9911796707
TMI Blog1995 (11) TMI 468X X X X Extracts X X X X X X X X Extracts X X X X ..... the register of members of Gordon Woodroffe Limited (hereinafter referred to as "GWL") in respect of 5 lakhs equity shares of GWL held in the name of Shoe Specialities Private Limited (hereinafter referred to as "SSPL"). 2. A summary of the petition is as follows : 3. Tracstar holds 24.91 per cent of the paid-up equity capital of GWL. The impugned 5 lakhs shares constitute 12.73 per cent of the paid-up capital of GWL and were held in the name of SSPL but were in pledge with Tracstar. Tracstar became the beneficial holder of these impugned shares after it foreclosed the pledge for non-payment of dues by SSPL. The second petitioner, namely, Standard Distilleries and Breweries Private Limited (hereinafter referred to as "Standard") and the third petitioner, namely, Stridewell Leather Private Limited (hereinafter referred to as "Stridewell", corporate entities, hold 20 per cent and 40 per cent respectively of the paid-up capital of SSPL and as such they are the majority shareholders of SSPL. The fourth and fifth petitioners respectively known as MDC and RDC are shareholders of the second and third petitioners. 4. Even though Standard and Stri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is nothing but a criminal conspiracy. Therefore, the impugned transfer is illegal, invalid and non est. The constitution of the new board is illegal, especially when there is a proceeding before the Company Law Board in C.P. No. 44 of 1993 seeking supersession of the then existing board. This board should not have taken any action especially when the Company Law Board in its order dated June 8, 1994, stipulated that the board shall not take any decision except relating to the requisition for an extraordinary general meeting. 6. Moving this instant petition, the petitioners sought for an interim order, restraining GWL not to register these shares and if registration had already taken place, then restraining GWL from effecting registration of further transfers. We granted this prayer on June 22, 1994, with the directions to serve copies of petition on all the respondents. Accordingly, copies of the petition were served on all the respondents. When the replies were filed by SSPL and GWL, they disclosed the names of the three transferees and also the fact that the transfers had already been registered by GWL on June 8, 1994. Accordingly, on an application filed by the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g which is ultra vires the board and the provisions of Section 293 of the Act. (d) The decision to transfer the shares by SSPL was patently illegal inasmuch as the board did not enjoy the majority support and the same is mala fide, fraudulent and has been done only with the view to deprive the majority shareholders of SSPL from controlling these shares. (e) Registration of these shares was in contravention of the provisions of Section 108 of the Act as the share certificates did not accompany the transfer deeds. (This has become irrelevant as it later transpired that duplicate certificates accompanied the transfer deeds). (f) GWL erred in issuing duplicate certificates without being fully satisfied that the share certificates had been lost or destroyed and thus the decision to issue duplicate certificates was in violation of the provisions of Section 84(2) of the Act. (g) The approval given by the share transfer committee consisting of only two directors of GWL was in violation of Rule 3(b) of the Companies (Issue of Share Certificates) Rules, 1960. 9. We heard the matter on a number of days. C. A. No. 150/SRD/95 was filed by Shri A.K. Agarwal, advocate, on behalf of one M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of SSPL is deemed to be the sale of the undertaking ? (5) Whether GWL has violated the provisions of Section 84(2) of the Act and the Companies (Issue of Share Certificates) Rules, 1960 ? (6) Whether the removal of the name of SSPL and consequent entry of the names of respondents Nos. 17, 18 and 19 in the register of members of GWL was "without sufficient cause" ? (7) Whether the prayer for rectification of register of members is to be granted ? First issue : Locus standi : The objection taken by the respondents is that none of the petitioners has any stake in the impugned shares nor any of them seeks to put its/ their names in the register of members consequent to the prayer for rectification and as such none has any locus standi to present the petition. 13. Petitioner No. 1 has presented the petition both in the capacity as pledgee of the impugned shares as well as a member of SSPL. Elaborate arguments were advanced by counsel for the respondents as well as by Shri Sarkar, senior advocate for the petitioners, on the fact of pledge, rights of a pledgee and the locus standi arising out of this pledge, citing a large number of decided cases. We are not dealing wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty to it. As far as the other petitioners are concerned, Shri Raghavan stated that they are not shareholders of GWL. Petitioners Nos. 2 and 3 are only shareholders in SSPL and they cannot agitate against the decision taken by validly constituted board of directors of SSPL and against GWL. As far as petitioners Nos. 4 and 5 are concerned, they are neither shareholders of GWL and SSPL and as such they have absolutely no right to present the petition. 