Panna Lal vs Jagat Jit Distillery Etc.

Passey, J.—Two preliminary objections have been raised in bar of toe application of Shri Panna Lal, and to prevent the Court from disposing of it on merits The application has been made under S. 162, Cl. (VI) of the Patiaia Companies Act for winding up the respondent Company on various allegations including that the Company was conceived and brought forth in fraud, that the conduct of Mr. L.P. Jaiswal and his associate Directors and M/s L.P. Jaiswal and Sons Limited, Managing Agents of the Company, has all along been dishonest and fraudulent in relation to the affairs of the Company and consequently there is a justifiable lack of confidence in the Directors and the Management, that the share-holders are being ruthlessly fleeced and the Company has been running at a loss since its inception, that the Directors have dishonestly been maintaining only a loose leaf minute book so that they may be able to alter or replace the minutes from time to time as it may seem to them convenient for their dishonest activities and that there is gross misconduct in the Management of the Company. The averments mane in the application have been categorically denied in the reply submitted by the Company and the preliminary objections are that the petitioner has no ''locus standi'' to move the Court for an order of winding up, as the shares in respect of which he is a contributory of the Company have not been held by him and registered in his name for at least six months during the eighteen months before the date of the winding up petition and that the petition is also not maintainable as it is barred by the principles of ''res judicata'' in view of the fact that a previous petition based on identical grounds under S. 162 of the Patiala Companies'' Act filed by the present petitioner and S. Pritam Singh had already been dismissed by this Court on 29-6-2006. In order to determine these points of law, it is necessary to give although concisely some prominent facts relating to the history of the former litigation between the parties, shri Panna Lal was the holder of 15500 shares of the value of Rs. 10/- each in the respondent Company and was entered as such in its Shrare Register, on 1-5-1948. His name continued to be borne on that Register till 5-5-194S when it was expunged due to his shares having been forfeited on account of his failure to pay up the money calculated at rupee one per share, which every share-holder was called upon to subscribe in pursuance of a resolution dated 6-8-1947. The shares of several other contributories were also forfeited for similar default and out of them S. Pritam Singh and three others but not Shri Panna Lal, instituted a suit against the Company in the Court of the Commercial Sub-Judge Delhi on 3-5-1948, for an injunction restraining it from enforcing payment of the call money and for preventing it from forfeiting shares for non-payment of the said money. S. Pritam Singh in conjunction with Shri Panna Lal also filed an application under S. 162 of the Patiaia Companies Act against the respondent Company in this Court on 14-3-2006 BK. They were required to produce certain documents which they did, but s. Kartar Singh J. ''vide'' his ''order dated 29-6-2006'' dismissed that application ''in limine'' with the observation that it was not conceived in good faith am that no prima facie'' case had been made out for winding up the Company. It may be mentioned here that neither S. Pritam Singh nor Shri Parma Lai had a ''locus standi'' to make that application, as the shares in respect of which they were the contributories had been forfeited and their names were no longer on the Share Register of the Company.

On 14-3-2006 Shri Panna Lal submitted another application which was under S. 38 of the Companies Act for rectification of the Register on the ground that his name had been fraudulently or without sufficient cause omitted from the Register of Members of the Company. The last mentioned application was accepted with costs on 4-4-1950[Reported as AIR 1052 Pepsu 47 Ed.] and it was held by S. Kartar Singh J. that the forfeiture of the shares of Shri Panna Lal and the consequent omission of his name from the Company''s Register was invalid and had been made under circumstances which were highly suspicious. It was consequently ordered that his name be entered in the Company''s Register as a holder of shares No. 130871 to 131570, 131671 to 140870, and 145271 to 150870. The Registrar of Joint Stock Companies was also as required by S. 39 of the Companies Act informed of the order by which rectification of the Register had been directed to be made. Shri panna Lal was, however, required to deposit the call money amounting to Rs. 15500/-/-within 14 days which was done, in compliance with the order of the Court dated 4-4-50 therefore, Shri Panna Lal was re-entered as a share-holder in the Register of the Company on 12-4-1950. About less than six months of the aforesaid re-entry Shri Panna Lal made the present application under S. 162 of the Companies Act with allegations of a grave character some of which have been described above against the management of the Company.

