JUDGMENT
K. Shivashankar Bhat, J.
1. The petitioners seek rectification of the register of members of the first respondent company (referred to as “the company”), with a declaration that the 21 persons named in the petition are members of the company with their respective shareholding as shown therein. It is stated in the petition that the nominal, issued, subscribed and paid-up capital of the company is Rs. 10 lakhs divided into 10,000 equity shares of Rs. 100 each. The main object of the company is to construct a theatre/cinema hall, business complex, auditorium and exhibit cinematograph films. The second respondent who owns lands in Sy. No. 68/4 and 68/5 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, however, had obtained possession of the land earlier by virtue of an agreement. Sri K. N. Seshadri suggested the name of Dr. B. G. S. Murthy,
who was his close relative and who was a non-resident, to be introduced in the company ; in August, 1982, the second respondent, K. N. Seshadri and the said B. G. S. Murthy agreed to manage the affairs of the company on partnership principles, with each of them holding l/3rd of the share capital of the company. Dr. Murthy accordingly brought in Rs. 3,10,000 to the company and there was progress in the construction of the theatre. Initially the company allotted 6,410 shares, as per the return filed by the company on June 29, 1983 ; in January, 1985, 50 shares were allotted to Smt. Nirmala and in March, 1985, 3,540 shares were allotted to four other persons, i.e., Smt. Kalavathi, Smt. Parvathamma, G. N. Byra Reddy and V. Venu, in different numbers. The petitioners assert that though the shares were allotted by the company, the share certificates were never issued by the company. In the year 1983, differences arose between Seshadri and the second respondent and the construction work came to a standstill ; there were other differences also amongst the members of the company. To enable borrowings for the company, the petitioners executed personal guarantees. The construction work of the theatre was entrusted to the second respondent ; he had to obtain a loan from the Corporation Bank and in that behalf he came into contact with one P. K. Alva, the then Assistant General Manager of the Corporation Bank ; in addition to the loan obtained from the bank, he assured he would get other loans from private financiers. For this purpose, P. K. Alva called upon the second respondent and the members of his group to pledge their shares in the company by executing blank share transfer forms. Blank share transfer forms were executed by the fourth petitioner and another and handed over to P. K. Alva. The said P. K. Alva subsequently tried to destabilise the management by making wrongful use of the blank share transfer forms executed by the fourth petitioner. The petitioners further state that P. K. Alva attempted to interfere with the construction work of the theatre ; hence the second respondent filed a suit, O. S. No. 2943 of 1986 against him to restrain him from meddling with the affairs of the company. P. K. Alva filed a memo in the suit 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 ceased to be the members. The entries made in the register are not supported by proper resolutions and the transfer of shares from the petitioners is not supported by proper documents. The said register indicates that the petitioners have ceased to be members of the company. These entries are erroneous and unsustainable. They are all the handiwork of respondents Nos. 3 and 4 with the connivance of P. K. Alva. The register of members produced is itself not the register of members of the company and the register produced is a fabricated, fudged and concocted one.”
3. Thereafter, the petitioners allege that the shareholding of various other members also was erroneously shown in the register of shareholders. The shareholding as shown in the share register, if totalled, would be far in excess of the actual issued share capital and some of the transferred shares bear different distinctive numbers from those allotted to the alleged transferors. Though the entries as to the transfers are made in pursuance of alleged board meetings held on February 24, 1986, and March 2, 1986, legally no meetings were held on those days, as no notice of the meetings was issued. The petitioners further assert that they have not received any consideration for the alleged transfer of shares. The transfer forms were not accompanied by share certificates and, therefore, transfers could not have been validly effected by the board. Even though transfer of shares from the petitioners was purported to have been approved by the board on February 24, 1986, the petitioners were shown as shareholders as on November 16, 1986, in an agreement dated November 16, 1986, entered into between respondents Nos. 3 and 4 and K. N. Seshadri. It is not necessary to repeat the other details stated in the petition.
