2016 (5) TMI 1036 - HC - Companies Law

Court Upholds CLB's Orders for Register Rectification & Share Transmission, Emphasizes Due Process

Afzal Khan & Anr. Versus Mehboob Ayub Khan & Ors.

Afzal Khan & Anr. Versus Mehboob Ayub Khan & Ors. - TMI Issues Involved:1. Transmission of shares and rectification of the register of members.2. Validity of the Board resolution dated 12 September 2011.3. Company's power to rectify the register of members without CLB's order.4. Allegations of oppression and mismanagement.5. Legal standing of the petitioners.Issue-wise Analysis:1. Transmission of Shares and Rectification of the Register of Members:The appeals concern the transmission of 726 shares and 128 shares to Mehboob and Yasmin, respectively, and the rectification of the register of members. The CLB directed the Company to transmit these shares and rectify the register. The appellants contested this, arguing that the original transfer of shares was ultra vires and violated the Articles of Association. The CLB found that the Board's refusal to transmit the shares was without sufficient cause and directed rectification. The court upheld this decision, noting that the company must follow its Articles, which recognize the surviving joint holders as having title to the shares.2. Validity of the Board Resolution Dated 12 September 2011:The Board had resolved that the original transfer of shares to Mehboob and Yasmin was null and void. The CLB set aside this resolution, finding it to be illegal and mala fide. The court supported the CLB's conclusion, noting that the resolution was passed with an oblique motive and not in the interest of the company or its shareholders. The appellants argued that the CLB lacked jurisdiction to set aside the resolution, but the court found this argument to be without merit, as the resolution's validity was already a subject of challenge in the oppression and mismanagement petition.3. Company's Power to Rectify the Register of Members Without CLB's Order:The appellants argued that the company had the power to rectify the register without seeking an order from the CLB under Section 111(4) of the Companies Act. The court rejected this argument, stating that the company cannot unilaterally rectify the register in contested matters. The court emphasized the importance of maintaining the sanctity of the register of members as a public document and held that rectification in contested cases must be done through the CLB.4. Allegations of Oppression and Mismanagement:The CLB dismissed the petition of Mehboob, Yasmin, and Farida under Sections 397 and 398 of the Act, finding that their grievances were not substantiated. The court noted that the CLB had already addressed the main grievance regarding the transmission of shares in the rectification petitions. The court upheld the CLB's decision, finding no error of law in the dismissal of the oppression and mismanagement petition.5. Legal Standing of the Petitioners:The appellants challenged the locus of Mehboob and Yasmin to present the petition, arguing that their names had been omitted from the register by the Board resolution of 12 September 2011. The court found that once the resolution was set aside, the earlier resolution of 9 May 1992 stood restored, and Mehboob and Yasmin had the standing to apply for transmission by survivorship. The court upheld the CLB's decision to grant rectification, finding no error of law.Conclusion:The court dismissed Company Appeal Nos. 55 of 2014, 56 of 2014, and 31 of 2015, upholding the CLB's orders for rectification of the register of members and transmission of shares to Mehboob and Yasmin. The court found no merit in the appellants' arguments and emphasized the need for the company to follow its Articles and seek CLB's order for rectification in contested matters. The court also noted that the resolution of 12 September 2011 was mala fide and not in the interest of the company or its shareholders.