Rajasthan High Court - Jaipur
Ravindra Raniwala vs Raj. Financial Corporation And Ors. on 2 May, 1991
Equivalent citations: 1991(2)WLN550
JUDGMENT V.S. Dave, J.
1. By this writ petition the petitioner has prayed for issuance of writ of mandamus seeking direct on against the respondents to complete the process of elections of the Directors in Rajasthan Financial Corporation to be elected in pursuance of notice dated September 1, 1990 and to conduct the aforesaid elections of the basis of the voter-list, Ex. 1, after giving credit of 1425 shares to the petitioner for the purpose of his being elected as Director under Section 10(e) read with Section 4(8) Clause (d) of the State Financial Corporation Act, 1951 (hereinafter referred to as "the SFC Act"). A prayer for writ of certiorari was also made for quashing and setting aside the resolution passed in the meeting of the Board of Directors held on September 22, 1990.
2. It would be essential to quote certain facts before dealing with the contentions raised in this writ petition. Rajasthan Financial Corporation (hereinafter referred to as "the RFC"), is creation of statute of State Financial Corporation Act, 1951 (hereinafter referred to as "the SFC Act"), and is a body corporated having perpetual succession and a common seal with the power to acquire, or dispose of property and to sue and be sued in the same name. The Board of Directors of the Corporation, in consultation with Reserve Bank of India, and prior sanction of the Government of Rajasthan framed Regulations under Section 48 of the S.F.C. Act. These Regulations came into force with effect from February 7, 1956 and are known as Rajasthan Financial Corporation General Regulations, 1956 (hereinafter referred to as "the Regulations of 1956"). In exercise of the powers under Section 4 of the SFC Act the Government of Rajasthan also promulgated the Rajasthan Financial Corporation (Voting Rights) Rules, 1956 which came into force w.e.f. February 7, 1956. These rules are hereinafter referred to as the Rules of 1956. It is pertinent to mention here that the Corporation had been established w.e.f. January 17, 1955 and its first Board of Directors were nominated in accordance with the provisions of Section 10(a) of the SFC Act. The State Government also fixed the authorised capital of the RFC at a sum of rupees 2 crores in pursuance of the powers given under Section 4 Sub-sections (1), (2) and (3) of the SFC Act and this amount was divided into 2 lac fully paid up shares at a face value of Rs. 100/- each. It was decided that fully paid up shares to the tune of Rs. 1 crores be issued in the first instance and one lac shares so issued in the first instance were distributed as under:
Name of Parties Number of Shares.
1. Government of Rajasthan 36,000/-
2. Reserve Bank of India 15,000/-
3. Scheduled Banks, Insurance Companies, Investment
Trusts, Co-operative Banks and other
Financial Institutions. 39,000/-
4. Parties other than those referred to the
items 1,2 and 3 above. 10,000/-
Subsequent to the aforesaid distribution the number of shares in category 3 were increased from 39, 000 to 44, 000 i.e., by 5000 and these 5000 shares were reduced from category 4. The petitioner's case is that to the best of its knowledge shares of category 'D' 10,000 or 5,000 have not been issued by RFC in category 4 which is category 'D' under Section 4 Sub-section (3) of the SFC. Act and 5000 shares have not been issued till date.
3. The petitioner's case is that RFC published a list of share-holders of class-D of Sub-section (3) of Section 4 of the SFC Act as on March 31, 1990 and the petitioner's name in this list appeared at No. 60. Petitioner holds 5 shares and is entitled to exercise one vote. As mentioned above the first Board was nominated in 1955, but subsequent to that elections were to be held in accordance with law. Section 10 of the SFC Act provides that Board of Directors shall consist of 5 Directors nominated by the State Government, one Director nominated by the Reserve Bank of India, two Directors nominated by Development Bank, three Directors to be elected in prescribed manner by the parties referred to in classes C of Sub-section (3) of Section 4 of the SFC Act, one of whom shall be elected to represent to the Scheduled Banks, another to represent Cooperative Banks and third to represent remaining Financial Institutions and other Institutions. Besides this all one Director to be elected from amongst themselves by the parties referred in Clause 'D' of Sub-section (3)(d) of Section 4 who are share-holders. The elected Directors can hold office for four years or till the successor is elected and is eligible for re-election, but the continuous period could not exceed 8 years after the rotation of elected Directors had begun.
