Andhra HC (Pre-Telangana)
Dr. V.L. Pahade And Others vs Vinay L. Deshpande And Others on 9 June, 1999
Equivalent citations: 1999(4)ALD342, 1999(4)ALT522, [1999]97COMPCAS889(AP)
Author: A.S. Bhate
Bench: A.S. Bhate
ORDER
A.S. Bhate, J
1. These two appeals arise out of a judgment delivered in Company Petition No.9 of 1981 by the learned single Judge of this Court on a petition under Section 155 of the Companies Act (for short 'the Act').
2. In OSA No.25 of 19S9, the appellants are respondent No.3 and respondent Nos.9 to 14 in the Company Petition. In OSA No.26 of 1989 the appellants are respondents 1 and 2 in the Company Petition. The parties are referred to in this appeal as have been referred to in the Company Petition.
3. Respondent No. 1 was the Company of which respondent No.2 was the Managing Director. Respondent Nos. 3 to 6 were the Directors of the Company. Respondent No. 7 was one of the share-holders holding 1250 shares of the face value of Rs.100/-each of the respondent No. 1-Company. Respondent No.8 is A.P. Industrial Development Corporation (hereinafter referred to as the 'Corporation'). Respondent No.2 and respondent No.8 were the co-promoters of respondent No. 1-Company.
4. The contention of the petitioners, in the Company Petition before the learned single Judge, was that the third petitioner and his group wanted to purchase 1000 shares of the respondent Company and negotiations were made for the same by the 2nd respondent. The price of shares was fixed at Rs.110/- per share. The 7th petitioner took a demand draft of Rs.1,10,000/- on 31-1-1981 in favour of respondent No.7 and simultaneously 2nd respondent obtained bank demand drafts from the very same bank for different amounts in favour of (1) 7th respondent, (2) V. Madhusudhanrao, (3) V. Krishnarao, and (4) K.V.S.N. Prasad. It may be pointed out that Sri Madhusudhanrao and Krishnarao are brothers and together held 1250 shares of the face value of Rs.100/- each. The 7th petitioner took a draft for Rs.6,000/- from his Bank as instructed by 2nd respondent and both of them (7th petitioner and 2nd respondent) then met at the Office of Mr. Kolluri who was admittedly Auditor of the 1st respondent Company. At that meeting, the 2nd respondent had allegedly brought some blank receipts and then filled up the amounts in the said receipts and also filled the individual share numbers and names of the transferors. The 2nd respondent handed over the blank receipts to Auditor Mr. Kolluri and thereafter Mr. Kolluri handed them to the concerned transferors viz., the 7th respondent, Mr. V. Madhusudhanrao and Mr. V, Krishnarao. These three persons allegedly signed the receipts as well as the share transfer forms and the receipt pertaining to 1000 shares was given to the 7th petitioner. On 14th of February, 1981, the meeting of the Board of Directors of the respondent-Company was held and in that meeting, resignations of share-holders V. Madhusudhanrao and C. Krishna Prasad were accepted. It is further contended by petitioners that petitioner No.3 as well as respondent No.3 were co-opted as Directors of respondent No.1-Company in that meeting. It is next contended that differences started arising between the 2nd respondent and the 3rd petitioner thereafter, and in April 1981 the differences became very sharp as petitioner No.3 refused to sign certain cheque involving diversion of funds of the Company. The meeting of the Directors was to be held on 12th April, 1981, but in the meantime on 9th April, 1981, petitioner No.3 received a copy of the Caveat Petition dated 7-4-1981 under signature of respondent No.2. Later on, his advocate has also received. On 11th April, 1981 the 3rd petitioner submitted his resignation from the Directorship of the Company, but till then he has not received any intimation from the respondent-Company regarding registration of transfer of shares in the name of petitioners. The distinctive numbers of the shares need not be stated here as it is not much relevant. On receipt of the caveat petition with advocate's letter sent by 2nd respondent, the 3rd petitioner issued a notice through his Advocate on 7th May, 1981 and 1st respondent issued reply to the same on 20th May 1981. In this reply, it was denied that there was any transfer in the name of petitioners and it was stated that the shares referred to by the petitioners with the concerned distinctive numbers were in fact transferred in the name of respondents/ claimants, who are now appellants in OSA No.25/1989 before us. The petitioners, therefore, contend that the respondent-Company had never rejected the petitioners claim to register shares in favour of petitioners and suppression of six. instruments of transfer in favour of petitioners by respondent Nos.1 and 2 was an act of fraud and the same was substituted in the name of the appellants/claimants in whose favour ultimately it has been registered. This was done due to the fact that respondent No.2 was in possession of the blank share certificates, and that 2nd respondent had obtained signatures of transfer. On these allegations, the petitioners claim that since they had in fact purchased the shares by paying the amounts to respondent No.2, the 1st respondent-Company be directed to rectify the register of Members of the Company by including the petitioners name in respect of concerned equity shares. The details of distinctive numbers of the shares have been given in the schedule.
