Punjab-Haryana High Court
Col. Kuldip Singh Dhillon And Ors. vs Paragaon Utility Financiers (P.) Ltd. ... on 8 May, 1984
JUDGMENT Rajendra Nath Mittal, J.
1. Paragaon Utility Financiers (P.) Limited (hereinafter referred to as " the company ") was incorporated on August 21, 1961, under the provisions of the Companies Act (hereinafter referred to as "the Act"). The registered office of the company is situated at Jullundur. Its authorised capital is ten lakhs divided into 1,000 equity shares of Rs. 1,000 each. The called capital out of the authorised capital is Rs. 8,50,000 and the paid up and subscribed capital is Rs. 7,91,000. The calls in arrears amount to Rs. 59,000. Col. Kuldip Singh Dhillon and 6 other shareholders of the company filed an application under sections 397 and 398 of the Act. Smt. Rattan Kaur and Col. P. S. Dhillon claiming themselves as the director and the managing director respectively of the company sought to defend the petition on behalf of the company. They are represented by Mr. J. S. Narang, advocate. Ramesh Inder Singh, respondent No. 4, claims himself to be a director and authorised by the board of directors headed by Dr. Vikram Singh to contest the petition. He is represented by Mr. N. K. Sodhi, advocate. Thus, two sets of parties, i.e.. Col. P.S. Dhillon and Smt. Rattan Kaur on the one hand and Ramesh Inder Singh on the other claim to be authorised by two different boards of directors to contest the petition.
2. The question arises whether Col. P. S. Dhillon and Smt. Rattan Kaur or Rttmesh Inder Singh should be allowed to defend the petition on behalf of the company. Ramesh Inder Singh filed a Civil Miscellaneous Petition No. 158 of 1983, stating that the management of the company vests in the hoard of directors headed by Dr. Vikram Singh as managing director and that Col. P. S. Dhillon and Smt. Rattan Kaur have nothing to do with the affairs of the company. He has annexed 20 affidavits of the shareholders of the company alleged to be holding 625 shares of Rs. 1,000 each. He has prayed that affidavits be read for determining the issue. Reply to the application has been filed on behalf of Smt. Rattan Kaur.
3. In order to determine the issue, a few other facts are required to be stated. Col. P. S. Dhillon was admittedly elected as the managing director of the company and continued to be so up to April 20, 1982. The case of Col. P. S. Dhillon is that the board of directors held a meeting on November 7, 1981, in which it was decided that ten per cent, of the nominal value of each share be called and the same be paid by the shareholders on or before January 5, 1982. In pursuance of the decision, letters were posted to the shareholders to pay the call money. Most of the shareholders supporting Dr. Vikram Singh did not pay the call money. The matter was taken up again in the meeting of the board of directors on August 7, 1983, and it was decided that notice be issued to the defaulter-shareholders stating that if they failed to make the payment in respect of the call money on or before September 2, 1983, their shares shall be liable to be forfeited. In pursuance of the notice, ten out of the total number of defaulter-shareholders came forward and made payment in respect of the call money and the rest of the defaulter-shareholders neither asked for any extension nor made the payment. The matter in respect of the arrears of the call money was again discussed in the meeting of the board of directors on September 9, 1983, and it was decided that if any shareholder had not made the payment till that date, his share be forfeited and consequently the shares of the following shareholders stood forfeited :
1. S. Pavltar Singh
2. Ramesh Inder Singh
3. Ravinder Singh
4. Smt. Nasib Kaur
5. Dr. Vikram Singh
6. Mrs, Gurbax Kaur
7. Mrs. Inderjit Kaur
8. Mrs. Bhagya Vikram
9. S. Gurcharan Singh s/o Atma Singh
10. Mrs. Prem Piari
11. S. Mohan Singh
12. Smt. Gurmej Kaur w/o S. Mohan Singh
13. Smt. Gurcharan Kaur
14. S. Swaran Singh and
15. Mohan Singh
4. It is alleged that out of the above defaulter-shareholders, some of them were posing themselves to be shareholders and directors of the company.
