Company Law Board
Sailesh Rajnikant Parekh vs Starline Travels Private Limited, ... on 6 May, 2003
Equivalent citations: [2004]118COMPCAS145(CLB), [2004]50SCL534(CLB)
ORDER
K.K. Balu, Member
1. This is a petition filed under Section 111/111A of the Companies Act, 1956 ('the Act') against M/s Starline Travels Private Limited ("the Company") and others. The reliefs made in the petition as amended in CA No. 30 of 2000 are to direct the Company to transfer 500 equity shares of the Company covered by Certificate Nos. 13 to 17 in favour of the petitioner; rectify the register of members of the Company in respect of these shares and award costs of the petition.
2. The facts in brief, as reiterated by Shri Samir S. Shah, Advocate for the petitioner are that the impugned shares were issued by the Company in the joint names of the petitioners and one Shri Girish Chimanlal Parek (GCP), who later transferred the shares in favour of the petitioner. Thereafter, the petitioner by his letter dated 04.03.1997 forwarded the original share certificates in respect of the impugned shares together with the transfer form to the Company to register the transfer in favour of the petitioner. In spite of repeated demands made in writing by the petitioner and the legal notice, the Company failed to register the transfer in respect of the impugned shares in favour of the petitioner. In this connection, Shri Shah referred to the correspondence exchanged between the parties. According to the petitioner, the plea of the respondents 1 to 3 made before the CLB for the first time that the impugned shares were sold by the petitioner and GCP to the third respondent and the transfer was registered by the Company on 15.02.1995. The third respondent had subsequently transferred the shares in favour of the second respondent for valid consideration is far from truth, forcing the petitioner to implead the alleged transferees as respondents No. 2 & 3 and the Chartered Accountant of the Company, as respondent No. 4. The petitioner had neither executed any transfer deed transferring the impugned shares in favour of the third respondent nor received any consideration from the third respondent. The Company had colluded with the other respondents, played fraud upon the petitioner; illegally transferred the impugned shares in favour of the third respondent on the basis of a forged transfer deed and further illegally approved the transfer of the shares from the third respondent in favour of the second respondent. Shri Shah pointed out that the impugned share original certificates were in the custody of the petitioner, at the time of the alleged transfers in favour of respondents 3 and 2, in support of which he referred to the letter dated 11.08.1995 of the third respondent and reply dated 16.08.1995 of the petitioner (pages 10 & 11 of rejoinder to counter by the Company). Moreover, the share transfer from (Page 4 of the typed set of documents by the Company) executed by the third respondent in favour of the second respondent is dated 21.08.1995. The third respondent had signed the transfer form on 02.09.1995. Whereas, the Company had resolved only on 06.09.1995 to issue duplicate share certificates in favour of the third respondent on the strength of an indemnity bond dated 02.09.1995. Thus, when the third respondent had demanded the original share certificates from the petitioner in August 1995, approached the Company in September 1995 and fraudulently obtained duplicate share certificates, especially when the original share certificates were under the custody of the petitioner. Therefore, the shares could not have been transferred on 15.02.1995 by the petitioner in favour of the third respondent and the transfer is violative of the mandatory provisions of Section 108 of the Act. In view of the fraud played by respondents 1 & 3, the third respondent had not derived title to the impugned shares and could not have validly transferred the shares in favour of the second respondent. Consequently, the alleged transfer by the third respondent in favour of the second respondent is also not valid. In the circumstances, Shri Shah prayed for the reliefs claimed by the petitioner.
