Loss of Right of Rescission

Loss of Right of Rescission. However, the right to rescind the contract is lost in the following circumstances:

(i) If the allottee does not take steps to set aside the contract within a reasonable time after he comes to know ofthe misrepresentation. (Shir011lni Sugar Mills Ltd. Vs. Debi Prasad).

(ii) Where the allottee affirms after he discovers the misrepresentation. Examples of such affinnation are executing a transfer for selling shares. voting at a general meeting, accepting dividends, payment of calls etc.

(iii) If the company goes into liquidation before he has started the proceedings to rescind the contract. In such a case, if repayment is allowed. it will injure the interest of creditors and the law always favours creditors at the expenses of members.2. Claiming Damages’ for Fraud. The subscriber is also entitled to sue the company for damages. But in order to succeed, fraudulent misrepresentation must be proved. If the subscriber wishes to claim damages, he must surrender the share to the company. He cannot both retain the shares and claim damages. The damages may be claimed by way of interest.

This right of damages shall also be lost under the same circumstances in which the right of rescission is lost.