The petitioner had given a sum of Rs.5 lacs to the respondent company (hereinafter referred to as 'the company') vide two cheques bearing Nos. 661118 and 661119 drawn on Bank of India, Cotton Exchange Branch both dated 2nd January, 1996. According to the petitioner, this amount was advanced as loan which was to carry interest at the rate of 24 per cent per annum and was repayable after a period of one year. As the company did not repay this amount adding interest, statutory legal notice dated 28th January, 1998 was served under Section 434 of the Companies Act, 1956 (for short 'the Act') calling upon the company to pay Rs.7, 75, 434/- (after adding interest). The company, however, vide its reply dated 19th March, 1998 stated that this amount was not payable as Rs.5 lacs was given by the petitioner to the company not by way of loan but towards share application money and against this amount 50, 000 equity shares of Rs.10/- each for cash at par were allotted. The petitioner denies that the amount was given for purchase of shares and, therefore, treating this money as loan, alleges that the company owes the debt to the petitioner which has not been paid and has filed this petition seeking winding up of the company on the ground that it is unable to pay the debt.
2. The dispute, therefore, is as to whether the purported transaction was one of loan by the petitioner to the company or for purchase of shares?
3. It may be stated at the outset that apart from giving of these two cheques by the petitioner to the company receipt whereof is admitted by the company, there is no document in writing executed between the parties which could evidence the nature of the transaction. There is no agreement or correspondence between the parties as per which the amount was given as loan. Nothing is reduced into writing which could suggest that 24 per cent per annum interest was agreed to be paid by the company to the petitioner on this amount dubbed as purported loan. On the other hand, it is also an admitted fact that the petitioner did not give any application for allotment of shares. However, along with the reply the company has filed certain documents on the basis of which it has made an attempt to demonstrate that the money given by the petitioner was treated as share application money against which the shares were also allotted. It is stated in the reply that the petitioner was allotted 50, 000 equity shares bearing the distinctive numbers 1923201 to 1973200. The allotment of equity shares was approved at the meeting of the Board of Directors of the company held on 4th June, 1996. Minutes of the said meeting are filed as Annexure R-1. The company, thereafter, filed the return of the said allotment with the Registrar of Companies as required under Section 75 (1) of the Act. This return was filed on 4th June, 1996 and name of the petitioner is duly mentioned in this return. According to the company, it had even sent these share certificates to the petitioner by registered post No.2089 dated 27th August, 1996 at the petitioner's address given by it, namely, 144, Kika Street, Gulawadi, Bombay-400002. However, the envelope containing the share certificates was r turned back undelivered and since then the shares were kept by it in safe custody on behalf of the petitioner. The company has also stated that for the public issue in question in which allotment was made to the petitioner in promoters' quota, the SEBI and authorised Sun Grow Datasoft Pvt. Ltd. as the Registrar to the issue of shares of the company. Along with the reply certificate of the said Registrar to the issue is annexed confirming that the petitioner was sent the aforesaid share certificates vide registered post No.2089 dated 27th August, 1996. Another certificate dated 27th February, 1999 of the said Registrar to the issue is also filed certifying that 50, 000 shares of the company under promoters' quota having lock-in-period vide folio No.83 are standing in the name of the petitioner. Despatch register of the company is filed to show that the registered letter was in fact despatched. It is also explained that before every public issue of shares, a Company Auditor's certificate is required to filed with the SEBI and the Stock Exchanges in which the shares are to be listed mentioning that the company has brought in the requisite promoter's contribution. Certificate dated 4th June, 1996 of M/s Amar Nath and Co., Chartered Accountants is filed ertifying that the company had brought in requisite promoter's contribution of Rs. 248.32 lacs and the list of promoter's contribution attached therewith mentions the name of the petitioner as well. The company has also filed list of its 'Member Index (flio wise)' which also shows the name of the petitioner holding 50, 000 shares.
