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Delhi High Court
Rajiv Nag vs Quality Assurance Institute … on 10 November, 2000
Equivalent citations: 2001 106 CompCas 262 Delhi, 2000 (57) DRJ 32
Author: C Joseph
Bench: C Joseph


JUDGMENT

Cyriac Joseph, J.

1. The appellant challenges the order dated 20-9-2000, passed by the Company Law Board, Northern Region Bench, New Delhi, in C.P. No. 4/ 113/2000/CLB, dismissing the appellant’s petition filed under Section 113(3) of the Companies Act, 1956 (‘the Act’).

2. The appellant was a shareholder in the respondent-company. Quality Assurance Institute (India) Ltd. He held 5,000 equity shares of the respondent-company. In the notice for the sixth annual general meeting (AGM) of the shareholders of the company held on 30-9-1999, the following was included as item No. 8 of the agenda:

“To consider and, if thought fit, to pass, with or without modification, the following resolution as a special resolution :

Resolved that pursuant to the recommendation of the board of directors and article 133 of the articles of association of the company, and part of the sums standing to the credit of the company’s general reserve be capitalised and such be applied in terms of articles 133 and 134 of the articles of association of the company, for paying up in full at par equity shares of Rs. 10 each in the capital of the company to be allotted and distributed as fully paid bonus shares to such members holding equity shares as per the register of equity shareholders at date determined by the board of directors of the company, who are the holders as on the aforesaid date of the existing equity shares of the company fully paid-up in proportion to such number as the board of directors may decide for one existing fully paid equity share held by such member as on the aforesaid date upon the footing that they become entitled to such new equity shares as capital and not as income.”

3. In accordance with the provisions of Section 173(2) of the Companies Act, 1956 (‘the Act’) an explanatory statement was annexed to the above mentioned notice. Item No. 8 of the said explanatory statement was as follows :

“The equity share capital of the company presently stands at Rs. 33,69,860 and the reserves as at March 31, 1999, were Rs. 1,02,92,378.

In view of the excellent working of the company, it is planned to reward the existing shareholders by way of issue of bonus shares in such ratio as the board of directors may deem fit. None of the directors are concerned or interested in the resolution except to the extent of their shareholding.”

The above mentioned resolution was passed at the annual general meeting on 30-9-1999, without any modification. Subsequently, based on the resolution passed at the annual general meeting, the board of directors of the company at its meeting held on 14-1-2000, passed the following resolution :

“Resolved that equity shares be allotted and distributed as fully paid-up bonus shares to the members holding equity shares as per the register of members as on February 1, 2000, who are the holders as on February 1, 2000 of the existing fully paid equity shares of the company, in the ratio of two bonus shares for one existing fully paid-up equity share held by the members as on February 1, 2000, upon the footing that they become entitled to such new equity shares as capital and not as income.”

In the meanwhile, the appellant had sold all his shares in the respondent-company to one Rajesh Naik and his wife, Sapna Kishore, on 25-10-1999, and the transfer deeds were executed on 30-10-1999. When the appellant did not receive any bonus share certificate pursuant to the special resolution passed at the AGM on 30-9-1999, he sent a notice dated 21-3-2000, requesting the respondent-company to deliver the bonus share certificates within ten days. But the company did not deliver them. Thereupon, the appellant filed the petition under Section 113(3) of the Companies Act before the CLB praying for a direction to the respondent-company to deliver 10,000 bonus shares to the appellant.

4. The respondent-company filed a reply to the petition and opposed the prayer of the appellant. According to the respondent-company, the AGM of the company held on 30-9-1999, resolved to allot and distribute bonus shares to such members holding equity shares as per the register of equity shareholders at a date determined by the board of directors of the company, who are the holders, as on the aforesaid date of the existing equity shares of the company fully paid-up. The AGM issued the mandate to the board of directors to allot bonus shares in such ratio and on a date they may think fit and appropriate. In terms of the said mandate, the board of directors in its meeting held on 14-1-2000, passed the resolution deciding to allot bonus shares in the ratio of two bonus shares for one equity share held as on 1-2-2000. The appellant had admittedly sold all his shares for a valuable consideration on 25-10-1999, and executed transfer deeds on 30-10-1999. On the requbst of the transferees, the board of directors registered the said shares in the name of the transferees. Therefore, the appellant’s name was not appearing in the register of members on 1-2-2000, which was the cut-off date. The resolution passed by the AGM on 30-9-1999, did not state that the shareholders whose names appeared in the register of equity shareholders as on the date of AGM were entitled to bonus shares. Hence, the appellant had no right to get the bonus shares and no right of the appellant to get bonus shares had crystallised on 30-9-1999. It was contended by the respondent that the appellant’s petition under Section 113(3) of the Companies Act was not maintainable.

