TaxTMI 
TaxTMI 
1991 (5) TMI 226
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....arulekar and Claude-Lila Parulekar (hereinafter called "the original petitioners") against Sakal Papers Private Limited and various other respondents as set out in that petition praying for the rectification of the register of members of the first respondent company in the following manner : (i)The names of the original respondents Nos. 5, 6, 8, 11, 12, 13 and 14 (hereinafter referred to as "the purchasers") be removed from the register of members of the first respondent company in respect of the 3,417 shares belonging to the estate of Dr. N.B. Parulekar and 93 shares belonging to the third respondent ; (ii)the names.of respondents Nos. 11, 12, 13, 15 and 16 be removed from the register of members of the first respondent company in respect of 17,666 shares and for other ancillary reliefs. The learned single judge, who heard the petition by his judgment and order dated January 13, 1988, has allowed the petition. He has however, directed the second petitioner to bring into the court a sum of Rs. 80,73,000 within a period of six weeks. He has clarified that his order shall become operative on this amount being deposited in the court within the stipulated period. If the amount....
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....eal No. 1032 of 1988 is another appeal filed by the first respondent company against the findings given by the learned single judge against the company in his judgment rejecting the application for extension of time. Facts : In order to appreciate the contentions raised by the parties in these appeals it is necessary to examine the relevant facts. The first petitioner in Company Petition No. 476 of 1986 is the widow of Dr. Parulekar who died on or about January 8, 1973. Dr. Parulekar was the founder of the first respondent company. The first petitioner is a shareholder and a permanent director of the first respondent company. The second petitioner is the daughter of Dr. N.B. Parulekar and the first petitioner. She is also a Shareholder of the first respondent company. The first respondent company was incorporated in 1948. It carries on the business of publishing a newspaper called Sakal from Pune, Bombay and Kolhapur. Dr. (Mrs.) Banoo J. Coyaji, Jasvantlal Matubhai and Arun Jasvantlal are respondents Nos. 2, 3 and 4. These respondents and the first petitioner are the executors of the last will and testament of Dr. N.B. Parulekar. The original fifth respondent is the managing ....
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....e transferor and the purchaser. Under the terms of the will of Dr. Parulekar, 3,417shares in the first respondent company which formed a part of Dr. Parulekar's residuary estate, were directed to be held on trust by the executors/trustees : "(1)for the spread of education through newspapers, magazines and periodicals ; (2)for effecting improvement of the quality and standard of journalism and training of personnel in journalism ; (3)for purchase of shares of concerns, firms, companies or from person or persons interested in or concerned with newspapers, magazines, periodicals and otherwise in journalism ; (4)for publication of books and literature for the masses at low and reasonable prices ; and (5)for such other objects and acts that may be necessary to bring about improvement of information amongst the masses ......" The will directed that the above trust shall be known as the "Sakal Papers Trust". The executors of the will of Dr. Parulekar gave a notice dated November 18, 1984, of a meeting of the executors to be held on November 27, 1984, for the purpose of passing resolutions to enable the executors holding 3,417 shares of the first respondent company ....
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.... willing to pay the fair price as may be fixed by the auditors, the executors would be free to sell the same to any other person in accordance with the articles. The first petitioner, by her letter dated December 14, 1984, accepted the offer made on behalf of the executors. She agreed to purchase the 5,417 shares at a price as may be certified by the company's auditors. She nominated her daughter, the second petitioner, as a nominee under article 57A for the purchase of these shares. Similarly, a notice dated November 10, 1984, was given to the first petitioner as well as the board of directors of the first respondent company by respondents Nos. 3 and 4 in respect of the 93 shares held by them in the first respondent company, offering to sell these shares to the first petitioner. Thereupon, the first respondent company gave a notice to all its shareholders to the effect that the said 3,417 shares as also the 93 shares of respondents Nos. 3 and 4 were proposed to be sold by these persons. Under article 57A, an offer had been made to the first petitioner for the purchase of these 3,417 plus 93 shares and the first petitioner had been given time till December 15, 1984, for in....
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....o interim order, however, was granted in this ; suit. Thereafter, on September 9, 1985, the executors sold and transferred 3,417 shares to respondents Nos. 8, 11, 12, 13 and 14 for the price of Rs. 78,59,100. The price was arrived at on the basis of each share being valued at Rs. 2,300. The third and the fourth respondents also sold their 93 shares at the same price to respondents Nos. 5 and 6. Thus, the shares actually fetched a higher price than that fixed by the auditors. : On September 20, 1985, the transfer forms in respect of the 3,417 and 93 shares were lodged with the first respondent company. At the meeting of the board of directors of the first respondent company held on November 21, 1985, the transfer of these shares was approved. The board of directors resolved to register these shares in the names of the transferees. At this meeting, respondent No. 3 ceased to be the chairman and director of the company and respondent No. 2 was appointed as chairman of the board in his place. Respondents Nos. 5 and 10 were appointed as additional directors of the first respondent company. Notice of this board meeting was sent to the petitioners. The petitioners attended the board me....
