Company Law Board
Chotoo Sud vs Bhagwan Finance Corporation (P) Ltd. ... on 23 June, 2005
Equivalent citations: [2006]130COMPCAS567(CLB), (2005)6COMPLJ518(CLB), [2006]66SCL223(CLB)
ORDER
K.K. Balu, Member
1. The first company petition (CP 7/2000) is filed under Section 111(4) of the Companies Act, 1956 ("the Act") for rectification of the register of members of M/s Bhagwan Finance Corporation (P) Ltd. ("the Company") by deleting the names of (a) the fourth respondent in respect of 250 shares covered by folio No. 83; (b) the fifth respondent in respect 50 shares covered by folio No. 84 and (c) the respondent Nos. 6 & 7 in respect of 100 shares covered by folio No. 85, as violative of the articles of association of the Company.
2. The second company petition (CP 291/2001) is filed under Section 111(4) of the Act for rectification of the register of members of the Company by deleting the names of (a) the fourth respondent company in respect of 30,000 shares; (b) the third respondent company in respect of 2,000 shares; (c) the second respondent in respect of 27,053 shares and (d) the second respondent company in respect of 30,000 shares as violative of the articles of association of the Company.
3. The petitioner and the Company are common in both the proceedings. The respondent Nos. 2, 3 & 4 in the company petition No. 7/2000 are the respondents Nos. 2, 5 & 6 in the company petition 291/2001. The petitioner is challenging the shares impugned in the company petitions as violative of the articles of association and the mandatory provisions of Section 108 of the Act. Thus, the issues involved in these proceedings are the same. Therefore, the company petition 7/2000 and the company petition 291/2001 were heard together and are being disposed of by this common order.
4. Shri Chotoo Sud, the petitioner in person, while initiating his arguments in the company petition 7/2000 submitted: The respondent Nos. 5 and 7 are grand sons of the respondent Nos. 2 & 3 and the sixth respondent their son. The respondents 4 to 7 acquired the impugned shares, viz., (the fourth respondent - 250 shares; the fifth respondent - 50 shares and the respondent No. 6 & 7 - 100 shares) in violation of Article 14, which prohibits the transfer of shares in favour of non-members of the Company. The respondent Nos. 4 to 7 were not entitled to purchase the shares by way of transfer or otherwise. These transfers are void ab-initio. Consequently, the fourth respondent could not be made on 20.08.1996 a director of the Company. There is no enabling provision in the articles permitting the members to transfer their shareholding in favour of their kith and kin. Moreover, the transfers were undervalued and thus not duly stamped as per the requirements of the Indian Stamp Act, 1899. Therefore, no legal transfer could take place by virtue of the inadequately stamped share transfer form. The share transfer stamps affixed on the share transfer forms are found to be cancelled by the Company and not by the transferees, which is violative of Section 12 of the Stamp Act. Article 13 specifies that a fee of Rs. 2/- shall be payable for registration of each transfer. There is no material to establish that the prescribed fee has been received for registration of any of the impugned transfers as stipulated in Article 13. Thus, the transfers impugned in the company petition are violative of the provisions of Section 108 of the Act. The Company failed and neglected to produce the original minutes of the board meetings approving the transfer of shares in favour of the respondents 4 to 7 and the books of account maintained by the Company evidencing payment of the transfer fee by the respondents 4 to 7, which are in the custody of the Company, in spite of repealed demands made by the petitioner. This Bench shall draw adverse inference against the Company for non-production hereof. Unless the original minutes of the board meetings are maintained in accordance with the provisions of Section 193, no presumptions can be drawn under Section 195 in regard to validity of the minutes of those board meetings. The receipt dated 24.08.2000 issued by the Registrar of Companies, West Bengal, Calcutta reveals that the original copy of the annual return dated 30.09.1999 not containing the names of the respondent Nos. 4 to 7 was substituted on 24.08.2000 with a new annual return by the Company incorporating their names. The share transfer forms without furnishing the particulars of the share certificate nos., folio nos., distinctive nos. etc. as borne out by copies thereof would amount to bad deliveries in terms of SEBI Guidelines for good or bad delivery of documents, viz. circular dated 23.03.1999 published in Guide to the Companies Act by A. Ramaiya -page 5233 (14th Edition). For these reasons, the impugned transfers must be set aside. Shri Sud, in support of his legal submissions relied upon the following decisions:
Sadashiv Shankar Dandige v. The Gandhi Sewa Samaj Ltd. - - to show that Section 82 clearly provides that shares in a company shall be capable of being transferred in the manner provided by the articles of the Company and that unless the articles otherwise provide, a shareholder has a free right to transfer his shares to whom he chooses.
