TaxTMI 
TaxTMI 
1992 (1) TMI 285
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....e decision in O. S. A. Nos. 16 and 19 of 1990. However, this order will not cover O. S. A. No. 17 of 1990 arising out of Company Petition No. 48 of 1987. The petitioners in Company Petition No. 62 of 1988 are the appellants in O. S. A. No. 16 of 1990. O. S. A. No. 19 of 1990 is filed by respondent No. 2 in Company Petition No. 62 of 1988. There are six respondents in O. S. A. No. 16 of 1990, whereas there are ten respondents in O. S. A. No. 19 of 1990. Respondents Nos. 1 to 6 in Company Petition No. 62 of 1988 are also respondents Nos. 1 to 6 in O. S. A. No. 16 of 1990. They are also respondent No. 1-appellant and respondents Nos. 3 to 6 in O. S. A. No. 19 of 1990. The petitioners in Company Petition No. 62 of 1988 who are the appellants in O. S. A. No. 16 of 1990 are respondents Nos. 2, 7, 8, 9 and 10 in O. S. A. No. 19 of 1990. Company Petition No. 62 of 1988 was filed under section 155 of the Companies Act, 1956 (hereinafter referred to as "the Act"), for the following reliefs : "Wherefore, it is prayed that this hon'ble court may be pleased to : (i)order the rectification of the register of members of the first respondent-company and declare that the members of t....
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....s as RWs 1 to 4. RW 1 was an officer of the Canara Bank, M. G. Road branch, Bangalore. RW 2 was the sub-manager of the Corporation Bank, Nrupathunga Road branch, Bangalore, RW 3 accountant in the Canara Bank, Avenue Road branch, Bangalore, and RW 4 was executive assistant to K. L. Srihari, respondent No. 4 in Company Petition No. 62 of 1988 and O. S. A. No. 16 of 1990. The petitioners have marked seven documents out of the records produced by respondents Nos. 3 to 6 in Company Petition No. 48 of 1987. Exhibit P-1 is the share transfer form relating to Smt. Muniyamma (petitioner No. 1). Exhibit P-2 is the share transfer form of Narayanamma (petitioner No. 5), exhibit P-3 is the share transfer form of Lakshmishappa (petitioner No. 4), exhibit P-4 is the proceedings of the meeting of the board of directors of the company held on February 24, 1986. Exhibit P-5 is the members' register. Exhibit P-7 is the share transfer form of Aswathappa (petitioner No. 2). Respondents Nos. 3 to 6 also have marked as many as 21 documents which have been marked as exhibits R-1 to R-21. A certain portion in exhibit R-1 is marked as exhibit R-1(a). Similarly, certain portions in exhibit R-2 are marked as ....
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....cate issued by the Corporation Bank, M. G. Road branch, Bangalore, certifying that the entries made in the clearing register are true. Those entries relate to a sum of Rs. 2,58,000 drawn by Sri M. Venkatesh from the Canara Bank, Avenue Road branch, Bangalore, on the cheque issued by him. Exhibit R-20 is the cheque dated March 12, 1986, issued by M. Venkatesh for a sum of Rs. 2,58,000 on the Corporation Bank, M. G. Road, Bangalore, on his S. B. Account No. 1692. Exhibit R-21 is the Company Petition No. 48 of 1987 filed by the petitioners in Company Petition No. 62 of 1988 for winding up of the first respondent-company. The learned company judge first considered the scope of section 155 of the Act and held that the proceeding under section 155 was a summary proceeding and if a finding could be arrived at summarily, the exercise of power under section 155 would be quite proper and in such a case refusal of relief would be arbitrary ; that the jurisdiction is discretionary ; that equitable principles governed the exercise of jurisdiction ; that if the conduct of the parties complained of was unfair and unjust in relation to the subject-matter of the litigation and the equity sued fo....
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....te as November 16, 1986, the petitioners were treated as shareholders ; however, the learned company judge was of the view that even then the question that would arise was as to why the board purported to approve the alleged transfer of shares on February 24, 1986. Therefore, the learned company judge considered it safe to fall back on the ground that the jurisdiction was discretionary, summary and was also concerned with equities. He was also of the view that the share transfer forms were executed by the petitioners and were duly attested by the second respondent, consideration was paid by the transferees and it was collected by the second respondent on behalf of all the petitioners except the fourth petitioner ; therefore, no injustice would be caused to the parties if the court declined to exercise the jurisdiction under section 155 of the Act. Accordingly, the learned company judge dismissed the petition keeping it open to the petitioners to establish their right, if any, by resorting to any other remedy. The learned company judge also summarily referred to the oral evidence adduced by the parties and mainly relied on the evidence given by Lakshmishappa PW 3, and was of the ....
