M/s. N.S.Nemura Consultancy India P. Ltd. v. A.Devarajan

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 09.02.2010CORAMTHE HONOURABLE MRS.JUSTICE CHITRA VENKATARAMANCivil Miscellaneous Appeal (NPD)No.2304 of 20041. M/s. N.S.Nemura Consultancy India P. Ltd., No.96, Dr.Lakshmanasami Salai, K.K.Nagar, Chennai – 600 0078.2. A.Panneerselvam ..AppellantsVs.A.Devarajan ..RespondentPETITION under Section 10-F of the Companies Act, 1956 againstthe order dated 15.07.2004 in C.P.No.16 of 2003 passed by the CompanyLaw Board, Southern Region Bench, Chennai.For Appellants : Mr.R.VenkatavaradanFor Respondent : Mr.A.K.MylsamyJ U D G M E N TThe respondents in the Company Petition before the Company LawBoard are the appellants herein challenging the order passed underSection 111 of the Companies Act, 1956. The respondent herein soughtfor rectification of the register of members of the company bydeleting the name of the second appellant herein as owner of 101equity shares of the company and entering the respondent's name asthe holder of the impugned shares.2. The appellants have raised the following questions of law:(a) Whether the Company Law Board was right inholding that the petition is not barred by limitationwhen the petitioner had not given any explanationregarding limitation and had expressly pleaded that theprovisions of Limitation Act do not apply to theproceedings before the Company Law Board? https://hcservices.ecourts.gov.in/hcservices/ (b) Whether the Company Law Board was right inpresuming that the petitioner had knowledge in 2003about the transfer of shares from the date when he hasinspected the records of the company at the Registrar ofCompanies when the records were available at theRegistrar of Companies even in the year 1997 forinspection?(c) Whether the Company Law Board was right inexercising its jurisdiction under Section 111 of theCompanies Act, 1956 by ignoring the decisions relied onby the counsel for the appellants to show that when thematter admittedly involves forgery, fraud, lack oftitle, etc the Civil Court alone will have jurisdiction?(d) Whether the Company Law Board was right inmaking a presumption against the appellants to theirdisadvantage for not producing the minutes of themeeting of the board, register of members and sharetransfer when these documents were not admittedly indispute before the Company Law Board?(e) Whether the Company Law Board was right indirecting rectification of register of members afterfactually holding that the respondent had transferredthe shares in favour of the 2nd appellant herein?(f) Whether the Company Law Board was right indirecting the issue of duplicate share certificate infavour of the respondent after coming to a conclusionthat the share certificates and transfer deeds have beentaken away by the respondent herein?(g) Whether the Company Law Board had thejurisdiction to grant reliefs that are not prayed for inthe petition?3. The facts leading to the filing of the Company Petitionbefore the Company Law Board are as follows:The respondent herein and one Amalraj were subscribers to theMemorandum and Articles of Association of the company, by nameM/s.N.S.Nemura Consultancy India Private Limited, the first appellantherein, subscribing to equal number of shares, namely, 101 shares.It is seen from the averments in the petition as well as in thecounter before the Company Law Board that the respondent hereinresigned his post as Director on and from 30th December, 1995 asevident from the letter dated 30th December, 1995. The respondentherein issued a certificate under the caption 'whomsoever it mayconcern' that the company's account settled on 30th December 1995 was https://hcservices.ecourts.gov.in/hcservices/ accepted by the respondent herein; he had also received his profitdue to him from the business transacted upto 30th December, 1995 andhe would not involve himself in the name of the company in any othertransaction. The Managing Director of the company lodged a complaintwith K.K.Nagar Police Station, Chennai on 04.1.1996 alleging that on3rd January, 1996 at about 8.00 p.m., the respondent trespassed intothe company along with several persons, threatened the firstappellant and other employees and removed all the documents. In thecircumstances, the Managing Director sought for protection to hislife and to the property after taking necessary action against therespondent. Thereafter, there was no progress or furtherinvestigation made by the appellants herein. While the matter stoodthus, the respondent herein sent a notice on 12.4.2003 stating thatwithout the consent and knowledge of the respondent, the shares heldby him had been transferred in favour of one Paneerselvam, the secondappellant herein. It was stated that he was under the bonafide impression that he was the owner of the 101 equity sharesbearing Ledger Folio Number 002. The inspection on 31.3.2002 of theannual return filed with Registrar of companies, Madras dated19.9.1997 revealed that the equity shares held by the respondent inthe company had been transferred in favour of the second appellantPaneerselvam without the knowledge of the respondent. In thecircumstances, the respondent called upon the appellants herein torectify the register by re-entering the name of the respondent in theregister. The claim was, however, refuted by the appellants in thereply dated 2nd May, 2003. 