15. Shri Anil Diwan, senior counsel for GWL, Shri S.N. Mukherjee, counsel for respondents Nos. 3 to 8 and Shri Mitra, counsel for respondents Nos. 17 to 19, also concurred with the arguments of Shri Raghavan. Shri Mukherjee additionally cited [1989] BCCL 697 to state that unless otherwise a person seeks to put his own name in the register of members, consequent on rectification, he cannot present a petition under Section 111(4). 16. Shri Sarkar, replying to the arguments of counsel for the respondents, stated that even though the question of pledge need not be decided by the Company Law Board yet his claim for seeking rectification can be entertained on the ground that Tracstar is a shareholder of GWL. He stated that Tracstar holds 24 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guments were advanced regarding the right of a member to seek rectification when the personal rights of the petitioner are not affected. Instead of dealing with various case law cited by various counsel, we would like to go by the relevant provisions of the Companies Act, 1956, namely, Section 111(4) . Under this sub-section, a petition can be filed by (i) an aggrieved person ; or (ii) any member of the company ; or (iii) the company itself. In other words, the Act itself specifically provides that any member of a company can prefer a petition as long as he establishes that the name of any person is entered in or omitted from the register of members "without sufficient cause". There is nothing in the section to indicate that a member of a company has to show some interest in the shares in respect of which rectification is sought. The very fact that the two terms "aggrieved person" and "any member of the company" having been separately indicated, it is evident that even without any personal grief in regard to the shares, a member can, for sufficient reasons to be shown, seek rectification. If the intention of the Legislature were that only an aggrieved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been done mala fide. Since they are questioning the conduct of the transferor on the basis of their majority shareholding and are seeking to restore the name of SSPL we are of the view that they do have locus standi. In this connection, the case cited by Shri Sarkar, viz., Satya Charan Law v. Rameshwar Prosad Bajoria [1950] 20 Comp Cas 39 ; AIR 1950 FC 133, is relevant. 24. As pointed out by Shri Sarkar, we may also refer to Rule 1 of Order 1 of the Civil Procedure Code, 1908, which deals with joining of the plaintiffs. It reads as follows : 25. All persons may be joined in one suit as plaintiffs where -- (a) any right to relief in respect of, or arising out of, the same act or transaction or series of acts or transactions is alleged, to exist in such persons, whether jointly, severally or in the alternative ; and (b) if such persons brought separate suits, any common question of law or fact would arise. 26. In this present petition, rectification has been sought on allegations against GWL and SSPL and the transferees. Admittedly, petitioners Nos. 2 and 3 being shareholders of SSPL Could independently impugn the sale of shares by SSPL. In such a case, the common question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Board should not entertain this petition and, therefore, the petition is not maintainable before the Company Law Board. 31. According to Shri Raghavan, in addition, the matter is beset with various questions of law and facts which require oral evidence especially, as is evident from the pleadings, the petition itself has been filed with an oblique motive and for a collateral purpose. He cited the following cases in support of his various submissions : (1) Smith and Fawcett Ltd., In re [1942] Ch 304 ; [1942] 1 All ER 542 : "Affidavit in evidence is unsatisfactory evidence of the motives of directors in exercising their powers." (2) Public Passenger Service Ltd. v. M.A. Khadar, AIR 1966 SC 489 ; [1966] 36 Comp Cas 1 (SC) "Where by reason of its complexity or otherwise the matter can more conveniently be decided in a suit, the court may refuse relief under Section 155 in exercise of the discretionary jurisdiction and relegate the parties to a suit." (3) Dhelakhat Tea Co. Ltd., In re, AIR 1957 Cal 476 ; [1958] 28 Comp Cas 62 : "Serious questions involving disputed questions of facts should not be tried in a summary procedure in an application for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; AIR 1977 SC 615 and L.D. Jaiswal v. Kamal [1962] 1 SCR 270 : "It is not enough to state, in general terms, that there was collusion without particulars." (2) Bishundeo Narain v. Seogeni Rai [1951] SCR 548 ; AIR 1951 SC 280 : "If there is one rule which is established than any other, it is that in cases of fraud and undue influence and coercion the party pleading it must set forth full particulars and the case can be decided on the particulars as laid. There can be no departure from them in evidence." 