1998 (10) TMI 549 - Board - Companies Law

Issues Involved
1. Refusal to transfer shares by the respondent-company.
2. Allegations of fraud and civil suits filed by the transferors.
3. Validity of transfer deeds and compliance with Section 108 of the Companies Act.
4. Bona fide acquisition of shares by the petitioners.
5. Legal implications of the pledge and transfer of shares by the broker.
6. Jurisdiction and summary nature of proceedings under Section 111A of the Companies Act.
7. Non-joinder of necessary parties in the petition.

Detailed Analysis

1. Refusal to Transfer Shares by the Respondent-Company
The petitioners lodged shares for transfer, which the respondent-company refused, citing corrections in transfer deeds, uncanceled adhesive stamps, and requests from the transferors to withhold the transfer due to alleged foul play. The petitioners argued that these shares were pledged as security for loans, and upon default, they were entitled to have the shares transferred in their name. Despite relodging fresh transfer deeds, the company continued to withhold the transfer, allegedly due to ongoing civil suits filed by the transferors.

2. Allegations of Fraud and Civil Suits Filed by the Transferors
The respondent-company claimed that the transferors had filed a civil suit in the Bombay High Court seeking a permanent injunction against the transfer of shares, alleging fraud and cheating by the petitioners. The petitioners contended that no notice of such suits had been served on them and accused the company of dilatory tactics to delay the transfer at the behest of the transferors.

3. Validity of Transfer Deeds and Compliance with Section 108 of the Companies Act
The respondent-company initially refused the transfer citing defects in the transfer deeds. The petitioners relodged fresh transfer deeds, but the company still withheld the transfer, claiming that the matter was subjudice. The petitioners argued that the company had no right to withhold the transfer without a court order and accused the company of acting in collusion with the transferors.

4. Bona Fide Acquisition of Shares by the Petitioners
The petitioners maintained that they were bona fide transferees of the shares, having acquired them for consideration and without knowledge of any disputes. They argued that the transferor, having signed blank transfer forms, was estopped from questioning the validity of the transfer. The respondent-company and the transferors disputed this, claiming that the shares were pledged and not sold, and the broker had no authority to transfer the shares.

5. Legal Implications of the Pledge and Transfer of Shares by the Broker
The transferor, represented by an intervenor, argued that the shares were pledged with a broker who had no right to transfer them. The petitioners contended that the broker acted as a mercantile agent and had the authority to transfer the shares. The legal question revolved around whether the broker could pass a valid title to the petitioners and whether the petitioners acquired the shares in good faith.

6. Jurisdiction and Summary Nature of Proceedings under Section 111A of the Companies Act
The proceedings under Section 111A are summary in nature. The Supreme Court has held that even complicated questions of fact or law should be decided by the Company Law Board if possible. The petitioners argued that the refusal to transfer shares was without sufficient cause, as defined under Section 111A, and the company should be directed to register the transfer.

7. Non-joinder of Necessary Parties in the Petition
The respondent-company and the transferors argued that the broker, who was a necessary party to the proceedings, was not present. They contended that the matter involved complicated questions of fact that required evidence and should be relegated to a civil suit. The petitioners countered that the shares were freely transferable and the company had no grounds to refuse the transfer.

Conclusion
The Company Law Board found that the refusal to register the transfer of shares by the respondent-company was without sufficient cause, except for the compliance with Section 108, which had been subsequently met by the petitioners. However, due to the absence of the broker and the ongoing civil suits, the Board concluded that it could not determine the essential facts required to decide the matter. Consequently, the petitions were dismissed, with no order as to costs.

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