Sha Mulchand & Co. Ltd. Vs.
Jawahar Mills Ltd.  INSC 72 (9 December 1952)
SUDHI RANJAN MAHAJAN, MEHR CHAND BOSE, VIVIAN
CITATION: 1953 AIR 98 1953 SCR 351
CITATOR INFO :
RF 1954 SC 526 (36) R 1964 SC 752 (14) R 1965
SC 540 (9) F 1967 SC 990 (4) RF 1969 SC 474 (2) R 1969 SC1335 (8,9,10) RF 1977
SC 282 (17)
Company-Forfeiture of shares-Necessity of due
noticeApplication by shareholder to rectify register-Long delay Acquiescence,
waiver and laches-Abandonment of right to question validity of
forfeiture-Application for rectification of register-Limitation Limitation Act,
1908, Arts. 48, 49, 120,181, applicability of Companies Act, 1913, ss. 38, 247.
A private limited company of which G and S
were the only two members owned 5,000 shares in a Mill. The company did not pay
the calls and the 5,000 shares held by them were forfeited on the 5th
September, 1941, and re-allotted to other persons on the 16th November. Notice
of the forfeiture was sent to the company on the 10th September but this was
returned undelivered. In the meantime the company was struck off the Register
under s. 247 of the Companies Act with effect from 9th September. On the
application of S the company was restored to the Register and an Official
Receiver was appointed on 16th February, 1945, to wind it up. On the 5th March,
1946, the Official Receiver took out a summons calling upon all parties to show
cause why the share register of the Mills should not be rectified by restoring
the name of the company to the register in respect of the 5,000 shares, as the
forfeiture thereof was invalid.
The trial Judge held that the forfeiture was
invalid for want of sufficient notice, that the plea of estoppel, acquiescence
and laches raised by the Mills was untenable, and that the application as
governed by Art. 120 of the Limitation Act and was not time-barred, and ordered
that, as the advocates had agreed to such a course, 5,000 new shares may be
issued to the company. The High Court on appeal found that the forfeiture was
invalid, that the application was not time barred and that no acquiescence,
waiver or estoppel had been established, but held that the company had, by the
conduct of G and S and the long delay in reviving the company, abandoned its
right to challenge the forfeiture and that there was also no legal basis on
which the order passed by the trial Judge could be supported. On further
Held, (i) if the facts on record were
insufficient to sustain a plea of waiver, acquiescence or estoppel as held by
both the lower Courts, a plea of abandonment of right which is an aggravated
form of waiver, acquiescence or laches and akin to estoppel cannot be sustained
on the same facts.
46 352 (ii) Whatever be the effect of mere waiver,
acquiescence or laches on the part of a person on his claim to equitable remedy
to enforce hisrights under an executory contract, mere waiver, acquiescence or
laches which does, not amount to an abandonment of his right or to an estoppel
against him, cannot disentitle that person from claiming relief in equity in
respect of his executed interests.
Prendergast v. Turton ([18411 62 E.R. 807),
Clarke and Chapman v. Hart ( 6 H.L.C. 632), Jones v. North Vancouver Land
and Improvement Co. ( A.C. 317) explained. Garden Gully United Quartz
Mining Company v.
Hugh Mclister ( 1 App. Cas. 39) relied
(iii) There was no evidence in the case of
any conduct on the part of S or G subsequent to the date of forfeiture and
anterior to the Mills changing its position to its detriment, upon which a plea
of abandonment of the right to challenge the forfeiture could be based.
Smith, Stone and Knight v. Birmingham
Corporation ( 4 All E.R. 116) distinguished.
(iv) On a proper construction of the
statements made by the counsel, the form of the order to which the counsel had
agreed could not be challenged by the Mills.
(v) The application was not governed by Arts.
48 or 49 of the Limitation Act as a claim for rectification of the register
simpliciter does not necessarily involve a claim for the return of the share
scrips and there was no prayer in the ease for return of the scrips.
(vi) Article 181 applies only to applications
under the Civil Procedure Code, and even if the said article was applicable,
time began to run under the article only from the date on which the company
knew of the forfeiture of the shares; and as the company bad no knowledge until
9th September, 1941, when it became defunct, and the company came to life again
only on 16th February, 1945, knowledge could not be imputed to the company
before the latter date and the application was therefore not barred under Art.
(vii) If Art. 181 does not apply the only
article that could apply was Art. 120 and even under that article the
application was not barred.
Hansraj Gupta v. Official Liquidators, Dehra
Dun, Mussoorie Electric Tramway Co. ( 60 I.A. 13), Hurdutrai Jagdish
Prasad v. Official Assignee of Calcutta ( 52 C.W.N. 343) approved.
Asmatali Sharif v. Mujahar Ali Sardar ( 52 C.W.N. 64) and Sarvamangal
Dasi v. Paritosh Kumar Das (A.I.R. 1952 Cal. 689) doubted.
BOSE J.-Waiver and abandonment are in their
primary context unilateral sets and except where statutory or other limitations
intervene unilateral acts in themselves cannot effect a change in legal status.
Consequently it is fundamental that 353 abandonment and waiver cannot
unilaterally bring about a change in legal status in the absence of either a
statutory mandate or an act of acceptance, express or implied by another
There is also a fundamental difference
between executed and executory interests in this connection. A man who has a
vested interest and in whom the legal title lies does hot, and cannot, lose
that title by mere laches, or mere standing by or even by saying that he has
abandoned his right, unless there is something more, namely inducing another
party by his words or conduct to believe the truth of that statement and to act
upon it to his detriment, that is to say, unless there is an estoppel, pure and
simple. It is only in such a case that the right can be lost by what is loosely
called abandonment or waiver, but even then it is not the abandonment or waiver
as such which deprives him of his title but the estoppel which prevents him
from asserting that his interest in the shares has not been legally
extinguished, that is to say, which prevents him from asserting that the legal
forms which in law bring about the extinguishment of his interest and pass the
title which resides in him to another, were not duly observed.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 3 of 1951., Appeal from the Judgment and Order dated March 11, 1949, of the
High Court of Judicature at Madras (Satyanarayana Rao and Viswanatha Sastri
JJ.) in Original Side Appeal No. 3 of 1947, &rising out of the Judgment and
Order dated November 15, 1946, of Clark J. and made in the exercise of the
Ordinary Original Civil Jurisdiction of the High Court in Application No. 599
M. C. Setalvad (Attorney -General for India)
(A. Balasubramanian, with him) for the appellant.