35. Replying to these objections and the cases cited by counsel for the respondents, Shri Sarkar stated that the allegations of fraud and collusion have been made purely on the basis of the circumstances under which the entire episode has been enacted by the parties in transferring the impugned shares. According to him, when the facts are so crystal clear from the facts as revealed from the pleadings and other documents, it should lead to the logical conclusion that the entire transaction has taken place with an oblique motive of depriving the petitioners, being majority shareholders of SSPL, from having any control over the impugned shares. Therefore, acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts and circumstances of a case. 38. It was contended by counsel for the respondents that when we decided this case, the Full Bench judgment of the Delhi High Court on the maintainability of a petition under the erstwhile Section 155 (which is now Section 111(4) ) in Ammonia Supplies Corporation Pvt. Ltd. v. Modern Plastic Containers Pvt. Ltd. [1994] 79 Comp Cas 163 was not available before us in which the High Court has categorically stated that proceedings under Section 155 are of a summary nature. In view of this, it was urged to relegate the parties to a civil suit. We have gone through the judgment of the Delhi High Court. The main issue in that case was whether a civil court has jurisdiction in matters of rectification of register of members. After a careful examination of various case law, the Full Bench came to the conclusion that (at page 178) : "(a) The jurisdiction exercised by the company court under Section 155 of the Act is discretionary and summary in nature. (b) The company court can decline to entertain a petition involving disputed and complicated questions requiring examination of extensive oral and documentary evidence. (c) The remedy of suit f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re convinced that from the pleadings, documents placed before us and the arguments we can draw our own conclusion and decide the issue before us and there is no need to relegate the matter to a suit. Accordingly, the prayer of the respondents that the matter be relegated to a suit is rejected. Third issue : Violation of undertaking ; 43. Shri Sarkar stated that the impugned transfer of shares should be set aside on the ground that SSPL had violated the undertaking given to the Company Law Board not to dispose of the shares. According to him this undertaking was given by counsel for SSPL in C. P. No. 29 of 1992 and it was recorded in the order of the Company Law Board dated August 20, 1992. He further stated that this undertaking was recorded only on the prayer that SSPL should be restrained from disposing of the shares which were the only assets of SSPL, when the matter as to who was entitled to control SSPL was pending decision. According to him, the effect of an undertaking has the same effect as that of an injunction except that an undertaking without any limit in point of time, has to be released by the court in which the undertaking was given or till such time the same is va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s until discharged by the court." 47. He stated that, if the undertaking is not treated as a continuing one and in the meanwhile the party which gave the undertaking disposes of the property even after the case is decided against that party, the party in whose favour the case is decided has nothing to fall back upon. He stated that the matter is very similar to a situation where a suit for specific performance is filed and in such a suit an order of injunction is passed against the disposal of the subject-matter of this suit and if at the final disposal a decree for specific performance and possession is directed, it is not open to the party who loses the matter and prefers an appeal to contend that by reason of such disposal the matter has come to an end and the property had been disposed of in the meanwhile. He stated that such a situation would be nothing but a travesty of justice. 48. Pointing out to the observation of the Madras High Court (Division Bench) in its order on appeal preferred by SSPL in C. P. No. 29 of 1992, he stated that the Madras High Court also had taken cognizance of the continuity of the undertaking given and as such he stated that the undertaking gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of August 12, 1993, in A. S. No. 1404 of 1990 of the Madras High Court ; "Doctrine does not exclude from its purview even bona fide transfers of movable property without knowledge of pending proceedings." 53. Summing up his arguments on this issue, Shri Sarkar stated that the continuation of the undertaking is clear and apparent which has also been observed as such by the Division Bench of the Madras High Court and, therefore, the action of SSPL to transfer the shares was against the undertaking and as such it is illegal and void. Even as per Order 39, Rule 2 of the Civil Procedure Code, 1908, penalty has been provided for violation of an order of injunction and it has been held by the Supreme Court in Mannalal Khetan v. Kedar Nath Khetan [1977] 47 Comp Cas 185 ; AIR 1977 SC 536, that if a penalty is provided in the statute for doing an act such act is void. Therefore, he contended that if an act is void the parties have to be restored to their original position even assuming that the transferees were bona fide purchasers. 