2000 (7) TMI 913 - HC - Companies Law

Summary

Issues Involved:
1. Injunction restraining defendant No. 1 from exercising rights over 1,31,930 shares.
2. Appointment of a receiver for the said shares.
3. Validity of the transfer of shares without registration in the company's books.
4. Plaintiff's locus to file the suit and lien over the shares.
5. Payment of dividends and recognition of shareholding.

Issue-wise Detailed Analysis:

1. Injunction Restraining Defendant No. 1 from Exercising Rights Over 1,31,930 Shares:
The plaintiff, a public limited company, sought an injunction to prevent defendant No. 1 from exercising membership rights over 1,31,930 shares, claiming these shares were sold to defendants Nos. 2 and 3. The court noted that the shares were indeed sold and the transfer documents lodged with the plaintiff-company, but the transfer was not registered in the company's books. The court emphasized that under the Companies Act and the company's articles of association, the transfer must be registered to be valid against the company. Despite the sale, defendant No. 1 continued to be recognized as the holder of the shares, and the plaintiff had paid dividends to defendant No. 1 for all the shares, undermining the claim for an injunction.

2. Appointment of a Receiver for the Said Shares:
The plaintiff also sought the appointment of a receiver for the 1,31,930 shares. The court found no grounds for such an extreme measure, noting that the plaintiff failed to demonstrate acts of waste or other justifications for appointing a receiver. The court highlighted that both parties had contributed to the situation by not taking necessary actions regarding the registration of the transfer.

3. Validity of the Transfer of Shares Without Registration in the Company's Books:
The court examined the relevant provisions of the Companies Act and the articles of association, concluding that while the transfer of shares between the transferor and transferee was complete, it was not effective against the company until registered. The legal title remained with the transferor (defendant No. 1), who continued to hold the shares in the company's records. The court cited precedents affirming that the transferee becomes the beneficial owner but the transferor retains legal title until registration.

4. Plaintiff's Locus to File the Suit and Lien Over the Shares:
The defendants contested the plaintiff's locus to file the suit, arguing that the company had no lien over the shares and the dispute was between members. The court found that the plaintiff-company's failure to register the transfer or take action on the lodged transfer documents weakened its position. The plaintiff's actions, including paying dividends to defendant No. 1 and listing it as the holder of all shares, contradicted its claim.

5. Payment of Dividends and Recognition of Shareholding:
The court noted that the plaintiff had paid dividends to defendant No. 1 for the entire 1,75,906 shares and listed defendant No. 1 as the holder in its records. This conduct was inconsistent with the plaintiff's claim that defendant No. 1 no longer held the 1,31,930 shares. The court emphasized that the plaintiff must act with clean hands and show bona fides when seeking equitable relief.

Conclusion:
The court dismissed both appeals, finding that the plaintiff failed to make a prima facie case for injunction or appointment of a receiver. The court observed that both parties had contributed to the situation and suggested that the defendants could apply to the Company Law Board for directions regarding the registration of the transfer. The court concluded that no injunction or receiver was necessary, and the appeals were dismissed with no costs.