1966 (11) TMI 48 - HC - Companies Law

Summary

Issues Involved:
1. Application for rectification of the register of members.
2. Validity of the sale and transfer of shares.
3. Compliance with the Articles of Association.
4. Obligation to notify shareholders about the proposed transfer.
5. Rights of a bona fide purchaser of shares.

Detailed Analysis:

1. Application for Rectification of the Register of Members:
The petitioner sought rectification of the register of members of New Standard Coal Company Private Limited by having their name entered as the holder of 74 shares and the deletion of the names of respondents Nos. 3 and 4. The refusal of respondent No. 2 to register the shares in the petitioner's name led to this application.

2. Validity of the Sale and Transfer of Shares:
On January 15, 1964, respondents Nos. 3 and 4 sold and transferred 74 fully paid-up equity shares to the petitioner and handed over the original share certificates and transfer deeds. Respondent No. 2 was informed of this transfer but declined to register the shares in the petitioner's name, citing lack of possession of the company's head office.

3. Compliance with the Articles of Association:
The contention arose that the sale of shares was contrary to the Articles of Association, specifically Articles 30, 31, 32, 35, and 36, which govern the transfer of shares. Article 30 restricts transferring shares to outsiders unless members or directors are unwilling to purchase them. Article 31 requires a shareholder proposing to transfer shares to notify the company in writing. Article 32 mandates the company to find a willing purchaser within 28 days. Article 35 allows the transferor to sell to any person if the company fails to find a purchaser within 28 days.

4. Obligation to Notify Shareholders about the Proposed Transfer:
The contesting respondent, Probhas Kumar Basu, argued that he was not notified of the offer to sell the shares, which was a requirement under the Articles of Association. The special officer admitted an initial omission but claimed that a subsequent notice was sent to Probhas Kumar Basu under certificate of posting. The special officer's evidence indicated that notices were sent to all members, and the omission was corrected promptly.

5. Rights of a Bona Fide Purchaser of Shares:
The court held that the rights of a bona fide purchaser of shares should not be denied due to any default or negligence by the company or its officers in notifying shareholders. The court emphasized that the purchaser's right to have their name entered in the share register should be upheld if the purchase was bona fide and for consideration, and the requirements of the Articles of Association were sufficiently complied with.

Conclusion:
The court concluded that the petitioner's rights as a shareholder could not be challenged or denied based on alleged non-compliance with the Articles of Association. The requirements of the Articles were deemed sufficiently met, and the petition for rectification was granted. The court ordered the register of members to be rectified as prayed, with each party bearing its own costs, except for respondent No. 2, who could retain costs from the company's assets.