1964 AIR 250 1964 SCR (3) 698
E 1970 SC1750 (10)
R 1971 SC 422 (11,13)
Company–Allotment of shares-Forfeiture of shares-Forfeited
shares reissued-If filing of return compulsory–The
Companies Act, 1956 (1 of 1956),s. 75.


The respondent-company did not file any return of the re-
issued forfeited shares under s. 75 (1) of the Act and
therefore the appellant-shareholdar moved ‘the High Court
for an order requiring it to do so.
Held that the words ,allotment of shares” have been used
in 75 to indicate the creation of shares by appropriation
of the unappropriated share capital to a particular person.
When a share is forteited and re-issued it is not allotment
in the sense of appropriation of share out of the authorised
and unappropriated capital so as to bring the shares into
existence. A re-issue of a forfeited share is not an
allotment of share within the meaning of s. 75 (1) but a
sale and that being so, no question of filing any return in
respect of such re-issue arises.
In re Florence Land and Public Works Company, (1885) L. R.
29 Ch. D. 421; Mosely v. Koffyfontain Mines Limited, (1911)
1 L. R. Ch. 73; The Calcutta Stock Exchange Association Ltd.
v. S. N. Nundy & Co., (1930) 1 1. L. R. Cal. 235; Naresh
Chandra Sanyal v. Ramani Kanta Ray, (1945)2 I.L.R. Cal. 105;
Morrison v. Trustees etc. Insurance Corporation, (1899) 68
L. J. Ch. 11, discussed.
In re V. G. M. Holdings, Limited (1942) 1 Ch. D. 235,
Held further that sub-s. (5) of s. 75 has been enacted as ex
abundanti cautela, that is to say, to prevent any argument
being raised that a return has to be filed of the re-issued
shares forfited for nonpayment of calls.


CIVIL APPELLATE JURISDICTION :Civil Appeal No. 512 of 1961.
Appeal by special leave from the judgment and order dated
August 18, 1959, of the Calcutta High Court in Appeal from
Original Order No. 106 of 1957.
S. K. Kapur, S. Murthi, P. M. Kukhi and .K. K. Jain, for
the appellant.
H. N. Sanyal, Solicitor-General of India and B. P.
Maheshuari, for the respondent.
1963. May 9. The judgment of the Court was delivered by
SARKAR. J.-The question in this appeal is, what is the
meaning to be ascribed to the word “,allotment” occurring in
S. 75 (1) of the Companies
Act, 1956? That section requires a company to file a return
of the allotment of its shares with the Registrar within a
month of the making of the allotment. 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 therefore, moved the if High Court at Calcutta under
s.614 of the Act for an order requiring it to do so.
The shares with which this case is concerned bad been
forfeited by the Company under its articles. A reference to
some of these articles is necessary before we proceed
further. Article 21 of the Articles of Association of the
Company authorised its Committee to expel or suspend a
member in certain events. The present is not a case
involving an exercise of power under this articte. Articles
22, 24 and 27 are in these terms :
Article 22: “Any member who has been declared
a defaulter by reason of his failure to fulfil
any engagement between himself and any other
member or members and who fails to fulfil such
engagement within six months from the date
upon which he has been so declared defaulter
shall at the expiration of such period of six
calendar months automatically cease to be a
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 here of or upon any
member being adjudicated insolvent the share
held by such member shall ipso facto be
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.”
The appellant’s contention is that the Company from time to
time forfeited various shares under these articles and it
appeared from its balance sheet that seventy of such
forfeited shares had been reissued at a nominal face value
of Rs. 1,000/- but no return of such re-issue of the
forfeited shares had been filed by the Company. The Company
in its affidavit in answer to the petition admitted these
facts. It was also said that these forfeited shares had
been issued for much larger sums but nothing turns on that
in this case.
Now s. 75, so far as material for our
purposes, is as follows:
S. 75. (1) Whenever a Company having a
share capital makes any allotment of its
shares. the company shall, within one month
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
occupation,; of the allottees, and the amount,
if any, paid or due and payable on each share;
x x x x x
(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.
The appellant contends that a return should have been filed
of the re-issued forfeited shares under this section. The
contention of the Company is that the re-issue of forfeited
shares does not amount to allotment of shares and,
therefore, it was not required to file any return in respect
of such re-issued shares under the section. This 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.
We agree with the learned Judges of the High Court that a
re-issue of a forfeited share is not an allotment of share
within s. 75(1). The word “alloment” has not been defined
in the Companies Act either in our country or in England.
But we think that the meaning of that word is well
understood and no decision has been brought to our notice to
indicate that any doubt has ever been entertained as to it.
