# THE ALOTE ESTATE & ANR v. R. B. SETH HIRALAL KAL YANMAL & ORS

- **Citation:** [1970] 3 S.C.R. 740
- **Court:** Supreme Court of India
- **Decided:** 1970-02-20
- **Case number:** Civil Appeal No. 1010 of 1966
- **Bench:** J. C. Shah, K. S. Hegde, A. N. Grover
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/the-alote-estate-anr-v-r-b-seth-hiralal-kal-yanmal-ors-5079
- **Pages:** 5

## Headnote

Company-Shares in Conipany-Allotment in consideration of al/ottee
.transferring land to Co1npany--Jf in winding up proceedings enquiry can
be 1nade into value of land ll'ithout rectification of Company's registration.
The Appellants were allotted 18,000 fully paid up shares in a company
in consideration of transferring 6,000 acres of agricultural )and to the con1pany for cultivation o'f sugar-cane. After a petition was filed for \\'inding
up the company, two joint Liquidators were appointed and they took steps
to settle the list of contributories. While these proceedings were pending
an application was filed by Respondent No. 1 praying that an enquiry be
made in respect of the price paid by the Appellant for the 6,000 acres of
land. It was urged that such enquiry would show the value of the land
to be well below the consideration for which the shares were allotted and
that the Appellants would therefore be liable as contributories in respect of
the difference.
The company Judg.., held that in a proceeding for winding up
and
while settling the list of contributories it was not open to go behind the
transaction entered into at the time of the formation of the company and
that the consideration which had been freely accepted by the company could
not be challenged as being inadequate in the absence of any allegation of
fraud.
However. the Division Bench, in appeal. held
that an inquiry
would be necessary as there ,,,.as an indication that the allottees of the
shares had paid only a ·fraction of the nominal value.
On appeal to this Court,
HELD : Allowing the appeal,
It cannot be disputed that a shareholder of fully paid up •hares will not
be placed on the list of contributories or made to contribute towards the
assets of the company unless the register is rectified and it is determined in
appropriate proceedings that he is not a fully paid up shareholder.
No
steps were taken by the liquidators to have the register rectified or the contract entered into by the company with the appellants avoided by means of
appropriate proceedings. Even in the application filed by respondent No. 1
there was no allegation of fraud.
The facts stated related more to inadequacy of price or consideration and not to its being illulory or the like.
The learned sin,gle judge. was therefore right and the Division Bench was
in error in directing an inquiry i_nto the question whether· the appellants
had paid consideration which was inadequate. [743 F, 744 C·D]
In re Innes & Co., Limited, [1903] 2 Ch. Div. 254, 262, referred to.

