Delhi High Court
Tony Electronics Ltd. vs ....................... on 17 December, 2012
Author: Indermeet Kaur
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of Judgment: 17.12.2012
+ CO.PET. 167/1999 and Co. Appl. 730/2002, 167/2003, 1861/2012
IN THE MATTER OF TONY ELECTRONICS LTD. .... Petitioner
Through Mr. Neeraj Yadav, Mr.Rishabh
Maheshwari and Mr.Saurabh
Seth, Adv. for the applicant with
the applicant-Mr.Gopal Krishan.
Mr. Kamal Sawhney, Adv. for the
Respondent.
CORAM:
HON'BLE MS. JUSTICE INDERMEET KAUR
INDERMEET KAUR, J. (Oral)
1 By way of this application the applicant Gopal Kishan seeks a
recall of the order dated 20.09.1999; i.e. setting aside of the scheme
which had been sanctioned by this Court on 20.09.1999. This
application has been filed on 22.07.2002.
2 Submission in the application being to the effect that this merger
had been effected malafide behind the back of the applicant; he was a
shareholder of M/s Tony Electronics Ltd. (hereinafter referred to as the
company) which pursuant to the order dated 20.09.1999 has merged
with Super Cassettes Industries Ltd.; no information about the merger of
the aforenoted companies had ever been intimated to the applicant who
is a shareholder of the transferor company (M/s Tony Electronics Ltd.)
and was holding 52470 equity shares; being a majority stake holder of
52.47%; scheme sanctioned without notice to him and amounting to a
fraud played upon the Court is thus liable to be set aside.
3 Facts as emanating from the record show that the parties are
closely related; the applicant is the brother of Krishan Kumar
(respondent No. 6) and uncle of Bushan Kumar (respondent No. 4).
Case as per the petitioner is that an agreement dated 19.02.1998 had
been entered into between the parties pursuant to which it was decided
that the petitioner would be gifted eight properties along with a payment
of Rs.2.5 crores in cash; as a counter guarantee respondent No. 6 had
given the original share transfer deed dated 01.03.1998 of 52,470 equity
shares (52.47% of the equity) of the company and this was confirmed
vide letter dated 02.03.1998 (page 395 of the paper book); it was agreed
that if this payment of Rs.2.5 crores is delayed beyond a reasonable
time, it would be paid with 2% interest per month or in the alternate the
said shares would be transferred in favour of Gopal Kishan.
4 This letter has been heavily relied upon by the
petitioner/applicant. His submission is that he was admittedly a
shareholder of the company and this has been confirmed by the
Managing Director of the company Devender Kumar Dua in this letter
dated 02.03.1998. Attention has been drawn to the Annual Return of the
company (Annexure-5) in the record of the Registrar of Companies
(ROC); this document shows several transactions conducted on
27.02.1999. Transactions No. 4 & 5 are relevant to decide this
controversy. Transaction No. 4 shows that Gopal Kishan (the applicant)
had transferred 100 equity shares to the transferee Bushan Dua on
27.02.1999; transaction No. 5 shows that 52,470 equity shares had been
transferred by Krishan Kumar Dua (respondent No. 6) in favour of
Gopal Kishan (the petitioner) on the same date i.e. on 27.02.1999. This
document had surfaced before this Court during the course of the
proceedings when it was filed by the petitioner. The authenticity of this
document was disputed and doubted. On 13.01.2003, Local
Commissioner Advocate Arjun Bhandari was appointed by the Court to
visit the office of the ROC to inspect the record and to initial the
certified copies of the documents issued by the ROC. This report is
dated 27.01.2003. It is pointed that this report supports the case of the
petitioner as it clearly states that the annual return filed by the company
before the ROC also shows that the petitioner was the holder of 52,470
shares on 27.02.1999. Attention has also been drawn to the subsequent
report of the second Local Commissioner Advocate Arjun Bhandari
dated 21.03.2003; submission being that this report reiterates that the
document i.e. the annual return produced by the petitioner is an
authentic document; this is fortified and substantiated by the fact that
this document also bears the stamp of ROC dated 28.12.1999
substantiating his submission that this document is a true certified copy
of the original document and was a part of the original record of the
ROC. Further submission of the petitioner being bordered on the
argument that a scheme had been propounded by the non-
applicants/respondents for which purpose the first motion petition under
Section 391 read with Section 394 of the Companies Act had been filed
before the Company Court on which orders were passed on 26.02.1999
and the meeting of the shareholders/members/creditors of the company
had been ordered. Submission being that this meeting was held on
17.04.1999 but no notice of this meeting was sent to the applicant; this
is a fraud which has been played upon the Court and the fact that the
applicant was a shareholder/member of the company on 17.04.1999
(when meeting was held) has deliberately been suppressed from the
Court. The petitioner was admittedly a member/shareholder of the
company on that date but admittedly no notice of this meeting had been
served upon him. Submission being that he was holder of 52,470 shares
as on 27.02.1999 and meeting of the shareholders convened on
17.04.1999 without notice to the petitioner smacks of the malafides of
the respondents who deliberately did not want to inform the applicant
that the company M/s Tony Electronics Ltd. was to be merged with
Super Cassettes Industries Ltd. Further submission being that it was
only in the year 2002 when certain properties of the company were to be
sold that he learnt that this company was no longer in existence; it had
been dissolved by the order dated 20.09.1999 sanctioning the scheme.
