1994 (7) TMI 254 - HC - Companies Law

Summary

Issues Involved:
1. Validity of share transfers under the Companies Act, 1956.
2. Alleged violation of Articles of Association.
3. Waiver and acquiescence by the appellants.
4. Discretionary nature of relief under Section 155.
5. Suppression of material facts by the appellants.
6. Interpretation of Articles 7 and 8 of the Articles of Association.

Issue-wise Detailed Analysis:

1. Validity of Share Transfers under the Companies Act, 1956:
The appellants contended that the transfer of shares was illegal as it violated the mandatory provisions of Sections 108 and 108(1A) of the Companies Act, 1956. They argued that the share transfer forms utilized were stale, being more than two months old from the date of their presentation. The respondents, however, claimed that the transfers were based on a second set of valid forms. The learned Company Judge upheld this contention, finding that the transfers were indeed registered on the basis of fresh forms, not the stale ones.

2. Alleged Violation of Articles of Association:
The appellants argued that the transfer of 1,318 shares from respondent No. 6 to respondent No. 3 violated Article 7 of the Articles of Association, which mandates that shares intended for sale must first be offered to existing shareholders. The respondents countered that Article 8, which allows transfers between existing members without such an offer, applied in this case. The court found merit in the respondents' interpretation, concluding that Article 7 did not apply to intra-member transfers.

3. Waiver and Acquiescence by the Appellants:
The respondents argued that the appellants had waived their rights to object to the transfers by their acquiescence. The appellants had participated in board meetings on 31-3-1990 and 14-4-1990, where the transfers were discussed and approved without any objection. They also did not object during the extraordinary general meeting on 4-4-1990 and the annual general meeting on 17-9-1990, where the transferees exercised their voting rights. The court agreed, finding that the appellants had actively participated in and approved the transfers, thereby waiving their right to object.

4. Discretionary Nature of Relief under Section 155:
Section 155 of the Companies Act, 1956, which was subsequently deleted, provided courts with the discretionary power to rectify the register of members. The court emphasized that this relief is equitable and discretionary, not a matter of right. It noted that considerations such as delay, laches, and acquiescence are relevant in deciding whether to grant relief. The court cited several precedents to support this view, including Benarsi Das Saraf v. Dalmia Dadri Cement Ltd. and T.V. Somasundaram Pillai v. Official Liquidator.

5. Suppression of Material Facts by the Appellants:
The respondents contended that the appellants had suppressed material facts, such as their participation in board meetings and the transferees' exercise of voting rights. The court found this argument persuasive, noting that the appellants' petition was silent on these crucial facts. This suppression of material facts was seen as a deliberate act, further disentitling the appellants from claiming relief.

6. Interpretation of Articles 7 and 8 of the Articles of Association:
The court examined Articles 7 and 8 in detail. Article 7 requires that shares intended for sale be first offered to existing shareholders, while Article 8 allows transfers between existing members without such an offer. The court found that Article 8 applied to the transfers in question, as they were between existing members. This interpretation aligned with the overall scheme and object of the Articles, which aim to prevent outsiders from acquiring shares without giving existing members the first right of refusal.

Conclusion:
The court dismissed the appeal, upholding the learned Company Judge's findings. It concluded that the appellants had not made out a case for relief under Section 155, given their waiver, acquiescence, and suppression of material facts. The interpretation of Articles 7 and 8 further supported the validity of the share transfers. The court left other questions, including the mandatory nature of Section 108(1A), open for future consideration.