HERDILIA UNIMERS LTD. v RENU JAIN

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Petitioner: Herdilia Unimers

Respondent: Renu Jain

Decided By: High Court of Rajasthan

Citation: (1998) 92 Comp Cas 841

Judges: V. K. Singhal, J.

INTRODUCTION

Acquiring another different legitimate substance or control over the affairs of the organization should be made out of individuals. The individuals from the organization are the people who established the organization as a different lawful corporate entity. At the point when the investors are restricted by shares in an organization then the individuals become the investors. This is for the most part noticed that each member of the company is an investor and each investor is a member of the company. This kind of understanding is given by the High Court authorities while dealing with the present case. A member in ordinary understanding is one of the organization’s proprietors whose name has been entered on the register members. They delegate certain forces to the organization’s chiefs to run the organization for their benefit.

The Companies Act isolates the definition of the term the member into three classes. As indicated by Sec. 41 of the Companies Act, the three classes of members are:

  1. The people who have bought into the Memorandum of a company (MOA).
  2. Each and every other member who has concurred recorded as a hard copy to turn into a member from the organization and whose name has been entered in the Register of Members.
  3. Each member holding value share capital of an organization and whose names are recorded as beneficial proprietors in the storehouse records are considered as members from the concerned organization.

In the present case the petition is filed under Section 482 of CrPC in the court of justice with the motto to quash the proceeding pending in the Special Court of Judicial Magistrate (Economic Offences), Rajasthan, Jaipur in the case of Renu Jain v Herdilia Unimers.

FACTS

  • Mrs. Renu Jain (Respondent) has applied for the allotment of 100 shares in the company of the Petitioner.
  • This application of allotment by the respondent was made on 1st June 1992 is based on the prospectus issued by the company of the petitioner on date 30th April 1992.
  • For the allotment a cheque was also issued which was encashed on or about 18th June 1992.
  • The information regarding the allotment of the share was informed to the Respondent through her broker named as Shri S.C. Jain who has received his part of brokerage amount in respect of the same.
  • The Petitioner company has promised to send the shares to the respondent on or before 1st November, 1992 but it did not happen the way it was promised.
  • As per the guidelines mentioned in the prospectus of the company, in case of public issue of shares the same should be allotted within 10 weeks of the close of public issue and the shares of the person to whom they are allotted needed to be send to him through registered post on the address mentioned in the application.
  • As the company failed to do so the allegation was made under Section 61, 73 and 113 of the Companies Act, 1956.

ISSUE

The main issues which are covered are as follow:

  • Whether Section 5 of the Act, 1956 includes the chairman of the company also under its domain?
  • Whether the person to whom the shares is allotted but did not receive the share certificate can be considered as the shareholder of the company?

JUDGEMENT

While dealing with the issue of whether the ‘officer who is in default’ includes managing director or chief under its domain the court was of the view that the question concerning whether the provision (a), (b) or (c) of the same is pertinent in order to bar different directors is additionally to be decided concerning the archives which might be set before the preliminary court and on that point, no impedance at this stage can be made.

In this case, the court has viewed that  the member participation of the directors of the organization will not be demanded by the trial court. The inquiry as to ward and different issues which are accessible to the solicitor would be settled on an application being submitted under section 245(2). With the perceptions made above and bearings given in this para, the appeal stands disposed of.

ANALYSIS

While analyzing the issue of the officer at default. The court authority has analyzed the definition of the word ‘officer who is in default’ under Section 5 of the Act, 1956. As per the above-stated Section, this term includes managing director, whole-time director, manager, secretary, or any other such kind of person according to whom the board of directors of the company acts any other person who is charged by the board of the company the responsibility of with the provisions. Similarly, as per clause (g), it is stated in the Act that in any case if the company does not have any specific officer who is defined as per clause (a) to (c) to deal with the cases then in such circumstances any director who is authorized or specified by the board of the company or if no director is specified in particular, all the directors are considering at default within the meaning of ‘officer who is in default.’ This makes that the ‘officer who is at default’ in itself is an exhausted clause and does not leave any point for a person to run away after committing wrong or being at fault.

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While analyzing Sec 5 of the Act, 1956 in the present case, it is seen that the company has managing directors and managers both which implies that the directors of the company or the chairman cannot be held directly liable under the same. Now the point which needs to be given equal importance while analyzing this point is that Section 5 specifies the certain list of people who can be considered liable for the wrongdoing of the company in those situations where the list of people which is specified under clause (a) to (c) is not present. This gives rise to another interesting question that whether the managing director or the whole-time director of the company or the manager exist can be made liable as ‘officer at default’ on behalf of the directors of the company. Which has been discussed further in the case.