54. Replying to the arguments of Shri Sarkar on the violation of the undertaking, counsel for various respondents put forth their arguments as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of passing interim orders specifically states that such order is to be in force only during the pendency of the proceedings. Any interim order containing an injunction or undertaking, unless continued in the final order does not survive after passing of the final order, as decided in various cases as indicated below : (a) Balbhaddar v. Balla, AIR 1930 All 387(2) : "A temporary injunction comes to an end with the passing of a decree. Until further order means till the decree is passed or to a time short of the final order. Existence of an injunction does not render void an alienation made in contravention of the injunction." (b) Tagore Law Lectures on Law relating to Injunction, 1988 edition : "For an injunction which has been granted upon an interlocutory application is superseded by judgment in action. If it is intended that it should remain in force it must be expressly continued." 59. Even assuming that the undertaking was in existence at the time of transfer of shares, it will not affect his clients, viz., respondents Nos. 17 to 19, inasmuch as they were bona fide purchasers without notice of the injunction. The transfer can never be declared void ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the company on July 28, 1992, have been filed by the chairman of the meeting. Shri S.S. Ray, senior advocate, appearing on behalf of the petitioners, pointed out certain developments that have taken place after the filing of the petition and submitted that the company should be restrained, till the petition is disposed of, from issuing any further share capital, from registering any further transfer of shares of the company and also from disposing of the shares held by the company in GWL without the permission of the Company Law Board. Shri Mitra, senior advocate, appearing on behalf of Shoe Specialities Ltd., stated that the company has already registered transfer of 20,000 shares in the name of Malleswara Finance and Investment Co. Pvt. Ltd. and undertook not to register any further transfer of shares except under the orders of the court or the Company Law Board till the disposal of the petition. He further stated that the company has neither any intention nor proposes to transfer its shareholding in GWL to anyone, In view of this undertaking given by counsel appearing on behalf of the company, we are not giving any directions in respect of the request made by the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aking should be deemed to have continued even after disposal of the petition and to be discharged from the undertaking, the Company Law Board should be moved, it means that even after disposal of the petition the Company Law Board would continue to have seisin in the matter till an application for discharge is filed. This proposition, we are unable to support. Even the intention of counsel for the petitioners in C.P. No. 29 of 1992, when the undertaking was recorded is clear that his prayer itself was restricted only till the disposal of the petition. It is also seen from the main petition of C. P. No. 29 of 1992, that there is no prayer in that petition relating to the impugned shares. Even otherwise, since both of us were also parties to the order of August 29, 1992, we ourselves intended that the undertaking was to remain only till the disposal of that petition. Therefore, considering all these facts, we are of the view that the contention of Shri Sarkar that this undertaking continued to exist till release by the Company Law Board does not hold good. 64. However, we have a different situation in this case. After we passed the final order in C.P. No. 29 of 1992, Malleswara file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y way of an undertaking with reference to certain properties and when the party in whose favour the injunction is given succeeds, as rightly pointed out by Shri Sarkar, the fruits of success should be available to that party. If the other side, having preferred an appeal, and when the appeal was pending, were to dispose of the property during the pendency of the appeal it nullifies the very benefit which was finally granted by us. In almost all cases cited by counsel for the respondents, it is the party against whom injunction was granted, who succeeded finally. Therefore, we do concede that in equity the interim undertaking given to us should be deemed to have revived with the dismissal of the writ petition. However, we find that, both in writ proceedings as well as in the appeals, the petitioners had actively participated and if they had really desired that the shares in GWL held by SSPL should not be disposed of by SSPL during the pendency of the appeals, as a matter of course, they should have obtained an injunction order from the High Court, which they had failed to do. The petitioners' reliance on the observation of the Division Bench of the Madras High Court regarding th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 66. Shri Raghavan, dealing