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TMI Blog2017 (8) TMI 426X X X X Extracts X X X X X X X X Extracts X X X X ..... f fifty members under Section 3(1)(iii)(b) of the Companies Act, 1956. The submission of the learned senior counsel for the respondent no.1 that such employee quota share does not remain as employee quota or that there is no bar for transfer of such shares by the employees under Article 59 of the Articles of Association, cannot be accepted. (i) The number of members of the respondent no.1 has not exceeded 50 by virtue of transfer of shares by the appellant (singly) to the appellant jointly with his children and wife. (ii) Interim protection granted by the Supreme Court in favour of the appellant to continue for a period of twelve weeks. - COMPANY APPEAL NO. 24 OF 2010 IN COMPANY PETITION NO. 132/397-398/CLB/MB/2009 - - - Dated:- 4-8-2017 - MR. R.D. DHANUKA, J. For The Appellant : Mr.Praveen Samdhani, Senior Advocate, a/w. Mr.Mayur Khandeparkar, Mr.Shriraj Dhruve, Mr.Mitesh Naik, Ms.Heena Desai, i/b. Dhru Co. For The Respondents : Mr.V.R.Dhond, Senior Advocate, a/w. Mr.Rohan Kadam, Mr.Amol Baware, Mr.Abhishek Adke, i/b. Legasis Partners JUDGMENT : This appeal is placed on board in view of the Order dated 28th October,2014 passed by the Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a regarding increase in dividend, compliance with Article 57 and involving the appellant in the work of respondent no.1 company. The said Company Petition No.77 of 1990 however was continued by Percy R. Kavasmaneck and Aban Percy Kavasmaneck who were also the petitioners in the said company petition along with the petitioner. 7. On 13th December,2000, some of the provisions of the Companies Act, 1956 came to be amended. It is the case of the petitioner that the definition of the private company under section 3(1)(iii) was prospectively amended so as to amend sub-clause (d) of the fourth condition that a private company must include in its articles and that section 43A is stated to be inapplicable after 13th December,2000. 8. It is the case of the petitioner that on 5th May, 2001 a resolution was proposed to amend the articles of respondent no.1 by introducing sub clause (d) of section (3)(iii). The said amendment was however defeated. It is the case of the petitioner that sometime in the year 2009 as Dr.K.H.Gharda was attempting to violate the right of pre-emption by transferring his shareholding to an outsider, the petitioner filed a company petition bearing no. 132 of 2009 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Article 57 was pending in this court in Company Appeal No.24 of 2010. On 14th June, 2011, this court dismissed the said Company Appeal No.24 of 2010 and held that the respondent no.1 had become full-fledged public company after amendment of the Companies Act 1956 in the year 2000 and Article 57 was consequently invalid being violative of the concept of free transferability. 15. In the month of July 2011, the appellant herein filed Special Leave Petition No.16994 of 2011 before Supreme Court of India. The Supreme Court of India continued the injunction which was initially granted by the Company Law Board and continued by this court restraining Dr.K.H.Gharda from selling or transferring the shares directly or indirectly held by him. By an order dated 14th February, 2014 the Supreme Court of India granted leave in the said Special Leave Petition and thus the said Special Leave Petition came to be converted into Civil Appeal No.2481 of 2014. 16. On 25th April, 2012 the respondent no.1 issued another notice convening Extra Ordinary General Meeting on 22nd May, 2012 for deleting Article 57 on the ground that it had been held invalid/dead wood by the Company Law Board and this court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21. By an order dated 13th August,2012, the Company Law Board allowed Company Application No.73 of 2012 and permitted the amendment to challenge the notice and convening the Extra Ordinary General Meeting dated 22nd May, 2012. The Company Law Board also allowed Company Application No.85 of 2012 and vacated the ad-interim order dated 21st May, 2012. 22. On 27th August, 2012, the appellant filed an appeal bearing (L) No.41 of 2012 inter alia challenging the order dated 13th August,2012 to the extent that it vacated the injunction restraining the respondent no.1 for implementing the resolution dated 22nd May, 2012. By an order dated 30th August,2012, this court in Appeal (L) No.41 of 2012 restrained the respondent no.1 from taking any steps pursuant to its resolution dated 22nd May, 2012. 23. In the month of September, 2012, Gharda Chemicals Limited filed an appeal bearing (L) No.45 of 2012 challenging the order dated 13th August,2012 allowing the amendment to the challenge and convening of Extra Ordinary General Meeting dated 22nd May, 2012. On 20th December,2012, this court dismissed the Appeal (L) No.45 of 2012 filed by the respondent no.1 and held that Company Petition No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion at paragraph (90), it did not record any finding in this regard. 