5. Respondents 1 and 2 were the real contestants before the learned single Judge. They had filed a joint counter. Another counter was filed by respondent No.3. The other respondents did not file any counter.
6. The plea of respondents 1 and 2 in the first place was that as the petitioners had alleged fraud, the Company Court dealing with an application under Section 155 of the Act has no jurisdiction to adjudicate upon the facts. The jurisdiction under Section 155 of the Act is only summary in nature and does not permit deciding complicated questions of fact. It was further contended that respondent No.1-Company has been taken over by another Company by name Coromandel Indag (Pvt.) Ltd. The said Coromandet Indag (Pvt.) Ltd., has not been made a party to the petition, and hence, the petition is not maintainable. Objection was also raised that provisions of Section 155 of the Act cannot be invoked regarding the decision of rejection of transfer of shares. It was denied that any foul play took place as alleged. The shares were registered in the name of proper parties who are the true claimants.
7. Respondent No.3 by counter contended that there was no evidence that instrument of transfer of shares was ever lodged with the 1st respondent-Company. The contention that petitioners have invested Rs. 1,10,000/- was unbelievable because had they invested such a huge amount, petitioner No.3 would not have resigned and walked out of the Company in such a short time. The learned single Judge recorded the evidence led by both the sides and held that in reality, there was no issue of fraud involved. The learned single Judge found that the Company Court did not lack jurisdiction to decide the petition. It was pointed out that the Company Petition was pending for eight years and it was just, proper and expedient to determine the disputes between the parties without relegating them for the remedy to the civil Court. Such a course would involve consumption of enormous time and expenditure, and this was unwarranted. On appreciating the evidence led, the learned single Judge held in favour of the petitioners that the petitioners were the real transferees of the shares in question and were entitled to the said shares of the 1st respondent-Company. Accordingly, the petition was allowed with a direction to respondent-Company to enter names of petitioners in its register of members by declaring their title to the concerned equity shares.
8. The question of non-joinder of Coromandel Indag (Pvt.) Ltd. was also considered by the learned single Judge and he found that at the time of filing of the Company Petition, the appropriate Company was a party. It was immaterial if the said Company was taken over by Coromandel Indag (Pvt.) Ltd. later on. The petition was maintainable as the respondent No.1 was the appropriate Company, against whom the petitioner had sought relief. The learned single Judge found that merely the Management of the Company-respondent No.1 was taken over, and therefore, it did not matter as to who managed the Company, if the Company itself was a party. The mere fact that respondent No.2 ceased to be Managing Director and the Management was taken by some other Company did not make any difference.
9. The learned Counsel for respondent Nos.3 and 9 to 14 (who are the appellants in OSA No.25 of 1989) raised three points before us to challenge the validity of the impugned judgment. The first point was that the Company Court ought not to have exercised its jurisdiction in a summary proceedings under Section 155 of the Act for deciding the question wherein fraud was alleged by the petitioner. Secondly, it was alleged that assuming that the Court had jurisdiction, the fraud alleged by the petitioners was nowhere established. Thirdly, it was contended that there was violation of Section 108 of the Act, and therefore, the impugned judgment cannot stand. It may be pointed out at this juncture that respondent Nos.1 and 2 adopted the same argument for challenging the judgment, in the Appeal filed by them i.e., in OSA No.26/89.
