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2016 (5) TMI 1036 - HC - Companies LawTransmission of shares - rectification of register of members - validity of the refusal of the company to transmit 726 and 128 shares jointly held by Mehboob and Yasmin, respectively, with Ayub upon the latter s death - Held that - In the present case, the resolution of the Board of Directors dated 12 September 2011 does not stand the scrutiny of these tests. During the brief period, i.e. between 4 April 2011 and 23 November 2011, when the Appellants were on the Board of the Company, they appear to have passed this resolution acting in their own interest. Their suit, challenging the will of Ayub, was pending before this Court. So also, was their petition challenging the joint holdership of Mehboob and Yasmin pending before the CLB, Principal Bench. They were clearly aware that the entries of joint holdership of the two had to be rectified by seeking an appropriate order from the Court or the CLB. And yet, when they got an opportunity to be on the Board, they unilaterally proceeded to cancel the entries, acting in their own interests and on a wrong principle. The conclusion of the CLB, in the premises, of the resolution of 12 September 2011 being vitiated by mala fides is, thus, clearly sustainable. There is no error of law in it. There were two contests on merits (i) the locus of the Petitioners, Mehboob and Yasmin, to present the petition in the face of the subsequent Board resolution of 12 September 2011 omitting their names; and (ii) whether the board had sufficient cause to refuse the transmission. On the first question, the CLB found, and rightly so, that once the resolution of 12 September 2011 was held to be contrary to the provisions of law and set aside, the earlier resolution of 9 May 1992 stood restored and therefore, there is no question of the locus of the Petitioners to apply for transmission by survivorship. (I have already held the decision of the CLB to set aside the resolution of 12 September 2011 to be valid.) On sufficient cause so far as the refusal to transmit is concerned, the CLB rightly relied on Article 25 of the Articles of Association of the Company, under which, in case of death of one or more joint holders, the survivor/s is/are the only person/s recognized as having title to or interest in the shares. In the case of a will, Article 28(f) of the Articles came into play. The CLB held that the company was bound to follow its Articles and could not have denied transmission / registration of the shares in the sole names of Mehboob and Yasmin. The CLB further noted that by a further resolution passed on 23 November 2011, the Company had decided to annual the resolution of 12 September 2011 and this position was not contested by the company before the CLB. On the other hand, the Company had categorically expressed its willingness to comply with the order to be passed by the CLB on the application of the Petitioners. The CLB, in the premises, held that the Petitioners were entitled to the relief of rectification of register, by entering their names as sole shareholders in respect of 726 and 128 shares. The conclusion is clearly in order. No error of law can be said to vitiate it.
Issues Involved:
1. Transmission of shares and rectification of the register of members. 2. Validity of the Board resolution dated 12 September 2011. 3. Company's power to rectify the register of members without CLB's order. 4. Allegations of oppression and mismanagement. 5. Legal standing of the petitioners. Issue-wise Analysis: 1. Transmission of Shares and Rectification of the Register of Members: The appeals concern the transmission of 726 shares and 128 shares to Mehboob and Yasmin, respectively, and the rectification of the register of members. The CLB directed the Company to transmit these shares and rectify the register. The appellants contested this, arguing that the original transfer of shares was ultra vires and violated the Articles of Association. The CLB found that the Board's refusal to transmit the shares was without sufficient cause and directed rectification. The court upheld this decision, noting that the company must follow its Articles, which recognize the surviving joint holders as having title to the shares. 2. Validity of the Board Resolution Dated 12 September 2011: The Board had resolved that the original transfer of shares to Mehboob and Yasmin was null and void. The CLB set aside this resolution, finding it to be illegal and mala fide. The court supported the CLB's conclusion, noting that the resolution was passed with an oblique motive and not in the interest of the company or its shareholders. The appellants argued that the CLB lacked jurisdiction to set aside the resolution, but the court found this argument to be without merit, as the resolution's validity was already a subject of challenge in the oppression and mismanagement petition. 3. Company's Power to Rectify the Register of Members Without CLB's Order: The appellants argued that the company had the power to rectify the register without seeking an order from the CLB under Section 111(4) of the Companies Act. The court rejected this argument, stating that the company cannot unilaterally rectify the register in contested matters. The court emphasized the importance of maintaining the sanctity of the register of members as a public document and held that rectification in contested cases must be done through the CLB. 4. Allegations of Oppression and Mismanagement: The CLB dismissed the petition of Mehboob, Yasmin, and Farida under Sections 397 and 398 of the Act, finding that their grievances were not substantiated. The court noted that the CLB had already addressed the main grievance regarding the transmission of shares in the rectification petitions. The court upheld the CLB's decision, finding no error of law in the dismissal of the oppression and mismanagement petition. 5. Legal Standing of the Petitioners: The appellants challenged the locus of Mehboob and Yasmin to present the petition, arguing that their names had been omitted from the register by the Board resolution of 12 September 2011. The court found that once the resolution was set aside, the earlier resolution of 9 May 1992 stood restored, and Mehboob and Yasmin had the standing to apply for transmission by survivorship. The court upheld the CLB's decision to grant rectification, finding no error of law. Conclusion: The court dismissed Company Appeal Nos. 55 of 2014, 56 of 2014, and 31 of 2015, upholding the CLB's orders for rectification of the register of members and transmission of shares to Mehboob and Yasmin. The court found no merit in the appellants' arguments and emphasized the need for the company to follow its Articles and seek CLB's order for rectification in contested matters. The court also noted that the resolution of 12 September 2011 was mala fide and not in the interest of the company or its shareholders.
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