TMI Blog1995 (11) TMI 468X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of 5 lakhs equity shares of GWL held in the name of Shoe Specialities Private Limited (hereinafter referred to as SSPL ). 2. A summary of the petition is as follows : 3. Tracstar holds 24.91 per cent of the paid-up equity capital of GWL. The impugned 5 lakhs shares constitute 12.73 per cent of the paid-up capital of GWL and were held in the name of SSPL but were in pledge with Tracstar. Tracstar became the beneficial holder of these impugned shares after it foreclosed the pledge for non-payment of dues by SSPL. The second petitioner, namely, Standard Distilleries and Breweries Private Limited (hereinafter referred to as Standard ) and the third petitioner, namely, Stridewell Leather Private Limited (hereinafter referred to as Stridewell , corporate entities, hold 20 per cent and 40 per cent respectively of the paid-up capital of SSPL and as such they are the majority shareholders of SSPL. The fourth and fifth petitioners respectively known as MDC and RDC are shareholders of the second and third petitioners. 4. Even though Standard and Stridewell are the majority shareholders of SSPL, the board of SSPL controlled by the employees of Shaw Wallace Limited (here ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oard is illegal, especially when there is a proceeding before the Company Law Board in C.P. No. 44 of 1993 seeking supersession of the then existing board. This board should not have taken any action especially when the Company Law Board in its order dated June 8, 1994, stipulated that the board shall not take any decision except relating to the requisition for an extraordinary general meeting. 6. Moving this instant petition, the petitioners sought for an interim order, restraining GWL not to register these shares and if registration had already taken place, then restraining GWL from effecting registration of further transfers. We granted this prayer on June 22, 1994, with the directions to serve copies of petition on all the respondents. Accordingly, copies of the petition were served on all the respondents. When the replies were filed by SSPL and GWL, they disclosed the names of the three transferees and also the fact that the transfers had already been registered by GWL on June 8, 1994. Accordingly, on an application filed by the petitioners to implead these 3 transferees, we allowed them to be impleaded as respondents Nos. 17 to 19. All the respondents except respondents No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was patently illegal inasmuch as the board did not enjoy the majority support and the same is mala fide, fraudulent and has been done only with the view to deprive the majority shareholders of SSPL from controlling these shares. (e) Registration of these shares was in contravention of the provisions of Section 108 of the Act as the share certificates did not accompany the transfer deeds. (This has become irrelevant as it later transpired that duplicate certificates accompanied the transfer deeds). (f) GWL erred in issuing duplicate certificates without being fully satisfied that the share certificates had been lost or destroyed and thus the decision to issue duplicate certificates was in violation of the provisions of Section 84(2) of the Act. (g) The approval given by the share transfer committee consisting of only two directors of GWL was in violation of Rule 3(b) of the Companies (Issue of Share Certificates) Rules, 1960. 9. We heard the matter on a number of days. C. A. No. 150/SRD/95 was filed by Shri A.K. Agarwal, advocate, on behalf of one Mr. V. Jayaraman, director of Stridewell, with the prayer that the name of Stridewell be deleted from the list of parties on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) of the Act and the Companies (Issue of Share Certificates) Rules, 1960 ? (6) Whether the removal of the name of SSPL and consequent entry of the names of respondents Nos. 17, 18 and 19 in the register of members of GWL was without sufficient cause ? (7) Whether the prayer for rectification of register of members is to be granted ? First issue : Locus standi : The objection taken by the respondents is that none of the petitioners has any stake in the impugned shares nor any of them seeks to put its/ their names in the register of members consequent to the prayer for rectification and as such none has any locus standi to present the petition. 13. Petitioner No. 1 has presented the petition both in the capacity as pledgee of the impugned shares as well as a member of SSPL. Elaborate arguments were advanced by counsel for the respondents as well as by Shri Sarkar, senior advocate for the petitioners, on the fact of pledge, rights of a pledgee and the locus standi arising out of this pledge, citing a large number of decided cases. We are not dealing with this aspect of pledge in this order inasmuch as Shri Sarkar, at the final stages of the arguments, stated that he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioners Nos. 2 and 3 are only shareholders in SSPL and they cannot agitate against the decision taken by validly constituted board of directors of SSPL and against GWL. As far as petitioners Nos. 4 and 5 are concerned, they are neither shareholders of GWL and SSPL and as such they have absolutely no right to present the petition. 