9911796707
TMI Blog1992 (1) TMI 285X X X X Extracts X X X X X X X X Extracts X X X X ..... 1990. However, this order will not cover O. S. A. No. 17 of 1990 arising out of Company Petition No. 48 of 1987. The petitioners in Company Petition No. 62 of 1988 are the appellants in O. S. A. No. 16 of 1990. O. S. A. No. 19 of 1990 is filed by respondent No. 2 in Company Petition No. 62 of 1988. There are six respondents in O. S. A. No. 16 of 1990, whereas there are ten respondents in O. S. A. No. 19 of 1990. Respondents Nos. 1 to 6 in Company Petition No. 62 of 1988 are also respondents Nos. 1 to 6 in O. S. A. No. 16 of 1990. They are also respondent No. 1-appellant and respondents Nos. 3 to 6 in O. S. A. No. 19 of 1990. The petitioners in Company Petition No. 62 of 1988 who are the appellants in O. S. A. No. 16 of 1990 are respondents Nos. 2, 7, 8, 9 and 10 in O. S. A. No. 19 of 1990. Company Petition No. 62 of 1988 was filed under section 155 of the Companies Act, 1956 (hereinafter referred to as "the Act"), for the following reliefs : "Wherefore, it is prayed that this hon'ble court may be pleased to : (i)order the rectification of the register of members of the first respondent-company and declare that the members of the company and their respective shareholding is as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was executive assistant to K. L. Srihari, respondent No. 4 in Company Petition No. 62 of 1988 and O. S. A. No. 16 of 1990. The petitioners have marked seven documents out of the records produced by respondents Nos. 3 to 6 in Company Petition No. 48 of 1987. Exhibit P-1 is the share transfer form relating to Smt. Muniyamma (petitioner No. 1). Exhibit P-2 is the share transfer form of Narayanamma (petitioner No. 5), exhibit P-3 is the share transfer form of Lakshmishappa (petitioner No. 4), exhibit P-4 is the proceedings of the meeting of the board of directors of the company held on February 24, 1986. Exhibit P-5 is the members' register. Exhibit P-7 is the share transfer form of Aswathappa (petitioner No. 2). Respondents Nos. 3 to 6 also have marked as many as 21 documents which have been marked as exhibits R-1 to R-21. A certain portion in exhibit R-1 is marked as exhibit R-1(a). Similarly, certain portions in exhibit R-2 are marked as exhibit R-2(a) and R-2(b). So also in exhibits R-3, R-12 and R-15, certain portions are marked as exhibit R-3(a), R-12( a) and R-12(b) and R-15(a), R-15(b ) and R-15(c). Exhibit R-1 is the statement of current account up to November 17, 1989, relati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bangalore, on the cheque issued by him. Exhibit R-20 is the cheque dated March 12, 1986, issued by M. Venkatesh for a sum of Rs. 2,58,000 on the Corporation Bank, M. G. Road, Bangalore, on his S. B. Account No. 1692. Exhibit R-21 is the Company Petition No. 48 of 1987 filed by the petitioners in Company Petition No. 62 of 1988 for winding up of the first respondent-company. The learned company judge first considered the scope of section 155 of the Act and held that the proceeding under section 155 was a summary proceeding and if a finding could be arrived at summarily, the exercise of power under section 155 would be quite proper and in such a case refusal of relief would be arbitrary ; that the jurisdiction is discretionary ; that equitable principles governed the exercise of jurisdiction ; that if the conduct of the parties complained of was unfair and unjust in relation to the subject-matter of the litigation and the equity sued for would be very relevant for exercise of jurisdiction. The learned company judge derived the aforesaid propositions as stated by him from the decision of the Supreme Court in Public Passenger Service Ltd. v. M. A. Khadar [1966] 36 Comp Cas 1 ; AIR 196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uary 24, 1986. Therefore, the learned company judge considered it safe to fall back on the ground that the jurisdiction was discretionary, summary and was also concerned with equities. He was also of the view that the share transfer forms were executed by the petitioners and were duly attested by the second respondent, consideration was paid by the transferees and it was collected by the second respondent on behalf of all the petitioners except the fourth petitioner ; therefore, no injustice would be caused to the parties if the court declined to exercise the jurisdiction under section 155 of the Act. Accordingly, the learned company judge dismissed the petition keeping it open to the petitioners to establish their right, if any, by resorting to any other remedy. The learned company judge also summarily referred to the oral evidence adduced by the parties and mainly relied on the evidence given by Lakshmishappa PW 3, and was of the view that the transfer forms were signed by petitioners Nos. 1, 2, 4 and 5. Regarding the other irregularities noticed by the learned judge, it was held by him that all those need not be gone into when prima facie it was found that the petitioners have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting held on January 9, 1985, 50 shares were allotted to Smt. Nirmala. Again in the board meeting held on March 26, 1985, 3,540 shares were allotted to the following four persons : 1. Smt. Kalavathi . . . 