4. In the above circumstances, the respondent herein filed aCompany Petition before the Company Law Board alleging that theletter dated 30th December 1995 was only as regards the respondentcoming out of the company's directorship and the receipt of the moneywas only towards profit sharing. In the circumstances, there was notransfer effected of the shares held by the respondent herein. Therespondent contended that he came to know about the transfer of 101equity shares stood in his name to the name of the second appellantonly on 31.3.2002 on an inspection of the Annual Return filed by thecompany with the Registrar of Companies. The respondent stated thathe neither executed any transfer deed nor received any considerationfor the shares transferred in favour of the second appellant. 5. The contention of the respondent herein was countered by theappellants herein in the counter filed before the Company Law Board,contending that the allegations were wild and false. The appellantstook the contention that the respondent had alleged in his noticethat the signature had been forged and the shares had beentransferred. However, in the petition, the respondent alleged thatno transfer deed had been signed by him and that 101 equity shareshad been transferred to the second appellant taking advantage of thecontrol of the company. Thus the appellants alleged that while onthe one hand the respondent pleaded ignorance about the execution of https://hcservices.ecourts.gov.in/hcservices/ the transfer deed, there was no explanation as to how he came to knowto allege that the signature had been forged. Hence, this singleinstance would go to show that the respondent had been guilty oftaking away the share certificates, transfer deeds and otherdocuments forcibly from the first appellant's premises as early as1996. In the above circumstances, the appellants submitted that therespondent approached the Company Law Board without any cause ofaction for seeking the relief of rectification under Section 111 ofthe Companies Act and as there is no question of any rectification ofthe register, the claim itself was barred by limitation. 6. The respondent herein reiterated his contention in therejoinder that he had not executed any transfer deed and in theabsence of duly executed transfer deed, he could only presume thatthe company had effected the same on the basis of the forged deed. 7. After hearing both parties, the Company Law Board passed anorder granting the relief to the respondent. As to the plea oflimitation taken by the appellants herein, the Company Law Boardpointed out that the shares were purportedly transferred on30.1.1997, about which the respondent claimed no knowledge till therecords were inspected by him in March 2002. Thus with the knowledgeon the transfer of shares gained in the year 2002 on the inspectionof the records of the company with the Registrar of Companies, therespondent rightly invoked the jurisdiction of the Company Law Boardon 21.7.2003 within three years and hence, the petition was notbarred by limitation. In this regard, the Company Law Board followedthe decision in the case of Jagjit Rai Maini V. Punjab MachineryWorks (P) Ltd. reported in (1995) 4 Comp LJ 110) and thus rejectedthe plea of the appellants on the question of limitation.8. As regards the merits of the case, the Company Law Boardpointed out that even though the share transfer was stated to havebeen effected on 30.12.1995, the transfer was registered on31.1.1997. The first appellant had not chosen to produce before theCompany Law Board the original minutes of the meeting of the Board ofDirectors approving the transfer of the impugned shares or theregister of members or share transferred in the custody of theappellants herein. The Company Law Board further pointed out thatthe share certificates and transfer deeds were not in the custody ofthe company, since 03.1.1996, in which case, it was not known how thecompany could register the transfer on 30.1.1997 without the custodyof the share certificates and transfer deeds.9. Learned counsel appearing for the appellants, taking seriousexception to the point of limitation held against them, made hissubmission on the aspect of forgery and submitted that having regardto the jurisdiction of the Company Law Board under Section 111 of theCompanies Act to decide on the peripheral matters only and in thelight of the serious allegation of fraud, the proper course to be https://hcservices.ecourts.gov.in/hcservices/ adopted was to direct the parties to work out their remedies beforethe Civil Court. The order passed by the Company Law Board, hence,has to be set aside by this Court. Learned counsel further pointedout that if the case of the respondent is that the share transferdocuments had been forged, the Company Law Board should have directedthe respondent herein to substantiate such an allegation before theCivil Forum. 