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TMI Blog1994 (3) TMI 396X X X X Extracts X X X X X X X X Extracts X X X X ..... authorised capital a sum of ₹ 30 lakhs has been subscribed and fully paid. Appellants No. 1 on whose behalf this appeal has already been dismissed as withdrawn was holding 1,500 equity shares of ₹ 100 each whereas appellant No. 2 on whose behalf alone the present appeal survives holds 783 equity shares. 4. It appears that by a resolution passed by the board of directors of the company on March 31, 1990, the board resolved to permit the following transfers of shares inter se the existing members. Sl. No. of Transferor Transferee No. Shares 1 1,318 Suraj Prakash Manchanda (respondent No.2) Vijay Kumar Narang (respondent No.3) Chanandas (HUF ) (respondent No.6) 2 175 Suraj Prakash Manchanda (respondent No.2) Rajan Kumar Manchanda (respondent No.4) 3 1,628 Suraj Prakash Manchanda (respondent No.2) Rajan Kumar Manchanda (respondent No.4) 4 907 Shanthilal Narang (respondent No.5) Vijay Kumar Narang (respondent No.3) Subsequently, on April 4, 1990, an extraordinary general meeting of the company was held in which the then managing director of the company, Shri S.P. Manchanda, respondent No. 6, herein, was removed. The respondents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of their having acquiesced in the transfer of the shares in question, in the meeting held on March 31, 1990, in which both the petitioners were present as special invitees as also in the next board meeting dated April 14, 1990, where the said petitioners were present and participating as members of the board of directors. It was also urged that the failure on the part of the petitioners to raise any objection as to the validity of the transfers in question in the extraordinary general meeting held on April 4, 1990, and the annual general meeting held on September 17, 1990, in which meetings the transferees had admittedly participated on the basis of the shares in question, was sufficient to legally prevent the petitioners from raising any objection at this belated stage. 8. It was alternatively submitted that the resolution dated March 31, 1990, transferring the shares in question was passed not on the basis of the forms set up by the petitioners but on the basis of a second set of transfer forms which were admittedly valid and usable. It was also urged that the provisions of section 108(1) and 108(1A) were directory in nature and could not therefore invalidate the transfers in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guilty of laches, acquiescence and waiver, and prayed that the appellants were entitled to the benefit of the remedy provided by section 155 in the facts and circumstances of the case. 13. Section 155 of the Companies Act, 1956, before its deletion from the statute book by the Companies (Amendment) Act, 1988, with effect from May 31, 1991, read as under : "Power of court to rectify register of members. - (1) If - (a) the name of any person - (i) is without sufficient cause, entered in the register of members of a company; or (ii) after having been entered in the register is, without sufficient cause, omitted therefrom; or (b) default is made, or unnecessary delay takes place, in entering on the register the fact of any person having become, or ceased to be, a member : the person aggrieved, or any member of the company, or the company, may apply to the court for rectification of the register. (2) The court may either reject the application or order rectification of the register; and in the latter case, may direct the company to pay the damages, if any, sustained by any party aggrieved. (3) On an application under this section, the court - (a) may decide any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the nature of an additional or alternative remedy. It is true that the jurisdiction conferred on the court under section 155 is very wide. it is almost unlimited but there is a discretion in the court to grant or refuse the reliefs sought in the circumstances of each case and the applicant is not entitled to an order ex debito justitiae." 15. In T.S. Somasundaram Pillai v. Official Liquidator [1967] 37 Comp Cas 440 the Madras High Court while dealing with a petition under section 155, held that the onus lies heavy on a shareholder of the company to set right the mistake in the register without any delay. The court in this regard observed thus (page 444) : "This doctrine of laches has a very great significance as a member in any event should repudiate the contract in unequivocal terms and without undue delay as otherwise such delay would be fatal to his application for rectification. If the name of a person appears in the register of members, he cannot at his whims and fancies ask for rescission of such a contract to take shares as it would be lost because of inaction or lack of prompt action on his part... Therefore, the onus is heavily on the shareholder to se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion would be relevant to the decision as to whether the discretion should or should not be exercised." 16. There is a cleavage in judicial opinion as to whether relief under section 155 of the Act can be granted even when complicated questions of law and fact are involved in a given case. While the High Courts of Punjab and Haryana, Allahabad, Calcutta, Delhi, have taken the view that jurisdiction under section 155 being summary in character, complicated questions cannot be determined in proceedings for the same, the High Courts of Gujarat and Kerala have taken a contrary view. This court in Muniyamma v. Arathi Cine Enterprises Pvt. Ltd. [1993] 77 Comp Cas 97 has upon a construction of the two rival views, held that the involvement of complicated questions cannot be made a basis for refusal to exercise jurisdiction under section 155. The true legal position in our opinion is that while the very fact that complicated questions of fact and law are involved cannot by itself be a ground for refusal of relief under section 155, yet, the exercise of power under section 155 being equitable and discretionary, it would constitute one of the relevant factors for deciding whether the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondents