Citation Codes

Equivalent Citations

citation codes

Case Number

Civil Original No. 86 of 1954

Advocates

H.S.Doabia
H.R.Sodhi

Judges

Tek Chand, J.

Acts

section 38 of the Indian Companies Act of 1913
section 38 of the Indian Companies Act, 1913,
SECTION 155 COMPANIES ACT 1956

See more information ...

Smart Summary

Judgment Summary: Tek Chand, J. — Petition under section 38, Indian Companies Act, 1913

Factual and Procedural Background

This is a petition under section 38 of the Indian Companies Act, 1913 (analogous to section 155 of the Companies Act, 1956), brought by two petitioners: Bhagat Singh and Hardev Singh, against Piar Bus Service Limited, Amritsar and others.

- Bhagat Singh claimed to hold 41 shares of Rs. 100 each, paid in part by transfer to the company of two motor lorries valued at Rs. 4,100, and alleged that his shares were illegally forfeited and his name struck off the register of members.

- Hardev Singh claimed to hold 100 shares of Rs. 100 each, having paid Rs. 10,000 in respect thereof; he alleged similar illegal forfeiture and removal from the register.

The Company denied that Bhagat Singh held 41 shares (asserting he held only 24 fully paid shares) and admitted Hardev Singh's holding but alleged substantial indebtedness by Hardev Singh (approximately Rs. 23,994/10/9 per company books) arising while he served as cashier. The Company relied on Article 15 of its Articles of Association (as amended) to justify a lien and forfeiture, and stated that their Board resolved to forfeit shares on 22 September 1953 (confirmed at a general meeting on 20 October 1953). Notices calling for payment were issued to both petitioners.

The predecessor judge framed two issues: (1) whether the Company was entitled to confiscate Bhagat Singh's shares; and (2) whether the Company was entitled to confiscate Hardev Singh's shares. Evidence was led from company witnesses (including the Chairman and Accountant) and from the petitioners and their witnesses. The petition was ultimately dismissed by the court.

Legal Issues Presented

Whether the Company was entitled to confiscate (forfeit) the shares of Bhagat Singh (petitioner).
Whether the Company was entitled to confiscate (forfeit) the shares of Hardev Singh (petitioner).

Arguments of the Parties

Company's Arguments

The Company denied that Bhagat Singh held 41 shares and maintained he owned only 24 fully paid shares.
The Company asserted that Hardev Singh, as cashier, was entrusted with large sums and, according to company books, had caused a deficiency (Rs. 23,994/10/9 as of 19 April 1951), so the Company had a lien on his shares for monies due.
The Company relied upon Article 15 of its Articles of Association (as amended) which conferred a lien on shares (including fully paid shares) and empowered directors to forfeit or sell shares in respect of monies due, and contended the forfeitures were lawful and within its powers.
The Company produced evidence (board resolutions, balance sheet entries, witnesses R.W.1 Ishar Singh Majhel — Chairman — and R.W.2 Som Nath — Accountant) showing notices were sent and that resolutions authorizing forfeiture were passed and confirmed at a shareholders' meeting; the Company stated Hardev Singh was present at the meeting and did not object.
Learned counsel for the Company argued that section 38 of the 1913 Act is intended for summary, non-controversial matters and that, because this case is factually disputed and requires detailed investigation (particularly of accounts and alleged misappropriation), the petitioners should be directed to bring a regular suit rather than obtain summary relief under section 38.

