9911796707
TMI Blog1959 (8) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... of August, 1947, the petitioner-company had purchased a block of 780 shares of the respondent-company for Rs. 78,000. These shares represented nearly two-thirds of the issued capital of that company. Till 30th of September, 1951, these shares were shown in the books of the petitioner-company as its property, but for the first time reference to these shares in the balance-sheet of the petitioner-company for the year ending 31st of December, 1951, was omitted. In the petitioner-company's ledger the last entry when these shares were shown to be its property is dated 30th of September, 1951: vide exhibit P.W. 2/12. On 2nd of September, 1952, the board of directors of the petitioner-company passed a resolution confirming sale of these 780 shares by the company's managing director, S. Sardul Singh Caveeshar. In this resolution no details were given as to the date of sale or the names and descriptions of persons to whom the shares were to be transferred. There was not even a mention of the consideration of these shares. It is alleged that the books of the company do not show receipt of any consideration for these shares. Prior to 2nd of September, 1952, two meetings of the board of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing transfer of these shares from the names of respondents Nos. 2 to 9 to those of respondents Nos. 10 to 13. It is claimed on behalf of the petitioner that both these entries of 25th of June, 1954 and of 31st of March, 1956, are fictitious and that they were made sometime during the pendency of this application. It is said that in fact there never was any sale of these shares and that the petitioner-company is still the owner. On 5th of February, 1955, the petitioner-company passed a resolution for being voluntarily wound up. On 29th of April, 1955, the District Judge, Delhi, at the instance of the Controller of Insurance, passed an order appointing a provisional liquidator. On 20th of May, 1955, an order was passed by the District Judge, Delhi, for the winding up of the petitioner-company. In February, 1956, the official liquidator made an application to the District Judge seeking sanction of the court to file the present petition under section 155 of the Act. The application under section 179 of the Act was made before the shares were shown to have been transferred in favour of respondents Nos. 10 to 13 in the register of members of the respondent-company. The present petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e., respondents Nos. 10 to 13) on 16th of October, 1955, and the respondent-company had sanctioned the transfer on 31st of March, 1956. Finally, the respondent-company maintained that the name of the petitioner-company could not be restored in the register of members of the respondent-company with respect to these 780 share. The second set of respondents, Nos. 2 to 6 and 8, in their written statement raised a preliminary objection that they were no longer the holders of these shares as they had been transferred to " other persons" about the end of 1955 and their names were no longer on the register of members of the respondent-company on the date on which the application under section 155 of the Act was made. It was also contended that it was not a fit case for summary trial under section 155, and that the petitioner should be relegated to a civil suit. These respondents, on merits, pleaded, that the names of respondents Nos. 2 to 9 were entered in the register of members on the basis of regularly executed transfer deeds, and that the transfers were duly sanctioned by the company. They also maintained that they had obtained transfer deeds along with share scrips signed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also denied having ever sold them. They disclaimed having anything to do with the alleged purchase or sale of those shares and disclaimed ownership of the same and finally stated that they did not contest the official liquidator's claim. The petitioner-company filed separate replications to the four written statements. The stand previously taken by the petitioner-company was reiterated in the replications and it was added that the relevant scrip of 780 shares from the respondent-company still stood unsplit in the name of the petitioner-company, that the names of respondents Nos. 2 to 9 were entered in the register of members collusively, and that the alleged transfer of shares in favour of the other respondents, viz., Nos. 10 to 13, was also not genuine but merely fictitious, and that the change of names in the register also took place on some date subsequent to the filing of the petition. The whole transaction was a sham one. The petitioner asserted that the resolution of the company, dated 2nd of September, 1952, was invalid and ultra vires and of no effect. The transaction was colourable, collusive and mala fide. They also averred that the question of changing hands