Company Law Board
Bipin K. Jain, Rasesh B. Jain And Raj ... vs Savik Vijay Engineering Pvt. Ltd. And ... on 30 June, 1997
Equivalent citations: [1998]91COMPCAS835(CLB)
JUDGMENT
1. In this order we are considering three petitions filed under Section 111 of the Companies Act, 1956, in the matter of Savik Vijay Engineering Private Limited (company). As the facts and circumstances, in these petitioners are similar, we are disposing of these petitions by this single common order.
2. The reliefs sought in these three petitions are that an appropriate order under Section 111 should be made to direct rectification of the register of members of the company, to show the name of the petitioner in C. P. No. 54 as the holder of 5,240 shares, the petitioner in C. P. No. 43 as the holder of 5,110 shares and the petitioner in C. P. No. 52 as the holder of 5,020 shares, on the grounds stated in the respective petition.
3. According to the petitioners, they acquired the impugned shares from the shareholders of the company for a consideration of Rs. 10 each, the face value whereof is Rs. 100 per share, some time early, 1992. The company had availed of certain financial assistance from an associate concern of the petitioners and since the financial position of the company was not satisfactory, the shareholders of the company offered to sell the impugned shares to the petitioners at Rs. 10 per share. Respondent No. 2 being the managing director of the company, furnished to the petitioners a certified true copy of the extract of the meeting of the board of directors of the company held on February 20, 1992 (annexures "A-2" and "A-3") wherein, the board of directors of the company resolved sale of 19,613 shares held by various shareholders to the petitioners and to one Shri Jethalal Dalai, collectively. Accordingly, the petitioners decided to purchase such number of shares each as mentioned earlier. Respondents Nos. 2 and 3 issued a letter (annexure 4) to the petitioners requesting that the payment of consideration for the shares be paid to the company and, accordingly, the petitioners along with Shri Dalai, issued a cheque for Rs. 1,96,130, dated February 26, 1992, in favour of the company. The shareholders including respondents Nos. 2 and 3 gave a receipt dated February 26, 1992 (annexure 5) for the said amount. The shares acquired by the petitioners were lodged with the company for registering the transfers and accordingly the transfers were duly noted in the memorandum of transfer printed on the reverse of the share certificates (annexures 6 to 16). By acquiring these shares, the petitioners and Shri Dalai happened to acquire the entire 100 percent issued capital of the company. However, they did not participate in the management since the company was in Hindupore and the petitioners were in Bombay. They allowed the previous shareholders who were managing the affairs of the company to continue to manage as they were technically qualified. The petitioners used to get annual reports and annual accounts of the company regularly thus signifying recognition by the company of the petitioners' membership. Since the large liabilities accumulated by the company came to the knowledge of the petitioners some time in September, 1993, the petitioners issued a notice dated October 4, 1993, under Section 169 of the Companies Act calling upon the company to hold an extraordinary general meeting of the company. However, the company replied, vide its letter dated October 25, 1993, stating that since the petitioners' names did not appear in the register of members of the company, they had no locus standi to call for any extraordinary general meeting. In spite of a legal notice having been issued to the company asserting that the petitioners were members of the company, the respondents contended that the petitioners were not members. In view of the fact that consideration had been paid and that the board had resolved to transfer the shares and the share certificates indicated the fact of shares having been transferred in the name of the petitioners, the respondent-company having entered their names, has without sufficient cause omitted the same/or defaulted in entering their names in the register of members and the same should be rectified to put their names in respect of the shares held by them.