900 shares 2. Smt. Parvathamma . . . 840 shares 3. Sri G. R. Byrareddy . . . 900 shares 4. P. Venu . . . 900 shares Thus, by March 26, 1985, all the 10,000 shares were allotted. The case of the petitioners is that no share certificates were issued at any time ; that they did not sell or transfer their shares for consideration to any of the respondents Nos. 3 to 6 ; that petitioners Nos. 1 to 3 and 5 had not executed the share transfer forms ; that the fourth petitioner signed the blank forms and handed over them to Sri P. K. Alwa, that none of the petitioners had received the consideration to transfer the shares ; that the alleged transfer of shares was illegal as the share transfer forms were not accompanied by share certificates. The other pleas raised by the petitioners need not be referred to at this stage. However it is necessary to point out that the alleged share transfer forms of Smt. Pushpa Srinath- petitioner No. 3-were not produced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as required by section 108 of the Act. No doubt, Lakshmishappa admitted in his evidence that he had signed the transfer forms ; but he claimed that the blank transfer forms were signed for the purpose of giving to Mr. Alwa and Venkatesh respondent No. 2 gave the same to Mr. P. K. Alwa. Lakshmishappa further stated that he did not receive any consideration ; that Muniyamma, Narayanamma, Aswathappa and Pushpa Srinath, petitioners Nos. 1, 5, 2 and 3, respectively, signed share transfer forms and gave them to Venkatesh just as he gave exhibit P-3 to Venkatesh. Exhibit P-1 was the transfer form relating to Muniyamma who was examined as PW 1. She denied that she had executed the transfer form. The learned company judge had made a note that when she was confronted with transfer form for the purpose of asking her the question as to whether she had affixed her thumb impression, she refused even to look at the transfer form and denied that she had ever affixed her thumb impression for transfer of shares. In the cross-examination of PW 1, it was elicited that she did not know anything about the first respondent-company. However, in the cross-examination, exhibit P-1 was confronted to her an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they belonged to the Khoday's group ; that he did not know anything about Universal Trading Company. of course, he went to the extent of stating that he did not know what he should do if a cheque were, to be issued in his favour by anyone. He also denied that he received a cheque for Rs. 1,58,000 from Universal Trading Co. on February 24, 1986. He denied that exhibit P-6(a) was his signature. It is very relevant to notice that the transfer forms of other petitioners were not confronted to him. The signature and the thumb impression, as the case may be, of the other petitioners on the transfer forms were not identified by him as they were not confronted to him except eliciting in the cross-examination thus : "Exhibit P-3 was given to Venkatesh and he gave it to P. K. Alwa as stated by me earlier, Muniyamma, Narayanamma and Aswathappa and Pushpa Sreenath signed share transfer forms and gave it to Venkatesh just as I gave exhibit P-3." On the basis of his evidence, the learned company judge has held that execution of transfer forms by the petitioners has been proved. PW 4 is Aswathappa. He is petitioner No. 2. He stated that he did not know respondents Nos. 3 to 6 ; that he had not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion Bank, Nrupathunga Road branch, Bangalore. He produced eight cheques drawn, three in favour of B. G. S. Murthy, one each in favour of Lakshmishappa, Kalavathi and Pushpa Srinath, Narayanamma and Nirmala. He also stated that he did not know any of the drawees of the cheques to whom he referred in his examination-in-chief. He also further admitted that payees' signatures were not obtained on the cheques, exhibits R-4 to R-9 ; and so also on exhibits R-1 and R-11 and exhibits R-10 and R-11 being payees cheques, somebody who had taken the money had signed the cheques but he did not know who that person was. He also further stated that he did not know any of the persons in whose favour the cheques were drawn and were ultimately realised. RW 3 was the accountant in the Canara Bank, Avenue Road branch, Bangalore. He produced the current account extract of Sri K. L. Srihari respondent No. 4, for the period from January 1, 1986, to April 18, 1986. It was marked as exhibit R-12. According to his evidence, Sri K. L. Srihari issued a cheque dated February 24, 1986, in favour of Aswathappa for a sum of Rs. 25,000. That cheque was produced and marked as exhibit R-14. The amount under the ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioners in the matter of dealing with shares. Venkatesh was the managing director of the company at the time he purchased the shares and he handed over the books of the company to us. All those books were maintained by the company by the previous management." In the cross-examination he stated that he did not know when Venkatesh approached Srihari and Swamy and offered to sell the shares ; that he was not present when Venkatesh approached Srihari. He further stated that he was