The present application filed on 22.07.2002 seeks a setting aside of the
aforenoted sanction.
5 The respondents have opposed these submissions; their primary
contention is that the present application is not maintainable.
Submission being that this application has been filed under Rule 9 of the
Company (Court) Rules invoking the inherent powers of this Court
which are to be exercised by the Court only if there is no other alternate
remedy available to the petitioner which is not so in the instant case.
Attention has been drawn to Section 391 (7) of the Companies Act
(which admittedly stood repealed in November, 2003); submission
being that this remedy was available to the petitioner at the time when
he filed this present application which was on 22.07.2002; the right of
appeal was available to him on 22.07.2002 and the present application
under Rule 9 of the Company (Court) Rules is thus clearly not
maintainable; on this count alone the petition is liable to be dismissed.
6 Further submission of the respondent is that a person qualifies as
a member/shareholder of the company only if his name is registered in
the register of members and even as per the case of the petitioner, his
name was never entered into the register of members. Reliance has been
placed upon (1986) 1 SCC 264 Life Insurance Corporation of India Vs.
Escorts Ltd. and others; submission being that a share is transferable but
while a transfer may be effective between a transferor and transferee
from the date of transfer, the transfer is truly complete and the transferee
becomes a shareholder in the true and full sense of the term, with all the
rights of a shareholder, only when the transfer is registered in the
company‟s register; submission being that in this judgment, the Apex
Court has clearly noted that the right of the transferee "to get on the
register" must be exercised with due diligence and the principle of
equity which makes the transferor a constructive trustee does not extend
to a case where a transferee takes no active interest "to get on the
register". Submission being qualified by the fact that even as per the
case of the petitioner the original share transfer deed for 52,470 shares
was lodged with the applicant (Gopal Kishan) on 02.03.1998 (page 395
of the paper book) and this is clear as per this aforenoted communication
(which has been relied upon by the petitioner vehemently); if the case of
the petitioner is that on 02.03.1998, the original share certificates were
with him, why he did not take any steps to get his name entered into the
register of company for such a long period thereafter has not been
explained or answered; the petitioner is not entitled to any equity in his
favour. For the same argument reliance has also been placed upon
BalKrishan Gupta Vs. Swadeshi Polytex Ltd. (1985) 2 SCC 167;
submission being that the Supreme Court in this later judgment has cited
with approval the case of LIC (supra) and had noted that the rights of a
member as against the company concerned can be exercised only when
his name is entered into the register of members; no right would arise till
such registration takes place. Submission being that in this factual
scenario the name of the petitioner not having been entered in the
register of members for 52,470 shares (of which the original share
transfer deeds were even as per the petitioner lying with him), he does
not deserve any relief. Further submission being that the original share
transfer deeds have not seen the light of the date till date. Attention has
also been drawn to prayer „C‟ of the aforenoted application wherein the
prayer is specifically to the effect that a direction be given to the
company that formalities should be completed by the respondents to get
the 52,470 shares transferred in the name of the petitioner; submission
being that even as per the prayer the petitioner has asked for the relief of
the transfer of these shares in his name thereby admitting the argument
of the respondents that on the date of filing of the petition (22.07.2002)
the aforenoted 52,470 shares were not in his name. Since the name of
the petitioner was not entered in the register of members, he was not
entitled to any notice of the aforenoted scheme. It is submitted that the
fraud which is alleged by the petitioner is not only to be specifically
stated but also to proved; it cannot be a fraud inter-se between the
parties; it must be a fraud upon the Court before an interference is called
for. Submission being that even as per the case of the petitioner, the
aforenoted 52,470 shares were admittedly not stamped; no stamp duty
was affixed upon them; in the absence of requisite supporting
documents, the question of the shares having been transferred to the
petitioner did not arise. Reliance has been placed upon 1999 (3)ALLMR
680 Sant Chemicals Pvt. Ltd Vs. Sant Chemicals Pvt. Ltd. with Aviat
Chemicals Pvt. Ltd. and Jagmohansingh Arora and others; submission
being that this judgment on all fours applies to the facts of the instant
case. In this case, the Court had returned a finding that where the
provision of Section 391(7) of the Companies Act was available to the
petitioner, an application under Rule 9 of the Company (Court) Rules
seeking an interference under the inherent powers of the Court in a
scheme which already stood sanctioned was not maintainable; on merits,
the facts are similar and no relief had been granted to the petitioner. It is
pointed out that the plaintiff has also filed a suit qua the alleged family
settlement dated 21.02.1998 and this family settlement did not
speak of disputed shares; on all counts, the case as set up by the
petitioner suffers from vices; petition is liable to be dismissed.
