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TMI Blog2009 (3) TMI 1043X X X X Extracts X X X X X X X X Extracts X X X X ..... res of the petitioner orpermit the petitioner to purchase the shares of the second respondent at a value as may be determined by the Bench ; and (f) to direct division of the assets and liabilities of the company equally betweenthe petitioner and the second respondent. (2.) SHRI R. Murari, learned Counsel, appearing for the petitioner, while initiating his arguments in support of the petitioner, submitted: The petitioner along with the second respondent had originally started a partnership firm in February, 1985, under the name and style of M/s. Associated Oxides for manufacture of lead sub oxide, with an understanding to share the profits in the ratio of 60 : 40 between them. Thereafter, in September, 1985, the first respondent -company came to be incorporated, whereby the assets and liabilities of the partnership firm were transferred in favour of the company, on dissolution of the aforesaid partnership firm, for a consideration in the form of 240 fully paid -up shares of ₹ 100 each in the company. The present paid -up capital of the company is ₹ 1,80,000 divided into 1,800 equity shares of ₹ 100 each, held equally between the petitioner and the second ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stantiate the convening of the aforesaid board meeting. Any such board meeting without participation of the petitioner, being one of the two directors, cannot be valid for want of any valid quorum. The signature of the petitioner contained in Form No. 32, filed before the Bench is seriously disputed. The petitioner has not signed any transfer form or transferred his shares to anyone, including the third respondent. The purported signature of the petitioner contained in the transfer form dated September 12, 2003, produced by the company before the Bench is forged and manipulated to defeat the rightful claim of the petitioner. The disputed transfer form is said to have been executed on September 12, 2003, while at the same time, the share transfer stamps for an amount of ₹ 450 are found to be affixed, two months prior to the impugned transfer on July 31, 2003 and it bears the seal dated July 30, 2003, of the competent authority. The rubber stamp of the company is affixed upside down in the transfer form. The name of the company has been wrongly filled as Associate Oxides P. Ltd. , while the name of the company is Associated Oxides P. Ltd. It would, therefore, be clear t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the register of members, as claimed cannot be denied for not invoking jurisdiction under Section 111. If the instrument of transfer is found to be forged document, the transfer of shares will be declared as null and void, in which case the Company Law Board will pass appropriate consequential order directing the company to rectify the register of members of the company by substituting the name of the petitioner, in the place of the third respondent, in respect of the impugned shares. There is no legal bar under Section 397 to pray for rectification of the register, without reference to Section 111, especially when the Company Law Board is empowered to pass such order as it deems fit and has power to rectify all matters that were complained of, to do full justice between the parties, under Section 397 read with Section 402 as laid down in Shoe Specialities P. Ltd. v. Standard Distilleries and Breweries P. Ltd., [1997] 90 Comp Cas 1 (Mad). The Supreme Court in Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad, [2005] 123 Comp Cas 566, held that the court while exercising the powers under Sections 397 and 402 of the Act is considering not only the relief that is sought for but also c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubhai Patel : [1977] 47 Comp Cas 151 (Guj). The petitioner was not removed from the post of director, but he only had resigned by virtue of his letter of resignation dated September 12, 2003. The resignation from the office of director by the petitioner in terms of his communication dated September 12, 2003, was recorded at a properly convened board meeting of the company. The respondents have produced the transfer form, the letter of resignation and the undertaking letter duly executed by the petitioner, before the Bench. The petitioner belatedly pleaded that the share transfer form and the letter of resignation have been forged by the respondents which cannot be entertained. The board and general meetings of the company have been regularly held and minutes are maintained properly. The petitioner has wrongfully withheld all the statutory records, including the minutes books and books of account of the company, despite his undertaking for return of those records. The petitioner cannot disown his signatures appearing in the share transfer form and the letter of resignation. The civil suit initiated by the petitioner and the application (I.A. No. II in O.S. No. 3077 of 2002 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d respondent undertook to repay the same. The petitioner, failed to repay the said amount to Karupanna Gounder. Ultimately, the said Karupanna Gounder passed away on May 26, 1995. After the demise of Karupanna Gounder, his legal heirs approached the third respondent, who repaid the entire money with interest to his legal heirs, with recourse, to