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Judgment
S.C. Dharmadhikari, J.—This is a company application filed by the applicant praying for the following relief:
(a) Confirmation/recognition of transfer to the applicant 3,498 equity shares of Rs. 100 each fully paid-up bearing distinctive Nos. 2723 to 2875, 3526 to 5145, 5246 to 6955 and 6981 to 6995 in Elmot Engineering Co. P. Ltd. (in liquidation), the respondent-company, made before order of winding up, i.e., March 22, 1990, but after filing of petition for winding up of the respondent-company, u/s 536 (2) of the Companies Act, 1956.
It is the case of the applicant that he is a director of the respondent-company in liquidation, namely, Elmot Engineering Co. P. Ltd. (in short, "company under liquidation"). It is his case that he was elected as director of the company under liquidation in its extraordinary general meeting held on March 3, 1990, in which meeting, 3,498 shares of this company were duly transferred in his favor. He states that he has also a claim of Rs. 2.87 lakhs on account of payment of dues to the employees of the company under liquidation. He claims to be a majority shareholder holding 3,498 out of 6,995 shares in the company in liquidation. It is his case that Elmot group of companies comprised of the company under liquidation along with its sister companies, namely, M/s. Elmot Alternators P. Ltd. (in short "EAPL"), M/s. Elmot Direct Current Machines P. Ltd. (in short, "EDCM"), M/s. Elmot Electronics P. Ltd. (in short, "EEPL"), M/s. Elmot Fabricators P. Ltd. (in short, "EFPL"), M/s. R.K Battery Charger Manufacturing Co. P. Ltd. (in short, "RKBC") and M/s. Mechelm Engineers P. Ltd. (in short, "MEPL"). The applicant states that after some senior officers left in 1978, Mr. C.V K. Rao, the then managing director of the company under liquidation could not manage the affairs of the company and the company under liquidation started incurring heavy losses and became sick by 1981. The company under liquidation was assisted under a nursing programme of the Central Bank of India. It is stated that being afraid of criminal prosecution proceedings for non-payment of statutory dues, etc., Mr. C.V K. Rao reconstituted the board of the company under liquidation in July, 1983 and resigned on September 24, 1983, from the board of the company under liquidation and also all other companies in the group. It is stated that the company under liquidation incurred net losses of Rs. 17.76 lakhs in 1983-84 and Rs. 41.31 lakhs in 1984-85 and its then share capital of Rs. 6.995 lakhs was completely eroded. Losses incurred in two years were 8.5 times the paid-up share capital as per audited statements of accounts. After setting off the profit on sale of assets in the year 1984-85 and the balance in general reserve, the accumulated loss carried forward was Rs. 29.48 lakhs as per audited balance-sheet as on April 3, 1985.
It is stated that the company under liquidation was closed down on April 22, 1988. By 1989, the financial position of all other companies in the group and also of Mr. C.V K. Rao and his family was precarious. Although the consent terms were agreed with M/s. Premier Automobiles Ltd., which is the petitioner in this company petition, on March 29, 1989, to pay in all Rs. 1,63,000 in monthly installments of Rs. 15,000 not even one installment was paid till March, 1990 resulting in the order of winding up of the company under liquidation. All efforts made by Mr. C.V K. Rao and others to revive the company under liquidation failed.
It is alleged that the efforts were made by Mr. C.V K. Rao to sell all the companies in the group. He reassumed directorship on January 28, 1988, to process sale of all companies in the group to M/s. VM Finance and Leasing Co. All shares including those held by the private trusts in all the companies were transferred to Mrs. V. Sharada, proprietor of M/s. VM Finance and Leasing Co., and the manner in which that was done has been alleged in the affidavit in support of this company application. It is then alleged that there are certain legal proceedings and also dues of the workmen were not paid. It is also alleged that because of the problems faced, Mr. C.V K. Rao decided to introduce the applicant to accept the responsibility of revival of the companies. Accordingly, Mr. C.V K. Rao appealed to the applicant to take up the responsibility without informing the applicant about the pending proceedings for winding up of the company under liquidation. The relation between the applicant and Mr. C.V K. Rao is mentioned inasmuch as it is stated that Mr. C.V K. Rao is a son of the only sister of the paternal grandfather of the applicant.
After setting out as to how the applicant was elected as a director on the board of the company under liquidation after removal of three directors of M/s. VM Finance Ltd., it is alleged that Mr. C.V K. Rao was to file the necessary forms regarding the applicant''s election and appointment. It is alleged that by a letter dated October 1, 1990, the official liquidator was informed that the applicant had been elected as a director on the board of the company under liquidation. It is pointed out as to how the records in relation to the meeting including minutes book, etc., were retained by Mr. C.V K. Rao. It is pointed out that the applicant showed willingness to furnish the statement of affairs. It is stated that the fact that the applicant was elected as director has been confirmed by several documents.
As far as the transfer of shares is concerned, in the affidavit in support, this is what is stated :
E. Transfer of shares:
(i) Mr. C.V K. Rao in the circumstances set out herein before whereby all the companies under the Elmot group were either financially sick or closed down; various actions/demands were pending against the respondent-company including non-payment of employees'' wages, electricity dues, water dues, suppliers dues, Government statutory dues; notices/demands from the income tax authorities and sales tax authorities, requested the applicant to take charge of managing and/ or reviving the respondent-company and the other companies under the Elmot group. The applicant agreed to take charge of the respondent-company and the other companies under the Elmot group upon being allotted/sold 3,498 shares of the respondent-company constituting the majority shares in the respondent-company for a consideration of Rs. 34,980 Mr. C.V K. Rao accepted the applicant''s offer and sold and transferred 3,498 shares of the respondent-company which they said C.V K. Rao was himself or through his family members or through his private family trust holding or otherwise in absolute charge and control of, for total consideration of Rs. 34,980.
(ii) The transfer of the said 3,498 shares in the name/favor of the applicant was taken up and approved by the respondent-company in '' its board of directors'' meeting held on March 3, 1990.
(iii) The minutes of this board meeting of the respondent-company held on March 3, 1990, recording transfer of 3,498 shares in the name and favor of the applicant was recorded on loose leaf, as all the earlier minutes for the board meetings held from 1985 were not written in the minutes book and some pages in between were blank. Therefore, after the minutes of this board meeting of the respondent-company held on March 3, 1990, were recorded on loose leaf the original minutes book of meetings of the board of directors was handed over to Mr. C.V K. Rao for proper updating.