(a) Jagatjit Industries Ltd.; (b) Galaxy Pet Packaging Pvt. Ltd.; and (c) Quick Return Investment Co. Ltd. v. Mohan Meakin Ltd. -(1994) 80 CC 411 - to show that the provisions contained in Section 108 of the Act are mandatory in nature.
Mathrubhumi Printing And Publishing Co. Ltd. v. Vardhaman Publishers Ltd. - (1992) 73 CC 80 - to show that if the instrument is not properly, executed or the stamp affixed to the instrument is not cancelled before execution or at least at the time of execution, in compliance with Section 12 of the Stamp Act, it shall be treated as not duly stamped and further that non-payment of proper fee as specified in the articles is fatal, which could not be cured by offering to file the share certificate and demand draft for the fee in the court.
P. V. Chandran v. Malabar And Pioneer Hosiery P. Ltd. - (1990) 69 CC 164 - to show that Section 108 of the Act enjoins upon the company to reject any application for transfer of shares, unless the procedural requirements including remittance of the fee for registration of the transfer as specified by articles are fully complied with.
Ramdas Oil Mills v. Union of India (Military Deptt.) - - to show that if a person docs not produce the books of account which are in his possession, an adverse inference can be drawn for non-production hereof.
Shri Kishan Rathi v. Mondal Brothers And Co. (Private) Ltd. -(1967) XXXVII CC 256 - to show that the company or its director being in possession of the minutes of book or books of account is under obligation as envisaged in Section 106 of the Evidence Act to produce them before the court, failing which an adverse inference must be drawn against them.
Life Insurance Corporation of India v. Escorts Ltd. - - to show that a share is transferable but while a transfer may be effective between the transferor and transferee from the date of transfer, the transfer is truly complete and the transferee becomes a shareholder in the true and full sense of the term, with all the rights of a shareholder, only when the transfer is registered in the company's register. A transfer effective between the transferor and the transferee is not effective as against the company and persons without notice of the transfer until the transfer is registered in the company's register.
5. Shri R.K. Murarka, learned Senior Counsel appearing for the respondents submitted: The petitioner invoked the provisions of Section 111, without satisfying the requirements of that section and, therefore, the company petition is not maintainable. The second respondent had gifted 250 shares of the Company in favour of the fourth respondent in or about August, 1996, upon which the latter lodged the share transfer form and the original share certificate with the Company in August, 1996 for effecting registration of the transfer, which was duly effected by the board of directors at the board meeting held on 09.04.1997, as borne out by copy of the minutes of the board meeting produced by the respondents. Similarly, the second respondent had gifted 50 shares of the Company in January, 1999 in favour of the fifth respondent and 100 shares jointly to the sixth respondent and his son, being the seventh respondent. These transfers in the name of respondents 5 to 7 were duly approved by a resolution passed by the board of directors on 08.01.1999. All transfers impugned in the company petition were duly effected in the records of the Company in consonance with Article 14 read with Article 12 of the articles of association of the company, thereby the respondents 4 to 7 became the lawful shareholders of the Company, as reflected in the annual returns for the years 1997, 1998, 1999 & 2000. The communications dated 16.08.1996 and 04.01.1999 sent by the respondent Nos. 4, 5 and 6 respectively forwarding the share certificate and the share transfer form in respect of the impugned shares for effecting the transfer in their name clearly show that the respondents have paid the requisite transfer fee. Though the share transfer forms do not furnish the particulars of share certificate nos. and registered folio nos. of the impugned shares, which are not material, yet they contain the distinctive nos. of the concerned shares. The purpose of furnishing these particulars are to identify the shares sought to be transferred, which can be achieved and identified from the distinctive nos. already furnished in the share transfer forms. Sub-section (1) of Section 108 of the Act, prescribes among other things that the instrument of transfer must specify the name, address and occupation, if any, of the transferee and nothing-else. Therefore, non-mentioning of the share certificate nos. and folio nos. is in no way vital for registration of the transfer of shares. Section 12 of the Stamp Act does not specify as to whether the transferor or transferee should cancel the share transfer stamps. The law requires that the share transfer stamps must be effectually canceled with object of not again being used by the parties. SEBI guidelines without any statutory force are directory in nature. The Company has produced all the documents as demanded by the petitioner and therefore, the Company cannot be accused of non-production of any documents by this Bench. The petitioner never called upon the Company to cause production of the books of account for the purpose of verifying the remittances made towards the transfer fee as specified in Article 13 and no duty is cast upon the Company in this behalf. The validity of the extraordinary general meeting held on 20.05.2000 has already been upheld by the CLB in its order dated 30.07.2004, which has been affirmed in the appeal by the Calcutta High Court in its order dated 27.09.2004. The very same issue cannot be reopened by the petitioner in the present proceedings. This Board categorically held in its order dated 30.07.2004 that the petitioner did not cite any decision to show that the resolution passed by the board of directors of a company must disclose the fulfillment of the procedural aspects specified in the articles of association of the Company.
