TaxTMI 
TaxTMI 
1990 (10) TMI 384
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.... of Nagasetty village (which is part of Bangalore city and the area is developing into a good residential locality and is known as Rajmahal Vilas Extension, II Stage) ; the second respondent obtained a "no objection certificate" in the year 1978 to set up a cinema theatre and had the building plan sanctioned ; and to further his objectives, he floated the company with the help of K. N. Seshadri. The company was incorporated in the year 1978. K. N. Seshadri and the second respondent were the first directors and they are to hold office for life and to act as managing directors alternately for a period of 5 years each, while other directors are to hold office till the third annual general meeting held after their respective appointments, etc. (vide Article 12 of the articles of association). Accordingly, K. N. Seshadri was the managing director till November 30, 1983, as per the averment in the petition and thereafter the second respondent was the managing director. It is the case of the petitioners that the second respondent leased 19 guntas of land belonging to him to the company for a period of 40 years and the lease deed was registered in the year 1982. The company, howe....
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....it stating that he had no interest in the company and the suit was withdrawn on April 4, 1987. When things stood thus, respondents Nos. 3 and 4 started obstructing the construction work, with the connivance of P. K. Alva and, therefore, the second respondent filed another suit, O. S. No. 1076 of 1986 ; in this suit, respondents Nos. 3 and 4 produced a copy of an agreement dated November 16, 1986, entered into with K. N. Seshadri agreeing to purchase the shares of K. N. Seshadri's group. 2. In view of the deadlock in the affairs of the company, the petitioners filed a petition being Company Petition No. 48 of 1987 for the winding up of the company. Respondents Nos. 3 and 4 asserted in the said company petition that these petitioners were not shareholders of the company at all; in the records produced by them, including the statutory register, several serious irregularities are found. The shareholding position and the number of shares held by each of the petitioners shown in the share register were erroneous. The petition reads : "The particulars contained in the register against the names of each of the petitioners is incorrect and the petitioners are shown to have cease....
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.... 1987 ; the petition is actually a "proxy fight" being carried on at the behest of the second respondent by the petitioners and is in furtherance of several unsuccessful attempts of the second respondent. 5. Respondents Nos. 3 to 6 assert that they had acquired shares bona fide and for consideration and are entitled to manage the affairs of the company ; they had negotiated with the two rival groups headed by the second respondent and Seshadri respectively and purchased the shareholdings of the said groups. Earlier, Seshadri had filed a company petition being C. P. No. 36 of 1985 against the company and the second respondent for the winding up of the company ; various other litigations initiated by the second respondent against P. K. Alva and respondents Nos. 3 and 4 were repeated ; the unsuccessful attempt of the second respondent to restrain these respondents from interfering with the affairs of the company were pointed out. Those respondents, further asserted that the various allegations in the petition could not have been made by the petitioners, as the factual averments are to be to the second respondent's knowledge and not of the petitioners. These respondents ....
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....he meetings had no quorum. (7) Any one of the shareholders may seek rectification of the share register of the company, even though others affected by the entries in the said register do not challenge the same ; such others need not be made parties to the proceedings. (8) When an elaborate trial and investigation are not necessary here, since the alleged share transfers were prima facie illegal, relief in favour of the petitioners under Section 155 should follow. 7. Mr. Jayaram, learned counsel for the contesting respondents, however, advanced two contentions, which partake of the character of preliminary objections : (1) Proceedings under Section 155 are of a summary nature and when serious disputes as to the title to the shares and nature of the transactions are raised, the court should not embark upon an enquiry on these questions ; the petitioners should be relegated to a civil suit to establish their case, (2) When, prima facie, it is disclosed that the petitioners belong to the group of the second respondent, and are closely connected to him, and that the second respondent was all along managing the affairs of the company and is a party to the entire impugned transac....
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....court should not proceed to decide complex questions or issues pertaining to the . title to the shares which are complicated. (iii) Rectification of the share register is a statutory remedy provided by the Act and, therefore, the forum created by the Act is the most appropriate forum and, therefore, the court should entertain and decide any question regarding title to the shares under Section 155. (iv) Even though the procedure is summary, the court, in appropriate cases may adopt the normal, regular procedure while exercising the powers under Section 155 and decide the questions raised under Section 155, without relegating the parties to a civil suit. Since the High Court is more suitable to decide such questions regarding rectification of share register, when the occasion demands, the court may resort to the normal procedure of recording of evidence instead of a summary procedure. (v) Whether equitable considerations should weigh with the court to refuse to exercise the powers under Section 155 is a view not definitely forthcoming in clear terms. 11. Justice D. A. Desai as a judge of the Gujarat High Court held that the court should decide all the questions arising while c....