(iv) In all an amount of Rs. 1,74,980 was paid in cash to Mr. C.V K. Rao on March 3, 1990, as consideration for acquisition of shares in all the companies of the Elmot group so as to give the applicant 50 per cent. equity in all the Elmot group companies.
(v) As per the audited balance-sheet as at April 3, 1985, the negative net worth of the respondent-company was Rs. 29.48 lakhs (i.e., negative book value of Rs. 420 per share which was 4.2 times the nominal value of the share). The negative net worth as at April 3, 1990, would at least be Rs. 90.23 lakhs (i.e., negative book value of not less than Rs. 1,289 per share which is 13 times the nominal value of the share), if interest and depreciation alone are considered for the five years from 1985 to 1990 at the same amount charged to profit and loss account of Rs. 12.15 lakhs per annum on a conservative basis, undisclosed liabilities scared all including those who entered into agreements to buy the companies. The shares of the respondent-company were sold and transferred to Mrs. V. Sharada in 1988 for consideration of Rs. 10 per share.
(vi) The share transfer forms 14 (fourteen) duly stamped along with 29 equity share certificates for transfer of 3,498 shares (50 per cent. of equity) to me were signed and submitted by Mr. C.V K. Rao and Mrs. R.K Rao as trustees representing 14 (fourteen) private trusts with the respondent-company. Mr. C.V K. Rao as authorized signatory of the respondent-company duly authenticated the transfer of the said 3,498 shares in the name of the applicant by entering the transfer and authenticating by putting his signature on the original 29 share certificates. The original transfer forms and the statutory register are in the custody of the company.
(vii) Thereafter the board of the respondent-company considered and approved consolidation of the shares and to issue new share certificates for the consolidated number of shares to avoid the need to hold too many share certificates and authorized the applicant and Mrs. P.S Lakshmi, to sign the new consolidated share certificates for the consolidated number of shares.
(viii) The only reason for the applicant taking up the management and/or revival of the respondent-company and the other companies in Elmot group in March, 1990 was holding 50 per cent. equity shares in these companies.
(ix) The applicant submits that the share certificates issued by the respondent-company are conclusive evidence of the applicant''s title and ownership of shares.
The applicant then gives the details of certain agreements in 1999 and 2000 confirming his shareholding and also stating that in order to avoid confusion and doubts likely to be caused in the mind of prospective lenders for the purpose of raising short-term loan and other assistance, the minutes of the board meeting held on March 3, 1990, were redrafted and rewritten in line with the so recorded entries. After giving some details with regard to this financial assistance and record of the company under liquidation, it is stated that there was correspondence with the official liquidator on the point of filing of the statement of affairs.
It is not necessary to then refer to other proceedings to which reference is made in this affidavit in support, because this application is filed on the basis that no prejudice will be caused to the company under liquidation if transfer of 3,498 shares is recognized and his willingness to continue and act as director of the company under liquidation, according to the applicant, is unconnected with the inter se disputes between him and one Mr. Aakash Vishalraj Krishnaraj Rao (in short, A.V K. Rao) in respect of these very shares which is pending before the District Court at Rangareddy, Hyderabad.
This affidavit in support has been filed on September 19, 2009, as is stated in the affidavit in support itself.
This application is opposed by Mr. A.V K. Rao who claims to be the shareholder of the company under liquidation and the managing director of M/s. Elmot Alternators P. Ltd. It is stated in the affidavit in reply that Mr. A.V K. Rao holds 265 fully paid-up equity shares of the company Under liquidation and that the applicant is falsely claiming to be a shareholder. All shares of the company under liquidation are held by the family members of Mr. A.V K. Rao directly or indirectly. He states that the case of the applicant is totally false, besides arguing that this company application is liable to be dismissed only on the ground that it is barred by the law of limitation. According to Mr. A.V K. Rao, the alleged transfer of shares in favor of the applicant took place on March 3, 1990. The company was ordered to be wound up by an order dated March 22, 1990. This company application is filed on September 25, 2009, which is after 20 years of passing of the winding up order and it is, therefore, time barred and should be dismissed on this ground alone.
It is then stated that the alleged transfer in favor of the applicant has been made after commencement of the winding up proceedings. Pursuant to the consent terms dated March 29, 1989, filed in this company petition, it was agreed that in the event of the company committing any two defaults in payment of monthly installments on their due dates, this company petition was to stand admitted. Admittedly, no monies have been paid by the company under liquidation to the petitioner pursuant to these consent terms and therefore, the company under liquidation was ordered to be wound up. It is stated that the default under the consent terms was committed on July 10, 1989 and therefore, this company petition must be deemed to have been admitted from that date. In these circumstances, any transfer of shares in this company petition which was presented on June 20, 1988, cannot be protected even if the same is held to be otherwise valid. In other words, the said alleged transfer is void.
An explanation is then given that the parents of A.V K. Rao, namely, C.V.K Rao and Mrs. Dr. Rashmi K. Rao (in short, "R.K Rao") settled 17 trusts which hold total 4,505 equity shares of the company under liquidation. The said A.V K. Rao claims to be the sole beneficiary of the trusts'' shares. It is stated that the parents of A.V K. Rao are trustees of seven of these trusts while other relatives are trustees of other ten trusts. The details of the said trusts and their respective shareholding in the company under liquidation are then referred to. It is stated that the date of vesting of the trusts'' shares was November 10, 1995. There is never any alteration in the date. The copies of the trust deeds are annexed and it is urged that the applicant claims to be the owner of 3,498 equity shares, however, these 3,498 equity shares form a part of 4,505 equity shares held by 17 trusts in the company under liquidation.
