2008 (11) TMI 395 - HC - Companies Law

Transfer of shares - right of third parties - Held that - There can be no dispute with regard to the relevancy of the factual details relating to those who claim a right to shares in question or the jurisdiction of the Company Law Board to make such a direction in the light of the above discussion. Consideration of such a request be only after giving an opportunity to the other side i.e., the present appellant to object to the same. The Company Law Board has to consider whether such order can be legally passed. The rights of the third parties would require to be considered. Certainly details of information sought to be produced has to be furnished to the appellant and he is legally entitled to be heard before an order of production can be passed on the issue. Accordingly, the order dated 8-3-2007 is set aside and the matter is remanded for fresh consideration to the Company Law Board. The parties shall appear before the Company Law Board on 24-11-2008 at 3 p.m. for further directions.

Issues Involved:
1. Ownership of 7500 equity shares.
2. Prohibitory injunction against the transfer of shares.
3. Proceedings under Section 111A of the Companies Act, 1956.
4. Objections regarding limitation, misjoinder, and non-joinder of necessary parties.
5. Order passed by the Company Law Board on 8-3-2007.

Issue-Wise Detailed Analysis:

1. Ownership of 7500 Equity Shares:
The respondent company claimed ownership of 7500 equity shares of the appellant company purchased in 1994, with specific certificate numbers listed. The respondent informed the appellant via a registered letter dated 5-12-1994 that these share certificates were either lost or mislodged and requested the appellant not to transfer the share certificates.

2. Prohibitory Injunction Against the Transfer of Shares:
The respondent filed Suit No. 3540/1995 in the Ahmedabad City Civil Court seeking a prohibitory injunction to prevent the appellant from transferring the 7500 equity shares to any third party. The court granted an ex parte order on 30-6-1995, prohibiting the appellant from transferring the shares. The appellant contended that it strictly abided by this order.

3. Proceedings Under Section 111A of the Companies Act, 1956:
In July 2005, the respondent initiated proceedings under Section 111A of the Companies Act, 1956, before the Company Law Board, registered as Company Petition No. 7/111/05-CLB. The respondent sought reliefs including a declaration of ownership of the 7500 equity shares, rectification of the Register of Members, damages, and costs.

4. Objections Regarding Limitation, Misjoinder, and Non-joinder of Necessary Parties:
The appellant contested the petition, raising objections that it was barred by limitation and suffered from misjoinder of parties and non-joinder of necessary parties. The appellant specifically objected that the shares were registered in the names of various shareholders who had not been made parties to the petition. The respondent countered by stating it lacked the requisite information to implead these third parties and had repeatedly requested the appellant and their Registered and Transfer Agent (RTA) for details, which were not furnished.

5. Order Passed by the Company Law Board on 8-3-2007:
The appellant was aggrieved by the Company Law Board's order dated 8-3-2007, which directed the appellant to provide requisite details to the respondent within three weeks. The appellant contended that the order was passed without an application from the respondent and without a hearing. The respondent argued that the order was necessary to address the objection regarding misjoinder of parties and to ensure justice. The court noted that the order did not specify what constituted "requisite details" and was passed without hearing the appellant.

Conclusion:
The court found that the order dated 8-3-2007 was passed in violation of the appellant's right to be heard. The order was set aside, and the matter was remanded for fresh consideration to the Company Law Board. The respondent was directed to withdraw the civil suit filed at the City Civil Court within four weeks. The appellant was instructed not to transact with the shares in question until the Company Law Board heard any application for interim relief within four weeks. The court emphasized the importance of considering the rights of third parties and the necessity of adding or deleting parties at any stage of the proceedings to ensure complete and effective adjudication.

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