with the provisions of Section 293 of the Act stated that these provisions are not applicable in the instant case as shares held by a company in another company cannot be treated as an under-taking and the sale of the shares does not come under the purview of Section 293. No doubt SSPL, even though a private limited company, is a Section 43A-company, the provisions of Section 293 are not applicable in respect of the sale of shares even if the shares formed part of the substantial assets of the company. To differentiate between undertaking and assets, Shri Raghavan relied on the following cases : (a) Brooke Bond Ltd. v. U.B. Ltd. [1994] 79 Comp Cas 346 (Bom) : The sale of shares whatever be their number even if it amounts to transfer of the controlling interest of a company cannot be equated to the sale of any part of the undertaking so as to come within the mischief of Section 293(1)(a). (b) Carew and Co. Ltd. v. Union of India, AIR 1975 SC 2260 ; [1976] 46 Comp Cas 121 : An undertaking is an "enterprise only engaged in the production of goods or supply of services. (c) Mrs. Bacha F. Guzdar v. CIT [1955] 25 Comp Cas 1 (SC); AIR 1955 SC 74 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... According to Shri Sarkar, the violation is that no general body approval was obtained before the sale of the shares which were practically the only assets of the company. 70. SSPL is a private limited company but a deemed public company under Section 43A and, therefore, the provisions of Section 293 are applicable. According to Section 293(1)(a), the sale or disposal of the whole or substantially the whole of the undertaking of the company cannot be done without the approval of a general meeting in the case of a public company. It has also been accepted that this power is exercisable with the prior consent of the general meeting and cannot be taken for granted with the hope that the general body will ratify the action. To this extent, the argument advanced by Shri Sarkar is acceptable. However, the relevance is with regard to-- "either the whole of the undertaking or substantially the whole of the undertaking." 71. Shri Sarkar has not relied on any case law, nor has he refuted any of the precedents cited by counsel for the respondents. The various precedents cited by the respondents' counsel go to show that an undertaking is a comprehensive expression and does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company has parted with any undertaking or even a substantial part of the undertaking of the company and as such we reject the contention of the petitioners in this regard. Fifth Issue : Violation of the provisions of Section 84(2)(a) and the Companies (Issue of Share Certificates) Rules, 1960 : 73. It is the contention of the petitioners that GWL has violated the provisions of Section 84(2)(a) of the Act on the ground that before issue of duplicate certificates GWL should have satisfied itself that the certificates were proved to have been lost or destroyed. Duplicate certificates can be issued only after such satisfaction. In the present case, it is alleged that GWL was fully aware that the share certificate was with Tracstar. GWL was a party to the proceedings before the Company Law Board in C.P. No. 19 of 1992, wherein the fact of the certificates being with Tracstar was known to it. Even otherwise the letter of SSPL seeking duplicate certificates clearly indicates that the certificate had been taken away by Tracstar. Under these circumstances, GWL should not have come to the conclusion that the certificates had been lost or destroyed and decided to issue duplicate certific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amship Co. v. S.K. Ramalingam Chettiar, AIR 1960 SC 1058, para 17 : "The word 'loss' as used in paragraph 6 is in our opinion intended to mean and include every kind of loss to the owner of the goods. . . . Even though there may not have been 'loss of the goods' the goods are lost to the owner". 77. Therefore, Shri Diwan contended that since the owner has lost the possession of the share certificate, he is entitled to seek duplicate shares. He also cited Martab Ali v. Union of India, AIR 1954 Bom 297, wherein the court observed (headnote) : "... that the term 'loss' includes a claim on the footing of non delivery or negligence or wrongful detention or conversion on the part of the railway administration". 78. Therefore, according to Shri Diwan since the original certificates have been wrongfully detained by Tracstar, the certificates should be deemed to have been lost to SSPL. On the same proposition, he also relied on Sialkot Industrial Corporation v. Union of India [1978] Tax LR 1700 (Delhi), wherein the court observed (at page 1704) : ". . . the expression 'lost or destroyed' is used in the generic and comprehensiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certificate would become extinct. To ensure that the rights of the holders of original certificates are not defeated by issue of duplicate certificates, the Legislature has provided that the originals should be proved to have been lost or destroyed. As long as the whereabouts of the certificates are known, then the same cannot be deemed to have been lost within the meaning of this sub-section. The