2005 (4) TMI 618 - Board - Companies Law

Summary

Issues Involved:
1. Illegal transfer of shares.
2. Compliance with Section 108 of the Companies Act, 1956.
3. Validity of the gift of shares.
4. Limitation period for filing the petition.
5. Equitable relief and rectification of the register of members.

Detailed Analysis:

1. Illegal Transfer of Shares:
The petitioner claimed that 39,741 equity shares held in M/S Pentagon Drugs Private Limited were illegally transferred to the 2nd respondent. The petitioner argued that he was coerced by the 3rd respondent to sign blank transfer forms and an undated resignation letter to protect his daughter from harassment. The petitioner did not hand over any share certificates as none were issued by the company. Upon inspecting the company records in March 2001, the petitioner discovered the shares had been transferred on 31.12.1997 without his consent. The respondents contended that the petitioner had gifted the shares to the 3rd respondent, who then transferred them to the 2nd respondent.

2. Compliance with Section 108 of the Companies Act, 1956:
The petitioner argued that the transfer was invalid as it did not comply with Section 108, which mandates proper execution of transfer instruments and consideration for the transfer. The respondents countered that the transfer was a gift, not requiring consideration, and that the petitioner had acquiesced to the transfer by his conduct.

3. Validity of the Gift of Shares:
The petitioner denied gifting the shares, asserting that no consideration was given, and the transfer forms were signed under coercion. The respondents maintained that the shares were gifted as part of an arrangement to mobilize funds for the company. The court found no evidence of a gift, noting the absence of a written document or share certificates. The court held that the mere handing over of blank transfer forms did not constitute a gift.

4. Limitation Period for Filing the Petition:
The respondents argued that the petition was time-barred, as it was filed more than three years after the transfer. They suggested that the knowledge of the petitioner's daughter, who attended the Board Meeting approving the transfer, should be imputed to the petitioner. The petitioner claimed he only became aware of the transfer in March 2001. The court held that the limitation period started from the date of the petitioner's knowledge of the transfer, making the petition timely.

5. Equitable Relief and Rectification of the Register of Members:
The court acknowledged that the transfer of shares without consideration was null and void. However, considering the company's control and management by the 2nd respondent for nearly eight years and the strained relationship between the parties, the court deemed rectification of the register not in the company's best interest. Instead, the court directed the 2nd and 3rd respondents to pay consideration for the shares based on the price at which the 5th respondent's shares were transferred to the 3rd respondent. If the consideration was not paid by 31.5.2005, the company was directed to rectify the register by 15.6.2005.

Conclusion:
The petition was disposed of with the court ordering the 2nd and 3rd respondents to pay consideration for the shares or face rectification of the register of members.