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....ed. Out of them, 530 shares were allotted to petitioner No. 1, 250 shares to petitioner No. 2, 50 shares to petitioner No. 3, 550 shares to petitioner No. 4 and 250 shares to petitioner No. 5. These allotments were made up to June 29, 1983. Thereafter, in the board meeting held on January 9, 1985, 50 shares were allotted to Smt. Nirmala. Again in the board meeting held on March 26, 1985, 3,540 shares were allotted to the following four persons : 1. Smt. Kalavathi . . . 900 shares 2. Smt. Parvathamma . . . 840 shares 3. Sri G. R. Byrareddy . . . 900 shares 4. P. Venu . . . 900 shares Thus, by March 26, 1985, all the 10,000 shares were allotted. The case of the petitioners is that no share certificates were issued at any time ; that they did not sell or transfer their shares for consideration to any of the respondents Nos. 3 to 6 ; that petitioners Nos. 1 to 3 and 5 had not executed the share transfer forms ; that the fourth petitioner signed the blank forms and handed over them to Sri P. K. Alwa, that none of the petitioners had received the consideration to transfer the shares ; that the alleged t....
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.... manipulated and got up alleged proceedings by misusing the transfer forms obtained by the second respondent for the purpose of obtaining loan was false and incredible, etc. The evidence discloses that transfer forms pertaining to petitioners Nos. 1, 2, 4 and 5 were not fully filled up. They were also not duly stamped as required by section 108 of the Act. No doubt, Lakshmishappa admitted in his evidence that he had signed the transfer forms ; but he claimed that the blank transfer forms were signed for the purpose of giving to Mr. Alwa and Venkatesh respondent No. 2 gave the same to Mr. P. K. Alwa. Lakshmishappa further stated that he did not receive any consideration ; that Muniyamma, Narayanamma, Aswathappa and Pushpa Srinath, petitioners Nos. 1, 5, 2 and 3, respectively, signed share transfer forms and gave them to Venkatesh just as he gave exhibit P-3 to Venkatesh. Exhibit P-1 was the transfer form relating to Muniyamma who was examined as PW 1. She denied that she had executed the transfer form. The learned company judge had made a note that when she was confronted with transfer form for the purpose of asking her the question as to whether she had affixed her thumb impress....
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.... from the bank. It was further elicited in his cross-examination that he did not have any personal account in any bank ; that he did not know if he had a personal account in the Corporation Bank ; that he was not an income-tax assessee. It was also further elicited that he did not know respondents Nos. 3 to 6 and whether they belonged to the Khoday's group ; that he did not know anything about Universal Trading Company. of course, he went to the extent of stating that he did not know what he should do if a cheque were, to be issued in his favour by anyone. He also denied that he received a cheque for Rs. 1,58,000 from Universal Trading Co. on February 24, 1986. He denied that exhibit P-6(a) was his signature. It is very relevant to notice that the transfer forms of other petitioners were not confronted to him. The signature and the thumb impression, as the case may be, of the other petitioners on the transfer forms were not identified by him as they were not confronted to him except eliciting in the cross-examination thus : "Exhibit P-3 was given to Venkatesh and he gave it to P. K. Alwa as stated by me earlier, Muniyamma, Narayanamma and Aswathappa and Pushpa Sreenath signed sh....
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....nt of Rs. 2,58,000 by Sri Venkatesh-respondent No. 2. He further stated that the cheque was encashed and payment was made across the counter and as per the endorsement, the cash must have been paid to him. He identified Venkatesh who was sitting in the court when his evidence was recorded. RW 2 was the sub-manager of the Corporation Bank, Nrupathunga Road branch, Bangalore. He produced eight cheques drawn, three in favour of B. G. S. Murthy, one each in favour of Lakshmishappa, Kalavathi and Pushpa Srinath, Narayanamma and Nirmala. He also stated that he did not know any of the drawees of the cheques to whom he referred in his examination-in-chief. He also further admitted that payees' signatures were not obtained on the cheques, exhibits R-4 to R-9 ; and so also on exhibits R-1 and R-11 and exhibits R-10 and R-11 being payees cheques, somebody who had taken the money had signed the cheques but he did not know who that person was. He also further stated that he did not know any of the persons in whose favour the cheques were drawn and were ultimately realised. RW 3 was the accountant in the Canara Bank, Avenue Road branch, Bangalore. He produced the current account extract of....