10. The contention that the jurisdiction exercised under the provisions of the Act is only summary in nature and therefore, complicated questions like fraud should not be decided by Company Court, has been gone into in, detail by the learned single Judge and, in our view, has been rightly rejected. The learned single Judge has referred to the decisions relied upon by the respondents' Counsel. The sheet-anchor of respondents argument is the judgment reported in Ammonia Supplies Pvt. Ltd. v. M.P. Containers (Pvt.) Ltd. AIR 1994 Delhi 51 (FB). Sri Vilas Afzal Purkar, learned Counsel for the respondents submits that the judgment Ammonia Supplies Pvt. Ltd. v. M.P. Containers (Pvt.) Ltd. (supra) clearly lays down that jurisdiction exercised by Company Court under Section 155 of the Act is summary in nature, and that the Company Court should decline to entertain petition involving disputed and complicated questions of fact requiring extensive oral and documentary evidence. We are not impressed by the arguments. The judgment relied upon does not lay down the law that jurisdiction of Company Court is necessarily ousted in cases where complicated questions of fact are required to be decided. The judgment only sets out broad guidelines as to when the Company Court should decline to entertain petition. The discretion is of the Company Court. It is for the Company Court to decide as to whether the parties should be driven to file a regular suit in the civil Court having regard to the facts and circumstances of the particular case. No rule of thumb as such has been laid down in the said case. The conclusions reached by the Full Bench are sufficient to repel the argument of the respondents. The conclusions are as follows :
"Conclusions :
(i) The jurisdiction exercised by the Company Court under Section 155 of the Act is discretionary and summary in nature.
(ii) In exercise of discretionary and summary jurisdiction the Company Court can decline to entertain petition involving disputed and complicated questions requiring examination of extensive oral and documentary evidence.
(iii)The remedy of suit for adjudication of disputes relating to title to shares is not barred." (underlined to give emphasis) From these conclusions, it is patent that Company Court has power to decline to go into disputed and complicated questions, but it is not mandatory for the Company Court to decline to entertain petition involving disputed questions. The conclusion No.3 only states that filing of a suit for adjudication of disputes relating to title to shares is not barred. This conclusion only means that a suit also is maintainable. We are unable to find anything in the said judgment to support the contention of respondents that the jurisdiction of Company Court is completely ousted as soon as there are some disputed questions of fact thrown up in a petition before the Company Court.
11. The learned Counsel also referred to a decision of the Supreme Court reported in Ammonia Supplies Corporation (P) Ltd. v. Modern Plastic Containers Pvt. Ltd., . No doubt in this case the Apex Court held that jurisdiction of Company Court under Section 155 of the Act is of summary in nature, but it was further held that the Company Court has to adjudicate in the facts and circumstances whether the dispute raised really is for rectification or for something else in the name of rectification. If the dispute is found to be relating to the peripheral field of rectification, then the Company Court, under Section 155 of the Act, has exclusive jurisdiction and, jurisdiction of civil Cour't will be impliedly barred. If the dispute is not regarding rectification, then civil Court's jurisdiction is not excluded. We are unable to find anything in support of respondents contention is this judgment. On the other hand, we are fortified of the view that if the dispute is of rectification, then the Company Court alone has jurisdiction. The judgment in fact supports the view taken by the learned single Judge.
12. It needs to be pointed out that the real dispute in the case was whether the petitioners are the true transferees of the disputed shares, and consequently, whether their names should be recorded in the register by rectification, though the word 'fraud' has been used loosely by the petitioners. As rightly pointed out by the learned single Judge, the question of fraud really did not properly arise in the case. In that view of the matter, we think (hat there is no necessity to drive the petitioners to civil Court, particularly when the matter was not complicated as is sought to be argued. The matter could be sorted out on the basis of evidence which was led by the parties.
13. The second contention raised on behalf of the respondents loses all the validity, as according to us, the learned Judge was right in observing that the question of fraud alleged was not involved in the case and the simple question was whether the petitioners were the true transferees of the shares and had paid the amount for those shares to the respondents as alleged by them.
