SCHOOL OF LAW, LOVELY PROFESSIONAL

UNIVERSITY, PUNJAB (INDIA)

Sri Gopal Jalan & Company vs Calcutta Stock Exchange.

1964 AIR 250, 1964 SCR (3) 698

SUBMITTED BY
RAVIDEEP SINGH
REG.NO. 11611106
LL.BTYC (2nd Year)
Course Code: Law 542 Course Title: Company Law

Course Instructor: Shantanu Braj Choubey

Academic Task No.: CA-2 Academic Task Title: Case Analysis

Date of Allotment: 15-03-2018 Date ofsubmission:09-04-2018

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Contents
INTRODUCTION OF THE CASE ........................................................................................................ 1
FACT OF THE CASE ............................................................................................................................ 2
LAW POINTS ........................................................................................................................................ 3
Section 75 in The Companies Act, 1956 .............................................................................................. 3
Section 69 in The Companies Act, 1956 .............................................................................................. 4
Articles of association of the calcutta stock exchange association limited ........................................ 4
ISSUES ................................................................................................................................................... 5
ARGUMENT BY THE APPELLANT ................................................................................................... 5
ARGUMENT BY THE RESPONDANT ............................................................................................... 5
CASE HISTORY .................................................................................................................................... 6
CALCUTTA HIGH COURT JUDGEMENT ......................................................................................... 6
SUPREME COURT JUDGMENT ......................................................................................................... 6
ANALYSIS OF THE CASE ................................................................................................................... 7
CONCLUSION ....................................................................................................................................... 8
REFERENCES ....................................................................................................................................... 9
STATUTES......................................................................................................................................... 9
ONLINE SOURCES ........................................................................................................................... 9
INTRODUCTION OF THE CASE

Appellant

SRI GOPAL JALAN & COMPANY

Respondents

CALCUTTA STOCK EXCHANGE ASSOCIATION LTD.

Case no.

Civil Appeal No. 512 Of 1961

Judges

The Hon'ble Justice A.K Sarkar

The Hon'ble Justice M. Hidayatullah

The Hon'ble Justice J.C Shah

Advocates

S.K Kapur, S. Murthi, P.M Mukhi and K.K Jain, Advocates

H.N Siznyal, Solicitor-General of India (B.P Maheshwari, Advocate, with him)

This appeal is from an order of Calcutta High Court refusing to direct the Calcutta Stock
Exchange Association Limited to file a return of allotment of shares under section 75 of the
indian companies act. 1956. The applicant is one of the shareholders of the Calcutta Stock
Exchange Association Limited. The Association is a company limited by shares. The issued
capital of the company consists of 277 fully paid up ordinary shares of Rs. 1,000/- each. Out of
these shares, 70 shares were forfeited by the Association and later re-issued by it. The applicant
alleges that it is the duty of the Association to file return of allotment in respect of the re-issue of
these shares.

1
 FACT OF THE CASE
1. The Association is a company limited by shares. The issued capital of the company
consists of 277 fully paid up ordinary shares of Rs. 1,000/- each. Out of these shares, 70
shares were forfeited by the Association and later re-issued by it.
2. The forfeiture of shares is authorised by the articles of association of the calcutta stock
exchange association limited. article 211 authorised the Committee of the Association to
expel or suspend any member in certain events.
3. Article 222:- "Any member who has been declared a defaulter by reason of his failure to
fulfill any engagement between himself and any other member or members and who fails
to fulfill such engagement within six months from the date upon which he has been so
declared a defaulter shall at the expiration of such period of six Calendar months
automatically cease to be a member."
4. Article 243:- "Upon any member ceasing to be a member under the provisions of article 22
hereof and upon any resolution being passed by the Committee expelling any member
under the provisions of Article 21 hereof or upon any member being adjudicated insolvent
the share held by such member shall ipso facto be forfeited."
5. Article 274:- "Any share so forfeited shall be deemed to be the property of the Association,
and the Committee shall sell, re-allot and otherwise dispose of the same in such manner to
the best advantage for the satisfaction of all debts which may then be due and owing either
to the Association or any of its members arising out of transactions or dealings in stocks
and shares."
6. It is now well-settled that these Articles are lawful and that forfeiture of shares on grounds
other than nonpayment of calls is valid and is not in contravention of the Indian
Companies Act
7. According to the article of the company 70 shares were forfeited and again re- issued these
shares.
8. The applicant alleges that it is the duty of the Association to file return of allotment in
respect of the re-issue of these shares.

