2009 (10) TMI 532 - HC - Companies Law

Rectification in the register of members of the company - Held that - There is a great distinction between the first appellant being a member of the company and having locus to maintain a petition for rectification within the scope of section 111 of the Act and the first appellant being entitled to challenge the legality of the claim for ownership put forth, by the second and the fourth respondent, on the basis of the transfer forms sent by the erstwhile owner/member and that question could become an issue only at the instance of the legal heir of the deceased person and not at the instance of a person like the first appellant herein, who is an outsider to the question. Thus the petition filed by the first appellant herein along with other appellants did not merit examination before the Company Law Board within the scope of a petition under section 111 of the Act and the Company Law Board has rightly dismissed such a petition.

Summary

Issues Involved:
Rectification of share transfer register under section 111 of the Companies Act, 1956.

Detailed Analysis:

1. Rectification Jurisdiction Invoked:
The appellants sought rectification of the register of members of the company under section 111 of the Companies Act, 1956. They claimed that a significant number of shares were transferred to respondents after the demise of the original owner, making the transfer invalid in law.

2. Ownership Transfer Dispute:
The petitioners argued that ownership of shares should have passed to legal heirs after the demise of the original owner, and the transfer to respondents was flawed. They contended that the Company Law Board erred in concluding that ownership had validly transferred to the respondents before the death of the original owner.

3. Pre-emptive Rights of Members:
The issue of pre-emptive rights of members was raised, with the appellants asserting that the transfer to respondents violated the articles of association of the company. The Company Law Board was urged to recognize the pre-emptive rights of existing shareholders, which were allegedly not considered in the impugned order.

4. Estoppel and Share Transfer Decision:
The argument of estoppel was raised concerning the first appellant's involvement in the decision to transfer shares to respondents. It was contended that the first appellant, being part of the management, could not now challenge the transfer and claim violation of pre-emptive rights.

5. Legal Heirs' Rights and Civil Court Jurisdiction:
The judgment highlighted the distinction between a member's right to seek rectification under section 111 and the challenge to ownership claims by legal heirs. It was concluded that the question of ownership validity could only be examined by a civil court at the instance of legal heirs, not by an outsider like the first appellant.

6. Dismissal of Petition and Costs Imposition:
Ultimately, the court dismissed the appeal at the admission stage, upholding the Company Law Board's decision to dismiss the rectification petition. The appellants were directed to pay costs to the represented respondents, emphasizing that the legal issues raised were not within the purview of section 111 and should be addressed through a different legal avenue.

By analyzing the judgment in detail, it is evident that the court thoroughly considered the legal arguments presented by both parties and provided a reasoned decision based on the interpretation of the Companies Act and relevant legal principles.