N. Baja Gopala Iyengar for the respondent.
1952. December 9. The Judgment of Mehr Chand
Mahajan, Das and Ghulam Hasan JJ. was delivered by Das J. Vivian Bose J.
delivered a separate Judgment.
DAS J.-This appeal arises out of an
application made by the Official Receiver representing Sha Mulchand &
Company Ltd. (in liquidation) under section 38 of the Indian Companies Act for
rectification of the register of the Jawahar Mills Ltd.
Sha Mulchand & Company Ltd. (hereinafter
referred to as " the Company") was incorporated in 354 1937 as a
private limited company. At all material times it consisted of two members,. T.
V. T. Govindaraju Chettiar and K. N. Sundara Ayyar. The Jawahar Mills Ltd.
(hereinafter called " the Mills")
was also incorporated in 1937 with an authorised capital of Rs. 10,00,000
divided into one lac shares of Rs. 10 each. The Company was the managing agent
of the Mills from its inception and applied for and was allotted 5,000 ten-rupee
shares Nos. 1.5048 to 20047 on which Rs. 5 per share had been paid. The Company
continued to act as the managing agent of the Mills till the 30th June, 1939,
on which date it resigned the managing agency. Prior to the Company's
resignation the two members of the Company had entered into an agreement with
one M. A.
Palaniappa Chettiar, a partner of the
incoming managing agency firm, up on certain terms which need not be referred
to in greater detail.
Within two months after the change of
managing agents, the Mills made two calls, namely, one on the 22nd August,
1939, for Rs. 2 per share payable on the 1st October, 1939, and the other on
the 1st October, 1939, for Rs. 3 payable, on the 1st December, 1939. The
Company did not pay either of the calls. On the 23rd January, 1940, Govindaraju
Chettiar was adjudged insolvent on the application of Sundara Ayyar. This
insolvency of Govindaraju Chettiar was eventually annulled in 1944. During this
period Govindaraju Chettiar, in law', ceased to be a director of the Company,
although it is alleged that he nevertheless continued to take part in the
management of the Company.
By a resolution of the Board of Directors of
the Mills passed on the 12th August, 1940, the new managing agents were
empowered to give notices to such persons as had not paid the allotment money
and the call money within the date fixed and to intimate them that in default
their shares would be' forfeited. A notice was issued on the 16th September,
1940, and two copies thereof are said to have been sent to Sundara Ayyar and
355 No payment having been made, the 5,000
shares held by the Company were forfeited by a resolution of the Board of
Directors of the Mills. The auditor of the Mills having pointed out that the
purported forfeiture was irregular and illegal, this forfeiture was cancelled.
By a resolution passed by circulation on the
26th February, 1941, the Board of Directors of the Mills resolved that a notice
be sent to the Company informing it that it was in arrears with calls to the
extent of Rs. 25,000, that the amount must be paid on or before the 31st March,
1941, and that, in default, its shares would be forfeited. A notice dated the
15th March, 1941, was accordingly addressed to the Company and sent by
registered post with acknowledgment due. It appears that the notice was
actually posted on the 17th March, 1941, and was received by Govindaraju
Chettiar on the 20th March, 1941. The Company did not pay the arrears of calls.
On the 5th September, 1941, the Board of Directors of the Mills resolved that
" the 5,000 shares Nos. 15048-20047 standing in the name of the Company
have been forfeited." On the 10th September, 1941, the Mills wrote a
letter to the Company informing the latter that the Directors of the Mills bad
at their meeting held on the 5th September, 1941, forfeited the 5,000 shares.
There is no dispute that this letter which
was sent by registered post was returned undelivered. On the 1st October, 1941,
an entry was made in the share ledger of the Mills recording that the 5,000
shares of the Company had been forfeited. On the 16th November, 1941, these
5,000 shares were reallotted to 14 different persons and on the 17th November,
1941, a letter was sent to the Company intimating that the forfeited shares had
been reallotted and calling upon the Company to send back to the Mills all the
documents relating to the original allotment of the 5,000 shares to the
Company. In the meantime on the 26th August, 1941, by an order made by the
Registrar of Joint Stock Companies the Company was struck off the register of
companies under section 247 356 of the Indian Companies Act. This order of 'the
Registrar was published in the Official Gazette on the 9th September, 1941,
i.e., four days after the shares were forfeited and one day before the notice
intimating the fact of forfeiture was sent in a registered cover which was,
however, returned undelivered. Under section 247 (5) of the Indian Companies
Act the Company stood dissolved on and from the date of such publication.
The Mills having come to know of the
dissolution of the Company applied to the High Court (O.P. No. 10 of 1942)
praying that the name of the Company be restored to the register of companies
and that after such restoration was duly advertised the Company be wound up by
the Court. A similar application was made on the 11th December, 1941, by the
Income-tax authorities (O.P. No. 11 of 1942). On the 23rd February, 1942,
Sundara Ayyar filed an affidavit contending, amongst other things that the
Directors of the Mills had no power to forfeit the shares. On the 2nd April,
1942, however, O.P. No. 10 of 1942 was compromised, and the Mills received Rs.
11,000 from Sundara Ayyar in full satisfaction of their -claim against the
Company. On the 25th June, 1942, O.P. No. 11 of 1942 was also compromised and
Sundara Ayyar paid up the claim of the Income-tax authorities. The two
petitions for restoration of the Company were accordingly dropped.
