Bhagwati Prasad v. Shiromani Sugar Mills, Ltd.

Sapru, J.:— This appeal has been filed by the defendant. The suit out of which this appeal arises was instituted on the 4th May 1942 by the Official Liquidators of the plaintiff Company, the Shiromani Sugar Mills Ltd. (in liquidation) for the recovery of a sum of money amounting to Rs. 7,817-8-0 which made up, according to paragraph 9 of the plaint, as follows:—

On account of application money…………. Rs. 750-0-0 On account of allotment money………………. 1500-0-0 On account of 1st call……………………. 1500-0-0 On account of 2nd call……………………… 1000-0-0 4750-0-0 On account of overdue interest up to date of forfeiture……………………. 2067-8-0 Total Rs. 7817-8-0

It was stated that the suit was within the period of limitation as the cause of action arose on 5th May, 1939, when the plaintiff company forfeited the share under its Articles of Association. The raise of the plaintiff was that the defendant was a share-holder to the extent of 50 preference shares in the plaintiff company. According to the plaintiff an application for preference shares was made by the defendant on the 1st October 1933 and along with that application a sum of Rs. 250 was paid by him. The defendant admits that he had applied for 50 preference shares on the 1st October 1933, but he contends that the sum actually paid by him was Rs. 111 and not Rs. 250 and that as 5 per cent, of the share money, Rs. 5000, was not paid along with the share application, the allotment was not valid, having regard to the provisions of section 101 of the Indian Companies Act, Act VII of 1913. Sub-section (1) of section 101 of the Act requires that a sum of at least 5 per cent, of the share money should be paid to or received in cash by the company before the allotment can be made.

[After discussing the evidence on the point their Lordships come to the conclusion that Rs. 250 were paid along with the share application and that the provisions of section 101 of the Companies Act, 1913, were thereby fully complied with. Their Lordships then proceed].

The second point taken by the defendant was that the forfeiture of shares was invalid because the notice intimating forfeiture included two items which were barred by limitation. It has been further argued that the resolution of forfeiture was invalid as it was passed by a committee of Directors and that this Committee was not properly constituted. It appears that the plaintiff served a notice on the defendant on the 7th April, 1939. From this notice it would appear that a demand was made for certain calls which were due and which had remained unpaid on his shares. The first two demands totaling a sum of Rs. 2250 were, it is alleged, time-barred as they had fallen due on the 15th December 1933 and 25th January 1934, and no steps had been taken to recover them within the time fixed for limitation. The lumping together in one letter of demands which were time-barred and demands which were not time-barred would, as has been argued by learned counsel for the appellant, make the notice of forfeiture an illegal one. The position in regard to the demands due on the 15th December 1933, and the 25th January 1934, was that they represented a debt which had not been discharged. It cannot be said that the debt was not there. All that can be urged is that it would not have been open to the plaintiff respondent to enforce payment of that debt in a court of law. Our reading of section 28 of the Indian Limitation Act, Act IX of 1908, is that in a case to which that section does not apply, on the determination of the period of limitation, the right itself is not extinguished. It may be urged, and it is quite true, that the remedy is not enforceable in a court of law. That would not, however, extinguish the right or change the character of the debt. Our view is supported by two authorities which are to be found in Mohesh Lal v. Busunt Kumatee and Jokho Bhunja v. Sitla Baksh Singh(2). In Mohesh Lal's case it was held that the Indian Law of limitation merely bars the remedy, but does not extinguish the right. In Jokho Bhunja's case it was held that a secured creditor's remedy might be barred if he omitted to bring a suit within 12 years from the accrual of the eause of action but his right was not extinguished. It will be noted that section 28 applied only to cases in which the plaintiff sues for possession and a suit to recover the share money due from a co-sharer by a company is by no means a suit for Possession. The conclusion at which we have arrived at after an examination of section 28 and the two authorities mentioned above is that the remedy was barred. But that the right was not extinguished.

The third point in regard to which argument was addressed to us was that the resolution for forfeiture was invalid as it was passed by a Committee of Directors and that this was contrary to Article 179 of the Articles of Association which are to be found printed at page 98 of the paper hook. Article 179 authorises the Director's to delegate any of their powers to a committee consisting of such member or members as they think proper. Any committee so formed shall, in the exercise of the powers so delegated, conform to any regulation that may be imposed on it by the Directors. Article 179 is not inconsistent with anything that is to be found in the Indian Companies Act. In fact, in paragraph 91 of Table A of Schedule I of the Indian Companies Act, Act VII of 1913, there will be found a provision authorising the directors to delegate any of their powers to committees consisting of such member or members of their body as they think fit. It is this provision which is to be found incorporated in Article 179 of the Articles of Association of the plaintiff company. We, therefore, see no force in the argument that the resolution for the forfeiture of shares was invalid. We may on this point also invite attention to Article 34 of the Articles of Association of the plaintiff company which lays down that—

“After the forfeiture of any shares, notice of resolution shall be given to the member in whose name it stood immediately prior to the forfeiture, and an entry of the forfeiture with the date thereof, shall forthwith be made in the register but no forfeiture shall be in any manner invalidated by any omission or neglect to give such notice or to make such entry as aforesaid.”