6. Shri Chotoo Sud, the petitioner while reiterating the averments made in company petition No. 291/2001 submitted: The board of directors of the Company at the board meeting held on 29.03.1996 approved the transfer of 30,000 shares by the third respondent company in favour of the fourth respondent company, which is illegal and fraudulent. The fourth respondent company is controlled by the second respondent and his wife, the fifth respondent, both holding 70 per cent of the shareholding in the fourth respondent company. The respondent No. 1, 3 & 4 companies are acting at the dictates of the second respondent. The third respondent company has not offered any explanation for the distress sale of 30,000 shares of the Company in favour of the fourth respondent company. The third respondent company neither made any offer to the other members of the Company before effecting the sale in favour of the fourth respondent company. The fourth respondent company was not a member of the Company and, therefore, the transfer of 30,000 shares in its favour is in violation of Article 14. The board meeting was reportedly convened for the purpose of approving the transfer of 30,000 shares in favour of the fourth respondent company, but no notice was received by the petitioner, who was then on the board of the Company. Any board meeting without notice to the directors cannot be valid and the resolutions passed at such meeting will be null and void. Since the resolution approving the transfer of 30,000 shares in favour of the fourth respondent company is null and void, it could never be ratified. When the transfer in favour of the fourth respondent company was approved, the Company was a deemed public limited company attracting the provisions of Sections 299 and 300 of the Act, which stipulate that directors must disclose their interest, but the respondents 2 & 5 though had interest in the subject matter, viz. shares sought to be transferred in favour of the respondent No. 4 company, they failed to disclose their interest. However, the requirements of these sections were not complied with, while approving the transfer of shares made by the third respondent company in favour of the fourth respondent company. The third respondent company sold the shares at a very low price and no reasons were assigned for such distress sale. The Company did not choose to produce the original minutes book containing the resolution of the board of directors of approving the impugned transfer. Article 13 provides that a fee of Rs. 2/- shall be payable for registration of each transfer. There is no document produced by the Company to show that the transfer fee has been paid by the respondent No. 4 company, while seeking registration of the transfer of 30,000 shares, and, therefore this transfer is in contravention of the mandatory provisions of Section 108(1).
The petitioner neither sold his 2,000 shares nor executed the share transfer form in favour of the third respondent company. The share transfer form relied on by the Company is a forged and fabricated document. While the petitioner admitted that he had executed on 18.11.1988, a demand promissory note in favour of the third respondent company for Rs. 55,800/-, which according to him is barred by limitation, he stoutly denied the communication dated 07.12.1988, offering 2,000 shares as security in favour of the third respondent company, in support of which, relied on the report of an handwriting expert dated 26.12.1997. The Company failed to produce the share transfer form in spite of several requests made by the petitioner. The petitioner did not pay any transfer fee as stipulated in Article 13, thereby there is no compliance of Article 13. The resolution said to have been passed by the board of directors at the board meeting held on 14.10.1997 approving the transfer of 2,000 shares in favour of the third respondent is not valid, especially when the respondents 2 & 5 vacated the office on account of the infirmities suffered under Sections 295, 297 read with Section 283 of the Act. The sixth respondent not being a valid member could not have functioned as director of the Company. Thus, there was no quorum for the board meeting held on 14.10.1997 and the resolution passed in the said meeting approving the purported transfer of 2,000 shares in favour of the third respondent company cannot be valid.
