9911796707
TMI Blog1978 (12) TMI 133X X X X Extracts X X X X X X X X Extracts X X X X ..... ctively as Shalimar Tar, Angelo Brothers, Lodna Colliery, Ganapat Rai & Sons and Metal Craft. The three separate applications are considered and heard together as there are common questions of fact and law. The case of the petitioner-company may be briefly stated. The petitioner-company is one limited by shares duly incorporated, under the provisions of the Indian Companies Act, as far back as in the year 1913. The authorised, subscribed and paid-up capital of the petitioner-company is Rs. 45,00,000 divided into 4,500 ordinary shares of Rs. 1,000 each. Out of the said shares, 2,283 are registered in the name of Hungerford Investment Trust Ltd., 2,199 in the name of British India Corporation Ltd., 3 in the name of Haridas Mundhra and 3 each in the names of W.H.J. Christie, L.W. Balcaomb, A.H. Hume, D.M. Jafrey and C.N. Rodewald. Subsidiary and controlled companies under the petitioner-company are Shalimar Tar, Angelo Brothers, Lodna Colliery, Smith Stanistreet & Co. Ltd., Shalimar Works Ltd. and two other companies. These companies were controlled by the directors of the petitioner-company. Shalimar Tar, Angelo Brothers and Lodna Colliery were organised and incorporated by the dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ights of 51% shares to Haridas Mundhra, was vacated and the majority shareholders became entitled to voting rights in respect of 51% shares. On an application by the majority shareholders, the Central Govt. called an annual general meeting in July, 1972 and new directors were elected in the said meeting. Against that decision of the Central Govt., Haridas Mundhra filed a writ petition challenging its validity and the said Writ Petition No. 248 of 1972 was dismissed on September 25, 1972. At the end of September, 1972, however, the elected members of the petitioner-company took over the control of the management. The case of the petitioner-company is that Haridas Mundhra when he realised, during the argument of the appeals before the Supreme Court in February 1972, that the view of the court was against him and that his control over the petitioner-company would be lost, started making attempts to undermine the financial condition of the petitioner-company and wanted to take out the shares of the company by showing false sales of those shares at a rate much below the market rate, through the directors of the company who were tools in his hands and that the sales were shown to have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... February, 1964. The grievance of the petitioner-company is that after the delivery of judgment on March 9, 1972, against him, (in Turner Morrison & Co. Ltd. v. Hungerford Investment Trust Ltd. [1972] 42 Comp. Cas. 512 ; 85 ITR 607 (SC)), Haridas Mundhra, through the directors of the petitioner-company who were his nominees and tools in his hands, manipulated the purported sales and transfers of the shares of the petitioner-company in the respondent-companies Nos. 1, 2 and 3 to the names of respondents Nos. 4 and 5 and got the name of the petitioner-company removed from the share registers of respondents Nos. 1, 2 and 3. These bogus, sham and benami sales were mala fide and illegal and were made for the benefit of Haridas Mundhra and his son, V.K. Mundhra. For the purpose of showing that the sales were bona fide, certain fictitious and mala fide resolutions were written out as the minutes of meetings of the board of directors of the petitioner-company. According to the petitioner, these resolutions were not genuine and they were manipulated after the judgments of the Supreme Court. At the relevant time the directors of the petitioner-company were B.P. Sinha, respondent No. 8, B.P. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of transfers. There was no occasion for sale of the shares of the petitioner in the respondent-companies Nos. 1, 2 and 3. The resolution passed on January 14, 1972, was also not genuine. There was no offer for sale or acceptance with regard to the disputed sales of shares. The financial condition of the respondent-companies did not require the sale of the shares. Respondent Nos. 4 and 5 were not financially sound and they had no sufficient money to purchase the shares. In the petition, the petitioner-company, besides the main allegations challenging the validity and genuineness of the sales of the shares in the subsidiary companies, have stated facts in support of the allegations made. It is not necessary at this stage to refer to all these facts. The petitioner-company says that the transactions of purported sales and the purported resolution sanctioning the purported transfers are illegal, void, ultra vires and mala fide and prays that the sales of shares be declared illegal and that the shares registered in the books of respondents Nos. 1, 2 and 3 be rectified by removing the names of respondents Nos. 4 and 5 from the relevant registers and by restoring