JUDGMENT
S. Padmanabhan, J.
1. Venad Pharmaceuticals and Chemicals Ltd. is a company jointly promoted and formed in 1980 by the Kerala State Industrial Development Corporation along with Padmakumar and associates. Among the associates, P.G.K. Pillai, father of Padmakumar, was the Vice-chairman. Padmakumar was the managing director. The chairman was a person from Bombay. P. W. 2, K.L. Menon, was a director. The petitioner is an employee of the company. The petition is under Section 155 of the Companies Act, 1956, for rectification of the share register of the company by inclusion of the name of the petitioner also as a shareholder. The prayer was strongly opposed by the respondent company.
2. Due to mismanagement by the board of directors, the company was taken over by the Kerala State Industrial Development Corporation by purchasing shares and it got impleaded as additional second respondent. The second respondent also disputed the claim.
3. There were 41 employees in the company including the petitioner. From all of them, the vice-chairman, P.G.K. Pillai received huge, amounts as if they were loans. It is the case of the petitioner that 70%, of the amounts due to all other employees were paid back by the vice-chairman after obtaining vouchers for the full amounts. The petitioner, claims to have advanced Rs. 36,000 as loan. His further case is that, the managing director subsequently agreed to convert the same into shares as per exihibit P-1. Since it was not so done, he wants to become a shareholder by the process of rectification of the share register under Section 155. The contention is that the company has no responsibility for the alleged loan advanced to the vice-chairman even if it is correct. The further contention is that if it is a loan to P.G.K. Pillai, it has to be realised from him and even if the company is liable, the remedy is only by way of a suit before the civil court for its realisation. The genuineness of the loan itself was disputed with an added contention that at any rate the shortcut method of becoming a shareholder cannot be allowed. The alleged agreement pleaded on the basis of exhibit P-1 to convert the amount into shares was challenged and the authority of the person who executed the same was also questioned.
4. The only point for consideration is whether the petitioner has any title to have his name entered in the share register of the company. The petitioner examined himself as PW-1 and also one of the directors of the company as PW-2. DW-1 was examined on behalf of the additional second respondent. Certain documents were also produced and proved by either side. What is seen from the evidence is that the Vice-Chairman, P.G.K. Pillai, and his son, the managing director, Padmakumar, received various amounts from the 41 employees alleged to be by way of loans under the agreement that it will be repaid and, if not, converted into shares. The claim of the petitioner alone seems to remain. All others are said to have settled their claims with P.G.K. Pillai on receipt of 70 per cent of their amount.
5. In exhibit P-2 letter sent to the chairman, what the employees said was that Rs. 3,000 to Rs. 40,000 were received from each of them, by P.G.K. Pillai for the requirements of the company under the agreement that it will be treated as loan or share. But their request was only to get back the amount. As PW-1, what the petitioner said was that he at first advanced Rs. 25,000 to P.G.K. Pillai for his personal purpose and then paid Rs. 36,000 at his residence. He says that he alone was not repaid the amount and when demanded he was told that it is entered in the company’s accounts. Though the petitioner claims to have paid the entire amount Rs. 36,000 to P.G.K. Pillai in lump on the same date, this amount was entered in the accounts on different dates in small amounts in the name of P.G.K. Pillai himself under five receipts. Then, corrections were made in the accounts and fresh receipts were either written or corrected to change them in the name of the petitioner. All these shady nature of the entries and receipts were referred to in the auditor’s report. Anyhow they were entered only as unsecured loans. It is not necessary to refer to them in further detail, because we are concerned only with the question whether the petitioner acquired rights to become a shareholder entitling rectification of the share register. Otherwise, his claim, if any, will only be in a suit against P.G.K. Pillai or the company, as the case may be, to get back the amount. At best, what is evident is that there were some shady transactions between P.G.K. Pillai and his son, Padmakumar, with the employees including the petitioner. Whether these transactions will result in any claim against the company for getting shares is the question.
6. Let us proceed on the assumption that the amount was received by P.G.K. Pillai from the petitioner on the agreement that it will be either repaid or converted into shares. PW-2 admitted that collections were made by Padmakumar and P.G.K. Pillai without any resolution of the board of directors or authority to collect and there is no resolution of the board to allot shares for the amount. The undertaking made by Padmakumar in exhibit P-1 letter dated April 4, 1984, addressed to PW-2 that the amounts collected from workers will be converted into shares is also of no legal consequence since the conversion could only be by a resolution of the board of directors.
