Madras High Court
Malleswara Finance And Investments ... vs The Company Law Board, Vth Floor, 'A' ... on 10 May, 1994
Equivalent citations: AIR1994MAD341, [1994]81COMPCAS66(MAD), AIR 1994 MADRAS 341, (1994) 2 BANKCLR 453, (1994) 15 CORLA 226, (1994) 4 COMLJ 47, (1994) 81 COMCAS 66
ORDER
1. The above writ petition has been filed for the following relief.
To issue a writ of certiorari calling for the records of the 1st respondent culminating in its order dated 28-5-1993 in C.P. No. 29 of 1992 and quash the same.
2. The case of the petitioner is as follows: By a resolution of the Board of Directors of the petitioner dated 5-6-1992, it was resolved that an inter-corporate deposit of Rupees 2,40,000/ - be made to the 18th respondent for a period of three years with interest at the rate of 15% per annum. The said deposit was to be secured by the pledge of 20,000 shares of the 3rd respondent. On 6-6-1992, a letter of pledge was executed by the 18th respondent in favour of the petitioner which inter alia entitled the petitioner to enjoy all legal right as a shareholder of the 3rd respondent, including exercise of voting rights and entitlement to all accretions of the said shares during the period of pledge.
3. Pursuant to the said letter" of pledge, the petitioner, under cover of a letter dated 7-6-1992, despatched the following documents to the 3rd respondent:
(a) Duly executed and stamped transfer deed dated 5-6-1992 relating to the said 20,000 equity shares executed by the 18th respondent in favour of the petitioner.
(b) The original share certificates relating to the said 20,000 equity shares.
(c) Extract from the minutes of the meeting of the Board of Directors of the petitioner held on 5-6-1992, containing the resolution authorising the pledge of shares in favour of the petitioner.
(d) A true copy of the letter of pledge dated 6-6-1992 from the 18th respondent in favour of the petitioner.
(e) A copy of the memorandum and Articles of Association of the Petitioner.
4. On receipt of the said letter dated 7-6-1992 from the petitioner along with the accompanying documents, the 3rd respondent duly registered the petitioner as a holder of the said 20,000 equity shares in its Register of members on 15-6-1992, pursuant to a resolution passed at duly convened Board Meeting of the 3rd respondent held on 15-6-1992. The 3rd respondent by a letter 16-6-1992 confirmed to the petitioner that in its Board Meeting held on 15-6-1992, the said transfer of shares in favour of the petitioner was duly approved and that a separate folio number had been allocated to the petitioner in respect of the said share-holding. The intimation relating to the said transfer of shares in favour of the petitioner was also sent to the 2nd respondent.
5. On or about 15-7-1992 respondents 4 to 7 preferred a petition before the 1st respondent, being C.P. No. 29 of 1992, under Sections 397 and 398 of the Companies Act (hereinafter referred to as the Act) seeking various reliefs against respondents 3 to 18. In pursuance of the Summons dated 26-8-1992 issued by the 1st respondent to the petitioner in those proceedings regarding production of certain documents etc., before the 1st respondent, a representative of the petitioner through its counsel complied with the said directions of the 1st respondent. To the petitioner in those proceedings regarding production of certain documents, etc., etc., before the 1st respondent, a representative of the petitioner through its counsel complied with the said directions of the 1st respondent. The petitioner made an oral application to the 1st respondent to be impleaded as a party to the proceedings since its interests were involved in the proceedings as a pledgee of the shares having voting rights and the right to receive dividend etc. But, the 1st respondent declined the above request and proceeded with the hearing without giving an opportunity to the petitioner to represent its case. However, the petitioner being interested in the proceedings, deputed one of its counsel to be present in the proceedings as a spectator. The petitioner was not a party to the said proceedings. By the order of the 1st respondent dated 28-5-1993 which is impugned in this writ petition, the name of the petitioner was ordered to be deleted from the Register of Members of the 3rd respondent immediately.
6. The petitioner approached the Karnataka High Court by way of a writ petition against the impugned order and the Karnataka High Court granted interim status quo order. Subsequently, the said writ petition was withdrawn by the petitioner. On a memo filed by it, without prejudice to its rights, the Karnataka High Court was pleased to dismiss the writ petition on the ground that it did not have jurisdiction to entertain the same. Meanwhile, the 18th respondent appears to have filed an appeal before the Delhi High Court against the impugned order under Section 10-F of the Act and on a preliminary objection being taken by respondents 4 and 5 on the question of jurisdiction, which culminated before the Supreme Court, which by its judgment dated 5-10-1993 held that the proper forum to file the appeal would be the Madras High Court within whose jurisdiction the registered office of the 3rd respondent is situate. It is further understood that the 3rd respondent has filed an appeal against the impugned order under Section 10-F of the Act before the Madras High Court. The petitioner is not a party to any of the proceedings or the appeal. The petitioner has not approached any other forum except the Karnataka High Court as stated supra.
7. The petitioner has filed this writ petition on the ground of violation of principles of natural justice since the petitioner was not made a party to the proceedings before the 1st respondent in C.P. No. 29 of 1992 in which the name of the petitioner was ordered to be deleted from the Register of Members. The petitioner is not canvassing the merits of the impugned order in this writ petition except in so far as it has been passed without the petitioner being made a party and without the petitioner being given an opportunity of hearing in the proceedings before the 1st respondent. Further, the impugned order is clearly in violation of Section 111(5) of the Act under which, before any order of rectification of register of share-holders is made, the concerned parties should be heard. In the instant case, this mandatory statutory requirement has not been followed, thus violating the provisions of the Act. According to the petitioner, a perusal of the impugned order would clearly show that it is an indisputable fact that the petitioner was not a party to the proceedings before the 1st respondent despite the repeated pleas of respondents 3 and 18. Thus, the present writ petition has been filed in this Court.
8. At the time of hearing, paragraphs 5.4, 5.5, 7, 12, 13, 16, 18, 20 and 21 of the impugned order have been referred to substantiate the above plea.
9. M. S. Janarthanam, J., on 26-10-1993 in W.M.P. No. 29969 of 1993 granted interim stay of the impugned order. To vacate the said order, respondents 5 and 7 have filed W.M.P. No, 31264 of 1993.
10. Respondents 5 and 7 filed a counter-affidavit opposing the writ petition. The following are their submissions :
(a) The petitioner has participated in the proceedings before the Company Law Board (hereinafter referred to as CLB) as evident from the impugned order. The petitioner has, therefore, a right of appeal under Section 10-F of the Act.
(b) In fact, Mr. Jaideep Gupta, Advocate for the petitioner, was present as authorised by the petitioner during the proceedings before the CLB and he filed the relevant documents covering the pledge and transfer of shares, which fact is borne out by the averments made by the petitioner in paragraph 6 of the writ petition filed before the Karnataka High Court. The extract of the same is given below :
"Even after the petitioner produced the said documents as directed, the 1st respondent failed to discharge the petitioner from further appearance.
It is thus obvious that the petitioner was neither a stranger nor a by-passer in the proceedings of the CLB but an active participant, who not merely delivered or produced the documents but advanced arguments to ensure that its rights are protected.
(c) The language of Section 10F of the Act does not give any room for ambiguity but makes it clear that any person aggrieved by the order of CLB could prefer an appeal.
(d) The rights of the petitioner to the shares which formed the subject-matter of the dispute adjudicated by the CLB, are that of a pledges. The jural relationship between the 18th respondent and the petitioner is that of a pledger and pledgee. The petitioner did not subscribe to the shares of the 3rd respondent and no shares were allotted to it.
(e) The CLB issued notices to all the parties concerned including the petitioner and afforded a reasonable opportunity to file their replies and documents. The hearing lasted nearly eight months and elaborate affidavits were filed. The petitioner was present throughout the hearing. The petitioner not only produced documents but also appeared through a counsel, advanced elaborate argument on several issues including issues not relevant to them and they were heard in every respect.
(f) The order of the CLB was passed on 28-5-1993. The 18th respondent filed an appeal before the Delhi High Court against the impugned order and sought interim stay. The appeal came up for admission on 22-7-1993. The 5th respondent and others appeared and raised a preliminary objection regarding the jurisdiction of the Delhi High Court to entertain the appeal. The Delhi High Court passed an order on 29-7-1993 holding that the. Delhi High Court had necessary jurisdiction. The 5th respondent filed a special leave petition on 3-8-1993 before the Supreme Court and the Supreme Court held that under Section 10F of the Act, the Delhi High Court does not have jurisdiction. Meanwhile, the Delhi High Court admitted the appeal on 4-8-1993 but no order of interim stay was granted.
