Case: Navinchandra Ratilal Patel Vs. S Gordhandas Desai Private Limited

(1) THESE two petitions have been filed under section 155 of the Companies Act, 1956, which shall hereinafter be referred to as the Act. Petition No. 9 is by one Navinchandra Ratilal Patel for rectification of the register of members of respondent No. 1 company, Gordhandas Desai Private Limited, which shall hereinafter be referred to as the company. Navinchandra has prayed that 300 shares bearing the distinctive numbers 4399 to 4698 which at present stand in the name of Gordhanbhai Ishwarbhai Patel should entered in his name and the register of members rectified accordingly. In Petition No. 10 of 1966, he petitioner is Prafulkumar Ratilal Patel. It is also a petition for rectification and Prafulkumars prayer is that 300 shares bearing distinctive numbers 4099 to 4398, which at present stand in the name of Gordhanbhai Ishwarbhai Patel should be entered in his name and the register of members of the company rectified accordingly. As these two petitions raise common questions of fact as well as law, this judgment will govern both these petition. (2) IT is necessary in considering these two petitions to state a few facts. Gordhanbhai Ishwarlal Patel, who will hereafter be referred to as Gordhanbhai, was one of the promoters f the company. He was the paternal uncle of both these petitioner. The company is a private limited company. It would appear that the said Gordhanbhai was entitled to 4994 equity shares of the company in consideration of his having assigned his business to the company with all its assets and some of the liabilities. By a letter dated 21st December, 1957, he requested the company to allot these 4994 equity shares of Rs. 100 each to certain persons mentioned in that letter. Under the said letter, 300 shares were to be allotted to Navinchandra, petitioner in Petition No. 9 of 1966 and 300 shares were to be allotted to Prafulkumar, petitioner in Petition No. 10 of 1966. These allotments along with others came to be made at the meeting of the company held on 23rd December, 1957. It is not disputed that when these allotments were made, both the petitioners were minors. The birth date of Prafulkumar is stated to be 20th January, 1943, so that he has attained majority on 20th January, 1961. Navinchandra was born on 23rd February, 1946, so that he must have attained majority on 23rd February, 1964. It would appear that the company came to know, some time in 1960, that when the allotments were made, the allottees were minors. There is some controversy on this point but it is not necessary for us to go into that question in these petitions. On the 28th March, 1960, the company wrote to Gordhanbhai, pointing out that the allotment of 300 shares each in favour of the two petitioners was invalid because when the allotments were made the allottees were minors. The company, therefore, stated that in view of this circumstance it would be necessary to cancel the said allotments. At the meeting of the board of directors of the company held on April 1, 1960, the allotment of these shares was cancelled and these shares were transferred to the name of Gordhanbhai himself and the names of the two petitioners came to be deleted with effect from 1st April, 1960, and the name of Gordhanbhai was substituted in the register of members. It would appear that Gordhanbhai died on 20th December, 1962, leaving a will regarding which an application for the grant of probate appears to have been filed by respondent No. 3, Natubhai Vithalbhai Patel. We are informed that the probate proceedings are yet pending in the Bombay High Court. The present petitions were filed by the petitioners under section 155 of the Act on 1st April, 1966.(3) NOW the contentions of the petitioners in both these petitions are that, even though they were minors at the time the allotment of shares came to be made in their favour, they were entitled to hold these shares. It is submitted that the shares were given to the petitioners by Gordhanbhai as he wanted to benefit the petitioners who were his close relatives. It is further contended that the company was in error in cancelling the allotment and in rectifying the register in favour of Gordhanbhai and deleting the names of the petitioners without approaching the court. Respondent No. 2, Ratilal Ishwarbhai Patel, who is the father of the petitioners, has filed affidavits supporting both the petitioners. (4) THE company resists these petitions on the ground that, since the allotments were in favour of minors, they were void and he company was entitled to repudiate the said allotments. It is contended that the names of the petitioners were deleted from the register of members and the entry of the name of Gordhanbhai made instead according to instructions of the said Gordhanbhai. It is further contended that on the day that these allotments were cancelled, 600 shares were given to the 2nd respondent, Ratilal, the father of the petitioners, in lieu of the shares which were previously allotted in favour of his sons and therefore no prejudice is caused to the petitioners by reason of the cancellation of the allotments. Respondent No. 3, who is the managing director of the company, has supported the contention of the company. (5) ON these pleadings and after hearing the parties on 20th September, 1966, we framed two issues, viz. : " (i) Whether the names of the petitioners in each of the petitions after having been entered in the register of members of respondent No. 1 company have been, without sufficient cause omitted therefrom and (ii) Whether the petitions are barred by limitation "(6) WE also observed than that no more issues were sought by the parties. Thereafter we adjourned the hearing of the petitions to 26th November, 1966, at New Delhi on these two issues. On 2nd November, 1966, we changed the place of hearing and directed that the petitions should be fixed for final hearing on 26th November, 1966, at Bombay, at he Tribunal was holding its sittings in Bombay from 24th November onwards. On that day, after we had heard Shri Ramanathan, learned advocate appearing on behalf of the petitioners, and Shri Madon, learned advocate appearing on behalf of the contesting respondents, it was contended by Shri Madon that perhaps the question of title would have also to be considered since it was the contention of his client that 600 shares were allotted to the petitioners father, respondent No. 2, on 1st April, 1960, when the allotment of shares in favour of the petitioners was cancelled and that these 600 shares were given