Calcutta High Court
Smt. Nupur Mitra & Anr. vs Basubani Pvt. Ltd. & Ors. on 19 February, 1999
Equivalent citations: (1999)2CALLT264(HC), [1999]35CLA97(CAL)
Author: R. Pal
Bench: Ruma Pal, Basudeva Panigrahi
JUDGMENT R. Pal, J.
1. This appeal has been preferred under section 10F of the Companies Act, 1956 (referred to as the Act) from an order dated 31st July, 1998 passed by the Company Law Board dismissing the application of the appellants under section 111 of the Act for rectification of the share register of Basubani Pvt. Ltd. (referred to as the Company).
2. The facts in the background of which the application under section 111 was made are as follows :--
3. The appellants are the daughters of one Satya Bhusan Bose. Satya Bhusan took a premises on lease in 1945. He built a cinema house on the premises by the name of Basushree Cinema. He took a loan from the Union Bank for this purpose. In 1947 Satya Bhusan and three of his brothers Shanti Bhusan, Kanti Bhusan and Phani Bhusan promoted a company by the name of Basubanl Private Limited (referred to as the company) to manage the Cinema.
4. The company was incorporated on 10th December, 1947 with an authorized share capital of 500 shares of which 175 shares were subscribed in the following manner:
Satya Bhusan -- 100 shares Shanti Bhusan -- 25 shares Kanti Bhusan -- 25 shares Phani Bhusan -- 25 shares
5. A return was filed with Registrar of Companies showing the details of the share holding as aforesaid.
6. On 13th January. 1950 Satya Bhusan died at the age of 38 years leaving behind him his widow Roma aged about 26 years and his two daughters, the appellants herein, who were then aged about 5 and 1 1/2 years respectively.
7. After Salya Bhusan's death, a return of allotment was filed on 30th January, 1950 by Shanti Bhusan with the Registrar of Companies. According to this return, prior to Satya Bhusan's death, on 24th December 1949, 500 shares were allotted amongst the six brothers, According to the return of allotment, on 24th December, 1949 the following allotments were made :
Satya Bhusan -- 100 shares Shanti Bhusan -- 80 shares Kanti Bhusan -- 80 shares Phani Bhusan -- 80 shares indu Bhusan -- 80 shares Banga Bhusan -- 80 shares
8. Satyabhusan's shares were transferred to his widow who transferred 25 shares each to the appellant. According to the appellants neither they nor their mother were in a position to know that there has been any allotment of shares prior to 1949 to Sashibhusan and they all along had been proceeding on the basis that the allotment made in 1949 and the share distribution as stated therein. To support their case of ignorance of the true state affairs, they have relied on a Memorandum of Association of the Company which does not show who the original subscribers were or the extent of their subscription. According to them after Salya Bhusan's death the management of the company was taken over by Phani Bhusan who retained control of the company till his death. After the death of Phani Bhusan and Shanti Bhusan, Roma started taking an interest in the management of the company but was unaware of the 1947 issue of shares to her husband, Satyabhusan.
9. After Kanti Bhusan died, Kanti Bhusan's son wrote a letter on 21st December, 1996 to Roma enclosing copies of the original Memorandum of Association of the company which showed Satya Bhusan, Shanti Bhusan, Kanti Bhusan and Phani Bhusan as the promoters of the company in 1947 with share holdings of 100, 25, 25 and 25 respectively. It is the appellants" case that after this, they made inquires and came to know of the 1947 allotment and that in making the 1949 allotment the earlier allotment of 1947 had been completely suppressed and that further issue of shares had been made without offering the same to Satya Bhusan in violation of section 105C of the Indian Companies Act, 1913 (referred to as the 1913 Act).
10. The appellant filed a suit in March, 1997 being T.S. No. 62 of 1997 in the District Court of Alipore praying for cancellation of the shares allotted in 1949. On 20th January, 1998 an application under section 111 of the Act was filed by the appellants before the Company Law Board for rectification of the register. The application was dismissed. The reasons given for such dismissal were; first, that the appellant had already filed a suit before the Alipore Court for the same reliefs and the suit was pending; and second that although the Limitation Act was inapplicable to proceedings before the Company Law Board, the application was grossly delayed.
11. According to the appellants' after the allotment of 175 shares at the time of incorporation of the company, there was no question of issuing 500 shares as this would be beyond the authorized share capital of the company. Even if only the balance amount of shares had been allotted, this was violative of section 105C of the Act. .Consequently, whatever the fact, the 1949 allotment was illegal, null and void. According to them neither of the reasons given by the Company Law Board for dismissing the application for rectification were tenable. They have contended that there was no bar to filing a suit, that the scope of the suit was in any event limited as no rectification of the company's share register was asked for and that in any event they were witling to undertake to withdraw the suit. On the question of delay, it was submitted that the Limitation Act did not apply to proceedings before the Company Law Board. As such the application could not be dismissed on the ground of delay. It is further urged that the allotment being a nullity there was no question of delay. Finally it is said that there was in fact no delay as they had come to know of the illegality of the 1947 allotment only in 1996.