4. The petitioner's contention is that RFC issued a notice on September 1, 1990 for election of two Directors, one representing the Financial Institutions under Clause (d) of Section 10 and another representing private parties who are share holders of the RFC under Clause (e) of Section 10 as the vacancies have fallen Sri B.L. Ajmera who had been elected for two terms was not eligible, having completed 8 years. The elections were scheduled on September 26, 1990 at 11.00 AM. The nominations were to reach the office of Corporation not later than September 11, 1990 and last date for the deposit of proxy was fixed as September 18, 1990. The last date for depositing the certified copy of the resolution appointing duly authorised representative by company or corporate body was September 21, 1990. Thus the whole election programme had been notified and but for the actual polling the rest of the process was to be over by September 21, 1990. It is pertinent to mention that when the election process started and the rest of the formalities were over, Share-holders' voting list to be relied upon for the purpose of election was the one, which has been referred to above, i.e., Ex. 1, which was as on March 31, 1990. A meeting however of the Board of Directors was convened on September 22, 1990 and a decision was taken for publishing a new list of share-holders which was likely to be acted upon by RFC and is corrected as on September 16, 1990. It was therefore, submitted that this action was contrary to the provisions of the voting rights rules. Under General Regulation No. 32, also the list containing the name of the share-holders, their registered addresses, number and distinctive numbers of shares held by them and the number of votes to which they will be entitled, on the date fixed for election, were to be made available atleast three weeks before the date fixed for election and any list prepared on September 22, 1990, i.e., four days prior to the election could not have been a list of voters under any provision of law and this modification in the list Ex. 1 on September 22, 1990 was without legal authority and was beyond the scope of Regulation 32, as in that case share-holders' voter list could not have been legally made available before three weeks of the day of election and no correction was permissible under Regulation 32.
5. The petitioner being aggrieved by this change in list sent notice of demand of justice telegraphically for RFC and also to the State Government cautioning them with a request that they should not cause any hinderence or obstruction in the completion of the election process, holding of the election of the Directors as scheduled on September 26, 1990. Not finding any response the petitioner filed this writ petition on September 24, 1990 when the courts were closed for Dashera break, hence the petitioner presented this writ petition at my residence. I caused the notice to be issued telephonically to RFC only. Non-petitioner Nos. 2 and 3 also chose to appear and on September 25, 1990 arguments were heard at quite some length. A detailed order was passed on the stay petition and it was directed that the elections shall take place as scheduled on September 26, 1990 in accordance with the Notification issued on September 1, 1990 ignoring the list of share-holders prepared on September 16, 1990. This order however, was subject to the final decision of the writ petition which was ordered to be disposed of at admission stage. Detailed reply was filed on behalf of the non-petitioners and the re-joinder too.
6. The case of the RFC is that Ex. 1 List is not a correct list as certain shares of the category 'C which were recorded as such in the share-register and were also allotted in category 'C as mentioned in the share register as belonging to category 'C, have wrongly been included therein. It was submitted that the total number of shares issued to the parties under Section 4 Sub-section (3)(d) were only 2095 shares and 1000 shares appearing at serial No. 49 on Ex. 1 were included due to clerical mistake. Infact the said shares belong to category 'C of Section 4 Sub-section (3)(a). Said shares were originally issued to category 'C share-holders and even today they are registered in category 'C in the share register maintained by the Corporation. It was submitted that the error continued because no election to the post of Director in respect of Clause (e) of Section 10 representing private parties ever took place by contest since 1972 except in the year 1974 when two more candidates had filed the nominations which were rejected and in that circumstance also there was no contest. For the first lime the contest took place this year and, therefore, the list was checked and the error was detected. When this error came to the notice of non-petitioner No. 1 that 1000 shares as mentioned in item No. 49 of Ex. 1 are wrongly included in the list of 'D' class category it became essential to correct the same and it was accordingly corrected by holding the meeting on September 22, 1990 and by revising the share-holders' list w.e.f. September 16, 1990, i.e., on even of the day of closing the share register. It was submitted that in view of the interim order issued by this court RFC allowed the proxy holder of thousand shares to vote at the elections. The submission, therefore, is that though elections have taken place in accordance with the interim order of the court but the list which had been made basis is not the correct list. The submission is that shares of categories 'A', 'B' and 'C cannot be transferred to class of share-holders referred to in Clause (d) of Sub-section (3) of Section 4 of the Act. The shares were finally issued in the name of United General Assurance Trust (India) Limited and later on they were placed with the Reserve Bank of India