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Ms. Sulochana Neelkanth Kalyani Versus M/s. Takle Investments Company & Others

2016 (6) TMI 1061 - BOMBAY HIGH COURT

Rectification in the register of members - transfer of shares - Held that:- Determination by the CLB of the illegality of the transfer itself under Section 111 read with Section 108 of the Act, it is pertinent to note that there are two transfers in the present case­ one, from the four joint holders, namely, Dr. Kalyani, Sulochana, DGK and SNI, to Dr. Kalyani as a sole holder and two, from Dr. Kalyani to Gaurishankar. These transfers were admittedly accomplished on different dates. The share cer .....

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of transfers overleaf. There is no share transfer form for transfer of shares between the original holders to the new four joint holders (said to be the co­trustees of the trust after the purported resignations of Sulochana and DGK and co­option of Rohini and Gaurishankar in their place), as required by Section 108 of the Act. Apart from this glaring lapse, the CLB has also noted the following admitted position for holding the transfers to be in contravention of Section 108 : - (i) There is .....

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to the transfers claimed to have been executed; - Based on these facts and applying the law laid down by the Supreme Court in the case of Mannalal Khetan Vs. Kedar Nath Khetan [1976 (11) TMI 135 - SUPREME COURT OF INDIA ] holding that execution of valid transfer deeds within the meaning of Section 108 is a mandatory requirement of a valid transfer of shares, the CLB held the impugned transfers to be invalid and not in compliance with the provisions of Section 108. There is no error of law to .....

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1 in COAPP/86/2015 to 93/2015. For the Respondent : Mr. Snehal Shah, a/w. Mr. Atul Daga and Ms. Aditi Prabhu, i/b. Desai Desai Carrimjee & Mulla, for Respondent No.1 in COAPPL/41/2015 to 48/2015 and Respondent No.2 in COAPP/86/2015 to 93/2015. Mr. S.N. Mookherjee, Senior Advocate, a/w. Mr. Zal Andhyarujina, Mr. Ravi Gandhi, Mr. Punit Damodar, Ms. Nikita Vardhan and Mr. Rashmin Jain, i/b. Kanga & Co., for Appellants in COAPP/86/2015 to 93/2015 and for Respondent Nos. 2 to 4 in COAPPL/41/2 .....

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014 IN COMPANY PETITION NO.24 OF 2011 COMPANY APPEAL (L) NO.47 OF 2015 IN COMPANY APPLICATION NO.160 OF 2014 IN COMPANY PETITION NO.25 OF 2011 COMPANY APPEAL (L) NO.48 OF 2015 IN COMPANY APPLICATION NO.161 OF 2014 IN COMPANY PETITION NO.26 OF 2011 COMPANY APPLICATION (L) NO.60 OF 2015 IN COMPANY APPEAL (L) N0.41 OF 2015 IN CLB COMPANY APPLICATION NO.154 OF 2014 IN CLB COMPANY PETITION NO.19 OF 2011 COMPANY APPEAL NO.86 OF 2015 IN COMPANY APPLICATION NO.154 OF 2014 IN COMPANY PETITION NO.19 OF 20 .....

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2015 IN COMPANY APPLICATION NO. 160 OF 2014 IN COMPANY PETITION NO.25 OF 2011 COMPANY APPEAL NO.93 OF 2015 IN COMPANY APPLICATION NO.161 OF 2014 IN COMPANY PETITION NO.26 OF 2011 JUDGMENT This company appeal impugns an order passed by the Company Law Board, Mumbai Bench, Mumbai ( CLB ) on petitions filed under Section 111(4) of the Companies Act, 1956 for rectification in the register of members. The petitions for rectification were filed in respect of eight different companies, who were arraign .....

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led by Mr. M.B. Hattarki, brother of Sulochana, under an Indenture of Trust dated 10 April 1999, the initial trustees of the trust being (1) Sulochana, (2) her late husband Dr. N.A. Kalyani ( Dr. Kalyani ), (3) Dilip Ganesh Karnik, now a retired Judge of this Court and then an advocate ( DGK ) and (4) Srikrishna Narhari Inamdar, a Chartered Accountant ( SNI ). (ii) Respondent No.1 is a private limited company incorporated for the purposes of holding and / or facilitating investments of Dr. Kalya .....