3. According to Shri V. Venkadasalam, Advocate appearing for the Company, the Company originally having its registered office at Bombay was a private limited company with eight shareholders holding 12,020 equity shares. The petitioner and third respondent being shareholders were on the Board of Directors of the Company. As all the shareholders of the Company had proposed to sell the entire shares held by them, the Board of Directors at its Board meeting held on 20.04.1992 resolved to sell the shares in favour of the second respondent and his group and further authorized the third respondent to do all that is necessary for completion of the transfer of shares. The petitioner was also a party to the resolution passed by the Board of Directors of the Company. Accordingly, the second respondent had purchased all the shares of the company including the impugned shares from the petition for valuable consideration. As the third respondent was in-charge of the affairs of the Company and the original share certificates as well as the transfer forms in respect of the impugned shares were in her custody, the Board of Directors of the Company had on 15.02.1995 approved the transfer in her favour. Thereafter, the third respondent had applied for duplicate share certificates in respect of the impugned shares on 02.09.1995, since the original share certificates and the transfer forms were missing and further executed an indemnity bond indemnifying the Company, upon which the Company issued duplicate share certificates to the third respondent, who had later on 06.09.1995 transferred the impugned shares to the second respondent. The petitioner filed in May 1999 is barred by limitation and not maintainable at the hands of the petitioner, not having title to the impugned shares. Shri Venkadasalam urged that the question of maintainability of the petition must first be decided and only if that issue is found in the affirmative by the CLB, the merits need to be gone into, in support of which he relied on (1999) 6 Supreme Court 632-T.K. Lathika v. Seth Karsandas Jamnadas. After shifting the registered office to Coimbatore, the petitioner had somehow fraudulently obtained possession of the original share certificates as well as the transfer form executed by him and filed this frivolous petition. Shri Venkadasalam, in support of his case referred to the extract of the minutes of the Board of Directors of the Company held on 20.04.1992; certified true copy of the resolution passed by the Board of Directors of the Company at its meeting held on 15.02.1995; Share Transfer Form dated 21.08.1995; letter dated 02.09.1995 of the third respondent for issue of duplicate share certificates, copy of the indemnity bond; certified true copy of the resolutions passed by the Board of Directors at its meeting held on 06.09.1995 and certificate dated 02.04.2001 issued by Indian Bank (Pages 1-8 & 11 of typed set of documents filed by the Company).
4. Shri T.K. Bhaskar, Advocate appearing for the second respondent has raised the following preliminary objections:
a) The cause of action for the petition arose in the year 1995, but the petition has been filed only in 1999. Therefore, the petitioner is guilty of laches, delay and acquiescence and the petition is barred by limitations, in support of which he referred to the decision in Anil Gupta v. Delhi Cloth and General Mills Co. Ltd. - [1983] 54 CC 301 - to show that if the petition is not filed within three years of the impugned transfers, it would be barred by time, by virtue of the Limitation Act, 1963.
b) The petition has been filed under Section 111, which is applicable only to private limited companies. As the Company is a public limited company as on the date of filing of the petition, Section 111 is inapplicable.
According to Shri Bhaskar, the second respondent and his family members had purchased 12,020 equity shares of the Company including the impugned shares for Rs. 9,61,600/-. As the transfer instruments were in compliance with the provisions of Section 108, the Company had registered the transfer in respect of these shares in favour of the second respondent. The petitioner and GCP and voluntarily transferred the impugned shares as early as in February 1995 and the present petition has been filed with the ulterior motive in order to disturb the right of the second respondent. As the Company had issued duplicate share certificates in favour of the third respondent as early as in September, 1995 the share certificates lodged by the petitioner with the Company is a dead security and the Company cannot seek to transfer any dead security under the provisions of the Act. Though the petitioner has alleged fraud and collusion against the respondents, but failed to give any particulars of fraud on account of which the petition is liable to be dismissed. Shri Baskar reiterated that second respondent and his family purchased the entire shares from the third respondent in good faith without any notice of defect in the title and that the Company had registered the transfer of shares in favour of the second respondent, in which case, the petitioner cannot claim any right over the impugned shares. Shri Baskar urged that the charges of fraud and manipulation alleged against the respondents and the disputes of complicated nature as to the title to the impugned shares warranting investigation can not be the subject matter in rectification proceedings, in support of which be relied on the following decisions:
National Insurance Co. Ltd. v. Glaxo India Ltd. - [1999] 378 - to show that when there are disputes as to whether the appellants are the owners of the shares, it would not be a case exclusively pertaining to rectification which could be decided by the CLB.
Tarsem Kansil v. Dev Spinners Ltd. - 2000 CLC 957 - to show that the highly disputed questions of fact regarding fraud, forgery, mis-representation and manipulation cannot be a case exclusively pertaining to rectification which could be decided by the CLB.