the name of the petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... denied. All the material allegations against respondent No. 4 have also been challenged as false. It has also been denied that V.K. Mundhra acted as if the said offer of respondent No. 4 have been accepted. It has also been stated that the purchases of the shares in respondents Nos. 1 and 2 by respondent No. 4 were legal and according to law. It has been asserted in the affidavit that the shares were delivered to respondent No. 4 after the payment of the price thereof. It has been stated that respondent No. 4 became the owner of the shares purchased by it and the petitioner-company has no right or interest therein. That Dhirajmal Gupta or Omrao Singh Gupta was kept as director in Lodna Colliery and Shalimar Works Ltd. has been denied. That Haridas Mundhra had anything to do with the sale transaction has also been denied. It has been stated that respondent No. 4 was. in a position to raise and actually raised funds through its directors who enjoyed confidence of the business community and are well-known persons who possessed some creditworthiness. It has been denied that Omrao Singh Gupta, Dhirajmal Gupta and Hariram Lohariwalla were associates of respondent No. 6 or 7 or that they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and for valuable consideration and the petitioner-company was benefited by the sale of the shares and the money obtained from sale was utilised for its benefit. It is also stated that in case the shares are directed to be sold to the petitioner-company, the respondent No. 5 would claim not only the principal amount of consideration, but also compound interest at the rate of 12% with additional interest at the same rate inasmuch as the said amount was to be paid for repayment of the loan. In fact respondent No. 5 wants to say that the shares of Lodna Colliery purchased by it were bona fide and on payment of valuable consideration of money raised through loans and that by the sale of the shares in Lodna Colliery the petitioner-company was benefited. Haridas Mundhra, respondent No. 6, has sworn to an affidavit in reply to the allegations made by the petitioner-company. Haridas Mundhra has denied all the allegations made by the petitioner-company. It has been denied by him that after the Supreme Court judgments or at any time he had manipulated for the purported sales of the controlling shares of the petitioner in respondents Nos. 1, 2 and 3. It is also denied that the sales of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rn to an affidavit of objection against the allegations made by the petitioner-company. He was a director of the petitioner. Regarding paras. 1, 2 and 3 of the petition, they have been admitted to be substantially correct. He has challenged all the material allegations made by the petitioner-company. According to him, Lodna Colliery and Shalimars Tar are no longer subsidiary companies of the petitioner. So is Angelo Brothers not a controlled company of the petitioner any longer. It has been asserted that the shares in the respondent-companies Nos. 1, 2 and 3 held by the petitioner were sold for valuable consideration and in the best interests of the petitioner. It has been denied that Mundhra secured control of the companies. Respondent No. 7 has also denied that his father had at any point of time secured the control over the petitioner or over the other companies or that Haridas Mundhra had placed his nominees in the board of directors of the companies. The sale of the shares in the respondent-companies Nos. 1, 2 and 3 effected by the petitioner-company not only benefited the petitioner but were in the best interests of the petitioner and some liabililities had been paid off. Res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as bona fide and the sale transactions were gone into in pursuance thereof. The allegation about under-valuation of the shares has been denied. It has been asserted that the resolution of 14th January, 1972, is also valid and duly passed by the board of directors. There was no collusion amongst the directors or with Haridas Mundhra or himself. That the petitioner was under the control of Haridas Mundhra has also been denied. Respondent No. 7 has stated in his affidavit that he had resigned from the directorship of respondent No. 2 in April, 1972. It is stated that in view of the compelling circumstances and the financial position of the petitioner, its board of directors had held meetings on 14th January, 1972, and 15th February, 1972, and decided to sell the shares held by the petitioner in respondents Nos. 1, 2 and 3 and the said decision was taken in view of the circumstances as stated. It has been denied that the sale deeds after the sale were in the control of respondent No. 6 or respondent No. 7 or that the said two respondents were in any way benefited by the sale. It has also been denied that other respondents were associates with Haridas Mundhra in the matter of the sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the petitioner or with respondents Nos. 1, 2 and 3 after February 29, 1972. He had no connection with the sale transactions. This respondent did not contest at the time of hearing. The secretary of respondent No. 2, Angelo Brothers, and also of the interim board of management has sworn to an affidavit. He admits that respondent No. 2 was a subsidiary of the petitioner. In the affidavit it appears that respondent No. 2 has no special interest in contesting the petitioner's allegations. It is non-committal in one sense. However, I do not like to deal with the affidavits filed by the respondents other than those who contested at the time of hearing challenging the claim of the petitioner-company. Those who contested are respondent Nos. 4, 5 and 7. Mr. Mitter, learned counsel, appeared on behalf of respondent No. 7, V.K. Mundhra, Mr. Sen, for Ganapatrai & Sons, respondent No. 4, and Mr. Nag for Metal Craft, respondent No. 5. They opposed Mr. Mukherjee, the leader of counsel appearing on behalf of the petitioner. Mr. John appeared on behalf of respondents Nos. 11 and 13, Mr. Roy for respondent No. 2 and Mr. D.K. Chatterjee for respondent No. 1. The following issues were framed upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when the transfer of the shares were recorded by the respective companies in their registers after the sale of the shares, there can be no scope for filing the present application when the relevant companies entered the names of the transferees on such sales because the companies will only see whether there has been any transfer and if there is a prima facie transfer that would be sufficient ground for recording the names of the transferees. According to section 155 of the Companies Act if the name of any person is without sufficient cause entered in the register of members of the company or after having been entered in the register is without sufficient cause omitted therefrom, the person aggrieved or any member of the company or the company may apply to the court for rectification of the register. The words "without sufficient cause" as stated and mentioned in he section itself are very important. The question, therefore, is whether the grounds on which the present applications have been filed can be stated to be without sufficient cause, that is to say, to be more clear, whether respondents Nos. 1, 2 and 3 in the present cases omitted the name 'of the petitioner-company in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are no sales in law and they carry no title to the alleged purchasers. Even if, in spite of such sales, the company records such sales by omitting the names of the sellers from the register of members of the company and enters the names of purchasers therein, such omissions of the names of the sellers and the entries of those of the purchasers in the register must be deemed to be without sufficient cause as mentioned in section 155 of the Companies Act. If the sales are invalid, illegal and ineffective, the court in these circumstances is to direct a rectification of the register. The application by the aggrieved party challenging the sales of shares of the companies as illegal, fraudulent and ineffective, therefore, comes under the purview of section 155 of the Companies Act and are maintainable in law. In the present case the allegations of the petitioner-company relate to fraud and illegality and these applications are filed by the petitioner-company against the persons practising fraud and doing illegal actions. Some of the respondents were the directors of the board of the petitioner-company and the applications have been made by the petitioner-company for its own interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... everal allegations both in the petition and in the objections, for a decision correct and to the point only vital, important and relevant evidence, I will deal with. Before dealing with the oral evidence in this case, I will take up some documents connected with the issues. As I have already stated earlier, in the present applications sales or transfers of ordinary shares in the capital of respondents Nos. 1, 2 and 3 have been challenged. The sale of shares in respondents Nos. 1 and 2, Shalimar Tar and Angelo Brothers, respectively, were made in favour of respondent No. 4, Ganapat Rai, and the sales or transfers of the ordinary shares in the capital of respondent No. 3, Lodna Colliery, were made in favour of respondent No. 5, Metal Craft. These sales were based upon certain resolutions passed by the board of directors of the petitioner-company in its meetings. It would be convenient, therefore, to consider at the very outset these resolutions appearing in the minutes book of the petitioner-company. According to the petitioner-company, the directors of the company were men of Haridas Mundhra and they acted at the instance of Haridas Mundhra and not for the benefit of the company. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a summary way and in general terms without any specification and determination. In a matter like this, of the directors of a company like the petitioner, it is not expected and it is also unthinkable that the resolution would be made in such a fashion unless it was done in a haphazard manner and to make a show. It does not appear to be normal and reasonable that for such an important decision the directors of a company like the petitioner should act and record the minutes like that and it is clear that the directors did not take the matter seriously. At the relevant time the petitioner-company was to get heavy amounts from the subsidiary companies like Shalimar Tar. There was outstanding dues of no less than Rs. 50 lakhs, but some terms were formulated for recovery of the dues in a manner, which was clearly most unreasonable and prejudicial to the interest of the petitioner-company that even to a man having ordinary intelligence, not to speak about men of business, it requires no discussion to show that the terms of repayment or rather getting back the dues were certainly to the prejudice of the company and that such terms could not have been even prayed for by the debtors if t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther get in the minutes that B.P Moody also reported that in view of the position of Shalimar Tar, Lodna Colliery and Angelo Brothers, the prices offered were reasonable and that the prices would be in the interest of the company. Regarding this offer of reasonableness of the price we find that in the previous meeting of January 1972, nobody was authorised to negotiate for the sale of any share in the subsidiary companies not to speak about B.P Moody. How then could he negotiate without authority ? Moreover, in the previous meeting there is not the slightest indication that the shares of respondents Nos. 1, 2 and 3 were to be sold. There is no evidence, not even a suggestion, that any step was taken by the company or its directors for the proper publication of the sales or to invite offers so that there could have been occasions for bona fide purchasers to make their offers and also for the company to accept the highest offer made. No step was taken for ascertaining the market value or the public demand of the shares in the subsidiary companies. In the minutes it is stated that a report on the valuation of the shares in Shalimar Tar Products by S.R. Batliboi & Co. was placed befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. K.N. Tapuria indicated to the board that he was not inclined to agree to sell the investment except as a last resort. In that meeting it was agreed at the suggestion of the director, B.P. Sinha, that legal opinion was to be obtained from eminent counsel after consultation with the company's solicitors, if at any point of time the question should arise whether it would be proper for the board to sell the investment in view of the pending litigations. In the present case no such opinion of any counsel was taken nor was there any consultation with any solicitor. Now let me consider the financial condition of the petitioner-company and its position at the relevant time. Exhibit EEEE, a letter dated January 4, 1972, written by the chief executive of Shalimar Tar to the board of directors of the petitioner-company will show that in all a sum of Rs. 51 lakhs was due from Shalimar Tar towards loan, interest, rent, services and other charges. It is unthinkable and most unreasonable in my view for any person to sell the shares of Shalimar Tar for a sum of about Rs. 4 lakhs when from the company a sum of Rs. 51 lakhs is due. Exhibit 11, the balance sheet of the petitioner-company for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner-company purchased 13,975 shares and paid Rs. 13,97,500, that is to say, at the rate of Rs. 100 per share, the face value. Exhibit GGGGGG is the balance-sheet of Shalimar Tar for the year ended December 31, 1964, which shows that the said company earned profit after providing for depreciation, etc. According to the balance-sheet in 1971, Shalimar Tar earned a profit of Rs. 18,27,996. Exhibit OOOOO shows that 10 shares in Shalimar Tar were sold to Kusum Bed, Shantilal Mehta and another by Kusum Bed and another at the rate of Rs. 100 per share. The nature of the sale may not conclusively prove the market valuation of the share. The said sale was in October, 1971. Exhibit RRRRR shows that one private company sold 332 shares in respondent No. 1 to the Bank of India, the price of each share being Rs. 100. This sale is certainly a bona fide sale particularly in view of the fact that the Bank of India purchased the shares. From Exhibit SSSSS I get that on November 25, 1970, 5 shares in respondent No. 1 was sold to one Surya Kanta by one Ramdas at the price of Rs. 40 per share. I also get that on April 9, 1970, some shares were sold at the rate of Rs. 100. Again, on February 12, 1969, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were