Company Law Board
Dr. G.N. Byra Reddy And Ors. vs Arathi Cine Enterprises Pvt. Ltd. And ... on 4 April, 1997
Equivalent citations: [1997]89COMPCAS745(CLB)
ORDER
1. This is a petition filed under Section 111(4) of the Companies Act, 1956 (hereinafter referred to as "the Act"), seeking rectification of the register of members of the first respondent company by declaring the petitioners to be the members and deleting the names of respondents Nos. 3 to 17 from the register of members, in respect of the shares impugned in the petition.
2. A brief of the petition is stated herebelow :
According to the petitioners, the second respondent along with his associate, Shri K. N. Seshadri, promoted the company in November, 1978, with the main object of carrying on the business of construction and operation of theatres, cinema halls, business complexes, auditoriums, etc. The initial capital was brought in by the promoters, their relatives and associates. The company had initially allotted 6,410 equity shares in the capital of the company, which was increased to 10,000 equity shares in 1985. The petitioners were allotted 3,590 shares. Though the company issued and allotted share capital, it never issued share certificates to the members. Some time in 1983, on account of differences between the second respondent and Shri K. N. Seshadri, and the interference of respondents Nos. 3 to 6, the second respondent could not proceed with the theatre project, which was under construction.
3. It is further alleged that the petitioners were never issued any share certificate by the company in respect of their holdings. Neither did the petitioners sell nor transfer their shares for consideration to respondents Nos. 3 to 6. The various cheques said to have been issued by respondents Nos. 3 to 6 towards consideration for transfer of shares were neither received nor encashed by the petitioners. The cheques do not even belong to the respondents. The register maintained by the company is forged, fabricated, concocted, erroneous and does not reflect the correct position. The register does not contain either the company's name or its seal. The entries in the register are not authenticated as provided by Rule 7(3) of the Companies (Issue of Share Certificates) Rules, 1960. No board meetings were held on the dates of allotment of the shares. The shares bearing the same distinctive numbers have been allotted to different persons. The aggregate of shares held by all the members is far in excess of the authorised, issued and subscribed capital of the company.
4. In view of orders of the High Court of Karnataka in Company Petition No. 62 of 1988 (see [1991] 72 Comp Cas 555), preferred by some of the members, directing respondents Nos. 3 to 6 to rectify the register of members, the petitioners have approached this Bench under the amended provisions of Section 111 of the Act for rectification of the register in respect of the impugned shares.
5. According to respondents Nos. 3 to 6, the petitioners have sold their shares to respondents Nos. 3 to 6 in the year 1986, for valuable consideration and made the payment by cheques, which were encashed by the petitioners. The petitioners were paid in total Rs. 3,59,000 being the value of the impugned shares held by them as on February 24, 1986. They had also duly executed the necessary share transfer forms in favour of respondents Nos. 3 to 6 and lodged the transfer deeds duly stamped with the company. The company registered the transfers in favour of these respondents in the year 1986. The petition is mala fide and collusive between the petitioners and the second respondent who are closely related.
6. The transfer of the impugned shares and registration took place in the year 1986. The petitioners have filed this petition only in 1993, long after the expiry of the period of limitation and it is barred by limitation. As the Company Law Board is a court for deciding the petition under Section 111, the provisions of the Limitation Act would apply.
7. The amendment to Section 111 of the Act conferring jurisdiction on the Company Law Board took effect on May 31, 1991, till which time the High Court of Karnataka alone had the jurisdiction to entertain and dispose the petition under Section 155 of the Act. Since the Limitation Act applies to the proceedings before the High Court, the petitioners ought to have filed this petition before the High Court within three years from the date of the cause of action (i.e.) before 1989. The petitioner's right, enforcement of which was already barred, cannot be revived before this Bench. Even otherwise, the petitioners are guilty of laches in not having approached this Bench for nearly eight years after the transfer of the impugned shares. The rectification of the register is a discretionary remedy and cannot be exercised in favour of the petitioners.
