Company Law Board
Dr. Mahesh Batra vs Gajaraj Beverages (P.) Ltd. on 6 September, 2002
JUDGMENT
A.K. Banerji, Chairman
1. The petitioners who are common in all the above noted 5 petitions filed under Section 111 of the Companies Act, 1956 (the Act) have inter alia prayed for rectification of the Register of Members of the company by declaring the transfer of shares of the petitioners allegedly by mutual exchange from respondent No. 1 company to M/s. Batra Films Private Limited, as illegal and not binding on the petitioners. Further, their names in the Register of Members be restored with all consequential benefits with effect from the date of the alleged illegal transfer of their shares. With the consent of the counsel for the parties, all the 5 petitions were connected and heard together as common questions of law and facts were involved. Arguments were advanced in CP 19 of 1999 which was taken up as the leading case. All the five petitions are being decided by this common order.
2. Briefly stated the facts of the case as set out in the petition are that 5 companies arrayed as respondents in different petitions are the Batra Group of companies of which Shri B.L. Batra was the Chairman. He expired on 10-8-1993 at Chandigarh. The petitioner No. 1 and respondent No. 2 are the two sons of late Shri Batra. The petitioner Numbers 2, 3 and 4 respectively are the wife and minor sons of Petitioner No. 1. In the above noted petition, the petitioners have alleged that respondent No. 2 who was the Managing Director of respondent No. 1 company has in an illegal and unauthorized manner without specific authority or consent from the petitioners transferred all the shares of the petitioners in M/s. Gajraj Beverages Pvt. Ltd. (Respondent No. 1) by way of mutual exchange with the shares of Batra Films pvt. Ltd. which is a defunct company of the Batra Group. The said transfers are being impugned in the present and other petitions and the reliefs as specified in the petitions have been sought.
3. Shri Sagar, learned counsel for the petitioner after placing the relevant paragraphs of the petition has contended that as long as Shri B.L. Batra was alive, the work in the Group companies was running smoothly. After the death of Shri Batra on 10-8-1993 when the arrangements were being made on 13-8-1993 to proceed to Haridwar to immerse the ashes in river Ganga, the respondent No. 2 got the minutes book of the respondent company signed by petitioner No. 1 on the pretext of recording the condolence and for giving directions to the bank for honouring the cheques signed by Shri B.L. Batra. As respondent No. 2 was the Managing Director of the company of which petitioner No. 1 was also a director, in good faith, petitioner No. 1 had signed the two pages of the minutes book which were subsequently interpolated by scoring out the signature and by adding further paragraphs. The petitioner No. 1 sensed some mischief only in the year 1996-97 and after several enquiries from respondent No. 2 when no proper answer was received made enquiries and obtained copies of the relevant documents from the office of the ROC in the year 1998 and became aware of the fraudulent transfer of all his shares and the shares of his wife and minor sons. Soon thereafter an FIR was lodged with the Police on 1-10-1998 and during the course of investigation, respondent No. 2 produced two letters dated 2-7-1993 and 5-7-1993 allegedly written by petitioner Nos. 1 and 2 respectively, inter alia, requesting for consolidation of their shares of all the group companies in M/s. Batra Films Pvt. Ltd. The respondent No. 2 also produced before the Police the alleged transfer forms which were filled in in the handwriting of respondent No. 2 but allegedly signed by petitioners 1 and 2. The learned counsel for the petitioner has challenged the alleged transfer of the shares mainly on the following grounds :
(1) That the transfers are bad in law as no valid consent was given by the petitioners. The two letters alleged to have been written by the petitioner and his wife praying for consolidation of their shares in M/ s. Batra Films Pvt. Ltd. was being challenged as fabricated and forged besides being vague and could not be considered to be a consent letter and an offer to contract. Further the letter was only addressed to the Chairman of the Batra group of companies and not to the respective company itself. Therefore it was contended that the transfers are per se illegal. Support for the said submission was sought from the case of John Tinson & Co. (P.) Ltd. v. Mrs. Surjeet Malhan AIR 1997 SC 1411.
