PETITIONER:
SHA MULCHAND & CO. LTD.(IN LIQUIDATION)
Vs.
RESPONDENT:
JAWAHAR MILLS LTD.
DATE OF JUDGMENT:
09/12/1952
BENCH:
DAS, SUDHI RANJAN
BENCH:
DAS, SUDHI RANJAN
MAHAJAN, MEHR CHAND
BOSE, VIVIAN
HASAN, GHULAM
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)
ACT:
Company-Forfeiture of shares-Necessity of due notice-
Application 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.
HEADNOTE:
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 appeal:
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 his- rights 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 ([1858] 6 H.L.C. 632), Jones v. North
Vancouver Land and Improvement Co. ([1910] A.C. 317)
explained. Garden Gully United Quartz Mining Company v.
Hugh Mclister ([1875] 1 App. Cas. 39) relied on.
(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 ([1939]
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. 181.
(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. ([1933] 60 I.A. 13), Hurdutrai Jagdish
Prasad v. Official Assignee of Calcutta ([1948] 52 C.W.N.
343) approved. Asmatali Sharif v. Mujahar Ali Sardar
([1948] 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 con-
text 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 person.
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 aban-
donment 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.
JUDGMENT:
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 of 1946.
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 Govindaraju Chettiar.
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 acknow-
ledgment 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 dis-
missed 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 Chettiar.
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. Justice Clark.
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 the-
forfeiture 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
resilt 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. 116.
(2) [1897] A. C. 22.
361
under sections 109 and 110 of the Code of Civil Procedure.
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 abandon-
ment 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 Chelms-
ford 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) [1910] 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 abandon-
ment 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. 1443.
(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 Palani-
appa 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 shares.
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 consented.
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 v.
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 pre-
emption 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. [1941] 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 must succeed.
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 this Court.
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 mislead-
ing in this class of case. In order to appreciate this it
will be necessary to hark back to first principles.
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 inter-
twined 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 non-
existence 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.
Appeal allowed.
Agent for the appellant: S. Subramaniam.
Agent for the respondent: M. S. E. Aiyangar.
(1) [1952] S.C.R. 478 at 485. (3) 1 App. Cas. 39 at 56 and
57,
(2) 10 E.R. 1443.
377