2. 1988 CC Vol. 64, 775 - N.T Co. v. Ashok Kumar (Fol) 3. Co. P. No. 38 of 1980 DD 10-10-1984 - Dr. (Mrs) Nirmal v. Sharavathi Petro Chemicals (do) 4. 1984 (2) Co. L.J 270 - Arun Kumar v. H.M Ltd. (do) 5. 1992 - CC Vol 73, 88 - Mathrubhumi v. Vardhaman (do) 6. AIR 1967 SC 253 - I.C.P Ltd. v. State of Orissa (do) 7. (1978) 48 CC 438 - Naik v. Patel (Ref) 8. (1987) 62 CC 553 - Anthony v. Thandiyode Plantations (do)

Mr. Naganand for Mr. Chatanya Hegde for Appellants

M/s. Jayaram & Jayaram

NOTE: ORDER IN ILR 1991 KAR 527 REVERSED

The Judgment of the Court was delivered by

K.A Swami, J.:— These two Appeals are preferred under Section 4 of the Karnataka High Court Act, 1961 read with Section 155(2) of the Companies Act, 1965 against the common order dated 8th October, 1990 passed in Company Petition No. 62/1988 connected with Company Petition No. 48/1987. Of course, against the order rejecting company Petition No. 48/1987, O.S.A No. 17 of 1990 has been preferred by the petitioners therein, who are also the petitioners in Company Petition No. 62/1988. O.S.A 17 of 1990 has also been posted for hearing along with O.S.A 16/1990 and 19/1990. The result of O.S.A 17/1990 depends upon decision in O.S.A 16 and 19 of 1990. However, this order will not cover O.S.A 17 of 1990 arising out of Company Petition 48 of 1987.

2. The petitioners in Company Petition No. 62 of 1988 are the appellants in O.S.A 16 of 1990. O.S.A 19 of 1990 is filed by respondent No. 2 in Company Petition No. 62 of 1988.

3. There are six respondents in O.S.A 16 of 1990, whereas there item respondents in O.S.A 19 of 1990. Respondents 1 to 6 in Company Petition 62 of 1988 are also the respondents 1 to 6 in O.S.A 16 of 1990. They are also respondent No. 1-appellant and respondents 3 to 6 in O.S.A 19 of 1990. The petitioners in Company Petition No. 62 of 1988 who are the appellants in O.S.A 16 of 1990 are respondents 2, 7, 8, 9 and 10 in O.S.A of 1990.

4. Company Petition No. 62 of 1988 was filed under Section 155 of the Companies Act 1956 (hereinafter referred to as the ‘Act’ - for the following reliefs:

“Wherefore it is prayed that this Hon'ble Court may be pleased to:

I) order the rectification of the Register of Members of the first respondent-company and declare that the members of the Company and their respective share-holding is as follows:—

Sl. No. Name of Member No. of shares held Distinctive Nos. of shares 1. K.N Sheshadri 260 1 to 50 2451 to 2660 2. M. Venkatesh 50 51 to 100 3. Pushpa Srinath (Petitioner No. 3) 50 101 to 150 4. Lakshmeeshappa (Petitioner No. 4) 550 151 to 450 5. Muniyamma (Petitioner No. 1) 530 451 to 700 6. Ashwathappa (Petitioner No. 2) 250 710 to 950 7. Dr. B.G.S Murthy 2100 951 to 1450 3191 to 4790 8. Mrs. B.G.S Murthy 1000 1451 to 2450 9. Narayanamma (Petitioner No. 5) 250 4791 to 5040 10. R. Devaraj 250 5041 to 5290 11. V. Ramachandra 300 5291 to 5590 12. K.N Shivaramkrishna 250 5591 to 5840 13. K.S Govind (minor) 100 5841 to 5940 14. K.S Sunil (minor) 100 5941 to 6040 15. K.S Preethi (minor) 100 6041 to 6140 16. V. Raghavan 270 6141 to 6410

17. V. Nirmala 50 6411 to 6460 18. V. Kalavathy 900 6461 to 7360 19. Parvathamma 840 7461 to 8200 20. Dr. G.N Byrareddy 900 8201 to 9100 21. V. Venu 900 9101 to 10000 10,000

(ii) grant costs of these proceedings, AND

(iii) pass such other or further orders as may be just and necessary on the facts in the circumstances of the case.”

5. These reliefs were sought on the basis of several grounds enumerated in the Company Petition No. 62 of 1988. We do not consider it necessary to repeat the same in our Judgment as the same are summarised in the Judgment of the learned Company Judge.

6. Respondents 3 to 6 in O.S 16 of 1990 who were also respondents 3 to 6 in Company Petition 62 of 1988 resisted the Petition on various grounds which have also been summarised by the learned Company Judge. Therefore, we do not consider it necessary to burden this Judgment with the details of the same. Respondents 1 and 2 have not filed any objections to the Petition.

7. On the basis of various pleas raised by the parties, the evidence was recorded. Petitioners 1, 5, 4 and 2 entered the witness-box and gave evidence as P.Ws 1 to 4 respectively. Respondents 3 to 6 examined four witnesses as R.Ws 1 to 4. R.W 1 was an officer of the Canara Bank, M.G Road Branch, Bangalore. R.W 2 was the Sub-Manager of the Corporation Bank, Nrupathunga Road Branch, Bangalore, R.W 3 was Accountant in the Canara Bank, Avenue Road Branch, Bangalore and R.W 4 was Executive Assistant to K.L Srihari, respondent-4 in Company Petition 62 of 1988 and O.S.A 16 of 1990. Petitioners have marked seven documents out of the records produced by respondents 3 to 6 in Company Petition 48 of 1987. Exhibit P1 is the share transfer form relating to Smt. Muniyamma (petitioner No. 1), Exhibit P2-share transfer form of Narayanamma (petitioner No. 5), Exhibit P3 share transfer form of Lakshmishappa (petitioner No. 4), Exhibit P4 is the proceedings of the meeting of the Board of Directors of the Company held on 24-2-1986. Exhibit P5 is the Members' Register. Exhibit P7 is the share transfer form of Aswathappa (Petitioner No. 2). Respondents 3 to 6 also have marked as many as 21 documents which have been marked as Exhibits R1 to R21. Certain portion in Exhibit R1 is marked as Exhibit R1(a). Similarly, certain portions in Exhibit R2 are marked as Exhibit R2(a) and R2(b). So also in Exhibit R3, R12 and R15, certain portions are marked as Exhibit R3(a), R12(a) and R12(b) and R15(a), R15(b) and R15(c). Exhibit R1 is the statement of current account upto 17th November, 1989 relating to the first respondent-Company. Exhibit R1(a) is a certificate of extract dated 7th November, 1989. Exhibit R2 is the statement of account No. 1692 of respondent-2 for the period from December, 1985 to 7th November, 1989. Portions marked therein as Exhibit R2(a) and R2(b) relate to the certificate of extract dated 7th November, 1989 and entries dated 14th November, 1985 respectively. Exhibit R3 is the statement of the S.B account No. 1749 of petitioner No. 4 Lakshmishappa for the period from April, 1984 to December, 1987. A portion therein is marked as Exhibit R3(a) which is a certificate of extract. Exhibits R4 to R11 are the eight cheques dated 9th November, 1989 issued by Universal Trading Company in the names of the petitioners as well as others. Exhibit R12 is the statement of accounts relating to respondent-4 K.L Srihari upto 30th November, 1989. The portions therein are marked as Exhibit R12(a) and R12(b). Ex. R. 13 is another cheque dated 24th February, 1986 issued in the name of Aswathappa (petitioner No. 2). Exhibit R14 is also another cheque dated 24th February, 1986 issued in the name of petitioner No. 1 Muniyamma. Exhibit R15 is the statement of accounts of Universal Trading Company for the periods from May, 1985 to 12th April, 1986. Exhibit R16 is the closing balance sheet of Account No. 001692 of Sri M. Venkatesh-respondent No. 2 maintained by the Corporation Bank. Exhibit R17 is the transfer slip prepared by the Corporation Bank - transferring a sum of Rs. 2,58,000/- to the S.B Account No. 001692 of Sri M. Venkatesh-respondent-2. Exhibit R18 is the certificate dated 10th January, 1990 issued by the Corporation Bank certifying that the credit of Rs. 2,58,000/- dated 12th March, 1986 in the S.B Account No. 1692 of Sri M. Venkatesh, comprising the amount of the cheques drawn on Canara Bank, Avenue Road Branch, Bangalore and further giving the details of the cheques pertaining to four persons G.N Byra Reddy, B. Venu, Dodda Muniyamma and Aswathappa. Out of them, the last two are petitioner No. 1 and petitioner No. 2 respectively. Exhibit R19 is another certificate issued by the Corporation Bank, M.G Road Branch, Bangalore certifying that the entries made in the Clearing Register are true. Those entries relate to a sum of Rs. 2,58,000/- drawn by Sri M. Venkatesh from the Canara Bank, Avenue Road Branch, Bangalore on the cheques issued by him. Exhibit R20 is the cheque dated 12th March, 1986 issued by M. Venkatesh for a sum of Rs. 2,58,000/- on the Corporation Bank, M.G Road, Bangalore of his S.B Account No. 1692. Exhibit R21 is the Company Petition No. 48 of 1987 filed by the petitioners in Company Petition No. 62 of 1988 for winding up of the first respondent-Company.

