TMI Blog1988 (7) TMI 348X X X X Extracts X X X X X X X X Extracts X X X X ..... allowing Carritt Moran and Co. P. Ltd. ("Carritt Moran") to act as tea-broker of the defendant-company and allowing one Debu Chatterjee to act as manager of the defendant-com pany's Narayanpur Tea Estate both pursuant to the company's board resolutions ; ( d )injunction restraining the defendant-company from giving effect or further effect to the transfer of any of the 1,348 shares mentioned in annexure 'A' to the petition and from allowing any right to be exercised in respect of such shares including the voting rights or receiving any dividend ; ( e )injunction restraining defendants Nos. 2 to 9 from using any funds of the defendant-company for the purpose of defending the pending proceedings under section 155 of the Companies Act, 1956 (Companies Act), and appeal pending before the Central Government under section 111 of the Companies Act; ( iii )An order directing the administrator and/or special officer to be appointed to conduct and preside over the company's seventy-fourth annual general meeting which was for the financial year ended on March 31, 1986, with ancillary directions upon the administrator and/or special officer regarding such meeting ; ( iv )And for ad in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting 7.1% of the defendant-company's paid-up capital, were added as parties to the suit. As a result of the said order, persons having purchased shares constituting about 18.7% of the paid-up capital of the company were added as parties to the suit supporting the plaintiffs. Supplementary affidavits have been filed by or on behalf of such persons putting on record their support to the plaintiffs. On September 4, 1986, the learned company judge passed an order on one of the applications made under section 155 directing rectification of the register of members of the defendant-company in respect of 56 shares purchased by one Champalal Dharewa. It is contended by the plaintiffs that in spite of such order, no rectification has been made and an application for contempt is pending in respect of the same. On the eve of the annual general meeting, the applicants whose applications under section 155 were pending, obtained orders from Justice Mrs. Monjula Bose in the said company proceedings appointing special officers, to exercise voting rights in respect of the shares purchased by them but not registered by the company in accordance with their wishes, at the ensuing adjourned annual g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to the plaintiffs, 44 persons have filed three separate affidavits through three deponents, Nav Ratan Surana, Suresh Kumar Kanoi and Jaga-dish Chandra Ghosh claiming to have purchased 3,369 shares. The plaintiffs rely on an affidavit of the first plaintiff affirmed on January 6, 1987, filed before the appellate court showing that the plaintiffs have the support of persons holding 6,157 shares. Two main disputes are involved in this application. The first dispute relates to transfer of shares and non-registration thereof. The second dispute relates to the alleged mismanagement of the affairs of the company and oppression of the plaintiffs and their supporters who have purchased shares and have allegedly failed to obtain registration thereof in alleged breach of the provisions of the Companies Act and the company's articles of association. I shall deal with these two controversies separately. The broad facts relating to the first dispute as regards the transfer of shares and the alleged non-registration thereof are as follows : The board of directors of the company comprised the Sahas holding only 3,690 shares out of the total paid-up capital of 16,000 shares of Rs. 100 each ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Such devices, inter alia, were issue of advertisements by the defendant company in various newspapers, stating that the original share certificates have been "reported to be lost" and if no objection was received within 15 days, duplicate share certificates would be issued. Such advertisements were issued in respect of 152 shares held by 16 shareholders. Before issuance of such advertisements, no request was made to the defendant company by the registered shareholders stating that the share certificates have been lost and duplicate share certificates should be issued in their favour. Nonetheless, such advertisements were issued in newspapers by the defendant company. It is further contended by the plaintiffs that issuance of duplicate share certificates are in violation of the Companies (Issue of Share Certificates) Rules, 1960. No board resolution of the company has been disclosed showing any authority of the board to issue either such advertisements or duplicate share certificates and yet on the basis of such duplicate share certificates transfer of about 152 shares in favour of the present management and their nominees are shown to have taken place. On these transfers, in som ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but the company, however, sent to the fourth plaintiff a copy of the letter addressed to Durga Prasad Agarwalla questioning the transfers and as to the reasons for not withdrawing the dividend for the year 1983-84 and lack of response to the advertisements in newspapers. The attitude of the company, however, remains unexplained. The failure of the registered shareholder in not collecting the dividend or encashing the dividend warrant cannot be a relevant consideration in dealing with an application for transfer of shares by the company particularly having regard