TMI Blog1992 (1) TMI 285X X X X Extracts X X X X X X X X Extracts X X X X ..... epends upon the decision in O. S. A. Nos. 16 and 19 of 1990. However, this order will not cover O. S. A. No. 17 of 1990 arising out of Company Petition No. 48 of 1987. The petitioners in Company Petition No. 62 of 1988 are the appellants in O. S. A. No. 16 of 1990. O. S. A. No. 19 of 1990 is filed by respondent No. 2 in Company Petition No. 62 of 1988. There are six respondents in O. S. A. No. 16 of 1990, whereas there are ten respondents in O. S. A. No. 19 of 1990. Respondents Nos. 1 to 6 in Company Petition No. 62 of 1988 are also respondents Nos. 1 to 6 in O. S. A. No. 16 of 1990. They are also respondent No. 1-appellant and respondents Nos. 3 to 6 in O. S. A. No. 19 of 1990. The petitioners in Company Petition No. 62 of 1988 who are the appellants in O. S. A. No. 16 of 1990 are respondents Nos. 2, 7, 8, 9 and 10 in O. S. A. No. 19 of 1990. Company Petition No. 62 of 1988 was filed under section 155 of the Companies Act, 1956 (hereinafter referred to as "the Act"), for the following reliefs : "Wherefore, it is prayed that this hon'ble court may be pleased to : ( i )order the rectification of the register of members of the first respondent-company and declare that the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rden this judgment with the details of the same. Respondents Nos. 1 and 2 have not filed any objections to the petition. On the basis of various pleas raised by the parties, evidence was recorded. Petitioners Nos. 1, 5, 4 and 2 entered the witness-box and gave evidence as PWs 1 to 4 respectively. Respondents Nos. 3 to 6 examined four witnesses as RWs 1 to 4. RW 1 was an officer of the Canara Bank, M. G. Road branch, Bangalore. RW 2 was the sub-manager of the Corporation Bank, Nrupathunga Road branch, Bangalore, RW 3 accountant in the Canara Bank, Avenue Road branch, Bangalore, and RW 4 was executive assistant to K. L. Srihari, respondent No. 4 in Company Petition No. 62 of 1988 and O. S. A. No. 16 of 1990. The petitioners have marked seven documents out of the records produced by respondents Nos. 3 to 6 in Company Petition No. 48 of 1987. Exhibit P-1 is the share transfer form relating to Smt. Muniyamma (petitioner No. 1). Exhibit P-2 is the share transfer form of Narayanamma (petitioner No. 5), exhibit P-3 is the share transfer form of Lakshmishappa (petitioner No. 4), exhibit P-4 is the proceedings of the meeting of the board of directors of the company held on February 24, 198 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count No. 1692 of Sri M. Venkatesh, comprising the amount of the cheque drawn on Canara Bank, Avenue Road branch, Bangalore, and further giving the details of the cheque pertaining to four persons, viz. , G. N. Byra Reddy, B. Venu, Dodda Muniyamma and Aswathappa. Out of them, the last two are petitioner No. 1 and petitioner No. 2 respectively. Exhibit R-19 is another certificate issued by the Corporation Bank, M. G. Road branch, Bangalore, certifying that the entries made in the clearing register are true. Those entries relate to a sum of Rs. 2,58,000 drawn by Sri M. Venkatesh from the Canara Bank, Avenue Road branch, Bangalore, on the cheque issued by him. Exhibit R-20 is the cheque dated March 12, 1986, issued by M. Venkatesh for a sum of Rs. 2,58,000 on the Corporation Bank, M. G. Road, Bangalore, on his S. B. Account No. 1692. Exhibit R-21 is the Company Petition No. 48 of 1987 filed by the petitioners in Company Petition No. 62 of 1988 for winding up of the first respondent-company. The learned company judge first considered the scope of section 155 of the Act and held that the proceeding under section 155 was a summary proceeding and if a finding could be arrived at summar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the share transfer forms were not executed by them ; that failure of the second respondent to give evidence though he was present in the court on several dates proved that the present petition was a proxy fight between the second respondent and respondents Nos. 3 to 6. The learned company judge also came to the conclusion that even though exhibit R-21 showed the date as late as November 16, 1986, the petitioners were treated as shareholders ; however, the learned company judge was of the view that even then the question that would arise was as to why the board purported to approve the alleged transfer of shares on February 24, 1986. Therefore, the learned company judge considered it safe to fall back on the ground that the jurisdiction was discretionary, summary and was also concerned with equities. He was also of the view that the share transfer forms were executed by the petitioners and were duly attested by the second respondent, consideration was paid by the transferees and it was collected by the second respondent on behalf of all the petitioners except the fourth petitioner ; therefore, no injustice would be caused to the parties if the court declined to exercise the ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ltural purposes with a view to put up a cinema theatre. One Sri K. N. Seshadri joined the second respondent in the venture. The second respondent and K. N. Seshadri together got the first respondent-company incorporated under the Act on November 30, 1978, with the authorised share capital of Rs. 10,00,000 divided into 10,000 shares of Rs. 100 each. Initially, 6,400 shares were allotted. Out of them, 530 shares were allotted to petitioner No. 1, 250 shares to petitioner No. 2, 50 shares to petitioner No. 3, 550 shares to petitioner No. 4 and 250 shares to petitioner No. 5. These allotments were made up to June 29, 1983. Thereafter, in the board meeting held on January 9, 1985, 50 shares were allotted to Smt. Nirmala. Again in the board meeting held on March 26, 1985, 3,540 shares were allotted to the following four persons : 1. Smt. Kalavathi . . . 