not personally aware of the particulars of the shares offered by Venkatesh to Srihari when he approached the latter ; that he was not aware as to what happened during the meetings between Venkatesh and Srihari. He also further stated that he had not come across any authority given to Venkatesh by the petitioners to act on their behalf. He further admitted that the names found in annexure-A to exhibit R. 21(a) were the names of the then shareholders as on the date of the said agreement. He further stated that he was not aware of the procedure for the acquisition of shares. It may be noticed at this stage that exhibit R-21 is dated November 16, 1986. The other evidence relating to transfer of shares is the mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wishes the court to believe in its existence, unless it is provided by any law that the proof of that fact shall lie on any particular person, the burden of proof of the existence of that fact lies on the person who asserts it. Respondents Nos. 3 to 6 have set up a plea that the shares held by the petitioners in the first respondent-company were transferred to them with the mediation of respondent No. 2. Therefore, the burden was upon respondents Nos. 3 to 6 to prove the alleged transfer of shares. Therefore, it is not possible to agree with the learned company judge for drawing an adverse inference against the petitioners for non-examination of respondent No. 2 especially when it was the case of the petitioners that they had not effected transfer of shares and had not received any consideration amount. Mere relationship of respondent No. 2 with the petitioners is not sufficient to draw an adverse inference against them. On considering the evidence on record, we are of the view that it is not possible to hold that the transfer of the shares held by petitioners Nos. 1 to 3 and 5 is proved in the case. We will consider the case of the fourth petitioner separately. As already pointed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the evidence on record also indicates that consideration amount had not been received by any one of petitioners Nos. 1 to 3 and 5. RW 4, Paul, has no personal knowledge about the meeting of respondent No. 2 with respondent No. 3. He has also not deposed that the amount received by RW 2 was paid over to petitioners Nos. 1 to 3 and 5. A person purchasing the shares or for that matter any property, is under an obligation to pay the consideration agreed upon for the transfer. This circumstance also goes in favour of the petitioners, whose case is that they have not transferred the shares in question. The learned company judge has also held that the case of the petitioners that the share certificates were not issued is not correct. Whereas, it is not disputed by the respondents that no share certificates were issued. The presence of the share certificates for transfer of shares is necessary. This circumstance also goes in favour of the petitioners that there was no transfer of shares and the forms signed by them were handed over to respondent No. 2, for the purpose of raising the loans. The learned company judge has rejected the evidence of PWs 1, 2 and 4, on the ground that they are no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. There is no acknowledgment obtained from the petitioners for having paid the consideration into the hands of the second respondent. Apart from the share transfer forms, exhibits P-1, P-2 and P-7, pertaining to petitioners Nos. 1, 2 and 5, respondents Nos. 3 to 6 have not produced any other evidence for having paid the consideration to them. Of course, cheques issued in the names of these petitioners are produced. But these cheques were encashed by the second respondent. The cheques do not bear any endorsement by petitioners Nos. 1, 2 and 5. They were not even confronted with those cheques. It is really surprising as to how respondents Nos. 3 to 6 could afford to go on in such a manner without caring whether the owners of the shares had executed transfer forms and received the amount of consideration and agreed to sell the shares. As to what happened to the transfer form alleged to have been executed by the third petitioner, there is no evidence. Therefore, the very basic document pertaining to the transfer of shares of petitioner No. 3 is not produced and proved except stating that the transfer form pertaining to the third petitioner was not traceable. Therefore, in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Now, the evidence before us is that of the bank official and the actual extract of the savings bank account No. 1749 and the denial of Lakshmishappa. The savings bank account No. 1749 in the name of Lakshmishappa maintained by the bank containing debit and credit entries for the period from April, 1984, to December, 1987, in the absence of any further evidence to prove fraud on the part of the bank cannot be rejected and it cannot be brushed aside. Therefore, we are of the view that Lakshmishappa has received a sum of Rs. 55,000 through an account payee cheque and that amount has been credited to savings bank account No. 1749 of the Canara Bank, M. G. Road branch, Bangalore. There is a debit entry for having drawn the said amount of Rs. 55,000. But