12. All the brothers of Satya Bhusan are dead. Their interests are being represented by their heirs. The company, the son of Indu Bhusan (respondent No. 3) and the widow of Banga Bhusan (respondent No. 8) have preferred a cross objection from the decision of the Company Law Board. They have challenged the decision on the ground that the Company Law Board erred in holding that the Limitation Act, 1963 was not applicable to proceedings before the Company Law Board. They have also opposed the appeal preferred by the appellants and have submitted that there was no allotment of shares in 1947, According to them by agreeing to subscribe to 175 shares, the subscribers' shares were automatically issued to them but were not allotted. The allotments were made in 1949 for the first time and this was evidenced by the return filed in 1950 before the Registrar of Companies. These respondents have relied upon the following decisions in this context : in re : Calcutta Stock Exchange Association Ltd. ; Shri Gopal Jalan & Co. v. Calcutta Stock Exchange Association Limited ; and Shri Gopal Paper Mills Co. Ltd. v. Commissioner of income Tax, Calcutta . They have also referred to passages from Halsbuiy's Law of England, 4th Edition, Volume 7(1), paras 359, 360, 444, 446, 478; Pennington's Company Law. 7th Edition, pages 382 to 385; and K.M. Ghosh's Indian Companies Act, 1913, page 323.
13. It is submitted that there was as such no question of shares being allotted beyond the authorized capital. It is argued that since all the balance sheets of the company showed the issued capital as 500 shares it could be presumed under section 111(d) of the Evidence Act that this was in fact the situation from the inception of the Company. The decision in Ambika Prasad Thakur v. Ram Ekbal Rat : AIR 1966 SC 605 has been cited in this context. Reliance has also been placed on the principle that interpretation of a document must be made in a manner as will preserve the document rather than destroy it to sustain the return of allotment filed in 1950,
14. It is further stated that the question whether there had been an issue of 500 shares or 675 shares could only be resolved by taking of evidence. It is also said that the receipt of the letter from Atok Basu was suspicious and warranted cross-examination. Furthermore, whether there was an agreement in 1949 for an allotment of shares between the brothers and whether the offer had been made in 1949 to the existing shareholders and whether the existing shareholders had refused the offer of such shares could not be decided in summary proceedings. It is submitted that proceedings under section 111 were summary and disputed questions of fact could not be resolved. It is submitted that the CLB was Justified in not going into the merit of the matters. Several decisions have been cited in this context. It is submitted that CLB had the jurisdiction to refuse to hear the case on merit particularly when there was a pending suit covering the same subject matter. In the circumstances the appellants were not persons aggrieved and in any event the discretion of the C.LB should not be interfered with.
15. On the question of limitation it is argued that the Company Law Board was a court and that the Limitation Act would therefore apply. Reliance has been placed on recent decisions of the Supreme Court being Canara Bank v. Nuclear Power Corporation of India Ltd. : (1995) Supp. 3 SCC 81; M/s. Fair Air Engineers Pvt. Ltd. & Anr. v. W.K. Modi ; ; Minoo Mehta v. Shavak D. Mehta .
16. The respondent Nos. 4.5,6 and 7 representing the Estate of indu Bhusan and the respondent Nos. 10, 11, 12 and 14 representing the estate of Phani Bhusan have submitted that the appellants did not have the locus standi to challenge the 1949 allotment. According to the respondents the appellants had claimed as the heirs of their father, Satya Bhushan. Satya Bhusan died in 1950 before the Hindu Succession Act came into force. Prior to that they had no right at all. It is submitted that the alternative claim as a shareholder of the company was unacceptable because Roma who had inherited her husband's share had not filed any application. The appellant's right being derived from Roma could not be greater than her right. These respondents have also supported the cross objection and have argues that the Limitation Act was applicable and that the application should have been filed within 3 years of the arising of the cause of action. It is said that no ground had been made out for excluding any period.
17. Before considering the merits of the respective contentions it is necessary to determine the scope of the Jurisdiction of a court entertaining an appeal under section 10F of the Act. The relevant extract of section 10F reads :
"10F. Appeals against the orders of the Company Law Board.--Any person aggrieved by any decision or order of the Company Law Board may file an appeal to the High Court within sixty days from the date of communication of the decision or order of the Company Law Board to him on any question of law arising out of such order."
18. Therefore, we are limited to deciding questions of law and only those questions of law which arise out of the order of the Company Law Board.
19. The appellants have formulated the following questions of law :
"(a) Whether the issue of shares in violation of section 105C of the Companies Act, 1913 is illegal, null and void.
(b) Whether issuance of shares beyond the authorised share capital of the Company without amending the Memorandum or the Articles of Association of the Company is illegal, null and void.
(c) Whether the jurisdiction of the civil court is co-extensive with that of the Company Law Board under section 111 of the Companies Act, 1956.
(d) Whether for filing of a prior Civil Suit wherein no prayer for rectification of the share register has been made is a bar to filing of an application under section 111 of the Companies Act, 1956 for rectification of share register and other reliefs.
(e) Whether delay and/or laches, if at all, can be a ground for rejecting an application challenging issuance of shares when such issuance of shares is altogether illegal, null and void, as not maintainable?
(f) Whether an application under section 111 can be dismissed by the Company Law Board without going into the merits, on the ground of delay.
(g) Whether a pray can be held guilty of delay or laches without first deciding and holding that the party was aware of the impugned allotment of shares."
20. In addition is the question raised by the respondents in their cross objection namely, whether the Limitation Act is applicable to proceedings before the Company Law Board.
21. Finally is the question raised by some of the respondents as to the focus standi of the appellants to file the application under section 111 of the Act at all.
