9911796707
TMI Blog1994 (7) TMI 254X X X X Extracts X X X X X X X X Extracts X X X X ..... uthorised capital a sum of Rs. 30 lakhs has been subscribed and fully paid. Appellant No. 1 on whose behalf this appeal has already been dismellant No. 2 on whose behalf alone the present appeal survives holds 783 equity shares. 4. It appears that by a resolution passed by the Board of Directors of the company on 31-3-1990, the Board resolved to permit the following transfers of shares inter se the existing members : SL No. No. of Shares Transferor Transferee 1. 1,318 Manchanda Suraj Prakash Chandandas (HUF) (Respondent-6) Vijay Kumar Narang (Respondent-3) 2. 175 Suraj Prakash Manchanda (Respondent-2) Raj an Kumar Manchanda (Respondent-4) 3. 1,628 Suraj Prakash Manchanda (Respondent-2) Raj an Kumar Manchanda (Respondent-4) 4. 907 Shanthilal Narang (Respondent-5) Vijay Kumar Narang (Respondent-3) 5. -Subsequently, on 4-4-1990, an extraordinary general meeting of the company was held in which the then Managing Director of the company Shri S.P. Manchanda, respondent No. 6 herein, was removed. The respondents, it is not disputed, participated in the said extraordinary general meeting as transferees of the shares which now form the subject-matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 990 where the said petitioners were present and participating as members of the board of directors. It was also urged that the failure on the part of the petitioners to raise any objection as to the validity of the transfers in question in the extraordinary general meeting held on 4-4-1990 and the annual general meeting held on 17-9-1990 in which meetings the transferees had admittedly participated on the basis of the shares in question, was sufficient to legally prevent the petitioners from raising any objection at this belated stage. 9. It was alternatively submitted that the resolution dated 31-3-1990 transferring the shares in question was passed not on the basis of the forms set up by the petitioners but on the basis of a second set of transfer forms which were admittedly valid and usable. It was also urged that provisions of sections 108(1) and 108(1 A) were directory in nature and could not, therefore, invalidate the transfers in question. 10. The learned Company Judge by the judgment impugned upheld all the three contentions raised on behalf of the respondents. He found that the transfers in question had actually been registered on the basis of a second set of share trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from 31-5-1991 read as under: "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) de fault 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. (3)On a n application under this section, the Court- (a)may decide any question relating to the title of any person who is a party to the application to have his name entered in or omitted from the register, whether the question arises bet ween members or alleged members, or between members or alleged members on the one hand and the company on the other hand; and (b)generally, may decide any question which it is nece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17. in T.V. Somasundaram Pillai v. Official Liquidator [1967] 37 Comp. Cas. 440, the Madras High Court, while dealing with a petition under section 155, held that the onus lies heavy on a shareholder of the company to set right the mistake in the register without any delay. The Court in this regard observed thus: "This doctrine of laches has a very great significance as a member in any event should repudiate the contract in unequivocal terms and without undue delay as otherwise such delay would be fatal to his application for rectification. If the name of a person appears in the register of members, he cannot at his whims and fancies ask for rescission of such a contract to take shares as it would be lost because of inaction or lack of prompt action on his part ****** Therefore, the onus is heavily on the shareholder to set right the mistake, if any, in the register without any delay. The above decision has been quoted with approval by a Division Bench of the Bombay High Court in Mahomed Akbar Abdulla Fazalbhoyv. Official Liquidator [l950]20 Comp. Cas. 26. A Division Bench of this Court also in Lakshmi Narasa Reddi v. Official Receiver, Sree Films Ltd. [l95l]2l Comp. Cas. 201 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmary in character, complicated question cannot be determined in proceedings for the same, the High Courts of Gujarat and Kerala, have taken a contrary view. This Court in Muniyatnma's case {supra) has, upon a construction of the two rival views, held that the involvement of complicated questions cannot be made basis for refusal to exercise jurisdiction under section 155. The true legal position in our opinion is tnay while the very fact that complicated questions of fact and law are involved cannot by itself be a ground for refusal of relief under section 155, yet, the exercise of powers under section 155 being equitable and discretionary, it would constitute one of the relevant factors for deciding whether the power should or should not be exercised; in a given case. Summarising, therefore, it can be said that: (a)The jurisdiction under section 155 is summary in character; (b)The exercise of the power under section 15 5 is discretionary for the Court; (c)The po wer cannot be exercised ex debito justitiae; (d)Th e relief under section 155 is equitable in character, and considera tion like delay and laches, acquiescence, etc., would be relevant while granting or refusing the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -1990, where they were participating as full-fledged directors of the company and not simply as special invitees. The appellants did not even at that stage express any reservation about the validity of the transfers effected. The fact that acting upon the transfers in question the transferees exercised their rights in the extraordinary general meeting and the annual general meeting of the company is also beyond dispute. All these circumstances not only show acquiescence on the part of the appellants; but their active participation in bringing about the situation which they now seek to have offered by means of proceedings under section 155. 