To support his first objection, Mr. Rang Bihari Lal, counsel of the Company, has referred to Cl. (a), sub-cl. (ii) of the Proviso to S. 166 of the Companies Act, and urged that since on the date the present application was made Shri Panna Lal was not the holder of his shares nor had his name been borne on the Share Register for at least six months during the eighteen months before the commencement of these proceedings he is not competent to move the Court for winding up the Company under S. 162 of the Companies Act. More precisely his contention is that the petitioner had ceased to be a share-holder of the Company and his name had been struck off the Register of Members on 5-5-1948 for failure to pay up the required call money and it was on 12-4-1950 that the disability was removed and his name re-appeared on the Company''s Register as a share-holder. He could claim to be a contributory from the latter date only. The learned counsel stresses that the petitioner is not entitled to compute the qualifying period from the date he was originally entered as a share-holder in the Register of the Company, but from the date when he after forfeiture became invested with that status by virtue of the order of the Court dated 4-4-1950. It is further argued that the petitioner should have in his application for rectification under S. 38 of the Patiala Companies Act filed on 14-3-2006 made a specific prayer for his Inclusion among share-holders from 5-5-1948 and since he did not do so and the Court did not in its order dated 4-4-1950 grant him that relief, he cannot be heard now to say that by that order he acquired the right to be ranked as a shareholder from the date his shares were forfeited, viz., 5-5-1948.

Shri Ved Vyas, counsel for shri Panna Lal, has tried to repel these arguments by urging that the order of S. Kartar Singh J. dated 4-4-1950 did not confer any new rights of membership on the petitioner but only removed the cloud that had been cast on his rights as a share-holder by the forfeiture resolution of the Company and that the order of the Court dated 4-4-1950 was one of rectification which doubtlessly meant that the dishonest error committed by the Company in confiscating his shares had been corrected with the effect that the petitioner''s name was to be treated to have never been taken away from the Register. Rectification means correction of a mistake or blunder and the mistake or blunder, if ordered to be removed by an order of the Court, must inevitably stand removed from the date when it was committed unless the Court specifies that the rectification is to come into operation from a subsequent date. Counsel for neither side has been able to cite any direct authority Indian or Foreign, but I feel little hesitation in accepting the contention of Shri Ved Vyas which appears to me to be in consonance with natural common sense interpretation and principles of equity and justice. I have, however, been referred to the decision ''IN RE. SUSSEX BRICK CO.'', (1904) 1 Ch 598 by the learned counsel of the Company which to my mind can have no bearing so far as the facts of the case under examination go. The transferee of shares In a Limited Company in that case, to repeat the head note in the Law reports, had sent in his transfer to the Company for registration in the usual course, but by mistake or oversight registration of the transfer was omitted. Subsequently the Company passed resolution for a voluntary winding up with a view to reconstruction whereupon the transferee in the belief that his transfer had been registered served the Liquidator with notice of dissent which the Liquidator disregarded on the ground that the transferee was not a ''member'' of the Company as required by S. 161 of the Companies Act of 1862. The transferee filed an application under S. 35 for rectification of the register so as to render his notice of dissent effectual and the Court of Appeal held that there had been such ''default or unnecessary delay'' in registration as entitled the applicant to an order for rectification by entering his name on the Register as on a day prior to the passing of the winding up resolution. The Court of Appeal further held that in ordering rectification of the Register, under S. 35, whether the Company is in liquidation or not, the Court has power, in a proper case, to fix a particular date at which the registration shall become operative even to the extent of making it retrospective but subject, if necessary, to condition protecting the rights of third persons.

