1994 (4) TMI 235 - HC - Companies Law

Court denies petition under Section 22A; appellant fails to meet requirements. Company's discretion in registering transfers emphasized.

Kothari Industrial Corpn. Ltd. Versus Lazor Detergents (P.) Ltd.

The court held that petitions under Section 22A of the Securities Contracts (Regulation) Act were not maintainable as the appellant failed to comply with ... Free transferability and registration of transfers of listed securities of companies Issues Involved:1. Maintainability of petitions under Section 22A of the Securities Contracts (Regulation) Act (SCRA).2. Entitlement to rectification of the register of members.3. Recovery of dividends paid to the respondent companies.4. Reliefs entitled to the parties.Detailed Analysis:Issue 1: Maintainability of Petitions under Section 22A of the SCRAThe respondent companies contended that the petitions filed by the appellant company before the Company Law Board (CLB) were not maintainable under Section 22A of the SCRA. They argued that:- Section 22A governs the transferability and registration of listed securities.- The company can refuse registration only on grounds specified under Section 22A(3).- The petition was barred by limitation as per Section 22A(4).- The transferors were not made parties to the petition, and the CLB did not hear them.- The company had exercised its discretion to register the transfers, and it cannot later seek rectification.The court agreed that Section 22A of the SCRA, being a special statute, overrides the provisions of Section 111 of the Companies Act. The court emphasized that the objective of Section 22A is to ensure free transferability of listed securities and that the company's discretion to refuse registration is limited to specific grounds. The court held that the appellant company failed to comply with the statutory requirements and time limits under Section 22A and thus, the petitions were not maintainable.Issue 2: Entitlement to Rectification of the Register of MembersThe appellant company sought rectification of the register by deleting the names of the respondent companies, alleging that the instruments of transfer were defective. The court noted that:- The instruments of transfer were lodged and registered by the company's One-Man Committee.- The company had issued dividends to the respondent companies and accepted their applications for rights issues.- The defects in the instruments of transfer were not noticed at the time of registration.The court held that the appellant company, having exercised its discretion to register the transfers, cannot later seek rectification, especially after a considerable lapse of time. The court emphasized that allowing such rectification would undermine the objective of free transferability of listed securities and create instability in the stock market.Issue 3: Recovery of Dividends Paid to the Respondent CompaniesThe appellant company sought to recover dividends paid to the respondent companies in the event of rectification. However, the court held that since the petitions for rectification were not maintainable, the question of recovering dividends did not arise.Issue 4: Reliefs Entitled to the PartiesThe court concluded that the appellant company is not entitled to the relief of rectification of the register of members. The court set aside the CLB's order directing rectification of the register in respect of shares falling under lists A and C. The court allowed the appeals filed by the respondent companies and dismissed the appeals filed by the appellant company challenging the CLB's decision on shares falling under list B. The appellant company was directed to finalize and allot rights PCDs and additional rights PCDs to the respondent companies within two weeks.Final Judgment:- The CLB's order dated 20-10-1993, directing rectification of the share register in respect of shares falling under lists A and C, is set aside.- Appeals by the respondent companies (C.M.A. Nos. 1412 to 1422 of 1993) are allowed.- Appeals by the appellant company (C.M.A. Nos. 1245 to 1251 of 1993) are dismissed.- The appellant company shall finalize and allot rights PCDs and additional rights PCDs to the respondent companies within two weeks.- Other directions of the CLB are vacated.- Each party will bear its own costs.