15. Shri Anil Diwan, senior counsel for GWL, Shri S.N. Mukherjee, counsel for respondents Nos. 3 to 8 and Shri Mitra, counsel for respondents Nos. 17 to 19, also concurred with the arguments of Shri Raghavan. Shri Mukherjee additionally cited [1989] BCCL 697 to state that unless otherwise a person seeks to put his own name in the register of members, consequent on rectification, he cannot present a petition under Section 111(4). 16. Shri Sarkar, replying to the arguments of counsel for the respondents, stated that even though the question of pledge need not be decided by the Company Law Board yet his claim for seeking rectification can be entertained on the ground that Tracstar is a shareholder of GWL. He stated that Tracstar holds 24.91 per cent shares in GWL and being a shareholder of GWL, it can maintain a petition. On this, he relied on the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner are not affected. Instead of dealing with various case law cited by various counsel, we would like to go by the relevant provisions of the Companies Act, 1956, namely, Section 111(4) . Under this sub-section, a petition can be filed by (i) an aggrieved person ; or (ii) any member of the company ; or (iii) the company itself. In other words, the Act itself specifically provides that any member of a company can prefer a petition as long as he establishes that the name of any person is entered in or omitted from the register of members without sufficient cause . There is nothing in the section to indicate that a member of a company has to show some interest in the shares in respect of which rectification is sought. The very fact that the two terms aggrieved person and any member of the company having been separately indicated, it is evident that even without any personal grief in regard to the shares, a member can, for sufficient reasons to be shown, seek rectification. If the intention of the Legislature were that only an aggrieved member can seek rectification, then the wording of the section could have been any person or any member aggrieved instead of separately stati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the view that they do have locus standi. In this connection, the case cited by Shri Sarkar, viz., Satya Charan Law v. Rameshwar Prosad Bajoria [1950] 20 Comp Cas 39 ; AIR 1950 FC 133, is relevant. 24. As pointed out by Shri Sarkar, we may also refer to Rule 1 of Order 1 of the Civil Procedure Code, 1908, which deals with joining of the plaintiffs. It reads as follows : 25. All persons may be joined in one suit as plaintiffs where -- (a) any right to relief in respect of, or arising out of, the same act or transaction or series of acts or transactions is alleged, to exist in such persons, whether jointly, severally or in the alternative ; and (b) if such persons brought separate suits, any common question of law or fact would arise. 26. In this present petition, rectification has been sought on allegations against GWL and SSPL and the transferees. Admittedly, petitioners Nos. 2 and 3 being shareholders of SSPL Could independently impugn the sale of shares by SSPL. In such a case, the common question of law or facts that arises in the petition would also arise. Therefore, we are of the view that even as per the Civil Procedure Code, 1908, petitioners Nos. 2 and 3 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, the matter is beset with various questions of law and facts which require oral evidence especially, as is evident from the pleadings, the petition itself has been filed with an oblique motive and for a collateral purpose. He cited the following cases in support of his various submissions : (1) Smith and Fawcett Ltd., In re [1942] Ch 304 ; [1942] 1 All ER 542 : Affidavit in evidence is unsatisfactory evidence of the motives of directors in exercising their powers. (2) Public Passenger Service Ltd. v. M.A. Khadar, AIR 1966 SC 489 ; [1966] 36 Comp Cas 1 (SC) Where by reason of its complexity or otherwise the matter can more conveniently be decided in a suit, the court may refuse relief under Section 155 in exercise of the discretionary jurisdiction and relegate the parties to a suit. (3) Dhelakhat Tea Co. Ltd., In re, AIR 1957 Cal 476 ; [1958] 28 Comp Cas 62 : Serious questions involving disputed questions of facts should not be tried in a summary procedure in an application for rectification under Section 155 because they are more appropriate subjects for trial in a suit in evidence after the full discovery of documents and inspection. 32. Shri Anil Diwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80 : If there is one rule which is established than any other, it is that in cases of fraud and undue influence and coercion the party pleading it must set forth full particulars and the case can be decided on the particulars as laid. There can be no departure from them in evidence. 