22. The objection of locus standi being preliminary in nature, the same is taken up at the outset before decision. The relevant extract of section 111 of the Companies Act provides :
"Section. 111. Power to refuse registration and appeal against refusal.-
(1)xxxxx (4) if-
(a) the name of any person-
(i) is without sufficient cause, entered in the register of members of a company, or
(ii) after having been entered in the register, is, without sufficient cause, omitted therefrom; or
(b) default is made, or unnecessary delay takes place, in entering in the register the fact of any person having become, or ceased to be, a member [including refusal under sub-section (1)], the person aggrieved or any member of the company, or the company, may apply to the Company Law Board for rectification of the register. (5) The Company Law Board, while dealing with an appeal preferred under sub-section (2) or an application made under sub-section (4) may, after hearing the parties, either dismiss the appeal or reject the application, or by order-
(a) direct that the transfer or transmission shall be registered by the company and the company shall comply with such order within ten days of the receipt of the order; or
(b) direct rectification of the register and also direct the company to pay damages, if any, sustained by any party aggrieved. (6) The Company Law Board, while acting under sub-section (5), may, at its discretion, make-
(a) such interim orders including any orders as to injunction or stay, as it may deem fit and Just;
(b) such orders as to costs as it thinks fit; and
(c) incidental or consequential orders regarding payment of dividend or the allotment of bonus or rights shares.
On any application under this section, the Company Law Board-
(a) may decide any question relating to the title of any person who is a party to the application to have his name entered in, or omitted from, the register;
(b) generally, may decide any question which it is necessary or expedient to decide in connection with the application for rectification.
xxxxx (9) if default is made in giving effect to the orders of the Company Law Board under this section, the company and every officer of the company who is in default shall be punishable with the fine which may extend to one thousand rupees, and with further fine which may extend to one thousand rupees for every day after the first day after which the default continues.
23. Section 111(4) allows (1) any person aggrieved; (ii) any member of the company; or (iii) the company itself to apply to the Company Law Board for rectification of the register.
24. In the case of Killick Nixon Ltd. v. Bina Popatlal Kapadia [1983] 54 Company Cases 432 it was held:
"Thus, the section makes it clear that not only the person aggrieved but also any member of the Company may apply to the court for a rectification of the register of members. If the intention of the Legislature was to confine the remedy only to the aggrieved persons as contented by Shri Chagla, then there was no need to add a further category of "any member of the company" after giving such right to "the person aggrieved". The clear provisions, of the section, therefore, militate against accepting the limited construction sought to be placed by Shri Chagla on the provisions of the said section. Secondly, the object of the said provisions does not support his contention. Read as a whole, it appears that one of the intentions of the Legislature is no ensure a register of members, which reflects reality at any particular point of time. That is why the legislature has extended this right to any member of the Company without compelling him to show a particular point of time. That is why the Legislature has extended this right to any member of the Company without compelling him to show a particular or a special prejudice caused to him by an incorrect or a wrong register of members. Hence, to confine the right to file the application only to an aggrieved member or a member who is in a position to show some special prejudice, will go counter to the object of the section. For both these reasons, we are unable to accept the said contention.
(See also : Tracstar investments v. Garden Woodroffe Ltd.: [1996] 87 Com. Cases 941 (CLB)).
25. The appellants may have applied to the Company Law Board on the basis that they were the heirs of Satyabhusan. But in the first paragraph of the application they have stated that they hold 25 shares each in the company. This is not in dispute. The issue of locus standi was not argued before the Company Law Board at all. If their locus standi could be justified on the basis of admitted facts by reference to other statutory provisions, it would not be proper to reject their claim only on the, basis of the ease made out by them. That the appellants are members of the company is not in dispute. The locus standi to move the application therefore be doubted. It is not necessary for us to consider the rights of the appellants to the estate of Satyabhusan as his heirs. We therefore reject the objection as to the tocus standi of the appellant under section 111.
26. The respondents then contended that the questions raised by the appellants are not questions "arising out of the order of the Company Law Board within the meaning of section 10F of the Act.
27. The phrase is used in section 66 of the Indian income Tax Act 1922 and has been construed by the Supreme Court in the Commissioner of income Tax v. Scindia Steam Navigation Shah J. (as His Lordship then was) said :
"A concrete question of law having a direct bearing on the rights and obligations of the parties which may by founded on the decision of the Tribunal is one which arises out of the order of the Tribunal even if it is not raised or argued before the Tribunal at the hearing of the appeal."
28. The Supreme Court in Estate of the Late A.M.K.M. Kamppan Chettiar v. Commissioner of income Tax, Madras held that a question raised before the Taxation Tribunal even if not expressly dealt with by the Tribunal, still arose out the order of the Tribunal.
29. The phrase "arising out of" might, therefore, include questions of law arising on facts as found by the Company Law Board. The Company Law Board in rejecting the appellants' application on the ground of delay has said :
"Considering the entire matter in totality, we find that the petitioners have not been able to satisfy us properly regarding the inaction for about 50 years in moving this petition and as such, on account of delay and laches, this petition should be dismissed despite the inapplicability of the Limitation Act in the proceeding before Company Law Board. Moreover, the petitioners have already pursued alternative remedy by instituting a title suit before the Learned 4th Munsif at Alipore on the self same reliefs, which is now pending before that court. Accordingly, without going into the merits of the various contentions raised by the parties in regard to the impugned allotment of shares made in December, 1949, we dismiss this petition on the ground of inordinate delay and as such the same is not maintainable."
30. The Company Law Board has in fact decided the case on merits. It has rejected the case of nullity as argued by the appellants otherwise delay would not be a relevant factor. It has also been held that the cause of action arose in 1949. Keeping in view the principles enunciated by Supreme Court noted earlier it cannot be said, in the circumstances, that the questions raised by the appellants do not arise out of the order of the Company Law Board.
