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TMI Blog2015 (7) TMI 1246X X X X Extracts X X X X X X X X Extracts X X X X ..... ao expired on 20 January 2005. After the death of Shankarrao, when his legal heirs started making inquiries about the shares held by their father, they came to learn through a copy of an annual report for the year 20032004 that the Board of Directors had transferred 536 out of 671 shares held by the late the Shankarrao on 25 March 2003 to Respondent Nos.6 to 9. It is the case of the Appellants that a scrutiny of the share transfer forms used for the purported share transfers made it apparent that the share transfer forms contained several interpolations; thumb impressions of the late Shankarrao obtained on the forms were forged; the transfer forms used were beyond their validity periods; the stamp duty paid thereon was in contravention of the provisions of the Stamp law; and that for these reasons and otherwise also, the transfer of shares was contrary to Section 108 of the Act. It is submitted that the transfer was also in contravention of Article 11 of the Articles of Association of the first Respondent company, since no shares could be transferred thereunder without allowing the existing shareholders to exercise a right of preemption. It is submitted that there was a malafide in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocedural defects and irregularities pointed out in the holding of AGMs as well as appointment of directors. The CLB rejected the Appellants' allegations that the funds of the first Respondent company were being mismanaged. The CLB, accordingly, found that none of the prayers in the company petition could be granted. The CLB, however, found that there was no dispute that the first Respondent was a quasipartnership and the ouster of Appellant Nos.1 to 3 was against the principle of quasipartnership, but that since the Appellants had not come with clean hands before the CLB in exercise of its equitable jurisdiction, there was no case for grant of any reliefs. (This observation was later on substituted by an observation that the first Respondent was undoubtedly a quasipartnership, on the application of the Respondents.) The CLB, however, held that keeping in view the facts and circumstances of the company, which was a family company in the nature of a quasipartnership, wherein the petitioners held more than 46% shares (even this observation was amended to the effect that the Appellants claimed to be holding more than 46% shares), the first Respondent company was directed to give ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the CLB, cannot be termed as an impossible or perverse conclusion. ( 6. ) Learned Counsel for the Appellants submitted that the registration of the subject transfer of shares was in contravention of Section 108 of the Act. This was a petition under Section 397 of the Act alleging acts of oppression on the part of the Respondents and not a rectification application under Section 111. It is not sufficient for the Appellants to simply make out a case of an irregular, or even an illegal, transfer by reason of noncompliance with the provisions of Section 108 of the Act. It must be shown that such transfer was an act of oppression, showing a conduct involving at least an element of lack of probity or fair dealing towards the late Shankarrao in the matter of his proprietary rights as a shareholder. The apparent state of affairs discloses that the late Shankarrao was a party to the act, which was committed during his lifetime. Subject to the Appellants' right to go behind the act and show that the act was a fabrication and performed without the knowledge of the late Shankarrao, which would be a matter for a civil court to decide, mere noncompliance with Section 108 in such a case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ltd. vs. Surjeet Malhan, 1997 AIR(SC) 1411 and Bhubaneshwar Singh vs. Kanthal India Ltd., 1986 59 CompCas 46 in support of his case that transfers of shares in contravention of the Articles of Association are invalid. There is no quarrel with the proposition. What is in dispute here is the applicability of that proposition to the facts of the present case. As discussed above, the transfers in the present case cannot be said to be in contravention of the Articles. ( 8. ) No submissions were advanced by learned Counsel for the Appellants on mismanagement under Section 398 of the Act. ( 9. ) In that view of the matter, there is no merit in the Company Appeal. ( 10. ) As far as the Respondents' crossobjections in the appeal are concerned, the same are on the footing that the CLB has directed the Respondents to give an adequate representation to the Appellants on the board of directors of the first Respondent company. This direction is on the footing that the company is undoubtedly in the nature of a quasipartnership in which the Appellants claim to be 46.71% shareholders. It is submitted that the purported finding of the company being in the nature of a quasipartnership has no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Respondent company, two new members, who had nothing to do with the erstwhile partnership of Sanjay Founders, were admitted to the membership of the company. The two, thus, held 40% shares in the first Respondent company. So also, four more members were added on 29 June 1978. The position within about three years of the formation of the company was such that, apart from the original subscribers and members of the first Respondent company, there were six other members, who between them held about 938 shares from out of 2811 issued and allotted shares of the first Respondent company. There is nothing in the Articles of Association of the Respondent company to show that the members of the company were to participate in the management of the company. There is nothing to show that the company was formed or continued after its formation on the basis of any personal relationship involving mutual confidence between the shareholders or that there was any agreement or understanding between the shareholders about participation in the conduct of the business of the Respondent company. There is also nothing in the Articles to indicate that there were any restrictions on the transfer of shares, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i.e. Petitioners before the CLB) held over 46% shares of the Respondent company and that it was on the basis of such shareholding that they were to be given adequate representation on the board of directors of Respondent No.1, but in the corrected order as of 15 November 2010, the CLB simply substituted the sentence "However, keeping in view ........wherein the Petitioners hold 46% shares...." by the sentence "However, keeping in view ... wherein the Petitioners claim to hold more than 46% shares ....". Such substitution and order based thereon are clearly impermissible. Whether or not the Appellants hold over 46% shareholding in the first Respondent company, is a matter of serious dispute between the parties. In fact, if 536 shares of the first Respondent company are treated as correctly transfered by late Shankarrao to Respondent Nos. 6 to 9, the total shareholding of the Appellants comes to about 26.46%. This appears to have been completely lost sight of by the CLB. The order that an adequate representation be given to the rival group of shareholders first on the basis of a purported finding in the original order and correcting that order later by maintaining the final directio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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