Case: Oriental Bank Of Commerce Ltd Vs. Shri Harcharan Das Loomba

fully paid-up shares and the company sets up some cause declining to carry out the conversion, the Tribunal is authorised to adjudicate whether the cause set up by the company is a cause reasonably justifying refusal to comply with the requisition.5. The respondent had called upon the Bank under s. 19 (2) to convert his partly paid-up shares into fully paid-up shares., but the Bank declined. to comply with the requisition. The first question falling to be determined is whether the order of the Company judge in the petition filed by the Bank under ss. 55, 56 and 57 of the Indian Companies Act for sanctioning reduction of capital is conclusive and binding upon the respondent so as to deprive him of his right to claim that his partly paid-up shares be converted into fully paid-up shares: The order of the Court under s. 60 of the Companies Act, 1913, sanctioning reduction would normally be binding upon all shareholders. But it must be noticed that s. 3 of Act 70 of 1951 invests, save as expressly provided in that Act, the provisions of the Act and of the rules and orders made thereunder with overriding effect notwithstanding anything contained in any other law for the time being in force or in any decree or order of a court, or in any contract between the parties. By s. 55 of the Indian Companies Act, 1913, a company limited by shares, if so authorised by its articles, may by special resolution sanctioned by the Court reduce its share capital, and the Court is authorised to make an order confirming the reduc- tion on such terms and conditions as it thinks fit. The Company judge did make an order sanctioning reduction of the capital on conditions relating to conversion of the share holding of displaced persons, but the order could not deprive a displaced person of the special statutory right granted under s. 19 of the Displaced Persons (Debts Adjustment) Act 70 of 1951. The Act has conferred a special right upon displaced persons to claim that their partly paid share holding be converted into fully paid shares : and this right may cease to be exercisable only if the Tribunal is satisfied that there is good cause for refusing conversion. It is not the refusal by the company to comply with the requisition, but the ad. judication by the Tribunal -which deprives the displaced person of his right to have his shares converted. Before the Company judge validity of the resolution for reduction of capital was challenged on the ground that it was passed-with a view to deprive the displaced persons of their right under s. 19, and it may be assumed that the Company judge having regard to the reasons recorded by him rejected that contention. But the order does not operate as res judicata, for the jurisdiction to decide whether there is good ground for refusing to grant the requisition for conversion by a displaced person is vested exclusively in the Tribunal and in no other body. It was open to any displaced person to avail himself of the option given by the order of the Company judge : if he elected to avail himself of the option he would be bound by his election. But a displaced person was not obliged to avail himself of the option, and if he did not, his right to call upon the Bank to grant him conversion was not affected by the order of the company judge. The order of the Company judge did not and could not amount to a decision binding all displaced shareholders. If a displaced person does not desire to avail himself of the option he will be entitled thereafter to apply under cl. (4) of s. 19. The order passed by the Company judge remains valid and binding but subject to such orders as the Tribunal may make in respect of any individual shareholder who makes an application under sub-s. (4) of s. 19. That is clear from the terms of cl. (5) which ensures the validity of the action taken by the Company or its board of directors in pursuance of the provisions of the Companies Act or of the memorandum or articles of association relating to the company, save as otherwise provided in s. 19. We agree therefore with the view of the Courts below that the Tribunal did not lose its jurisdiction to adjudicate upon the petition filed by the respondent, merely because the Company judge had given him and others similarly placed, an option which they could but were no obliged to elect.The second question which falls to be determined is whether the case shown by the Bank for refusing to convert the holding of the respondent into fully paid-up shares was good or sufficient. The Tribunal held that the resolution for reduction of capital was passed mala fide and with a view to deprive the displaced persons of their right to claim conversion of their partly paid-up shares. The Tribunal pointed out that even though the financial condition of the Bank was precarious for many years, the scheme of reduction of -capital was only evolved after the Parliament enacted Act 70 of 1951 as an expedient to nullify the statutory right of displaced shareholders. The High Court also held that all the assets of the Bank had not disappeared and in any event absence of assets was by its-elf not a sufficient ground for depriving a displaced person of his statutory right. The finding of the Tribunal which was confirmed by the High Court establishes that the cause set up by the Bank was not genuine; the resolution for reduction of capital was a device to which resort was had for nullifying the statutory protection granted to displaced persons. That conclusion is supported by evidence, and ought according to the practice of this Court, be regarded as binding. There was no other ground set up in support of the refusal by the Bank.6.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]The Tribunal held that the resolution for reduction of capital was passed mala fide and with a view to deprive the displaced persons of their right to claim conversion of their partly paid-up shares. The Tribunal pointed out that even though the financial condition of the Bank was precarious for many years, the scheme of reduction of -capital was only evolved after the Parliament enacted Act 70 of 1951 as an expedient to nullify the statutory right of displaced shareholders. The High Court also held that all the assets of the Bank had not disappeared and in any event absence of assets was by its-elf not a sufficient ground for depriving a displaced person of his statutory right. The finding of the Tribunal which was confirmed by the High Court establishes that the cause set up by the Bank was not genuine; the resolution for reduction of capital was a device to which resort was had for nullifying the statutory protection granted to displaced persons. That conclusion is supported by evidence, and ought according to the practice of this Court, be regarded as binding. There was no other ground set up in support of the refusal by theCompany judge did make an order sanctioning reduction of the capital on conditions relating to conversion of the share holding of displaced persons, but the order could not deprive a displaced person of the special statutory right granted under s. 19 of the Displaced Persons (Debts Adjustment) Act 70 of 1951. The Act has conferred a special right upon displaced persons to claim that their partly paid share holding be converted into fully paid shares : and this right may cease to be exercisable only if the Tribunal is satisfied that there is good cause for refusing conversion. It is not the refusal by the company to comply with the requisition, but the ad. judication by the Tribunal -which deprives the displaced person of his right to have his shares converted. Before the Company judge validity of the resolution for reduction of capital was challenged on the ground that it was passed-with a view to deprive the displaced persons of their right under s. 19, and it may be assumed that the Company judge having regard to the reasons recorded by him rejected that contention. But the order does not operate as res judicata, for the jurisdiction to decide whether there is good ground for refusing to grant the requisition for conversion by a displaced person is vested exclusively in the Tribunal and in no other body. It was open to any displaced person to avail himself of the option given by the order of the Company judge : if he elected to avail himself of the option he would be bound by his election. But a displaced person was not obliged to avail himself of the option, and if he did not, his right to call upon the Bank to grant him conversion was not affected by the order of the company judge. The order of the Company judge did not and could not amount to a decision binding all displaced shareholders. If a displaced person does not desire to avail himself of the option he will be entitled thereafter to apply under cl. (4) of s. 19. The order passed by the Company judge remains valid and binding but subject to such orders as the Tribunal may make in respect of any individual shareholder who makes an application under sub-s. (4) of s. 19. That is clear from the terms of cl. (5) which ensures the validity of the action taken by the Company or its board of directors in pursuance of the provisions of the Companies Act or of the memorandum or articles of association relating to the company, save as otherwise provided in s. 19. We agree therefore with the view of the Courts below that the Tribunal did not lose its jurisdiction to adjudicate upon the petition filed by the respondent, merely because the Company judge had given him and others similarly placed, an option which they could but were no obliged to elect.