4. In the statement of objections filed on behalf of respondents Nos. 3, 4 and 6, a serious challenge to the petition averments were made. It is asserted that the second respondent who ceased to be the managing director and shareholder cannot represent the company; this was done to defeat the legitimate interests of the company and to subserve the interests of the second respondent who, it is alleged, acted dishonestly and detrimentally in relation to the interests of the company. The petition is a mala fide petition, instigated by the second respondent and is a sequel to Company Petition No. 48 of 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 repeatedly assert that they became transferees of the shares at the behest of the second respondent. The lacunae in the documents and registers of the company were of the making of the second respondent and, therefore, the petitioners cannot take advantage of the same. The relevant documents were considered by the board before approving the share transfers. The errors in mentioning the distinctive numbers of the shares or the total number of shares are immaterial, because the shares were actually transferred and the petitioners ceased to be the members of the company. The purpose of the petition is to enable the second respondent to come back into the company and to vest its affairs in him. The discrepancy in the totality of shares was the result of respondent No. 2 and Seshadri failing to act in unison. No director has complained of non-receipt of notice of the meetings of the board and the petitioners cannot make a complaint of the same ; in fact the fourth petitioner signed the board meetings as chairman. The allegation that the share transfer forms were blank is also denied. Petitioners Nos. 1, 5, 4, 2 were examined as PWs 1 to 4 respectively. On behalf of the contesting respondents, officials of the Corporation Bank were examined as RWs 1 to 3 and an employee of the fourth respondent as RW 4.
6. The main contentions urged on behalf of the petitioners were that,–
(1) The purported approval of the board for the share transfer in question was void, as it contravened the mandatory provisions of Section 108 of the Companies Act (“the Act”, for short).
(2) The petitioners are illiterate and ignorant and they were unaware of the entire transaction of the alleged transfers.
(3) P. K. Alva manipulated and brought out the alleged transfers, by misusing the blank transfer forms given to him as security for the loan obtained by the second respondent for the company.
(4) Transfer forms were not at all executed by some of the petitioners and no consideration was received by any one of the petitioners for the share transfers,
(5) The documents and registers, on their face, disclose discrepancies in the share numbers allegedly transferred and the totality of the shares shown to have been purchased by the contesting respondents.
(6) In the alleged board meetings approving the share transfers interested directors participated and excluding them, the 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 transaction, any relief to the petitioners will be granting relief to the second respondent, resulting in permitting the latter to enjoy the benefits of his own wrongs ; therefore, equitable considerations should outweigh the grant of any relief to the petitioners.
(3) The contesting respondents being strangers to the company earlier, and when the factum of duly signed and filled up share transfer deeds is established, and consideration for the transfers having passed from the
transferees is also proved, there cannot be any doubt about the entitlement of these transferees to the shares in question. Any defect in the maintenance of registers and the alleged maintenance of share certificates by the earlier management of the second respondent cannot be used to defeat the rights of these respondents.
(4) The second respondent, who was in the management of the company throughout and was its managing director during the relevant period and who attested all the transfer forms for share transfers and who ultimately encashed most of the cheques issued by the contesting respondents for the purchase of shares, never entered the witness box, though present in the court on almost every day of the proceedings of this petition and, therefore, the court should draw a strong adverse inference against the facts pleaded by the petitioners, as they admittedly belong to his group.
8. Before deciding to consider the case on merits, it is necessary to examine the contentions of Mr. Jayaram ; only in case his contentions are to be rejected, the question of considering the petitioners’ case on merits would arise.
Re : Scope of Section 155 :
Section 155(1) provides for an application to rectify the register.
9. The language of Section 155(2) says that the court may either reject the application or order rectification of the register. It does not say that the exclusive jurisdiction to rectify the register is vested in the court. The phraseology prima facie indicates a discretionary power in the court.
10. The case law on the subject indicates the following possible views :
(i) Section 155 vests purely a discretionary jurisdiction in the court and in case complicated questions as to title to the shares arise, the court may relegate the parties to a civil suit, instead of deciding the question under Section 155.