4. The aforesaid evidence which is contemporaneous with the public issue which took place in the year 1996 would show that the company had treated the money as share application money and allotted the shares.
5. In the absence of any documentary proof in support of the petitioner's claim that the money was given by way of loan, the record maintained by the company showing that the money was received for allotting the shares and the shares were in fact allotted would prima facie indicate that the amount in question cannot be treated as given by way of loan by the petitioner to the company. It clearly raises disputed questions and the defence of the company also cannot be treated as sham. Another significant aspect of the matter brought on record by the company in its affidavit dated 14th December, 2000 may be noted at this stage. Along with this affidavit, the company has filed the annual report of the petitioner for the year 1997-98. This report contains the balance sheet which, inter alia, indicates loans and advances. Schedule D thereto gives the details of the parties to whom loans and advances are given by the petitioner. Name of the company is conspicuously missing from the said list. This would show that even the petitioner did not treat the amount given by it to the company as loan. Otherwise, the name of the company would have been mentioned in its own balance sheet at least. It is also surprising that if this amount was given as loan which too had to carry interest at the rate of 24 per cent per annum, the petitioner would not reduce such transaction into writing.
6. It may be mentioned that the petitioner has filed an affidavit of one Mr.Shyam Sunder on 24th May, 2000 . Mr.Shyam Sunder was the Director of the company in the year 1995 and in this affidavit he has stated that the amount in question was given as loan. Along with this affidavit copy of letter dated 3rd January, 1996 is filed written by Mr.Shyam Sunder to the petitioner stating that the amount of Rs.5 lacs is received by the company which is to carry interest at the rate of 24 per cent per annum. If there was any such letter the petitioner would have filed the same along with the petition. Not only this, letter dated 3rd January, 1996 is by Mr. Shyam Sunder on the letter head of L. Shyamsunder and Co., Finance Brokers and not on the letter head of the company. If he had addressed the letter in the year 1996 when he was the Director and in that capacity he would have addressed such a letter on the letter head of the company. Therefore, this affidavit and letter dated 3rd January, 1996 have to be looked into with some suspicion as rightly contended by Mr. Dholakia, learned counsel for the respondent.
7. Be as it may, it further confirms my observation that the matter raises disputed questions which can be sorted out only by means of evidence. It may be noted at this stage that this matter was earlier heard at length on 9th May, 2005 and following order was passed:
"Heard. Prima facie it appears that the issues raised by the parties require determination on the basis of evidence. Winding up proceedings are summary in nature and this Court will not investigate facts and evidence in depth. Counsel for the petitioner prays for time for taking instructions. At that time, counsel for the petitioner had prayed for taking instructions. Thereafter, affidavit of Mr. Shyam Sunder was filed who was admittedly not a Director of the company on that date when he filed the affidavit. In these proceedings at least, no credence can be given to such an affidavit."
8. The only argument of the petitioner which remains to be considered is that there could not have been any allotment of shares in the absence of application of the petitioner in this behalf which is pre-requisite for allotting the shares. For this purpose, Ms.Meenakshi Arora, learned counsel appearing for the petitioner relied upon provisions of Section 41 of the Act which reads as under:
"41. Definition of member.-(1) 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.
(2) Every other person who (agrees in writing) to become a member of a company and whose name is entered in its register of members, shall be a member of the company.
(3) Every person holding equity share capital of a company and whose name is entered as beneficial owner in the records of the depository shall be deemed to be a member of the concerned company."
9. She also referred to the following judgments of the Supreme Court:
(i) Balkrishan Gupta and others Vs. Swadeshi Polytex Ltd.and another, (distinguished)
(ii) Rahul Subodh Windoors Limited Vs. A.K.Menon and another , (distinguished).