8. The learned Company Judge first considered the scope of Section 155 of the Act and held that the proceeding under Section 155 was a summary proceeding and if a finding could be arrived at summarily, the exercise of power under Section 155 would be quite proper and in such a case refusal of relief would be arbitrary; that the jurisdiction is discretionary; that equitable principles governed the exercise of jurisdiction; that if the conduct of the parties complained of was unfair and adjust in relation to the subject sued for would be very relevant for exercise of jurisdiction. Learned Company Judge derived the aforesaid propositions as stated by him from the decision of the Supreme Court in Public Passenger Service Ltd., Chidambaram v. M.A Khader . AIR 1966 SC 489.. Learned Company Judge was also of the view that the aforesaid propositions squarely applied to the case on hand. Learned Company Judge bearing these propositions in mind approached the case and held that the petitioners were no other than the persons belonging to the group of respondent-2, and that it was respondent-2 who was responsible for the transfer of the shares of the petitioners and collected the amount from respondents-3 to 6, and petitioner-4 received the amount of consideration for the transfer of his shares; that the petitioners were set up by respondent-2; that the petitioners had either deposed falsely or feigned ignorance of all material aspects of the events; that the petitioners' failed to make out a prima facie case of the facts pleaded by them on the material issue; that Alwa was not examined and that similarly respondent-2 was not examined; that the burden was heavy upon the petitioners to prove that the official of the Bank misused the confidence bestowed on him by the petitioners; that the petitioners and respondent-2 should not be allowed to take advantage of their own wrongs; that the evidence of M.A Paul, R.W 4 was not useful as to material aspects of the transactions in question and his evidence was a poor substitute as a witness for respon-dents-3 and 4; that if the burden of establishing that share transfer transaction had taken place was entirely on respondents-3 and 4, they would have failed to establish the same. Learned Judge was of the view that the circumstances of the case tilted the balance in favour of respondents-3 and 4 as they had paid consideration for the share transfers and the petitioners had failed to establish that the share transfer forms were not executed by them; that failure of the 2nd respondent to give evidence though he was present in the Court on several dates proved that the present petition was a Proxy fight between the 2nd respondent and respondents-3 to 6. The learned Company Judge also came to the conclusion that even though Ex. R21 showed the date as late as 16th November 1986, the petitioners were treated as share-holders; however the learned Company Judge was of the view that even then the question that would arise as to why the Board purported to approve the alleged transfer of shares on 24-2-1986. Therefore, learned Company considered it safe to fall back on the ground that the jurisdiction was discretionary, summary and was also concerned with equities. He was also of the view that the share transfer forms were executed by the petitioners and were duly attested by the 2nd respondent, consideration was paid by the transferees and it was collected by the 2nd respondent on behalf of all the petitioners except the 4th petitioner; therefore, no injustice would be caused to the parties if the Court declined to exercise the jurisdiction under Section 155 of the Act. Accordingly, learned Company Judge dismissed the petition keeping it open to the petitioners to establish their right, if any, by resorting to any other remedy.

9. The learned Company Judge also summarily referred to the oral evidence adduced by the parties and mainly relied on the evidence given by Lakshmishappa, P.W 3, and was of the view that the transfer forms were signed - by petitioners Nos. 1, 2, 4 and 5. Regarding the other irregularities noticed by the learned Judge, it was held by him that all those need not be gone into when prima facie it was found that the petitioners have transferred the shares. Thus, the learned Company Judge dismissed the Petition.

10. As a consequence of dimissing Company Petition No. 62 of 1988, Company Petition No. 48 of 1987 was also dismissed because the petitioners could not be treated as share-holders as they had, according to the learned Judge, transferred their shares, and thereby ceased to be the members of the Company.

11. We have been taken through the oral and documentary evidence and also the Judgment of the learned Company Judge. In the light of the contentions urged on both sides, the following points arise for consideration:—

(1) Whether respondents 3 to 6 have proved that the petitioners sold and transferred their shares to them for valuable consideration?

(2) Whether the transfer of shares of the petitioners was effected in accordance with law? If not, whether it is valid in law?

(3) Whether it is just and proper to go into the transfer of shares of other members of the Company who are not before the Court and grant rectification of the register of the members of the first - respondent-Company relating to those share-holders?

(4) Whether the order under appeal is sustainable in law and on facts?

(5) To what reliefs the petitioners/appellants are entitled to?

POINT No. 1:

12. The petitioners and respondent-2 are related, Petitioner No. 1 is the mother of respondent-2. Petitioner No. 5 is the sister of petitioner No. 1. Petitioner No. 4 is the brother of petitioners 1 and 5. petitioners Nos. 2 and 3 are the relations of the other petitioners and respondent No. 2. Respondent No. 2 owned two bits of land bearing survey No. 68/4 measuring 14 guntas and S.No 68/5 measuring 9 guntas situated in Nagasettyhalli. He got these lands converted for non-agricultural purposes with a view to put up a cinema theatre. One Sri K.N Seshadri joined the second respondent in the venture. The 2nd respondent and K.N Seshadri together got the 1st-respondent-Company incorporated under the Act on 30th November 1978 with the authorised share capital of Rs. 10,00,000/- divided into 10,000 shares of Rs. 100/- each. Initially, 6400 shares were allotted. Out of them, 530 shares were allotted to petitioner No. 1, 250 shares to petitioner-2, 50 shares to petitioner-3, 550 shares to petitioner-4 and 250 shares to petitioner-5. These allotments were made upto 29th June 1983. Thereafter, in the Board Meeting held on 9-1-1985, 50 shares were allotted to Smt. Nirmala. Again in the Board meeting held on 26th March 1985, 3540 shares were allotted to following four persons:

1. Smt. Kalavathi … 900 shares 2. Smt. parvathamma … 840 shares 3. Sri. G.R Byrareddy … 900 shares 4. Sri P. Venu … 900 shares

Thus, by 26th March 1985, all the 10,000 shares were allotted.