(g) Respondents 3 and 8 to 12 filed C.M.A. No. 743 of 1993 before this Court on 26-7-1993 and sought interim order. The appeal was admitted but no interim order was passed. The appeal and the stay petition are still pending before this Court.
(h) The allegation that the petitioner was not permitted to participate in the proceedings is denied. The petitioner has the alternative remedy of filing an appeal under Section 10F of the Act.
(i) The impugned order is not arbitrary or capricious as alleged.
11. The 3rd respondent filed a counter-affidavit admitting the filing of appeal in this Court under Section 10F of the Act challenging the order of the CLB dated 4-6-1993, which is impugned in this writ petition. The appeal was admitted by this Court and is pending. It is stated that no opportunity was given to the petitioner by the CLB and that the notice ought to have been given to the petitioner as the petitioner's name is shown in the Register of Members and without hearing the petitioner, there is a direction to delete its name. There is a clear violation of the principles of natural justice.
12. The petitioner filed a detailed reply affidavit denying the allegations contained in the counter-affidavits.
13. Elaborate arguments were advanced by all the learned counsel. The hearing itself lasted for severals days. Mr. R. Krishnamurthi, learned senior counsel appearing for the petitioner contended that the petitioner is the owner of 20,000 shares as its name is found in the Register of Members maintained by the 3rd respondent and therefore, the direction given by the CLB for removal of the petitioner's name from the Register of Members is not only violative of the principles of natural justice but also against the mandatory provisions of Section 111(5) of the Act. The learned Senior counsel, in support of his contention cited the decision reported in The Jawahar Mills Ltd. Salem v. Sha Mulchand and Co., , and the decision of the Supreme Court reported in Life Insurance Corporation of India v. Escorts Ltd., . The learned senior counsel further contended that the petitioner's property rights have been affected by the order of the CLB and that the petitioner had made an oral application before the CLB for impleading it and the same was wrongly disallowed.
14. Mr. T. Raghavan learned counsel appearing for the 3rd respondent, supporting the contention of Mr. R. Krishnamurthi, contended that it makes no difference as to whether a person is a pledgee or owner and that so long as the person's name is found in the Register of Members, the same cannot be removed unless notice is given to the concerned party. Mr. T. Raghavan further submitted that the petitioner was duly registered as a holder of 20,000 equity shares in the Register of Members of the 3rd respondent on 15-6-1993 and a separate folio number has been allotted to the petitioner in respect of the said shares. Consequently, the petitioner is entitled to all rights and privileges as a shareholder, except for the future accretions in the shares, which were to the benefit of the 18th respondent, in terms of the declaration filed under Section 187-C of the Act.
15. According to Mr. T. Raghavan, the privileges of a member can be exercised by only that person whose name is entered in the Register of Members and consequently, no one else other than the petitioner can exercise the fights and privileges of a member in respect of the said 20,000 equity shares. This proposition is well settled by virtue of the decision of the Supreme Court reported in Balkrishan Gupta v. Swadeshi Polytex Ltd., and A.M.P. Arunachalam V. A. R. Krishnamurthi, (1979) 49 Comp Cas 662 (Mad).
16. Mr. T. Raghavan would submit that the proceedings before the CLB though under Sections 397 and 398 of the Act, was in effect and substance, a proceeding for rectification of Register of Members for which a substantive provision is available under Section III of the Act. Consequently, where the Act itself provides for a mode of rectification of the shares register, the substative provision cannot be by-passed by invoking a general provision. It is well settled that where a power is given to do a certain thing in a certain way, that thing must be done in that way or not at all. Applying this principle to the facts of the case on hand, where the Act itself contains a specific provision for rectification of Register of Members under Section 111 of the Act, the CLB does not have the jurisdiction to entertain and direct rectification of Register of Members in a proceeding under Sections 397 and 398 of the Act.
17. K. Shanmukham, J., by order dated 24-12-1982 in C.A. No. 622 of 1982 etc., in C.P. No. 148 of 1982, has held that when there is an express provision for rectification of registers, under the old Section 155 (equivalent to the present Section 111), such rectification cannot be done in proceedings under Sections 397 and 398 of the Act. In proceedings under Sections 397 and 398, the Register of Members has to be taken as such and the presumption that all the members whose names are entered in the company's register of Members are valid members. In view of the above, when the admitted fact is, that the petitioner having become a share-holder and shown in the Register of Members, it's name cannot be deleted in proceedings under Sections 397 and 398 of the Act, that too without being heard.
18. The order of the CLB, which has in effect set aside the status of the petitioner as a share-holder having been issued without hearing the petitioner is in violation of the principles of natural justice. The CLB admittedly did not issue notice to the petitioner notwithstanding the fact that the attention of the CLB was drawn to the fact that before granting reliefs prayed for in the petition, the petitioner, whose interests are sought to be prejudicially affected, ought to be heard. The failure of the CLB to implead the petitioner as party to the proceedings has deprived the petitioner of a valuable right as a share-holder of the 3rd respondent.
19. Even otherwise, according to Mr. T. Raghavan, the CLB ought to have seen that in a proceeding for rectification of Register of Members, the person whose membership is questioned ought to be heard as otherwise, any such order would be in contravention of the principles of natural justice. In this regard, the CLB has overlooked this mandatory requirement embodied in Section 111 of the Act. Even assuming that the rectification of registers can be effected in a proceeding under Sections 397 and 398 of the Act, the procedure and the manner prescribed under Section 111 of the Act has to be mandatorily followed. Admittedly when in this case, while ordering rectification of the Register of Members, since the mandatory requirements of Section 111 of the Act having been not followed, the order of the CLB is vitiated and ought to be set aside.
20. Mr. T. Raghavan then submitted that the CLB having noted that the petitioner was present at the proceedings pursuant to notice issued by the CLB for production of documents, ought to have held that the petitioner was in a position of a third party witness who was only present to comply with the direction of the CLB for the production of documents. The CLB ought to have issued notice to the petitioner impleading it as a party to the proceedings or al least to show cause as to why its name should not be deleted from the Register of Members. In the absence of the same, the order of the CLB in removing the name of the petitioner from the Register of Members is against the principles of natural justice. The salutary principle that a member has to be heard before his name is removed from the Register of members, as a laid down by this Court in the order dated 24-12-1982 in C.A. No. 622 of 1982, in C.P. No. 48 of 1982 has been disregarded by the CLB.
21. Mr. T. Raghavan was followed by Mr. Habibullah Badsha, learned senior counsel appearing for the 18th respondent, and he supported the case of the petitioner. Mr. Habibullah Badsha submitted that the finding of the CLB that the petitioner is only a pleadgee has no basis and that directions to the 18th respondent to pay the money borrowed from the petitioner was not even prayed for in the company petition. He further quaried as to what would happen if the 3rd respondent does not make payment of the amount paid by the 18th respondent towards the shares. He also relied on the decision reported in The Jawahar Milts Ltd., Salem v. Sha Mukhand and Co., . Mr. Habibulla Badsha further invited my attention to the provisions of sub-sections (e) and (f) of Section 402 of the Act and contended that the order of the CLB has set aside an agreement without hearing the petitioner and therefore, the same is bad in law.
22. Mr. A. L. Somayaji took the lead on behalf of the contesting respondents and replied first on behalf of the 5th respondent and has taken the Court through the complete history leading to the filing of the company petition and gave a chronology of events. From a perusal of the chronological events, it could be seen that in April, 1992, there was a split in Chhabria's family. The 14th respondent stood on one side and the other members stood on the other side.
23. According to Mr. A.L. Somayaji, the 7th respondent's group issued a notice on 22-4-1992 to the 3rd respondent about its affairs. On 30-4-1992, the disputed meeting of the Board of Directors of the 3rd respondent was held in which it was decided to increase the shares in the 3rd respondent from 5,000 to 25,000. On 2-5-1992, a letter of offer was purported to be sent to the existing shareholders of the 3rd respondent. On 5-5-1992, the 13th respondent Tiled a petition under Sections 247 and 250 of the Act before the CLB to enquire into the ownership of the shares held in Gordon Woodroffe and Company Ltd. No interim order was granted and the petition was posted on 13-5-1992. The 4th respondent said to have rejected the offer to subscribe in the enhanced shares of the 3rd respondent by its letter dated 20-5-1992. The 18th respondent is said to have accepted 8,000 shares offered to it by its letter dated 21-5-1992 and seemed to had suggested that they take additional shares if so allotted. The last date for acceptance was said to be 22-5-1992. In the counter-affidavit filed on 23-5-1992 by the 3rd respondent in the petition filed by the 13th respondent, there was no whisper about any increase of shares in the 3rd respondent.