1
Articles of association of the calcutta stock exchange association limited
2
Supra note 1
3
Supra note 1
4
Supra note 1

2
LAW POINTS
Section 75 in The Companies Act, 19565
75. Return as to allotments.

(1) Whenever a company having a share capital makes any allotment of its shares, the company
shall, within thirty days] thereafter,-

(a) file with the Registrar a return of the allotments, stating the number and nominal amount of
the shares comprised in the allotment, the names, addresses and occupations of the allottees, and
the amount, if any, paid or due and payable on each share: Provided that the company shall not
show in such return any shares as having been allotted for cash if cash has not actually been
received in respect of such allotment.]

(b) in the case of shares (not being bonus shares) allotted as fully or partly paid up otherwise than
in cash, produce for the inspection and examination of the Registrar a contract in writing
constituting the title of the allottee

to the allotment together with any contract of sale, or a contract for services or other
consideration in respect of which that allotment was made, such contracts being duly stamped,
and file with the Registrar copies verified in the prescribed manner of all such contracts and a
return stating the number and nominal amount of shares so allotted, the extent to which they are
to be treated as paid up, and the consideration for which they have been allotted; and

(c) file with the Registrar-

(i) in the case of bonus shares, a return stating the number and nominal amount of such shares
comprised in the allotment and the names, addresses and occupations of the allottees and a copy
of the resolution authorising the issue of such shares;

(ii) in the case of issue of shares at a discount a copy of the resolution passed by the company
authorising such issue together with a copy of the order of the Court sanctioning the issue and
where the maximum rate of discount exceeds ten per cent., a copy of the orders of the Central
Government permitting the issue at the higher percentage.]

(2) Where a contract such as is mentioned in clause (b) of sub- section (1) is not reduced to
writing, the company shall, within 2 thirty days] after the allotment, file with the Registrar the
pres- cribed particulars of the contract stamped with the same stamp duty as would have been
payable if the contract had been reduced to writing; and those particulars shall be deemed to be
an instrument within the meaning of the Indian Stamp Act, 1899 , (2 of 1899 .) and the Registrar

5
Section 75 in The Companies Act, 1956

3
may, as a condition of filing the particulars, require that the duty payable thereon be adjudicated
under section 31 of that Act.

(3) If the Registrar is satisfied that in the circumstances of any particular case the period
of 2 thirty days] specified in subsections (1) and (2) for compliance with the requirements of this
section is or was inadequate, he may, on application made in that behalf by the company,
whether before or after the expiry of the said period, extend

that period as he thinks fit]; and if he does so, the provisions of sub- sections (1) and (2) shall
have effect in that particular case as if for the said period of thirty days] the extended period
allowed by the Registrar were substituted.

(4) If default is made in complying with this section, every officer of the company who is in
default shall be punishable with fine which may. extend to five hundred rupees for every day
during which the default continues: Provided that in case of contravention of the proviso to
clause (a) of sub- section (1), every such officer, and every promoter of the company who is
guilty of the contravention shall be punishable with fine which may extend to five thousand
rupees.]

(5) Nothing in this section shall apply to the issue and allotment by a company of shares which
under the provisions of its articles were forfeited for non- payment of calls. Commissions and
Discounts

Section 69 in The Companies Act, 19566

69. Prohibition of allotment unless minimum subscription received.

(1) No allotment shall be made of any share capital of a company offered to the public for
subscription, unless the amount stated in the prospectus as the minimum amount which, in the
opinion of the Board of directors, must be raised by the issue of share capital in order to provide
for the matters specified in clause 5 of Schedule II has been subscribed, and the sum payable on
application for the amount so stated has been paid to and received by the company, whether in
cash or by a cheque or other instrument which has been paid.