Another argument which can be urged against the defendant appellant is that after forfeiture a member does not pay as a contributory but he pays as a debtor. This will be clear from a case reported in Habib Rowji v. The Standard Aluminium and Brass Works Ltd.. It was held in that case that by reason of article 32 of the Articles; of Association of the company before the Court, there was a special contract whereby the defendant had agreed that in the event of his shares being forfeited he would be liable to pay to the company all the moneys that were due by him for allotment, calls and further calls made on the shares allotted to him with interest, and that it was on that contract that plaintiffs were suing. It was further laid down that, the cause of action for that reason arose when the company forfeited the shares and due to that circumstance the suit to recover what was due from the defendant on his shares was within time. It was observed by Coyajee, J. that having regard to the terms of article 32 of the Articles; of Association of the company before them, i.e the Bombay High Court Bench there was a new obligation giving the company a fresh cause of action against the defendant and that the period of limitation for a suit to enforce this new obligation began to run from the time the shares were forfeited. A similar provision occurs in Article 34 of the Articles of Association in the present suit. We are, therefore, satisfied that the liability of the defendant is not barred by limitation and that the resolution of the Board of Directors was not invalid. In point of fact, the question about the resolution of the Directors being invalid was not specifically taken in the written statement. We may point; out that it finds no place in the grounds of appeal and it was argued before us for the first time on the second day of the hearing of the appeal. We are satisfied that it was open to the company to validly forfeit the shares and that it could exercise its powers in respect of dues which were time barred. It was pressed upon us that the forfeiture clause was in the nature of a penal clause and was contrary to the spirit of section 74 of the Indian Contract Act. No authority for this proposition was placed before us. The Companies Act does not bar a forfeiture clause of this nature and indeed it specifically provides for it. In Table A which represents a model for Articles of Association, paragraph 24 actually contains a forfeiture clause of this nature. Inasmuch as there is a valid resolution for forfeiture in this case, we are satisfied that there, is no force in this contention.

From a perusal of the application which was filed on behalf of the plaintiff on the 6th October, 1942, it would appear that the defendant appellant was a subscriber to the Memorandum of, Association. In the interrogatories which were served on the defendant, he was specifically asked whether he was one of the original subscribers to the Memorandum of Association and the Articles of Association and whether he was one of those who got them registered. The answers to these interrogatories were not given by the defendant himself, but by his Mukhtaram. The answers were of an evasive nature. They were given on the 16th March, 1943, and what the Mukhtaram stated was that the defendant did not intentionally sign any paper within his knowledge by virtue of which he could have become an original subscriber to the Memorandum and Articles of Association. If it was added in connection with the signature on the application form, Mr. N.K Verma obtained the signature of the defendant on any paper by virtue of which the defendant might have become an original subscriber to the Memorandum and Articles of Association, the defendant had no knowledge of it. We take the Mukhtar-am's answer to mean that he was not in a position to deny that the defendant was an original subscriber to the Memorandum of Association. That being the case, we think that it was possible for the plaintiff company to put their case more simple than they have done in their plaint.

An argument was addressed to us in regard to certain proceedings under the Encumbered Estates Act to which reference was made by the defendant in paragraph 3 of his written statement. There was an issue on that point and a finding of the court was recorded against the defendant. Against that finding there was no ground of appeal taken by the defendant appellant. For this reason we consider it improper to allow the defendants' counsel to argue the point raised by the defendant in paragraph 3 of his written statement.

Another argument was advanced that the defendant appellant was not a member of the plaintiff company inasmuch as he had never made an application for membership to the company. It was urged that what he had actually done was to make an application to the promoters of the company before the company actually came into existence. It was urged that a contract of that nature could not be endorsed by the company or the liquidators who was representing the company. We may point out that this plea was neither taken in the written statement nor in the grounds of appeal here. No issue was raised on this point. It is obvious that it would be unjust to the plaintiff respondent to allow this plea to be raised at this stage of the case.

For the reasons which we have given above, we consider that the judgment and the decree of the lower court are correct. We, therefore, affirm that judgment and decree and dismiss the appeal with costs.

Appeal dismissed.