4. In the reply filed on behalf of the company, it is stated that at no time the shareholders of the company transferred their shares to the petitioners. The company, for purchase of plant and machinery, approached BCL Financial Services Private Limited (BCL), Bangalore, for financial assistance in this regard and accordingly one of their sister concerns, namely, Weizmann Financial Resources India Ltd., Bombay, agreed to make direct payments for supply of machinery to the extent of Rs. 22.5 lakhs. Further, BCL also agreed to advance a sum of Rs. 20 lakhs. In consideration for the repayment, the respondents had deposited title deeds of properties and some of the shareholders and friends also deposited title deeds of properties belonging to them. At the time of taking the loans, a large number of blank papers including blank cheques, etc., were made to be signed by the respondents. Since the New Bank of India, bankers of the company, failed, the company was not in a position to get financial assistance from the bank and as such was not in a position to discharge its liabilities towards the loans taken from the financiers. On account of this, the financiers issued various public notices advising the public that title deeds of various properties were with them and any one dealing in respect of these properties would do so at their risk. In addition to the title deeds, the shareholders had also deposited the share certificates along with the blank transfer forms. The alleged board resolution dated February 20, 1992, is a fabricated one, typed on a blank sheet signed by the respondents. No board meeting actually took place on that date. Likewise, the company's rubber stamp on the reverse of the share certificates had been forged. The amount of Rs. 1,96,130 was paid by way of a cheque by BCL (R-6) as part of a financial commitment made to the company and this amount did not represent the value of shares. This amount was credited in the account of BCL in the books of the company. Even the purported receipt towards this amount alleged to have been signed by the shareholders is a forged one. The reply further details the issue of shares made by the company on a few occasions after 1992. According to the reply, the company has also questioned as to how the shares deposited with the financiers could get into the possession of the petitioners. There is no indication in the share certificates regarding the date of transfer, ledger folio, etc., and the rubber stamp purported to have been affixed has been manufactured by the petitioners. There had been no agreement between the shareholders and the petitioners regarding the sale of shares and no consideration has been received by the shareholders. In other words, the names of the petitioners were never entered in the register of members and as such the company did not recognise their right to call for an extraordinary general meeting.
5. In the rejoinder filed by the petitioners, it is stated that the petitioners had lodged the shares along with the transfer instruments, copies of which have been annexed with the rejoinder, (annexures 21-22) from which it could be seen that there is a rubber stamp on the transfer deeds indicating that the transfer had been effected. It is further stated that even though the consideration of Rs. 1,96,130 was paid by the financiers, the petitioners had later paid this amount to the financiers. In other words, the consideration was paid by the petitioners through the financiers. They have also questioned the action of the company to issue further shares and have sought for cancelling the shares.
6. Shri P. B. Appiah, appearing for the petitioners, submitted that on the basis of various documents filed with the petition and rejoinder, it is amply clear that there was an agreement to sell the shares, there was a board resolution permitting the transfers, there is an endorsement on the reverse of the share certificates regarding the transfer, proof of payment of consideration and also the receipt signed by all the shareholders towards receipt of consideration. With so much overwhelming evidence of the petitioners' having become members of the company, it was wrong on the part of the company to have either omitted the names of the petitioners from the register of members or failed to enter the names as members. Accordingly, he sought for directions to the company to register, the shares in favour of the petitioners.
7. Shri V. S. Raju, advocate, appearing for the respondents, submitted that at no time there was any agreement between the petitioners and the shareholders regarding the sale of the impugned shares. He further submitted that a perusal of the transfer instruments would show that there is no indication as to the dates of transfer to examine whether the transfer had taken place within the period as provided under Section 108 from the date of presentation. He also pointed out that all the transfer instruments have been affixed with only stamp of Rs. 2 as against the large value of stamps that should have been affixed taking into account the alleged consideration indicated in the transfer instruments. Thus the instruments are not duly stamped. Thus, according to him, the mandatory provisions of Section 108 have not been complied with. Further, he pointed out that in view of the contesting claims by the parties, the petitioners' asserting the genuineness of various documents relied on by them and the respondents' claim that they are all forged, either the petition should be dismissed on the ground of non-compliance with the provisions of Section 108 of the Companies Act or relegated to a suit.
