# SHA MULCHAND & CO. LTD. (IN LIQUIDATION) • v. JAW AHAR MILLS LTD

- **Citation:** [1953] 1 S.C.R. 351
- **Court:** Supreme Court of India
- **Decided:** 1953
- **Case number:** Civil Appeal No. 3 of 1951
- **Bench:** Mehr Chand Mahajan, DAs, VIVIAN BosE, Ghulam Hasan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/sha-mulchand-co-ltd-in-liquidation-v-jaw-ahar-mills-ltd-16
- **Pages:** 26

## Headnote

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 forfeititre-Application for rectification of register-LimitationLimitation Act, 1908, Arts. 48, 49, 120, 181, applicability ofOompanies Act, 1913, ss. 38, 'J47.
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 estoppal, acquiescence and !aches raised by the Mills was
untenable, aud that the application was 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 timebarred and that no acquiescence, waiver or estoppal 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 estoppal as held by both the lower
Courts, a plea of abandonment of right which is an aggravated
form of waiver, acquiescence or !aches and akin to estoppal cannot
be sustained on the same facts.
·
t6
1952
Dec. 9 .
1952
Sha Ilfulchand
and Co., Ltd.
v.
Jawahar Mi.lls
Ltd.
352
SUPREME COURT REPORTS
[1953J
(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,
a.oquiescence or Etches which does not amount to an abandonment
of his right or to an estoppal against him, cannot disentitle that
parson from claiming relief in equity in respect of his executed
interests.
Prendergast v. Tlbrton ([184l] 62 E.R. 807), Clarke and Chap.
man v. Hart ([1858] 6 H.L.0. 632), Jones v. North Vancouver Land
and Improvement Co. ([1910] A.O. 317) explained. Garden Gully
United Qnartz lrlini11g Company v. H"Oh Mclister ([1875] 1 App.
Oas. 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 11ills changing its position to its detriment, upon which a plea
of abandonment of the right to challenge the forfeiture could be
based.
Srnith, Stone and Knight v. Birmingharn 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 bad 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 tbe register simpliciter does not necessarily involve a claim for the return of the share
scrips and there was no prayer in the case for return of the scrips.
(vi) Article 181 applies only to applic

## Text

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'
S.C.R.
SUPREME COURT REPORTS
351
SHA MULCHAND & CO. LTD.
(IN LIQUIDATION)
•
v.
JAW AHAR MILLS LTD.
[MEHR CHAND MAHAJAN, DAs, VIVIAN BosE and
GHULAM HASAN JJ.]
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 forfeititre-Application for rectification of register-LimitationLimitation Act, 1908, Arts. 48, 49, 120, 181, applicability ofOompanies Act, 1913, ss. 38, 'J47.
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 estoppal, acquiescence and !aches raised by the Mills was
untenable, aud that the application was 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 timebarred and that no acquiescence, waiver or estoppal 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 estoppal as held by both the lower
Courts, a plea of abandonment of right which is an aggravated
form of waiver, acquiescence or !aches and akin to estoppal cannot
be sustained on the same facts.
·
t6
1952
Dec. 9 .
1952
Sha Ilfulchand
and Co., Ltd.
v.
Jawahar Mi.lls
Ltd.
352
SUPREME COURT REPORTS
[1953J
(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,
a.oquiescence or Etches which does not amount to an abandonment
of his right or to an estoppal against him, cannot disentitle that
parson from claiming relief in equity in respect of his executed
interests.
Prendergast v. Tlbrton ([184l] 62 E.R. 807), Clarke and Chap.
man v. Hart ([1858] 6 H.L.0. 632), Jones v. North Vancouver Land
and Improvement Co. ([1910] A.O. 317) explained. Garden Gully
United Qnartz lrlini11g Company v. H"Oh Mclister ([1875] 1 App.
Oas. 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 11ills changing its position to its detriment, upon which a plea
of abandonment of the right to challenge the forfeiture could be
based.
Srnith, Stone and Knight v. Birmingharn 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 bad 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 tbe register simpliciter does not necessarily involve a claim for the return of the share
scrips and there was no prayer in the case 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
had 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 do<is 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), Hztrdutrai Jagdish
Prasad v. Official Assignee of Calcutta ([1948] 52 O.W.N. 343)
·approved. Asmatali Sharif v. MJtjahar Ali Sardar ([1948] 52
O.W.N. 64) and Sarvamangal Dasi v. Paritosh Kumar Das (A.LR.