(2) The impugned transfers were contrary to the mandatory provisions of the Act and as such per se illegal and not binding. The requirements of Section 108 of the Act which was mandatory has not been complied with as the transfer forms were not the prescribed forms besides being incomplete and relevant columns left blank. They were also not duly stamped. In support of this submission, reliance has been placed in the case of Mannalal Khetan v. Kedar Math Khetan AIR 1977 SC 536.
(3) The transfers were against the Articles of Association in as much as no approval of the Board of Directors was taken as required under Clauses 7 and 8 of the Articles. The violation of the Articles would make the transfer per se illegal.
(4) That the transfers are without consideration as Batra Films Pvt. Ltd. is a defunct company having no assets. The whole transfer by way of mutual exchange being without consent and without any consideration is also violative of Section 25 of the Contract Act.
(5) That transfers were not approved at any meeting of the Board of Directors and the allegations that they were approved by the Board of Directors in the meeting dated 13-8-1993 is absolutely false as on the said date, no meeting had taken place and only the condolence was recorded in the minute book and some directions regarding issued cheques were given to the bank. On that date, the last rites of late Shri B.L. Batra were to be performed at Haridwar - so there was no question of any other item being discussed in the said meeting. The allegation, therefore, by respondent No. 2 was palpably false.
(6) The transfers are the result of fraud and forgery as the signatures of the petitioners have been forged at different places to suit machinations of respondent No. 2.
(7) The petitioner No. 1 has been illegally removed from the directorship of the company in an alleged meeting dated 27-12-1993. No notice of the said meeting was given to the petitioner nor any document has been placed on record in this regard. Thus, the mandatory provisions of Section 286 of the Act have been violated and the resolution, if any, passed in the said meeting was null and void. Support has been sought from the decision in the case of Parmeshwari Prasad Gupta v. Union of India AIR 1973 SC 2389. On the said submissions, the learned counsel has prayed that this petition deserves to be allowed and the Register of Members to be rectified accordingly by declaring the impugned transfer of shares as null and void and further that the removal of petitioner No. 1 from the directorship of the company be declared as illegal and he may be restored to the said position.
4. Shri R.D. Makheeja, learned counsel appearing for the respondents on the other hand has raised 3 preliminary objections challenging the maintainability of the petitions. It has been contended, firstly, that the petitions are highly belated, secondly, the petitions have raised disputed and highly complicated questions of facts which cannot be decided by this Board in proceedings under Section 111 of the Act. Thirdly, the petitioners being guilty of suppression of facts having not approached this Board with clean hands are not entitled to any relief.
5. Elaborating the above arguments, the learned counsel has contended that tbe shares were transferred and consolidated in one company, namely, Batra Films Pvt. Ltd. on the request of the petitioners 1 and 2 in April, 1993 though the transfers were actually recorded in December, 1993 whereas these petitions were filed in December/January, 2000 after over 6 years. In exercising its functions under Section 111 of the Act, this Board must and does act judicially and as held by the Apex Court in the case of Canara Bank v. Nuclear Power Corporation, 1995 2 CLJ 203 and some other cases by different courts that it is for all intent and purpose a court consequently by the provisions of Limitation Act would apply to it. Though Section 111(4) of the Act prescribes no period of limitation, however, as held in the case of Corporation Bank v. Navin J. Shah AIR 2000 SC 761, it has to be filed within a reasonable time which the Legislature in its wisdom has prescribed as 3 years in the residuary Article 137 of the Limitation Act. Referring to the decision of the Gujarat High Court in the case of Bipin Vadilal Mehta v. Ramesh B. Desai[1998] 92 Comp. Cas. 910, it has been contended that limitation would start running from the date when the right to apply accrues and in case the petitioner is trying to get over the bar of limitation by alleging fraud not only has the same to be established but it has also to be shown that the knowledge of his right to have recourse to law was concealed by the other side.
6. The learned counsel has further contended that the petitioner by his letter dated 16-1-1994 addressed to his mother acknowledged the receipt of the transferred shares and again by a letter dated 16-8-1996 sought details of the impugned transfers from the ROC. These conclusively prove prior knowledge of the petitioner about the transfer of shares and the petitions therefore are barred by limitation having been filed in December 1999/January, 2000. The petitioners have merely alleged fraud but have not been able to prove it and therefore cannot seek any extension of the period of limitation.