24. On 25-5-1992, the 3rd respondent offered 12,000 shares alleged to have been refused by respondents 4 and 5 to the 18th respondent and by letter dated 1-6-1992, the 18th respondent is alleged to have accepted the offer and made payment of Rs. 1,20,000/-by demand draft. On 4-6-1992, the Board of Directors of the 3rd respondent made an entry for the additional 20,000 shares in the name of the 18th respondent in its Register of Members. On 5-6-1992, the 3rd respondent's Board allotted 2,000 shares (additional) to the 18th respondent. On the same day, the 18th respondent claims that it had decided to accept intercorporate loan of Rs. 2.4 lakhs from the petitioner against the pledge of 20,000 shares. On 5-6-1992, the Board of Directors of the petitioner resolved to grant an inter-corporate deposit on the pledge of 20,000 shares. On 6-6-1992, the 18th respondent seems to have executed a letter of pledge in favour of the petitioner. On 7-6-1992, the petitioner wrote a letter to the 3rd respondent about the pledge of 20,000 shares.
On 9-6-1992, respondents 4 and 5 make an application to implead themselves in the petition under Sections 247 and 250 of the Act filed by the I3th respondent.
25. On 15-6-1992, the Board of Directors of the 3rd respondent alleged to have entered the name of the petitioner in the Register of Members. On 20-8-1992. The CLB directed the petitioner to appear in the next hearing to file documents by 25-9-1992 and thereafter, the petitioner was attending through its counsel Mr. Gupta on every hearing of the petition when held. On 28-5-1993, the CLB passed the impugned order. According to Mr. M. L. Sotnayaji, all the events alleged to have taken place in the 3rd respondent are disputed by the 5th respondent. The 5th respondent gave a notice under Section 169 of the Act to the 3rd respondent to call for an extraordinary general body meeting in which the subject matter proposed was the removal of the Board of Directors of the 3rd respondent. On 5-7-1993 the 3rd respondent received the notice and on 19-7-1993, the 3rd respondent rejected the request of the requisitionist. On 22-7-1993, the 18th respondent filed an appeal in the Delhi High Court. On 25-7-1993, C.M.A. No. 743 of 1993 was filed by the 3rd respondent but no stay was granted. On 27-7-1993 the petitioner filed a writ petition in the Karnataka High Court and obtained an order of status quo. But, on 12-8-1993, the same was withdrawn. On 25-10-1993, the present writ petition has been filed.
26. After reciting the aforesaid dates of events, Mr. M. L. Somayaji submitted as follows ;
(a) The petitioner having appeared through counsel in the proceedings before the CLB is not entitled to complain that it should have been impleaded or that notice should have been given to it before the impugned order was passed.
(b) The jurisdiction under Sections 397 and 398 of the Act is wide enough to pass orders of the kind made by the CLB.
(c) The status of the petitioner is only that of a pledges and not that of a transferee and therefore, if the petitioner had any grievance of its pledge being affected, it should seek recourse from the 18th respondent and not to file a writ petition against the order of the CLB.
(d) The petitioner was not a person aggrieved. The learned counsel also pointed out the closeness of the dates on which the allotment was made to the 18th respondent, the immediate creation of pledge in favour of the petitioner and the immediate entry in the Register of members of the 3rd respondent and also referred to the findings of the CLB as to how the whole thing was manipulated. Therefore, the entire transaction is suspicious and fraudulent, carried out not with any genuine object but with extraneous matter of getting control of the 3rd respondent to get at the voting rights of the 3rd respondent in Gordon Woodroffe Limited.
(e) It was also argued that the Board of Directors of the 3rd respondent have no business to enter the name of the petitioner in the Register of Members when the status of the petitioner at hest could only be that of a pledgee in a transaction between itself and the 18th respondent.
(f) The petitioner did not avail the opportunity to implead itself before the CLB and the present complaint is only mala fide.
(g) The learned counsel also pointed out that the present claim of the petitioner that it made an oral application to the CLB is an after thought as no such averment was made in the writ petition filed in the Karnataka High Court. The conduct of the petitioner in the proceedings clearly disentitled it for the grant of any discretionary relief under Article 226 of the Constitution.
(h) Substantial justice was done between the parties by the CLB and the petitioner does not have any locus standi to file the writ petition.
(i) The direction of the CLB to remove the name of the petitioner is in consonance with the decision reported in V. Radhakrishnan v. P. R. Ramakrishnan, (1993) 78 Com Cas 694 at page 736 (Mad) setting aside the order of allotment is meaningless if consequential order is not passed.
j) The complaint that the suit C.S. No. 966 of 1992 was withdrawn does not merit any contention as the same was withdrawn with leave under O. 23, R. 1, C.P.C. when there was an alternative relief of appeal provided under S. 10F of the Act, the petitioner is not entitled to file, a writ petition.
k) That the CLB had found fraud had been played in the affairs of the 3rd respondent and had referred to the findings of CLB in its order and said that if any intervention is made in the order of CLB in this writ petition, it would amount to blessing a fraudulent act.
27. Mr. A. L. Somayaji relied on the passage contained in page 894 in the Book Law of Writs Fifth Edition by Mr. V. G. Ramachandran. He also relied on the decision reported in the Chairman Board of Mining Examination v. Ramjee, for the proposition that natural justice is not an unruly horse. He also relied on the decision reported in Ved Gupta v. M/s. Apsara Theatres, Jammu, to say that the petitioner should have a legal right to challenge a particular order, the petitioner does not possess that right. He further relied on the decision reported in State of Uttar Pradesh v. District Judge. Unnao, and the Hindustan Construction Co. v. G. K. Patnakar, for the proposition that violation of principles of natural justice is not absolute rule and has to be decided in accordance with the facts and circumstances of each case and should not be applied blindly.
28. In the instant case, according to the learned counsel Mr. A. L. Somayaji, the petitioner had not suffered any injury nor was taken by surprise by the order of the CLB and therefore, would not be entitled to the application of the rule of violation of the principle of natural justice. Mr. A. L. Somayaji also referred to the order of M. S. Janarthanam, J., made in contempt Application No. 528 of 1993, in which it was held that notice to the pledger is notice to the pledgee and since the pledger 18th respondent was present at all the times and participated in the proceedings, no separate notice is necessary for the petitioner and that the participation of the 18th respondent in the proceedings is sufficient compliance of any mandatory provision. Mr. A. L. Somayaji concluded that once an allotment is set aside, the security itself is extinguished and the petitioner cannot agitate its right in a writ petition.
29. Mr. C. Harikrishnan appearing for the 4th respondent, confined himself in answering to propositions of Company Law argued by the learned counsel appearing for the petitioner and respondents 3 and 18. According to Mr. C. Harikrishnan, Mr. T. Raghavan is not right in his contention that no relief of rectification in the Register of Members can be done in a proceedings under Ss. 397 and 398 of the Act. He refuted the contention that rectification can be made only under S. 111(5) of the Act. He brought to the notice of this Court, the decision of a Full Bench of the Delhi High Court reported in Ammonia Supplies v. Modern Plastic (1994) 79 Com Cas 163 wherein it was held that the judgment of a learned single Judge of the same High Court, who held that a suit is barred under old S. 155 of the Act and that if a person desires, rectification of Register of Members should have recourse only to the provision of S. 155 (Present S. 111(4), does not state the law correctly. Therefore, the principle that if a statute prescribes a particular method of remedy then it alone should be followed, does not apply to rectification of Members Register. A reading of the said provision indicates that the aggrieved party need not seek recourse under S. 111 of the Act and that the Court need not even grant the relief even if such a petition is filed. The Delhi High Court had approved the judgment of the Madras High Court reported in M/s. E. V. Swaminathan v. KM. MA, Industries and Roadways Private Limited (1993) 76 Cora Cas 1. Therefore, according to Mr. C. Harikrishnan, Mr. T. Raghavan was not correct in his submission about restriction regarding rectification of share register.
30. Proceeding further, Mr. C. Harikrishnan pointed out that the judgment of K. Shanmukham, J., in Meenakshi Mills case was considering only a prima facie case for the grant of interim order and though the learned Judge held that on a prima facie reading of S. 155 of the Act, it appeared that rectification could be made only under S. 155 of the Act, still the learned Judge concluded saying that it was only his prima facie view and that the petitioner in the said case could still agitate the matter in the proceedings. Therefore, it cannot be a governing precedent for the proposition argued by Mr. T. Raghavan. Mr. C. Harikrishnan further proceeded to submit that a reading of S, 111 of the Act itself would indicate that interpretation of Mr. T. Raghavan cannot be correct as the expression 'may' has been employed at three places thereby indicating that choice is given to the aggrieved party and also to the Court whether to grant the relief or not. In such circumstances, to place a restricted interpretation that any person seeking rectification of Register of Member should at all time proceed only under S. 111 of the Act is not a sound proposition.
