Company Law Board
K.B. Madhavan vs Federal Bank Limited on 21 July, 2006
Equivalent citations: [2007]135COMPCAS234(CLB), [2007]74SCL308(CLB)
ORDER
K.K. Balu, Vice-Chairman
1. This company petition is filed under Section 111A of the Companies Act, 1956 ("the Act") seeking rectification of the register of members of M/s. Federal Bank Limited ("the Company") in respect of 1167 partly paid up shares bearing Folio No. 13410 covered under certificate Nos. 139670 to 139683, by restoring the name of the petitioner for the reasons set out therein.
2. According to Mr. P.P. Zibi Jose, learned Practising Company Secretary, the petitioner being a non-resident Indian has been staying in Dubai for the last 26 years as borne out by a certificate dated 24.04.2006 issued by Tripunithura Branch of the Company. The petitioner has been holding 1167 partly paid up shares of the Company, in respect of which no call notice was received by him to remit any balance unpaid amount. However, the petitioner during his recent visit to India came across a final notice of forfeiture of shares dated 13.11.2004 at his residence and thereafter on enquiries with the Company, he was advised that the impugned shares were forfeited for the alleged non payment of the call money. The Company has not given any opportunity to meet the demand towards the arrears due on calls. The forfeiture of shares was not in compliance with the relevant articles of association of the Company. The postal acknowledgement produced by the Company evidencing service of the final notice on the representative of the petitioner clearly indicates that the notice was forwarded by M/s. Integrated Enterprises (India) Ltd. which is un-connected with the forfeiture of shares. The unpaid call money in respect of the partly paid up shares became due as early as in August 1996, but the shares were forfeited after a delay of more than 8 years. This belated forfeiture of shares would reveal the negligence on the part of the Company. Further, the interest amount claimed on the unpaid amount as per the notice dated 13.11.2004 is excessive and incorrect. Therefore, the forfeiture is illegal and liable to be set aside. Mr. P.P. Zibi Jose in support of his legal contentions relied on the following decisions:
• Public Passenger Service Ltd. Chidambaram v. M.A. Khadar and Anr. to show that proper notice is a condition precedent to forfeiture of shares. Any slight defect in the notice invalidates it and is fatal to the forfeiture. Such forfeiture is invalid.
• Mrs. Promila Bansal v. Wearwell Cycle Co. (India) Ltd. (1978)Vol.48 CC 202 to show that when a notice of forfeiture comes back unserved, it cannot be deemed to be sufficient service of notice on the addressee and that this is no service at all, thereby invalidating the forfeiture.
• Bhagawandas Gard v. Canara Bank Ltd. (1981)Vol.51 CC 38 to show that service of notice is condition precedent to be fulfilled by the Company before forfeiture of the shares and any irregularity committed in the service of such a notice is fatal to the validity of the forfeiture.
• Balwant v. The Ceramic Industries Ltd. Chanda (1950)Vol.20 CC 55 to show that when forfeiture is made invalidly and without proper basis such forfeiture is invalid.
3. Miss P.R. Vandana, learned Counsel appearing for the Company submitted:
• The Company had allotted 1167 partly paid up equity shares in favour of the petitioner. The last date for payment of first and final call money without interest was 31.07.1996 which was extended to 31.08.1996. Call notices were sent individually to all the shareholders of partly paid up shares including the petitioner at the time of making first and final call in the year 1996, which was followed by a public notice caused in the local newspaper dated 3 1.07.1996. The petitioner failed to remit the call money on his equity shares amounting to Rs. 1,18,800/- together with interest for the delayed period, upon which the Company had issued the final notice of forfeiture to the petitioner on 13.11.2004. The final notice was served on the authorised signatory of the petitioner as early as on 17.11.2004 in terms of the postal acknowledgement on record. The petitioner having failed to pay the balance amount within 14 days as per the demand, his 1167 shares came to be forfeited. Thus, the shares were forfeited in accordance with the letter of offer, articles of association and the relevant provisions of the Companies Act and SEB1 Guidelines. After forfeiture of shares, no further notice is necessary to complete the forfeiture as held in Sha Mulchand and Co. v. Jawahar Mills Ltd. (1953)Vol. 23 CC 1. Furthermore, the petition has been filed only on 08.06.2005, beyond two months from the date of forfeiture of shares as specified in Section 111 A(3) and therefore the petition is barred by limitation. In Col. Gurnan Singh Gujral and Anr. v. Indian Hotels Company Ltd. 2002 (112) CC 86, it has been held "that the petition filed by the petitioners two years after the date of rectification of the register by restoring the name of the rightful owner, as against the time limit of two months prescribed under Section 111 A of the Act, was barred by limitation."In Sha Mulchand & Co.Ltd. v. Jawahar Mills Ltd. (supra) it has been held that a person whose shares have been forfeited may maintain a challenge against the forfeiture provided that (1) the right to challenge the forfeiture is not abandoned; and (2) the plea for rectification of the register of members is made within the period of limitation. Consequently, the petitioner is not entitled to any bonus shares on the forfeited shares.