The board of directors of the third respondent company had at the board meeting held on 22.12.1997 approved the transfer of 27,053 shares of the Company by the third respondent company at the rate of Rs. 27/- per share in favour of the second respondent and further that the delivery of shares must be given against payment by 31.03.1998. The board of directors of the third respondent company at the very same meeting waived interest on the loan taken by the second respondent in December, 1998. Though the Company approved the sale of shares of 27,053 shares in favour of the second respondent, yet, the purchase of 27,053 shares made by the second respondent is ultra vires. There is no document to show that the second respondent paid the transfer lee at the time of effecting registration of the transfer by the Company in his favour. Thus, the transfer of 27,053 shares in favour of the second respondent is hit by Section 108.
The transfer of 30,000 shares by the fourth respondent company in favour of the second respondent cannot be valid for the simple reason that the fourth respondent company held no valid title to those shares. The acquisition of these shares by the fourth respondent company from the third respondent company is under dispute which is being adjudicated in the present company petition. Moreover, this transfer is not in due compliance with Section 108 of the Act. For these reasons, the transfers impugned in the company petition must be set aside and accordingly register of members be rectified.
Shri Sud, in support of his legal submissions relied upon the following decisions: -
Parmeshwari Prasad Gupta v. The Union of India - AIR 1973 Supreme Court 2389 - to show that notice to all directors of a meeting of the board of directors is essential for the validity of any resolution passed at the meeting and that non-sending of notice to anyone director, invalidates any resolution passed at such a meeting.
Tracslar investments Limited v. Gordon Woodroffe Limited -(1996) 87 CC 941 - to show that under Section 111(4) of the Act, a petition can be filed by (i) an aggrieved person; or (ii) any member of the company; or (iii) the company itself. The Act specifically provides that any member or a company can prefer a petition as long as he establishes that the name of any person is entered in or omitted from the register of members "without sufficient cause". A member of the company need not show any interest in the shares in respect of which rectification is sought.
Firestone Tyre And Rubber Co. v. Synthetics And Chemicals Ltd. -(1971) 41 CC 377 - to show that when something is declared by a statute to be void, it cannot be validated on the theory of acquiescence or ratification.
Aviling Barford Ltd. v. Perion Ltd. - 1989 BCLC 626 (Ch D) - to show that it would be a breach of a director's duty to sell a property at an undervalue, resulting in unauthorized return of capital and hence ultra vires and unratifiable.
Ridge Securities, Ltd. v. Inland Revenue Commissioners - (1964) 1 All E.R. 275 - to show that the directors cannot take assets out of the company by way of voluntary disposition and if they attempt to do so, the disposition is ultra vires the company.
Shoe Specialities Ltd. v. Tracstar Investment Ltd. - (1997) vol.88 CC 471 - to show that the directors of a company stand in a fiduciary position in discharging their duties, which they owe to the company and in such an event the court will interfere in rectifying the register of members of the company by removing the name of the person entered without sufficient cause.
7. Shri R. Murarka, the learned senior counsel appearing for the respondent submitted: This Bench in the company petitions (CP 48/1996 and CP 55/2001), after considering the relevant articles of association of the Company by an order dated 30.07.2004 came to the conclusion that the board of directors have wide powers to allot shares for full value or transfer shares levying a fee of Rs. 2/- for each transfer in favour of any member or a non-member not being an insolvent or person of unsound mind provided such allotment or transfer of shares is made with the previous sanction of the board of directors of the Company and further that the resolution passed at the extra ordinary general meeting held on 20-05-2000 for rectification of the register of members of the Company approving the transfer of shares made between 21.10.1953 and 24.03.1998 must be permitted to be implemented. The order dated 30.07.2004 of the Company Law Board has been challenged by the petitioner by preferring an appeal before the Calcutta High Court, which came to be dismissed and, therefore, the order of the Company Law Board having become final is binding on both the parties and cannot be reagitated in the present proceedings. The shareholders are free to fix their own price, unless otherwise restricted in the articles of association of the company. Any fixation of price is an affair between the transferor and transferee, which cannot be the concern of the board of directors of the company. A company cannot deny registration of the transfer on any ground, which has not been stipulated in the articles. The petitioner never raised at any prior point of time the issue of non-payment of transfer fee for registration of the transfer of impugned shares. The belated plea of non-payment of transfer fee in terms of Article 13 cannot be entertained at this stage. Section 300(1) stipulates that no director of a company shall, as a director, take part in the discussions of or vote on, any contract or arrangement entered into, on behalf of the Company, if he is in any way concerned or interested in the contract or arrangement. This provision docs not apply to a deemed public company. Moreover, in the power of according approval to the transfer of shares, no such element of contract or arrangement as envisaged in Section 300(1) is involved, as would make it obligatory on the part of a director to disclose interest in the sense in which the said expression has been understood in the Act. At the board meeting, the board of directors is bound to decide the matter of the transfer of shares in discharge of their statutory functions. The minutes of the board meeting dated 29.03.1996 establish the approval of the transfer of 30,000 shares made by the third respondent company in favor of the fourth respondent company, as borne out by the original minutes book containing the board resolution dated 29.03.3996 produced by the Company.