31. We accordingly take up the questions raised by the appellants seriatim. Questions (a) and (b) involve the fact whether there was an issue of shares in 1947. If there was, the next question would be--what happened in 1949? Did the Company issue the balance number of shares within its authorised capital or did it ignore the 1947 allotment and issue all the 500 shares in 1949? if it is the first, then question (a) arises. If it is the second, question (b) would need to be considered. In either case, it could be argued that the 1949 allotment was a nullity or at least an illegality which could not be defeated by mere delay.
32. The authorised share capital of the company since its incorporation is Rs. 5 lakhs divided into 500 equity shares of Rs. 100 each and 4,500 preference shares of Rs. 1500 each. If at the time of its incorporation 175 shares had been issued to the subscribers of the memorandum of association of the company, only the balance 325 equity shares could have been issued in 1949. If 500 shares have been purported to be issued in 1949 after the issuance of capital of 175 shares in 1947 it would mean that subsequent issue of 500 shares would be beyond the competence of the directors. As a point of principle it has not been argued by either party that shares can be issued beyond the authorised share capital of the company or that such an issue would be of any effect.
33. If there was not an over-issue but an issue shares within the authorised capital, this could be done only after compliance with section 105C of the Indian Companies Act, 1913 which provided :
"105C. Where the directors decided to increase the capital of the company by the issue of further shares such shares shall be offered to the members in proportion to the existing shares held by each member (irrespective of class) and such offer shall be made by notice specifying the number of shares to which the member is entitled, and limiting a time within which the offer. If not accepted, will be deemed to be declined; and after the expiration of such time, or on receipt of an intimation from the member to whom such notice is given that he declines to accept the shares offered, the directors may dispose of the same in such manner as they think most beneficial to the company."
34. Under the section, the Director are under a mandate to offer the new shares in the first instance to its members in proportion to the existing shares held by them (See : R. Mathalone v. Bombay Life Assurance Co. Ltd. ). An obligation is cast upon the directors that if new shares are issued, then they should be offered to the members in proportion to the existing shares held by each shareholder. The object obviously of the section is that there should be an equitable distribution of shares and that the holding of shares by each shareholder should not be affected by the issue of new shares. The section also makes it incumbent upon the directors to inform the share holders of the number of shares to which each share holder is entitled and also limiting the time within which the offer if not accepted would be deemed to be declined [See : Nanalal Zaver v. Bombay Life insurance Co. AIR (1949) Bombay 56.1 The Directors do not have the power to act contrary to this mandate and any issue of shares contrary to this mandate would be invalid.
35. This section has been substantially reproduced in Articles 8, 9 of the Articles of Association of the Company. The Articles of Association of the Company bind both the Company and the members thereof (V.B. Rangaraj v. V.B. Gopalakrishnan ) and issue of shares contrary to the restriction imposed by the Articles of Association would not therefore be valid or binding.
36. In the affidavit-in-opposition it has not been denied that no offer was made to Satya Bhusan when the shares were issued in 1949 and by which Satya Bhusan, who held 57% of the shares in 1947, was reduced to a minority shareholder.
37. According to the respondents the promoter directors had merely agreed to subscribe to the shares in 1947 and there was no effective transfer of shares to them. According to the respondents there is a distinction between the allotment and the issue of shares. They say that there was no allotment but only an issue of shares in 1947 and that in 1949 there was only a further issue of shares in 1949 within the authorised capital. It is submitted that all the shares were allotted for the first time in 1949. It is submitted that therefore that not only was there no over-issue of shares but was no question of offering shares to Satyabhusan and others in 1949. In other words, the submission is that Satyabhusan and the other subscribers to the Memorandum of the Company were not "members" holding "existing shares" within the meaning of section 105C in 1947.
38. The definition of 'member' has been set out in section 30 of the 1913 Act which reads :
"30.(1) The subscribers of the memorandum of a company shall be deemed to have agreed to become members of the company, and on its registration shall be entered as members in its register of members.
(2) Every other person who agrees to become a member of a company, and whose name is entered in its register of members, shall be a member of the company."
39. Ghosh on Indian Companies Act (3rd Edition), Page 114 and 115 has said in the commentary on the section that each subscriber to the memorandum of association irrevocably agrees to take from the company the number of shares placed opposite to his signature, and he becomes a member ipso facto whether his name is entered in the register or not. and that in the case of subscribers to the memorandum of association neither allotment nor entry on the register is necessary.
40. Therefore, if Satyabhusan subscribed to the memorandum he was a "member" of the Company in 1947.
41. The next question is whether Satyabhusan held existing shares in-the Company in 1947.
42. The decision in in re : Calcutta Stock Exchange Assocn. Ltd. militates against the submission of the respondents regarding the scope of allotment. The learned single Judge in construing the requirements of filing a return of allotment under section 75 of the 1956 Act said :
"allotment of shares has a special technical meaning. It means, in my opinion, division of the entire share capital into definite shares, each of particular value and also of the different classes and an assignment of such shares singly or numerously to different persons. The central core of the word 'allotment' is the notion of a 'lot'. The true meaning of the word 'allot' must, therefore, be first the creation of lots of shares and then the division of them into value and classes and lastly, allocation of them individually or numerously to particular applicant or applicants..."
43. The decision of the learned single Judge was affirmed by the Supreme Court in Sri Copal Jalan & Co. v. Calcutta Stock Exchange Association Limited . The Supreme Court clarified 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 came into existence. It is the first step which is followed by the issue of shares.