and as such they were registered in the name of Reserve Bank of India and again they were returned to the original allottee and this was never done because the shares were being treated as belonging to category 'C under Clause (e) of Sub-section (3) of Section 4 of the Act. The shares were again transferred to Advance Insurance Company Limited which was from category 'C to category 'D' transferred by Advance Insurance Company Limited to Reserve Bank of India on April 5, 1963 was by way of pledge which was retransferred in the name of Advance Insurance Company on May 26, 1971 after redemption of pledge and finally on August 16, 1972.1000 shares in question were transferred to M/s. Chiranji Lal Charity Trust and shares continued in category 'C. But as stated they have been wrongly included in category 'D' by clerical mistake. The non-petitioners emphatically denied that United General Assurance Trust (India) Limited did not bear the character of an Insurance Company. Thus the main submission is that initial allotment being in category 'C always continued to be the same and even transferred to M/s. Chiranji Lal Charity Trust they would remain in category 'C as one of the object of the Trust is to invest its money in securities as per the provisions of Section 20 of the Indian Trust Act. It was further submitted that had the error been corrected the petitioner could not have been declared successful as the petitioner won the election by margin of 80 votes and if the proxy for 1000 shares, i.e., 200 votes were included from total number of votes polled, then non-petitioner No. 3 would have won the election.
7. Non-petitioner No. 3 raised preliminary objections to the maintainability of this writ petition also. It was submitted that allowing writ petition would result in restoration and perpetuation of illegality which cannot be expected to be done in extraordinary jurisdiction. The submission is that main thrust of the petitioner's case is that shares held by the Advance Insurance Corporation which later on became an Investment Trust and fell within the category 'C of Sub-section (3) of Section 4 of the Act stood transferred to category 'D' by transfer to M/s. Chiranji Lal Charity Trust, but the petitioner has conveniently omitted to make a reference to Section 5 of the Act which provides that shares of the Financial Corporation shall not be transferable except to the State Government, Reserve Bank, Development Bank or any other Financial Institution recognised in this behalf by the State Government or other Institutions notified in Clause (c) of Sub-section (3) of Section 4 of the Act and those shares subscribed for by the parties referred to in Clause (c) could never be transferred to category 'D' specified in Sub-section (3) of Section 4 of the Act. This is further clear by reading the proviso to Sub-section (1) of Section 5 of the Act which permits only the shares originally subscribed for by the parties referred to in Clause (b) of Sub-section (3) of Section 4 of the Act freely transferable. It is thus submitted that if the contention of the petitioner is to be accepted, then it would be clear violation of the mandatory provisions of Section 5 of the Act and thus a patent illegality will occur if the writ petition of the petitioner is allowed because that will amount to the recognition of the transfer of the shares subscribed for by the parties referred to in Clause (c) to Sub-section (3) of Section 4 of the Act to the shares subscribed for by the parties referred to in Clause (d) of Sub-section (3) of Section 4 of the Act. It is then submitted that a perusal of Section 4 of the Act makes it clear that it is only the State Government with the approval of the Central Government who can determine the number of shares which may respectively be distributed among four or five categories specified in of Sub-section (3) of Section 4 of the Act and the State Government in this process allocated 5000 shares for category 'D' by Notification, dated 23rd March, 1955 and the very purpose of the sub-section would be frustrated in case the petitioner's contentions are accepted. It is submitted that number of shares in Clause (d) in no case can exceed 25% of the total number of shares, and under the scheme of Act parties referred to in Clauses (a), (b), (ba) & (c) Sub-section (3) of Section 4 of the Act should have among themselves less than 75% of the shares so that the Financial Corporation may not become handsaid of individual share holders. It is then submitted that the petitioner's conduct in the whole case is far from that of a bonafide claimant. He has placed on record a list of shareholders purporting to be of category 'D' when no such list had ever been published and was issued by the Corporation under Regulation 32 and General Regulations and Rules of the RFC. The list is required to be prepared for each class of shareholders as per procedure prescribed in the Regulations and this list is required to contain names of the shareholders, their registered addresses, numbers and distinguishing number of shares held by them on the date when the shares were registered and number of votes to which they will be entitled to on the date fixed for election and copies of such lists are required to be made available for purchase atleast three weeks before the date fixed for elections at price of Rs. 1/- per copy. No such copy has ever been issued till date from the office of the Corporation and the writ petition, it is submitted, is based on some rough list prepared for statistical purposes which had somehow been whisked away by the petitioner from the office of the Corporation which has resulted in misleading the court and made to believe the court that the list of shares as on 31-3-1990 was illegally prepared list because of which the petitioner accrued rights.