8. Section 111 contemplates a summary enquiry. The matters alleged in the petition require elaborate evidence and trial. The petitioners should agitate their rights in the civil court.
9. In view of the pendency of winding up proceedings against the company, an order of rectification will be void unless the High Court otherwise orders. The petitioners shall obtain leave from the Karnataka High Court to continue the proceedings or this petition should be heard after disposal of the winding up petition.
10. During the hearing held on December 27, 1996, counsel for the petitioners reiterated the submissions made in the petition and submitted that no share certificates were issued in favour of the petitioners by the company in respect of their holdings. The petitioners had neither sold their shares nor transferred them to respondents Nos. 3 to 6. No transfer forms were executed by the petitioners. The respondents failed to produce any instrument of transfer in spite of the specific order dated October 25, 1996, by this Bench. The respondents had also failed to produce the share certificates said to be in their possession. The petitioners never encashed the cheques said to have been given by respondents Nos. 3 to 6 or received any payment.
11. Counsel for the petitioners sought for rectification of the register of members by virtue of the orders of the High Court of Karnataka in Company Petition No. 62 of 1988 (see [1991] 72 Comp Cas 555), granting the relief of rectification of the register of members in favour of some members. The petitioners not being represented before the High Court of Karnataka, no relief was granted in their favour. The facts of Company Petition No. 62 of 1988 (see [1991] 72 Comp Cas 555), before the High Court of Karnataka are similar to this petition.
12. Counsel for the petitioners argued that the provisions of the Limitation Act, 1963, are not applicable to the proceedings before the Company Law Board. To substantiate his views, he cited the following decisions :
(1) Sakuru v. Tanaji, AIR 1985 SC 1279 :
"The provisions of the Limitation Act, 1963, apply only to proceedings in 'courts' and not to appeals or applications before bodies other than courts such as quasi-judicial tribunals or executive authorities . . ."
(2) M. M. Anandaram v. Mysore Lachia Setty and Sons Pvt. Ltd. [1985] 58 Comp Cas 162 (Kar) :
"The petitioners could choose any time to approach the Company Law Board as long as the cause of action was a continuing cause of action."
(3) Kotah Transport Limited v. State of Rajasthan [1967] 37 Comp Cas 288 (Raj) :
"The Limitation Act has no application to a petition for rectification of register of members."
(4) Simret Katyal v. Bhagawandas and Co. Pvt. Ltd. [1994] 1 Comp LJ 442 (CLB) :
"There is no limitation of time for rectification of the register under Sub-section (4) of Section 111."
(5) T. G. Veeraprasad v. Sree Rayalaseema Alkalies and Allied Chemicals Ltd. [1997] 89 Comp Cas 13 (CLB) :
The provisions of the Limitation Act will not apply to proceedings before the Company Law Board and an application under Section 111 cannot be rejected as time barred.
13. Counsel for the petitioners submitted that the petitioners' claim is not barred by limitation when especially the petition has been filed within three years of orders dated January 7, 1992, of the High Court of Karnataka, in Original Side Appeals Nos. 16 and 19 of 1990 (see [1993] 77 Comp Cas 97). He further submitted that the cause of action for rectification of the register of members for wrongful removal of the petitioners' name is a continuing one and the petitioners could approach this Bench without any time limit.
