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TMI Blog2016 (3) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... fic averment in that regard in the pleadings no notice could be taken of such a document. Thus the document has not been made a part of the pleadings authenticated and duly signed by the respondent No. 2. It is elementary proposition of law that in the absence of pleadings no evidence could be adduced to prove a fact because the other side would be deprived of an opportunity to meet the case of Respondent. Moreover the mode of service adopted for sending notice has remained a mystery. Therefore, it is of the considered view that removal of petitioner No. l as a director of respondent No. l company is patently illegal and the resolution passed in the EGM held on 27.6.2013 is null and void. As a sequel to the above discussion the E form No,32 uploaded on 4.7.2014 on the website of ROC, Kanpur is declared as illegal and the resolution passed on 27.6.2013 is declared null and void. Petitioner No. 1 is reinstated as director but he would not be entitled to sign any cheque because he has already withdrawn his bank guarantee. Validity of transfer of share and its registration without a proper instrument of transfer - Whether the case of the respondent is covered by unnumbered provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2014, Shri P. Nagesh, learned Counsel for the Respondents filed an affidavit of Shri Ishwar Dayal Goel (R-2), along with documents Annexure R-l to R-9. Prima facie an appraisal of the documents does not appear to me to be sufficient material to substantiate that the share held by the petitioner were transferred to R-2 in accordance with taw. Therefore, after hearing the learned Counsel on grant of interim relief I deem it necessary to direct the respondents as follows: (a) To maintain status quo on shareholding and fixed assets of the Respondent No. 1 Company as on today till further orders. (b) To maintain status quo on the Board of Directors as on today till further order; and (c) Not to hold any Board meeting without seeking prior approval of this Board. Learned counsel for the Petitioners requests for permitting the petitioners to inspect the statutory records of the Company along with books of account. It is stated by the learned Counsel that if this inspection is not granted, large scale fabrication of records will take place to the detriment of the Company as also to the petitioners. On the other hand, Shri P. Nagesh, learned Counsel for the Respondents st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 Ms. Prabha Goel 25000 7 05 8 Ms. Ishal Goel 17500 8 06 9 Ms. Savita Jain [Transferred in favour of Sh. Ishwar Dayal Goel on 27.06.2013] 5000 9 01 11 Mr. Ishwar Dayal Goel 90000 10 02 12 Mr. Abhishek Goel 25000 11 03 13 Mr. Sudhir Kumar Jain [Transferred in favour of Sh. Abhishek Goel on 27.06.2013]. 90000 12 04 14 Ms. Prabha Goel 27500 13 05 15 Ms. Isha Goel 40000 14 08 16 Mr. Ishwar Dayal Goel Sons (HUF) 12500 15 09 17 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibed and paid up capital of the Respondent No. 1-Company. The authorized share capital of Respondent No. l-Company at the time of its incorporation as on 19.01.2007 was ₹ 10,00,000/ (Rs. Ten Lacs only) divided into 1,00,000 shares of ₹ 10/- each. It was Increased to ₹ 40,00,000/- (Rs. Forty Lacs only) divided into 4,00,000 shares of ₹ 10/- each in pursuance of resolution passed at the EGM of the company held on 14.03.2011. The paid up capital of the company was also increased accordingly by the resolution passed at the Board Meeting on 31.3.2011, Form Nos. 5 and 2 respectively were filed with the ROC. For highlighting the petitioners' shareholding they have placed reliance on the annual returns filed by the company in the year 2012. The petitioner has further claimed that there is a plot measuring 5257 sq, yards which is jointly owned by petitioner No. 2 Ms Savita Jain Respondent Nos. 4 5 namely Ms Prabha Goel and Ms Esha Goel. It is thus claimed that the shareholding pattern and average between the parties was also designed on the same model of percentage and average. 6. The petitioner No. 1 has claimed that he has been a key person who through h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived which constitute a part consideration of 135250 shares. However it is claimed that the shares were sold @ ₹ 120/- as had been agreed between the parties. Therefore instead of payment of over ₹ 1.62 crores the petitioners have been paid merely sum of ₹ 13,52,500/- at rate of ₹ 10/- per share which is its face value. The allegations levelled by the petitioners are that a conspiracy was hatched by respondents in connivance with the Company Secretary Shri Sonu Nehra to oust the petitioners from the directorship of Respondent No. 1-company without complying with the terms and conditions of the settlement. The petitioners have claimed that they approached respondents by protesting against their acts of breach of agreement, oppression and fraud. They also expressed their willingness to pay back the part payment received by them and withdrew their consent to the agreed terms and conditions. However Respondent No. 2 out rightly rejected any such proposal and claimed that respondents had made full and final payment of all the shares to the petitioners group @ ₹ 10/- per share being the face value of the share. As a result the petitioner wrote and notified t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sudhir Kumar Jain Abhinav Goel 95000 Savit Jain Ishwar Dayal Goel 5000 Sudhir Kumar Jain Sons (HUF) Ishwar Dayal Goel 15000 11. The petitioners have also levelled allegations of diversion of company's fund by Respondent No. 2 for election purposes who had contested Municipal elections in June 2013, It is alleged that the company has large number of cash transaction and the same have been diverted to the election expenses which have never been repaid to Respondent No. l-Company. This act has been claimed to be an act of mismanagement. 