to the fact that even according to the company, the registered shareholder was alive and was still a member. It prima facie appears to me that this is an irrelevant consideration for the board of directors in exercising their powers of refusal to transfer the shares. Whether the defendant company and its board have power under clause 39 of the company's articles of association to refuse approval of transfer of the fully paid-up shares over which the company has no lien is a matter for the company court to decide. Suffice it to say at this stage that deciding the question about the balance of convenience, the court may tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst the company and its officers relating to the transfer of the said six shares. The transfer of the said shares in favour of Rabin Malakar is thus prima facie not tenable in view of the circumstances in which the duplicate share certificates were issued and on the basis of which the transfer in his favour was made and approved. No doubt the number of shares involved is small. It will not tilt the balance one way or the other. But the method by which the transfer of the said shares has been brought about discloses a serious mismanagement in the affairs of the company. This fact has to be taken into account in dealing with the allegations regarding mismanagement in the affairs of the company. It also lends support to the grievance of the petitioner that Dipankar Chatterjee, by illegal methods, has been trying to acquire more shares in the company and bring about registration thereof in his name and in the name of his nominees with a view to create a semblance of majority in his favour. The company, in its affidavit-in-opposition filed before the appellate court, produced a list of transfers of 286 shares which, according to the company, were approved by the board and mutation t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is alleged in the said affidavit that share certificates in respect of the said four shares were "issued"to the said Ram Lal Agarwala and the same were "lost or destroyed" "though those were returned"to him by the company. The said Ram Lal Agarwala has further stated in the said affidavit that he has "filed a request to the company" for issuance of duplicate certificate for the said shares. The meaning of such statements is not at all clear. A company can issue share certificates or even duplicate share certificates only to a registered shareholder and that too only if the duplicate share certificates have been issued lawfully and properly, of which there is no proof or evidence in the instant case. It is not also clear as to why the share certificates should have been returned to Ram Lal Agarwala which necessarily indicates that the share certificates were previously made over to the company. If so, by whom and its purpose is not at all clear. This document purports to give an indemnity and is understamped and liable to be impounded. The contention of the defendants is that the first, second and third plantiffs held only 62 shares. The other plaintiffs are not yet members of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t this. The transferors of such shares have voted at the annual general meeting after mutation of the said shares and it is not possible to ante-date the transfer of such shares as alleged by the plaintiffs. It may be mentioned that the plaintiffs took objection to this contention that the annual return, not referred to in any pleadings of the defendants, would support the contention of the company. The appellate court directed the votes in respect of 779 shares to be recorded separately. One does not know how the votes in respect of the balance 569 shares out of 1,349 shares were cast, inasmuch as the report of the chairman is silent on this point. In any event, only 286 shares had been transferred during the year 1986. It may be mentioned here that the plaintiffs have taken serious objection to this contention inasmuch as the defendants did not disclose any records of the company in support of this contention. Regarding the shares of Durga Prasad Agarwalla and seven other joint holders, it was contended that only a small lot of six shares was involved in the transaction and under the articles, the directors had a discretion to approve the transfers without a succession certif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut any jurat. The plaintiff's further complaint is that it appears from the endorsement made on the said document that the company has issued duplicate share certificates on the basis of the said illegal and improper document. One Bhabesh Chandra Roy made an application to the company on February 27, 1987, for mutation of two shares standing in the name of his deceased father, Debendra Nath Roy, but he could not produce the original share certificate along with his application for transmission on the ground that the same was mislaid. Strangely enough, he subsequently forwarded the share certificates to the company after he came to know that the notice sent by the company in the year 1982 by registered post with acknowledgment due had been returned by the post office to the company on February 26, 1987, with the remarks "addressee deceased". A strong comment was made on behalf of the plaintiffs on this letter to the effect that by no stretch of imagination, the said Bhabesh Chandra Roy could come to know of the return of the said letter by post office to the company and particularly on February 26, 1987, and on the very next day, i.e. , on February 27, 1987, he could not have