900 shares 2. Smt. Parvathamma . . . 840 shares 3. Sri G. R. Byrareddy . . . 900 shares 4. P. Venu . . . 900 shares Thus, by March 26, 1985, all the 10,000 shares were allotted. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case involved complicated questions as to title to the shares ; therefore, in a summary proceeding under section 155 of the Act the same could not be gone into ; that the petitioners were proxy fighters for respondent No. 2 ; that they had been set up by respondent No. 2 ; that the fact that the petitioners were illiterate did not, in any way, exonerate them from the liability arising out of the execution of the transfer forms ; that the case of the petitioners that P. K. Alwa manipulated and got up alleged proceedings by misusing the transfer forms obtained by the second respondent for the purpose of obtaining loan was false and incredible, etc. The evidence discloses that transfer forms pertaining to petitioners Nos. 1, 2, 4 and 5 were not fully filled up. They were also not duly stamped as required by section 108 of the Act. No doubt, Lakshmishappa admitted in his evidence that he had signed the transfer forms ; but he claimed that the blank transfer forms were signed for the purpose of giving to Mr. Alwa and Venkatesh respondent No. 2 gave the same to Mr. P. K. Alwa. Lakshmishappa further stated that he did not receive any consideration ; that Muniyamma, Naray ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and as to who was running the affairs of the company. P.W-3, as already pointed out, is Lakshmishappa. He admitted that he had signed the transfer form, exhibit P-3. He however, denied the suggestion that the shares were transferred and the transfer was recorded in exhibit P-4 at page 45. It was also further elicited in the cross-examination that exhibit P-3 was given to P. K. Alwa to raise loan from the bank. Similarly, Muniyamma and others also gave transfer forms for the purpose of raising a loan from the bank. It was further elicited in his cross-examination that he did not have any personal account in any bank ; that he did not know if he had a personal account in the Corporation Bank ; that he was not an income-tax assessee. It was also further elicited that he did not know respondents Nos. 3 to 6 and whether they belonged to the Khoday's group ; that he did not know anything about Universal Trading Company. of course, he went to the extent of stating that he did not know what he should do if a cheque were, to be issued in his favour by anyone. He also denied that he received a cheque for Rs. 1,58,000 from Universal Trading Co. on February 24, 1986. He denied that exhibit P- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have any account with the Corporation Bank, M. G. Road branch, Bangalore. Similarly, petitioner No. 2 also did not have any account with the Corporation Bank, M. G. Road, Bangalore. Respondent No. 2 had an account with the said bank. Of course, he was not able to state as to whose account the cheques, exhibits R-13 and R-14, were credited. He, however, stated that the cheque, exhibit R-15, was that of one Venkatesh and the same was prepared by the bank. He also spoke regarding the drawing of the amount of Rs. 2,58,000 by Sri Venkatesh-respondent No. 2. He further stated that the cheque was encashed and payment was made across the counter and as per the endorsement, the cash must have been paid to him. He identified Venkatesh who was sitting in the court when his evidence was recorded. RW 2 was the sub-manager of the Corporation Bank, Nrupathunga Road branch, Bangalore. He produced eight cheques drawn, three in favour of B. G. S. Murthy, one each in favour of Lakshmishappa, Kalavathi and Pushpa Srinath, Narayanamma and Nirmala. He also stated that he did not know any of the drawees of the cheques to whom he referred in his examination-in-chief. He also further admitted that payees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fer to sell the shares of his group. There was certain litigation between the two groups as is revealed from Company Petition No. 48 of 1987 ; that prior to the acquisition of shares by respondents Nos. 3 and 4, the first respondent-company had borrowed from the Corporation Bank, M. G. Road branch, to the tune of Rs. 21,00,000 for the purpose of constructing the theatre ; that 30 per cent, was spent for the said purpose. After the acquisition of shares, no further loan was obtained from the bank ; the shares were not pledged with the bank ; that the second