1996 (4) TMI 375 - HC - Companies Law

Issues Involved:
1. Locus standi of the petitioners.
2. Relegation to suit.
3. Violation of undertaking given to Company Law Board (CLB) in C.P. No. 29 of 1992.
4. Sale of shares as a sale of the undertaking.
5. Violation of section 84(2) of the Companies Act and Companies (Issue of Share Certificates) Rules, 1960.
6. Removal of the name from the Register of Members without sufficient cause.
7. Prayer for rectification of the Register of Members.

Issue-wise Detailed Analysis:

1. Locus Standi of the Petitioners:
The CLB held in favor of the petitioners, affirming their right to present the petition. The petitioners, being shareholders and having a substantial interest in the companies involved, were deemed to have the necessary standing to challenge the actions of the respondents.

2. Relegation to Suit:
The CLB found against the petitioners, deciding that the matter need not be relegated to a civil suit. The Board determined that sufficient material was available to adjudicate the issues within the summary procedure under section 111 of the Companies Act, thus negating the need for a more extensive civil trial.

3. Violation of Undertaking Given to CLB in C.P. No. 29 of 1992:
The CLB found against the petitioners, concluding that the undertaking given by the second respondent in C.P. No. 29 of 1992 did not survive the disposal of the petition. The undertaking was specific to the proceedings of that petition and did not extend beyond its resolution.

4. Sale of Shares as a Sale of the Undertaking:
The CLB found against the petitioners, determining that the sale of shares by the second respondent did not constitute a sale of the undertaking. The Board differentiated between the sale of shares and the sale of the company's undertaking, finding no violation in the sale of shares.

5. Violation of Section 84(2) of the Companies Act and Companies (Issue of Share Certificates) Rules, 1960:
The CLB found in favor of the petitioners, holding that the issuance of duplicate share certificates by the first respondent was against the law. The Board highlighted the lack of proper investigation and adherence to statutory requirements before issuing the duplicate certificates, thereby invalidating the issuance process.

6. Removal of the Name from the Register of Members Without Sufficient Cause:
The CLB found in favor of the petitioners, concluding that the removal of the second respondent's name from the Register of Members and the subsequent entry of respondents 17 to 19 were done without sufficient cause. The Board noted the collusion and fraudulent actions of the directors of respondents 1 and 2, which led to the improper removal and entry.

7. Prayer for Rectification of the Register of Members:
The CLB granted the prayer for rectification, directing the removal of the names of respondents 17 to 19 from the Register of Members and the re-entry of the second respondent's name. The Board found that the transferees (respondents 17 to 19) were not bona fide purchasers for value without notice and that the issuance of duplicate certificates and the subsequent transfer were fraudulent and collusive.

Conclusion:
The High Court upheld the CLB's findings on issues 1, 5, 6, and 7, affirming the petitioners' locus standi, the illegality of the duplicate certificates, the improper removal from the Register of Members, and the need for rectification. The Court dismissed the appeals challenging these findings, thereby supporting the CLB's decision to rectify the Register of Members and reinstate the second respondent's name. The Court also modified the CLB's direction regarding the repayment to respondents 17 to 19, stating that the second respondent-company was not liable to pay any amount, and respondents 17 to 19 could pursue appropriate proceedings against the directors if necessary.

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