14. Counsel for respondents Nos. 3 to -6 while reiterating the submissions made in the reply submitted that the petition is not maintainable on the ground of limitation. The High Court of Karnataka alone had the jurisdiction under Section 155 of the Act till May 31, 1991. In the light of article 181 of the Limitation Act, 1963, the petitioners' claim before the High Court was barred by time. He relied upon the decision in Kerala State Electricity Board v. T. P. Kunhaliumma, AIR , 1977 SC 282, to state that". .. article 137 of the Limitation Act, 1963, will apply to any petition or application filed under any Act to a civil court." He also cited the case of Anil Gupta v. Delhi Cloth and General Mills Co. Ltd. [1983] 54 Comp Cas 301 (Delhi) to state that the application under Section 155 of the Companies Act should be filed within three years of the impugned transfer. The limitation would start from the date of transfer and not from the date of knowledge. He also cited the decision in Canara Bank v. Nuclear Power Corporation of India Ltd. [1995] 84 Comp Cas 70 (SC) ; [1995] 3 JT 42, to state that the Company Law Board is a court and the limitation is applicable to proceedings before the Company Law Board. He contended that the petitioners cannot revive their claim already barred by limitation before this Bench citing the case in Km. Kr. Kr. Ramanathan Chettiar by partner Km. Kr. Kr. Lakshmanan Chettiar v. N. M. Kandappa Gounder [1951] AIR 1951 Mad 314 (head note) :
"If a right to sue had become barred by the provisions of the Limitation Act then in force on the date of the coming into force of a new Act or amendment then such a barred right is not revived by the application of the new enactment." In this connection, he also cited the decision of the Company Law Board in A. V. Sampat, Official Liquidator v. Dunlop India Ltd. [1996] 87 Comp Cas 398.
He further submitted that the petitioners are guilty of laches when especially they approached this Bench after nearly eight years of the transfer of the impugned shares. He cited the decision in Cuddalore Construction Co. Ltd., In re : T. V, Somasundaram Pillai v. Official Liquidator, Madras [1967] 37 Comp Cas 440 (Mad) to state that the Company Law Board may not exercise its discretion to allow rectification of the register of members in favour of the petitioners on account of the inordinate delay. He also cited the decision in Suresh Kumar Manchanda v. Prakash Roadlines Ltd. [1996] 87 Comp Cas 102 (Kar) to state that "the court can in an appropriate case decline to exercise its powers under Section 155, if it finds that the petitioner before it has disentitled himself to the said relief for any reason like . . . acquiescence, delay and laches, etc."
15. The petitioners were paid in total Rs. 3,50,000 being the value of the impugned shares held by the petitioners. The payment was made by means of cheques. The petitioners' denial of encashment of cheques cannot be decided by this Bench without elaborate evidences in trial. This Bench cannot hold any elaborate enquiry to find out whether payments have been received or not by the petitioners. There was no opportunity to cross-examine the parties alleging irregularities in the matter of transfer of impugned shares and passing of consideration for transfer of the same as well as the second respondent resulting in a large amount of oral and documentary evidence which could be relegated to a civil suit.
16. The petitioners and respondent No. 2 being closely related have colluded to defeat the interest of the company. The transfer of the impugned shares was registered at the board meeting held on February 24, 1986. The second respondent and his daughter, petitioner No. 5, were present at the said meeting and signed the minutes. The petitioner cannot now challenge registration of the impugned shares.
17. Respondents Nos. 3 to 7 cannot go into the reported irregularities pointed out by the petitioners in the transfer of the shares and are bound by the principles of indoor management.
18. In view of the pendency of winding up proceedings against the company since the year 1987, this petition before this Bench cannot be pursued without the leave of the High Court of Karnataka on account of the provisions of Section 536 of the Companies Act.