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y S.N. Trust. 6800 shares of Respondent No.1, which constitutes 98% of capital, are accordingly acquired in the joint names of Dr. Kalyani, Sulochana, DGK and SNI. Under Section 153 of the Act, Respondent No.1 is not entitled to take cognizance of the trust. Accordingly, Dr. Kalyani, Sulochana, DGK and SNI have been joint shareholders of these shares and members of Respondent No.1 Company. (iii) In or about 2005, Dr. Kalyani's health started failing. Gaurishankar having peculiar medical prob .....

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rievance that Rohini had illegally and / or wrongfully gained confidence of late Dr. Kalyani and Gaurishankar and placed herself in a position where she exercised undue influence over them. (iv) Sometime later, unrest started in the family, when Dr. Kalyani and Sulochana started learning about the wrongdoings and illegalities committed by Rohini. With a view to maintain family amity and for other diverse reasons, including the deteriorating health of Dr. Kalyani, no legal action was initiated in .....

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following : (a) Annual returns of Respondent No.1 for the year ending 31 March 2008 revealed a purported transfer of shares owned by the trustees (as transferors) in favour of Dr. Kalyani (as transferee); (b) Annual returns of Respondent No.1 for the year ending 31 March 2009 revealed a purported transfer of the shares by Dr. Kalyani to Gaurishankar. (c) Sulochana was purportedly shown as having ceased to be a Director of Respondent No.1 with effect from 7 January 2010. The purported resignatio .....

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between the parties, the present company petition was filed before the CLB (being Company Petition No.19 of 2011), wherein Sulochana prayed for cancellation of the transfer of the impugned shares and rectification of the relevant documents. Her case was based on the following grievances : (a) By virtue of Section 153 of the Act, Respondent No.1 company was not entitled to take cognizance of the trust and was, therefore, obliged in law to only look at and treat Sulochana, Dr. Kalyani and DGK and .....

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gister of members in respect of the impugned shares. (vii) By its impugned order dated 18 May 2015, the CLB dismissed the petition as not maintainable. That order is impugned in the present company appeal. There is a cross­appeal filed by Respondent Nos.2 to 4 challenging some of the findings of the CLB. 3. Though the CLB held in favour of the Petitioner on merits of the case, that is to say, the impugned transfer of shares to be invalid and not in accordance with law, the CLB proceeded to d .....

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In their cross appeal/objections, the Respondents contest the impugned order of the CLB on the merits of the controversy as also on various preliminary objections such as locus standi of the Petitioner, non­ joinder of necessary parties, etc., which were rejected by the CLB. 5. Going by the arguments advanced by the parties before me, the following questions arise for the consideration of the Court in the present matter: (a) Does the Petitioner have locus to maintain a rectification petition .....

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ansfers are invalid and not in accordance with law? 6. The questions of locus of the Petitioner as one of the four joint holders to present a rectification petition and non­joinder of other joint­ holders/co­trustees can be taken up together. The argument of the Respondents is that the Petitioner holds the subject shares as a joint holder and trustee of N.S. Trust along with other joint holders and co­trustees and cannot maintain in her own right a rectification petition and in a .....

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ructive, shall be entered on the register of members. A company cannot take cognizance of any trust and is obliged in law to treat the trustees who may be holding shares in it as merely joint holders. The four trustees of N.S. Trust have, thus, been mere joint holders of the impugned shares qua the company. If it is the case of the Petitioner, as such joint holder, that without compliance with the provisions of Section 108, and particularly, her having executed any transfer deed, the shares are .....

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ve been joined. The Petitioner, accordingly, had the locus and, as rightly held by the CLB, need not have joined the other joint holders/co­trustees as parties to the petition. 7. The question of bar of limitation has two aspects­ one, whether the Limitation Act, 1963 and particularly, Article 137 thereof (residuary article providing for applications, where no limitation period is otherwise provided for), applies to a rectification application to the CLB under Section 111(4), and two, wh .....

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contested by the Respondents. What the Respondents submit is that the CLB is indeed a 'court' within the meaning of the Limitation Act. The Supreme Court in Kerala State Electricity Board vs. T.P. Kunthaliumma (1976) 4 Supreme Court Cases 634, whilst analysing the provisions of Article 181 of the old Limitation Act (the 1908 Act) and Article 137 of the present Act (the 1963 Act), both of which are residual entries, has affirmed that the words any other applications under Article 137 do .....

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iffer from the view taken by the two­judge bench of this Court in Athani Municipal Council case and hold that Article 137 of the 1963 Limitation Act is not confined to applications contemplated by or under the Code of Civil Procedure. The petition in the present case was to the District Judge as a court. The petition was one contemplated by the Telegraph Act for judicial decision. The petition is an application falling within the scope of Article 137 of the 1963 Limitation Act. 9. Let us now .....

