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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 ..... ordingly addressed this court at length. 2. Some of the relevant facts for the purpose of deciding the issue remanded to this court by the Supreme Court of India are as under :- 3. Mrs.Jer Kavasmaneck was the mother of the appellant and the respondent no.2 i.e. Dr.Keki Hormusji Gharda. The appellant is the son of Mrs.Jer Kavasmaneck and nephew of Dr. Keki Hormusji Gharda. The respondent no.3 is wife of respondent no.2. 4. On 28th April, 1962, Kavasmaneck and Gharda family constituted a firm called M/s.Gharda Chemicals Industries. On 6th March,1967, M/s.Gharda Chemicals Industries is incorporated as a private company by taking over the erstwhile family firm of M/s.Gharda Chemicals Industries. It is the case of the appellant that the understanding was enshrined in the Articles of Association of the respondent no.1 thereby the promoters and the shareholders agreed not to transfer their shares to any outsider without first offering the same to the existing members. Article 57 recognized and grants this preemptive right. 5. On 17th August,1988, M/s.Gharda Chemicals Limited became a deemed public company on account of turnover criteria under section 43A of the Companies Act, 1956. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that after the amendment to the Companies Act, 1956 in the year 2000, section 43A was inapplicable, the respondent no.1 did not amend its articles in line with the new definition of private company, the respondent no.1 had become a full-fledged public company and thus Article 57 was consequently invalid. 10. On 21st May, 2010, the appellant herein filed a company appeal bearing no. 24 of 2010 and impugned the said order dated 14th May, 2010 passed by the Company Law Board before this court. The appeal was admitted on 28th June, 2010 and the injunction which was granted by the Company Law Board was continued by this court. It is the case of the appellant that the question of validity of Article 57 was thus alive and was pending in this court in the said company appeal filed by the appellant. 11. On 1st September, 2010, this court in case of Messer Holding held that the pre-emption agreement was valid even in the case of a public listed company and overruled the judgment delivered by the learned Single Judge of this court in case of Bajaj Auto vs. WMDC. 12. On 16th October,2010, the respondent no.1 company issued a notice for convening for said Extra Ordinary General Meeting on 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o was also one of the original petitioner and who had held approximately 6% share capital of the respondent no.1 and who was one of the requisitionists to the Extra Ordinary General Meeting informed the Company Law Board that she did not propose to move or support the proposed resolution for deletion of Article 57. 18. On 21st May, 2012, the Company Law Board passed an order in the said Company Application No.73 of 2012 permitting the respondent no.1 to hold the Extra Ordinary General Meeting but made it clear that if any resolution is passed by the respondent no.1 in the Extra Ordinary General Meeting, the same shall be kept in abeyance. Insofar as the relief for amendment to the company petition is concerned, the said question was deferred. 19. On 22nd May, 2012, the respondent no.1 held the said Extra Ordinary General Meeting. It is the case of the appellant that even with 25% shareholders being opposed to the said resolution, the said resolution was shown to have been passed by the respondent no.1. Sometime in the month of June 2012, the respondent no.1 filed company application bearing no.85 of 2012 in the said Company Petition No.87 of 2010 inter alia praying for vacating a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated the injunction restraining the respondent no.1 from implementing the resolution dated 22nd May, 2012. 24. On 21st January,2013, the Company Application No.91 of 2012 came up before the Company Law Board. It is the case of the appellant that this court had dealt with prayer clause (b) of the Company Application No. 91 of 2012 inasmuch as it did not grant injunction implementing the resolution. Prayer clause (a) of the Company Application No. 91 of 2012 survived to be allowed by the Company Law Board. The Company Law Board however held that this court had considered and disposed of the Company Application No. 91 of 2012 in its entirety and held accordingly. 25. In the month of February/March 2013, the appellant herein filed Special Leave Petition No.13640 of 2013 challenging the order dated 20th December,2012 passed by this court. The Supreme Court has granted leave in the said Special Leave Petition. The said Special Leave Petition has been accordingly converted into Civil Appeal No.2488 of 2014. 26. In the month of 2013, the appellant filed Company Appeal No. 31 of 2013 against the order dated 21st January,2013 by which the application filed by the appellant to amend the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in case of Dinesh Vrajlal Lakhani vs. Parke Davis (India) Limited, 2004(1) Bom.C.R.120 and in particular paragraphs 28, 29 and 32. 30. It is submitted that for the purpose of counting 50 members under section 3(1)(iii), A, A1 and A2 will not be counted as three members but only A will be counted as a member. He submits that if the shares of the company are held in the name of (A, A1) (B,B1), (C, C1) and (E employee category), there would be seven members under section 71. However, for the purpose of section 3(1)(iii) there would be only three members i.e. A, B and C as joint holding is treated as a single i.e. A, B and C respectively and E being under employee category has to be excluded. 