TMI Blog1996 (11) TMI 332X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 4 is Shri B.K. Malhan, who is the plaintiff in Civil Suit No. 2 of 1973. Both the suits were taken together and by a common judgment were dismissed. The parties in both the appeals are being referred to as "the plaintiff" and "the defendants". Defendant No. 1 is the company, defendant No. 2, R.D. Bhagat and defendant No. 3 is Mrs. Salochana Bhagat, wife of defendant No. 2, R.D. Bhagat, and in Civil Suit No. 1 of 1973, Shri B.K. Malhan is defendant No. 4. Both the suits were filed by the plaintiffs claiming declaration, permanent injunction as well as mandatory injunction. The prayer made in both the suits is identical in terms except the number of shares is different, because the plaintiff, Mrs. Surjeet Malhan, was holding 1,500 ordinary shares and 10 preference shares, whereas Mr. B.K. Malhan was holding 2,330 ordinary shares and 64 preference shares. Both the plaintiffs who are husband and wife along with their relatives, family members and friends had acquired the entire shareholdings of defendant No. 1-company and Shri B.K. Malhan plaintiff became the managing director of the said defendant company and continued to work till January 15, 1971, when he resigned from the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er settled the terms and conditions, not only this but she further pleaded that her husband Shri B.K. Malhan had no authority either in fact or in law on her behalf to transfer the shares held by her to Shri R.D. Bhagat without settlement of terms and other conditions of the sale as was mutually agreed to on September 11, 1970. The plaintiff further alleged that after obtaining control over the company, Shri R.D. Bhagat and Mrs. Salochana Bhagat became members of its board of directors and they were trying to manoeuvre the transfer of immovable assets of defendant No. 1-company. In addition to this defendants Nos. 2 and 3 had leased out from valuable area in building bearing No. 54, Janpath, New Delhi, i.e., the asset of the company. Since defendants Nos. 1 to 3 have wrongfully refused to recognise her as a shareholder of the company, it was in these circumstances that declaration was sought that she continues to be owner of 1,500 ordinary and 10 preference shares. In this context, it may be worthwhile to mention that 900 shares were held by Mrs. Surjit Malhan in her own right, whereas 600 shares were held by her along with her relatives and friends jointly and her name being the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of shares with her. The suit for permanent injunction was pleaded not to be maintainable as also the court lacked jurisdiction to try the same. It was further pleaded by defendants Nos. 1 to 3 that there is a valid and lawful transfer of the shares held by both the plaintiffs which is the subject-matter of the respective suits. According to defendants Nos. 1 to 3 since the financial health of the company was going from bad to worse, besides suffering losses, according to the defendants both husband and wife, Mr. and Mrs. Malhan, were keen to sell their shares in the company to Mr. Bhagat which proposal of theirs was agreed to by defendant No. 2, Mr. Bhagat. According to the defendants, no written agreement was to be executed on September 12, 1970, and they further pleaded that the transaction of sale of shares held by both the plaintiffs and detailed in their suits was complete with the signing of the blank transfer deeds coupled with delivery of share scrips. According to the defendants, looking to the financial health of the company, the plaintiffs were keen to finish the dispute. It was also the case of the defendants that mere inadequacy of the consideration was no ground to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed ? OPD 2-A Whether the suit is bad for non-joinder of necessary parties ? OPD Thereafter, two O.M.Ps., i.e., O.M.P. No. 73 of 1976 in C.S. No. 1 of 1973 and O.M.P. No. 74 of 1976 in C.S. No. 2 of 1973, were filed and, vide orders dated July 14, 1976, issue No. 8 was re-cast in two parts to the following effect : 8-A. Whether the transfer forms were handed over by defendant No. 4 without any authority of the plaintiff to defendant No. 2 ? 8-B. Whether the plaintiff was present when the blank transfer forms were handed over ? If so, what is its effect ? In Civil Suit No. 2 of 1973, the following issues were framed on March 15, 1974 : 1.Whether the suit is bad for misjoinder of causes of action ? 2.Whether the court has no jurisdiction because the relief of rectification of register of members can only be granted under the provisions of the Companies Act, 1956? 3.Whether a suit for declaration simpliciter is barred and no relief can be granted ? 4.Whether the court fee paid is insufficient ? 5.Whether the plaintiff is the owner of the shares in dispute and defendants Nos. 2 and 3 can be directed to hand over all the share certificates to the plaintiff ? 