1999 (2) TMI 660 - HC - Companies Law

Shareholders can seek rectification of share register if allotment found invalid.

The appellants, as shareholders, were held to have locus standi to apply for rectification of the share register. The court identified key legal questions ... - Issues Involved:1. Locus Standi of the Appellants2. Questions of Law Arising Out of the Company Law Board's Order3. Validity of the 1949 Share Allotment4. Application of the Limitation Act5. Delay and Laches in Filing the Application6. Concurrent Jurisdiction of Civil Courts and Company Law BoardSummary:1. Locus Standi of the Appellants:The appellants' locus standi to file the application u/s 111 of the Act was challenged. The court held that the appellants, as shareholders holding 25 shares each, had the locus standi to apply for rectification of the share register. The objection on the basis of locus standi was rejected.2. Questions of Law Arising Out of the Company Law Board's Order:The court identified several questions of law arising from the Company Law Board's order, including:- Whether the issue of shares in violation of section 105C of the Companies Act, 1913 is illegal, null, and void.- Whether issuance of shares beyond the authorized share capital without amending the Memorandum or Articles of Association is illegal, null, and void.- Whether the jurisdiction of the civil court is co-extensive with that of the Company Law Board u/s 111 of the Companies Act, 1956.- Whether filing a prior civil suit without a prayer for rectification bars an application u/s 111.- Whether delay and laches can be grounds for rejecting an application challenging an illegal issuance of shares.- Whether an application u/s 111 can be dismissed on the ground of delay without examining the merits.3. Validity of the 1949 Share Allotment:The court examined whether the 1949 share allotment was valid, considering the authorized share capital and compliance with section 105C of the 1913 Act. It was held that if the shares were issued beyond the authorized capital or without offering them to existing shareholders, the allotment would be invalid. The Company Law Board was directed to determine whether the shares were properly allotted and issued in compliance with the law.4. Application of the Limitation Act:The respondents argued that the Limitation Act applied to proceedings before the Company Law Board. The court held that while the Company Law Board might be considered a court in a restricted sense, the Limitation Act did not apply to applications u/s 111. Even if it did, the appellants' application, filed within three years of discovering their right to sue, would be within time.5. Delay and Laches in Filing the Application:The Company Law Board dismissed the application on grounds of delay and laches. The court found that the Company Law Board erred in holding that the cause of action arose in 1949 and that the appellants knew of their right to challenge the allotment all along. The court emphasized that mere delay could not defeat the right to rectification if the allotment was invalid.6. Concurrent Jurisdiction of Civil Courts and Company Law Board:The court held that filing a civil suit did not bar an application u/s 111. The Company Law Board should not have refused to exercise its jurisdiction merely because a civil suit was pending. The court noted that the Company Law Board had exclusive jurisdiction in certain matters and should have decided the application on its merits.Conclusion:The appeal was allowed, the order of the Company Law Board was set aside, and the matter was remitted back to the Company Law Board for re-deciding the application in light of the court's observations. There was no order as to costs.