- Bookmark
- Share
- CaseIQ
M/S. The Mahalaxmi Mills Co. Ltd., Beawar, And Others v. The State .
Factual and Procedural Background
This is an application in revision by Mahalaxmi Mills Company Limited, Beawar, its four directors—Pannalal Kothari, Navratanmal Kothari, Kastur Chand Mehta, Amarchand Kothari—and Deo Dutt Takiar, Secretary, against an order of the City Magistrate, Jaipur dated 27 August 1966. By that order the petitioners, with the exception of Amarchand Kothari, were sentenced to a fine of Rs. 200 each for default in giving notice of increase in share capital to the Registrar as required under section 97(1) and (2) of the Companies Act; the offence is punishable under clause (3) of that section.
The Company had been registered under the Indian Companies Act VII of 1913 with authorised capital of Rs. 25,00,000 divided into 25,000 shares of Rs. 100 each. On 31 October 1960 the Company passed a special resolution altering its memorandum and articles to state the capital was Rs. 1,00,00,000 divided into 1,00,000 shares of Rs. 100 each. The Registrar alleged that this amounted to an increase of share capital and that the Company and its officers were statutorily obliged to file notice of the increase in Form No. 6 (pursuant to rule 3 of the Companies (Central Government) General Rules & Form, 1956) with a filing fee of Rs. 5,625 (calculated under clause (3) Schedule X to the Companies Act, 1956), no later than 15 November 1960 (within 15 days of the resolution).
It was alleged in the complaint that the petitioners did not file the return despite service of notices. Before the trial court the petitioners' counsel admitted that the share capital was increased as stated and admitted no notice under section 97 was given; he stated that actual capital had not been increased (i.e., shares not actually allotted) and that he had intimated the Registrar though not in the prescribed form or with the prescribed fee. On the basis of the admission the trial court found the petitioners guilty and imposed the fines noted above. The petitioners appealed to the Sessions Judge, Jaipur City; they did not appear at the hearing, and the Sessions Judge, after considering grounds in the memorandum of appeal, rejected it. The present revision follows.
Legal Issues Presented
- When, for the purposes of section 97 of the Companies Act, can a company be said to have "increased its share capital": upon the passing of a special resolution creating new shares (i.e., creation/issue simpliciter), or only upon the subsequent steps of offer, allotment and registration of the shareholders' names?
- Whether failure to give notice to the Registrar under section 97(1) and (2) is an offence punishable under section 97(3) where new shares have been created by resolution but have not been offered, allotted or registered.
Arguments of the Parties
Appellants' Arguments
- The share capital of the Company could only be increased in the manner provided by section 94 of the Act; in particular, by issuing new shares as contemplated by section 94(1)(a).
- Unless new shares are actually issued (which, the appellants argue, requires the processes set out in section 81—offer to existing shareholders, allotment and registration), there is no "increase in share capital" within the meaning of section 97; therefore, failure to give notice under section 97 did not constitute an offence in the present facts because the Company had not proceeded beyond passing the resolution on 31 October 1960.
- It was also stated on behalf of the petitioners that the Company had intimated the Registrar about the resolution, albeit not in the prescribed form and without payment of the prescribed fee.
Prosecution / Registrar's Contentions
- The Registrar alleged that the special resolution of 31 October 1960 increased the authorised share capital from Rs. 25,00,000 to Rs. 1,00,00,000 and that it was the statutory obligation of the Company and its officers to file Form No. 6 with the prescribed filing fee within 15 days of the resolution; they had not done so despite notices.
- Before the trial court the petitioners' counsel admitted that the share capital had been increased and that no notice as required by section 97 had been given.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Nanalal Zaver v. Bombay Life Assurance Co. Ltd., AIR 1950 SC 172 (Dass, J.) | Support for the proposition that shares may be considered "issued" even though they remain in hand and have not been offered or allotted to anyone. | The court relied on an observation of Dass, J. in this case to support the view that creation of shares by special resolution can constitute issuance for the purposes of section 94(1)(a) and therefore amount to an increase of share capital under section 97. |
Court's Reasoning and Analysis
The court began by setting out the relevant statutory provisions: section 94 (power to alter share capital) and section 97 (notice of increase of share capital or of members). The text of section 97(1) requires that, where a company has increased its share capital, it shall file with the Registrar a notice of the increase within fifteen days after the passing of the resolution authorising the increase. Section 97(2) requires particulars of the classes of shares affected and the conditions, if any, subject to which the new shares have been or are to be issued; Form No. 6 (prescribed pursuant to section 97) similarly asks for the conditions under which new shares "have been or are to be issued."