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.... shares were not pledged with the bank ; that the second respondent was behind the petitioners and it was he who was pursuing the matter. He also further stated thus : ". . . He is sitting in the court today and he has been attending the court on all the days whenever this petition is posted. Venkatesh was acting on behalf of the petitioners in the matter of dealing with shares. Venkatesh was the managing director of the company at the time he purchased the shares and he handed over the books of the company to us. All those books were maintained by the company by the previous management." In the cross-examination he stated that he did not know when Venkatesh approached Srihari and Swamy and offered to sell the shares ; that he was not present when Venkatesh approached Srihari. He further stated that he was not personally aware of the particulars of the shares offered by Venkatesh to Srihari when he approached the latter ; that he was not aware as to what happened during the meetings between Venkatesh and Srihari. He also further stated that he had not come across any authority given to Venkatesh by the petitioners to act on their behalf. He further admitted that the names fou....
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....petitioners and made them to carry on proxy fight. It has escaped the attention of the learned company judge that the burden of proving that the shares were transferred in accordance with law was upon respondents Nos. 3 to 6 and not upon the petitioners to prove the transfer of shares. It is the party who asserts the existence of certain facts or wishes the court to believe in its existence, unless it is provided by any law that the proof of that fact shall lie on any particular person, the burden of proof of the existence of that fact lies on the person who asserts it. Respondents Nos. 3 to 6 have set up a plea that the shares held by the petitioners in the first respondent-company were transferred to them with the mediation of respondent No. 2. Therefore, the burden was upon respondents Nos. 3 to 6 to prove the alleged transfer of shares. Therefore, it is not possible to agree with the learned company judge for drawing an adverse inference against the petitioners for non-examination of respondent No. 2 especially when it was the case of the petitioners that they had not effected transfer of shares and had not received any consideration amount. Mere relationship of respondent No. ....
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...., the party who pleads the execution of a document shall have to prove by specific evidence as to the execution of the document, the signature of the executant has to be proved. In the instant case, except the general statement of PW 3, Lakshmishappa, without referring to the documents, exhibits P-1, P-2 and P-7, there is no other evidence. Not only this, the evidence on record also indicates that consideration amount had not been received by any one of petitioners Nos. 1 to 3 and 5. RW 4, Paul, has no personal knowledge about the meeting of respondent No. 2 with respondent No. 3. He has also not deposed that the amount received by RW 2 was paid over to petitioners Nos. 1 to 3 and 5. A person purchasing the shares or for that matter any property, is under an obligation to pay the consideration agreed upon for the transfer. This circumstance also goes in favour of the petitioners, whose case is that they have not transferred the shares in question. The learned company judge has also held that the case of the petitioners that the share certificates were not issued is not correct. Whereas, it is not disputed by the respondents that no share certificates were issued. The presence of....
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....d received the consideration amount. The evidence of RW-4, Paul, goes to show that there was no effort whatsoever made by respondents Nos. 3 to 6 to get at the petitioners. They appeared to have dealt with the second respondent only. RW-4 admitted that he was not aware whether the second respondent and respondent No. 3 met once or more than once in this connection. There is no acknowledgment obtained from the petitioners for having paid the consideration into the hands of the second respondent. Apart from the share transfer forms, exhibits P-1, P-2 and P-7, pertaining to petitioners Nos. 1, 2 and 5, respondents Nos. 3 to 6 have not produced any other evidence for having paid the consideration to them. Of course, cheques issued in the names of these petitioners are produced. But these cheques were encashed by the second respondent. The cheques do not bear any endorsement by petitioners Nos. 1, 2 and 5. They were not even confronted with those cheques. It is really surprising as to how respondents Nos. 3 to 6 could afford to go on in such a manner without caring whether the owners of the shares had executed transfer forms and received the amount of consideration and agreed to sell th....
