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TMI Blog2004 (3) TMI 801X X X X Extracts X X X X X X X X Extracts X X X X ..... proper and irregular conduct of the affairs of the Company resulting in huge losses, default of statutory and other contractual obligations, siphoning of the Company's funds etc by the second respondent. With a view to bringing an end these matters of complaint, the petitioners have sought the following reliefs: (i) to declare that the transfer of shares made by the third respondent in favour of the second respondent is null and void. (ii) to rectify the register of members of the Company by removing the name of the second respondent; (iii) to supersede the Board of Directors and appoint new members on the Board; (iv) to declare that the appointment of the second respondent as Managing Director is null and void; (v) to appoint a provisional administrator to conduct the affairs of the Company; (vi) to appoint an auditor to investigate into the conduct of the respondents 1 2 and surcharge the second respondent for embezzlement of the Company's funds; (vii) to amend the Articles of Association of the Company, providing, for representation of the petitioners on the Board in proportion to their holding in the Company; and (viii) to set a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from certified copies of Form 32 and annual return for the year ended 30.09.2002, obtained in July 2003. As the transfer impugned in the Company Petition is a continuing wrong, no question of limitation does arise, and drew support from A. Brahmaraj v. Sivakumar Spinning Mills P. Ltd - (1986) 3 CLJ 109 (Mad) . Shri Ramasamy pointed out that the Company failed to produce any of the statutory records, particularly the original minutes of the Board Meeting, Register of Transfer and Register of Members to show that the procedure as contemplated under the Articles, to transfer the impugned shares was followed by the Company from the transferor, being the third respondent. No reliance could be placed on the reconstituted registers, as held in Bhajirao G. Ghatke v. Bombay Docking Company P. Ltd (1984) Vol.56 CC 428 (Bom) . There is no need to implead the Directors, who are not necessary parties to the present proceedings, especially when the burden is on the respondents to prove that the impugned transfer of shares was in compliance with the relevant provisions of the Articles. According to the petitioners, though they are holding more than 10% of the equity capital, they do not hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticle 8, had approved the transfer of the entire shares made by the third respondent in favour of the second respondent, as a desirable person and in the interest of the Company. According to the learned Senior-Counsel, though Articles 8, 9, 10, 11, 12, 13 and 14 prescribe the procedure for transfer of shares of the Company, Article 8 is independent of the other Articles. If any transfer falls within the ambit of Article 8 and the procedure prescribed therein is complied with, as in the present case, the requirements of Articles 9, 10, 11, 12, 13 14 do not arise. Moreover, the underlying object of Article 8 is to keep the control of the Company in the hands of desirable persons and to ensure that shares are not transferred to strangers who are unacceptable to them, which was achieved in the instant case by approving the transfer of impugned shares in favour of the second respondent. The learned Senior Counsel placed reliance on V.B. Rangaraj v. V.B. Gopalakrishnan - (1992) 73 C.C 201 for strict interpretation of the restrictive clauses contained in the Articles of Association of a Company and Greenhalgh v. Mallard - All Er 234 to show that shares are presumed to be freely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of Association of the Company and without receiving any consideration whatsoever. The third respondent had neither informed the Board of Directors nor other shareholders of the impugned transfer in order to avoid any controversy among the shareholders. 6. I have considered the pleadings and arguments of the learned Counsel. The first respondent Company is a closely held Private Limited Company, with the petitioners constituting not less than one-tenth of the total number of its members. Thus, the petitioners do qualify to apply under sections 397 and 398. The relationship of the members, save of the first petitioner which is not germane to the contentious issues before me is not under dispute. The main dispute is as to whether the transfer of shares is in accordance with the Articles of Association of the Company. Shri Ramasamy, the learned Counsel placed reliance on various decisions (supra), wherein the transfers made in violation of the pre-emptive clauses in the Articles of Association have been held to be invalid and as such the learned Counsel seeks that the transfer of the impugned shares, in the present case, must be declared invalid. The provisions relating to transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a desirable person and willing to pay the fair price for the share and nothing else. It is evident that when the requirements of Article 8 are duly met, the transfer stands accomplished. It is also evident that there is no further need of following the procedure as contemplated under Articles 9 to 14, provided that the transfer is made in accordance with Article 8. The provisions of Articles 9-14 in my considered view, must come into operation only in the event of any proposing transferor failing to find a purchasing member, as specified in Article 8, but not otherwise. No doubt that the operation of Article 8 must be construed independent of the remaining Articles. I, therefore, find merit in the arguments of Shri C. Harikrishnan, the learned Senior Counsel appearing for the respondents 1 and 2. Having found the independent operation of Article 8, I shall now consider as to whether the impugned transfer was in strict compliance with that Article. At this juncture, the pleading forming part of the reply filed on behalf--of the respondents 1 2 assumes importance, relevant portion of which reads as under: It is submitted that the entire shares held by the 3rd Respondent in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company before transfer of any shares of the 1st respondent company to any existing shareholder or new member of the company and also not followed the Articles of Association of the Company. The reason was that 2nd respondent was refused to get married until the entire shares of the 3rd respondent get transferred in his name. In order to make the 2nd respondent to get married, the 3rd respondent who is father of the 2nd respondent ignored all procedures, which is specified in the articles of association of the Company to get, valid transfer. Further, the 3rd respondent had not informed the transfer of his shares to the board of directors and other shareholders till date to avoid the controversy among the members. Further, it is true that at the time of transfer the 2nd respondent was not even a member of the company. However, he holds some share in joint name. Further, till elate I have not received any consideration for above transfer of shares . The above specific plea of the third respondent was not repudiated by Shri Harikrishnan, the learned Senior Counsel, at the time of his oral submissions made before this Bench. .Even if the third respondent had voluntarily trans ..... X X X X Extracts X X X X X X X X Extracts X X X X
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