by the deceased, Gordhanbhai, to respondent No. 2 in lieu of the shares previously allotted in favour of his sons. He also relied on the fact that the relevant share certificates in respect of 600 shares involved in this petition were retained, as admitted by the petitioners themselves, by he late Gordhanbhai in his own custody till the time of his death. Undoubtedly, in petitions under section 155 of the Act it would be open to the Tribunal to to decide any question relating to the tittle of any person who is a party to the application. But the difficulty in the way of Shri Madon is that the respondents have not challenged the title of the petitioners to these shares except on the basis that the original allotments in their favour were illegal on the ground of minority. Besides, an issue on his was sought to be raised when we passed our Order on 20th September, 1966, framing the two issues already mentioned above. Shri Madon, however, states that he would have no objection if this question of title was not gone into in this petition and if he was permitted to get the question of title decided by a separate suit if so advised. Shri Ramanathan raised no objection to this suggestion of Shri Madon, though he strongly relied on section 84 of the Act in support of his argument that the certificates of shares produced by he company would be prima facie evidence of the title of his clients in respect of these 600 shares before the allotments were cancelled by the company, and the name of Gordhanbhai entered on the shares. Since both the parties are not anxious to agitate the question of title, we have no gone into the same in these proceedings.(7) THE first question, therefore, which arises for consideration is whether the company omitted the names of the petitioners from its register of members in April, 1960, without sufficient cause. Shri Madon, in our view, is right in his contention that the original allotment made in favour of the petitioners was invalid because the allottees were minors and that the company was entitled to repudiate the allotment. But even assuming that was so, we do not think the company was entitled to proceed to delete the names of the petitioners from its register of members, and rectify the register in respect of these 600 shares in favour of the deceased, Gordhanbhai, without approaching the proper court in that behalf, especially as the interest of the minors was involved. In our view the company was not, in law, justified in deleting the names of thee petitioners in the way it did and the omission of their names from the register of members is consequently without sufficient cause. We, therefore, decide thee first issue in favour of the petitioners in both these petitions. (8) SHRI Madon then strongly relies on certain facts in support of his contention that both the petitions are barred by limitation. He points out that thought it is the case of the petitioners that they came to know of the omission of their names only in he beginning of March, 1966, his clients have denied this allegation. He also relies on he admission of the petitioners that they used to receive notices of the meetings of the company till the year 1960. He has further relied on he letter addressed by the company o respondent No. 2, Ratilal Ishwarbhai Patel, on 24th May, 1960, pointing out that as per resolutions passed at he meeting of the board of directors of the company held on 1st April, 1960, his sons, Prafulkumar and Navinchandra, are no longer members of the company. We are not, however, prepared to impute notice about the action of the company to the minors on the basis of these facts. Nor are we prepared to accept the allegation made in the petition that the petitioners came to know about the cancellation of the allotment of the shares in the beginning of March, 1966. We are of the view that limitation would begin to run against the two petitioners from the date of their attaining majority, which in the case of Navinchandra, petitioner in petition No. 9 of 1966, would be on 23rd february, 1964, when he attained majority, and in the case of Prafulkumar, petitioner in petition No. 10 of 1966, limitation would begin to run against him from the date of his attaining majority which was on 20th January, 1961.(9) SHRI Madon contends that so far at least as petition No. 10 of 1966 is concerned, it would be time barred since Prafulkumar attained majority on 20th January, 1961, and he submits that the proper article to apply to petition would be article 181 of the Limitation Act of 1908 under which the period of limitation would be 3 years from the day when the right to apply accrued. In Sha Mulchand and Co. v. Jawahar Mills Ltd. 1 (1) [1953] S. C. R. 351 ; 23 Comp. Cas. 1. the Supreme Court appears to have taken the view that article 181 of the Limitation Act of 1908 has to be construed as referring to applications under the Code of Civil Procedure in view of a long series of judicial decisions of different High Courts in India. The Supreme Court, however, did not pursue the matter further on he question of applicability of article 181 because it held that even if article 181 was to apply to the application for rectification in that case, it was within time. The Supreme Court, however, observed that if article 181 did not apply then the only article that could apply "by analogy" would be article 120, under which also the application in that case was within time. Now Shri Ramanathan contends that article 181 would not apply in view of the observations of the Supreme Court, and he proper article to apply would be article 120, and he relies in support of his arguments on the decision of the Madras High Court in the same case, Jawahar Mills Ltd. v. Sha Mulchand and Co. 1 (1) [1949] 19 Comp. Cas. 138. where rectification was sought on the ground that the forfeiture of shares by the company was illegal. Shri Ramanathan also relies on the observations of the Supreme Court in appeal from that decision, referred to earlier, that article 120 would apply to cases of rectifications "by analogy", if article 181 is not applicable. Shri Madon has suggested that the decision of the Madras High Court and of he Supreme Court might have been perhaps different if attention of the word "suit" under section 2 (10) of the Limitation Act of 1908, which provides that "suit does not include an appeal or an application. " It is difficult to say whether the attention of the Madras High Court was drawn to this definition of "suit" under the Limitation Act because it has stated that article 120 would apply "by analogy".

