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TMI Blog1990 (10) TMI 384X X X X Extracts X X X X X X X X Extracts X X X X ..... f Nagasetty village (which is part of Bangalore city and the area is developing into a good residential locality and is known as Rajmahal Vilas Extension, II Stage) ; the second respondent obtained a no objection certificate in the year 1978 to set up a cinema theatre and had the building plan sanctioned ; and to further his objectives, he floated the company with the help of K. N. Seshadri. The company was incorporated in the year 1978. K. N. Seshadri and the second respondent were the first directors and they are to hold office for life and to act as managing directors alternately for a period of 5 years each, while other directors are to hold office till the third annual general meeting held after their respective appointments, etc. (vide Article 12 of the articles of association). Accordingly, K. N. Seshadri was the managing director till November 30, 1983, as per the averment in the petition and thereafter the second respondent was the managing director. It is the case of the petitioners that the second respondent leased 19 guntas of land belonging to him to the company for a period of 40 years and the lease deed was registered in the year 1982. The company, however, had obt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat he had no interest in the company and the suit was withdrawn on April 4, 1987. When things stood thus, respondents Nos. 3 and 4 started obstructing the construction work, with the connivance of P. K. Alva and, therefore, the second respondent filed another suit, O. S. No. 1076 of 1986 ; in this suit, respondents Nos. 3 and 4 produced a copy of an agreement dated November 16, 1986, entered into with K. N. Seshadri agreeing to purchase the shares of K. N. Seshadri's group. 2. In view of the deadlock in the affairs of the company, the petitioners filed a petition being Company Petition No. 48 of 1987 for the winding up of the company. Respondents Nos. 3 and 4 asserted in the said company petition that these petitioners were not shareholders of the company at all; in the records produced by them, including the statutory register, several serious irregularities are found. The shareholding position and the number of shares held by each of the petitioners shown in the share register were erroneous. The petition reads : The particulars contained in the register against the names of each of the petitioners is incorrect and the petitioners are shown to hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company Petition No. 48 of 1987 ; the petition is actually a proxy fight being carried on at the behest of the second respondent by the petitioners and is in furtherance of several unsuccessful attempts of the second respondent. 5. Respondents Nos. 3 to 6 assert that they had acquired shares bona fide and for consideration and are entitled to manage the affairs of the company ; they had negotiated with the two rival groups headed by the second respondent and Seshadri respectively and purchased the shareholdings of the said groups. Earlier, Seshadri had filed a company petition being C. P. No. 36 of 1985 against the company and the second respondent for the winding up of the company ; various other litigations initiated by the second respondent against P. K. Alva and respondents Nos. 3 and 4 were repeated ; the unsuccessful attempt of the second respondent to restrain these respondents from interfering with the affairs of the company were pointed out. Those respondents, further asserted that the various allegations in the petition could not have been made by the petitioners, as the factual averments are to be to the second respondent's knowledge and not of the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd meetings approving the share transfers interested directors participated and excluding them, the meetings had no quorum. (7) Any one of the shareholders may seek rectification of the share register of the company, even though others affected by the entries in the said register do not challenge the same ; such others need not be made parties to the proceedings. (8) When an elaborate trial and investigation are not necessary here, since the alleged share transfers were prima facie illegal, relief in favour of the petitioners under Section 155 should follow. 7. Mr. Jayaram, learned counsel for the contesting respondents, however, advanced two contentions, which partake of the character of preliminary objections : (1) Proceedings under Section 155 are of a summary nature and when serious disputes as to the title to the shares and nature of the transactions are raised, the court should not embark upon an enquiry on these questions ; the petitioners should be relegated to a civil suit to establish their case, (2) When, prima facie, it is disclosed that the petitioners belong to the group of the second respondent, and are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e court and in case complicated questions as to title to the shares arise, the court may relegate the parties to a civil suit, instead of deciding the question under Section 155. (ii) Proceedings under Section 155 being of summary nature, the court should not proceed to decide complex questions or issues pertaining to the . title to the shares which are complicated. (iii) Rectification of the share register is a statutory remedy provided by the Act and, therefore, the forum created by the Act is the most appropriate forum and, therefore, the court should entertain and decide any question regarding title to the shares under Section 155. (iv) Even though the procedure is summary, the court, in appropriate cases may adopt the normal, regular procedure while exercising the powers under Section 155 and decide the questions raised under Section 155, without relegating the parties to a civil suit. Since the High Court is more suitable to decide such questions regarding rectification of share register, when the occasion demands, the court may resort to the normal procedure of recording of evidence instead of a summary procedure. (v) Wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... teasing illusion of doubtful legal utility. This becomes crystal clear for it can be said that if the company admits the dispute, why force the petitioner to come to the court. If the claim is lodged with the company, the board of directors is absolutely powerful to decide the issue, and if the company through its board of directors accepts the claim lodged by the petitioner, nothing further is required to be done. Would it be a fair pro-position to assert that a mere dispute is sufficient to oust the jurisdiction of the court under Section 155 ? The answer must obviously be in the negative. 