10. In support of his contention, learned counsel placedreliance on the decisions reported in (1983) 54 Comp Cas 301 (Del)(Anil Gupta V. Delhi Cloth and General Mills Co. Ltd.); (1995) 4 CompLJ 110 (P&H) (Jagjit Rai Maini and others V. Punjab Machinery Works(P) Ltd. and others); (1997) 4 Comp LJ 455 (CLB) (C.Mathew V. CochinStock Exchange Ltd.); (1998) 7 Supreme Court Cases 105 (AmmoniaSupplies Corporation (P) Ltd. V. Modern Plastic Containers Pvt. Ltd.and others); (1999) 2 Comp LJ 205 (Bom) (National Insurance CompanyLimited V. Glaxo India Limited); (2000) 1 Comp LJ 110 (CLB)(A.Akhilandam and Smt.A.Nagalakshmi V. The Great Eastern ShippingCompany Limited and (2008) 2 Comp LJ 314 (Ker) (Duroflex Ltd. V.Tommy Mathew and Duroflex Ltd. V. Johnny Mathew).11. He laid emphasis on the decision of the Apex Court reportedin (1998) 7 Supreme Court Cases 105 (Ammonia Supplies Corporation (P)Ltd. V. Modern Plastic Containers Pvt. Ltd. and others), particularlyto paragraph 28, wherein the Apex Court pointed out that the word'rectification' connotes something what ought to have been done butby error not done and what ought not to have been done but was donerequiring correction. If the error is something to be rectified onthe available material on a scrutiny of documents, then certainly theCompany Law Board has jurisdiction. He pointed out that the burdenis on the respondent. In the circumstances, he submits that theorder passed by the Company Law Board is liable to be set aside. 12. Heard the learned counsel appearing for the appellants andthe learned counsel appearing for the respondent.13. Before going into the rival contentions of the partiesherein, it is necessary to refer to the decision of the Apex Courtreported in (1998) 7 Supreme Court Cases 105 (Ammonia SuppliesCorporation (P) Ltd. V. Modern Plastic Containers Pvt. Ltd. Andothers) where the Apex Court considered the scope of Section 155 ofthe Companies Act (prior to the amendment Act 1988). Referring tothe Scope of Section 155 of the Companies Act, the Supreme Courtpointed out that the Court has the discretion to find out as towhether the dispute raised is really for rectification or is of sucha nature that unless decided first, it would not come within thepurview of rectification. It pointed out that "the word"rectification" itself connotes some error which has crept inrequiring correction. Error would only mean everything as required https://hcservices.ecourts.gov.in/hcservices/ under the law has been done yet by some mistake the name is eitheromitted or wrongly recorded in the Register of the company." 14. Dealing with the qualification for rectification, theSupreme Court pointed out that it must be shown that every procedureprescribed under the Act has been complied with for registering thename in the register of the company and that the person seekingrectification must show what had not been complied with under theAct. The limitation and the peripheral jurisdiction of the Courtunder Section 155 of the Act is dealt with in paragraph 25 of thejudgment. Hence, the provisions in Section 111 of the Act isavailable if and only when there is an allegation, be it from thetransferor or the transferee, that the name of the person concernedis entered in the register of Members by the company withoutsufficient cause or after having executed the same, it is omitted tobe entered in the register without sufficient cause. The procedurefor registering the transfer of share under Section 108 of theCompanies Act, hence, has to be complied with mandatorily. In theabsence of a proper instrument of transfer duly stamped and executedby or on behalf of the transferor and by or on behalf of thetransferee and delivered to the company along with the certificatesrelating to the shares, any change made in the register, theregistration calls for rectification under Section 111 of theCompanies Act, there being non-compliance of the mandatory provisionsof Section 108 of the Companies Act.15. In the decision reported in (1977) 2 SCR 190 (MannalalKhetan and Ors. Vs.Kedar Nath Khetan and Ors.), the Supreme Courtemphasized as to the mandatory character of Section 108(1) requiringthat the company shall not register a transfer which does not complywith