28. Mr.Samdhani, learned senior counsel for the appellant invited my attention to various statutory provisions of Companies Act, 1956 such as section 3(1)(iii), section 12, section 41, section 43, section 43A and section 45 of the Companies Act, 1956 and also to various Articles of Association of respondent no.1 such as Article 3, Articles 15 and 20, 52, 57, 59(a) and (b), Articles 101 and 193. He also invited my attention to the judgment delivered by this court on 14th June, 2011 in Company Appeal No. 24 of 2010, the averments made by the appellant in Special Leave Petition No.13640 of 2013 converted into Civil Appeal No.2488 of 2014 and also to various paragraphs of the order passed by the Supreme Court on 28th October,2014 in Civil Appeal No.2488 of 2014 disposing of the said Civil Appeal No.2488 of 2014. 29. It is submitted by the learned senior counsel that under section 41 of the Companies Act, 1956, any person who agreed to become a member of the company and whose name is entered into the register of the members, shall be a member of the company. He submits that for the purpose of counting 50 members ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vely in twenty five shares which were held by the appellant in the respondent no.1 were rightly transferred in favour of the appellant jointly with his wife and children in view of the correct decision of the respondent no.1 that such transfer did not exceed the membership above 50. He submits that the respondent no.1 thus cannot be allowed to contend now anything contrary to such transfer effected by respondent no.1 in favour of the appellant and his family members and cannot be allowed to take advantage of its own wrong even if such decision was wrong. 33. Learned senior counsel for the appellant placed reliance on Article 59 (a) and (b) and would submit that under the said Article, the employees of the respondent no.1 who are alloted shares of the said company under the employee quota were under an obligation to re-transfer those shares to the other regular members on cessation of such employee shareholders. He submits that even those shares are endorsed with EMP category in the records of the company. He submits that thus 60 employees holding 60 shares are to be excluded in the counting of 50 members under section 3(1)(iii). He submits that if any such employee has gifted hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of Association of the respondent no.1, the dividend is paid by the respondent no.1 only to the first holder. There is a separate provision for transfer of shares by the employees. The employees have to issue notice of transfer. He submits that under proviso to section 3 of the Companies Act, 1956 a special or an artificial method is created for counting members of the shareholders in case of a private limited company. The purpose of the said proviso is to carve out an exception. Learned senior counsel placed reliance on the judgment of Supreme Court in case of Kedarnath Jute Manufacturing Co . vs . Commercial Tax Officer, Calcutta Ors . , AIR 1966 SC 12 and in particular paragraph 8, judgment of Supreme Court in case of Haryana State Cooperative Land Development Bank Ltd . vs . Haryana State Cooperative Land Development Banks Employees Union Anr . , ( 2004 ) 1 SCC 574 and in particular paragraphs 9 and 10 in support of his submission on the effect of a proviso to the main provision. He submits that the joint shareholding has to be treated as one. It is submitted that if the names of the employees are e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... particular paragraphs 9 and 18. 40. In his alternate submission, learned senior counsel for the appellant submits that assuming whilst denying that the status of the company had undergone a change and it had became a full-fledged public company, the right of pre-emption can still be maintained between the promoters and the shareholders. The Articles of Association constitutes an agreement between the shareholders inter se and as such the right of pre-emption can be continued. He submits that when a fiction is created, the purpose is limited and thus second fiction cannot be created beyond such purpose. He submits that if a particular consequence is provided in the provision for default, no other consequence can be considered. 41. Mr.Samdhani, learned senior counsel for the appellant invited my attention to the prayers in Company Application No.91 of 2012 which was filed by the appellant before the Company Law Board including the schedule of amendment read by the appellant. He also invited my attention to the various paragraphs of the judgment delivered by this court in Company Appeal (L) No.45 of 2012 and in particular paragraphs 38 to 40, 49, 51, 70, 82, 83, 113, 117, 119, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 5 invited my attention to the order dated 13th August,2012 passed by the Company Law Board and in particular paragraphs 19 and 20 thereof to show as to why the deletion was sought by some of the shareholders of the respondent no.1 in respect of Article 57. He also placed reliance upon the company application filed by the appellant before the Company Law Board. He submits that on 10th August,2012, the appellant had sought adjournment before the Company Law Board