31. Dealing with the provisions of Ss. 397 and 398 of the Act, it was pointed by Mr. C. Harikrishnan, that absolute powers of Court are not only embodied in Ss. 397 and 398 of the Act itself, but also further confirmed in sub-sec. (g) of S. 402 of the Act, when the statute states that any order could be passed, there cannot be any restriction as to the nature of the order to be passed. He also cited the decision reported in Bennet Colo-man & Co. v. Union of India (1977) 47 Com Cas 92 (Bom) in which it was specifically held that the grant of relief under Ss. 397 and 398 of the Act is not controlled by any other law or Memorandum of Articles of Association of any other provision under the Companies Act. This decision was followed in Debi Jhora Tea Co. Ltd. v. B. Bhownick (1980) 50 Com Cas 771 by the Madhya Pradesh High Court (Sic). He also cited the judgment of the Supreme Court reported in Needle Industries (India) Ltd. v. Needle Industries Newey (I) Holding Ltd. to say that even in a case where the petition filed under Ss. 397 and 398 of the Act is dismissed, still the Court is not powerless to grant equitable relief.
32. Mr. C. Harikrishnan cited the decision reported in Needle Industries (I) Ltd. v. Needle Industries Newey (I) Holding Ltd. ; Eastern Linkers Pvt. Ltd. v. Dena Nath Sodhi (1984) 55 Com Cas 462 : (1982 Tax LR 2513) (Delhi) and Gluco Safees Private Ltd. In re. (1987) 61 Com Cas 227 (Cal) to say that relief can be granted for setting aside issue of shares. He also contended that the controversy raised in the company petition before the CLB was not merely confined to transfer alone and it includes issue of shares and allotment thereof, which are all different from transfer of shares. When once the issue of shares (sic) side, it would amount that 20,000 shares alleged to have been issued are not in existence and therefore, the 3rd respondent would be under a duty to give effect to the order of the CLB to remove the name of the petitioner from its Register of Members without any specific direction by the CLB.
33. According to Mr. C. Harikrishnan while that would be the state of legal position, it would be futile to contend that the CLB has passed orders only questioning the share transaction. Once it is held that there are no shares, it would amount to a pledge of non-existing security and therefore, if the petitioner has suffered on account of that, it is a matter between the 18th respondent and the petitioner. Regarding the point of hearing, he submitted that the proceeding under Ss. 397 and 398 of the Act are representatives in character and the petitioner, who claims to be a shareholder and who had knowledge of the proceedings, ought to have made its representations, if any, and therefore, not justified in complaining.
34. Mr. C. Harikrishnan would submit that the relief under Ss. 397 and 398 of the Act (sic) said to be urgent in nature and to say that a person should spend time in applying for rectification, to say the least, is shocking answering Mr. Habulla Badsha, Mr. C. Harikrishnan submitted that when the interest of the petitioner was safeguarded if the 18th respondent is not entitled to complain and if the 18th respondent now supports the petitioner, it is mala fide. If the 3rd respondent does not make payment, it is for the 18th respondent to recover the same form the 3rd respondent.
35. In so far as Mr. Habibulla Badsha's reliance on sub-sections (e) and (f) of Section 402 of the Act is concerned, it was pointed out by Mr. C. Harikrishnan that the said argument is without any substance. Those two sub-sections speak about termination and modification of agreement between the company on the one hand and the third party on the other. No argument about the mala fide and fradulent issue of shares was addressed by the 18th respondent. No transaction was set aside. The issue and allotment of shares cannot be sustained and therefore only the CLb passed the equitable order which, according to the Supreme Court, should be made for the purpose of doing substantial justice between the parties. Hence, the argument of Mr. Habibulla Badsha has to be rejected.
36. So far as the judgment in Jawahar Mills case is concerned, Mr. C. Harikrishnan elaborated the facts contained in that judgment and submitted that it was a case of rectification sought for in a case of forfeiture which took place five yeras earlier and simply because monies were realised from the defaulting share-holders, it would not mean that the shareholders would automatically get an order of rectification. The passage relied on by the learned Senior Counsel Mr. R. Krishnamurthi and Mr. Habibulla Badsha in the said case has no relevance to the facts of the present case. It was not held in any case nor any authority cited by the learned counsel to say that while passing orders under Sections 397 and 398 of the Act granting a relief of rectification of Register of Members, notice must be given to every one of the affected party.
37. So far as the contention of Mr. Habibulla Badsha as to how the CLB could give a finding that the petitioner was only a pledgee, Mr. C. Harikrishnan read out Ground No. C. Para No. 5 the affidavit in the writ petition and also the finding of the CLB in respect to the status of the petition and submitted that it is an undisputed fact that the petitioner is only a pledgee on the face of the letter of pledge the company would not be entitled to contend that there was no pledge.
38. In so far as the submission of Mr. R. Krishnamurthi that so long as the petitioner's name is found in the Register of Members, it should be considered that it is a shareholder, that is a proposition which is unsound not only in law but also on facts. Mr. C. Harikrishnan took out the form filed by the 3rd respondent under Section 187C of the Act and showed it to the court that the 3rd respondent itself had filed the form to say that the petitioner was only holding beneficial interest in the shares of the 18th respondent such forms are also filed by the petitioner as could be seen from page 111 of the typed set of papers furnished by the respondents. In the face of such Form, to say that the petitioner is the owner of the shares is misleading. To be a shareholder of a company, he should be in a position to contest for the post of a Director. The 18th respondent's name still continues as holder of 20,000 share in the Register of Members. If that be the case, if the petitioner's alleged holding is also taken into account, then the total number of shares would exceed even the issued share capital of the company. Therefore, to say that the petitioner is the owner is totaly unacceptable. Mr. C. Harikrishnan further said that merely because a person's name is entered in the Register of Members, he would not automatically be a shareholder of the company. If somebody's name is entered in the Register of Members without anybody's knowledge, would that person be a member of the company? Has not the company the power to remove that person from the register of Members without recourse to Section 111 of the Act? These are questions posed. I am of the opinion that Mr. T. Raghavan and Mr, Habibulla Badsha should not be allowed to support then petitioner and obtain relief indirectly, when their clients have filed appeals against the very same order of the CLB.
39. Mr. G. Subramaniam, learned Senior Counsel appearing for the 6th respondent, made the following submissions:
a) The present writ petition is an abuse of process of Court. The Court must take into consideration the attitude of the petitioner and its conduct in moving the writ petition with utter mala fides. The petitioner's conduct is such that the Court would not extend or grant the discretionary relief of writ under Art. 226 of Constitution.
b) There is an effacious alternative remedy available to the petitioner under Section 10F of the Act and the petitioner ought to have moved the appellate forum with the leave of Court and it cannot circumvent the alternative relief of resorting to Art. 226 of the Constitution.
c) By this writ petition, this Court is asked to resolve disputed question of facts, which is not normally done under Art. 226 of the Constitution. The petitioner cannot request the Court to resolve the controversy and entertain the writ on the mere alleged failure to comply with natural justice and absence of notice. Even this cannot be done unless the petitioner's position is made known. Even for this purpose of deciding the character of the relationship of the petitioners and the company it is not necessary to determine the fact as to whether they are sharesholders or pledgees.
d) The plea of the petitioner that it was not a party to the company petition before the CLB and on this short ground, it is entitled to succeed is an argument to be rejected, for, it was physically present before the CLB and its case was effectively represented both by its own advocate as well as by the party on record viz., the 18th respondent. Under such circumstances, the question of non-joinder will not arise.
e) The petitioner is only an co-nominee party and it has no right to be heard.
40. Accordingto Mr. G. Suhramaniam, a party cannot be complemented for his omission to be vigilent depsite his knowledge that his interest was a subject matter of litigation before a Tribunal or Court of competent jurisdiction. The normal course of human conduct, about which the Court can draw a Presumption under Section 114 of the Evidence Act, is that when somebody is informed that his interests are in a litigation, he will immediately seek either to get himself impleaded or to see that his inlerest are safeguarded through somebody. In the instant case, as seen from the impunged order, notice was taken by the petitioner and it produced the documents and was present throughout. The order of the CLB at page 49 (internal page 36) of the typed set is to the following effect.
"It is an admitted position both by Malleswara and Bhankerpur that the only interest Malleswara has in these shares is as a pledgee. It is also clear from the documents relating to this pledge filed before us that the intercorporate deposit is for a period of three years and once it is rapaid as per terms and conditions, the interest of Malleswara in these shares comes to an end."