7 In rejoinder, it has been pointed out that the present petition is
very much maintainable; inherent powers of his Court under Rule 9 can
be invoked and to support this submission reliance has been placed upon
AIR 2007 SC 1546 A.V. Papayya Sastry and Others Vs. Government of
A.P and Others and I (2000) ACC 484 United India Insurance Co. Ltd.
Vs. Rajendra Singh and Others. On merits, the averments made in the
petition have been reiterated; submission being that the argument
propounded by the respondent that no effort had been made by the
petitioner between the interregnum period of 1998 up to 2002 is
answered by the fact that all efforts were being made by the parties to
implement the family settlements of 19.02.1998 and 21.02.1998.
Submission being that the conduct of the respondent speaks volumes of
his intent of playing fraud upon the Court as is evident from the fact that
although the scheme stood sanctioned on 20.09.1999 whereby M/s Tony
Electronics stood dissolved yet Darshan Kumar Dua, (the erstwhile
managing director of M/s Tony Electronics) continued to use the letter-
head of the company and continued to communicate with various
Government bodies even after 20.09.1999 and reference in this regard
has been made to the letters dated 20.10.1999 (written by M/s Tony
Electronics to the Account Officer, Noida), 06.01.2000 by M/s Tony
Electronics to New Okhla Industrial Development Authority,
07.08.2000 again on behalf of M/s Tony Electronics to Okhla
Development Industrial Area all seeking processing of the transfer
application qua the property No. G-22, Section-11, Noida, UP in favour
of Rajni Dua w/o Gopal Kishan. To support this submission on fraud,
attention has also been drawn to the resolution passed by M/s Tony
Electronics on 20.03.1999 (pages 415 & 418 of Volume II of the paper
book); submission being that although on both the aforenoted pages, the
resolution is the same yet the contents of the two are different; this is
another example of the callous attitude of the company to inter-change
documents according to their suitability; it being yet another glaring
example of the fraud being perpetrated upon the Court; there being no
explanation as to why and how the two documents both of which speak
of a resolution passed by the company on 20.03.1999 yet the contents
are different. Submission being that all efforts were being made by the
company to exclude the knowledge of the merger of M/s Tony
Electronics with Super Cassette Industries and to keep this information a
secret from the present petitioner who was a majority shareholder of the
company.
8 Arguments have been heard. Record has been perused.
9 Under Section 391 of the Companies Act where a compromise or
an arrangement is proposed between a company and its
creditors/members or any class of them, the court may on an application
of the company or of the creditor or of the member of the company
order a meeting of the creditors or a class of creditors or the members or
a class of the members as the case may be.
10 In the present case a scheme had been propounded by the
propounders for which a first motion petition had been filed upon which
order had been passed on 26.02.1999. The meeting of the
members/creditors of the Company had been called. This meeting was
held on 17.04.1999. Notices had been sent by the Chairperson appointed
by the Court namely Advocate Mr. Anup Bagai on 23.03.1999. The list
of the persons who were members as per the record i.e. the register of
the members was relied upon by the Chairperson to send individual
notices to the said members/creditors of the Company. Admittedly, no
notice had been sent to the present petitioner-Gopal Kishan. All other
members/creditors of the Company had been notified except this single
objector/applicant.
11 It is not the case of the propounders that this omission was a
mistake on the part of the Chairperson to send the notice to the
applicant/objector-Gopal Kishan. The case as set up by the propounders
is that no notice was required to be given to the petitioner for the reason
that his name was not entered into the Register of Members and in the
absence of which, there was no mandate upon the Chairperson (acting
on behalf of the propounders) to give any notice to him.
12 There is no dispute about the fact that the name of the petitioner
Gopal Kishan was never entered into the register of members qua the
aforenoted 52470 shares. On the date of the issuance of notices by the
Chairperson for the meeting proposed for 17.04.1999; Gopal Kishan
was also not a member qua the 100 shares which were earlier held by
him as on 27.02.1999; he had transferred these shares in favour of
Bhushan Dua. This is evident from transaction No. 4 as reflected in the
annual return 1998-99. Vehement submission of the petitioner that
52470 shares stood transferred in his name on the same day vide
transaction No. 5 has been disputed by the respondent.
13 On 13.01.2003, counsel for the respondent had filed in Court
certified copies of certain documents obtained from the ROC. To
determine the authenticity of these documents, Advocate Arjun
Bhandari had been appointed to inspect the record of the ROC. The
annual return of the company dated 11.10.2002 (Annexure V) had been
initialled by him. The Court Commissioner had filed his report dated
27.01.2003. The Commissioner had noted the missing pages in the file
of the company which had prevented the ROC from giving a certified
copy of the documents on that day itself.
14 This report had been disputed by the respondent company;
objections were filed. This was by way of affidavit of Mr.Amit Bansal
(the director of the company) whose affidavit has been accompanied by
the report of the Chartered Accountant disputing this report. Objections
to the manner in which the record was being maintained in the ROC
were also raised. These objections read as under:-
"5. The return was personally prepared by me and the hand
writing in the Return is my hand writing. The first page of Annexure -V
which contains details of shareholders was as per the printed format
and was filed up by me in hand. The names of 3 out of 9 shareholders
was written in hand by me.