It is stated that Mr. A.V K. Rao along with M/s. Elmot Alternators P. Ltd., filed Company Application No. 212 of 2008 for recalling/revoking/setting aside/staying permanently the winding up order dated March 22,1990, on the grounds more particularly set out in that application and the affidavit in support thereof. During the pendency of Company Application No. 212 of 2008, the present applicant intervened before this court contending that he is the owner of 3,498 equity shares in the company under liquidation. That claim was disputed by Mr. A.V K. Rao. Mr. A.V K. Rao became aware of the applicant''s claim. It was stated that there are false affidavits filed alleging that the parents of Mr. A.V K. Rao transferred these 3,498 equity shares on March 3,1990 and that he is now the owner thereof. However, Mr. C.V K. Rao filed an affidavit dated December 6, 2008, in Company Application No. 212 of 2008 explaining the true and correct facts pertaining to the shareholding. It is stated that the said Company Application No. 212 of 2008 was disposed of on March 13, 2009. It is stated that a suit has been filed in Rangareddy District Court at L.B Nagar, Hyderabad being Suit No. 244 of 2009 by Mr. A.V K. Rao against the applicant herein and others including the parents of Mr. A.V K. Rao for a declaration that he is the sole and absolute owner of 3,498 equity shares in the company under liquidation. The present applicant cannot claim this ownership falsely. It is stated that the applicant is wrongfully in possession of the share certificate pertaining to these shares and the purported transfer of 3,498 shares is without consideration, without execution of valid transfer documents/deeds and without approval of the board of directors and therefore, invalid.
Additionally, it is stated by Mr. A.V K. Rao in this affidavit in reply that the present applicant executed an affidavit dated July 29, 1996, in which he deposed that Mr. A.V K. Rao is the sole beneficiary of the very same trusts which are named therein and which are the same trusts which hold 3,498 shares in the company under liquidation. In these circumstances and relying upon the copy of this affidavit, it is alleged that the present application is filed with an ulterior motive and with a view to harass the parents of Mr. A.V K. Rao. Further it is filed with an intention to pressurize the said group to settle the matter with the applicant. If the story of the applicant was genuine, then, it cannot be believed that he would wait for regularization of the purported transfer for more than 20 years from the date of commencement of the winding up. For all these reasons and thereafter, pointing out the facts in relation to sickness and closure of all companies in Elmot group and sale of companies in the group and stating how the sale deal failed, it is alleged that the case of the applicant that he is the director of the company under liquidation is false inasmuch as the applicant was never called upon by the official liquidator to file the statement of affairs. He has not produced any evidence of his having filed Form No. 32 with the Registrar of Companies, relating to his appointment as director of the company under liquidation. In these circumstances, the applicant is wrongfully in possession of 29 original share certificates belonging to 14 out of 17 private trusts. The transfer of shares and resolution itself is challenged and several contentions as to how the same is a got up document have been raised and therefore, it is prayed that this application be dismissed.
There is an affidavit in reply of Mrs. Rashmi K. Rao who is the mother of Mr. A.V K. Rao. She adopts the contents of the affidavits that have been filed by Mr. A.V K. Rao and Mr. C.V K. Rao and raises a further contention in paragraph 8 of this affidavit, which reads thus :
With particular reference to paragraph D (iii) of the affidavit in support, whilst it is true that I have affirmed an affidavit dated September 4, 1991, I say that the aforesaid affidavit was made by me as per the information supplied by the applicant himself in good faith. I say that my husband and I were residing primarily in Mumbai since marriage in the year 1959 up to the year 1982. After my husband established the company in Hyderabad in the year 1974, my husband and I visited Hyderabad from time to time until the year 1982. I shifted entirely to Hyderabad for six years from 1982 up to 1988, on account of my son''s schooling in Hyderabad. In 1988, my husband and I came back to primarily reside in Mumbai, as my son Aakash had completed his schooling and was admitted to junior college in Mumbai. My son Aakash completed his junior college in April, 1990, after which the entire family visited and stayed in Hyderabad during the summer vacations in May/June, 1990. Sometime in June, 1990, we returned to Mumbai as my son Aakash had secured admission at IIT Powai, Mumbai. My husband Mr. C.V K. Rao suffered a heart attack in March, 1991, after which he underwent a bypass surgery on June 15, 1991, at Beach Candy Hospital, Mumbai and was hospitalized for a long time thereafter. After his discharge from the hospital, he was advised complete bed rest for four to six months. I say that except for the period in May/June 1990, I have not visited Hyderabad between the years 1988 and 1992. I say that my husband Mr. C.V K. Rao was keen on selling the Elmot group of companies during the year 1988-89 and there was an agreement in this regard which he had entered into with VM Finance and Leasing Co. However, things did not materialize and the sale of the Elmot group of companies did not take place. The applicant, who is a distant relative, suggested to me and my husband sometime after the company went into liquidation that he would revive EAPL and other group companies, in order to try and prevent EAPL and the other group companies from meeting with a similar fate. The applicant suggested that we should represent to the official liquidator of the company that the applicant was appointed as a director of the company. I believed that the applicant could be trusted and the affidavit dated September 4, 1991, made by me has been made in good faith and on the instructions and the information given to me by the applicant himself. I say that the affidavit dated September 4, 1991, has been made in the circumstances set out herein and the applicant cannot be permitted to capitalize upon incorrect statements made therein to bind me as he himself has supplied incorrect information to me on the basis of which I made this affidavit. I say that in this context, it would also be relevant to peruse the papers and proceedings pertaining to Company Application No. 164 of 1991 in Company Petition No. 645 of 1988, which will falsify the statements of the applicant.
There is affidavit in the rejoinder filed by the applicant in which while dealing with the contents of the affidavit in reply of Mr. A.V K. Rao, what has been alleged is that in the suit filed in the District Court, Rangareddy at Hyderabad, an application is moved by the applicant raising the issue of jurisdiction and limitation, which is pending. The allegations are made against Mr. C.V K. Rao, Mrs. Rashmi Rao and Mr. A.V K. Rao. The challenge is raised to the trust deed. It is alleged that the interveners (Rao group) have presented a false case of revival of the company under liquidation. They presented a false case and that is evident by the fact that the company applications that are made by these interveners are pursuant to the action initiated by the official liquidator to take possession of the properties of the company under liquidation. Attempt is to hold on to these properties. The entire matter is being treated as if it is a personal matter, but that is incorrect because whole attempt is to retain possession of the immovable properties which are very valuable and to appropriate them to Rao group somehow or other. In paragraph 27 of this rejoinder affidavit, this is what is stated :
27: With reference to paragraph 18, I say that all shares in all companies in Elmot group were sold and transferred to VM Finance and Leasing Co., and Suit O.S No. 357 of 1988 was filed by intervener No. 2 for realization of the value of shares. Interveners are deliberately distorting the facts and without producing copies of the suit and judgment thereon before this hon''ble court. I say that the above admitted fact that C.V K. Rao, intervener No. 2 filed the above suit against M/s. VK Finance and Leasing Co., for recovery of sale consideration on sale of the Elmot group conclusively establishes the fact that the Elmot group companies were sold and the shares of the companies including that of EECPL (in liquidation) herein were transferred to M/s. VM Finance and Leasing Co., and/or its proprietress and/or its nominees. I further say that the annual return for the financial year 1982-83 is irrelevant today after lapse of 27 years and ought not to be taken into account. I without prejudice to the other contentions and submissions further say that by the terms of the trusts deeds at exhibit C, pages 198 to 235 of affidavit in reply of intervener No. 1 the trustees are empowered to sell the investments ((shares in EECPL (in liquidation)) held by the 17 trusts...
