TMI Blog1982 (1) TMI 159X X X X Extracts X X X X X X X X Extracts X X X X ..... in her name. The company instead of showing 100 shares individually in the name of the deceased showed them as jointly owned by the deceased and Raghbir Singh. Thus, it treated 200 shares to be jointly owned by both of them. It is pleaded that the petitioner came to know in February, 1972, that Raghbir Singh transferred the abovesaid shares to Raj Rani and Usha Rani, respondents Nos. 2 and 3, who were not shareholders of the company at the time of transfer. They later transferred the shares to Parkash Chand Aggarwal, respondent No. 4, who was also an outsider at the time of the transfer. According to the memorandum and articles of association of the company, the shares can be transferred to an outsider if the existing shareholders are not willing to purchase them. It is further alleged that before transferring the shares, a duty was enjoined upon Raghbir Singh to intimate the company in that regard. Therefore, the company was required to give notices to the shareholders including the petitioner to the effect that the shares were being transferred by him in favour of outsiders and in case they were ready to purchase them they could do so. But no such notice was served upon her. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usband, late Shri Madho Ram Puri, as alleged by the respondents, or 100 out of those were held separately by the petitioner individually and by her late husband indivi dually ? (4)Whether the transfer of 100 shares by Raghbir Singh, respondent No. 5, in favour of Smt. Raj Rani and Smt. Usha Rani, respondents Nos. 2 and 3, respectively, was legal and valid, and in accordance with the relevant articles of association ? (5)Whether the transfer of the aforesaid 100 shares by Smt. Raj Rani and Smt. Usha Rani, respondents Nos. 2 and 3, respectively, in favour of Parkash Chand Aggarwal, respondent No. 4, was valid, and in accordance with the articles of association of the company ? (6)Whether the register of members of the company requires to be rectified in any manner as a result of the finding on the above issues ? Issues Nos. 1 and 2. The petitioner instituted Civil Suit No. 323/1970, titled as Smt. Amrit Kaur v. Kapurthala Flour, Oil and General Mills Co. P. Ltd., for a declaration that the sale of shares in defendant No. 1 by defendants Nos. 2 to 9 in favour of defendants Nos. 10 to 14, who were not shareholders of defendant No. 1, was illegal, ultra vires and violati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res were in their joint names, that these be split and each of them be given 100 shares. On the basis of that letter, the company passed a resolution (Ex. PW 4/5) dated June 22, 1961. According to him, in the aforesaid situation, it cannot be said that Madho Ram Puri was the owner of 100 shares individually and 100 shares jointly with Raghbir Singh. I have heard the learned counsel for the parties at considerable length and given thoughtful consideration to their arguments. I have also seen all the documents carefully. It is evident from the letter dated May 10, 1961 (Ex. PW 3/1), that Madho Ram Puri admitted Raghbir Singh to be a joint shareholder with him with respect to both sets of shares and both of them requested the company that these be split and each of them be given 100 shares. It is not disputed that the letter bears the signatures of Madho Ram Puri and Raghbir Singh. The former was the director of the company. When the above letter came up for consideration in a meeting of the board of directors of the company on June 22, 1961, Madho Ram Puri, being one of the directors, was also present in that meeting. It was resolved there that the shares bearing Nos. 601 to 700 be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ster, Ex. P.W. 7/2, and the capital register, Ex. P.W. 7/5, were prepared prior to the letter dated May 10, 1961, Ex. P.W. 3/1, written by Madho Ram Puri to the company for splitting up the shares. It appears that through oversight the shares Nos. 601-700 were entered exclusively in the name of Madho Ram Puri in the relevant papers of the company and that mistake continued for a long time. The returns were prepared on the basis of the papers with the company and, therefore, wrong information was supplied to the Registrar of Companies. In view of the fact that thereafter Madho Ram Puri himself admitted that he and Raghbir Singh were joint holders of shares Nos. 601 to 700, much importance cannot be attached to the said documents. It may be relevant to point out that in the shareholders' register, Ex. P.W. 7/2, the corrections were made later and Raghbir Singh's name was added in entry relating to shares Nos. 601 to 700. It further appears from the entries against shares Nos. 601 to 700 and 701 to 800 that the former were entered in the name of Madho Ram Puri and the latter in the name of Raghbir Singh in the first instance. But later, the name of Raghbir Singh was introduced