A.K Banerji, J.:— By means of the above-noted appeal filed under section 10F of the Companies Act, 1956, the Scientific Instruments Company (“the appellant”, in short) has, inter alia, prayed for setting aside the impugned order dated March 3, 1998, passed by the Company Law Board, Principal Bench, New Delhi (“the Board”, in short), on the ground that the petition under section 397/398 of the Companies Act, 1956 (“the Act”, in short), was not maintainable.

2. The relevant facts in brief, as stated by the appellant, are that the appellant which is a public limited company, appointed A.M.I Computers (I) Limited as its registrar to the public issue and a memorandum of understanding (MOU) was executed on September 12, 1996, in respect thereof. Though the board of directors resolved on February 24, 1997, to appoint the firm, A.M.I Computers (I) Limited (“AMI” in short), as its share transfer agent, however, the said resolution was not given effect to and no formal agreement or MOU was executed in respect of the said resolution. After the assignment of AMI was completed the appellant asked the said firm to return all the unused stationery and other records of the company which were in their possession as registrar of public issue but the same were not returned. Consequently, a complaint had to be lodged with the Securities and Exchange Board of India (SEBI) against AMI and a civil suit was also filed before the civil court at Mumbai, seeking appropriate orders for obtaining back the documents and records from the said firm. At this stage, the respondent, Rajendra Prasad Gupta (“the respondent”, in short), alleging consent of 113 persons filed a petition under section 397/398 of the Act before the Board alleging certain acts of oppression and mismanagement against the appellant and its directors. The said company petition was registered as C.P No. 92 of 1997. The appellant which was arrayed as respondent in the said petition filed preliminary objections before the Board, inter alia, raising the objection that the persons filing the petition are not the members of the company and the requirement of section 399 of the Act has not been fulfilled, hence the petition deserves to be dismissed solely on the said ground. As the Board directed the appellant to produce the original record such as register of members, minutes book, etc., to substantiate its objection the required original records were also produced before the Board by the appellant. The present respondent, Rajendra Prasad Gupta, who had filed the petition, did not file any reply to the preliminary objection. However, the same was filed by one Manoj Kumar Agarwal, on behalf of one Sikkim Investment Limited contesting the allegations made by the appellant in its preliminary objection. By the impugned order dated March 3, 1998, the Board held that the petition was not hit by section 399 and the same was maintainable. Consequently, a direction was issued to the present appellant to file its reply to the petition by April 1, 1998, and rejoinder to the same, if any, to be filed by May 1, 1998. Aggrieved against the said order the appellant has preferred the above-noted appeal before this court under section 10F of the Act, as already noted above. I have heard Shri R.P Agarwal, learned counsel for the appellant and Shri R.K Agarwal, counsel for the respondent. I have also perused the affidavits filed by the appellant and the respondent in this case before this court. I have also carefully perused the impugned order passed by the Board.

3. As already noted above, the respondent had filed the petition before the Board under section 397/398 alleging the consent of 113 shareholders and further alleging oppression and mismanagement by the board of directors and majority shareholders of the appellant. A preliminary objection was raised to the same by the appellant in terms of section 399 of the Act alleging that out the 113 shareholders who are alleged to have given their consent in filing the petition only 12 are members of the company and the rest including the respondent, Rajendra Prasad Gupta, are neither the shareholders nor recorded in the register of members of the appellant-company. Consequently, the requirement of section 399 are not fulfilled and, therefore, the petition is not maintainable. The said section lays down that a petition under section 397/398 of the Act is maintainable only by shareholders who hold not less than 1/10th of the issued share capital of the company and have paid all calls and other sums due on their shareholding or the petitioners constitute not less than 1/10th of the number of members or 100 members, whichever is less.

4. While deciding the preliminary objection the Board took the view that the respondent claimed to have purchased the shares from the market and has given evidence to show that they possessed the said share certificates issued in their name by the share transfer agent of the company, namely, AMI and as per the provision of section 84 of the Act as a share certificate is prima facie evidence of title consequently even if the names of all such shareholders, who have filed the petition, are not recorded in the register of members under section 164 of the Act, they shall, prima facie on the strength of their share certificates, be treated to be shareholders of the company. As regards the preliminary objection that AMI were not authorised to act as share transfer agent of the company or to sell the shares, the Board held that from the copy of the resolution dated February 24, 1997, as the board of directors had approved the appointment of AMI as share transfer agent of the appellant-company the onus of proving that this resolution was not acted upon was on the appellant-company which had not been able to discharge the same neither had the appellant taken any proceeding against the AMI for the alleged unauthorised act of acting as share transfer agent. Consequently, the petitioners shall be treated to be members and the requirement of section 399 of the Act was fulfilled and the petition Was maintainable.