The court observed that section 94(1)(a) permits a company, if authorised by its articles, to "increase its share capital by such amount as it thinks expedient by issuing new shares." The question identified by the court was whether an "increase" for the purposes of section 97 takes place only after the whole sequence of offer, allotment and registration is completed, or whether creation/issuance of new shares by resolution is sufficient.
The court reasoned that if an increase of share capital required completion of offer, allotment and registration, then the requirement in section 97 that notice be filed within fifteen days of passing the resolution could not be sensibly complied with (because those later steps would usually take longer). The court found it significant that section 97(2) and Form No. 6 expressly contemplate notice even where the new shares "have been or are to be issued," indicating that the notice may be given at the stage of creation/issuance by resolution and need not await allotment or registration.
The court also noted the existence of section 75 (requiring a return of allotments) as a distinct filing obligation, supporting the conclusion that section 97 deals with the earlier event of creation/issuance of shares by resolution rather than the later act of allotment/registration.
On this basis the court concluded that an increase of share capital within the meaning of section 97(1) occurs by creation of new shares simpliciter (i.e., by their being created/issued by special resolution) and that it is not necessary that the new shares should have been offered, allotted or the names of shareholders registered in the company's books before the obligation to give notice under section 97 arises.
The court further relied on the observation of Dass, J. in Nanalal Zaver (AIR 1950 SC 172 at p.188) to support the view that shares may be regarded as "issued" even if they have not been offered to or allotted to any person.
Applying this interpretation to the facts, and given the petitioners' admission that the share capital was increased by the resolution and that no notice under section 97 had been given, the court held that the petitioners were guilty of default under section 97(3). However, the court took account of mitigating facts: the Company had, in returns filed since 1960, been showing the increased share capital (though it had not filed Form No. 6 nor paid the prescribed fee, due to its interpretation of the law). In view of that mitigation the court reduced the fines previously imposed.
Holding and Implications
Holding: The revision is partly accepted. The court held that an increase of a company's share capital for the purposes of section 97 occurs upon creation/issuance of new shares by special resolution (it is not necessary that the new shares be offered, allotted or have the shareholders' names registered). The conviction of the petitioners was maintained but the monetary sentences were reduced in part.
Specific orders and direct consequences for the parties:
- The conviction of the petitioners is maintained.
- The fine imposed on petitioners Nos. 2 to 5 was reduced from Rs. 200 to Rs. 100 each.
- The fine on petitioner No. 6 was reduced from Rs. 100 to Rs. 50.
- The sentence of fine imposed on petitioner No. 1 (the Company) was maintained as originally ordered.
- The petitioners were directed to file the return (Form No. 6) with the necessary filing fee within 30 days of the order.
- The order awarding Rs. 200 as costs to the complainant was maintained.
- One month's time was allowed to the petitioners to deposit the fine.
Implications beyond the parties: The opinion explains and applies statutory provisions to resolve the meaning of "increase of share capital" under section 97 and relies on cited authority for support. The direct practical effect in this case is the maintenance of conviction with reduction in fines and directions to comply with the filing requirement; the opinion's reasoning defines how section 97 applies to a resolution creating new shares, as set out above.
1. This is an application in revision by Mahalaxmi Mills Company Limited, Beawar, its four Directors viz., Pannalal Kothari, Navratanmal Kothari, Kastur Chand Mehta, Amarchand Kothari and Deo Dutt Takiar, Secretary against the order of the City Magistrate, Jaipur dated 27th August, 1966, by which they with the exception of Amarchand, were sentenced to a fine of Rs. 200 each for their default in giving notice of increase in share capital to the Registrar as required under section 97(1) and (2) of the Companies Act (hereinafter called the Act) and which is punishable under clause (3) of the said section. The Company was registered under the Indian Companies Act VII of 1913 with the authorised capital of Rs. 25,00,000 divided into 25,000 shares of 100 each. According to the Articles of Association of the Company, its capital could be increased in accordance with the regulations of the Company and the Legislative provisions for the time being in force in this behalf and the increased capita must be divided into shares of Rupees hundred or less or more as the Board of Directors, may deem fit. On 31st October, 1960, the Company passed a Special Resolution making new Memorandum and Articles of Association applicable to the Company and the said Memorandum and Articles of Association contained the following clause:—
“The capital of the Company is Rs. 1,00,00,000 (one Crore), to be divided into 1,00,000 (one lac) shares of Rs. 100/- each.”
