Case: C. Vasudevamurthy Vs Associated Oxides P. Ltd. and Ors.. Company Law Board
| Judges | K.K. Balu, Vice Chairman |
| Issue | Company Laws |
| Citation | [2009] 150 CompCas 339 (CLB) |
| Judgement Date | March 02, 2009 |
| Court | Company Law Board |
Order:
K.K. Balu, Vice Chairman
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The petitioner claiming 50 per cent. of the issued and paid-up capital of M/s. Associated Oxides P. Ltd. ("the company"), aggrieved on account of the alleged acts of oppression and mismanagement in the affairs of the company, has invoked the jurisdiction of the Company Law Board under Sections 397 and 398 read with Sections 402 and 403 of the Companies Act, 1956 ("the Act"), praying for, in terms of the amended petition, the following reliefs:
(a) to declare that the acts of the second respondent are oppressive and prejudicial to the interests of the company and its members;
(b) to declare that the transfer of shares in favour of the third respondent on the basis of forged transfer form is null and void;
(c) to direct the company to restore the shares in the name of the petitioner and accordingly, rectify the register of members;
(d) to declare that appointment of the third respondent as a director of the company is null and void;
(e) to direct the second respondent to purchase the shares of the petitioner or permit the petitioner to purchase the shares of the second respondent at a value as may be determined by the Bench; and
(f) to direct division of the assets and liabilities of the company equally between the petitioner and the second respondent.
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Shri R. Murari, learned Counsel, appearing for the petitioner, while initiating his arguments in support of the petitioner, submitted:
The petitioner along with the second respondent had originally started a partnership firm in February, 1985, under the name and style of M/s. Associated Oxides for manufacture of lead sub oxide, with an understanding to share the profits in the ratio of 60: 40 between them. Thereafter, in September, 1985, the first respondent-company came to be incorporated, whereby the assets and liabilities of the partnership firm were transferred in favour of the company, on dissolution of the aforesaid partnership firm, for a consideration in the form of 240 fully paid-up shares of Rs. 100 each in the company. The present paid-up capital of the company is Rs. 1,80,000 divided into 1,800 equity shares of Rs. 100 each, held equally between the petitioner and the second respondent. The company is, therefore, a closely held private company, run on quasi-partner-ship principles. The petitioner and the second respondent are the first directors of the company. The second respondent and the petitioner appointed as the managing director and technical director, respectively, are entitled to hold the office for life until otherwise decided by the board of directors or they resign. The petitioner was managing the day-to-day operations, namely, production, maintenance, quality control, etc., while the second respondent was managing the remaining activities of the company. The company faced financial problems on account of the exorbitant increase in lead price and thereby the plant utilisation was decreased to 25 per cent. of the installed capacity of the unit, forcing the company to commit default in repayment of the dues payable to the bank and financial institutions, which were ultimately settled with all the efforts of the petitioner, whereas the second respondent neglected his obligations and consequently the company came to be closed. The second respondent failed to take any interest in the affairs of the company and on the other hand desired to alienate the property of the company for his personal purpose, compelling the petitioner to seek directions in C. A. No. 179 of 2006 against the respondents not to alienate any of the properties of the company.
The second respondent neither convened any board or general meeting of the company nor issued notice of such meetings to the petitioner, nor complied with any other statutory formalities, despite the show-cause notice issued by the Registrar of Companies, nor maintained statutory records, but unlawfully removed the petitioner from the office of director under the guise of a forged letter of resignation and further appointed the third respondent as a director with effect from September 12, 2003, without complying with any of the requisite legal formalities, which are oppressive to the petitioner and amounts to mismanagement in the affairs of the company. The resignation letter produced by the respondents would disclose the wrong initials of the petitioner as C. V., while the initial of the petitioner is only C. The appointment of the third respondent as a director at the board meeting reportedly held on September 12, 2003, cannot be valid, for want of any material to substantiate the convening of the aforesaid board meeting. Any such board meeting without participation of the petitioner, being one of the two directors, cannot be valid for want of any valid quorum. The signature of the petitioner contained in Form No. 32, filed before the Bench is seriously disputed.
