9911796707
TMI Blog1984 (10) TMI 171X X X X Extracts X X X X X X X X Extracts X X X X ..... ebruary 7, 1981. The respondent after service of notice has entered appearance and contested the petition. The facts which themselves are not in dispute as can be made out from the pleadings of the petitioners as well as the respondent may be briefly stated and they are as follows: Eight brothers joined together and incorporated Mysore Lachia Setty and Sons P. Ltd. under the Act on November 26, 1946, with a paid up capital of Rs. 1,00,000 divided into 400 shares of Rs. 250 each. The father of the petitioners, late M.L. Manjunatha Setty, together with his seven brothers contributed Rs. 12,500 each and were allotted 50 shares each. However, in the year 1964, differences between the shareholders surfaced and the petitioners' father together with one other brother, M.L. Janardhana Setty, formed a group while the remaining brothers formed the opposite group. In that circumstance, a partition suit came to be filed to which all the shareholders were parties and it is stated that that suit is in the final decree stage on the date of petition. It is alleged that the group of brothers opposed to late Manjunatha Setty and. Janardhana Setty despite the pendency of the partition suit in the Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioners to amend the pleadings in the main petition. The said application when it came up for orders, the court in the light of the arguments advanced at that time and in order to settle the dispute in the family, directed that the petitioners may make a fresh application for transfer to the company which should be disposed of by the board within two weeks from the date of application and the decision thereon communicated to the court. Reference will be made to this later in the course of this order; but to continue the narration of facts, nothing appears to have happened after the letters of December 25, 1968, were addressed by the petitioners. In the meanwhile, M.L. Manjunatha Setty died on May 12, 1974, leaving behind him a will in which he had disposed of his self-acquired estate including the residue of 10 shares which remained in his name after the transfer in 1968 of the 40 shares in favour of the petitioners. The petitioners on account of the pending litigation in the court of the Civil Judge, Chickmagalur, hoping for an early decision did not take any action. As it turned out, the litigation persisted and is yet pending in the City Civil Court. It is in that circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation for transfer made and that the board having considered, expressed the board's willingness to transfer the shares in question by way of transmission as heirs of Manjunatha Setty without reference to the pending litigation or the outcome of it if a fresh application was made by the petitioners. The extracts of the resolution of the board were also filed in the court with the memo. The petitioners were not willing to accede to the suggestion of the board of the respondent company and, therefore, the matter was argued out on the merits of the original petition. At the time of hearing the arguments, ML. Madhava Murthy, the applicant, who wants to implead himself in the proceedings has also been heard through his counsel. This is a case which is a classic example of how family disputes, complicated as they are, have become more complicated resulting in multiplicity of litigation, delay and hardship to those who are affected. Sympathy, compassion and understanding seem to be the first casualities of inter-family litigation. Mr. G. Ramaswamy, learned counsel for the petitioners, has contended that the Act provides for a transfer to be registered by the company concerned both on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectors of the company. The company never questioned the legality of the transfer, any way not when the applications were made by the transferor or the transferees. The learned counsel drew the attention of the court to the reason for refusing to record the transfer. The reason given by the board for refusal was that the conduct in general of late Manjunatha Setty was prejudicial to the interests of the company. It was stated by the counsel that if that was the genuine reason, the board should have welcomed the opportunity to get rid of Manjunatha Setty. The reason for refusal being extraneous to the provisions of the Act and the articles of association of the company, the refusal was mala fide , motivated and, therefore, illegal, it is contended. Shri A.N. Jayaram has countered that contention by stating that late Manjunatha Setty did not question the refusal of the board to register the transfer and, therefore, it would not now be open to the sons to contend that there has been default. I do not think that is the correct position in law. It is indisputable that under sections 108 and 110 of the Act, both the transferor and the transferee may seek the registration of transfer su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Where a winding-up order intervenes whereby the rights of creditors are made paramount, application for rectification must be refused." One can have no quarrel with the general principles enunciated by the learned judge in the matter of the company court's approach to rectification under the Act. The question is whether those principles have application to the facts of this case. The last sentence in the passage extracted above is the key. In that case, the facts were different. A person seeking rectification wanted deletion of his name from the register of members after a winding up order had been made, evidently to escape his liability, if any, as a contributory. In such a situation, laches is a factor which the company court must take note of. That has been made clear in the judgment as the petitioner therein was right through aware of the winding up proceedings concerning the company in question and was all along conscious that he was shown as a member of the company in the register of members. He chose to apply for rectification only after the winding up order was made. It is that factor which went against him. In the case of the petitioners, they have explained the reason f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not for any legal or tenable reason. It was next contended by Shri A.N. Jayaram that after the death of the transferor, the title of the petitioners is in doubt and under litigation and, therefore, the company court should not entertain the application under section 155 of the Act. I do not think that that contention was well taken. That there are instruments of transfer in favour of the petitioners is not in dispute. Third parties may question the title of the transferees, but certainly not the company. In this regard it is useful to notice two cases cited for the petitioners by their counsel. In the case of South Indian Bank Ltd. v. Joseph Michael [1978] 48 Comp. Cas. 368, a Division Bench of the Kerala High Court has summed up the scope of section 155 of the Act, after discussing several Indian and English cases, as follows (p. 376): "The principle to be deduced from these decisions is that while the court would generally assume that the directors acted bona fide in the general interests of the company, if either from the reasons disclosed or from the relevant records it is seen that the directors acted in excess of the power conferred by the articles or on a wrong ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant passage which is as follows : "A clear controversy about title to the shares is bound to arise. More often when, in a special statute, there is special forum on which limited jurisdiction is conferred, a question is more often raised: whether such a forum created by a special statute, with a special limited jurisdiction, could decide the question incidentally arising while exercising the limited jurisdiction. To thwart such a controversy, it is made crystal clear that not only the court can examine the question of title that may arise in an application under section 155, but it would also have the jurisdiction to decide other questions which may arise as ancillary or incidental to the main controversy and the court cannot be asked not to decide them on the ground of lack or want of jurisdiction because the statute specifically confers such wide jurisdiction. There was definite purpose behind enacting sub-clause ( b ) to sub-section (3), namely, to thwart any suggestion that the court cannot cluch at jurisdiction and decide the questions which do not directly fall under section 155, or, for that matter, under any other provisions of the Companies Act. In order to make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, and therefore, there is no lis between him and the respondent. His lis, if any, is with the petitioners and that lis is in issue in O.S. No. 405 of 1980 on the file of one of the City Civil Courts in Bangalore. If he succeeds in the suit there, in so far as the 50 shares in question are concerned, he will be entitled to his share determined by that court and no more. Ten shares remained in the name of Manjunatha Setty when he died. He can always be accommodated out of those shares. By the directions I propose to give in the light of the conclusions reached by me, his interest will not suffer. Therefore, C. A. No. 7 of 1984 is rejected. In the result, I am of the view that: (1)Petitioners are entitled to maintain this petition. (2)Respondent company cannot dispute the legality of the transfer of 40 shares in 1968. (3)Refusal to register the transfer in 1968 was unjustified and mala fide and, therefore, non est in law. (4)O.S. No. 405 of 1980 pending in the City Civil Court of Bangalore is not a bar for registering the transfer in question. (5)Respondent company is precluded from raising the question of qualification of petitioners to be members of the company in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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