5. At the outset, learned counsel for the respondent has raised an objection to the effect that as an appeal before this court under section 10F of the Act lies only on a question of law arising out of such order and not on facts, the present appeal deserves to be dismissed summarily. However, as it is well settled that if a finding is based upon no evidence it becomes a question of law and similarly if a finding is based upon surmises, conjectures and assumptions it tantamounts to a finding on no evidence and consequently becomes a question of law and as the appellant was challenging the finding of the Board on the said grounds, I have heard this appeal on the merits.

6. Learned counsel for the appellant has strongly contended that merely because the shareholders who have given their consent to the filing of the petition under section 397/398 were in possession of some share certificates, they cannot be treated to be the members of the company unless it is decided that the said share certificates are genuine and have been issued by the proper authority and the said persons have been recorded as shareholders of the company in the register of members. The Board committed a legal error in applying the provisions of section 84 when serious dispute was raised before the Board regarding the genuineness of the share certificates and the right and authority of the share transfer agent to issue the said share certificates. It has also been contended that the present respondent had failed to produce before the Board the MOU authorising AMI as share transfer agent and the Board was not legally justified in placing the onus to prove that AMI was not the share transfer agent and there was no MOU to that effect, on the appellant, especially when they were asserting that there was no such MOU. The appellant could not be asked to prove the negative. It was further contended that the Board ought not to have proceeded with the petition and ought to have kept the same in abeyance until the persons who had given their consent to the filing of the petition got their names entered in the register of members of the company in appropriate proceedings. Learned counsel has contended that the Board has proceeded on conjectures, surmises and assumptions rather than going into the material placed before it by means of original documents. It has also not considered the objection that the signatures of those 12 persons who have filed their affidavits and who are admittedly registered as shareholders do not tally and consequently the signatures in the affidavits have also been forged. It was further contended that the Board ought to have rejected the reply to the preliminary objection submitted by Shri Manoj Kumar Agarwal, on behalf of Sikkim Investment Limited as the said person was incompetent to file the reply. On the other hand, learned counsel for the respondent has supported the order passed by the Board and the reasons given therein. He has contended that the Board was justified in holding that AMI was not only the registrar to the public issue of the company but also its share transfer agent. The respondent had filed the copy of the resolution of the board dated February 24, 1997, appointing the said AMI as share transfer agent and also the resolution dated April 15, 1997, of the board of directors which specifically stated that the outstanding allotment money should be paid either to the, company or to “the registrar and share transfer agent of the company”. The respondent had also filed a letter written by AMI Computers to the attorney of the original petitioner, namely, Kan Law Firm, dated January 19, 1998, acknowledging the fact that they were the authorised share transfer agent of the appellant. The onus consequently shifted to the appellant to disprove the said fact. It has been further contended that the Board has rightly held that despite knowledge of the said fact the appellant had not taken any steps to publicly deny that AMI was the share transfer agent of the company neither did it make any effort in four months despite the knowledge of Company Petition No. 91 of 1997 filed earlier by the petitioner before the Board to get back its register of members, signature cards and other statutory documents from the registrar of public issue and it was only on July 3, 1997, that they called upon them to return the documents. The appellant initiated proceedings against AMI only after certain individual shareholders filed cases against the company before the City Civil Court at Mumbai. It was also contended that a Commissioner was appointed by the City Civil Court to take inspection of the various documents including the register of members but inspection was denied on the ground that no register was maintained of public rights issue shareholders. In short, the respondent has contended that the present preliminary objection was filed only with a view to delay the proceedings and with ulterior motive as the appellant was interested in dragging the matter and delaying the decision of the Board.