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....deration. They should have produced better evidence by producing the cheque issued to withdraw a sum of Rs. 55,000 and also the cheques relating to several debit entries found in exhibit R-3 by issue of cheques by the account holder. If those cheques would have been produced, it would not have been difficult to point out that the account pertained to Lakshmishappa. Now, the evidence before us is that of the bank official and the actual extract of the savings bank account No. 1749 and the denial of Lakshmishappa. The savings bank account No. 1749 in the name of Lakshmishappa maintained by the bank containing debit and credit entries for the period from April, 1984, to December, 1987, in the absence of any further evidence to prove fraud on the part of the bank cannot be rejected and it cannot be brushed aside. Therefore, we are of the view that Lakshmishappa has received a sum of Rs. 55,000 through an account payee cheque and that amount has been credited to savings bank account No. 1749 of the Canara Bank, M. G. Road branch, Bangalore. There is a debit entry for having drawn the said amount of Rs. 55,000. But the case of Lakshmishappa is that he signed only the blank form ; that wh....
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....equently, their names could not have been found in annexure A to exhibit R-21. The possibility of respondent No. 2 duping petitioners Nos. 1 to 3 and 5 cannot also be excluded. The petitioners, irrespective of their relationship with respondent No. 2, are in law entitled to take such steps as are open to them in law to safeguard their right, title and interest in the shares held by them in the first respondent-company. Thus, taking into consideration all the facts and circumstances of the case as established by the evidence on record, we answer point No. 1 in the negative though petitioner No. 4 has received a sum of Rs. 55,000 which he has to refund to respondents Nos. 3 to 6. Point No. 2.-This point involves a pure question of law. It is contended on behalf of the petitioners and also by Sri Holla, learned counsel appearing for the second respondent that unless the share transfer forms are properly stamped and registered, there will not be a valid transfer. We consider this point on the assumption that respondents Nos. 3 to 6 have proved the transfer of shares by the petitioners, because under point No. 1, we have held that they have failed to prove the transfer. It is an a....
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....sions are to be read together. The effect of these provisions is that the document though stamped must be held to be unstamped if the stamps affixed are not cancelled at the time of execution of the document. If the stamps affixed are not cancelled, the document must be held to be not duly stamped. Consequently, it must be held to be invalid. In Dr. Mrs. Nirmal T. Shah v. Sharavathi Petro Chemicals (Company Petition No. 38 of 1980 decided on 10-10-1984), Chandrakantharaj Urs J. has held that the provisions contained in section 108(1) of the Act are mandatory. This decision also accords with our view. The burden was on the respondents to prove that when the transfer forms were delivered to the second respondent the same were filled and were duly stamped at the time of execution of the same. In Arun Kumar Jagnany v. Hindusthan Motors Ltd. [1984] 2 Comp LJ 270 , it has been held (at page 272) : "Apart from the aforesaid issue of limitation, another basic issue for our consideration is that the stamps on share transfer deeds having not been cancelled, the share transfer deeds have to be taken as unstamped and not in accordance with section 108(1) of the Companies Act read with....
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....tioners have transferred their shares, as the adhesive stamps affixed on the share transfer forms are not cancelled, the share transfer forms must be held to be unstamped and, therefore, the instruments must be held to be invalid. We hold accordingly. At this stage, we may also refer to an argument advanced on the basis of the articles of association of the first-respondent-company. It is contended that the shares of the company shall not be transferred except to a person agreed to by all the directors of the company at the price fixed by the board of directors. In our view, it is not necessary to consider this contention in the light of the finding recorded on point No. 1. For the reasons stated above, we answer point No. 2 as follows : The transfer of shares held by the petitioners even assuming that there was such a transfer of shares as claimed by respondents Nos. 3 to 6 by the petitioners, it was not effected in accordance with section 108(1) of the Companies Act read with section 12 of the Karnataka Stamp Act, and, therefore, was not valid in law. Therefore, the petitioners continue to be shareholders of the first respondent-company and as such continue to be its mem....
