Case: Sri Gopal Jalan &amp; Company Vs. Calcutta Stock Exchangeassociation Ltd

unit of issued capital continued to exist and was kept in suspense until another shareholder was found for it : see Naresh Chandra Sanyal v. Ramani Kanta, ILR (1945) 2 Cal 105 : (AIR 1949 Cal 360 ). We have to examine the present case on this basis.10.If, therefore, the shares which the Company forfeited have to be considered as shares already created and as continuing in existence as such inspite of the forfeiture, obviously they could not be allotted in the sense in which that word is understood in the Company law as we have earlier stated. In Morrison v. Trustees etc. Insurance Corporation, (1899) 68 LJ Ch 11 the articles of the Company gave power to forfeit shares for non-payment of calls and further provided that "any share so forfeited shall be deemed to be the property of the Company and the directors may sell, reallot or otherwise dispose of the same in such manner as they think fit." It was held that the Company could reissue the forfeited shares giving credit for the money already received in respect of them. The contention that the transaction amounted to the issue of a share at a discount was rejected. Vaughan-Williams L. J. observed, "I do not like the use of the word issue with reference to the transaction with regard to these shares. If they were being issued, the argument for the appellant might possibly be right; but they are not being issued. When we look at the articles we see that what takes place on a forfeiture of shares is that the power of transferring them passes from the original shareholders to the company and the Company can then transfer the shares subject to the same rights and liabilities as if they had not been forfeited." To the same effect are the observations of Bacon V. C. in In re, Exchange Banking Co. Ltd., Ramwells case (1881) 50 LJ 827. Quite clearly, the view well accepted in company Courts has been that issue of the forfeited shares was not allotment of them but only a sale. If it were not so, the forfeiture itself would be in valid as involving an illegal reduction of capital. If the re-issue of a forfeited share is only its sale, then it is not an allotment and that being so, no question of filing any return in respect of such re-issue arises.11. It remains now to deal with sub-s. (5) of S. 75. That does create a difficulty. It provides that no return need be filed in respect of allotment of shares forfeited for non-payment of calls. It gives rise to an argument that the Act contemplates an "allotment" of shares forfeited for non-payment of calls for otherwise it would not be necessary to provide that returns in respect of such allotment need not be field. It is said that that being so, the word "allotment" in S. 75(1) should be understood as including the issue of shares forfeited for other reasons, for there is no reason to make any distinction between shares forfeited for non-payment of calls and those forfeited for other reasons in the present context. This argument is no doubt legitimate. But having given it our best consideration; we have come to the conclusion that it should be rejected. We think that sub-sec. (5)owes its origin to a confusion of ideas. Apart from it, all other provisions of the Act clearly contemplate by allotment the creation of shares out of the authorized and unappropriated capital of the Company and not re-issue of shares already created by allotment in the manner aforesaid but subsequently forfeited. There would be no justification for altering the meaning of that word in any other part of the Act because of the solitary provision occurring in sub-s (5)of S. 75.The Companies Act in force before Act of 1956 was the Act of 1913. Section 104 (1) of that Act corresponded to S. 75 (1) of the present Act. In 1936 there were large amendments made in the 1913 Act. Prior to these amendments there was no provision in S. 104 of the Act of 1913 corresponding to sub-s. (5) of S. 75 of the present Act. Therefore, up to 1936 there was no reason to contend that the word" allotment" in S. 104 (1) could at all include the re-issue of a forfeited share. The 1936 amendment added sub-s. (4) to S. 104 and that sub-section contained provision similar to sub-s. (5) of S. 75 of the present Act. We do not think that it could be legitimately contended that by the amendment of 1936 the meaning of the word "allotment" in S. 104(1) was altered. That being so, the word "allotment" in S. 75 (1) must be understood without reference to sub-s. (5), in the same way as that word in S. 104(1) had to be understood without reference to sub-s. (4) of that section. It is safer to read sub-s. (5) of S. 75 as having been enacted ex abundanti cautela, that is to say, to prevent any argument being raised that a return has to be filed of the re-issued shares forfeited for non-payment of calls. We also agree with the view expressed in the High Court that the reason why only forfeiture for non-payment of calls was mentioned in S. 104 (4) of the Act of 1913 and S. 75 (5) of the present Act is that there has always been a great deal of doubt, as will appear from the difference of opinion in the Calcutta High Court to which we have earlier referred, as to whether there can be any forfeiture of shares except for non-payment of calls which latter case had been expressly provided for by the statute. The other cases of forfeiture had apparently not been mentioned because if they had been it could have been legitimately argued that the legislature considered such forfeiture valid and the legislature did not want to give support to that argument.

