assets register and the two ledger accounts of which the plaintiff had asked for inspection

The auditors' note also sets out that in calculating the value of the company's fixed assets, no depreciation has been provided in respect of the extra shift working of the company's plant and machinery. This is contrary to the accounting practice recommended by the Institute of Chartered Accountants of India. This extra depreciation for extra shift working admittedly amounts to Rs. 6.30 lakhs. The first defendant company, however, has pointed out that it is not mandatory for the company to claim this extra shift depreciation. Under section 205 of the Companies Act, no dividend shall be declared or paid by a company for any financial year except out of the profits of the company for that year arrived at after providing for depreciation in accordance with the provisions of sub-section (2). Under sub-section (2), depreciation, inter alia, is required to be provided to the extent specified in section 350. Under section 350, the amount of depreciation is the amount calculated with reference to written down value of the assets as shown by the books of the company at the end of the financial year at the rate specified for the assets by the Indian Income-tax Act and the rules made thereunder for the time being in force as normal depreciation including therein extra and multiple shift alowances but not including various other items, with which we are not concerned. Under the relevant Income-tax Rules it is not mandatory for a company to claim depreciation for extra shift working. The first defendant company has not claimed depreciation for extra shift working in its income-tax return. The company has, therefore, not claimed such depreciation in its balance-sheet and profit and loss account also. The contention of the plaintiff that it is mandatory for the company to claim such depreciation does not appear to be correct. It is true that the Institute of Chartered Accountants of India has recommended that such depreciation should be claimed. It has also recommended that where such depreciation has not been claimed, attention should be drawn to this fact. Beyond this, there does not appear to be any mandatory provision of law under which a company is bound to claim such depreciation. For the calculation of fixed assets cover, the depreciated value of the fixed assets as shown in the company's books has to be relied upon. There is no reason to believe that the depreciated value as shown in the first defendant company's books is not correct.

The debentures in question are secured by a mortgage of various immovable properties of the company including its Roha Processing Plant and its Jamnagar Spinning Unit. The plaintiff has pointed out that in fact no charge has been created on these units by the first defendant company. The first defendant company has admitted this position. It has, however, stated that a charge is in the process of being created on these fixed assets of the first defendant company. At present, the title deeds of these two properties are with the solicitors of the trustees. These have been handed over to the solicitors of the trustees in April, 1985, for the very purpose of, creating a charge. The security of these two units of the first defendant company is about to be created for the benefit, inter alia, of the debenture-holders in question. There is no doubt that this security ought to have been created long back and there is a lapse on the part of the first defendant company in not creating this security earlier. But looking to the fact that the title deeds of these two plants are already with the solicitors of the trustees, it is not necessary at this stage to deduct the value of these two assets from the total value of the fixed assets available as securities to the debenture-holders in question. Thus, the value of fixed assets as shown in schedule 5 can be accepted as correct.

In the balance-sheet as on September 30, 1985, which is annexed to the plaint, there is an amount of Rs. 5,468.98 lakhs which is shown as unallocated expenditure. This amount is in respect of the company's DMT plant. According to the first defendant company, this expenditure will be allocated between the fixed assets and current assets of the company in the Vance-sheet as on September 30, 1986, because by this time the said plant will start commercial production.