5. The case of Ramesh Inder Singh and his party is that some shareholders gave a requisition on January 25, 1982, to Col. P. S. Dhillon, that an extraordinary general meeting be requisitioned for removal of Col. P. S. Dhillon and the board of directors and appointment of another managing director and board of directors. Col. P. S. Dhillon did not requisition the meeting within the period of 21 days. Consequently, the requisitionists called the meeting for April 21, 1982, on March 22, 1982. In the meeting, all the resolutions were passed unanimously and were recorded in another set of books as Col. P. S. Dhillon did not hand over the books to them. In the meeting. Dr. Vikram Singh was appointed as the director-cum-managing director and Mrs. Bhagya Vikram, Smt. Nasib Kaur, Niranjan Singh Domeli, Gurcharan Singh, Ramesh Inder Singh, Ravinder Singh, Swaran Singh, Amar Singh, Avtar Singh, Bir Singh and Rajinder Singh Johl were appointed as directors of the company. It is further stated that they did not receive any notice for depositing the call money in pursuance of the alleged meeting dated November 7, 1981. The party represented by Ramesh Inder Singh claims that Dr. Vikram Singh and the abovesaid persons were duly elected as directors in the meeting on April 21, 1982, and, therefore, he could represent the company.
6. In order to determine the aforesaid question, the pivotal point to be decided is whether the meeting dated April 21, 1982, was a validly convened meeting or not and the shareholders who attended the meeting had the right to vote. The contention of Mr. Narang is that in case any sum is payable by a shareholder to the company and he has not paid the same, he has no right of voting in a meeting. He submits that after the meeting of November 7, 1981, notice for call money was served upon all the shareholders and those who did not pay the call money had no right of voting in the meeting held on April 2), 1982. According to him, the majority of the shareholders who attended the meeting on that date had not paid the call money and, therefore, they could not elect the managing director and other directors. On the other hand, Mr. Sodhi has argued that no meeting of the board of directors was held on November 7, 1981, and no notices in pursuance of the alleged meeting were issued to the shareholder. He further submits that, therefore, it cannot be held that any money was due to the company and thus the meeting held on April 21, 1982, was a valid meeting.
7. I have given due consideration to the arguments of learned counsel. The first matter to be determined is whether any meeting took place on November 7, 1981, or not. It is not disputed that up to April 20, 1982, Col. P. S. Dhillon was the managing director of the company and the old board of directors was continuing. Col. Dhillon has produced the register containing the minutes of the meeting of the board of directors dated November 7, 1981. The meeting was attended by ten directors whereas the quorum for the meeting was six. The directors who attended the meeting were Niranjan Singh Dotneli, Col. P. S. Dhillon, Puran Singh, Bir Singh Johl, Ravinder Kaur, Col. K. S. Dhillon, Smt. Inder Kaur, Didar Singh, Puran Chand and Hardev Singh Minhas. Niranjan Singh Domeli was in the chair. The original proceedings book contains the signatures of all the directors present at the meeting. At the conclusion of the minutes, Niranjan Singh Domeli signed the register on the same date. One of the proposed resolutions was to consider further call on shares. The resolution which was passed by the board of directors reads as follows:
" Resolved unanimously that a fourth call on shares of the company be and is hereby made at 10% of the nominal value of each share, i.e., Rs. 100 per share, to be paid before 5-1-82. "
8. Niranjan Singh Domeli, Bir Singh Johl and Smt. Inder Kaur, who were present in the meeting dated November 7, 1981, and passed the above resolution, are also amongst the requisttionists for calling a meeting on March 22, 1982, for April 21, 1982. Out of them, Niranjan Singh Domeli and Bir Singh Johl were elected as directors on that date, i.e., on April 21, 1982. It has not been denied by them that they were present in the meeting on November 7, 1981. Their presence in the meeting dated November 7, 1981, proves beyond a shadow of doubt that that meeting was held and the resolution reproduced above was passed therein. I, therefore, do not find any substance in the contention of Mr. Sodhi that in fact no meeting was held on November 7, 1981, and false entries have been made in the proceedings book.