(ii) Proceedings under Section 155 being of summary nature, the 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 considering an application under Section 155, without relegating the parties to the civil suit. The decision is reported in Shri Gulabrai Kalidas Naik v. Shri Laxmidas Lallubhai Patel of Baroda [1978] 48 Comp Cas 438. His Lordship held that the jurisdiction under Section 155 is not summary. At page 444, it was held :
“If a mere assertion on the part of the respondent that the issue of fraud will have to be decided or the issue of forgery will have to be determined, or the issue of want of consideration will have to be examined or the issue as to conspiracy will have to be examined by mere assertion in the affidavit-in-reply these persons would be able to oust the jurisdiction of the court because it can be safely stated that these questions are bound to arise and the court cannot examine them in an application under Section 155. If the jurisdiction under Section 155 is limited to those cases where there is not much of a dispute, where the parties agree, where there is consent, where there is formal objection, what purpose was there to be achieved by introducing Sub-section (3) in which it is made abundantly clear that a question relating to the title of a person claiming shares being put in issue can be examined by court and Parliament did not stop at that, but went further and said that not only examine the question of title which the court would have jurisdiction to examine, but the court may also examine all those questions which the court considers necessary and expedient to decide in order to grant or refuse the main relief. If any given respondent were to come and say that the transfer form lodged by the petitioner who claims to be a member is a forged one, such mere assertion itself would be sufficient to throw out the petitioner, because an issue as to forgery would raise intricate or complex questions of civil law and cannot be examined in a petition under Section 155. I am afraid, such a jurisdiction of wide amplitude would be rendered fruitless and nugatory, and the purpose behind introducing Section 155 would stand defeated. It would be a teasing illusion of doubtful legal utility. This becomes crystal clear for it can be said that if the company admits the dispute, why force the petitioner to come to the court. If the claim is lodged with the
company, the board of directors is absolutely powerful to decide the issue, and if the company through 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 at page 561, 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 (SC), 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 transfer forms are not placed before the board.
13. A Bench of the Calcutta High Court in Daddy S. Mazda v. Khodadad Rustam Irani [1977] 47 Comp Cas 39 (Cal) adopted a slightly different course. The Bench held that the procedure under Section 155 is of a summary nature and wherever complex questions arise, the court would not go into them in a proceeding under Section 155. By the non-production of transfer forms, no adverse inference can be drawn against the company which had effected the transfer, accepting the transferor’s application for transfer. However, ultimately, the Bench held that the parties need not be relegated to a suit in the said case and that the court under Section 155 may try the case of the parties after examining the documents and the witnesses, for which purpose, the Bench remitted the case to the single judge.
14. The Punjab and Haryana High Court has consistently expressed the view that the jurisdiction under Section 155 is discretionary and having regard to the complexity of the questions, the court may relegate the parties to a regular civil suit, instead of deciding them in a proceeding under Section 155. Some of the decisions are :
(1) Puran Devi (Smt.) v. 5. Gurnam Singh [1977] 47 Comp Cas 796 (Punj) ;
(2) Bhagat Singh (S.) v. Piar Bus Service Ltd. [1960] 30 Comp Cas 300 (Punj) ;
(3) Joginder Singh v. Basawa Singh [1985] 58 Comp Cas 843 (P & H).
15. To the same effect is the view expressed by the Delhi High Court in Smt. Kaushalya Devi v. National Insulated Cable Co. of India Ltd. [1977] 2 Tax LR 1928 at page 1934 and by the Patna High Court in Devakumar Mishra v. Rupak Ltd., . A learned single judge of the Bombay High Court also took the same view in Rao Saheb Manilal Gangaram Sindore v. Western India Theatres Ltd. [1963] 33 Comp Cas 826 ; it was observed that the procedure under Section
155 is of a summary nature and its object is not to whittle down or abrogate the procedure by way of a regular civil suit.
16. A Bench of the Allahabad High Court in Patna Devi v. Harihar Prasad Naik [1978] 2 Tax LR 2292 held that no exclusive jurisdiction was vested in the court under Section 155 and that a civil suit was maintainable.
17. There cannot be any doubt that the procedure under Section 155 is of summary nature. In fact, in the instant case, on an earlier occasion, while dealing with an application under Order 18, Rule 3 of the Code 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 Products Ltd. v. State of Orissa [1966] 36 Comp Cas 592 to contend that this court should not refuse to exercise the power to order rectification of the share register. The Supreme Court was concerned with Section 38 of the Indian Companies Act, 1913, and the scope of the present Section 155 is almost similar. The Supreme Court observed at page 597 :
“The jurisdiction created by Section 38 is very beneficial and should be liberally exercised. We see no reason why the court should deny the applicant relief under Section 38. The directors of the appellant company on the most
frivolous of objections have prevented the State of Orissa from becoming a member for the last 16 years. It is a matter of regret that justice has been obstructed so long.”
