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2016 (6) TMI 1061 - HC - Companies LawRectification in the register of members - transfer of shares - Held that - Determination by the CLB of the illegality of the transfer itself under Section 111 read with Section 108 of the Act, it is pertinent to note that there are two transfers in the present case one, from the four joint holders, namely, Dr. Kalyani, Sulochana, DGK and SNI, to Dr. Kalyani as a sole holder and two, from Dr. Kalyani to Gaurishankar. These transfers were admittedly accomplished on different dates. The share certificate placed on record shows in the memorandum of transfers overleaf that the first transfer in favour of Dr. Kalyani was effected on 17 September 2007, whilst the second transfer from Dr. Kalyani to Gaurishankar was effected on 22 November 2007. There is no explanation, however, on record as to how the names of Sulochana and DGK were replaced by the names of Rohini and Gaurishankar as holders of the shares on the face of the share certificate. No such transfer is recorded in the memorandum of transfers overleaf. There is no share transfer form for transfer of shares between the original holders to the new four joint holders (said to be the co trustees of the trust after the purported resignations of Sulochana and DGK and co option of Rohini and Gaurishankar in their place), as required by Section 108 of the Act. Apart from this glaring lapse, the CLB has also noted the following admitted position for holding the transfers to be in contravention of Section 108 (i) There is no instrument of transfer as required by Section 108 produced on record by the answering Respondents; (ii) The answering Respondents did not produce the register of members of the company to controvert the Petitioner s case that the transfers did not actually take place; (iii) No minutes of the Board of Directors or of any transfer were placed on record in respect of the impugned transfers; (iv) The purported annual returns filed with the Registrar of Companies did not relate to the transfers claimed to have been executed; Based on these facts and applying the law laid down by the Supreme Court in the case of Mannalal Khetan Vs. Kedar Nath Khetan 1976 (11) TMI 135 - SUPREME COURT OF INDIA holding that execution of valid transfer deeds within the meaning of Section 108 is a mandatory requirement of a valid transfer of shares, the CLB held the impugned transfers to be invalid and not in compliance with the provisions of Section 108. There is no error of law to be found in this analysis and the finding arrived at by the CLB on the basis thereof.
Issues Involved:
1. Locus Standi of the Petitioner 2. Non-joinder of Necessary Parties 3. Bar by Law of Limitation 4. Suppression of Material Facts and Documents 5. Validity of Share Transfers Detailed Analysis: 1. Locus Standi of the Petitioner: The court addressed whether the Petitioner, as one of the four joint holders of the shares, had the locus standi to maintain a rectification petition. The Respondents argued that the Petitioner, being a joint holder and trustee, could not maintain the petition in her own right and that all co-trustees should have been joined as necessary parties. The court found this argument devoid of substance, stating that under Section 153 of the Companies Act, the company is obliged to treat trustees as merely joint holders. Thus, the Petitioner, as an aggrieved person, could apply for rectification in her individual capacity without needing to join other joint holders or co-trustees. 2. Non-joinder of Necessary Parties: The Respondents contended that the petition should be dismissed for non-joinder of necessary parties, specifically the co-trustees. The court held that the Petitioner did not need to join the other joint holders/co-trustees as parties to the petition, as they were not necessary parties. The Petitioner had the locus to file the petition individually. 3. Bar by Law of Limitation: The court examined whether the petition was barred by the law of limitation. It considered two aspects: the applicability of the Limitation Act to proceedings before the CLB and the starting point of limitation. The court concluded that the CLB is not a "court" for the purposes of Article 137 of the Limitation Act and that no specific limitation period applies to a rectification application under Section 111(4) of the Companies Act. The court found that the CLB erred in dismissing the petition on the ground of limitation. 4. Suppression of Material Facts and Documents: The CLB had dismissed the petition on the grounds that the Petitioner had suppressed material documents and facts. The court noted that the CLB's conclusion was based on a so-called concession by the Petitioner's counsel regarding the signatures on the documents. The court held that the CLB erred in deducing knowledge of the contents of the documents from the mere fact of non-traversal of the signatures. The court emphasized that the plea of non est factum, which involves a fundamental mistake as to the character or effect of the document, was not adequately considered by the CLB. The court found that the CLB's reasoning led to a miscarriage of justice. 5. Validity of Share Transfers: The court examined the validity of the share transfers under Section 111 read with Section 108 of the Companies Act. It noted several lapses, including the absence of a valid instrument of transfer, the failure to produce the register of members, and the lack of minutes of the Board of Directors regarding the transfers. The court upheld the CLB's finding that the impugned transfers were invalid and not in compliance with the mandatory provisions of Section 108. Conclusion: The Company Appeal of the Petitioner was allowed, and the cross-appeal/objections of the Respondents were disallowed. The impugned order of the CLB was set aside, and the Company Petitions were allowed in terms of the prayer clauses. The court ordered a stay of the judgment for eight weeks, during which the Respondents were required to maintain the status quo regarding the shares and shareholding. Order: 1. Company Appeal (L) Nos. 41 to 48 of 2015 are allowed. 2. The impugned order of CLB is set aside, and Company Petition Nos. 19 to 26 of 2011 are allowed. 3. Company Appeal Nos. 86 to 93 of 2015 are dismissed. 4. Company Application (L) No. 60 of 2015 is disposed of. 5. No order as to costs. 6. The order is stayed for eight weeks, with the condition that the Respondents maintain the status quo. This comprehensive analysis covers all relevant issues while preserving the original legal terminology and significant phrases from the judgment.
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