6.Whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as in September, 1970, for the purpose of both suits if found relevant be taken at Rs. 22 lakhs and it was further agreed that the evidence produced by either party on the point of valuation be ignored. In these circumstances, and on the basis of the submissions of learned counsel for the parties, the learned single judge directed that the market value of the property, i.e., 54, Janpath, New Delhi, as in September, 1970, was to be taken as Rs. 22 lakhs. The learned single judge after hearing the counsel for the parties dismissed both the suits. It was in these circumstances that the present appeals had been filed. By way of preliminary submission, Shri P.N. Lekhi, had argued that both the suits were filed by same counsel on the same date i.e., January 9, 1973. According to him, counsel was aware of all the facts and while doing so he concealed the facts which would form the grounds agitated by Mrs. Malhan for annulling the transfer in her case. This, according to him, was a speculative act on the part of the plaintiff which according to him in civil litigation is not only vexatious but was also an abuse of the process of law and court and thus the provisions of Order 7, rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it has been held as under : "We have not the slightest hesitation in condemning the petitioner for the gross abuse of the process of the court repeatedly and unrepentently resorted to. From the statement of the facts found in the judgment of the High Court, it is perfectly plain that the suit now pending before the First Munsif's Court, Bangalore, is a flagrant misuse of the mercies of the law in receiving plaints. The learned Munsif must remember that if on a meaningful not formal reading of the plaint it is manifestly vexatious, and meritless, in the sense of not disclosing a clear right to sue, he should exercise his power under Order VII, rule 11 of the Civil Procedure Code, taking care to see that the ground mentioned therein is fulfilled. And, if clear drafting has created the illusion of a cause of action, nip it in the bud at the first hearing by examining the party searchingly under Order X of the Civil Procedure Code. An activist judge is the answer to irresponsible law suits. The trial courts would insist imperatively on examining the party at the first hearing so that bogus litigation can be shot down at the earliest stage. The Penal Code is also resourceful enough t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... memorandum and articles of association of defendant No. 1-company (exhibit PW-6/1). Admittedly, no previous sanction was obtained for the transfer of shares and in this view of the matter the so-called transfer in favour of defendants Nos. 2 and 3 is void ab initio. With special reference to the case of Mrs. Surjeet Malhan, Mr. Khanna urged that no consideration was given to her for transfer of her shares as also no previous permission of the board of directors of defendant No. 1-company was there and above all, she had never authorised her husband Shri B.K. Malhan to give away the shares as was being claimed by defendant No. 2, Shri R.D. Bhagat. Lastly, it was urged that the minutes book of the company is forged in order to deprive the plaintiffs of their claim as resolutions were incorporated therein after the interim order had been passed on January 18, 1973, in Civil Suit No. 1 of 1973. All these submissions have been repudiated by Shri P.N. Lekhi who has pointed out that the company was in a complete financial mess and both the plaintiffs wanted to get rid of the same. Defendant No. 2 had taken over all the shares not only of the plaintiffs but of their friends and relations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On the conduct of Shri B.K. Malhan who was the managing director of defendant No. 1-company till January 15, 1971, it was submitted that he never raised any objection against the transfer of shares in favour of the defendants. On the other hand, Mrs. and Mr. Malhan were happy and satisfied that they are being relieved of the problems in which defendant No. 1-company was placed at that point of time. According to Mr. P.N. Lekhi, these were voluntary transactions to show that the plaintiffs in both cases had voluntarily transferred shares belonging to them and the plea of there being any duress, undue influence or misrepresentation is without any merit and the plaintiffs are precluded from urging that the transaction is void. Reference was also made to the provisions of the Companies Act, 1956, by Shri P.N. Lekhi while urging that instead of having recourse to those provisions, for reasons best known to the plaintiffs, they approached the Registrar of Companies. As according to him, in case the meeting was not called as per the provisions of section 169 of the Companies Act, then the requisitionist, if he is a member of the company, can hold the meeting in accordance with section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on behalf of the