Delhi High Court
Radhey Shyam Gupta And Another vs Kamal Oil & Allied Industries Ltd. & Ors. on 26 November, 1998
Equivalent citations: [2001]103COMPCAS337(DELHI), ILR1998DELHI903A
Author: Y.K. Sabharwal
Bench: Y.K. Sabharwal, K.S. Gupta
ORDER Y.K. Sabharwal, J.
1. A petition filed by the Appellant under Sections 397, 398, 402 and 403 of the Companies Act, 1956 (for short 'the Act') against Kamal Oil and Allied Industries Ltd. (for short 'the Company') and other respondents having been dismissed by learned single Judge, this appeal has been pre-ferred. By the impugned judgment dated 7th February, 1984, the learned single Judge has held that considering the averments in the written statement there is serious dispute between the parties as to whether the shares in favour of appellants were transferred rightly and validly in accordance with Section 108 of the Act and that the decision of such a question is clearly beyond the scope of Section 397 and/or 398 of the Act and the remedy of the party lies in approaching a Civil Suit. The petition was held not to be maintainable and was accordingly dismissed.
2. The facts in detail have been noticed in the judgment under appeal and we don not think if necessary to again notice herein detailed facts. We would notice only such facts in brief which are necessary to understand the point in issue, namely, the dismissal of the company petition at the preliminary stage on the ground of dispute having been raised by the respondents challenging the validity of appellants being members of the company.
3. There is no doubt that if the appellants are not the members of the company they would be ineligible to maintain a petition under Sections 397, 398 read with Section 399 of the Act. The question, however, is if the appellants are shown as Members of the company on the Register of members maintained by the Company and are also shown as members in the return filed by the Company with the Registrar of the Companies, can they still be nonsuited at the preliminary stage on a plea taken by the company and the other respondents that the shares were not rightly and validly transferred in their favour in accordance with Section 108 of the Act.
4. The aforesaid question will have to be examined also keeping in view the provisions of Section 164 of the Act. Section 164, inter alia, stipulates that the Register of Members, and the Annual Returns, Certificates and statements referred to in Section 159, 160 and 161 shall be prima facie evidence of any matters directed or authorised to be inserted therein by the Act. Briefly facts are that the respondents in their written statement had raised disputes on the question of the appellants purchase of the shares of the Company. According to the appellants they had purchased 81% shares of the company from the respondents to whom they made payment of Rs. 11.34 lakhs. The receipt of Rs. 11.34 lakhs by the respondents is not in dispute. What is, however, disputed is that there was any agreement for transfer of shares. Occurring to respondents only negotiations had taken place between the parties and the price had also not been settled. They say that Rs. 11.34 lakhs were repaid to the appellants, who deny it. However, according to respondents, the appellants did not encash the cheque alleged to have been sent by respondents to them. The fact of the appellants names being on the Register of Members as members of the Company is not in dispute so also their names being mentioned in the returns filed by the Company with the Registrar of Companies as required under the provisions of the Act.
5. Regarding the Register of Members and the filing of return with the Registrar of Companies containing the name of the appellants as shareholders, the explanation of the respondents is that their Chartered Accountant Mr. J.K. Batra who had been filing the returns of the company for last 6/7 years was introduced to appellant Radhey Sham Gupta by the Managing Director of the Company. The said Radhey Shyam Gupta had showed a receipt of having made a payment to Kewal Arora towards the contemplated purchase of the company and also showed him the Project report and also represented that he and his family members had become 81% shareholders of the company. They say that on the basis of the said representation made by Radhey Shyam Gupta the said Chartered Accountant prepared duplicate share certificates of Shri Kishan Chand Group, Ram Chand Group and Pran Nath Group for which the blank shares certificates were presented by Radhey Shyam Gupta to the Chartered Accountant who told the Chartered Accountant that he had taken over the management of the company. The defense is that in aforesaid circumstances the Chartered Accountant prepared a new Register of Members, a new Register of Share Transfer and a new Register of Directors for which purpose new blank registers were also purchased by Radhey Shyam Gupta and presented to the Chartered Accountant. They say that as per practice Kamal Arora had given to the Chartered Accountant duly signed annual return forms blank. On the basis of the representation made Radhey Shyam Gupta, the Chartered Accountant filed the said blank signed Annual Return Forms for the period 30th September, 1981 and added therein the name of Radhey Shyam Gupta, Sham Sunder Gupta as directors and filed the same with the Registrar of Companies without consulting the Managing Director or any other Director of the company in this behalf. Two affidavits dated 9th January, 1982 of the Chartered Accountant Mr. J.K. Batra have been filed in support of th aforesaid plea.