The petitioner had borrowed from the third respondent company on 18.11.1988 a sum of Rs. 55,800/- for the purpose of acquiring 2,000 equity shares of Rs. 100/- each of the Company, promising to repay the same with interest at the rate of 12 per cent per annum, as seen from copies of the promissory note executed by the petitioner in favour of the third respondent company and the communication dated 07.12.1988 of the petitioner addressed to the third respondent company. By virtue of the communication dated 07.12.1988, the petitioner had delivered the share certificate comprising of 2,000 shares of the Company to the third respondent company authorizing the latter to hold the same as security for the advance of Rs. 55,800/- made by the third respondent company and to realize the amount lent with interest in the event of failure by the petitioner by disposing of the shares pledged by the petitioner in favour of the third respondent company. The petitioner has admitted the demand promissory note, but not his communication dated 07.12.1988, which according to him is a fabricated document and the signature contained therein is a forged one. At this juncture, the learned Senior Counsel appearing for the respondents produced the original communication dated 07.12.1988 containing the signature of the petitioner and contended that the support drawn by the petitioner from the report of an handwriting expert in this behalf cannot be conclusive, especially when the observation of any handwriting expert is only an opinion. The petitioner has suppressed these factors, but invoked the jurisdiction of this Bench with unclean hands and, therefore, no remedy can be granted as claimed by the petitioner. The board of directors of the Company, viz. the respondent Nos. 2, 5 & 6 at the meeting held on 14.10.1997 placing reliance upon the communication dated 07.12.1988 of the petitioner approved the transfer of 2,000 shares in the name of the third respondent company, in terms of copy of the minutes of the meeting of the board of directors dated 14.10.1997 produced by the petitioner himself and any act by a person as director must be valid notwithstanding that it may afterwards be discovered that his appointment was invalid by reason of any defect or disqualification as envisaged in Section 290 of the Act. The respondent Nos. 2, 5 & 6 are till date directors, though disputed by the petitioner and until their appointment is duly set aside, the acts of these respondents as directors in accordance with law are valid and binding on the other. Therefore, this act of approval of the transfer of 2,000 shares from the petitioner in favour of the third respondent company by the respondent 2, 5, 6, who are de-facto directors is saved by virtue of the provisions of Section 290 of the Act.
The board of directors of the third respondent company at the board meeting held on 22.12.1997 approved the sale of 27,053 shares of the Company at the rate of Rs. 27/- per share to the second respondent and further waived the interest amount of Rs. 1,59,000/- due to the third respondent company from the second respondent on the loan amount of Rs. 2,79,000/- obtained in December, 1988 from the third respondent company and permitted the second respondent to pay the balance principal amount of Rs. 1,59,000/- by 31.03.1988. The commercial decision of the board of directors of the third respondent company in waiving the interest due by the second respondent and granting further time to pay the principal amount is left to the absolute discretion of the board of directors of the third respondent company, which cannot be questioned by the petitioner in the present proceedings, especially when these arc the internal transactions between the respondents 2 & 3. The fact is that the third respondent company sold 27,053 shares of the Company to the second respondent. There has been no prohibition for the sale of shares of the third respondent company in the Company in favour of the second respondent. When the board of directors of the Company had duly approved the transfer of shares effected in favour of second respondent in compliance with the articles and the provisions of Section 108, the transfer cannot be challenged by the petitioner. The petitioner is challenging the transfer of 30,000 shares made by the fourth respondent company in favour of second respondent on the ground that the acquisition of these shares by the fourth respondent company is bad in law. This plea is not tenable, especially when the fourth respondent is entitled to convey what it owns and possesses to the second respondent. The register of members of the Company reflects the name of the fourth respondent company in respect of 30,000 shares and, therefore, it is entitled to transfer these shares in favour of the second respondent, which cannot be questioned by the petitioner. The transfer of shares by the fourth respondent company in favour of the second respondent company was duly approved by the board of directors and, therefore, the petitioner cannot challenge the validity of the transfer of 30,000 shares approved in favour of the second respondent.