8. We have considered the pleadings and arguments of counsel. According to the petitioners, there had been valid transfers of shares and the company has, either after entering the names of the petitioners in the register of members omitted the same later, without sufficient cause, or the company defaulted to enter the names of the petitioners without sufficient cause. Either way, the prayer sought is to order entering the names of the petitioners in the register of members. The contention of the respondents is that there had been no transfer of shares at all and that the names of the petitioners were never entered in the register of members and for that matter they are not entitled to such entry in the register of members,
9. Before we consider these issues, it is necessary for us to record, on the basis of the copies of transfer instruments filed with the rejoinder, that one of the transfer instruments does not indicate the date of presentation before the registrar and none of the transfer instruments bears the date of transfer. Further, as rightly pointed out by Shri Raju, all the transfer instruments have been affixed with a two rupees stamp towards payment of stamp duty irrespective of the value of the consideration noted on the transfer instruments. On the basis of the value indicated, the stamp duty should be very much higher than Rs. 2. Thus, the instruments of transfer are found to be not "duly stamped". According to Section 108 of the Companies Act, instruments have to be duly stamped which means proper stamp duty should have been paid on the transfers to be evidenced by the stamps affixed on the transfer instruments. The provisions of Section 108 have been declared to be mandatory by the Supreme Court in Mannalal Khetan v. Kedar Nath Khetan [1977] 47 Comp Cas 185. Thus, not fully stamped instruments cannot be taken cognizance of by a company, for registering transfers and, therefore, the question of our ordering rectification of the register of members to enter the names of the petitioners in the register of members does not arise.
10. This is a case where shares of the face value of Rs. 100 each are alleged to have been transferred for a consideration of Rs. 10 each. The petitioners have annexed various documents to show that there was proper transfer of shares together with proof of payment and proof of receipt. Yet, the contention of the respondents is that all the documents are either fabricated or have been prepared on blank papers signed by the respondents/shareholders for availing of financial assistance. The petitioners have relied on a purported board meeting of the company held on February 20, 1992. In this meeting a resolution is purported to have been passed as follows :
"Resolved that equity shares numbering from 001 to 19613 (as per the list enclosed) we hereby transfer in favour of Shri Suman Jathalal Dalai, Shri Bipin K. Jain, Shri Raj Kumar K. Jain and Shri P. K. Jain." This resolution is purported to have been passed on the basis of consent letters received from shareholders to transfer the shares in favour of the petitioners and Shri Dalai. On the basis of this resolution dated February 20, 1992, consideration was paid and transfer instruments were lodged with the company for transfer. Normally, for the board of directors of a company to pass a resolution regarding transfer of shares, the transfer instruments complying with the provisions of Section 108 must be before them. No transfer is normally approved before actual transfers and placement of the transfer instruments before the board. However, according to the respondents, this resolution is a fabricated one as no board meeting of the company took place on that date. Even the receipt alleged to have been signed by the shareholders is claimed to be a fabricated one, that the same has been prepared on blank papers signed by shareholders at the time of availing of financial assistance. It is also seen that the cheque towards the consideration is found to have been given by BCL and not by the petitioners even though it is later claimed that the petitioners have paid this amount to BCL later.
11. Thus, in the present case, if the company had not at all entered the names of the petitioners in the register of members, then, in view of the fact that the transfer instruments do not comply with the provisions of Section 108, we cannot order, even if all averments of the petitioners are assumed to be correct, entry of their names in the register of members.
12. If, as contended by the petitioners that the company had entered their names on the basis of the transfers effected and later removed their names without sufficient cause, then, we find that the contradicting stand taken by the petitioners on the one hand and the respondents on the other, relating to various documents relied on by the petitioners, raises complicated questions of fact. We have time and again held in various cases, that if complicated questions of law or facts arise in a Section 111 petition, which cannot be adjudicated on the basis of documents made available, but could be decided only on trial by evidence, then the Company Law Board would relegate the matter to a suit. According to us, this is a fit case to do so in the face of the claim of the petitioners on the basis of various disputed documents, that their names, after entry in the register, were omitted therefrom later. The assertion of the parties relating to the genuineness or otherwise of the documents cannot be adjudicated in a summary manner and requires trial on evidence.
13. Accordingly, we dismiss all the three petitions. The petitioners may move the civil court, if so advised.