Company Law Board
Abani Bhusan Bhattacharya vs Ericsson India (P.) Ltd. And Ors. on 13 April, 1998
Equivalent citations: [1998]91COMPCAS481(CLB)
ORDER
1. Shri A. B. Bhattacharya, 52, Krishna Vihar, 15, Sarat Chatterjee Avenue, Calcutta-700 029, has filed this petition on October 27, 1997, under Section 111(4)(a)(ii) and (7)(b) of the Companies Act, 1956 (hereinafter called "the Act"), 'against Ericsson India Private Limited, 25, Community Centre, First Floor, East of Kailash, New Delhi-110 065 (hereinafter called "the company"), and two other respondents who are the managing director and the director, respectively. According to the petition, the petitioner was one of the founder members of the company incorporated in 1971 and has subscribed and acquired 200 equity- shares of Rs. 100 each and is the holder of the relevant share certificates dated October 22, 1971. According to the petition, the petitioner was the first managing director of the company continuously for five years since incorporation and was working director for further one year after which he was removed from the office of the director, through clever manipulation by the respondents. The complaint of the petitioner is that through a board meeting in 1980, respondents Nos. 2 and 3 resolved to issue 200 duplicate shares against his share certificate, to publish in the newspapers about the issue of the duplicate shares and to state that the company will not recognise any transfer in respect of the original 200 shares owned by the petitioner. The duplicate shares were purported to be issued pursuant to the provisions of Articles 42 and 35 of the articles of association of the company. According to the petitioner, even as per the articles, a valid sale notice in writing is necessary in order to transfer the shares or to issue duplicate shares. There is no scope for omitting or dropping the names of the petitioner from the register of members without his consent. The company cannot override the articles and defraud its members or shareholders. It is further stated that according to Section 108 of the Act, it is mandatory to fulfil the conditions prescribed therein before transfer of any shares, namely :
(i) There should be an instrument of transfer duly stamped ;
(ii) The instrument should have been executed by the transferor and transferee ;
(iii) The instrument should be delivered to the company along with share certificates.
Anything in the articles to the contrary cannot prevail over the provisions of the Act.
2. It is further stated that as per the annual returns as on June 28, 1978, the petitioner's name is appearing with a holding of 200 shares but in the next annual return as on June 29, 1979, it is shown that these shares have been "forfeited" as per Article 42 of the articles of association of the company. The shares could not have been forfeited as they are fully paid and as such the return is false and incorrect. Thereafter, in 1980, a public notice as referred to already, was given by the company consequent to a board meeting held on May 5, 6, 1980. According to the petitioner, this notice has caused public defamation and resulted in denial of rights of the petitioner and employment opportunity commensurate with his high qualifications and wide experience. The petition also narrates in detail the entries in the register of members with regard to the acquisition and transfer of the shares.
3. The petitioner has stated that he had filed earlier a petition under Section 237(b) of the Act before the Principal Bench and in reply to that petition the respondent in 1997 had stated that the "200 shares of the petitioner stood compulsorily transferred". The cause of action has, therefore, arisen from this statement in reply. It is further stated that the Company Law Board while disposing of the petition under Section 237(b) has observed that the issue relates to rectification of the register for which a separate remedy is provided by the Act in Section 111. The petitioner has taken this to be a direction to file a petition under Section 111 and hence this petition.
The respondents in their reply have raised certain preliminary objections, viz :
(i) The company is a private company, the articles of which seek to restrict the transfer of shares by virtue of the mandatory provisions of Section 3(1)(iii)(a) of the Act read with the articles. According to the relevant articles, a member being a director when he ceased to be so, shall compulsorily transfer his shares at a fair value and shall be deemed to have served on the company with the sale notice under Article 35. Since the petitioner ceased to be a director with effect from June 28, 1978, he was called upon to deliver the share certificate relating to the 200 shares held by him. However, in spite of repeated reminders, the same were not surrendered. Consequently, at the board meeting held on May 5, 6, 1980, it was decided to issue duplicate share certificates and to publish a notice in the newspapers. In accordance with the procedure laid down, the auditors valued the shares and they were transferred and the payment as per the valuation was made to the petitioner by bank draft. Since the transfer was made in accordance with the restrictions contained in the articles and in view of the express provisions contained in Section 111(13) of the Act, which permits such transfer irrespective of Section 108 of the Act, the present petition is not maintainable.