35. Replying to these objections and the cases cited by counsel for the respondents, Shri Sarkar stated that the allegations of fraud and collusion have been made purely on the basis of the circumstances under which the entire episode has been enacted by the parties in transferring the impugned shares. According to him, when the facts are so crystal clear from the facts as revealed from the pleadings and other documents, it should lead to the logical conclusion that the entire transaction has taken place with an oblique motive of depriving the petitioners, being majority shareholders of SSPL, from having any control over the impugned shares. Therefore, according to him, there is no need to relegate the matter to a civil suit and the Company Law Board should be in a position to deal with this matter. He relied on in Ramashankar Prosad v. Sindri Iron Foundry P. Ltd., AIR 1966 Cal 512, 527. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is now Section 111(4) ) in Ammonia Supplies Corporation Pvt. Ltd. v. Modern Plastic Containers Pvt. Ltd. [1994] 79 Comp Cas 163 was not available before us in which the High Court has categorically stated that proceedings under Section 155 are of a summary nature. In view of this, it was urged to relegate the parties to a civil suit. We have gone through the judgment of the Delhi High Court. The main issue in that case was whether a civil court has jurisdiction in matters of rectification of register of members. After a careful examination of various case law, the Full Bench came to the conclusion that (at page 178) : (a) The jurisdiction exercised by the company court under Section 155 of the Act is discretionary and summary in nature. (b) The company court can decline to entertain a petition involving disputed and complicated questions requiring examination of extensive oral and documentary evidence. (c) The remedy of suit for adjudication of disputes relating to title to shares is not barred. 39. The decision at point (b) is relevant for us where the court has said that the company court can decline to entertain. It does not say that the company court must decline ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter be relegated to a suit is rejected. Third issue : Violation of undertaking ; 43. Shri Sarkar stated that the impugned transfer of shares should be set aside on the ground that SSPL had violated the undertaking given to the Company Law Board not to dispose of the shares. According to him this undertaking was given by counsel for SSPL in C. P. No. 29 of 1992 and it was recorded in the order of the Company Law Board dated August 20, 1992. He further stated that this undertaking was recorded only on the prayer that SSPL should be restrained from disposing of the shares which were the only assets of SSPL, when the matter as to who was entitled to control SSPL was pending decision. According to him, the effect of an undertaking has the same effect as that of an injunction except that an undertaking without any limit in point of time, has to be released by the court in which the undertaking was given or till such time the same is varied or modified. On this proposition he relied on Cutler v. Wandsworth Stadium Ltd. [1945] 1 All ER 103 (CA) wherein it was held that (at page 105) : The undertaking in this case was given until the trial of the action or further order and an ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our the case is decided has nothing to fall back upon. He stated that the matter is very similar to a situation where a suit for specific performance is filed and in such a suit an order of injunction is passed against the disposal of the subject-matter of this suit and if at the final disposal a decree for specific performance and possession is directed, it is not open to the party who loses the matter and prefers an appeal to contend that by reason of such disposal the matter has come to an end and the property had been disposed of in the meanwhile. He stated that such a situation would be nothing but a travesty of justice. 48. Pointing out to the observation of the Madras High Court (Division Bench) in its order on appeal preferred by SSPL in C. P. No. 29 of 1992, he stated that the Madras High Court also had taken cognizance of the continuity of the undertaking given and as such he stated that the undertaking given by SSPL definitely continued when the shares were disposed of by SSPL and this is in clear violation of the undertaking given. 49. On the effect of violation of the undertaking, he stated that once an undertaking is violated then the transaction relating to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... continuation of the undertaking is clear and apparent which has also been observed as such by the Division Bench of the Madras High Court and, therefore, the action of SSPL to transfer the shares was against the undertaking and as such it is illegal and void. Even as per Order 39, Rule 2 of the Civil Procedure Code, 1908, penalty has been provided for violation of an order of injunction and it has been held by the Supreme Court in Mannalal Khetan v. Kedar Nath Khetan [1977] 47 Comp Cas 185 ; AIR 1977 SC 536, that if a penalty is provided in the statute for doing an act such act is void. Therefore, he contended that if an act is void the parties have to be restored to their original position even assuming that the transferees were bona fide purchasers. 