On the 27th June, 1942, Sundara Ayyar filed a
suit against the Mills and others including Palaniappa Chettiar claiming a
declaration that the forfeiture by the Mills of the 5,000 shares was illegal
and inoperative and directing the Mills to pay to the plaintiff and the third
defendant representing the estate of Govindaraju Chettiar the value of the
forfeited shares with dividend or interest thereon and directing Palaniappa
Chettiar to pay the plaintiff and the third defendant the sum of Rs. 25,000.
This suit was dismissed on the 17th November, 1943, on the ground that Sundara
Ayyar, who was only a member of the dissolved Company, had no locus standi and
could 357 have no relief personally. Sundara Ayyar filed an appeal therefrom
which was dismissed as against the Mills but the case was remanded to the trial
Court for the trial of his claim as against the fourth defendant, Palaniappa
During the pendency of Sundara Ayyar's appeal
he on the 12th August, 1944, filed O.P. No. 199 of 1944 for the restoration of
the Company. On that application an order was made on the 16th February, 1945,
that the name of the Company be restored to the register of companies, that the
Company be deemed to have continued in existence as if its name had never been
struck off, that such restoration be advertised and that the Company be wound
up by the Court and the Official Receiver do forthwith take charge of the
assets and liabilities of the Company. It was further ordered that the Official
Receiver do recognise that as between the Mills and the Company, the Mills
should be regarded as having been duly paid only Rs. 11,000 out of the total
debt of Rs. 25,550 due' to the Mills. By an order made on the 21st January,
1946, leave was given to the Official Receiver to take appropriate steps
regarding the 5,000 shares purported to have been forfeited by the Mills.
Accordingly on the 5th March, 1946, the Official Receiver, in the name of the
Company, took out the present summons calling upon all parties concerned to
show cause why the share register of the Mills should not be rectified by
restoring the name of the Company to the said register in respect of 5,000
shares numbering 15048-20047 and why such other alternative or consequential
relief should not be granted to the applicant as might be just and necessary in
the circumstances of the case.
The Mills contended, in opposition to that
application, that the shares had been properly forfeited, that the Company was,
on the principles of estoppel, acquiescence and laches, precluded from
challenging the forfeiture, that the application was barred by limitation and
that the shares having already been allotted to other persons, who had not been
made 358 parties to the application, order for rectification of the register in
respect of those shares could be made.
The summons came up for hearing before Mr.
The learned Judge, by his judgment dated the
15th November, 1946, held that the notice dated the 15th March, 1941, which was
posted on the 17th March, 1941, and delivered on the 20th March 1941, and on
which the resolution of forfeiture passed on the 5th September, 1941, was
founded, was not in conformity with the provisions of articles 29 and 30 of the
articles of association of the Company which required 14 clear days' notice.
The learned judge further held that the plea of estoppel, acquiescence and
laches was untenable, that article 49 of the Limitation Act did not apply
either expressly or by way of analogy to the present application and that
article 120, which prescribed a period of six years from the date when the
right to sue accrued, would, by analogy, apply to the present proceedings and
that so applied the present proceedings must be held to be within time. Having
disposed of the controversy on the above points it remained to consider the
form of the order which could properly be made on the application. It is quite
clear that the specific shares having already been allotted to 14 different
persons and those persons not being then before the Court, the Court could not
then and there direct rectification of the register by restoring the name of
the Company to the share register of the Mills in respect of those -identical
shares. There was nevertheless nothing to prevent the Court even at that stage
to give notice of the application to the persons to whom the shares had been
reallotted and/or those who were holding the shares at the time and after thus
adding them as parties thereto to make the appropriate order of rectification
and, if thought fit, to also award damages to the Company. There were, however,
16,000 shares of Rs. 10 each yet unissued. After discussing the matter with
learned advocates on both sides to which, discussion a reference will be made
hereafter the 359 learned Judge, in the belief that the advocates for the
parties had agreed as to the form of the order, directed that the Mills do
rectify their register by inserting the name of the applicant Company as owner
of 5,000 shares out of the unissued shares of Rs. 10 each and that on such
insertion the Company do on or before the 15th January, 1947, pay to the Mills
Rs. 25,000, being the amount of calls in arrears.
Pursuant to further directions given by the
learned Judge on the 7th January, 1947, the Mills on the 10th January, 1947,
received Rs. 25,000 and allotted 5,000 shares. Although the Mills thus acted
upon the order they, nevertheless, on the 6th February, 1947, filed an appeal
against the order. That appeal came up for hearing before a Bench consisting of
Satyanarayana Rao and Viswanatha Sastri JJ. It was not disputed before the
appeal Court that the forfeiture was invalid, but the contentions urged were
that by reason of the irregularity the forfeiture was only voidable and not
void and that as the forfeiture was only voidable it was open to the Company to
waive or abandon its right to dispute the validity of the forfeiture and that
in fact, by its conduct, it had done so, that the claim to rectify the register
was barred by limitation and that in any event rectification was impossible
because the shares were not available in specie, the same having been
reallotted to other persons. The learned Judges by their judgment dated the
11th March 1949, held that theforfeiture was invalid, that the application was
not barred by limitation for it was covered by article 120 of the Limitation
Act. The learned Judges recognised that where a period of limitation was
prescribed for a suit or a proceeding mere delay was no bar unless it was of
such a character as would lead to an inference of abandonment of the right or
unless it: was established that the person against whom the action or proceeding
was instituted was actually prejudiced by reason of such delay. The learned
Judges agreed with the 47 360 trial Court that no plea of acquiescence, waiver
or estoppel had been established in the present case. The learned Judges,
nevertheless, thought that the question of abandonment of the right and
prejudice to the appellant by reason of the delay stood on a different footing.