12.1 The case of the petitioners is that no share certificates were issued at any time; that they did not sell or transfer their shares for consideration to any of the respondents-3 to 6; that petitioners 1 to 3 and 5 had not executed the share transfer forms; that the 4th petitioner signed the blank forms and handed over them to Sri P.K Alwa, that none of the petitioners had received the consideration to tranfer the shares; that the alleged transfer of shares was illegal as the share transfer forms were not accompanied by share certificates. The other pleas raised by the petitioners need not be referred to at this stage. However it is necessary to point out that the alleged share transfer forms of Smt. Pushpa Srinath-petitioner-3- were not produced and no explanation was offered by respondents-3 to 6 for non-production of the same.

12.2 According to the case of respondent-3 to 6, respondent-2 and one KN Seshadri formed leaders of two groups in the Company and they were the major share holders. KN Seshadri sold the shares relating to his group; that similarly respondent-2 sold the shares relating to his group which included the shares held by the petitioners; that the 2nd respondent received the consideration for the transfer of the shares of the petitioners; that consideration amount pertaining to the shares held by each of the petitioners except petitioner-4 was paid to respondent-2 through bearer cheques issued in the name of each of the petitioners; that the consideration amount payable to Lakshmishappa (petitioner No. 4) for the transfer of his shares was paid to him through the account-payee cheque; that respondent-2 had encashed all the other cheques and got the entire amount credited to his account and had withdrawn the same; that if there were any defects in the register of the share holders of the Company and in the transfer forms, the respondents-3 to 6 were not responsible; that it was the petitioners and respondent-2 who held all the records of the Company till their shares were transferred to respondents-3 to 6 and till respondents 3 to 6 were appointed as Directors, in the Meeting held on 24-2-1986. Therefore, it was the defence of respondents-3 to 6 that the petitioners were not entitled to take advantage of their own faults; that the case involved complicated question as to title to the shares; therefore, in a summary proceeding under Section 155 of the Act the same could not be gone into; that the petitioners were proxy fighters for respondent-2; that they had been set up by respondent-2; that the fact that the petitioners were illiterate did not, in any way, exonerate them from the liability arising out of the execution of the transfer forms; that the case of the petitioners that P.K Alwa manipulated and got up alleged proceedings by misusing the transfer forms obtained by the 2nd respondent for the purpose of obtaining loan was false and incredible; etc.

12.3 The evidence discloses that transfer forms pertaining to petitioners-1, 2, 4 and 5 were not fully filled up. They were also not duly stamped as required by Section 108 of the Act. No doubt, Lakshmishappa admitted in his evidence that he had signed the transfer forms; but he claimed that the blank transfer forms were signed for the purpose of giving to Mr. P.K Alwa and Venkatesh (R-2) gave the same to Mr. P.K Alwa Lakhmishappa further stated that he did not receive any consideration; that Muniyamma, Narayanamma, Aswathappa and Pushpa Srinath - petitioners 1, 5, 2 and 3 respectively signed share transfer forms and gave them to Venkatesh just as he gave Ex. P. 3 to Venkatesh. Ex. P. 1 was the transfer form relating to Muniyamma who was examined as P.W I. She denied that she had executed the transfer form. Learned Company Judge had made a note that when she was confronted with transfer form for the purpose of asking her the question as to whether she had affixed her thumb impression, she refused even to look at the transfer form and denied that she had ever affixed her thumb impression for transfer of shares. In the cross-examination of P.W I, it was elicited that she did not know anything about the 1st respondent-company. However, in the cross-examination Ex. P. 1 was confronted to her and she specifically stated that she had not seen Ex. P. 1 before and Ex. P. 1(a) was not made by her. Therefore the observation that she refused to look at Ex. P. 1 during the course of examination-in-chief is not of any consequence inasmuch as in the cross-examination she specifically stated that Ex. P. 1(a) was not made by her. No step was taken by respondents-3 to 6 to prove that Ex. P. 1(a) was made by P.W 1.

12.4 Ex. P. 2 was a share transfer form relating to Narayanamma-petitioner-5 - who was examined as P.W 2. According to her evidence, she did not know how to sign her name. She further stated that she had not given any papers. She had not sold her shares of the 1st respondent-company. She also further stated that she did not know anything about Ex. P. 2; that the company did not give her any return in lieu of her investment in the shares. In the cross-examination, it was elicited from her that she did not know “what a company director is or means”. She also further stated that she did not know whether Lakshmishappa had any responsibility in the company besides being a share-holder. She denied the suggestion that Ex. P. 2(a) was her signature. She specifically denied that she signed Ex. P. 2 and Ex. P. 2(a) was her signature. It was also elicited from her in the cross-examination that it was about 8 or 9 years since she had made investment in the 1st respondent-company and she had no income from the investment; that she did not know whether Lakshmishappa was the chairman of the 1st respondent-company and as to who was running the affairs of the Company. P.W 3, as already pointed out, is Lakshmishappa. He admitted that he had signed the transfer form Ex. P. 3. He however denied the suggestion that the shares were transferred and the transfer was recorded in Ex. P. 4 at page 45. It was also further elicited in the cross-examination that Ex. P. 3 was given to P.K Alwa to raise loan from the bank. Similarly Muniyamma and others also gave transfer forms for the purpose of raising loan from the bank. It was further elicited in his cross-examination that he did not have any personal account in any bank; that he did not know if he had a personal account in the Corporation Bank; that he was not an income tax assessee. It was also further elicited that he did not know respondents-3 to 6 and whether they belonged to Khoday's group; that he did not know anything about Universal Trading-Company. Of course, he went to the extent of stating that he did not know what he should do if a cheque were to be issued in his favour by anyone. He also denied that he received a cheque for Rs. 1,58,000/- from Universal Trading Co. on 24-2-1986. He denied that Ex. P. 6(a) was his signature. It is very relevant to notice that the transfer forms of other petitioners were not confronted to him. The signature and the thumb impression, as the case may be, of the other petitioners on the transfer forms were not identified by him as they were not confronted to him except eliciting in the cross-examination thus:

“Ex. P. 3 was given to Venkatesh and he gave it to B.K Alwa as stated by me earlier, Muniyamma, Narayamma and Aswathappa and Pushpa-Sreenath signed share transfer forms and gave it to Venkatesh just as I gave Ex. P. 3.”

On the basis of his evidence, learned Company Judge has held that execution of transfer forms by the petitioners has been proved.

12.5 P.W 4 is Aswathappa. He is petitioner-2. He stated that he did not know respondents-3 to 6; that he had not signed Ex. P. 7 and P. 7(a) was not his signature. Ex. P. 7 was the transfer form relating to transfer of 250 shares of this witness to respondents-3 to 6. At this stage, we may point out that 530 shares held by the 1st petitioner, according to the case of respondents-3 to 6 were transferred to respondent-5 and 250 shares held by the 2nd petitioner were tranferred to respondents-6, 50 shares held by the 3rd petitioner were transferred to respondent-5 and 550 shares held by the 4th petitioner were transferred to respondent-5; and 250 shares held by petitioner-5 were transferred to respondent-3. Thus all the shares held by the petitioners were transferred to respondents-3, 5 and 6 as stated above.

13. Respondents 3 to 6 examined 4 witnesses. R.W 1 was an official of the Corporation Bank, M.G Road, Bangalore. He produced the S.B Account extracts of Venkatesh and Lakshmishappa and current account extract of Arati Cine Enterprises which were marked as Exs. R. 2, R. 3 and R. 1 respectively. According to his evidence Ex. R. 2 was the account extract of the S.B Account No. 1692 of Venkatesh (Respondent-2) for the period from December 1985 to December 1987. Ex. R. 3 was the account extract of the S.B Account No. 1749 of Lakshmishappa from April 1984 to December 1987. He also spoke regarding the Current Account No. 326 of Ex. R. 1 of Arati Cine Enterprises for the period from September 1984 to December 1985. He admitted that 1st petitioner did not have any account with the Corporation Bank, M.G Road Branch, Bangalore. Similarly, petitioner-2 also did not have any account with the Corporation Bank, M.G Road, Bangalore. Respondent-2 had an account with the said Bank. Of course, he was not able to state as to whose account the cheques Exs. R. 13 and R. 14 were credited. He however, stated that cheque Ex. R. 15 was that of one Venkatesh and the same was prepared by the Bank. He also spoke regarding the drawing of the amount of Rs. 2,58,000/- by Sri Venkatesh-respondent-2. He further stated that the cheque was encashed and payment was made across the counter and as per the endorsement, the cash must have been paid to him. He identified Venkatesh who was sitting in the Court when his evidence was recorded.