54. Replying to the arguments of Shri Sarkar on the violation of the undertaking, counsel for various respondents put forth their arguments as follows : 55. Shri Raghavan's submissions were that the undertaking given in C.P. No. 29 of 1992 was at an interim stage and as such this undertaking would survive only till the disposal of the main petition. Once the final order is passed, the interim order has worked itself into th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cases as indicated below : (a) Balbhaddar v. Balla, AIR 1930 All 387(2) : A temporary injunction comes to an end with the passing of a decree. Until further order means till the decree is passed or to a time short of the final order. Existence of an injunction does not render void an alienation made in contravention of the injunction. (b) Tagore Law Lectures on Law relating to Injunction, 1988 edition : For an injunction which has been granted upon an interlocutory application is superseded by judgment in action. If it is intended that it should remain in force it must be expressly continued. 59. Even assuming that the undertaking was in existence at the time of transfer of shares, it will not affect his clients, viz., respondents Nos. 17 to 19, inasmuch as they were bona fide purchasers without notice of the injunction. The transfer can never be declared void or invalid. No doubt if an order had been passed under Section 250 of the Act, the transfer would have been void but not in the instant case especially when his clients being in the business as brokers purchased these shares for valuable consideration remitted through bank drafts. Just because there is a f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are capital, from registering any further transfer of shares of the company and also from disposing of the shares held by the company in GWL without the permission of the Company Law Board. Shri Mitra, senior advocate, appearing on behalf of Shoe Specialities Ltd., stated that the company has already registered transfer of 20,000 shares in the name of Malleswara Finance and Investment Co. Pvt. Ltd. and undertook not to register any further transfer of shares except under the orders of the court or the Company Law Board till the disposal of the petition. He further stated that the company has neither any intention nor proposes to transfer its shareholding in GWL to anyone, In view of this undertaking given by counsel appearing on behalf of the company, we are not giving any directions in respect of the request made by the petitioners. 61. This petition was finally disposed of by us in May, 1993, and this matter went on appeal to the Madras High Court. The Division Bench of the Madras High Court in its order dated September 27, 1994, made an observation as follows : The petitioners have demonstrated before the Company Law Board as to how they have been oppressed as regards th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tention of counsel for the petitioners in C.P. No. 29 of 1992, when the undertaking was recorded is clear that his prayer itself was restricted only till the disposal of the petition. It is also seen from the main petition of C. P. No. 29 of 1992, that there is no prayer in that petition relating to the impugned shares. Even otherwise, since both of us were also parties to the order of August 29, 1992, we ourselves intended that the undertaking was to remain only till the disposal of that petition. Therefore, considering all these facts, we are of the view that the contention of Shri Sarkar that this undertaking continued to exist till release by the Company Law Board does not hold good. 64. However, we have a different situation in this case. After we passed the final order in C.P. No. 29 of 1992, Malleswara filed a writ petition in the High Court of Madras and some of the respondents in C. P. No. 29 of 1992 also filed appeals in the same court. In the writ petition, a single judge of the Madras High Court stayed our order in C. P. No. 29 of 1992 and no such stay order was passed in respect of the appeals. The writ petition was dismissed on May 10, 1994, while the appeals were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it nullifies the very benefit which was finally granted by us. In almost all cases cited by counsel for the respondents, it is the party against whom injunction was granted, who succeeded finally. Therefore, we do concede that in equity the interim undertaking given to us should be deemed to have revived with the dismissal of the writ petition. However, we find that, both in writ proceedings as well as in the appeals, the petitioners had actively participated and if they had really desired that the shares in GWL held by SSPL should not be disposed of by SSPL during the pendency of the appeals, as a matter of course, they should have obtained an injunction order from the High Court, which they had failed to do. The petitioners' reliance on the observation of the Division Bench of the Madras High Court regarding the undertaking does not help them inasmuch as none could throw light on the circumstances which led the Madras High Court to make that observation and in what connection. Even otherwise, as has been held in Joyram Dutta v. Padmeswar Dutta, AIR 