sen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeting can have no bearing on the question as to the legality and validity of the impugned transfers of the shares. The appellate court did not enter into any controversy as to the legality and validity of the impugned transfers of the shares. The said question has been left open to be decided by the trial court at the time of hearing of the suit. At this stage, I am only concerned with whether the impugned transfers and/or transmissions of shares are valid and legal. The appeal court directed the votes to be recorded separately in the case of disputed transfer of shares. At this stage, it cannot be decided finally as to whether the transfers and transmissions of shares are valid and legal or not The direction of the appeal court, as it appears is to ascertain, pending the prima facie adjudication of the question as to the legality and validity of the impugned transfer of shares, whether the management in office has a clean and substantial majority to warrant their continuance in office. This exercise is more relevant for the purpose of considering the balance of convenience rather than the prima facie adjudication of the question of legality and validity of the transfer of shares. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hts in respect of the shares, although his name may not be recorded in the register of members. Under section 5 of the Enemy Property Act, 1968, the enemy property vests in the Custodian of Enemy Property. It is, therefore, seen that the Custodian of Enemy Property is the legal owner of the shares. Reliance has been placed by the petitioners on the articles of the company and more particularly article 78 read with articles 44 and 45, whereunder, the executor and legal representative of a deceased member, any committee or guardian of a lunatic or minor member or any person entitled to transfer in consequence of death, bankruptcy or insolvency of any member, is entitled to exercise voting rights, although not a member. On the same analogy, the Custodian of Enemy Property is also entitled to exercise voting rights since the property in the shares vests absolutely in him. There is no infirmity in the Custodian of Enemy Property exercising voting rights in respect of the said 144 shares. There is also ho infirmity in the special officer exercising voting rights. The special officers have exercised voting rights in pursuance of various orders passed in company proceedings to which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enounced the world, the power of attorney executed by Nityananda Saha stood revoked and extinguished and his constituted attorney was not entitled to exercise voting rights. In this context, it may be mentioned that the chairman has not decided on the validity of the votes cast by the said constituted attorney of Nityananda Saha. It has not been conclusively proved that Nityananda Saha has renounced the world ; on the other hand, the petitioners have contended that Nityananda Saha, although a Sanyasi, has not renounced the world. Dividends are being received and collected by Nityananda Saha and there is no reason why the votes cast by Nityananda Saha should be rejected. The next head of grievance of the plaintiffs is mismanagement of the affairs of the defendant company by Dipankar Chatterjee and the members of his group. According to the plaintiffs, the working results of the defendant company have deteriorated since the assumption of control by Dipankar Chatterjee and his group. This would be apparent even from the partially disclosed working results of the company and from the previous audited balance-sheets of the defendant company. For the year ended March 31, 1984, the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... volved in company proceedings under section 397 but the implication of this contention is not at all clear. It is accepted by the defendants that the said Carritt Moran have given loans to Dipankar Chatterjee for buying shares in the company and one finds that the said Carritt Moran has replaced the previous tea brokers. Such replacement has been rewarding and profitable for the new tea broker, Carritt Moran. The satisfaction of Carritt Moran as to the solvency of Dipankar Chatterjee for the loans incurred is no answer to the allegation of mismanagement of the affairs of the defendant company. The allegation is not that the company has received any loans from Carritt Moran without having the means to repay. Hence, the satisfaction, if any, of Carritt Moran as to the solvency of Dipankar Chatterjee to repay the loans is beside the point. As a further instance of mismanagement, the plaintiffs have contended that the value of 21,633 kgs. of tea dust lying in stock during the year 1984-85 has been valued in the balance sheet for the year ended on March 31, 1985, at Rs. 1,29,798, but the value of the stock of 10,548 kgs. of tea dust in the following year 1985-86 has been shown to be n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder passed on September 17, 1986, has left the question of the validity of the annual general meeting to abide by the results of this application. In view of the absence of prima facie evidence being produced by the company in support of the impugned transfers of 1,348 shares and having regard to the unsatisfactory evidence produced in respect of the transfers and/or transmissions of some of the shares, it cannot be said that the votes in respect of the said 1,348 shares or a part thereof, in favour of the present management, were validly cast. As a result, the support of the majority, claimed by