12. It is pertinent to mention here that Respondents group and the Petitioner group own a piece of land measuring 5257 sq. yards out of which respondents group own 2/3rd and the petitioner group own l/3rd of the land. It was decided between the respondents and the petitioners to incorporate a manufacturing company and construct a factory on the said land and run the business. In this regards it was further decided that the ownership of the company would be held almost in the ratio of lan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the funds of the company are being diverted, considering the fact that presently there is no check on the signatories to the bank accounts from the petitioners group. The respondents may also exploit the cc-limits against the interests of the Respondent No. l-company and the Petitioners. 14. The petitioner has earlier approached this forum by filing C.P No. 138 of 2013 in the month of October on the same cause of action. They were permitted to withdraw the same with liberty to file another one afresh. 15. Firstly an affidavit dated 06.03.2014 was filed and then the Respondents filed detailed reply on 13.5.2014. In reply a number of preliminary objections have been raised. Firstly the respondents have submitted that the petition is not maintainable in as much as the petitioners are not the shareholder of the Respondent No. l-company and they have already transferred their share to Respondent Nos. 2 3. A reference has been made to the annual return of Respondent No. 1-company for the year 2012-2013 where the name of the petitioner does not figure as shareholders. Because it reflects their old status the reliance of the petitioner on the annual return for the year 2012 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent are received by RTGS. Only 20% of the transactions are in cash because the purchase of wheels and axels by famers and agriculturists is in cash and many of them do not have bank accounts. 17. The allegations off siphoning off funds have been denied being false and vague. It has further been claimed that the municipal election took place in the month of June 2012 and the Petitioner No. 1 had also actively campaigned for respondent No.2. There was no adverse effect on Respondent No. l-company because its turnover increased from ₹ 2.78 crores to ₹ 7.93 crores in the year 2012-2013. It shows that respondent did not use the fund of Respondent No. l-company in the municipal elections. Therefore there is no breach of fiduciary relationship between the petitioner and the Respondent No. 1-company. The petitioners have decided to part with Respondent No. l-company on account of need of funds to set up his own business in competition with Respondent No. l-company. Both the petitioners and Respondent No. l-company have been transacting business of wheel and axels. The respondent have further claimed that there has been no agreement to purchase the share @ Rs. l20/- per share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and submit that as the Petitioners agreed to exit from the Respondent No. 1 company and conduct their own business, they also agreed and have transferred on 15.6.2013 and their 1,35,250 shares to me and my family members for a total consideration of ₹ 13,52,500/-. The above said payment of ₹ 13,52,500/- was made vide cheque Nos. 323301 for ₹ 9,50,000/-, cheque No. 323353 for ₹ 50,000/-, cheque No. 323354 for ₹ 1,50,000/- and cheque No. 323355 for ₹ 2,02,500/-. On the reverse of the cheques it has endorsed that the cheques have been issued for share transfer of Respondent No. 1 company's shares. Accordingly, after receipt of the said amount the petitioners have handed over share certificates and share transfer deeds to me on 15.6.2013. True copies of the cheques are annexed herewith Annexure;R-4 (Colly) 8. I say that immediately after receipt of the share certificate and transfer deeds from the petitioners I decided to meet my chartered accountant at the Company's office along with the copy of the Memorandum and Article of Association of the company for completing the formalities of the transfer of the petitioners' shares. Howeve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... response to the rejoinder filed by the Petitioners. In the affidavit filed on 25.8.2015 the application filed by the petitioner before CJM Bhagpat u/s 156(3) of CRPC for treating their complaint as an FIR has been attached. Alongwith the application various other documents have also been attached to support the stand of the Respondents that report in respect of loss of transfer deed executed by the petitioner was lodged and stamp of the police station on the complain is not fabricated. The orders passed by the Magistrate and the District Session Judge Bagpat have also been attached. 24. I have heard the learned counsel for the parties at length. 25. Learned counsel for the petitioner has raised the following submission before me:- 1. There was no special notice given for holding of EGM to remove the petitioner as Director. The petitioners have been illegally removed from their office of directorship w.e.f. 27,6.2013 as reported to the ROC by filing E-Form No. 32 on 4.7.2013. All that has been done without affording any opportunity to the Board to represent against any such removal and in gross violation of the mandatory provisions of section 284(2) of the 1956 Act. Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to register the share in the name of respondents on such terms as it may think fit Reliance has also been placed on the spirit of section 56(1) of the Companies Act, 2013 which provides where instrument of the transfer has not been delivered within prescribed period of sixty days then the company is free to register transfer on such terms as to indemnity as the Board may think fit. Learned counsel has further argued that the version of the respondents to have lost the bag containing the transfer deed is authentic and not a concocted one. The allegation of the petitioners are false that the report of loss of the deed is fabricated and procured. Leaned counsel has also placed reliance on the documents which have been filed and attached with the reply to the rejoinder of the petition to argue that signature of Ashok Chakra is missing on various other documents which were stated to be issued by the Police station, Bhagpat. Therefore it cannot be argued that the copies produced by the respondent are forged. In any case the complaint filed by the petitioner is sub-judice before the court of competent jurisdiction. 28. Learned counsel for the respondents have further argued that once t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for dismissal of the petition with heavy cost. 34. Having heard the learned counsel at a considerable length and after perusing the record I find that the principal questions which emerge for determination in this matter are as follows: I. Whether removal of the Petitioner No. l as director is violative of section 284 of the Companies Act. If so its effect? II. Whether the transfer of share and its registration without a proper instrument of transfer duly stamped and executed by or on behalf of the transferor and by or on before of the transferee is valid and if not then the effect thereof. III. Whether the case of the respondent is covered by unnumbered proviso 1 of section 108 of the Act or that proviso is inapplicable. 35. Before embarking upon discussion of the aforesaid issues it would first be necessary to clear the mist created by host of preliminary objections raised by the respondents. The Respondents have claimed that the petition for rectification under section 59 of the Companies Act, 2013 is not maintainable because the petitioner do not qualify and lacks locus standi in terms of section 399 of 1956 Act. In other words the petitioners have no share nor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e register and the legal representatives are in effect exercising his right. A right has devolved on them though the death of the member whose name is still on the register. In our opinion, therefore, the High Court was pre-eminently right in holding that the legal representatives of deceased member whose name is still on the register of members are entitled to petition under sections 397 and 398 of the Act. In the view we have taken, it is not necessary to consider the contention whether as on the date of petition, they were not members . 37. The aforesaid observations were made by Hon'ble Supreme Court, of course, in the context of the legal representatives claiming right to file a petition u/s 397 and 398 of the Act. I do not see any reason why these observations would not apply to the facts of the case in hand. In the present case the petitioner claims to be member and have challenged insertion of the names of respondents in the register of members by removing their names. They may succeed or fail in their challenge but their locus standi to file a petition for rectification as well as highlighting mismanagement/oppression cannot be questioned. Thus their petition ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 397, 398 and 433(f) of the Act was not maintainable. By placing a reliance on the observations made by Hon'ble Supreme Court in the case of Shanti Prasad Jain v. Kalinga Tubes Ltd. [1965] 35 Comp. Cas. 351. I feel persuaded and inclined to take the view that reasoning adopted in Kalinga Tubes Ltd. would be fully applicable to the facts of the present case because the averments made by the petitioner to make to invoke the jurisdiction of the Court under sections 397 and 398 are not necessarily destructive of the averments which he is required to make in a case seeking entry in the register of membership. Such a view was taken by the Supreme Court in World Wide Agencies case (supra) when a petition for winding up was filed u/s 433(f) read with sections 397 and 398 of the Act. Therefore even that preliminary objection cannot be sustained and is hereby rejected. 41. Having cleared the mist created by host of preliminary objections I may now consider three questions which emerge for determination of the court. Re: Question No. I 42. The case of Petitioner has consistently been that there was no special notice given for holding EGM to remove petitioner No, 1 as a direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... late or because of the company's default, the director may (without prejudice to his right to be heard orally) require that the representations shall be read out at the meeting: 43. A bare perusal of section 284(2) would show that a special notice is required of any resolution to remove a director under this section. On receipt of such notice the director becomes entitled to be heard on the resolution at the EGM meeting. If, after receipt of notice to remove a director a representations in writing is made to the company along with a request of notification to members of the company, the company is under obligation to send a copy of the representation to every member of the company to whom notice of the meeting is sent. In any case if copy of the representations is not sent as per requirement of sub-section (4) then the proviso postulates that the representations must be read out at the meeting. 