of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ported the petition. S. Sardul Singh Caveeshar, who is an important witness in the case, was examined on commission in the District Jail, Delhi, as he was undergoing a term of imprisonment. Issue No. 1. On behalf of the respondents it was contended that the petition was not maintainable as proceedings under section 155 of the Companies Act, 1956, providing a summary remedy in non-controversial matters were not suitable in this case. Reference was made at the Bar to three decisions of this court, Dewan Singh Hira Singh v. Minerva Films Ltd. [1959] 29 Comp. Cas. 263; Benarsi Das Sarai v. Dalmia Dadri Cement Ltd. [1958] 28 Comp. Cas. 435 ; Bhagat Singh v. Piar Bus Service Limited [1960] 30 Comp. Cas. 300. In the above noted decisions I had held that when serious disputes were involved, the proper forum for their adjudication was a civil court. I had expressed the view that the summary remedy under section 155 of the Companies Act, 1956, was not available to the litigant as of right without the court having discretion to refuse it. 1 had also expressed the view that if the case be one of difficulty and complication, it should more appropriately be decided at a regul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he overall work of the head office. He could not say on the basis of which documents the sale of 780 shares in question was effected. After having seen the cash books for the years 1951 to 1954 he stated that there was no entry relating to the receipt of the price of these shares. Within his knowledge there was no document evidencing payment of consideration amount for the sale of these shares and there was no document to his knowledge showing the names of the persons in whose favour these shares had been sold. He had seen the banker's original ledgers which were maintained by the People's Insurance Company for the years 1951 and 1952 and there was no entry in them relating to the passing of any consideration for these shares. The balance-sheet of the company for the year ending 31st December, 1951, did not show that these shares were held by the company. R.W. 1. Shri S.L. Batra, who had been the auditor of C.R.E. Wood Company since 1951 stated that he had audited the accounts of this company for the year 1954 and did not notice that 780 shares standing in the name of People's Insurance Company had been transferred in the names of respondents Nos. 2 to 9. He stated that it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the stamps on the transfer deeds. He was deeply interested in the shares of C. R. E. Wood Company as by purchasing the shares in question benami his control became absolute over the affairs of the company. The above statement of S. Sardul Singh Caveeshar amply demonstrates the absolute falsity of the plea of respondents Nos. 2 to 6 and 8 that the petitioner-company had sold the shares of the company to them for consideration and supports what was stated by respondents Nos. 7 and 9 that they were mere benamidars and no part of consideration had come from them. I may also at this stage examine the question whether these 780 shares of the company had in fact been purchased by S. Sardul Singh Caveeshar for Rs. 78,000 as alleged. There is no documentary evidence upon which any reliance can be placed showing the passing of the consideration from S. Sardul Singh Caveeshar to the People's Insurance Company on account of these 780 shares of the value of Rs, 78,000. In cross-examination he stated that he did not remember the mode of the payment of the price of these shares to the company. When he was further pursued, he started shifting his position. He said that there were se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel had to admit that the transaction was benami and the plea taken up by his clients as to their having purchased the shares for consideration from the People's Insurance Company could not be supported. The record of this case leaves no room for doubt that no consideration was received by the company either from S. Sardul Singh or from respondents Nos. 2 to 9. It was an ill-conceived attempt to remove valuable asset of the People's Insurance Company in a clandestine manner without any semblance of legality or justification. Issue No. 2 must, therefore, be decided in favour of the petitioner and against the respondent. The sale of 780 shares in C.R.E. Wood Company which belonged to the People's Insurance Company must be struck down being neither valid nor for consideration. I may now examine the claim of respondents Nos. 10 to 13 as to their being bona fide transferees for consideration in respect of the shares in question. Out of this lot only respondent No. 11 has chosen to make a statement as a witness but not the others. As R. W. 8 Shri Manohar Lal Goswami stated that he was an owner of 100 shares of respondent No. 1 (company), which he had purchased from S. Sardul Sing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t