Decision reasoning: 1[ds](6) WE also observed than that no more issues were sought by the parties. Thereafter we adjourned the hearing of the petitions to 26th November, 1966, at New Delhi on these two issues. On 2nd November, 1966, we changed the place of hearing and directed that the petitions should be fixed for final hearing on 26th November, 1966, at Bombay, at he Tribunal was holding its sittings in Bombay from 24th November onwards. On that day, after we had heard Shri Ramanathan, learned advocate appearing on behalf of the petitioners, and Shri Madon, learned advocate appearing on behalf of the contesting respondents, it was contended by Shri Madon that perhaps the question of title would have also to be considered since it was the contention of his client that 600 shares were allotted to the petitioners father, respondent No. 2, on 1st April, 1960, when the allotment of shares in favour of the petitioners was cancelled and that these 600 shares were given by the deceased, Gordhanbhai, to respondent No. 2 in lieu of the shares previously allotted in favour of his sons. He also relied on the fact that the relevant share certificates in respect of 600 shares involved in this petition were retained, as admitted by the petitioners themselves, by he late Gordhanbhai in his own custody till the time of his death. Undoubtedly, in petitions under section 155 of the Act it would be open to the Tribunal to to decide any question relating to the tittle of any person who is a party to the application. But the difficulty in the way of Shri Madon is that the respondents have not challenged the title of the petitioners to these shares except on the basis that the original allotments in their favour were illegal on the ground of minority. Besides, an issue on his was sought to be raised when we passed our Order on 20th September, 1966, framing the two issues already mentioned above. Shri Madon, however, states that he would have no objection if this question of title was not gone into in this petition and if he was permitted to get the question of title decided by a separate suit if so advised. Shri Ramanathan raised no objection to this suggestion of Shri Madon, though he strongly relied on section 84 of the Act in support of his argument that the certificates of shares produced by he company would be prima facie evidence of the title of his clients in respect of these 600 shares before the allotments were cancelled by the company, and the name of Gordhanbhai entered on the shares. Since both the parties are not anxious to agitate the question of title, we have no gone into the same in theseMadon, in our view, is right in his contention that the original allotment made in favour of the petitioners was invalid because the allottees were minors and that the company was entitled to repudiate the allotment. But even assuming that was so, we do not think the company was entitled to proceed to delete the names of the petitioners from its register of members, and rectify the register in respect of these 600 shares in favour of the deceased, Gordhanbhai, without approaching the proper court in that behalf, especially as the interest of the minors was involved. In our view the company was not, in law, justified in deleting the names of thee petitioners in the way it did and the omission of their names from the register of members is consequently without sufficient cause. We, therefore, decide thee first issue in favour of the petitioners in both these petitions.are not, however, prepared to impute notice about the action of the company to the minors on the basis of these facts. Nor are we prepared to accept the allegation made in the petition that the petitioners came to know about the cancellation of the allotment of the shares in the beginning of March, 1966. We are of the view that limitation would begin to run against the two petitioners from the date of their attaining majority, which in the case of Navinchandra, petitioner in petition No. 9 of 1966, would be on 23rd february, 1964, when he attained majority, and in the case of Prafulkumar, petitioner in petition No. 10 of 1966, limitation would begin to run against him from the date of his attaining majority which was on 20th January,Sha Mulchand and Co. v. Jawahar Mills Ltd. 1 (1) [1953] S. C. R. 351 ; 23 Comp. Cas. 1. the Supreme Court appears to have taken the view that article 181 of the Limitation Act of 1908 has to be construed as referring to applications under the Code of Civil Procedure in view of a long series of judicial decisions of different High Courts in India. The Supreme Court, however, did not pursue the matter further on he question of applicability of article 181 because it held that even if article 181 was to apply to the application for rectification in that case, it was within time. The Supreme Court, however, observed that if article 181 did not apply then the only article that could apply "by analogy" would be article 120, under which also the application in that case was within time. Now Shri Ramanathan contends that article 181 would not apply in view of the observations of the Supreme Court, and he proper article to apply would be article 120, and he relies in support of his arguments on the decision of the Madras High Court in the same case, Jawahar Mills Ltd. v. Sha Mulchand and Co. 1 (1) [1949] 19 Comp. Cas. 138. where rectification was sought on the ground that the forfeiture of shares by the company was illegal. Shri Ramanathan also relies on the observations of the Supreme Court in appeal from that decision, referred to earlier, that article 120 would apply to cases of rectifications "by analogy", if article 181 is not applicable. Shri Madon has suggested that the decision of the Madras High Court and of he Supreme Court might have been perhaps different if attention of the word "suit" under section 2 (10) of the Limitation Act of 1908, which provides that "suit does not include an appeal or an application. " It is difficult to say whether the attention of the Madras High Court was drawn to this definition of "suit" under the Limitation Act because it has stated that article 120 would apply "by analogy".