It is the case of the first defendant company that the DMT plant, which has been set up, has not yet started commercial production. In this connection, they rely upon "Study on expenditure during construction period", which is a booklet brought out by the Research Committee of the Institute of Chartered Accountants of India. In para 17.25, "it is recommended that the expenditure incurred on start-up and commissioning of the project, including the expenditure incurred on test runs and experimental production, may be capitalised as an indirect element of the construction cost. However, the expenditure incurred over a prolonged guarantee period during which the plant is commercially operated cannot be capitalised and must be treated as revenue expenditure".. In para 17.26, it is stated that "it is extremely important to fix a specific date representing the date when the plant has been completed, set up and is recognised as being ready for commercial production. For this purpose, the term 'commercial production' refers to production in commercially feasible quantities and in a commercially practicable manner".. The plaintiff has contended with some justification that at least by April, 1985, the first defendant company's DMT plant was ready for commercial production. In this connection, they rely upon the statement made by the chairman of the first defendant company on March 27, 1985, to the effect that the plant started production in December, 1984, and that the teething troubles and other problems had been overcome on the date of the statement and the plant had started its commercial functioning. The chairman also stated that the plant was expected to come into full production within the next six months. The plaintiff has also annexed orders which were placed by third parties for the supply of DMT manufactured at the said plant. The plaintiff also relies on the monthly production return for the month of September, 1985, filed by the company before the Director-General of Technical Development. In this return, the company has stated that the factory was not working at full capacity because of paucity of orders. It stated, inter alia, that the production was planned to meet the orders received. Low production was, therefore, not on account of the plant not being ready for commercial production, but on account of market conditions. There is, therefore, a factual basis for the plaintiff's contention that the plant had started commercial production by April, 1985, and hence the unallocated expenditure should have been allocated in the balance-sheet as on September 30, 1985. The first defendant company, however, contends that the said plant was not functioning in a commercially practical manner by April, 1985, since the quantity of production was small. In my view, the small quantity of production by itself is not enough for establishing that the plant was not ready for commercial production. The company ought to have allocated the expenditure on the plant by September, 1986. Anyway, for the purpose of valuation of fixed assets of the first defendant company, it is only necessary to note that a substantial amount is shown in the balance-sheet as on September 30, 1985, as unallocated expenditure and some part of this amount will go to increase the value of fixed assets of the company. In the balance-sheet as on September 30, 1985, a sum of Rs. 7,232.51 lakhs shown as value of capital work in progress and advances for capital expenditure in connection with the DMT plant, has been taken into account while calculating the value of the fixed assets of the first defendant company. There is, however, a sum of Rs. 5,468.98 lakhs which is shown in the balance-sheet as expenditure pending allocation in connection with the DMT plant of the first defendant company. According to the first defendant company, on allocation of this amount, an amount approximating Rs. 34 crores will go towards the value of fixed assets of the first defendant company while the balance amount will be shown as current assets.

I need not examine the reasons for not allocating this expenditure as on September 30, 1985. It is possible, as contended by the plaintiff, that if the expenditure had been allocated in the balance-sheet as on September 30, 1985, although the value of the fixed assets of the company would have substantially increased, it is also likely that its profits would have been substantially reduced on account of a large amount being allocated for revenue expenditure. But, for the purpose of calculating the value of fixed assets cover of the first defendant company, one cannot ignore the fact that the fixed assets of around Rs. 34 crores in addition to 112 crores of rupees are available to the first defendant company. If this amount is taken into account, there is adequate cover of fixed assets amounting to Rs. 146 crores (approx.) for the debentures outstanding, the specified loans and the proposed debentures amounting in all to Rs. 81 crores.

Under the relevant trust deeds relating to the first series of debentures, the company was required to have fixed assets of the value of 166% of the value of the aggregate outstanding debentures, the proposed debentures and other loans which all rank pari passu. But the debenture-holders of the first series by a special resolution passed at a general meeting of debenture holders held on January 24, 1986, have, inter alia, agreed that the security cover of one and a half times the value of the said borrowing will suffice. The third series of debentures also require the same cover. Thus, the first defendant, company does seem to have complied with the covenants relating to fixed assets cover to be provided in respect of the said proposed debentures.

The second covenant under the debenture trust deeds in the first series requires the company to maintain a ratio of 2: 1 between the averse profits of the company for the previous three years to be calculated in the manner set out in the said covenant and the amount required to be paid as an aggregate of one year's interest on the said debentures and loans specified therein including interest on the additional debentures proposed to be issued. The existing burden of interest as shown in the annual report for the year 1984-85 in schedule 15 is Rs. 570.39 lakhs. This amount is divided into two parts—Rs. 279.06 lakhs is interest on fixed loans and Rs. 291.33 lakhs is interest on others. To this has to be added a sum of Rs. 120 lakhs being interest on the proposed debentures. The total quantity of interest payable would thus come to Rs. 690.39 lakhs. According to the first defendant company, out of a total of Rs. 570.39 lakhs shown in schedule 15, only a sum of Rs. 279.06 lakhs should be taken into account for calculation of interest under the relevant covenant relating to profits cover. Under the covenant, interest to be taken into account is interest on the amount of outstanding existing debentures, the amount of outstanding debentures of Rs. 2.50 lakhs and ICICI foreign currency loan, GBL deferred payment and interest on the amount of additional debentures proposed to be issued. It is not clear whether interest on any of these loans forms a part of Rs. 291.33 lakhs shown as interest "on others" or not. In these circumstances, if we take into account the total interest payable as Rs. 690.39 lakhs, it is necessary that the first defendant company should have twice this amount as its average yearly profits to be calculated as set out in the covenant. As per exhibit I to the plaint where net average profit of the first defendant company has been calculated, the average profit for the last three years comes to Rs. 1,074.64 lakhs per year. This amount includes profit derived from the sale of capital assets of the company also. According to the plaintiff, such profit should be excluded from calculation though I do not see any reason for excluding such profit. But one has also to take into account the fact that this average profit may be reduced after the allocation of unallocated expenditure, although this is denied by the first defendant company. Prima facie, there does not seem to be an adequate profits cover. In fact, Mr. Jethmalani, learned counsel for the first defendant company, did not even urge seriously that the company had the requisite profits cover.