various case law cited by Shri Diwan related to claim of compensation and the terms "loss" or "lost" were interpreted by the courts with reference to their use in particular statutes. In the present case, GWL is fully aware of the whereabouts of the certificates if not on its own, but the letter requesting for the duplicate certificates itself indicates that the share certificate was with Tracstar. It is also seen that the company itself has been in the practice of issuing public notices whenever duplicate certificates are sought. This is rightly so in public interest as shares of listed companies are freely transferable. Once a genuine investor comes to hold the shares, complications would arise if original and duplicate certificates co-exist in the market. So as a me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a meeting of the committee. Since the two members of the board who approved the issue of duplicate certificates were members of the committee constituted for this purpose by the board of directors, they were competent to approve the issue of duplicate certificates. On this proposition, he relied on Punjab University v. Vijay Singh Lamba,: AIR 1976 SC 1441, wherein the Supreme Court held (para 7) : "Quorum denotes the minimum number of members of any body of persons whose presence is necessary in order to enable the body to transact its business validly so that its acts may be lawful. It is generally left to the committee themselves to fix the quorum for their meeting and if it is not fixed by the authority which constitutes it, then it is competent for the committee to fix the quorum to devise its day to day procedure." 86. According to Shri Anil Diwan, when this committee was constituted by the board, the board itself fixed the quorum as two and, therefore, the decision taken by this committee is valid. He also relied on Upendra Kumar Joshi v. Kesoram Industries and Cotton Mills Ltd. [1983] 54 Comp Cas 1 (Patna) [FB] and Upendra Kumar Joshi v. New Victoria Mills Co. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that a committee of the board of directors can also approve issue of certificates. Now, the question that has been raised is whether the terms "committee thereof consisting of not less than three directors" denotes the quorum of three or the board while constituting a committee consisting of three or more can fix the quorum with less than three directors. While the contention of Shri Sarkar is that the rule itself has fixed the quorum, according to Shri Diwan it has not. 90. We feel that the case law relied on by Shri Diwan are not applicable in the present case. Section 287 of the Act prescribes the quorum for meetings of the board of directors according to which the quorum for a board meeting, if there are more than six directors in the board, will be three. The Companies (Issue of Share Certificates) Rules, 1960, defines a board as board of directors of a company or a committee thereof consisting of not less than three directors where the total number of directors exceeds six and not less than two directors, where the total number does not exceed six. If the contention of Shri Diwan is to be accepted that once a committee is constituted with three or more than three ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the quorum of the committee should be three directors and there is no scope to interpret it in any other manner. Accordingly, we hold that the issue of duplicate certificates in this case by a committee consisting of less than three members is not in accordance with the Companies (Issue of Share Certificates) Rules, 1960. Having held that such duplicate certificates have been improperly issued, we should ensure that once again both the original and duplicate certificates do not co-exist. This will be taken care of appropriately at the time of considering the reliefs. Sixth issue--Whether "without sufficient cause" : 93. Shri Sarkar stated that from the facts and circumstances of the case, it is apparently clear that the name of SSPL was removed from the existing register of members "without sufficient cause" and on this account alone the Company Law Board should order rectification of the register of members. In addition, he stated from the circumstances of the case, it would also be clear that even the consequent entry of the names of respondents Nos. 17 to 19 should also be treated as "without sufficient cause". As far as SSPL is concerned th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utilised for clearing the liabilities of SSPL and, therefore, it was beneficial to the members of not only SSPL but also GWL. Tracstar being a member of GWL can on no account have any grievance when a substantial amount of money has been received by GWL from SSPL. Therefore, Tracstar's claim to have been prejudicially affected by the transfer as a member of GWL has to be ignored. As far as the other petitioners are concerned, the sale of shares was a genuine transfer for adequate price which has been realised and applied to meet the liabilities of SSPL. Therefore, for collateral purposes, the majority shareholders of SSPL cannot invoke provisions of Section 111(4) for seeking rectification on the ground that the transfer was without sufficient cause. 