sold to one Sambhu Nath Dey by one Joy Narayan Dey and another at the rate of Rs. 9.06 per share. According to Ex. JJJJJ one Lahariwal sold 100 shares in respondent No. 2 to one Dadriwala at a price of Rs. 8 per share. On February 15, 1971, 100 shares were sold by a company to one Shah at the rate of Rs. 7 per share. Lastly, we get from Ex. GGGG that one Tulsian sold 3,100 shares in respondent No. 2 to Sakuntala and the consideration was Rs. 5 per share. From these documents and in view of the materials on record there can be no doubt that the price of Rs. 2.50 per share in Lodna Colliery was grossly undervalued and against one's conscience. Considering the records, there can be no doubt that at the relevant time, namely, March, 1972, or thereabout, the reasonable market value of each share in Shalimar Tar was Rs. 100, that in Angelo Brothers was no less than Rs. 10 and the share in Lodna Colliery cannot be in any view less than Rs. 5 if not Rs. 10 per share. The prices at which the shares in respondents Nos. 1, 2 and 3 were sold cannot but be grossly undervalued and are unreasonable to any man with a bit of conscience and honesty. Regarding the financial position of Shalimar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stances, it appears to me that V.K. Mundhra was all in all and he was taking the leading part in the matter of sale of the shares. Even at the time of hearing of this case he himself was present and giving instructions to his counsel for cross-examination of the petitioner's witnesses and of course he has a right to do it. One striking fact in this case is that the sales were approved rather hastily without issuing proper and reasonable notice. Shares in Lodna Colliery were deposited on March 15, 1972, and the sales were approved the very next day, namely, on March 16, 1972. Shares in Shalimar Tar were deposited on March 8, 1972, and the same was approved on March 10, 1972. Share transfer register regarding Angelo Brothers was not produced in spite of subpoena. Exhibit JJJ shows that the shares were approved on March 13, 1972. Exhibit SSSS-6 shows that in October some shares were received in respect of Lodna Colliery and they were approved on 26th of December, 1971. I do not find any other case of hasty approval as in the case of the present sales. The share transfer paper shows that in these cases no date was mentioned in the column "sellers-notice issued on". Instead there was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -up valuation. The witness has stated further that he was not told that the break-up value asked for was to be the basis of sale of the shares of the company. According to the expert witness, a chartered accountant, the break-up value is not at all relevant for the purpose of sale of shares of any particular company because for the valuation of the shares of the company for sale or purchase a large number of considerations are to be kept in mind. The break-up value may be one of these circumstances, but not the principal consideration. We also get from him that the break-up value cannot be the fair value of the shares of a particular company. Subsequent to the disputed sales of the shares we are dealing with, in reply to a letter from the chief accountant of Shalimar Tar and another from the Registrar of Companies, West Bengal, the witness stated that the break-up valuation he made was purely a mathematical computation based on an unaudited balance-sheet and, according to him, it was not the basis for fair value of the shares of the company. According to the witness the break-up value of the shares in Angelo Brothers on the basis of the balance-sheet of August 31, 1969, was calcula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Dhirajmal. Hariram was also a director of Shalimar Tar and Dhirajmal was a director of Lodna Colliery. There was a loss in Ganpatrai & Sons of about Rs. 1,91,000. Exhibit OO is the balance-sheet of Ganpatrai & Sons ended March 31, 1973. The company suffered loss in 1972, but in 1973, after the purchase of the shares, the company had some profit. Hariram, as we find from evidence, was a director of Shalimar Tar during 1968-69 and 1970-71 and he was removed from the board of directors by the order of court in December, 1972. It appears from Ex. MMMMM-6, minutes of the board of directors dated March 15, 1967, that Dhirajmal was invited to be an additional director in Turner Morrison.1 He was a director of Angelo Brothers in 1968. Tapuria and B.P. Sinha were also directors of Angelo Brothers. I have noticed Ex. VVVV series, particularly VVVV-5, 6, 7, & 15 of the meeting of the board of directors of Lodna Colliery. The directors were Dhirajmal, B.P. Sinha, Shrivastava and Moody. Dhirajmal, however, left in December, 1971. Exhibit SS is the annual statement as on June 26, 1972. The directors of this company Were S.G. Khaitan and S.N. Khaitan, two brothers as also L.K. Khaitan. S.G. Kh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase 51% shares