44. In the present case the petitioners have asserted in their pleadings that no notice of the EGM was given. In the reply filed by the respondents on 12.5.2014 or in the rejoinder the aforesaid assertion made by the petitioners has not been controverted specifically. Only a bald ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... production of instrument of transfer. (1) specify 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 name, address and occupation, if any, of the transferee, has been delivered 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: Provided that where, on an application in writing made to the company by the transferee and bearing the stamp required for an instrument of transfer, it is proved to the satisfaction of the Board of directors that the instrument of transfer signed by or on behalf of the transferor and by or on behalf of the transferee has been lost, the company may register the transfer on such terms as to indemnity as the Board may think fit: Provided further that nothing in this section shall prejudice any power of the company to register as shareholder or debenture holder any person to whom the right to any shares in, or debentures of, the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt while construing the expression 'shall not register' occurring in section 108(1) pointed out that where the language used is in the negative form then it emphasises the insistence of compliance with the provisions concerned. It is intended as a legislative device to make a statutory provision imperative. 51. The expression 'proper instrument' means an instrument which complies with all the formalities required by the Act including the stamp duty required to be affixed. A transfer deed is required to be executed by the transferor as well by the transferee. The deed executed by the transferor alone does not pass the title in the shares to the transferee. 52. Section 108(1) further postulates that transfer form as prescribed must be signed by the transferor or on his behalf as well as by the transferee or on his behalf. There is a statutory form No. 7B which is prescribed form required to be filed by transferor and transferee. The signature of both transferor and transferee are required to be attested by witnesses. The aforesaid share transfer form as prescribed by s. 108(1A) is set out below:- * To be filled only if the documents are lodged by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e duty of the Registrar to stamp said form or otherwise make endorsement on the form with the date on which it was presented. 55. When the facts of the present case are examined in the light of the aforesaid statutory requirement no transfer deed was presented to the Registrar, Kanpur. It is further case of the petitioner that respondent No. 2 has played fraud with him by illegally transferring 1,35,250 shares without execution of any transfer deed by him. The existence of transfer deed itself has been questioned. Therefore the mandatory provisions of section 108 of the Act have been violated. It is further case of the petitioner that no share certificates have ever been issued by Respondent No. l-company and these certificates were always kept with the company. The Respondents have played fraud and committed forgery to effectuate transfer of shares held by the petitioner in respondent No. 1 -Company. 56. The case of Respondent No.2 as presented in his affidavit dated 05.03.2014 and other pleadings is that the petitioner had agreed to exit from the respondent No. l-company and start their own business. They also agreed and have transferred on 15.6.2013 their total shares numb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be attested by the witnesses. If share transfer deed was validly executed the names of the witnesses could be easily revealed. The disclosure of the names of attesting witnesses is extremely significant because those witnesses could have on solemn affirmation authenticated the factum of execution of the transfer deed. 60. It is extremely significant to remember the first principle without any graphic details. In order to prove loss of a document it must first be established that such a document existed. The petitioners' case is that no transfer deed was ever executed which means such a documents has not ever came into existence. The First and foremost duty of respondent No.2 was to meet the assertion made by the petitioner and put forward the affidavit of attesting witnesses to prove the existence of the documents. The theory of lost documents is a stock excuse and is not possible to accept the same until and unless the existence of original documents is proved. There is no attempt made by respondent No.2 to bring on record anything which may show that original was executed. The best evidence in that regard could have been the attesting witnesses who authenticated the sign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfaction of the Board of director which comprised of respondent No. 2, the transferee himself and his associates. They felt easily satisfied as it is a self serving conduct negated by rudimentary principles of natural justice (A.K. Kraipak v. Union of India AIR 1970 SC 150) and no one can be judge in his own cause. Therefore Respondent No. 2 cannot take advantage of 1st Un-numbered proviso. 63. The arguments advanced on behalf of the respondents is that once it is proved to the satisfaction of the Board of directors that the instruments of transfer signed by or on behalf of the transferor and the transferee has been lost then respondent company was duly entitled to registered the transfer of shares on such term as to indemnity as the Board of Director may think fit. However the aforesaid argument cannot be sustained in the absence of sufficient proof about the existence of the Original document. Other argument with regard to lodging of complaint with the police has already been dealt with in the preceding paras. Respondent No.2 also advanced another argument that adequacy of consideration for purchase of share cannot be a subject matter of a petition u/s 397 and 398 of the 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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