to argue the Company Application No.91 of 2012. The said application was accordingly adjourned by the Company Law Board to 6th September, 2012. The appellant had argued about the conduct of the meeting by Dr.K.H.Gharda before the Company Law Board. The Company Law Board had allowed the first amendment sought by the appellant however adjourned the application for second amendment at the request of the appellant. He submits that the appellant had argued the application for amendment to the impugned resolution before the Company Law Board and then took adjournment. Company Law Board had recorded that the argument in Company Application No.73 of 2012 and in Company Application No.85 of 2012 were concluded and adjourned the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... membership has exceeded 50. 48. It is submitted that some of the proceedings between the parties are also pending before the Company Law Board and thus this court cannot go beyond the mandate of the remand of the Supreme Court. In support of this submission, learned senior counsel invited my attention to some of the paragraphs of the order passed by the Supreme Court and more particularly paragraphs 96, 97 and 98. It is submitted that since the learned Single Judge of this Court in the company appeal had not rendered a finding of fact whether the membership of the respondent no.1 exceeded 50 or not though had referred to the submissions made by the parties, the Supreme Court has remanded the matter only for the said limited issue. 49. It is submitted by the learned senior counsel that the Supreme Court has finally decided that even if one of the requirements of section 3(1)(iii) is not met, the company cannot be a private company. He submits that once this court renders a finding that the membership has exceeded 50, the same will automatically render the consequence of the company ceasing to be private and would become public and/or the appellant being estopped from contendin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the appellant. The appellant had only challenged the legal consequences and interpretation of the section and not the underlying fact of exceeding 50 members. 52. Learned senior counsel for the respondent nos. 1 to 3 placed reliance on the judgment of Supreme Court in case of Mohd . Akram Ansari vs . Chief Election Officer Ors . ( 2008 ) 2 SCC 95 in support of this submission that if a point is not mentioned in the judgment of a court, the presumption is that that point was never pressed before the learned Judge and it was given up. He submits that the appellant did not make any application before this court alleging that the submissions advanced by the appellant on the question whether the membership of the respondent no.1 had exceeded 50 or not was though raised but was not dealt with by this court in the judgment. 53. It is submitted by the learned senior counsel that if according to the appellant, the alleged concession was not made by the appellant and was wrongly recorded by the Company Law Board or by this Court, the remedy of the appellant was to apply to the Company Law Board or this court as the case may be for clarification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Companies Act, 1948 which defines a private company and would submit that the said definition under the said Act is in parimateria with section 3(iii) of the Companies Act, 1956. He submits that only an actual employee or ex-employee is to be excluded, is implicitly recognized in the said passage of Pennington on Company Law. He submits that the said provision under the Companies Act, 1956 makes it clear that what the section/law requires is identity of the shareholder i.e. person to be considered and not the alleged identity or character of the share. 57. It is submitted that if the Parliament would have intended the exclusions under section 3(iii)(b) operate qua a particular class/quota of shares, it would have provided that a particular class of shares were to be excluded from counting towards 50 members which has not been done. He submits that the case of the appellant that the employee quota shares has to be excluded is not supported by the said provision under the Companies Act, 1956. There is no such quota in law. He submits that there is no permanent law i.e. an employee quota share remains an employee quota share even when it gets into the hands of someone other th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) as being one unit or held by one member i.e. AB , and in such a case member is AB . In support of this submission, reliance is placed on the passages from the commentary of Pennington. Reliance is also placed on the judgment of this Court in case of Narandas Munmohandas Ramji vs . Indian Manufacturing Co . Ltd . ( 1953 ) 23 Company Cases 335 at page 340. He also placed reliance on the judgment of the Punjab Haryana High Court in case of Jarnail Singh Anr . vs . Bakshi Singh Anr . ( 1959 ) 30 Company Cases 192 . 