95. Shri Anil Diwan stated that as far as GWL was concerned, the transfer committee had before it, duly completed transfer instruments along with the share scrips and, therefore, as a listed company it was bound to register the shares which it did. Therefore, to allege that the registration of transfer was done without sufficient cause does not hold good. Shri Mukherjee also concurred with the arguments of other two counsel. 96. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C group. The board of directors of SSPL has all along been controlled by employees of SWC who owe allegiance to MRC. Our order in C. P. No. 29 of 1992 was challenged in the High Court, Madras, as well as in the Supreme Court which upheld our decision. The order of the Single Bench of the Madras High Court was delivered on May 10, 1994 (see [1994] 81 Comp Cas 66 (Mad)). The KRC group also filed another petition before us in C.P. No. 44 of 1993 regarding reconstitution of the board of directors in SSPL. We had reserved the judgment in this petition with the stipulation that our order would be released after the order in the appeal before the Madras High Court in C. P. No. 29 of 1992 was delivered. The entire episode relating to the transfer of the impugned shares took place on dates between receipt of the order of the Madras High Court (Single Bench) and our order in C. P. No. 44 of 1993. 98. Now, we revert back to the issue relating to rectification. This petition has been filed under Section 111(4) of the Act seeking rectification of the register of members. According to this section,-- (4) If-- (a) the name of any person-- (i) is, without sufficient cause, entered in the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egation against GWL is concerned, we have already held that not only have the provisions of Section 84(2) not been complied with but it has also not complied with the provisions of the Issue of Certificate Rules. 102. The board of SSPL was reconstituted with effect from June 1, 1994, i.e., after the receipt of the judgment of the single judge of the Madras High Court dismissing the writ petition filed by Malleswara (see [1994] 81 Comp Cas 66 (Mad)). With this dismissal, Malleswara's name had to be removed from the register of members of SSPL resulting in petitioners Nos. 2 and 3 becoming the majority shareholders of SSPL. This order was apparently received some time during the third week of May, 1994. As could be seen from the minutes of the meeting of the board of directors of SSPL, in its 41st board meeting held on June 1, 1994, six new persons were appointed as additional directors and the resignations of three directors of the earlier board were accepted. In that meeting, only two directors of the earlier board, viz., Mr. M.S.K. Eswaran and Shri Ramani were present. No other business was transacted in this meeting. The next meeting of the board was held on June 2, 1994, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r endorsement thereof, when the decision to obtain duplicate certificate was taken only on June 2, 1994. 105. The other features as far as SSPL is concerned are that it has not furnished in its reply as to how it happened to negotiate with the particular transferees, whether there was any exploration regarding other willing purchasers etc. Even in the board meeting held on 8th there is no mention as to at what price and to whom the shares were sold except mentioning the figure of the total consideration received. It is also strange to find that a decision to split the certificate into 3 lots was taken on June 2, 1994. The reasoning for 3 lots is not explained and ultimately it has transpired that sale was made to three different parties. Therefore, it gives rise to a strong presumption that the entire deal has been negotiated much earlier to the date of decision to dispose of these shares without which the whole transaction could not have been completed precisely within such a short period. If we peruse the copies of the minutes books of SSPL filed at the hearing, it is seen that the 33rd meeting of the board took place on December 9, 1992 ; 34th on December 29, 1992 ; 35th on Feb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titioners that the transfer was in violation of Section 108 of the Act in the sense that share certificates did not accompany the transfer would also become relevant. However, if we consider that the company has been in the practice of issuing duplicate certificates on the basis of the decision taken by a committee of consisting of only two directors all along and it has not been done in isolation only in this case, we might have been persuaded not to treat it as an invalid act but considering the fact that the issue of duplicate certificates itself has otherwise been vitiated by not following the provisions of Section 84(2)(a) of the Act in the sense that GWL had grossly erred in not establishing the fact regarding loss of certificates as the letter seeking the duplicate certificates had itself clearly mentioned that the certificates are with Tracstar, we are unable to do so. If the committee bona fide considered that it was necessary to issue duplicate certificates, it should have, in our opinion, at least issued a notice