31. It is submitted by the learned senior counsel that the respondent no.1 had in its article provided categorically that in respect of the joint shareholding, it would recognize only the first shareholder in as much as, share certificates will be given to him, notices will be issued to him, dividend will be paid to him and if there be any conflict, decision of the fist named shareholder will prevail over the rest. He submits that by Article 3, the number of members of the respondent no.1 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of convenience. Learned senior counsel tendered a coloured chart showing the shares held by various members of the respondent no.1 company including the employees and ex-employees with their old and new folio numbers, various dates of their shareholding in support of the submission that the number of members of respondent no.1 would not exceed 50 but would be only about 42. 35. It is submitted that till 18th May, 2001, the appellant had 7,555 shares of the respondent no.1. As on 31st December,2001, the appellant was shown as members in respect of 7,535 shares and other 20 shares were shown in the name of other family members of the appellant. He submits that some of the employees have transferred some shares to their family members illegally and in violation of Articles of Association of respondent no.1. Even if those members are considered as members, it would not exceed 50. He also invited my attention to the averments made by the appellant to the additional affidavit filed by the respondent no.1. 36. It is submitted that twenty five shares held by the appellant were transferred by the respondent no.1 on 31st December,2001. He invited my attention to the additional affidavit fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided that the private limited company shall be ceased to be a private limited or would become public limited company if the membership exceeds 50. 39. It is submitted that fiction is created to deprive a private limited company of certain privileges and exemption without any change in status of the company from private limited company to the public limited company. He submits that several such privileges and exemptions of a private limited company are conferred under the provisions of Companies Act, 1956. He submits that the pre-emption right is a vested right of a shareholder and is not a privilege or exemption of a private limited. He submits that section 43 creates a limited legal fiction for the purpose of making a private company and to comply with the privileges and exemption which otherwise it was not under the obligation to do so but for the limited legal fiction. He submits that such fiction has to be construed strictly and cannot be extended by importing another fiction. In support of this submission, learned senior counsel placed reliance on the judgment of Supreme Court in case of Maruti Udyog Ltd. vs. Ram Lal & Ors., (2005) 2 SCC 638 and in particular paragraph 38 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Company Law Board, validity of resolution could be still gone into by the Company Law Board in under sections 397 and 398 of the Companies Act, 1956 by the appellant. Learned senior counsel invited my attention to the grounds of appeal filed by the appellant in this court against the said order passed by the Company Law Board. 42. It is submitted by the learned senior counsel that the leave is granted by the Supreme Court against the order passed by this court in Company Appeal (L) No.45 of 2012. Various observations thus made by this court in the said judgment cannot be relied upon by the respondents against the appellant. 43. Mr.Dhond, learned senior counsel for the respondent nos.1 to 3 on the other hand invited my attention to the notice dated 25th April, 2012 issued by the respondent no.1 for deletion of Article 57. He submits that the said notice was issued by the respondent no.1 on the basis of a notice for convening the Extra Ordinary General Meeting issued by the shareholding 12.58% simplicitor for deletion of Article 57. He placed reliance on the explanatory statement issued by the respondent no.1 along with notice dated 12th November,2010 issued by the respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It was held by the Company Law Board that the Company Application No.91 of 2012 has been considered and disposed of. It is submitted by the learned senior counsel that the Company Law Board rightly took a view that this court had already disposed of Company Application No.91 of 2012 which was filed before the Company Law Board in view of the submissions made by the appellant. He submits that the Company Law Board has thus rightly held that the said application for amendment was considered by the High Court itself and has been disposed of. He invited my attention to the grounds of appeal in Company Appeal (L) No.45 of 2012 and would submit that no such ground is raised in the appeal memo that the arguments were advanced by the appellant only in respect of injunction and not the amendment. 47. Mr.Dhond, learned senior counsel for the respondent nos. 1 to 3 submits that Supreme Court while remanding the matter to this court has made it clear that this court has to decide only the question of fact of the membership having exceeded 50. He submits that the Supreme Court has already allowed the civil appeal filed by the appellant. As on today, the company appeal filed under section 10F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had exceeded 50. He submits that this court as well as Company Law Board has independently rendered a finding that the members had exceeded 50 and the respondent no.1 has become public limited company. He placed reliance on paragraphs 17 and 21 of the order passed by the Company Law Board. It is submitted that the findings rendered by this court in the said judgment are not set aside nor the said judgment of this court is stayed by the Supreme Court while admitting the Special Leave Petition filed by the appellant and converting the said Special Leave Petition into a civil appeal. He submits that the said finding rendered by this court are thus binding on parties and also on this Court and cannot be overlooked. Learned senior counsel submits that the appellant thus cannot be allowed to argue that the members of the respondent no.1 had not exceeded 50 or that the respondent no.1 company has not become a public limited company. 