2013 (1) TMI 561 - HC - Companies Law

Court dismisses objections, rules applicant not shareholder for meeting notice. Fraud claims unsubstantiated. Costs imposed.

Tony Electronics Ltd.. In re

The court dismissed the applicant's objections, ruling that he was not a registered shareholder entitled to notice of the meeting. Fraud allegations were ... Scheme of Merger - applicant for recalling of order sanctioning scheme of merger of petitioner-transferor company with transferee-company as it was the case of the applicant that no information about the merger of the companies had ever been intimated to the applicant who was a majority shareholder of the transferor-company with stake of 52.47 per cent - Whether applicant was entitled to notice of meeting even though he had not taken any steps to get into register of members of company? - Held that:- There is no dispute that the name of the applicant was never entered into the register of members qua the 52,470 shares. On the date of the issuance of notices by the Chairperson for the meeting proposed for 17-4-1999, applicant was also not a member qua the 100 shares which were earlier held by him as on 27-2-1999 as he had transferred these shares in favour of Bhushan Dua as evident from transaction No. 4 reflected in the annual return 1998-99. The register of members maintained by the company from its inception, i.e., on 3-6-1982 evidenced that applicant had been registered as a member on 3-6-1982 and he ceased to be a member on 27-3-1999 as his 100 shares which he was holding were sold on 27-2-1999 & there is no other transaction of 27-2-1999. The submission of the petitioner that 52,470 shares were transferred in his name on 27-2-1999 is not borne out form the record. The register of share transfer forms also reflects four transactions between 1998 to 1999. As Section 108 lays down the procedure for the transfer of shares it is a mandate 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. In the instant case the share transfer forms (relied upon by the applicant shows that they were unstamped. They are also admittedly only a photocopy of the original forms which is even otherwise not stamped. The mandate and requirements of section 108 have not been met. The company could not register the unstamped shares in favour of the petitioner. Thus transaction in non-compliance of section 108 would be void Thus to conclude rights as a member could be exercised by applicant 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. Facts of instant case 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 52,470 shares; his own case is that the share transfer forms were available with him in 1998; he however took no steps to get himself onto the register of members; fault was entirely of the petitioner; he thus, not being a member of the register of the members of the company; when the notices were issued by the Chairperson 23-3-1999 for the proposed meeting of the merger of transferor-company transferee company - Objections raised by the petitioner are wholly without any merit. Issues Involved:1. Recall of the order dated 20.09.1999 sanctioning the merger scheme.2. Allegations of fraud and malafide actions in the merger process.3. Validity and maintainability of the application under Rule 9 of the Company (Court) Rules.4. Status of the applicant as a shareholder and the requirement of notice for the meeting.5. Compliance with statutory requirements for share transfer.Detailed Analysis:1. Recall of the Order Dated 20.09.1999 Sanctioning the Merger Scheme:The applicant sought to recall the order sanctioning the merger of Tony Electronics Ltd. with Super Cassettes Industries Ltd. on grounds of not being informed about the merger despite holding a significant shareholding in the transferor company. The application was filed on 22.07.2002, alleging that the merger was effected behind his back and amounted to fraud.2. Allegations of Fraud and Malafide Actions in the Merger Process:The applicant alleged that the merger was conducted without his knowledge and that he was not notified about the meeting held on 17.04.1999, thereby constituting fraud upon the court. The applicant claimed that he held 52,470 shares (52.47% of the equity) and that this was confirmed by the company's Managing Director in a letter dated 02.03.1998. However, the respondents disputed the authenticity of the documents presented by the applicant and argued that the applicant's name was not in the register of members.3. Validity and Maintainability of the Application Under Rule 9 of the Company (Court) Rules:The respondents contended that the application was not maintainable under Rule 9 of the Company (Court) Rules as there was an alternate remedy available under Section 391(7) of the Companies Act, which allowed for an appeal. This provision was available at the time of filing the application but was repealed in November 2003. The court agreed with the respondents, stating that inherent powers under Rule 9 should be exercised only when no other remedy is available.4. Status of the Applicant as a Shareholder and the Requirement of Notice for the Meeting:The court examined whether the applicant was a registered shareholder entitled to notice of the meeting. The evidence showed that the applicant's name was not entered into the register of members for the 52,470 shares. The court noted that under Section 41 of the Companies Act, a person becomes a member only when their name is entered into the register of members. The court found that the applicant had not taken steps to get his name registered despite having the share transfer forms. Therefore, he was not entitled to notice of the meeting.5. Compliance with Statutory Requirements for Share Transfer:The court emphasized the mandatory nature of Section 108 of the Companies Act, which requires a proper instrument of transfer duly stamped and executed. The share transfer forms presented by the applicant were unstamped and incomplete. The court noted that the company could not register the transfer of shares without compliance with Section 108. The court also highlighted discrepancies in the documents presented by the applicant and found that the share transfer forms did not meet the statutory requirements.Conclusion:The court dismissed the objections raised by the applicant, stating that he was not a registered shareholder entitled to notice of the meeting. The allegations of fraud were unsubstantiated, and the application under Rule 9 was not maintainable as an alternate remedy was available. The court also found that the share transfer forms did not comply with statutory requirements, and the applicant had not taken necessary steps to get his name registered. The court imposed costs of Rs. 25,000 on the applicant.