7. Under Section 193 of the Companies Act, the company is bound to keep minutes of the proceedings of all the meetings. In the absence of any such minutes evidencing authorisation for collection or conversion, it cannot be contended that there was such authorisation. The contention that the managing director or vice-chairman is having the authority under Article 128(3) of the articles of association to sign receipts will not lead us anywhere. Even taking for granted that the receipts issued by the vice-chairman under that authority for the amounts received by him is valid and binding on the company, the maximum result is that the loan will be binding on the company. Even the petitioner’s case is only that the amount was advanced as loan. There is no case that the managing director or the vice chairman could individually convert it into shares without a resolution of the board of directors. Even if the accounts are taken as genuine, the amount remains in it only as unsecured loan. In such a situation, the question is whether the petitioner could be taken to have acquired the right to be a shareholder.
8. In this context, the decision in Kishan Rathi v. Mondal Bros. and Co., AIR 1967 Cal 75, or Federal Bank Ltd. v. Geevarghese [1974] KLT 249 relied on by counsel for the petitioner will not be of any help to him. If a director or manager, with ostensible authority under the memorandum and the articles of association of the company, practises a fraud upon his company while acting under its authority by not placing the money in the coffer of the company, that cannot defeat a bona fide creditor’s claim against the company. According to the rule evolved in Royal British Bank v. Turguand [1856] 6 E & B 327, popularly known as ” Turquand’s rule “, while persons dealing with a company are assumed to have read the public documents of the company and to have satisfied themselves that the transaction entered into is not inconsistent therewith, they are not expected or required to do anything more. These aspects may become relevant only when the petitioner attempts to assert his claim against the company for amounts alleged to be due to him. Those aspects are irrelevant while considering the claim involved in this case where we are dealing with the question whether the amounts have been converted into shares or could be so converted. So also the unreported decision of a Division Bench of this court in MFA No. 547 of 1981 relied on by counsel is not applicable here. That was a case in which the petitioner was found to be jointly entitled to share with persons who purchased the shares in their names alone.
9. The three categories of cases coming under Section 155(1) are :
(1) where the name of a person is entered in the register of members without sufficient cause;
(2) where after entry, the name is omitted without sufficient cause, and
(3) where default or delay takes place in entering on the register the fact of any person having become or ceased to be a member,
10. In such cases, the person aggrieved or any member of the company or the company may apply for rectification of the share register. Sub-section (2) is not relevant for our purpose because it only deals with the order to be passed by court on the application. Sub-section (3) only deals with matters to be decided in applications coming under Sub-section (1). The title of the applicant to have his name entered or omitted could be decided in such a proceeding even though it is of a summary nature. At any rate, the petitioner cannot come under categories 1 and 2 in Sub-section (1). This is not a case of default or delay in entering the name of any person who has become or omitted the name of any person who ceased to be a shareholder. Therefore, the petitioner cannot come under category 3 also. Title mentioned in Sub-section (3) is only title regarding any of the matters referred to in Sub-section (1).
11. It cannot be said that the petitioner has become a member or shareholder. Only when a person becomes a member or shareholder, the question of default or delay in entering the fact of having become a member or shareholder will arise under Section 155(1)(b). The petitioner has no case that he became a shareholder. In order to become a shareholder, there must be an agreement by him in writing under Section 41(2). The words “in writing” indicate, by necessary implication, that an application for allotment of shares should be made in writing. There is no ease for the petitioner that he has made such an application. On the other hand, he has admitted that no application was made. The claim is not for acquisition of another person’s share by transfer or inheritance, but for new shares for which an application is necessary. There must also be a resolution of the meeting of the board of directors. That is also not there. The amount paid was not for shares and it was not validly converted into shares also. If so, no question of having a title to become a, shareholder will arise and, therefore, a petition under Section 155 is incompetent also. Persons having monetary claims against a company by way of loan or otherwise cannot come under Section 155 and claim that they may be made shareholders by converting the credit into shares and rectify the share register. Such claims for money could only be through a civil court. In this case, even if the claim against the company is genuine, the petitioner could only approach a civil court for realisation of the amount. The present petition is ill-conceived and it is intended only as a shortcut method of realisation by conversion into shares.
12. The petition is, therefore, dismissed. However, I do not make any order as to costs.