14. The finding of fact recorded by the learned single Judge, in our view, is unassailable having regard to all the attendant circumstances. The evidence of petitioner No.7 (who is examined as PW2) has been accepted by the learned single Judge. The evidence, when accepted, establishes that 2nd respondent himself intimated that respondent No.7 and one Mr. Madhusudhanrao were having 2,495 shares together and they along with one Mr. Krishna Rao (who is examined as PW1) holding 5 shares, were all willing to sell away their shares. The evidence further establishes that petitioner No.7 was asked to come at Banjara Hills Police Station by respondent No.2 by giving a phone call. Nextly it is proved from that evidence that petitioner No.7 attended the Banjara Hills Police Station, where he found that respondent No.2 and other co-promoters were having some disputes inter se. The co-promoters were asking respondent No.2 to return their capital from the Company. At that point respondent No.7 informed co-promoters that he was interested in purchasing their shares. The evidence also shows that respondent No.2 later took the petitioner No.7 along with him to show the factory of the Company at Patanchem, and thereafter the petitioner No.7 was asked to come with cash of Rs.1,10,000/- for the shares in question. The respondent No.2 asked petitioner No.7 to come at Syndicate Bank Branch, Somajiguda with the amount. It is needless to go into the minute details of the evidence. Suffice it to state that the evidence is quite convincing and has all been accepted. The evidence shows that petitioner No.7 took the demand draft in favour of respondent No.7-Sri K.V.S.N. Prasad and cash of Rs.4,500/- was given to the 2nd respondent. The evidence clinchingly establishes that at the instance of 2nd respondent, petitioner No.7 went to Officer of Kolluri, who is admittedly Auditor of the Company. It is significant to note that the meeting with Mr. Kolluri is an undisputed fact. Mr. Kolluri was given all the bunch of papers. 7th respondent was also present there at that time. The receipt signed by 7th respondent acknowledging receipt of demand draft was also been produced. It also shows that 2nd respondent gave a list containing the names written by 3rd respondent and the said list of names written by 3rd respondent was given to 2nd respondent on the same day. Forms were filled by petitioner No.7 (PW2).
15. It is significant to note that the evidence of petitioner No.7(PW2) has been substantiated in material particulars by 3rd petitioner, who is examined as PW3. Most important is the fact that the evidence of petitioner No.3 and petitioner No.7 has been corroborated by a totally independent person viz., P. Krishna Rao, who is PW1. As pointed out earlier, Mr. Krishna Rao was a share-holder of the respondent-Company having five shares. His brother Mr. Madhusudhanrao had 1245 shares. These two brothers had together 1250 shares. Mr. V. Krishnarao (PW1) stated about final negotiations which took place in Mr. Kolhari's Office. He speaks about handing over of demand drafts not only to him, but also to his brother Mr. Madhusudhanrao and another share-holder Mr. Krishna Prasad and of handing over the transfer forms and share certificates by them to Mr. Kolluri. This is the most important piece of evidence in the case which need not be doubted at all.
16. No doubt respondent No.2 has entered the witness box as RW1 to deny the petitioners case. However, as pointed out already the get-together at the office of Mr. Kolluri is indisputable. It is obvious that respondent No.2 is trying to get out of the situation. Mr. Kolluri was the Auditor of the Company. The respondents could have very easily examined Mr. Kolluri in the matter to clear out the dispute. Mr. Kolluri has been kept back by respondents and the interference is obvious. Though it was tried to be argued that Mr. Kolluri could have been examined by the petitioner also, having regard to the fact that Mr. Kolluri was an Auditor of respondent-Company, it was expected that respondent-Company would examine him. No reason is forthcoming for non-examination of Kolluri by the respondents. The evidence of RW3 Mr. V.L. Pahade, who is also respondent No.3, is obviously unacceptable. R3 stands to gain by his evidence. Hence it is difficult to accept it.