Section 2 (26) of Act, 1956 talks about the managing director of the company. As per the act “Managing director’ means a director who, by virtue of an agreement with the company or of a resolution passed by the company in general meeting or by its board of directors or by virtue of its memorandum or articles of association, is entrusted with (substantial powers of management) which would not otherwise be exercisable by him, and includes a director occupying the position of a managing director, by whatever name called.” While Section 175 of the Act talks about the chairman of the company according to which he is the chairman of a meeting or appointed by the virtue of AOA of the company.  The position of an individual as a chairman of a company can’t be considered as not falling inside the meaning of “an official who is in default” except if it is so given by the memorandum of the company and articles of association of the company and additionally by an understanding went into with him regarding what are his obligations towards the company.

On the point regarding the issue that the respondent has not received the allotment of shares despite giving all the required details to the company, as per the company, they were sent by enlisted post and the actual solicitor has kept in touch with her to send a reimbursement bond appropriately marked so the copy share declaration of the same might be given to her. Since the respondent failed to do the same, the grievance couldn’t have been recorded. It is presented by the plaintiff that annexure 2 as per the norm of the company is a public report as to the testament given by the postal specialists and, subsequently, it ought to be assumed that the commitment which was on the applicant organization has likewise been released. It is presented that as per Section 113 of the Act, 1956 is required the conveyance of the offer testaments in the way given under section 53 of the Act, 1956. As per Section 113 of the Act, 1956 the conveyance of the certificate of the share allotment, and so forth, within a quarter of a year after the designation is enlisted. Similarly, Section 53 gives provision regarding record which might be served by a company or any part thereof either by and by or by sending it by post to him to his enlisted address. Since the methodology recommended under the provision of the Company Law has been followed as per the above-stated Sections of the said Act, it ought to be viewed as that the commitment which was on fee – company has appropriately been released as per law. On the contrary, to the above-mentioned statement, it is seen that the notion which has been raised under section 53 is rebuttable and an investor may claim that he has not been conveyed the offer endorsement or it isn’t as expected tended to.

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While analyzing the point that the petitioner cannot challenge or does not hold any right to file a complaint under Section 621 of the companies on the contention that she does not hold any shares in the company it is seen that this contention does not have any force in the court of law as it is conceded that 100 shares of the company are allotted to the respondent by the company. The second, when the shares are designated and the share certificate is signed in the favour of the shareholder, and the name is entered in the register of the company and kept up for the same reason, the individual turns into the investor irrespective of the fact that the individual has gotten the offer declaration/ share certificate.

While analyzing the point raised by the council of the respondent challenging the appeal on the point that as per Section 482 of the Criminal Procedure Code isn’t viable as the Magistrate himself is engaged to review his request for calling and procedures can be dropped if the blamed fulfills the Magistrate that no argument is made out against him when he enters appearance after being summoned. The court has relied on the judgment the Delhi High Court in the case of Thirani Chemicals Ltd. v. Registrar of Companies, and the case Nagawwa (Smt) v. Veeranna, to show that at the phase of issuing process the Magistrate is essentially worried about the claims submitted in the question or the proof drove on the side of something similar and he is just to be at first sight fulfilled that there is adequate justification for continuing against the denounced. It isn’t the area of the Magistrate to go into a point-by-point conversation of the benefits or faults of the case nor can the High Court go into it in its revisional purview which is an extremely restricted one. Below sated points were also taken into consideration while dealing with the same issue and satisfying the statement that the plea before the Magistrate is supposed to be quashed based on the following stated analysis:

  1. “Where the allegations made in the complaint or the statement of the witnesses recorded in support of the same taken at their face value make out absolutely no case against the accused or the complaint does not disclose the essential ingredients of an offence which is alleged against the accused;
  2. Where the allegations made in the complaint are patently absurd and inherently improbable so that no prudent person can ever reach a conclusion that there is sufficient ground for proceeding against the accused;
  3. Where the discretion exercised by the Magistrate in issuing process is capricious and arbitrary having been based either on no evidence or on materials which are wholly irrelevant or inadmissible; and
  4. Where the complaint suffers from fundamental legal defects, such as, want of sanction, or absence of a complaint by a legally competent authority and the like.”

As in the present case an alternative remedy lies in front of the petitioner in the current situation under Section 204 of the Code before the magistrate who is seized of the matter present in front of him based on which no interference can be made in the case this kind of understanding was based on the judgement of the court given the case of Pandey Ajay Bhushan v Collector and District Magistrate.

CONCLUSION

Present case helps to understand what all can come under the domain of membership in a company. This case helps to clarify certain doubts when we try to discuss what all and who all can be questioned in case of any wrong done at the time of allotment of shares to the people.

This Case plays an important role in analysing the role and is a landmark judgement in the field of company law.

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