12. To the same effect is a subsequent ruling of a Division Bench of the Kerala High Court in K. P. Anthony v. Thandiyode Plantations P. Ltd. [1987] 62 Comp Cas 553, wherein the Bench observed that the Gujarat view was more acceptable to it. Even though the transferee of shares sought rectification of the register and did not produce the share transfer forms, the Bench held that rectification had to be ordered if, in fact, transfer of shares was proved ; it was held that the application was in the nature of a suit for specific performance and the transferor can be directed to ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court in Patna Devi v. Harihar Prasad Naik [1978] 2 Tax LR 2292 held that no exclusive jurisdiction was vested in the court under Section 155 and that a civil suit was maintainable. 17. There cannot be any doubt that the procedure under Section 155 is of summary nature. In fact, in the instant case, on an earlier occasion, while dealing with an application under Order 18, Rule 3 of the Code of Civil Procedure, Chandrakantharaj Urs J. held that this procedure is of summary nature and, therefore, Order 18, Rule 3 of the Code of Civil Procedure was inapplicable to the procedure followed in this case ; it was also observed that the entire burden of making out a case for relief rested on the petitioners. The order, seen from the order-sheet dated September 8, 1988, reads thus : Evidence of PW 3 and PW 4 completed. One document for petitioners marked. Mr. Chaithanya Hegde submits subject to his right of leading rebuttal evidence that he has been informed by the court that he has no right to lead rebuttal evidence as Rule 3, Order 18 of the Code of Civil Procedure is not attracted to this case. The procedure followed is a summary one. The burden of proving t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been omitted from the register without sufficient cause ; as the forfeiture was invalid, the names of the respondents were omitted from the share register without sufficient cause and, therefore, the court's jurisdiction under Section 155 was attracted. There were certain other events after the decision of the board to forfeit the shares in the said case, such as the filing of applications in the court under Sections 402 and 237 of the Act, wherein the respondents obtained certain interim reliefs ; ultimately the said order was vacated. This was relied upon by the appellant company to urge that the conduct of the respondents was inequitable and, therefore, the court should not exercise its discretionary jurisdiction under Section 155. While repelling this contention, the Supreme Court held at page 6 : Counsel for the appellant contended that the relief under Section 155 is discretionary, and the court should have refused relief in the exercise of its discretion. Now, 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 and relegate the parties to a suit. But the poi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be very relevant. 24. These propositions derived from the above decision have a direct bearing on the facts of this case, especially the two propositions stating that the jurisdiction under Section 155 is a discretionary one and that the equitable principles are quite relevant in case the conduct of the party suing for the relief with reference to the subject-matter directly affects the exercise of this discretionary power. 25. In an appropriate case, this court may decline to exercise this jurisdiction ; depending upon the questions arising in the case and the equities applicable, the court may also proceed to decide the questions arising without relegating the parties to a civil suit, by resorting to a regular procedure (in contradiction to the normal summary procedure under Section 155). The circumstances of the case, prima facie, indicate that the equities are not in favour of the petitioners ; in such a situation in spite of the petitioners' making out a strong case for legal rights in them, the court may refuse to exercise the power and leave it to the petitioners to approach the civil court by way of a regular suit. The conduct of the party inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pondent and now some of them have filed this petition to set at naught the said transfers on the ground of non-production of share certificates and failure to comply with the requirements of Section 108 and it is inequitable to accept their contention and grant them relief, because the very group is responsible for the non-issuance of share certificates and not giving effect to the transfer of shares. The petitioners and the second respondent should not be permitted to take advantage of their own wrongs. The entire transaction is brought about by the second respondent, who was authorised by the board to give effect to those transfers as per the resolution. He is represented by counsel in these proceedings. The second respondent is alleged to have been present in the court throughout the proceedings. He never entered the witness box, though he is the one person who personally knew the affairs of the company from the very beginning. To point out the closeness of all the petitioners, it was pointed out that even Ms. Pushpa Shrinath gave her address as care of the second respondent. It was also contended that the son-in-law of the second respondent Byra Reddy though a transferor has no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng signed a blank