The above observation of the CLB is based on the admission by the counsel for the petitioner and alt other parties before the Court.
41. It is settled law that once an order of Court records certain things having taken place before it, it is not permissible to any party to contradict it in the appellate forum. In the writ affidavit also it is not stated anywhere that these statement of fact are wrongly referred to. In the decision reported in State of Maharashtra v. Ramdass Shrinivasa Nayak, the Supreme Court has observed as follows:
"The court is bound to accept statement of the judges recorded in their judgment, as to what transpired in court. It cannot allow the statement of the judges to be contradicted by statements and other evidence. If the Judges say in their judgment that something was done, said or admitted before them, that has to be the last word on the subject. The principle is well settled that statements of fact as to what transpired at the hearing, recorded in the judgment of the Court, are conclusive the facts so stated and no one can contradict such statements by affidavit or other evidence. If a party thinks that the happenings in Court have been wrongly recorded in a judgment, it is incumbent upon the party while the matter is still fresh in the minds of the Judges to call the attention of the very Judges who have made the record to the fact that the statement made with regard to his conduct was a statement that had been made in error. That is the only way to have the record corrected. If no such step is taken, the matter must necessarily end there."
Therefore, according to Mr. G, Subramaniam, the passage at page 36 of the impugned order, that there was admission by the party is conclusive.
42. Then again, inter partes in the order of M.S. Janarthanam, J. in C.A. No. 528 of 1993, it has been observed as follows.
"From Board's orders, as extracted above, it is rather crystal clear that the interest of Malleswara was only that of a creditor, who had placed inter-corporate deposit and received the shares as security for the loan amount along with interest."
43. Even in the present writ petition, in the affidavit at page 7, the petitioner stated as follows:
"The petitioner made an oral application to the 1st respondent to be impleaded as a party to the proceedings since its interests were involved in the proceedings as a pledgee of the shares having voting right to receive dividends etc."
44. In the Karnataka High Court, the petitioner has sworn to an affidavit, which is at page 85 of the typed set, staling as under:
"Even after the petitioner produced the said documents, as directed, the 1st respondent failed to discharge the petitioner from further appearance". Even in the present affidavit at paragraph 5 it is clearly stated that a pledge was made. Right through, the petitioner has been putting only a case of pledge. It is only now the petitioner shifts the stand as a shareholder. This aspect as to whether the petitioner can be called a sharesholder has already been dealt with by me while considering the arguments of Mr. C. Harikrishnan and Mr. Vedantam Srinivasan."
45. The petitioner has no consistent case and it is only trying to divert the attention of the court from main issues which fall for consideration in the regular appeal against the CLB's order under Section 10F of the Act. In the writ petition, the court is not going to decide whether the petitioner js a shareholder or a pledgee. Even that will necessitate a determination of fact. If the attitude of the petitioner in trying to shift its stand from Karnataka to Madras and having been present throughout the CLB's proceedings merely watching the proceedings while its interest was protected by the 18th respondent. Partly guilty of such a conduct cannot be given any relief in the writ petition.
46. The conduct of the petitioner is blameworthy as demonstrated by three different stands, viz, in the writ petition the petitioner says that it made an oral application. In the Karnataka High Court, it said that even after production of documents, it was not discharged. In the present reply affidavit, the petitioner says that it is not its responsibility to get impleaded. Mr. Vedantam Srinivasan, by referring to the CLB's regulations has explained this position that the petitioner is deemed to be a party.
47. On the question of alternative relief, no doubt, there are some decisions which say alternatively it is not a bar for writ petition Here, it is a case of alternative remedy, under Section 10F of the Act. The right of an appeal is a right created by statute. Where if he is a party to the judgment, he has got every right to appeal before the higher forum. But, if he is not a party and if his interests are affected, it is incumbent on him to seek special leave of the Court and file the appeal. In such circumstance, the Court always grants leave freely even for mere asking. The following decisions fairly reflect the above point Dimmite Pullayya v. Abedebolu Nagabushijan, AIR 1962 Andh Pra 140 (FB) Jatan Kanvar Golcha v. Golcha Properties (P) Ltd., ; State of Madhya Pradcsh v. O.K. Jadav, AIR 1968 SC 1186 and K. Ponnalagu Animal v. State of Madras, . It is not a mere question of a alternative remedy and an option to move the Court for sanction. Actually, an appeal was filed by the 18th respondent, under whom the petitioner claims. Consequently, the petitioner cannot invoke Art. 226 of the Constitution.
48. The above is a disputed question of fact. What took place during June is a mailer to be decided on evidence. It has been tried on under on evidence before the CLB. It is only under these circumstances the status of the petitioner becomes a disputed question. If it is a question of fact, it is not to be decided elsewere and not to be decided in the writ petition. The learned Senior Counsel Mr. G. Subramaniam relied on the following two decisions in support of this contention:
D.L.F. Housing Construction Ltd. v. Delhi Municipal Corporation, and Hari Singh v. State pf Uttar Pradesh, .
49. The point about non-compliance with natural justice is answered by Mr. G. Subramaniam by the following submission. It is not an invariable rule that in a litigation everybody who is interested must be made a party. The interest of anyone interested if sufficiently safeguarded or litigated upon by another party on record, that will be sufficient compliance with the legal requirements relating to the joinder of parties. In this connection, it is to be remembered that a proceeding under Sections 397 and 398 of the Act is reprsentative in character. This Court in the decision reported in L. RMK Narayanan v. The Puthuthotam Estates, (1943) Ltd. (1992) 1 Mad LJ 253 held so. In that case, this Court followed the ruling reported in Raj Mathura Prasad v. Hanuman Prasad Bhagat, (1984) 56 Com Cas 467: (1984 Tax LR 2111) (Patna). It is representative action, them under Order I, Rule 8, Clause 2, C.P.C., everybody can come on record on his own. An order passed in a representative capacity is binding on all persons whose interests are affected by it, Therefore, the submission of the learned Senior Counsel for the petitioner that no notice was given as a party is of no consequence. Under Section 11 Explanation VI of the Code of Civil Procedure the position is made clear.
50. When a private right is claimed in common for themselves and others, all persons interested in such right shall, for the purpose of section be deemed to claim under the persons so litigated. Consequently, the non-impleading of the petitioner Malleswara eco nominee party will not render the proceedings before the CLB unsustainable. In this connection, the learned counsel relied on the decision reported in A. Janardhana v. Union of India, wherein it has been held that all through the case of direct recruits has not gone unrepresented and in that case, the name of repondents 3 to 18 were originally included but later on deleted. Even under such circumstances, the Supreme Court said there is no question of non-joined.
51. In the decision reported in the General Manager, South Central Railway v.
A. V.R. Siddhanthi, , it has been held in paragraph 20 that When a particular decision is challenged relating to seniority, the non-impleading of the individual workman likely to be affected is not fatal to the writ petition.
52. The last point is the withdrawal of the writ petition before the. Karnataka High Court. The relevant records are placed before Court, which reveal that no leave was ever granted for instituting another writ petition on the same subject matter by the Court. Under such circumstances, the ruling reported in Sarguja Transport Service v. State Transport Appellate Tribunal, Gwalior, (sic).
53. Another submission is, it is basic jurisprudence that one Court will not entertain any proceeding in respect of which a proceeding in another Court is pending, particularly if it is an earlier proceeding. Here is a reason for such a view viz., it will lead to conflict of judicial decision. If the writ petition is now entertained, this will virturally stultify the appeal already field by the 3rd respondent, which is pending before this Court and where no stay is granted. Recently, the Supreme Court had occasion to consider the statutory authority of TADA. There, the question of issue of writ was discussed in detail. The substance of the judgment is that judicial discipline and comity of Court require that the Court should adopt a sense of self-imposed restriction and limitation in order to observe the judicial discipline and comity of Courts. Court will not exercise its discretion, for otherwise it will be impinging propriety. The court should observe constitutional propriety and comit or Courts imposing self-decipline and decline to interfere any proceedings under Art. 226 of the Constitution.
54. Mr. Vedantam Srinivasan, learned counsel appearing for the 7th respondent made the following submissions. To become a member of a company, there is a definite procedure prescribed under Section 11 read with Section 82 of the Act. Amere entry of name in the register of Members of the company would not confer on such a person rights as that qf a member of the company. In the instant case, the entry of the name of the petitioner in the Register of Member of the 3rd respondent is fraudulent and at any rate, the petitioner at best could be only a;pledge of the shares issued by the 3rd respondent and therefore would not be claimed membership of the Company. Article 9 of Articles of Association of the 3rd respondent prohibits any third party to be a member. The CLB has rightly found that the name of the petitioner should not have been entered in the Registrar of Members of the 3rd respondent.