6. Annexure-V comprises in all the three pages, one of which, as
stated above was filled up by me in hand. In the other two pages, the
names of the balance 6 shareholders, three in each page was type
written.
7. I have examined the certified copy of the return for the
F.Y.1998-99 filed by the petitioner form the records of the ROC. After
examining the said certified copy I say that this certified copy is at
variance with the Annul Return which had been prepared by me and
filed on my instructions. The second and third page of Annexure-V has
been tampered and has been retyped.
8. Likewise Annexure VI has been tampered and re-typed. In
Annexure-VI as prepared by me only two transactions, namely at serial
number 3 and 4 had been mentioned. This has been increased after
inserting a third transaction.
9. I say that in the return as originally filed, the second page of
Annexure-V contained the name of only three shareholders, at serial
numbers 4 to 6 namely, Bhushan Dua, M/s YOgesh Kumar Gupta & Co.
and Darshan Kumar & Mrs. Sunita Rani. In the tampered version the
second page contains the name of four shareholders at serial number 3
to 6 (comprising of two „serial No.3‟, including the tampered induction
at serial number 3 of Mr.Gopal Krishan).
10. I say that since the applicants while tampering with the documents
had to retain the number of shareholders to 9 in details of shareholders
two different persons are to be found the same at serial No.3 namely
Mr.Krishan Kumar Dua written in my hand writing and Mr.Gopal
Krishan, who, once again had to be shown at the same serial number,
namely serial No.3.
11. I say that the margins drawn in the second and third page of
Annexure-V are different from the original filed by me.
15 On 10.02.2003 in terms of this affidavit of the respondent
company and the objections raised to the report of the Local
Commissioner, the Local Commissioner Arjun Bhandari had been
directed to re-inspect the record of the company both at the office of the
ROC as also in the office of the company. This second report of the
Local Commissioner is dated 21.03.2003. This report has revealed that
the Local Commissioner had examined the record of the company on
two occasions. On 18.02.2003, he visited the office of the company at
Sector-16A, Film City, Noida along with the respective counsels of the
parties. The statutory record of the company which included (i) Register
of members, (ii) Register of share transfer, (iii) Minutes book & (iv)
Original transfer deed for the financial year 1998-99 were examined by
him. The photocopy of the return filed by the company before the
ROC was also placed before him. (hereinafter referred to as Annexure
„A‟). On inspection of the record it was noted that there were nine
shareholders of the company as per the Register of members; name of
the petitioner Gopal Kishan did not find mention in this list. This
Register maintained in the company records had been initialed as way
back as on 24.07.2002 i.e. when the Local Commissioner Advocate
Geeta Sharma had been appointed by the Court and she had visited the
office of the company on the same day itself. This visit being on the
same day when the order of the Court had been passed, the possibility of
the record of the company being tampered with is excluded; there could
be no manipulation. Annexure-„A‟ had also noted nine shareholders.
16 The second commission was executed by the Local
Commissioner on 25.02.2003 which was also in terms of the directions
of this Court dated 10.02.2003. This second commission was executed
in the office of the ROC. The documents of the company maintained in
the ROC were contained in two files; record evidenced that the annual
return for the financial year 1998-1999 had been filed by the company
on 28.12.1999 vide diary No.57693. On 05.04.2002 inspection of the
record of the ROC had been obtained and the certified copy of the
record had been taken; one Manmohan Singh resident of W-108,Greater
Kailash-II (which is also the residence of the petitioner) had obtained
these certified copies on 11.10.2002; record further evidenced that this
annual return which had been filed by the company on 28.12.1999 was
registered in the office of the ROC only on 10.10.2002 and during this
intervening period from 28.12.1999 to 10.10.2002 where the said
document was lying in the office of the ROC could not be ascertained
by the Local Commissioner. The manner of maintaining the record in
the office of the ROC was suspect. Relevant would it be to also note that
certified copy of this annual return had been obtained by a resident of
W-108, Greater Kailash-II from the ROC on 11.10.2002 and this
document had surfaced in the Court for the first time on 13.01.2003;
when it was filed by the petitioner; why it was not filed along with the
petition or earlier has not been satisfactorily explained by the petitioner;
case of the respondent all along being that this document has been
tampered in the office of the ROC. Glaring discrepancies having been
noted by the Local Commissioner in the annual return lying in the
record of the ROC (Annexure „V‟) as compared to the annual return
filed by the company (Annexure „A‟); for example the folio number
allotted to Krishan Kumar was different; father‟s name of baby Khushali
was wrongly stated; so also the father‟s name of baby Tulsi. Cumulative
opinion of the Local Commissioner being that in this scenario, he could
not positively conclude whether there has been tampering of the
additional sheets of the annual return lying in the ROC which had
further reflected that the printed pages and additional pages filed thereto
along with the annual return have not been signed at the bottom.
