1964 (1) TMI 24 - HC - Companies Law

Shares warrants and entries in register of member, Charges Rectification of register of Register of mortgages, inclusive of debenture holders, must be posted up-to-date

Summary

Issues Involved:
1. Maintainability of the application under section 123 of the Indian Companies Act, 1913.
2. Legality of the transfer of debentures from Jhunjhunwala to the appellant.
3. Right of the company to refuse registration of the transfer.
4. Alleged suspicious nature of the transaction.

Detailed Analysis:

1. Maintainability of the Application under Section 123 of the Indian Companies Act, 1913:
The primary issue was whether the application made by the appellant to the District Judge, Varanasi, was maintainable under section 123 of the Act. Section 123 mandates that every company must keep a register of mortgages and enter therein all mortgages and charges affecting the company's property, including the names of the mortgagees or persons entitled thereto. The court held that this section requires entries to be made in respect of transfers of mortgages or debentures by their holders in favor of third parties. The court emphasized that section 38 of the Act, which confers the power to rectify a register, should be read in conjunction with section 123. The court concluded that the application was indeed maintainable, as the law requires the maintenance of an up-to-date register of mortgages, including debentures.

2. Legality of the Transfer of Debentures:
The court examined whether the transfer of 50 debentures from Jhunjhunwala to the appellant was genuine. The appellant provided evidence, including a declaration from Jhunjhunwala before a Magistrate and testimony from Kishori Lai Gupta, the cashier of the appellant, confirming the transfer and payment of consideration. The court found no reason to disbelieve this evidence, concluding that the transfer was genuine and legally valid.

3. Right of the Company to Refuse Registration:
The court addressed the company's refusal to register the transfer of debentures on the grounds that the appellant's name was not entered in the company's registers. The court held that no company has the right to refuse to do something that the law requires it to do. The law mandates the maintenance of a register of mortgages, and the transferee is entitled to have the register rectified to include the transfer of debentures. The court found no justification for the company's refusal to register the transfer.

4. Alleged Suspicious Nature of the Transaction:
The District Judge had dismissed the application on the grounds that the transaction was suspicious. The court analyzed the circumstances cited by the District Judge, such as the timing of the transfer and the method of payment. The court found these circumstances explainable and not indicative of any wrongdoing. The court concluded that the transaction was neither suspicious nor colorable and had been fully proved.

Conclusion:
The court allowed the appeal, set aside the order passed by the District Judge, Varanasi, and directed the official liquidator to enter the appellant's name in respect of 50 debentures in the register of mortgages of the company. The court emphasized the importance of maintaining up-to-date registers for the proper functioning and management of the company and for the benefit of the public and creditors.