Then after referring to certain conduct on the part of Govindaraju Chettiar and
Sundara Ayyar the learned Judges concluded that by reason of the long delay in
reviving the Company and in taking proceedings under section 38 of the Indian
Companies Act the Mills had been induced to put themselves in a situation in
which it became impossible for them to restore the Company to the register in
respect of those 5,000 shares and that in view of this conduct, if the
applicants were Govindaraju Chettiar and Sundara Ayyar, it would have been a
case in which relief would have been refused in the light of the principles
which the learned Judges deduced from the judicial decisions referred to by
them. Then referring to the decision in Smith, Stone & Knight v. Birmingham
Corporation (1) and certain text books the learned Judges took the view that it
was too late in the day to adhere to the strict formalism laid down in
Salomon's case (2) and that as the tendency of modern decisions was to lift the
veil of corporate personality and disregard the corporate form, the conduct of
its only two members had disentitled the company from claiming the relief of
rectification. The learned Judges further held that there was no legal basis on
which the form of the order could be supported. On reading the judgment of the
trial Judge and after hearing the senior advocate appearing for the Mills the
learned Judges felt unable to agree that the learned advocate had agreed to the
substitution of, the 6,000 out of the unissued shares for the 5,000 forfeited
shares. The result was that the appeal was allowed and the order of the trial
Judge was set aside. The Company by its Official Receiver has now come up
before this Court with leave granted by the High Court (1) (1939) 4 All E. R.
(2)  A. C. 22.
361 under sections 109 and 110 of the Code of
The appeal Court, it will be observed, reversed
the decision of the trial Judge and decided the appeal against the Company on
two grounds only, namely, (1) that the Company had by the conduct of its two
members abandoned its right to challenge the forfeiture, and (2) that the form
of the order could not be supported as one validly made under section 38 of the
Indian Companies Act. The learned AttorneyGeneral, appearing in support of this
appeal, has assailed the soundness of both these grounds. The learned
Attorney-General contends, not without considerable force, that having, in
agreement with the trial Coury, held that no plea of acquiescence, waiver or
estoppel had been established in this case, the appeal Court should not have
allowed the Mills to raise the question of abandonment of right by the Company,
inasmuch as no such plea of abandonment had been raised either in the Mills'
affidavit in opposition to the Company's application or in the Mills grounds of
appeal before the High Court. Apart from this, the appeal Court permitted the
Mills to make out a plea of abandonment of right by the Company ,as distinct
from the pleas of waiver, acquiescence and estoppel and sought to derive
support for this new plea from the well known cases of Prendergast v.
Turton(1), Clark & Chapman v. Hart(2) and Jones v. North Vancouver Land and
Improvement, Co.(3). A perusal of the relevant facts set out in the several
reports and the respective judgments in the above cases will clearly indicate
that apart from the fact that some of them related to collieries which were
treated on a special footing, those cases were really cases relating to waiver
or acquiescence or estoppel. Indeed in Clarke's case (2) while Lord Chelmsford
referred to the decision in Prendergast's case(1) as a case of abandonment of
right, Lord Wensleydale read it as an instance of acquiescence and estoppel.
Unilateral act or conduct of a person, (1) 62 E.R. 807. (3)  A.C. 317.
(2) 6 H.L.C. 632; 10 E.R. I443.
362 that is to sky act or conduct of one
person which is not relied upon by another person to his detriment, is nothing
more than mere waiver, acquiescence or laches, while act or conduct of a person
amounting to an abandonment of his right and inducing another person to change
his position to his detriment certainly raises the bar of estoppel. Therefore,
it is not intelligible how, having held that no plea of waiver, acquiescence or
estoppel had been established in this case, the appeal Court could,
nevertheless, proceed to give relief to the Mills on the plea of abandonment by
the Company of its rights. If the facts on record were not sufficient to
sustain the plea of waiver, acquiescence or estoppel, as hold by both the
Courts, we are unable to see how a plea of abandonment of right which is
an,aggravated, form of waiver, acquiescence or laches and akin to estoppel
could be sustained on the self-same facts. Further, whatever be the effect of
mere waiver, acquiescence or laches on the part of a person on his claim to
equitable remedy to enforce his rights under an executory contract, it is quite
clear, on the authorities, that mere waiver, acquiescence or laches which does
not amount to an abandonment of his right or to an estoppel -against him cannot
disentitle that person from claiming relief in equity in respect of his
executed and not merely executory interest.
See per Lord Chelmsford in Clarke's case (1)
at page 657.
Indeed, it has been held in The Garden Gully
United Quartz Mining Company v. Hugh McLister(2) that mere laches does not
disentitle the holder of shares to equitable relief against an invalid
declaration of forfeiture. Sir BarnesPeacook in delivering the judgment of the
Privy Council observed at pages 56-67 as follows:There is no evidence
sufficient to induce their Lordships to hold that the conduct of the plaintiff
did amount to an abandonment of his shares, or of his interest therein, or
estop him from averring that he continued to be the proprietor of them. There
certainly is no evidence to justify such a conclusion (1) 6 H.L.C. 632: 10 E.R.
(2) L. R.1 App. Cas. 39.
363 with regard to his conduct subsequent to
the advertisement of the 30th of May, 1869. In this case, as 'In that of
Prendergast v. Turton(1), the plaintiff's interest was executed. In other
words, he had a legal interest in his shares and did not require a declaration
of trust or the assistance of a Court of Equity to create in him an interest in
them. Mere laches would not, therefore, disentitle him to equitable relief:,
Clarke and Chapman v. Hart(2). It was upon the ground of abandonment, and not
upon that of mare laches, that Prendergast v. Turton(1) was decided." Two
things are thus clear, namely, (1) that abandonment of right is much more than
mere waiver, acquiescence or laches and is something akin to estoppel if not
estoppel itself, and (2) that mere waiver, acquiescence or laches which is
short of abandonment of right or estoppel does not disentitle the holder of
shares who has a vested interest in the shares from challenging the validity of
the purported forfeiture of those shares. In view of the decision of the Courts
below that no case of waiver, acquiescence, laches or estoppel has been
established in this case it is impossible to hold that the principles deducible
from the judicial decisions relied upon by the appeal Court have disentitled
the Company to relief in this case. The matter does not rest even here.