13.1 R.W 2 was the Sub-Manager of the Corporation Bank, Nrupathunga Road Branch, Bangalore. He produced 8 cheques drawn - 3 in favour of B.G.S Murthy, one each in favour of Lakshmishappa, Kalavathi and Pushpa Srinath, Narayanamma and Nirmala. He also stated that he did not know any of the drawees of the cheques to whom he referred to in his examination-in-chief. He also further admitted that Payees' signatures were not obtained on the cheques Exs. R. 4 to R. 9; and so also on Exs. R. 1 and R. 11 and Exs. R. 10 and R. 11 being payees cheques, somebody who had taken the money had signed the cheques but he did not know who that person was. He also further stated that he did not know any of the persons in whose favour the cheques were drawn and were ultimately realised.

13.2 R.W 3 was the Accountant in the Canara Bank, Avenue Road Branch, Bangalore. He produced the Current Account extract of Sri K.L Srihari - respondent-4 for the period from 1-1-1986 to 18-4-1986. It was marked as Ex. R. 12. According to his evidence, Sri K.L Srihari issued a cheque dated 24-2-1986 in favour of Aswathappa for a sum of Rs. 25,000/-. That cheque was produced and marked as Ex. R. 14. The amount under the cheque was realised through Corporation Bank, M.G Road, Bangalore, by the drawee-Aswathappa. He also further deposed that respondent-3 issued a cheque in favour of Dodda Muniyamma for a sum of Rs. 53,000/- on 24-2-1986 which was also encashed through Corporation Bank, M.G Road Branch, Bangalore by the drawee. The said cheque was marked as Ex. R. 4. He spoke regarding the entries made in Ex. R. 12 pertaining to the payment made under the aforesaid cheques. These entres were marked as Exhibit R. 12(a) and (b). In the cross-examination, he admitted that the he did not know Aswathappa Dodda Muniyamma and the petitioners in the case. He did not know if any of the petitioners had an account in the Corporation Bank, M.G Road, Bangalore.

13.3 R.W 4 was one M.A Paul. He was an Executive Assistant to respondent-3. He claimed that he was acquainted with the transactions which were the subject matter of the petition. He deposed on behalf of respondents-3 and 4. Through him Company Petition No. 48/1987 was marked as Ex. R. 21. He stated that the 2nd respondent Venkatesh approached respondents-3 and 4 and offered to sell the shares representing a group of share-holders who were the present petitioners. That another group of Seshadri also offered to sell the shares. The entire share-holding of the 1st respondent-company was held by these groups. He deposed that initially respondent-2 came up with the proposal for transfer of shares belonging to his group, subsequently Seshadri came forward with the offer to sell the shares of his group. There was certain litigation between the two groups as is revealed from Company Petition No. 48/1987; that prior to the acquisition of shares by respondents-3 and 4, the 1st respondent company had borrowed from the Corporation Bank, M.G Road Branch to the tune of Rs. 21,00,000/- or the purpose of constructing the theatre; that 30% was spent for the said purpose. After the acquisition of shares, no further loan was obtained from the Bank; the shares were not pledged with the bank; that the 2nd respondent was behind the petitioners and it was he who was pursuing the matter. He also further stated thus:

“….. He is sitting in the Court today and he has been attending the court on all the days whenever this petition is posted. Venkatesh was acting on behalf of petitioners in the matter of dealing with shares. Venkatesh was the Managing Director of the Company at the time he purchased the shares and he handed over the books of the company to us. All those books were maintained by the Company by the previous management.”

In the Cross-examination he stated that he did not know when Venkatesh approached Srihari and Swamy and offered to sell the shares; that he was not present when Venkatesh approached Srihari. He further stated that he was not personally aware of the particulars of the shares offered by Venkatesh to Srihari and when he approached the latter; that he was not aware as to what happened during the meeting between Venkatesh and Srihari. He also further stated that he had not come across any authority given to Venkatesh by the petitioners to act on their behalf. He further admitted that the names found in Annexure-A to Exhibit R. 21(a) were the names of the then share-holders as on the date of the said agreement. He further stated that he was not aware of the procedure for the acquisition of shares. It may be noticed at this stage that Ex. R. 21 is dated 16th November 1986.

14. The other evidence relating to transfer of shares is the Minutes of the Board Meeting held on 24-2-1986 which is marked as Ex. P. 4. This is all the evidence having a bearing on the transfer of shares held by the petitioners. The learned Company Judge has rejected the evidence of the petitioners solely on the ground that they belong to the group of Venkatesh and they are set up by Venkatesh and as such they should not be permitted to take undue advantage of their own acts. We are of the view that the burden was upon respondents-3 to 6 to prove that the petitioners transferred the shares for valid consideration and the transfer of shares was effected in accordance with law. The learned Company Judge has proceeded on the basis that it was for the petitioners to prove that there was no transfer of shares held by him. This is clear from the reasoning contained in paras 3 and 4 of the order of the learned Judge under the heading “Reconsideration for the transfers”. Learned Judge also expressed thus:

“if the burden of establishing that share transfer transactions had taken place was entirely on respondents-3 and 4, these respondents would have failed.”

Learned Judge was of the view that respondent-2 was a group-leader of the petitioners and he was a relation of them, therefore, he ought to have been examined in the case and his failure to enter the witness-box must lead to an adverse inference against the petitioners. We may at once point out that when the burden was upon respondents-3 to 6 to prove that there was a transfer of shares held by the petitioners and it was their case also that respondent-2 was responsible for transfer of the shares and it was he who received the cheques and encashed the entire amount except that of Lakshmishappa, it was all the more necessary for them to examine respondent-2 or atleast request the Court to direct respondent-2 to make himself available for cross-examination. According to respondents 3 to 6 the 2nd respondent effected the transfer of shares and subsequently set up the petitioners and made them to carry on proxy-fighting, it has escaped the attention of the learned Company Judge that the burden of proving that the shares were transferred in accordance with law was upon respondents 3 to 6 and not upon the petitioners to prove the transfer of shares. It is the party who asserts existence of certain facts or wishes the Court to believe in its existence, unless it is provided by any law that the proof of that fact shall lie on any particular person, the burden of proof of existence of that fact lies on the person who asserts it. Respondents-3 to 6 have set up a plea that the shares held by the petitioners in the 1st respondent-Company were transferred to them with the mediation of respondent-2. Therefore, the burden was upon respondents-3 to 6 to prove the alleged transfer of shares. Therefore, it is not possible to agree with the learned Company Judge for drawing an adverse inference against the petitioners for non-examination of respondent-2 especially when it was the case of the petitioners that they had not effected transfer of shares and had not received any consideration amount. Mere relationship of respondent-2 with the petitioners is not sufficient to draw an adverse inference against them.