defendants. Needless to point out in this behalf, when the law requires a particular thing to be carried out in a particular manner, there is no question of there being any implied sanction. In this view of the matter, we are of the view that there was no transfer of shares in accordance with exhibit PW-6/1, as such, no benefit can be derived by the defendants therefrom. Now, coming to exhibit PW-5/1, the letter dated September 11, 1970, written by Mr. B.K. Malhan, the plaintiff, to defendant No. 2, it may be appropriate to point out here that B.K. Malhan alone was not the shareholder of defendant No. 1-company, his father, his wife, relations of his wife and other persons were also the shareholders of defendant No. 1-company. Besides such persons, a number of other persons were the creditors whose money was lying in deposit with defendant No. 1, therefore, perusal of exhibit PW-5/1 shows that there is nothing which could be read to mean, much less presume, that, firstly, Shri B.K. Malhan had any authority on behalf of any of the other shareholders to have transferred the shares for the price at rupee one; and, secondly, if the transaction of transfer was conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom Bangalore would also be transferred to him. If these were the terms and conditions, why he did not get those incorporated in exhibit PW-5/1 as he was having proper legal advice at the point of time. Mr. Bhagat was well aware about the financial position of the company and the works which were being carried out by defendant No. 1-company at different places as complete information had been given to him by the staff of the company, i.e., PW-7, Uma Dutt Pathak and PW-8, H.S. Bhalla. In addition to these, balance-sheet( s ) of the company was also available with Shri Bhagat. Nothing has been brought on record by any of the defendants to show that Mrs. Malhan had ever agreed much less consented for the transfer of her shareholdings. Similarly, no previous sanction of the board of directors was brought on record to show that she had ever asked the board to permit her to transfer the shares in question, and in no case exhibit PW-5/1 can be read down to mean that not only her own shareholding but that of Mr. Malhan and other persons was also intended to be transferred by him for a consideration of one rupee. From the statement of DW-2, it is clear that he is a businessman of long s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... share certificates being there, the board would have sanctioned the transfer in favour of defendant No. 2 as well as his nominees. Another salient feature in this case is that there is nothing to show when the share transfer forms exhibits DW-2/2 and DW-2/3 were lodged by the transferee Shri R.D. Bhagat with defendant No. 1-company. Admittedly, defendant No. 2 was the managing director and it has come on record in his statement that he was in charge of the affairs of defendant No. 1-company. In case the transfer forms were ever lodged with the company, they would have found mention in its records and defendant No. 2 would not have hesitated in producing those in the court. Similarly, if a reference is made to exhibit PW-5/2 and exhibit PW-5/3, transfer forms which relate to the shares of Surjit Malhan, the position remains the same as there is nothing to suggest as to when these were lodged with defendant No. 1-company. Further, exhibit PW-5/4 is a list of share scrips which were handed over to Shri R.D. Bhagat on September 11, 1990, with two blank transfer deeds of Mrs. Surjit Malhan. In this view of the matter, no benefit could be derived by the defendant out of blank transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be that defendant No. 1-company was passing through a financially lean period although the situation was not of such a nature that it was totally out of control of the management of defendant No. 1-company. In this view of the matter, it is held that there was no transfer of shares in favour of Shri R.D. Bhagat, defendant No. 2 or his nominee (and nothing) has been brought on record by defendants Nos. 2 and 3 to show that any shares were transferred in favour of defendant No. 3 and thus, how she continued to be on the board of directors of defendant No. 1-company after the expiry of two months is not known. Similarly, the plea of the defendants that there was no question of signing a written agreement on September 12, 1970, and this plea having been concocted is not correct in the face of exhibit PW-5/1. Replication in this case has been filed under the orders of the court and it forms a part of the pleadings. All the facts have been detailed by the plaintiff in the replication filed in both the cases. In these circumstances, it was, thereafter, that the so-called terms and conditions of transfer were suggested to the witnesses on behalf of the plaintiffs. In this context, it m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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