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.... The petitioners filed the present company petition on August 28, 1986, challenging the transfer of 3,417 shares and the issuance of 17,666 new shares. The petition is filed under section 155 of the Companies Act. Under section 155, "if the name of any person is, without sufficient cause, entered in the register of members of a company, or after having been entered in the register is, without sufficient cause, omitted there from, .... the person aggrieved, or any member of the company, or the company, may apply to the court for rectification of the register." Under sub-section (3), on an application under this section, the court may decide any question relating to the title of any person who is a party to the application to have his name entered in or omitted from the register. The court also has the power to generally decide any question which it is necessary or expedient to decide in connection with the application for rectification. Transfer of 3,417 shares : The first challenge of the petitioners relates to the transfer forms which have been signed by the executors in respect of 3,417 shares transferred by them. In the share transfer form, the four executors, namely, t....
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....ase, the transfer form is signed by three transferors. Under the resolution of the trustees/executors any one of the executors was entitled to sign the transfer forms. Hence, the three executors who have signed the transfer forms have done so as transferors in valid exercise of the power under the said resolution. At the highest, the only defect is that they have not stated that they have signed the transfer forms on behalf of all the executors or in exercise of their authority under the said resolution. This, in our view, is, at the highest, only an irregularity which can be easily corrected by the transferors. In these circumstances, it would be futile to invalidate the registration of transfer of these shares when the transferors can immediately submit fresh transfer forms signed by them on behalf of all the transferors. As set out in the case of Killick Nixon Ltd. v. Dhanraj Mills P. Ltd. [1983] 54 Comp. Cas. 432, 465 (Bom) (a judgment to which one of us was a party), the court should not accept any invitation to indulge in a futile exercise under section 155. The provisions of this section are not meant for correcting procedural errors. In the case of Bentley-Stevens v. Jon....
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.... has not challenged the decision taken by the majority of executors at this meeting to offer the 3,417 shares for sale. Nor has she challenged the consequential decision taken by the majority to offer the shares to her in view of the provisions of article 57A of the articles of association of the company. There is, therefore, no question of the first petitioner contending that the majority decision of the trustees is not binding on her. In fact, she has acted on the decision by accepting the shares offered to her at a valuation to be fixed by the auditors. Offer to other shareholders : It has also been contended that the offer made to all the other shareholders of the company in the, event of the petitioners not exercising their right under article 57A, is defective. This contention also cannot be accepted. The company did inform all its shareholders that the trustees were proposing to sell the shares in question and that, in the event of the petitioners not exercising their right under article 57A, the shares would be available for purchase by the other shareholders. None of the other shareholders showed any interest in purchasing these shares. It was submitted before us tha....
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.... very different. Fraud or collusion unravels everything." The petitioners were, therefore, bound by the valuation made by the auditors unless they can establish fraud or collusion. Otherwise, the auditor's certificate is final and one cannot go into the question whether the valuation is fair or proper or not. In the first place, there is no material before us which would indicate that the valuation made by the auditors was not fair. On the contrary, while the auditors valued the shares at Rs. 2,160 each, at the actual sale to the fifth respondent and the companies controlled by him, the shares fetched a higher price of Rs. 2,300 per share. We have also to bear in mind that the 3,417 shares held by the trustees as also the 93 shares held personally by some of the trustees, were sold as a controlling block of shares in the first respondent company. They would, therefore, fetch a higher price. The trustees were also duty-bound to obtain the best possible price for the shares because the sale proceeds were impressed with the public trust created by the settlor. They were, therefore, entitled to sell these shares as a controlling block of shares in the first respondent company. As....
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....fair value of the shares and whether the funds with the petitioners were adequate for the purchase of these shares at the "fair value" as claimed by the petitioners. The entire argument is, therefore, purely hypothetical. In fact, in this situation, there appears to be a clear conflict of interests and duties as far as the petitioners are concerned. The first petitioner, as an executor/trustee under the will of her husband was duty-bound to realise the maximum possible price for the shares held by her along with the other executors so that maximum possible amount can be made available for purposes of the trust created by her deceased husband. On the other hand, as a person who was entitled to purchase these shares in exercise of her right of pre-emption under article 57A of the articles of association, she was interested in obtaining these shares at as low a price as possible. The second petitioner was only her nominee for the purpose of purchase of these shares. Both were, therefore, equally interested in purchasing these shares at as low a price as possible. The entire challenge to the valuation made by the auditors of the company indicates the interest of the petitioners in obta....
