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TMI Blog2013 (1) TMI 561X X X X Extracts X X X X X X X X Extracts X X X X ..... jority stake holder of 52.47%; scheme sanctioned without notice to him and amounting to a fraud played upon the Court is thus liable to be set aside. 3. Facts as emanating from the record show that the parties are closely related; the applicant is the brother of Krishan Kumar (respondent No. 6) and uncle of Bushan Kumar (respondent No. 4). Case as per the petitioner is that an agreement dated 19.02.1998 had been entered into between the parties pursuant to which it was decided that the petitioner would be gifted eight properties along with a payment of Rs. 2.5 crores in cash; as a counter guarantee respondent No. 6 had given the original share transfer deed dated 01.03.1998 of 52,470 equity shares (52.47% of the equity) of the company and this was confirmed vide letter dated 02.03.1998 (page 395 of the paper book); it was agreed that if this payment of Rs. 2.5 crores is delayed beyond a reasonable time, it would be paid with 2% interest per month or in the alternate the said shares would be transferred in favour of Gopal Kishan. 4. This letter has been heavily relied upon by the petitioner/applicant. His submission is that he was admittedly a shareholder of the company and this h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a fraud which has been played upon the Court and the fact that the applicant was a shareholder/member of the company on 17.04.1999 (when meeting was held) has deliberately been suppressed from the Court. The petitioner was admittedly a member/shareholder of the company on that date but admittedly no notice of this meeting had been served upon him. Submission being that he was holder of 52,470 shares as on 27.02.1999 and meeting of the shareholders convened on 17.04.1999 without notice to the petitioner smacks of the malafides of the respondents who deliberately did not want to inform the applicant that the company M/s Tony Electronics Ltd. was to be merged with Super Cassettes Industries Ltd. Further submission being that it was only in the year 2002 when certain properties of the company were to be sold that he learnt that this company was no longer in existence; it had been dissolved by the order dated 20.09.1999 sanctioning the scheme. The present application filed on 22.07.2002 seeks a setting aside of the aforenoted sanction. 5. The respondents have opposed these submissions; their primary contention is that the present application is not maintainable. Submission being that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioner is not entitled to any equity in his favour. For the same argument reliance has also been placed upon Balkrishan Gupta v. Swadeshi Polytex Ltd. [1985] 2 SCC 167; submission being that the Supreme Court in this later judgment has cited with approval the case of Life Insurance Corpn. of India (supra) and had noted that the rights of a member as against the company concerned can be exercised only when his name is entered into the register of members; no right would arise till such registration takes place. Submission being that in this factual scenario the name of the petitioner not having been entered in the register of members for 52,470 shares (of which the original share transfer deeds were even as per the petitioner lying with him), he does not deserve any relief. Further submission being that the original share transfer deeds have not seen the light of the date till date. Attention has also been drawn to prayer 'C' of the aforenoted application wherein the prayer is specifically to the effect that a direction be given to the company that formalities should be completed by the respondents to get the 52,470 shares transferred in the name of the petitioner; submission be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up to 2002 is answered by the fact that all efforts were being made by the parties to implement the family settlements of 19.02.1998 and 21.02.1998. Submission being that the conduct of the respondent speaks volumes of his intent of playing fraud upon the Court as is evident from the fact that although the scheme stood sanctioned on 20.09.1999 whereby M/s Tony Electronics stood dissolved yet Darshan Kumar Dua, (the erstwhile managing director of M/s Tony Electronics) continued to use the letter-head of the company and continued to communicate with various Government bodies even after 20.09.1999 and reference in this regard has been made to the letters dated 20.10.1999 (written by M/s Tony Electronics to the Account Officer, Noida), 06.01.2000 by M/s Tony Electronics to New Okhla Industrial Development Authority, 07.08.2000 again on behalf of M/s Tony Electronics to Okhla Development Industrial Area all seeking processing of the transfer application qua the property No. G-22, Section-11, Noida, UP in favour of Rajni Dua w/o Gopal Kishan. To support this submission on fraud, attention has also been drawn to the resolution passed by M/s Tony Electronics on 20.03.1999 (pages 415 & 418 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hairperson (acting on behalf of the propounders) to give any notice to him. 12. There is no dispute about the fact that the name of the petitioner Gopal Kishan was never entered into the register of members qua the aforenoted 52470 shares. On the date of the issuance of notices by the Chairperson for the meeting proposed for 17.04.1999; Gopal Kishan was also not a member qua the 100 shares which were earlier held by him as on 27.02.1999; he had transferred these shares in favour of Bhushan Dua. This is evident from transaction No. 4 as reflected in the annual return 1998-99. Vehement submission of the petitioner that 52470 shares stood transferred in his name on the same day vide transaction No. 5 has been disputed by the respondent. 