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1. This judgment shall govern, special appeals Nos. 108 to 111 of 1963 which arise out of tour applications under Section 155 of the Companies Act, 1956, for rectification of registers of members. Special Appeal No. 108 of 1963 is against the orders of the Company Judge passed in company case No. 16 of 1962 initiated on the application of Manna Lal Khetan against Lakshmi Devi Sugar Mills (Private) Ltd. Chhitauni, distt. Deoria, Kedar Nath Khetan and his adopted son, Gauri Prasad Khetan, and R. N. Chavan, special Mamlatdar and Receiver appointed by the Collector, Bombay, in recovery proceedings against Kedar Nath Khetan Mitanand and Mata Din Hari Ram. Special Appeal No. 109 is against the decision in company case No. 17 of 1962 started on the application of Manna Lal Khetan, Matadin Khetan, Bhagwati Prasad Khetan, sons of Seth Hari Ram Khetan, and Smt. Mahadbiri Devi widow of Seth Hari Ram Khetan against Lakshmi Devi Sugar Mills (Private) Ltd. Chhitauni, distt. Deoria, Durga Prasad Khetan, Gauri Prasad Khetan and Sri R. N. Chavah, special Mamlatdar.

4. The agreements were entered into on 12-8-1957 and changes were made in the registers of members in the year 1959. The present applications for rectification were made in 1962. The Company Judge has recorded the finding that the agreements of 12-8-1957 were not instruments of transfer and in view of S. 108 of the Companies Act, 1956 the companies could not make alterations in the registers of members and the alterations made were consequently unauthorised and illegal; that the transfer of the bulk of the shares in question was illegal and void because they were under attachment in pursuance of certificates issued by the Additional Collector of Bombay, and that the remaining shares which had not been attached but had been surrendered to the Receiver appointed by the Collector of Bombay along with blank instruments of transfer could not be registered in the name of any one other than the Receiver himself or a person to whom the Receiver may transfer or may have transferred such shares. The Company Judge was thus of opinion that the alterations made in 1959 in the registers of members were contrary to law and were ineffective. He consequently directed rectification of the registers of members by restoring the names of the original holders as they stood before the alterations were made in 1959.

9. When the Court refuses to enter into complicated question of title in a proceeding under Section 155 of the Companies Act, 1956, the question of burden of proof becomes of importance considering that if the burden lay upon the applicant the application under Section 155 can be dismissed summarily, of course, leaving it open to him to seek remedy before a civil court. But if the applicant establishes that the company had acted fraudulently or had acted illegally by disregarding the mandatory provisions of the law, he discharges the burden which initially lay upon him and thereafter the burden shifts to the company to show that the alterations were made with sufficient cause i.e. if the company had applied under Section 155 the Court would have ordered rectification of the register or members in the same manner as the company had done, though illegally. This is based upon the general rule- that no one can be permitted to derive undue advantage of a fraudulent or illegal act of his and, parties must be relegated to the position they occupied before the fraudulent or illegal act was done unless under the law the improper act can be condoned. Consequently, even though the application for rectification is made by one party, the Court can pass an order keeping in mind what it would have done had the other party, namely, the company, not acted illegally but applied for rectification of the register of members.

10. No case law directly applicable to the facts of the instant case had been brought to our notice, but the procedure adopted in P.V. Damodara Reddi v. Indian National Agencies Ltd., AIR 1946 Mad 35 is in consonance with the law as laid down above. Therein the directors of the company cancelled the allotment of shares to the applicants, and thereafter the names of the applicants were removed from the register of members. It was held that the directors of the company had no power to make alterations to the register and the (remedy of the company was to apply to the Court under Section 38 (corresponding to Section 155 of the 1956 Act) for the rectification of its register and not to take upon itself to alter the register. Hon. Clerk, J. then considered if the allotment of shares to the applicants was valid, and after recording a finding in their favour directed rectification of the register of members as prayed for by the applicants. In other words, the application for rectification would have been dismissed had the allotment of shares been held to be invalid i.e. on the application of the company the names of the applicants would have been removed from the register of members.