15. On considering the evidence on record, we are of the view that it is not possible to hold that the transfer of the shares held by the petitioners 1 to 3 and 5 is proved in the case. We will consider the case of the 4th petitioner separately. As already pointed out, none of the petitioners 1 to 3 and 5 has admitted that he or she has executed the share transfer forms. The transfer form pertaining to petitioner No. 3 has not been produced. No explanation is offered for non-production of the same. Therefore, the case of respondents-3 to 6 that petitioner No. 3 has transferred her shares to respondent-5 is not proved, because no such transfer form is produced. As far as the other petitioners 1, 2 and 5 are concerned, in their evidence, it has been asserted by them that they did not transfer the shares. P.W I was confronted with the transfer form Ex. P. 1. Though initially she refused to look at it, but subsequently as already pointed out, she specifically stated in the cross-examination thus:

“I have never seen Ex. P. 1 before. Ex. P. 1. (a) is not made by me.”

P.W 2 has specifically stated thus:

“I see Ex. P. 2. I do not know anything about it. I do not know how to sign my name”.

She has also further stated that she has not sold her shares in the 1st respondent-company. Thus it is the case of the 5th petitioner that she does not know how to sign, whereas the transfer form contains her signature. Under these circumstances, the respondents-3 to 6, in order to prove that the petitioners-1 to 3 and 5 have executed Transfer Forms have placed reliance on the evidence of the 4th petitioner Lakshmishappa, who has stated that similarly the petitioners-1 to 3 and 5 signed share transfer forms and gave it to Venkatesh just as he gave Ex. P. 3. It is relevant to notice that Lakshmishappa was not confronted with the transfer forms alleged to have been executed by petitioner-1, petitioner-2 and petitioner-5. He has not identified the signatures and the thumb mark found on Exs. P. 2, P. 7 and P. 1 as those of the alleged executants. There is no specific evidence on record to prove that Ex. P. 1 P. 2 and P. 7 were executed by petitioner Nos. 1, 5 and 2 respectively. In the case of denial of execution of a document, the party who pleads the execution of a document shall have to prove by specific evidence as to the execution of the document, the signature of the executant has to be proved.

16. In the instant case, except the general statement of P.W 3 Lakshmishappa, without referring to the documents Ex. P. 1, P. 2. and P. 7, there is no other evidence. Not only this, the evidence on record also indicates that consideration amount had not been received by any one of petitioners-1 to 3 and 5. R.W 4 - Paul, has no personal knowledge about the meeting of respondent-2 with respondent-3. He has also not deposed that the amount received by RW-2 was paid over to petitioners-1 to 3 and 5. A person purchasing the shares or for that matter any property, is under an obligation to pay the consideration agreed upon for the transfer. This circumstance also goes in favour of the petitioners, whose case is that they have not transferred the shares in question. The Learned Company Judge has also held that the case of the petitioners that the share certificates were not issued is not correct. Whereas, it is not disputed by the respondents that no share certificates for transfer of shares is necessary. This circumstance also goes in favour of the petitioners that there was no transfer of shares and the forms signed by them were handed over to the respondent-2, for the purpose of raising the loans. The Learned Company Judge has rejected the evidence of PW-1, 2 & 4, on the ground that they are not aware of the affairs of the Company being the Share-holders. It is not possible to draw such an inference from the circumstance that a share-holder is not aware of the affairs of the Company therefore he is not telling the truth before the Court. It is a common knowledge that shares are purchased for the purpose of investment and it is not necessary that every share-holder must know the affairs of the Company in detail unless it is one of the closely held Companies. Therefore, we find it difficult to agree with the view expressed by the Learned Company Judge, on the evidence on record. The Learned Counsel appearing for the respondents-3 to 6 contended that these petitioners are set up by respondent-2, who has received the consideration and respondents-3 to 6 are the innocent purchasers of the shares and they had been persuaded to purchase the shares, as such the petitioners case should not be accepted and they should be held responsible for the acts of the 2nd respondent in not paying the consideration amount to the petitioners.

17. It is contended that the 2nd respondent approached respondents-3 to 6 as a leader of his group which included the petitioners and gave the transfer forms to respondents-3 to 6, who paid the consideration amount through cheques, which were encashed by the 2nd respondent. As such, the case of the respondents-3 to 6 is that 2nd respondent is trying to come back into the Company, after having sold all his shares and lost his interest in the Company through the petitioners. Here, we would like to point out that merely because the 2nd respondent is related to the petitioners and he represented to respondents-3 to 6 that he was the leader of the group which included the petitioners, the responsibility of respondents-3 to 6 was not over by merely paying the amount into the hands of respondent No. 2. They were purchasing the shares of the petitioners. Therefore, they were required to see that the petitioners were consenting parties to the transfer and received the consideration amount. The evidence of RW-4 Paul, goes to show that there was no effort whatsoever made by respondents-3 to 6 to get at the petitioners. They appeared to have dealt with the 2nd respondent only. RW. 4 admitted that he was not aware whether the 2nd respondent and respondent-3 met once or more than once in this connection. There is no acknowledgment obtained from the petitioners for having paid the consideration into the hands of the 2nd respondent. Apart from the share transfer forms Ex. P. 1, P. 2 and P. 7 pertaining to petitioners 1, 2 and 5, the respondents-3 to 6 have not produced any other evidence for having paid the consideration to them. Of course, cheques issued in the names of these petitioners are produced. But these cheques were encashed by the 2nd respondent. The cheques do not bear any endorsement by petitioners-1, 2 and 5. They were not even confronted with those cheques. It is really surprising as to how respondents-3 to 6 could afford to go on in such a manner without caring for the owners of the shares as to whether they had executed transfer forms and received the amount of consideration and have agreed to sell the shares. As to what happened to the transfer form alleged to have been executed by the 3rd petitioner, there is no evidence. Therefore, the very basic document pertaining to the transfer of shares of petitioner-3 is not produced and proved except stating that the transfer form pertaining to 3rd petitioner was not traceable. Therefore, in the case of 3rd petitioner, there is no basic proof as to the transfer of shares by her.

18. As far as Lakshmishappa is concerned, he has admitted his signature on Ex. P. 3- share transfer form-regarding the transfer of shares held by him. But he has asserted that he had executed blank transfer forms and it was not intended for transfer, but it was intended to offer the shares as a security for raising the loan through P.K Alva. He has further stated he has not received any consideration. The attempt made by respondents-3 to 6 is to show that an Account-payee cheque was issued in the name of petitioner-4 and it was encashed by him by putting the same into his S.B Account No. 1749 in the Canara Bank, M.G Road, Branch. Sri Lakshmishappa has asserted in his evidence that he has no S.B Account in any Bank and he has not opened any account in the Canara Bank, M.G Road Branch. No doubt Ex. R. 3 was not confronted to him and the cheque issued in his name was not confronted to him. It was not difficult for respondent-3 to 6 to summon the papers pertaining to opening of the account by Lakshmishappa in the Canara Bank, M.G Road Branch and confront the same, specially when it was his case in the petition, that he had not received consideration. In the evidence also he has specifically asserted that he has not sold his shares to any person.