made through cheques drawn in his name and then endorsed by him in favour of Hazari Lal and Krishna Kumari. He never obtained any receipt or any intimation from S. Sardul Singh or from Hazari Lal or Krishna Kumari evidencing the receipt of consideration by any one of them. He admitted having been dismissed on account of irregularities in the accounts when he was in the service of Punjab Government as an overseer in the Irrigation Department. This witness has struck me to be utterly unreliable, who had glibly made obviously false statement without the slightest regard to truth. The statement of R.W. 7, Niranjan Singh, who supports Manohar Lal Goswami respondent No. 11, is no less untrustworthy. He is a partner of Pt. Ram Roop Sharma's son-in-law and all that he remembers is that Pt. Ram Roop had sold to Manohar Lal Goswami shares of a company whose name he does not know, but remembers that it was known as S. Sardul Singh's Company. He said that he was asked to advance the money on loan and he had withdrawn a sum of Rs. 2,060 from the joint account of himself and his partner, Yog Raj, while Rs. 440 was paid by Manohar Lal Goswami out of his pocket, thus making a total of Rs. 2,50 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and Khushi Ram, respondent No. 12. The transfer deeds relating to the earlier transaction, in which the transferor was the People's Insurance Company, have been withheld and this seems to have been done with a design so that it may not be known as to who signed on behalf of the People's Insurance Company as the transferor and whether he had been empowered to do so. I recorded the statement of Shri Bhardwaj, managing director of respondent No. 1 company, on 22nd of March, 1957, and he stated that he had handed over 16 transfer deeds relating to these shares, one share scrip representing 780 shares and capital registers, both old and new, of respondent No. 1 company to Shri Ram Roop Sharma on 4th of October, 1956, against receipt for handing over to Shri Bal Raj Tuli, advocate, for depositing the same in court. He also stated that the one share scrip representing 780 shares was never split up by C.R.E. Wood and Company into several scrips and no application to that effect had been made to the company. Mr. Tuli stated at the Bar that besides the eight transfer deeds marked as A, B, C, D, E, F, G and H, which he was placing on the file, he had no other document of the company entru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this case is a circumstance discrediting the truth of their contention. The presumption against them cannot be avoided. In this case it has been amply shown from evidence on the record that the pleas of the respondents were false to their knowledge. I cannot accept the statement of S. Sardul Singh Caveeshar that he had sold 780 shares to respondents Nos. 10 to 13 for Rs. 19,500 and that he took this amount in cash. He also stated that he did not remember if anybody had given him a cheque also and even did not remember if he had passed any receipt. S. Sardul Singh Caveeshar from his own statement stands thoroughly discredited. In this case it is amply borne out that the People's Insurance Company has been a victim of fraud perpetrated on it by its managing director and chairman, S. Sardul Singh Caveeshar, and the other directors who have been acting as his henchmen. This is a case in which those whose duty it was to serve and save the company, themselves took to spoliation. They were the shepherds whose duty it was to keep watch over their fold, but instead they became a menace to their very charge. These 780 shares really belonged to the company but S. Sardul Singh while occupyin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iking out of his name from the register thus causes his name to be omitted from it; and against such an omission the section provides a remedy : vide Madhava Ramachandra Kamath v. Canara Banking Corporation Ltd. [1941] 11 Comp. Cas. 78 In the words of Giffard L.J.: " It is clear, ... that if there is a fraud, or if the transaction is such that it cannot stand, the name is on the register ' without sufficient cause'." ( In re Bank of Hindustan, China and Japan : Exparte Kintrea [1869] L.R. 5 Ch. App. 95, 99) . There is ample authority for the proposition that a colourable transaction, whereby shares of a genuine owner are transferred in consequence of a fraud or forgery, cannot be allowed to stand. The name of the People's Insurance Company must be restored on the register of members of Messrs. C.R.E. Wood Company. Issues Nos. 2 and 4 are, therefore, decided in favour of the petitioner-company and against the respondents. The only other issue that remains is issue No. 3 "whether the resolution of 2nd of September, 1952, confirming sale is in contravention of section 91B of the Indian Companies Act, 1913". In view of my decision on issues Nos. 2 and 4, decision on iss ..... 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