AI Structured Summary
Not yet generated for this judgment
Judgment
Due to commonality of law and similarity of facts, both these appeals arc being disposed of by this common order.
The appellant T.G. Veera Prasad . and the appellant Tungiibhadra Machinery and Tools Limited (for short, TMTL'') possessed 40000 equity shares and 50000 equity shares respectively in Sree Ray a I as ee ma Alkalies and Allied Chemicals Ltd. {for short, ''the Company''). The second respondent was its Managing Director at the relevant time. On 1-2-1998 he had floated a private limited company namely Brilliant Investments Private Limited (for short ''Brilliant'')-the third respondent-with his wife and children controlling 99 percent of its share capital. On 21-6-1998, 50,00,000 shares of one TGL Group of which the appellants are also members, were transferred to the third respondent including 40000 shares of the appellant T.G. Veera Prasad and 50000 shares of TMTL.
The appellant T.G. Veera Prasad filed a petition in CP 2/111/SRB/91 alleging that all the shares belonging to the TGL Group together with blank transfer forms were entrusted to the 2nd respondent for the purpose of pledging them, if so required, with the financial institutions and banks, only for raising finances, but the 2nd respondent commifted breach of trust and misappropriated them surreptitiously by transferring the said shares to the third respondent without payment of any consideration to the original share holders. The third respondent had no funds to purchase the shares in question. The Company without making proper investigation regarding the genuineness of the transaction and without sufficient cause omitted the names of the members of the Company and entered the name of the transferee in the register of the members of the Company.
Making similar allegations, the appellant TMTL had also filed CP 3/111/SRB/91. It has been further alleged that the annual general meeting of the Company was to be held an 24-6-1998 and the transfer was effected just three days in advance and, therefore, the shares could not be transferred as the Company was to announce book closure. During book closure, the Company could not have effected the registration. Being the listed Company, the shares should have been dealt with through stock exchange and there is violation of Section 13 of the Securities Contracts (Regulation) Act, 1956." It does not appear that in the share transfer committee''s resolution, the interested Director had taken part. The appellant TMTL had not given any authority to the appellant T.G. Veera Prasad to dispose of these impugned shares and the alleged resolution of the appellant TMTL dated 15-6-1998 is a fabricated document as no meeting of the Board was held on thai day. One Bhupendra R. Shah, who was the commercial Director of the appellant TMTL, had signed the balance sheet of the appellant TMTL upto 1991 wherein the investment in these shares were shown to be held in the name of the appellant TMTL and, therefore, the copy of the alleged resolution dated 15-6-1988 signed by him only as a true copy, is a concocted document. The letter dated 18-6-1988 regarding the payment of consideration signed by Bhupendra R. Shah is a fabricated document. The provisions of Section 108(1A) of the Companies Act have been violated.
The respondents No.1 to 3 through separate counters denied the allegations. The Company pleaded that the transfer instruments were proper and were accompanied by share certificates and, therefore, the share transfer committee approved the registration of shares. The 2nd respondent has not taken part in these proceedings. The Company had registered the transfers with sufficient cause and, therefore, the appellants cannot invoke the provisions of Section 111 of the Companies Act particularly after a period of three years from the date of registration. The Company being the listed Company was not competent to refuse registration of transfer as none of the grounds under which a listed Company could refuse registration u/s 22A(3) of the Securities Contracts (Regulation) Act, 1956 was satisfied. The second respondent adopting the counter of the Company further denied the allegation that the impugned shares were entrusted to him to be kept only for the purpose of pledging them for raising funds in the hour of need. He also pleaded that the shares of the TGL Group were transferred in favour of the 3rd respondent, that is Brilliant, as quid pro quo for the shares of the Company transferred by the 2nd respondent in favour of the TGL group. The 3rd respondent, that is Brilliant, pleaded that it is not a necessary party to the proceedings. On 17-6-1988, the appellant T.G. Veera Prasad as its Director had executed transfer forms in respect of the impugned shares of the appellant TMTL. On 13-6-1988 and on 19-6-1988, he had executed the transfer deeds in respect of the shares held by him for consideration. The shares were handed over to the 3rd respondent, Brilliant, which has forwarded the same to the first respondent Company for registration. On 6-6-1988 TMTL had written a letter to the 3rd respondent-Brilliant to pay the scale proceeds of Rs.1,50,000/- to the 1st respondent-Company to be credited/adjusted against the 1st respondent Company and on the basis of that letter, the amount was paid to the first respondent-Company. The appellant T.G. Veera Prasad had instructed the 3rd respondent-Brilliant for payment of consideration of his shares to the 1st respondent-Company.