10. Section 41 gives the definition of 'member' and states that a person who agrees in writing to become a member and whose name is entered in its register of members, shall be a member of the company. This is what is laid down by the Supreme Court in the case of Balkrishan Gupta (supra) also. However, that case was dealing with the situation where the appellant was contending that he had become a member although he had not given any application for this purpose and it is in that context the Supreme Court observed that both the conditions, namely, (i) that there is an agreement to become a member and that (ii) his name is entered in the register of members of a company have to be satisfied to enable such a person to exercise the rights of a member. On the other hand, the fact situation in the present case is just the reverse where the company is stating that it had allotted shares and in support of this proof documents are placed on record.
11. The judgment in the case of Rahul Subodh Windoors (supra) also may not be of help to the petitioner inasmuch as in that case the stand of the company that it had allotted the shares was found to be fraudulent although in the process, additional factor which was recorded was that no application for allotment of shares was made. It would be clear from the following observations made in the said judgment:
The Special Court came to the conclusion that there has been no allotment of shares at all inasmuch as there can be no allotment of shares in blank and in the copies of the share certificates produced before the Special Court no names have been entered. No application had been filed by the second respondent in terms of Section 41 (2) of the Companies Act, 1956 agreeing to become a member of the Company and his name be entered in the Register of Members. On examination of the Register of Members, the Special Court found that there were certain suspicious circumstances which clearly indicated the fact that the second respondent had never made an application in writing for allotment of shares. The Special court further examined the matter with reference to the distinctive numbers of the shares which revealed a lot of suspicion to the effect that their names in the Register of Members were made sometime after the letter was sent by the Custodian only to overcome the difficulty of an application being and by him and long after the second respondent was notified. Therefore, the allotment is purportedly to be made in his name without any application in writing and only with a view not to return the money belonging to the notified party. Further, there is no intimation to the Registrar of Companies either for filing a return of the statement stating the number, the nominal amount of the shares, the names, addresses, occupation of the allottees and the amounts, if any, paid or due and payable on each share.
12. Had there not been such documents produced by the respondent company indicating that immediately after the allotment the same was notified to different authorities, including statutory authorities, the argument of the petitioner on the basis of Section 41 of the Act would have prevailed.
13. I had occasion to deal with another case (CP No.369/2003 decided on 4th July, 2005) facts whereof were quite proximate to the facts of this case. In that case also the company had produced evidence to show that against the money given by the petitioner shares were allotted and it was not a loan transaction as contended by the petitioner in the said case. That was also a case where no document was produced evidencing the correct nature of the transaction and the argument of the petitioner was that in the absence of application for allotment of shares there could not have been any allotment. However, I observed that once the allotment was done, it was for the petitioner to file appropriate proceedings in the civil court to challenge the validity of he allotment and as far as the company petition is concerned, it was not maintainable in the absence of any clinching and impeccable proof that the money was given towards loan. I may reproduce the following observations made in the concluding portion of the said judgment:
13. While on the one hand, the petitioner has not been able
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to give clinching and impeccable proof that the money given was towards loan and not share application, the company on the other hand has been able to show, with the aid of some documents that the money remitted by the petitioner to the company was towards share application money and defence of the company is not moonshine but a probable defence. Merely by contending that there is no proper and valid allotment of shares, the money given would not become loan and debt payable on this ground till it is held that such an allotment is invalid. 14. Therefore, I am not inclined to exercise my discretionary jurisdiction in a matter like this and take extreme step of winding up of the company. These petitions are accordingly dismissed. It is, however, clarified that these observations are tentative and if any suit is filed by the petitioner against the company for recovery or in any pending proceedings under Section 138 of the Negotiable Instruments Act, the said court (s) shall deal with the matter on the basis of evidence produced without being influenced by the these observations applications are, accordingly, dismissed giving same clarification, namely, the observations made in this judgment are tentative and would not influence the civil suit, if already filed or the petitioner may file. In case the petitioner accepts the allotment, the company shall deliver the share certificates. As lock-in-period of five years has expired, it would be open to the petitioner to sell these shares. 15. There shall be no orders as to costs.