C.P. No. 67 of 2007. Case: Suhas Chakma Vs South Asia Human Rights Documentation Centre (P) Ltd. and Ors.. Company Law Board

Case NumberC.P. No. 67 of 2007
CounselFor Appellant: Sunil Gupta, Prantap Kalra and Suhas Chakma, Appeared-in-Person and For Respondents: Gyanendra Kumar and Abhilash Pillai
JudgesVimla Yadav, Member
IssueCompanies Act, 1956 - Sections 397 and 398
Citation9 CLC 719, 84 CLA 427, 142 CompCas 902
Judgement DateNovember 26, 2007
CourtCompany Law Board

Order:

Vimla Yadav, Member

In this order I am considering Company Petition No. 67 of 2007 filed by Shri Suhas Chakma ("the petitioner") under sections 397 and 398 of the Companies Act, 1956, (hereinafter referred to as "the Act") against M/s. South Asia Human Rights Documentation Centre P. Ltd. and Others, ("respondent No. 1") alleging that the transfer of his 50 per cent. shareholding (5,001 shares) in respondent No. 1 to respondent No. 2 was illegal and the consequential transfer of 2,500 shares by respondent No. 2 to respondent No. 3 (respondent No. 2's wife) was also illegal, and hence his prayers for declaring the transfer null and void; to direct restoration of his shares and further order for the rectification of the register of members of the company; to direct removal of respondent No. 2 and respondent No. 3 from the board of directors of the company; and also to direct the respondents to return the petitioner's letter of allotment left at the registered office of the company.

The undisputed facts of the case are: M/s. South Asia Human Rights Documentation Centre P. Ltd. and Others (respondent No. 1) was incorporated on September 18, 1998, having its registered office at 6/6, Safdarjung Enclave Extension, New Delhi-110 029. The authorised share capital of the company is Rs. 50,00,000. The issued, subscribed and paid-up share capital of the company is Rs. 1,00,020 comprising of 10,002 equity shares of Rs. 10 each fully paid. The main objects of the company are to carry on the business of dealing in all kinds of economic, legal, sociological and historical, information, documentation and media services, consultation and software services. Petitioner No. 1 and respondent No. 4 were the only two subscribers to the memorandum of association and articles of association. They were equal shareholding directors of respondent No. 1 company.

Shri Sunil Gupta, counsel for the petitioner prayed that the hon'ble Board may please consider "Whether the petitioner's 5,001 shares (50 per cent. shareholding) in respondent No. 1, South Asia Human Rights Documentation Centre P. Ltd. (hereinafter, "SAHRDC") were transferred in furtherance of a legally valid instrument of transfer/transfer deed duly executed by the petitioner in favour of respondent No. 2, Mr. Vittal Rao". It was pointed out that on March 11, 2003, the petitioner resigned from the directorship of respondent No. 1. But the petitioner never transferred his equity shares in the company to anyone. The petitioner retained his equity shares in the company with himself. Further, the letter of allotment with respect to the petitioner's 5,001 equity shares was left at the registered office of the company. Since his resignation, the petitioner repeatedly enquired regarding the affairs of the company, requested for the return of his letter of allotment and also about the repayment of the loans advanced by him to respondent No. 1.

