1952 (4) TMI 25 - HC - Companies Law

Shares warrants and entries in register of members, Power of court to rectify register of members and Validity of acts of directors

Issues Involved:

1. Maintainability of the plaintiff's suit under Section 47 of the Civil Procedure Code.
2. Non-compliance with the procedures prescribed in Rules 79 and 80 of Order XXI, Civil Procedure Code.
3. Whether the plaintiff's remedy should be an application under Section 38 of the Companies Act.
4. Whether the suit is barred by limitation.
5. Validity of the transfer of shares to defendants Nos. 2 to 4.
6. Plaintiff's entitlement to the ownership of the 121 shares.

Issue-wise Detailed Analysis:

1. Maintainability of the Plaintiff's Suit under Section 47, Civil Procedure Code:

The lower court ruled that the plaintiff should have pursued his remedies through execution proceedings in the earlier suit (O.S. No. 63 of 1108) and that a fresh suit is barred by Section 47, Civil Procedure Code. However, the High Court found this view erroneous. The plaintiff's claim in the earlier suit was for debt recovery, and the court auction sale of shares was conducted in execution of the decree. The sale was confirmed, and a sale certificate (Exhibit A) was issued. The High Court held that the reliefs sought in the present suit-rectification of the share register and consequential reliefs-could not have been obtained through execution proceedings and thus, Section 47 did not bar the present suit.

2. Non-compliance with Procedures in Rules 79 and 80 of Order XXI, Civil Procedure Code:

The defendants argued that the plaintiff's suit was unsustainable due to non-compliance with the procedures for delivery of shares as prescribed by Rules 79 and 80. The High Court clarified that these rules prescribe modes of delivery for movable properties, including shares, but do not affect the auction purchaser's title to the shares. The sale became absolute upon payment of the purchase money and issuance of a sale certificate (Exhibit A). The High Court noted that the share certificate was already with the plaintiff, and the defendant company was aware of the court sale. Therefore, the absence of a formal delivery order did not prejudice the plaintiff's rights.

3. Remedy under Section 38 of the Companies Act:

The defendants contended that the plaintiff should have sought rectification of the share register through an application under Section 38 of the Companies Act. The High Court held that while Section 38 provides a summary procedure, it does not preclude a party from seeking relief through a regular suit. The plaintiff had initially filed an application under Section 38, but the District Court directed him to file a regular suit due to the complexity of the issues. Thus, the present suit was deemed maintainable.

4. Limitation:

The defendants argued that the suit was barred by the three-year limitation period under Articles 48 or 49 of the Limitation Act. The High Court found that these articles did not apply to the reliefs sought in the present suit. Instead, the suit was governed by the residuary Article 120, which prescribes a six-year limitation period. The suit was filed within this period and was therefore not barred by limitation.

5. Validity of the Transfer of Shares to Defendants Nos. 2 to 4:

The plaintiff alleged that the transfer of shares to defendants Nos. 2 to 4 was fraudulent and collusive. However, the High Court found no evidence to support this claim. The transfers were made in 1101, long before the court sale in 1112, and were recognized by the company. The defendants testified that they purchased the shares in good faith and for valuable consideration without knowledge of the plaintiff's pledge. The High Court upheld the validity of these transfers.

6. Plaintiff's Entitlement to the Ownership of the 121 Shares:

The court sale only passed title to the 31 shares still standing in the name of defendant No. 5 at the time of the sale. The remaining 90 shares had already been transferred to defendants Nos. 2 to 4 and were recognized by the company. The High Court concluded that the plaintiff was entitled to relief only in respect of the 31 shares still in defendant No. 5's name, subject to the company's lien for any amounts due from defendant No. 5 up to the date of the court sale.

Conclusion:

The High Court allowed the appeal in part, granting the plaintiff relief for the 31 shares still in defendant No. 5's name and dismissing the suit concerning the remaining 90 shares. The plaintiff was awarded proportionate costs from defendant No. 6, while the appeal was dismissed with costs to respondents Nos. 1 to 4. The objection memoranda filed by respondents Nos. 1, 4, and 5 were also dismissed.

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