19. The basis for the refusal to effect transfer of shares by the directors in the said case is indicated in the above observations of the Supreme Court.
20. Harinagar Sugar Mills v. Shyam Sunder Jhunjhunwala [1961] 31 Comp Cas 387 (SC) was concerned with the scope of the Central Government’s power under Section 111 and it was held to be similar to the court’s power under Section 108 and that the power should be exercised in a judicial manner.
21. I came across Public Passenger Service Ltd. v. M. A Khadar [1966] 36 Comp Cas 1 (SC), which has a bearing on the scope of Section 155. The shares of the respondents were forfeited for failure to pay the call money. The respondents sought rectification of the share register under Section 155, claiming that removal of their names based on the forfeiture of shares was illegal; they sought the setting aside of the forfeiture. The application was allowed as the call notice was defective. This decision was affirmed by the Supreme Court. It was pointed out by the Supreme Court that the issue under Section 155(l)(a) is not whether the shareholder has sufficient cause but whether his name has been omitted from the register without sufficient cause ; as the forfeiture was invalid, the names of the respondents were omitted from the share register without sufficient cause and, therefore, the court’s jurisdiction under Section 155 was attracted. There were certain other events after the decision of the board to forfeit the shares in the said case, such as the filing of applications in the court under Sections 402 and 237 of the Act, wherein the respondents obtained certain 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, whf.re 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 relief should be denied to the respondents, the Supreme Court observed (at page 6) :
“Counsel then relied upon the well-known maxim of equity that ‘he who comes to equity must come with clean hands’, and contended that the courts below should have dismissed the applications as the respondents did not come with clean hands. This contention must be rejected for several reasons. The respondents are not seeking equitable relief against forfeiture. They are asserting their legal right to the shares on the ground that the forfeiture is invalid, and they continue to be the legal owners of the shares. Secondly, the maxim does not mean that every improper conduct of the applicant disentitles him to equitable relief. The maxim may be invoked where the conduct complained of is unfair and unjust in relation to the subject-matter of the litigation and the equity sued for. The unwarranted proceedings under Sections
402 and 237 of the Companies Act, 1956, and other vexatious proceedings started by the respondents have no relation to the invalidity of the forfeiture and the relief by way of rectification and are not valid grounds for refusing relief.”
23. This decision, if I have understood it correctly, is an authority for the proposition that, (1) whenever a finding can be arrived at summarily, exercise of power under Section 155 is quite proper and in such a situation, refusal of relief flowing out of the finding will be arbitrary. (2) Jurisdiction under Section 155 is a discretionary one. (3) Equitable principles govern the exercise of jurisdiction, provided those principles directly arise in the very proceedings. In other words, if the conduct complained of is unfair and unjust in relation to the subject-matter of the litigation and it is also in relation to the subject sued for, such a conduct of the party suing for relief will be very relevant.
24. These propositions derived from the above decision have a direct bearing on the facts of this case, especially the two propositions stating that the jurisdiction under Section 155 is a discretionary one and that the equitable principles are quite relevant in case the conduct of the party suing for the relief with reference to the subject-matter directly affects the exercise of this discretionary power.
25. In an appropriate case, this court may decline to exercise this jurisdiction ; depending upon the 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 to the subject-matter of the litigation.
26. It is mandatory on the part of the board to issue the share certificates. Non-issuance of share certificates within the prescribed period is punishable. This is quite clear from Section 113 of the Act. The board of directors consisted of the second respondent (who was either the managing director or the joint managing director). Similarly, Lakshmishappa, the fourth petitioner was a director since August 12,1984; Smt. Nirmala was another director. Smt. Nirmala is the daughter of the second respondent. Lakshmishappa is the brother of Narayanamma, the fifth petitioner, who, admittedly is the sister of the first petitioner. The first petitioner is the mother of the second respondent ; the other two petitioners also are close relatives of the second respondent.