19. Ex. R. 3 is for the period from April 84 to December 87. It contains several entries. There are many credit and debit entries. Ex. R. 3 is produced by R.W 1, a bank official, who has copied it from the original. Lakshmishappa denied that he had any such account in the Canara Bank, M.G Road Branch, Bangalore. The name and address found in Ex. R. 3 tallies with that of Lakshmishappa and it is produced by the Bank Official. There is no suggestion to R.W 1 that Ex. R. 3 does not pertain to Lakshmishappa. It is true the burden is upon respondents-3 to 6 to prove the transfer of shares and payment of consideration. They should have produced a better evidence by producing the cheque issued to withdraw a sum of Rs. 55,000/- and also the cheques relating to several debit entries found in Ex. R. 3 by issue of cheques by the account holder. If those cheques would have been produced, it would not have been difficult to point out that the account pertained to Lakshmishappa. Now the evidence before us is that the Bank official and the actual extract of the S.B Account No. 1749 and the denial of Lakshmishappa. The S.B Account No. 1749 in the name of Lakshmishappa maintained by the Bank containing debit and credit entries for the period from April 1984 to December 1987 in the absence of any further evidence to prove fraud on the part of the Bank cannot be rejected and it cannot be brushed aside. Therefore, we are of the view that Lakshmishappa has received a sum of Rs. 55,000/- through an account payee cheque and that amount has been credited to S.B Account No. 1749 of Canara Bank, M.G Road Branch, Bangalore. There is debit entry for having drawn the said amount of Rs. 55,000/-. But the case of Lakshmishappa is that he signed only the blank form; that when he signed Ex. P. 3 it did not contain any name and it was only blank, cannot also be brushed aside. This added with the other legal defect that the stamp affixed on the transfer form were not cancelled, should lead to the conclusion that the alleged transfer form was invalid, therefore, the alleged transfer of shares was not valid in law. Consequently, Lakshmishappa cannot be held to have transferred the shares in accordance with law and cannot be held to have ceased to be a member of the Company and ceased to have been the owner of 550 shares.

20. According to respondents-3 to 6, these transfers were approved on 24-2-86 in the meeting the Board of directors. Consequently, the petitioners ceased to be the share-holders of the 1st-respondent Company. If really these transfers had taken place and were approved by the Board of Directors on 24-2-86 in Ex. R. 21(a) which is an Annexure to Ex. R. 21 dated 16-11-1986, these petitioners should not have been shown as share-holders of the 1st respondent-company. R.W 4 has admitted in his evidence that the names found in Annexure-A to Ex. R. 21(a) are the names of the then share-holders as on the date of the said agreement. Ex. R. 21 is dated 16-11-86. It is an agreement entered into between respondents-3 to 6 and others and Sri K.N Seshadri in respect of the shares transferred by K.N Seshadri himself and the members of his group, it is signed by R.W 4 and B.R Srinivasan and also by Sri K.L Srihari. Annexure-A to Ex. R. 21(a) contains a list of share-holders in the 1st respondent-company. The names of the petitioners are found at Sl. Nos. 5 to 9 in the list. The name of the 2nd respondent is also found at Sl. No. 2. Annexure-B to Ex. R. 21 relates to the list of documents handed over to the 2nd party as per the agreement. One of the documents mentioned therein at Sl. No. 5 relates to share transfer file. If really there was a transfer form executed by petitioner No. 3 it should have been found in that file. But respondents-3 to 6 have stated that the said form has not been traceable. This circumstance also goes to show that even as on 16-11-1986, the transfer of shares of the petitioners had not taken place. If it had taken place, it should have been approved and they should have ceased to be the members of the Company. Consequently, their names could not have been found in Annexure-A to Ex. R. 21. The possibility of respondent-2 duping petitioners-1 to 3 and 5 cannot also be excluded. The petitioners, irrespective of their relationship with respondent-2 are in law entitled to take such steps as are open to them in law to safeguard their right, title and interest in the shares held by them in the 1st respondent-company.

Thus taking into consideration all the facts and circumstances of the case as established by the evidence on record, we answer Point No. 1 in the negative though petitioner-4 has received a sum of Rs. 55,000/- which he has to refund to respondents-3 to 6.

POINT No. 2

21. This point involves a pure question of law. It is contended on behalf of the petitioners and also by Sri Holla, the learned Counsel appearing for the 2nd respondent that unless the share transfer forms are properly stamped and registered, there will not be a valid transfer. We consider this point on the assumption that respondents-3 to 6 have proved the transfer of shares by the petitioners, because under Point-1, we have held that they have failed to prove the transfer. It is an admitted fact that the transfer forms did bear the stamps but they were not cancelled. Section 108(1) of the Act provides that

“A company shall not register a transfer of shares in, or debentures of, the company, unless a proper instrument of transfer duly stamped and executed by or on behalf of the transferee and specifying the name, address and occupation, if any, of the transferee, has been delivered to the company along with the certificate relating to the shares or debentures, or if no such letter of allotment of the shares or debentures”.

It is not the case of respondents 3 to 6 that the transfer forms were lost. Therefore, it is not necessary to refer to the first proviso to sub-Section (1) of Section 108 of the Act.

Unless the instrument of transfer of shares is duly stamped and executed by or on behalf of the transferor and by or on behalf of the transferee and has been delivered to the company along with the certificate relating to the shares or debentures or if no such certificate is in existence, along with the letter of allotment of the shares or debentures, the transfer cannot at all be registered by the Company. This section has been considered in Nuddea Tea Co. Ltd. v. Ashok Kumar Saha . 1988 Company Cases Vol. 64, 775. and it has been held:

“that the instrument of transfer of shares should bear the requisite stamps and the adhesive stamps should be cancelled at the time of affixation of such stamps and execution of the document. If these requirements are not complied with, then the instrument, although bearing an adhesive stamp but not cancelled in the manner as contemplated by the Indian Stamp Act, 1989, cannot be said to be an instrument ‘duly stamped’. The requirement of Section 108 is mandatory in nature and the cancellation under Section 12 cannot be made subsequent to the execution of the instrument.”

In the instant case, all the transfer forms pertaining to petitioners-1, 2, 4 and 5 have been stamped but the stamps are not cancelled. In the light of the provisions contained in Section 12 of the Karnataka Stamp Act, the non-cancellation of the stamps affixed, the instrument concerned must be deemed to be unstamped. The provisions of Section 108(1) of the Act and Section 12 of the Karnataka Stamp Act are mandatory. These provisions are to be read together. The effect of these provisions is that the document though stamped must be held to be unstamped if the stamps affixed are not cancelled at the time of execution of the document. If the stamps affixed are not cancelled, the document must be held to be not duly stamped. Consequently, it must be held to be invalid.

In Dr. (Mrs.) Nirmal T. Shah v. Sharavathi Petrochemicals . Company Petition No. 38 of 1980 D.D 10-10-1984., Chandrakantharaj Urs. J. has held that the provisions contained in Section 108(1) of the Act are mandatory. This Decision also accords with our view. The burden was on the respondents to prove that when the transfer forms were delivered to the 2nd respondent the same were filled and were duly stamped at the time of execution of the same.

In Arun Kumar Jaganany v. Hindusthan Motors Limited . 1984 2 Company Law Journal 270., it has been held:

“Apart from the aforesaid issue of limitation, another basic issue for our consideration is that the stamps on share transfer deeds having not been cancelled, the share transfer deeds have to be taken as unstamped and not in accordance with Section 108(1) of the Companies Act read with the provisions of Indian Stamp Act”.

During the course of the Judgment, a Decision in Mathrubhumi Printing and Publishing Co. Ltd. v. Vardhaman Publi-Shers Ltd. . Vol. 73 Part 1992 Company Cases 88. was brought to our notice. In that Decision also a Division Bench of Kerala High Court has held that under Section 12 of the Indian Stamp Act, 1899, cancellation of the stamps has to be done either when the stamps are affixed or when the instrument is executed, that is when the executant affixes his signature to the instrument. The cumulative effect of the Sections contained in Part-B and Part-C of Chapter II and those contained Chapter IV of the Indian Stamp Act is that an instrument, in order to be produced in evidence, registered or acted upon, must be duly stamped. And therefore, if the instrument is not properly executed or the stamp affixed to the instrument is not cancelled before execution or atleast at the time of execution, the said instrument must be deemed to be unstamped. The provisions of Section 12 are mandatory, and therefore, non-compliance with the requirements prescribed thereunder make the instrument not duly stamped and therefore, it shall not be received in evidence, registered or acted upon.

Of course, with regard to this illegality, it is the contention of Sri Jayaram, learned Counsel for respondents-3 to 6 that respondents-3 to 6 being the purchasers of the shares have come into the picture later and any illegality that had been committed either during the process of transfer of shares or earlier to that, they cannot be held responsible.

