TMI Blog2010 (4) TMI 609X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 111A of the Companies Act. Appeal dismissed. - COMPANY APPEAL NOS. 6&7 OF 2009 - - - Dated:- 16-4-2010 - S.J. VAZIFDAR, J. M.S. Sonak and Parag Rao for the Appellant . Surendra Dessai, Rajeev Mehra, Rahul Srivastava, S. Halia, G. Agni and S. Usgaonkar for the Respondent. ORDER 1. At the request of the parties the above company appeals under section 10F of the Companies Act, 1956 are disposed of finally and by a common order. The learned counsels have requested me to dispose off these appeals only on the preliminary point of law. It is agreed that in the event of the appeals being allowed the matter may be remanded to the Company Law Board for decision on the merits of the case. I have however upheld the order of the Company Law Board which decided the preliminary objection raised by the respondents. The question of remanding the matter therefore does not arise. 2. Company Appeal No. 7 of 2009 is against the order of the Company Law Board dated 20-3-2009 dismissing the appellants petition on the ground that it is not maintainable. Company Appeal No. 6 of 2009 is against an order of the Company Law Board dated 29-4-2009 dismissing an appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. The appellant objected to the same at the meeting and even prior thereto. The appellant had also offered to purchase the shares at Rs. 200 per share. 5.1 The resolution which was passed reads as under : "Resolution under section 81(1 A) of the Companies Act, 1956-authorising the board of directors of the company to issue, offer and allot equity shares not exceeding 23,24,324 (twenty three lakhs twenty four thousand three hundred twenty four) equity shares of face value of Rs. 10 each for cash at an exercise price of Rs. 185 (including premium of Rs. 175), on such terms and conditions as may be finalized by the board of directors, to investors, namely, Ferry Holdings Limited and Jetty Capital Limited on preferential basis." 6. The appellant filed a petition being Company Petition No. 108 of 2008 for an order declaring the allotment of the said shares by respondent No. 1 to respondent Nos. 2 and 3 as null and void and for an order directing the first respondent to rectify its register of members so as to reflect the shareholding pattern as existing before the said allotment. 7. The respondents filed an application raising a preliminary objection as to the maintain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such refusal or, where no notice has been sent by the company, within four months from the date on which the instrument of transfer, or the intimation of transmission, as the case may be, was delivered to the company. (4) 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 in the register the fact of any person having become, or ceased to be a member [including a refusal under sub-section (1)], the person aggrieved, or any member of the company, or the company, may apply to the [Tribunal] for rectification of the register. (5) The [Tribunal], while dealing with an appeal preferred under sub-section (2) or an application made under sub-section (4) may, after hearing the parties, either dismiss the appeal or reject the application, or by order- ( a ) direct that the transfer or transmission shall be registered by the company and the company shall comply with such order within ten days of the receipt of the order; or ( b ) direct rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the right in all the circumstances of the case. (12) If default is made in complying with any of the provisions of this section, the company and every officer of the company who is in default, shall be punishable with fine which may extend to [five hundred rupees] for every day during which the default continues. (13) Nothing in this section and section 108, 109 or 110 shall prejudice any power of a private company under its articles to enforce the restrictions contained therein against the right to transfer the shares of such company.] (14) In this section company means a private company and includes a private company which had become a public company by virtue of section 43A of this Act. 111A. Rectification of register on transfer . (1) In this section unless the context otherwise requires, company means a company other than a company referred to in sub-section (14) of section 111 of this Act. (2) Subject to the provisions of this section, the shares or debentures and any interest therein of a company shall be freely transferable : [ Provided that if a company without sufficient cause refuses to register transfer of shares within two months from the date on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ention that the civil court had no jurisdiction to entertain the suit in view of the provisions of section 111 of the Companies Act. The plaintiff challenged the order by filing an appeal from order in this court. Thus the question that arose in that case is identical to the one that arises in the present appeals namely whether the allotment of shares by a public company can be challenged under section 111A of the Companies Act. The learned Single Judge held that section 111A would not apply in the case of an allotment of shares. It was specifically contended on behalf of the respondent that the word transfer would also include allotment of shares and, therefore, the plaintiff has a right of appeal before the Company Law Board under section 111A of the Companies Act. The learned Single Judge rejecting the contention held : "4. Now it is clear firstly that before the trial court though section 111 was amended in 1995, both the parties proceeded on the assumption that section 111 applies to the respondent company. That was obviously wrong. It is absolutely clear from the provisions of sub-section (14) of section 111 of the Companies Act that with effect from 20-9-1995 the applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies, which was contained in sub-section (4) of section 111 of the Companies Act. It is thus clear that the plaintiff would not be entitled to approach the Company Law Board for seeking the reliefs that are prayed for in the civil suit and, therefore, there is no question of jurisdiction of the civil court being barred by the availability of remedy to the plaintiff under section 111A of the Companies Act. 6. In this view of the matter, therefore, the appeal is allowed and the order impugned in the appeal is set aside. It is held that the civil court has jurisdiction to entertain the civil suit filed by the appellant/plaintiff. The trial court is directed to try the suit and any application that may be filed in the suit in accordance with the law." 12.1 There is no doubt and Mr. Sonak fairly conceded that the above appeals stand covered on this question of law by the judgment in Gopal Krishan Banga s case ( supra ) 13. Mr. Sonak however submitted that there is a conflicting view taken by another learned Single Judge in Finolex Industries Ltd. s case ( supra ). He, therefore, submitted that I ought to place the papers before the learned Chief Justice in order to en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew, the approach adopted by the Company Law Board is not correct. A careful and meaningful analysis of these provisions would clearly demonstrate the intention of the Legislature to give equal treatment to shares held in public companies. This intention can be discerned from the amendment noticed above. There can be no disparity in the treatment of shares based on the mode of transfer or transmission. Therefore, the necessary provision was sought to be made in the proviso to section 111A(2) and section 111A(3). Unfortunately it seems due to the haste in which the Depositories Act, 1996, and the Amendment in 1997 were enacted the intention of the Legislature was not reflected in the provisions. In the absence of the provision for intimation of transmission in the proviso it would appear that there is no appeal provided. But this would be in conflict with section 28 of the Depositories Act which makes it clear that the provisions of the Act shall be in addition to and not in derogation of any other law for the time being in force relating to holding and transfer of securities. Thus the proviso has to be construed in such a manner that would preserve the rights and remedies already ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eglect of the company or the depository to transfer the shares. For this reason section 111(3) has not been incorporated in section 111A(7) which provides the manner in which the applications are to be decided by the Company Law Board under section 111A. Sub-section (14) of section 111 cannot exclude the application of sub-sections (1), (2) and (4) of section 111 to shares held in a public company as it would then be in conflict with section 28 of the Depositories Act. Under this section, the law made under the Depositories Act is in addition to and not in derogation of any law which is/was in force at the time when the Depositories Act was enacted. Therefore, restriction contained in sub-section (14) of section 111 would not apply to transfer and ownership of the shares of the public company held in the form of share certificates. Construed in this manner, the provisions of sub-section (1) of section 111A would clearly mean that the remedy of rectification of register on transfer provided in section 111A would not be applicable to private companies. For the private limited companies, the remedies of appeal and rectification would remain under section 111(2), (3) and (4) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X
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