1952 Cal. 689) doubted.
Bo~E J.-Waiver and abandonment are in their primary context unilateral acts and except where statutory or other limit.
ations intervene l unilat~ral acts in themselves cannot effect a
o)lan~e ii'.! legal status.
Oonse<iuently it is fundamental that
8.d.R.
SUPREME COURT REPORTS
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 ood
executory interests in this connection. A man who has a vested
interest and in whom the legal title lies does not, and cannot, lose
that title by mere !aches, 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 estoppal, 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
estoppal which prevents him from asserting that his interest in the
shares has not been legally
exting1"is~ed, 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 Judica,-
ture at Madras (Satyanarayana Rao and Viswanatha
Sastri JJ.) in Original Side At>peal No. 3 of 1947,
arising 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. 0. Setalvr.id (Attorney-General for India) (A. Balasubramanian, wi~h him) for the appellant.
N. Raja 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.-Thi8 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 J awahar Mills Ltd.
Sha Mulchand & Company Ltd. (hereinafter referred to-as "the Company'') was incorporated in
1952
Sha Mul~hand
and Go., Ltd.
v.
J awahar Mills
Ltd.
Das J.
1952
Sha Mulchand
and Go., Ltd.
v.
Jawahar Mills
Ltd.
Das J.
354
SUPREME COURT REPORTS
(1953)
1937 as a private limited company.
At all material.
times it consisted of two members, T. V. ~. Govindarajn 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. 15048 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, upon 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, -Jor 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 Govinda-
. raju Cbettiar was eventually annulled in 1944. During
this period Goviudaraju Chettiar, in law, ceased to be
a director of the Company, although it is alleged that
be 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 .
•
...
S.C.R.
SUPREME COURT REPORTS
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 25th
February, 1941, the Board of Directors of the Mills
resolved that a notic·e 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 bad 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 wi~s sent to the Company intimating that the
forfeiteat 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 ma.de by the Registrar
of J oin1; Stock Companies the Company was struck
off the register of
companies under section '247
1962
Sha Mulchand
and Co., Ltd.
v.
Jawahar Mills
Ltd.
Das J.
•
356
SUPREME COURT REPORTS
[1953j
1952
of the Indian Companies Act.
'l'his ·order of the
Sh
M1 h
d Registrar was published in the Official Gazette on the
a
u c an
.
-
and co., Ltd. 9th September, 1941, i.e., four days after the shares
v.
we'l'e forfeited and one day before the notice intimatJawahar Mills ing the fact of forfeiture was sent in a registered
Ltd.
cover which was, however, returned undelivered.
DasJ.
•
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 kuow 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, 194:3, Snndara Ayyar filed an affidavit contending, amongst other things that the
Directors of the1Mills had no power to forfeit the
shares.
On the 2nd April, 1942, however, 0.P.
No. 10 of 1942 was compromised, and the Mills received Rs. 11,000 from Snndara Ayyar in full satisfaction of their claim against the Company.
On the
25th June, 194:3, O.P. No. 11 of 1942 was also compromised and Sundara Ayyar paid up the claim of the
Income-tax authorities.
'rhe two petitions for restoration of th_e 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 Ohettiar the value of th.e forfeited shares
with dividend or interest thereon and directing Palauiappa 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
'
..
S.C.R.
S:UPREME COURT REPORTS
357
have no relief personally.
Sundara Ayyar filed
an appeal therefrom which
was dismissed
as
against the Mills but the case was remandrd to ~he
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 exi~tence 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 fnrtl1er ordered that the Official Receiver do
recognise that as between the Mills and the Company,
the Milh; 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 t;o 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 i·elief should not be
granted to the applicant as might be just and neces·
sary in the circumstances of the case.
The Mil.ls contended, in opposition to that application, that the shares had been properly forfeited,
that the Company was, on the principles of estoppal,
acquiescence and !aches, precluded from challenging
the forfeiture, that the application was barred by
limitation ~md that the shares having already been
[l.llotted to other persons, who h!!.d riot been lll!!.Cle
1952
Sha Mulahand
and Co. Ltd.
v.
Jawahar Mills
Ltd.
Das J,
358
SUPREME COURT REPORTS
(1953)
195S
Sha. Mulchand
parties to the application, no order for rectification
of the register in respect of those shares could
be made.
and Co., Ltd.