8. Shri Murarka, learned Senior Counsel, in support of his legal submissions relied upon the following decisions: -
V.B. Rangaraj v. V.B. Gopalakrishnan - (1992) J Supreme Court Cases 160 - to show that the shares are transferable like any other movable property. The only restriction on the transfer of shares of a company is as laid down in its articles, if any, and a restriction which is not specified in the articles is not binding either on the company or on the shareholders. The vendee of the shares cannot be denied the registration of the shares purchased by him on a ground other than that stated in the articles.
Krishna Paul v. Calcutta Chemical Co. Ltd. - (2002) vol. 110 CC 336 & Devaraj Dhanram v. Firebricks and Potteries Pvt. Ltd. - (2003) 117 CC 380 - to show that the price at which one sells the shares is of no concern of the company, while registering the transfer of shares.
Prafulla Kumar Rout v. Orient Engineering Works P. Ltd. -(1986) 60 CC 65 - to show that if the board of directors approves the transfer of shares, it cannot be challenged, provided the mandatory provisions of Section 108 are duly complied with. Further by virtue of Section 12 of the Indian Stamp Act, 1899 it should be ensured that the adhesive stamps on any instrument chargeable with duty shall be cancelled in such a way that it cannot be used again, irrespective of whoever affixed the adhesive stamp to the instrument.
Maruti Udyog Limited v. Pentamedia Graphics Limited - (2002) 111 CC 56 - to show that in normal commercial practice, when shares are pledged with blank transfer forms, the pledge has the option of retaining the shares without registering the transfer in his name or get the shares registered in his name. Both the practices are in vogue.
Unity Company Private Ltd., v. Diamond Sugar Mills - - to show that Section 108 does not apply to involuntary sales and, therefore, non-compliance with the requirements of Section 108 does not render the sale of shares in enforcement of lien under the articles of the company illegal and invalid. Section 108 would apply in the case of a voluntary transfer or sale of shares by registered holder.
Gujarat Industrial Investment Corporation Ltd. v. Sterling Holiday Resorts (India) Ltd. - (2005) 124 CC 390 - to show that except Sub-section (1) of Section 108, other provisions, viz., Sub-sections (1A), (1B), (1C) are directory and not mandatory in nature. This decision has been affirmed on an appeal by the Madras High Court in CMA No. 3223/2004.
9. Shri Chotoo Sud, in his rejoinder submitted: The Company produced the original minutes of the board of directors containing the resolution dated 29.03.1996 approving the transfer of 30,000 shares by the third respondent company in favour of the fourth respondent company. But, each page of the minutes book was not signed by the Chairman of the meeting. The Chairman had not initialled each page of the minutes. The minutes book has not been maintained in accordance with Section 193 of the Companies Act. Hence, no reliance could be placed on the minutes in dispute.
10. I have considered the arguments advanced on behalf of the petitioner and the respondents. The issues which arise for my consideration are (a) whether the transfer of shares impugned in the company petitions (CP 7/2000 and CP 291/2001) are violative of Articles 12, 13 and 14 of the articles of association of the Company and the provisions of Section 108(1) of the Act and (b) if so, whether the register of members of the Company shall be rectified by deleting the names of the respondents 4 to 7 in respect of the shares impugned in the company petition CP 7/2000 and the names of respondents 2, 3 & 4 in respect of the shares being the subject matter of company petition (CP 291/2001).