7. I have carefully considered the submissions made by the learned counsel for the parties and I have perused the material placed before me. I find that allegations of conspiracy to misuse, fabricate and forge documents have been made on behalf of the appellant. A dispute has been raised whether AMI computers were appointed share transfer agent and were authorised to issue share certificates on behalf of the company. Allegations have been made in the preliminary objection that the persons who have given their consent to the filing of the petition are alleged to be holding 50 shares whereas the marketable lot was of 100 shares. Consequently, the lot could not be split up neither were AMI computers authorised to split up shares. Allegations have been made that out of the alleged 4.5 lakhs shares allotted to Sikkim Investment Limited 2.5 lakhs shares were issued as fully paid up and 2 lakhs have been subscribed under the rights issue which are partly paid up although the calls regarding the same have been made by the appellant-company. Similarly, one Fauzia Shiraji, who holds 500 shares which are partly paid up has defaulted in paying the allotment-call money due to the said shares and consequently could not have given a valid consent for instituting the petition. Allegations have been made that the affidavits filed by the contesting parties do not bear the signature of the said persons and there is variance in the signatures contained in the affidavits and the records of the company. It is apparent that complicated questions of law and facts arise even for determining the question of maintainability of the petition under section 399 of the Act. The Board has referred to its decision in the case of Satish Chand Sanwalka v. Tinplate Dealers Association Pvt. Ltd., [1998] 93 Comp Cas 70; [1998] 2 Comp LJ 354 (CLB). In the said case also a preliminary objection was raised regarding the maintainability of the petition in terms of section 399 of the Act. In that case also the argument was raised that as per section 84 of the Act the share certificate is prima facie evidence of title of a shareholder to the shares indicated therein. Though agreeing with the said contention the Board held as follows (page 75):

“Normally, when the maintainability of a petition is questioned in terms of section 399, especially, as a preliminary issue, there should be enough material available before us, without having to go through the pleadings in detail to decide the issue. In the present case, the issues like whether articles have been violated, whether there were calls due and whether the petitioner failed to pay the calls, whether notice of forfeiture were issued to the petitioner etc., are complicated questions of law and facts requiring a detailed inquiry.

8. Therefore, we are of the firm view that complicated questions of law and facts cannot be decided at the preliminary argument stage without going through pleadings and hearing. Accordingly, the maintainability of the petition will be decided after hearing of the petition and afterwards, if we hold that the petitioners do not satisfy the requirements of section 399, we shall pass orders only on the maintainability. In case we hold that the petition is maintainable then a comprehensive order will be issued both in terms of maintainability as well as on the merits of the case.”

9. In my opinion, the abovesaid observation of the Board in the case of Satish Chand Sanwalka v. Tinplate Dealers Association Pvt. Ltd., [1998] 93 Comp Cas 70; [1998] 2 Comp LJ 354 (CLB) appears prima facie to be the correct view. In the facts of the present case also the questions which are involved and mentioned above require a detailed inquiry and it ought not to be decided solely on the basis of the fact that some of the persons who had given their consent to the filing of the petition hold 50 shares each of the company especially when the authority of the share transfer agent was being challenged and allegations of collusion, manipulation and forgery were being made, the question of maintainability of the petition before the Board ought to be decided along with other issues which arise in the case.

10. Before parting with the case it would be necessary to point out that learned counsel for the parties had in support of their respective cases referred to certain decisions. However, as the matter is being sent back to the Board with certain directions it would not be proper for this court to express any opinion on the merits of the case and also on the decisions which have been cited by counsel for the parties.

11. As a result, this appeal is partly allowed and the order dated March 3, 1998, passed by the Board is hereby set aside with the direction that the Company Law Board would hear the petition on the merits including the question regarding the maintainability of the petition afresh on the basis of the documentary evidence and the material placed by the parties.

12. After hearing the petition if the Board comes to the conclusion that the petitioner satisfies the requirements of section 399 it shall proceed to pass orders on the maintainability of the petition as well as on other issues which arise out of the facts of the present case. The appellant has not filed a detailed reply to the petition but only raised a preliminary objection. As the matter has got sufficiently delayed it is desirable to direct the appellant to file its reply to the petition under section 397/398 within one month from today along with a certified copy of this order. The Company Law Board will thereafter fix a date for rejoinder by the petitioner and shall proceed with the case in accordance with law and in the light of the observations made above.

13. In the facts and circumstances of the case, the parties shall bear their own costs of this appeal. Let a certified copy of this order be issued to learned counsel for the parties on payment of usual charges within a week.