27. Smt. Nirmala and Lakshmishappa were directors at least till the date of the board’s meeting held on February 24, 1986. Respondent No. 2, Lakshmishappa (the fourth petitioner) and Nirmala participated in the board’s meeting held on the said date. Lakshmishappa and Nirmala tendered their resignations at the said meeting which were accepted at the meeting. The proceedings were signed by all these persons.
28. Respondents Nos. 3 and 4 became directors only at this meeting. There were some arguments as to whether the directors who resigned at the meeting ceased to be directors at the end of the meeting or immediately and, similarly, respondents Nos. 3 and 4 became directors immediately or at the end of the meeting. It is in this meeting that the transfer of shares of the petitioners and a few others was approved. The resolution refers to the surrender of share certificates. Mr. Jayaram’s contention was that the transferors of shares, all belonged to the group of the second respondent and now some of them have filed this petition to set at naught the said transfers on the ground of non-production of share certificates and failure to comply with the requirements of Section 108 and it is inequitable to accept their contention and grant them
relief, because the very group is responsible for the non-issuance of share certificates and not giving effect to the transfer of shares. The petitioners and the second respondent should not be permitted to take advantage of their own wrongs. The entire transaction is brpught about by the second respondent, who was 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 form. Witness refuses even to look at the share transfer form and denies that she has ever affixed her thumb impression to any paper regarding transfer of such shares.”
30. When PW 1 was asked why she filed the present petition, she said, because the company has not produced any results, she filed the petition. This shows that she was not even aware of the purport of the action initiated in her name. She admitted that she was residing with her son and that the second respondent was her son ; she denies having filed any other petition in this court earlier, which again, shows that she has expressed her ignorance of Company Petition No. 48 of 1987, filed by her for winding up of this company. She categorically stated that “I do not know what the petition averments are”. She denied having seen at any time the share transfer form, exhibit P-l, bearing her name as the transferor and allegedly bearing her thumb impression, duly attested by the second respondent. Almost to the same effect is the evidence of the fifth petitioner, Narayanamma, as PW 2. She denied having signed the transfer form, exhibit P-2 and asserted that she did not know how to sign at all. Exhibit P-2 also bears the attestation of the second respondent. She has spoken to the trust she reposed in the second respondent.
31. Lakshmishappa was examined as PW 3. He is the brother of the first petitioner ; he admits that Aswathappa (the second petitioner) is related to
him. He admits that he has been a director of the company since 1984. His evidence reveals that the second respondent was in charge of the affairs of the company ; according to him the second respondent was negotiating with the bank for the loan and they had offered the shares of the company held by them as security ; he admits having signed a blank share transfer form for the said purpose ; according to him the said blank form signed by him was given to P. K. Alva of the Corporation Bank by the second respondent. He feigns ignorance of respondents Nos. 3 to 6 and says he never saw them ; the minutes book of the company maintained by the company, according to him, was with P. K. Alva ; he admits his signatures in the share transfer form, exhibit P-3. Exhibit P-4 is admitted by him as the minutes book of the company’s board meetings and his signature therein is admitted ; he is familiar with the signature of the second 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 Rs. 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. He is not aware of any other proceedings in connection with the company in the High Court.
32. PW 4 is Aswathappa, another petitioner, claiming title to 250 shares in the company. He asserts that he never saw exhibit P-7, earlier, which is the share transfer form standing in his name ; he denied his signature in exhibit P-7. He also stated that the second respondent was looking after the affairs of the company and he was related to him. He is not aware of an earlier proceeding in the High Court regarding the company. He denies the signature of the second respondent in exhibit P-7, though he admits that he knew his signature.
33. These witnesses feign ignorance of the earlier proceedings initiated by them as per C. P. No. 48 of 1987 for winding up of the company. Even though
PW 3 stated that blank transfer forms were executed by them, the other witnesses seem to be afraid even to say so. All the transfer forms are attested by the second respondent and even though PW-4 disputes the signature of the second respondent in exhibit P-7, it is clear that the signature of the attestor is certainly of the second respondent.
34. It is also clear that the second respondent is trusted by these petitioners, and the inference is inevitable that he has been instrumental in this proceeding. It is not surprising that PWs 1 to 4 are not even aware of the winding up petition filed by them, because both the proceedings were initiated, guided and continued by the second respondent.