22. We may point out that respondents-3 to 6 being the purchasers of the shares, they were also under the legal obligation to ensure that the transfer of shares took place in accordance with law. There cannot be valid transfer of shares unless the share transfer forms are duly stamped. Therefore, it is not possible to hold that the contention of the petitioners based on Section 12 of the Karnataka Stamp Act read with Section 108 of the Companies Act is without any substance merely on the ground that respondents-3 to 6 have come into picture later. They are the purchasers of the Shares. They must prove that under the valid document the shares are transferred to them. Therefore, we are of the view that even assuming that respondents-3 to 6 have proved that the petitioners have transferred their shares, as the adhesive stamps affixed on the share transfer forms are not cancelled, the share transfer forms must be held to be unstamped and therefore, the instruments must be held to be invalid. We hold accordingly.

23. At this stage, we may also refer to an argument advanced on the basis of the Articles of Association of the 1st-respondent-Company. It is contended that the shares of the Company shall not be transferred except to a person agreed to by all the Directors of the Company at the price fixed by the Board of Directors. In our view, it is not necessary to consider this contention in the light of the finding recorded on Point No. 1.

24. For the reasons stated above, we answer Point No. 2 as follows:

The transfer of shares held by the petitioners even assuming that there was such a transfer of shares as claimed by respondent-3 to 6 by the petitioners, it was not effected in accordance with Section 108(1) of the Companies Act read with Section 12 of the Karnataka Stamp Act, therefore, was not valid in law. Therefore, the petitioners continue to be shareholders of the 1st respondent-Company and as such continue to be its members.

POINT No. 3

25. The petitioners, apart from seeking relief concerning to them, lave also sought for rectification of the register of members of the Company of the 1st-respondent Company pertaining to other members of the Company. The rectification of the register of members pertaining to other shareholders whose names are mentioned in the petition. The contention of the petitioners is that Section 155 of the Companies Act is wide enough to enable the petitioners to seek rectification of the register of members of the 1st-respondent Company pertaining to other members other than the petitioners. The rectification is sought on the ground that the transfer of shares by those share holders has not taken place in accordance with law, inasmuch as on the dates on which these transfers are alleged to have taken place, no meeting of the Board of Directors had taken place. It is contended that on 14-10-1984, 6-4-85, 18-5-84, and 16-11-86, several shares pertaining to the other members whose names are mentioned in the petition are alleged to have been transferred. But in fact, no meeting of the board of Directors took place on those dates and no distinctive numbers were assigned and the shares transferred were more than the shares allotted by the Company and the same distinctive numbers were given to several others. It is submitted that Section 155 of the Act is wide enough to enable the petitioners to seek and the Court to grant, such a relief. On the contrary, it is contended by Sri Jayaram, learned Counsel appearing for respondents-3 to 6 that those persons who are not receiving the consideration and have no grievance to make; if at the instance of the petitioners they are to be restored as share-holders of the Company, on certain irregularities in the proceedings and in the records of the company in the matter of transfer of shares, this Court will be restoring the contract without affording an opportunity to one of the contracting parties and without ascertaining as to whether they are still ready to continue as members of the Company. It would amount to forcing upon them, the contract and the Court cannot make a contract for the parties. It is also submitted that without those persons before the Court, no such relief can be granted. It is also further contended that the nature of the proceeding under Section 155 of the Act being a summary proceeding, the question as to whether the persons other than the petitioners have transferred the shares etc. need not be gone into. If the other persons are aggrieved, it is always open to them to seek redressal in accordance with the provisions of the Act.

26. Under this Point, we are also required to consider the scope of Section 155 of the Act. Section 155 of the Act, no doubt has now been omitted and it has become part of Section 111 of the Act by reason of the Companies (Amendment) Act, 1988, which has come into force subsequent to the filling of the petition. The petition was filed on 9-6-88. Therefore, we have to consider this case under the Act as it stood prior to the coming into force of the Companies (Amendment) Act, 1988 (Act No. 13 of 1988) in the light of the provisions contained in Section 68 of the Companies (Amendment) Act, 1988. Though Section 21 of the Companies (Amendment) Act, 1988 omits Section 155 and 156 of the Act but Section 16 of the very Amendment Act 1988 (Act No. 13\88) while substituting Section 111 of the Act incorporates Section 155 of the Act, the jurisdiction to consider the application for rectification of the Register of Members of the Company no more vests with a District Court or a High Court but vests with the Company Law Board. As already pointed out, we have to consider this case under Section 155 of the Act as it stood prior to its omission from the Act. Therefore, we refer to the provisions contained in Section 155 of the Act which were as follows:

“155(1): If-

(a) the name of any person-

(i) is without sufficient cause, entered in the register of members of a company, or

ii) After having been entered in the register is, without sufficient cause, omitted therefrom; or

(b) default is made or unnecessary delay takes place in entering on the register the fact of any person having become or ceased to be member:

the person aggrieved or any member of the Company, or the Company, may apply to the Court for rectification of the register.

2) The Court may either reject the application or order rectification of the register; and in the latter case, may direct the company to pay the damage, if any sustained by any party aggrieved.

In either case, the Court in its discretion may make such order as to costs as it thinks fit.

3) On an application under this Section the court:— a) may decide any question relating to the title of any person who is a party to the application to have his name entered in or omitted from the register, whether the question arises between members or alleged members, or between members or alleged members on the one hand and the company on the other hand: and company on the other hand; and

(b) generally, may decide any question which it is necessary or expedient to decide in connection with the application for rectification.

(4) From any order passed by the Court on the application, or on any issue raised therein and tried separately, an appeal shall lie on the grounds mentioned in Section 100 of the Code of Civil Procedure, 1908-

(a) if the order be passed by a District Court, to the High Court;

(b) if the order be passed by a single Judge of a High Court consisting of three or more judges, to a Bench of that High Court.

(5) The provisions of sub-section (1) to (4) shall apply in relation to the rectification of the register of debenture holders as they apply in relation to the rectification of the register of members.”

The Supreme Court in Public Passenger Service Ltd., Chidambaram v. M.A Khadar, etc.. has held that:

“where 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 in exercise of the discretionary jurisdiction and relegate the parties to a suit.”

In that case, it was held that as the case did not involve complicated question, there was no necessity to drive the parties to a suit. It was also pointed out that the rectification of the share register should be allowed if the name of the person after having been entered in the register was without sufficient cause omitted from it. There was no sufficient cause for the omission of the name of the share-holder from the register and the omission was due to invalid forfeiture. In that view of the matter it was held that the forfeiture was invalid. Therefore, it was necessary to grant relief to restore the names of the share-holders.

In Indican Chemical Products Ltd. v. State of Orissa . AIR 1967 SC 253., the provisions of Section 38 of the Act was considered. The provisions contained in Section 38 of the Indian Companies Act, 1913 were similar to Section 155 of the Act (Indian Companies Act, 1956). In that case, the State of Orissa claimed that by reason of successive constitutional changes, the shares held by the Maharaja Mayurbhanj became vested in the State of Orissa, therefore, it be entered in the Register of Members of the Company. The Board of Directors refused to register the State of Orissa as successor to the shares held by the Maharaja. Therefore, a petition under Section 38 of the Companies Act, 1913 was filed in the High Court of Orissa and the same was allowed. In the Appeal, the Supreme Court confirmed the order of the High Court and held as follows:

“Though the State of Orissa had acquired title to the shares by operation of law, by way of abundant caution, it obtained a deed of transfer and lodged it with the Company together with the share scrip. The transfer deed was duly stamped and complied with all the formalities required by law. The claim of the State of Orissa based upon the transfer deed was within the purview of Article II. Even with regard to their claim, the courts below concurrently held that the Board of Directors acted mala fide in refusing to register the transfer. This finding is amply supported by the materials on the record.