61. It is submitted by the learned senior counsel that the object of the proviso to the section 3(1)(iii) is only to treat the shares held jointly by two persons as one single member entity / unit, for the sole and exclusive purpose of the definition of a private company. He submits that the contention of the appellant that only the first holder must be considered and the second and other shareholders are to be ignored is ex - facie contrary to the plain reading of section 3(1)(iii) read with proviso. It is submitted that the suggestion of the appellant that only the first holder is to be coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s daughter and the appellant and his daughter. He submits that as required by section 3(1)(iii)(b), the current employee and the exemployee have not been counted towards the membership. 65. It is submitted by the learned senior counsel that the appellant has been aware of the fact that the membership of the respondent no.1 had exceeded 50 all through out and he had inspected the records of the respondent no.1 though his constituted attorney on 17th January, 2002. Reliance is placed on the letter issued by the appellant on 18th January, 2002 annexed at Exhibit-K of the paper book. It is submitted that the issue involved is not one of counting but really how counting is to be done i.e. who is to be considered whilst counting or who is to be included and who is not . 66. Learned senior counsel thereafter made his comment on the colour chart submitted by Mr.Samdhani, learned senior counsel for the appellant and more particularly the entry of Mr.Bhanushali who is having Folio No.135 and would submit that the said Mr.Bhanushali was a employee of respondent no.1. He submits that a person who is claiming through an employee is not required to be excluded for the purpose of calcula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Article 57 of the respondent no.1 has stood deleted admittedly. The respondent no.1 had passed a resolution for deleting the said article. The said resolution was challenged by the appellant herein and was negatived and held to be valid by this Court. He submits that admittedly the said judgment delivered by this Court in Company Appeal (Lodging) No.41 of 2012 has not been stayed by the Supreme Court. He submits that there is no final adjudication on the issue of deletion of Article 57 by the Supreme Court. The said Special Leave Petition filed by the appellant, which is now converted into Civil Appeal is still pending. He submits that the fact remains that as on date the condition under section 3(1)(iii)(a) viz. to provide for a restriction on a right to transfer shares, no longer exists. A determination of status must take into account concluded questions of fact between parties. 70. In his alternate submission, it is submitted that the consequence of default under section 43 of the Companies Act, 1956 is that the company looses its privilege and exemptions and has to be treated as if it would no longer a private company and thus the company in default if any must be treated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ongs collectively to all the holders of that particular share. 74. Learned senior counsel for the respondent nos.1 to 3 distinguished the judgment of the Supreme Court in case of Reserve Bank of India vs . Peerless General Finance Investment Co . Ltd . (supra) on the ground that the same is not relevant. He submits that there is no dispute about the general proposition of law with regard to contextual interpretation. He submits that however in this case, section 3(1)(iii)(b) and the proviso thereof are clear in their statutory import which clearly states that it's applicability limited for the purposes of definition under section 3(1)(iii) alone. 75. Learned senior counsel for the respondent nos.1 to 3 distinguished the judgment of the Supreme Court reported in AIR 1967 SC 12 and ( 2004 ) 1 SCC 574 . He submits that there is no dispute about the general proposition of law laid down therein in relation to the interpretation of provisos. He submits that however, the said judgment does not bolster the case of the appellant that shares held jointly by one person in four separate and independent sets is to be counted as one singl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s where companies have become public under sections 43 and 44. There is a marked difference in the language of sections 43, 43-A and 44 which have been recognized in the case of Needle Industries ( India ) Ltd . Ors . (supra). 79. Mr.Samdhani, learned senior counsel for the appellant in rejoinder submits that the Supreme Court has already granted leave in the Special Leave Petition arising out of the order and judgment of this court in Company Appeal (L) No.45 of 2012. He submits that after introduction of section 44A of the Companies Act, 1956 there are only two types of companies i.e. private company or public limited company. The deemed fiction which was provided in the Companies Act, 1956 has been deleted. He submits that the finding of the Company Law Board that the members of respondent no.1 exceeded 50 is totally perverse. The pleadings filed by the appellant before the Company Law Board were not seen by the Company Law Board while rendering the impugned order and judgment. He submits that the affidavit in reply filed by the respondent no.1 before the Company Law Board was without any documents. He submits that there was no admission on the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the appellant by filing his reply dated 28th February, 2015. 