8. On merits, it is submitted that the legislature in its own wisdom has chosen to make such provisions that public institutions should not fall into the hands of individuals or group of individuals and at the same time they are required to be their public participation. Reference in this respect has been made elaborately to the provisions of Section 4. It is further submitted that the share register which is primary and statutory record and recommendations specified therein are the category of shares allotted. It contains the particulars of the shares acquired and transferred. It is submitted that the shares which were in the first instance issued in the name of United General Insurance Trust India Ltd. have always remained to be in category C as shown in the Register. It is submitted that shares which were subscribed initially remained in the same category unless in event of arising it to be in category A, B, BA or C. Sub-section (3) of Section 4 of the Act which as per Section 6 of the Act can be indemnified by resorting to the guarantee provided therein. It is also submitted that the petitioner cannot challenge the categorisation of the shares held by Shri Chiranji Lal and thus as they had not chosen to challenge their categorisation and category C of Sub-section (3) of Section 4 of the Act and the same cannot be done by proxy. The proxy which had been produced, it is submitted, does not mention the category in respect of which the proxy had been given and this bears importance because on 26th November, 1990 elections were to be held by vote for category D specified in Sub-section (3) of Section 4 of the Act, the proxy therefore, given is of no avail. Certain more arguments have been raised including that as per Notification, dated 17-1-1955, issued by the State Government the Government had recognised the Financial Institutions as Institutions for the purposes of Sub-section (1) of Section 5 of the Act and that includes the Investment Trust.
9. I have given my earnest consideration to the rival submissions and have persued the entire record produced before me.
10. Three main points arise for decision in this case:
1. As to whether the writ petition should be dismissed on the ground of having become infructuous as the elections are already ever in pursuance of the orders passed by this court?
2. Whether the elections held are valid elections according to the list which has been acted upon because of the orders of the court? and
3. Whether the shares in question have been issued in category C and they were ever changed to category D or could be changed to category D lawfully.
11. So far as the first question is concerned the writ petition had been filed on 24th September, 1990 and the process of the election and started on 1-9-1990 when the Notification for election was issued and the nominations were invited on 11-9-1990. The last date of deposit of proxy was 8-9-1990 and the petitioner had already filed the proxy forms which were issued to all the shareholders in accordance with the list of shareholders of category `D' of Sub-section (3)(a) of Section 4 of the Act as on 31-3-1990. On 15-9-1990 a Notification was again issued in Rajasthan Patrika informing about holding of special general meeting of the shareholders on 26-9-90 and the names of the two candidates, namely, the petitioner and respondent No. 3 were notified therein in between. On 22-9-1990 a new list of shareholders came to be made available which was sought to be acted upon by RFC as on 16-9-1999 which ran counter to the proxy forms issued. In this view of the matter after hearing both the parties court directed the elections to be conducted as scheduled in accordance with the Notification issued on 1-9-1990 ignoring the list of shareholders as on 16-9-1990 made available on 22-9-1990 because the elections were to take place only on the next day and arguments on merits were to consume long time coupled with the fact that courts were closed for Dasehara break. However, it was specifically mentioned in the order that the order is subject to be final disposal of the application petition. The elections were conducted and the petitioner had been declared elected. The petitioner's contention that election can be challenged by election petition, cannot be accepted. This writ can also not be dismissed as infructuous as elections had been conducted under the orders of the court and it was made specific that the same would be subject to the final disposal of this petition. Besides this, only questions of law are involved and for that reason also the writ petition cannot be dismissed on the ground of alternative remedy. Hence I proceed to examine the writ petition on merits.
