1988 (1) TMI 303 - HC - Companies Law

Summary

Issues Involved:
1. Validity of the transfer of 3,417 and 93 shares.
2. Compliance with the Articles of Association.
3. Validity of the increase in share capital and allotment of 17,666 shares.
4. Allegations of mala fide intentions and conflict of interest.
5. Delay, acquiescence, and estoppel claims.
6. Remedies and reliefs sought by the petitioners.

Detailed Analysis:

1. Validity of the Transfer of 3,417 and 93 Shares:
The petitioners challenged the transfer of 3,417 shares and 93 shares by respondents Nos. 2, 3, and 4 to respondents Nos. 5, 6, 8, 11, 12, 13, and 14. The court found that the transfer forms were not signed by all executors, specifically the first petitioner, violating section 108 of the Companies Act. The court held that the transfer was illegal and void, as the forms were not in compliance with the mandatory provisions of the Act.

2. Compliance with the Articles of Association:
Articles 57A to 65 of the company's Articles of Association govern the transfer of shares. Article 57A provides a right of pre-emption to the first petitioner. The court noted that the respondents failed to comply with these provisions, particularly by not allowing the second petitioner to exercise her right to purchase the shares. The court concluded that the sale of shares was in contravention of the Articles and, therefore, invalid.

3. Validity of the Increase in Share Capital and Allotment of 17,666 Shares:
The petitioners also challenged the increase in share capital and the subsequent allotment of 17,666 shares to respondents Nos. 11, 12, 13, 15, and 16. The court found that the increase in share capital and allotment were done in a manner that was not in the best interest of the company and were intended to corner the shares. The court held that the issuance and allotment of these shares were illegal and could not be sustained.

4. Allegations of Mala Fide Intentions and Conflict of Interest:
The court observed that respondents Nos. 2, 3, and 4 had entered into an understanding with respondent No. 5 to transfer controlling interest in the company. This was done without considering the interest of the company and with the intention of bypassing the Articles of Association. The court concluded that the actions of the respondents were mala fide and not in the best interest of the company.

5. Delay, Acquiescence, and Estoppel Claims:
Respondents argued that the petitioners had acquiesced to the transfer and allotment of shares by participating in board meetings and not raising timely objections. The court rejected this argument, noting that the petitioners had consistently protested against the actions of the respondents and had filed a suit challenging the transfers. The court held that there was no delay, acquiescence, or estoppel that would bar the petitioners from seeking relief.

6. Remedies and Reliefs Sought by the Petitioners:
The court ordered the rectification of the share register to reflect the invalidity of the transfer of 3,417 and 93 shares and the allotment of 17,666 shares. The court directed the petitioners to deposit Rs. 80,73,000 within six weeks as a condition for the order to become operative. The court also ordered the respondents to comply with the rectification and to return the 17,666 shares to the company. The petitioners were granted the reliefs sought, subject to the deposit of the specified amount.

Conclusion:
The court found that the transfer of 3,417 and 93 shares and the allotment of 17,666 shares were illegal and void. The actions of the respondents were held to be mala fide and not in compliance with the Articles of Association. The court ordered rectification of the share register and directed the petitioners to deposit Rs. 80,73,000 to make the order operative. The petitioners' rights were upheld, and the respondents were directed to comply with the court's orders.