## Text

740
THE ALOTE ESTATE & ANR.
v.
R. B. SETH HIRALAL KAL YANMAL & ORS
February 20, 1970
[J. C. SHAH, K. S. HEGDE AND A. N. GROVER, JJ.]
Company-Shares in Conipany-Allotment in consideration of al/ottee
.transferring land to Co1npany--Jf in winding up proceedings enquiry can
be 1nade into value of land ll'ithout rectification of Company's registration.
The Appellants were allotted 18,000 fully paid up shares in a company
in consideration of transferring 6,000 acres of agricultural )and to the con1pany for cultivation o'f sugar-cane. After a petition was filed for \\'inding
up the company, two joint Liquidators were appointed and they took steps
to settle the list of contributories. While these proceedings were pending
an application was filed by Respondent No. 1 praying that an enquiry be
made in respect of the price paid by the Appellant for the 6,000 acres of
land. It was urged that such enquiry would show the value of the land
to be well below the consideration for which the shares were allotted and
that the Appellants would therefore be liable as contributories in respect of
the difference.
The company Judg.., held that in a proceeding for winding up
and
while settling the list of contributories it was not open to go behind the
transaction entered into at the time of the formation of the company and
that the consideration which had been freely accepted by the company could
not be challenged as being inadequate in the absence of any allegation of
fraud.
However. the Division Bench, in appeal. held
that an inquiry
would be necessary as there ,,,.as an indication that the allottees of the
shares had paid only a ·fraction of the nominal value.
On appeal to this Court,
HELD : Allowing the appeal,
It cannot be disputed that a shareholder of fully paid up •hares will not
be placed on the list of contributories or made to contribute towards the
assets of the company unless the register is rectified and it is determined in
appropriate proceedings that he is not a fully paid up shareholder.
No
steps were taken by the liquidators to have the register rectified or the contract entered into by the company with the appellants avoided by means of
appropriate proceedings. Even in the application filed by respondent No. 1
there was no allegation of fraud.
The facts stated related more to inadequacy of price or consideration and not to its being illulory or the like.
The learned sin,gle judge. was therefore right and the Division Bench was
in error in directing an inquiry i_nto the question whether· the appellants
had paid consideration which was inadequate. [743 F, 744 C·D]
In re Innes & Co., Limited, [1903] 2 Ch. Div. 254, 262, referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1010 of
1966.
Appeal by special leave from the judgment and order dated
July 9, 1965 of the Madhya Pradesh High Court, Indore Bench in
Letters Patent Appeal No. 24 of 1962.
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ALOTE ESTATE v. HIRALAL (Grover, J.)
741
S. V. Gupte, N. D. Karkhanis and A. G. Ratnaparkhi, for theappellants.
Mohan Behari Lal, for respondent No. 1.
C. K. Daphtary, C. P. Lal and N. N. Sharma, for respondents
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Nos. 2 to 4.
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The Judgment of the Court was delivered by
Grover, J.
This is an appeal by special leave from a judgment
of the division bench of the Madhya Pradesh High Court reversing
the order of the Company Judge in an application made by respo,ndent No. 1 for an inquiry into the allegation that the consideration
for 18,000 shares of the Vikram Sugar Mills Ltd. (now under liquidation) valued at Rs. 18 lakhs was not fully paid up by the shareholders, namely, the present appellants.
The facts may be succintly stated.
Appella;nt No. I, the A!ote
Estate, was a firm consisting of two partners at the material time.
It came into existence in 1944 when Vikram Sugar Mills Ltd.,
hereinafter called the "company", was proposed to be floated. The
two partners· of the firm were His Highness Col. Sir Vikramsingh
Rao Pawar, Ruler of the State of Devas (Senior) and R. K. N.
Gajapati Raju of Vaizagapatnam who died sometime in 1946 with
the result that the firm was dissolved.
In 194 7 the ruler of Dewas
(senior) was taken in adoption by Her Highness the Senior Dowager Maharanisaheba of Kohlapur. He assumed the uame and title
of His Highness Maj. Gen. Sir Shahaji Chhatrapati Maharaja of
Kohlapur.
After the constitution of the firm called the Alote
Estate, the company was incorporated in February 1944. The firm
held extensive agricultural land which was suitable for cultivation
o{ sugarcane. It had transferred 6,000 acres out of its holding to
the company in lieu of 18,000 fully paid shares of Rs. 100/- each
which were registered in the name of the firm.
Respondent No. I was originally a director of the company.
He made a proposal for advancing debenture loan of Rs. 20 lakhs
to the company which proposal was accepted by the Board of
Directors as also .at an e-xtraordinary general meetmg of. the company on September 16, 1946.
He was appointed Managmg Agent
of the company.
On the same date at the meeting the shareholders
of the company passed a resolution that out of 6,000 acres of land
acquired 'hy the company from the Alote Estate 2,000 acres selected
by respondent No. 1 or his representative be returned and retransferred to the Estate.
In consideration of such transfer ~,000 shar~s
were to be surrendered by the Estate. Effect was given to this
resolution and in the list of shareholders the number of shares held
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' .. SUPREME. COURT REPORTS .
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[1970] 3 s:c.R
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lly the firm was shown 'as 9,000 instead of· 18,000 subject to confirmation by the court. A resolution was passed on October 27, 1947
for reduction of the capital from 60 lakbs to Rs. 35 lakhs. The
court was 'also moved for. giving permission for reduction of the
capital. On January 23, 1950, Prabhakar Paiashuramji Pandit-·
a shareholder-filed before .the High Court a petition under ss. 166
and· 162 of the Compa,nies Act 1913 for winding up the company ..
On April 2, 1951 two joint liquidators were appointed.
The liquidators took steps to settle the list of contributories and
objections were raised by His Highness the Maharaja of Kohlapur
as also by the firm against inclusion of their names in that list. While
these proceedings were pending an application was filed by respondent No. 1 on October 31, 196 l praying that an inquiry be made
in .respect of the price paid for 6,000 acres. of land before the
