MARWARI STORES, LTD Vs. GOURI SHANKER GOENKA

JUDGEMENT

(1.) This matter comes before us by way of appeal from an order made by Cunliffe, J., on 18th March 1935, whereby he refused with costs an application made on behalf of the Marwari Stores Ltd. for permission to reduce the share capital of that company. The application was opposed by Gouri Shanker Goenka who is a shareholder of that company and the respondent in the present appeal. The Marwari Stores Ltd., was originally incorporated as a private company on 15 March 1919, having a nominal capital of Rupees two lacs divided into fifty shares of Rs. 4,000 each. On 22 March, 1921, by an extraordinary resolution, the capital of the company was increased by Rs. 3 lacs making a total capital of Rs. 5 lacs represented by 5,000 shares of Rs. 100 each. Shares of the value of rupees two lacs were applied for and issued and a sum of Rs. 1,92,000 was paid up. Shares out of the balance to the extent of Rs. 8,000 were forfeited. The present position, therefore, is this: that the paid up capital of the company is Rs. 1,92,000. A sum of Rs. 4,000 which had been paid in respect of forfeited shares was transferred to the profit and loss account. The Articles of Association of the company contained the usual kind of provision entitling the company to reduce its capital. The relevant article is No. 43. It appears from the petition and from an affidavit of Motilal Lath, who is described as a Managing Director of the company, that up to 31 March 1920 the company made a profit of Rs. 10,026 odd, and up to 31 March 1921 the profit was Rs. 10,105 and some odd annas.

(2.) The present respondent became connected with the company on 6 April 1921. It appears that he was taken into the service of the company on or about that time. Towards the end of the year 1921, that is to say on the 30 November of that year, the company was converted into a public company and in the following year the present respondent Gouri Shanker Goenka became a shareholder in the company to the extent of 80 shares. It appears from the years 1922 to 1924 the company sustained a loss amounting to the sum of Rs. 1,10,000 and that is shown in the balance sheets for the years 1922, 1923 and 1924. That fact is stated in para. 8 of the petition on which the present proceedings were founded. It is also set out in that paragraph that the loss has ever since been carried forward. It is further stated that the company was not able to make any profit during the years 1923 and 1924, but since 1925 the company has been making a profit. The amount of the loss has now been reduced to Rs. 96,000. The said sum of Rs. 96,000 was stated to bo a loss and not to be represented by any available assets. In the year 1932 the respondent Gouri Shanker Goenka became a director of the company. It appears that in 1933 he was party to the passing of the draft balance sheet which was submitted at the directors meeting. Actually from 6 April 1921, the date on which the respondent joined the company down to 4 August 1934 he was functioning as the Assistant Manager and, as such, he assisted in the preparation of each one of the accounts and must be taken to have known the contents of those accounts. On 4th October 1934 Gouri Shanker ceased to be a director of the company. At the end of October 1934 there was a transfer of certain shares which had been held by the Managing Director, Motilal Lath, to some of his relations and in December of that year, Mr. P.D. Himatsingka and Mr. Baijnath Prasad Deora resigned from the Board of the company and in their places, about a month later, two of Motilal Lath's nominees, if they can properly be called his nominees, namely Mr. Bholaram Tibrewalla and Mr. Luxminarain Lath were appointed directors of the company. On 20 January 1935 an ordinary general meeting of the company was held, aecounts were passed, and at that meeting the present respondent was in attendance in his capacity as a shareholder of the company. On the same day, namely on 20 January 1935, there was an extraordinary general meeting at which a resolution was passed for the reduction of the capital of the company. That appears from para. 9 of the petition set out at p. 3 of the paper book. That paragraph reads as follows: Under the provisions of Section 50, Companies Act, and in pursuance of the power contained in that behalf in the Articles of Association the company by special resolution of its shareholders duly passed and confirmed at extraordinary general meetings duly convened and held on 20 January 1935 and 4 February 1935 respectively resolved: that the paid up capital of the Marwari Stores Limited be reduced from Rs. 1,92,000 divided into 1920 Ordinary Shares of Rs. 100 each to Rs. 96,000 divided into 1920 Ordinary Shares of Rs. 50 each and that such reduction be effected by cancelling; the paid up capital to the extent of Rs. 96,000 which had been lost and is not represented by available assets and by reducing this nominal, amount of all the shares in the company's paid up capital from Rs. 100 to Rs. 50 per share.

(3.) It appears threfore that the resolution which was passed at the meeting on 20 January 1935 was duly confirmed at the subsequent extraordinary general meeting held on 4th February 1935. A week later, namely on 11 February 1935 a petitions for reduction of capital was admitted by Cunliffe, J. The petition had been verified on 7 February 1935. The 11 March 1935 was fixed as the date for hearing of the petition and directions were duly given for necessary advertisements. Those advertisements appeared in certain papers on 20th February 1935 as directed by the Court. On 6 March 1935 Gouri Shanker affirmed an affidavit in opposition to the company's petition and on 12 March he put in a supplementary affidavit in opposition. On 18 March there was an affidavit in reply by Motilal Lath on behalf of the company. Then finally, as I said at the outset, the matter came before the Court on 18 March 1935 when the application which the company was making was refused by Cunliffe, J. The company now comes before this Court asking that the order made by Cunliffe, J., be set aside and the company be authorised to reduce their capital in the manner asked for in their petition.