As Chitty J. put it in In re Florence Land and Public Works
Company (1) (p.426). “What is termed ‘allotment’ is
generally neither more nor less than the acceptance by the
company of the offer to take shares. To take the common
case, the offer is to take a certain number of shares, or
such a less number of shares as may be allotted. That offer
is accepted by the allotment either of the total number men-
tioned in the offer or a less number, to be taken by the
person who made the offer. This constitutes a binding
contract to take that number according to the offer and
acceptance. To my mind there is no magic whatever in the
term ‘allotment’ as used in these circumstances. It is said
that the allotment is an appropriation of a specific number
of shares. It
(1) (1885) L.R. 29. C h. D. 421.
is an. appropriation, not of specific shares, but of a
certain number of shares.”
The process described by Chitty J.’ is very familiar in
Company law. Under the Act, a company having share capital
is required to state in its memorandum the amount of that
capital and the division thereof into shares of a fixed
amount: see s. 13(4). This is what is called the authorised
capital of the company. Then the Company proceeds to issue
the shares depending on the condition of the market. That
only means inviting applications for these shares. When the
applications are received, it accepts them and this is what
is generally called allotment. No doubt there may be an
allotment of shares without an application but no instance
exists where that word is used to describe a transaction
whereby one becomes a share-holder otherwise than by
appropriation to him of a share out of the previously
unappropriated share capital.
So Farwell L. J. said in Mosely v. Koffyfontain Mines
Limited (1). “As regards the construction of these
particular articles it is plain that the words Creation’,
‘issue’, and “allotment’ are used with the three different
meanings familiar to business people as well as to lawyers.
There are three steps with regard to new capital; first, it
is created; till it is created the capital does not exist at
all. When it is created it may remain unissued for years,
as indeed it was here; the market did not allow of a
favourable Opportunity of placing it. When it is issued it
may, be issued on such terms as appear for the moment expe-
dient. Next comes allotment. To take the words of Stirling
J. in Spitzel v. Chinese Corporation, 80 L.T. 347, 351, he
says: ‘What is an allotment of shares ? Broadly speaking,
it is an appropriation by the directors or the managing body
of the company of shares to a particular person’.” Lord
Green M.R. observed in In re V. G. M. Holdings, Limited,
(2), “it seems to
(1) (191 1) I.L.R. Ch. 73. 84.
(2) (1942) 1 Ch. D. 235.
Me that the word “purchase’ cannot with propriety be applied
to the legal transaction under which a person’ by the
machinery of application and allotment, becomes a share
holder in the company. He does not purchase anything when
he does that. Mr. Wynn Parry endeavored heroically to
establish the proposition that a share before issue was an
existing article of property, that it was an existing bundle
of rights which a shareholder could properly be said to be
purchasing when he acquired it by subscription in the usual
way. I am unable to accept that view. A share is a chose
in action. A chose in action implies the existence of some
person entitled to the rights in action as distinct from
rights in possession, and, until the share is issued, no
such person exists. Putting it in a nutshell, the
difference between the issue of a share to a subscriber and
the purchase of a share from an existing share holder is the
difference between creation and the transfer of a chose in
It is beyond doubt from the authorities to which we have
earlier 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. 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 authorished 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 s. 75 should have a different sense. It is
said that sub-s. (5) of s. 75 furnishes such a reason. We
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, s. 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 s. 75 (1) a different
Now it is quite clear that when a share is forfeited and re-
issued it is not allotment in the sense of appropriation of
share out of the authorisbed and unappropriated capital so
as to bring the shares into existence. In the present case
both sides proceeded on the basis that the articles of the
company dealing with forfeiture of shares which we have
earlier set out are valid articles. In other words, it has
not been disputed that the Company may validly forfeit
shares in terms of those articles. We accept that basis and
proceed on the assumption that it is correct. In the High
Court at Calcutta there was a difference of opinion as to
the validity of these articles but the later view is that
the articles are valid. The reason for the view has thus
been put in the latest case in the Calcutta High Court,
namely, the Calcutta Stock Exchange Association Limited v.
S. N. Nundy. and Company(1). Harries C. J. dealing with the
very articles with which we are concerned observed at p.
264, “‘In the present case, the Articles relating to
forfeiture do not, in my view, offend against the
(1) [1950] 1 I.L.R. Cal. 235.
provisions of the Companies Act, as they do not contemplate
a reduction of capital or a purchase of shares or a
trafficking in shares Now, obviously, -A if upon forfeiture,
the shares had ceased to exist qua shares and become merged
in the unissued capital of the Company, then there would
have been a reduction of the capital and such a forfeiture
would have been invalid. The reason why it was held that
the forfeiture was valid was that on such forfeiture all
that happened was that the right of the particular
shareholder disappeared but the share considered as a unit
of issued capital continued to exist and was kept in
suspense until another shareholder was found for it: see
Naresh Chandra Sanyal v. Ramani Kanta Bay (1). We have to
examine the present case on this basis.
