T.V. Somasundaram Pillai vs The Official Liquidator, High Court

Ramapkasada Rao, J.—Company Application No. 289 of 1965 is an application for setting aside the ex parte decree, dated 22nd April,

1960, made in Company Application No. 78 of 1960 in Original Petition No. 374 of 1953 and Company Application No. 178 of 1966 is an

application for rectification of the register of members of Cuddalore Construction Company Limited in liquidation, and also for the deletion of the

Applicant as a contributory of the company.

The relevant facts are as follows. After due compliance with the requirements of Sections 184 and 186 of the Indian Companies Act, 1913,

with which we are concerned in this case, and rules 96, 97 and 98 of the Indian Company Rules (Madras), 1940, the official liquidator obtained a

decree on 22nd April, 1960, whereby the Applicant as a contributory, was directed to pay a sum of Rs. 910 with interest thereon at 6 per cent

per annum from 3rd March 1959. In fact, even at the stage when the list of contributories was sought to be settled, notices, as required under law

were attempted to be served on the Applicant. At one time, the notice was returned with the endrosement no such addressee. When the official

liquidator made a call for the payment of the unpaid call money after obtaining orders of Court in Application No. 280 of 1958, a second notice

was sought to be served on the Applicant, which again was returned with the postal endorsement left without instructions. Subsequently, in

Application No. 78 of 1960, the official liquidator applied for a payment order against the Applicant since he had failed to pay the call amount.

This notice was again sought to be served in the usual manner. The ordinary service on the Applicant having failed, substituted service by

publication in the Mail was ordered. Another copy of the notice was also affixed on the Court notice board. After adopting such processes, this

Court by its order, dated 22nd April 1960, directed the Applicant to pay a sum of Rs. 910 with interest thereon at 6 per cent per annum from 3rd

March 1959 till date of payment. This order is conclusive, u/s 190 of the Act, of the fact that such monies is due by the Applicant.

On obtaining such a decree, the official liquidator was anxious to secure the amount from the Applicant. He even attempted to personally

contact the Applicant which he did on 9th March 1965. On 10th March 1965 the Applicant came to the office of the official liquidator, perused

the records and promised to settle the matter. He having failed to keep up to his undertaking, a final notice was sent by the official liquidator on

23rd April 1965 intimating the Applicant that execution proceedings would be taken in case of further default in the payment of the decree amount.

Thereafter, and for the first time, by his letter, dated 27th July 1965, the Applicant denied liability on the basis of certain Court proceedings, and

prayed that his name may be removed from the list of contribu-tories. The official liquidator explained the correct position in his letter, dated 2nd

August 1965 and granted him some more time to pay the amount. A reminder was also sent on 12th October 1965. It is at this stage that both the

applications referred to above have been filed. The allegation of the Applicant is that he became aware of the passing of the decree only on 2nd

August 1965 and that the shares which stood in his name were only shares nominally recorded therein by one of the directors of the company who

owed him money and that, therefore, there was no relationship of a member to a company subsisting at any time and the Applicant, therefore,

requests in both the applications, to set aside the decree passed against him on the foot that he was a contributory and to rectify the register by

removing his name as a member.

The present contention of the Applicant that he became aware of the decree only on 2nd August 1965, cannot stand scrutiny at all for the

reason that he knew about it even on 10th March 1965 when he inspected the records and promised to settle the matter. Whether a contributory

against whom a balance order, as is commonly known, has been passed, can seek to set aside a decree which has become final in the eye of law

depends upon the main question whether the application for rectification of the register prayed for by the Applicant by removing his name as a

member thereto is plausible and possible in the circumstances. If the Applicant is not entitled to the relief for rectification of the register, then his

application for setting aside the decree, dated 22nd April 1960 has to fail automatically, since it has become conclusive in the eye of law and there

are no grounds or sufficient cause shown in the affidavit in support thereof to set aside the same.

The expression rectification of a company''s register is a purposeful expression. It has a special signification of its own. The word implies that

there is a prior error, mistake or defect which is apparent on the face of the record of the register, which, after rectification, is made good and

corrected by removing such a mistake or error. As was pointed out in Pulbrook v. Richmond Consolidated Mining Company (1878) 9 Ch. D.

610 the effect of rectification is exactly the same as if the name struck off had never been put in. That is the meaning of rectification. Unless the

Applicant establishes a just cause or an equity in him to strike off his name in the register, the company Court would not exercise its discretion to

rectify the register. As was pointed out in Bellerby v. Rowland Marwood''s Steamship Company, Limited (1901) 2 Ch. 265 :

...in considering (an application for rectification) the Court has always had regard to the lapse of times and to any facts and circumstances

indicating acquiescence in the existing state of things by those on whose behalf the application is made to disturb it.