Re : Consideration for the transfers :
The respondents have examined the officials of the Corporation Bank to establish the encashment of cheques issued by the transferees towards the sale consideration of the shares in question of the petitioners. RW-1 also speaks of the bank account of Lakshmishappa (PW-3) though PW-3 denied having any bank account. Except the sum of Rs. 5,000 paid for the shares of Pushpa Shreenath (the third petitioner), the remaining sums, in all Rs. 2,58,000, were ultimately encashed and drawn by the second respondent through his bank account. Exhibit R-2 is the bank account of the second respondent. On March 12, 1986, in all a sum of Rs. 2,58,000 was credited to this account and was drawn by the second respondent on the same day. Exhibit R-3 is the extract of the bank account of Lakshmishappa (S. B. A/c. No. 1749) which shows that on February 25, 1986, Rs. 55,000 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 Rs. 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 Feburary 24, 1986, issued to Pushpa Shrinath for Rs. 5,000 and bears the signature of the second respondent on the reverse. Exhibit R-13 is the bearer cheque issued to Aswathappa for Rs. 25,000 and exhibit R-14 is a similar cheque drawn in favour of Doddamuniamma for Rs. 53,000. Exhibit R-18 is the certificate issued by the Corporation Bank stating that the sum of Rs. 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
Rs. 90,000
Issued by Srihari
(2)
V. Venu
Rs. 90,000
do.
(3)
Doddamuniyamma
Rs. 53,000
do.
(4)
Aswathappa
Rs. 25,000
do.
35. Exhibit R-20 is the self-cheque dated March 12, 1986, under which the second respondent withdrew Rs. 2,58,000 from the bank. RWs 1, 2 and 3 are the bank officials who speak to the above facts and documents. It is, therefore, clear that some of the petitioners and the second respondent received various sums equalising the consideration for the alleged transfer of shares.
36. Respondents Nos. 3 to 6 have not been examined. It was argued that transactions of sale cannot be proved without the purchasers examining themselves in the court. It was contended that when serious doubts have been cast as to the genuineness of the transactions, the vendees should have spoken as witnesses in support of their purchase.
37. Here, the petitioners are challenging certain transactions. It is apparent that only the second respondent who heads this group of petitioners could speak to the events on their behalf. The petitioners have either deposed falsely, or feigned ignorance of all material aspects of the events. The petitioners have not even made out a prima facie case of the facts pleaded by them, on the material issues. All the transfer forms bear the attestation of the second respondent. The petitioners’ case, as pleaded was that blank transfer forms were given to P. K. Alva of Corporation Bank through the second respondent for the purpose of loan. Alva is not examined ; the second respondent has fought shy of the witness box even though his presence in the court was pointed out on a few occasions (including by RW 1). The petitioners’ assertion that either they have not signed the transfer forms produced in the court or that they were the same as given to Alva, cannot be accepted at all. The burden is heavy on them to show that an official of the bank misused the confidence bestowed on him by the petitioners and clandestinely passed them on to respondents Nos. 3 and 4. The second respondent as well as the fourth petitioner were parties to the resolution of the board dated February 24, 1986, which speaks of these transfers. The encashment of the consideration cheques is amply established. Only the second respondent could have spoken to the alleged clandestine conduct of Alva and the handing over of the blank transfer forms to him for loan purposes. When circumstances are too glaring and speak for themselves, non-examination 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 Rs. 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 purchase of the shares in question ; PW 4 further stated that he used to be always by the side of the fourth respondent during office hours in their office. However, he was not in a position to state as to when respondents Nos. 3 and 4 were approached by the second respondent offering the shares and he was not present when respondents Nos, 2 and 4 met each other for finalising the transactions regarding these shares. The evidence of RW 4 is not useful as to the material aspects of the transactions in question. He is a poor substitute, as a witness for respondents Nos. 3 and 4. If the burden of establishing that the share transfer transactions had taken place was entirely on respondents Nos. 3 and 4, these respondents would have failed. But, as already stated, this is a case where the circumstances of the case tilt the balance in favour of the fact that respondents Nos. 3 and 4 had paid consideration for the share transfers and the petitioners have failed to establish that the share transfer forms were not executed by them. The circumstances of the case and the conduct of the second respondent who refrained from entering the witness box though present in the court on several dates, read with the deposition of PWs, prove that the present petition is a proxy fight between the second respondent and respondents Nos. 3 to 6.