allotment of. the shares and "to hold the-Alote Estate and His
Highness the Maharaja of Kohlapur liable as contributories to the
extent of money's worth not found to have been fully paid in addition to and independently of the liability for Rs. 9 lakhs" which
according to the joint liquidators was the amount of liability of the
Maharaja as a contributory. It was alleged, inter alia, that on an
average the price per 'acre paid for 6,000 acres of land before the
allotment of the shares was approximately Rs. 30.
On that basis
the Maharaja and the Alote Estate were liable as contributories in
the sum of Rs. 16 lakhs as the shares weie not fully paid by value
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in kind.
The Maharaja and the Alote Estate in reply took up th~ E
position that in the absence of rectification of register by appropriate
action they were not liable to pay as contributories because they
held shares which were fully paid up.
As regards the company's
resolution to give up 2,000 acres out of 6,000 acres and reduce the
value of shares allotted to 9 lakhs it was maintained that the same
was an independent transaction and its effect could be considered
only in appropriate proceedings in accordan.ce with law.
The learned Company Judge by his order dated July 31, 1962
held that in a proceeding for winding up and while settling the list
of contributories it was not open to go behind the transaction
entered into at the time of the formation of the company and that
the consideration which had been freely accepted by the company
could not be challenged as being inadequate 1n the absence of any
allegation of fraud. He was further of the view that the contention of respondent No. 1 that the valuation of the land was Rs. 30
and not Rs. 300 per acre could not be inquired into and it w'as
not necessary to consider whether such inquiry was barred · by
limitation in view of s. 235 of the Act.
It was, however, observed
that if the allegation of respondent No. 1 was that the A!ote Estate
as an officer of the company was guilty of misfeasance or breach
<Jf trust the application having been made more than three years
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ALOTE ESTATE v. HIRALAL (Grover, J.)
743
from the date of first appointment of liquidators would be clearly
barred. Reference was made to ·numerous English and Indiain
decisions for coming to the conclusion that a fully paid shareholder
could not be called upon to contribute towards the assets of the
company in respect of such shares held. by him. . Other points
were left for decision after the petition .for confirmatio.n of the
resolution of the company was disposed @f.
·
Res.P?ndent No. 1 filed an appeal under the Letters .Patent.
The division bench hearing the appeal seems to have been
influenced by the possibility that the land had been purchased by
the A!ote Estate at .a sma:JI fraction of value for which it had been
sold to the company largely owing to the Maharaja being all
powerful in the conduct of its affairs.
It was considered that 8Jll
inquiry would be necessary when there was a prima facie indication that the allottee of the shares had paid only a fraction of the
nominal value.
Nows. 156 of the Act deals with the liability as contributories.
Clause (iv) of &ub-s. (I) provides that in the case of a company
limited by shares no contribution shall be required from
ainY
member exceeding the amount unpaid on the shares in respect to
which he is liable as a present or past member.
Section 158
defines the term "contributory". It means every _person liable to
contribute to the assets of a company in the event of its beiing
wound up.
Under s. 184 the court shall settle the list of contri·
butories with power to rectify the register of members in all caSes
where rectification is required in pursuance of the Act.
Sections
185 and 186 confer power on the court to require delivery of
property from a contributory and to order payment of debts
detenniined by it.
The material question, therefore, was whether the appellants
could be placed on the list of contributories. It could hardly be
disputed that a shareholder of fully paid up shares will not be
placed on the list of contributories and made to contribute towards
the assets of the company unless the register is rectified and it is
determined in appropriate proceedings that he is not a fully paid
up shareholder.
In Engla,nd the rule which bas been accepted as settled is that
·although the court can inquire into. an allegation that owiing to
fraud the contract relating to fully paid up shares was vitiated but
unless the contract is impeached mere inadequacy of price is not
sufficient of itself to invalidate the contract. In the words of
Vaughan Williams, L.J. in In re Innes & Co.('), Limited :
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"You must shew that, these shares not having been
paid for at all, the contract for purchase was a colour-
(1) (1903) 2 Ch. Div. 254, 262.
744
SUPREME COUJ!,T REPORTS
(1970] 3 S.C.R.
able transaction, and that fu truth and in fact, qua value,
these shares were not part of the consideration .... "
As stated in Palmer's Company Law, 21st Edition, pages 190-191,
the considera1ion for the allotmemt of shares may be money or
money's worth e.g., the transfer to the company of property. H
a valid contract is made for the acceptance by the company of
specified property in payment of shares the court will not whilst
the contract stands inquire into the value of. the consideration even
at. the i,nstance of the liquidator.
Where, however, the contract
is fraudulent or shows on the face of it that the consideration given
to the company is illusory or is clearly not equivalent to the
nominal value of the shares the shares cannot, to this extent, be
treated as fully paid and the shareholder may be held liable to pay
for them in full. It is significant that no steps were taken by the
liquidators to have the register rectified or the contract entered into
by the company with the appellants avoided by means of appropriate proceedings.
Even in the application filed by respondent
No. I in October 1961 there was no a!legation of fraud.
The
fact sfated related more to madequacy of price or consideration
and not to its being illusory or the like. In our judgment the
learned single judge was right and the Division Bench was in error
in directing an inquiry into the question whether the appellants
had paid consideration which was inadequate.
The appeal is consequently a!lowed and the order of the
Division Bench is set aside and that of the learned single judge
restored with costs.
R.K.P.S.
Appeal allowed
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