to Tracstar. GWL has obviously not done so only with the view to defeat the alleged rights of Tracstar, whatever it might be, justified or not and also to facil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... though SSPL has stated that it had lodged the transfer instruments with GWL. 109. It has also to be borne in mind that GWL is a listed company and when substantial percentage of shares came up for transfer, the board normally applies it mind. The GWL board itself did so in respect of 6.73 per cent shares lodged by Trident for transfer. The board refused to register the shares under Section 22A of the Securities Contracts (Regulation) Act, 1956. While we are not expressing any opinion as to the claim of Shri Sarkar that in a listed company the transfer of shares can be considered only by the board of directors and not by a committee, in this particular case when a substantial percentage of shares was involved, if the committee itself had decided to approve registration of transfer without reference to the board, then obviously the committee should have either taken the tacit prior approval of the board or it should have been satisfied that the persons acquiring the shares are friendly to the board of directors. This decision of the committee to transfer the shares within alleged two days of lodgment supports the stand of Shri Sarkar that there has been an understanding/collusion be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... result of certain proceedings in the Supreme Court. During the arguments of the proceedings before the Supreme Court, apprehending that proceedings may go against him, he, through his nominees on the board manipulated sales and transfers of the shares in these three companies held by Turner Morrison. Later Turner Morrison, with a new board of directors, challenged these transfers on various grounds, one of the grounds being that board of directors holding fiduciary position in the nature of trustees for the benefit of the company had acted in breach of trust. The other grounds were that the shares had been sold at grossly deflated price, that there was no urgent necessity for selling these shares, that the sales were approved hastily without issuing proper and reasonable notices, that there was no advertisement or any sort of publicity for sales of the shares so that the company might get the highest bid from the purchaser, that there was no evidence as to why only the purchasers were approached for sale and whether any other parties were also approached, that the sale was made only to cripple the company thus causing great damage to the company and that the sale was against the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and circumstances in this case clearly establish that the action of SSPL in transferring the shares was not at all for bona fide reasons and GWL facilitated the same by issue of duplicate certificates and by registering the transfers in violation of the provisions of law. The action of SSPL has also to be viewed from another angle. There was a pending proceeding before the Company Law Board in C.P. No. 44 of 1993, in which judgment had been reserved pending finalisation of the proceedings in the writ petition before the Madras High Court. The judgment in the writ petition was delivered on May 10, 1994, dismissing the writ petition (see [1994] 81 Comp Cas 66 (Mad)). Our order, therefore, would be available at any time thereafter. Therefore, the action of SSPL without waiting for our order in C.P. No. 44 of 1993, in transferring the shares makes us believe that it was done only with a view to pre-empt the effect of any adverse decision in C.P. No. 44 of 1993. Thus, the circumstances in this case are similar to the one in Turner Morrison and Co. Ltd. v. Shalimar Tar Products (1935) Ltd. [1980] 50 Comp Cas 296 (Cal). 113. Thus, considering all the facts and circumstances of the issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... board of GWL. 115. Under these circumstances, we are of the view that the transferees have not been able to establish their bona fides in purchasing these shares in the normal course of their business. As we have already held that the name of SSPL has been omitted without sufficient cause, the natural corollary would be that its name should be entered in the register resulting in the removal of names of the transferees from the register of members. In this case, it has been fully established that the bona fides of the transferees in purchasing the impugned shares is questionable and as such their prayer that their names should not be removed from the register of members cannot be considered. 116. Taking into consideration all facts and circumstances, we hereby direct that the names of respondents Nos. 17 to 19 be removed from and the name of SSPL be entered in the register of members of GWL within 10 days from the date of receipt of this order. However, since the transferees have paid consideration for purchase of these shares, we feel that it is just and equitable that their interest should be protected. Therefore, we also order that SSPL will pay to respondents Nos. 17 to 19 e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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