the management, cannot be upheld. Hence, it is not possible to allow the defendants to give effect to the results of the said annual general meeting as claimed by them at this stage. In view of the aforesaid facts and circumstances, it is just and proper that the interest of the petitioners, their supporters and all other shareholders of the company should be protected. Sections 397 and 398 of the Companies Act, 1956, confer a right on the shareholders who have the requisite qualification under section 399 of the said Act to apply to the court for appropriate reliefs. These sections do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bidden by statute, no court can lend its assistance to give effect to it. Therefore, the company, by registering the transfer of shares, was obviously permitting the transfer and such action on the part of the company, being in violation of the prohibition, is contrary to law. It is an admitted fact that a large number of shares have been transmitted and, thereafter, transferred on the same day. It appears that the persons in whose favour the shares were transmitted executed the transfer deeds even prior to their becoming registered members although they had no absolute interest in the shares on the date when the transfer deeds were executed. Such transfer deeds are, therefore, invalid and not in compliance with the provisions of section 108 of the Companies Act, 1956. In this connection, the case of Asha Misra may be referred to. On the date of execution of the transfer deeds, Asha Misra had no absolute title to the shares in question and consequently the transfer of shares in favour of Arun Kumar Saha and Purnima Saha is invalid and void. On the one hand, the persons in management are increasing in strength day by day by execution of several invalid and/or void transfers and, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cas 292 (Mad), the Division Bench of the Madras High Court held as follows (at page 294 of 19 Comp Cas) : "Very many points have been argued on behalf of respondent No. 3 and the two members of his faction who filed I. A. No. 54 of 1949. The first is that the court had no jurisdiction to appoint a receiver in a going concern like Ramaswami and Co. Their learned advocate seeks as authority for that contention a brief dictum to be found at the conclusion of the judgment of Greaves J. in Kailashchandra Dutta v. Saddar Munsif, Silchar [1925] ILR 52 Cal 513 at page 521 ; AIR 1925 Cal 817. There, the learned judge said without giving any reasons : '. . . there is no jurisdiction in a court to appoint a receiver of a company. If it is necessary to protect the assets of a company, other means must be sought which are provided by the provisions of the Companies Act.' We find no provision in the Companies Act which excludes the jurisdiction of a court to appoint a receiver ; though since the Companies Act makes provision for dealing with the circumstances in which a company is mismanaged, it should not be necessary in the vast majority of cases to appoint a receiver. It might even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e strained relations between the parties and the various litigations, civil and criminal, to which reference has been made by us before, we are not able to say that the learned civil judge did not exercise a proper and judicial discretion in appointing a permanent receiver in this case. The interim receiver operated for a period of nine months and the permanent receiver has been working for another nine months. The appellant's counsel has not been able to show that the management of the undertaking has in any way suffered by the financial control which the lower court has vested in the receiver. We are not oblivious of the fact that the company in question is a public utility concern, but that by itself is, in our opinion, no sufficient ground for refusing to provide a check in the shape of a receiver over the financial management of the concern, the title of which is seriously in dispute between the plaintiffs and the defendant. The learned civil judge came to the conclusion that it was just and convenient in the interest of the safety of the property and its preservation from destruction and dissipation that a receiver should be appointed. We are not disposed to say, on the mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mes to come but it may, for a limited period and for limited purpose, appoint a receiver or a special officer to take over the management. The present management is bent upon remaining in power by any means. They have rejected registration of transfer of shares for the said purpose so that no change takes place in the composition of the board of directors. If the present board is allowed to continue, they will resist such transfers being registered perpetually and remain in power as long as they want to. The conduct of the present board does not inspire confidence. Before I part with this case, I must dispose of another contention which has been raised by the defendants. The objection of the defendants as to the non-joinder of necessary parties, i.e. , the persons in whose names the shares have been transferred and which is being challenged by the plaintiffs, for the purpose of the present interlocutory application, cannot be upheld for the simple reason that without investigation into the impugned transactions of transfer of shares, the full particulars as to the persons in whose favour the shares Have been transferred, as to that number of shares, date of transfer and mutati ..... 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