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....and on the last day of the extended time, claimed that natural justice was denied to them because the draft valuation, etc., were not sent to them for comment. Hence, this contention of the petitioners has no merit. Readiness and willingness of the petitioners to purchase : It was next contended by the petitioners that the respondents have acted illegally in selling these shares to a third party when the petitioners were ready and willing to exercise their right of pre-emption under article 57A. Undoubtedly, the petitioners accepted the offer made to them under article 57A to purchase these shares. The offer was to sell these shares at a price of Rs. 2,250 per share which was the offer then received by the executors from a third party, or at a price to be determined by the auditors under article 57A. The petitioners agreed to purchase these shares at a price to be determined by the auditors. The price so fixed by the auditors was binding on the petitioners. Nevertheless, when the auditors determined the price, the petitioners challenged the price and did not agree to purchase these shares at the price fixed by the auditors. In these circumstances, the executors were free to o....
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....he Delhi High Court in the case of Smt. Abnash Kaur v. Lord Krishna Sugar Mills Ltd. [1974] 44 Comp. Cas. 390. The Delhi High Court also said that the law does not require an agenda for a meeting of the board of directors and any business whatsoever can be transacted at the board meeting. In any case, this is, at the highest, only an irregularity and it would not vitiate the transfer or shares. The petitioners have alleged that at the very same meeting of the board of directors, respondent No. 5 was brought on the board of directors as an additional director. There was, therefore, a conspiracy between the other directors of the first respondent company and the purchasers of the transferred shares to oust the petitioners. In this context, it is necessary to bear in mind that respondent No. 5 and the companies controlled by him had, by paying the price of Rs. 2,300 per share, acquired the controlling block of shares in the first respondent company. All the directors of the first respondent company were aware of this fact. In these circumstances, if respondent No. 5 desired to be on the board of directors of the first respondent company, there was nothing underhand about it. This c....
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....espondents certainly committed an irregularity in not mentioning this item on the agenda of the annual general meeting. But this irregularity does not, in our view, vitiate the decision which was taken. As set out earlier, the court will not interfere in the case of irregularities which can be cured. In the present case, even without these additional shares which were issued, respondent No. 5 and his group of shareholders had a majority control over the company. This is clear from the votes which were cast at the annual general meeting in favour of and against this fresh issue of shares. 4,260 votes were cast in favour of this resolution while 3,049 votes were cast against the resolution. Hence, they were and are in a position to get the fresh issue sanctioned at the meeting of the company after notice. Moreover, at the same annual general meeting, it was decided that an extraordinary general meeting of the company would be called after proper notice to ratify this fresh issue of 17,666 shares at par. Such an extraordinary general meeting was held after notice on January 31, 1986, when the issue of these shares at par was ratified. According to the petitioners, this ratification is....
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....hese appeals before us also. But this offer has not been accepted by the petitioners. We do not see how this issue of 17,666 shares at par can be invalidated, although undoubtedly, it has caused prejudice to the petitioners by strengthening the control of respondent No. 5 and his group over the first respondent company. If any other remedy at law is available to the petitioners in this connection, they are free to avail of it. But we fail to see how the register of members can be rectified under section 155 of the Companies Act in respect of these shares when the respondents were within their rights in issuing these shares at par. Subsequent events : We would also like to refer to some subsequent events which also make it difficult to set the clock back, so to speak. In the first place, by selling the 3,417 shares the executors received a sum of about Rs. 80 lakhs. After discharging the liabilities under the will of the deceased, Dr. Parulekar, the net sale proceeds amounting to about Rs. 60 lakhs have been used to create a public charitable trust for the purposes set out by the settlor in his will. The fund is now impressed with a public charitable trust. Secondly, the fund ....
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....e now filed two suits in March, 1988, for specific performance. Section 155 is a discretionary remedy which is not normally resorted to when there are allegations of fraud. We need not, however, go into this aspect of the matter because, in any event, for reasons which are set out by us in our order, the petitioners are not entitled to any relief as prayed for by them in the petition. The judgment of March 30, 1988 : The appeals before us from the judgment of the learned judge dated March 31, 1988, declining to grant any extension of time, are all filed by either the trustees, the purchasers from the trustees or by the company in respect of certain observations made in that judgment and order. The petitioners have not filed any appeal before us challenging the order refusing to extend the time for the deposit of Rs. 80,73,000. The impugned observations are in respect of the readiness and willingness of the petitioners to purchase the shares in question. The learned judge has observed that on account of the failure of the petitioners to deposit Rs. 80,73,000 within the stipulated period the petition stands dismissed. But the observations made in his judgment would continue to ....