Decided on January 09,1958

K.L. Goenka And Anr. Appellant
S.R. Majumdar Respondents

Referred Judgements :-



Sarjoo Prosad, C.J. - (1.)THESE two appeals have been preferred by different Appellants under Section 202 of the Indian Companies Act (hereinafter called the Act) and are directed against a judgment and order dated 28th July, 1954 passed by Ram Labhaya, J., settling the list of contributories in a proceeding for winding up the Assam Corporated Bank Ltd. The Appellant Kamakhyalal Goenka in Misc. Appeal No. 24/54 was the Chairman of the Bank in liquidation until May, 1946; whereas Mr. Thomas, the Appellant in Miscellaneous Appeal No. 5/56 was the Director -in -charge of Law and Organization of the said Bank.
(2.)THE Official Liquidator filed a list of contributories under Rule 143 of the Calcutta High Court Rules Original Side as adapted, stating that the contributories shown in the list were so in their own rights as shown from the books and papers of the Company and he prayed that they should be made liable to contribute to the amount of call money due from them.
So far as the Appellants in Miscellaneous Appeal No. 24 are concerned they took the plea that the call money due had been already paid and that there was nothing due from them in respect of those shares. It was also urged that there was no valid allotment of the alleged discount shares to the Appellant Kamakhyalal and that neither in fact nor in law he was liable for the payment of any contribution in respect of them. Therefore the questions arising for consideration in this appeal may be formulated under the following heads:

1. Whether there was no valid or any allotment of 2905 discount shares to the Appellant Kamakhyalal Goenka; and

2. Whether there was actually any payment made by the Appellants in respect of the shares standing in their respective names as alleged by them.

It may be stated at the outset that the rejoinder to the application of the Official Liquidator was filed by Kamakhyalal Goenka alone, the other Appellants being the members of his family. I will first take up the question of the liability in regard to the 2905 discount shares.

The argument on this point is twofold. It is contended firstly by the learned Advocate General who appears on behalf of the Appellants that in fact there was no allotment of these shares at all to Kamakhyalal. It is next submitted by him that the allotment if any, was altogether void and therefore no liability in respect of these shares could be enforced by way of contribution from this Appellant. As the relevant evidence bearing on the factum of allotment has been fairly and elaborately reproduced in the judgment under appeal, the learned Counsel has not considered it necessary to take us to the evidence itself but has been content to draw our attention to the relevant passages in the judgment of the learned Judge. In the list of statement sent to the Registrar of Joint Stock Companies Kamakhyalal Goenka is shown as owner of 2905 shares against item No. 114 and the amount due on account of calls of arrears is shown as Rs. 14,525/ -.

Sailesh Chandra Aditya, an employee of the Mahalaxmi Bank, who is employed by the Official Liquidator to assist him in the work of liquidation has deposed in the case. He produced the cash book of the Bank which shows that Appellant Kamakhyalal Goenka held 2905 shares in his own name and that the amount due in respect of these shares had not been paid. On 15th December, 1945 there is an entry in the cash book showing that Kamakhyalal had borrowed a sum of Rs. 14,526/ - and this amount was shown as deposited against his share money in the bank the same day, though the money which he had to deposit as cash money on that date came to Rs. 29,050/ -.

It is quite clear from the cash book that no cash deposit was actually made by the Appellant and his liability at any rate as to the payment of the balance of Rs. 14,526/ - continued. An entry dated 3rd August 1945 shows that Kamakhyalal, who was a permanent Chairman of the Bank, had borrowed a sum of Rs. 726/ - shown in the suspense account which was credited towards the share account of Om Prakash Goenka.

Again on 30th July, 1945 he is shown to have borrowed Rs. 10,350/ - which is also shown as deposited in the share account of the seven members of his family who are also the Appellants here, namely Santi Goenka, Debi Prosad Goenka, Kamakhyalal Goenka, Anandi Goenka, Brijbala Goenka, Balchand K. Lall and Om Prakash Goenka. The cash book entries therefore reveal that even in respect of the purchase of the shares standing in the names of the other Appellants, the Appellant Kamakhyalal Goenka himself borrowed money from the accounts of the Bank which were later deposited in the share accounts of the other members of his family.

On 9th November, 1944 he is shown to have borrowed Rs. 7,700/ - in advance account which were also shown as deposited in the share account of the seven persons named above. The learned Judge was therefore right in concluding on the basis of these entries that it was a regular practice of the Appellant Kamakhyalal Goenka to make payments in respect of his share account and also in respect of the account of the members of his family by borrowings from the Bank, without making any actual payment.

The cash book entry therefore supports the claim of the Official Liquidator that a sum of Rs. 14,526/ - is due from the Appellant Kamakhyalal on account of the allotment of 2905 discount shares. These shares are said to have been allotted to Kamakhyalal at a meeting of the Board of Directors held on the 19th March 1946. It is true that the proceeding book has not been produced in the case and Mr. Lahiri has naturally commented upon the absence of this book, but there is plenty of other materials on record which would go to show that in fact this allotment had been made.