84. Insofar as submission of the learned senior counsel that the issue as to whether members exceeded 50 or not has been already dealt with by this court in the judgment dated 20th December,2012 in Company Appeal (L) No.45 of 2012 is concerned, it is submitted by Mr.Samdhani, learned senior counsel for the appellant that the said judgment dated 20th December,2012 has been challenged by the appellant in the Supreme Court in Special Leave Petition No.13640 of 2013 in which the Supreme Court has granted leave by an order dated 14th February,2014 and the said Special Leave Petition is converted into a Civil Appeal No.2481 of 2014. He submits that the findings thus contained in the said decision dated 20th December,2012 cannot be looked into. In support of this submission, learned senior counsel placed reliance on the judgment of Supreme Court in case of Kunhayammed vs . State of Kerala, ( 2000 ) 6 SCC 359 and in case of Union of India vs . West Coast Paper Mills, ( 2004 ) 2 SCC 747 . 85. Learned senior counsel for the appellant invited my attention to the grounds 5( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce again placed reliance on the judgment of this court in case of Reserve Bank of India (supra) on the issue of interpretation of statute and would submit that statute should be construed after ascertaining legislative intent and in the context and scheme of the Act and must depend on the text and the context. No part of statute and no word of a statute can be construed in isolation. Learned senior counsel gave an illustration i.e. if Mr.'A' is a shareholder in Tata Motors Ltd. and holds 100 shares, he is ineligible to file a petition under section 397 as he would not constitute 10% of the paid up capital. However, if Mr.'A' splits from his single holding to joint holding with 100 individuals, so that his 100 shares are splits into 100 units, i.e. Mr.'A' jointly with B1, B2, B3, ....... B100. 'A' has created 100 units means AB1, AB2, AB3, ............ AB100 where the first shareholder is A but the second name of shareholders in each case is different. He submits that if the interpretation of the respondents is accepted in this case, then AB1 to AB100 together are eligible to file a petition under section 397 as if they are 100 members. 88 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reference to Article 59(b) was of no consequence is concerned, it is submitted that the submission of the appellant was that on a fair and purposeful reading of section 3(1)(iii) for the purpose of counting 50 members, the shares held by the employees of the company both past and present are to be excluded. In this case, the respondent no.1 has specifically created an employee quota where the employee share certificates were separately identified as employee shares. He submits that under Article 59(b) these shares always carry the obligation of being transferred to existing members. He submits that if the employee transfers some shares to his wife and children, they will continue to hold these shares under the employee category subject to the restriction of Article 59(b). He submits that if the employee is excluded from the counting of 50, his wife and children who hold the nominal shares also are subject to the obligation of Article 59(b) and must necessarily be excluded from the counting of 50 members. He submits that the Commentary of Penningon's on Company Law is not relevant and would not assist the case of the respondents. 92. Insofar as submission of the learned seni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... October,2014. He submits that notwithstanding such deletion, the entire matter before the Supreme Court was argued and has been decided on the basis that the Article 57 exists. It is submitted that this court has to consider whether on 31st December,2001, the membership of the respondent no.1 had exceeded 50 when Article 57 was existing. 95. Insofar as judgment of Supreme Court in case of Ram Parshotam Mittal and another (supra) relied upon by the learned senior counsel for the respondent nos. 1 to 5 is concerned, learned senior counsel for the appellant distinguished the said judgment on the ground that admittedly in that case, the company had passed a special resolution on converting itself into a public company and also filing the statement in lieu of prospectus. Supreme court has also clarified that the findings therein was only prima facie and were meant for disposal of the Special Leave Petition alone. 