55. According to Mr. Vedantam Srinivasan, a pledgee cannot claim higher right than that of a pledger. The documents and the pleadings in the case without doubt show that the petitioner can only pledge of shares issued to the 18th respondent and therefore it would be taking the said shares with all defects contained therein. If the issue of shares has been set aside, the petitioner cannot complain and its remedy is only against the 18th respondent and it cannot contend that it should have been heard before the CLB passed the consequential order of removal of name of the petitioner from the Register of Member of the 3rd respondent. Mr. Vedantam Srinivasan refuted the contention on behalf of the petitioner that it should have been impleaded before the order was passed by the CLB. The petitioner need not be heard as it has nothing to do with the internal affairs of the 3rd respondent. He also pointed out that the effect of Section 187C of the Act and the corresponding rules and stated that by reason of filing a declaration, it has been made clear that the petitioner has only a beneficial interest in the shares and by no stretch of imagination could be described nor called as a member of the 3rd respondent. Once it is decided that the petitioner has nothing to do with the affairs of the company and that its interest is only in claiming the money from the 18th respondent, no notice need be given to the 18th respondent by the CLB.
56. Mr. Vedantam Srinivasan would submit that the proceedings under Sections 397 and 398 of the Act are representative capacity action and if the petitioner, who had kn6wledge about the proceedings wanted to intervene, it was its duty to do so and cannot merely watch the proceedings and later complain about not being heard in the proceedings. Even otherwise, in the definition contained in Rule 2(p) of the CLB Regulation, it has been clearly said that a party would include any person who would be entitled from the parties and the other officials. He also focussed the attention of the Court to Rules 19, 24, 29 and 30 of the said Regulations to say that the petitioner was called upon to produce documents, the CLB had deemed the petitioner as a party and once the said position is accepted, it is for !he petitioner to have made representations.
57. Contending about the alternative remedy, Mr. Vedantam Srinivasan pointed out that Rule 30 of the CLB Regulations has provided that even if a person has not been partly to the proceedings, he would be entitled to as a matter of right a copy of the order and the complaints of the petitioner that no order was communicated to it and therefore it was not able to file an appeal is an afterthought and mis-construction of terms of the said rule, The petitioner could have obtaineded a copy and filed an appeal. He concluded by saying that the petitioner and respondents 3 and 18 had played a fraud in the affairs of the company and it was held so by the CLB and the Court should not come to the assistance of a person who had played a fraud on the statutory Tribunal. He relied on the decisions reported in Thansingh Nathmal v. The Superintendent of Taxes, ; The British Indian Steam Navigation Co. Ltd. v. Jasjit Singh, and Girdharlal Banisidhar v. The Union of India, wherein the Supreme Court had laid down the rules as to what all the circumstances a person could be allowed to invoke the power under Art. 226 of the Constitution in spite of an alternative remedy being available.
58. Mr. R. Krishnamurthi, learned Senior counsel, on behalf of the petitioner, replied that the rules in the CLB Regulations relied on by Mr. Vedantam Srinivasan would not apply to the facts of the present case in view of the specific finding of the CLB that the petitioner was not a party. Further, he is not concerned about merits and otherwise as to how the name of the petitioner was entered in the Register of Members of the 3rd respondent and that it would be sufficient that the Court finds that there was a violation of principles of natural justice and on the ground alone, the petitioner would be entitled to succeed.
59. Referring to the case reported in Ammonia Supplies Corporation (P) Ltd. v. Modern Plastic Containers Pvt. (Ltd. (1994) 79 Com Cas 163, Mr. R. Krishnamurthi contended that a Full Bench of the Delhi High Court in that case had only decided that there is no bar a suit, for rectification of Register of Member and, therefore, the proposition advanced by Mr. C. Harikrishnan cannot he correct. Mr. R. Krishnamurthi stated that the decision reported in Institute of Chartered Accountants of India v. L.K. Rama, is a case in which the Supreme Court was considering the suspension of a member of Institute of Chartered Accountants. The Supreme Court clearly held that alternative remedy is not a bar for filing a writ petition. The learned Senior Counsel, at the same time, read the passage that in the said case the learned Judges had held that they are granting relief only on the ground that an order impugned thereunder was affecting the professional reputation of the petitioner and such a rule cannot be extended to any injury or monetary claim. Mr. R. Krishnamurthi concluded by saying that the court need not go into the merits of the case but should decide on the mere question of law as to whether there was violation of principles of natural justice in so far as the petitioner is concerned.
60. Mr. T. Raghavan followed Mr. R. Krishnamurthi and said that he would still rely upon the judgment of K. Shanniukham, J. to say that rectification of the Registrar of Members cannot be subject matter of proceedings under Sections 397 and 398 of the Act. He would tone down his proposition by saying that if the Court holds that the powers under Sections 397 and 398 of the Act arc comprehensive enough, the CLB when it decided to set aside the issues of shares should follow the procedure prescribed under Section III of the Act.
61. In so far as the declaration under Section 187(c) of the Act is concerned, Mr. T. Raghavan would submit that the real owner is the petitioner and that the beneficial owner is the 18th respondent.
62. Mr. Habibulla Badsha, learned Senior counsel stated that he was misunderstood by the otherside about his contention relating to sub-sections (e) and (f) of Section 402 of the Act. What he wanted to contend was that when a provision is made for setting aside an agreement even with regard to third parties, a similar right should also be extended to shareholder. He also refuted the contention that alternative remedy is controlled by any fixed rule and the courts will always adhere to the rule of issuing a writ in spite of availability of alternative remedy in appropriate cases. The case on hand is one such instance and, therefore, the Court should set aside the order of the CLB.
63. In order to appreciate the respective contentions of the parties, it is necessary to decide the rights of Malleswara over the shares which are the subject matter of the company petition before CLB, Malleswara had decided in the meeting held on 5th June, 1992 to make an intercorporate deposit of Rs. 2,40,000/ - for a period of three years at an interest of 15 per cent per annum with Bhankerpur against the pledge of shares held by the latter in SSPL, The resoultion of Malleswara shows that during the period of the pledge they would enjoy all legal rights as a shareholder of SSPL. In this connection, it is necessary to refer to the following clauses in the letter of pledge dated 6-6-1992.
"3. without prejudice to any rights available to you in law as pledgee, we shall from time to time if and when so required by you, execute in favour of yon and your nominee fresh transfer deed in respect of the said securities pledged hereunder before the validity period of the transfer deeds lodged by us expires so as to ensure that you or such nominee always has in its possession valid transfer deeds in respect of the said securities."
"5. During the period of the pledge, you will be entitled to all the rights of a shareholder as available under law. You shall also have the right to have separate folio allotted to you in the registrar of Members in respect of the shares held by you under pledge."
"6. During the continuance of this security all voting rights in respect of any of the said securities shall be exercisable solely and exclusively by you."
"7. We declare hereby that the said securities are our absolute properly and free from any lien or encumbrance and we shall not so long as the borrower (s) remain indebted to you under the said account create any lien charge or encumbrance in respect of the said securities or any of them or do or permit to be done or omit to do any act whereby the security hereby created shall be in anywise prejudicially affected."
64. A reading of the letter of pledge clearly reveals that Bhakerpur has only created a pledge in favour of Malleswara in respect of 20,000 shares as security for the inter corporate deposit of Rs. 2,40,000 made by Malleswara with Bhankerpur. With a view to secure repayment of the said inter corpor-rate deposit which has been treated as a loan Bhankerpur has pledged the 20,000 equity shares with Malleswara. Clause 3 which has been extracted above shows that the transfer deeds have been executed so as to ensure that the pledge is in possession of valid transfer deeds. Clause 17 makes it clear that the shares are the absolute property of Bhankerpur. Inasmuch as the letter of pledge and other connected documents have been sent by Malleswara to SSPL, it is to be presumed that SSPL is fully aware of the nature of transaction between Malleswara and Bhankerpur. In fact on 7th June, 1992 Malleswara has sent a certified true copy of the letter of pledge along with certain other documents to SSPL. No doubt, SSPL has recorded the name Malleswara in the register of members but that is only for the purpose of enabling Malleswara to exercise. Voting rights and receive dividend during the period of pledge in accordance with the terms and conditions of pledge. I am of the view that a reading of the Board resolutions of Malleswara's letter of pledge make it clear and beyond doubt that Malleswara is only a pledgee of the shares of SSPL held by Bhankerpur. In fact, the Company Law Board has said in its order : "It is an admitted position both by Malleswara and Bhankerpur that the only interest Malleswara has in these shares in as a pledgee." No exception has been taken to the said statement in the affidavit filed by the petitioner in support of the writ petition. The Company law Board also has found that the interest of Malleswara in the shares is only as a pledgee. Therefore, when once the allotment of 20,000 equity shares by SSPL is set aside it necessarily follows that the Malleswara cannot claim any right over these shares.
