Malabar Iron and Steel Works Ltd. vs Registrar of Companies and Another

M.S. Menon, C.J.—This is an appeal by the petitioner in O. P.. No. 1,002 of 1962-the Malabar Iron and Steel Works Limited, by its Director: V. Krishnankutty-against the dismissal of that petition. The 1st respondent in the petition was the Registrar of Companies, Kerala, Ernakulam, and the 2nd, the Regional Director, Company Law Administration Government of India, Madras. The petition sought "a write of mandamus or any other appropriate writ ordering the Registrar of Companies, Kerala, to comply with the provisions of section 149(3) of the Companies Act, 1956, in respect of the petitioner company and to issue the certificate of commencement"; and the quashing of the order of the Respondent 2 according sanction for the presentation of a petition by the 1st Respondent for the winding up of the Company. Sub-section (3) of section 149 of the Companies Act, 1956, reads as follows:

The Registrar shall, on the filing of a duly verified declaration in accordance with the provisions of sub-section (1) or sub-section (2), as the case may be, and, in the case of a company which is required by sub-section (2) to file a statement in lieu of prospectus, of such a statement, certify that the company is entitled to commence business, and that certificate shall be conclusive evidence that the company is so entitled.

The main question for determination is whether the company comes under sub-section (1) of section 149 as contended by the Registrar or under sub-section (2) of section 149 as contended by the appellant.

The Judgment under appeal held that the company came under sub-section (1) of section 149, and we entertain no doubt that the conclusion is correct. Sub-section (1) of section 149 says that "where a company having a share capital has issued a prospectus inviting the public to subscribe for its shares* the company shall not commence any business or exercise any borrowing powers unless the conditions specified in that sub-section have been fulfilled; and sub-section (2), that "where a company having a share capital has not issued a prospectus inviting the public to subscribe for its shares, the company shall not commence any business or exercise any borrowing powers" unless the conditions specified in that sub-section have been fulfilled. It is clear from the opening words of sub-sections (1) and (2) quoted above that the former sub-section applies to a company which has issued a prospectus inviting the public to subscribe for its shares; and that the latter to a company which has not issued a prospectus inviting the public to subscribe for its shares.

The appellant admits that what we are dealing with is a company which has issued a prospectus inviting the public to subscribe for its shares, and it must follow that as it is a company which has issued a prospectus inviting the public to subscribe for its shares-and not a company which has not issued a prospectus inviting the public to subscribe for its shares-it comes under sub-section (1) of section 149 and not under sub-section (2) of that section. It is not contended that if the company does come under sub-section (1) of section 149, the conditions of that section have been fulfilled or that the Registrar was wrong in refusing to certify that the company is entitled to commence business under sub-section 3 of section 149.

The only contention is that the company has delivered to the Registrar a statement in lieu of prospectus u/s 70 of the Act and that in view of that the company should be treated as coming under sub-section (2) and not under sub-section (1) of section 149. Section 70 prohibits the allotment of the shares or debentures of a company in certain cases unless a statement in lieu of prospectus has been delivered to the Registrar. It applies both to a company which has not issued a prospectus on or with reference to its formation as well as to one which has issued such a prospectus but has not proceeded to allot any of the shares offered to the public for subscription. Sub-section (1) of that section, which shows clearly the purpose and ambit of the provision, reads as follows:

A company having a share capital, which does not issue a prospectus on or with reference to its formation, or which has issued such a prospectus but has not proceeded to allot any of the shares offered to the public for subscription, shall not allot any of its shares or debentures unless at least three days before the first allotment of either shares or debentures, there has been delivered to the Registrar for registration a statement in lieu of prospectus signed by every person who is named therein as a director or proposed director of the company or by his agent authorized in writing, in the form and containing the particulars set out in Part I of Schedule III and, in the cases mentioned in Part II of that Schedule, setting out the reports specified therein, and the said Parts I and II shall have effect subject to the provisions contained in Part in of that Schedule.

A bare reading of section 70 shows that there is nothing in that section which transforms by means of legal fiction a company which has issued a prospectus into a company which has not issued a prospectus. In other words, compliance with section 70 will not take a company which has issued a prospectus from the ambit of sub-section (1) of section 149 into the ambit of sub-section (2) of that section.

Sections 70 and 149 deal with different matters. Section 70 relates to the allotment of shares or debentures. The object of section 149-in the words of Palmer''s commentary to the corresponding section of the English Companies Act, 1948, section 109-is "obviously to secure a certain degree of substantially in a company before it enters into engagements with outsiders or obtains money by borrowing" (Company Precedents, 17th Edition, Vol. I, page 13).

The words "commence any business" in section 149 are very wide; but as pointed out by Palmer in the commentary mentioned above "They evidently do not include the issue of prospectuses, or the making of provisional contracts, or the allotment of shares or the employment of experts, or the taking of other preliminary steps." In other words, compliance with section 70 is only the completion of a preliminary step; it will not in any way exonerate a company from the necessity of complying with the provisions of sub-section (1) of section 149, if it had issued a prospectus inviting the public to subscribe for its shares as has been done in this case;

The order of the Regional Director which is sought to be quashed is Ext. C dated 31-3-1962 of the affidavit of the Registrar dated 25-7-1962. The prayer for quashing the said order is not pressed before me, and does not, therefore, arise for consideration.

According to the learned Advocate-General who appeared on behalf of the Registrar the appellant is not entitled to a certificate under sub-section (3) of section 149 even if the company comes under sub-section (2) of that section. In the view we have taken this contention does not arise for consideration and is not considered in this judgment. In the light of what is stated above the appeal has to be dismissed and we do so with costs, advocate''s fee Rs. 100/-.