17. A defence has been raised that petitioners 3 and 4 wanted to purchase only 100 shares which has been rightly disbelieved by the learned single Judge. The learned single Judge has highlighted the fact that petitioner No.3 was made Additional Director of the Company, It is true that under Section 270 of the Act, it is not necessary that a Director should have shares of the Company in his name at the point of time of he being appointed as a Director. However, having regard to the common course of business, it is impossible to believe that a totally stranger like petitioner No.3 would be made Additional Director, even though he was not holding any shares. It is not the case that petitioner No.3 was known since long time by the respondent No.2. Furthermore normally a person is made as Director without holding shares only if services of such person would bring some benefit to the Company. If a person is having a very high standing in the society or, is having some extraordinary technical skill it would be helpful to the Company. Such appointments as Directors without person holding shares at that time are sometimes made. In the instant case, there was no plausible reason given as to why a stranger like petitioner No.3 was made as an Additional Director if he was not a shareholder of the Company. It is not the case that the credibility of the Company would have gone up by making petitioner No.3 as a Director. Furthermore, it is an admitted fact that petitioner No.3 was not made a mere Additional Director of the Company, but was also given special powers of signing the cheques of the respondent-Company, This privilege could not have been given to a complete stranger person. The power to sign cheques is a very important power and it would be given normally only to person who inspires confidence in the mind of other Directors. Respondent No.2 has given a very simplistic and/or incredulous explanation as to why petitioner No.3 was given financial powers of the Company, though he was not holding any shares. Explanation given by the 2nd respondent in the matter can be extracted in his own words in the affidavit. It is as follows :
"Petitioner No.3 insisted that he must be given joint power for operation of the accounts. After he was given powers of joint operation he started misusing it, every payment to be made to any party he insisted that he should have a deal with such party, so that he can have a cut in the deal."
Merely because petitioner No.3 insisted that he should be given the financial powers, the said signing powers have been allegedly conferred on him. This is incredulous on the face of it. It is in fact ridiculous. The only believable reason could be that petitioner No.3 and his group had really acquired substantial shares for themselves as is alleged by them and hence could claim such important power.
18. It is significant to note that not only Mr. Kolluri but the order most important witness respondent No.7 also was kept back from the witness box. The respondent No.7 was by far the most important witness in the case and his entry in the witness box could have thrown the true light. The refusal of respondent No.7 to enter the witness box leads to inference that had he entered in the witness box, his evidence would have been to the detriment of the respondents, in the case.
19. The evidence of respondent witness No.4, witness No.5 and witness No.6 is of very little value to the respondents.
20. In our view, in the first place, there is no reason for reappreciating the evidence by us in the appeal as the learned single Judge has taken a very probable view of the evidence in the circumstances of the case. Assuming that evidence requires reappreciation in the appeal, even then on reappreciation we concur with the findings of the learned single Judge for the reasons given above. In the circumstances, the refusal of respondent-Company to register the transfer of shares in the name of petitioners was unjustified and the petition was rightly ordered in favour of the petitioners.
21. The last contention raised by the respondents (Appellants) was that the Company cannot register transfer of shares unless a proper instrument of transfer duly stamped and executed by or on behalf of the transferor arid by or on behalf of the transferee and specifying the name and address and occupation of the transferee has been delivered to the Company. However, proviso to Section 108 clearly shows that when an application in writing is made to the Company by the transferee and if transferee proves to the satisfaction of the Board of Directors that the instrument of 'transfer' signed by or on behalf of transferor and by or on behalf of the transferee has been lost, the Company may register the transfer on such terms as to indemnity as the Board may think fit. In the instant case, the evidence has established that such instrument was in fact brought into existence, but has in the meantime either been lost or, has been suppressed by respondent No.2. This means that as far as the petitioners are concerned, the instrument is lost. Therefore, Section 108 of the Act will not in any way prevent the Court from passing appropriate orders in the facts and circumstances of the case.
22. The matter has now taken a different shape as it is admitted by the learned Counsel for respondents (Appellants), that the question now is only regarding the liquid amount. The Company has subsequently been taken over wholly or other Company. Question of registration of shares is now only academic. The successful party would be entitled only to the amount of the value of the shares.
23. For all the reasons above, we find that the appeals are devoid of any substance. Accordingly, both the appeals are dismissed. However, in the circumstances of the case there shall be no order as to costs.