inter se but had by an overt act of approval of the same unanimously with other members of the board registered the said transfers. The fact that the details of the transfers were known to the appellants is apparent from the minutes of the meeting of the board dated March 31, 1990, which specifically mention that the details of the transfers were disclosed to the board by the chairman of the company. That apart, the registration of the transfers was once again approved by the appellants in the board meeting dated April 14, 1990, where they were participating as full-fledged directors of the company and not simply as special invitees. The appellants did not even at that stage express any reservation about the validity of the transfers effected. The fact that acting upon the transfers in question the transferees exercised their rights in the extraordinary general meeting and the annual general meeting of the company is also beyond dispute. All these circumstances not only show acquiescence on the part of the appellants, but their active participation in bringing about the situation which they now seek to have altered by means of proceedings under section 155 of the Compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... each form. Besides the details of the transfers were disclosed to the members attending the board meeting by the chairman. It is not, therefore, open to the appellants to contend that the details about the sale of the shares were not known to them to enable them to raise an objection at the appropriate time. 20. It was next urged by Mr. Raghavan, that the conduct of the appellants may have been negligent, or indifferent, but the same did not either amount to waiver or render the registration of the transfers on the basis of the state share transfer forms valid. He argued that the invalidity attached to the forms remained, regardless of whether the appellants protested or remained silent, as they have actually done in the present case. We are not impressed by this argument either. Relief under section 155 of the Act, being a discretionary and equitable relief, no one claiming such a relief can come to the court, and expect an order in his favour even when he has been negligent or indifferent as suggested by Mr. Raghavan. Equity it is well known aids the diligent and not the indolent. Laches, which are suggestive of acquiescence is a good reason to refuse relief in equity, and one w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, but is certainly a relevant factor for exercise of the equitable and discretionary powers available under the same. Now in the case before us, there is a serious dispute between the parties, as to whether the registration of the transfers in question has been ordered on the basis of the forms which the appellants claim were state or fresh forms as argued by the respondents. The appellants contended that resolution dated March 31, 1990, was passed on the basis of state share transfer forms and have produced the copies of those forms which no doubt bear an endorsement to that effect. The respondents on the other hand contend that the staleness of the forms having been pointed out to them, fresh and usable forms were procured and filed for purposes of registration of the transfers. An affidavit of the company secretary has been filed by the respondents to buttress their plea that the fresh set of forms was actually the basis of the registration. 23. Upon a consideration of the rival contentions of the parties the learned company judge came to the conclusion that the transfers in question were actually registered on the basis of the fresh forms and not the forms which were original ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recognising the said transfers as valid and for registering the same. This conduct of the appellants in recognising and registering the transfers in question, even when they claim to have had a preferential right to purchase the shares amounts to clear waiver on their part of their rights if any under the said articles. That apart, the argument that the appellants were entitled to purchase the shares in question in preference to the respondents-transferees, does not appear to us to be well founded even on the merits. It is pertinent in this connection to re-produce articles 7 and 8 of the articles of association : "7. Any member desiring to sell any of his shares must notify the board of directors of the number of shares, the market price and the name of the proposed transferee and the board must offer to the other shareholders the number of shares referred at the market price and if the offer is accepted the shares shall be transferred to the acceptor or acceptors, and if the shares or any of them are not so accepted within one month from the date of notice to the board, the holder may sell or transfer them or any of them at the same or higher price to third parties. In ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rable merit in the submission of Mr. Holla. The scheme and the object behind articles 7 and 8 appear to be to prevent an outsider from purchasing the shares of the respondent-company by way of sale or otherwise and in that direction the provisions of articles 7 and 8 envisage that before the third party, i.e., a non-member can be allowed to purchase shares of the company, the option to purchase the said shares must first be given to the existing members. It is only when the existing members decline to purchase the shares offered for sale, that an outsider should be allowed to purchase the same. To this scheme however, article 8 provides an exception, i.e., in case the transfer is intended to be made in favour of an existing member or a member's wife, children or legal heir, the previous sanction of the directors is not required. In other words, if the sale takes place within the existing family of members of company, or their legal heirs or children or spouses, there is no requirement of previous sanction from the board of directors. This exception to us appears to be logical for the entire object behind articles 7 and 8 being to prevent an outsider purchasing the shares withou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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