1994 NOC 258 (Gauhati) and Saaarmal Sharma v. Gajanan, AIR 1994 NOC 382 (Orissa), if an order could be interpreted in two ways an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 43A-company, the provisions of Section 293 are not applicable in respect of the sale of shares even if the shares formed part of the substantial assets of the company. To differentiate between undertaking and assets, Shri Raghavan relied on the following cases : (a) Brooke Bond Ltd. v. U.B. Ltd. [1994] 79 Comp Cas 346 (Bom) : The sale of shares whatever be their number even if it amounts to transfer of the controlling interest of a company cannot be equated to the sale of any part of the undertaking so as to come within the mischief of Section 293(1)(a). (b) Carew and Co. Ltd. v. Union of India, AIR 1975 SC 2260 ; [1976] 46 Comp Cas 121 : An undertaking is an enterprise only engaged in the production of goods or supply of services. (c) Mrs. Bacha F. Guzdar v. CIT [1955] 25 Comp Cas 1 (SC); AIR 1955 SC 74 : A shareholder has no right in the property of a company. Shri Anil Diwan concurred with the submissions of Shri Raghavan and additionally he cited the following cases in support of his proposition that the sale of the shares does not constitute sale of an undertaking to come under the purview of Section 293(l)(a). (a) Yallamma Cotton, Woollen and Silk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... substantially the whole of the undertaking of the company cannot be done without the approval of a general meeting in the case of a public company. It has also been accepted that this power is exercisable with the prior consent of the general meeting and cannot be taken for granted with the hope that the general body will ratify the action. To this extent, the argument advanced by Shri Sarkar is acceptable. However, the relevance is with regard to-- either the whole of the undertaking or substantially the whole of the undertaking. 71. Shri Sarkar has not relied on any case law, nor has he refuted any of the precedents cited by counsel for the respondents. The various precedents cited by the respondents' counsel go to show that an undertaking is a comprehensive expression and does not refer to one piece of asset. As observed by Mr. Justice A.N. Ray in Rustom Cavasjee Cooper v. Union of India [1970] 40 Comp Cas 325 (SC) ; [1970] 1 Comp LJ 244 ; AIR 1970 SC 564, as referred to above, the undertaking meant the entire organisation . It is further referred to as an amalgam of all ingredients of property and are not capable of being dismembered . It is further stated by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that before issue of duplicate certificates GWL should have satisfied itself that the certificates were proved to have been lost or destroyed. Duplicate certificates can be issued only after such satisfaction. In the present case, it is alleged that GWL was fully aware that the share certificate was with Tracstar. GWL was a party to the proceedings before the Company Law Board in C.P. No. 19 of 1992, wherein the fact of the certificates being with Tracstar was known to it. Even otherwise the letter of SSPL seeking duplicate certificates clearly indicates that the certificate had been taken away by Tracstar. Under these circumstances, GWL should not have come to the conclusion that the certificates had been lost or destroyed and decided to issue duplicate certificates. Even the claim of Tracstar as a pledgee whether rightly or wrongly was known to GWL. Normally, in a case of issue of duplicate certificates, Shri Sarkar stated that, companies do issue advertisements in the form of a notice to call for objections before issue of duplicate certificates and as a matter of fact even in the case of GWL, such notices have been given earlier. Therefore, in the instant case, the company did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e also cited Martab Ali v. Union of India, AIR 1954 Bom 297, wherein the court observed (headnote) : ... that the term 'loss' includes a claim on the footing of non delivery or negligence or wrongful detention or conversion on the part of the railway administration . 78. Therefore, according to Shri Diwan since the original certificates have been wrongfully detained by Tracstar, the certificates should be deemed to have been lost to SSPL. On the same proposition, he also relied on Sialkot Industrial Corporation v. Union of India [1978] Tax LR 1700 (Delhi), wherein the court observed (at page 1704) : . . . the expression 'lost or destroyed' is used in the generic and comprehensive sense and includes within it the case of loss to the party by pilferage . 