•
v.
The summons came up for hearing before Mr.
Jawaha• Mills Justice Clark.
The learned Judge. by his judgment
Ltd.
dated the 15th November, 1946, held that the notice
Dai J.
dated the 15th March, 1941, which was posted on the
17th March, 1941, aud 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 associaticm of the Company which
required 14 clear days' notice.
The learned Judge
further held that the plea of estoppel, acquiescence
and !aches was untenable, that article 49 of the
Limitation Act did not apply either expresslY.or by
way of analogy to the preoent 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 p)lrsons 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.
'rhere was nevertheless nothing bo
prevent the Court eve·n 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 alter 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
qisQqssion a reference will be made herea,lter t4e
j
·'
• •
·,
I • "
S.C.R.
SUPREME COURT REPORTS
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 l:>y
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 Janua.ry, 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 au 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 wa,s 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 bad done
so, that the claim to rectify the register was barred by
limitation and that in any event rectification was
impossible b13cause the shares were not a.vailable 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 e.stablished
that the peraon against whom the action or proceeding wai; instituted was actually prejudiced by reason
of such delay.
The learned Judges agreed with ~he
H
Slla Mulcha14d
and Go., Ltd.
v.
Jawahar Mill&
Ltd.
DasJ.
/
1952
Sha Mulchanil
and Co., Ltd.
v.
Jawahar llfills
Ltd,
DasJ.
360
SUPREME COURT REPORTS
(1953]
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.
'l'hen 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 Govinda-
·raju 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(') 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 (•) 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 5,000 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
(I) (I9;J9) 4 All E. R. u6,
s.a.:R:· suPREME couRT REPORTS
.36i
under sections 109 and 110 of the Code of Civil
ip61
Proced.ure.
. ,
.
· Sha Mu!chand
The appeal Court, 1t will be observed, reversed and co., Ltd.
the decision of ~he trial·Judge and decided the appeal
·v. •
against the Company on two. grounds only, namely, Jawahar Mills
(1) that the Company had by the conduct of its two
Ltd.
members abandoned• its right· to challenge the for·
D~iJ.··
feiture, and (2) that the forni 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 ·con·•
siderable force, that having, in agreement with the
trial Court, held that ·no plea of.: acquie~cence,
w-aiver 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
J;he 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('), Clark d· Chapman v. Hart(') and Jones v:
North Vancouver. Land and· Improvement Co.(3) •. A
perusal of . the relevant facts ·sef out. in. the' several
reports arid 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 estop- ·
pel. Indeed in Clarke's case (') while Lord Chelmsford. referred· to the de.cision.•. inPrendergast's
case (') as a case of abandonment, of right, . Lord
Wensleydale read it as an instance . of· acquiescence
and estoppal.
Unilateral act or conduct of a ··person,
(I) 62 E.R. 807.
• (3)(191o]A.C. 317., ·.
(2) 6 H.L.C. 632; 10 E,R. IHJ·. ' .
,
1952
Sha Mu,lchand
and Co., Ltd.
v.
Jawahar ]fill~
Ltd.
Dai J.
362
SUPREME COUR'l.
1 REPORTS
[1953]
that is to say act or conduct of one person which is
not re lied upon by another person to his detriment, is
no~hing more than mere waiver, acquiescence or !aches,
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 J)ase,
the appeal Court could, nevertheless, proceed ~o 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 held 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 !aches and akin to estoppal could be sustained on
the self-same facts.
Further, whatever be the effect
of mere waiver, acquiescence or !aches 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 !aches 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 Qzwrtz Mining Company v. Bugh McLister(') that mere !aches does not
disentitle the holder of shares to equitable relief
against an invalid declaration of forfeiture.
Sir
Barnes Peacock in delivering the judgment of the
Privy Council observed at pages 56-57 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: JO E.R. •40·
(21 L.R. 1 App. Cas. 39.
..
•
..
S.O.R.
SUPREME COURT REPORTS
363
with regard to his conduct subsequent to the ad vel'tisement 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 !aches would not, there-
£ ore,._disentitle him to equitable relief: Clarke and
Chapman v. Hart( 2). It was upon the ground of abandonment, and not upon that of mere !aches, 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 !aches and is something akin to estoppel if not estoppal itself, and (2) that mere waiver,
acquiescence or laches•which is short of abandonment
of right or estoppel does not disentitle the holder Gf
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, !aches or
, estoppal 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
:uot 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 subseque~t to
(1) 62 E.R. 807.
