Bombay High Court
Sant Chemicals Pvt. Ltd. vs Sant Chemicals Pvt. Ltd. With Aviat ... on 9 April, 1999
Equivalent citations: 1999(3)BOMCR454, (1999)2BOMLR399
Author: S.S. Nijjar
Bench: S.S. Nijjar
ORDER S.S. Nijjar, J.
1. This Company Application has been filed with a prayer for setting aside the order dated 17th December, 1998, on the ground that the same has been passed behind the back of the applicants who are the 50 per cent shareholders and Directors with equal powers of the petitioner Company. The petitioner Company with the intention to cheat and deprive the rights of the shareholders of the applicants, fraudulently, maliciously and mala fide defrauded the Court by suppressing the fact that the applicants are 50 per cent shareholders of the petitioner Company. A prayer is also made that pending the hearing and final disposal of the Judge's Summons, the order dated 17th December, 1998, be stayed.
2. On 4th February, 1999, leave was granted. Ad-interim relief in terms of prayer clauses (i) and (ii) were granted.
3. By order dated 17th December, 1998, Company Petition No. 646 of 1998, with Company Application No. 144 of 1998 and Company Petition No. 647 of 1998 with Company Application No. 145 of 1998 were allowed. Company Petition No. 646 of 1998 was filed by the Company viz. Sant Chemicals Pvt. Ltd. (Transferor Company), hereinafter referred to as "Sant" seeking its merger and amalgamation with the Company, Aviat Chemicals Pvt. Ltd. (Transferee Company), hereinafter referred to as "Aviat". Aviat had filed Company Petition No. 647 of 1998. A perusal of the order shows that the Notice of the, Company Petition No. 646 of 1998 was given to the Official Liquidator and the Regional Director and notice of Company Petition No. 647 of 1998 was given to the Regional Director. The Official Liquidator had reported that Sant has not conducted the affairs of the company in a manner prejudicial to the interest of its members or to the public interest. Regional Director also stated that there is no apparent objection to the proposed amalgamation scheme being sanctioned. This Court perused the scheme and observed that the proposed amalgamation of the Transferor Company with the Transferee Company would result in proper co-ordination and would be more economically viable and efficient. The Court also noticed that no objection had been raised by any concerned person. Thus the amalgamation was found to be in public interest as well as being in the interest of the concerned parties. Thus Company Petition No. 646 of 1998 was made absolute in terms of prayer clauses (a) to (f).
4. In the present application being Company Application No. 152 of 1999, it is pleaded that Sant is a Company incorporated under the Companies Act, 1956. Prior to 22nd December, 1992, Gunwant Singh Chawla, Manjit Singh Chavvla and Hardeep Singh Chawla were the only Directors of the company. This company's issued and subscribed capital was Rs. 5 lakhs divided into 5000 shares of Rs. 100/- each wholly subscribed by the aforesaid Directors and their relatives, hereinafter referred to as "the Chawlas". By an agreement dated 22nd December, 1992 the Chawlas entered into an understanding with the applicants, inter alia, to divide and share equally the land and the building of the petitioner company and further agreed and undertook to sell and dispose of all the assets of Sant except land and building and pay off all its liabilities. Pursuant to the agreement the shares of Sant were transferred in favour of the applicants, hereinafter referred to as "the Aroras". Thus Aroras become holders of 50 percent shares of Sant i.e. 2500 shares. The full consideration for the aforesaid shares was paid by the Aroras to the Chawlas. The shares are said to be duly transferred in the names of the respective applicants. Hardeep Singh Chawla (since deceased) resigned and as such Jagmohan Singh Arora and Kuljit Singh Arora, first and the third applicants, were appointed as Directors of Sant thereby giving equal representation on the Company's Board. Sant filed Form No. 32 with Registrar of Companies wherein first and third applicants are shown as Directors appointed on 22nd December, 1992. Thereafter umpteen times the applicants enquired with Gunwant and Manjit Singh Chawla about the implementation of and progress of Memorandum of Understanding (MoU). There were no reply and there was no compliance of the MoU. The first and the third applicants by their Advocate's letter dated 14th February, 1996, gave statutory notice of winding up to Sant. Thereafter in December, 1998, there was an Income tax raid at the premises of the Aroras. The applicants, therefore, reminded Sant to give certified copies of the balance sheet of Sant for accounting purposes. Therefore, it is stated that the applicants took a search in the Company Registrar's Office and were surprised to note that Sant together with Aviat had filed company petitions as noticed above for passing of the scheme of amalgamation. The "Aroras" were kept in dark. From the records of this Court it appeared that Sant had obtained consent letters from one Mrs. Geeta Tushar Thakkar holding one single share of Sant and Aviat alleging to be the only shareholders of Sant. Thus fraudulently without the knowledge of the two Directors belonging to Aroras obtained direction from this Court for dispensing with the meeting of the shareholders. No notice of any meeting was given to the applicants. It is further the case of the applicants that Sant owns an immovable property i.e. land and building situate on Plot No. D-115 admeasuring about 4050 sq. mtrs. in the Trans Thana Creek Industrial area, Village Shirvane, Dist, Thana. After the order dated 17th December, 1998, was passed, Aviat has taken possession of the property and has commenced construction thereon. Thus it is pleaded that a fraud has been played on the applicants as well as the Court.
5. An affidavit in reply has been filed by a Director of Aviat. It is stated that the application has been filed for collateral purposes. It is said to be vexatious and liable to be dismissed in limine. The applicants are neither the members nor creditors of Sant. Thus the applicants have no locus standi to make the present application. It is pleaded that the only remedy available to a person aggrieved by a sanction of a scheme amalgamation is to prefer an appeal as provided under sub-section (7) of section 391 of the Companies Act, 1956. This application is not maintainable before the Company Judge. The applicants are not members of the Transferor Company. Therefore, it is not necessary to give any notice of any meeting to them. Aviat had purchased 100% shares from Chawlas on and from 31st July, 1997. Thus Aviat was the only member of the Transferor Company . The Register of members of Sant does not show that the applicants are the members of Sant. Even the records available with the office of Registrar of Companies does not show that the applicants are members of Sant. The application proceeds on the erroneous assumption that Chawlas are members of Sant. Even if shares had been transferred in favour of Aroras that fact by itself cannot confer any rights of membership on them. The applicants have not taken any steps to get themselves on the register of members. Thus if the prayer is now allowed it would mean that the Court is recognising the applicants as members of the Company when in fact they have not even established their rights as alleged members. It is categorically asserted that the present application is made by Aroras in collusion with the Chawlas with a view to blackmail Aviat to shell out further monies. The Chawlas and Aroras are stated to be close relatives. Father of Gunwant and the mother of Arora are said to be brother and sister. This fact has been deliberately suppressed by the Aroras. Thus, in view of the relationship it cannot be believed that Aroras were unaware of Aviat acquiring 100% shares of Sant or of the petitions being filed or the orders passed therein. The present application is said to be strategically timed in such a manner that Aviat is placed in a vulnerable position to submit to the unreasonable demands of the applicants (Aroras). According to Aviat, it is clear that Aroras have got all the information from Chawlas themselves and the present proceedings are a collusive action. Since Chawlas could not themselves have filed the present application, they have apparently conspired with Aroras for making the applications and raising false and bogus claims. It is, therefore, claimed that the applicants not have come to Court with clean hands but with ulterior dishonest and collateral motives. Thus the application deserves to be dismissed.