44. As to what specifically constitutes an issue of shares was noted in Gopal Paper Mills v. I.T. Commissioner, Calcutta where the following passage in Buckley "On the Companies Act" (13th Edition) at page 128 was quoted :
"The expression 'issue' with regard to shares may bear various meaning according to the context. It is not necessarily either the allotment of the shares or the issue of the certificate that constitutes the issue of the share. The question may be whether the shareholder has or has not been put completely in possession of his share, and this may be so, although some formal act may not have been completed. Thus, shares may have been issued which have been allotted, but for which no certificates have ever been issued, and on the other hand, shares as to which a resolution to allot has been made may not have been issued."
45. Buckley's statement of the law that "Shares for which the memorandum of association has been subscribed are issued when the company is registered" has been noted with approval by the Supreme Court in Shree Gopal Paper Mills v. I.T. Commissioner (supra).
46. According to Halsbury the shares which are signed for by the signatories to the memorandum are issued when the company is registered [Vol 7(1) para 446 (4th Edition)].
47. Reading the passages of Halsbury's Louis of England (4th Edition) particularly paragraphs 445 and 446 of volume 7(1) which have been relied upon by the respondents, it would appear that as far as England is concerned, the Companies Act 1985 makes a distinction between allotment and issue. The shares are to be taken to be allotted when a person acquired the unconditional right to be included in the company's register of members in respect of those shares. The issue of shares means allotment followed by registration or possibly by some other act, distinct from allotment, whereby the title of the allottee becomes complete. In other words, the executory right obtained by allotment becomes the executed right upon issue of shares. Accepting the principles as being applicable to India, it must be held that allotment must precede the issue of shares.
48. Whereas special procedures have been prescribed for allotment and issue of new shares, as far as subscribers to the Memorandum of Association are concerned they are placed in a separate category. Allotment and issuance of shares to the subscribers of the Memorandum takes place and is complete upon registration of the Memorandum. In Ghosh's Indian Companies Act (3rd Edition) at page 115 it has been said that the shares subscribed to by the signatories to the memorandum of association are deemed to be issued when the company is registered and in the case of a subscriber to the memorandum of association neither allotment nor entry on the registry is necessary.
49. This is also the view held in In re : Calcutta Stock Exchange Association Limited (supra) where the learned single Judge said :
"Subscribers become shareholders without either the mode of transfer or by the mode of allotment. What in fact the law does in their case is that their subscription to the Memorandum takes the place of an application for shares and the registration of the Memorandum operates as the acceptance of the application by the Company."
50. This is clear from the provisions of the Indian Companies Act, 1913. Under section 6 of the Indian Companies Act, 1913 :
"6. In the case of a company limited by shares-
(1) the memorandum shall state-
(i) the name of the company, with 'Limited' as the last word in its name:
(ii) the province in which the registered office of the company is to be situate;
(iii) the object of the company;
(iv) that the liability of the members is limited;
(v) the amount of share capital with which the company proposes to be registered, and the division thereof into shares of a fixed amount; (2) no subscriber of the memorandum shall take less than one share";
51. In these circumstances if Satyabhusan and three others signed the memorandum as subscribers, they were automatically issued the shares according to their subscription in 1947 when the company was registered. Their title to the shares became complete in 1947 and they were "members" of the Company within the meaning of section 105C. There was no question of any allotment of these shares subsequent to such issue. By virtue of their subscription, the subscribers became the first members of the company upon registration of the company and they were existing shareholders within the meaning of section 10SC of the 1913 Act. It follows that (i) in 1949 only the balance number of shares could have been issued after complying with section 105C; (ii) there could be no second allotment of their shares in 1949; (iii) five hundred shares could not be allotted in 1949.
52. According to the respondents the 1950 return of allotment showed the allotments which had taken place up till then including all allotments which may have been made in 1947. This is for the company Law Board to decide but under section 104 of the 1913 Act which return of allotment was to be filed within one month of the allotment. The respondents would have to explain how if the allotments were made partially in 1947, the allotments featured for the first time in the 1950 return, 3 years later.
53. If on the other hand the return of allotment filed in 1950 showed an allotment of 500 shares in 1949, it cannot be sustained on any principle of evidence or interpretation as contended by the respondents. Nor can the balance Sheets for the several years following 1950 by themselves establish the presumption of past regularity. The principle as enunciated in Ambika Prasad Thakur and Ors. v. Ram Ekbal Rai : AIR 1966 SC 605 para 15 applies only in case where the document correctly reflects a state of affairs. That is the very issue which needs determination by the Company Law Board.
