ORDER
S. Balasubramanian, Chairman
1. The main grievance of the petitioner in this petition filed under Section 111 of the Companies Act, 1956 (the Act) is that 39741 equity shares held by the petitioner in M/S Pentagon Drugs Private Limited (the company) had been illegally transferred in the name of the 2nd respondent and as such the petitioner has sought for rectification of the register of members to insert his name in place of the 2nd respondent.
2. A summary of the petition is: The petitioner is a subscriber to the Memorandum of Association of the company with 1 equity share when the company was incorporated in 1990. The 3rd respondent was employed in the company in June 1992 and he married the daughter (5th respondent) of the petitioner in February, 1996. At the instance of the 3rd respondent to keep controlling interest in the company, the petitioner acquired 38740 equity shares in the company in May, 1996. He was also allotted 1000 shares in June, 1997 and thus he held 39741 equity shares in the company. Some time in November, 1997, the 3rd respondent who was physically and mentally harassing the 5th respondent, coerced the petitioner to sign blank transfer forms and also an undated letter of resignation as a director of the company. With a view to protect the interests of his daughter, the 1st petitioner signed blank transfer forms and resignation letter. However, no certificate relating to the shares was handed over as the company had not issued any share certificate. As the 3rd respondent had accepted the letter of resignation of the petitioner in May 1998, the petitioner was not receiving any notice either for Board Meeting or for general meetings. Since the petitioner apprehended that his shares might have been transferred on the basis of the blank transfer instruments, he took inspection of the records of the company in the ROC office in March, 2001 and found that in the Annual Report for the year 1997-98 it was shown that 39741 shares of the petitioner had been transferred to the 2nd respondent on 31.12.1997. Aggrieved by this transfer, the petitioner wrote a letter on 27th March, 2001 to the company seeking for explanation as to how the transfer was effected and seeking for cancellation of the transfer. To this letter, the 3rd respondent replied stating that the transfer was effected on the basis of valid transfer instruments and that the transfer was approved in the Board Meeting held on 31st December, 1997 and that the said meeting was chaired by the petitioner. The petitioner never attended this meeting. Since the petitioner never sold or transferred these shares and since no consideration had been received for these shares, the transfer is invalid and should be set aside. The entire game plan of the 3rd respondent was to grab control of the company and for that purpose he not only married the 5th respondent but also pressurized the petitioner to acquire 38741 shares and hand over blank transfer forms. In view of the mal- treatment by the 3rd respondent, the 5th respondent was constrained to file a petition for dissolution of the marriage. Ultimately, the marriage was dissolved on certain consent terms arrived at between the 3rd and 5th respondent. One of the terms of consent was that the 5th respondent had to transfer 28119 shares held by her in the company to the 3rd respondent. Presently, by these manipulations, the 2nd respondent is holding 60% shares in the company.