Admittedly, C.V K. Rao and Mrs. R.K Rao transferred the shares to VM Finance which fact is not at all disputed. The fact that the said trusts did not hold any shares in EECPL (in liquidation) in 1996 is evident from the fact that intervener No. 1 did not take any action till the filing of the present applicant (i.e., for more than 13 years from the purported vesting date, i.e., January 1, 1995) for seeking the transfer of the shares in EECPL (in liquidation) as the intervener knew that all shares were duly transferred to me as more particularly set out hereinbefore. I say as per Mr. Aakash, intervener No. l''s own admission the shares held by the trusts in all other companies in the group, including EAPL were transferred to applicant No. 1, in October, 1996. I without prejudice to other submissions say that even otherwise after a lapse of more than 14 years of the ultimate Vesting day'', i.e., January 1, 1995, no right survives to intervener No. 1 to claim any right or interest in the shares that are duly transferred to me. As per Mr. Aakash, intervener No. l''s own admission he perused in detail the contents of all the 17 trust deeds in 1996 (line 1 page 557 of further affidavit in C A. No. 212 of 2008) and also consulted all the trustees in 1996 before leaving for USA (line 12 page 557 of further affidavit in C.A No. 212) and caused transfer of shares held by the 17 trusts in all companies (except EECPL (in liquidation)) to himself, i.e., intervener No. 1. I without prejudice to my other submissions and contentions say that individual transfer forms in respect of each share certificate/trust signed by C.V K. Rao, as trustee, on behalf of all trusts, were submitted for transfer of shares in each company in the group and accordingly transfers of shares were made from various trusts to intervener No. 1. Documents evidencing such transfers in case of EAPL are at exhibit R page 523 and exhibit D page 278 of C.A No. 212. I say that the minutes of board meetings in which transfers on similar lines were approved are in possession of the applicant. Hereto annexed and marked at exhibit BB pages 752 to 757 of C.A No. 212 of 2008 are copies of 6 (six) transfer forms submitted by the trusts for transfer of shares in Elmot Direct Current Machines P. Ltd. (EDCM) to intervener No. 1 in July, 1996. It is pertinent to note that C.V K. Rao has signed, as trustee, the transfer forms on behalf of Sivoham Trust, Swoparjitha Trust, Venkata Vishal Trust and Ganesh Prasanna Trust in which C.V K. Rao, intervener No. 2 is not a trustee as per his own admission and admission of Mr. Aakash, intervener No. 1. I without prejudice to the other contentions say that intervener No. 1 has fully accepted my shareholding in EECPL (in liquidation) and had not disputed my shareholding till date. I without prejudice to my other submissions and contentions submit that as the said Mr. Aakash, intervener No. 1 has not produced the trust deeds of the alleged 17 trusts I deny that said Mr. Aakash, intervener No. 1 is the sole beneficiary as otherwise alleged. I say the remaining allegations made therein are vague and devoid of any material particulars or details or document in support thereof and therefore denied in toto. I say the suggestion by said Mr. Aakash, intervener No. 1 that the trustees had no power to alienate the trust fund is false to his own knowledge and is made mala fide.
Thus, several aspects relating to creation of trusts, powers under the trust deed have been mentioned and it is emphatically stated that the records of the company under liquidation are not in personal custody of the applicant. It is stated that Mr. A.V K. Rao and Mr. C.V K. Rao are making illegal gains from the company under liquidation and its assets. It is stated that the applicant was lured by Mr. C.V K. Rao to take up the responsibility and shield the interveners/contesting respondents from creditors, lenders, ex-employees, statutory bodies, court proceedings for imprisonment, income tax Department proceedings for sale of domestic assets, etc. It is very clear, according to the applicant, that the collusion is apparent as the applicant is being involved in false criminal proceedings. It is very clear that they have no case and that is why they are falsely denying the claim.
To the affidavit in the rejoinder, an affidavit in surrejoinder is filed by Mr. A.V K. Rao in which all contentions raised in the affidavit in reply have been reiterated and whatever contrary is denied. It is stated that the annual return of the company under liquidation evidencing shareholding of Mr. A.V K. Rao has been inspected together with the original share certificate issued in favor of Mr. A.V K. Rao. Thus, the interveners have given inspection of all documents that they have in their possession and based on which they have filed the replies. Once there are affidavits and written documents in which the applicant admits that Mr. A.V K. Rao is the sole beneficiary of 17 trusts which are the same whose corpus includes these 3,498 shares, then, all allegations to the contrary are false and are an afterthought. It is stated that Mr. C.V K. Rao was not a director of the company under liquidation after his resignation after September 24, 1983. It is stated that the applicant was never a shareholder of the company under liquidation and therefore, he did not inform this to the official liquidator. Thus, Mr. A.V K. Rao states that false allegations are made not only against him, but his father Mr. C.V K. Rao and that the applicant is trying to mislead this court by inconsistent and vague statements.
It is on this material that I have heard rival contentions. Mr. Gaurav Joshi, learned counsel appearing for the applicant, submitted that the documents which are annexed to the affidavit in support of this application and that in the compilation, will show that prima facie the applicant has title to the shares. The share certificate is conclusive evidence of this fact and he invites my attention to section 82 of the Companies Act, 1956. Mr. Joshi submits that the legality of transfer need not be gone into in these proceedings. Even the issue of title to the share cannot be raised inasmuch as the application is made on the basis that there is a valid transfer of shares, but since the company is under liquidation and that there is winding up order passed against it, that it is required that this court in terms of section 536(2) of the Companies Act, 1956, should validate and save the same. Mr. Joshi submits that the law is that such transactions are not void, but voidable at the instance of the official liquidator. It is not the case of the official liquidator that this transaction is in any way contravening the interest of the shareholders or of the general public. Mr. Joshi submits that the transfer of shares is not mala fide nor is there an intent to defeat the interest of the shareholders. Section 536(2) of the Companies Act, 1956, under which the instant application is filed must be read and understood in such a manner so as not to find fault with the otherwise valid and genuine transaction. There is no such claim made by the official liquidator. He has to challenge the transaction and he has not challenged the same. The interveners are objecting to the reliefs and that is on the basis of the civil suit which is pending in the District Court, Rangareddy at Hyderabad.
