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TMI Blog2011 (5) TMI 1064X X X X Extracts X X X X X X X X Extracts X X X X ..... ation submitted by the appellant No. 3 on 30th May, 2001 was incomplete and liable to be rejected. The facts are almost undisputed and the principal issue pertains to the interpretation of the terms of the brochure and statutory requirements of the Companies Act, 1956 (Act, for short). 3. The appellant No. 3 is a corporate body and it is a limited company incorporated under the Act. It had purchased US 64 units as per the details given below:- Date of Purchase No. Of Units Rate of Purchase in (Rs. Amount in (Rs.) 29.07.1999 333500 13.50 Per Unit 45,02,250.00 29.08.2000 73500 13.65 Per Unit 10,03,275.00 29.09.2000 54347.826 13.80 Per Unit 7,50,000.00 Total 461347.826 62,55,525.00 4. At the time of purchase, the appellant No. 3 had complied with the following requirements stipulated in clause 20(6) for the purchase of US64 uni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aking and Repeal) Ordinance 2002, was promulgated dividing the respondent into 2 undertakings. US64 units came to be vested in the Administrator of the specified undertaking of the Unit Trust of India. The Ordinance was subsequently replaced by an Act. On 11th March, 2003, the Administrator offered an option to convert US 64 @ ₹ 12/- for first 5000 US 64 units and @ ₹ 10/- for the balance units. By letter dated 28th March, 2003, appellant No. 3 accepted the option without prejudice to its rights and contentions raised in the writ petition. The bonds issued have been now redeemed and the appellant No. 3 has been paid interest as stipulated therein. 10. The core issue pertains to the differential value in case the application for redemption/repurchase filed on 30th May, 2001 had been accepted and the face value of the bonds issued in 2003 of ₹ 12 each for the first 5000 US64 units and ₹ 10 each for the remaining units. The purchase value of the units as on 30th May, 2001, it is admitted was ₹ 14.25. Thus, claim of the appellant No. 3 is for the difference between ₹ 14.25 and ₹ 12 for the first 5000 units and between ₹ 14.25 and ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade under a false declaration/certificate, it will be rejected forthwith and the Trust shall have the right, in such an event, to repurchase the units at such price as may be decided by the Trust and recover the income distribution, if any, wrongly paid from out of the repurchase proceeds and return the balance. iii) All investments in the scheme are subject to market risks and the NAV of schemes/plans may go up or down depending upon the factors and forces affecting securities market. Past performance is not necessarily indicative of the future. There can be no assurance that the objective of the scheme will be achieved. US-64 is only the name of the scheme and does not in any manner indicate either the quality of the scheme, its future prospects or returns. 13. A perusal of the aforesaid clauses would indicate that detailed instructions had been given in the brochure about the procedure for repurchase. The US64 units had to be duly discharged and could be submitted any time in the year except during the book closure. The US 64 units had been submitted on 30th May, 2001, before the book closure. They were accepted at the counter set up by the respondent for repurchase. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6) includes disinvestment or repayment . The argument is self-contradictory. It is accepted by the respondent that the appellant No. 3 had submitted a resolution dated 16th July, 1999, under which it was resolved as under:- Resolved that the Company may invest an amount upto ₹ 50.00 lacs into Unit Trust of India s US-64 securities as soon as possible. Further resolved that the Managing Director Sh. Gurdev Singh be and is hereby authorised to take the necessary steps in this regard. 18. If the term investment includes disinvestment , then by the same resolution, the appellant No. 3 had resolved and permitted the Managing Director Gurdev Singh to take necessary steps for disinvestment or repurchase. The same resolution would be good and equally valid for repurchase. 19. The next question whether there was violation or non compliance of the Act. Reliance placed by the respondent on Section 292 of the Act is again misconceived. Sections 291 and 292 of the Act read as under:- 291. General powers of Board.-( 1) Subject to the provisions of this Act, the Board of directors of a company shall be entitled to exercise all such powers, and to do all such acts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y be, a making of loans by a banking company within the meaning of this section. Explanation I.-Nothing in clause (c) of sub-section (1) shall apply to borrowings by a banking company from other banking companies or from the Reserve Bank of India, the State Bank of India or any other banks established by or under any Act. Explanation II.-In respect of dealings between a company and its bankers, the exercise by the company of the power specified in clause (c) of sub-section (1) shall mean the arrangement made by the company with its bankers for the borrowing of money by way of overdraft or cash credit or otherwise and not the actual day-to-day operation on overdraft, cash credit or other accounts by means of which the arrangement so made is actually availed of. (2) Every resolution delegating the power referred to in clause (c) of sub-section (1) shall specify the total amount outstanding at any one time up to which moneys may be borrowed by the delegate. (3) Every resolution delegating the power referred to in clause (d) of sub-section (1) shall specify the total amount up to which the funds may be invested, and the nature of the investments which may be made, by the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is evidence to the contrary. It has been observed as under:- 14. Shares of the company registered under the Act whose shares are quoted at the stock exchange are freely transferable. A shareholder has a right to transfer his shares. Correspondingly, in the absence of any impediment in this behalf, the transferee of shares in order to enable him to exercise the rights of a shareholder as against the company and third parties, is entitled to have the shares transferred in his name. In case a company refuses to transfer the shares it is entitled to have rectification of the register by registering therein as a registered shareholder of the shares transferred to him. The company whose shares have been purchased cannot refuse to register the shares arbitrarily or for any collateral purpose. It can be refused only for a bona fide reason in the interest of the company and the general interest of the shareholders. It is seen from the correspondence between the petitioner-company and the respondent-company that the respondent-company has very evasively resisted admitting and effecting the necessary changes in the register of members on the ground that the application for registration of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany. Refusal to register the shares by the respondent-company under the circumstances cannot be held to be justified at all . (emphasis supplied) 22. In the present case, appellant No. 3, a company, wanted its investment in the said units liquidated and the investment converted into liquid money. It is extremely doubtful whether Section 292 (1)(d) would be applicable for making a repurchase i.e. encashment of the investment and conversion into cash, which is opposite and antithesis of investment. Further as noticed above, in case the word investment includes disinvestment then the earlier resolution passed by the Board of Directors dated 16th July, 1999 quoted above would be equally applicable, when the appellant No. 3 had made the application for repurchase. However this aspect need not be conclusively decided in the present case for the reasons stated below. 