54. The appellants have submitted in support of their argument that there was an over issue of shares that the 1947 issue was totally ignored when the shares were issued in 1949 by referring to the distinctive numbers of the share certificates. If the 1947 issue of 147 shares had been taken into consideration, according to them, the shares should have numbered from 176 onwards. His stated that in fact the share numbering started from 1 in 1949. In fact persons who are not subscribers to the Memorandum of Association in 1947 were issued share certificates bearing distinctive numbers, which according to the appellant clearly showed that there was an over-issue of shares in 1949. That 500 shares were allotted on 24.12.1949. They have referred to the 1950 Return of allotment to establish this which shows :
I) Indu Bhusan Bose
--
80 shares
--
Distinctive Nos. 1 to 80(formerly holding no shares) II) Phani Bhusan Bose
--
80 shares
--
Distinctive Nos. 81 to 160(formerly holding 25 shares) III) Kanti Bhusan Bose
--
80 shares
--
Distinctive Nos. 161 to 240(formerly holding 25 shares) IV) Banga Bhusan Bose
--
80 shares
--
Distinctive Nos. 24 to 320(formerly holding 25 shares.) V) Satya Bhusan Bose
--
100 shares
--
Distinctive Nos. 321 to 420(formerly holding 25 shares.) VI) Santi Bhusan Bose
--
80 shares
--
Distinctive Nos. 421 to 500(formerly holding 25 shares) Total 500 shares
55. The Company Law Board should have decided whether Salyabhusan was a subscriber to the Memorandum of Association of the company; if so whether in 1949 there was an issue of only the balance shares after the provision of section 105C of the 1913 Act were compiled with or if there was on the other hand an allotment of 500 shares in 1949. If these factual bases were established the application could not, in our view, be rejected on the ground of mere delay. If the shares had been allotted in 1949 without complying with the mandatory provisions of section 105C of the 1913 Act, or beyond the limits of the authorised capital of the Company the action was totally invalid. It has no legal existence. Once a mandatory provision of law is infringed then irrespective of the question of delay, the invalidity cannot be allowed to continue.
56. If there was fraud, as alleged by the appellants, even then the 1949 allotment cannot stand.
"No court in this land will allow a person to keep an advantage which he has obtained by fraud. No judgment of a court, no order of a Minister, can be allowed to stand if it has been obtained by fraud. Fraud unravels everything. The court is careful not to find fraud unless it is distinctly pleaded and proved; but once it is proved it vitiates Judgments, contacts and all transactions whatsoever. "
Per : Denning J. In Lazarus Estates, Ltd. v. Beasley : 1956 (1) AER 341)
57. The respondents have urged that there was no pleading of fraud by the appellants with particulars. It is not for this court to determine the issue under section 10F as the Company Law Board has come to no finding on this issue at all.
58. Assuming that there is no invalidity, we take up for consideration the issue of limitation and delay. At the outset, it must be held that the Company Law Board erred in holding that the cause of action arose in 1949.
59. In Sha Mulchand & Co. v. Jawahar Mills Ltd. , the Supreme Court while dealing with the submission that the application for rectification was barred under the provision of section 118 of the Limitation Act, 1908 (Now Article 137 of the Limitation Act, 1963) held that time began to run only after the applicant came to know of its right to sue. According to the appellants they came to know of the 1947 allotment and therefore of their right to sue only in 1996. They say that this fact has not been disputed in any of the pleadings filed by the respondents before the Company Law Board. However, the Company Law Board had not come to any finding on this.
60. The scope of section 111 as set out in the notes on clauses in the Bill which preceded the Companies (Amendment) Act, 1988 says that "there is no limitation period provided for making the application for rectification of Register of Members under sub-section (4)". [sce : Simret Katytal v. Bhagwan Das & Co. (P) Ltd. (1994(1) Com. LJ 442, para 18]. In fact in several decision of the Company Law Board it has been consistently held that the Limitation Act does not apply to applications under section iii [See : Shiv Dayal Agarwal & Ors. v. Siddhartha Polyster Pvt. Ltd. (1997) 88 Comp. Cases 705; T. G. Veela Prasad v. Rayalseema Alkalias (1997) 89 Comp. Cases 13: Dr. G. N. Byra Reddy v. Arathi Cine Enterprises Pvt. Ltd. (1997) 89 Comp. Cases 745].
61. It is submitted on the part of the respondent that the Limitation Act, 1963 applies to courts and that it has been Judicially held that the Company Law Board is a "court". That may be so but the decisions relied on by the respondents have held that the Company Law Board is a "court" in a restricted sense and not in the sense used in the Limitation Act.
62. Thus in Shaw Wallace & Co, Ltd. v. Union of India : SEBI & Corporate Laws Reports Vol. 17 p. 484, the Division Bench of this court said (at P. 499) "Regulation 47 of the abovementioned Regulations clarifies the position some what since it provides that the Bench constituted by the CLB within the meaning of regulation 2(e) shall be deemed to be a court for limited purposes, namely, for the purpose of prosecution or punishment of a person who wilfully disobeys any direction or order of the Bench and not for all purposes-"
63. Also in Canara Bank v. Nuclear Power Corporation of India Limited: 1995 Supp (3) SCC 81 it was said :
"The CLB, further, is a permanent body constituted under a statute. It is difficult to see how it con be said to be anything other than a court, particularly for the purpose of section 9-A of the Special Court Act."
64. In Kotal Transport Ltd. v. State of Rajasthan (1967) 37 Com. Cases 288 (Raj.) however it was categorically held that the provisions of the Limitation Act did not at all apply to applications under section 155 of the 1956 Act.
65. Assuming that the Limitation Act, 1963 does apply, in the absence of a specific provision covering applications under section 111, the residuary article namely Article 137 would apply. If the cause of action arose in 1996 as claimed by the appellants, the application under section 111 having been filed in 1998 would be within time.
66. That an application for rectification can in any event be defeated by unexplained delay is not disputed. [See : Cuddalore Construction Co. Ltd., In re : Somasundar Pillai (T.V.) v. Official Liquidator : (1967) 33 Comp. Cases 440 (Madras) 443, 444]. It would not therefore make any difference whether the Limitation Act applied or not because it would also be open to the appellants to take recourse to section 5 of the Limitation Act. However, the Supreme Court in Sha Mulchand v. Jawahar Mills Ltd. (supra) has held that mere waiver, acquiescence or laches was insufficient to defeat the right of the applicant under section 155 of the 1956 Act unless there was an abandonment of his right inducing another to change his position to his detriment. In the last case, the applicant would be barred by estoppel.