12. The other two questions would be decided after examining the position of law.
13. The scheme of the Act and the relevant provisions which calls for consideration in this case are as under:
RFC under the Act is a body corporated as has been established under Section 3 of the Act and authorise capital of this RFC was to be fixed by the State Government and the same was to be divided into such number of fully paid up shares as the State Government was to determine under Section 4 of the Act which reads as under:
(1) The authorised capital of the Financial Corporation shall be such sum as may be fixed by the State Government in this behalf, but it shall in no case be less than fifty lakhs of rupees or exceed ten crores of rupees.
(2) The authorised capital shall be divided into such number of fully paid-up shares as the State Govt. may determine and shall be issued to the parties mentioned in Sub-section (3) at such times and in such manner as that Government may determine and each such share shall have the same face value.
(3) The State Government shall, with the approval of the Central Government, determine the number of shares which may, respectively, be distributed among:
(a) the State Government,
(b) the Reserve Bank, (ba) the Development Bank,
(c) scheduled banks, insurance companies (including the Life Insurance Corporation of India established under Section 3 of the Life Insurance Corporation Act, 1956), investment trusts, cooperative banks or other financial institutions, and (d) parties other than those referred to in Clauses (a), (b), (ba) and (c):
Provided that the number of shares which may be allocated to the parties referred to in Clause (d) shall in no case exceed twenty five percent of the total number of shares.
(4) Subject to the other provisions contained in this section, the allocation of shares among the parties referred to in Clauses (c) and (d) of Sub-section (3) and the allotment of such shares shall be made by the Financial Corporation in such manner as may be prescribed.
(5) If any shares allocated to any of the parties referred to in Clauses (c) and (d) of Sub-section (3) remain unsubscribed, they shall be subscribed for by the State Government, but the State Government may at any time thereafter dispose of the shares so subscribed for to any party who was eligible to subscribe for it in the first instance.
The Act places restrictions on transfer of certain shares which is provided in Section 5 which reads as under:
Section 5(1) The shares of the Financial Corporation shall not be transferable except to the State Government the Reserve Bank (the Development Bank) or any other financial institution (or class of financial institutions) recognised in this behalf by the State Government:
Provided that the shares subscribed for by the parties referred to in clause, (d) of Sub-section (3) of Section 4 shall be freely transferable.
(2) Nothing contained in this section shall affect the provisions of Sub-section (5) of Section 4.
The State Government has to guarantee the shares as per Section 6 which runs as under:
Section 6(1) The shares of the Financial Corporation shall be guaranteed by the State Government as to the repayment of principal and the payment of annual dividend at such minimum rate as the State Govt. may, with the approval of the Central Government, fix by notification published in the Official Gazette at the time of issuing the shares.
(2) Notwithstanding anything contained in the Acts hereinafter mentioned in this sub-section, the shares of the Corporation shall be deemed to be included among the securities enumerated in Section 20 of the Indian Trusts Act, 1882 and also to be approved securities for the purposes of the Insurance Act, 1938 and the Banking Companies Act, 1949.
and the composition of the Board of Directors has been mentioned in Section 10 which reads as under:
Section 10-The Board of directors shall consist of the following, namely:
(a) (four) directors nominated by the State Govt. (of whom one director shall be a person who has special knowledge of or experience in small-scale industries) (Provided that in the case of a joint Financial Corporation, the number of directors shall be such as the State Governments of the participating States may, by agreement among themselves, think fit to nominate, each participating State Government nominating not more than two directors:
(Provided further that in the case of a joint Financial Corporation, the director, who shall have special knowledge of, or experience in, small scale industries, shall be nominated by that participating State which, according to the terms of agreement between the participating States, is entitled to make such nomination)
(b) one director nominated by the Reserve Bank;
(c) (two directors) nominated by the Development Bank)
(d) three directors elected in the prescribed manner by the parties referred to in Clause (c) of Sub-section (3) of Section 4, one of whom shall be elected to represent scheduled banks, another to represent co-operative banks and the third to represent the remaining financial institutions:
(e) One director elected in the prescribed manner from among themselves by the parties referred to in Clause (d) of Sub-section (3) of Section 4 who are shareholder of the Financial Corporation;
(f) a managing director appointed by the State Govt. in consultation with and after obtaining the advice of the Development Bank and, except in the case of first appointment, also with the Board:
Provided that on the first constitution of the Board the directors referred to in Clauses (d) & (e) shall be nominated by the State Government and the directors so nominated shall, for the purposes of this Act, be deemed to be elected directors:
Provided further that all directors of the Board first constituted other than the managing director shall retire at the end of the first year.