Petitioners' Arguments

Bhagat Singh (P.W.2) asserted he was the owner of 41 shares (24 allotted at one time and 17 in lieu of transfer of a bus) and, while the company records showed a debt of Rs. 3,615/4/3, he pointed out that entries did not bear his signature.
Hardev Singh (P.W.3) denied making any entries in the company books, denied handling cash, and contended that entries had been made by the company's accountant R.W.2 Som Nath; although he did not deny the balance-sheet entry reflecting indebtedness, he disputed personal responsibility as shown in the books.
A petitioners' witness (P.W.1 Darshan Singh) stated that Hardev Singh had never made entries in the account books and that no proper inquiry had been conducted when the forfeitures occurred.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
In re Ruby Consolidated Mining Company, Askew's Case (Mellish, L.J.)	The court has discretion under company-law provisions to refuse to determine a case on a summary motion where it cannot properly be tried on such a motion, and may require an action or suit.	Cited to support the proposition that where the matter is not fit for summary disposal under section 38, the court may refuse the petition and leave the parties free to bring a regular suit.
In re Greater Britain Products Development Corporation, Limited (Swift, J.)	Where there is something to be answered and investigated, the usual course is to dismiss the summons or motion but leave it open to the party to bring an action.	Relied upon to justify refusing summary relief and directing that contentious matters requiring investigation be litigated by action in a Civil Court.
Simpson's Case (English authorities cited collectively)	If the case is difficult and complicated, the court should refuse the motion without prejudice to an action being brought.	Used to demonstrate the established English approach that complex factual disputes should be resolved by action rather than summary procedure.
Re National and Provincial Marine Insurance Company, Ex parte Parker	Authority for refusing summary relief in complex or investigatory cases and leaving remedy open by action.	Applied as part of the line of English authorities supporting refusal of summary adjudication in complicated disputes about share registers.
Bellerby v. Rowland	Another English decision reflecting the principle that complex matters should be litigated by action rather than summary motion.	Cited to reinforce the point that the court may decline summary determination in complex contested matters.
Marwood's Steamship Company, Limited (1901 L.R. 2 Ch. D. 265)	English authority indicating the court should refuse summary relief in complicated cases.	Referenced as one of the English precedents supporting refusal of summary jurisdiction where thorough investigation is required.
In re Sussex Brick Company	English case supporting the principle that complex disputes should be litigated by action rather than on summary motion.	Relied upon as part of established English jurisprudence cited by the court to decline summary disposal.
Halsbury's Laws of England, 3rd Ed., Vol. 6, p. 218	Textual authority stating that if a case is complex or requires investigation the court will decline to make an order on motion and leave the applicant free to institute an action for rectification.	Cited as authoritative support for the practice of refusing summary relief under such circumstances and directing parties to seek relief by action.
Ramesh Chandra Mitter v. Jogini Mohan Chatterji (A.I.R. 1920 Cal. 789)	Indian case following English authorities on the exercise of discretion in summary applications for rectification of register.	Used to show that English principles on refusal of summary relief have been followed by Indian courts.
In the matter of Dhelakhat Tea Co. Ltd.	Indian authority cited among cases applying the English approach that complex disputes require a full action rather than summary remedy.	Cited to demonstrate Indian courts' adherence to the rule that contested, complex matters be litigated by action.
T.A.K. Mohideen Pichai Taraganar v. Tinnevelly Mills Co. Ltd.	Another Indian case cited as following the English line on summary relief vs. action.	Referenced to illustrate consistent Indian jurisprudence refusing summary adjudication in complex contested matters.
Devakumar Mishra v. Rupak Ltd. (A.I.R. 1955 Patna 486)	Indian decision aligning with the principle that the court may decline summary relief when controversies require detailed investigation.	Cited by the court to show domestic precedents supporting the course adopted in this case.

Court's Reasoning and Analysis

The court's analysis proceeded in these principal steps:

Characterisation of section 38: The judge observed that section 38 of the Indian Companies Act, 1913 (analogous to section 155 of the 1956 Act) provides a summary remedy intended for non-controversial matters or where quick decision is required to prevent irreparable injury.
Assessment of factual disputes: The court examined the record and found substantial factual disputes between the petitioners and the Company — disputes about the true extent of Bhagat Singh's shareholding, the correctness and authorship of entries in the company books, the extent and nature of Hardev Singh's alleged liability as cashier, and allegations of misappropriation of large sums.
Sufficiency of evidence and need for investigation: The judge concluded the material before the court was insufficient to resolve those disputes summarily. The matters raised required a "sifting and thorough scrutiny" (particularly of accounts and whether monies were handled and responsibilities, personal or vicarious, discharged).
Discretion under company-law procedure: Citing an established line of English authorities and Indian decisions, and Halsbury's authoritative statement, the court reiterated the settled principle that where a case is complex or requires investigation the court should refuse to decide the matter on a summary application under company-law provisions and leave the parties to pursue a suit. The court emphasised that jurisdiction for rectification is discretionary and not an automatic entitlement.
Application to present case and result: Applying those principles, the court held that this petition was not a proper case for summary relief under section 38 and that the appropriate remedy was a regular civil suit to investigate the contested facts. The court therefore dismissed the petition without expressing views on the merits and without costs.