79. He also relied on Black's Law Dictionary, 6th edition, at page 945, wherein the term loss has been defined as-- Loss is a generic and relative term. It signifies the act of losing or the thing lost. It is not a word of limited, hard and fast meaning and has been held synonymous with, or equivalent to 'damage', 'damages', 'deprivation', 'detriment', 'injur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with reference to their use in particular statutes. In the present case, GWL is fully aware of the whereabouts of the certificates if not on its own, but the letter requesting for the duplicate certificates itself indicates that the share certificate was with Tracstar. It is also seen that the company itself has been in the practice of issuing public notices whenever duplicate certificates are sought. This is rightly so in public interest as shares of listed companies are freely transferable. Once a genuine investor comes to hold the shares, complications would arise if original and duplicate certificates co-exist in the market. So as a measure of adequate precaution public notice and information to stock exchanges are given. This is all the more important when a substantial chunk of shares is involved. No company can afford to take these precautions lightly as happened in the present. The very fact that GWL is aware of the whereabouts of the certificates, at best, it could have issued a notice to Tracstar before issuing the duplicate certificates inasmuch as Tracstar having possession of the certificates may have to say something about its right be those shares. Therefore, we are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dly so that its acts may be lawful. It is generally left to the committee themselves to fix the quorum for their meeting and if it is not fixed by the authority which constitutes it, then it is competent for the committee to fix the quorum to devise its day to day procedure. 86. According to Shri Anil Diwan, when this committee was constituted by the board, the board itself fixed the quorum as two and, therefore, the decision taken by this committee is valid. He also relied on Upendra Kumar Joshi v. Kesoram Industries and Cotton Mills Ltd. [1983] 54 Comp Cas 1 (Patna) [FB] and Upendra Kumar Joshi v. New Victoria Mills Co. Ltd. [1986] 59 Comp Cas 798 (Patna) [FB] to state that : A Bench of the court does not mean the full court. A Bench of the High Court with regard to an appeal from a judgment or order of a single judge means a Division Bench and such an appeal shall lie before a Division Bench and not a full court. 87. He further stated that the Rules should be read as they are and the court or Tribunal cannot supply any omission in the Rules. According to him, the Rules only say that the committee should have three directors and it does not say anything on quorum unli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act prescribes the quorum for meetings of the board of directors according to which the quorum for a board meeting, if there are more than six directors in the board, will be three. The Companies (Issue of Share Certificates) Rules, 1960, defines a board as board of directors of a company or a committee thereof consisting of not less than three directors where the total number of directors exceeds six and not less than two directors, where the total number does not exceed six. If the contention of Shri Diwan is to be accepted that once a committee is constituted with three or more than three directors, then the board itself can fix its quorum to transact business under these rules, then there is no need for the rules to define a board as in every company there are committees to transact various businesses as approved by the board as provided in Schedule I, Table A of the Act. A view is also taken in Fireproof Doors Ltd., In re [1916] 2 Ch. 142, that in view of the words used-- such member or members in Article 77 of Table A , it is possible for the board to delegate its powers to a committee consisting of even a single member. Even in the case cited by Shri Diwan, Pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Shri Sarkar stated that from the facts and circumstances of the case, it is apparently clear that the name of SSPL was removed from the existing register of members without sufficient cause and on this account alone the Company Law Board should order rectification of the register of members. In addition, he stated from the circumstances of the case, it would also be clear that even the consequent entry of the names of respondents Nos. 17 to 19 should also be treated as without sufficient cause . As far as SSPL is concerned the removal of its name is invalid not only on its violation of the undertaking and also the violation of the provisions of Section 84(2) but also on the ground that the transfer is mala fide done by a board which did not enjoy the support of the majority shareholders. He stated that in a petition before the Company Law Board in C.P. No. 44 of 1993 a prayer has been made to supersede the then existing board of directors of SSPL and when the judgment had been reserved, all those directors were made to resign from the board and new directors and employees of SWC were inducted on the board on June 1, 1994. Immediately thereafter, within a period of one week, al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 111(4) for seeking rectification on the ground that the transfer was without sufficient cause. 95. Shri Anil Diwan stated that as far as GWL was concerned, the transfer committee had before it, duly completed transfer instruments along with the share scrips and, therefore, as a listed company it was bound to register the shares which it did. Therefore, to allege that the registration of transfer was done without sufficient cause does not hold good. Shri Mukherjee also concurred with the arguments of other two counsel. 