67. In a case where shares had been transferred by a constituted attorney who was the brother of the share holder without the knowledge of the share holder to the brother's son, a learned single Judge of this High Court held that even if there was some delay that by itself could not deprive the erstwhile share holder of the right to obtain relief under section 155 of the Companies Act, 1956 or rectification of the register as the entire procedure adopted was unfair, unreasonable and surreptitious [See : Farhat Seikh v. Escman Metalo Chemical Put. Ltd. : (1991) 71 Company Cases 88],
68. The Company Law Board did not at all consider the question of delay from these perspectives. The decision of the Company Law Board on this aspect canot therefore stand.
69. We are also of the view that the Company Law Board should not have refused to exercise jurisdiction under section 111 merely on the ground that the appellants had filed a suit in the District Court in respect of the self same subject matter.
70. It does not appear to us that merely by filing a civil suit a person can be debarred from filing an application under section 111 of the Companies Act, 1956. There is no such law which prevents such a proceeding from being filed [See : Giridhari Lal Bansal v. Chairman, B.B.M. Buard ; Mangl Lal v. Radha Menon : AIR 1930 Lah 599]. The right to apply under section 111 has been statutorily conferred. It can be availed of in the circumstances mentioned in the statute. [Vide Ammonia Supplies Corpn. v. Modern. Plastic Containers (supra) at page 213). At the highest it may be a question of avoiding a possible conflict of decisions. However it does not appear that there is any prayer for rectification of the share register made by the appellants in the suit filed by them. In any event the appellants have given an undertaking to withdraw the suit.
71. In Canara Bank v. Nuclear Power Corporation of India Limited : 1995 Supp. (3) SCC 81 it was said :
"Now, under section 111 of Companies Act as amended with effect from 31.5. 1991, the CLB performs the functions that were therefore performed by courts of civil Judicature under section 155, it is empowered to make orders directing rectification of company's register, as to damages, costs and incidental and consquential orders. It may decide any question relating to the title of any person who is a party before it to have his name entered upon the company's register; and any question which it is necessary or expedient to decide, it may make interim orders. Failure to comply with any order visits the company with a fine. In regard to all these matters it has exclusive civil jurisdiction (except under the provisions of the Special Courts Act, which is the issue before us)" .
72. Certain observations of Supreme Court in Ammonia Supplies Corpn v. Modem Plastic Contained : (1998) 4 Com. LJ 211(SC) would also appear to suggest that in certain matters the jurisdiction under section 111 is exclusive. This issue although not seriously pressed before this court by the appellants would nevertheless, in our view, indicate that if the Company Law Board can decide the matter, it must and not leave it to the civil court to do so. Furthermore, "11 would be rather inappropriate to say that a Civil Judge who is ordinarily not called upon in his work-a-day life to deal with the provisions of the Companies Act to deal with and decide it."
(Shri Gulabrai Kalidas Naik v. Shri Laxmidas Hallubhal Patel of Baroda (1978) 48 Com. Cases 438 (Guj.)
73. The nature of the Jurisdiction to be exercised by the Company Law Board under section 111 has been extensively dealt with in the Full Bench decision of Delhi High Court in Amnonia Supply Corporation Private Limited v. Modern Plastic Containers Private Limited & Ors, : 79 Comp. Cases 163. The finding of the court were rendered in connection with section 155 of the Act as it then stood and which has been substantially re-enacted in section 111 by the 1988 amendment. In a lucid judgment the Full Bench said :
"The object of section 155, in our view, is to provide remedy in non-controversial matters or in matters where a quick decision is necessary and can be rendered in order to obviate irreparable injury to a party. Section 155 is ordinarily not intended for settling controversies necessitating a regular investigation and in such cases the company court can decline to entertain petitions in exercise of its discretionary power and say that since serious disputes are involved, the proper forum for their adjudication is a civil court, section 155(3) only shows that questions relating to title can also be examined by the company court but that is also possible without detailed examination of complicated question of fact and law, requiring extensive oral and documentary evidence and it cannot be inferred from section 155(3) that the remedy is not summary. It would depend on the facts of each case. It is not necessary in every case where questions relating to title may be involved that there has to be a detailed examination and determination of oral and documentary evidence. The question is not whether the company court has no Jurisdiction but is can the court in its discretion decline to exercise it where disputed and complicated questions are involved in requiring examination of extensive oral and documentary evidence. We do not think that a respondent would be able to oust the jurisdiction of the company court by a mere assertion in the reply about fraud or forgery or want of consideration. In such a case, the company court can and certainly would examine whether the said assertion is being made only with a view to oust the jurisdiction of the company court or the assertions are such which would require detailed examination of the evidence. In the former case the company court would proceed with the adjudication of petition under section 155. In the later case, the company court would be justified in exercise of its discretion to reject the petition and relegate the parties to a regular civil suit."
74. In other words, the Company Law Board before declining to entertain the application of the appellant should have come to a conclusion that the issues raised involved disputed and complicated questions of fact which required detailed investigation and examination of oral and documentary evidence. This view has been acted on by the Company Law Board in T. G. Veerapmsad v. Rayalseema Alkalies (1997)89 Com. Cases 13; Dr. G. N. Gyra Keddy & Ors. v. Araihi Cine Enterprises Put. Ltd. & Ors.: 89 Corn. Cases 745.