17 The documents annexed along with this report have also been
perused. Annexure „B‟ is the Register of members maintained by the
company from its inception i.e. on 03.06.1982 which evidenced that
Gopal Kishan had been registered as a member on 03.06.1982; he
ceased to be a member on 27.03.1999; his 100 shares which he was
holding were sold on 27.02.1999 to Bhushan Dua; there is no other
transaction of 27.02.1999. The submission of the petitioner that 52,470
shares were transferred in his name on 27.02.1999 is not borne out from
the record. This is also being clearly stated by the Local Commissioner.
At the cost of repetition, this bound Register of members maintained in
the company had been signed by the Advocate Geeta Sharma as early as
on 24.07.2002; this was in fact the first day when the petition was filed;
there is no possibility of manipulation of the record of the company.
Annexure „C‟ is the Register of share transfer forms which also reflects
four transactions between 1998 to 1999. Vide T-4 dated 27.02.1999
100 shares had been sold by Gopal Kishan to Bhushan Kumar.
Annexure „D‟ is the share transfer form which show that on 27.02.1999
Gopal Kishan had lodged the share transfer forms for transferring his
100 shares in favour of Bhushan Kumar; this share transfer form had
been witnessed by R.K. Ahuja; it was duly stamped with Rs.50/-.
Annexure „E‟ is the Minutes book of the company; board meeting of the
company had ratified all the aforenoted transactions; two of 25.02.1999
and two of 27.02.1999 which includes T-45.
18 This record of the Company thus evidences that on 16.03.1999
when notices were issued by the Chairperson to the members of the
Company, there were only 9 members; name of Gopal Kishan did not
appear. Rightly no notice was sent to him.
19 Who is a member of the company is answered by Section 41 of
the Companies Act. Section 41 reads as follows:
"41 (1) The subscribers of the memorandum of a
company shall be deemed to have agreed to become
members of the company, and on its registration, shall
be entered as members in its register of members.
(2) Every other person who (agrees in writing) to
become a member of a company and whose name is
entered in its register of members, shall be a member of
the company.
(3) Every person holding equity share capital of
company and whose name is entered as beneficial
owner in the records of the depository shall be deemed
to be a member of the concerned company."
20 To become a member and to get all the corresponding rights and
privileges of a member, the name of such a member must be entered
into the Register of Members.
21 Section 108 of the Companies lays down the procedure for the
transfer of shares. It inter alia reads as follows:-
"108. A company shall not register a transfer of shares
in , or debentures of, the company, unless a proper
instrument of transfer duly stamped and executed by or
on behalf of the transferor and by or on behalf of the
transfree and specifying the name, address and
occupation, if any, of the transferee, has been delivered
to the company along with the certificate relating to the
shares or debentures, or if no such certificate is in
existence, along with the letter of allotment of the shares
or debentures."
22 It is a mandate upon the Company; it thus became incumbent
upon the Company not to register the transfer of shares of the company
unless the instrument of transfer was duly stamped; this is the first
requirement. It must also be completed in all respects. The Articles of
Association of the Company have also been perused. Under Article 19
transfer of shares could be effected only if instrument of transfer is duly
stamped and accompanied by the certificate of the shares proposed to be
transferred or such other evidence as the director may require to prove
title of the transferor or his title to transfer the shares.
23 In the present case the share transfer forms (relied upon by the
petitioner) shows that they were unstamped. They are also admittedly
only a photocopy of the original forms. The originals have not been
filed. Pleadings of the petitioner are relevant. In para 14 of this
application it has been pleaded that the petitioner had submitted these
share transfer forms with the Company so that the formality of
registration could be completed; the petitioner was given a letter dated
02.03.1998 informing him that he would continue to hold shares as a
security; a photocopy of this share transfer deed was retained by
Darshan Kumar, (Managing Director of the Company). This letter has
been heavily relied upon by the petitioner. It is addressed by Darshan
Kumar, to the petitioner. Para 2 of this letter clearly states that Darshan
Kumar had given the original transfer deed (dated 01.03.1998 of 52470
equity shares) to Gopal Krishan as a counter guarantee for the payment
of Rs. 2.5 crores and a photocopy had been kept by him (Darshan
Kumar). This letter is clear on the averment that the original share
transfer forms were with the petitioner-Gopal Kishan; Gopal Kishan has
only filed a photocopy of this document. There is no explanation as to
where the original document is. It has not surfaced. Submission of the
petitioner that this document had been lodged with the Company is
negatived by this letter dated 02.03.1998 which is in fact states that the
original share transfer form had been given to the petitioner.
24 The rejoinder filed by the petitioner is also relevant. Even while
rejoining to the reply of the Company, the averments contained in the
letter dated 02.03.1998 have been reiterated. Even at this stage, the
contents of the letter dated 02.03.1998 have not been objected to by the
petitioner. It was never the case of the petitioner that the letter dated
02.03.1998 had made an incorrect statement of facts. In fact it clearly
and categorically avers that the original transfer forms are with the
petitioner-Gopal Kishan. No objection had in fact even been raised by
the petitioner to the contents of this letter.