3. A summary of the joint reply filed by respondents 1, 2 & 3 is: The company had become a sick company under the management of the petitioner. There were huge liabilities towards banks. Since the company needed funds, the 3rd respondent was persuaded to mobilize funds on the understanding that the petitioner would acquire shares from other shareholders and give the same to the 3rd respondent by way of gift. Accordingly, the 3rd respondent arranged large amount of funds from his relatives more particularly from the 2nd respondent. Thereafter, the petitioner decided to disassociate himself from the company and he started the process of handing over of the company to the 3rd respondent. First he signed and filed with the ROC Form No. 18 for changing the address of the registered office from his residential address to the residential address of the 3rd respondent effective from 1.9.1997. Thereafter, he gifted all his shares numbering to 39741 shares along with blank transfer forms to the 3rd respondent. At a Board Meeting held on 31.12.1997 when the 5th respondent was also present, the transfer of the above shares in the name of the 2nd respondent was approved. The petitioner also resigned as a director by an undated letter of resignation which was accepted in a Board Meeting held on 1.5.1998. The petitioner was responsible for creation of rift between the 3rd and 5th respondent which resulted in dissolution of their marriage. Pursuant to the consent terms dated 18.5.2001, the petitioner paid a permanent alimony of Rs. 2,45,150/- to the 5th respondent and also paid a sum of Rs. 80,139/- for transferring her share of 28119 shares to the 3rd respondent. She also resigned from the Board. Now the petitioner has raised this dispute about his shares only as an after thought after nearly 3 years of having gifted his shares to the 3rd respondent. Since the 5th respondent, being the daughter of the petitioner was present in the Board meeting on 31.12.1997 when the transfer of the shares to the 2nd respondent was approved, the knowledge of transfer should be imputed to the petitioner. Further, all the returns with the Registrar of Companies reflect the impugned transfer. Therefore, the petitioner, had, by his conduct acquiesced to the transfer and cannot now raise any dispute about the same. It is to the knowledge of the petitioner that no share certificate had been issued in the company and all the previous transfers had also been registered without production of share certificates. He cannot now question the transfer of the impugned shares on the ground of non compliance with Section 108. It is not a case of transfer of shares for consideration but transfer of shares by way of gift without consideration. The pre-emption clause in the Articles would apply only in case of transfer of shares for consideration. The petitioner being a law graduate and also a tax advisor must have known the implications of handing over blank transfer forms without consideration and what he really intended was to gift the shares to the 3rd respondent being his son-in-law. Now that the marriage has been dissolved, he has impugned the transfer. Therefore, there is no merit in the petition and as such it should be dismissed.
4. Shri Kapadia, Advocate appearing for the petitioner submitted: The transfer of the impugned shares is not only against the provisions of Section 108, it was done with the view to take complete control of the company. The petitioner was coerced to sign blank transfer forms and hand over the same to the 3rd respondent. The petitioner never intended to gift the impugned shares to the 3rd respondent as claimed by him. No consideration has been given for the shares. It is a settled law that there can be no transfer of shares without consideration. Taking advantage of the fact that no share certificates had been issued, the 3rd respondent had fraudulently transferred the impugned shares on the basis of the blank transfer instruments. Further, the shares have not been registered in the name of the 3rd respondent, but in the name of the 2nd respondent. In terms of Article 8 of the company, preemptive rights of the existing members should have been exhausted before shares are transferred to a non member which has not been done in this case. The petitioner came to know of the transfer of shares only when he took inspection of the records in the ROC office in March, 2001 and thereafter filed this petition. Therefore, there is no delay in filing of this petition. Since the transfer of shares is without consideration, without following the provisions of Section 108 and Article 8, the transfer should be cancelled and the register of members rectified by inserting the name of the petitioner in respect of the impugned shares.
5. Shri Ajay Kumar, PCS, appearing for the respondents submitted: The petition is time barred. The transfer took place on 31.12.1997 but the petition was filed only in June 2001 after a delay of more than 3 years. From the sequence of events in this case, it is evident that to get over the financial difficulties of the company, the petitioner required the 3rd respondent to mobilize funds and as a reward for the same, he gifted the impugned shares to the 3rd respondent, by executing blank instruments of transfer. The petitioner’s idea was to hand over the control of the company to the 3rd respondent as is evident from his resignation as a director and shifting the registered office of the company from his residence to the residence of the 3rd respondent. Having gifted the shares to the 3rd respondent, the petitioner has impugned the transfer belatedly on 20th June, 2001. In Jagjit Rai Maini v. Punjab Machinery Works Private Limited (103 CC 979 P&H), the High Court has rejected a petition filed for rectification 8 years after the date of allotment. In the present case, the delay is more than 3 years. In Profulla Kumar Raut v. Orient Engineering Works Private Limited (60 CC 65), the Orissa High Court has held that when a transfer of shares is effected in violation of a private company’s articles requiring that shares should be first offered to existing members, the transferor is not a proper person to raise any objection. As far as gifting of the shares is concerned, the Supreme Court has, in Ramachandra Shelat v. Pranlal Jayanand Thakur (45 CC 43), held that when the blank transfer forms along with shares scripts are handed over by way of gift, the transferee’s title will be complete even before registration. In the present case, the petitioner has gifted the impugned shares to the 3rd respondent who in turn transferred these shares to the 2nd respondent who had given substantial funds of over Rs. 46 lacs to the company. Therefore, the petition should be dismissed.