respondent was behind the petitioners and it was he who was pursuing the matter. He also further stated thus : ". . . He is sitting in the court today and he has been attending the court on all the days whenever this petition is posted. Venkatesh was acting on behalf of the petitioners in the matter of dealing with shares. Venkatesh was the managing director of the company at the time he purchased the shares and he handed over the books of the company to us. All those books were maintained by the company by the previous management." In the cross-examination he stated that he did not know when Venkatesh approached Srihari and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the petitioners and it was their case also that respondent No. 2 was responsible for transfer of the shares and it was he who received the cheques and encashed the entire amount except that of Lakshmishappa, it was all the more necessary for them to examine respondent No. 2 or at least request the court to direct respondent No. 2 to make himself available for cross-examination. According to respondents Nos. 3 to 6 the second respondent effected the transfer of shares and subsequently set up the petitioners and made them to carry on proxy fight. It has escaped the attention of the learned company judge that the burden of proving that the shares were transferred in accordance with law was upon respondents Nos. 3 to 6 and not upon the petitioners to prove the transfer of shares. It is the party who asserts the existence of certain facts or wishes the court to believe in its existence, unless it is provided by any law that the proof of that fact shall lie on any particular person, the burden of proof of the existence of that fact lies on the person who asserts it. Respondents Nos. 3 to 6 have set up a plea that the shares held by the petitioners in the first respondent-company were t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it P-3. It is relevant to notice that Lakshmishappa was not confronted with the transfer forms alleged to have been executed by petitioner No. 1, petitioner No. 2 and petitioner No. 5. He has not identified the signatures and the thumb mark found on exhibits P-2, P-7 and P-1 as those of the alleged executants. There is no specific evidence on record to prove that exhibits P-1, P-2 and P-7 were executed by petitioners Nos. 1, 5 and 2 respectively. In the case of denial of execution of a document, the party who pleads the execution of a document shall have to prove by specific evidence as to the execution of the document, the signature of the executant has to be proved. In the instant case, except the general statement of PW 3, Lakshmishappa, without referring to the documents, exhibits P-1, P-2 and P-7, there is no other evidence. Not only this, the evidence on record also indicates that consideration amount had not been received by any one of petitioners Nos. 1 to 3 and 5. RW 4, Paul, has no personal knowledge about the meeting of respondent No. 2 with respondent No. 3. He has also not deposed that the amount received by RW 2 was paid over to petitioners Nos. 1 to 3 and 5. A pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Here, we would like to point out that merely because the second respondent is related to the petitioners and he represented to respondents Nos. 3 to 6 that he was the leader of the group which included the petitioners, the responsibility of respondents Nos. 3 to 6 was not over by merely paying the amount into the hands of respondent No. 2. They were purchasing the shares of the petitioners. Therefore, they were required to see that the petitioners were consenting parties to the transfer and received the consideration amount. The evidence of RW-4, Paul, goes to show that there was no effort whatsoever made by respondents Nos. 3 to 6 to get at the petitioners. They appeared to have dealt with the second respondent only. RW-4 admitted that he was not aware whether the second respondent and respondent No. 3 met once or more than once in this connection. There is no acknowledgment obtained from the petitioners for having paid the consideration into the hands of the second respondent. Apart from the share transfer forms, exhibits P-1, P-2 and P-7, pertaining to petitioners Nos. 1, 2 and 5, respondents Nos. 3 to 6 have not produced any other evidence for having paid the consideration t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bit R-3 is produced by RW 1, a bank official, who has copied it from the original. Lakshmishappa denied that he had any such account in the Canara Bank, M. G. Road branch, Bangalore. The name and address found in exhibit R-3 tallies with that of Lakshmishappa and it is produced by the bank official. There is no suggestion to RW-1 that exhibit R-3 does not pertain to Lakshmishappa. It is true that the burden is upon respondents Nos. 3 to 6 to prove the transfer of shares and payment of consideration. They should have produced better evidence by producing the cheque issued to withdraw a sum of Rs. 55,000 and also the cheques relating to several debit entries found in exhibit R-3 by issue of cheques by the account holder. If those cheques would have been produced, it would not have been