the case of Lakshmishappa is that he signed only the blank form ; that when he signed exhibit P-3 it did not contain any name and it was only blank ; cannot also be brushed aside. This added with the other legal defect that the stamp affixed on the transfer form were not cancelled, should lead to the conclusion that the alleged transfer form was invalid and, therefore, the alleged transfer of shares was not valid in law. Consequently, L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares held by them in the first respondent-company. Thus, taking into consideration all the facts and circumstances of the case as established by the evidence on record, we answer point No. 1 in the negative though petitioner No. 4 has received a sum of Rs. 55,000 which he has to refund to respondents Nos. 3 to 6. Point No. 2.-This point involves a pure question of law. It is contended on behalf of the petitioners and also by Sri Holla, learned counsel appearing for the second respondent that unless the share transfer forms are properly stamped and registered, there will not be a valid transfer. We consider this point on the assumption that respondents Nos. 3 to 6 have proved the transfer of shares by the petitioners, because under point No. 1, we have held that they have failed to prove the transfer. It is an admitted fact that the transfer forms did bear the stamps but they were not cancelled. Section 108(1) of the Act provides that : "A company shall not register a transfer of shares in, or debentures of, the company, unless a proper instrument of transfer duly stamped and executed by or on behalf of the transferor and by or on behalf of the transferee and specifying the na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vathi Petro Chemicals (Company Petition No. 38 of 1980 decided on 10-10-1984), Chandrakantharaj Urs J. has held that the provisions contained in section 108(1) of the Act are mandatory. This decision also accords with our view. The burden was on the respondents to prove that when the transfer forms were delivered to the second respondent the same were filled and were duly stamped at the time of execution of the same. In Arun Kumar Jagnany v. Hindusthan Motors Ltd. [1984] 2 Comp LJ 270 , it has been held (at page 272) : "Apart from the aforesaid issue of limitation, another basic issue for our consideration is that the stamps on share transfer deeds having not been cancelled, the share transfer deeds have to be taken as unstamped and not in accordance with section 108(1) of the Companies Act read with the provisions of the Indian Stamp Act." During the course of the judgment, a decision in Mathrubhumi Printing and Publishing Co. Ltd. v. Vardhaman Publishers Ltd. [1992] 73 Comp Cas 88 (Ker), was brought to our notice. In that decision also a Division Bench of the Kerala High Court has held that under section 12 of the Indian Stamp Act, 1899, cancellation of the stamps has to be do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contended that the shares of the company shall not be transferred except to a person agreed to by all the directors of the company at the price fixed by the board of directors. In our view, it is not necessary to consider this contention in the light of the finding recorded on point No. 1. For the reasons stated above, we answer point No. 2 as follows : The transfer of shares held by the petitioners even assuming that there was such a transfer of shares as claimed by respondents Nos. 3 to 6 by the petitioners, it was not effected in accordance with section 108(1) of the Companies Act read with section 12 of the Karnataka Stamp Act, and, therefore, was not valid in law. Therefore, the petitioners continue to be shareholders of the first respondent-company and as such continue to be its members. Point No. 3.-The petitioners, apart from seeking relief concerning them, have also sought for rectification of the register of members of the company of the first-respondent company pertaining to other members of the company. The rectification of the register of members pertaining to other shareholders whose names are mentioned in the petition as well as in the prayer portion of the petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are also required to consider the scope of section 155 of the Act. Section 155 of the Act, no doubt has now been omitted and it has become part of section 111 of the Act by reason of the Companies (Amendment) Act, 1988, which has come into force subsequent to the filing of the petition. The petition was filed on June 9, 1988. Therefore, we have to consider this case under the Act as it stood prior to the coming into force of the Companies (Amendment) Act, 1988 (Act No. 13 of 1988), in the light of the provisions contained in section 68 of the Companies (Amendment) Act, 1988. Though section 21 of the Companies (Amendment) Act, 1988, omits sections 155 and 156 of the Act but section 16 of the very Amendment Act, 1988 (Act No. 13 of 1988), while substituting section 111 of the Act incorporates section 155 of the Act with certain modifications in section 111 as substituted. As per the substituted section 111 of the Act, the jurisdiction to consider the application for rectification of the register of members of the