13. On 13.01.2003, counsel for the respondent had filed in Court certified copies of certain documents obtained from the ROC. To determine the authenticity of these documents, Advocate Arjun Bhandari had been appointed to inspect the record of the ROC. The annual return of the company dated 11.10.2002 (Annexure V) had been initialled by him. The Court Commissioner had filed his report dated 27.01.2003. The Commissioner had noted the missing pages in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... serial number, namely serial No.3. 11. I say that the margins drawn in the second and third page of Annexure-V are different from the original filed by me." 15. On 10.02.2003 in terms of this affidavit of the respondent company and the objections raised to the report of the Local Commissioner, the Local Commissioner Arjun Bhandari had been directed to re-inspect the record of the company both at the office of the ROC as also in the office of the company. This second report of the Local Commissioner is dated 21.03.2003. This report has revealed that the Local Commissioner had examined the record of the company on two occasions. On 18.02.2003, he visited the office of the company at Sector-16A, Film City, Noida along with the respective counsels of the parties. The statutory record of the company which included (i) Register of members, (ii) Register of share transfer, (iii) Minutes book & (iv) Original transfer deed for the financial year 1998-99 were examined by him. The photocopy of the return filed by the company before the ROC was also placed before him. (hereinafter referred to as Annexure 'A'). On inspection of the record it was noted that there were nine shareholders of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Annexure 'A'); for example the folio number allotted to Krishan Kumar was different; father's name of baby Khushali was wrongly stated; so also the father's name of baby Tulsi. Cumulative opinion of the Local Commissioner being that in this scenario, he could not positively conclude whether there has been tampering of the additional sheets of the annual return lying in the ROC which had further reflected that the printed pages and additional pages filed thereto along with the annual return have not been signed at the bottom. 17. The documents annexed along with this report have also been perused. Annexure 'B' is the Register of members maintained by the company from its inception i.e. on 03.06.1982 which evidenced that Gopal Kishan had been registered as a member on 03.06.1982; he ceased to be a member on 27.03.1999; his 100 shares which he was holding were sold on 27.02.1999 to Bhushan Dua; there is no other transaction of 27.02.1999. The submission of the petitioner that 52,470 shares were transferred in his name on 27.02.1999 is not borne out from the record. This is also being clearly stated by the Local Commissioner. At the cost of repetition, this bound Register of members m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivered to the company along with the certificate relating to the shares or debentures, or if no such certificate is in existence, along with the letter of allotment of the shares or debentures." 22. It is a mandate upon the Company; it thus became incumbent upon the Company not to register the transfer of shares of the company unless the instrument of transfer was duly stamped; this is the first requirement. It must also be completed in all respects. The Articles of Association of the Company have also been perused. Under Article 19 transfer of shares could be effected only if instrument of transfer is duly stamped and accompanied by the certificate of the shares proposed to be transferred or such other evidence as the director may require to prove title of the transferor or his title to transfer the shares. 23. In the present case the share transfer forms (relied upon by the petitioner) shows that they were unstamped. They are also admittedly only a photocopy of the original forms. The originals have not been filed. Pleadings of the petitioner are relevant. In para 14 of this application it has been pleaded that the petitioner had submitted these share transfer forms with the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tan [1977] 2 SCC 424 in the context of provisions of Section 108 of the Companies Act had noted that the words appearing "shall not register" are mandatory in character. The relevant extract of the aforenoted judgment reads herein as under: "The words "shall not register" are mandatory in character. The mandatory character is strengthened by the negative form of the language. The prohibition against transfer without complying with the provisions of the Act is emphasized by the negative language. Negative language is worded to emphasise the insistence of compliance with the provisions of the Act. (See State of Bihar v. Maharajadhiraja Sir Kameshwar Singh of Darbhanga K. Pentiah v. Muddala Veeramallappa of 1975 and Additional District Magistrate, Jabalpur v. Shiakant Shukla) Negative words are clearly prohibitory