It was pointed out that the petitioner obtained a copy of the company's annual return for the year 2002-03 (annual general meeting dated September 30, 2003) from the office of the Registrar of Companies in February 2007, when the petitioner discovered that his 5,001 equity shares had been illegally and fraudulently transferred to Mr. Vittal Rao, respondent No. 2. Further, Mr. Vittal Rao had transferred 2,500 equity shares out of the said 5,001 equity shares to Ms. K. Sharada, respondent No. 3. In furtherance of the said illegal transfer of the petitioner's 5,001 shares to respondent Nos. 2 and 3, they were appointed as the shareholding directors of the company on May 30, 2003 and September 4, 2003, respectively. Hence, the petitioner filed the present petition on April 16, 2007. It was contended that, strangely, the respondents have not been able to produce the said instrument of transfer/transfer deed. According to the respondents the petitioner's 50 per cent. shareholding was transferred to respondent No. 2 in furtherance of a transfer deed. Further, it was pointed out that none of the respondents are aware of the date of the registration of the said alleged transfer of the petitioner's shares. No explanation has been given as to why there is no "date of registration of transfer of shares" has been mentioned in respondent No. 1's annual return (annual general meeting dated September 30, 2003, pages 101 to 112) at page 110. Respondent No. 2's inclusion in the company is dated May 30, 2003 and that of respondent No. 3 is September 4, 2003. The fraud regarding the transfer of petitioner's 50 per cent. shares is clear from the fact that in the annual general meeting dated September 30, 2003, no "date of registration of transfer of shares" with respect to the alleged transfer of the petitioner's 50 per cent. shareholding to respondent No. 2 has been mentioned. Furthermore, at the same page in respondent No. 1's annual return (annual general meeting dated September 30, 2003) at page 110 neither the date of registration of the alleged transfer of shares of the petitioner to respondent No. 1 has been given nor is the date of registration of the alleged transfer of shares by respondent No. 2 to respondent No. 3 given. It was contended that clearly, when the annual return for the year 2003-04 (annual general meeting dated September 30, 2003) states that respondent No. 2 was inducted as a shareholding director on May 30, 2003 and respondent No. 3 on September 4, 2003, in that case it is strange that the respondents were not aware regarding the date of transfer on September 30, 2003, i.e., four months after the alleged transfer vis-a-vis respondent No. 2 and, further, 26 days vis-a-vis respondent No. 3. The said fact clearly establishes that there was never a transfer deed executed by the petitioner in favour of respondent No. 2.

My attention was drawn to the provisions of section 108 and articles of association which are mandatory. In other words, it was argued, without the production of the share certificate/letter of allotment along with a valid and legally executed instrument of transfer, the transfer cannot be registered and, if registered, such registration is void ab initio. Reliance was placed on the decision in Mannala! Khetan v. Kedar Nath Khetan [1977] 47 Comp Cas 185 (SQ; [1977] 2 SCC 424 (paragraphs 16, 17 and 23) and Rashmi Seth v. Tillsoil Farms P. Ltd. [1995] 82 Comp Cas 409 (CLB) (pages 418-419).

It was argued that the company was not legally competent to register the transfer of shares in view of there not being a legally valid instrument of transfer having been executed by the petitioner. Further, neither was there consensus ad idem nor was any consideration paid vis-a-vis the alleged transfer of the petitioner's shares. Therefore, as per section 25 of the Indian Contract Act, 1872, the alleged...

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1 practice notes
  • Case: Modi Rubber Ltd. Vs Modi Fibres Ltd. and Ors.. Company Law Board
    • India
    • 16 Abril 2009
    ...the case law in the matters of Suhas Chakma v. South Asia Human Rights Documentation Centre P. Ltd. [2008] 142 Comp Cas 902 (CLB): [2008] 84 CLA 427; Ram Gopal Patwari v. Patwari Exports P. Ltd. [2008] 142 Comp Cas 8 (CLB): [2008] 85 CLA 208; Kerala Chamber of Commerce and Industry v. Metal......
1 cases
  • Case: Modi Rubber Ltd. Vs Modi Fibres Ltd. and Ors.. Company Law Board
    • India
    • 16 Abril 2009
    ...the case law in the matters of Suhas Chakma v. South Asia Human Rights Documentation Centre P. Ltd. [2008] 142 Comp Cas 902 (CLB): [2008] 84 CLA 427; Ram Gopal Patwari v. Patwari Exports P. Ltd. [2008] 142 Comp Cas 8 (CLB): [2008] 85 CLA 208; Kerala Chamber of Commerce and Industry v. Metal......

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