1991 (3) TMI 399 - HC - Companies Law

Summary

Issues Involved:
1. Violation of Section 108 of the Companies Act, 1956.
2. Contravention of Article 7 of the Articles of Association.
3. Allegation of bad faith in the transfer of shares.

Detailed Analysis:

1. Violation of Section 108 of the Companies Act, 1956:
The petitioners contended that the transfer forms were presented for stamping on November 22, 1989, and delivered to the company on March 30, 1990. Under Section 108(1A) of the Act, the duly executed deed of transfer must be delivered within two months from the date of stamping, i.e., by January 22, 1990. Therefore, the delivery on March 30, 1990, was not acceptable under law, rendering the instruments of transfer improper under Section 108(1). The respondents argued that the instruments of transfer acted upon by the board on March 31, 1990, were new instruments filed on the same day, replacing the earlier ones. The court accepted the affidavit of the then company secretary, Shreesha, who confirmed the substitution of the transfer forms on March 31, 1990. Additionally, the court held that the time limit in Section 108(1A)(b)(ii) is directory, not mandatory, and a delayed delivery would not affect the validity if the company accepts and acts upon it.

2. Contravention of Article 7 of the Articles of Association:
The petitioners argued that Article 7 requires any member desiring to sell shares to notify the board, which must offer those shares to other shareholders before any transfer. The court found that Article 7 aims to preserve shareholding within the family and existing shareholders. However, Article 8 allows transfers between members or to specified relatives without the board's prior sanction. The court concluded that Article 8 operates independently of Article 7, and transfers between existing shareholders do not require the procedure under Article 7. Therefore, the transfer of shares did not contravene Article 7.

3. Allegation of Bad Faith in the Transfer of Shares:
The petitioners claimed that the second respondent, the managing director, expedited the transfer to defeat his wife's claim, who alleged that the shares were her streedhana property. The court noted that the wife had already filed a suit in the Delhi High Court to safeguard her interests, making it unnecessary for the petitioners to agitate her claim. The court rejected this contention, stating that the petitioners' assertion was irrelevant for the current proceedings.

Conclusion:
The court dismissed the petition, ruling that:
- The petitioners were not entitled to invoke the discretionary jurisdiction under Section 155 of the Companies Act.
- The contention under Section 108 had no factual basis.
- The transaction did not contravene Article 7 of the articles of association.
- The allegations of bad faith were irrelevant to the proceedings.

The petition was dismissed without any order as to costs, and the application (C.A. No. 185 of 1991) was also rejected.