the provisions of the Act. The Supreme Court pointed out thatthe mandatory character is strengthened by the negative words used inSection 108 (1) of the Act.16. In the context of the above said decision, the decision ofthe Supreme Court reported in (1998) 7 Supreme Court Cases 105(Ammonia Supplies Corporation (P) Ltd. V. Modern Plastic ContainersPvt. Ltd. And others) assumes significance. The Supreme Court, inthe said decision, referring to the word 'rectification', held asfollows:"28. Question for scrutiny before us is theperipheral field within which the court could exerciseits jurisdiction for rectification. As aforesaid, thevery word "rectification" connotes something what oughtto have been done but by error not done and what oughtnot to have been done was done requiring correction.Rectification in other words is the failure on the partof the company to comply with the directions under theAct. To show this error the burden is on the https://hcservices.ecourts.gov.in/hcservices/ applicant, and to this extent any matter or disputebetween persons raised in such court it may generallydecide any matter which is necessary or expedient todecide in connection with the rectification."17. The case of the respondent herein is that on the day whenhe came out of the Board, the respondent gave a letter as well as "noclaim" declaration. A reading of the same shows that all that therespondent had received was only a profit amount due from the companyfor the transactions upto 30th December, 1995. Much emphasis wasplaced on this letter by the appellants, particularly to the twolines, which are as follows:" There is no other transaction I will involve myself inthe name of the Company viz. N S NEMURA CONSULTANCY INDIAPVT. LTD. MADRAS. "18. I do not think that by reading these two lines one canreach a definite conclusion that the respondent had divested himselfof all his rights as a shareholder of the company by giving up theshares that he held. A reading of this letter dated 30th December,1995 gives a definite understanding of the fact that he had receivedhis share of profit from the company. The resignation of therespondent from the post as Director and the declaration of therespondent herein as evidenced from the letter dated 30th December,1995 can only mean that his dis-association with the company wasonly from the Board and not as a normal shareholder. Even in thecomplaint given by the appellants herein, there is hardly anything tostate or affirm that the respondent had no interest whatsoever in thecompany. Hence, the reference as to the respondent taking the profitcannot be read as relatable to as receipt of the consideration on thesale of shares. Except the registration of the shares longthereafterwards, namely, after one year of the registration of thecomplaint, admittedly, nothing had surfaced on the complaint made on4.1.1996. Leaving aside this, one has to see the discussion of theCompany Law Board as regards the conduct of the appellants herein.Admittedly, the company had not produced before the Company Law Boardeither the original minutes of the meeting of the Board of Directorsapproving the transfer of shares or the document of transfer orregistration of such transfer, which should have been in the custodyof the appellants herein. It is not denied by the appellants hereinthat where any transfer takes place as regards the shares held by theshareholders, it should get reflected in the statutory books to bemaintained, apart from the meeting of the Board of Directorsapproving the transfer. It is also not denied by the appellants thatthe transfer deeds are in the custody of the company. However,nothing had been produced before the Court to substantiate theexplanation from the appellants that they are all part of the record,which had been removed by the respondent. https://hcservices.ecourts.gov.in/hcservices/

19. A reading of the complaint made by the appellants showsthat there was only a general allegation as regards the removal ofdocuments belonging to the company by the respondent. If really theappellants had a complaint about the removal of the transfer deeds,nothing prevented them from taking up the cause against therespondent immediately thereon.20. In the circumstances, the findings of the Company Law Boardare unexceptional, it being based on the admitted fact as regardsnon-production of the resolution as well as the documents.21. Learned counsel for the appellants pointed out that goingby the assertion of the respondent that he never executed any sharetransfer deed and the allegation of fraud, the proper course for theCompany Law Board would be to direct the parties to exhaust theirremedies before the Civil forum. I do not find such a course need beadopted herein, since, even on a prima facie view, to accept the caseof the appellants, the basic documents which are to be placed beforethe Board for accepting such a plea are admittedly not forthcomingfrom the appellants herein. It is no doubt true that the respondentherein had done nothing since 1997 to 2002 to check the status of hisshares with the first appellant company, but by that aspect alone,one cannot presume that there had been a transfer of shares by therespondent to the appellants and that he had executed a transferdeed. 