Dismissal of Register Rectification Petition under Companies Act Section 111 highlights need for civil court action

Dr. G.N. Byra Reddy and Ors. Versus Arathi Cine Enterprises Pvt. Ltd. and Ors.

Dr. G.N. Byra Reddy and Ors. Versus Arathi Cine Enterprises Pvt. Ltd. and Ors. - [1997] 89 Comp Cas 745 (CLB) Issues Involved:
1. Rectification of the register of members.
2. Alleged non-issuance and improper transfer of share certificates.
3. Applicability of the Limitation Act to proceedings before the Company Law Board.
4. Pendency of winding up proceedings and requirement of High Court's leave.
5. Summary nature of proceedings under Section 111 of the Companies Act.

Detailed Analysis:

1. Rectification of the Register of Members:
The petitioners filed under Section 111(4) of the Companies Act, 1956, seeking rectification of the register of members by declaring the petitioners as members and deleting the names of respondents Nos. 3 to 17. The petitioners alleged that they were never issued share certificates and did not transfer their shares to respondents Nos. 3 to 6. They claimed that the company's register was forged, fabricated, and erroneous, and that no board meetings were held on the dates of share allotments. The respondents countered that the petitioners had sold their shares in 1986 for Rs. 3,59,000, which was paid by cheques encashed by the petitioners, and that the necessary share transfer forms were executed and lodged with the company.

2. Alleged Non-Issuance and Improper Transfer of Share Certificates:
The petitioners contended that no share certificates were issued for their holdings, and they neither sold nor transferred their shares. They argued that the cheques purportedly issued by respondents were neither received nor encashed. The respondents failed to produce any instrument of transfer or share certificates as ordered by the Bench. The petitioners also highlighted discrepancies in the company's register, such as the absence of the company's name or seal and unauthenticated entries.

3. Applicability of the Limitation Act to Proceedings Before the Company Law Board:
The respondents argued that the petition was barred by limitation, as the transfer occurred in 1986 and the petition was filed in 1993. They cited various legal precedents to assert that the Limitation Act applies to the Company Law Board, which functions as a court under Section 111. The petitioners, however, contended that the Limitation Act does not apply to the Company Law Board, citing multiple cases, including Sakuru v. Tanaji and Kotah Transport Limited v. State of Rajasthan. They argued that the cause of action for rectification is a continuing one, allowing them to approach the Board without time constraints.

4. Pendency of Winding Up Proceedings and Requirement of High Court's Leave:
The respondents pointed out that due to the ongoing winding up proceedings against the company since 1987, any order for rectification would be void unless the High Court of Karnataka granted leave. The petitioners were required to obtain such leave or wait until the disposal of the winding up petition.

5. Summary Nature of Proceedings Under Section 111 of the Companies Act:
The respondents argued that Section 111 contemplates a summary enquiry and that the matters alleged required elaborate evidence and trial, suggesting that the petitioners should pursue their claims in a civil court. The Board acknowledged that the proceedings under Section 111 are summary in nature and involve discretionary jurisdiction. Given the complex and disputed facts, such as the execution of transfer deeds and the alleged payments, the Board concluded that it could not resolve these issues based on affidavits alone and dismissed the petition, allowing the parties to pursue the matter in a civil suit if advised.

Conclusion:
The petition for rectification of the register of members was dismissed due to the summary nature of proceedings under Section 111 and the need for elaborate evidence and trial. The petitioners were advised to agitate the matter in a civil suit. No order as to costs was made.