22. Mr. Raghavan, the learned counsel for the appellant, however, contended that the appellants are only special invitees in the meeting dated 31-3-1990 and, therefore, could not have protested against the registration of the shares in question. He further submitted that the registration of the transfers in question were not on the agenda for the meeting in question; and that the Chairman himself being one of the transferors, the whole exercise was rushed through giving no opportunity to any one to protest against the registration which accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e argued that the invalidity attached to the forms remained, regardless whether the appellants protested or remained silent, as they have actually, done in the present case. We are not impressed by this argument either! Relief under section 155 being a discretionary and equitable relief, no one claiming such a relief can come to the Court, and expect an order in his favour even when he has been negligent or indifferent as suggested by Mr. Raghavan. Equity, it is well known, aids the diligent and not the indolent. Laches, which are suggestive of acquiescence is a good reason to refuse relief in equity, and one who comes in equity must come with clean hands) 26. We may at this stage also deal with Mr. Holla's submission that the petition under section 155 filed by the appellants was totally silent as to their participation in the board meetings dated 30-3-1990 and 14-4-1990, as also about the transferees having exercised their rights quathe shares in question in the extraordinary general meeting dated 4-4-1990 and the annual general meeting dated 17-9-1990. The appellants had, therefore, suppressed material facts from this Court disentitling them from claim ing any relief as contend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the forms having been pointed out to them, fresh and usable forms were procured and filed for purposes of registration of the transfers. An affidavit of the Company Secretary has been filed by the respondents to buttress their plea that the fresh set of forms was actually the basis of the registration. 28. Upon a consideration of the rival contentions of the parties the learned Company Judge, came to the conclusion that the transfers in question were actually registered on the basis of the fresh forms and not the forms which were originally filed. This was done by placing reliance upon the reasons given by the Company Secretary. 29. Mr. Raghavan, the learned counsel appearing for the appellants strenuously contended that the affidavit of the Company Secretary was not worth any credence. He argued that the version about a fresh set of forms having been filed and utilised was a total concoction and afterthought which could not be relied upon. Mr. Holla, on the other hand, with an equal vehemence supported the findings of the learned Company Judge and urged that the version given in the affidavit of the Company Secretary not having been subjected to cross-examination, there is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny of his shares must notify the Board of Directors of the number of shares, the market price and the name of the proposed transferee and the Board must offer to the other shareholders the number of shares referred at the market price and if the offer is accepted the shares shall be transferred to the acceptor or acceptors, and if the shares or any of them are not so accepted within one month from the date of notice to the Board, the holder may sell or transfer them or any of them at the same or higher price to third parties. In case of any dispute regarding the market price of the shares, it shall be decided and fixed by the company's auditors whose decision shall be final. 8. No transfer of any shares shall be made or registered without the previous sanction of the Directors, except when transfer is made by one member of the company to another or to a member's wife or child or children or his heirs and the Directors may decline to give such sanction without assigning any reason and shall so decline in case of any transfer of which shall involve a contravention of clause 3 of these articles." Mr. Raghavan, the learned counsel appearing for appellants, submitted that the transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r is intended to be made in favour of an existing member or a member's wife, children or legal heir, the previous sanction of the directors is not required. In other words, if the sale takes place within the existing family of members of company, or their legal heirs or children or spouses, there is no requirement of the previous sanction from the board of directors. This exception to us appears to be logical for the entire object behind articles 7 and 8 being to prevent an outsider purchasing the shares without the existing members exercising their rights, is achieved by making such an exception. It is significant in this connection to mention that article 7 refers to sale to third parties which in the context of the language employed refers only to parties other than existing shareholders. Similarly, the term 'transfer' appearing in article 8 appears to us to be a term wide enough to include a transfer by way of sale also. In other words, article 8 would apply even to a situation where the transfer is being made by way of a sale by one member of the company in favour of another member, his spouses or children. In any such situation, the right of pre-emption as envisaged by articl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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