The notice for the meeting which also embodied the agenda for the allotment of shares, bears the initials of Kamakhyalal Goenka and the attendance register also, for that day, bears his signature. There is also the further fact of the entry of payment of Rs. 14,526/ - in the cash book, by mere transfer entries, representing deposit of half the application money due on these shares from the Appellant. The share register of the bank has also been produced in evidence. It appears to be incomplete and after serial 104 the entries present an unfortunate state of affairs.

The entries thereafter have not been made in ink as they should have been: rather the entries are in pencil. Nevertheless it is not the case of any party that these entries are interpolations. The Official Liquidator with a view to ascertain the actual petition, obtained a list of shares allotted from the Registrar of Joint Stock Companies. In the register of shares it appears that entry No. 107 which is in pencil, relates to this allotment of 2905 shares in favour of the Appellant Kamakhyalal Coenka, though in the statement obtained from the Registrar of Joint Stock Companies the item is shown in serial No. 114.

The above entry in the register which is also confirmed by the statement produced from the Registrar of Joint Stock Companies, clearly proves the allotment of these shares to the Appellant. Of course the relevant application for allotment of these shares is not produced as appears to be also the case in respect of certain other shares, about the allotment whereof there is no dispute. Up to 5th April the cash book purports to have been signed by the Secretary and the Accountant every day, though the signatures of the General Manager and the Cashier are not there.

From 6th April 1945 to 5th June 1945, the book was signed only by the accountant. Even the Secretary did not sign. After 6th June it does not bear the signature of any one. The indication is as the learned Judge has observed, that the affairs of the bank were speedily deteriorating and officers of the Bank were avoiding personal responsibility. However in the circumstantial background, there is little doubt about the genuineness of the entries which may be safely taken to represent the state of affairs as they actually existed.

The notice issued in respect of the meeting of the Board of Directors on 19th March 1946, on which date these allotments were made, has been proved by Thomas himself. He also proves the fact that the receipt of the notice had been signed by the Appellant Kamakhyalal Goenka and that he was present at the meeting when these shares were allotted as shown in the statement of shares issued in the account, vide Ext. L (9).

Thomas was the man, who as the Director -in -charge, used to submit statements to the Registrar of Joint Stock Companies and carry on correspondence with him; and as Director in -charge he had sent the return of allotments dated 2nd April 1946 of which Ext. L(8) was a certified copy. The statement shows the number of shares issued at discount on 19th March, 1946 in the name of the Appellant. The case of the Appellant that he never applied for the shares in question or that he made no payments for the same or that he had no knowledge of these allotments is impossible to accept on the state of the evidence which is before us.

It is not only that he was present at the meeting as the Chairman of the Board and had signed the notice and the attendance register and had put his name about the allotment of these shares, but also that he signed the vouchers Ext. L(1) and L(2) showing transfer entries in respect of Rs. 14,526/ - in connection with these block shares. It is therefore futile on the part of the Appellant to seek to wriggle out of the situation by stating that he had no knowledge of this allotment until November 1951.

The members of the Board used to take decisions in his presence, he being the Chairman and although the proceedings may have been recorded in English his explanation that he did not understand what transpired at the meetings is without substance inasmuch as the evidence shows that the discussions took place also in Bengali, Assamese and Hindi. On the evidence as it is, there can be no other conclusion except this that the allotments of these shares had been made to the Appellant Kamakhyalal Goenka with his knowledge and consent and that in due course a statement thereof had been sent by the Director -in -charge, Sri Thomas to the Registrar of Joint Stock Companies as required by law under Section 104 of the Indian Companies Act.

(3.)THE next question is whether this allotment was a valid allotment or at any rate whether the liability for contribution in respect of these discount shares could be enforced against the Appellant Kamakhyalal. A question was raised before the learned Judge that the allotment of these shares was in contravention of the orders of the Examiner of Capital Issues and as such it was illegal. Our attention has been drawn to Rule 94 -A of the Defence of India Rules which deals with control of capital issues. The rule requires that
no company, whether incorporated in British India or not, shall except with the consent of the Central Government make an issue of capital in British India, or make in British India any public offer of securities for sale.

Now so far as this prohibition under the law is concerned, it appears that the defect was cured. A representation was made on behalf of the Bank for condonation of the illegality and it was condoned as per Ext. L(13), dated 8th October 1946, which is another factor which goes to prove that these shares had in fact been issued in the name of the Appellant. Clause 6 of the Rule in question provides that the Central Government may by order condone a contravention of Sub -rule (2), Sub -rule (4) or Sub -rule (5) and on the making of such order, the provisions of the rule shall have effect as if an exemption had been granted thereunder from the operation of the rule.