7. On the second preliminary objection raised by the learned counsel, it has been submitted that the jurisdiction of this Board under Section 111 of the Act is summary in nature and it can adjudicate only upon the issues which are peripheral to the issue of rectification of the register of members. The issues which are disputed and complicated require scrutiny and evidence and such issues cannot be decided on the basis of the affidavits. Referring to the present proceedings it has been contended that various issues raised by the petitioners including the issue of alleged fraud and forgery are questions which require to be appropriately adjudicated in civil courts.
8. As regards the 3rd objection raised relating to alleged suppression of facts, it was contended that petitioner No. 1 has concealed the fact that in the year 1989 he had expressed his desire to his father to be relieved of the burden of being a director and the Managing Director of Gajaraj Beverages Pvt. Ltd. On his request, Shri B.L. Batra, vide his letter dated 5-10-1989 relieved him from the position of Managing Director and had wished him well in the medical profession which the petitioner was carrying. It was further contended that the petitioner has suppressed the fact that the petitioners No. 1 and 2 vide their letters dated 2-7-1993 and 5-7-1993 expressed their desire to consolidate their shares in different Batra group of companies in one company only, namely, Batra Films Pvt. Ltd. Shri B.L. Batra had also accepted the said request and duly informed the petitioner No. 1 vide his letter dated 4-8-1993 that his shares would be consolidated in Batra Films Pvt. Ltd. by mutual exchange and that required transfer forms duly signed along with share certificates have been received from the shareholders. In this letter, it was also disclosed that there were about Rs. 24 lacs in Batra Films Pvt. Ltd. as cash in Bank and in the shape of loans and this could be utilized for settling his children. It has also been suppressed that the transfer of some of their shares to the petitioner were approved by the Board of Directors in the meetings held on 9-12-1991, 9-3-1993, 7-7-1993 which were attended by the petitioner No. 1.
9. Replying to the arguments of the petitioner on merits of the case, the learned counsel for the respondents has contended that the exchange of shares was made in terms of the transfer deeds which the petitioner No. 1 had signed and deposited with his father. However, the process could not be completed as his father died on 10-8-1993 and subsequently the transfer of shares pursuant to the proposed exchange was effected and completed sometimes in December, 1993 with the approval of the Board of Directors of the respective companies. It has been further contended that since the year 1993 the petitioner No. 1 concentrated in his medical practice and ceased to have any connection with the respondent companies but suddenly in August, 1996 to create evidence a letter was written to ROC making various allegations regarding the transfer of shares alleging that the same were done behind his back by playing fraud. These allegations, it has been contended are ex facie wrong and contrary to the letter dated 11-1-1994 written by the petitioner to his mother expressing gratitude for having consented to the transfer of shares. In the investigation proceedings before the Police, the mother has clearly stated that the transfer of shares was made according to the wishes of the petitioner and his wife. The allegations made by the petitioner regarding fraud and transfer without his consent are false and contrary to the material on record.
10. As regards the submission that the forms used for transfer/exchange of shares were not in the prescribed forms and did not bear the signature of the prescribed authority, it was submitted that all the companies of the Batra Group are closely held private and family companies. The transfer forms which have been used in the case of the petitioner have been used since inception. Some of the transfers which were made when the petitioner was himself a director and during the lifetime of Shri B.L. Batra, the petitioner himself was the beneficiary in some of the transfer transactions and the similar kind of forms were used. It was further submitted that in case the impugned transfer of shares are set aside on the side ground, then, all the transfers which have been made since inception would also have to be set aside.