6. Aviat further claims to be a bona fide purchaser for value of shares of Sant without notice of any defect of title. It is reiterated that neither the available records of Sant nor the available public records at the office of the Registrar of Companies contain the name of Aroras as members of Sant or as Directors. Thus Aviat have acquired good title in respect of the shares purchased by Aroras. It is stated that the silence of the Aroras since 1992, indicates that the claim put forward is not bona fide. Aroras did not bother to claim their rights as members on the issuance of public notice advertising the hearing of the company petitions of Aviat and Sant. Company petitions were advertised in September, 1998. The Aroras, however, remained completely silent. The two Arora nominees on the Board of Directors of Sant have not produced anything to show that they have acted in any manner in their capacity as Directors. These Directors never called any Board meeting nor attended any Board meeting. Thus, in any event, they would have vacated or in any event be deemed to have vacated their office as Directors as there is no claim by the Aroras to have been appointed as full-fledged Directors at any general meeting. For seven years when Sant was loss making company, the Aroras did hot stake their claim as members. It is now only when Aviat has pumped in huge amounts of money and the production activity is to commence that Aroras suddenly woke up to claim rights as member. After a period of seven years, the Aroras cannot be heard to agitate their status as members especially when bona fide third party rights have already been created. Even if Aroras have purchased shares from Chawlas they are free to take actipn against Chawlas and they cannot have any cause of action, against Aviat or Sant.
7. Additionally it is stated that Aviat is a company incorporated under the Companies Act, 1956, on 4-1-1996 with the object, inter alia, of manufacture, sale and distribution of drugs and pharmaceutical products. Aviat acquired brands, initially, and started earning income by licensing the said brands as it did not have its own manufacturing unit. Aviat was looking forward to acquire its own manufacturing unit. Sant was owned and controlled by Chawlas. Priorto July, 1997, 100 per cent of Sant were held by Chawlas. Sant owned its own manufacturing unit on a plot of land at M.I.D.C. Sant had, however, stopped/ suspended its manufacturing activity and was embroiled in huge liabilities. For the past several years Sant was a loss making unit with hardly any business. Chawlas were, therefore, interested in disposing of Sant. Negotiations, therefore, ensued between Aviat and the Chawlas. On conclusion of the negotiations it was decided that Aviat would acquire the 100 per cent shareholding of the Chawlas in Sant and consequently acquire the M.I.D.C. plot belonging to Sant. Thus by an agreement dated 22nd January, 1997, Aviat acquired the entire shareholding of Chawlas for a consideration of Rs. 1.367 crores. Out of this, 1,20,00,000/- was given by Aviat to Sant by way of unsecured loan towards the purpose of discharging the liabilities that Sant had incurred. Rs. 16 lakhs was paid by Aviat to Chawlas in the manner specified in the agreement. Aviat caused search to be taken in the records of Sant. In none of the available records did the name of any Aroras appear either as members of Sant or Directors of Sant. Upon payment of the entire consideration amount the entire 5000 equity shares held by Chawlas and constituting the entire shareholding capital of Sant were transferred in favour of Aviat on 31st July, 1997. As noticed earlier, one share was transferred in favour of one Mrs. GeetaThakkar as nominee of Aviat. Necessary forms under section 187-C of the Companies Act, 1956, were filed in that behalf. Name of Aviat was also entered in the register of members of Sant. Consequently on and from 31st July, 1997, Sant became a wholly owned subsidiary of Aviat. Subsequently Aviat also appointed its nominees as Directors of Sant. The object of acquiring the shares of Sant was to avail the benefit of the M.I.D.C. plot by Aviat. This was the only available asset of Sant. As the manufacturing unit of Sant had been non-functional, it was agreed to demolish the old structure and a new structure with latest equipment was to be constructed. In any event the existing plant of Sant which was a chemical plant could not be of much use to the proposed business of Aviat of starting a formulation unit. For the purposes of demolition an application was made to M.I.D.C. which was granted by the letter of M.I.D.C. dated 1st July, 1997. With the acquisition of Sant it was decided that Sant and Aviat be amalgamated so that eventually Aviat which already had brands would also obtain its own manufacturing unit. Thus a draft scheme of amalgamation was prepared and at a meeting of the Board of Directors of Sant as well as Aviat held on 18th December, 1997, it was decided to merge Sant with Aviat in terms of the draft scheme of amalgamation. Thus an application was made to this Court for dispensation of the meetings of members and creditors of the concerned Companies, since all the members and creditors of the respective Companies had consented to the same. As stated above, all the liabilities of Sant that were incurred whilst Chawlas were in management were cleared out of the monies paid by Aviat, As noticed earlier, by order dated 12th March, 1998, the application was allowed. Subsequently on 13th April, 1998, the respective companies filed their respective petitions for sanction of the scheme of amalgamation. By an order dated 13th August, 1998, the petitions were admitted. Notice of hearing of the petitions was directed to be advertised in Free Press Journal and Nav Shakti. Hearing of the concerned company petitions were duty advertised. None of the applicants bothered to respond to the notices. By an order dated 6th November, 1998, the Court appointed Ms. Haresh Upendra & Co., as the Chartered Accountants for assisting the Official Liquidator in preparing his report as required under section 394 of the Companies Act, 1956. The Official Liquidator submitted his report on 30th November, 1998. In this report is clearly stated that the Transferor Company is a wholly owned subsidiary of the transferee Company and all the shares of the petitioner company are owned by the Transferee Company. The Regional Director was also given notice as required by law. It was only thereafter that the order dated 17th December, 1998, came to be passed. The old structure standing on the land were demolished in December, 1997. The construction activity for the new building started on or about 10th January, 1998. No objection certificate/permission issued by M.I.D.C. on 6-1-98 is placed on the record. Thus the construction at the site has been going on since January, 1998. It is stated that plumbing and electric work in the manufacturing unit is virtually complete. A state of the art laboratory and formulation equipment and machinery have already been installed and the formulation unit 13 now geared up to commence production, inter alia, of multi-vitamin syrups and drops. The amount of approximately Rs. 3 crores have already been spent by Aviat. The manufacturing unit is said to be over 95% complete. On 3rd February, 1999 the Inspector of Drugs had also inspected the plant for issuing manufacturing licence. Aviat has already employed 34 persons in respect of the manufacturing unit in anticipation of the commencement of the production activity.