Articles of association of the calcutta stock exchange association limited 7

1. article 21 authorised the Committee of the Association to expel or suspend any member in
certain events.
2. Article 22:- "Any member who has been declared a defaulter by reason of his failure to
fulfill any engagement between himself and any other member or members and who fails to
fulfill such engagement within six months from the date upon which he has been so declared

6
Section 69 in The Companies Act, 1956
7
Supra note 1

4
 a defaulter shall at the expiration of such period of six Calendar months automatically cease
to be a member."
3. Article 24:- "Upon any member ceasing to be a member under the provisions of article 22
hereof and upon any resolution being passed by the Committee expelling any member under
the provisions of Article 21 hereof or upon any member being adjudicated insolvent the
share held by such member shall ipso facto be forfeited."
4. Article 27:- "Any share so forfeited shall be deemed to be the property of the Association,
and the Committee shall sell, re-allot and otherwise dispose of the same in such manner to
the best advantage for the satisfaction of all debts which may then be due and owing either
to the Association or any of its members arising out of transactions or dealings in stocks and
shares."

ISSUES
 whether the company is bound to file a return of allotment in respect of the re-allotment
and re-issue of these forfeited shares

ARGUMENT BY THE APPELLANT

 Appellant contends that the forfeiture operates as an extinguishment of the forfeited

shares so that the re-issue of shares is really an issue of new shares in the share capital of
the company and that as such the company is bound to file a return of allotment.
 The company again re- issued the shares and allotted to the share holders for these they
are liable to file a return once again.
 Appellant contends that assuming that the forfeited shares were not extinguished, the re-
allotment and re-issue of the forfeited shares amount to allotment of shares within the
meaning of sub-section (1) of section 75 of the Indian companies act, 1956.

ARGUMENT BY THE RESPONDANT

 Respondent averred that the forfeited share being resold or re-allotted, an amount equal to
the face value of the share will be credited from the proceeds to the paid-up capital
account and the same amount previously received on the share and held on the forfeited
share account will be transferred to the profits account.
 It’s only the sale of re- issued shares, and it’s not an allotment within the meaning of
section 75 of companies act.

5
CASE HISTORY

CALCUTTA HIGH COURT JUDGEMENT

The Calcutta High Court comes to the conclusion that neither a sale nor a re-allotment and re-
issue of forfeited shares is an allotment of shares within the meaning of sub-section (1) of section
75. It follows that the respondent Association is not under an obligation to file a return of
allotment in respect of the re-issue of the forfeited shares and P. B. Mukharji, J., rightly
dismissed the application.

SUPREME COURT JUDGMENT

In the Company law “allotment” means the appropriation out of the previously unappropriated
capital of a company, of a certain number of shares to a person. Till such allotment the shares do
not exist as such. It is on allotment in this sense that the shares come into existence. Learned
counsel for the appellant has not been able to cite any case where the word “allotment” has been
used to describe a transaction with regard to an existing share, that is, a share previously brought
into existence by appropriation to a person out of the authorised capital. In every case the words
“allotment of shares” have been used to indicate the creation of shares by appropriation out of
the unappropriated share capital to a particular person. We find no reason why the word
“allotment” in Section 75 should have a different sense. It is said that sub-section (5) of section
75 furnishes such a reason. We will deal with that argument later. Our attention has not been
drawn to any other provision in our Companies Act which would support the contention that the
Act includes within the word “allotment” a transaction with a share after it has been first, created
by appropriation out of the authorised share capital to a particular individual. As the learned
Judges of the High Court pointed out, Section 75 occurs in Part III of the Act which deals with
“Prospectus And Allotment, And Other Matters Relating To Issue Of Shares Or Debentures”.
Sections 69 to 75 are classed under the sub-heading “Allotment” and the only kind of allotment
that is dealt with in these sections is the appropriation of shares to individuals out of the
unappropriated share capital of the company. In these circumstances it would be impossible to
give to the word ‘allotment' in Section 75(1) a different meaning.

