TMI Blog1992 (2) TMI 295X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Companies Act, 1956, and has its registered office at No. 7-C, Alexandra Road, Tiruchirappalli. The second respondent is the wife of Mr. R.P. David Christian, Yercaud, Salem District. The third respondent is the son of Mr. R.P. David Christian. The authorised capital of the first respondent-company is Rs. 2,00,000 divided into 2,000 equity shares of Rs. 100 each. The issued and subscribed capital is Rs. 1,27,500 divided into 1,275 equity shares of Rs. 100 each. The main objects of the company are to carry on business as stage carriage operators and such other types of business as are set forth in its memorandum of association. The petitioner is a shareholder of the first respondent company holding 775 equity shares. The balance of 500 equity shares are held by Mrs. R.P. David, the second respondent herein. The first respondent-company has only two members, the petitioner herein and the second respondent. The petitioner and the second respondent are the only directors of the first respondent-company. The petitioner has also been designated as the managing director of the company. According to the petitioner, her husband, Swaminathan, and the second respondent's husband, Davi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shareholding in the first respondent-company to the said Asha John Divyanathan, the third respondent, or any one else nor was there any board meeting on March 2, 1978, or on any other date, approving any such transfer. According to the petitioner, she should have had notice of the meeting if any such meeting had been convened. The petitioner being the managing director never convened any such meeting either on March 2, 1978, or on any other date. No such meeting could have taken place since the board of the first respondent company comprises only two directors, being the petitioner and the second respondent and the petitioner never attended any meeting of the board. Thus, the petitioner has stated that respondents Nos. 2 and 3, in collusion with R.P. David, have contravened the provisions of section 108 of the Companies Act and illegally and unauthorisedly altered the statutory records of the company like the register of members by deleting the petitioner's name therefrom and substituting the name of the third respondent herein. According to the petitioner, from the records of the Registrar of Companies, it is found that the second respondent herein purported to have filed a return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. He also conducted a search in the residential premises of respondents Nos. 2 and 3 at Yercaud where also no records were found. According to the petitioner, this would clearly establish that respondents Nos. 2 and 3, in collusion with R.P. David, removed the records from the registered office where they are required to be kept and manipulated the same and caused certain returns to be filed with the Registrar of Companies knowing the same to be false thereby showing that the petitioner has ceased to be a director and managing director of the company. Respondents Nos. 1 to 3 filed a common counter statement. The counter-statement was signed by Mrs. R.P. David and her son, Asha John Divyanathan. They denied that the petitioner is a shareholder of the company on the date of the petition. The petitioner is not a member of the company nor a shareholder. Neither is she a director. The allegation that R.P. David acted unilaterally is not correct. The petitioner's husband was consulted and associated with every act, deed and things of the affairs of the company. The books and other records of the company were always with the managing director of the company and they were kept in the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicial First Class Magistrate, Trichy, on October 5, 1980. The complaint relates to the same subject-matter as in this petition. After filing the complaint, she had not shown any inclination to prosecute the case. Instead, she has been filing other proceedings to fish out information. One such proceeding is the present company petition. In the circumstances, the second respondent reserves her right to controvert the allegations mentioned in paragraph 5 and including those relating to share certificate and transfer of shares by filing an additional counter. The petitioner filed a reply statement dated December 1, 1983. She denied the various averments contained in the counter-statement. According to her, the allegations contained in the counter-statement are not sustainable either in law or on facts. I have carefully gone through the entire pleadings, the voluminous oral evidence and the documentary evidence filed by both parties. I have also heard the elaborate arguments of Mr. T. Ragavan, senior advocate, appearing on behalf of the petitioner and Mr. K. Alagiriswamy, senior counsel, appearing on behalf of the respondents. I have given my anxious and deep consideration to the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w and fact, the company court should have no jurisdiction. The Supreme Court has only stated that it would be open to the company court to refuse the relief under section 155 of the Act if the matter could be more conveniently tried in a suit. In Shri Gulabrai Kalidas Naik v . Shri Laxmidas Lallubhai Patel of Baroda [1978] 48 Comp Cas 438 (Guj), one of the questions that was posed before the learned judge for decision was whether the company court would entertain a petition for relief under section 155 of the Companies Act if it involved disputes on questions of fact. It will be sufficient to set out the headnote which is as follows : "There is nothing in the language of section 155 of the Companies Act, 1956, which even remotely suggests that the jurisdiction conferred