1978 (12) TMI 133 - HC - Companies Law

Powers of Court to rectify register of members Contracts in notified areas illegal in certain circumstances

Summary

Issues Involved:
1. Maintainability of the petitions under Section 155 of the Companies Act, 1956.
2. Legality and validity of the sales or transfers of shares in respondent companies.
3. Whether the sales or transfers were at an undervalue.
4. Compliance with the Securities Contracts (Regulation) Act, 1956.
5. Entitlement to relief for rectification of the share register.
6. Entitlement to damages.

Detailed Analysis:

Issue 1: Maintainability of the petitions under Section 155 of the Companies Act, 1956
The court held that the petitions are maintainable under Section 155 of the Companies Act, 1956. The section allows the court to rectify the register of members if the name of any person is entered or omitted without sufficient cause. The court concluded that the allegations of fraud and illegality by the petitioner-company against the respondents fall within the scope of this section. The court emphasized that it is not necessary to approach the relevant companies for rectification before filing an application under Section 155.

Issue 2: Legality and validity of the sales or transfers of shares in respondent companies
The court found that the sales or transfers of shares in Shalimar Tar, Angelo Brothers, and Lodna Colliery were fraudulent, illegal, void, and a nullity. The evidence showed that the sales were conducted in a hasty manner without proper valuation or market assessment. The court noted that the directors of the petitioner-company acted under the influence of Haridas Mundhra and did not act in the best interest of the company. The resolutions authorizing the sales were found to be vague and not supported by tangible material.

Issue 3: Whether the sales or transfers were at an undervalue
The court concluded that the shares were sold at a gross undervalue. The market value of the shares in Shalimar Tar was Rs. 100 per share, in Angelo Brothers Rs. 10 per share, and in Lodna Colliery Rs. 5 per share. However, the shares were sold at Rs. 15, Rs. 5, and Rs. 2.50 per share respectively. The court found no reasonable justification for such low prices and held that the sales were detrimental to the petitioner-company.

Issue 4: Compliance with the Securities Contracts (Regulation) Act, 1956
The court held that the sales were in contravention of Section 13 of the Securities Contracts (Regulation) Act, 1956, which requires that every contract for the sale of securities must be entered into between members of a recognized stock exchange or through such members. The sales in question were not conducted through any recognized stock exchange or its members, making them illegal and void.

Issue 5: Entitlement to relief for rectification of the share register
The court ordered the rectification of the share registers of Shalimar Tar, Angelo Brothers, and Lodna Colliery by removing the names of Ganpatrai & Sons and Metal Craft and restoring the name of the petitioner-company as the owner of the shares. The court directed that the consideration money paid by respondents Nos. 4 and 5 should be returned to them by the petitioner-company.

Issue 6: Entitlement to damages
The court did not award any additional damages to the petitioner-company beyond the rectification of the share register and the return of the consideration money to respondents Nos. 4 and 5. The court restrained the petitioner-company from transferring the shares until the consideration money is paid or deposited in court.

Conclusion:
The court declared the sales of shares in Shalimar Tar, Angelo Brothers, and Lodna Colliery as fraudulent, illegal, void, and a nullity. The share registers were ordered to be rectified by restoring the name of the petitioner-company. The petitioner-company was directed to return the consideration money to respondents Nos. 4 and 5. The petitioner-company was awarded costs from respondents Nos. 4, 5, and 6.