1992 (1) TMI 285 - HC - Companies Law

Shares warrants and entries in register of members Powers of Court to rectify register of members

Issues Involved:
1. Whether respondents Nos. 3 to 6 have proved that the petitioners sold and transferred their shares to them for valuable consideration?
2. Whether the transfer of shares of the petitioners was effected in accordance with law? If not, whether it is valid in law?
3. Whether it is just and proper to go into the transfer of shares of other members of the company who are not before the court and grant rectification of the register of the members of the first respondent-company relating to those shareholders?
4. Whether the order under appeal is sustainable in law and on facts?
5. To what reliefs the petitioners/appellants are entitled?

Summary:

Point No. 1:
The court analyzed the evidence presented by both parties regarding the alleged transfer of shares. The petitioners denied transferring their shares and claimed they did not receive any consideration. The respondents, on the other hand, argued that the petitioners had transferred their shares through respondent No. 2 and received consideration. The court found that the evidence provided by the respondents was insufficient to prove that the petitioners had transferred their shares for valuable consideration. The court concluded that the burden of proof was on the respondents to establish the transfer of shares, which they failed to do. Therefore, the court held that the transfer of shares by the petitioners was not proved.

Point No. 2:
The court examined whether the transfer of shares was effected in accordance with law. It was found that the share transfer forms were not duly stamped as required by section 108(1) of the Companies Act, 1956, and section 12 of the Karnataka Stamp Act. The court held that the non-cancellation of the stamps affixed on the transfer forms rendered the instruments invalid. Consequently, the court concluded that the transfer of shares was not valid in law, and the petitioners continued to be shareholders of the first respondent-company.

Point No. 3:
The petitioners sought rectification of the register of members of the first respondent-company not only for themselves but also for other shareholders who were not before the court. The court held that it was not just and proper to go into the transfer of shares of other members who were not parties to the petition. The court emphasized that those shareholders must be given an opportunity to express their willingness to continue as members of the company and refund the consideration received for the transfer of shares. Therefore, the court declined to grant rectification of the register of members for shareholders other than the petitioners.

Point No. 4:
In light of the findings on points Nos. 1 to 3, the court held that the order passed by the learned company judge could not be sustained in law and on facts.

Point No. 5:
The appeals were allowed in part. The court set aside the order under appeal and declared the transfer of shares by the petitioners to respondents Nos. 3, 5, and 6 as invalid and null and void. The court directed that the register of members of the first respondent-company be rectified to show the petitioners as members with the shares held by each of them. The court also left open the other reliefs sought in the petition to be urged in Company Petition No. 48 of 1987. The parties were directed to bear their own costs throughout.

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