75. Also a mere complicated question of fact would not do. The question of fact must be such that it cannot be decided on affidavit. Considering the earlier decisions on the point the Division Bench of the Karnataka High Court in Muniyamma v. Arathi Cine Enterprises (P) Ltd. & Ors. : (1993) Com. L.J. 327 at 345 said :
"Even though the proceeding under section 155 of the Companies Act is a summary proceeding, as it is a relief provided under the statute, in a proper and appropriate case, it is open to the court to grant relief even though it may involve complicated questions of law and facts. Whether in a particular case, relief should be granted or not, because the jurisdiction is discretionary as the word used is "may" in section 155 of the Act, would depend upon the facts and circumstances of the case, but the exercise of Jurisdiction cannot be refused on the ground that it involves complicated questions of law and facts."
(See also E. V. Swaminathan. v. KMMA Industries & Roadways (P) Ltd. : (1993)1 Com. L.J. 291 (Mad.) and the reasoning of the Company Law Board in Kothari industrial Corpn. Ltd. v. Lazor detergents Put. Ltd.: 1994 Com. Law 617].
76. In Tracstar Investments Ltd. v. Gorden Woodroffe Ltd.: [1996)87 Com. Cases 941, the Company Law Board itself decided the issue of fraud and collusion under section 111. On appeal to the High Court, it was contended that the summary procedure under section 111 was not the appropriate procedure and that the Company Law Board should have directed the parties to file a regular suit. The High Court of Madras rejected the submission and affirmed the decision of the Company Law Board. It was said, "Before the company court also such an argument was put forward. The Company Law Board did not think it proper to relegate the matter to a civil court. It held that materials are available to enter a finding as to whether a fraud has been committed or not. Documentary evidence is available and nobody has a case that there are other documents which they could not produce. An inference has to be drawn from the evidence already before the court. For the said purpose, we do not think that the matter has to be referred to a civil court."
77. Ammonia Supplies Corpn. v. Modern Plastic Containers (supra) a plea of fraud and forgery had been raised in connection with an application for rectification under section 155 of the 1956 Act. The single Judge found that the issue could not be decided summarily and relegated the parties to a suit. The appeal was dismissed. On a further appeal to the Supreme Court, the Supreme Court said:
"We feel it would have been appropriate if the court would have seen for itself whether these documents are disputed and any document is alleged to be forged whether it is said to be so only to exclude the Jurisdiction of the court or it is genuinely so."
78. The Supreme Court allowed the appeal to this extent and directed that the matter should be decided under section 155 'instead of sending the matter to the civil court.
79. To sum up : if the facts are not in dispute as contended by the appellants the Company Law Board erred in not deciding the application under section 111. The Company Law Board should therefore have considered whether it was possible to determine the issues raised on the basis of the affidavits as filed. No such finding was arrived at by the Company Law Board. The Company Law Board could not arbitrarily refuse to exercise powers under section 111 and refuse relief [See : Public Passenger Service Ltd. v. M.A. Khadar ; Indian Chemical Products Ltd. v. State of Orissa : (1966) 36 Com. Cases 592 (SC)1.
80. The Company Law Board certainly could not in any event have partly decided one issue and left the rest to be decided by the civil court. In holding that the application was delayed the Company Law Board has determined that the cause of action arose in 1949, and that the appellants knew of their right to challenge the 1949 allotment all along. The determination of this issue has pre-empted a decision on the issue of limitation by the civil court and the civil court would be bound to come to a finding that the suit was barred by limitation.
81. According to the appellants this court should decide the issues raised in the application under section 111 as the facts are not in dispute. Several decisions in which the appellants courts power to decide issues left undermined by the Lower Court have been cited.
82. We are not however persuaded to hold that this court should determine the several factual issues left undermined by the Company Law Board in an appeal under section 10F of the Act.
83. Before concluding there are further two aspects of the matter which need determination. The first submission of the respondents that the appellants were not "parties aggrieved" and as such the appeal could not be filed by them. The decisions cited by the respondents in this context are inapposite namely, Adi Phirozshah Gandhi v. H.M. Seerval and Mani Subrata Jain v. State of Haryana are inapposite. The first decision was rendered in the context of the question whether a person who was not a party to the litigation could be a person aggrieved. In that case the Advocate General had preferred an appeal from the decision of the disciplinary committee of the Bar Council acquitting the appellant Advocate. The majority decision of the Supreme Court was that the Advocate General was a person aggrieved.
84. The second decision relied on turned on the right of the persons who had been recommended for appointment as Judges to file a writ application to enforce the recommendation. It was held that such persons had no legal right which they could enforce. The appellants were both parties to the litigation and have also been denied their legal right. The appellants have been deprived of their right to have the matter heard and disposed of under section 111 by the Order under appeal. The submission of the respondents that the appellants are not persons aggrieved within the meaning of section 10F is therefore rejected.
85. The second question raised by the respondents is that this court should not interfere with the discretion exercised by the Company Law Board, No doubt it is ordinarily not open to the appellate court to substitute its own discretion for that of the trial Judge. However it is equally established that if the trial court had acted unreasonably or capaciously or had ignored relevant facts or has adopted an approach which is incorrect, as we have found in this case, the appellate court not only is empowered but is under a duty to interfere that the exercise of discretion by the trial court [See : The Printers (Mysore) Pvt. Ltd. v. Pothan Joseph ; Regular of Trade Marks v. Ashoke Chandra Rakshit ].
86. For the reasons stated the appeal is allowed and the order of the Company Law Board is set aside. The matter is remitted back to the Company Law Board for re-deciding the application in the light of the observations contained in this Judgment. There will be no order as to costs.
87. Appeal allowed