VISHWANATH PRASAD JALLAN Vs. HOLYLAND CINETONE LTD

JUDGEMENT

(1.) This is an application by Vishwanath Prasad Jallan and Piare Lal Srivastava containing three prayers, namely (1) that the register of the members of the Holyland Cinetone Co. Ltd., should be rectified and that the names of the applicants should be included in the said register, (2) that it be declared that the applicants are still directors and members of the company, and (3) that it be declared that the action taken after 26 January 1936 is void and illegal and does not bind the company and its share-holders. It is admitted that the first prayer only can be granted under the provisions of Section 38, Companies Act. This Court cannot give the other declarations asked for and I may say at once that the application in so far as it asks for those declarations is hereby rejected. There re- mains the question whether the names of the applicants should be entered in the register of the members of the company. In order to understand the dispute between the parties it is necessary to set forth certain facts in the history of the company.

(2.) The Memorandum and Articles of Association were subscribed by 17 persons on 18 November 1935. The capital authorized was 25 lacs, of which 10 lacs were to be issued. There were to be 20,000 ordinary shares of Rs. 100 each and 5000 preferential shares of the same value. It was set forth that the qualification of a director was that he must have subscribed for 100 shares and that he must have paid all calls or any other moneys due to the company. Twelve of the signatories of the Memorandum and Articles of Association undertook to purchase 100 shares each and they were to be the first directors of the company. Their names were Madhorams and Gurucharan Prasad Khattri, Harnarain Moolchand, Gopal Lal Khanna, Durga Prasad, Bindbasni Prasad, Madangopal Kedia, Vishwanath Prasad Jalan, Vishnushankar, Kedarnath Singh, Thakur Chhedi Singh and Piare Lal Srivastava. It is to be noticed that the applicants are included in the list. Each of the directors undertook in the Memorandum to subscribe for 100 shares and no more. Of the other five signatories, three undertook to purchase five shares each and the other two to purchase one share each.

(3.) A meeting of the directors was held on 14 December 1935, and four managing directors were elected, namely Madhoramsand, Gurucharan Prasad Khattri, Bindbasni Prasad and Madangopal Kedia. Doubtless the directors purported to act under Art. 115 of the Articles of Association, but this Article sets forth that the directors shall elect from amongst themselves five directors constituting the Board of Managing Directors of the company. It is to be noticed that only four were elected. The Managing Directors under the Articles of Association have been given very large powers. A meeting of this Board of Managing Directors was held on 26 December 1935, and it was decided at the meeting that the subscribers to the Memorandum who were directors should be asked to pay Rs. 2000 to the company. This resolution was based on Art. 7 of the Articles of Association which says that the amount payable on application for each share offered to the public for subscription shall be 20 per cent of the nominal amount of the share and another 20 per cent, shall be payable on the allotment of the share. The Managing Directors were asking the directors to pay on their shares the percentage corresponding with that which any member of the public would have to pay on application for shares, Rs. 2000 being 20 per cent, of Rs. 10,000, the price of the shares which each of the directors had contracted to purchase. On 17 January 1936 the secretary of the company who happened at that time to be the applicant, Piare Lal Srivastava, wrote a letter to all the directors drawing their attention to provisions of Section 85, Companies Act, and indicating that they would cease to be directors if they did not pay the sum of Rs. 2000 each on or before 26 January 1936. Section 85, Companies Act, lays down that it shall be the duty of every director, who is by the Articles required to hold a specified share qualification and who is not already qualified, to obtain his qualification within two months after his appointment, or such shorter time as may be fixed by the Articles. The 26 January 1936 was the end of the period of two months next after 25 November 1935, the date of Registration. Madhoramsand, Gurucharan Prasad Khattri, Durga Prosad and Madangopal Kedia each paid a sum of Rs. 2000 on 25 January 1936.