2. In pursuance of this special resolution, it is alleged by the Registrar of the Companies that the share capital was increased from Rs. 25,00,000 to Rs. 1,00,00,000/- and it was the statutory obligation of the Company and its officers to file with the Registrar a notice of increase of capital in Form No. 6 prescribed under rule 3 of the Companies (Central Government) General Rules & Form, 1956, with filing fee of Rs. 5625 calculated in accordance with clause (3) Schedule X to the Companies Act, 1956, latest by 15-11-1960 i.e within 15 days from the date of passing the resolution authorising the increase in the share capital of the Company. It was also alleged in the complaint that the petitioners had not filed the return in spite of service of notices upon them in that behalf. The counsel for the petitioners who was appearing on their behalf before the trial court, admitted in his statement that the share capital was increased from 25,00,000 to Rs. 1,00,00,000 and was divided into one lac shares of Rs. 100 each.
3. He also admitted that no notice as provided in section 97 of the Act was given to the Registrar. It was further stated that after passing of the resolution actual capita was not increased and he had also intimated to the Registrar about the said resolution although it had not been done in the prescribed form along with the or described fee. On the basis of the above admission the trial court found the petitioners guilty and sentenced them as stated above. The petitioners preferred an appeal against their conviction in the court of the Sessions Judge. Jaipur City, but did not put in appearance at the time of hearing and so the learned Sessions Judge after considering the grounds taken in the memo of appeal, rejected it.
4. In this Court learned counsel for the petitioners has contended that the share capital of the Company could only be increased in the manner provided in section 94 and unless this is so done it cannot amount to an increase of share capital. In other words the argument is that unless the new shares are issued as provided in section 94(1)(a), there is no increase in the share capital within the meaning of section 97 of the Act and as such if the petitioners failed to give notice of increase of share capital to the Registrar they did not commit any offence it is pointed out that the new shares are issued in the manner provided in section 81 of the Act. It is urged that so far the Company has not done anything towards the issuing of shares beyond passing the said resolution on 31st October, 1960.
5. Before discussing the above contention it is necessary to refer to the provisions of sections 94 and 97 of the Act which are as follows:—
6. Section 94. Power of limited company to alter its share capital—
(1) A limited company having a share capital, may if so authorised by its articles, alter the conditions of its memorandum as follows, that is to say, it may—
(a) increase its share capital by such amount as it thinks expedient by issuing new shares;
(b) consolidate and divide all or any of its share capital into shares of larger amount than its existing shares;
(c) convert all or any of its fully paid up shares into stock, and reconvert that stock into fully paid up shares of any denomination;
(d) sub-divide its shares, or any of them, into shares of smaller amount than is fixed by the memorandum, so however, that in the sub-division the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived;
(e) cancel shares which, at the date of the passing of the resolution in that behalf, have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the shares so cancelled.
(2) The powers conferred by this section shall be exercised by the company in general meeting and shall not require to be confirmed by the Court.
(3) A cancellation of shares in pursuance of this section shall not be deemed to be reduction of share capital within the meaning of this Act.
7. S. 97. Notice of increase of share capital or of members.—
(1) Where a company having a share capital, whether its shares have or have not been converted into stock, has increased its share capital beyond the authorised capital, and where, a company, not being a company limited by shares, has increased the number of its members beyond the registered number, it shall file with the Registrar, notice of the increase of capital or of members within fifteen days after the passing of the resolution authorising the increase; and the Registrar shall record the increase and also make any alterations which may be necessary in the company's memorandum or articles or both.
(2) The notice to be given as aforesaid shall include particulars of the classes of shares affected and the conditions, if any subject to which the new shares have been or are to be issued.
(3) If default is made in complying with this section, the company, and every officer of the company who is in default shall be punishable with fine which may extend to fifty rupees for every day during which the default continues.
8. It would also be relevant to refer to Form No. 6 for giving a notice of increase in the share capital in Appendix (A), pursuant to section 97 which is as under: No of Company…….
The Companies Act, 1950 Notice of Increase in Share Capital Pursuant to section 97 Name of Company
Limited/Private Limited
To the Registrar of Companies Limited/Private Limited/hereby gives you notice pursuant to section 97 of the Companies Act, 1950, that by (a) resolution of the company dated the day of 19 the share capital of the Company has been increased by the addition thereto of the sum of Rs. beyond the present authorised capital of Rs. Dated the day of 19
The additional capital is divided as follows:
Number of shares Class of shares Nominal amount of each share.