Assuming., but not conceding, that the principle of piercing the veil of
corporate personality referred to in Smith, Stone & Knight v. The
Birmingham Corporation (3) can at all be applied to the facts of the present
case so as to enable the Court to impute the acts or conduct of Govindaraju
Chettiar and Sundara Ayyar to the Company, we have yet to inquire whether those
acts or conduct do establish such abandonment of rights as would, according to
the decisions, disentitle the plaintiff from questioning the validity of the
purported declaration of forfeiture. There can be 'no question that the
abandonment, if any, must be inferred from acts or conduct of the Company as
such' or, on the above principles, of its two members subsequent to (1) 62 E.R.
807. (3) (1939) 4 All E.R. 116.
(2) 6 H.L.C. 632: 10 E.R. I443.
364 the date of the forfeiture, for it is the
right to challenge the forfeiture that is said to have been abandoned. 'In
order to give rise to an estoppel against the Company, such acts or conduct
amounting to abandonment must be anterior to the Mills' changing its-position
to its detriment. The resolution for forfeiture was passed on the 6th
September, 1941. The five thousand forfeited shares were allotted to 14 persons
on-the 16th November, 1941, and it is such ,allotment that made it impossible
for the Mill& to give them back to the Company. In order, therefore, to
sustain a plea of abandonment of right or estoppel, it must be shown that the
Company or either of its two members had done some act and/or had been guilty
of some conduct between the 6th September, 1941, and the 16th November, 1941.
No such act or conduct during such period has been or can be pointed out. On being
pressed advocate for the Mills refers us to the conduct of Sundara Ayyar in
opposing O.P. No. 10'of 1942 filed by the Mills and O.P. No. 11 of 1942 by the
Income-tax authorities for restoring the Company to the register of companies
and it is submitted that such conduct indicates that Sundara Ayyar had accepted
the validity of the forfeiture. This was long after the Mills had reallotted
the forfeited shares. Further, a perusal of paragraph 9 of the affidavit in
opposition filed by Sundara Ayyar in O.P. No. 10 of 1942 will clearly show that
he not only did not accept the forfeiture as valid but actually repudiated such
forfeiture as wholly beyond the competence of the Board of Directors of the
Mills. The reason for opposing the restoration of the Company may well have
been -that Sundara Ayyar desired, at all cost, to avoid his eventual personal
liability as a shareholder and director of the Company. In any case, Sundara
Ayyar did make it clear that he challenged the validity of the purported
forfeiture of shares by the Mills and in this respect this case falls clearly
within the decision in Clarke's case (1) relied upon by the appeal Court. The
only other conduct of Sundara Ayyar relied on by learned advocate for the Mills
in (1) 6 H.L.C. 632; 10 E.R. 1443.
365 support of the appeal Court's decision on
this point is that Sundara Ayyar proceeded with his suit against Palaniappa
Chettiar even after his suit as well as his appeal had been dismissed as
against the Mills. In that suit Sundara.
Ayyar sued the Mills as well as Govindaraju
Chettiar and the Official Receiver of Salem representing the latter's estate
and Palaniappa Chettiar. In the plaint itself the validity of the forfeiture
was challenged. The claim against Palaniappa Chettiar was in the alternative
and it was founded on the agreement of the 30th June, 1939. The suit was
dismissed as against the Mills only on the technical ground that Sundara Ayyar
had no locus standi to maintain the suit.
The contention of the Company that the
forfeiture was invalid and the claim for rectification of the share register of
the Mills by restoring the name of the Company cannot possibly have been
affected by this decision.
Sundara Ayyar's claim against Palaniappa
Chettiar was based on the agreement of 1939 and it was formulated as an
alternative personal claim. In view of the clear allegation in the plaint that
the forfeiture was invalid and not binding on the Company, the continuation of
the suit by Sundara Ayyar to enforce his personal claim against Palaniappa Chettiar
cannot be regarded as an abandonment by Sundara Ayyar of the right of the
Company. It must not be overlooked that the Company stood dissolved on that
date and Sundara Ayyar had no authority to do anything on behalf of the
Company. In our opinion there is no evidence of abandonment of the Company's
right to challenge the validity of the purported forfeiture.
The second point on which the appeal Court
decided the appeal against the Company was that the form of the order made by
the trial Court could not be supported as one validly made under section 38 of
the Indian Companies Act.