19. We have considered the pleadings and written arguments of both counsel. The stand of respondents Nos. 3 to 6 is that the application is barred by limitation. To substantiate this stand, he put forth two arguments. One is that as the Supreme Court has held in Canara Bank v. Nuclear Power Corporation of India Ltd. [1995] 84 Comp Cas 70 that the Company Law Board is a court and hence the Limitation Act is applicable to proceedings before the Company Law Board. The other argument is that under Section 155 of the Act before amendment in 1988, courts have held that the period of limitation in respect of applications under Section 155 was three years and, therefore, even assuming that the Limitation Act is not applicable to proceedings before the Company Law Board and if a right to sue had become barred by the provisions of the Limitation Act then in force on the date of a new Act or amendment, such a barred right is not revived by application of a new enactment. For this he relied on Km, Kr. Kr. Ramanathan Chettiar's case, AIR 1951 Mad 314. As far as the first argument is concerned, it has to be borne in mind that the Supreme Court in Canara Bank v. Nuclear Power Corporation of India Ltd. [1995] 84 Comp Cas 70 interpreted the term "court" with reference to the Special Court (Trial of Offences Relating to Transactions in Securities) Act. While doing so, in para 35, the Supreme Court observed that (at page 90) :
"The word (court) must be read in the context it is used in the statute ..."
20. Again in paragraph 42, the Supreme Court observed (at page 95) "it is difficult to say how it (Company Law Board) can be said to be anything other than a court particularly for the purposes of Section 9A of the Special Court Act", (emphasis by us). A reading of this judgment would make it clear that for the purpose of Section 9A of the Special Court Act, the Supreme Court held that the Company Law Board should be considered as a court. As pointed out by counsel for the petitioners relying on various case laws, tribunals have not been held to be courts for all purposes and as a matter of fact, with reference to the applicability of the Limitation Act, he referred to decided cases wherein courts have held that the Limitation Act is not applicable to tribunals including the Company Law Board. We have also held in a few cases that the Company Law Board is not covered by the provisions of the Limitation Act. Therefore, this argument of counsel for the respondents has to fail.
21. In regard to the second limb of the argument that the right to sue had become time barred as early as in 1989 at which time the High Courts had jurisdiction in matters relating to Section 111, the petitioner had contended that they became aware of the impugned transfers only in March 16, 1992, after the judgment of the Karnataka High Court. The petitioner had advanced the same arguments on the plea of laches taken by the respondents. Even if we were to give the benefit of doubt to the petitioners yet the question as to whether they had any knowledge at all about the impugned transfers before the judgment of the Karnataka High Court is a moot point to be considered. It has been averred by the respondents that petitioner No. 5 was one of the signatories to the resolution regarding the registration of the transfer on February 24, 1986. Considering the close family relationship between the petitioners and respondent No. 2 who was one of the parties impleaded in the proceedings before the Karnataka High Court, the statement of the petitioners that they had no prior knowledge of this transfer is suspect. The petitioner had placed great reliance on the judgment of the Karnataka High Court in which the transfer of certain similarly impugned shares had been set aside. In this connection it is to be kept in mind that in those proceedings, there was an elaborate trial by examination of witnesses, including the petitioners and respondents therein. In the present case, there are a large number of complicated and disputed questions of fact like dates of execution of the alleged transfer deeds, whereabouts of the transfer deeds, the alleged payment of consideration, person to whom the alleged payment had been made, why petitioner No. 5 who was signatory to the board resolution had not raised the issue so long, the time at which the petitioners actually came to know of the impugned transfers, etc. We have not been able to decide these issues on the basis of the affidavits filed with us. Therefore, the question that arises is whether in the circumstances of this case, the jurisdiction of this Bench under Section 111(4) of the Act could be exercised for resolving the complicated and disputed questions of fact raised by the parties. The proceedings under Section 111, as has been held by the various courts and by ourselves in many cases, is summary in nature. In spite of this nature of the proceedings, we had, in some cases, proceeded with the matters where we felt that with the available affidavits we could adjudicate the matters. But, unfortunately, in the present case, we find that we would not be in a position to do so on the basis of the affidavits filed with us. The matter definitely requires to be tried on evidence. Even though under Section 10E(4C)(d) of the Act we could summon witnesses, etc., yet since ours is a discretionary jurisdiction and proceedings under Section 111 are summary in nature, we do not propose to do so. Accordingly, we dismiss this petition and the parties may agitate this matter in a civil suit if they are so advised.
No order as to costs.