1995 (11) TMI 468 - Board - Companies Law

Issues Involved:
1. Locus standi of the petitioners.
2. Relegation to a civil suit.
3. Violation of undertaking given to the Company Law Board (CLB).
4. Whether the sale of shares constitutes the sale of an undertaking.
5. Violation of Section 84(2) of the Companies Act and the Companies (Issue of Share Certificates) Rules, 1960.
6. Whether the removal of SSPL's name and entry of respondents Nos. 17, 18, and 19 in the register of members of GWL was "without sufficient cause".
7. Whether the prayer for rectification of the register of members is to be granted.

Detailed Analysis:

1. Locus Standi:
The respondents argued that the petitioners lacked locus standi as they had no stake in the impugned shares and did not seek to have their names entered in the register of members. The petitioners countered that Tracstar, as a member of GWL, had the right to seek rectification under Section 111(4) of the Companies Act, 1956, which allows any member of a company to file a petition for rectification. The Company Law Board (CLB) agreed with the petitioners, stating that the section does not require a member to show personal interest in the shares in question, and thus Tracstar had locus standi. Similarly, the majority shareholders of SSPL (petitioners Nos. 2 and 3) were deemed to have locus standi as they were aggrieved by the transfer of shares. Petitioners Nos. 4 and 5, being shareholders of petitioners Nos. 2 and 3, were also allowed to join as parties.

2. Relegation to a Civil Suit:
The respondents contended that the matter involved allegations of fraud and complex issues requiring oral evidence, and thus should be relegated to a civil suit. The petitioners argued that the facts were clear from the pleadings and documents, and the CLB could decide the matter. The CLB held that it had the discretion to decide whether to entertain the case or to relegate it to a civil suit, and in this case, it chose to deal with the matter itself based on the available evidence.

3. Violation of Undertaking:
The petitioners argued that SSPL had violated an undertaking given to the CLB in C.P. No. 29 of 1992 not to dispose of the shares. The respondents countered that the undertaking was only valid until the disposal of the petition. The CLB noted that while the undertaking was intended to maintain the status quo during the proceedings, the petitioners should have sought an injunction from the High Court during the appeal process. The CLB concluded that there was no intentional violation of the undertaking by SSPL.

4. Sale of an Undertaking:
The petitioners claimed that the sale of the shares constituted the sale of an undertaking under Section 293(1)(a) of the Act, which requires general body approval. The respondents argued that shares do not constitute an undertaking. The CLB agreed with the respondents, citing various precedents that an undertaking refers to the totality of the business and not just one asset. Thus, the sale of shares did not amount to the sale of an undertaking.

5. Violation of Section 84(2) and Share Certificate Rules:
The petitioners argued that GWL violated Section 84(2) by issuing duplicate certificates without proper satisfaction that the originals were lost. The respondents contended that the term "lost" included deprivation and that GWL acted within its rights. The CLB found that GWL was aware that the certificates were with Tracstar and should have issued a notice to Tracstar before issuing duplicates. The CLB also held that the issue of duplicate certificates by a committee of less than three directors violated the Companies (Issue of Share Certificates) Rules, 1960.

6. Without Sufficient Cause:
The CLB examined the circumstances of the transfer, noting the rapid sequence of events and the lack of transparency in the decision-making process by SSPL and GWL. The CLB found that the transfer was not bona fide and was done with an ulterior motive to prevent the majority shareholders of SSPL from controlling the shares. The CLB concluded that the removal of SSPL's name and the entry of the transferees' names were "without sufficient cause."

7. Relief:
The CLB directed that the names of respondents Nos. 17 to 19 be removed from the register of members and the name of SSPL be restored. To protect the interests of the transferees, SSPL was ordered to pay them either the consideration they paid for the shares or the prevailing market price, whichever was higher. Until the payment was made, SSPL was not to exercise voting rights or transfer the shares. The duplicate certificates were to be surrendered and canceled.

In summary, the CLB found in favor of the petitioners, holding that the transfer of shares was done without sufficient cause and directing rectification of the register of members.

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