8. The averments made in the affidavit dated 29th January, 1999, by the applicants have also been denied. It is stated that the alleged MoU dated 22nd December, 1992, does not reflect the alleged understanding as stated by the applicants. The alleged agreement is stated to be without consideration and not enforceable. In any event since the alleged agreement is dated 22nd December, 1992, any attempt on the part of the applicants to enforce the same is clearly time barred on the date of filing of the present application. It is also denied that pursuant to the MoU any shares were allegedly transferred in favour of the applicants. The purported transfer deeds and the purported share certificates are apparently got up and ante dated documents. It is denied that there was any Board meeting on 19th December, 1992, for allegedly transferring the alleged shares. The purported shares could not have been transferred on 19th December, 1992, pursuant to the alleged MoU dated 22nd December, 1992. None of the applicants are shown as members in the Register of Members of Sant or in the records available with the Registrar of Companies. It is further denied that any consideration was paid by any of the applicants for the transfer of the shares. The certificates dated 4-2-99 are stated to be completely vague. No receipt has been produced by Chawlas. Thus, it is denied that the shares have been duly transferred in the names of the applicants. It is also denied that Hardip Singh Chawla resigned as Director or that the first and the third applicants were appointed as Directors of Sant. It is also denied that any Form No. 32 has been validly signed or filed with the Registrar of Companies. The genuineness and the correctness of this form is denied. The income-tax raid is also denied. Thereafter the facts as noticed above earlier have been reiterated.
9. In the rejoinder, the applicants have reiterated the averments in the affidavit in support. The relationship of the father of Gunwant and the mother of Arora as brother and sister is denied. It is denied that Chawlas had any knowledge of the petitions and the orders passed thereon. The collusion and conspiracy between Chawlas and Aroras is also denied. It is denied that Aviat is a bona fide purchaser for value of shares of Sant. It is stated that even the names of Chawlas are not in the records at the office of Registrar of Companies and hence there is no question of the applicants name having been entered as members in public records at the office of the Registrar of Companies and the same is not required. In any event, it is stated that the names of first and third applicants are shown as Directors in Form No. 32 filed with the Registrar of Companies. It is further stated that the applicants were not aware of any public notice advertised in September, 1998, about the pendency of the petitions in this Court. The advertisements are said to have been purposely given in the remote newspapers like Free Press Journal and Navshakti which do not have wide circulation. Thus the applicants are not aware of any public notice. In any event that does not take away any rights of the applicants by not reading the said alleged advertisements. It is denied that Chawlas were 100 per cent members of Sant prior to the agreement dated 22-1-1997 with Aviat. It is denied that Aviat has paid the considerations alleged for the entire 5000 equity shares or that the entire share capital of Sant has been transferred in favour of Aviat. 2500 shares are stated to be with the applicants as the applicants have not transferred any of the shares either to Aviat or to any third party. Aviat has not even bothered to see the serial numbers of the share certificates and also of the missing share certificates. It is also denied that all the creditors had given consent for dispensing with the meetings of the members of Sant, since the applicants are 50 per cent shareholders. This consent was fraudulently recorded. With regard to the transfer of shares in favour of Aroras it is denied that the shares could not have been transferred on 19th September, 1992.
10. Aviat has filed a sur-rejoinder in which all the earlier pleadings are reiterated. Both sides have claimed that the inspection of the documents has not been given.
11. Relying on these pleadings, Counsel for the parties have made their submissions. Mr. Dwarkadas, learned Counsel appearing for Aviat, has raised a preliminary objection to the effect that the Company Court has no jurisdiction to set aside the orders passed under section 394 of the Companies Act, hereinafter referred to as "the Act." He submits that an appeal is provided by sub-section (7) of section 391. All the matters which are sought to be raised in the present application could well be agitated by the applicants in appeal. In support of his submission, the learned Counsel has relied on a judgment of the Calcutta High Court in (Re. Bank of Mymensing Gouripur Ltd.), 1948(53) C.W.N. page 143. Mr. Dwarkadas submits that this judgment is binding on this Court as the Company Law Act is a Central Act. He relies on a judgment of Division Bench of this Court in the case of Kamal Vinod v. Vinod D. Mehta, .
12. In reply, Mr. Chagla, learned Counsel appearing for the applicants, submits that his arguments are based on demurer. He submits that if the order is obtained by fraud it is nullity and non-est. Appeals are filed only against erroneous orders. The Court has inherent powers to set right the orders which are passed without jurisdiction. He refers to Rule 9 of Company Court Rules in support of his submission. He says inherent powers can be used inspite of the fact that an appeal is provided in sub-section (7) of section 391. He further submits that this application is a more appropriate remedy as the Appeal Court can only appreciate matters which are on record. The matters which are sought to be placed on the record by way of the present application would not form the record in the Appeal Court. Further he says that if ex parte orders can be set aside by the Court in exercise of its power under Order 9, Rule 13 of the C.P.C., there is no reason why the same cannot be bone by virtue of Rule 9 of Company Court Rules. Thus he submits that the applicant has one of the two remedies viz., to move the trial Court or the Appeal Court. He relies on an unreported judgment of this Court given in Company Application No. 21 of 1995 in Company Petition No. 134 of 1986. He submits that Rule 6 makes Civil Procedure Code, applicable to the Company Court also. Thus the Court will have inherent power to set aside an order which is grounded on fraud having been committed on the Court. He further submits that an order passed by the Court on account of fraud and collusion would be entirely vitiated. In support of this proposition the learned Counsel relies on a judgement of the Supreme Court in Smt. Shrisht Dhawan v. M/s. Shaw Brothers, . Thereafter the learned Counsel relies on the oft quoted judgment of the Supreme Court in the case of S.P. Chengalvaraya Naidu v. Jagannath, . In order to establish fraud, the learned Counsel relies on the averments made in the original petition filed by Sant. Learned Counsel had made particular reference to the averments made in paras 3, 12, 13 and 15. In paragraph 3 Sant had claimed that the Company had been carrying on business of manufacturing and processing certain bulk drugs and chemicals with effect from 2nd November, 1973. The manufacturing plant and factory of the petitioner Company was stated to be situated at Plot No. D-115, M.I.D.C, village Shirvane. P.O. Nerul, Thane-Belapur Road, New Mumbai, Dist. Thane. In paragraph 12 Sant had stated that the petitioner is a wholly owned subsidiary of the transferee Company (Aviat) and consequently all the shares of the petitioner Company are owned by the transferee Company. Both the petitioner Company and the transferee Company are Companies under the same management. In paragraph 13 it is stated that the petitioner Company as well as the transferee Company can be considered to be in the same line of business viz., the manufacture of bulk drug