Mr. Joshi submits that the argument that this application is barred by limitation and therefore, should be dismissed is totally misconceived. There is no period of limitation provided by the Companies Act, 1956, for making such an application. Assuming that the application is made to the court and that for such an application general period of limitation provided by residuary article (article 137 of Schedule to the Limitation Act, 1963) is applicable and the period is three years, yet, in this case it cannot be said that the applicant has deliberately and falsely not filed any proceedings. The issue is alive inasmuch as it was the interveners who had taken out several proceedings in the company application and in which the applicant had been raising this issue and adopting such a stand. In these circumstances and when the contention that the transaction is void or voidable is available only to the official liquidator and not to other parties, then, this application cannot be dismissed on the ground of limitation.
Mr. Joshi submits that the official liquidator of the company under liquidation represents the general body of the creditors. He has not raised any dispute. The dispute about the transaction or transfer in any event cannot be raised in these proceedings. On the other hand, if one peruses page 156 of the company application paper book, it would be apparent that the official liquidator has recognized the applicant as a director of the company under liquidation. Mr. Joshi submits that this is an extract of an affidavit filed on November 25, 2008, by the then official liquidator Mr. P. Rama Rao in Company Application No. 1312 of 2007 with Company Application No. 212 of 2008 in Company Petition No. 645 of 1988 which application was filed by Elmot Alternators P. Ltd. In these circumstances, all arguments to the contrary of the interveners should not be accepted and particularly because after seeking leave of this court u/s 446 of the Companies Act, 1956, they have filed civil suit in the District Court at Hyderabad and the subject-matter of the suit cannot be raised here.
Mr. Joshi submits that the conduct of the interveners/contesting respondents is contemptuous. Mr. Joshi has invited my attention to several affidavits and it is stated that the false statements are made and the records are being falsified. The story cooked up is not a part of the suit and in any event, no interim orders are obtained by the interveners/contesting respondents in their suit. In these circumstances, the contentions of the interveners should not be accepted. For all these reasons, the company application should be made absolute.
Mr. Joshi has relied upon the following decisions in support of the above contentions:
(1) [1868] L.R 3 QBD 689 Rudge v. Bowman.
(2) Pankaj Mehra and Another Vs. State of Maharashtra and Others, .
(3) Shri Laxman Yeswant Prabhudesai, Shri Uday Laxman Prabhudesai and Mrs. Gayatri Uday Prabhudesai Vs. NRC Limited and Others, ..
(4) Bir Chand Vs. John Bros, .
(5) [1988] 64 Comp Cas 819 (Ker) Travancore Rayons Ltd. v. Registrar of Companies.
(6) [1999] (Supp.) Bom. CR 435 Iftex Oil and Chemicals P. Ltd. v. Official Liquidator of Dhake Dyes and Chemicals P. Ltd..
(7) L.S. Synthetics Ltd. Vs. Fairgrowth Financial Services Ltd. and Another, .
On the other hand, Mr. Shyam Mehta, learned counsel appearing for the intervener/contesting respondent (A.V K. Rao), submits that he is one of the shareholders. He is the sole beneficiary of the trusts which are created and the details of which are referred hereinabove. It is submitted by Mr. Mehta that this application is time barred inasmuch as after nineteen and a half years, the applicant comes forward to claim that he is the owner of the shares and that on the basis of the resolution dated March 3, 1990, these shares were transferred in his favor and he was elected as director. Once such an application is made after nineteen and a half years and there is no request nor any written application seeking condonation of delay, then, all the more this application should be dismissed. Mr. Mehta submits that article 137 of Schedule to the Limitation Act, 1963, is applicable. Once it is applicable, then, the application should have been filed within a period of three years from the accrual of the cause of action. That is admittedly not done. There is no application seeking condonation of delay. Even if this article is not applicable, yet, there is no explanation for inordinate delay of nineteen and a half years in making this application. Once this unexplained delay is admitted, then, the application deserves to be dismissed on the ground of laches. In these circumstances, the application should be dismissed as claimed.
However, according to Mr. Mehta, on merits also, this application cannot be granted. The alleged transfer of shares is in violation of articles 59 to 63 of the articles of association of the company under liquidation. The procedure has not been followed. It is submitted that the meeting itself is questionable inasmuch as there was no quorum at the board meeting as prescribed. There is discrepancy in the minutes inasmuch as there are two separate minutes of meeting. If the meeting is convened on March 3, 1990 and there is no further meeting according to the applicant or that there is no other meeting of the said date, then, there is no explanation as to why the minutes reflect two separate meetings. Further, they do not reflect any direct transfer of shares. There is no appointment of the director. It is submitted that this court may rule upon these aspects because the interveners/ contesting respondents will not raise this issue in the pending civil suit. It is submitted that the company under liquidation cannot continue its activities nor can it appoint a director or transfer the shares nor can any effect be given to such actions after March 22, 1990. In these circumstances and when section 287 of the Companies Act, 1956, is clear, this company application deserves to be dismissed.
Mr. Mehta has relied upon the following decisions in support of his contentions:
(1) The Kerala State Electricity Board, Trivandrum Vs. T.P. Kunhaliumma, .
(2) [2001] 103 Comp Cas 979 (P & H) Jagjit Rai Maini v. Punjab Machinery Works P. Ltd..
(3) [2001] 105 Comp Cas 778 (AP) Official liquidator v. Andhra Pradesh State Financial Corporation.
(4) K.P. Ulahannan and Others Vs. The Wandoor Jupiter Chits (P) Ltd., ..
(5) [1998] 93 Comp Cas 443 (Karn) : AIR 1999 Kar 71 Naveen Kumar v. Karnataka Theatres Ltd..
(6) [1966] Bom. LR 52 Employees'' State Insurance Corporation v. Bharat Barrel and Drum Manufacturing Co. P. Ltd..