In this connection, it was argued by Mr. Jethmalani, learned counsel for the company, that in the third series of debentures, the covenant in question only requires the company to ensure that the average of profits are sufficient as far as possible to cover at least twice the amount required to be paid as an aggregate of one year's interest on the prescribed loans and including the proposed debentures. The relevant covenant in the third series of debentures is as follows:

"... the average of profits of the company after charging interest on loans for working capital and expenses of working and management including maintenance and repairs but before charging the interest on term loans/deferred payment facilities/guarantee facilities, depreciation, development rebate, investment allowance reserves and taxes for the three accounting years from which accounts have been audited last preceding the date of any such further issue or raising of term loans or availing of deferred payment guarantee facilities are sufficient as far as possible to cover at least twice the amount required to pay the aggregate of one year's interest on the amount of the debentures issued and outstanding and the outstanding term loans, deferred payment or guarantee facilities and on the amount of further debentures, term loans, deferred payment/ guarantee facilities".

He construed this clause as more in the nature of an exhortation than a legal requirement. I am afraid, I cannot accept this interpretation of the clause. The clear intention of the parties in making that covenant was to stipulate that the average profits would be twice the amount of interest. This was a requirement which was to be complied with as far as possible, meaning thereby that a small deviation would be permissible and an exact mathematical equation may not be mandatory. Nevertheless, an approximation to this norm was certainly covenanted for. If there is any wide deviation from this norm, then the covenant must be interpreted as having been breached.

In Anson's Law of Contract, 26th edition, page 136, it is stated as follows:

"An agreement ought to receive that construction which its language will admit which will best effectuate the intention of the parties to be collected from the whole of the agreement and greater regard is to be had to the clear intent of the parties than to any particular words which they may have used in the expression of their intent. The proper mode of construction is to take the instrument as a whole, to collect the meaning of words and phrases from their general context, and to try and give effect to every part of it".

In the case of Glynn v. Margatson and Co. [1893] AC 351 at page 357, the House of Lords was required to consider a bill of lading which contained a clause that the ship was bound for Liverpool, with liberty to proceed to and stay at any port or ports in any station in the Mediterranean, Levant, Black Sea or Adriatic or on the coasts of Africa, Spain, Portugal, France, Great Britain and Ireland, for the purpose of delivering coals, cargo, or passengers or for any other purpose whatsoever. The ship left Malaga for a port on the east coast of Spain and out of her course for Liverpool. The appellants had shipped cargo of oranges for Liverpool which was damaged as a result of delay. In construing this clause, the House of Lords held that in construing a document one must in the first instance look at the whole instrument and not one part of the agreement. Looking at the whole of the instrument and seeing what one must regard, as its main purpose, one must reject words, indeed the whole provision, if they are inconsistent with what one assumes to be the main purpose of the contract; and the House of Lords held that the appellant was entitled to damages.

The covenant in question in the third series of debentures is also meant for the protection of debenture-holders and it cannot be construed as merely an exhortation. It does appear that the company has not complied with that covenant either in the first or in the third series.

In the debenture trust deeds of the first series, however, clause 55 of the original debenture trust deed of June 2, 1965, provides that the debenture-holders shall in general meeting have the power by special resolution to sanction any modification of the rights of the debenture-holders against the company or against its property. A special resolution passed at a general meeting of the debenture-holders duly convened is made binding upon all the debenture-holders whether present or not. The expression "special resolution" is defined as a resolution passed at a meeting of debenture-holders duly convened and passed by a majority consisting of not less than three-fourths of the debenture-holders voting thereat either upon a show of hands or if a poll is duly demanded then by a majority consisting of not less than three-fourths of the votes given on such poll. These provisions are incorporated in all the subsequent trust deeds of the first series. Before the issue of the present impugned series of debentures, a general meeting of the debenture-holders of the first series was held on January 24, 1986. At this meeting, two resolutions were passed. The first resolution is to the following effect:

"Resolved that pursuant to the provisions of the debenture trust deed dated June 2, 1965, as modified by the supplemental trust deed dated August 28, 1980, made between the company and the Investment Corporation of India Ltd. for securing the 3,50,000, 11% (now increased to 12%) secured redeemable debentures of Rs. 100 each and subject to such other consents or approvals as may be necessary and subject also to such terms, conditions, alterations or modifications as may be specified while granting such consents or approvals which the board of directors of the company be and is hereby authorised to accept, the consent of the aforesaid debenture-holders be and is hereby granted to the board of directors of the company mortgaging and/or charging all or any of the present and future movable and immovable properties of the company wheresoever situate and the whole or any part of the undertaking of the company (such security to rank pari passu with or subject to the charges already created or to be created in favour of the company's bankers and/ or the financial institutions and/or trustees of the existing debenture-holders from time to time as the case may be) together with the power to take over the management of the business and concern of the company in certain events, to or in favour of the agents and trustees for the holders of 800,000 (eight lakhs), 15% secured redeemable non-convertible debentures of the face value of Rs.100 each to be issued by the company in order to secure their redemption together with interest, compound interest, costs, charges, commitment charges, wherever applicable, premium on prepayment or on redemption, if applicable, and all other monies due or payable by the company in respect thereof or any part thereof". (underlining mine).

The second resolution is to the following effect:

"RESOLVED FURTHER that consent be and is hereby accorded to the board of directors mortgaging and/or charging all or any part of the immovable properties of the company wheresoever situate, present and future of every nature and kind whatsoever and/or creating a floating charge on all or any of the movable properties of the company wheresoever situate, to or in favour of any financial institutions and I or banks to secure the repayment of the monies hereafter borrowed by the company or other guarantee facilities obtained by the company or the redemption of any debentures (convertible or non-convertible) hereafter issued by the company either to the existing debenture-holders or to the public or on private placement basis for or in connection with the company's textile division at Bombay, Roha, Jamnagar or DMT division or such other projects as the board may from time to time approve provided that the total borrowings of the company whether by way of loans and/or issue of debentures and/or guarantee facilities obtained by the company as aforesaid shall not in any event exceed the limit of Rs. 100 crores as sanctioned by the shareholders under section 293(1)(d) of the Companies Act, 1956, at the 101st annual general meeting held on August 29, 1980. and provided that the company maintains at all times a security cover of at least 1.5 times of net fixed assets over all long-term borrowings which may have a first charge over the fixed assets." (underlining mine)

A third resolution was also passed authorising the Board to do all consequential acts. Under the covenants contained in the debenture trust deed, debenture-holders are required to pass a special resolution whenever a new series of debentures is being issued to rank pari passu with the debentures covered by this trust deed. The first resolution presumably is such a resolution. The second resolution, however, varies some of the covenants given under the said debenture trust deeds. Under the second resolution, the board of directors of the first defendant company becomes entitled to mortgage and/or charge the company's various properties-movable and immovable —in favour of any financial institutions or banks, etc., so long as the total borrowings of the company whether by way of loans and/or issue of debentures and/or guarantee facilities obtained by the company do not in any event exceed the limit of Rs. 100 crores. Secondly, the company is required to maintain at all times a security cover of at least 1.5 times the net fixed assets over all long-term borrowings which may have a first charge over the fixed assets. Thus, by virtue of these two resolutions, the company has become entitled to borrow further amounts so long as it complies with these two conditions and nothing more. By virtue of this resolution, therefore, the debenture-holders of the first series of debentures have given up the covenant requiring the company to provide a profit cover. Since it was a covenant for the benefit of the debenture holders, the debenture-holders could waive that benefit. The debenture trust deed also gave an express power to the debenture-holders to modify this covenant. Therefore, by virtue of this special resolution which is passed in accordance with the provisions of the sixth schedule to the original trust deed, the debenture-holders of the first series cannot now insist on a profit cover. This resolution was passed unanimously at the meeting of the first series of debenture-holders. 70% of the total debenture-holders by value were present at the said meeting and they all agreed to the said two resolutions. The resolution is, therefore, binding on all the debenture-holders of the first series including the plaintiff.