22. The case of the respondent herein is that on his checkingof the registers in the year 2002, he came to know that the name hadbeen transferred in favour of the second respondent Paneerselvamwithout his knowledge. Hence, on the transfer of shares, therespondent sought for rectification of the register of shares. Theconsistent case of the respondent is that he continued to be theowner of the shares and that on finding the registers of the companyin the Registrar of Companies some time in 2002 carrying the name ofthe second appellant as against his name, he called upon theappellants herein to rectify the register.23. A reading of the petition filed before the Company LawBoard shows that the case of the respondent was that he neitherexecuted the transfer deed nor received any consideration. Leavingaside the receipt of consideration, if there had been a transfer deedas had been claimed by the respondent, then the transfer deed atleast or the registers pertaining to the transfer should have beenproduced before the Company Law Board. It is not that the burden ofproof has been shifted on the appellants without merit. Taking noteof the contention of the appellants that there had been a transfereffected by the respondent on receipt of consideration and that theprovision of Section 108 of the Companies Act duly complied with asregards the transfer of shares, in the absence of any documentsproduced, rightly the Company Law Board came to the conclusion that https://hcservices.ecourts.gov.in/hcservices/ the rectification was rightly called for in the case and the companywas to issue duplicate share certificate in respect of the impugnedshares in favour of the respondent herein. Hence, even applying thedecision of the Apex Court, particularly, the case reported in (1998)7 Supreme Court Cases 105 (Ammonia Supplies Corporation (P) Ltd. V.Modern Plastic Containers Pvt. Ltd. And others), in the absence ofany material to support the case of the appellants on valid transferin terms of Section 108 of the Act and when the basic documents werenot placed before the Board by the appellants, rightly the CompanyLaw Board granted the relief, a course which could not be faulted bythis Court. 24. As regards the plea of limitation, in paragraph 57 of theorder, the Company Law Board dealt with the said contention only topoint out that the respondent acquired knowledge of the transfer ofshares only in the year 2002 and the Company Petition was filed on21.7.2003 within a period of three years of acquiring knowledge. Inthe above circumstances, applying Section 137 of the Limitation Act,the Tribunal answered the question in favour of the respondent.25. The Company Law Board pointed out that in the absence ofevidence as to the compliance of Section 108 of the Act, in theabsence of share certificate and transfer deeds, the company couldnot register the transfer on 30.1.1997. To accept otherwise, wouldamount to putting a seal of approval as to the contravention of themandatory provisions of the Act. The case of the appellants is notone falling under the second provisio to Section 108 of the Act,viz., transmission by operation of law. Section 108(1) of the Actdoes not speak of any execution by the company, the transfer has tobe by a shareholder through an instrument of transfer duly stampedand executed by or on behalf of the transferor or the transferee anddelivered to the company. In the absence of anything shown thatthere was a transfer in terms of Section 108 of the Act, rightly, theCompany Law Board allowed the petition. In these circumstances, I donot find any substantial question of law to interfere with thefindings of the Company Law Board.26. In the light of the said fact that the respondent had theknowledge as to the transfer only in the year 2002 and the CompanyPetition thus preferred within a period of three years, the view ofthe Company Law Board that the action was well within the limitation,hence, merits to be accepted. In the circumstances, the order of theCompany Law Board stands confirmed and this Company Appeal standsdismissed. No costs.Sd/Asst.Registrar/true copy/Sub Asst.Registrarsl https://hcservices.ecourts.gov.in/hcservices/ To The Sub Assistant Registrar, Original Side, High Court, Madras.+ 1 c.c. to Mr. A.K. Mylsamy, Advocate. S.R.No.8411.+ 1 c.c. to Mr. R. Venkatavaradan, Advocate. S.R.No.8633.C.M.A.(NPD)No.2304 of 2004TM (CO)GSK 25.02.2010.