(7) 2004 (9) SCC 747 .
(8) Sangramsinh P. Gaekwad and Others Vs. Shantadevi P. Gaekwad (Dead) thr. Lrs. and Others, .
(9) V. Rajagopal Vs. Salem Provident Society Ltd., . (under liquidation).
(10) [1891] 2 QBD 463 (CA) Onward Building Society, In re).
With the assistance of Mr. Joshi and Mr. Mehta, I have perused the company application and annexures, the affidavit in support, so also the affidavit in reply, the affidavit in rejoinder and surrejoinder. I have also perused the relevant statutory provisions and the decisions brought to my notice. I have also carefully perused the relevant documents.
To my mind, before considering the rival contentions, it would be appropriate to focus on the main relief that is claimed in this application that this court should confirm/recognize the transfer in favor of the applicant of 3,498 equity shares of Rs. 100 each fully paid-up bearing distinctive Nos. 2723 to 2875, 3526 to 5145, 5246 to 6955 and 6981 to 6995 and as detailed in prayer clause (a). This relief is claimed on the basis that this transfer is effected before the date of winding up and the order in that behalf, namely, March 22, 1990. However, section 536(2) of the Companies Act, 1956, is attracted, according to the applicant, to this, transaction because the same is effected after filing of the winding up petition against the company under liquidation. Admittedly, the shares are of the company under liquidation and according to the applicant, when the shares were transferred, the applicant and others were aware that the winding up petition was filed against the company under liquidation and it is pending. In these circumstances, according to the applicant, section 536(2) of the Companies Act, 1956, would apply.
Before proceeding further a reference can be made to section 536 of the Companies Act, 1956, which reads as under:
Avoidance of transfers, etc., after commencement of winding up.--(1) In the case of a voluntary winding up, any transfer of shares in the company, not being a transfer made to or with the sanction of the liquidator, and any alteration in the status of the members of the company, made after the commencement of the winding up, shall be void.
(2) In the case of a winding up by or subject to the supervision of the court, any disposition of the property (including actionable claims) of the company, and any transfer of shares in the company or alteration in the status of its members, made after the commencement of the winding up, shall, unless the court otherwise orders, be void.
In the case of Pankaj Mehra and Another Vs. State of Maharashtra and Others, , it has been held by the honorable Supreme Court that all dispositions of property made by a company during interregnum between the presentation of a petition for winding up and the passing of an order of winding up, cannot be said to be null and void. If such a view is taken, the business of the company would be paralyzed, for the company may have to deal with very many day to day transactions, make payment of salaries to staff and other employees and meet urgent contingencies. An interpretation which could lead to such a catastrophic situation should be averted. That apart, when such view is adopted, a fraudulent company can deceive any bona fide person transacting the business with the company by stage managing a petition to be presented for winding up in order to defeat such bona fide customers. Therefore, it is to protect bona fide transactions and deals, that the provision has been worded in the aforestated manner. That both, namely, transfer of shares in the company or alteration in the status of its members made after commencement of the winding up, shall unless the court otherwise orders be void. Therefore, the power is reserved in the court to order otherwise. If the court orders otherwise the dispositions of the property, the transfer of shares in the company or alteration in the status of its members will not be void. The relief claimed in the present application is that this court should confirm/recognize the transfer of 3,498 equity shares of Rs. 100 fully paid-up in the company under liquidation in favor of the applicant and that is stated to be made before March 22, 1990. It is stated that the winding up order has been passed on March 22, 1990, whereas these shares have been transferred on March 3, 1990. Therefore, this transaction/transfer should not be held to be void.
However, I have reproduced in paragraph 6 above, the statements made in the affidavit in support wherein the applicant has set out the background in which he made the offer to Mr. C.V K. Rao and his offer being accepted, these shares were sold to him. He relies upon the share certificates, but at the same time, he states that the minutes of meeting of the board of directors of the company under liquidation held on March 3, 1990, regarding the transfer of these shares in the name of the applicant were recorded on "loose leaf" as all earlier minutes of the board meetings held from 1985 were not written in the minutes book and some pages in between were blank. Therefore, after the minutes of the board meeting held on March 3, 1990, were recorded on "loose leaf", the original minutes book of the meetings of the board of directors was handed over to Mr. C.V K. Rao for proper updating. It is then stated that in all an amount of Rs. 1,74,980 was paid in cash to Mr. C.V K. Rao on March 3, 1990, as consideration for acquisition of all shares in the companies of Elmot group so as to give the applicant 50 per cent, equity in all Elmot group companies. It is stated that the share transfer forms 14 duly stamped along with 29 equity share certificates for transfer of 3,498 shares were signed and submitted by Mr. C.V K. Rao and Mrs. R.K Rao as trustees representing 14 private trusts. Yet, it is stated that the original transfer forms and statutory register are in the custody of the company. There are further averments and particularly with regard to redrafting and rewriting of the minutes of the board meeting held on March 3, 1990.
In the affidavit in reply of Mr. A.V K. Rao and supporting affidavits, what has been pointed out is that the applicant is in wrongful possession of the share certificate pertaining to these 3,498 shares. The purported transfer of these shares is without consideration, without execution of any valid transfer document/deed and without approval of the board of directors of the company under liquidation. It is consequently invalid. Reliance is placed upon the affidavit executed by this very applicant dated July 29, 1996, in which he has deposed that Mr. A.V K. Rao is the sole beneficiary of the very same trusts which are named therein and which are the same trusts which hold 3,498 shares. Thus, the applicant is wrongfully claiming to be the holder of these shares. A copy of this affidavit has been annexed to the affidavit in reply of Mr. A.V K. Rao to the present company application. This affidavit annexure F (page 259 of the paper book) reads as under :
I, P.V Rathnam, managing director, Elmot Alternators P. Ltd., solemnly affirm and state as under:
That Mr. Aakash Vishalraj Krishnaraj Rao, is employed as ''assistant adviser R and D'' since June 3, 1996, on a consolidated salary of Rs. 10,000 (rupees ten thousand only) per mensem.
That Mr. Aakash Vishalraj Krishnaraj Rao holds 20 equity shares fully paid-up, in our company.
That Mr. Aakash Vishalraj Krishnaraj Rao is the sole beneficiary of the trusts named below who hold the number of equity shares fully paid bearing the distinct numbers indicated against each trust:
Sl No.