96. Insofar as judgment of Supreme Court in case of Needle Industries ( India ) Ltd . and others (supra) relied upon by the learned senior counsel for the respondent nos. 1 to 5 is concerned, it is submitted by the learned senior counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... senior counsel for the appellant that the Supreme Court has already held that the respondent no.1 is not a public company but a deemed public company. The deemed public company can have such an article prescribing right of pre-emption with restriction of transferability. He submits that Supreme Court has already allowed the civil appeal filed by the appellant and thus the company petition filed by the appellant also stand allowed and consequently the judgment of Company Law Board stand reversed. He submits that only because the Supreme Court found that there was no factual finding on the issue raised by the parties whether the number of members exceeded 50 or not rendered by the High Court in the judgment delivered in the company appeal, the Supreme Court remanded the matter back to the High Court after giving findings on the other issues in favour of the appellant. 101. It is submitted that since the civil appeal filed by the appellant has been allowed and if this court takes a view on remand that the members have not exceeded 50, the appeal filed by the appellant under section 10F before this court has to be allowed. In his alternate submission, he submits that if this court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncerned, it is submitted by the learned senior counsel that the said Article has to be read with various other articles and once Article 57 itself is deleted, Article 3A is redundant. He submits that in the facts of this case, the number of members have already exceeded 50. REASONS AND CONCLUSIONS 106. Supreme Court passed an order dated 28th October, 2014 in Civil Appeal No.2481 of 2014 filed by the appellant herein holding that the only other submission of the respondents which is required to be dealt with is regarding transfer of five shares of the appellant which, according to the respondents resulted in the membership of the 1st respondent company exceeding 50 thereby rendering the 1st respondent a public company. It is held that though the High Court noted the submission at para 9, it did not record any finding in this regard. The Supreme Court accordingly declined to examine that question holding that the Supreme Court could not be converted into a Court which enquires into the questions of fact for the first time. The Supreme Court accordingly deemed it appropriate to remit the matter to this court only for the purpose of considering the said submission of the res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such high paid up capital as may be and as its Article (a) restrict the right to transfer its share if any, and (b) limits the number of its members to 50 not including (i) persons who are in the employment of the company, and (ii) persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased. The proviso to the said section provided that if two or more persons hold one or more shares, in a company jointly, they shall, for the purposes of this definition, be treated as a single member. 112. It is the case of the appellant that thus for the purpose of counting 50 members under section 313 of the Companies Act, 1956, the employees' shareholders are to be excluded and joint shareholders are to be treated as single. Learned senior counsel for the appellant tendered a chart showing number of members including the existing and retired employees who were the shareholders of the respondent no.1 and some of the employees having transferred their shares and the transferee having been considered as members by the respondent no.1 to buttress his arguments that even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall be the only person or persons recognized by the company as having any title to or interest in the shares and the directors may require such proof to be given of the death as they shall think fit. 116. Article 17 provides that the company is not bound to recognize any interest in shares other than the death of the registered holders. Article 20 provides for a right of the member to one certificate for all the shares registered in his name subject to the proviso mentioned in the said Article. 117. Article 52 of the Articles of Association provides for Execution of Transfer of any share to be signed by both i.e. transferor and transferee. Article 57 makes the provision for an application for transfer of shares including the procedure for offering shares to the existing members, notice in writing, various restrictions on transfer of shares etc. Article 59 (a) provides for closing the transfer books and register of members. Article 59 (b) provides that in every case, where it is proposed to transfer or allot shares to an employee of the company, such transfer or allotment shall only be passed or made on the condition that the transferee or allottee at any time after he ceases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... members thereof to the same extent as if they respectively had been signed by the company and by each member, and contained covenants on its and his part to observe all the provisions of the memorandum and of the articles. Section 41 of the said Act defines member. Under the said provision, every other person other than provided in Section 41(1) who agrees in writing to become a member of a company and whose name is entered in its register of members, shall be a member of the company. 