51. It is submitted that the appellant did not challenge the finding of the Company Law Board per-se. It was also not the case of the appellant that the Company Law Board had failed to record their submissions on this point. He invited my attention to the gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Company Appeal (L) No.41 of 2012 is still pending. 55. In his alternate submissions, it is submitted by the learned senior counsel that it is clear from the record that the membership of the respondent no.1 had clearly exceeded 50. He placed reliance on section 3(1)(iii) of the Companies Act, 1956 which defines a "private company" and also placed reliance on section 3(1)(iii)(b) and would submit that the said provisions makes it clear that a private company must limit the number of its members to 50. He submits that under section 3(1)(iii)(b) it is clearly provided that whilst counting towards those numbers, the two distinct classes specified in section 3(iii)(b) (i) and (b)(ii) must be excluded, i.e. (a) persons who are in the employment of the company i.e. employees, (b) 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, i.e. ex-employees. 56. It is submitted by the learned senior counsel that the subject of the distinct classes under section 3(1)(iii) (b) (i) and (ii) are 'persons' and not "a class of shares". He submits that the words of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may choose not to. There is no such things as an employee quota shares. 59. Insofar as the issue of joint membership raised by the appellant is concerned, learned senior counsel for the respondent nos.1 to 3 placed reliance on the proviso to definition of "private company" under section 3(1)(iii) and would submit that the said proviso recognizes that a share held jointly by more than one person is to be counted as one single entity / unit. It is submitted that the said proviso explicitly states that it's expression is limited to the purposes of this definition i.e. section 3(1)(iii) alone. The reference to other provisions of the Act is irrelevant for construing the said provision. He submits that the said proviso itself contemplates and recognizes joint holding as a concept. 60. Learned senior counsel led emphasis on the word "they" and would submit that the same would mean an aggregation of two or more persons. By recognizing the ownership / holding, the proviso draws a distinction between the individual members and joint members viz. members who together hold one common share. He submits that whether the members hold shares in common / jointly they are treated as separate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the private company. He submits that for the purpose of definition and proviso, the joint holders are one distinct unit different from 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. He submits that once both principles are applied, there can be no dispute that the membership of the respondent no.1 had consequently exceeded 50. 63. It is submitted that on 30th October, 2001, the appellant had applied to transfer twenty five shares held by him to five shares held jointly each with his wife, his son and two daughters. The said transfer was effected by the respondent no.1 on 31st December, 2001. On 14th January, 2002, the respondent no.1 company informed the appellant of such transfer effected in the records of the respondent no.1. It is submitted that as a result of such transfer effected by the appellant himself, the numbers of the members of the respondent no.1 increased to 54. The respondent no.1 has recognized that separate port folio had been created in new joint shareholding units / entities. 64. It is submitted that as a result of such transfers, applied for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to various findings recorded at pages 23, 28, 40, 41 and 42 of the impugned order passed by the Company Law Board. Learned senior counsel placed reliance on the judgment of Supreme Court in case of Ram Parshotam Mittal and another vs. Hillcrest Realty SDN.BHD. and others, (2009) 8 SCC 709 and in particular paragraphs 71 to 74. He also placed reliance on the judgment of Supreme Court in case of Needle Industries (India) Ltd. and others vs. Needle Industries Newey, (India) Holding Ltd. & others, (1981) 3 SCC 333 and in particular paragraphs 146 to 150 thereof. 68. Insofar as name of R.N.Sethna and M.M.Sharma in the chart of members is concerned, learned senior counsel for the respondent nos. 1 to 5 fairly admitted that the same was a mistake on the part of the respondent no.1. 69. Learned senior counsel then placed reliance on paragraph 14 of the judgment of the Supreme Court in the Special Leave petition filed by the appellant and would submit that it is already held by the Supreme Court that all requirements of section 3(1)(iii) have to be fulfilled for a company to retain its private character. He submits that the said issue is already concluded finally by the Supreme Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distinguished the decision of the Company Law Board in case of Jyotirmoy Ghosh & Anr. vs. A. Tosh & Sons (India) Ltd. & Ors. (supra) on the ground that the findings rendered by the Company Law Board in that matter were given on a limited point of maintainability of a petition under section 399 of the Companies Act. He relied upon paragraphs 8.1 of the said decision in support of his submission. 73. Learned senior counsel distinguished the judgment of this Court in case of Dinesh Lakhani vs. Parke Davis (supra) and would submit that the said judgment does not lay down any law nor does it suggest that whilst computing joint membership for the purpose of determining the number of members, the second holder must be excluded and has no effect exists. He submits that the said judgment merely notes that in the context of voting, the first holder of jointly held shares is entitled to vote under the Articles of Association if both holders are present. He submits that the same is merely for convenience and does not in any way confer a inferior status to the second holder since the law recognizes that the right of voting belongs collectively to all the holders of that particular share. 74. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes not by itself invalidate provisions in its Articles against free transferability. He submits that the Supreme Court has accepted that the deemed public company under section 43-A can have restrictions against free transfer of shares in its Articles. He submits that the said judgment is not an authority for the proposition that where a private limited company fails to answer the statutory description of a private limited because (i) its members exceed 50 and/or (ii) the restriction against free transferability in its Articles (Article 57) is consciously deleted. 78. It is submitted that the argument of the appellant is self-defeating. He submits that if the Supreme Court would have held that the respondent no.1 was a private company, the Supreme Court would not have directed this Court to carry out an empty formality or an exercise of finding out the number of members. He submits that the out come of this enquiry is obviously irrelevant. He submits that the Supreme Court's judgment does not deal with the cases 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion was once again raised by the respondent nos.1 to 5 before the Supreme Court and it was effectively denied by the appellant. He invited my attention to pages 509 and 523 of the counter affidavit dated 23rd August, 2011 filed by the respondents and pages 553, 554, 555 and 569 of the rejoinder dated 23rd September, 2011 filed by the appellant before the Supreme Court. 83. It is submitted by the learned senior counsel that as the parties were in dispute with regard to the number of members having crossed 50, the Supreme Court thought it fit to remand the said issue. He submits that the respondents thus cannot be allowed to urge that the said issue is already decided by the Company Law Board and also by the learned Single Judge of this court. It is submitted that since there was no material on this issue, the respondents for the first time placed the material vide their affidavit dated 12th February, 2015 which was responded by 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of counting 50 members, it is necessary to identify who constitute the 50 members. He submits that the plain reading of Articles of Association of respondent no.1 and more particularly Article 3, 15, 20, 52, 59(a) and (b), 101 and 193 clearly suggests that in case of joint members, the company will recognize only the first member. He submits that when "AB" is to be treated as one member that one member is 'A'. Similarly in case of "AC", the one member is 'A' and so also the "AD", the one member will be 'A'. consequently for the purposes of section 3(1)(iii), each of the alleged three units are actually 'A' and they must be counted as one member. 87. It is submitted that if the interpretation of the respondents is accepted, it would result in absurd, impractical and impermissible consequences. Learned senior counsel once 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 st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 50 members but on the contrary the issue was whether the joint shareholder could be held liable on the death of the co-holder. This court held that the joint shareholder can be treated as one only for the purpose of section 3(1)(iii) of the Companies Act, 1956. He submits that in any event, the judgment of this court in case of Narandas Munmohandas Ramji (supra) has already been referred by the Division Bench of this court in case of Dinesh Vrajlal Lakhani vs. Parke Davis (India) Limited, 2004(1) Bom.C.R.120. 91. Insofar as submission of the learned senior counsel for the respondent nos. 1 to 5 that employee shares are "persons specific" and could not be considered in a generic sense and that the 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 un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riginally existed. He submits that the issue in the present case is not the effect of the deletion of the Article 57 but the effect of number of members exceeding 50. When the Company Law Board had decided the matter on 14th May, 2010, Article 57 was existing. On the date when the High Court in appeal decided the matter on 20th December,2012, Article 57 was existing. On the date when the Supreme Court passed an order of remand on 28th October,2014, Article 57 has been deleted. 94. It is submitted that the civil appeal filed by the appellant objecting to such deletion was admittedly pending in the Supreme Court when the Supreme Court remanded the matter to this court by the said order dated 28th 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmits that interpretation of the respondent nos. 1 to 5 would lead to absurd consequences and would lead to an inappropriate unintended result which is not intended by legislation. He submits that the appellant was admittedly first shareholder in all five certificates. He submits that if the submissions of the respondent nos. 1 to 5 is accepted, if both the shareholders are present, both will have to be permitted to vote for the same shares at the same time. He submits that in this case all the notices sent by the respondent no.1 were sent to the first shareholder and not to the joint shareholders. 100. It is submitted by the learned 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 tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... far as scope of remand by the Supreme Court of this court is concerned, the court has to decide the issue based on the condition prevailing today and not when the Company Law Board as well as this court had passed the order. He submits that the Supreme Court though has allowed the civil appeal filed by the appellant, Supreme Court has not remanded back the company appeal under section 10F of the Companies Act, 1956 filed by the appellant. This court thus cannot decide the consequence of the factual findings as may be rendered by this court. 