• All communications were sent to the address to which the notice of forfeiture was sent which shall include dividend warrants for the past several years in respect of the fully and partly paid up shares. The petitioner had encashed all dividend warrants including the pro-rata dividend on the partly paid shares issued since 1966 onwards without any complaint. Therefore, there is no irregularity in having sent the final notice to the address of the petitioner as appearing in the register of members of the Company. The petitioner's own admission in the petition that he found the notice dated 13.11.2004 during his visit to India is sufficient proof for establishing service of notice in terms of the articles. The petitioner never intimated the change of address for the purpose of correspondence and therefore the Company was compelled to send the final notice to the petitioners' registered address, which is in conformity with law.
• The letter of offer dated 23.12.1995 specifies that in case of default in payment of call money after the last appointed date for such payment the same has to be paid with interest at 18% per annum from the last appointed date till the actual payment made by the allottees. The petitioner having accepted and agreed to all the terms and conditions of the letter of offer is bound to pay interest during the default period at the rate of 18 per cent per annum and cannot now take a different stand that interest is too high.
• The notice proposing forfeiture of shares sent by registered post in the case of Mrs. Promila Bansul v. Wearwell Cycle Co. (India) Ltd.(Supra) was returned unserved by the postal authorities with the endorsement "addressee not traceable", unlike in the present case. In the case of Bhagavandas Garg v. Canara Bank (supra), there was no proof of service of notice of forfeiture and whereas in the present petition, there is ample evidence regarding service of notice of forfeiture on the petitioner. The proposition laid down in Public Passenger Service Ltd. v. M.A. Khader (Supra) that it is necessary to establish that forfeiture of shares is according to the provisions contained in the articles of association, which requirement has been sufficiently met by the Company in the present case.
• The petitioner kept quite for eight years without paying the call money and interest even after receipt of the call notice and therefore, he cannot get any redressal of his wilful negligence on the ground of technical flaw on the part of the Company as held in L.K Pandey and Ors. v. Bank of Baroda and Ors. (2005)2 Vol.5 DRTC 696
4. I have considered the arguments - oral and written advanced for the parties. The submissions made in the written arguments but not advanced at the time of oral submissions have not been considered. The issue before me is whether the impugned shares have been lawfully forfeited, as claimed by the Company. A close scrutiny of the available records reveals that the petitioner was allotted 1167 partly paid up equity shares which are covered under Folio No. 13410, in terms of the letter of offer dated 23.12.1995 governing the issue of equity shares opened on 18.01.1996 on a rights basis to the existing equity shareholders of the Company. It is not under dispute that an amount of Rs. 1,18,800/- being the balance payable by the petitioner on his partly paid up equity shares remained unpaid, at the time of forfeiture of the share. While the Company claims that necessary notice in accordance with the relevant articles has been duly served upon the petitioner, before forfeiture, the petitioner stoutly denies service of any such notice on him, apart from disputing the quantum of interest purportedly claimed on the final call money by the Company. The petitioner is bound by the terms and conditions forming part of the letter of offer dated 23.12.1995 and shall accordingly pay interest on the outstanding amount payable by him. The letter of offer provides that Failure to pay the amount due on allotment/calls on or before the last dateappointed for payment of the allotment/call money or such extended date as the Board may in its sole and absolute discretion determine, shall render the allottee(s) liable to par interest a 18% per annum on the amount outstanding from the last date appointed for payment of allotment/call money to the date of actual payment....."[Clause III(d)]. In view of this specific stipulation to pay interest at the rate of 18% per annum, the grievance of the petitioner that the interest as claimed in the final notice of forfeiture dated 13.11.2004 is arbitrary, unfair and illegal is illconceived. The claim that the impugned shares are not lawfully forfeited has to be considered in the light of the provisions contained in the relevant articles of association of the Company. Articles 16(2), 23 and 24 provide as follows:
16(2) Each member shall subject to receiving atleast 14 days notice specifying the time or times and place of payment, pay to the Bank at the time or times and place so specified, the amount called on his shares.