The preliminary objection raised by the learned Senior Counsel that the petitioner has invoked the provisions of Section 111, without satisfying the requirements is unfounded in view of the fact that a petition under Section 111(4) can be filed by an aggrieved person or the company or any member so long as he establishes that the name of any person is entered or omitted from the register of members "without sufficient cause", as held in Tracstar Investments Limited v. Gordon Woodroffe Limited (supra). The answer to the contentious issues mainly depends upon as to whether the transfers challenged in the company petitions have been effected in due compliance with the relevant applicable articles and mandatory provisions of Section 108(1) of the Act. This Bench had the occasion at a prior point of time in CP 48/1996 and CP 55/2001 to consider Articles 12, 13 & 14 and the interpretation of these articles made in the order dated 30.07.2004, bearing impact on the issues before me is reproduced as under: -
"Article 12 provides that no transfer of share shall be made or registered without the previous written sanction of the Board of Directors and that no share shall be transferred in favour of an insolvent or person of an unsound mind.
Article 13 stipulates that while effecting the transfer of shares by the company every certificate of transfers must be accompanied by an instrument of transfer and that a fee of Rs. 2/- shall be payable for registration of each transfer.
Article 14 bars transfer of any share to a stranger save as provided by the Articles of Association of the Company.
A combined reading of the aforesaid Articles unequivocally shows that the Board of Directors have wide powers to allot shares for full value or transfer shares levying a fee of Rs. 2/- for each transfer in favour of any member or a non-member, not being a insolvent or person of unsound mind provided such allotment or transfer of shares is made with the previous sanction of the Board of Directors of the Company. Thus, any allotment or transfer of shares in favour of a member or non-member is permissible with the written approval of the Board of Directors of the Company subject to fulfillment of the various conditions as provided by the Articles hereof. The Articles of Association are the internal regulation of the company according to which the Directors are bound to act, regulating the internal management of the company any act outside the Articles is irregular unless ratified by the members. The Articles in the instant case require previous sanction of the Board of Directors of the Company for every transfer or registration of shares in favour of any member or non-member. The concept of previous sanction of the Directors has been interpreted by the Apex Court in John Tinson and Co. Pvt. Ltd. v. Mrs. Surjeet Malhan (Supra) in the following words. "The concept of previous sanction of the Directors connotes that there should he a written resolution accepting the transfer from shareholder in favour of transferee and such previous sanction should be preceded by handing over of the shares. In absence of such an action the transfer of the shares held by shareholder in favour of the transferee was not valid in law".
The order dated 30.07.2004 made in CP 48/1996 and CP 55/2001 was taken on an appeal by the petitioner herein, before the High Court of Calcutta and the High Court was pleased by an order dated 27.09.2004 to dismiss the appeal, thereby the order of the CLB became final and therefore, binding upon the parties to the present proceedings. It is reported that the respondents 4 to 7 (CP 7/2000), who are not members of the Company had acquired the impugned shares from the respondents 2 & 3. Article 14 prohibits transfer of any share to a stranger excepting as provided by the articles. Article 12 contemplates that no transfer of shares shall be made or registered without the previous written sanction of the board of directors. The Company did not choose to produce the minutes book of the board of directors containing the resolutions passed on 09.04.1997 and 08.01.1999 approving the transfer of shares acquired by way of gift in favour of respondents 4 to 7, in spite of the demand made by the petitioner. In the absence of the original minutes book of the board of directors or any other document in original evidencing the fulfillment of the requirements of Article 12 in respect of the transfer of impugned shares in CP 7/2000, it could not conclusively be held that the requirements of Article 12 are duly satisfied in regard to registration of transfers in favour of respondents 4 to 7. Furthermore, Article 13 stipulates that a fee of Rs. 2/- shall be payable for registration of each transfer. Though the Company has produced copies of the communication dated 16.08.1996 and 04.01.1999 allegedly received from the respondent Nos. 4 to 6 to show that the transfer fee has been remitted by the respective transferees, yet, I do not find any material evidencing payment of the transfer fee by the transferees in terms of Article 13. The petitioner constantly demanded the Company to produce the books of account maintained in regular course of business, but were never produced by the Company substantiating the requirements of Article 13, while effecting registration of the impugned transfers. In these circumstances, I am bound to draw an adverse inference against the Company for non-production of the original minutes book of the board of directors