There can be no question now that the illegality if any for non -compliance with Rule 94 -A in making the allotment has been sufficiently cured or condoned under the law. Therefore the allotment will have effect as if an exemption had been granted by the Central Government. The learned Advocate General has raised another very important question, assailing the validity of these allotments which was not raised before the learned Judge.

He contends that the allotment of these discount shares is void and inoperative under Section 105 -A of the Indian Companies Act and therefore the Official Liquidator has no right to levy any contribution on the basis of such an allotment which the law did not recognise at all. According to the learned Counsel, no, rights or liabilities flowed from such a void allotment. Under the relevant provisions of the above section, it is lawful for a company to issue at a discount shares in the company, of a class already issued, provided that the issues of the shares at a discount was authorised by a resolution passed in a General Meeting of the Company and sanctioned by the Court.

The two requirements of this provision therefore evidently are: (1) that the issue of the share in discount should be authorised by a resolution passed in the General Meeting and (2) that it must be also sanctioned by the Court; in the absence whereof the allotments will not be valid. It is pointed out that none of these requirements of the law have been fulfilled in the present instance and therefore the Court should not take any notice of the allotment for purposes of enforcing contribution against the Appellant.

The learned Counsel further refers by way of analogy to Section 102 of the Act which also lays down certain prohibitions against the allotment of the shares; but those prohibitions do not make the allotment altogether void but only voidable at the instance of the applicant, provided the latter applies to do so within the relevant period mentioned in the section. This the applicant can do notwithstanding that the company is in course of being wound up.

The learned Counsel therefore contends that if the intention of the law was to make the allotments in the other case also voidable for non -compliance with the requirements of Section 105 -A, it would have definitely said so, as it did in the provisions contained under Section 102 of the Act. These arguments have no doubt a good deal of force in them but they fail to take due notice of the liability for contribution against a member of the Company founded on Section 156 of the Act. The section says that in the event a company be wound up, every present and past member shall, subject to the provisions of the section, be liable to contribute to the assets of the company an amount sufficient for payment of its debts and liabilities.

It has been repeatedly pointed out in a large number of cases that when a company is in the process of being wound up, the liability of the members is ex lege and not ex contractu; in other words whatever liability there was under any contract, whether void or voidable, terminates, and the liability thereafter when the process of winding up starts, becomes a statutory liability as enjoined by Section 156 of the Act. This statutory liability attaches by reason of the fact that the person is a member of the company.

That he is a member of the company has to be proved like any other question of fact. A 'member' has been defined in Section 30 of the Act, under which 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; and every other person who agrees to become a member of a company, and whoso name is entered in its register of members, shall also be a member of the company.

Under Section 31 of the Act every company is in duty bound to maintain in one or more books a register of its members, and enter therein the particulars in regard to their names and addresses, their occupation if any, along with a statement of the shares held by each member, distinguishing each share by its number, and of the amount paid or agreed to be considered as paid on the shares of each member; the date at which each person was entered in the register as a member; and the date at which any person ceased to be a member. The failure to maintain a register as required by Section 31 of the Act may entail penal consequences.

Mr. Lahiri has therefore laid great stress upon the point that in order to be a member it is necessary that the name of the person should be borne on the register of members maintained by the Company which should also show the particulars contemplated by Section 31 of the Act; and he contends that in the present case in the register itself there is nothing to indicate that in serial No. 114 the Appellant has been mentioned as a member of the company in respect of these 2905 shares.

There is no doubt that there is some discrepancy about the serial number as mentioned in the register and the serial number as mentioned in the statement submitted to the Registrar of Joint Stock Companies as required by Section 104 of the Act. In serial No. 114 of the register which is in pencil, the name of one Mr. Joshi appears; but the fact remains that serial No. 107 shows the name of the Appellant as holder of these 2905 shares. Therefore on the register also his name appears as a member.

Mr. Lahiri says that these are pencil entries and it cannot be therefore assumed that there is any entry showing his name as a member on the register. It is nobody's case that there was any interpolation in the register made by any person. On the contrary the fact that a contemporaneous statement was sent to the Registrar of Joint Stock Companies as required by Taw goes to confirm the correctness of the entry that the Appellant was a member as such. The position then is that the Appellant is shown as a member of the company and therefore under Section 156 of the Act his statutory liability to contribute arises.

It is to be remembered that these entries in the register and the corresponding statement appear to have been made as early as in March and April 1945. It has been also shown that the allotments of the shares in question were made to the knowledge of the Appellant. He being the Chairman of the Company during the relevant period, he must have been aware of the records in question recording him as a member of the company, yet no effort was made by the Appellant to get his name removed from the register. That being so, there is no reason why on the terms of Section 156 of the Act the liability to contribute should not be enforced against him.

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