96. Shri Mitra stated, that his clients, respondents Nos. 17 to 19 were bona fide purchasers of the impugned shares. The transfer deeds in respect of the impugned shares were executed on June 6, 1994, by his clients and the payments towards consideration were made by demand drafts on June 7, 1994, and the shares were registered by GWL on June 8, 1994. These purchases were made by his clients in the normal course of their business and in good faith. These respondents-transferees who are normally dealing in shares have substantial business of their own. They have purchased these shares with their own money. It is not uncommon in business that substantial a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in C. P. No. 29 of 1992 was delivered. The entire episode relating to the transfer of the impugned shares took place on dates between receipt of the order of the Madras High Court (Single Bench) and our order in C. P. No. 44 of 1993. 98. Now, we revert back to the issue relating to rectification. This petition has been filed under Section 111(4) of the Act seeking rectification of the register of members. According to this section,-- (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 refusal under Sub-section (1)), the person aggrieved, or any member of the company, or the company may apply to the Company Law Board for rectification of the register. 99. The question therefore is whether the grounds on which the petition has been filed can lead us to hold that GWL omitted the name of SSPL from the register of members without sufficie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived some time during the third week of May, 1994. As could be seen from the minutes of the meeting of the board of directors of SSPL, in its 41st board meeting held on June 1, 1994, six new persons were appointed as additional directors and the resignations of three directors of the earlier board were accepted. In that meeting, only two directors of the earlier board, viz., Mr. M.S.K. Eswaran and Shri Ramani were present. No other business was transacted in this meeting. The next meeting of the board was held on June 2, 1994, in which resignation of Mr. Eswaran as director was accepted and Mr. Sriram was appointed as additional director. In this meeting, only those who were appointed as additional directors on June 1, 1994, and Mr. Sriram were present. In this meeting the decision to obtain duplicate certificates in respect of the impugned shares from GWL was taken and also it was decided to apply for sub-division of the share certificates into three different lots of 1.75 lakhs ; 1.75 lakhs and 1.50 lakhs was taken. In the 43rd meeting held on June 3, 1994, it was decided to dispose of these three lots at the best available market price but at a price not below ₹ 12.75 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explained and ultimately it has transpired that sale was made to three different parties. Therefore, it gives rise to a strong presumption that the entire deal has been negotiated much earlier to the date of decision to dispose of these shares without which the whole transaction could not have been completed precisely within such a short period. If we peruse the copies of the minutes books of SSPL filed at the hearing, it is seen that the 33rd meeting of the board took place on December 9, 1992 ; 34th on December 29, 1992 ; 35th on February 22, 1993 ; 36th on May 24, 1993 ; 37th on July 15, 1993 ; 38th in September, 1993 ; 39th on December 1, 1993 ; 40th on March 29, 1994. However, between June 1, 1994, and June 8, 1994, there were four board meetings. The business transacted in these meetings has already been indicated earlier. A board of a company which was meeting on an average once in two months suddenly decided to hold four meetings in a period of eight days. The subject in all the last three meetings was the impugned shares . We should also look into another fact that one of the transferees has also been taken on the board of directors of GWL recently. Under these circumstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L had grossly erred in not establishing the fact regarding loss of certificates as the letter seeking the duplicate certificates had itself clearly mentioned that the certificates are with Tracstar, we are unable to do so. If the committee bona fide considered that it was necessary to issue duplicate certificates, it should have, in our opinion, at least issued a notice to Tracstar. GWL has obviously not done so only with the view to defeat the alleged rights of Tracstar, whatever it might be, justified or not and also to facilitate SSPL to dispose of these shares. Without duplicate certificates, SSPL could have never dealt with the shares as it did. The speed with which GWL acted in this matter also has some relevance. 