The Company Law Board held that the applications filed by the appellants are not barred by limitation. It narrated the arguments of the learned Counsel of the Parties to the applications and observed that the Company has filed the resolution of the Board of the appellant TMTL dated 15-6-1988 authorising the appellant T.G. Veera Prasad to dispose of its impugned shares, that the appellants have also filed copy of the resolution of the Board meeting of the appellant TMTL, that the genuineness of the letter dated 18-6-1988 for adjustment of consideration has been questioned, that the respondents have filed two affidavits in which the deponents have proved the signatures of the appellant T.G. Veera Prasad to transfer instrument, that the entrustment of the shares to be used only for raising money is alleged to be oral, that there were contradictions in the replies filed by the respondents regarding the mode and nature of payment and that the capacity of the 3rd respondent-Brilliant to invest the amounts in question has also to be examined. The Company Law Board held that these are the complicated questions of fact which can be decided only by recording oral evidence and this exercise cannot be done in summary proceedings and, therefore, dismissed both the applications. The Company Law Board observed that the appellants may file civil suits, if so advised.
Feeling aggrieved by the impugned order of dismissal of the applications, T.G. Veera Prasad has preferred appeal 5/1995 while TMTL has preferred appeal 6/1995.
At the outset, it is to be remarked that arguments on the question of limitation have not been advanced by the learned Counsel of the parties to the appeals and, therefore, 1 am not concerned with the plea of limitation raised by the respondents before the Company Law Board, and decided in favour of the appellants.
Before I proceed further, it would be beneficial to reproduce the relevant passages extracted from the case of M/S. Ammonia Supplies Corporation (P) Ltd. Vs. M/S. Modern Plastic Containers Pvt. Ltd. and Others, .
"...... in order to qualify for rectification, every procedure as prescribed under the Companies Act before recording the name in the register of the Company has to be stated to have been complied with by the applicant at least that part as required by the Act and assertion of what not complied with under the Act and rule by the person or authority of the respondent-Company before applicant to claim for the rectification of such register. The Court has to examine on the fact of each case, whether an application is for rectification or something else. Superficial or peripheral jurisdiction of the Court under it would be what comes under rectification not projected, claims under the garb of rectification. So far exercising of power for rectification within its field there could be no doubt the Court as referred u/s 155, it is the Company Court alone which has the exclusive jurisdiction.
Question for scrutiny before us is the peripheral field within which Court could exercise its jurisdiction for rectification. As aforesaid the very word "rectification" connotes something what ought to have been done but by error not done and what ought not to have been done was done requiring correction. Rectification in other words, is the failure on the part of the Company to comply with the directions under the Act. To show this error the burden is on the applicant, and to this extent any matter or dispute between persons raised in such Court, it may generally decide any matter which is necessary or expedient to decide in connection with the rectification.
