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SHIROMANI SUGAR MILLS LTD. V. DEBI PRASAD

Shiromani Sugar Mills Ltd., v. Debi Prasad, AIR 1950 All 508

ISSUE:

  • Can shareholders, once the company has begun the process of winding up, seek damages or repudiate the contract on the basis of misrepresentation in the prospectus?

RULE:

  • If it can be proven that a prospectus omits material information and the shareholder comes forward in a timely manner, his name may be struck from the document and the list of shareholders.

FACTS:

  • The Company, which was a public limited Company, was formed and the authorized capital of the Company was fixed at RS. 20,00,000 divided into Rs. 15,000 preferred shares of Rs. 100 each and RS. 50,000 ordinary shares of Rs. 10 each.
  • The earned capital according to the prospectus was Rupees 16,00,000 divided into Rs. 12,000 preference shares and Rs. 40,000 ordinary shares. Out of Rs. 100, the price of a preference share, Rs. 20 were payable on application for the share, Rs. 30 were payable on the share being allotted and the balance of Rs. 60 was payable in such call or calls as might be decided by the Directors from time to time.
  • The opposing parties were all stockholders in the company; some of them failed to pay even the money for the initial allocation, while others failed to pay the money for the first and second calls. As a result, three meetings of the Directors adopted resolutions that forfeited their shares.
  • On December 7th, 1941, a decision was made to dissolve the corporation. The suits were then brought by the official liquidator to recoup the remaining amounts from the allocation as well as the first and second calls and the opposing parties fought back against the lawsuits.

HELD:

  • The Allahabad High Court ruled that the shareholder has no right to rescind because neither he nor she took any concrete actions to avoid the contract while the company was still operating.
  • Additionally, neither of them made any indication that they intended to avoid the contract at any point in time. However, if a shareholder has begun formal legal action to be relieved of his shares, the passing of time while the case is still pending will not stop the shareholder’s relief.