from Hungerford Investment Trust Ltd. within 5 years claiming a certain sum of money. Haridas Mundhra, it appears, filed a suit for specific performance of the agreement for the said purchase. The suit was decreed. However, ultimately this matter was taken to the Supreme Court by Hungerford Investment Trust Ltd. It appears that Haridas Mundhra filed a suit in the name of the petitioner-company against Hungerford Investment Trust Ltd. for recovery of certain amounts and claimed a lien of 25% shares. Connected matter was decided against Haridas Mundhra and ultimately an appeal was taken to the Supreme Court. It is stated by Mr. Garg that Haridas Mundhra had friends and associates as directors of the petitioner-company, Shalimar Tar, Angelo Brothers, Lodna Colliery and other concerns and thus he was controlling these companies. Up to June, 1964, Shalimar Tar was being run at heavy profits. We also get that on March 9, 1972, the judgments of the two appeals already mentioned were pronounced and there Mundhra failed, but Hungerford Investment Trust Ltd. was successful. On applications filed before the court, the boards of directors of Shalimar Tar, Angelo Brothers and Lod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the said Metal Craft on April 7, 1972. In March, 1972, the witness says, the directors of Angelo Brothers were B.P. Sinha, V.K. Mundhra and George Philip and the directors of Lodna Colliery were B.P. Sinha, Balwant Singh and P.N. Hunda. We get from the witness also that Ramakrishnan was the chief executive of the petitioner-company and also a director in Shalimar Works and Lodna Colliery. P.N Hunda, an employee of Angelo Brothers, was a director of Shalimar Tar and Lodna Colliery. It appears that B.P Sinha and V.K. Mundhra were directors of Osman Sahi Mills Ltd., in which Balwant Singh was a senior executive and that mill was under the control of Haridas Mundhra. Thereafter, B.P Sinha became a director in Turner Morrison, Lodna Colliery and Angelo Brothers. Baijnath Garg has also stated that George Philip was brought to Shalimar Tar as a senior executive by Hariram Lohariwala in or about 1970 and thereafter he was appointed a chief executive of Shalimar Tar. From the cash book of the petitioner-company the witness found that about twenty-one and a half lakhs of rupees were alleged to have been paid. In answer to question No. 302 the witness made serious allegations against Ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shown at Rs. 18,27,996 and for 1972-73 the profit is shown at Rs. 22,87,517. In this connection Ex. 5(n) may be considered. Although according to Ex. 5(n), the minutes of the meeting of the board of directors of the petitioner held on November 21, 1967, legal opinion should be obtained before making any transfer of the share of the petitioner-company, no such legal advice was obtained by the directors of the petitioner-company in connection with the disputed shares held by the company. The witness has clearly stated that the minutes alleged to have been recorded on January 14, 1972, and February 15, 1972, at the meetings of the board of directors were not genuine. He has asserted further that the disputed transfers were not beneficial or advantageous to the petitioner-company, but were detrimental and prejudicial to the interest of Turner Morrison. He has stated that transfers were made to serve designs and the interest of Haridas Mundhra and he has given his evidence regarding this in answer to question No. 1054. The witness has further stated that Ganpatrai &Sons had a paid-up capital of only Rs. 50,000 which had been wiped away by losses and had nothing to pay for the disputed s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not a primary book but copied from black board. The witness has stated that he did not copy the quotations. They are printed. There is no material to prove the basis of the quotation. Regarding the evidence of this witness, in my view, it cannot be relied upon particularly in view of the actual price of the shares recorded in the transfer register. The valuation of the shares appearing in the share transfer register during the relevant time purchased by an uninterested person would be the most reliable evidence as to the market and saleable price. In this connection I may at once say that in spite of subpoena the share transfer register, though called for, was not produced in court. I have already discussed about the rates appearing in the share transfer register in respect of Lodna Colliery and Shalimar Tar. Respondent No. 4 ought to have given evidence in respect of the fair and marketable price of the shares. In the circumstances, the quotation referred to by Sambhu Nath Banerjee cannot be accepted. No case of transfer has been brought to the notice of the court nor the basis of the quotation is forthcoming. On the other hand, on the financial position of Angelo Brothers as also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n support of their defence. It