Name of trust
No. of shares held
Share certificate No.
Distinct Nos. of shares
1.
Krishna Family Trust
20
4(E)
23 to 42
2.
Rashmi Family Trust
20
5(E)
43 to 62
3.
Vijaya Vishal Trust
20
7(E)
83 to 102
4.
Vishal Aakash Trust
20
8(E)
103 to 122
5.
Sree Shubham Trust
20
9(E)
123 to 142
6.
Krishna Rashmi Trust
20
10(E)
143 to 162
7.
Vakratunda Trust
20
11(E)
163 to 182
8.
Shivoham Trust
20
12(E)
183 to 202
9.
Swoparajitha Trust
20
13(E)
203 to 222
10.
Samruddhi Trust
20
14(E)
223 to 242
11.
Muktamba Trust
20
15(E)
243 to 262
12.
Bhanu Rashmi Trust
20
16(E)
263 to 282
13.
Venkata Vishal Trust
20
17(E)
283 to 302
14.
Ganesh Prasanna Trust
20
18(E)
303 to 322
15.
Aakash Trust
20
19(E)
323 to 342
16.
Aakash Rashmi Trust
20
20(E)
343 to 362
17.
Rama Krupa Trust
20
21(E)
363 to 382
340
That valid applications for transmission of the abovementioned shares to Mr. Aakash Vishalraj Krishnaraj Rao have been received from the above trusts and the applications are being processed for transmission and registration of the shares in the name of Sri Aakash.
That, after the above transmission, Mr. Aakash Vishalraj Krishnaraj Rao will be holding 38 per cent. of the equity shares in the company, as on July 29, 1996.
I, P.V Rathnam, managing director, Elmot Alternators P. Ltd., do hereby verify that the contents of paragraphs 1 to 5 are true to the best of my knowledge and belief.
Signed and verified this twenty-ninth day of July one thousand nine hundred and ninety six.
It is in these circumstances, it is alleged that the applicant is not entitled to any share in the company under liquidation or any sum of money either from the said Mr. A.V K. Rao or from his parents. The story in relation to the transfer of these shares is not at all genuine. Thus, it is vehemently denied that the applicant holds the subject shares. It is denied that he was ever the director of the company under liquidation. It is clearly alleged that the applicant has not paid any consideration for any shares in the company under liquidation. In the affidavit, several allegations against the applicant have been made. It is stated that the official liquidator has also not treated the applicant as director of the company under liquidation because he was not called upon to file any statement of affairs. The applicant has not produced any evidence of his having filed with the Registrar of Companies, Form No. 32 relating to his appointment as director of the company under liquidation. There is no correspondence between the applicant or Mr. C.V K. Rao and his wife with the official liquidator prior to October, 1990 in relation to the reconstitution of the board or appointment of the applicant as director with effect from March, 1990, as is now sought to be contended. It is pertinent to note, according to the contesting respondent, that the applicant has not indicated to the official liquidator that he was a shareholder of the company under liquidation in any of his correspondence starting from 1990. The meeting itself is not admitted. It is stated that the suit for declaration of title of the said Mr. A.V K. Rao in relation to these shares is filed and is pending before the District Court, Rangareddy, Hyderabad being O.S No. 244 of 2009. It is stated very clearly in the affidavit by the contesting respondent that the minutes were produced for the first time by the applicant as recently as on November 6, 2008, although it was objected to the applicant being recognized as a shareholder well before that date. The applicant did not produce any document in support of his claim of being a shareholder of the company under liquidation, in his intervention application being Company Application No. 898 of 2008 for intervention in Company Applications Nos. 212 of 2008 and 1312 of 2007 or in his affidavit dated October 2, 2008, in reply to Company Application No. 212 of 2008. It is alleged that it is only when the rejoinder affidavit was filed by Mr. A.V K. Rao on October 16, 2008, in Company Application No. 212 of 2008, that the copies of share certificates allegedly evidencing that the applicant is a shareholder, were sought to be produced. The minutes of the meeting held on March 3, 1990, are stated to be false and got up documents which were never prepared at that time. The allegation is that the minutes are prepared on pro forma sheet of "loose leaf" printed by one Law Sales Co. P. Ltd., Hyderabad whose telephone number is shown as 4613894 which is seven digit telephone number. These minutes were prepared on March 3, 1990, or thereafter is false version because the change from six to seven digit telephone numbers in Hyderabad was from March, 1997. All these contentions have been, therefore, raised to deny the claim and it has been argued that the applicant''s version is not only doubtful but fraudulent.
In the affidavit in the rejoinder while denying all this and reiterating the contentions set out in the affidavit in support, what has been argued is that the interveners are colluding amongst themselves to cheat and defraud the company under liquidation, its creditors and the applicant. As far as the statement made in the affidavit dated July 29, 1996, is concerned, it is stated to be made on the basis of the representation of Mr. C.V K. Rao, father of A.V K. Rao and was not made on the basis of the trust deed/ document. In any event, according to the applicant, it is stated that this statement was made in relation to Elmot Alternators P. Ltd., and there is no reference therein to the company under liquidation. Therefore, this affidavit cannot be said to be supporting the case of the interveners/contesting respondents. It is then stated that the amounts were paid and there is no question of any story being made out for the first time. My attention is invited to paragraph 27 of the affidavit in rejoinder in this behalf.
Upon perusal of this entire material, I am of the opinion that there is substance in the contention of Mr. Mehta that the applicant''s claim is belated as it is being raised after more than 18 years of passing of the resolution and for which I do not find any explanation, save and except stating that intervener No. 1 has not disputed that the applicant has 3,498 shares. It is stated that it is only when the claim was being denied that occasion came to assert it and not otherwise.
