Case: Sha Mulchand &amp; Co. Ltd.(In Liquidation) Vs. Jawahar Mills Ltd

1) This appeal arises out of an application made by the Official Receiver representing Sha Mulchand and Company Ltd. (in liquidation) under S. 38, Companies Act, for rectification of the register of the Jawahar Mills Ltd.(2) Sha Mulchand and Company Ltd. (hereinafter referred to as "the Company") was incorporated in 1937 as a private limited company. At all material times it consisted of two members, T. V. T. Govindaraju Chettiar and K. N. Sundara Ayyar. The Jawahar Mills Ltd. (hereinafter called "the Mills") was also incorporated in 1937 with an authorised capital of Rs. 10,00,000 divided into one lac shares of Rs. 10.00 each. The Company was the managing agent of the Mills from its inception and applied for and was allotted 5000 ten-rupee shares Nos. 15048 to 20047 on which Rs. 5.00 per share had been paid. The Company continued to act as the managing agent of the Mills till the 30/06/1939 on which date it resigned the managing agency, Prior to the companys resignation the two members of the Company had entered into an agreement with one M. A. Palaniappa Chettiar, a partner of the incoming Managing agency firm, upon certain terms which need not be referred to in greater detail.(3) Within two months after the change of managing agents, the Mills made two calls, namely, one on 22/8/1939 for Rs. 2.00 per share payable on 1/10/1939 and the other on 1/10/1939 for Rs. 3 payable on 1/12/1939. The Company did not pay either of the calls. On 23/1/1940 Govindaraju Chettiar was adjudged insolvent on the application of Sundara Ayyar. This insolvency of Govindaraju Chettiar was eventually annulled inDuring this period Govindaraju Chettiar, in law, ceased to be a director of the Company, although it is alleged that he nevertheless continued to take part in the management of the Company.(4) By a resolution of the Board of Directors of the Mills passed on 12/8/1940 the new managing agents were empowered to give notices to such persons as had not paid the allotment money and the call money within the date fixed and to intimate them that in default their shares would be forfeited. A notice was issued on 16/9/1940 and two copies thereof are said to have been sent to Sundara Ayyar and Govindaraju Chettiar. No payment having been made, the 5,000 shares held by the Company were forfeited by a resolution of the Board of Directors of the Mills. The auditor of the Mills having pointed out that the purported forfeiture was irregular and illegal, this forfeiture was cancelled.(5) By a resolution passed by circulation on 25/2/1941, the Board of Directors of the Mills resolved that a notice be sent to the Company informing it that it was in arrears with calls to the extent of Rs. 25,000, that the amount must be paid on or before 31/3/1941 and that, in default, its shares would be forfeited. A notice dated 15/3/1941 was accordingly addressed to the Company an sent by registered post with acknowledgment due. It appears that the notice was actually posted on 17/3/1941 and was received by Govindaraju Chettiar onThe Company did not pay the arrears of calls. On 5/9/1941, the Board of Directors of the Mills resolved that "the 5000 shares Nos. 15048/20047 standing in the name of the Company have been forfeited." On 10/9/1941 the Mills wrote a letter to the Company informing the latter that the directors of the Mills had at their meeting held on 5/9/1941 forfeited the 5000 shares. There is no dispute that this letter which was sent by registered post was returned undelivered. On 1/10/1941 an entry was made in the share ledger of the Mills recording that the 5000 shares of the company had been forfeited. On 16/11/1941 these 5000 shares "were reallotted to 14 different persons and on 17/11/1941 a letter was sent to the company intimating that the forfeited shares had been reallotted and calling upon the Company to send back to the Mills all the documents relating to the original allotment of the 5000 shares to the Company. In the meantime on 26/8/1941 by an order made by the Registrar of the Joint Stock Companies the Company was struck off the register of companies under S 247, Companies Act. This order of the Registrar was published in the Official Gazette on 9/9/1941, i.e., four days after the shares were forfeited and one day before the notice intimating the fact of forfeiture was sent in a registered cover which was, however, returned undelivered. Under S. 247 (5), Companies Act, the company stood dissolved on and from the date of publication.(6) The Mills having come to know of the dissolution of the Company applied to the High Court (O. P. No. 10 of 1942) praying that the name of the company be restored to the register of companies and that after such restoration was duly advertised the company be wound up by the Court. A similar application was made on 11/12/1941 by the Income-tax authorities (O. P. No. 11 of 1942). On 23/2/1942 Sundara Ayyar filed an affidavit contending, amongst other things, that the Directors of the Mills had no power to forfeit the shares. On 2/4/1942, however O. P. No. 10 of 1942 was Compromised, and the Mills received Rs. 11,000.00 from Sundara Ayyar in full satisfaction of their claim against the Company. On 25/6/1942 O. P. No. 11 of 1942 was also compromised and Sundara Ayyar paid up the claim of the income-tax authorities. The two petitions for restoration of the Company were accordingly dropped.