9. Now, it is to be seen whether notices were sent to the shareholders in pursuance of the resolution dated November 7, 1981, Col. P. S. Dhillon produced the despatch register in the court along with the photostat copy of the relevant entries. The relevant entires regarding despatch of the letter calling the share money are contained in the register at serial Nos. 250 to 289. A copy of the letter is also annexed to the register which reads as follows:
" * * * * Ref. No./PUF/250 to 289 Dated : 20-11-81. All shareholders Call on shares
In the meeting of the board of directors held on 7-11-81, it has been resolved that a further call of 10% (Rs. 100) per share be made, to be paid on or before 5-1-82.
2. You are accordingly called upon to pay the above call in this office by the clue date.
* * * * *
10. The register continues till date. The last entry in the register is dated March 27, 1984. From the register it is evident that the letters were despatched by the company to the shareholders. Section 53 deals with service of documents on members by a company. Sub-section (I), inter alia, provides that a document may be served by a company on any member thereof either personally, or by sending it by post to him to his registered address. Sub-section (2)(a) says that where a document is sent by post, service thereof shall be deemed to be effected by properly addressing, prepaying and posting a letter containing the document, A proviso had been added to the sub-section saying that where a member has intimated to the company in advance that documents should be sent to him under a certificate of posting or by registered post with or without acknowledgment due and has deposited with the company a sum sufficient to defray the expenses of doing so, service of the document shall not be deemed to be effected unless it is sent in the manuer intimated by the member.
11. From a reading of the above sub-sections, it is clear that if a letter is posted to a shareholder on his registered address by affixing the requisite postal stamps, the service shall be deemed to have been effected on him, unless he had issued instructions to the company that he should be served after obtaining a certificate of posting or under registered cover and provided funds for that purpose. It has not been shown that any instructions had been issued and funds were provided by the requisitionists for sending letters to them after obtaining certificate of posting or under registered covers. I am, therefore, of the opinion that the company complied with the provisions of law in sending the notices to the shareholders. It is further relevant to mention that in pursuance of the notice dated November 20, 1981, Niranjan Singh Domeli, Smt. Inder Kaur and Smt. Pritam Kaur wives of Niranj in Singh D )meli, Smt. Vaneet, daughter of Niranjan Singh Domeli, Raghuvinder Singh, Bir Singh Johl, Col. P. S. Dhillon, Smt Kir-pal Kaur, Smt. Gurmej Kaur, Smt. Rattan Kaur, Hardev Singh Minhas, Puran Singh, Didar Singh, Col. K. S. Dhitlon and K. Gurdev Singh paid the call money. Since notices were not received, it was not possible for Smt. Vaneet, Raghuvinder Singh, Smt. Kirpal Kaur, Smt. Gurmej Kaur, Smt. Rattan Kaur and K. Gurdev Singh to pay the call money as they were not present in the meeting of the board of directors.
12. Faced with that situation, Mr. Sodhi argued that the requisitionists stated on affidavit that they did not come to know about the resolution nor did they receive any letter dated November 20, 1981 and, therefore, it cannot be held that they came to know of the resolution. He tried to support his argument by making a reference to this court's decision in Escorts Ltd. v. Industrial Tribunal, Haryana [1983] Lab 1C 223. I am not impressed with the, submission of learned counsel. In view of the provisions of the Companies Act, it cannot be held that the mode in which the service was effected was not a proper mode of service. M/s. Escorts Ltd.'s case, referred to by learned counsel, is under the Industrial Disputes Act. There is no such provision in the Industrial Disputes Act as contained in Section 53 of the Companies Act. That case is thus distinguishable and the observations therein are of no assistance to learned counsel.