In respect of the third series of debentures, however, there is no provision under the debenture trust deed for any modification of covenants by debenture-holders passing such a resolution. Nevertheless, since the covenant is for the benefit of debenture-holders, debenture-holders can, under general law, waive such a benefit. In the present case, on January 24, 1986, a meeting of debenture-holders of the third series was also held where the same two resolutions which were passed by the first series of debenture-holders were also passed by the debenture-holders of the third series. At this meeting 96% in value of the debenture-holders in the third series were present. They unanimously voted for these two resolutions. Incidentally, 96% in value of debentures in the third series are held by financial institutions. Only 4% are subscribed to by members of the public. All these financial institutions have also given separately their consent to the present new issue of debentures. The trustees under the first and the third series of debentures have also given their consent to the new issue of debentures. The only point that requires consideration is whether this resolution would be binding on the balance 4% of debenture-holders in the third series. The first defendant company, however, has made an offer that if any debenture-holder in the third series is not satisfied with the profit cover available for payment of interest to him, the company is willing to return the amount payable to him under the debenture certificates held by such a debenture-holder immediately on being called upon by the debenture-holder to do so. In view of this offer, the remaining 4% of debenture-holders, if they so desire, will be entitled to a return of all the monies under their debenture certificates from the first defendant company.

The plaintiff has raised some other objections to the new issue, e.g., he contends that the company has not complied with the conditions laid down by the Controller of Capital Issues while granting his consent to the new issue because the company has not submitted periodic reports as required by the terms of the consent. If this is so, it is a matter which the company will have to rectify. Essentially, it is a matter between the Controller and the company.

Looking to all the circumstances, the balance of convenience is also overwhelmingly in favour of the first defendant company being allowed to issue the proposed debentures. The company has already received money from the public for the proposed debentures. Not being allowed to issue the debentures would cause serious prejudice both to the company and to the persons who have subscribed to the new series. The risk of any damage to the plaintiff is minimal. But the present notice of motion substantially affects the outcome of the suit. Hence, I do not propose to decide the motion on the basis of balance of convenience.

The first defendant company has also submitted that the present application is a mala fide application made on behalf of its trade rivals in order to bring the working of the first defendant company into difficulty. It has urged this ground also to resist the application of the plaintiff for a detailed inspection of the company's records. The company has considered this attempt at inspection as an attempt by its trade rivals to obtain information regarding the company's plant and machinery. In support, the first defendant company has relied upon a spate of articles and newspaper reports recently appearing where allegations have been made against the first defendant company and its chairman. There does appear to be some basis for this apprehension. It is somewhat unusual for a debenture-holder who holds debentures of the total value of Rs. 2,600 to engage in such heavy battle against the company although the first defendant company at the outset had offered to return the entire amount payable under the debenture certificates to the plaintiff. But the plaintiff did not take up the offer. The plaintiff has obtained leave under Order 1, rule 8 of the Civil Procedure Code and he claims to have filed the suit in a representative capacity. But looking to the unanimous resolutions passed by the debenture-holders and looking to the fact that the financial institutions who hold 96% of debentures in the third series and 58% of debentures in the first series have consented to the new issue, the representative character of the plaintiff does appear to be a little doubtful. The allegation of mala fides cannot, therefore, be lightly brushed aside. I prefer, however, to dispose of the motion on the basis of disclosed material and on merits, irrespective of the alleged motives of the plaintiff.

In the circumstances, there will be no order on the notice of motion, save and except that such of the debenture-holders of the third series (other than financial and public institutions) who want to recover the amounts payable under their debenture certificates will be entitled to recover the same if they apply to the first defendant company for such payment within 12 weeks from today. For this purpose, the company will issue a circular letter to the balance 4% of debenture-holders in the third series informing them of their right to receive immediately the amount under their debenture certificates.

The proposed allocation of debentures will, however, be subject to the outcome of the suit.

In the circumstances of the case, there will be no order as to costs.

Mr. Kotval, learned counsel for the plaintiff, applies for continuance of the interim order for a period of one week from today.

Originally pending the disposal of the motion, the first defendant company had by consent between the parties made a statement that they would not issue debentures till July 2, 1986, although the entire series had been subscribed to. For various reasons which need not be examined, as the motion was not likely to be disposed of by that date, on July 1, 1986, the statement was extended for the entire period during the pendency of the motion. I do not see any reason why any stay should be granted now preventing the first defendant company from issuing new debentures. The company has received monies as far as back as May, 1986, and it has not issued debentures so far entirely because of the statement made during the pendency of motion. In my view, it would, not be in the interest of the proposed debenture-holders to hold up the issue of proposed debentures. The application for stay is rejected.