It will be recalled that having disposed of
all the points of controversy against the Mills and in favour of the Company
the trial Judge had to consider the' form of the order Which could properly be
made in favour of the 366 Company. In the summons the Company had asked for
rectification of the register by restoring the name of the Company to the
register in respect of 5,000 shares numbering 15048 to 20047. It was agreed by learned
advocates on both sides before the trial Court that it would, in the
circumstances, be impossible to make an order for rectification with respect to
those specific shares which, as already stated, had been reallotted to other
persons who were not parties to the proceedings. The Mills had also reduced its
capital by having the face value of the 84,000 shares which had been issued
reduced by repaying to the shareholders Rs. 5 in respect of each of those
There were, however, 16,000 unissued shares
of Rs. 10 each which were not affected -by the reduction. While, therefore, it
was clearly impossible for the Court to direct that the Company should be
replaced on the register in respect of its original shares, the Court could,
under section 38, give notice to the persons to whom the shares had been
reallotted or those claiming under them and make them parties to the
proceedings and then make an appropriate order for' rectification and, if
necessary, also direct the Mills to pay damages under that section. This being
the situation learned advocate for the Mills had to decide upon his course of
action. What happened in Court will appear from the following extract from the
judgment of the trial Court:" It is agreed by both parties that the proper
order will be for the applicant Company to be placed on the register in respect
of 5,000 of the unissued rupees 10 shares and I order accordingly. In this case
as the parties consent to the matter being disposed of, by allotting to the
applicant unissued shares, there can, it seems to me, be no order for payment
of the dividends. Counsel for the respondent Company leaves the solution of
this difficulty to me......................... The suggestion of the applicant
Company is that it is prepared to forego any claim to the accrued dividends if
it is not required to pay interest on the outstanding call money. This seems to
me to be a very 367 reasonable suggestion........... I direct accordingly that
on insertion of the name of the applicant Company as owner of 6,000of the
unissued shares the applicant Company shall pay to the respondent company only
Rs. 25,000 being the amount of calls in arrears." The appeal Court,
however, went behind this record of the proceedings that took place before the
trial Court and heard the learned senior advocate as to what had happened in
Court and after hearing the senior advocate for the Mills found itself unable
to agree with the contention that the learned advocate for the Mills had agreed
to the substitution of 5,000 unissued shares for the shares forfeited. No
affidavit of the learned senior advocate was filed before the trial Court for
the rectification of what is 'low alleged to have been wrongly recorded by the
trial Judge, as suggested by the Privy Council in Madhu Sudan Chowdhri v.
Musammat Chandrabati Chowdhrain (1) and other cases referred to in Timmalapalli
Virabhadra Rao v.
Sokalchand Chunilal & Others (2). While
we do not consider it necessary or desirable to lay down any hard and fast
rule, we certainly take the view that the course suggested by the Privy Council
should ordinarily be taken. It.
appears that at the time when the application
was made for leave to appeal to the Federal Court an affidavit sworn by G.
Vasantha Pai, the junior advocate for the Mills, was filed before the Court
dealing with that application.
Paragraph 5 of that affidavit runs as
follows:"During the trial every question was argued on behalf of the
respondent company and no point was given up. This will be clear -from the fact
that till we reached the penultimate paragraph of the judgment beginning 'It
now remains to consider, etc.' all the issues are dealt with by the learned
Judge. The agreement was on the specific form of the order on the basis of his
Lordship's judgment and without prejudice to the respondent company's rights.
What (1) (1917) 21 C. W. N. 897.
(2) (1951) 1 M. L. J. 244.
48 368 was agreed to was "Proper
order" on the basis of his Lordship's judgment which by then had been
dictated. The respondent company no more consented to the order that the
appellant consented to have his application dismissed when its counsel agreed
that it was impossible to make an order in terms of the Judge's summons."
The appeal Court understood the stand taken by the learned senior advocate as
follows:" He seems to have &greed only as an alternative that if all
his contentions were overruled and the learned Judge thought that
notwithstanding the difficulty in the way of granting the relief for
rectification the applicant company should be restored to the register, the
only shares available being the 16,000 shares of Rs. 10 each unissued, the
applicant company could be recognised as a shareholder in respect of 5,000 out
of those shares................." It is quite clear from the judgment of
the trial Court, paragraph 5 of the junior advocate's affidavit and the
statement of the learned senior advocate as recorded by the appeal Court that
the agreement was solely and simply as to the specific form of the order,
without prejudice to the Mills' right to challenge the correctness of the
findings of the trial Court on the material -issues. In other words, all that
learned advocate for the Mills desired to guard himself against was that the
agreement should not preclude the Mills from preferring an appeal against the
decision of the learned Judge on the merits. The reservation was as to the
right of appeal challenging the findings on the merits and the agreement was
only as to the form of the order.
This limited agreement certainly implied that
the Mills agreed to be bound by the order only if the Mills failed in their
appeal on the merits' In short, the consent covered only the form of the order
and nothing else so that if the Mills succeeded in their appeal the order would
go, although advocate has agreed to its form but that if the Mills failed in
their contention as to the correctness of the findings of the learned trial
Court on the 369 different questions on merits it would no longer be open to
them to challenge the order only on the ground of the form of the order. In our
judgment the Mills cannot attack the form of the order to which their counsel
Learned advocate for the Mills has raised the
question of limitation. He referred us to articles 48 and 49 of the Limitation
Act but did not strongly press his objection founded on those articles. We
agree with the trial Court and the Court of appeal that those two articles have
no application to this case. A claim for the rectification of the register
simpliciter does not necessarily involve a claim for the return of the share
scrips and in this case there was, in fact, no prayer for the return of shares
or the scrips and, therefore, these two articles can have no application.
Learned advocate, however, strongly relies on article 181 of the Limitation
Act. That article has, in a long series of decisions of most, if not all, of
the High Courts, been held to govern only applications under the Code of Civil
Procedure. It may be that there may be divergence of opinion even within the
same High Court but the preponderating view undoubtedly is that the article
applies only to applications under the Code. The following extract from the
judgment of the Judicial Committee in Hansraj Gupta v. Official Liquidators,
Dehra Dun Mussoorie Electric Tramway Company Limited (1) is apposite:" It
is common ground that the only article in that schedule which could apply to
such an application is article 181 : but a series of authorities commencing
with Rai Manekbai v. Manekji Kavasji (2) have taken 'the view that article 181
only relates to applications under the Code of Civil Procedure, in which case
no period of limitation has been prescribed for the application. But even if
article 181 does apply to it, the period of limitation prescribed by that
article is three years from the time when the right to apply accrued, which
time would be not earlier than the (1) (1933) 60 I.A. 13 at p. 20.
(2) (1883) 7 Bom. 213.
370 date of the winding up order, March 26,
1926. The application of the liquidators was made on March 26, 1928, well
within the three years. The result is that from either point of view the
application by the liquidators, if otherwise properly made under and within the
provisions of section 186 of the Indian Companies Act, is not one which must be
dismissed by reason of section 3 of the Indian Limitation Act. It is either an
application made within time, or it is an application made for which no period
of limitation is prescribed. The case may be a casus omissus.