We think for these reasons that the appeal fails and we dismiss it with costs.

6
ANALYSIS OF THE CASE

The appellant who has been accepted as a shareholder in the respondent Company for the
purposes of the present proceedings, complained that the Company had not filed the
return required by that section, and moved the High Court at Calcutta for an order
requiring it to do so. The contention of the Company is that the re issue of forfeited
shares does not amount to allotment of shares and it was not required to file any return in
respect of such re-issued shares under the section. The contention was accepted by the
learned Judge of the High Court before whom the appellant's petition was first moved
and also by the learned Judges of the Division Bench of that Court on appeal from the
decision of the learned trial Judge. I agree with the learned Judges of the High Court and
Supreme Court that a re-issue of a forfeited share is not an allotment of share within
Section 75(1). It is beyond doubt from the authorities to which were referred, and there
are many more which could be cited to show the same position, that in Company law
"allotment" means the appropriation out of the previously unappropriated capital of a
company, of a certain number of shares to a person. If the shares which the Company
forfeited have to be considered as shares already created and as continuing in existence as
such in spite of the forfeiture, obviously they could not be allotted in the sense in which
that word is understood in the Company law. Quite clearly, the view well accepted in
company Courts has been that issue of the forfeited shares was not allotment of them but
only a sale. It provides that no return need be filed in respect of allotment of shares
forfeited for non-payment of calls. Act clearly contemplate by allotment the creation of
shares out of the authorized and inappropriate capital of the Company and no re-issue of
shares already created by allotment in the manner aforesaid but subsequently
forfeited. According to section 75 (1) of the Companies Act, 1956, a company is required
to file a return of allotment of shares and not for-reissued of forfeited shares. Allotment
is, appropriation of the previously un appropriated capital of the company, of a certain
number of shares to certain person. Till such allotment, the shares do not exist as such.
However, in the case of forfeited shares, they had already been allotteed and they had
come into existence at the time of their allotment and their forfeiture is a proof of their
existence. Therefore, no return of allotment is required to be filed with ROC by a
company at the time of re-issue or disposal of forfeited shares. In M/s. Jupiter
Entertainment Vs. The Assistant Commissioner of Ventures (P) Ltd 2016. Also
court pointed out that there is difference between the sale and allotment. And the same
authority is cited in this case and further is cited in many cases In Oil & Natural Gas
Commission vs Additional Commissioner Of ... on 24 August, 1998 in said case the
assets of company were burned due to fire and the same was showed to the income tax
department about damages of assets, Actually some assets were not burned later the same
assets were sold by the company and the income tax department put tax on that sold
goods. The company pleaded that it’s a existing goods and not any new purchase was

7
 made and the honorable court held that it’s not new traction it’s an existing goods and the
company is not liable to pay tax for the same.

The same law is followed now days which was held in this case and the new company’s
act 2013 is silent on it. Whenever the question is arises before the courts weather its sale
or allotment. Then the same authority is referred in the various cases.

CONCLUSION

The shares which the Company forfeited have to be considered as shares already created and as
continuing in existence as such in spite of the forfeiture, obviously they could not be allotted in
the sense in which that word is understood in the Company law under section 75 of companies
act 1956. The issue of the forfeited shares was not allotment of them but only a sale. If it were
not so. the forfeiture itself would be invalid as involving an illegal reduction of capital. If the re-
issue of a forfeited share is only its sale, then it is not an allotment and that being so no question
of filing any return in respect of such re-issue arises.

8
REFERENCES

STATUTES
The Companies Act, 1956

ONLINE SOURCES
www,indiankanoon.com