(ii) Another preliminary objection is that the petitioner has not come with clean hands in so far as the petitioner has not disclosed the various litigations instituted by the petitioner himself in respect of the same subject matter :
(a) A criminal case against respondents Nos. 2 and 3 in Calcutta under sections 409/467/120B/511 of the Indian Penal Code, I860, read with sections 84-116 of the Act, which were quashed by order dated March 20, 1984. The civil revision was also dismissed in April, 1985.
(b) The title suit of 1984 before the City Civil Court at Calcutta in respect of the same subject-matter which was dismissed for default on the part of the petitioner in 1992.
(c) A Company Petition No. 12 of 1984, before the Delhi High Court for winding up of the respondent-company.
(d) A petition before the District Forum under Consumer Protection Act, 1986, namely, CDF No. 2115 of 1991.
(e) Original Petition No. 250 of 1992 before the National Consumer Disputes Redressal Commission at New Delhi.
It is stated in the reply that the same allegations were made in the above cases by the petitioner which cannot be agitated time and again and the petition is barred by waiver, acquiescence, estoppel, and res judi-cata. On this ground alone, the petition is liable to be dismissed.
(iii) Another preliminary objection is that the petitioner is guilty of laches and delays in filing the present petition after about 20 years when the impugned shares stood compulsorily transferred as a result of the petitioner ceasing to be a director. The present petition is, therefore, hopelessly barred by limitation and no explanation for such an inordinately, long delay has been given by the petitioner.
4. Apart from the above preliminary objections, on the merits, it is admitted that the petitioner was holding 200 equity shares which were transferred under Article 42 to respondent No. 2. It was denied that the respondent was a managing director. It was the proposal of the petitioner himself that he should be relieved and respondent No. 2 should be appointed as managing director at the board meeting held on December 2, 1976. The minutes copies were also enclosed. The petitioner, however, was appointed as whole-time director for one year with effect from January 1, 1977. As regards the issue of duplicate shares Article 37 empowers the board to do so. Further, Article 42 contains a deeming provision with regard to sale notice by a member ceasing to be a director. As such there is no necessity of sale notice in writing. It is further stated that under Articles 35, 37 and 42, the company is entitled to restrict the transfer of shares being a private company under Section 3(1)(iii)(a) of the Act. The reply, therefore, prayed that in view of the above, the petition should be dismissed with costs.
5. In rejoinder the petitioner stated that the various cases filed by him were either dismissed or not pursued for want of local jurisdiction and none of the cases were tried on the merits, however no explanation was given for the omission to mention in the petition or for the delay in filing the petition.
6. The petition was heard on March 16, 1998, when Shri U. P. Mathur, advocate for the respondents, pressed his preliminary objections. Mathur stated that even on the merits the petitioner has no case in so far as what the company has done was only to enforce the restrictions on transfer of shares since it is a private company. He further emphasised that violations and non-compliance of sections 84 and 108 have no validity in view of the Section 111(13) of the Act, which specifically exempts private companies in this regard while enforcing the restrictions contained in the articles of the association of the company. He also drew our attention to the provisions contained in Article 37 of the articles of association which contains a deeming provision, in the case of default of a member in transferring the shares within seven days. The deeming provision is to the effect that the member concerned is deemed to have appointed any one director of the company as his agent to execute the transfer of the shares to the purchasing member and upon the execution of such transfer and upon the receipt of the purchase money, the company shall effect the transfer.