on the court is of a summary nature and that it precludes a full inquiry in respect of the title to shares. On the other hand, sub-section (3) of section 155 gives discretion to the court,' to decide any question which it is necessary or expedient to decide in connection with the application for rectification'. This expression is wider in amplitude than the well-known expression ' questions which are ancilla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decision of the Supreme Court in Public Passenger Service Ltd. v. M.A. Khadar [1966] 36 Comp Cas 1 (SC), and held that the question of jurisdiction of the court under section 155 of the Act was not canvassed before the Supreme Court and that the Supreme Court did not decide that when complicated questions of fact and law are to be raised under section 155 of the Act, the court would become functus officio. The learned judge further observed as follows (page 456 of 48 Comp Cas): "Therefore, both on principle and on authority, it becomes crystal clear that a petition under section 155 cannot straightaway be disposed of by merely saying that as complex and complicated questions of title are raised, the matter ought to be decided by way of a suit and the party ought to be relegated to a suit. At best, it can be said that the question is addressed to the discretion of the court and, if the court exercises discretion one way, namely, to undertake to hear the petitions, its decision cannot said to be one without jurisdiction. The Companies Act, 1956, is a very comprehensive statute. It is possibly one of the lengthiest statutes. There are as many as 658 sections. It has creat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act. The amplitude of the power under section 155(3) has to be considered with reference to the Companies (Court) Rules framed by the Supreme Court of India and in particular rules 10, 11 and 12 are apposite. Section 155 of the Act of 1956, and rule 10 reads as follows : " Power of court to rectify register of members. (1) If ( a )the name of any person ( i )is without sufficient cause, entered in the register of members of a company, or ( ii )after having been entered in the register, is without sufficient cause, omitted therefrom ; or ( b )default is made, or unnecessary delay takes place, in entering on the register the fact of any person having become, or ceased to be, a member ; the person aggrieved or any member of the company or the company, may apply to the court for rectification of the register. (2) The court may either reject the application or order rectification of the register; and, in the latter case, may direct the company to pay the damages, if any, sustained by any party aggrieved. In either case, the court in its discretion may make such order as to costs as it thinks fit. (3) On an application under this section, the court ( a )may de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved complicated questions of law and fact. The result of such a situation will be that the wide powers that have been conferred on the company court under section 155 of the Act will be rendered purposeless and nugatory and the very object of introducing a section like 155 will be defeated. That the powers of the court under section 155(3) of the Act are of wide amplitude can be seen by a reference to the Companies (Court) Rules, 1959, framed by the Supreme Court of India, which came into force on October 1, 1959. Rules 10, 11 and 12 read as follows: "10. Applications how made. Unless otherwise provided by these rules or permitted by the judge, all applications under the Act shall be made by a person or by a judge's summons as hereinafter provided. 11. ( a ) Petitions. The following applications shall be made by petition: ... (6) Applications under section 155 for rectification of the register of members.... (23) ( b ) Judge's summons. All other applications under the Act or under these rules shall be made by a judge's summons, returnable to the judge sitting in court or in chambers as hereinafter provided. 12. Matters to be heard in open court and in chambers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation under section 38 of the Act of 1913 is omitted from the list of applications which have to be preferred by way of original petitions. " Rule 11 ( 23 )( b ) . All the other applications arising under the Act shall be made by a judge's summons". It is very significant to note that an application under section 38 of the 1913 Act is omitted from the list of applications which have to be preferred by way of original petitions. Rule 11(23)( b ) provides that all other applications arising under the Act shall be made by judge's summons. Thus, it is evident that a rectification application under section 38 has to be filed by judge's summons and not by original petitions. A departure has been made under the Companies Act, 1956, and the Rules made thereunder. Under the Act of 1956, the application under section 155 has to be made by way of an original petition. Hence, in my view, the Legislature has not fettered the powers of the court under section 155 and it being a beneficial provision, the power of the court should be liberally exercised. Therefore, I reject the contention. The Companies (Amendment) Act, 1988 (section 111) reads as follows (See Guide to the Companies Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies under the section in case of refusal by a private company, which is not a subsidiary of a public company where shares, etc., have been transmitted by sale held by a court or other public authority. (vide sub-section (11)). Earlier, the appellate power was vested with the Central Government and now the power has been statutorily conferred on the Company Law Board. The Board can now decide any question relating to the title of any person