Both under the 1913 Act and 1960 Act a procedure is prescribed for admitting a person as member by purchase or transfer of shares of that Company. With reference to 1913 Act u/s 29, a certificate of shares or stock shall be prima facie evidence of the title of the number of the shares or Stock therein. Section 30 defines "member" to be one who agrees to become a member of a Company and whose name is entered in its register. Section 31 is to keep register of its members. Section 34 deals with transfer of shares and application for the registration of the transfer of shares is to be made, either by the transferor or the transferee. Where such application is made by the transferor for registration of his share a registered notice is to be sent to the transferee. Section 34(3) restricts to register a transfer share until the instrument of transfer duly stamped and executed by the transferor and transferee has been delivered to the Company. Thus before the name of any transferee is registered these procedures have to be shown to have been followed, which is an obligation of any such applicant under the Act. This shows an application is to be made either by the transferor or transferee for registering the name of the transferee as members or share holders of the Company by placing before the Company duly stamped and signed documents both by the transferor and transferee. Similarly is the position u/s 155 of Indian Companies Act, 1960 before power is exercised for rectification essential ingredients are to exist. Section 108 gives mandate to a Company not to register transfer of shares, unless proper instrument of transfer duly stamped and executed by or on behalf of the transferor and by or on behalf of the transferee has been delivered to the Company along with certificates relating to the shares.
All the above indicates the limitation and the peripheral jurisdiction with which Court has to act. Inspite of its exclusiveness it cannot take within its lap outside this scope of rectification. This is indicated even by Section 155 itself :
"Section 155 : Power of Court to rectify Register of Members -
(1) If-
(a) the name of any person -
(i) is without sufficient cause, entered in the Register of Members of a Company, or
(ii) after having been entered in the register, is, without sufficient cause, omitted therefrom, or
(b) default is made, or unnecessary delay takes place, in entering on the register the fact of any person having become, or ceased to be a member ;
the person aggrieved, or any member of the Company, or the Company, may apply to the Court for rectification of the Register.
Sub-section (1)(a) of Section 155 refers to a case where the name of any person without sufficient cause entered or omitted in the Register of Members of a Company. The word ''sufficient cause'' is to be tested in relation to the Act and the Rules. Without sufficient cause entered or omitted to be entered means done or omitted to do in contradiction of the Act and the Rules or what ought to have been done under the Act and the Rules but not done. Reading of this sub-clause spells out the limitation under which the Court has to exercise its jurisdiction. It cannot be doubted inspite of exclusiveness to decide all matter pertaining to the rectification it has to act within the said four corners and adjudication of such matter cannot be doubted to be summary in nature.
So, whenever a question is raised Court has to adjudicate on the facts and circumstances of each case. If it truly is rectification, all matter raised in that connection should be decided by the Court u/s 155 and if it finds adjudication of any matter not falling under it, it may direct a party to get his right adjudicated by Civil Court. Unless jurisdiction is expressly or implicitly barred under a statute, for violation or redress of any such right civil Court would have jurisdiction. There is nothing under the Companies Act expressly barring the jurisdiction of the Civil Court, but the jurisdiction of the ''Court'' as defined under the Act exercising its power under various sections where it has been invested with exclusive jurisdiction, the jurisdiction of the civil Court is implicdly barred. We have already held above the jurisdiction of the ''Court'' u/s 155, to the extent it has exclusive, the jurisdiction of civil Court is impliedly barred. For what is not covered as aforesaid the Civil Court would have jurisdiction.
............. So we conclude the principle of law as decided by the High Court that jurisdiction of the Court u/s 155 is summary in nature cannot be faulted with."
By the Companies (Amendment) Act, 1988, Section 155 of the Act has been omitted from the Act with effect from 31-5-1991 and now u/s 111 of the Companies Act, the power to rectify the register of members of a Company has been vested in the Company Law Board.
The position of law thus emerges from the case of M/s. Ammonia Supplies (supra) is that u/s 111 of the Companies Act, 1956, proceeding is summary in nature. The Company Law Board has to examine on the facts of each case whether it is an application for rectification or something else. In order to qualify for rectification, every procedure as prescribed under the Companies Act, before recording the name in the register of Company, has to be complied with. Without sufficient cause, the name of any person entered in the Register of Company can neither be entered in the register of members of the Company nor can be omitted therefrom. The Company Law Board should decide all matters pertaining to rectification but has to act within the provisions of the Act and the Rules. The Company Law Board should decide alt matters in that connection u/s 111 of the Companies Act and if it is found that the matter in question does not fall under it, ihen only, it may direct a party to get its right adjudicated by Civil Court.