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tinction between 'courts' and 'tribunals', both of whom are required to decide matters involving a decision on the rights and obligations of the parties before them and act judicially, i.e. fairly and impartially and in accordance with law. Then there are judicial as well as quasi­judicial tribunals. A mere duty to act judicially, either expressly imposed or arising by necessary implication by the nature of duties to be performed whilst so acting, does not of itself make a tr .....

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ourts of civil judicature and by tribunals , those bodies of men who are appointed to decide controversies arising under certain special laws. Among the powers of the State is included the power to decide such controversies. This is undoubtedly one of the attributes of the State and is aptly called the judicial power of the State. In the exercise of this power, a clear division is thus noticeable. Broadly speaking, certain special matters go before tribunals, and the residue goes before the ordi .....

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e for administration of justice that is for exercise of the judicial power the State to maintain and uphold the rights, to punish wrongs and to adjudicate upon disputes. Tribunals on the other hand are special alternative institutional mechanisms, usually brought into existence by or under a statute to decide disputes arising with reference to that particular statute, or to determine controversies arising out of any administrative law. Courts refer to civil courts, criminal courts and the High C .....

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d exclusively by Judicial Officers (Rent Tribunals, Motor Accidents Claims Tribunal, Labour Courts and Industrial Tribunals). Other statutory tribunals have judicial and technical members (Administrative Tribunals, TDSAT, Competition Appellate Tribunal, Consumer Fora, Cyber Appellate Tribunal, etc.) Then, after an extensive review of the various pronouncements on the subject, the Court brought out the differences between the Courts and tribunals in the following words : 45. Though both courts an .....

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ourts. (ii) Courts are exclusively manned by Judges, Tribunals can have a Judge as the sole member, or can have a combination of a judicial member and a technical member who is an expert in the field to which the tribunal relates. Some highly specialised fact­finding tribunals may have only technical members, but they are rate and are exceptions. (iii) While courts are governed by detailed statutory procedural rules, in particular the Code of Civil Procedure and the Evidence Act, requiring e .....

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nd referrable only to the Civil Court in the normal hierarchy of the Courts and does not include in its ambit forums, which are constituted under the special Acts and exercising special jurisdiction. As stated hereinabove, by and large the essential features of the Court and special forums are quite similar in regard to exercising judicial powers of the State. Their decisions are binding in nature. The procedure is almost similar except in case of special forums, the same need not be strictly fo .....

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ibunal is constituted under the special Act to exercise special jurisdiction in order to decide controversy arising under certain special laws and, therefore, by its very composition and formation, is distinct and separate and cannot be treated as Court by necessary implication. Relying on various decisions on the point, our Court held that the word 'Court' used in Section 115 of the Code of Civil Procedure is used as meaning only a civil court in the normal hierarchy of Courts and that .....

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at it is a tribunal and not a court. These decisions have ruled that though the CLB has trappings of a court, its powers are confined only to the provisions of the Companies Act in that behalf and exercised in only specific matters provided therein; that all members of the board are not judicial members, but there are technical members; that sub­section (4­D) of S.10 of the Act and Regulation 47 are deeming clauses treating the Board as a Court for a limited purpose; that matters which a .....

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ing in the Limitation Act, 1963 would include all bodies which discharge curial functions and thus include the CLB as a judicial body performing a curial function under Section 111 of the Act, which was originally with the High Court under Section 155 prior to the amendment to the Act. He relied on the Supreme Court decisions in Canara Bank Vs. Nuclear Power Corporation of India Ltd. 1995 Supp (3) Supreme Court Cases 81, P. Sarathy Vs. State Bank of India AIR 2000 Supreme Court 2023 and our Cour .....

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tion, powers and authority of a Special Court constituted under that Act. It inter alia provided that on and from the commencement of that Act, every suit, claim or other legal proceedings (other than appeal) pending before any court answering the description under Section 9­A shall stand transferred to the Special Court. The Supreme Court, after considering the case law on the subjects, held as follows : 26. In our view, the word 'court' must be read in the context in which it is us .....

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erson notified is involved. The Court, accordingly, held the CLB as being covered within the expression 'court' for the purposes of Section 9­A. There were special circumstances which warranted such interpretation under that Act. The Court considered the purpose of the enactment. The Act was preceded by a huge scam which had hit the securities market between July 1991 and May 1992 resulting from a systematic and deliberate abuse of the system by unscrupulous elements. Having regard t .....