If it be so, then it is for others than their
Lordships to remedy the defect." Learned advocate for the Mills, however,
points out that the reason for holding that article 181 was confined to
applications under the Code was that the article should be construed ejusdem
generis and that, as all the articles in the third division of the schedule to
the Limitation Act related to applications under the Code, article 181, which
Was the residuary article, must be limited to applications under the Code. That
reasoning, it is pointed out, is no longer applicable because of the amendment
of the Limitation Act by the introduction of the present articles 158 and 178.
These articles are in the third division
which governs applications but they do not relate to applications under the
Code but to one under the Arbitration Act and, therefore, the old reasoning can
no longer hold good. It is urged that it was precisely in view of this altered
circumstance that in Asmatali Sharif v. Mujahar Ali Sardar(1) a Special Bench
of the Calcutta High Court expressed the opinion that an application for
pre-emption by a non-notified co-sharer should be governed by article 181 of
the Limitation Act. A perusal of that case, however, will show that the Special
Bench did not finally decide that question in that case. In Hurdutrai Jagadish Prasad
Official Assignee of Calcutta(2) a Division
Bench of the Calcutta High Court consisting of Chief Justice Harries and Mr.
Justice Mukherjea who had delivered (1) (1948) 52 C.W.N. 64.
(2) (1948) 52 C.W.N. 343.
371 the judgment of the Special Bench clearly
expressed the view that article 181 of, the Limitation Act applied only to
applications under the Civil Procedure Code and did not apply to an application
under section 56 of the Presidency Towns Insolvency Act Mukherjea J. who also
delivered the judgment of the Division Bench explained the observations made by
him in the Special Bench case by pointing out that the entire procedure for an
application under section 26 (F) of the Bengal Tenancy Act was regulated by the
Civil Procedure Code and, therefore, an application for preemption was, as it
were, an application made under the Civil Procedure Code. Subsequently in
Sarvamangala Dasi v. Paritosh Kumar Das(1) G.N. Das J. who was also a member of
the Special Bench in the first' mentioned case expressed the opinion, while
sitting singly, that article 181 was not confined to applications under the
Code. His Lordship's attention does not appear to have been drawn to the case
of Hurdutrai Tagadish Prasad(2). It does not appear to us quite convincing, without
further argument, that the mere amendment of articles 158 and 178 can ipso
facto alter the meaning which, as a result of a long series of judicial
decisions of the different High Courts in India, came to be attached to the
language used in article 181. This long catena of decisions may well be said to
have, as it were, added the words " under the Code " in the first
column of that article. If those words had actually been used in that column
then a subsequent amendment of articles 158 and 178 certainly would not have
affected the meaning of that article. If, however, as a result of judicial
construction, those words have come to be read into the first column as if
those words actually occurred therein. we are not of opinion, as at present
advised, that the subsequent amendment of articles 158 and 178 must necessarily
and automatically have the effect of altering the long acquired meaning of
article 181 on the sole and simple ground that after the amendment the reason
on which the old construction was founded is no longer available. We need (1)
A.I.R. 1952 Cal. 689.
(2) (1948) 52 C.W.N. 343.
372 not, however, on this occasion, pursue
the matter further, for we are of the,opinion that even if article 181 does
apply to the present application it may still be said to be within time. The
period of limitation prescribed by that article is three years from the time
when the right to apply accrues." It is true that a further notice after
the shares are forfeited, is not necessary to complete the forfeiture of the
shares See Knight's case(1)], but it is difficult to see how a person whose
share is forfeited and whose name is struck out from the register can apply for
rectification of the register until he comes to know of the forfeiture. The
same terminus a quo is also prescribed in Article 120 of the Limitation Act. In
O.R.M.O. M.SP. (Firm) v. Nagappa Chettiar(2) which was a suit to recover trust
property from a person who had taken it, with notice of the trust, by a
transaction which was a breach of trust, the Privy Council approved and applied
the principles of the earlier Indian decisions referred to therein to the case
before them and held that the time began to run under article 120 after the
plaintiff came to know of the transaction which gave him the right to sue. On
the same reasoning we are prepared to extend that principle to the present
application under article 181. If article 181 applies then time began to run
after the Company came to know of its right to sue. It is not alleged that the
Company had any knowledge of the forfeiture between the 5th September, 1941,
when the resolution of forfeiture was passed and the 9th September, 1941, when
the Company became defunct. After the last mentioned date and up to the 16th
February, 1945, the Company stood dissolved and no knowledge or notice can be
imputed to the Company during this period. Therefore, the Company must be
deemed to have come to know of its cause of action after it came to life again
and the present application was certainly made well within three years after
that event happened on the 16th February, 1945. If article 181 does not apply
then the only article that can (1) (1867) L.R. 2 Ch. App. 321.
(2) I.L.R.  Mad. 175.
373 apply by analogy is article 120 and the
application is also within time. In either view this application cannot be
thrown out as barred by limitation.
The result, therefore, is that this appeal
We set aside the judgment and decree of the
High Court in appeal-and restore the order of the trial Court. The appellant
will be entitled to the costs of the appeal in the High Court as well as in
BOSE J.-I agree with the conclusions of my
learned brothers and also with their reasoning generally but lest it be
inferred that I am assenting to a far wider proposition than is actually the
case, I deem it advisable to clarify my position about abandonment and waiver.