and are ordinarily used as a legislative device to make a statutory provision imperative. In Raza Buland Sugar Co. Ltd. v. Municipal Board Rampur, this Court referred to various tests for finding out when a provision is mandatory or directory. The purpose of which the provision has been made, its nature, the intention of the legislature in making the provision, the general ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounsel for the petitioner on the provisions of Section 164 of the Companies Act is also mis-directed. Section 164 reads herein as under;- "164. The Register of members, the register of debenture holders, and the annual return shall be prima facie evidence of any matters directed or authorized to be inserted therein by this Act." 31. There is no dispute to the proposition that annual returns are a prima facie evidence of any matters directed or authorized to be inserted therein by this Act. Section 164 has however to be read along with Section 610(3) of the Companies Act which reads as follows. "610 (3) A copy of, or extract from, any document kept and registered at any of offices for the registration of companies under this Act, certified to be a true copy under the hand of the Registrar (whose official position it shall not be necessary to prove), shall, in all legal proceedings, be admissible in evidence as of equal validity with the original document." 32. The company cannot take shelter under this provision Section 610(3) only states that a copy of, or extract from, any document kept and registered at the offices for the registration of companies under this act certified to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r is truly complete and the transferee becomes a shareholder in the true and full sense of the term, with all the rights of a shareholder, only when the transfer is registered in the company's register. A transfer effective between the transferor and the transferee is not effective as against the company and persons without notice of the transfer until the transfer is registered in the company's register. Indeed until the transfer is register in the books of the company the person whose name is found in the register alone is entitled to receive the dividends, notwithstanding that he has already parted with his interest in the shares. However, on the transfer of shares, the transferee becomes the owner of the beneficial interest though the legal title continues with the transferor. The relationship of trustee and 'cestui que trust' is established and the transferor is bound to comply with all the reasonable directions that the transferee may give. He also becomes a trustee of the dividends as also of the right to vote. The right of the transferee 'to get on the register' must be exercised with due diligence and the principle of equity which makes the transferor a constructive truste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Calcutta High Court relied upon as held in Bank of Mymensing Gauripur Ltd., In re 1948 (53) C.W.N. 143 had been noted as follows:- "It appears clear to me, however, that once a scheme is sanctioned and the order granting the sanction has been perfected the Court sanctioning the scheme has no jurisdiction under the Companies Act to alter of amend the scheme except by way of a fresh scheme. It is significant that there is no provision in the Companies Act, similar to section 31 of the Presidency Towns Insolvency Act. Further, the fact that the transferor bank has been dissolved and struck off the register creates procedural difficulties as to making a defunct company a party to any proceeding and as to service of any notice or process on it. The doctrine of the Court's inherent power, like that of public policy, should be sparingly used, for otherwise there is a great risk of all rules of procedure evolved out of the experience and practical wisdom of the past being set at naught by the varying idiosyncrasies and notions of justice of individual Judges." 39. It is clear that on the date of the filing of the present petition which was on 22.07.2002, the remedy of appeal was o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resent Scheme has envisaged and taken into account the interest of all the secured creditors, unsecured creditors and the shareholders; the interest of all the aforenoted persons has been protected. In fact this is not even the averment made in the present petition. While sanctioning the Scheme, the court has to watch the interest of all the aforenoted parties. It is not the whims and fancies of one individual which has to be kept in mind while sanctioning the scheme or even at the stage of hearing objections after the scheme has been sanctioned. This is the governing factor. The powers under Section 392 of the Companies Act is the power to supervise the carrying out of the revival scheme and also in the course of implementation of the scheme, if the court is of the view that the scheme cannot be carried forward in the manner in which it was envisaged or it is not being implemented in terms of the sanction it has wide powers to give such directions in regard to any matter relating to the scheme or make such modifications in the said compromise or arrangement as it may consider it necessary for the proper working of the said compromise/arrangement. 42. This is however not the posit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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