Holding and Implications

Holding: Petition dismissed.

Implications and immediate consequences:

The court declined to exercise its discretionary power under section 38 to rectify the register in this summary proceeding because the dispute involved contested facts and required detailed investigation.
The petitioners remain free to institute a regular civil suit to litigate the factual disputes (including alleged indebtedness, authorship and correctness of accounting entries, and the lawfulness of forfeiture) and to seek appropriate relief in that forum.
No order as to costs was made.
The judgment does not purport to resolve the substantive merits of the contested claims and, accordingly, does not establish a new precedent on the factual issues; it applies existing principles about the proper use of summary company-law remedies.

This summary is strictly confined to the information contained in the provided opinion and does not add facts or inferences beyond that text.

Show full summary ...

S. Bhagat Singh And Another v. The Piar Bus Service Limited, Amritsar And Others

Tek Chand, J.:— This is a petition under section 38 of the Indian Companies Act, 1913, which is analogous to section 155 of the Companies Act of 1956. There are two petitioners. The first petitioner Bhagat Singh claimed to have 41 shares of Rs. 100/- each in the Piar Bus Service Limited, Amritsar. This amount, he claimed to have paid by giving to the Company two motor lorries of the value of Rs. 4,100/- and he claims himself to be a holder of fully paid up shares.

2. The second petitioner is Hardev Singh who had acquired 100 shares of the Company of the value of Rs. 100/- each and had paid the entire amount of Rs. 10,000/- on these shares. The grievance of the two petitioners is that their respective shares were illegally forfeited by the Company and they were transferred to respondents Nos. 2 to 4 and their names have been scored out from the register of members of the Company. They have prayed that this Court should pass an order directing the respondent Company to enter the names of the petitioners in the register of members and to remove the names of respondents Nos. 2 to 4.

3. On behalf of the Company it is denied that the first petitioner Bhagat Singh was a holder of 41 shares. According to the Company he owned only 24 shares of Rs. 100/- each and these shares were fully paid up. As regards petitioner No. 2 the extent of his holding has been admitted and it is stated that he joined the service of the Company as a cashier and was entrusted from time to time with large sums of money. On checking his account it was found that on 19th of April, 1951, according to the books of the Company there was a sum of Rs. 23,994/10/9 as cash in hand. The next day the cash in hand was found to be Rs. 4/4/9. Hardev Singh stopped working after 19th of April, 1951, and the above mentioned amount was due from him to the Company as also shown in the balance sheet. The Company had a lien on the shares of Hardev Singh for the amount due from him. As he did not pay this amount his shares were forfeited by a resolution of the Directors passed at a Board meeting held on 22nd of September, 1953 (Vide Exhibit R. 4) and this resolution was later confirmed on 20th of October, 1953, at a general meeting of the share-holders of the Company. He was present at the meeting of the share holders.

4. The allegation against Bhagat Smgh is that he owed to the Company a sum of Rs. 3,615/4/3 and his shares were forfeited by a resolution of the Board of Directors. It is claimed on behalf of the Company that the forfeiture was lawful and within the power of the Company as conferred by article 15 of the Articles of Association as amended; and it runs as under:—

“15. If a member fails to pay any call or instalment of a call on the day appointed by the Board for payment thereof, the Directors shall send a notice fixing a day for payment and if the requirement of any such notice are not complied with, any share in respect of which the notice has been given, may any time thereafter before the payment required by the notice, be forfeited by a resolution of the Directors to that effect.

(a) The Company shall have a lien on every share (on fully paid shares as well) for all moneys (whether presently payable or not) called or payable at a fixed time in respect of that share and the Company shall also have lien on all shares (on fully paid shares as well) standing registered in the name of single person for all moneys presently payable by him or his estate to the Company but the Directors may at any time declare any share to be wholly or in part exempt from the provisions of the clause. The Company's lien, if any, on a share shall extend to all dividends payable thereon.