The power to correct a register by Court has to be exercised with caution. It has to be remembered that in such a summary adjudication, a

roving enquiry is not contemplated. The Applicant is seeking in the main to rest his contention on certain proceedings in Court, and particularly the

judgment of this Court in City Civil Court Appeal No. 95 of 1952. That was a case in which there were certain disputes between the Applicant

and a director of the South Arcot Oil and Refineries Limited. The case of the Applicant was that the director of the above company borrowed

certain moneys from the Applicant and as security thereto, the said director gave out that he would secure shares nominally in the name of the

Applicant in the South Arcot Oil and Refineries Limited and also in the Cuddalore Construction Company Limited which is now in liquidation and

whose register is sought to be amended in the first petition. It is clear from the judgment of Govinda Menon and Ramaswami JJ. that the Applicant

knew at all material times, ever since he started the suit in 1950, that his name was in the register of members in the Cuddalore Construction

Company Limited now in liquidation. In fact, the Applicant is reported to have signed certain transfer forms for transfer of the shares by the

Applicant in favour of the director abovenamed. The learned Judges, after considering the probabilities of the case, came to the conclusion that the

Applicant''s version that he lent money as a debt pure and simple was more reliable and probable. But this observation of the learned Judges in the

said judgment cannot relieve the statutory responsibility which at all times rested with the Applicant to correct the register of members in the

company under consideration with alacrity and promptitude. It might be that the Applicant might have taken the precaution of claiming damages

against the director for having improperly included his name in the register of members and ought to have also taken the precaution of claiming the

damages that might reasonably and naturally flow from the fact that the name of the Applicant indisputably appeared in the register of members.

This has not been done. The Applicant cannot take advantage of his own laches and avoid a claim in legi and which is undoubtedly not a claim in

contractu. Once a balance order is passed by Court against a contributory on the foot that his name appeared in the register of members, and that

his liability as a contributory has become indubitable, then a remedy to rectify the register on the ground that his name was incorrectly remaining in

the register of members is not available to such a person. A claim to rectify the register cannot be asked for ex debito justitiae. It must be based on

certain accepted principle, particular care being taken to find whether the Applicant who is seeking such a discretionary and equitable relief is guilty

or not guilty of laches.

This doctrine of laches has a very great significance as a member in any event should repudiate the contract in unequivocal terms and without

undue delay, as otherwise such delay would be fatal to his application for rectification. If the name of a person appears in the register of members,

he cannot at his whims and fancies ask for recision of such a contract to take shares as it would be lost because of inaction or lack of prompt

action on his part. This rests on the wholesome and salient principle that such a person has allowed the company to obtain credit on the strength of

such shares and in case the company goes into liquidation the rights of creditors are deemed to have been crystallised on such data. A member,

therefore, cannot stand by and acquiesce in his name remaining in the register of members and wake up at a late stage and particularly after the

winding up of the company and ask for rectification. Lord Romilly M.R., in Walker''s Case (In re Anglo-Danubian Steam Navigation and Colliery

Company) (1868) 6 Eq. 30 observed at page 35:

... Where there has been no fault on either side, the register remains as it was--where the fault is on both sides, the register also remains as it was

Therefore, the onus is heavily on the share holder to set right the mistake, if any, in the register without any delay. The above decision has been

quoted with approval by a division Bench of the Bombay High Court in Mahomed Akbar Abdulla Fazalbhoy Vs. The Official Liquidator, A

division Bench of this Court also, in Lakshmi Narasa Beddi v. Sree Films, Ltd. ILR (1952) Mad. 108 observed that where a person allows his

name to remain on the register, without having it removed promptly he will be liable on the doctrine of holding over.

The position becomes more complicated if the company is wound up. The House of Lords categorically is of the view in Oakes v. Turquand

and Harding IL.R. (1867) H.L. 325 that unless a member has taken steps to get his name removed from the register or taken some other

unequivocal action before liquidation, he will be too late. In fact, in Bank of Hindustan Ltd. v. Suryanarayana ILR (1957) Mad. 1058 a Bench of

this Court held at page 1068:

...a petition for rectification will lie normally after the filing of a winding-up petition and before the winding-up order is passed, provided the Court

will normally reject that petition if the company is already in a notorious state of bankruptcy by the time the petition for rectification is filed....

Where the winding up order had intervened whereby the rights of creditors were made paramount, application for rectification must be refused

even if a proper case for such rectification on the ground of repudiation of the shares. In fact, it is accepted law that it would be too late for a share

holder to repudiate the share after winding-up even if a proper case for repudiation had been made earlier. The essential principle to be

remembered is that after winding-up, the rights of creditors are crystallised, and the hope held out to the creditors ought not to be dislodged at that

time by rectifying the register on an application by a member who contends that his name is wrongly remaining on the register. Having held out that

he is a shareholder and thereby a contributory also, if he fails to pay the share amount, he cannot approbate and reprobate and ask for an equitable

discretionary remedy from Court to rectify the register.

In this case the member knew that his name was in the register; he also knew that a balance order was passed--he also knew that a balance

order was passed against him as early as 10th March 1965. The delay in filing this application has not at all been explained. The decision in City

Civil Court Appeal No. 95 of 1952 cannot help the Applicant in any manner whatsoever. He cannot, therefore, at this belated stage set at naught

the rights which have become vested and crystallised in the creditors. The balance order passed against him on 2nd April, 1960, is final, conclusive

and binding on him. No substantial ground has been made out before me to set aside the decree, dated 22nd April, 1960, and much less there is

any substance in the contentions raised at this stage for the rectification of the register. Both the applications are, therefore, dismissed. But in the

peculiar circumstances of this case, there will be no order as to costs.