and books of account as held in Ramdas Oil Mills v. Union of India (Military Deptt,) & Shri Kishan Rathi v. Mondal Brothers And Co, (Private) Ltd. (supra). Needless to observe that the provisions contained in Section 108(1) are mandatory in nature and further that unless the procedural requirements including remittance of the fee for registration of the transfer of shares as specified by the articles are fully complied with, the transfers cannot be valid as held in (a) Jagatjit Industries Ltd.; (b) Galaxy Pet Packaging Pvt. Ltd.; (c) Quick Return Investment Co. Ltd. v. Mohan Meakin Ltd.; Mathrubhumi Printing And Publishing Co. Ltd. v. Vardhaman Publishers Ltd.; P.V. Chandran v. Matahar And Pioneer Hosiery P. Ltd. (supra). The plea that the petitioner belatedly complained about non-payment of the transfer fee does not merit any consideration, as the same is a mandatory requirement. In these circumstances, it would be futile to go into rest of the claim and counter claim of the contesting parties as to whether the transfer forms without the full particulars of the impugned shares satisfy the requirements of Section 108(1) or are adequately stamped or properly cancelled in terms of the provisions of the Stamp Act etc. According to the Company, the transfers impugned in the company petition (CP 291/2001), viz., (a) 30,000 shares in favour of the fourth respondent; (b) 2,000 shares in favour of the third respondent; and (e) 27,053 shares in the name of the second respondent were approved by the board of directors at the meetings held on 29.03.1996, 14.10.1997 and 22.12.1997 respectively. There is no material furnishing the particulars of the board meeting, wherein the transfer of 30,000 shares was reportedly approved in favour of the second respondent. These transfers are seriously disputed as violative of Articles 12, 13, 14 and the mandatory provisions of Section 108(1), in which case, duty is cast upon the Company to prove that these transfers were effected in due compliance with the requirements of the relevant applicable articles and Section 108(1) of the Act. The Company failed to produce the original minutes book containing the various board resolutions of the board of directors, approving the impugned transfers. When it is the specific case of the petitioner that he never executed any share transfer form transferring his 2,000 shares in favour of the third respondent company and insisted for production of the original transfer form said to have been executed by him, the Company did not choose to cause production of the transfer form on the plea that the provisions of Section 108(1) need not be complied with in case of involuntary transfers. This does not hold good, when the transfer itself is not free from doubt. Though the Company produced the original minutes book containing the resolution dated 29.03.1996 approving the transfer of 30,000 equity shares by the third respondent in favour of the fourth respondent, yet, it is found that the minutes book does not meet the requirements of Section 193 of the Act, as rightly pointed out by the petitioner, in which case, no presumption under Section 195 can be drawn on the validity of such minutes, in support of which beneficial reference is invited to the decision reported in Mrs. Senthamarai Munusamy v. Microparticle Engineers Private Limited and S. Munusamy v. Micromeritics Engineers Private Limited and Ors. - (2002) (3) CTC 661. Against this background, the decisions cited in support of the claim of the respondents do not go in their aid. When the Company failed to prove that the impugned transfers are in compliance with the legal requirements, there is no need to go into the other contentious issues in regard to the reported inadequacy of prices offered for acquisition of the impugned shares or applicability of the provisions of Section 300, while approving the transfers or the manner of acquisition of shares by the respondents as claimed by the petitioner or the validity of the board meeting of the Company reportedly held on 29.03.1996 without notice to the petitioner or genuineness of the transfer form said to have been executed by the petitioner. The plea that the respondents are lawful shareholders as borne out by the annual returns of the Company docs not merit any consideration in view of the fact that by virtue of Section 164, the annual returns are not conclusive evidence but only prima facie evidence, furthermore, there are no annual returns produced before the Bench substantiating the Company's claim in this behalf. In view of the foregoing conclusions, I am of the considered view that the respondents failed to establish that the transfers impugned in these company petitioners are in due compliance with the relevant applicable articles of association of the Company and the mandatory requirements of Section 108(1), and therefore, I direct that the register of members of the Company shall be rectified by deleting the names of the transferees covered by the impugned transfers in these two company petitions within thirty days from the date of receipt of the order. This docs not prohibit the parties to the impugned transfers to take appropriate initiative for giving effect to the transfer of shares by properly following the requirements of articles of association of the Company and meeting the mandatory provisions of Section 108(1) of the Act. With these directions, both the company petitions stand disposed of. There is no order as to cost.