difficult to point out that the account pertained to Lakshmishappa. Now, the evidence before us is that of the bank official and the actual extract of the savings bank account No. 1749 and the denial of Lakshmishappa. The savings bank account No. 1749 in the name of Lakshmishappa maintained by the bank containing debit and credit entries for the period from April, 1984, to December, 1987, in the absenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oned therein at Sl. No. 5 relates to the share transfer file. If really there was a transfer form executed by petitioner Nos. 3, it should have been found in that file. But respondents Nos. 3 to 6 have stated that the said form has not been traceable. This circumstance also goes to show that even as on November 16, 1986, the transfer of shares of the petitioners had not taken place. If it had taken place, it should have been approved and they should have ceased to be members of the company. Consequently, their names could not have been found in annexure A to exhibit R-21. The possibility of respondent No. 2 duping petitioners Nos. 1 to 3 and 5 cannot also be excluded. The petitioners, irrespective of their relationship with respondent No. 2, are in law entitled to take such steps as are open to them in law to safeguard their right, title and interest in the shares held by them in the first respondent-company. Thus, taking into consideration all the facts and circumstances of the case as established by the evidence on record, we answer point No. 1 in the negative though petitioner No. 4 has received a sum of Rs. 55,000 which he has to refund to respondents Nos. 3 to 6. Point No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be made subsequent to the execution of the instrument." In the instant case, all the transfer forms pertaining to petitioners Nos. 1, 2, 4 and 5 have been stamped but the stamps are not cancelled. In the light of the provisions contained in section 12 of the Karnataka Stamp Act and the non-cancellation of the stamps affixed, the instrument concerned must be deemed to be unstamped. The provisions of section 108(1) of the Act and section 12 of the Karnataka Stamp Act are mandatory. These provisions are to be read together. The effect of these provisions is that the document though stamped must be held to be unstamped if the stamps affixed are not cancelled at the time of execution of the document. If the stamps affixed are not cancelled, the document must be held to be not duly stamped. Consequently, it must be held to be invalid. In Dr. Mrs. Nirmal T. Shah v. Sharavathi Petro Chemicals (Company Petition No. 38 of 1980 decided on 10-10-1984), Chandrakantharaj Urs J. has held that the provisions contained in section 108(1) of the Act are mandatory. This decision also accords with our view. The burden was on the respondents to prove that when the transfer forms were delivered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mped. Therefore, it is not possible to hold that the contention of the petitioners based on section 12 of the Karnataka Stamp Act read with section 108 of the Companies Act is without any substance merely on the ground that respondents Nos. 3 to 6 have come into the picture later. They are the purchasers of the shares. They must prove that under the valid document the shares are transferred to them. Therefore, we are of the view that even assuming that respondents Nos. 3 to 6 have proved that the petitioners have transferred their shares, as the adhesive stamps affixed on the share transfer forms are not cancelled, the share transfer forms must be held to be unstamped and, therefore, the instruments must be held to be invalid. We hold accordingly. At this stage, we may also refer to an argument advanced on the basis of the articles of association of the first-respondent-company. It is contended that the shares of the company shall not be transferred except to a person agreed to by all the directors of the company at the price fixed by the board of directors. In our view, it is not necessary to consider this contention in the light of the finding recorded on point No. 1. For the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rregularities in the proceedings and in the records of the company in the matter of transfer of shares, this court will be restoring the contract without affording an opportunity to one of the contracting parties and without ascertaining as to whether they are still ready to continue as members of the company. It would amount to forcing the contract upon them and the court cannot make a contract for the parties. It is also submitted that without those persons before the court, no such relief can be granted. It is also further contended that the nature of the proceeding under section 155 of the Act being a summary proceeding, the question as to whether the persons other than the petitioners have transferred the shares, etc., need not be gone into. If the other persons are aggrieved, it is always open to them to seek redressal in accordance with the provisions of the Act. Under this point, we are also required to consider the scope of section 155 of the Act. Section 155 of the Act, no doubt has now been omitted and it