6. I have considered the pleadings and arguments of the counsel. The respondents have raised the issue of limitation on the ground that the registration of the impugned shares took place on 31st December,1997 and that this petition has been filed only in June, 2001. According to them, the knowledge of his daughter who was present in the Board Meeting on 31st December, 1997 should be imputed to the petitioner and if so, this petition should have been filed within 3 years from that date. However, according to the petitioner, since he came to know of the transfer only in March, 2001, the limitation would start from the date of his knowledge. To determine this issue, it is necessary to first determine whether the shares had been gifted. There is nothing on record to show that either verbally or in writing the petitioner had gifted the shares. Whether handing over of blank transfer instruments could imply gifting of the shares especially in the absence of the share certificates. In Ramachandra Shelat case relied on by the respondents, the doner had gifted the shares by a registered deed of gift and also handed over the blank transfer instruments to the donee. The Court, after examining the provisions of Transfer of Properties Act, held that once a gift of shares is made by a registered deed and blank transfer deeds are executed both by the transferor and the transferee, the title of the transferee would be complete. In the present case, there is nothing on record in writing by the petitioner that he was gifting the shares. From the copies of the transfer deeds enclosed with the petition, I find that there are two instruments of transfer – one relating to one share and another relating to 39740 shares. While the former has been signed only by the petitioner, the later, perhaps being related to joint holding, has been signed by the petitioner and his wife. Except for the name of the company, all other details in the instruments of transfer have been filled in by someone else. The name of the 3rd respondent does not appear in the transfer instruments at all. In the absence of any written document to evidencing gifting of the shares, if the petitioner had in his own hand written the name of the 3rd respondent as transferee in the instruments of transfer, possibly a presumption of gift could be made. Thus, when the petitioner denies that he ever made gift of the impugned shares, the stand of the 3rd respondent that the shares were gifted on the sole ground that the petitioner had handed over blank transfer forms, cannot be easily accepted. When there is no evidence of gift and in the absence of share certificates, there was no question of the petitioner doubting about his continuing membership in the company. Therefore, when he discovered that his shares had been transferred to the 2nd respondent in March, 2001, that is the date on which his cause of action to file this petition arose. It would be incorrect to impute the knowledge of his daughter to the petitioner. Therefore, I hold that the petition is not time barred.
7. Now that I have held that the factum of gift has not been established, the shares could not have been transferred without consideration even assuming that handing over of blank transfer forms indicated the intention of the petitioner to transfer the shares. Transfer of shares without consideration is null and void and therefore the prayer of the petitioner for rectification of the register of members deserves to be granted. However, in the present case, the company is under the control and management of the 2nd respondent for nearly 8 years now. Due to the matrimonial dispute, relationship between the 3rd respondent and the petitioner has soured. Therefore, I am of the view that granting the prayer of the petitioner for rectification of the register of members would not be in the interest of the company and the most equitable relief would be to direct the 2nd /3rd respondents to pay consideration for the shares. At the time of dissolution of the marriage of the 5th and 3rd respondents, the former transferred 28119 shares for a particular consideration. I am of the view that the price per share at which the shares of the 5th Respondent were transferred to the 3rd Respondent could be applied for the impugned shares. Accordingly, I direct the 2nd /3rd Respondent to pay the consideration for the 39741 shares at the same price on or before 31.5.2005, failing which the Board of the Company is directed to rectify the register of members by removing the name of the 2nd Respondent and inserting the name of the petitioner in respect of the impugned shares by 15.6.2005.
8. The petition is disposed of on the above terms.