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....ough its board of directors accepts the claim lodged by the petitioner, nothing further is required to be done. Would it be a fair pro-position to assert that a mere dispute is sufficient to oust the jurisdiction of the court under Section 155 ? The answer must obviously be in the negative." 12. To the same effect is a subsequent ruling of a Division Bench of the Kerala High Court in K. P. Anthony v. Thandiyode Plantations P. Ltd. [1987] 62 Comp Cas 553, wherein the Bench observed that the Gujarat view was more acceptable to it. Even though the transferee of shares sought rectification of the register and did not produce the share transfer forms, the Bench held that rectification had to be ordered if, in fact, transfer of shares was proved ; it was held that the application was in the nature of a suit for specific performance and the transferor can be directed to execute the requisite transfer. The court has not referred to the decision of the Supreme Court in Mannalal Khetan v. Kedarnath Khetan [1977] 47 Comp Cas 185 , wherein the Supreme Court held that the provisions of Section 108 are mandatory and the board of directors cannot register a transfer of shares, if the share ....
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.... of Civil Procedure, Chandrakantharaj Urs J. held that this procedure is of summary nature and, therefore, Order 18, Rule 3 of the Code of Civil Procedure was inapplicable to the procedure followed in this case ; it was also observed that the entire burden of making out a case for relief rested on the petitioners. The order, seen from the order-sheet dated September 8, 1988, reads thus : "Evidence of PW 3 and PW 4 completed. One document for petitioners marked. Mr. Chaithanya Hegde submits subject to his right of leading rebuttal evidence that he has been informed by the court that he has no right to lead rebuttal evidence as Rule 3, Order 18 of the Code of Civil Procedure is not attracted to this case. The procedure followed is a summary one. The burden of proving that the members register of the respondent-company is wholly and solely on the petitioner and no burden is cast on the opposite side to prove anything and, therefore, Rule 3, Order 18, is not attracted. Case for the petitioner's side closed. For evidence of the respondents call on September 22, 1988." 18. Mr. Sundaraswamy strongly relied on the decision of the Supreme Court in Indian Chemical Produc....
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....tain interim reliefs ; ultimately the said order was vacated. This was relied upon by the appellant company to urge that the conduct of the respondents was inequitable and, therefore, the court should not exercise its discretionary jurisdiction under Section 155. While repelling this contention, the Supreme Court held at page 6 : "Counsel for the appellant contended that the relief under Section 155 is discretionary, and the court should have refused relief in the exercise of its discretion. Now, 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 and relegate the parties to a suit. But the point as to the invalidity of the notice dated January 2P, 1957, could well be decided summarily, and the courts below rightly decided to give relief in the exercise of the discretionary jurisdiction under Section 155. Having found that the notice was defective and the forfeiture was invalid, the court could not arbitrarily refuse relief to the respondents." 22. Thereafter, referring to the finding that the action of the respondents was mala fide and the consequential contention that reli....
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.... questions arising in the case and the equities applicable, the court may also proceed to decide the questions arising without relegating the parties to a civil suit, by resorting to a regular procedure (in contradiction to the normal summary procedure under Section 155). The circumstances of the case, prima facie, indicate that the equities are not in favour of the petitioners ; in such a situation in spite of the petitioners' making out a strong case for legal rights in them, the court may refuse to exercise the power and leave it to the petitioners to approach the civil court by way of a regular suit. The conduct of the party invoking this court's jurisdiction under Section 155 in relation to the subject-matter of the application seems to me very relevant before this court decides as to whether its discretionary jurisdiction should be exercised. A speedy and summary power provided by the statute should not be available to a person who is prima facie guilty of inequitable behaviour and conduct. When I say "the party invoking the jurisdiction", the concept would include the conduct of any other person at whose instance the petitioner conducted himself in relation....
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....s authorised by the board to give effect to those transfers as per the resolution. He is represented by counsel in these proceedings. The second respondent is alleged to have been present in the court throughout the proceedings. He never entered the witness box, though he is the one person who personally knew the affairs of the company from the very beginning. To point out the closeness of all the petitioners, it was pointed out that even Ms. Pushpa Shrinath gave her address as care of the second respondent. It was also contended that the son-in-law of the second respondent Byra Reddy though a transferor has not come forward to challenge the same, obviously because being an educated person, he cannot put forth the plea of illiteracy and ignorance, like the other petitioners. 29. The first petitioner was examined as PW 1. She initially asserted that she had not sold her shares and that none approached her to purchase her shares ; she said that she did not know how to read or write nor sign. There is an observation of the court that "the witness is confronted with share transfer form for the purpose of asking her the question whether she had affixed her thumb impression to such....