25 That apart as rightly pointed out by the learned counsel for the
respondent, this photocopied document is even otherwise not stamped.
The mandate and requirements of Section 108 of the Companies Act
have not been met. The Company could not register the unstamped
shares in favour of the petitioner. The fact that this document is
unstamped has been admitted by the petitioner. In his rejoinder (para 25)
he states that this share transfer form was unstamped but the obligation
of stamping this document as per the understanding of the parties was
upon the company.
26 The Supreme Court in (1977) 2 SCC 424 tiled as Mannalal
Khetan and Ors. vs. Kedar nath Khetan and Ors. in the context of
provisions of Section 108 of the Companies Act had noted that the
words appearing "shall not register" are mandatory in character. The
relevant extract of the aforenoted judgment reads herein as under:
"The words "shall not register" are mandatory in character. The
mandatory character is strengthened by the negative form of the
language. The prohibition against transfer without complying with
the provisions of the Act is emphasized by the negative language.
Negative language is worded to emphasise the insistence of
compliance with the provisions of the Act. (See State of Bihar v.
Maharajadhiraja Sir Kameshwar Singh of Darbhanga K. Pentiah
v. Muddala Veeramallappa of 1975 and Additional District
Magistrate, Jabalpur v. Shiakant Shukla) Negative words are
clearly prohibitory and are ordinarily used as a legislative device
to make a statutory provision imperative.
In Raza Buland Sugar Co. Ltd. v. Municipal Board Rampur, this
Court referred to various tests for finding out when a provision is
mandatory or directory. The purpose of which the provision has
been made, its nature, the intention of the legislature in making the
provision, the general inconvenience or injustice which may result
to the person from reading the provision one way or the other, the
relation of the particular provision to other provisions dealing
with the same subject and the language of the provision are all to
be considered. Prohibition and negative words can rarely be
directory. It has been aptly stated that there is one way to obey the
command and that is completely to refrain from doing forbidden
act. Therefore, negative, prohibitory and exclusive words are
indicative of the legislative intent when the statute is mandatory."
27 Thus a transaction by a Company which is in non-compliance of
provisions of Section 108 of the Companies Act prohibited by law;
such a transaction would necessarily be void. Section 108 of the
Companies Act further stipulates that the share transfer forms must be
accompanied by the certificate of the shares which are the subject matter
of transfer. No such certificate has been filed. It is also not the case of
the petitioner that there was any such certificate.
28 This transfer relied upon by the petitioner being neither stamped
and nor completed did not fulfill the requirement of Section 108. Even if
the share transfer forms had been lodged with the Company, the
company could not have registered these shares as being prohibitive and
impermissible by law. A perusal of this share transfer form in fact
shows the lacuna in the form. Besides being unstamped; the distinctive
numbers are missing; corresponding certificates have also not been
mentioned. This document when compared with the share transfer form
in the records of the Company shows the differences between the two
forms. The lacuna as noted supra is clear and self-evident. The Board of
Directors had also not approved this transaction.
29 Section 111 (2) pre- supposes that if the company refuses to
register the shares of an applicant, he may within two months file an
appeal against this order to the Company Law Board. This share transfer
form is dated 01.03.1998; it has a life of two months; it would even
otherwise have become a useless document by 01.05.1998. That apart
the submission of the learned counsel for respondent that the stage
reaching Section 111 did not arise. Section 108 was the first hurdle
which has to be crossed by the objector which he has failed to do so; this
is a forceful submission.
30 Heavy reliance of the learned counsel for the petitioner on the
provisions of Section 164 of the Companies Act is also mis-directed.
Section 164 reads herein as under;-
"164. The Register of members, the register of debenture holders,
and the annual return shall be prima facie evidence of any matters
directed or authorized to be inserted therein by this Act."
31 There is no dispute to the proposition that annual returns are a
prima facie evidence of any matters directed or authorized to be inserted
therein by this Act. Section 164 has however to be read along with
Section 610(3) of the Companies Act which reads as follows.
"610 (3) A copy of, or extract from, any document kept and
registered at any of offices for the registration of companies under
this Act, certified to be a true copy under the hand of the Registrar
(whose official position it shall not be necessary to prove), shall, in
all legal proceedings, be admissible in evidence as of equal validity
with the original document."
32 The company cannot take shelter under this provision Section 610
(3) only states that a copy of, or extract from ,any document kept and
registered at the offices for the registration of companies under this act
certified to be a true copy under the hand of the Registrar shall in all
legal proceedings be admissible in evidence as of equal validity with the
original document. However where the document which is on record of
the ROC is itself disputed, the certified copy of such a disputed
document can have no evidentiary value. This legal position had also
been rightly noted by the bench of the Company Law board in 2005
(126) Com. Cases 675 titled as Kobin Pte Limited vs. Kobian India
Private Limited.