23.If a member fails to pay any call, or instalment of a call, on the day appointed for payment thereof, the Board may, at any time thereafter during such time as any part of the call or instalment remains unpaid, serve notice on him requiring payment of amounts of the call or instalment as is unpaid, together with any interest which may have accrued.
24.The notice aforesaid shall (a) name a further day (not being earlier than the expiry of fourteen days from the date of service of notice) on or before which the payment required by notice is to be made, and (b) state that in the event of non-payment on or before the day so named, the shares in respect of which the call was made will be liable to be forfeited.
It is the fundamental requirements of the articles (23 & 24) that the Company shall serve notice on a defaulting member requiring payment of amounts of the unpaid call money together with any interest which may have accrued before expiry of 14 days from the date of service of such notice and before forfeiting the shares in respect of which the call was made by the Company. The Courts have unequivocally pronounced that proper notice is a condition precedent to the forfeiture, and even the slightest defect in the notice will invalidate the forfeiture and that the power of forfeiture must be exercised strictly having regard to the rules and regulations. It is observed from the company petition that the petitioner "very recently on a visit to India ...found to his surprise to see a letter from the Bank dated 13.11.2004...... and on further enquiries with the registered office of the Federal Bank Ltd. it was advised orally that the 1167 shares have already been forfeited and therefore the Bonus shares were also not issued to the petitioner. The letter dated 13.11.2004 has been indisputably sent to the residential address of the petitioner, as entered in the register of members of the Company. It is made clear that if the petitioner does not remit the balance unpaid amount together with the interest within 14 days, the shares allotted shall be treated as forfeited. The petitioner claims that he has been residing in Dubai for the past several years. However, there is no material to show that the petitioner has notified any change in his address for communication by the Company. It is evident from the fact that the petitioner had encashed dividend warrants dated 10.09.2002, 13.09.2003 and 19.10.2004 in respect of partly paid up shares which were reportedly sent to the petitioner at his address registered with the Company. This aspect has not been denied in the course of arguments advanced on behalf of the petitioner. It is observed from the postal acknowledgement produced by the Company that the final notice dated 13.11.2004 calling upon the petitioner to pay the balance call money was served on his authorised representative on 17.11.2004 and further that the notice of forfeiture was sent by M/s.Integrated Enterprises (India) Ltd., being the share transfer agent of the Company, as borne out by the agreement entered into between the share transfer agent and the Company which is on record. The plea raised in the rejoinder that "if the notice proposing the forfeiture of shares sent by post is not served, the Company should take steps to ascertain correct address of the shareholders before deciding to forfeit shares "......(para.4) will not hold good in the light of due service of the notice of forfeiture on the petitioner. Therefore, the plea of the petitioner that no notice has been sent by the Company before the forfeiture of shares does not merit any consideration. Moreover, service of the notice has not been denied by the petitioner. His only grievance is that no notice has been sent to his present address at Dubai. The letter of offer stipulates, inter alia, that any change in the address must be indicated to the Company. Though it has been specifically pleaded in the rejoinder that "Since the petitioner has been staying in Dubai, the same was intimated to the Respondent Bank" (Para 4 in page 2), yet there is no material to show that such intimation has been caused upon the Company. While the petitioner has not choosen to notify the change in his address and prepared to receive other communications including dividend warrants at the place of his registered address, it is not open to him at this stage to take a stand that the notice ought to have been sent to his address at Dubai. By virtue of Section 53(1) a document may be served by a company on any member either personally or by sending it by post 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 notice to him. It is relevant to observe that the forfeiture notice dated 13.11.2004 was sent to the petitioners' registered address and thus the notice is found to be in consonance with the provisions of Section 53(1). In this background of circumstances, the petitioner cannot have any grievance on account of the notice having been sent to the petitioners' registered address and therefore, the decisions cited by the petitioner are not applicable to the facts of the present case, especially when it is found that the notice of forfeiture in the present case was served upon the petitioner in due compliance with Articles 23 & 24 and as required under Section 53(1) of the Act and further that the petitioner had failed to make any payment in terms of the demand made by the Company, leading to forfeiture of shares in accordance with law. As a result, the petitioner is in no way entitled to any bonus shares on the forfeited shares. The fact that the shares have been forfeited after eight years does not invalidate the forfeiture which has been made lawfully. At this stage there is no need, to my mind, to go into the question whether the petition is barred by limitation. In view of the foregoing conclusions, the claim for rectification of the register of members must fail. Accordingly the company petition is dismissed. No order has to be passed.