formulations. The two Companies cater to the need of same industry viz. the chemical/pharmaceutical industry. The petitioner is in possession of manufacturing unit as stated above but it does not possess a viable product in the competitive pharmaceutical market. The transferee Company on the other hand does not possess its own manufacturing plant and hence it acquired several brands and licensed the same to manufacturers and earns income by way of royalty. It is further stated that Aviat required an adequate manufacturing unit for manufacturing its products for which it had brands. It was, therefore, felt necessary to merge the two Companies. In paragraph 15 it was stated that the draft scheme of amalgamation has been proposed and approved by the Directors of the petitioner Company. It was, inter alia, averred that the petitioner Company has not been able to utilise its manufacturing capacity due to non-availability of brands and products and lack of advanced marketing efforts which are extremely relevant in the pharmaceutical industry. Aviat has the necessary products/brands and is capable of having an independent marketing organisation with branches and representatives spread all over India. These averments, according to the learned Counsel, are contrary to the averments made in paragraphs 5 (c), (d), (i) and (q) of the affidavit in reply. He submits that a perusal of these averments would show that even when the affidavit is filed in February, 1999, the manufacturing unit was still not completed and it is stated that it is about to commence production. Thus the averments made earlier in the petition are contrary to the averments made in the affidavit in reply. That in April, 1998, it was projected to the Court that Sant had a factory and that its activities would blend with the activities of Aviat. The actual situation is totally different. In April, 1998, there was only a plot which was held by Sant as its only asset but the picture given to the Court was that Sant was a going concern. Thus it is submitted by the learned Counsel that a true picture was not depicted before the Court. Had this correct state of affairs been brought to the notice of the Court, the order of amalgamation would not have been passed. He submits that the averment about Chawlas being 100 per cent shareholders of Sant is false on the face of it. The Aroras are 50 per cent shareholders of Sant. The shares were purchased from Chawlas by the Aroras way back in December, 1992. The Directors were also in equal share. This is evident from the MoU. Exhibit-1 to the affidavit in support. Under this MoU, all assets were to be sold except the land. Form No. 32 was filed with the Registrar of Companies. According to the Counsel, a perusal of the said form would show that Hardeep Singh Chawla resigned as a Director on 22nd December, 1992. Jagmohan Singh Arora was appointed in place of Hardeep Singh Chawla. Kuljit Singh Arpra was newly appointed. Thus, according to the learned Counsel, it leaves no manner of doubt that the Aroras were 50 per cent shareholders of Sant. The learned Counsel thereafter referred to the share certificates which give distinctive share numbers of the shares transferred to the Aroras. Photostat copies of the certificates have been attached as Exhibits-3 to Exhibit-33 to the affidavit in support. He submits that the name of the Aroras is not shown in the Company records as the same was not even functioning. The Aroras did not care to check the records. However, a notice of winding up was given on 14th February, 1996. But the winding up petition was not filed, The learned Counsel further submitted that the agreement between Chawlas and Aviat is dated 22nd January, 1997. In this it is represented that Chawlas are registered holders of 5000 equity shares of Rs. 100/- each and claim to be 100 per cent members of Sant. The entire share capital is stated to have been sold for Rs. 16 lakhs. He submits that the loan of Rs. 1,20,00,000/- is given by Aviat to its own subsidiary. It is for this reason that no provision has been made for repayment of the loan. It is provided that the loan was to be used for repayment of liabilities of Sant. He thereafter refers to clause 9 of the agreement wherein it is provided that simultaneously on the completion of the sale the vendors will ensure that all their nominee Directors shall resign so as to enable the purchasers to appoint their nominees. The sale was completed on 4th, July, 1997. Shares had been transferred on 31st July, 1997. Therefore, Chawlas should be out of the picture with effect from 1st August, 1997. But even on 9th September, 1997, Chawlas are still shown as Directors. Hardeep Singh Chawla ceased to be a Director on 12-1-1995 whereas Gunwant Singh Chawla continued till 9th September, 1997. According to the case of Aviat itself Manjit Singh Chawla still continues to be a Director. This, according to the Counsel, is depicted on the table which is given on page 11 of the affidavit in reply in paragraph 4(n). Even in the report of the Official Liquidator it is stated that Chawlas are the 100 per cent members of the Company. He submits that the claim put forward by Sant are wholly fraudulent as the entire shareholding of Sant Chemicals was issued and allotted between 30th March, 1974, and 6th December, 1983. The share certificates with regard to 2500 equity shares are still with the Aroras. He submits that the share certificates which are in the possession of Aroras would show that they are continuous in the distinctive numbers of the shares whereas the share certificates which have been issued to Aviat are wholly out of sequence. He submits that the certificates which have been issued to Aviat are mirror images of the certificates which are issued to Aroras. As examples, he submits that Share Certificate No. 16 and Share Certificate No. 5 are with the Aroras. Share Certificate No. 16 has now become 75 and share certificate No. 5 has become 74 in the hands of Aviat. If the sum total of all the certificates and the distinctive numbers of the shares in the hands of Aroras is taken, it amounts to a total of 2500 equity shares. These very shares are sought to have been transferred to Aroras. He submits that since the entire share capital had been subscribed by 1983, no other share certificates could have been issued to Aroras unless there was a corresponding increase in capital. The share certificates are, therefore, said to be fabricated. The entire share capital having been exhausted by 6th December, 1983, there could be no other issue of certificates. He submits that although the share certificates have been issued after 6th December, 1983, the authorised capital is shown as 2.5 lakhs. This, according to the Counsel, throws suspicion on the authenticity of the said certificates. The capital was admittedly 5 lakhs divided into 5000 equity shares as from 6th December, 1983. He submits that the whole case placed before the Court for sanction of the amalgamation scheme smacks of fraud and collusion between Aviat and Chawlas. For this reason he submits that the defence of the respondents that they have depended on the representations of the Chawlas cannot be accepted. The misrepresentation of the Chawlas has resulted in misleading the Court. Thus the orders of the Court cannot be permitted to do harm to a stranger. The petition proceeded on the basis that there is consent of the parties. Justice Lodha's order shows that the Court order was procured on this basis. He submits that the facts stated in the petition are not true . The air of innocence portrayed by Aviat is misconceived. He submits that while sanctioning a scheme the Court does not act as a rubber stamp. For this proposition he relies on a decision rendered by me in an earlier case in the matter of (Bedrock Ltd. (In the matter of Scheme of Compromise/Arrangement between the Creditors of Bedroc Ltd. and Bedroc Ltd.)), . Similarly he submits that Justice Lodha did not act as a rubber stamp but accepted the submissions made in the various pleadings which were wholly misleading. Thus he submits that the order deserves to be set aside.