It has been urged on behalf of the respondents that allegations against the second respondent have been made that he had misused the alleged blank transfer forms duly signed by the concerned shareholders and, therefore, the appellants may take action against the 2nd respondent and on account of his alleged misconduct it cannot be said that the Company had not entered in the register of members of the Company the name of the third respondent-Brilliant without sufficient cause.
True that allegations regarding misuse of blank transfer forms have been made against the 2nd respondent but it is equally true that there are other allegations made in both the applications which, if proved, may establish that the names of the appellants were omitted without sufficient cause. Similarly if it is proved that the blank transfer forms have been actually misused by the second respondent, . it would definitely have an effect on the validity of the transfer of shares and consequently may affect the decision of the Company of making necessary entries in the Register of its members. Under thes�. circumstances, I am unable to accept the contentions of the learned Counsel of the respondents that the applications deserve to be dismissed merely on the ground that allegations against the second respondent have been made by the appellants.
Whether the third respondent-Brilliant had capacity to pay the consideration at the relevant time or not is a question which can be prima facie decided on perusal of its balance sheet of the relevant year. Whether the appellant T.G. Veera Prasad was duly authorised by the appellant TMTL to dispose of the impugned shares or not could also be decided on the basis of the resolutions of the appellant TMTL. Whether the authority letters for the alleged adjustment bear the signature of the appellants or not could be verified by the Company Law Board, at least prima facie, by comparing the disputed signatures with the admitted signatures. Similarly whether the appellants owed monies to the Company or not is also a question of fact which can be verified from a perusal of the record of the first respondent-Company. Whether during the book closure period, the first respondent-Company could have effected the registration and whether it being a listed Company the shares should have been dealt with through stock exchange or not are also the questions which can be considered and decided by the Company Law Board. What value is to be attached to the affidavit of B.R. Shah of 30-8-1998 also appears to be a thing to be decided by the Company Law Board on the basis of his signing the balance-sheet of the appellant TMTL upto 1991.
As noted above, the Company Law Board has reproduced the arguments of the learned Counsel of the parties to the applications, referred certain documents and then recorded a finding that complicated questions of fact in both the applications cannot be decided merely on the basis of the affidavits and oral evidence would be required to be recorded for adjudication of the rival claims. The Company Law Board has not recorded a finding whether proper procedure prescribed under the Companies Act and the Rules has been complied with or not before recording the name of the third respondent-Brilliant in the register of members of the Company. In my opinion, the Company Law Board should have for itself seen whether on the basis of the material on record and on perusal of the affidavits and circumstantial evidence, it can be concluded that without sufficient cause the name of the third respondent-Brilliant has been entered in the register of members of the Company after omitting the names of the appellants or not.
The Company Law Board in the concluding paragraph of its order has observed that in many cases the Company Law Board had proceeded to decide the case finally on the basis of the affidavits and the documents. u/s 10(E) of the Companies Act, the Company Law Board is empowered to summon witnesses. The Company Law Board has not recorded a finding as to whether the case comes within the purview of Section 111 of the Companies Act, 1956 or not. The Company Law Board, under the aforementioned circumstances of the case, is directed to decide whether the cases come within the scope of rectification or not, keeping in view of the above observations made by me and in particular in the light of the law laid down by the Apex Court in the case of M/s. Ammonia Supplies (supra), after giving reasonable opportunity to the parties to the appeals and after perusing the relevant records. In case the Company Law Board conies to the conclusion that the cases come u/s 111 of the Companies Act, then, it should treat the affidavits on record as examination-in chief of the deponents and such deponents may be summoned for the purpose of cross-examination. Assistance of hand writing expert may also be taken to decide whether the signatures on the documents in question are genuine 6Y not. Because the matter is pending since 1991, it is appropriate to direct the Company Law Board to decide the matter expeditiously. The appeals are thus partly allowed and the cases are remanded to the Company Law Board for decision afresh according to law. Costs as incurred.