65. The Company Law Board in exercise of its equitable jurisdiction as envisaged under Section 402 thought it fit that the interest of Malleswara should be protected. Therefore, it directed Bhankerpur to immediately repay the intercorporate deposit of Rs. 2,40,000/- along with interest due to Malleswara. In my opinion the Company Law Board has fully protected the interest of Malleswara as a pledgee. Malleswara cannot complain that the order passed by the Company Law Board in this regard is prejudicial to their interest. As a pledgee holding the shares as security the interest of Malleswara is only to protect the intercorporate deposit of Rs. 2,40,000/ - made by them. They cannot claim any independ interest or right in the 20,000 equity shares, the allotment of which has been set aside by Company Law Board. I am unable to accept that any prejudice has been caused to Malleswara by the order of Company Law Board directing SSPL to rectify the Registrar of Members to remove the name of Malleswara.
66. What is contended by learned Senior Counsel for the petitioner is that before deleting their names from the Register of Members, the Comapny Law Board should have heard them. In am unable to accept this contention. When once the allotment made by SSPL in favour of Bhankerpur is set aside it follows will automatically fall to the ground.
67. It is also seen that the representative of Malleswara was present pursuant to the notice dated 26-8-1992 issued by Company Law Board, calling upon Malleswara to produce the relevant documents relating to the intercorporate deposit pledge and transfer of shares. In fact Malleswara was represented by a Lawyer as could be seen from the impugned order of the Company Law Board. It is surprising to note that Malleswara did not take any steps to get itself impleaded as a party to the proceedings, A reading of the order of the Company Law Board shows that the Parties were seriously arguing the maintainability of the petition on the ground that Malleswara has not been a party to the petition. It is strange that Malleswara should keep quite and watch the proceedings without moving its little finger. Therefore Malleswara cannot complain at this stage that the impugned order is in violation of the principles of natural justice and that it was not heard by the Company Law Board. Principles of natural justice cannot be invoked by Malleswara, which has been adopting an supine indifference before the Company Law Board. If it was really interested, it could have taken necessary steps to get itself impleaded as a party before the Company Law Board.
68. As a matter of fact, Bhankerpur in the counter before the Company Law Board have admitted that they have pledged their shares in favour of Malleswara. In the affidavail field in support of the writ petition before the Karnataka High Court, in para 11 Malleswara has stated that if the order of the Company Law Board is allowed to stand it will have no security.
69. I may also refer to the conduct of Malleswara in the courses of proceedings before the Company Law Board. As already noticed Malleswara did not take steps to get itself impleaded as a party even though the parties to the petition under Section 397 were seriously agitating the question whether Maileswara was a necessary party or not. It is also seen that the Lawyer representing Malleswara was present throughout the hearings and a finding has been recorded to this effect by the Company Law Board in the impugned order. I also find that in the affidavit filed in support of the present writ petition the petitioner has stated as follows: para 7 "In pursuance of the summons dated 26th August, 1992 issued by the first respondent to the petition in those proceedings regarding production of certain documents, etc., before the first respondent, a representative of the petitioner through counsel complied with the said directions of the first respondent. The petitioner made an oral application to the first respondent to be impleaded as a Party to the proceedings since its interest were involved in the proceedings as a pledgee of the shares having voting rights and the right to receive dividents, etc."
(Underling is mine) Surprisingly in the writ petition filed before the Karnataka High Court, which was earlier in point of time, the petitioner has nowhere stated of its having made an oral application to Company Law Board to be impleaded as a party. On the contrary in the writ petition before the Karnataka High Court the petitioner has stated as follows:
"Para 6 Even "after the petitioner produced the said documents, the first respondent failed to discharge the petitioner from further appearance."
70. This clearly shows that the Malleswara was not interested in getting itself impleaded in the proceedings. Therefore the allegation made in the affidavit filed in support of the writ petition for the first time, that they made an oral application before the Company Law Board cannot be true. Further, in the reply affidavit filed by Malleswara it is stated that it is for the sixth respondent or the Company Law Board to have impleaded Malleswara. It is clear from the above, that Malleswara has'been taking an inconsistent stand before different Courts. The statement extracted by me also show that Malleswara wanted to protect its interests as a pledgee of the shares having voting rights and the right to receive the dividend. When once the allotment of shares of SSPL in favour of Bhankerpur is set aside the only right of Malleswara is to get return of inter corporate deposit made by it with Bhankerpur together with interest. In other words, independently Malleswara cannot claim any interest or right in the shares merely on the ground that they have given voting is (sic) made available to them only as a pledgee under the terms of the letter of pledge.
71. It is next contended that when once the name of Malleswara is recorded in the Register of Members the Company Law Board cannot direct rectification of membership Register to remove the name of Malleswara without hearing Malleswara. I am unable to accept this contention. I have already taken the view that when once the allotment and issue of shares of SSPL in favour of Bhankerpur is set aside the share register in respect of these 20,000 equity shares has to be automatically rectified. When once the allotment is set aside, there is no scope for invoking the aid of Section 111. With the setting aside of the allotment, the allotment itself becomes non est in law.
In this connection, I refer to the following decision of the Madras High Court reported in V. Radhakrishnan v. P. R. Ramakrishnan, ((1994) 79 Com Cas 694 at p. 737) :
"One argument, however, which does not appear to be of any serious consequence, we may dispose of before we part with this Judgment. Objection has been taken to the direction issued by the learned Company Judge wherein he has said after holding that allotment of 7000 equity shares to respondents Nos. 5, 6, 8 and 11 are null and void, 'consequent amendment' of register of members is also void, the register is rectified accordingly" on the ground that under the amendment carried out for the Amendment Act of 1988, the power to amend the particulars or rectify the register has been vested in the Company Law Board. In the instant case, we do not find any merits in the submission. We also do not see any conflict of jurisdiction. We may say so for the reason that once it is found that allotment of 7000 equity shares to respondents Nos. 5, 6, 8 and 11 is null and void it is to follow as a matter of course that the shareholding stood as on 21st September, 1991 before the alleged meeting of the Board held on the said date. Unless such consequential command is issued of 7000 equity shares to respondents 5, 6,8 and 11 is null and void will be meaningless." (Underline is mine). Further, the name of Malleswara has been recorded in the Register of Members of SSPL only to enable Malleswara to exercise voting rights and to receive dividends in terms of the letter of pledge.
72. The next contention raised on behalf of the petitioner is that under Section 111 of the Act, it is obligatory on the part of the Company Law Board to have issued notice to the petitioner. This arguments proceeds on the assumption that the proceedings before the Company Law Board was under Section 111. On the contrary as noticed by me earlier the proceeding was taken only under Sections 397 and 398 of the Act, and the Company Law Board has set aside the allotment and issue of additional shares. It goes without saying that at! transfers that had taken place should also fall to the ground when once the allotment is set aside. In a proceeding under Sections 397 and 398 of the Act, the company Law has got wide power. I am unable to agree that the proceedings before the Company Law Board under Sections 397 and 398 of the Act has been converted into a proceeding under S. 111 of the Act. The petitioner whose only right is to claim back the inter corporate deposit consequent upon loss of its security cannot claim that it should be heard by the Company Law Board. The Company Law Board has fully protected the interest of the petitioner by directing Bhankerpur to return the inter corporate deposit with interest.
73. Even otherwise the principles of natural justice can be invoked only when a right of a person is adversely or prejudicially affected. In this case, the Company Law Board has amply protected the interest of the petitioner as a pledgee. Therefore there is no scope for invoking the principles of natural justice.
74. It is well settled principle that natural justice cannot be imprisoned in a strait jacket family. Principles of natural justice has to be applied depending upon the facts and circumstances of each particular case and they are viable. On the contrary natural justice is not static. Principles of natural justice has been evolved to vindicate one's rights. A person who complains of violation of natural justice should have been prejudicially affected, Natural Justice is not a 'Mantra' which can be invoked on all and sundry occasions and to deduce them to mechanical ritual. Hence, a person who complains of violation of natural justice has to establish his rights first and then demonstrate such rights have been prejudicially affected.