33 The whole foundation of the case of the objector is based upon
the annual return. This is clearly a suspect document.
34 The guidelines laid down by the Supreme Court in the LIC have
not been met. Laches on the part of the petitioner in not getting his name
entered into the Register of Member is unexplainable; it has no
justification. If the claim of the petitioner is correct and he had become
holder of 52470 on 27.02.1998 the non-action on the part of the
peteitioner to get his name registered into the Register of Members has
neither been explained nor answered. Section 150 enjoins that a Register
of Members has to be maintained by every company under Section 163
of the Companies Act. This Register is open for inspection. No steps
had ever been taken by the petitioner to get his name entered into the
Register of Members after this so called transaction of 27.02.1999.
35 The Apex Court in Life Insurance of Corporation (Supra) has
noted inter alia as follows:-
"84. On an overall view of the several statutory provisions and
judicial precedents to which we have referred we find that a
shareholder has an undoubted interest in a Company, an interest
which is represented by his share-holding. Share is movable property,
with all the attributes of such property. The rights of a shareholders
are (i) to elect directors and thus to participate in the management
through them; (ii) to vote on resolutions at meetings of the company;
(iii) to enjoy the profits of the Company in the shape of dividends; (iv)
to apply to the Court for relief in the case of oppression; (v) to apply
to the Court for relief in the case of mismanagement; (vi) to apply to
the Court for winding up of the Company; (vii) to share in the surplus
on winding up. A share is transferable but while a transfer may be
effective between transferor and transferee from the date of transfer,
the transfer is truly complete and the transferee becomes a
shareholder in the true and full sense of the term, with all the rights of
a shareholder, only when the transfer is registered in the company's
register. A transfer effective between the transferor and the transferee
is not effective as against the company and persons without notice of
the transfer until the transfer is registered in the company's register.
Indeed until the transfer is register in the books of the company the
person whose name is found in the register alone is entitled to receive
the dividends, notwithstanding that he has already parted with his
interest in the shares. However, on the transfer of shares, the
transferee becomes the owner of the beneficial interest though the
legal title continues with the transferor. The relationship of trustee and
'cestui que trust' is established and the transferor is bound to comply
with all the reasonable directions that the transferee may give. He also
becomes a trustee of the dividends as also of the right to vote. The
right of the transferee 'to get on the register' must be exercised with
due diligence and the principle of equity which makes the transferor a
constructive trustee does not extend to a case where a transferee takes
no active interest 'to get on the register'. Where the transfer is
regulated by a statute, as in the case of a transfer to a non-resident
which is regulated by the Foreign Exchange Regulation Act, the
permission, if any, prescribed by the statute must be obtained. In the
absence of the permission, the transfer will not clothe the transferee
with the right to 'get on the register' unless and until the requisite
permission is obtained. A transferee who has the right to get on the
register, where no permission is required or where permission has
been obtained, may ash the company to register the transfer and the
company who is so asked to register the transfer of shares may not
refuse to register the transfer except for a bona fide reason, neither
arbitrarily nor for any collateral purpose. The paramount
consideration is the interest of the company and the general interest of
the shareholder."
36 The rights as a member could be exercised by Gopal
Kishan/petitioner qua the Company only if his name had been entered
into the Register of Members. In the absence of this registration, no right
would accrue to him. Admittedly, after 27.02.1999, no steps have been
taken whatsoever by the petitioner to get his name transposed as a
member/shareholder. It does not now lie in his mouth to say that he
being a member/shareholder of the Company he was entitled to a notice
of the meeting which was held for a sanction of a scheme propounded
by the non-applicants/respondents. He not being a member of the
Company on the date 23.03.1999 when the notices were issued for a
meeting which was held on 17.04.1999, he was rightfully not entitled to
be notified of the said meeting.
37 This scheme stood sanctioned on 20.09.1999. Present application
seeking setting aside of the Scheme has been filed on 22.07.2002 which
is again much beyond the period stipulated under Section 391(7) of the
Companies Act which was a remedy available to the applicant/objector
when he had filed this application on 22.07.2002.
38 In Sant Chemicals (Supra), a Bench of the Bombay High Court
had examined the scope of Section 391 (7); it had quoted with approval
the observations of Cotton., J.J., Nicholl Vs. The Fberhardt Company
wherein it was noted that the only way to set aside an order sanctioning
a scheme is to file an appeal. . The observations of the Calcutta High
Court relied upon as held in Bank of Mymensing Gauripur Ltd. 1948
(53) C.W.N. 143 had been noted as follows:-
"It appears clear to me, however, that once a scheme is sanctioned and the order
granting the sanction has been perfected the Court sanctioning the scheme has no
jurisdiction under the Companies Act to alter of amend the scheme except by way of
a fresh scheme. It is significant that there is no provision in the Companies Act,
similar to section 31 of the Presidency Towns Insolvency Act. Further, the fact that
the transferor bank has been dissolved and struck off the register creates procedural
difficulties as to making a defunct company a party to any proceeding and as to
service of any notice or process on it. The doctrine of the Court's inherent power,
like that of public policy, should be sparingly used, for otherwise there is a great
risk of all rules of procedure evolved out of the experience and practical wisdom of
the past being set at naught by the varying idiosyncrasies and notions of justice of
individual Judges.""