11. As regards the submission that the impugned transfers were illegal and not binding and the mandatory provisions of Section 108 of the Act have not been complied with, the learned counsel for the respondents has contended that the transfers were made in accordance with Section 108 of the Act on the basis of valid instruments of transfer duly stamped and executed. It was denied that the transfer forms were not duly stamped or not properly filled up. That apart, relying on the decision in the case of Maheshwari Khetan Sugar Mills Ltd. v. Ishwari Khetan Sugar Mills Ltd. [1963] 33 Comp. Cas. 1142 (All.), it was contended that the provisions of Section 108 of the Act are not exhaustive and registration of transfer of shares without strictly complying with the provisions of Section 108 of the Act cannot in all cases be treated as void and illegal. There has to be substantial compliance of the provisions and the authority can deviate from the rule and take a decision which is equitable and fair to both the parties. Referring to the case of S. Anuratha v. Akmn Cylinder (P.) Ltd. [1999] 32 CLA 47, it was contended that CLB in the said case has held that in the case of closely-held private companies, certain lapses of not following the legal procedure should not be held against the company.
12. Denying the allegation that the petitioner had given signed blank forms to his father and after his death entries therein have been forged, it was submitted that once signed blank document is given with the authority to fill in the blanks specifically with regard to the share certificates along with blank transfer forms, the transferor transmits his title to the shares both legal and equitable and the transferee can fill up the blanks and ask for the registration to his name in the books of the company. Support for the said proposition has been sought from the case of Arjun Prasad v. Central Bank of India Ltd. AIR 1956 Pat. 32.
13. As regards the submission that the transfers were made without consideration, it was denied that Batra Films Pvt. Ltd. had no assets as alleged. On the contrary it was submitted that exchange of shares in another company is also one of the modes of consideration. Batra Films Pvt. Ltd. was not a defunct company as alleged but had a net asset value of Rs. 24.76 lacs. This is also corroborated by the letter of Shri B.L. Batra dated 4-8-1993 as well as the certificate given regarding the valuation of the different companies of the Batra group by Shri V.S. Mathur, Chartered Accountants, Chandigarh. This would also be corroborated from a copy of the Balance Sheets of the companies belonging to Batra group as on 31-3-1993.
14. Summing up his submissions, the learned counsel for the respondents has contended that the transfer of shares in the Batra companies which are closely-held family companies have been a normal phenomena. The consolidation of shares of the petitioners was done pursuant to their own wishes. The process of transfer was completed in December, 1993 and the petitioners had full knowledge of the same. There has been no forgery as alleged at all. Besides the present petition, the petitioners have filed several complaints and cases before different forums in which the allegations of the petitioners could be adjudicated.
15. Replying to the submissions of the respondents, the learned counsel for the petitioners in the rejoinder has submitted that there was no unreasonable delay or latches in filing the petition. A fraud was played on the petitioner and the actual knowledge of which the petitioner had when investigations were carried by the Police in criminal proceedings where the alleged forged letter and the transfer forms were produced. The allegation that the petitioner was a party to the transfer which was made on his request and the material referred to by the respondents in respect thereof, it was submitted, is absolutely false and based on forged and fabricated documents as has been found by the Forensic Laboratory. The petition is well within the time from the date of knowledge. Besides fraud vitiates all proceedings and a party which has played fraud and bases its case on fraud cannot plead the bar of limitation especially when this Board is exercising its equitable jurisdiction.
16. Refuting the submissions that the petitioner has suppressed the material facts, it has been contended that the said submission is based on documents which have been fabricated and the signatures of the petitioners and his parents have been forged which have been confirmed by the Central Forensic Laboratory and the Police have instituted a case of cheating and criminal breach of trust against respondent No. 2 whose petition for anticipatory bail has also been rejected.
17. As regards the contention of the respondents that this Board does not have the jurisdiction to decide highly disputed questions alleged to be involved therein, the learned counsel has placed strong reliance in the case of Amonia Supplies Corporation (P.) Ltd. v. Modern Plastic Containers (P.) Ltd. AIR 1998 SC 3153 and has contended that this Board before giving findings on the issues of disputed questions of facts have to apply its mind and see the plea raised regarding the disputed questions of facts are genuine or wrong. If on the pleadings it is sufficient that the case can be decided, then, this Board should take cognizance. In the present case, since the forgery has been established from the report of the Forensic Laboratory and that apart the mandatory provisions of Section 108 have not been complied with, therefore, this Board is fully competent to decide the matter in the present petition as the dispute falls within the peripheral field of rectification.