has also been seen that Haridas Mundhra, although he filed an affidavit-in-opposition against the allegations made in the petition, did not contest at the time of trial. It is clear, therefore, in the facts and circumstances of this case, that none of the directors of respondents Nos. 1, 2, 3, 4 and 5 nor any other respondent ventured to step into the witness box although serious allegations of fraud and misconduct have been made against them. It is very reasonable to hold, in the facts and circumstances, that those persons did not dare to face the court personally and to deny those allegations. The non-examination of those witnesses raises a presumption under section 114 of the Evidence Act. It is to be further noted that on behalf of respondent No. 5 there was no cross-examination directed against the witnesses of the petitioner-company. Mr. Nag, the learned counsel, came at the last moment and made his submission after the arguments of all the parties had been concluded. His argument practically was that in case the disputed sales of the shares in question were held to be fraudulent and illegal, then his client, respondent No. 5, would be entitled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e unprofitable and unimportant shares by taking loan or otherwise at any hazard. Nobody has come from the side of respondents Nos. 4 and 5 to give evidence about the circumstances in which the shares were purchased and why and about the nature of the transactions. From the evidence I have no doubt in holding that the marketable value or the market price of the shares could not have been less than their face value in any view of the matter. In spite of sufficient opportunity none of the directors of respondents Nos. 1 to 5 nor any other respondent has dared to come to face the court and to step into the witness box to challenge the allegations made by the petitioner through their evidence, both oral and documentary. No explanation has been given as to non-examination of those relevant, important and necessary witnesses and non-production of necessary and relevant documents. The case of the petitioner-company is that Haridas Mundhra on failure to get majority shares of the petitioner-company after the decisions of the Supreme Court in March, 1972, and particularly during the hearing of those appeals when he had no chance of success wanted to snatch away the valuable shares in respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue, much below the market value and thus issue No. 5 is answered in favour of the petitioner-company as well. I shall now deal with issue No. 6. The question is whether the sales we are concerned with are in contravention of the provisions of the Securities Contracts (Regulation) Act, 1956. The contention of Mr. Mukherjee, learned counsel for the petitioner-company, is that in view of the provision under section 13 of the Securities Contracts (Regulation) Act, 1956, the disputed sales of shares are all illegal and void. The said section reads as follows : "If the Central Government is satisfied, having regard to the nature or the volume of transactions in securities in any State or area, that it is necessary so to do, it may, by notification in the Official Gazette, declare this section to apply to such State or area, and thereupon every contract in such State or area which is entered into after the date of notification otherwise than between members of a recognised stock exchange in such State or area or through or with such member shall be illegal." The word "securities" has been defined in clause (h ) of section 2 of the Act and it says : " 'Securities' include-- (i)Shares, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this case were illegal and void. In the instant case the shares in respondents Nos. 1, 2 and 3 were not negotiated through the members of any recognised stock exchange as required under section 13 of the Securities Contracts (Regulation) Act. Had there been any such sale, there would have been an occasion for publicity or at least there might have been an opportunity of getting a fair market price. On the other hand the shares were sold surreptitiously without letting any outsider know about the sale. However, the fact is proved that section 13 of the Securities Contracts (Regulation) Act, 1956, has been deliberately violated to effect the fraudulent sale of the shares. There can be no doubt, therefore, that all the sales of the shares in question were illegal and void and the sales were ineffective. Issue No. 6 is, therefore, answered in favour of the petitioner-company. I will now consider issues Nos. 7, 8 and 9 together as they are connected. In view of my findings and decisions on issues Nos. 1 to 6 as made above, that the sales of the shares in the three petitions are fraudulent, illegal, void and a nullity, the question arises as to the relief or reliefs which the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X
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