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....ond respondent and recognised them in exhibit P-3 ; he denies having resigned on February 24, 1986, as recorded in exhibit P-4. His other important statement is : "Muniyamma, Narayanamma and Aswathappa and Puspha Shreenath signed share transfer forms and gave it to Venkatesh just as I gave exhibit P-3", This statement demolishes the assertions of the other petitioners like PWs 1 and 2 that they have not signed any transfer forms ; once again he stated that "Muniyamma and others also gave transfer forms for the purpose of raising loans from the bank" ; he admitted that exhibit P-5 (share register) was the one maintained by the company. He denied having any personal account in any bank. This statement coming from a person who stated that he invested a sum of ₹ 55,000 in the company, on the face of it, looks absurd ; he further stated that he did not know what to do if a cheque is given to him. He denied his signature in exhibit P-6 which is a letter dated February 24, 1986, which shows that PW 3 wrote a letter of resignation to the board of directors. The signature certainly looks like to be of this witness when compared with his other admitted signatures. H....
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....5,000 was credited and was drawn by the account holder. Exhibit R-5 is the bearer cheque issued to Lakshmishappa dated February 24, 1986, by Universal Trading Co. (of respondents Nos. 3 and 4) and the cheque was credited to the payee's account as per bank's endorsement. Exhibit R-10 is the bearer cheque dated February 24, 1986, issued in the name of Narayanamma for ₹ 25,000 and is stated to have been paid to the bearer by cash and bears the second respondent's signature on the reverse. Exhibit R-11 is the cheque dated February 24, 1986, issued to Pushpa Shrinath for ₹ 5,000 and bears the signature of the second respondent on the reverse. Exhibit R-13 is the bearer cheque issued to Aswathappa for ₹ 25,000 and exhibit R-14 is a similar cheque drawn in favour of Doddamuniamma for ₹ 53,000. Exhibit R-18 is the certificate issued by the Corporation Bank stating that the sum of ₹ 2,58,000 credited to the S. B. A/c. No. 1692 of the second respondent comprised the following cheques all dated February 24, 1986: (1) G. N. Byra Reddy ₹ 90,000 Issued by Srihari (2) V. Venu ₹ 90,000 do. (3) Doddamuniyamma ₹ 53,000 do. (4) ....
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.... of respondents Nos. 3 to 6 would not go to support the case pleaded by the petitioners. 38. M. A. Paul, RW-4, states that he is the executive assistant to the fourth respondent, Srihari and states that he is acquainted with the transactions in question. According to him, the second respondent approached respondents Nos. 3 and 4 offering shares in the company, representing a group of shareholders ; he speaks of another group identified as Seshadri's group, which also offered to sell the group's shares. The company had already borrowed a sum of ₹ 21 lakhs from the Corporation Bank. He asserts that the second respondent is responsible for filing the present petition and that the second respondent was pursuing the matter ; he pointed out that the second respondent was sitting in the court and asserted that the second respondent was present in the court on all days of the proceedings of this petition. The books produced by respondents Nos. 3 and 4 as belonging to the company are stated to have been maintained by the previous management (i. e., earlier to the entry of respondents Nos. 3 and 4). RW 4 also speaks of the several cheques issued by respondent No. 4 for the pur....
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.... of the existence of share certificates ; no question was asked of RW-4 as to what happened to the share certificates. The second respondent was in charge of the affairs of the company till respondents Nos, 3 and 4 entered the board ; even on February 24, 1986, under subject No. 15, the second respondent took the responsibility "to give effect to and to cause necessary entries to be made in the statutory registers of the company and the share certificates surrendered be endorsed in favour of the transferee." (vide page 44 of exhibit P-4). If so, I do not think it is open to the petitioners (who are the instruments of the second respondent) to contend that the share certificates were not before the board at all when the board approved the share transfers. A strong presumption arises against the petitioners that the share transfer forms were accompanied by the requisite share certificates, at least at the time the board approved the transfer of shares for purposes of Section 108. 42. May be they were lost or not produced by the contesting respondents in the court, or subsequent to the approval, the second respondent managed to hide them, or, quite possibly, the contesting ....