5. After considering in detail the various contentions of the parties, the CLB upheld the stand of the respondent and dismissed the appellant’s petition. The CLB also found force in the contention of the learned counsel for the respondent that the petition was liable to be dismissed for non-joinder of necessary parties as the appellant had not imp leaded the transferees of the shares even though the bonus shares claimed by the appellant had already been issued to the said transferees.

6. The appellant does not dispute the facts stated above. The only contention urged by the learned counsel for the appellant is that as per the explanatory statement annexed to the notice for the AGM the proposal was “to reward the existing shareholders by way of issue of bonus shares in such ratio as the board of directors may deem fit”, that the said proposal was accepted by the AGM on 30-9-1999, and hence that the members who held equity shares of the company as on 30-9-1999, were entitled to bonus shares. But there is no merit in the said contention of the learned counsel for the appellant. The explanatory statement is not to be read in isolation.

It has to be read along with the special resolution included in the agenda. It was specifically stated in the said resolution that the proposal was to issue bonus shares “to such members holding equity shares as per the register of equity shareholders at date determined by the board of directors of the company who are the holders, as on the aforesaid date, of the existing equity shares of the company fully paid-up.” It is absolutely clear from the wording of the resolution that the entitlement for bonus shares was available only to those who held equity shares of the company on a particular date to be determined by the board of directors of the company after the resolution was passed by the AGM. The date so determined by the board of directors was 1-2-2000. When the resolution and the explanatory statement are read together, there is no scope for any ambiguity or confusion. When the resolution clearly stated that bonus shares would be allotted to the shareholders holding equity shares as per the register of equity shareholders as on a date determined by the board of directors, the reference in the explanatory statement to ‘existing shareholders’ could be understood only as shareholders existing as on the date determined by the board of directors. The AGM of the respondent-company was competent to take a decision to allot and distribute bonus shares to shareholders and to authorise the board of directors to determine the date from which and the manner in which such decision is to be implemented. Significantly, the appellant did not challenge the notice issued for the annual general meeting or the special resolution passed at the AGM. In fact the case of the appellant was based on the said resolution and he was relying on the said resolution. Admittedly, the appellant was not holding any shares of the respondent-company as on 1-2-2000. Therefore, the appellant was not entitled to allotment of bonus shares on the basis of the resolution of the AGM held on 30-9-1999.

7. The learned counsel for the appellant also, though feebly, contended that the explanatory statement was inconsistent with the resolution included as item No. 8 in the notice for the AGM. So long as the explanatory statement did not say that the company planned to reward the existing shareholders as on the date of the AGM, I do not find any inconsistency or contradiction between the resolution and the explanatory statement. No date for giving effect to the decision to allot bonus shares was mentioned in the explanatory statement. At the same time, it was specifically stated in the resolution that the bonus shares would be allotted and distributed to such members who would be holding equity shares as on a date determined by the board of directors of the company. If the explanatory statement is read along with the resolution, there is neither ambiguity nor confusion nor contradiction nor inconsistency with regard to the members entitled to bonus shares. It cannot be said that the explanatory statement was tricky or misleading or lacking in material particulars. In this context, it has to be noted that, as pointed in the impugned order by the CLB, neither in the petition filed before the CLB nor in the oral submissions, the appellant had raised any plea that the notice for the annual general meeting was tricky or misleading or lacking in material particulars or that the appellant was misled by the explanatory statement. On the other hand, the appellant’s case before the CLB was that the notice for the AGM was deliberately not sent to him to keep him in the dark about the special resolution and consequently he was not aware of the annual general meeting to be held. As pointed out by the CLB, the appellant was relying upon the special resolution adopted at the AGM for claiming 10,000 bonus shares.

8. Therefore, I am in complete agreement with the finding of the CLB that the appellant was not entitled to allotment and distribution of bonus shares in his favor on the basis of the special resolution passed at the AGM of the respondent-company held on 30-9-1999. Hence, the appeal is dismissed in liming.


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