2002 (9) TMI 837 - Board - Companies Law

Issues Involved:
1. Validity of the transfer of shares.
2. Compliance with the mandatory provisions of the Companies Act.
3. Adherence to the Articles of Association.
4. Consideration for the transfer of shares.
5. Approval of the transfer by the Board of Directors.
6. Allegations of fraud and forgery.
7. Removal of a director without notice.

Detailed Analysis:

1. Validity of the transfer of shares:
The petitioners contended that the transfer of their shares to Batra Films Pvt. Ltd. was done without their valid consent. They argued that the letters allegedly written by them requesting the consolidation of their shares were fabricated and forged. The petitioners maintained that these letters were vague and could not be considered valid consent or an offer to contract, making the transfers illegal. They cited the case of John Tinson & Co. (P.) Ltd. v. Mrs. Surjeet Malhan to support their claim.

2. Compliance with the mandatory provisions of the Companies Act:
The petitioners argued that the transfers violated Section 108 of the Companies Act, 1956, as the transfer forms were not in the prescribed format, were incomplete, and were not duly stamped. They relied on the case of Mannalal Khetan v. Kedar Math Khetan to assert that non-compliance with Section 108 rendered the transfers illegal.

3. Adherence to the Articles of Association:
The petitioners claimed that the transfers violated Clauses 7 and 8 of the Articles of Association, which required Board of Directors' approval for share transfers. They argued that the lack of such approval made the transfers illegal.

4. Consideration for the transfer of shares:
The petitioners contended that the transfers were without consideration, as Batra Films Pvt. Ltd. was a defunct company with no assets. They argued that the mutual exchange of shares without consent and consideration violated Section 25 of the Contract Act.

5. Approval of the transfer by the Board of Directors:
The petitioners disputed the claim that the transfers were approved at a Board of Directors meeting on 13-8-1993. They argued that no such meeting took place on that date, as the last rites of Shri B.L. Batra were being performed. They claimed that only condolence was recorded in the minute book, and the allegation of approval was false.

6. Allegations of fraud and forgery:
The petitioners alleged that the transfers resulted from fraud and forgery, with their signatures being forged on various documents. They cited the Forensic Laboratory's confirmation of the forgery and the pending criminal proceedings against respondent No. 2.

7. Removal of a director without notice:
The petitioners claimed that petitioner No. 1 was illegally removed from the directorship without notice in a meeting on 27-12-1993, violating Section 286 of the Act. They cited the case of Parmeshwari Prasad Gupta v. Union of India to support their claim.

Respondents' Preliminary Objections:
The respondents raised three preliminary objections: the petitions were highly belated, involved disputed and complicated facts unsuitable for summary proceedings under Section 111, and alleged suppression of facts by the petitioners. They argued that the petitions were barred by limitation, as the transfers occurred in 1993 and the petitions were filed in 1999/2000. They cited various cases to support their claim that the petitions should be dismissed.

Board's Findings:
The Board concluded that the petitions could not be dismissed solely on the ground of limitation, as the question of fraud and knowledge of the transfers required examination of the merits. However, the Board agreed with the respondents' second preliminary objection, stating that the allegations of fraud, forgery, and fabrication of documents involved complicated questions of fact that could not be decided in summary proceedings under Section 111. The Board cited various cases, including Amonia Supplies Corporation (P.) Ltd. v. Modern Plastic Containers (P.) Ltd., to support its decision that such disputes should be adjudicated in civil courts.

Conclusion:
The Board dismissed the petitions, stating that the disputed questions of fact and allegations of fraud required adjudication in an appropriate forum, such as a civil court. The parties were advised to pursue their disputes in the appropriate forum, and each party was directed to bear its own costs.

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