39. The petitioners had and continue to have faith and confidence in the second respondent ; they have acted as the instrument of the second respondent in lending their names not only in fighting this litigation, but also in the matter of being the shareholders of the company earlier and selling the shares to respondents Nos. 3 and 4. In these circumstances, when full consideration for the shares has been received by or on behalf of the petitioners who have executed the share transfer forms, can it be said that the alleged failure to have the share certificates accompany the share transfer forms as envisaged by Section 108 of the Act should, by itself, be a factor for this court to exercise its discretionary power under Section 155 of the Act.
40. If equity has a say in the matter and the conduct of the petitioners pertaining to the subject-matter is abhorrent and grant of relief to the petitioners would result in injustice, why should this court aid the petitioners by rectifying the share register ?
41. Nowhere do the petitioners as PWs speak 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 respondents realised that genuine share certificates were not issued at all.
43. One more fact has to be referred to :
The board’s meeting as recorded in exhibit P-4 as held on November 16, 1986, refers to an agreement with Seshadri. Item No. 4, as recorded, says that “the managing director, Sri K. L. Srihari, placed before the board the approved agreement relating to the settlement with K. N. Seshadri and associates for necessary action. Sri K. N. Seshadri, who was present at the meeting, as an invitee, signed the agreement on his and on behalf of his associates. Sri K.L. Srihari signed on his and on behalf of his group, . . . etc.” Thereafter, the board resolved approving the transfer of shares held by Seshadri’s group.
44. This agreement, obviously, is the agreement referred to as annexure-M in exhibit P-21. This annexure-M in exhibit P-21 is an agreement dated August/ November 16, 1986, executed between Seshadri (and his associates) and K. L. Srihari, whereby, inter alia, Seshadri’s group agreed to transfer its shares to the latter. There is a.narration of several facts. In the opening paragraph after the usual statement that the agreement “witnesseth as follows”, the agreement states that the shareholders of the company are as per annexure A to the deed. Annexure-A to the said deed enumerates 28 names as the shareholders with their respective shareholdings. At serial No. 2 is the second respondent ; at serial No. 1 is K. N. Seshadri. Serial Nos. 5 to 9 refer to the petitioners. These petitioners’ total shareholding as per this annexure will be 1,630 shares. M. A. Paul is one of the attestors to this agreement (annexure-M in exhibit P-21).
As RW-4, Paul admitted that he attested this agreement ; his actual attestation was referred to as exhibit R-21(b) and the agreement as exhibit P-21(a). Paul also says that Srihari signed this agreement and further admitted that the agreement had two annexures ‘A’ and ‘B’.
45. Therefore, as late as November 16, 1986, the board seems to have treated the petitioners as the shareholders ; at any rate respondents Nos. 3 and 4 thought that the petitioners were shareholders as on the said date. If so, a question arises as to why the board purported to approve the alleged transfer of shares on February 24, 1986. Learned counsel for the petitioners repeatedly referred to this aspect in support of the petitioners’ case and contended that there is no other material subsequent to this date showing cessation of the petitioners’ membership of the company, I have found this jurisdiction to be discretionary, summary and also concerned with the equities. Share transfer forms were executed by the petitioners and duly attested by the second respondent ; consideration for the purchase was paid by the transferees and mostly encashed by the second respondent and one or two by the concerned petitioners. In this situation, I do not think that any injustice would result to the parties if this court declines to exercise its jurisdiction under Section 155. The petitioners may establish their respective legal rights, if any, by resorting to any other remedy.
46. Consequently C. P. No. 62 of 1988 is dismissed.
47. In view of the dismissal of C. P. No. 62 of 1988, C. P. No. 48 of 1987 filed by the same petitioners for the winding up of the company also has to be dismissed as they cannot be treated as shareholders.
48. In the result, for the reasons stated above, both the petitions are dismissed without any order as to costs.