13. Mr. Dwarakadas in reply has submitted that focus of the matter must not be lost. The applicants have come to Court on the ground that they are members of Sant. Secondly that a fraud has been committed on the Court because notice of the scheme was not given to them. Affidavit in support proceeds on this basis. In paragraph 8, the applicants claim to be 50 per cent shareholders and Directors. It was, however, not disclosed to the Court that the applicants are not entered as members in the Register of Members of the company. It was also not disclosed that the applicants are not recorded as members in the office of the Registrar of Companies. Thus, the applicants have now come with a plea that the applicants had to do nothing further once the shares of Sant had been transferred in favour of the applicants i.e. Aroras. He submits that it is for this reason that the applicants have now come with a case that Aroras need not have investigated as to whether or not their names were entered in the register of Sant or not. He submits that this plea has been taken to overcome the difficulty that a bare holder of a certificate does not become a member of the company. Rights of membership are not available to a shareholder whose name does not appear in the Register of Members. He submits that the Court in the present application is hot deciding a petition for rectification of the register. Only after a person establishes his right by a company petition for rectification can a member complain of oppression. He submits that in the affidavit in rejoinder in para 7 the applicants rely on Register of Members which is Exhibit- 3 to the said affidavit. Now they cannot say that the Register does not reflect the correct position. He points out the relevant provisions of the Companies Act to support his submissions. Section 2(46) of the Act defines "Share" to mean a share in the share capital of a company. Member is defined in section 2(27) in the negative. This section provides that member does not include a bearer of a share- . warrant of a company. Section 83 provides that each share in a company having a share capital shall be distinguished by its appropriate number. These are known as the distinctive numbers of the shares. Thus the distinctive numbers are hot to be confused with the number of a share certificate. He reiterates that in the present case the Register of Members shows that in respect of the same distinctive numbers of the shares which were issued to Aroras, Aviat is shown as member in the Register of Members. He submits that section 84(1) has to be read with section 113(1). Section 84 provides that a certificate under the commonseal of the company specifying any shares held by any member shall be prima facie evidence of the title of the member to that share. Section 113(1) provides that every company shall, within two months after the application for registration of the transfer of any shares, deliver in accordance with the procedure laid down in section 53 of the Act, the certificates of all shares transferred. The transfer must be duly stamped. This section also provides that the transfer must be otherwise valid and does not include any transfer which the company is for any reason entitled to refuse to register and does not register. In the facts of this case, Mr. Dwarkadas submits that there is no registration of any transfer. There is no Board resolution to that effect. This is not a company, according to him, having capital divided by bearer shares. In that event the holder of the shares has the title. On merits he submits that Sant was a sick industrial unit. After the merger it will become a profit making concern. Now that prosperity of the firm is forseeable this speculative application has been filed.
14. To further establish his case, Mr. Dwarkadas referred to various other provisions of the Act. Section 114 provides for share warrants. Section 114(3) makes it transferable by delivery. Section 41 defines member. By virtue of section 41, sub-section (2) name must be registered. The aforesaid provision has to be read along with section 108 which provides for transfer of shares. Section 82 provides for the nature of shares and transferable in the manner provided by Articles of the company. He submits that provisions of section 108 have not been complied with in transfer of the shares to the Aroras. He refers to form of instrument of transfer to show that the stamp on the transfer deed has not even been cancelled. He submits that provisions of section 108 is mandatory. This section not having been complied with, the applicants can hardly maintain the present application or claim to be members of Sant. For this proposition he relies the judgment of the Supreme Court reported in 1977(47) Com.Cas. 185. Mannalal v. Kedarnath Khetan. Similarly provisions of section 113 have not been complied with as admittedly the transfer shares have not been registered in the Register of Members.
15. At this stage, Mr. Chagla, had objected on the ground that the original had not been offered for inspection and that the plea is not taken but Mr. Dwarkadas has pointed out to page 14 of the affidavit in reply where the plea is specifically taken. Mr. Dwarkadas has submitted that the documents are ante dated. According to him, the transfer form has been created in a back date. This is to get over the difficulty which would arise in view of the fact that the Aroras have not cared to get themselves registered as members. Nothing has been done from 1992 till 1999 when the present application has been filed. He submits that the plea of Arora is patently false. They claim that the shares have been transferred pursuant to the MoU. The shares have actually been transferred on 18-12-1992 and 19-12-1992. The MoU is dated 20th December, 1992. Thus obviously the shares have not been transferred pursuant to the MoU. The persons mentioned in the MoU are not the same as the transferors. He further submits that a reading of the MoU will show that it is a totally incomprehensible document. No consideration is mentioned for the arrangement therein. Yet, the Chawlas are to sell all the assets except the land. The present application has been filed by six Aroras and the MoU is only by applicant No. 1 and applicant No. 3. Nothing is mentioned in the MoU about the division of land and building. Even the assets were to be sold by 31st March, 1993.
16. I have considered the various arguments put forward by the learned Counsel. Initially I was of the opinion that this application ought to be decided only on the preliminary issue. However, both the learned Counsel were agreed that in order to obviate a second round of arguments in the event of the matter being remanded by the Appeal Court, it would be more appropriate to give a composite order on the preliminary issue as also on merits.
17. Let me first consider the preliminary issue to the effect that in view of the appeal provision contained in section 391(7) this Court would not entertain the application. In my view the issue is squarely covered by the judgment of the Calcutta High Court in re Bank of Mymensing Gouripur Ltd., 1948(53) C.W.N. 143 relied upon by Mr. Dwarkadas. In that case Das, J., held:
"When a scheme is sanctioned by the Court it is final so far as the Court sanctioning it is concerned. As long as the order is not perfected the Court may in exercise of its inherent power re-hear the application for sanction. After the order is completed and filed the Court can do nothing except correcting accidental omissions or mistakes in the order, and in a proper case reviewing the order under the Code. In such circumstances the other remedy of the party aggrieved is to appeal from the order under section 153. In a proper case the Court may, for sufficient cause extend the time for preferring the appeal. It is not necessary for me now to say whether a regular suit will lie to set aside a scheme and, if so, on what ground such a suit will lie. In Nicholl v. The Fberhardt Company (5) it was held that as long as the order sanctioning the arrangement was not set aside no suit would lie to set aside the scheme. The observations of Cotton., J.J., in that case indicates that the only way to set aside the order is to appeal therefrom. It appears clear to me, however, that once a scheme is sanctioned and the order granting the sanction has been perfected the Court sanctioning the scheme has no jurisdiction under the Companies Act to alter of amend the scheme except by way of a fresh scheme. It is significant that there is no provision in the Companies Act, similar to section 31 of the Presidency Towns Insolvency Act. Further, the fact that the transferor bank has been dissolved and struck off the register creates procedural difficulties as to making a defunct company a party to any proceeding and as to service of any notice or process on it. The doctrine of the Court's inherent power, like that of public policy, should be sparingly used, for otherwise there is a great risk of all rules of procedure evolved out of the experience and practical wisdom of the past being set at naught by the varying idiosyncracies and notions of justice of individual Judges."
Thus, it follows that the remedy of appeal was open to the applicants. The views expressed by Justice Das are in consonance with the provisions of the Act as well as the C.P.C. It is settled proposition of law that inherent powers of the Court have to be used sparingly, with circumspection, in order to prevent miscarriage of justice. These powers are generally not to be used when an adequate remedy is available to the parties. I am in respectful agreement with what has been held by Das, J., of the Calcutta High Court. Apart from the fact that this Court is independently of the view that the present application is not maintainable there is another good reason for following the Calcutta High Court judgment. In the case of Kanak Vinod Mehta v. Vinod Dulerai Mehta, a Division Bench of this Court was required to determine the following question of law :--
"Whether, on the plaint as it stands, it is the Family Court which has the jurisdiction in respect of this suit by virtue of the Family Courts Act and, therefore, on the establishment of the Family Court this Court has ceased to have jurisdiction in respect of this suit by virtue of Clause (a) of section 8 of the Family Courts Act and the suit stands transferred to such Family Court by virtue of Clause (c) of section 8 of the Family Courts Act."