(3) (1939) 4 All E.R. u6.
(2) o H.L.C. 632: 10 E.R. 1443.
1952
Sha Mulchana
and Go., Ltd.
v.
J awahar Milla
Ltd.
Das J,
S64
SUPREME COURT REPo:R;rs
[1953j
the date of the forfeiture, for it is the right to
challenge the forfeiture that is said t.o have been
Sha Mulohand
d
aba.ndoned. In order to give rise to an estoppel against
and Co .• Lt •
1951
v.
the Company, such acts or conduct amounting to
Jawahar Mills abandonment must be anterior to the Mills' changing
Ltd.
its. position to its detriment. The resolution for forfeiture was passed on the 5th September, 1941.
The
five thousand forfeited shares were allotted to 14
Da& J,
persons on the 16th November, 1941, and it is "tuch
allotment that made it impossible for the Mills 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 5th September,
1941, and the 16th November, J941. No such act or
conduct during such period has been or can be pointed out. On being pressed adv"ocate 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. 'l'his 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.
'l'he 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 (') relied upon by the
appeal Court.
The only other conduct of Sundara
Ayyar relied on by learned advocate for the Mills in
(I) 6 H.L.C. 632; IO E.R. 1443.
-
•
b
S.C.R.
SUPREME COURT REPORTS
365
support of the appeal Court's decision on this point
1952
is that Sundara Ayyar proceeded witl). his suit against Sha Mulchand
Palaniappa Chettiar even after his -suit as well as .his '"'d co., Ltd.
appeal had been dismissed as against the Mills. In
v.
that suit Sundara Ayyar sued the Mills as well as Jawahar Mills
Govindaraju Chettiar and the Official Receiver of
Ltd.
81].,!am representing the latter's estate and Palaniappa
Das J.
Cnettisr. In the plaint itself the validity of the
forf eiturt3\.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 poμld properly l:Je
rp.ad~ in favour of t4i:J
•
S.C.R.
SUPREME COURT . REPORTS
365 ·
.
.
1952
support of.the appeal Court's decision on this point
is that Sundara Ayyar proceeded with his suit against Sha Mulchand
Palaniappa Chettiar even after his suit as well as his and Co., Ltd.
appeal had been dismissed as against the Mills. · In
.v. ,
that suifSundara Ayyar sued the Mills as well as Jawaka• Mi!Z.
Govindaraju Chettiar. and the Official Receiver of
Ltd.
Salem representing the latter's estate and Palaniappa.
Da• J.
Chettiar. '.In the 1 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
itandi 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 decid-/
ed 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 arid in favour of the Company ·the
trial Judge had to consider the form· of the.: order
which could properly- be made • 1n · favour''Of. the
•
........ -
S.C.R.
SUPREME COURT REPOR'rS
367
reasonable
suggestion .
I
direct
accordingly that on insertion of the name of the
applicant Company as owner of 5,000 of the unissued
shares the applicant Company shall pay to the respondent company only Rs. 25,000 being the amount
of calls in arrears."
, Tile 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 now alleged
to have been wrongly recorded by the trial Judge, as
suggested by the Privy Council in Madhu Sudan
Ohowdhri v.' Musammat Ohandrabati Ohowdhrain (1)
and other cases referred to in Timmalapalli Virabhadra Rao v. &okalchand Ohunilal & 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 swom by
G. Vasantha Pai, the junior advocate for the Mills,
was filed before the Court dealing with that application.
Paragraph 5 of that ·a.ffidavit 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 rema,ins 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
, (r) (1917) 21 C. W. N. 897.
ta
•
(2) (1951) I M. L. J. 241.
•
1952
Sha Mulohand
and Go., Ltd.
v.
J awahar Mill&
Ltd.
Das J.
•
368
SUPREME COURT REPORTS
[1953]
1963
was agreed to was " proper order" on the basis of
Sha Mulchand h~s Lordship's judgment which by then had been
and co., Ltd.
d~ctated. The respondent company no more conv.
sented to the order than the appellant consented to
Jaivahar Mills have his application dismissed when its counsel
Ltd.
agreed that it was impossible to make an order in
terms of the Judge's summons."
,
Das J.
The appeal Court understood the stand taken by
the learned senior advocate as follows:-
" He seems to have agreed 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 ..................