2007 (11) TMI 681 - Board - Companies Law

Summary

Issues Involved:
1. Legality of the transfer of shares.
2. Compliance with Section 108 of the Companies Act, 1956.
3. Maintainability of the petition under Sections 397 and 398 of the Companies Act, 1956.
4. Delay and laches in filing the petition.
5. Allegations of fraud and destruction of company records.
6. Petitioner's qualification under Section 399 of the Companies Act, 1956.
7. Alternative remedy under Section 111 of the Companies Act, 1956.

Detailed Analysis:

1. Legality of the Transfer of Shares:
The petitioner alleged that the transfer of his 5,001 shares (50% shareholding) in the company to respondent No. 2 was illegal, as there was no legally valid instrument of transfer or transfer deed executed by him. Consequently, the further transfer of 2,500 shares by respondent No. 2 to respondent No. 3 was also deemed illegal. The petitioner sought a declaration that the transfer was null and void and requested the restoration of his shares and rectification of the company's register of members.

2. Compliance with Section 108 of the Companies Act, 1956:
The petitioner argued that, according to Section 108 and the articles of association, the transfer of shares must be accompanied by a valid and legally executed instrument of transfer, which was not produced by the respondents. The absence of such a document rendered the registration of the transfer void ab initio. The petitioner cited precedents to support this argument, emphasizing that without a legally valid instrument, the transfer could not be registered.

3. Maintainability of the Petition under Sections 397 and 398 of the Companies Act, 1956:
The respondents raised a preliminary objection, arguing that the petitioner was not a member of the company as per the register of members and therefore, did not have the right to file a petition under Sections 397 and 398. The petitioner had to establish his right to apply under Section 399 of the Companies Act, 1956, which he failed to do. The court referred to the case of Ved Prakash v. Iron Traders P. Ltd., which held that only members listed in the register could maintain a petition under these sections.

4. Delay and Laches in Filing the Petition:
The respondents argued that the petitioner had delayed filing the petition, as the alleged illegal transfer occurred in 2003, but the petition was filed in 2007. The petitioner claimed he discovered the illegal transfer in February 2007, but the respondents highlighted that no explanation was provided for the delay from 2003 to 2007. The court cited precedents emphasizing that a slothful party is not entitled to discretionary relief due to unexplained delays.

5. Allegations of Fraud and Destruction of Company Records:
The petitioner alleged that the respondents had destroyed statutory records and documents to cover up the illegal transfer of shares. During an inspection ordered by the Company Law Board, the respondents failed to produce the required documents, indicating possible destruction of evidence. The petitioner argued that these actions constituted continuous acts of oppression and mismanagement.

6. Petitioner's Qualification under Section 399 of the Companies Act, 1956:
The petitioner did not meet the necessary qualifications under Section 399 to file a petition under Sections 397 and 398, as he was not listed as a member in the company's register. The court emphasized that the petition under these sections must be accompanied by documentary evidence proving the petitioner's eligibility and status as a member with the requisite voting power.

7. Alternative Remedy under Section 111 of the Companies Act, 1956:
The court noted that the petitioner's case could be remedied under Section 111 of the Companies Act, 1956, which deals with the rectification of the register of members. Since the petition was not maintainable due to non-qualification under Section 399, the petitioner was advised to pursue this alternative remedy.

Conclusion:
The petition was dismissed on the grounds of non-qualification under Section 399 of the Companies Act, 1956. The court did not address other preliminary objections regarding delay, laches, and the petitioner's conduct, nor did it delve into the merits of the case. All interim orders were vacated, and no order as to costs was made.