recover the same from the petitioner by assignment of the promissory note in favour of the third respondent. Thereafter, the petitioner settled the third respondent on September 12, 2003, a total consideration of ₹ 90,000 by transferring his shares held in the company. There is no prohibition under the Limitation Act, to repay a debt which has been barred by limitation. The third respondent has produced an affidavit from one of the legal heirs of the deceased Karupanna Gounder, in support of the settlement of the amount due by the petitioner. The third respondent has been appointed as a director with effect from September 12, 2003, in the vacancy, which arose pursuant to the resignation of the petitioner from the office of director of the company, which was followed by Form No. 32 filed on September 12, 2003. The petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vances of such aggrieved persons, as held in a number of cases by this Board. The disputed question in respect of the transfer of shares involves substantial factual and controversial issues. The maintainability of the petition ultimately depends upon the validity or otherwise of the impugned transfer of shares and thereby if the petitioner succeeds in establishing the plea of forgery, he will qualify to pursue his complaint under Section 397/398 of the Act. Accordingly, the objection as to whether the petitioner is a shareholder of the company cannot be considered as a preliminary issue, but only at the time of disposing of the main petition on merits. It will not, therefore, be justifiable to decline the prayer at the threshold of the petition. Shri K. Ramasamy, learned Counsel, referring to a decision of the Punjab High Court in Ved Prakash v. Iron Traders P. Ltd. (supra) pointed out that a petition under Sections 397 and 398 can be maintained by persons, who are shown as members in the register of the company and that if the persons who are not shown as members, rightly or wrongly, they must first have the register rectified before they can bring a petition under Sections 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e court is considering not only the relief that is sought for but also considers as to what is the nature of the complaint and how the same is to be rectified, in the interest of the company. Accordingly, the Company Law Board is empowered under Sections 397 and 398 read with Section 402 to consider the entire nature of the complaint of the petitioner before me, without any limitation on exercise of the power, with a view to bringing to an end the acts complained of in the petition, which shall also resolve the charges of substitution of the name of the third respondent in the place of the petitioner in the register of members, without sufficient cause, thereby appropriately remedying the whole of grievances of the petitioner, provided that any case is made out, despite non -invocation of the jurisdiction under Section 111 of the Act. Furthermore, substantial right of any aggrieved shareholder shall not be allowed to be defeated, on mere technicality of any omission which is procedural in nature. I may point out that the petitioner invoked the jurisdiction under Section 397/398 in July, 2005, on the premise that the entire share capital of the company is held by him and the second ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould depend upon the facts and circumstances of each case it cannot be therefore, mandatory that whenever the allegations of fraud or forgery are made, the parties should be relegated to a civil suit. Accordingly, this Board in Tarsen Kansil v. Dev Spinners Ltd. (supra) after examining the facts of that case, came to the opinion that the disputed questions of fact regarding fraud or forgery, misrepresentation and manipulation cannot be decided in a summary jurisdiction and consequently ordered that if the petitioner is so advised he could approach a civil court. This Board similarly in S. Sivakumar v. Cirlacs Data Systems Ltd. (supra) after seeing the original instrument of transfer in that case could not be in a position to categorically come to the conclusion as to whether it is the genuine signature of the petitioner or a forged one. At the same time, this Bench in the matter of G. Ramana Reddy v. Vijaya Durga Estates P. Ltd. (supra), after comparing the disputed signatures of the petitioners with their admitted signatures, was in a position to conclude that the disputed signatures of the petitioners are not identically similar with their admitted signatures. In G. Govindaraj v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our of the third respondent or the acceptance of resignation of the petitioner from the office of director. The replies of the respondents are silent even on the date(s) of board meeting(s), approving the transfer and accepting the resignation of the petitioner. There is nothing on record to prove convening or holding of any such board meeting(s). The cessation from office of director merely on the strength of Form No. 32, being weak evidence, in the absence of any primary evidence, cannot be supported by the respondents. Apart from the aforesaid controversies and infirmities, several of the discrepancies pointed out by Shri R. Murari, learned Counsel, in connection with the impugned share transfer form need to be considered, to resolve the contentious issues raised before me. The share transfer form is dated September 12, 2003, while the endorsement made on the reverse of the share transfer form by the Bangalore Stock Exchange Ltd., embossing payment of stamp duty of ₹ 450 bears the date of July 31, 2003, much prior to the date of execution of the share transfer form by the third respondent. Furthermore, the company's name has been misspelt as Associate Oxides P. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the impugned transfer of shares. None of these essential requirements is found to have been satisfied on the bare face of the copy of the promissory note and the third respondent did not even choose to produce the original promissory note duly assigned in his favour. The mere production of an affidavit from one of the legal heirs of (late) P. Karupanna Gounder cannot strengthen the case of the third respondent, in the absence of any other concrete and independent materials produced before the Bench. (7.) ARTICLES 10, 11, 12, 13, 14 and 15 dealing with the transfer of shares of the company prescribe a detailed procedure for effecting any transfer of shares by a member, whereas there has been no material whatsoever produced establishing the due fulfilment of the requirements of the relevant articles in respect of the impugned transfer of shares by the petitioner in favour of the third respondent and on this ground alone the claim of the respondents that the petitioner was no more a member as on the date of the main petition must fail. At this juncture, it will be appropriate to deal with the civil proceedings initiated on May 8, 2002, by the petitioner in O.S. No. 3077 of 2002 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d this Court with clean hands and he has suppressed various material facts. The plaintiff is the relative of this defendant. This defendant had taken the plaintiff on job in the second defendant -company, as the plaintiff has been an engineer. The entire investment for the purpose of starting the second defendant -company was made by this defendant and the plaintiff had no financial capacity to invest. Several allegations are made by this defendant against the plaintiff with regard to the financial irregularities committed by the plaintiff which are not relevant for the present purpose at this stage of the matter. It is stated that the plaintiff has committed the illegal acts causing loss of lakhs of rupees to this defendant. The plaintiff has not taken any interest to clear the loans of the second defendant -company. This defendant after coming to know of various facts got issued a legal notice to the plaintiff calling upon him to furnish the account of the company, the plaintiff has replied to the same. The plaintiff instead of settling the account with the first defendant has chosen to file this suit to cover up his illegal acts as one of the directors of the second defendant -c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has stated that the first defendant is making hectic efforts to induct other persons as directors. He has no where whispered anything about the attempts of the first defendant to remove the plaintiff from the directorship or for transferring of the shares. The affidavit filed by the plaintiff is silent in that regard. Further, the plaintiff contends, that the first defendant has to be prevented from transferring the shares to third parties. But there is no material to show that such attempts were made by the first defendant. The first defendant in his objection statement has taken a specific defence to the effect that he had called upon the plaintiff to furnish the accounts of the second defendant -company and that the plaintiff has not complied with the said notice. The memorandum of articles of association of the second defendant -company shows that the plaintiff and defendant are the only two directors of the said company. The clause 4(b) referred to by the plaintiff provides that subsequent issue of shares after the first allotment shall be offered to the then existing members in proportion to their shareholding as 'rights shares', only when any member exercises h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titioner in the place of the third respondent in respect of the impugned shares, which shall be done by April 30, 2009. The letter of resignation of the petitioner having been already found to be forged, his cessation from office of director is set aside and consequently, the petitioner stands inducted forthwith in the board of directors of the company. The appointment of the third respondent as a director, solely on the strength of Form No. 32, being only secondary evidence and in the absence of the original board minutes on such appointment, must fail. The justification put forth for the first time only in the course of arguments on behalf of the respondents that the petitioner failed to hand over the minutes books and other statutory records, in terms of his written undertaking of September 12, 2003, does not hold, especially when no initiatives are found to have been taken for recovery of the statutory records from the petitioner, ever since September, 2003 and therefore, the appointment of the third respondent as a director of the company is set aside. Ordered accordingly. (9.) IN view of my foregoing conclusions, there are only two shareholders in the company, namely, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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