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ent thought it was necessary that all the matters or claims arising out of transactions in securities entered into between the stated dates in which a person notified was involved should be brought before and tried by the same forum. That forum had been invested with the jurisdiction to try persons accused of offences relating to transactions in securities entered into between the stated dates. It was also required to give directions to the Custodian in regard to property belonging to persons no .....

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court of civil judicature which is part of the ordinary hierarchy of courts, but the broader meaning of a curial body, a body acting judicially to deal with matters and claims arising out of transactions in securities entered into between the stated dates in which a person notified is involved. An interpretation that suppress the mischief and advances the remedy must, plainly, be given. Such is not the position with a general statute like Limitation Act. There is nothing in the statute or its c .....

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sdiction for computation of limitation period. The Court held that Section 14 did not speak of a 'civil court' and that any authority or tribunal having the trappings of a court would be a 'court' within its meaning. Again, here the context is very clear. What is important for the purposes of Section 14 is bona fide prosecution of a civil proceeding before a forum having trappings of court but without the jurisdiction of the court and not pendency of a matter before a civil court .....

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ny Act before a 'civil court'. 14. In Raju Grover (supra), this Court has not really considered the question of applicability of Article 137 of the Schedule to the Limitation Act to a petition under Section 111 before the CLB. That point was not argued before the court in that case and the case is no authority for the proposition advanced by the Respondents here. 15. In the premises, the CLB is not a 'court' for the purposes of Article 137 read with Sections 3, 4 and 5 of the Lim .....

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ertainly be affected by inordinate and unexplained delay, and laches. Any such delay may render granting of the relief of rectification inequitable; there could be equities arisen in favour of other parties as a result of such delay; such delay may give rise to a case of acquiescence, waiver or estoppal. These aspects would be for the CLB to assess and would depend on the peculiar facts and circumstances of each case. In the facts of the present case, there is no warrant for holding that there i .....

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hes. 17. That takes us to the question of the time of accrual of a cause of action for claiming rectification of register. The cause of action, in a case of fraud or misrepresentation in the matter of transfer of shares, would naturally arise when the fraud or misrepresentation is noticed by the aggrieved party. Even here, the CLB has clearly erred in the present matter. The impugned order proceeds on the footing that the cause of action has arisen in the present case on the date of execution of .....

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srepresentation was noticed and that is when the cause of action for rectification arose. The CLB considered a so­called concession by learned Counsel for the Petitioner at the hearing in that the signatures themselves were said to be not seriously disputed, or impliedly accepted , as the CLB puts it. The CLB says that Counsel confined his arguments by saying that the Petitioner was having no knowledge of having signed these documents . Though, it is highly debatable whether the record of th .....

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d the documents inadvertently in routine course or more seriously, the signatures were obtained by misrepresentation and without letting the Petitioner know the real nature of the transaction. The CLB has not come to this conclusion on the basis of any analysis of evidence, but simply deduced it from the so­called concession of Counsel. That is clearly impermissible and has led to miscarriage of justice. 18. We may now take up the case of suppression of material documents and facts, which is .....

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the Board of Trustees of N.S. Trust tendering her resignation as a trustee, (ii) Declaration of relinquishment executed by the Petitioner on 7.7.2007 in respect of all benefits in the income and corpus of the trust, (iii) Letter dated 7.7.2007 addressed by the Petitioner to Dr. Kalyani and SNI inter alia requesting the latter to act as trustees and without considering her as a beneficiary, (iv) Letter dated 10.7.2007 addressed by Dr. Kalyani inter alia co­opting Gaurishankar and Rohini on th .....

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cate which bears the signature of the Petitioner shows her knowledge of (i) transfer of shares to Dr. Kalyani as far back as on 17.9.2007 and (ii) further transfer from Dr. Kalyani to Gaurishankar by a registered gift deed on 22.11.2007. It is submitted that suppression of these facts and documents justified the dismissal of the petition. 19. The central point in this discussion (which also bears on the question of limitation, as noted above, from the standpoint of starting of the limitation per .....

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eady held above that no knowledge can be deduced from such concession, assuming without admitting the factum of such concession, in face of the alternative case pressed by the Petitioner's Counsel about the signatures being obtained on a misrepresentation and without being aware of the nature of the documents. Here we need to consider the submission of learned Counsel for the Respondents on the plea of non est factum ­ denial or disowning of execution - for want of knowledge of the natur .....