6. It would be for the respondents to prove that there was no valid transfer of shares in favour of the appellants. Mr. J.K. Batra may have to be produced by the respondents as a witness during the trial of the company petition. The correctness of what has been stated by Mr. J.K. Batra in his affidavits had to be tested by cross examination. What has been stated by J.K. Batra cannot be accepted as a gospel truth to doubt the title of the membership of the appellants. Besides the presumption in favour of the appellants as enjoined by Section 164 of the Act, it deserves to be noticed that the Register of Members was found with the respondents when the Local Commissioner visited the premises of the company pursuant to the ex parte orders passed by the Court. The said Register was signed by the Local Commissioner. The Register shows appellants as shareholders/members. The respondents cannot be permitted to non-suit the appellants at the preliminary stage without leading evidence by simply raising a plea about the invalidity of the transfer of shares in favour of the appellants. Further, if anyone was to apply for rectification of the Register of Members under Section 155 of the Act, it would be the respondents and not the appellants.
7. In the light of the aforesaid facts the contention strenuously urged by Shri Rajiv Nayar on behalf of the respondents that Section 108 of the Act was mandatory and all conditions of the said section had to be fulfillled before the transfer of the shares, had no relevance at the preliminary stage to come to the conclusion that the petition was not maintainable in view of dispute about appellant's title to the membership. The plea doubting the appellant's title to the membership will have to be established by cogent and reliable evidence, if otherwise permissible to be raised as a defense to the Company petition. The pleas and allegations in this regard cannot take the place of proof. The same would be the position with regard to the contention that without production of transfer deed, the transfer cannot be registered and if registered the registration would be void. Under these circumstance at the present stage the question as to whether a composite petition under Sections 155 and 397 and 398 can be filed or not has no relevance for deciding about the maintainability of the petition.
8. It has also been observed in the order under appeal that assuming the appellants are members and their names have been correctly and rightly brought on the Register of Members then the dispute is not inter se members as the respondents in that case ceased to be members. In this respect, it was contended for the respondents that assuming without admitting that the appellants were members and the shares to the extent of 81% as claimed by them had rightly been transferred in their favour, the petition under Sections 397 and 398 of the Act would not be maintainable since in that case, firstly the respondents would cease to be members and secondly there would be no question of oppression and mismanagement by majority shareholders. We find no substance in this contention as well. Even the oppression and mismanagement by minority shareholders, depending upon the facts and circumstances of the case, can be examined in petition under Sections 397 and 398 of the Act [See: Jadav Lal Dutt & Anr. Vs. Hooghly Ink Company Limited & Ors. 1982(1) Company Law Journal 422]. Further, if what the appellants have alleged in the petition is correct, which has to be assumed as correct at the preliminary stage for considering the maintainability of the petition on the basis of the allegation made in the petition under Section 397 and 398, the respondents would be usurper of the office and would have no right to continue as Directors or Managing Director of the company. The directions can be issued to such usurpers while dealing with the petition under Section 397 and 398 [See: M. Moorthy Vs. Drivers and Conductors Bus Service P. Ltd, 1991 (71) Company Cases 136]. In this view, we find no substance in the contention that the prayers sought for in the Company petition cannot be granted to the appellants in case they are able to prove the allegations made in the petition. The further plea that the shares cannot be transferred without previous consent of Directors and, therefore the alleged transfer of shares in favour of appellants would be invalid, again has to be substantiated by the respondents by leading evidence and it is only thereafter the effect of it can be examined by the court while dealing with the Company petition on merits.
9. In view of the aforesaid conclusions it is not necessary to consider various judgments cited by learned counsel for the respondents in support of the contention that : (i) the transfer of the shares on non-compliance of the formalities under Section 108 would be void; (ii) whether composite petition under Section 155, 397 and 398 could be filed or not; (iii) Transfer of shares would be void when registered without transfer deeds and shares; (iv) the Company will deal only with such person whose name is on Register of Members and will to deal with those who may claim right to shares either on the basis of agreement and execution of blank transfer deeds, and (v) the transfer of shares will be invalid if Articles provide for previous consent to be taken from the other Directors and such consent had not been taken. We, however, clarify that the observations made in this judgment would have no effect on the substantive rights of the parties subject matter of the company petition.
10. For the foregoing reasons, we set aside the impugned judgment and allow the appeal with costs quantified at Rs. 25,000/-.