The Board of Directors have given power to make Regulations not inconsistent with the provisions of the Act under Section 48 and the Board of Directors as contemplated by law after consultation with the Reserve Bank of India and with the previous sanction of the Government of Rajasthan made Regulations of 1956. The relevant Regulations which require consideration in this writ petition are 32,33 and 34 which are as under:
Regulation 32-List of Shareholders: (1) For the purpose of election of Directors mentioned in Clauses (d) and (e) of Section 10 or of the Auditor under Sub-section (1) of Section 37 a separate list shall be prepared for each of the following classes of shareholders, namely:
(a) Schedule Banks;
(b) Co-operative Banks;
(c) Insurance Companies, Investment Trusts, and other Financial Institutions excluding Scheduled Banks and Co-operative Banks;
(d) Parties other than those referred to in Clauses (a), (b) and (c) of Sub-section (3) of Section 4.
(ii) Each such list shall contain the names of the shareholders, their registered addresses, the number and distinguishing numbers of shares held by them with the dates on which the shares were registered and the number of votes to which they will be entitled, on the date fixed for the election and copies of such lists shall be available for purchase at least three weeks before the date fixed for the election at a price of one rupee per copy, on application at the Head office of the Corporation.
"Regulation 33-Nomination of Candidates for Directorship:
(1) No candidate for election as a director of the Board shall be validly nominated unless:
(a) he is on the last date for receipt nominations, not disqualified to be a director under Section 12;
(b) he is nominated in the case of election of a Director pursuant to Clause (d) of Section 10 by one shareholder and in case of an election of a Director pursuant to Clause (e) of Section 10 by two shareholders, of the class of shareholders in respect of which the election is to be held;
(c) The nomination is in writing signed by the shareholders or by their duty constituted attorneys, provided that a nomination by a shareholder who is a body corporate may be made by a resolution of the directors of the said body corporate and where it is so made, a copy of the resolution certified to be a true copy by that Chairman of the meeting at which it was passed shall be despatched to the Head Office of the Corporation and such copy shall be deemed to be a nomination on behalf of such body corporate;
(d) The nomination paper contains declaration signed by the candidate before a Judge, Magistrate, Justice of the Peace, Registrar, or Sub-Registrar of Assurances, or other Government Gazetted Officer, that he accepts the nomination and is willing to stand for election, and that he is not disqualified for election under Section 12.
(ii) No nomination shall be valid unless it is received in the Head Office of the Corporation not less than 14 clear days before the date fixed for the election.
"Regulation 34-Publication of list of candidates for Directorship-On the first working day following the last date fixed for the receipt of nomination papers, the Managing Director shall take the same into consideration. He shall after such enquiry, if any, as he thinks necessary, satisfy himself in regard to the provisions of Regulation 33 and shall accept or reject the nomination of each candidate accordingly, and, in the case of rejection, shall briefly record his reasons for so doing. The decision of the Managing Director that a nomination is valid or invalid shall, subject to the result of any reference under Regulation 37, be final. If there is only one valid nomination for any particular vacancy to be filled by election, the candidate validly nominated for vacancy shall be deemed to be elected at the meeting convened for the purpose and his name and address shall be published as so elected. If the number of valid nominations exceeds one, the Managing Director shall cause to be published the names and addresses of candidates validly nominated in the Official Gazette and or one news-paper circulating in the State of Rajasthan.
The Government of Rajasthan in exercise of the powers under Section 4 of the RFC Act promulgated the RFC (Voting Rights) Rules, relevant provisions of the same are:
Proxies-(1) No instrument of proxy shall be valid unless in the case of an individual shareholder it is signed by him or by his attorney duly authorised in writing, or in the case of joint holders, it is signed by the shareholder first named in the register or his attorney duly authorised in writing or in the case of a company it is executed under its common seal, if any, or signed by its attorney duly authorised in writing:
Provided that an instrument of proxy shall be sufficiently signed by any shareholder, who is, for any reason, unable to write his name, if his mark is affixed thereto and attested by a Judge, Magistrate, Justice of the Peace, Registrar, Sub-Registrar of Assurances, or other Government Gazetted Officer.