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ts of the documents. 20. The Supreme Court in the case of Smt. Bismillah Vs. Janeshwar Prasad (1990) 1 Supreme Court Cases 207, considered the contours of the common law defence of non est factum in the following words : 12. The common law defence of non est factum to actions on specialities in its origin was available where an illiterate person, to whom the contents of a deed had been wrongly read, executed it under a mistake as to its nature and contents, he could say that it was not his deed .....

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re, in contemplation of law never did sign, the contract to which his name is appended. 13. Authorities drew a distinction between fraudulent misrepresentation as to the character of the document and fraudulent misrepresentation as to the contents thereof. It was held that the defence was available only if the mistake was as to the very nature or character of the transaction. 14. In Foster V. Mackinnan, Mackinnon, the defendant was inducted to endorse a bill of exchange on the false representati .....

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th approval by this Court in Ningawwa Vs. Byrappa. It was observed : (SCR pp.80­01) It is well established that a contract or other transaction induced or tainted by fraud is not void, but only voidable at the option of the party defrauded. Until it is avoided, the transaction is valid, so that third parties without notice of the fraud may in the meantime acquire rights and interests in the matter which they may enforce against the party defrauded. This would be a voidable transaction. But t .....

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t has been held that the transaction is void, while in the case of the latter, it is merely voidable. (emphasis supplied) However the House of Lords in Saunders v. Anglia Building Society reviewed the law and held that the essential features of the doctrine, as expressed by Byles, J. in Foster v. Mackinnon, had been correctly stated. Lord Reid, however, observed : (SC headnote at p.1005) The plea of non est factum could not be available to anyone who signed without taking the trouble to find out .....

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its practical application; for, in conceivable cases the 'character' of the document may itself depend on its contents. The difficulty is to be resolved on a case by case basis on the facts of each case and not by appealing to any principle of general validity applicable to all cases. Chitty on Contracts [ General Principles 25th edn, para 343, page 194] has this observation to make on Sauders decision : ....It was stressed that the defence of non est factum was not lightly to be allowed .....

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ake) stressing that the disparity must be 'radical', essential , fundamental , or very substantial. In the instant case prima facie appellant seems to proceed on the premises that she cannot ignore the sales but that the sales require to be set aside before she is entitled to possession and other consequential reliefs. 21. No doubt, as explained by the Supreme court in Bismillah's case, the defence of non est factum is not to be lightly allowed where a person of full age and capacity .....

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sed on the allegation that the Petitioner thought that she was actually signing routine administrative papers along with others, which were brought to her by her own daughter­in­law, who was with the consent of the family members managing the affairs of the family companies. What the Petitioner actually signed were the documents purporting to effect transfer of ownership of the shares which gave the Petitioner and her co­trustees a controlling interest in the companies. There was a f .....

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the contents of the documents and their execution by her, and yet did not disclose the documents, she thereby suppressed material facts and documents, disentitling her to the discretionary relief of rectification. In other words, not only is the knowledge of contents deduced from the simple fact of non­traversal of the signatures (which is itself debatable), but a further inference of deliberate suppression on the part of the Petitioner of the documents purportedly signed by her is imputed. .....

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ring the plea of non est factum simply on the basis of a so­called admission of the Petitioner's signatures on the subject documents, without going into the defence of fraud and misrepresentation, is an error of law which has vitiated the impugned order. 23. The same can be said even of the Respondents' plea of deemed knowledge of the registered document (i.e., the gift deed). Deemed knowledge may at best support a case of binding nature of the document but cannot sustain a plea of a .....

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ished on different dates. The share certificate placed on record shows in the memorandum of transfers overleaf that the first transfer in favour of Dr. Kalyani was effected on 17 September 2007, whilst the second transfer from Dr. Kalyani to Gaurishankar was effected on 22 November 2007. There is no explanation, however, on record as to how the names of Sulochana and DGK were replaced by the names of Rohini and Gaurishankar as 'holders' of the shares on the face of the share certificate. .....

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be in contravention of Section 108 : (i) There is no instrument of transfer as required by Section 108 produced on record by the answering Respondents; (ii) The answering Respondents did not produce the register of members of the company to controvert the Petitioner's case that the transfers did not actually take place; (iii) No minutes of the Board of Directors or of any transfer were placed on record in respect of the impugned transfers; (iv) The purported annual returns filed with the Reg .....

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