Before this question could be adjudicated upon by this Court, it was considered by a Full Bench of the Madras High Court. The Division Bench of Bombay High Court followed the view taken by the Madras High Court as follows:
"8. This is a Central statute. It is a recognised principle that, so far as is possible, the same construction should be placed by a High Court upon a Central statute as has found favour with another High Court. Upon that principle alone we would be obliged to hold as the Full Bench of the Madras High Court has held. Additionally, the point here concerns the jurisdiction of the High Court. It would be awkward if suits and proceedings of the nature referred to in the Explanation to sub-section (1) of section 7 were entertained by one High Court and not by another. We have read the Full Bench judgment of the Madras High Court in Mary Thomas' case and are in respectful agreement with what is held therein. We may, however, set out further grounds for taking the same view."
In view of the above, following Das, J., of the Calcutta High Court, it has to be held that this application is not maintainable. Mr. Chagla had however relied on an unreported judgment of this Court in Company Application No. 21 of 1995 in Company Petition No. 134 of 1986 in the case of The Bombay Gas Company Pvt. Ltd. v. The Central Government and another. A perusal of the aforesaid judgment would show that the objection raised by Aviat herein, was not raised before Dhanuka, J. This judgment is, therefore, of no avail to the applicant. Mr. Chagla then relied on Shrisht Dhawan v. Shaw Brothers. In Para 20 the Supreme Court observed "Fraud and collusion vitiate even the most solemn proceedings in any civilised system of jurisprudence". He submits that the scheme having been sanctioned on basis of fraud is open to challenge in any proceedings. For this, he relies on A.I.R. 1994 S.C. 855 S.P. Chengalvaraya Naidu v. Jagannath wherein Kuldip Singh J., quoted with approval the observations of COKE, C.J., and observed:
"Fraud-avoids all judicial acts, ecclesiastical or temporal" observed Chief Justice Edward Coke of England about three centuries ago. It is the settled proposition of law that a judgment or decree obtained by playing fraud on the Court is a nullity and non-est in the eyes of law. Such a judgment/decree by the first Court or by the highest Court has to be treated as a nullity by every Court, whether superior or inferior. It can be challenged in any Court even in collateral proceedings."
This judgement would be fully applicable in the case of proven fraud. But then the Chawla's will have to prove that they were members of Sant. Since admittedly they are not entered on the register of members, a case has been put forward that they are deemed members. Provisions of the Act, do not provide for any deemed membership of a company. From a perusal of the pleadings it becomes prima facie apparent that fraud, if any, may have been committed by the Chawlas on the Aroras. After selling the shares to Aroras, the Chawlas did not enter the Aroras in the register of members. This enabled Aviat to purchase 100 per cent equity shares of Sant and claim it to be wholly owned subsidiary of Aviat. This, in my view, is not sufficient to constitute fraud on the Court. Thus, I am unable to accept the submission of Mr. Chagla to the effect that this is a fit case where the application ought to be entertained. I do not find any merit in the submission that the Appellate Court can only correct erroneous judgments. The powers of the Appellate Court are as wide as the trial Court. Thus an order patently without jurisdiction would also have to be corrected in appeal.
On merits, the applicants can only succeed, if Aroras are accepted as members of Sant. From a perusal of the facts narrated above it becomes apparent that the Aroras are not recorded as members. On the other hand, Aviat are recorded as members. In such a situation, the settled law is that the deed of transfer in favour of Aroras may be effective qua the Chawlas. It can create no relationship with Sant. This is so because until the transfer of the shares is actually registered, the transferee's title to the share is inchoate, The legal title remains vested in the transferor. In Palmer's Company Law, London, Twenty Fourth Edition, Volume I, The Treatise chapter para 40-08 the following passage sums up the situation as in the present case :
"A transfer is incomplete until registered. Pending registration, the transferee has only an equitable right to the shares transferred to him. He does not become the legal owner until his name is entered on the register in respect of these shares. But delay in registration involves danger to him, for some already existing prior equity may come to light, as in Ireland v. Hart where a husband had mortgaged shares of which he was trustee for his wife and before the mortgagee had become the registered holder of the shares the wife took proceedings claiming that her equitable title prevailed over that of the mortgagee, a claim which the Court upheld; or a second transfer may be passed and registered, and thus the first transfer may be defeated.
"The rule on this point is that, as between two persons claiming title to shares in a company like this, which are registered in the name of a third party, priority of title (i.e. equitable title) prevails unless the claimant second in point of time can show that as between himself and the company, before the company received notice of the claim of the first claimant, he, the second claimant, has acquired the full status of a shareholder; or at any rate that all formalities have been complied with, and that nothing more than some purely ministerial act remains to be done by the company, which as between the company and the second claimant the company could not have refused to do forthwith; so that as between himself and the company he may be said to have acquired, in the words of Lord Selborue, a present, absolute, unconditional right to have the transfer registered before the company was informed of the existence of a better title."
This position is further clarified by the Supreme Court in the case of M/s.
Howrah Trading Co. Ltd. v. Commissioner of Income-tax, Central Calcutta, . The Supreme Court held thus:
"5. It was contended in the High Court that inasmuch as section 16(2) referred to an 'assessee' the assessee company was entitled to have the dividend 'grossed up' by the addition of income-tax paid by the various companies at source and consequently to have the benefit of the credit allowed under the two remaining sections. In the opinion of the High Court an assessee whose name was not in the register of members of the Companies was not entitled to the benefit of these provisions. The learned Judges of the High Court were of the opinion that the word "shareholder" in section 18(5) had the same signification as the word "member" used in the Indian Companies Act; and that the assessee was not qualified to be considered as a shareholder, even though by a blank transfer it had purchased the relevant shares. In our opinion, the High Court was right in its conclusion.
7. The position of a shareholder who gets dividend when his name stands in the register of members of the company causes no difficulty whatever. But transfers of shares are common, and they take place either by a fully executed document such as was contemplated by Regulation 18 of Table A of the Indian Companies Act, 1913, or by what are known as 'blank transfers'. In such blank transfers the name of the transferor is entered, and the transfer deed signed by the transferor is handed over with the share scrip to the transferee, who, if he so chooses, completes the transfer by entering his name and then applying to the company to register his name in place of the previous holder of the share. The company recognises no person except one whose name is on the register of members upon whom alone calls for unpaid capital can be made and to whom only the dividend declared by the company is legally payable. Of course, between the transferor and the transferee, certain equities arise even on the execution .and handing over of "a blank transfer", and among these equities is the right of the transferee to claim the dividend declared and paid to the transferor who is treated as a trustee on behalf of the transferee. These equities, however, do not touch the company arid no claim by the transferee whose name is not in the register of members can be made against the company if the transferor retains the money in his own hands and fails to pay it to him."