It is thus evident that the transferee in that case had notified to the Company that he had by virtue of the transfer in his favour become a shareholder of the Company but the Company unnecessarily delayed and committed default in bringing his name on the Register, it was in those particular circumstances necessary to fix a date from which he was to be deemed to be a member particularly when the Court of appeal took the view that he had become entitled to dissent before he sent his notice to the Liquidator.

In the case before S. Kartar Singh J. the date of the original entry of the petitioners'' name in the Register was definitely "known and it was admitted that he was a member till 5-5-1948. No specification of the date from which the rectification order was to be operative therefore need have been asked for, nor was it necessary to have been made in the order of rectification, it is clear that the Company''s Register had to be corrected and the petitioner''s name had to be inserted among the share-holders again, as the Liquidation Court had held and declared that the forfeiture of his shares was invalid and that his name had been removed from the Register under highly colourful circumstances. The Company had further to pay him his costs. In this connection it would be important to note also that the Court ordered the petitioner''s name to be entered as a holder of the shares of which he was admittedly the holder on 5-5-1948. Obviously, the order did not purport to treat the petitioner as a fresh allottee or a new transferee of shares, nor could such an order be made under tile Law, but it only dispelled the doubt on his membership created by the forfeiture resolution of the Company. The ownership of the shares was completely restored to him not only prospectively but necessarily from the date he became a transferee or at any event he was included in the list of share-holders as evidenced by the entries in the Register. The direction that he was to be entered as a holder of his shares should leave no doubt, that he was to continue to be a registered share-holder in respect of the shares which stood in his name in the Register of the Company on 5-5-1948. There is no warrant for the argument that the petitioner should be regarded to have become a fresh share-holder on 12-4-1950 when his name was re-introduced on the Register of the Company. After the rectification order, he had purchased no new shares and none were allotted to him and the shares that he held formerly can in no sense be treated to have been acquired from the date or subsequent to the rectification. The procedure for becoming a share-holder by an application is entirely different and so also is the procedure for being entered as a share-holder by transfer. The order of rectification had manifestly for its object the restoration of the petitioner to his previous position of the share-holder of the Company and as a result of that order all the rights and obligations of a share-holder in respect of the shares held by him were revived. It plainly brought about continuity in the position of the petitioner which had been disturbed by an illegal or invalid act of the Company. The period intervening the forfeiture and rectification was only a period of suspense and on the coming into existence of the rectification order the petitioner came to recover the same status of a full-fledged shareholder which he enjoyed till 5-5-1948. That status must in the circumstances mentioned above be held to have never been lost and the defect in that status caused by the unjust forfeiture of his shares disappeared with the setting aside of the confiscation proceedings qua him. His name that had temporarily disappeared from the Register came back to it with no fresh rights but with recognition of those that his capacity of a share-holder antecedent to rectification implied. The forfeiture having been set aside by the Liquidation Court, has to be entirely disregarded for otherwise the order of rectification would be vain or a nullity. I may also mention here that the alleged disability of the petitioner on which the argument of the counsel of the respondent is founded came to an end within a month of the filing of the petition for compulsory winding up. This circumstance though it occurred subsequently, but during the continuance of these proceedings, can be taken into consideration, as it would help in doing justice between the parties and to shorten litigation between them. For the reasons set out above the objection of Shri Rang Bihari Lal is overruled.

Now I advert to the other point raised from the respondent''s side. It is conceded that a second application would not be incompetent and would not fall within the ambit of ''res judicata'' if it is based on grounds that have come into existence subsequent to the filing of the first application.

Shri Ved Vyas contends that he has in his present application mentioned a number of new grounds to warrant a winding up order and that those that existed at the time of making of the former application but have been included in the present application were not within his knowledge, and on that point an affidavit has also been furnished. I am inclined to think that this question should form the subject of a distinct issue and should be decided after the parties have led evidence in the case. To come up for drawing up issues including that of ''res judicata'' on 6-12-1950.