The petitioner has not signed any transfer form or transferred his shares to anyone, including the third respondent. The purported signature of the petitioner contained in the transfer form dated September 12, 2003, produced by the company before the Bench is forged and manipulated to defeat the rightful claim of the petitioner. The disputed transfer form is said to have been executed on September 12, 2003, while at the same time, the share transfer stamps for an amount of Rs. 450 are found to be affixed, two months prior to the impugned transfer on July 31, 2003 and it bears the seal dated July 30, 2003, of the competent authority. The rubber stamp of the company is affixed upside down in the transfer form. The name of the company has been wrongly filled as "Associate Oxides P. Ltd.", while the name of the company is "Associated Oxides P. Ltd." It would, therefore, be clear that the share transfer form is a fabricated document, defeating the genuine claim of the petitioner, and any transfer of shares on the strength of a forged transfer form is bad in law and no forged transfer can pass title to the transferee. The impugned transfer is not in due compliance with articles 11 to 15, dealing with the transfer of shares. The third respondent has not paid any consideration to the petitioner towards the impugned transfer of shares and no proof has been made available by the third respondent to substantiate the payment of consideration of Rs. 90,000 as reflected in the transfer form. The third respondent claims that the petitioner owed a sum of Rs. 90,000 to P. Karupanna Gounder, since deceased, in terms of a promissory note dated December 2, 1985, which was settled by the third respondent in favour of one of the sons of (late) P. Karuppanna Gounder and obtained assignment of the said promissory note, as affirmed in an affidavit sworn on March 3, 2008, by the legal heir of the deceased.
Respondents Nos. 2 and 3 did not choose to raise the issue of resignation of the petitioner from the office of director in the civil suit filed by the petitioner in O.S. No. 3077 of 2002, before the city civil court on May 8, 2002, which came up for hearing from time to time between June 13, 2002 and July 18, 2005, whereas such false case has been put forth only in the present proceedings. The civil judge, while considering on July 21, 2004, the prayer of the petitioner for an order of temporary injunction against the second respondent herein observed that the second respondent (the first defendant in the suit) alone does not constitute the board of directors of the company. The civil judge further observed that the petitioner herein never whispered anything about the attempts of the second respondent herein to remove the petitioner from directorship or transferring the shares. The share transfer form is dated September 12, 2003 and yet the plea of transfer was never raised by the second respondent in the course of the civil proceedings. The respondent has failed to produce the promissory note, in the civil court proceeding, wherein the case of the respondents is that the petitioner is a shareholder of the company.
The power under Section 397 encompasses the power under Section 111 of the Act and therefore, the relief of rectification of the register of members, as claimed cannot be denied for not invoking jurisdiction under Section 111. If the instrument of transfer is found to be forged document, the transfer of shares will be declared as null and void, in which case the Company Law Board will pass appropriate consequential order directing the company to rectify the register of members of the company by substituting the name of the petitioner, in the place of the third respondent, in respect of the impugned shares. There is no legal bar under Section 397 to pray for rectification of the register, without reference to Section 111, especially when the Company Law Board is empowered to pass such order as it deems fit and has power to rectify all matters that were complained of, to do full justice between the parties, under Section 397 read with Section 402 as laid down in Shoe Specialities P. Ltd. v. Standard Distilleries and Breweries P. Ltd. [1997] 90 Comp Cas 1 (Mad). The Supreme Court in Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad [2005] 123 Comp Cas 566, held that the court while exercising the powers under Sections 397 and 402 of the Act is considering not only the relief that is sought for but also considers as to what is the nature of the complaint and how the same has to be rectified in the interest of the company. The Company Law Board is empowered to compare the disputed signature of the petitioner with his admitted signature and adjudicate the issue of forgery as has been done in the case of G. Govindaraj v. Venture...
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