2011 (10) TMI 516 - Board - Companies Law

Transfer of shares alleged that respondents have removed their name without sufficient cause and without due compliance of the provisions of law and entered the name of respondent No. 3. From - family settlement and the transfers have taken place pursuant to the said family settlement Held that - Respondents have not complied with the provisions of law in respect of transfer of shares most probably on the basis of family settlement. Whatever may be the reason, the share transfers must be done in accordance with law and with mutual consent and accepted procedure - Any transfer of shares without compliance of section 108 is void and illegal the same should be set aside - R1-company directed to rectify the register of members by incorporating the name of the petitioner

Issues:
1. Transfer of shares without compliance with the law.
2. Dispute arising from family settlement regarding share transfers.
3. Compliance with the provisions of section 111(4)(a)(ii) of the Companies Act, 1956.

Issue 1: Transfer of shares without compliance with the law

The petitioner filed a petition under section 11(4)(a)(ii) of the Companies Act, 1956 seeking directions to cancel the transfer entries in the name of R3 for 7,81,500 shares and restore the said shares to the petitioners. The petitioner alleged that the respondent-company unilaterally transferred their shares to R3 without their consent, submission of share certificates, or evidence of payment of consideration. The petitioner argued that such transfers were fraudulent and invalid, aiming to usurp control of the company. The respondent-company was accused of violating sections 108 and 111 of the Act by transferring shares without following the prescribed procedures.

Issue 2: Dispute arising from family settlement regarding share transfers

The respondent contended that the petitioner was no longer a shareholder of the company due to a family settlement and arbitration awards passed in 2005 and 2008. The ownership of the company was claimed to be with the respondents as per the settlement and award. The respondent highlighted that the High Court had recognized the arbitration proceedings and awards, which were not challenged by the petitioner. The respondent argued that the petitioner failed to disclose vital facts and approached the Bench with hidden intentions, prejudicial to the interests of stakeholders and justice. The respondent emphasized that the petitioner's claim was mala fide and based on illegal greed, urging the dismissal of the petition.

Issue 3: Compliance with the provisions of section 111(4)(a)(ii) of the Companies Act, 1956

The primary issue before the Bench was whether the shares of the petitioner were transferred in compliance with the law. The petitioner contended that the shares were transferred to R3 without their consent or consideration, while the respondent claimed the transfers were pursuant to a family settlement with a specified deadline. The Bench noted that previous decisions related to share transfers within the same family settlement context and directed the respondent-company to rectify the register of members by restoring the petitioner's name for the shares in question. The Bench emphasized that share transfers must adhere to the provisions of the Act, and any transfer without compliance with section 108 is deemed void and illegal. As a result, the petition was disposed of with directions to rectify the register of members without imposing costs.

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