If, therefore, 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 as we have earlier stated.
In Morrison v. Trustees etc. Insurance Corporation the
articles of the Company gave power to forfiet shares for
non-payment of calls -and further provided that “any share
so forfeited shall be deemed to be the property of the
Company ‘and the directors may sell, reallot or otherwise
dispose of the same in such manner as they think fit”. It
was held that the Company could re-issue the forfeited
shares giving credit for the money already received in
respect of them. The contention that the transaction
amounted to the issue of a share at a discount was rejected.
Vaughan Williams L. J.. observed, “I do not like the use of
the word ‘issue’ with reference to the transaction with
regard to these shares. If they were being issued, the
argument for the appellant might possibly be right ; but
they are not being issued. When we look at the articles we
see that what takes place on
(1), [1945]2 I.L.R. Cal. 105,
(2) [1899] 68 L.J. CH 11.
a forfeiture of shares is that the power of transferring
them passes from the original shareholders to the company
and the company can then transfer the shares subject to the
same rights and liabilities as if they had not been
forfeited”. To the same effect are the observations of
Bacon V. C. in Ramwell’s Case (1). 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.
If it were not go. the forfeiture itself would be invalid as
involving an ill,-gal reduction of capital. If the reissue
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 reissue arises.
It remains now to deal with sub-s. (5) of s. 75. That does
create a difficulty. It provides that no return need be
filed in respect of allotment of shares forfeited for
nonpayment of calls. It gives rise to an argument that the
Art contemplates an “allotment” of shares forfeited for non-
payment of calls for otherwise it would not be necessary to
provide that returns in respect of such allotment need not
be filed. It is said that being so, the word “allotment” in
s. 75 (1) should be understood as including the issue of
shares forfeited for other reasons, for there is no reason
to make any distinction between shares forfeited for
nonpayment of calls and those forfeited for other reasons in
the present context. This argument is no doubt legitimate.
But having given it our best consideration, we have come to
the conclusion that it should be rejected. We think that
sub-s. (5) owes its origin to a confusion of ideas. Apart
from it, all other provisions of the Act clearly contemplate
by allotment the creation of shares out of the authorised
and unappropriated capital of the Company and not reissue of
shares already created by allotment in the manner aforesaid
but subsequently forfeited. There would be no justification
for altering the meaning of that word in any other part of
the Act because of
(1) [1881] 50 L J. Ch. (N.S. 827).
the solitary provision occurring in sub-s. (5) of s. 75 The
Companies Act in force before the Act of 1956 was the Act of
1913. Section 104 (1) of that Act corresponded to s. 75 (1)
of the present Act. In 1936there were large amendments made
in the 1913 Act. Prior to these amendments there was
noprovision in s. 104 of the Act of 1913 corresponding to
sub-s. (5) of s. 75 of the present Act. Therefore, upto
1936 there was, no reason to contend that the word
“‘allotment” in s. 104 (1) could at all include the re-issue
of a forfeited share. The 1936 amendment added sub-s. (4)
to s. 104 and that sub-section contained provision similar
to sub-s. (5) of s. 75 of the present Act. We do not think
that it could be legitimately contended that by the amend-
ment of 1936 the meaning of the word “,allotment”‘, in s.
104 (1) was altered. That being so, the word “”allotment”
in s. 75 (1) must be understood without reference of sub-s.
(5) in the same way as that word in s. 104 (1) had to be
understood without reference to sub.s.(4) of that section.
It is safer to read sub-s. (5) of s. 75 as having been
enacted ex abundanti cautela, that is to say, to prevent any
argument being raised that a return has to be filed of the
re-issued shares forfeited for non-payment of calls. We
also agree with the view expressed in the High Court that
the reason why only forfeiture for non-payment of calls was
mentioned in s. 104 (4) of the Act of 1913 and s. 75 (5) of
the present Act is that there has always been a great deal
of doubt as will appear from the difference of opinion in
the Calcutta High Court to which we have earlier referred,
as to whether there can be any forfeiture of shares except
for nonpayment of calls which latter case had been expressly
provided for by the statute. The other cases of forfeiture
had apparently not been mentioned because if they had been
it could have been legitimately argued that the legislature
considered such forfeiture valid and the legislature did not
want to give support to that argument.
We think for these reasons that the appeal fails and we
dismiss it with costs.
Appeal dismissed.



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