123. A perusal of Section 3(1)(iii) which defines private company clearly indicates that the company would be a private company which by its articles, restricts the right to transfer its shares, if any and limits the number of its members to fifty. It further provides that such number of members fifty does not include (i) persons who are in the employment of the company, and (ii) persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased. There is proviso to the said provision which states that where two or more persons hold one or more shares, in a company jointly, they s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by such employee share holder in favour of his wife or children would not make his wife or children as a member to be included within the number of fifty members and such member, if any, would be continued to be excluded for the purpose of computation of fifty members under Section 3(1)(iii)(b) of the Companies Act, 1956. 127. I am thus not inclined to accept the submission of the learned senior counsel for the respondent no.1 that only the actual employee or ex-employee has to be excluded while computing number of members fifty under the said provisions of Section 3(1)(iii)(b) of the Companies Act, 1956. Even if any of such employee has transferred his shares during the course of his employment in favour of his family members or even an outsider, the shares having been allotted to such an employee being allotted in his capacity as an employee would not provide any separate or additional membership to such transferee of shares through such an employee. 128. In my view, the argument of the learned senior counsel for the respondent no.1 that the said provision of Section 3(1)(iii)(b) of the Companies Act, 1956 clearly indicates that it is personality-centricor pre-centric i.e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... different constituent and the second holder of shares held jointly with another is a member in all respects since his name even otherwise appears in the register of members. In my view, there is also no merit in the submission of the learned senior counsel for the respondent no.1 that the respondent no.1 having created or recognized separate folio in respect of new joint shareholding units/entities upon transfer of 25 shares of the appellant in favour of himself and his family members in five parts and by virtue thereof, the membership had exceeded to 54. 132. In my view, Mr.Samdhani, learned senior counsel for the appellant has rightly given an illustration that if an existing member transferred his shares in favour of himself being the first holder in his own favour jointly with his family members, there would not be multiple number of members based on such shareholdings on inclusion of names of 2nd and 3rd shareholders jointly with 1st shareholder for the purposes of computing the number of members as fifty under Section 3(1)(iii)(b) of the Companies Act, 1956. Such person stands first in the share certificate is recognized by the respondent no.1 company for the purposes of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they shall for the purpose of computation of private company, be treated as a single member. The exclusion provided in the Article 3 is identical to the exclusion provided in Section 3(1)(iii)(b). 137. It is not in dispute that in past, the respondent no.1 company has refused to transfer the shares on the ground that the number of members would have exceeded fifty. It is not the case of the respondent no.1 that the transfer of shares by the respondent no.1 in favour of the appellant and his family members in question was contrary to any in violation of Article 3 of the Articles of Association and other related Articles referred to aforesaid. In my view, on perusal of Chart submitted by the appellant and on interpretation of Section 3(1) (iii)(b) read with proviso and various Articles of Association referred to aforesaid and the other documents referred to aforesaid clearly indicates that the respondent no.1 has considered the joint shareholding of the appellant with his family members as separate members and has also considered employees who are allotted shares by the respondent no.1 who have transferred those shares in the name of their family members which shares were allotte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two members. The said judgment of the Punjab High Court in case of Jarnail Singh and another (supra) is clearly distinguishable in the facts of this case. 141. In so far as the submission of the learned senior counsel for the respondent no.1 that the appellant was fully aware that the number of members had exceeded fifty in view of the fact that the appellant had taken inspection of the records of the respondent no.1 is concerned, I am inclined to accept the submission of the learned senior counsel for the appellant that if the number of members of the company would have exceeded fifty upon transfer of 25 shares of the appellant in his name jointly with his family members, the respondent no.1 would not have transferred those shares as refused in past. 142. In my view, the judgment of the Supreme Court in the case of Reserve Bank of India vs . Peerless General Finance Investment Co . Ltd . (supra) relied upon by the learned senior counsel for the appellant in support of his submission that the first shareholder has to be considered as a member and not the entire unit would assist the case of the appellant. 