Though the usage of these words in cases of the present kind has the sanction
of high authority, they are, in my opinion, inapt and misleading in this class
of case. In order to appreciate this it will be necessary to hark back to first
In the first place, waiver and abandonment
are in their primary context unilateral acts. Waiver is the intentional
relinquishment of a right or privilege. Abandonment is the voluntary giving up
of one's rights and privileges or interest in property with the intention of
never claiming them again. But except where statutory or other limitations
intervene, unilateral acts never in themselves effect a change in legal status
because it is fundamental that a man cannot by his unilateral action affect the
rights and interests of another except on the basis of statutory or other
authority. Rights and obligations are normally intertwined and a man cannot by
abandonment per se of his rights and interests thereby rid himself of his own
obligations or impose them on another. Thus, there can be no abandonment of a
tenancy except on statutory grounds (as, for example, in the Central Provinces
Tenancy Act, 1920) unless there is acceptance, express or implied, by the other
side. It may, for example in a case of tenancy, be to the landlord's interest
to keep the tenancy alive and so also in the case 374 of shares of a company.
It may be to the interests of the company and the general body of shareholders
to refrain from forfeiture if, for example, the value of unpaid calls exceeds
the market value of the shares. Such a position was envisaged in Garden Gully
United Quartz Mining Co. v. Hugh McLister(1). So also with waiver. A long
catena of illustrative cases will be found collected in B. B. Mitra's Indian
Limitation Act, Thirteenth Edition, pages 447 and 448.
This fundamental concept brings about another
repercussion. Unless other circumstances intervene, there is a locus
paenitentiae in which a unilateral abandonment or waiver can be recalled. It
would be otherwise if the unilateral act of abandonment in itself, and without
the supervention of other matters, effected a change in legal status. In point
of fact, it is otherwise when, as in the statutory example I have quoted, the
law intervenes and determines the tenancy. It is, therefore, in my opinion,
fundamental that abandonment and waiver do not in themselves unilaterally bring
about a change in legal status.
Something else must intervene, either a
statutory mandate or an act of acceptance, express or implied, by another
person, or, as Lord Chelmsford put it in Clarke & Chapman v. Hart(1), acts
which are equivalent to an agreement or a licence, or an estoppel in cases
where an estoppel can be raised.
Next, there is, in my view, a fundamental
difference between an executory interest and an executed one. In the former, it
is necessary to resort to equitable reliefs to get enforced a right which is
not at the date a vested right: cases of specific performance and declaration
of a trust are examples, so also a prayer for relief from forfeiture. In cases
of this kind, conduct which would disentitle a person to equitable relief is
relevant. No hard and fast rule can or should be laid down as to what such
conduct should consist of but among the varieties of conduct which Courts have
considered sufficient in this class of case is conduct which amounts to laches
(1) (1875-76) 1 App. Cas. 39. at 57 (2) (1858) 10 E.R.
1443 at 1452 and 1453.
375 or where there has been a standing by or
acquiescence or waiver or abandonment of a right, particularly when this would
prejudicially affect third parties. This sort of distinction is brought out by
Lord Chelmsford in Clarke & Chapman v. Hart(1).
The position is different when the interest
is executed and the man has a vested interest in the right, that is to say,
when he is the legal owner of the shares with the legal title to them residing
in him. This legal title can only be destroyed in certain specified ways. It is
in my view fundamental that the legal title to property, whether moveable or
immoveable, cannot pass from one person to another except in legally recognised
ways, and normally by the observance of certain recognised forms. Confining
myself to the present case, one of the ways in which the title to shares can
pass is by forfeiture; but in that case an exact procedure has to be followed.
A second way is by transfer which imports agreement. There again there is a
regular form of procedure which must be gone through. A third is by estoppel,
though, when the position is analysed, it will be found that it is not the
estoppel as such which brings about the change. The expressions abandonment,
waiver and so forth, when used in a case like the present, are only synonyms
for estoppel and despite hallowed usage to the contrary, I prefer to call a
spade a spade and put the matter in its proper legal pigeon hole and call it by
its proper legal name. These other terms are, in my view, loose and inaccurate
and tend to confuse, when applied to cases of the present nature. A man who has
a vested interest and in whom the legal title lies does not, and cannot, lose
that title by mere laches, or mere standing by or even by saying that he has abandoned
his right, unless there is something more, namely inducing another party by his
words or conduct to believe the truth of that statement and to act upon it to
his detriment, that is to say, unless there is an estoppel, pure and simple. It
is only in such a case that the right can (1) 10 E.R. 1443 at 1452 and 1453.
376 be lost by what is loosely called
abandonment or waiver, but even then it is not the abandonment or waiver as
such which deprives him of his title but the estoppel which prevents him from
asserting that his interest in the shares has not been legally extinguished,
that is to say, which prevents him from asserting that the legal forms which in
law bring about the extinguishment of his interest and pass the title which
resides in him to another, were not duly observed.
Fazl Ali J. and I endeavoured to explain this
in Dhiyan Singh v. Jugal Kishore (1). What happens is this. The person estopped
is not allowed to deny the existence of facts, namely the actings of the
parties and so forth which would in law bring about the change in legal status,
namely the extinguishment of his own title and the transfer of it to another,
for estoppel is no more than a rule of evidence which prevents a man from
challenging the existence or nonexistence of a fact. Once the facts are
ascertained, or by a fiction of law are deemed to exist, then it is those facts
which bring about the alteration in legal status; it is not the estoppel as
such nor is it the abandonment or waiver per se. I prefer therefore to adhere
to what I conceive is the proper legal nomenclature. As I understand it,
estoppel was the basis of the decision in Clarke & Chapman v. Hart (2).
See Lord Wensleydale's judgment at page 1458
and the Lord Chancellor's at page 1453 ; so also. in Garden Gully United Quartz
Mining Company v. Hugh McLister (3).
That there is no sufficient ground for
estoppel in this case is shown by the facts set out in the judgment of my
learned brothers. I agree that the appeal must succeed.
Agent for the appellant: S. Subramaniam.
Agent for the respondent: M. S. E. Aiyangar.
(1)  S.C.R. 478 at 485. (3) 1 App. Cas.
39 at 56 and 57, (2) 10 E.R. 1443.