|Subject Matter : Refusal of registration and appeal against refusal.|
|Relevant Section : Section 58: (1) If a private company limited by shares refuses, to register the transfer or the transmission by operation of law of the right to, any securities or interest of a member in the company, it shall within a period of thirty days from that date send notice of the refusal to the transferor and the transferee with reason of such refusal.
(2) the securities or other interest of any member in a public company shall be freely transferable.
(3) The transferee may appeal to the Tribunal against the refusal within a period of thirty days from the date of receiving of such notice.
|Key Issue : Are the shares of a company 'freely transferable'?|
|Citation Details : Re The Bahia and San Francisco Railway Co Ltd v Trittin and others L.R. 3 Q.B. 588|
|Summary Judgment :
Facts: Miss Trittin left her share certificates with a broker. A forged transfer together with the certificates, was lodged with and with registered by the company. The new certificates certified that the named person as registered holder. He then sold them to innocent purchasers who in turn lodged transfers and certificates and obtained certificates in their own names. The company had become obliged to restore Miss Trittin’s name to the register but refused to recognise the innocent purchasers as shareholders. A special case was stated for the opinion of the Court between the innocent purchasers as claimants and the company for the purpose of determining the amount of damages (if any) which the company was liable to pay them respectively.
Held: The Court held that the capital of a company is divided into parts, called shares. The shares are said to be a movable property and, subject to certain conditions, freely transferable, so that no shareholder is permanently or necessarily wedded to a company. When the joint-stock companies were established, the object was that their shares should be capable of being easily transferred.
|Subject Matter : Memorandum of Association|
|Relevant Section : Section 2(56): “memorandum” means the memorandum of association of a company as originally framed and altered from time to time in pursuance of any previous company law or this Act.|
|Key Issue : Can a shareholder ratify a contract as per the 'memorandum'?|
|Citation Details : Rajendra Nath Dutta and Ors. vs. Shibendra Nath Mukherjee and Ors. (12.05.1981 - CALHC): MANU/WB/0119/1981|
|Summary Judgment :
Facts: The company entered into a contract with M/s. Riche, a firm of railway contractors to finance the construction of a railway line in Belgium. On subsequent repudiation of this contract by the company on the ground of its being ultra vires, Riche brought a case for damages on the ground of breach of contract, as according to him the words “general contractors” in the objects clause gave power to the company to enter into such a contract and, therefore, it was within the powers of the company. More so because the contract was ratified by a majority of shareholders.
Held: The House of Lords held that the contract was ultra vires the company and, therefore, null and void. The Court held that if every shareholder of the company had been in the room and had said, “That is a contract which we desire to make, which we authorise the directors to make”, still it would be ultra vires. The shareholders cannot ratify such a contract, as the contract was ultra vires the objects clause, which by Act of Parliament, they were prohibited from doing.
|Subject Matter : Articles of Association|
|Relevant Section : Section 2(5): ‘articles’ means the articles of association of a company as originally framed or as altered from time to time or applied in pursuance of any previous company law or of this Act. It also includes the regulations contained in Table A in Schedule I of the Act, in so far as they apply to the company.|
|Key Issue : Does 'Memorandum' and 'Article of Association' compliments each other?|
|Citation Details : Ashbury Railway Carriage and Iron Co. Ltd. v. Riche, (1875) L.R. 7 H.L. 653|
|Summary Judgment :
Facts: Incorporated under the Companies Act 1862, the Ashbury Railway Carriage and Iron Company Ltd’s memorandum, clause 3, stated that its objects were "to make and sell, or lend on hire, railway-carriages" and clause 4 stated that activities beyond this needed a special resolution. But the company agreed to give Riche and his brother a loan to build a railway from Antwerp to Tournai in Belgium. Later, the company repudiated the agreement. Riche sued, and the company pleaded that the action was ultra vires. The general functions of the articles have been aptly summed up by Lord Cairns, in the case.
Held: The Court held that “The articles play a part that is subsidiary to the memorandum of association. They accept the memorandum of association as the charter of incorporation of the company, and so accepting it, the articles proceed to define the duties, rights and powers of the governing body as between themselves and the company at large, and the mode and form in which business of the company is to be carried on, and the mode and form in which changes in the internal regulations of the company may from time to time be made. The memorandum, is as it were the area beyond which the action of the company cannot go inside that area shareholders may make such regulations for the governance of the company as they think fit”. Thus, the memorandum lays down the scope and powers of the company, and the articles govern the ways in which the objects of the company are to be carried out and can be framed and altered by the members. But they must keep within the limits marked out by the memorandum and the Companies Act.
|Subject Matter : Promoters|
|Relevant Section : Section 2(69): "promoter" means a person-
(a) who has been named as such in a prospectus or is identified by the company in the annual return;
(b) who has control over the affairs of the company, directly or indirectly whether as a shareholder, director or otherwise; or
(c) in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act:
Provided that nothing in sub-clause (c) shall apply to a person who is acting merely in a professional capacity.
|Key Issue : Whether a person who joins can be a promoter?|
|Citation Details : Erlanger v. New Sombrero Phosphate Co (1878 LR 3 AC 1218)|
|Summary Judgment :
Facts: In the case of Bosher Case, Promoter is someone who starts the incorporation process and organizes the company. He brings people who are helpful in developing the organization, also helps in the subscription process as well as starts the wheels of formation of the company
Held: The Court held that, even if a person joins the company after registration and in his professional capacity helps in the floatation of the company, he can be counted as a promoter of a company. Therefore, we can say that there exists a fiduciary relationship between the company based on finance and benefits with the promoter.
|Subject Matter : Winding Up|
|Relevant Section : Section 272: A company may be wound up by the Tribunal,
(a) if the company has, by special resolution, resolved that the company be wound up by the Tribunal;
(b) if the company has acted against the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality;
(c) if on an application made by the Registrar or any other person authorised by the Central Government, the Tribunal is convinced of the fraudulent behaviour or unlawful purpose of the company or the persons concerned;
(d) if the company has made a default in filing its financial statements or annual returns for immediately preceding five consecutive financial years; or
(e) if the Tribunal seems it deem fit.
|Key Issue : Can a company wound up on the basis of 'inability to pay debts '?|
|Citation Details : Reliance Infocomm Ltd. and Ors. vs. Sheetal Refineries Pvt. Ltd. (07.09.2007 - APHC): MANU/AP/0411/2007|
|Summary Judgment :
Facts: The petitioner, a public limited company incorporated under the Companies Act, 1956 with its registered office at Jamnagar, Gujarat, is engaged in the business of providing telecommunication and internet services in India. The respondent is a private limited company incorporated under the Companies Act, 1956 with its registered office in Ranga Reddy District of Andhra Pradesh. According to the petitioner, the respondent is indebted to it for a sum of Rs. 10,97,574/-, that, despite its repeated requests and demands, the respondent had failed and neglected to pay its dues and as such is unable to pay its debts and is, therefore, liable to be wound up.
Held: The expression “inability to pay debts” has been interpreted by Andhra Pradesh High Court in the case of Reliance Infocomm Limited v. Sheetal Refineries Private Limited, to mean a situation where a company is commercially insolvent, i.e. the existing and provable assets would be insufficient to meet the existing liabilities. Therefore, a remedy to initiate winding proceedings against financially solvent companies that had defaulted in payment of debts was not available under the earlier regime. However, this is now feasible under The Insolvency and Bankruptcy Code, 2016.