(2) No proxy shall be valid unless it is made out specifically for the purpose of voting at the meeting at which it is to be used.
(3) No proxy shall be valid unless it is duly stamped and unless it, together with the power of attorney or other authority (if any) under which it is signed, or copy of that power or authority certified by a Notary Public or a Magistrate, is deposited at the Head Office of the Corporation not less than 7 clear days before the date fixed for the meeting.
(4) No instruments of proxy shall be valid unless it is in prescribed form and dated.
A perusal of the aforesaid provisions of law makes it clear that the management of the Financial Corporations had been given in the hands of the Board of Directors wherein a restriction has been imposed that there will be only one Director who represents the shareholders of the Financial Corporation belonging to category D, i.e., representing the individual shareholders. Category (A) shares are held by the State Government, of category (B) by the Reserve Bank, category (BA) by the Development Banks and category (C) by Scheduled Banks, Assurance Company including LIC of India which is established under S3 of the Life Insurance Corporation Act, 1956, Investment Trust Cooperative Banks or other Financial Institutions and the further restriction is that individuals i.e., parties otherwise than in categories A, B, BA and C would in no case be allocated more than 25% of the shares of the total number of the shares issued. Only the State Government had been given power under Sub-section (4) of Section 4. The task has been assigned to the Financial Corporation for allocating the shares among the parties referred to in Clause (c) or Clause (d) of Sub-section (3) of Section 4 and in case the shares allocated to any of the parties referred to in these two classes i.e., Clause (c) and Clause (d) of Sub-section (3) of Section 4 remained unsubscribed then they were required to be subscribed by the State Government. However, the State Government was further given powers to dispose of such shares to the parties which was eligible in the First Instance which means that the Legislature wanted the shares allotted in the first instance to be meant for the same category and even the State Government if held, unsubscribed shares and intended to subscribe them subsequently could not have subscribed to any other party except for whom they were meant. The only rider in such case is contained in Section 5 which puts restriction on the transfer of shares. A perusal of Section 5 makes it clear that further restriction was imposed on the Financial Corporation and it could not transfer its share to anyone else except the State Government, Reserve Bank (Development Bank) or any other Financial Institution or class of Financial Institution recognized in this behalf by the State Government. The only exception to it was that shares subscribed by the parties referred to in Clause (a) of Sub-section (3) of Section 4 could be freely transferable meaning thereby 25% shares allocated to the parties other than that referred to in categories A, B, BA and C can be transferred to any of the aforesaid categories but vice a versa is was not permissible, i.e., shares of categories A, B, BA and C could not be transferred to category D and obviously because firstly the number of shares allocated to this category were limited to 25% and secondly there was to be only one member elected from this category to Board of Directors. Thus the legal position is quite clear and in my opinion there is absolutely no ambiguity that the shares which have been allocated to any of the class, may be A, B, BA, and C, can, by no stretch of imagination, be transferred to category D and it is only if the shares allocated to any party would have remained unsubscribed in category C or category D, then too it was only the State Government who could subscribe them and later on dispose of to the party eligible to subscribe for it in the First Instance. Thus, even the State Government cannot dispose of to any category other than the one to whom it had been allotted in the First Instance. However, individuals in category D have been given a right to transfer their shares freely.
14. Learned Counsel for the petitioner's submission that shareholders who were allotted shares in category D on 12th May, 1955 and 20th December, 1955 the share certificates of which arc Ex. 6 to 15 issued on 20th December, 1955 were initially in the name of United General Assurance Trust India (Ltd.) and this company did not fall in the category C as it was neither a Scheduled Bank or Insurance Company or Investment Trust or a Cooperative Bank or any Financial Institution but it fell in the category D of Sub-section (3) of Section 4 and thus the certificates issued were infact and reality, and in pith and substance were falling to category D, cannot be accepted ipso facto in this writ petition because for that it is essential to go through the documents concerning with initial allotment of the shares and this can only be seen prima facie from the marking given in the register or on the top of the certificate as is required under the statute. The court does not have to hold an enquiry into the matter as to whether the RFC on account of oblivion or misconception of the scope of the word 'Assurance Company' wrongly marked the shares in category C. This is also not the scope of writ jurisdiction of this court to go into the question as to what particular category ought to have been allot led or has been allotted to the shares certificates Ex. 5 to 15. Ex facie they have been issued in category C and if any dispute was to be raised it could be done before the appropriate forum rather than in this writ petition. The only question with which the court was concerned at the time of entertainment of the writ petition as to whether the elections could be held on the basis of a list which had not prepared in accordance with law and was made available at least three weeks before the elections as required.