(7) On 27/6/1942 Sundara Ayyar filed a suit against the Mills and others including Palaniappa Chettiar claiming a declaration that the forfeiture by the Mills of the 5000 shares was illegal and inoperative and directing the Mills to pay to the plaintiff and the third defendant representing the estate of Govindaraju Chettiar the value of the forfeited shares with dividend or interest thereon and directing Palaniappa Chettiar to pay the plaintiff and the third defendant the sum of Rs. 25,000.00. This suit was dismissed on 17/11/1943 on the ground that Sundara Ayyar, who was only a member of the dissolved Company, had no locus standi and could have no relief personally. Sundara Ayyar filed an appeal therefrom which was dismissed as against the Mills but the case was remanded to the trial Court for the trial of his claim as against the fourth defendant, palaniappa Chettiar.(8) During the pendency of Sundara Ayyars appeal he on 12/8/1944 filed O. P. 199 of 1944 for the restoration of the Company. On that application an order was made on 16/2/1945 that the name of the Company be restored to the register of companies, that the Company be deemed to have continued in existence as if its name had never been Struck off, that such restoration be advertised and that the Company be wound up by the Court and the Official Receiver do forthwith take charge of the assets and liabilities of the Company. It was further ordered that the Official Receiver do recognise that as between the Mills and the company, the Mills should be regarded as having been duly paid only Rs. 11,000.00 out of the told debt of Rs. 25,550 due to the Mills. By an order made on 21/1/1946 leave was given to the Official Receiver to take appropriate steps regarding the 5000 shares purported to have been forfeited by the Mills. Accordingly on 5/3/1946 the Official Receiver, in the name of the Company, took out the present summons calling upon all parties concerned to show cause why the share register of the Mills should not be rectified by restoring the name of the Company to the said register in respect of 5000 shares numbering 15048/20047 and why such other alternative or consequential relief should not be granted to the applicant as might be just and necessary in the circumstances of the case.

Reasoning: 1. This long catena of decisions may well be said to have, as it were, added the words "under the Code" in the first column of that Article. If those words had actually been used in that column then a subsequent amendment of Articles 158 and 178 certainly would not have affected the meaning of that Article. If, however, as a result of judicial construction, those words have come to be read into the first column as if those words actually occurred therein, we are not of opinion, as at present advised, that the subsequent amendment of Articles 158 and 178 must necessarily and authomatically have the effect of altering the long acquired meaning of Art. 181 on the sole and simple ground that after the amendment the reason on which the old construction was founded is no longer available. We need not, however, on this occasion, pursue the matter further, for we are of the opinion that even if Article 181 does apply to the present application it may still be said to be within time. The period of limitation prescribed by that Article is three years from the time "when the right to apply accrues". It is true that a further notice after the shares are forfeited, is not necessary to complete the forfeiture of the shares but it is difficult to see how a person whose share is forfeited and whose name is struck out from the register can apply for rectification of the register until he comes to know of the forfeiture. The same terminus a quo is also prescribed in Article 120, Limitation Act. In - O.R.M.O.M.S.P. (Firm) v Nagappa Chettiar, ILR (1941) Mad 175 (PC) which was a suit to recover trust property from a person who had taken it, with notice of the trust, by a transaction which was a breach of trust, the Privy Council approved and applied the principles of the earlier Indian decisions referred to therein to the case before them and held that the time began to run under Art 120 after the plaintiff came to know of the transaction which gave him the right to sue. On the same reasoning we are prepared to extend that Principle to the present application under Article181. If Art. 181 applies then time began to run after the Company came to know of its right to due. It is not alleged that the Company had any knowledge of the forfeiture between 5/9/1941 when the resolution of forfeiture was passed and 9/9/1941 when the Company became defunct. After the last mentioned date and up to the 16/02/1945 the Company stood dissolved and no knowledge of notice can be imputed to the Company during this period. Therefore, the Company must be deemed to have come to know of its cause of action after it came to life again and the present application was certainly made well within three years after that event happened on 16/2/1945. If Article 181 does not apply then the only Article can apply by analogy is Art. 120 and the application is also within time. In either view this application cannot be thrown out as barred by limitation.