under sub-section (7) ; this power was earlier vested with the court under section 155. Since the Board is now exercising judicial and quasi-judicial functions, the proceedings are no more confidential as earlier provided in sub-section (3), now omitted by the Amendment Act of 1988. Now, the parties cannot claim confidentiality in these proceedings. The Board was earlier required to give notice to the transferor and the transferee under the then sub-section (5). Sub-section (5) now provides for hearing the parties and the Board is not obliged to issue notice of hearing also to the transferor, unless the petition has been filed by him; the Board is required to give hearing to the company and the aggrieved party who may be either the transferor o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on trial, elaborately let in voluminous evidence. The matter has been pending in court for more than a decade. The parties are closely related. Hence, on the facts of this case and in the interest of justice and the issues involved, this court has to exercise its discretion in favour of the petitioner without driving the parties to the agony of continuing the litigation before some other forum. The contentions that the petitioner is guilty of delay has been raised only at the Bar and not in the pleadings. Hence, I do not propose to entertain the plea urged on behalf of the respondents. At this stage, it is necessary to refer to the following contentions raised by Mr. T. Raghavan, learned senior advocate, ably assisted by Mr. A.K. Mayilswamy, advocate for the petitioner. ( a )That the respondents have not produced the share transfer form and the share certificates alleged to have been transferred in favour of the third respondent. ( b )That the evidence of R.W. 1 (R3) that the share certificates and the members' register were missing is too artificial and cannot be believed. At any rate, R 3 should have produced the reconstructed records. ( c )That the resolution of the boa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examined herself as P.W.-l had stated in unmistakable terms that she did not sign any document for effecting the sale of her shares to any one. During her cross-examination, she had categorically stated that she did not transfer her entire shareholding to the third respondent voluntarily and that she was not a party to the resolution passed on March 2, 1977, for approving the share transfer. R.W-1 who is the third respondent in the petition had stated that he became a shareholder of the company on March 2, 1977. According to him, his father told him during February, 1977, that he should take over the shares of the company and his father gave a format which was signed by the petitioner. After signing the format, according to R.W.-l, it was handed over to his father. It is the claim of R.W.-l that he was holding 775 shares thereafter. There is no iota of evidence to show as to how and when the petitioner transferred her entire shareholding to the third respondent. No details are forthcoming as to the amount of consideration paid by the third respondent and as to how and when such consideration was paid. For reasons best known to him, the second respondent who has been the shareholder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugned resolution pertaining to transfer of shares is different from other resolutions said to have been passed on the very same day. I also satisfied myself about the erasure by using the magnifying glass in the court in the presence of respective lawyers on either side. R.W. 1 who is categorical in his claim that the petitioner sold the shares has not only failed to say about the consideration paid and as to the quantum of such consideration but also failed to produce the share certificates, register of members and other records. When questioned for the first time, he comes forward with a case that the aforesaid documents and records of the company were missing in 1986, including some of the records of his father and mother. The explanation given by R. W. 1 with regard to the loss of these vital documents and the non-production of the so called reconstructed documents does not merit any acceptance. With regard to the loss of the document, R.W. 1 claims to have only spoken to the inspector concerned whose name he does not remember. No written complaint was admittedly made. Even the income-tax return in which he claims to have included has not been produced. According to him, he d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into the question argued by Mr. T. Raghavan with regard to the resignation of the petitioner as director on March 20, 1978 (page 56 of exhibit R-1) and the co-option of the third respondent as a director on March 15, 1978, meeting (page 54 of the minutes --exhibit R-l) because it is wholly unnecessary for me to go into that question for granting relief to the petitioner in the present proceedings. I do not express any opinion on the validity of the meetings in which the petitioner is claimed to have resigned as a director and the third respondent is co-opted as a director. It is open to both parties to agitate the same in appropriate proceedings. Coming to the argument of Mr. Raghavan that the share transfer is also violative of clause 8 of the articles of association of the company which depends on the issue as to whether R.W. 3(R-3) was a member of the company on the date of transfer, since I have already refrained from going into that question in these proceedings, I desist from expressing any opinion on that issue as well. The argument of Mr. Alagiriswami that insertions and alterations were made in exhibits R-l and R-20 in some places with the knowledge of the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X
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