18. Replying to the submissions of the respondents on the merits of the case, learned counsel for the petitioners has reiterated the opening submissions regarding fraudulent and illegal transfer of their shares. It has also been contended that along with the reply filed by the respondent No. 1 documents on which the respondents are heavily relying has not been filed. At a very late stage after the petitioners had filed replication and just before the hearing of the case xerox copies of some fabricated documents were filed and the respondents have based their case on the said documents which cannot be taken into account while deciding this case.
19. So far as this objection for filing the documents at late stage is concerned, we find most of the copies of the said documents have been annexed to the reply filed by respondents No. 3 to the petitions and therefore it cannot be said that the petitioner got no opportunity to file the reply.
20. We have perused the pleading and have heard the learned counsel at length. So far as the question of limitation is concerned, Section 111(4) of the Act, under which provisions this petition has been filed, does not lay down any limitation. However, it is well settled that the same must be filed within a reasonable time and must not suffer from latches. In the present case the petitioners are alleging that they had no knowledge about the transfer of shares and discovered the fraud only in the year 1998 and the limitation will start running from the date of knowledge. Whereas the respondents are alleging that the petitioners had the knowledge in the year 1993 and the transfer of shares were as per the wishes of the petitioners. The question whether any fraud was played and whether the petitioner had the knowledge of the transfers cannot be decided without going into the merits of the case and perusing the material on record. Therefore, the petition cannot be thrown out at the threshold on the ground of limitation as submitted by the learned counsel for the respondents.
21. The second preliminary objection raised by the learned counsel for the respondents, in our view, raises a more substantial issue in the facts of the present case. The question which falls for determination is whether this Board exercising summary jurisdiction under Section 111 can be called upon to decide such complicated questions where allegations of fraud, fabrication of documents and forgery are alleged. This question has come up for consideration before different courts including the Apex Court in the case of Amonia Supplies Corporation (P.) Ltd. (supra). Both the learned counsel for the parties have placed reliance on this case. The counsel for the petitioner has sought support from the decision and has submitted that such questions can be decided by this Board if the same falls within the peripheral field of rectification, and discretion lies with this Board whether to take cognizance or refuse the same. Whereas the learned counsel for respondents has submitted that this dispute does not fall within the peripheral field of rectification. It is submitted that the dispute is based on the questions of title and denial of transactions which can only be decided by a civil court. Strong reliance has been placed on paragraph 26 of the aforesaid judgment. The decision of the Apex Court in Amonia Supplies Corporation (P.) Ltd's case (supra) has been elaborately considered and explained by the Bombay High Court in the case of National Insurance Co. Ltd. v. Glaxo India Ltd. AIR 1999 Bom. 240. It will be worthwhile to quote paragraph 8 of the said decision wherein the judgment of the Apex Court has been discussed as follows :
"It is, therefore, now clear from the judgment of the Apex Court in Amonia Supplies Corporation (P.) Ltd. case (supra), the Apex Court had held that insofar as the matters of rectification are concerned, it is the company court alone which would have jurisdiction. If issues which have to be answered are not peripheral to rectification, but issues regarding title, etc. then such other issues will have to be decided by the civil court. The Apex Court has now recognized that it is the company court which would be the court of exclusive jurisdiction insofar as rectification is concerned. However, if issues arise whether the applicant is the owner of the shares; whether there is fraud or forgery in holding the shares or the very title to the shares then such issues will be beyond the jurisdiction of the company court and will have to be decided by the civil court. To that extent, the judgment of the Full Bench of the Delhi High Court where it held that there is a jurisdiction in the company court to relegate the parties to a suit has been departed from. The earlier judgment of the Apex Court in the case of Public Passenger Service Ltd. (supra) will have to be read in the context of the observations of the Apex Court in the case of Amonia Supplies Corporation (P.) Ltd. (supra)."