(b) The Company may sell in such manner as the Directors think fit any shares on which the Company has a lien but no sale shall be made unless some sum in respect of which the lien exists is presently payable nor until the expiration of fourteen days after a notice in writing stating and demanding payment of such part of amount in respect of which the lien exists as is presently payable has been given to the registered holder for the time being of the share, or the person entitled by reason of his death or insolvency to the share.

(c) The proceeds of the sale shall be applied in payment of such part of the amount in respect of which the lien exists as is presently payable and the residue shall (subject to a like lien for sale) be paid to the persons entitled to the shares at the date of the sale. The purchaser shall be registered as the holder of the shares and he shall not be bound to see to the application of the purchase money nor shall his title to the shares be affected by any irregularity or invalidity in the proceeding in reference to the sale.”

5. Prior to the amendment of the Articles of Association only the first para stood, and parts (a), (b) and (c) were added subsequent to the amendment. My predecessor framed the following issues:—

1. Whether the Company was entitled to confiscate the shares of Bhagat Singh petitioner.

2. Whether the Company was entitled to confiscate the shares of Hardev Singh petitioner.

6. On behalf of the Company R.W 1 Ishar Singh Majhel, Chairman of the Company, has stated that according to the books of the Company Rs. 23,994/10/9 was due from Hardev Singh and Rs. 3,615/4/3 from Bhagat Singh. Both the petitioners were served with notices calling upon them to pay the amounts due from them by 20th of September, 1953, failing which their shares would be forfeited. A registered notice with acknowledgment due was sent to Hardev Singh and also to Bhagat Singh. The letter sent to Hardev Singh was received back with the remark “refused”. Bhagat Singh had received the letter. In accordance with the resolution passed at the meeting of the Board of Directors on 29th of August, 1953, 24 shares of Bhagat Singh for Rs. 2,400/- were forfeited at the next meeting of the Board held on 22nd of September, 1953. Regarding the claim of the Company as to the balance of Rs. 1,215/4/3 left as due from Bhagat Singh, the matter was kept under consideration. The case of Hardev Singh also was considered at the meeting of the Board held on 20th of October, 1953. After forfeiture of shares and after making certain adjustments a sum of Rs. 5,942/2/3 was still due to the Company. A general meeting of the share-holders confirmed the Board resolution on 20th of October, 1953. It was stated that Hardev Singh who was present at the meeting did not object to the forfeiture of the shares. A resolution for amending the Memorandum and Articles of Association of the Company was passed on 5th of October, 1952, and the amendment dates from 16th of November, 1952. R.W 2 Som Nath, Accountant of the Company, supports R.W 1 and has been examined to prove the liability of the petitioners with respect to the respective sums claimed from them as due to the Company.

7. On behalf of the petitioners, P.W 1 Darshan Singh stated that Hardev Singh had never made any entries in the account books and no inquiry was made when the shares of the petitioners were forfeited. Bhagat Singh petitioner has appeared as P.W 2 and stated that he owned 41 shares 24 shares were allotted at one time and 17 shares were also allotted to him in lieu of transfer of a bus. He did not deny that a sum of Rs. 3,615/4/3 was shown as due from him according to the books of the Company but stated that the entries did not bear his signatures. Hardev Singh petitioner as P.W 3 denied ever having made any entries in the books of the Company or ever having handled cash. According to him entries were made by R.W 2 Som Nath who alone used to handle cash and no money was entrusted to the petitioner. He did not deny that in the balance sheet, Exhibit R. 9 there was an entry that he was indebted to the Company as cashier to the extent of Rs. 23,000/-.