15. Learned Counsel for the petitioner has referred to Palmer Treatise of Company Law (24th Edition, Vol. 1 (1987). He has quoted the following portions:
Transfer of shares is a voluntary conveyance of rights and possibly the duties-of a member as represented in a share in the company, from a shareholder who wishes to cease to be a member to a person desirous of becoming a member."
The mortgaging of shares occurs where a shareholder uses his shares as security on which to borrow money.
A transferee under a valid transfer has an absolute right to be registered unless the companies has a power to right to register and has effectively so refused, thus where under the articles, the directors had power "to decline" to register a transfer and owing to a deadlock on the board they were unable either to pass the transfer or to decline it. The Court held that the power to decline had not been exercised and the transferee was entitled to be registered. The directors must exercise any right to decline to register a transfer within a reasonable time and four months early is certainly "unreasonable"
Palmer has referred at page 609, a leading English Authority Re Swaledale Cleaners Ltd. (1968) 3 All England Report 619 which suggests that the applicant must show prejudice beyond mere delay. In Swaledale case the refusal to register had no merit, since the applicant was one of the two directors and already held shares and the only other shareholder and director was clearly protecting his own position.
Where the presumption clause provides-as normally the case-that a share may be transferred to any member but shall not be transferred to a person who is not a member so long as any member is willing to purchase the same at the fair value, the transfer between the members is completely unrestricted and as such transfer does not being into operation the provisions of presumption clause.
The directors may issue shares only for a proper purpose i.e. in the best interest of the company and an issue for an ulterior motive, such as altering the voting in the company or for serving self interest of the directors would be void.
The directors may issue shares only for a proper purpose i.e. in the best interest of the company and an issue for an ulterior motive, such as altering the voting in the company or for serving self interest of the directors would be void.
16. There is no dispute with the preposition of law mentioned above but they are not relevant and germane to the issue involved in the instant case in this writ petition, I have already stated hat this court would not enter into the history of transfers and has also nc concern with the initial wrong mentioning on the category of the shares but is only concerned with the process of the elections which have taken place for which it can be stated without fear of contradiction that process of elections had already started and no list of voters was made available us requried by law. The list produced by the petitioner as Ex. 1 has neither been finally issued nor verified and signed as a list which shows the true position of shareholders. The Board of Directors subsequently in its meeting which took place on 22-9-1990 taking decision of publishing a new list of shareholders was contrary to the spirit of Regulation 32. Even according to the general principles initial list of voters is required to be published before the nominations are called and the proxy forms are also to be issued or the basis of the list prepared. It is neither disputed nor can be disputed that a decision was taken in the meeting of the Board of Directors dated 22-9-1990 to prepare new list of shareholders entitled to vote. This was not just and permissible. Elections have been held on the basis of list Ex. 1 under the orders of the Court was also not proper election because that said list is neither according to the register nor in accordance with the marking given on the share certificates. The said list has also not been made available and wrongly issued prior to the elections. In my opinion therefore, the elections held on 26-9-1990, though under the orders of the court, were not proper elections and the same are liable to be set aside.
17. The result of the aforesaid discussion is that this writ petition is partly allowed The voters' list prepared of shareholders of category D in pursuance of the decision taker in the special general meeting of the Board of Directors held on 22-9-1990 was unlawful and is therefore, quashed. At the same time the shareholders' list Ex. 1 is also declared not to be a proper shareholders voter-list. The Board of Directors are hereby directed to convene special general meeting for the purpose of holding fresh elections for electing a Director under Section 10(e) read with Section 4(3) Clause (d) and before doing so, shall, after properly scrutinising the entire record, cause to be published a correct list of the shareholders of class D of Sub-section (3)(d) of Section 4. It is further directed that the fresh elections be held within a period of four months in accordance with the procedure mentioned in Regulations and (Voting Rights) Rules. There shall be no order as to cost.