has become part of section 111 of the Act by reason of the Companies (Amendment) Act, 1988, which has come into force subsequent to the filing of the petition. The pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (4) From any order passed by the court on the application, or on any issue raised therein and tried separately, an appeal shall lie on the grounds mentioned in section 100 of the Code of Civil Procedure, 1908 : ( a )if the order be passed by a District Court, to the High Court ; ( b )if the order be passed by a single judge of a High Court consisting of three or more judges, to a Bench of that High Court. (5) The provisions of sub-sections (1) to (4) shall apply in relation to the rectification of the register of debenture holders as they apply in relation to the rectification of the register of members." The Supreme Court in Public Passenger Service Ltd. v. M. A. Khadar [1966] 36 Comp Cas 1 ; AIR 1966 SC 489 has held that (headnote of AIR) : "Where by reason of its complexity or otherwise the matter can more conveniently be decided in a suit, the court may refuse relief under section 155 in exercise of the discretionary jurisdiction and relegate the parties to a suit." In that case, it was held that as the case did not involve complicated question, there was no necessity to drive the parties to a suit. It was also pointed out that the rectification of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a member. The name of the State of Orissa has without sufficient reason been omitted from the register and there is default in not entering on the register the fact of the Maharaja having ceased to be a member. The court's jurisdiction under section 38 is, therefore, attracted. The High Court rightly ordered the rectification in the exercise of its summary powers under section 38. The jurisdiction created by section 38 is very beneficial and should be liberally exercised. We see no reason why the court should deny the applicant relief under section 38. The directors of the applicant company on the most frivolous of objections have prevented the State of Orissa from becoming a member for the last 16 years. It is a matter of regret that justice has been obstructed so long. There is no merit in this appeal." Therefore, it is clear from the aforesaid decision that even a complicated question as to whether the board of directors acted mala fide in refusing to register the State of Orissa as a member of the company was gone into in a petition filed under section 38 of the Indian Companies Act, 1913, and it was approved by the Supreme Court. It was also specifically observed that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t he who comes into equity must come with clean hands. As long as it is not proved that petitioners Nos. 1, 2, 3 and 5 are not paid the consideration and petitioner No. 3's transfer form itself has not been produced and one of the petitioners only affixed her thumb mark and does not know how to sign ; even then her signature is found on the transfer form, the transfer forms are invalid as pointed out under point No. 2, it is not possible to hold that the petitioners are not entitled to invoke jurisdiction under section 155 of the Act. If in such a case the court refuses to exercise the jurisdiction under section 155 of the Act, it would be only putting a premium on the several illegalities noticed by us during the course of this judgment pertaining to the alleged transfer "of shares by the petitioners. Any illegality or any conduct lacking in bona fides on the part of the second respondent, cannot be passed on to the petitioners so as to deprive them of their existence in the company as shareholders. They are entitled to protect and safeguard their existence within the four corners of law as shareholders of the company. Therefore, we are of the view that the petitioners cannot be r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, we do not want to express any opinion finally with regard to several other illegalities such as, duplication of distinctive numbers, transfer of shares of other members increasing the number of shares, the meetings of the board of directors alleged not to have taken place on October 24, 1985, April 6, 1985, and April 5, 1984, the dates on which the several transfer of shares are stated to have taken place as per the proceedings of the minutes of the board meeting, non-issue of the share certificates, etc., as alleged in the petition. These grounds, if proved, do fall within the scope of just and equitable grounds for winding up of the company, in the connected company petition which has been dismissed on the ground that the petitioners have ceased to be members of the company. Therefore, we do not propose to consider the several other illegalities alleged in the petition and the evidence adduced in that regard in this case. As already pointed out, the same can be urged and gone into in a petition for winding up which is filed by the petitioners. Accordingly, point No. 3 is answered as follows : "It is not just and proper and it is also not necessary to go into the tra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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