in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts are not of much help to the petitioner. After taking into consideration all the aforesaid circumstances, I am of the opinion that both the sets of shares were owned equally by the deceased and Raghbir Singh. It is not disputed that the petitioner inherited the shares of her husband to the exclusion of other heirs. Therefore, after the death of Madho Ram Puri, the petitioner and Raghbir Singh became owners of both sets of shares jointly. I decide the issue accordingly. Issue No. 4 : In order to determine the issue, it is relevant to refer to articles 20 to 23, which are as follows : "20A share may be transferred by a member or other person entitled to transfer the same to any other member holding shares who is selected by the transferor but save as aforesaid and save as provided hereinafter no share shall be transferred to a person, who is not a shareholder, so long as any shareholder is willing to purchase the same at a price fixed as hereinafter provided. 21Except where the transfer is made to a shareholder selected as aforesaid, the person proposing to transfer any share (hereinafter called the 'proposing transferor') shall give notice in writing (hereinafter ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssued. Thereafter, in pursuance of the resolution, notice was sent, vide postal certificate receipt dated February 25, 1971 (Ex. R.W. 1/2), and the petitioner did not send any reply in pursuance of that notice. Regarding the sale to Smt. Raj Rani, it is stated that she was a shareholder and, therefore, the transfer in her favour cannot be questioned by the petitioner. I have gone through the matter carefully. Even if the story of the respondent is accepted that a resolution was passed on September 7, 1969, to issue notices to the shareholders regarding purchase of shares of Raghbir Singh, the certificate of posting (Ex. R.W. 1/2) does not appear to be proper. In the said certificate, complete address of Smt. Amrit Kaur has not been given. The letter is alleged to have been posted to her at the following address : Smt. Amrit Kaur Puri and Shri Raghbir Singh, Bhagat Singh Street, Kapurthala. Kapurthala is a fairly big town and it was necessary to mention the number of the house where she was residing. At least the name of her late husband should have been given in the address. It is pertinent to mention that along with her name the name of Shri Raghbir Singh is mentione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were only three directors present in the meeting in which the resolution was passed and, therefore, it was illegal. On the other hand, the learned counsel for the respondent has urged that the quorum for meetings has been provided in section 287 of the Act and, according to that, the quorum for a meeting was l/3rd of its total strength or of two directors, whichever is higher. According to him, there could be nine directors in the company at that time and, therefore, the quorum was of three directors and, as such, the resolution was proper. In order to determine the question, it will be relevant to refer to articles 79, 85 and 98, which read as follows : "79. Unless otherwise determined by a general meeting of the company, the number of directors shall not be less than four nor more than nine and the first directors of the company shall be :... 85. The director shall have power at any time, from time to time, to appoint any person to be a director of the company either to fill a casual vacancy or as an addition to the board but so that the total number of directors shall not at any time exceed the maximum number by the articles. 98. The directors shall meet together for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above, was passed and, therefore, it is illegal. After taking into consideration all the abovesaid circumstances, it cannot be held that the company gave a notice, much less a valid notice, to the petitioner to purchase the shares of Raghbir Singh transferred by him in the name of Smt. Usha Rani. Therefore, the transfer by him in her favour is illegal. However, it is not disputed that Smt. Raj Rani was a shareholder of the company. A shareholder had a right to transfer his shares in the name of another shareholder, according to article 20. Therefore, the transfer by Raghbir Singh in favour of Smt. Raj Rani is a valid transfer. I decide issue No. 4 accordingly. Issue No. 5: I have already held above that the transfers of shares by Raghbir Singh in favour of Smt. Raj Rani was valid and in favour of Smt. Usha Rani was invalid. If Smt. Usha Rani had no interest in the shares she could not further transfer them to Parkash Chand Aggarwal, respondent No. 4. It has not been disputed that Parkash Chand Aggarwal was not a shareholder of a company and, therefore, Smt. Raj Rani could not transfer the shares in his name unless the procedure mentioned in articles 20 to 23 was followed. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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