105. Insofar as applicability of Article 3A of the Articles of Association is concerned, 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 wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... name member. 111. Section 41 of the Companies Act, 1956 defines "a member". It is provided in the said section that the subscribers of the memorandum of a company shall be deemed to have agreed to become members of the company, and on its registration, shall be entered as members in its register of members. Every other person 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. Section 3(1)(iii) of the Companies Act, 1956 defines "private company" which means a company which is a paid up capital of Rs. 1 lakh 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares in the company jointly they shall for the purpose of this definition, be treated as a single member. 115. Article 15 makes a provision where two or more persons are registered as the holders of any shares. It is provided that the company would not be bound to issue more than one certificate and shall deliver the same to person named first on the register of members. Any notice shall be considered sufficiently given to all the joint members if given to the one whose name stands first on the register in respect of share held jointly. Upon the death of the joint holder the survivor/s shall 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me stands first on the Register in respect of the joint holding and every cheque or warrant so sent shall be made payable to the order of the person to whom it is sent or to his bankers. 121. It is not in dispute that the respondent no.1 had issued certain number of shares to the employees of the respondent no.1 subject to the provisions of law as well as Articles of Association of the respondent no.1. 122. Section 36 of the Companies Act, 1956 provides that subject to the provisions of the said Act, the memorandum and articles shall, when registered, bind the company and the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyee quota and had identified the employee share certificate separately as employee share. The transfer of shares by these employees during their employment and thereafter was restricted under Article 59(b) of the Articles of Association. In my view, in view of the condition imposed in Section 3(1)(iii)(b)(ii), even if the employee share holders who continued to be the members after their employment ceased are also required to be excluded categorically while computing the number of members fifty as restricted under Section 3(1)(iii)(b). In my view, any such transfer made 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the Companies Act, 1956 or Articles of Association cannot be referred to for construing the said provision. 131. In so far as the submission of the learned senior counsel for the respondent no.1 that a fiction is created under Section 3(1)(iii) of the Companies Act, 1956 which is only restricted to the private company for limited purposes is concerned, in my view, there is no merit in this submission of the learned senior counsel. There is no merit in the submission that for the purpose of definition and proviso, the joint holders are one distinct unit, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Lakhani vs. Parke Davis (India) Limited (supra) in support of the submission that merely because the names of the family members are included on the share certificate jointly with the appellant, those family members would not be considered as a separate member. 136. Article 3 of the Articles of Association also clearly provides that the number of members of the company shall not exceed at any time at fifty. It further provides that where two or more persons hold one or more shares in the company jointly, 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 subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other (supra) relied upon by the learned senior counsel for the respondent no.1 is concerned, there was no issue before the Punjab High Court that the number of members of the company in that case had exceeded fifty and whether two joint holders with the first common name should be treated as one member or 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 & Investmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eposits from the company and commit default in compliance with such stipulation, company only ceased to be entitled to a privileges and exemptions conferred on a private company by or under the Act and the Act shall apply to the company as if it were not a private company 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 conseq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emphasis on the words "take appropriate decision" in paragraph (97) of the order and judgment dated 28th October,2014. This Court cannot decide the consequence of the finding rendered by this Court in view of the limited order of remand by the Supreme Court. 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 Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly no arguments nor any admission. The respondent no.1 denied this contention of the appellant by filing affidavit in reply dated 23rd August,2011. The respondent no.1 had contended in affidavit in reply that as a result of the transfer of twenty five 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebruary,2014. The Supreme Court has granted leave in the said Special Leave Petition No.13640 of 2013. 154. Insofar as judgment of Supreme Court in case of Kunhayammed (supra) and in case of Union of India vs. West Coast Paper 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 sta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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