39 It is clear that on the date of the filing of the present petition
which was on 22.07.2002, the remedy of appeal was open to the
applicant; this provision having been deleted only in November, 2003.
The inherent powers of the Court are to be used sparingly and with
circumspection only to prevent miscarriage of justice and where an
independent remedy is available to an applicant on the date when he had
filed the petition, inherent powers of the Court could not have been
resorted to; such a power being available to a party only where there is
no other remedy available.
40 Even on merits as noted and discussed supra the objections of the
applicant are surfaced largely on his not being notified of the meeting
for the sanction of the scheme. The body of the petition otherwise does
not disclose any other reason for his objection to a scheme which
already stood sanctioned and approved by a majority of more than 75%
of shareholder and creditors which is a requirement in terms of Section
391(2) of the Companies Act. In Laxmi Commercial Bank Ltd., Re,
(1948) 18 Com. Cases, a Bench of the High Court had noted that it is the
duty of the court to go through the matter carefully and find out whether
all the provisions of law and directions of the court as the conduct of the
meetings have been complied with; whether the scheme is in the
interest of the company as well as in that of its creditors and should be
given effect to. In fact the court had noted that the court itself has to
justify in going into the reasons which led the creditors in their meeting
to give up a part of their debts. It had inter alia noted as follows:-
"The court has to satisfy itself that:
(i) the meeting was duly held and conducted;
(ii) that the compromise was a real compromise
(iii) that it was accepted by a competent majority;
(iv) that the majority was acting in good faith and for common
advantage of the whole class;
(v) that what they did was reasonable, prudent and proper;
(vi) that the court should also satisfy itself as to:
(a) Whether the provisions of the statute have been complied with;
(b) Whether the scheme is reasonable and practical or whether
there is any reasonable objection to it;
(c) Whether the creditors acted honestly and in good faith and has
sufficient information
(d) Whether the court ought in the public interest to override the
decision of the creditors and shareholders."
41 Present Scheme has envisaged and taken into account the interest
of all the secured creditors, unsecured creditors and the shareholders; the
interest of all the aforenoted persons has been protected. In fact this is
not even the averment made in the present petition. While sanctioning
the Scheme, the court has to watch the interest of all the aforenoted
parties. It is not the whims and fancies of one individual which has to be
kept in mind while sanctioning the scheme or even at the stage of
hearing objections after the scheme has been sanctioned. This is the
governing factor. The powers under Section 392 of the Companies Act
is the power to supervise the carrying out of the revival scheme and also
in the course of implementation of the scheme, if the court is of the view
that the scheme cannot be carried forward in the manner in which it was
envisaged or it is not being implemented in terms of the sanction it has
wide powers to give such directions in regard to any matter relating to
the scheme or make such modifications in the said compromise or
arrangement as it may consider it necessary for the proper working of
the said compromise/arrangement.
42 This is however not the position in the instant case. The body of
the petition does not in any manner raise any objection to the
implementation or working of the scheme; the objections are bordered
only on the submission of the applicant/objector that notice of the
scheme had not been given to him although he was a holder of majority
shares and which amounted to a fraud. The allegations of fraud made by
the petitioner are unsubstantiated. It is true that there may not always be
direct proof of fraud which will have to be gathered from the various
circumstances which have been brought to the notice of the Court by the
objecting party. Each circumstance by itself may also not be sufficient to
prove a fraud and the cumulative circumstances have to be taken as a
whole to draw a conclusion as to whether fraud has been made out or
not. Powers of this Court under Sections 391 and 392 of the Companies
Act are also wide enough to take this objection into account and where it
has been prima facie established that the court has sanctioned a scheme
or is proposing a scheme which is bordered upon a fraud, such a
sanction may not be granted and if same has already been granted, in the
best interest of the parties it is liable to be set aside.
43 Facts of this case as noted and detailed supra do not make out any
such allegation of fraud. Record shows that the name of the petitioner
was never entered into the register of members as a holder of 52470
shares; his own case is that the share transfer forms were available with
him in 1998; he however took no steps to get himself on to the register
of members; fault was entirely of the petitioner; he thus not being a
member on the register of members of the Company; when the notices
were issued by the Chairperson 23.03.1999 for the proposed meeting of
the merger of Tony Electronics with Super Cassette Industries. Further
qua the 100 shares, the same had already been sold to Bhushan Dua on
27.02.1999. As such no rights had accrued in his favour qua the
company which would have entitled him to a notice of the meeting in
his capacity as a member.
44 Objections raised by the petitioner are wholly without any merit.
They are accordingly dismissed. The pending applications have also
become infructuous. They are disposed of accordingly.
45 Costs are quantified at Rs.25,000/-.
INDERMEET KAUR, J
DECEMBER 17, 2012
A