8. Mr. Hans Raj Sodhi, learned counsel for the Company, has argued that section 38 of the Indian Companies Act of 1913 is intended for dealing in a summary manner with non-controversial matters. In this case there is a controversy, and the several allegations made by the petitioners are being questioned and in order to arrive at a correct conclusion, a regular and detailed investigation is desirable. In such a case the petitioner should be directed to proceed by a regular suit. I think there is force in this contention. The dispute between the parties raises a number of controversial questions of fact and calls for a thorough investigation into the accounts maintained during the time when Hardev Singh was the cashier. It has also to be inquired into whether he had been handling cash and what was his responsibility to the Company, personal or vicarious, and whether the same had been discharged. There were serious allegations made on behalf of the Company regarding misappropriation of large funds. In order to determine which party's contention is well founded and, to what extent, the dispute requires a sifting and thorough scrutiny. As between Bhagat Singh, the other petitioner, and the Company there is also a sharp conflict between the two versions. The Company has denied the assertion of Bhagat Singh that he was owner of 41 fully paid up shares. The extent of his debt to the Company has also to be determined. The record before me suffers from insufficiency of material and I do not consider it safe to adjudicate upon the conflicting contentions of the parties in proceedings under section 38 of the Indian Companies Act, 1913, which are essentially of a summary character.

9. The object of enacting section 38 of the Indian Companies Act of 1913, which is analogous to section 155 of the Companies Act of 1956, was to provide a summary remedy in non-controversial matters or in matters where a quick decision was necessary in order to obviate an irreparable injury to a party. This provision was not intended for settling controversies under several heads necessitating a regular investigation. When serious disputes are involved—as in this case—the proper forum for their adjudication is a Civil Court. It no longer admits of controversy that the jurisdiction of a Court in matters of rectification of register under section 38 of the Indian Companies Act, 1913, now under section 155 of the new Act, is unrestricted though the petitioner is not entitled to relief ex debito justitiae. This remedy is not available to the litigant as of right without the Court having discretion to refuse it.

In re Ruby Consolidated Mining Company, Askew's Case1, Mellish, L.J, said—

“I think it clear, that under section 35 of the Act of 1862 (Companies Act, 1862, 25 and 25 Victoria c.89) the Court has a discretion, if the case cannot properly be tried on a motion like this, to refuse to determine it until an action or suit has been brought.”

In re Greater Britian Products Development Corporation, Limited2, Swift, J. observed—

“Where it was clear that there was something to be answered and something to be investigated, the ordinary course, as far back as the Court had been able to trace, had been for the Judge to dismiss the summons or motion, but to leave it open to the party to bring his action.”

10. Courts in England have been of the view that if the case be one of difficulty and complication the Court should refuse the motion without prejudice to an action being brought, vide Simpson's Case3; Re National and Provincial Marine Insurance Company, Exparte Parker,4 Bellerby v. Rowland and Marwood's Steamship Company, Limited . 1901 L.R 2 Ch. D. 265., and In re Sussex Brick Company6.

11. As stated in Halsbury's Laws of England, Third Edition, Volume 6, at page 218—

“It (the application) may be by motion or summons or by action commenced by writ. If the court thinks that the case, by reason of its complexity or on the ground that there are matters requiring investigation or otherwise, could more satisfactorily be dealt with by an action, the court will decline to make an order on a motion, without prejudice to the right of the applicant to institute an action for rectification. An action may, without any direction by the court, be instituted for rectification of the register, a course which should be followed where there is much complexity, or where other relief is required.”

12. The principles of law as enunciated in the English cases referred to above have been followed by Courts in India, vide Ramesh Chandra Mitter v. Jogini Mohan Chatterji . A.I.R 1920 Cal. 789.. In the matter of Dhelakhat Tea Co. Ltd.8, T.A.K Mohideen Pichai Taraganar v. Tinnevelly Mills Co. Ltd.,9 and Devakumar Mishra v. Rupak Ltd. . A.I.R 1955 Patna 486..

13. Some evidence has been led in this case and the Company has also produced some documents in support of its plea. I must not prejudice either party by expressing any views on the merits of the dispute. The petitioners in this case should, if so advised, get their cause adjudicated in a Civil Court by instituting a regular suit. This is not a fit case in which the discretionary powers of this Court for rectification of the register can suitably be invoked. The petition is dismissed but there will be no order as to costs.

Petition dismissed.

S. Bhagat Singh And Another v. The Piar Bus Service Limited, Amritsar And Others

Judgment Summary: Tek Chand, J. — Petition under section 38, Indian Companies Act, 1913

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Company's Arguments

Petitioners' Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

S. Bhagat Singh And Another v. The Piar Bus Service Limited, Amritsar And Others

Comments