WADE in his book Constitutional & Administrative Law (X Ed.) page 644 observes as follows :
"In what circumstances arc bodies other than courts are bound to observe the rules of natural justice? It would be an exaggeration to suggest that natural justice must be observed whenever an official or public body exercises a legal power. The duty arises in a variety of situations, whenever it is particularly important to an individual directly affected by the decision that a fair procedure should be observed. Therefore if the exercise of power directly affects a man's right, or his property, or his character, it is more likely to be subject to natural justice, so is a decision which follow a procedure involving the con-
frontation of two opposing views, in a manner comparable to that of litigation."
In A. K. Roy v. Union of India, the apex Court has observed as follows :
Para 99 :
".....but the importance of the realisation that the rules of natural justice are not rigid norms of unchangings content consist in the fact that the ambit of the Rules must vary according to the context and they have to be tailored to suit the nature of the proceedings in relation to which the particular right is claimed as a component of natural justice."
In the book on Administrative Law (II Ed.) by Durgadas Basu at page 231, it has been stated as follows:
"Though both in England and India it has been held that there is no universal or uniform standard of natural justice applicable to all cases coming within the purview of the doctrine and that the contents or requirements of natural justice vary with varying constitution of different quasi-judicial bodies and their functions, the subject matter of enquiry, the relevant statutory provision and other circumstances of the case, nevertheless it is agreed on all hands that there are certain principles deducible from the Latin Maxim which form foundation of the doctorine and extend to all cases where the doctorine is attracted. Garner in his book on Administrative Law (17th Edn.) page 179, it has been stated as follows :
"What will actually be required to have been done to satisfy these basic obligations may vary much from one context to another (i.e. what is due notice or adequate information, or fair opportunity to state one's case will depend on context."
"Thus at the one end of the spectrum they may approximate to judicial procedures associated with the Court of law, viz., clear and timely advance notice of charges or the case to be met all evidence upon which the decision is to be based to be openly liveable to affected parties, opportunities to make representations to counter such charges or allegations to produce witnesses and to cross-examine the witnesses by the other side, no hearing of one side in the absence of other and in appropriate cases the opportunities to be represented by a Lawyer." P. P. Craig in his book on Administrative Law (2nd Ed) at page 210 the author has observed as follows.
"The Court will lake into account a wide variety of factors; the type of decision being given; whether it is final or preliminary, the nature of individual interest, the type of subject matter and how far it is felt necessary to supplement the statutory procedure, to name but a few. None of these principles will be determinable."
De Smith's on Judicial Review of Administrative action (4th E.d. at p. 158) has observed as follows :
"No proposition can be more clearly established than that a man cannot incur the loss of liberty or property for an offence by judicial proceedings until he has had a fairy opportunity of answering the case against him unless indeed the legislature has expressly or impliedly given an authority to act without that necessary preliminary."
In Shri Vcd Gupta v. Apsara Theatres, it has been held as follows at page 987 :
"In the absence of any legal right or ligitimate expectation being available to the petitioners there is no obligation on the part of the District Munsif to afford them a hearing before passing the impugned order."
In State of Uttar Pradesh v. Dr. Abdul Quddus, it has been laid down as follows :
"That an order prejudicially affecting the person shall not be made without hearing him and considering his objections, if any, to the proposed order. But an order can be said to affect a person prejudicially only if any right of his would be affected adversely."
75. It is clear from what is stated that requirement of natural justice must depend upon the circumstances of the case, the subject matter that is being dealt with and so forth. Before a person can invoke the aid of the principles of natural justice, it is necessary to establish that his right has been adversely affected by an action of a quasi-judicial or administrative authority. If the person complaining of violation of principles of natural justice has no legal right, there is no obligation on the part of the authorities concerned to afford a hearing. On the facts of the present case, I have already come to the conclusion that the petitioner is only a creditor who has taken pledge of the shares as security. If that be so, the only right of the petitioner as a creditor and as pledgee is to get back the inter corporate deposit made by the petitioner with Bhankerpur so long as that right of the petitioner is not in any manner affected by the impugned order, the petitioner cannot complain of violation of principles of natural justice. The Company Law Board in the impugned order has amply protected the rights of the petitioner by directing Bhankerpur to return the inter coporate deposit of Rs. 2,40,000 together with interest. Consequently, the petitioner cannot make any grievance that any of his rights much less a legal right has been adversely affected. If the contention of the petitioner is accepted it would amount to unnatural expansion of the principles of natural justice.
76. Mr. R. Krishnamurthy, learned senior counsel then contended that his right to receive the dividend and right to vote has been taken away by the Company Law Board under the impugned order. This contention does not merit any consideration. The very right to exercise voting rights flows only from the terms of the letter of pledge which specifically confers on the right to the petitioner. But for the terms contained in the letter of pledge, the petitioner cannot exercise the voting right and claim dividends. Therefore I am unable to lend support to the contention raised on behalf of the petitioner on this aspect of the matter.
77. It is next contended that when once the name of the petitioner is recorded in the Register of Members, it cannot be removed without hearing him. The name of the petitioner has been recorded pursuant to the letter of pledge so as to enable the petitioner to exercise voting rights and claim dividends. In my opinion, this is not a case wherein the name of the petitioner has been recorded in the Register of Members pursuant to the sale or transfer of shares. In my opinion, it is only because of the express terms of the letter of pledge the name of the petitioner has been recorded in the Register of Members. This is not a case of transfer of shares from Bhankerpur to the writ petitioner for a valid consideration. I am unable to shut my eyes to the circumstances and facts preceding the recording of the name of the petitioner in the Register of Members. Apart from this, it is also to be mentioned that Article 6 of the Articles of Association of SSPL has a bearing on this question. For the purpose of convenience Article 6 is extracted below.
"If at any time any shareholder desires to transfer of his or her share held in the company, the share shall be in the first instance be offered at a price determined by the auditors of the company to the existing shareholders or to such other party to whom the board of directors may agree."
78. The above Article makes clear that it is obligatory on the part of a shareholder desiring to transfer the share to offer it in the first instance to the existing shareholders and the price is to be determined by the auditors of the company. If the existing shareholders decline to accept the offer then it can be transferred to an accept the offer then it can be transferred to an outsider and even then it is necessary that the party to whom shares are transferred should be agreeable to the Board of Directors. Therefore it is clear that Bhankerpur could not have transferred the shares to Malleswara without first offering the same to 'standard' and Stridewill". Therefore any transfer of shares made by SSPL in favour of the writ petitioner will be ultra vires of the company. Hence, it is to be held that the name of the writ petitioner was recorded in the Register of Members only for the limited purpose of enabling the petitioner to receive dividend and exercise voting rights pursuant to the letter of pledge. As noticed by me already, the letter of pledge is very clear in that it specifically provides that the shares which are offered as securities are the absolute property of Bhankerpur.
79. Heavy reliance has been placed on the unreported decision of Shanmugham, J. in (C.C. 622 to 625, 705 & 738) of 1992, dated 24th December, 1992) in support of the proposition that the remedy to rectify the Register of Members can only be done under Section 155 equivalent to the present Section 111 of the Act, I have gone through the order. The order relied on by the petitioner was given at an interlocutory stage in a main proceeding under Sections 397 and 398 of the Act. The Judgment rendered at the interlocutory stage may not constitute a binding precedent, Even otherwise that was a case where the learned judge was considering the question of an interlocutory stage before the allotment of shares was set aside. Whereas in the present case the Company Law Board has already found in the impugned order that the allotment and issue of further capital by SSPL to the extent of two lakhs to Bhankerpur is illegal and has setj aside the same. Therefore the order made by Shanmugham J. is not of any assistance for deciding the present case.
80. Further the Division Bench ruling reported in Radhakrishnan case ((1993) 78 Com Cas 694 Madras) referred to an extracted supra will clearly apply to the facts of the present case. The ruling of the Division Bench is binding on me and I respectfully follow the same. Therefore, when once the allotment is held to be null and void it is to follow as a matter of course that the Register of Members has to be rectified. Otherwise, it will lead to strange situation wherein notwithstanding the setting aside of the allotment the name of the person to whom the shares have been allotted of transferred will continue to remain on the Register of Members.
81. Thus, on a careful consideration of the entire materials on record and of the arguments of all learned counsel, I am of the opinion that the Company Law Board has done substantial justice to the petitioner and the petitioner cannot feel aggrieved by the order of the Company Law Board in so far as it directs the Bhankerpur to return the intercorporate deposit together with interest, consequent upon the setting aside of the allotment and direction to SSPL to rectify the Register of Members to remove the name of Malleswara.
82. For the foregoing reasons, this writ petition is liable to be dismissed and is accordingly dismissed. No costs.
83. Petition dismissed.