company no more vests with a district court or a High Court but vests with the Company Law Board. As already pointed out, we have to consider this case under section 155 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iction and relegate the parties to a suit." In that case, it was held that as the case did not involve complicated question, there was no necessity to drive the parties to a suit. It was also pointed out that the rectification of the share register should be allowed if the name of the person after having been entered in the register was without sufficient cause omitted from it. There was no sufficient cause for the omission of the name of the shareholder from the register and the omission was due to invalid forfeiture. In that view of the matter it was held that the forfeiture was invalid. Therefore, it was necessary to grant relief to restore the names of the shareholders. In Indian Chemical Products Ltd. v. State of Orissa [1966] 36 Comp Cas 592 ; AIR 1967 SC 253, the provisions of section 38 of the Act were considered. The provisions contained in section 38 of the Indian Companies Act, 1913, were similar to section 155 of the Act (Companies Act, 1956). In that case, the State of Orissa claimed that by reason of successive constitutional changes, the shares held by the Maharaja Mayurbhanj became vested in the State of Orissa, therefore, it be entered in the register of members ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gister the State of Orissa as a member of the company was gone into in a petition filed under section 38 of the Indian Companies Act, 1913, and it was approved by the Supreme Court. It was also specifically observed that the jurisdiction created by section 38 was very beneficial and should be liberally exercised. The learned company judge has also noticed this decision. The High Court of Gujarat in Gulabrai Kalidas Naih v. Laxmidas Lallubhai Patel of Baroda [1978] 48 Comp Cas 438 , has taken a view that in a proceeding under section 155 of the Companies Act, even if the relief sought for involves complicated questions they can be gone into and if a case is made out, the relief can be granted. The same is the view expressed by the High Court of Kerala in K. P. Anthony v. Thandiyode Plantations (P.) Ltd. [1987] 62 Comp Cas 553 . Thus, the conspectus of these decisions lead us to a conclusion that even though the proceeding under section 155 of the Companies Act is a summary proceeding, as it is a relief provided under the statute, in a proper and appropriate case, it is open to the court to grant relief even though it may involve complicated questions of law and facts. Whether in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company as shareholders. They are entitled to protect and safeguard their existence within the four corners of law as shareholders of the company. Therefore, we are of the view that the petitioners cannot be refused relief on the ground that they lack bona fides as they cannot be held to be guilty of such conduct, we are of the view that it is not proved that petitioners Nos. 1, 2, 3 and 5 have committed any act which lacks bona fides. Of course, as far as Lakshmishappa is concerned, we have already pointed out with regard to receiving of a sum of Rs. 55,000 stated to be the consideration for transfer of 550 shares. But in this regard we have already pointed out that the share transfer form executed by Lakshmishappa is invalid. Therefore, the transfer of share from Lakshmishappa in law cannot be held to have taken place. Therefore, Lakshmishappa cannot be held to have ceased to be a member of the company. Hence we are of the view that the petitioners cannot be refused relief in so far as it relates to them. But the relief sought for by them relating to other members of the company other than the petitioners who have sold their shares, we are of the view that the same cannot be g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e urged and gone into in a petition for winding up which is filed by the petitioners. Accordingly, point No. 3 is answered as follows : "It is not just and proper and it is also not necessary to go into the transfer of shares of several other members of the first respondent-company other than the petitioners and to grant rectification of the register of members of the first respondent-company in respect of those persons except the petitioners." The contentions urged in this regard are left open to be urged in the petition for winding up being Company Petition No. 48 of 1987 filed by the petitioners-appellants. Point No. 4:-In the light of the findings recorded by us on points Nos. 1 to 3, we are of the view that the order passed by the learned company judge cannot be sustained in law and on facts. Point No. 4 is answered accordingly. Point No. 5.-In the light of the findings recorded on points Nos. 1 to 4, the appeals O. S. A. Nos. 16 and 19 of 1990 are entitled to succeed in part. They are accordingly allowed in the following terms : The order under appeal is set aside. The transfer of the shares alleged to have been made by the petitioners in favour of respondents Nos. 3, 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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