Smt. Soma Vati Devi Chand v. Krishna Sugar Mills Ltd. - AIR 1966 Punjab 44 (V 33 c 12) - to show that Section 155 is not meant to be used for deciding the disputes requiring investigation. In the case of the dispute of complicated nature involving controversy under several heads and initiating a regular investigation, the section ought not to be allowed to be used and the party concerned should be directed to proceed by way of a regular suit.
5. The third respondent has filed an affidavit in support of the allegations made on behalf of the Company.
6. I have considered the pleadings and arguments of Counsel for the petitioners as well as the respondents. Before dealing with the merits of the petition, I shall deal with certain preliminary legal issues raised by Counsel for the respondents. They are -
the applicability of Section 111 to public limited companies;
the maintainability of the petition by virtue of Limitation Act, 1963.
The Company was originally a private limited company, but at the time of filing the petition in May 1999, it has become a public limited company. With coming into force of Sub-section (14) of Section 111, with effect from 20.09.1995 this section is not applicable to public companies. At this juncture it is relevant to point out from the cause title of the petition that the petitioner has invoked the provisions of Section 111 or 111A of the Act. Though the petition is not maintainable under Section 111, I have treated this petition as filed under Section 111A and accordingly considered the same on merits under Section 111A to meet the ends of justice, as adopted by the CLB in quite a number of cases.
With regard to the submissions of learned counsel for the respondents that the petition is barred by limitation and that the petitioner is guilty of laches, delay and acquiescence on account of the delay in filing the petition, beneficial reference is invited to the decision of a division bench of the Calcutta High Court in Smt. Nupur Mitra v. Basubani Pvt. Ltd. (1999) 2 CAL LJHC 264, where it has been held that in proceedings under Section 111 of the Act, the provisions of Limitation Act would apply. This decision of the Calcutta High Court has been upheld in the appeal by the Apex Court, which is binding on the Company Law Board. If so, then the delay, if any in bringing the petition is required to be condoned in the interest of justice where no gross negligence or deliberate inaction or lack of bonafides is imputable to the parties seeking condonation of delay as propounded by the Apex Court in G. Rama Gowda v. Special Land Acquisition Officer, Bangalore - AIR 1988 SC 97. In the present case, it is on record that the cause of action arose in March, 1997, but the petition was filed in May, 1999, within a period of three years. Moreover, the petitioner is alleging that the second respondent became the owner of the impugned shares pursuant to the fraud perpetuated on him by the respondents in collusion with each other and that the transfer was registered in favour of the respondents 2 & 3 by the Company on the bass of forged transfer forms, in which case, the period of limitation, if any, cannot strictly be applied, as held in Bhuwaneshwar Nath Nigam v. Hindustan Lever Ltd. - [2002] 111 CC 590. I have, therefore, proceeded to hear this petition on merits.
7. While according to the petitioner, the Company failed to register the transfer of impugned shares in his favour since March 1997, it is contended by the respondents that the petitioner and GCP had transferred the shares in favour of the third respondent which was registered by the Company on 15.02.1995. The third respondent had subsequently transferred the shares to the second respondent for valid consideration. It is observed from the available form the available records that the petitioner had forwarded the original share certificates in respect of the impugned shares together with the share transfer form by his letter dated 04.03.1997 (Annexure 'A') requesting the Company to register the transfer in his name. The petitioner had reminded the Company by his letters dated 12.04.1997, 15.07.1997 and 29.08.1997 (Annexure 'B' to 'D') for effecting the transfer in his favour. In response to these letters, the Company's representatives by its letter dated 03.09.1997 (Annexure 'E') had advised the petitioner as under:-
"Matter has been properly dealt in accordance with the Agreement entered. If you want any clarifications please contact Smt. Asha Raje Gaekwad/Mr. Bipin B. Shah, Chartered Accountant."