Mr. Mehta has contended that there is no substance in the argument of Mr. Joshi based on sections 82 and 84 of the Companies Act, 1956. At the most these provisions would enable this court to hold that a certificate of shares shall be, prima facie, evidence of the title of member to such shares. However, in the present case, it is the applicant who has raised the issue of meeting being held on March 3, 1990, but the minutes thereof being written on loose sheets of papers. Therefore, if transfer is in doubt on the own showing and going by the version of the applicant himself, then, he cannot take assistance of these provisions. Further, Mr. Mehta relied on section 108 of the Companies Act, 1956 and urged that one set of transfer deeds is non existent. He pointed out the discrepancy from the minutes and in that behalf relied upon pages 292, 294 and 296 of the compilation. In these circumstances, he submits that this court will not be in a position to ignore the pleas at page 16 of the affidavit in support of the applicant and particularly under the heading "E. Transfer of shares, (vi)". He also relied upon the explanation given for two meetings by the applicant himself at page 17 at heading "F(i)". He vehemently argued that the applicant himself states that in order to avoid confusion and doubts likely to be caused in the mind of the prospective lenders, the minutes of the said board meeting held on March 3, 1990, were redrafted and rewritten in line with the recorded entries. He also pointed out paragraph 32 of the rejoinder which has been filed by the applicant and submitted that the applicant accepts the version with regard to the minutes of the board meeting, but argues that considering the relationship with Mr. C.V K. Rao the applicant had accepted the change on terms mutually agreed and the transfer of shares was made on March 3, 1990 and further argues that holding of the board meeting for transfer of shares is a routine matter and that cannot be said to be an afterthought as alleged after a lapse of 18 years by the interveners. Mr. Mehta submits that if paragraph 32 of the rejoinder is read in its entirety, then, the applicant''s version itself would raise serious doubts as to whether, there was any meeting and if at all there was any meeting, whether the minutes were drawn, prepared and maintained and whether, these minutes have been adopted or ratified at subsequent meetings of the board. Mr. Mehta submits that it is pertinent to note that if there is only one meeting of March 3, 1990, prior to the order of liquidation dated March 22, 1990, then, all the more the applicant''s version raises several arguable issues of facts and law.
Mr. Mehta also argued alternatively that even if this transfer of shares in favor of the applicant is assumed to be valid, yet it is not in the interest of the company under liquidation nor it is in public interest. Exceptional circumstances are not made out and one point agenda of the applicant is to wind up the company, to acquire valuable properties and assets, whereas, the intervener who is contesting this application is making sincere efforts to revive the company. In this behalf, my attention is invited to paragraph 48 of the rejoinder affidavit of the applicant in this company application.
This argument of Mr. Mehta is supported by Mr. Munshi and he contends that propriety of the transaction must also be seen together with the conduct of the applicant. Mr. Munshi submits that the order passed in Revision Petition No. CRP 1852 of 2002 challenging the judgment and decree dated March 26, 2002, of the Court of Principal District Judge, Rangareddy in Civil Miscellaneous Application No. 106 of 2001 ought to be seen because this was revision petition filed by Mr. C.V K. Rao against the applicant. The applicant herein who was the original defendant had filed an appeal challenging the interim injunction dated October 9, 2001, granted by the trial court in Interim Application No. 3095 of 2001 in Original Suit No. 976 of 2001. According to Mr. Munshi, it is clear from perusal of this order that one of the argument was that a complaint was given by the applicant before this court and the defendant in that suit with regard to theft on July 16, 2001, but there is no allegation with regard to theft of the minutes book. However, the applicant changed his version and then argued that there is theft of the minutes book. Thus, Mr. C.V K. Rao in his affidavit has pointed out as to how the applicant was unable to revive M/s. Elmot Alternators P. Ltd., and betrayed his trust. It is only after return of the son in the year 2002 that the affairs could be brought under control. Mr. C.V K. Rao has stated that there was no meeting of the board held on March 3, 1990, nor was there any transfer of 3,498 equity shares in favor of the applicant. Neither the applicant nor his wife were ever appointed as directors of the company under liquidation at any time. Further, it is apparent as pointed out in the affidavit that even the mother of Mr. A.V K. Rao has not signed on the transfer form.
Mr. Joshi, in countering these submissions, argued that all these matters cannot be decided in the present proceedings invoking the court''s power u/s 536(2) of the Companies Act, 1956. This is a clear case where there is no specific period of limitation provided by law to approach this court and therefore, this application cannot be dismissed on the ground of delay and laches. Further the issues of procedure being complied with or not is not a matter which can be raised and it is clear that now Mr. C.V K. Rao is putting up his son to defeat the rights of the applicant. When the shares of the other companies were transferred, there was no grievance or complaint with regard to non-compliance with articles 59 to 63 of the articles of association of the company under liquidation nor is the plea with regard to lack of quorum raised at that time.
Having considered the rival versions in their entirety, I am of the opinion that it is not as if the interveners have raised the issue of holding of meeting on March 3, 1990, passing the resolution thereat with regard to transfer of 3,498 shares, drawing up the minutes on loose papers, but it is the applicant who has pleaded all this in his affidavit in support. Once it is doubtful whether there was any transfer of shares and once I am of the opinion that the applicant is raising the issue with regard to his right''s as transferee of shares, the shareholder of the company under liquidation after a lapse of more than 18 years from the date of the alleged meeting, then, all the more this company application cannot be entertained. I have only highlighted the controversy between the parties and it is not as if this court is disinclined to consider the request because of the pendency of a civil suit. The reasons that have been assigned for approaching this court after such a long duration having not found to be satisfactory, I am of the view that the applicant is disentitled to any reliefs as prayed in this company application.
After this material is perused by me, 1 am of the opinion that there is no explanation for the lapse on the part of the applicant in not pressing the claim earlier. If the claim was indeed admitted and beyond doubt, then, there was no reason for the applicant to maintain silence for all these years. In any event, the claim is not admitted, but disputed one. That there is dispute is clear from the contents of the affidavit in support and particularly the affidavits that have been filed in reply and rejoinder. There is a civil suit pending with regard to the transfer of shares. It is in these circumstances that I am of the opinion that the applicant cannot be granted any relief in this company application.
Once the above view is taken, there is no necessity of referring to all decisions that have been brought to my notice. I am proceeding on the basis that the transfer of shares is a matter which can be dealt with and is covered by section 536(2) of the Companies Act, 1956 and the same principles which apply with regard to the dispositions of property would apply and govern the transfer of shares or alteration in the status of the members. However, finding that the claim is belated, there being unexplained and erroneous delay in raising it, so also, it being highly disputed, that it will not be possible to grant any relief on this application. If the claim was not belated as referred to above, possibly all other aspects could have been gone into and then a view in favor of the applicant on other aspects could have been taken. However, finding that the parties are involved in litigation in relation to the very transaction and that it is not a case of admitted transfer of shares on the own showing and going by own version of the applicant, that the company application fails. It is dismissed. In the circumstances, there will be no order as to costs.