23. Submission of the Board resolution to a third person is not statutorily required even when Section 292 of the Act is attracted. Section 292 was not violated when Board resolution was not enclosed with the application for repurchase. There is no such requirement or condition stipulated in Section 292 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve notice. According to this doctrine, persons dealing with the company are entitled to presume that internal requirements prescribed in the memorandum and articles have been properly observed. Therefore, doctrine of indoor management protects outsiders dealing or contracting with a company, whereas doctrine of constructive notice protects the insiders of a company or corporation against dealings with the outsiders. However, suspicion of irregularity has been widely recognised as an exception to the doctrine of indoor management. The protection of the doctrine is not available where the circumstances surrounding the contract are suspicious and therefore invite inquiry. 112. This exception was highlighted in the English case of Houghton Co. v. Nothard, Lowe Wills Ltd., where the case involved an agreement between fruit brokers and fruit importing company. There was an allegation that the agreement was entered into by the company s directors without authority. It was held that the nature of transaction was found to have been such as to put the plaintiffs on inquiry. To this effect Sargant, L.J. held: (KB p. 267) Cases where the question has been as to the exact formalities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling with the company [See Raja Bahadur Shivlal versus Tircumdas Mills Company Ltd., (1912) 14 BomLR 45 (Bom)] . The respondent could not, on its own and without cause, presume that the repurchase application was an illegal/irregular act, that they should be suspicious and clarify their doubts. There has to be a reason and justification to invoke the rule of constructive notice which requires some doubt or suspicion. There is no such allegation in the present case. In case there was any doubt, it was open to the respondent to write a letter and get it clarified. No such process was undertaken. On the other hand, the application for repurchase was rejected. 25. The respondent has relied upon M/s Ashok Viniyoga Ltd. versus The Commissioner of Income Tax (Central) Calcutta (1972) 4 SCC 55, The Commissioner of Income Tax, Nagpur versus M/s Sutlej Cotton Mills Supply Agency Ltd. (1975) 2 SCC 538 and Gaya Sugar Mills Ltd. versus Nand Kishore Bajoria Anr . AIR 1955 SC 441. Decisions in these cases are not apposite and do not deal with the question/interpretation of Section 292 of the Act. In M/s Ashok Viniyoga Ltd . (supra) the question was whether the appellant-assessee s income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties were/are bound by the terms mutually accepted though the respondent being the State must adhere to and meet the standards prescribed as required by the Constitution from a State instrumentality. There was no requirement to furnish a copy of the Board resolution as per the agreed terms. Terms of a contract cannot be amended unilaterally and required mutual consent. Upholding power of unilateral imposition of conditions would give the respondent an infinite and unfettered right to accept or reject an application for reasons, which could be clarified or something which could be a mere surmise or conjecture. This would cause prejudice to the consumers or the unit holders. The sale and purchase of US64 units was on the basis of the price fixed by the respondent but the net asset value of the unit was known only to the respondent and was confidential. It is apparent that in the present case there was difference in the sale/purchase price and net asset value of the US64 unit. This information was not in public domain. Accepting the stand of the respondent would mean that even if the unit holder had submitted a proper and complete application as per the requirement of the brochure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said case is empowered to grant the relief. This judgment in K.N. Guruswamy v. State of Mysore was followed subsequently by this Court in the case of D.F.O. v. Ram Sanehi Singh wherein this Court held: (SCC p. 865, para 4) By that order he has deprived the respondent of a valuable right. We are unable to hold that merely because the source of the right which the respondent claims was initially in a contract, for obtaining relief against any arbitrary and unlawful action on the part of a public authority he must resort to a suit and not to a petition by way of a writ. In view of the judgment of this Court in K.N. Guruswamy case there can be no doubt that the petition was maintainable, even if the right to relief arose out of an alleged breach of contract, where the action challenged was of a public authority invested with statutory power. (emphasis supplied) x x x x 19. Therefore, it is clear from the above enunciation of law that merely because one of the parties to the litigation raises a dispute in regard to the facts of the case, the court entertaining such petition under Article 226 of the Constitution is not always bound to relegate the parties to a suit. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court committed no error in entertaining the writ petitions. * * * 16. In support of the submission that a writ petition seeking mandamus for mere refund of money was not maintainable, the decision in Suganmal v. State of M.P. was cited. In AIR para 6 of the said judgment, it is stated that we are of the opinion that though the High Courts have power to pass any appropriate order in the exercise of the powers conferred under Article 226 of the Constitution, such a petition solely praying for the issue of a writ of mandamus directing the State to refund the money is not ordinarily maintainable for the simple reason that a claim for such a refund can always be made in a suit against the authority which had illegally collected the money as a tax . 17. Again in AIR para 9, the Court held: We, therefore, hold that normally petitions solely praying for the refund of money against the State by a writ of mandamus are not to be entertained. The aggrieved party has the right of going to the civil court for claiming the amount and it is open to the State to raise all possible defences to the claim, defences which cannot, in most cases, be appropriately raised and considere ..... X X X X Extracts X X X X X X X X Extracts X X X X
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