7. The petitioner who appeared in person, attempted to justify the delay in filing the petition on the ground that he was approaching the Registrar of Companies for inspection and was approaching the Principal Bench of the Company Law Board for investigation. He also stated that other petitions were dismissed/withdrawn basically because of lack of jurisdiction. He laid emphasis on the issue of the duplicate shares which according to him is a clear violation of Section 84 of the Act. He further contended that a sale notice in writing is a must under Article 35 which in this case has not been given by him at all. Further, any act of the company even though may be justified under the articles of association, so long as such articles are impugnant to the provisions of the Act, the Aet shall prevail and not the articles. In this connection, he relied on the provisions of Section 9 of the Act. He also cited the contents of the annual returns of the company which show as if the shares have been forfeited and according to him, since admittedly the shares were fully paid cannot be forfeited. The petitioner also cited the Supreme Court case Mannalal Khetan v. Kedar Nath Khetan [1977] 47 Comp Cas 185 ; AIR 1977 SC 536, to put emphasis that compliance with Section 108 is mandatory and hence the transfer of the shares is not valid since there was no transfer deed executed by him duly stamped and the relevant share certificates did not accompany any deed. He also relied on the Madras High Court's decision in S. Sundaram Pillai v. P. Govindaswami [1987] 62 Comp Cas 414 to state that unless there is a valid deed of transfer in accordance with Section 108, a transferee cannot claim to have his name entered in the register of members of the company and similarly the right to issue duplicate shares is regulated by Section 84.
8. We have carefully considered the pleadings and the arguments. Before taking up the merits of the case, on a careful consideration of the preliminary objections it is found that there are two specific objections raised by Shri Mathur on behalf of the respondent namely :
(a) that the petitioner has been pursuing various legal proceedings for a number of years and has failed to refer to any of the proceedings in the petition ;
(b) that there is an inordinate delay of about twenty years without any explanation for such a delay.
9. Against these objections, the petitioner could not substantiate before us as to which of the cases were dismissed for lack of jurisdiction and which of the cases were dismissed on the merits. It is further stated in the rejoinder at page 5 that none of the cases were tried on the merits. However, it is the burden of the petitioner to establish that in each and every case, the merits were not gone through. At least, we have come across one decision of the City Civil Court at Calcutta filed by the respondent to state that the title suit was dismissed' for default. The petitioner explains that this default is on account of his presumption that the City Civil Court has no jurisdiction. This explanation is not satisfactory and has no basis. As regards the criminal proceedings, however, we have to note that the courts have dismissed the case fop want of jurisdiction. Regarding other civil cases no satisfactory evidence has been produced to show that the cases were dismissed without considering the merits. In the circumstances, we are convinced that the petitioner has already availed himself of various alternate remedies and he Cannot now make use of one of more forum for the same remedy. It is not appropriate to entertain a petition which amounts to encouraging "forum shopping" by litigants. It is also true that the petitioner has not disclosed the fact of initiating any of the proceedings in the petition which is the requirement of the Company Law Board Regulations, 1991, and to that extent he has not come with clean hands. Even in the rejoinder, the petitioner has not come out with any explanation as to Why he did not disclose the fact of other legal proceedings being initiated as stated by the respondents in their reply. This again goes against the petitioner and in our view such a conduct should be discouraged.
10. Another objection of Shri Mathur is that there has been inordinate delay of about 20 years in filing this petition. The transfer and the issue of duplicate shares took place at the meeting held on May 5, 6, 1980. It is not the case that the petitioner was not aware of the issue of duplicate shares since his criminal petition dated back to 1981 where issue of duplicate shares was the main question. Further, the correspondence available on record shows that during the period of 1978-1980, the company had put the petitioner on notice that the transfer of shares and issue of duplicate shares will take place as per the articles in case the petitioner does not respond and surrender the certificates. Further, the title suit of 1984 shows that the petitioner was aware of the forfeiture and deprival of the ownership of the shares as early as in 1984. As such, it cannot be pleaded that the petitioner had knowledge of the deprival only now. Hence, his statement in para. 2 of the petition that the cause of action arose out of a reply of the company in the petition under Section 237(b) before the Principal Bench of the Company Law Board in 1997 that the 200 shares stood compulsorily transferred carries no weight. We are convinced, therefore, that there has been an inordinate delay of, at least, 17 years from 1980 to 1997 during which period, the petitioner has pursued various alternate remedies.
11. The other preliminary objection referred by us in para. 2(ii) (page 942) above is really not a preliminary objection but a justification of the action of the company which relates to the merits of the case.
12. In view of the above two preliminary objections, we consider it inappropriate to go into and decide the merits of the case. Therefore, the petition is dismissed on the grounds as already referred to above. No order as to costs.