1984 (10) TMI 171 - HC - Companies Law

Shares warrants and entries in register of members, Transfer of Shares Power to refuse registration and appeal against refusal,Powers of Court to rectify register of members

Issues Involved:
1. Petition under Section 155 of the Companies Act, 1956
2. Dispute over the transfer of 40 shares
3. Rejection of transfer by the Board of Directors
4. Pending litigation and its impact on the transfer
5. Laches and delay in seeking relief
6. Legality of the transfer and the company's refusal
7. Jurisdiction of the court under Section 155
8. Application by Madhava Murthy to implead himself in the proceedings

Issue-wise Detailed Analysis:

1. Petition under Section 155 of the Companies Act, 1956
The petitioners filed under Section 155 of the Companies Act, 1956, seeking an order to direct the respondent company to recognize the transfer of 40 shares and make the necessary alterations in the register of members. The court noted that Section 155 provides a remedy for rectification of the register when there is a default or unnecessary delay in entering the fact of any person having become or ceased to be a member.

2. Dispute over the transfer of 40 shares
The shares were originally held by M.L. Manjunatha Setty, who transferred 40 of his 50 shares to the petitioners via share transfer forms dated September 7, 1968. The petitioners argued that the company had failed to register this transfer, despite the transferor's request, and that this constituted a continuing default under Section 150 of the Act.

3. Rejection of transfer by the Board of Directors
The Board of Directors of the respondent company unanimously rejected the transfer applications in November 1968, citing that the conduct of Manjunatha Setty was prejudicial to the interests of the company. The petitioners contended that this rejection was not based on any valid grounds permissible under the law or the articles of association, and thus was mala fide, motivated, and illegal.

4. Pending litigation and its impact on the transfer
There was ongoing litigation involving the estate of Manjunatha Setty, including a partition suit in the City Civil Court, Bangalore. The respondent company argued that this pending litigation created a cloud over the title of the shares, and thus the petitioners lacked the locus standi to maintain the petition. The court, however, found that the pending litigation did not bar the registration of the transfer, as there was no interim order restraining it.

5. Laches and delay in seeking relief
The respondent company argued that the petition was belated and that the petitioners were guilty of laches. The court, however, found the petitioners' explanation for the delay reasonable, given the ongoing litigation and family disputes. The court emphasized that the default by the company was a continuing cause of action, allowing the petitioners to seek rectification at any time.

6. Legality of the transfer and the company's refusal
The court found that the company had no legal or tenable reason to refuse the transfer, as the instruments of transfer were not disputed, and the reason for refusal was capricious. The court noted that under Sections 108 and 110 of the Act, both the transferor and transferee could seek registration of the transfer, and the rights of the transferee did not depend on the conduct of the transferor.

7. Jurisdiction of the court under Section 155
The court emphasized its wide powers under Section 155 to rectify the register of members, including the authority to decide questions of title and other ancillary issues. The court cited precedents to support its jurisdiction to grant relief even if there were pending disputes over the title of the shares.

8. Application by Madhava Murthy to implead himself in the proceedings
Madhava Murthy, the son of Manjunatha Setty's first wife, sought to implead himself in the proceedings, claiming a share in the estate. The court rejected his application, noting that he was not a necessary or proper party to the petition, as his dispute was with the petitioners and was already being litigated in a separate suit.

Conclusion:
1. Petitioners are entitled to maintain this petition.
2. Respondent company cannot dispute the legality of the transfer of 40 shares in 1968.
3. Refusal to register the transfer in 1968 was unjustified and mala fide and, therefore, non est in law.
4. O.S. No. 405 of 1980 pending in the City Civil Court of Bangalore is not a bar for registering the transfer in question.
5. Respondent company is precluded from raising the question of qualification of petitioners to be members of the company in the light of its willingness to transmit the shares in question to the petitioners as heirs of late Manjunatha Setty as expressed in the memo filed in court on April 11, 1984.

The court directed the respondent company to register the transfer of shares within 30 days, subject to the final decree in the pending civil suit. The petitioners were granted future benefits of the shares, and no exemplary costs were awarded to encourage reconciliation within the family.

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