The Aroras ought to have applied to Sant for entry of their name in the Register of Members in place of Chawlas. This they failed to do. Thus they can make no claim against Sant. In the case of Balkrishan Gupte and others v. Swadeshi Polytex Ltd., , the Supreme Court has held:
"15. It is clear from the relevant provisions of the Act which are referred to hereafter that a member can participate and exercise his vote at the meeting of a company in accordance with the Act and the Articles of Association of the company. Section 41 of the Act defines the expression "member" of a company. The subscribers of the memorandum of association of a company shall be deemed to have agreed to become members of the company and on its registration shall be entered as members in its register of members. A subscriber of the memorandum is liable as the holder of shares which he has undertaken to subscribe for. Any other person who agrees to become a member of a company and whose name is entered in its register of members shall be a member of the company. In his case the two conditions namely that there is an agreement to become a member and that his name is entered in the register of members of the company are cumulative. Both the conditions have to be satisfied to enable him to exercise the rights of a member."
Thus it is clear that in order to be a member, a shareholder has to agree to become a member and his name must be entered in the register of members of the company. Both the conditions have to be satisfied. In the case of Karachi Oil Products Ltd. v. Narendrasinghji, a Single Judge of the Bombay High Court also held thus :
"This judgment of Oaxeens-Hardy, L.J. , truly sets out the legal position. The same position has been enacted by our own section of the Indian Companies Act, viz. section 30 which defines a member as under:
"(1) The subscribers of the memorandum of a company shall be deemed to have agreed to become members of the company , and on its registration shall be entered as members in its register of members.
(2) Every other person who agrees to become a member of a company and whose name is entered in its register of members, shall be a member of the company."
It is section 30, sub-section (2), which comes in for consideration so far as the defendant is concerned. Incidentally, I may observe that the very same position is set out in Palmer's Company Law, 17th Edn., at page 87. So every person who comes under the category of members under section 30(2) is one who agrees to become a member of a company and one whose name is entered in its register of members. Here the section contemplates two things:-- (1) an agreement; and (2) entry in the register. An agreement alone does not create the status of membership. It is a condition precedent to acquiring such status of membership that the shareholder's name should be entered on the register. So also at p. 95:
"Entry on register where membership is constituted otherwise than by subscribing the memorandum of Association, entry in the register of members is by section 25, made a condition precedent to membership."
Section 30 of the 1913 Act, is para materia to section 41 of the 1956 Act. When this is read along with section 2(27) which provides that member in relation to a company does not include a bearer of a share-warrant of the company issued in pursuance of section 114, it becomes evident that entry in the register of members is a condition precedent to membership even if there be a resolution allotting the shares and the letter of allotment is issued. In Killick Nixon Ltd. and others v. Bank of India and others, the same position is reiterated by a Division of this Court. In this case a petition under sections 397 and 398 was filed against the company. The petitioners were transferors of shares whose names continued in the register of members and the transferrers presented the petition on their behalf as their duly constituted power of attorney agents. After the petition was admitted the company took out a Judge's Summons praying that the order admitting the petition be revoked as it was not maintainable. It was held that the transferors as constructive trustees of the transferees were competent to file the petition. Therein it was urged that the transferors could not be considered as members of the company for the purpose of sections 397 and 398 of the Companies Act inasmuch as they had sold their shares and as such they did not have the necessary "interest" to maintain the petition. This contention was rejected by the learned Single Judge. On appeal the Division Bench formulated the question for consideration thus :
"The basic question that requires determination is whether a member of a company who has transferred his shareholding to another person but whose name continues to be on the register of members of the company because the company has not deleted his name and entered the name of the transferee in his place, can maintain a petition under sections 397 and 398 ."
Thereafter the Division Bench examined the ambit and scope of section 41 of the Companies Act which gives the definition of "member" as follows:
"41. Definition of 'member'- (1) The subscribers of the memorandum of a company shall be deemed to have agreed to become members of the company and, on its registration, shall be entered as members in its register of members.
(2) Every other person who agrees in writing to become a member of a company and whose name is entered in its register of members, shall be a member of the company."
The Division Bench held that under section 41(2) a person whose name is entered in the register of members shall be a member of the company. It was submitted on behalf of the company that there is a distinction between the rights of a member and the rights of a shareholder. It was submitted that there are certain rights which are given to a member irrespective of his shareholding while there are other rights which are directly proportionate to his shareholding. The former were put forward as rights of the member and the latter as rights of a shareholder. Thus the Division Bench considered the question whether to read down the term member to exclude from its ambit "bare" members whose names continue on the register of members although they have sold their shares. After examining the various kinds of rights of members, it was held that in so far as some of these rights are in direct proportion to the number of shares held, it may be possible to look upon such rights as rights attached to the shares. But the rights of all types are rights enjoyed by members of the company. It was further held that there is no distinction between the rights of a member and the rights of a shareholder. A company recognises only its members as its shareholders and confers upon them certain rights. The Division Bench held:--
"The company, however, recognises only the person who is its member as a shareholder. In other words the rights that may exist between the company and its members or shareholders can be exercised only by members. Similarly the company can look to its members for the discharge of their obligations to the company as its shareholders. The only person, therefore, who is entitled to exercise these rights and privileges or discharge these obligations is the transferor. The transferee is an outsider as far as the company is concerned and his only right is to have the transfer registered and thus to get himself accepted as a member and shareholder of the company."
The Aroras having failed to get themselves on the register of members cannot claim any right on the basis of the share certificates held by them.