share transfer form for the said purpose ; according to him the said blank form signed by him was given to P. K. Alva of the Corporation Bank by the second respondent. He feigns ignorance of respondents Nos. 3 to 6 and says he never saw them ; the minutes book of the company maintained by the company, according to him, was with P. K. Alva ; he admits his signatures in the share transfer form, exhibit P-3. Exhibit P-4 is admitted by him as the minutes book of the company's board meetings and his signature therein is admitted ; he is familiar with the signature of the second respondent and recognised them in exhibit P-3 ; he denies having resigned on February 24, 1986, as recorded in exhibit P-4. His other important statement is : Muniyamma, Narayanamma and Aswathappa and Puspha Shreenath signed share transfer forms and gave it to Venkatesh just as I gave exhibit P-3 , This statement demolishes the assertions of the other petitioners like PWs 1 and 2 that they have not signed any transfer forms ; once again he stated that Muniyamma and others also gave transfer forms for the purpose of raising loans from the bank ; he admitted that exhibit P-5 (share register ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank account of Lakshmishappa (PW-3) though PW-3 denied having any bank account. Except the sum of ₹ 5,000 paid for the shares of Pushpa Shreenath (the third petitioner), the remaining sums, in all ₹ 2,58,000, were ultimately encashed and drawn by the second respondent through his bank account. Exhibit R-2 is the bank account of the second respondent. On March 12, 1986, in all a sum of ₹ 2,58,000 was credited to this account and was drawn by the second respondent on the same day. Exhibit R-3 is the extract of the bank account of Lakshmishappa (S. B. A/c. No. 1749) which shows that on February 25, 1986, ₹ 55,000 was credited and was drawn by the account holder. Exhibit R-5 is the bearer cheque issued to Lakshmishappa dated February 24, 1986, by Universal Trading Co. (of respondents Nos. 3 and 4) and the cheque was credited to the payee's account as per bank's endorsement. Exhibit R-10 is the bearer cheque dated February 24, 1986, issued in the name of Narayanamma for ₹ 25,000 and is stated to have been paid to the bearer by cash and bears the second respondent's signature on the reverse. Exhibit R-11 is the cheque dated February 24, 1986, is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orporation Bank through the second respondent for the purpose of loan. Alva is not examined ; the second respondent has fought shy of the witness box even though his presence in the court was pointed out on a few occasions (including by RW 1). The petitioners' assertion that either they have not signed the transfer forms produced in the court or that they were the same as given to Alva, cannot be accepted at all. The burden is heavy on them to show that an official of the bank misused the confidence bestowed on him by the petitioners and clandestinely passed them on to respondents Nos. 3 and 4. The second respondent as well as the fourth petitioner were parties to the resolution of the board dated February 24, 1986, which speaks of these transfers. The encashment of the consideration cheques is amply established. Only the second respondent could have spoken to the alleged clandestine conduct of Alva and the handing over of the blank transfer forms to him for loan purposes. When circumstances are too glaring and speak for themselves, non-examination of respondents Nos. 3 to 6 would not go to support the case pleaded by the petitioners. 38. M. A. Paul, RW-4, states t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents Nos. 3 to 6. 39. The petitioners had and continue to have faith and confidence in the second respondent ; they have acted as the instrument of the second respondent in lending their names not only in fighting this litigation, but also in the matter of being the shareholders of the company earlier and selling the shares to respondents Nos. 3 and 4. In these circumstances, when full consideration for the shares has been received by or on behalf of the petitioners who have executed the share transfer forms, can it be said that the alleged failure to have the share certificates accompany the share transfer forms as envisaged by Section 108 of the Act should, by itself, be a factor for this court to exercise its discretionary power under Section 155 of the Act. 40. If equity has a say in the matter and the conduct of the petitioners pertaining to the subject-matter is abhorrent and grant of relief to the petitioners would result in injustice, why should this court aid the petitioners by rectifying the share register ? 41. Nowhere do the petitioners as PWs speak of the existence of share certificates ; no question was asked of RW-4 as to what h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the company are as per annexure A to the deed. Annexure-A to the said deed enumerates 28 names as the shareholders with their respective shareholdings. At serial No. 2 is the second respondent ; at serial No. 1 is K. N. Seshadri. Serial Nos. 5 to 9 refer to the petitioners. These petitioners' total shareholding as per this annexure will be 1,630 shares. M. A. Paul is one of the attestors to this agreement (annexure-M in exhibit P-21). As RW-4, Paul admitted that he attested this agreement ; his actual attestation was referred to as exhibit R-21(b) and the agreement as exhibit P-21(a). Paul also says that Srihari signed this agreement and further admitted that the agreement had two annexures 'A' and 'B'. 45. Therefore, as late as November 16, 1986, the board seems to have treated the petitioners as the shareholders ; at any rate respondents Nos. 3 and 4 thought that the petitioners were shareholders as on the said date. If so, a question arises as to why the board purported to approve the alleged transfer of shares on February 24, 1986. Learned counsel for the petitioners repeatedly referred to this aspect in support of the petitioners' case an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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