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

Explanation:
0[ds]Nothing in this section shall apply to the issue and allotment by a company of shares which under the provisions of its articles were forfeited for non-payment of calls.We agree with the learned Judges of the High court that a re-issue of a forfeited share is not an allotment of share within S. 75 (1). The Word "allotment" has not been defined in the Companies Act either in our country or in England. But we think that the meaning of that word is well understood and no decision has been brought to our notice to indicate that any doubt has ever been entertained as to it.It is beyond doubt from the authorities to which we have earlier referred, and there are many more which could be cited to show the same position, that in Company law allotment means the appropriation out of the previously unappropriated capital of a company, of a certain number of shares to a person. Till such allotment the shares do not exist as such. It is on allotment in this sense that the shares come into existence. Learned counsel for the appellant has not been able to cite any case where the word allotment has been used to describe a transaction with regard to an existing share, that is , a share previously brought into existence by appropriation to a person out of the authorised capital. In every case the words allotment of shares have been used to indicate the creation of shares by appropriation out of the unappropriated share capital to a particular person. We find no reason why the word allotment in S. 75 should have a different sense. It is said that sub-sec. (5) of S. 75 furnishes such awill deal with that argument later. Our attention has not been drawn to any other provision in our Companies Act which would support the contention that the Act includes within the word allotment a transaction with a share after it has been first created by appropriation out of the authorised share capital to a particular individual. As the learned Judges of the High Court pointed out, S. 75 occurs in Part III of the Act which deals with "Prospectus And Allotment. And Other Matters Relating To Issue Of Shares Or Debentures". Sections 69 to 75 are classed under the sub-heading Allotment and the only kind of allotment that is dealt with in these sections is the appropriation of shares to individuals out of the unappropriated share capital of the company. In these circumstances it would be impossible to give to the word allotment in S. 75(1) a differentthe present case both sides proceeded on the basis that the articles of the Company dealing with forfeiture of shares which we have earlier set out are valid articles. In other words, it has not been disputed that the Company may validly forfeit shares in terms of these articles. We accept that basis and proceed on the assumption that it isclearly, the view well accepted in company Courts has been that issue of the forfeited shares was not allotment of them but only a sale. If it were not so, the forfeiture itself would be in valid as involving an illegal reduction of capital. If the re-issue of a forfeited share is only its sale, then it is not an allotment and that being so, no question of filing any return in respect of such re-issueargument is no doubt legitimate. But having given it our best consideration; we have come to the conclusion that it should be rejected. We think that sub-sec. (5)owes its origin to a confusion of ideas. Apart from it, all other provisions of the Act clearly contemplate by allotment the creation of shares out of the authorized and unappropriated capital of the Company and not re-issue of shares already created by allotment in the manner aforesaid but subsequently forfeited. There would be no justification for altering the meaning of that word in any other part of the Act because of the solitary provision occurring in sub-s (5)of S. 75.The Companies Act in force before Act of 1956 was the Act of 1913. Section 104 (1) of that Act corresponded to S. 75 (1) of the present Act. In 1936 there were large amendments made in the 1913 Act. Prior to these amendments there was no provision in S. 104 of the Act of 1913 corresponding to sub-s. (5) of S. 75 of the present Act. Therefore, up to 1936 there was no reason to contend that the word" allotment" in S. 104 (1) could at all include the re-issue of a forfeited share. The 1936 amendment added sub-s. (4) to S. 104 and that sub-section contained provision similar to sub-s. (5) of S. 75 of the present Act. We do not think that it could be legitimately contended that by the amendment of 1936 the meaning of the word "allotment" in S. 104(1) was altered. That being so, the word "allotment" in S. 75 (1) must be understood without reference to sub-s. (5), in the same way as that word in S. 104(1) had to be understood without reference to sub-s. (4) of that section. It is safer to read sub-s. (5) of S. 75 as having been enacted ex abundanti cautela, that is to say, to prevent any argument being raised that a return has to be filed of the re-issued shares forfeited for non-payment of calls. We also agree with the view expressed in the High Court that the reason why only forfeiture for non-payment of calls was mentioned in S. 104 (4) of the Act of 1913 and S. 75 (5) of the present Act is that there has always been a great deal of doubt, as will appear from the difference of opinion in the Calcutta High Court to which we have earlier referred, as to whether there can be any forfeiture of shares except for non-payment of calls which latter case had been expressly provided for by the statute. The other cases of forfeiture had apparently not been mentioned because if they had been it could have been legitimately argued that the legislature considered such forfeiture valid and the legislature did not want to give support to that argument.