143. In so far as the submission of the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany by virtue of the operation of section 43 which only creates a legal fiction. Section 43 does not declare that such companies do become public companies unlike Section 43A. On the other hand the proviso to section 43 enables the Central Government to condone the lapse of such private companies. (e) Parliament did not think it necessary to restrict the collective right of the members of a private company to impose restrictions on the right of individual shareholders to freely transfer their respective shares. In none of the four contingencies contemplated under section 43A(1), (1A), (1B) and (1C), Parliament thought it necessary to restrict such collective right of the shareholders of a private company. Such private companies are to be treated as public companies for certain purposes. (f) If a private company chooses not to incorporate as stipulation but fails to comply with the same, it would attract the consequences mentioned in section 43 which consequences are also avoidable under the proviso to section 43. (g) Even during the period when section 43A operated, the Parliament never thought of curtailing the collective right of the members of the private companies to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 146. Insofar as submission of the learned senior counsel for the respondent nos. 1 to 5 that this court in the judgment delivered in Company Appeal (L) No.45 of 2012 having already rendered a finding that there was no dispute between the parties that the members of the respondent no.1 had exceeded 50 and such findings also having been rendered by this court in order and judgment in Company Appeal (L) No.41 of 2012 as well the Company Law Board including the findings that the respondent no.1 has become a public limited company, those findings are binding on this court and cannot be allowed to be argued once again in this proceedings is concerned, learned senior counsel for both the parties invited my attention to various paragraphs of the pleadings filed by both the parties, findings and observations made by the Company Law Board and in the orders and judgments delivered by this court in Company Appeal (L) No.41 of 2012 and Company Appeal (L) No.45 of 2012. 147. In the affidavit in reply filed by the respondent no.1 before the Company Law Board in Company Petition No. 132/397-398/CLB/MB/2009, it was pleaded by the respondent no.1 that it has more than 50 members. The appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares held by the appellant by the respondent no.1 on 31st December,2001, the number of members of respondent no.1 became 54. The appellant had filed a rejoinder before the Supreme Court on 23rd September,2011 and once again denied that as a result of application for transfer of five shares made by the appellant on 30th October,2001, the respondent no.1 became a public company. 150. The appellant also contended that he had made an application for transfer of twenty five shares in accordance with Article 57 whereby shares were sought to be transferred from his single name to the joint name of himself along with his children and his wife. The said transfer neither created any new shareholder/member nor did it seek to induct an outsider not permissible in Article 57. The appellant also contended that it was the duty and responsibility of the respondent no.1 to ensure that as a result of any transfer, the number of member did not exceed 50. Even in past, the 1st respondent had refused to entertain the application on the ground that the number of members was likely to exceed the maximum permissible number of 50. 151. It is thus clear that the appellant had disputed the averments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mills (supra) in support of the submission that the Supreme Court having granting leave and the Special Leave Petition filed by the appellant having been converted into the Civil Appeal No.2481 of 2014, the findings contain in the decision dated 20th December,2012 cannot be looked into by this Court is concerned, in my view none of these judgments referred to and relied upon by the learned senior counsel for the appellant would assist the case of appellant. The findings if any, rendered in the said decision dated 20th December,2012 are admittedly not set aside by the Supreme Court till date. The Special Leave Petition filed by the appellant against the findings rendered by this court on 20th December,2012 is pending. In my view the findings if any, rendered by the High Court are not stayed by the Supreme Court. Merely because Special Leave Petition filed by the aggrieved party against such finding is admitted, finding or the judgment is not automatically stayed. 155. Insofar as the judgment of Supreme Court in case of Mohd . Akram Ansari (supra) relied upon by the respondent no.1 in support of the submission that if the point is not mentioned in the judgment of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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