Mr. Chagla had submitted that the Aroras had paid the consideration. They had forwarded the completed transfer forms to the company (Sant). Thereafter there was no further, act to be performed by the Aroras. They had stepped into the shoes of the Chawlas with regard to 2500 shares. They could presume that they were members of Sant. They in fact acted on that assumption. In any event they would be deemed to be members. The provisions of section 41 and 2(27) cannot be so strictly construed as to defeat the claims of bona fide purchasers of shares, only on the technical ground that the company has failed to register the transferees as members. Thus the Aroras were entitled to notice before the Scheme of Amalgamation was sanctioned. For this proposition the learned Counsel has relied upon the judgment of the Supreme Court in the case of World Wide Agencies P. Ltd. and another v. Mrs. Margaret T. Desor and others A.I.R. 1990 S.C. 607. This judgment is of no avail to the applicants. In that case the question considered by the Supreme Court was with regard to the death of the member, and the consequences thereof on the succession to membership by the heirs. On the death of the member, the widow applied as the legal heir for transmission of shares held by the member. A resolution was passed to transmit the shares to the widow on her obtaining no objection from R.B.I. It was also resolved to appoint the widow as a Director in place of the deceased member. Later the widow filed a composite petition under sections 397, 398 and 433(f). A preliminary objection was raised on behalf of the company regarding the maintainability of the petition on the ground that the petitioners were not members of the company as their names had not been entered in the register of members. The other objection with regard to the composite petition not being maintainable is not relevant for our purpose. The learned Single Judge of Delhi High Court held that the petitioners being the wife and children of the late member (S.K. Desor) and having obtained letters of administration and the permission of R.B.I. should be treated as members for the purposes of maintaining the petition under sections 397 and 398 of the Act. The Division Bench dismissed the appeal against the judgment of the learned Single Judge. On appeal the Supreme Court posed the question to be determined in the case namely whether the legal heirs of a deceased shareholder can be treated as members of the company for the purpose of maintaining a petition under sections397 and 398 of the Act and whether a composite petition under sections 397, 398 and 433(f) of the Act is maintainable. On behalf of the appellants it was contended that the right which is a specific statutory right is given only to a member of the company and until and unless one is a member of the Company, there is no right to maintain the petition under section 397 of the Act. It was said that there is no automatic transmission of the shares, in case of death of a shareholder to his legal heirs and the Board has discretion and can refuse to register the shares. Hence the legal heirs had no locus standi to maintain the application under sections 397 and 398 of the Act. It was further submitted that right under sections 397 and 398 are statutory rights and must be strictly construed in terms of the statute. The right, it was submitted, was given to "any member" of a company and it should not be enlarged to include "any one who may be entitled to become a member". The Supreme Court considered the special provisions contained in section 109 together with Articles 25 to 28 which deal with transmission of shares on the death of a member in juxtaposition with the para materia provisions in the English Companies Act. It was held that the reasoning of the English Courts on the para materia provisions of the English Act, would be a valuable guide. The Supreme Court approved the observations of Pennycuick, J., in the case of (Jermyn Street Turkish Baths Ltd. in re), 1971(3) All.E.R. 184. In that case it was contended that the petitioners were not members of the company and hence had no locus standi to present the petition bearing in mind that a petition under section 210 of the English Companies Act could only be presented by a member of the company. In the facts of that case, Pennycuick, J., held that the petitioners were duly registered as members of the company but he proceeded to hold that even if it were not so, the personal representation of a deceased member must be regarded as members of the company for the purposes of section 210 of the English Courts (sic Companies) Act. Thus it was held that the legal heirs of a member are to be treated as members. Aroras cannot be said to be the legal heirs or legal representatives of the Chawlas. The Aroras claim to have purchased the shares for valuable consideration. Thus the aforesaid observations of the Supreme Court are of no avail to the applicants. The Aroras are not members of Sant. They can have no claim against Sant.
18. After having anxiously considered the various averments made I am satisfied that there is no deliberate misstatement made by Aviat or Sant with regard to the fact that Chawlas were 100 per cent members of Sant prior to July, 1997.1 am also satisfied that there is no misstatement about the desirability of the merger of Sant with Aviat. These conclusions of mine are quite evident from the various facts contained in the pleadings which have been noticed above in extenso. The applicants have proceeded on the footing that merely because they were holders of the shares of Sant to the extent of 50 per cent they were ipso facto members of Sant. The consideration of various provisions of the Act would make it abundantly clear that a bare shareholder does not become a member of the Company unless and until the name is entered in the Register of Members. The applicants have come to Court on the ground that 2500 shares are transferred by the Chawlas to the Aroras pursuant to MoU dated 22nd December, 1992. While examining the record it appeared however, that the claim is not justified. A perusal of the MoU would show that it does not make much sense. No consideration is provided for all the acts which are supposed to be bone by the Chawlas. There is no mention of transfer of shares in lieu of the acts being performed by the Chawlas as indicated in the MoU. The MoU does not mention any consideration whatsoever. Mr. Chagla agreed that the MoU does not make much sense. This circumstance in itself is sufficient to knock out the very claim of the Aroras. More important, however, is the fact that although the Aroras claim to be holders of 2500 shares of Sant there is no such entry in the record of the company or in the office of the Registrar of Companies. The name of Aroras is not mentioned in the Register of Members nor in the Registrar of Companies. No Resolution of the Board of Directors of Sant appears to have been passed by which the transfer in favour of the applicants were approved, Even the shares have been transferred on 19th December, 1992, whereas the MoU is dated 22nd December, 1992. Yet it is the pleaded case of Aroras that the shares were transferred in pursuance of the MoU. There is no direct evidence of any consideration having been passed. Thus, it would be difficult to hold that even if the shares had been transferred to Aroras they will become members of Sant without being registered in the Register of Members. There are no Board Resolutions about appointment of the Chawlas to the Board of Directors also nor were the Chawlas elected as Directors. Even the Official Liquidator in his report filed before the Court stated that prior to July, 1997 only the Chawlas were members/Directors of Sant. The Aroras do not figure anywhere as Directors. There is another significant reason to indicate that the application is not bona fide. The Aroras claim to be members of the Company from 1992 onwards. Yet, no steps have been taken to even take a cursory inspection of register of members of Sant. There is no record of the Aroras over having attended any meetings. They did not care to take issue when amalgamation petitions were advertised. They now merely pleaded that the circulation of the newspapers was not significant and, therefore, the advertisement cannot be treated as a public notice. This kind of a plea cannot be countenanced. The two newspapers are quite well known and have wide circulation. In my view, there has been no misstatement of material facts. There is also no evidence of fraud having been committed on the Court.
19. I have considered the matter at great length as setting aside of the order on the ground of fraud would have serious consequences. It is a settled proposition of law that fraud must be proved beyond reasonable doubt. The Court cannot proceed merely on suspicions, conjectures and surmises. There must be clear and cogent evidence to show beyond reasonable doubt that fraud has indeed been committed on the Court. In the present case the Aroras may well have a case against Chawlas for breach of contract etc. They can certainly have no case against Sant and Aviat, There was no deliberate mis-statement in pleading before the Court that Chawlas were 100 per cent members of Sant. There was also no misstatement to the effect that Sant was wholly owned subsidiary of Aviat. After July, 1997 100 per cent shares of Sant vested in Aviat. In all the official records Aviat is shown as members of Sant. Therefore, it cannot be said that Sant or Aviat have played a fraud on the Court. There can be no deemed membership of a company. A shareholder will become a member of the Company in accordance with the provisions of the Companies Act. If legally Aroras were not members necessarily no notice was required to be given to the Aroras of any proceedings whatsoever. On the other hand if Sant was the 100 per cent owner then it was perfectly valid for Sant to make an application for dispensing with holding of any meetings of the creditors. All the creditors had given consent. The conduct of Aroras in keeping silent for a period of almost 6 to 7 years lends credence to the submission of Mr. Dwarkadas that the application is merely speculative in nature. It has been disquised as a demonstration against a party who is said to have defrauded the Court.
20. Keeping the aforesaid facts and circumstances in view, I find no merit in the application. The same is hereby dismissed with costs.
At this state Counsel for the applicants prays for stay of the order. I see no justification in the aforesaid request. Rejected.
Certified copy expedited.
21. Application dismissed.