107. Even assuming that SSPL sent its request for duplicate certificates on the same date of taking the decision, i.e., on June 2, 1994, the transfer committee of GWL considered the matter within the next two days, i.e., on the fourth itself. In this connection, it is worth noting that during the arguments, Shri Sarkar pointed out to us that in a similar case seeking duplicate certificates by Sanman Distributors Pvt. Ltd., GWL decided to issue a public advertisem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case when a substantial percentage of shares was involved, if the committee itself had decided to approve registration of transfer without reference to the board, then obviously the committee should have either taken the tacit prior approval of the board or it should have been satisfied that the persons acquiring the shares are friendly to the board of directors. This decision of the committee to transfer the shares within alleged two days of lodgment supports the stand of Shri Sarkar that there has been an understanding/collusion between SSPL ; GWL and the transferees. This inevitable inference has to be drawn from the sequence of events and there is no escape. This inference gets strengthened by other facts and circumstances and documents produced before us during the hearing. SSPL had executed the transfer deeds on June 3, 1994, as is evident from the deeds where one Shri Ramachandran had attested the signature of a director of SSPL as transferor wherein Shri Ramachandran has dated his signature as June 3, 1994. These transfer deeds also contain the corresponding certificates numbers. But the decision to issue duplicate certificates with those corresponding numbers was taken by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as no urgent necessity for selling these shares, that the sales were approved hastily without issuing proper and reasonable notices, that there was no advertisement or any sort of publicity for sales of the shares so that the company might get the highest bid from the purchaser, that there was no evidence as to why only the purchasers were approached for sale and whether any other parties were also approached, that the sale was made only to cripple the company thus causing great damage to the company and that the sale was against the provisions of Section 13 of the Securities Contracts (Regulation) Act, 1956. The court upheld all these arguments and finally declared the transfer fraudulent, illegal, void and a nullity and directed the rectification of the register of members. While doing so, it made the following observation (at page 331) : The evidence of fraud cannot be tangible and perceived. The fraud can be proved by facts and circumstances and as such conceived. It is a matter of reasonable inference. The actions of Haridas Mundra with regard to the majority shares of the petitioner company through litigations and ultimately his failure, have an important bearing in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). Our order, therefore, would be available at any time thereafter. Therefore, the action of SSPL without waiting for our order in C.P. No. 44 of 1993, in transferring the shares makes us believe that it was done only with a view to pre-empt the effect of any adverse decision in C.P. No. 44 of 1993. Thus, the circumstances in this case are similar to the one in Turner Morrison and Co. Ltd. v. Shalimar Tar Products (1935) Ltd. [1980] 50 Comp Cas 296 (Cal). 113. Thus, considering all the facts and circumstances of the issue, we have to perforce come to the conclusion that the name of SSPL was omitted from the register of members of GWL ..without sufficient cause, the transfer being not in the interest of SSPL, not for a bona fide purpose but for a collateral purpose by a board not elected by the support of majority shareholders and facilitated by GWL by issue of duplicate certificates against the provisions of law. Seventh Issue : Relief : 114. Now that we have come to the conclusion that SSPL's name has been omitted without sufficient cause, even in the case of bona fide purchasers for valuable consideration, we can order their removal by suitably protecting their inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ster of members cannot be considered. 116. Taking into consideration all facts and circumstances, we hereby direct that the names of respondents Nos. 17 to 19 be removed from and the name of SSPL be entered in the register of members of GWL within 10 days from the date of receipt of this order. However, since the transferees have paid consideration for purchase of these shares, we feel that it is just and equitable that their interest should be protected. Therefore, we also order that SSPL will pay to respondents Nos. 17 to 19 either the consideration that they had paid for these shares or the prevailing market price on the date of payment towards these shares whichever is higher. This fully protects the interest of respondents Nos. 17 to 19 who are in the business of dealing in shares. Till such time the amount is paid, even though the name of SSPL will be entered in the register of members in pursuance of this order, it will not exercise any voting rights in respect of these shares nor it will transfer these shares to anyone else and GWL will also not register any transfer during this period. Since we have held that the issue of duplicate certificates was not in order we also ..... X X X X Extracts X X X X X X X X Extracts X X X X
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