The conditions (e.g voting rights, dividend rights etc.) subject to which the new shares have been or are to be issued are as follows.
(If any of the new shares are preference shares, state whether they are redeemable or not).
Signature
Designation (h)
Dated day of 19.
9. It would appear from sub-clause (1) of section 97 that a notice of the increase of the share capital is to be given to the Registrar within 15 days after the passing of the resolution authorising the increase. Sub-clause (2) of section 97 also says that the notice shall include particulars of the classes of shares affected and the conditions, if any, subject to which the new shares have been or are to be issued Form No. 6 also requires the conditions (e.g voting rights, dividend right winding up rights etc.) subject to which the new shares have been or are to be issued, to be mentioned in the notice. From Clause (2) of S. 97 and Form No. 6 it would be obvious that at the time of giving notice it is not necessary that the new shares should have already been issued because sub-clause (2) as well as Form No. 6 clearly contemplate notice even though the new shares have not been issued Section 94 of the Act corresponds to section 61 of the English Companies Act (1948) and it is provided in sub-clause (1)(a) that:
“S. 61(1) A company limited by shares of a company limited by guarantee and having a share capital, if so authorised by its articles, may alter the conditions of its memorandum as follows:
(a) increase its share capital by new shares of such amount as it thinks expedient.”
10. But under the Act in sub-clause (a) it is provided that it may increase its share capital by such amount as it thinks expedient by issuing new shares.
11. Now the question is as to when can a company be said to have increased its share capital. Whether by actual allotment of shares or registration of the names of the shareholders in the books of the company or by merely creation of new shares, whether they have been offered to the shareholders or not. As would appear from section 81 of the Act that the offer of further shares to the persons who, at the date of the offer, are holders of the equity shares of the company, in proportion, as nearly as circumstances admit, to the capital paid up on these shares at that date is to be made by notice specifying the number of shares offered and limiting a time not being less than fifteen days from the date of the offer which must necessarily precede allotment of shares to the shareholders and the registration of their in the register of the companies.
12. If for increase of share capital the whole process of offer, allotment and registration of names of the shareholders in the books of the company had to be gone through, it could not have been provided in section 97 that a notice of the increase of the share capital is to be given to the Registrar within 15 days after the passing of the resolution authorising the increase. It would then be not possible to give notice of the increase of capital within 15 days after passing of the resolution authorising the increase. As already stated sub-clause (2) to section 97 and Form No. 6 show beyond any doubt that a notice is required to be given of the increase of share capital to the Registrar whether the new shares have been or are to be issued if the interpretation sought to be put by the learned counsel for the petitioners is accepted, it would render the provision of section 97(1), (2) nugatory.
13. This is further clear from the fact that under section 75 of the Act a company is also required to file a return with the Registrar of the allotment of its shares. I am, therefore, of the view that increase of share capital within the meaning of section 97(1) takes place by creation of new shares simpliciter and it is not necessary that the new shares should have been offered, allotted or the names of the shareholders be registered in the books of the company I also derive support for my view from the following observations of Dass, J. as he then was in Nanalal Zaver v. Bombay Life Assurance Co. Ltd., AIR 1950 SC 172 at p. 188:
“It is true that 272.4/5 shares remain in hand. At best although issued they have not been offered to anyone.”
14. So even though the shares have not been offered or allotted to anyone they are still “issued” within the meaning of section 94(1)(a) of the Act when they have been created by special resolution of the Company and consequently its share capital has been increased and default by the petitioners in giving a notice as required by section 97(1)(2) is punishable under sub-clause (3) of the said section.
15. But it is clear from the statement of Babulal (P.W 1) as also the reply dated 25th August, 1965, given by the Company to the Registrar Ex. D1, that they had been showing the increase of share capital in all the returns filed by them since 1960 though they had not given a notice as provided in Form No. 6 and had also not paid the fees in view of their interpretation of section 94(1)(a), a punishment of nominal fine would meet the ends of justice. The revision application is partly accepted, conviction of the petitioners is maintained, but the fine imposed upon petitioners Nos. 2 to 5 is reduced from Rs. 200/- to Rs. 100/- each and the fine imposed on petitioner No. 6 is reduced from Rs. 100/- to Rs. 50/-. The sentence of fine imposed on petitioner No. 1 is maintained, and the petitioners are directed to file the return with necessary filing fee within 30 days time of this order. The order of awarding Rupees 200/- as costs to the complainant is also maintained. One month's time is allowed to the petitioner to deposit the fine.
CWM/D.V.C
16. Order accordingly.
Alert