22. Applying the ratio of the aforesaid judgment in the facts of the case of National Insurance, the Bombay High Court, in paragraph 10 of the said judgment, held as follows: "In other words, there is dispute as to the very transaction itself which is not merely a matter for rectification. Secondly, there are disputes whether the persons who are holding the shares are holding the shares on account of forged documents. In other words, it is not merely the case of the appellant being the owner of the shares and the company for wrong reasons refusing to rectify the register without cause. When there are disputes as to whether the appellants are the owners of the shares, it cannot be a case exclusively pertaining to rectification which could be decided by the CLB. In that light of the matter, though the reasons given by the CLB cannot be sustained, its ultimate conclusion cannot be set aside".
23. The Delhi High Court also in the case of Anil Gupta v. Delhi Cloth General Mills Co. Ltd. [1983] 54 Comp. Cas. 301 has held that disputed questions of law and facts regarding the transfer of shares could not be decided in proceedings under Section 155 of the Companies Act. The High Court observed that if there is any fraud played upon the petitioner as a result of which shares which were standing in the petitioner's name have been transferred, the remedy would He by way of a suit and not filing the present petition.
24. This Board has also in the case of Dr. G.L. Byra Reddy v. Arathi Cine Enterprises (P.) Ltd. [1997] 89 Comp. Cas. 745 has held that where a large number of complicated and disputed questions of facts like the date of executing the alleged transfer deeds, whereabouts of transfer deeds, alleged payment of consideration, persons to whom the alleged payments have been made and the time at which the petitioner actually came into the knowledge of the impugned transfer etc. could not be decided on the basis of the affidavits and the matter requires to be tried by leading evidence.
25. Applying the ratio of the aforesaid decisions in the facts of the present case at hand, it may be noticed that the petitioners were alleging fraudulent transfers, fabrication of documents and forgery in respect of the signatures of the petitioner on the transfer forms and also on the minute books. The respondents have filed Xerox copies of the extracts from minute book of the meetings of the Board of Directors alleging that the petitioner was present and attended the meeting when the transfers were discussed. They were also alleging that the transfers were made on the request of the petitioners 1 and 2 through their letters written to the Chairman of the company. The respondents were also alleging that in response to the said letters, late Shri B.L. Batra had vide his letter dated 4-8-1993, informed the petitioners regarding the transfer of their shares in Batra Films Pvt. Ltd. It has also been stated that Batra Films Pvt. Ltd. had assets over Rs. 24 lacs and it is wrong to allege that the said company was a defunct company. The respondents have also filed Xerox copies of the statement made by the mother of the petitioner before the Police wherein she has stated that the transfers were effected as per the wishes of the petitioners and has denied the allegation made by the petitioner regarding fraudulent transfers. The respondents have also filed the Xerox copies of the statement made by respondent No. 3 before the Police that their shares in the Batra Films Pvt, Ltd. were transferred in favour of the petitioners when asked to do so by Shri B.L. Batra and they had signed the transfer forms. The petitioner, however, was disputing all these documents as forged and fabricated and was relying upon the report of the Forensic Laboratory in respect of their assertion. So far as the report of the Forensic Laboratory is concerned, the same has been filed in the criminal proceedings which are still pending for adjudication.
26. Having carefully considered the facts of the present case and the nature of the allegations made by the parties as mentioned above and applying the ratio of the decisions mentioned above, we are of the view that such disputed questions cannot be decided by us in the summary jurisdiction under Section 111 of the Act. Such questions which are involved in the present case can be decided before the civil court on the basis of the oral and documentary evidence adduced by the parties in support of their respective cases. In view of the same it is not necessary for us to go into the respective allegations or the other arguments raised and noticed by us.
27. So far as the submission of the petitioners that the transfer forms were not in order or duly stamped, the original forms have no been filed before us as they may be in the custody of the Police authorities. The photocopies of the transfer forms which have been filed however show the same to be filled up, signed and duly stamped. In any case, no finding can be given in respect of the same in the absence of the original transfer forms or evidence in respect of the alleged forged signatures.
28. As a result, in view of what has been held above, these petitions are dismissed with the observation that if so advised, the parties might get their disputes adjudicated before an appropriate forum. In the facts and circumstances of the case, the parties shall bear their own cost.