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....granted. It is also further contended that the nature of the proceeding under section 155 of the Act being a summary proceeding, the question as to whether the persons other than the petitioners have transferred the shares, etc., need not be gone into. If the other persons are aggrieved, it is always open to them to seek redressal in accordance with the provisions of the Act. Under this point, we are also required to consider the scope of section 155 of the Act. Section 155 of the Act, no doubt has now been omitted and it has become part of section 111 of the Act by reason of the Companies (Amendment) Act, 1988, which has come into force subsequent to the filing of the petition. The petition was filed on June 9, 1988. Therefore, we have to consider this case under the Act as it stood prior to the coming into force of the Companies (Amendment) Act, 1988 (Act No. 13 of 1988), in the light of the provisions contained in section 68 of the Companies (Amendment) Act, 1988. Though section 21 of the Companies (Amendment) Act, 1988, omits sections 155 and 156 of the Act but section 16 of the very Amendment Act, 1988 (Act No. 13 of 1988), while substituting section 111 of the Act incorpor....
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....ister of debenture holders as they apply in relation to the rectification of the register of members." The Supreme Court in Public Passenger Service Ltd. v. M. A. Khadar [1966] 36 Comp Cas 1 ; AIR 1966 SC 489 has held that (headnote of AIR) : "Where by reason of its complexity or otherwise the matter can more conveniently be decided in a suit, the court may refuse relief under section 155 in exercise of the discretionary jurisdiction and relegate the parties to a suit." In that case, it was held that as the case did not involve complicated question, there was no necessity to drive the parties to a suit. It was also pointed out that the rectification of the share register should be allowed if the name of the person after having been entered in the register was without sufficient cause omitted from it. There was no sufficient cause for the omission of the name of the shareholder from the register and the omission was due to invalid forfeiture. In that view of the matter it was held that the forfeiture was invalid. Therefore, it was necessary to grant relief to restore the names of the shareholders. In Indian Chemical Products Ltd. v. State of Orissa [1966] 36 Comp Cas 592....
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....pplicant relief under section 38. The directors of the applicant company on the most frivolous of objections have prevented the State of Orissa from becoming a member for the last 16 years. It is a matter of regret that justice has been obstructed so long. There is no merit in this appeal." Therefore, it is clear from the aforesaid decision that even a complicated question as to whether the board of directors acted mala fide in refusing to register the State of Orissa as a member of the company was gone into in a petition filed under section 38 of the Indian Companies Act, 1913, and it was approved by the Supreme Court. It was also specifically observed that the jurisdiction created by section 38 was very beneficial and should be liberally exercised. The learned company judge has also noticed this decision. The High Court of Gujarat in Gulabrai Kalidas Naih v. Laxmidas Lallubhai Patel of Baroda [1978] 48 Comp Cas 438 , has taken a view that in a proceeding under section 155 of the Companies Act, even if the relief sought for involves complicated questions they can be gone into and if a case is made out, the relief can be granted. The same is the view expressed by the High Cou....
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....he Act. If in such a case the court refuses to exercise the jurisdiction under section 155 of the Act, it would be only putting a premium on the several illegalities noticed by us during the course of this judgment pertaining to the alleged transfer "of shares by the petitioners. Any illegality or any conduct lacking in bona fides on the part of the second respondent, cannot be passed on to the petitioners so as to deprive them of their existence in the company as shareholders. They are entitled to protect and safeguard their existence within the four corners of law as shareholders of the company. Therefore, we are of the view that the petitioners cannot be refused relief on the ground that they lack bona fides as they cannot be held to be guilty of such conduct, we are of the view that it is not proved that petitioners Nos. 1, 2, 3 and 5 have committed any act which lacks bona fides. Of course, as far as Lakshmishappa is concerned, we have already pointed out with regard to receiving of a sum of Rs. 55,000 stated to be the consideration for transfer of 550 shares. But in this regard we have already pointed out that the share transfer form executed by Lakshmishappa is invalid. Ther....
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....d in the petition. These grounds, if proved, do fall within the scope of just and equitable grounds for winding up of the company, in the connected company petition which has been dismissed on the ground that the petitioners have ceased to be members of the company. Therefore, we do not propose to consider the several other illegalities alleged in the petition and the evidence adduced in that regard in this case. As already pointed out, the same can be urged and gone into in a petition for winding up which is filed by the petitioners. Accordingly, point No. 3 is answered as follows : "It is not just and proper and it is also not necessary to go into the transfer of shares of several other members of the first respondent-company other than the petitioners and to grant rectification of the register of members of the first respondent-company in respect of those persons except the petitioners." The contentions urged in this regard are left open to be urged in the petition for winding up being Company Petition No. 48 of 1987 filed by the petitioners-appellants. Point No. 4:-In the light of the findings recorded by us on points Nos. 1 to 3, we are of the view that the order pass....