Admittedly, there is no agreement on record said to have been entered into between the parties. This letter sent on behalf of the Company does not vindicate the present defence taken by the respondents in spite of the petitioner's subsequent written requests in his letters dated 03.10.1997 and 16.12.1997 (Annexure 'F' & 'G'). I find that the respondents have come forth for the first time with the plea of sale of the impugned shares by the petitioner in favour of the third respondent only in their counter filed to the main petition. It is patently clear from the certified true copy of the resolution No. 5 passed by the Board of Directors of the Company at its meeting held on 15.02.1995 (Page 3 of index of documents by the Company) that the third respondent had not lodged the original share certificates in respect of the impugned shares and the share transfer form executed by the petitioner and GCP as they were in the custody of the third respondent at the registered office of the Company and that at the request of the third respondent the Company had approved the transfer of the impugned shares in favour of the third respondent without lodgement of the original share certificates and share transfer form. It is therefore, beyond doubt that the mandatory provisions of Section 108 were not complied with while registering the transfer of shares in favour of the third respondent. Consequently the transfer effected in favour the third respondent is not valid. By a letter dated 11.08.1995 (Page 10 of Rejoinder to Counter filed by the Company) the third respondent had requested for the original share certificates along with the share transfer form in respect of the impugned shares from the petitioner. The petitioner by his letter dated 16.08.1995 (Page 11 of Rejoinder to Counter filed by the Company) had categorically stated that he had retained the share certificates for certain reasons stated therein which are of no relevant for the present petition. Against this background, the letter dated 02.09.1995 and the indemnity bond dated 02.09.1995 executed by the third petitioner (Pages 5 and 6 of Typed Set of documents by the Company) assume importance, according to which the original share certificates were misplaced by the third respondent. The directors of the Company had thereafter on 06.09.1995 resolved to issue duplicate share certificates to the third respondent in lieu of the original share certificates which were in the custody of the petitioner, as borne out by the letters stated supra. The duplicate share certificates so issued, in my view, amount to dead security. Now, it is interesting to see the share transfer form dated 21.08.1995 (Typed set of documents by the Company) executed by the respondents 2 & 3 in respect of the impugned shares. The third respondent had signed the share transfer form on 02.09.1995. Whereas the resolution to issue duplicate share certificates to the third respondent was passed by the Company only on 06.09.1995 as evident from certified true copy of the resolution passed by the Board of Directors of the Company at its meeting held on 06.09.1995 (Page 7 of Typed Set of documents by the Company). Moreover, the transfer of the impugned shares by the third respondent in favour of the second respondent was approved at the Board meeting held on 06.09.1995 as per certified true copy of the resolution passed by the Board of Directors (Page 8 of typed set of documents by the Company). Thus, while executing the share transfer form by the third respondent on 02.09.1995, the second respondent could not have lodged the duplicate share certificates to effect the transfer in his favour, especially when the duplicate shares were issued even according to the Company only on 06.09.1995. The above chain of events undoubtedly show that there was no valid transfer of shares either by the petitioner in favour of the third respondent or by the third respondent in favour of the second respondent. There is no record to substantiate payment of any consideration by the third respondent for purchase of the shares from the petitioner on 15.02.1995. While according to the respondents the second respondent had purchased the impugned shares for valid consideration from the third respondent as early as 1995 the certificate issued by the Indian Ban dated 02.04.2001 (Page 11 of typed set of documents by the Company) shows that a cheque bearing No. 763706 of Rs. 9,61,600 drawn in favour of the third respondent, representing sale proceeds of all the shares of the Company including the impugned shares was realized on 16.04.1992, 41 months prior to the sale. This discrepancy remains unexplained. For these reasons, the plea of the respondents is not convincing and must fail. The case laws cited on behalf of the respondents, in my view, are inapplicable to the facts and circumstances of this case.
8. Taking into consideration the facts and circumstances of the case, submissions made on behalf of both the parties and the legal position set out hereabove, it is hereby directed that the Company shall rectify its register of members by registering the transfer of impugned shares in the name of the petitioner and deleting the name of the second respondent within thirty days of receipt of the order. The Company is, further, directed to return the original share certificates already lodged with the Company to the petitioner forthwith.
9. With the above directions, the petition stands disposed of. No order as to costs.