13. Mr. Sodhi next argued that the notice dated November 20, 1981, did not contain all the particulars, namely, the exact amount, the place of payment, and interest, if any, and unless these were provided, the notice was bad and the shares could not be forfeited. To support his contention, he made reference to Public Passenger Service Ltd. v. M. A. Khader, AIR 1962 Mad 276, Public Passenger Service Ltd. v. M. A. Khadar, [1966] 36 Comp Cas 1; AIR 1966 SC 489 and Karachi Oil Products Ltd. v. Kumar Shree Narendrasinghji, [1948] 28 Comp Cas 215 ; AIR 1950 Bom 149.
14. I have duly considered the argument of learned counsel. The question to be decided at this stage is not the one whether the shares of the requisitionists are to be forfeited or not. The question is whether prima facie they had the right to requisition the meeting and to vote therein. This question is required to be determined for the purpose of deciding whether the board of directors headed by Dr. Vikram Singh should be allowed to defend the petition under sections 397 and 398 of the Act. In my view, the point raised by Mr. Sodhi has no relevance for the purpose of deciding the aforesaid question. In Public Passenger Service Lid.'s case, it is observed by the Madras High Court that when the company forfeited the shares, the shareholder whose shares are forfeited ceases to be a member of the company. He loses the privileges and rights of the membership. The money he paid on the shares is irrecoverable. But, on the other hand, he continues to remain liable to pay to the company the moneys which are due and payable by him on the date of forfeiture in respect of his shares and he becomes a debtor qua the company. Forfeiture, being a penalty and sometimes a very severe one, the greatest care should be taken to comply strictly with all the provisions relating to it in the articles. It is further observed that any irregularity in the procedure or any departure from the rules laid down, however slight, will, as against the company, invalidate the forfeiture. An appeal against the judgment of the Madras High Court was dismissed by the Supreme Court. In Public Passenger Service Ltd.'s case, AIR 1966 SC 489. Similar view was taken by the Bombay High Court in Karachi Oil Prodticts Ltd.'s case. There is no quarrel with the proposition laid down in the aforesaid cases but as no shares are being forfeited, the ratio therein is not applicable to this case. Section 181, inter alia, provides that notwithstanding anything contained in the Act, the articles of a company may provide that no member shall exercise any voting right in respect of any shares registered in his name on which any calls or other sums presently payable by him have not been paid. Article 36 of the articles of association had made a .provision in this regard, It reads as follows :
" No member shall be entitled to vote at any general meeting unless all sums presently payable by him in respect of shares in the company or otherwise have been paid."
15. From conjoint reading of the section and the article, it is clear that if any sum is due from a shareholder in respect of a share, he is not entitled to vote at any general meeting. It consequently follows that the requlsitionists who had not paid the call money in pursuance of the resolution dated November 7, 1981, were not entitled to vote in the alleged meeting. Even the meeting dated April 21, 1982, cannot be held to beaproperly convened meeting. Section 169 deals with calling of extraordinary general meeting on requisition. Sub-section (4) says that the number of members entitled to requisition a meeting in regard to any matter shall be in the case of a company having a share capital, such number of them as hold at the date of the deposit of the requisition, not less than one-tenth of such of the paid up capital of the company as at that date carry the right of voting in regard to that matter. From a reading of the sub-sec-.tion it is clear that only those shareholders who have a right of voting can requisition a meeting. It has already been held that many of the requisi-tionists had no right of voting and, therefore, they were not entitled to requisition the meeting. After taking into consideration all the facts and circumstances of the case, I am of the opinion that the meeting dated April 21, 1982, was not a valid meeting, that the board of directors represented by Dr. Vikram Singh is not a validly constituted board and, therefore, the party represented by Ramesh Inder Singh has no right to defend the present proceedings on behalf of the company.
16. Before parting with the judgment, it may be mentioned that the observations made in the judgment shall not be taken into consideration at the time of deciding the civil suit between the parties.