Ultimately, in para 11 of the Judgment, the Supreme Court held as follows:

“The Maharaja of Mayurbhanj has ceased to be the owner of the shares. The State of Orissa is now their owner and has the legal right to be a member of the Company and is entitled to say that the Company should recognise its membership and make an entry on the register of the fact of its becoming a member and its predecessor-in-title having ceased to be a member. The name of the State of Orissa has without sufficient reason been omitted from the register and there is default and there is default in not entering on the register the fact of the Maharaja having ceased to be a member. The court's jurisdiction under Section 38 is, therefore, attracted. The High Court rightly ordered the rectification in the exercise of its summary powers under Section 38. 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 applicant 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. There is no merit in this appeal.”

Therefore, it is clear from the aforesaid Decision even a complicated question as to whether the Board of Directors acted mala fide in reducing to register The State of Orissa as a Member of the Company was gone into in a petition filed under Section 38 of the Indian Companies Act, 1913 and it was approved by the Supreme Court. It was also specifically observed that the jurisdiction created by Section 38 was very beneficial and should be liberally exercised. Learned Company Judge has also noticed this Decision.

The High Court of Gujarath in Shri G.K Naik v. Shri L.L Patel of Baroda . 1978 48 Company Cases 438. has taken a view that in a proceeding under Section 155 of the Companies Act, the relief sought for even if it involves complicated question can be gone into and if the case is made out the relief can be granted. Same is the view expressed by the High Court of Kerala in K.P Anthony v. Thandiyode Plantations (P) Ltd., . 62 1987 Company Cases 553..

27. Thus the conspectus of these Decisions lead us to a conclusion that even though the proceeding under Section 155 of the Companies Act is a summary proceeding, as it is a relief provided under the statute, in a proper and appropriate case, it is open to the Court to grant relief even though it may involve complicated questions of law and facts. Whether in a particular case relief should be granted or not, because the jurisdiction is discretionary as the word used is ‘may’ in Section 155 of the Act, would depend upon the facts and circumstances of the case but the exercise of jurisdiction cannot be refused on the ground that it involves complicated questions of law and facts. Of course, the propriety of the petitioners and their conduct having a bearing on the subject matter of the petition would be relevant to the decision as to whether the discretion should or should not be exercised. In the instant case, in the light of the findings recorded already, it is not possible to agree with the view of the learned Company Judge that the petitioners are not entitled to the discretionary relief. In a case like this, declining to exercise the jurisdiction would amount to failure to exercise the jurisdiction.

28. It is contended by Sri. A.N Jayaram, learned Senior Counsel appearing for respondents-3 to 6, that Section 155 of the Act incorporates equity jurisdiction. The petitioners who have transferred the shares through respondent-2 and thereafter it is respondent-2 who has set them up, their conduct is not bonafide therefore, in equity they are not entitled to invoke the jurisdiction under Section 155 of the Act and the Court will not be justified in exercising jurisdiction in their favour. It is also submitted that it is well-known that he who comes into equity must come with clean hands. As long as it is not proved that the petitioners 1, 2, 3 and 5 are not paid the consideration and petitioner-3's transfer form itself has not been produced and one of the petitioners only affixed her thumb mark and does not know how to sign; even then her signature is found on the transfer form, the transfer forms are invalid as pointed out under Point No. 2, it is not possible to hold that the petitioners are not entitled to invoke jurisdiction under Section 155 of the Act. If in such a case the Court refuses to exercise the jurisdiction under Section 155 of the Act, it would be only putting the premium on the several illegalities noticed by us during the course of this Judgment pertaining to the alleged transfer of shares by the petitioners. Any illegality or any conduct lacking in bona fides on the part of the 2nd respondent, cannot be passed on to the petitioners so as to deprive them of their existence in the Company as share-holders. They are entitled to protect and safeguard their existence within the four corners of law as share-holders of the Company. Therefore, we are of the view that the petitioners cannot be refused relief on the ground that they lack in bona fides as they cannot be held to be guilty of such conduct, we are of the view that it is not proved that the petitioners-1, 2, 3 and 5 have committed any act which lacks in bona fides. Of course, as far as Lakshmishappa is concerned, we have already pointed out with regard to receiving of sum of Rs. 55,000/- stated to be the consideration for transfer of 550 shares. But in this regard we have already pointed out that the share transfer form executed by Lakshmishappa is invalid. Therefore; the transfer of share from Lakshmishappa in law cannot be held to have taken place. Therefore, Lakshmishappa cannot be held to have ceased to be a member of the company. Hence we are of the view that the petitioners cannot be refused relief in so far it relates to them. But the relief sought for by them relating to other members of the Company other than the petitioners who have sold their shares, we are of the view that the same cannot be granted in this petition because we do not know whether others are willing to continue as members of the company and in that event first they must be prepared to refund the money they have received towards the transfer of shares and must also be willing to continue as members of the company with all the consequence that flow from it. It is true that Section 155 of the Companies Act is widely worded and it is possible in a given case to grant relief covering the persons other that the petitioners who invoke jurisdiction under Section 155 of the Act. In the instant case, all those persons who have transferred their shares as long back as in the year 1986 have not chosen to make any grievance even to this day. In such a situation if we accede to the request of the petitioners, as contended by Sri Jayaram, learned Counsel for respondents-3 to 6, we would be forcing a contract upon all those persons who are not before us to continue to be the share-holders of the Company. Hence we are of the view that rectification of the register of members of the Company sought for by the petitioners in respect of the persons other than the petitioners, as stated in the petition, cannot be granted in this petition. However, we make it clear that several grounds urged for the rectification of the register in respect of others, will be available to the petitioners to urge the same in a petition for winding up. Therefore, we do not want to express any opinion finally with regard to several other illegalities such as, duplication of distinctive members, transfer of shares of other member increasing the number of shares, the meetings of the Board of Directors alleged to have not taken place on 24-10-1985, 6-4-1985 and 5-4-1984, the dates on which the several transfer of shares are stated to have taken place as per the proceedings of the minutes, of the Board meeting, non issue of the share certificates etc., as alleged in the petition. These grounds, proved, do fall within the scope of just and equitable ground for winding up of the company, in the connected Company Petition which has been dismissed on the ground that the petitioners have ceased to be members of the Company. Therefore, we do not propose to consider the several other illegalities alleged in the petition and the evidence adduced in that regard in this case. As already pointed out, the same can be urged and gone into in a petition for winding up which is filed by the petitioners. Accordingly Point No. 3 is answered as follows:

“It is not just and proper and it is also not necessary to go into the transfer of shares of several other members of the 1st respondent-company other than the petitioners and to grant rectification of register of members of the 1st respondent-company in respect of those persons except the petitioners.”

The contentions urged in this regard are left open to be urged in the petition for winding up being Company Petition No. 48 of 1987 filed by the petitioners-appellants.

POINT NO. 4

29. In the light of the findings recorded by us on Point Nos. 1 to 3, we are of the view that the order passed by the learned Company Judge cannot be sustained in law and on facts. Point No. 4 is answered accordingly.

POINT No. 5

30. In the light of the findings recorded on Points 1 to 4, the Appeals Q.S.A 16 and 19 of 1990 are entitled to succeed in part. They are accordingly allowed in the following terms:

The order under Appeal is set aside. The transfer of the shares alleged to have been made by the petitioners in favour of Respondents 3, 5 and 6 are declared as invalid and null and void and the same are set aside. It is also further declared that the petitioners continue to be members of the Company with the shares held by each of them as pointed out in the earlier portion of the Judgment.

The register of members of the 1st Respondent-Company shall be rectified accordingly showing the petitioners as members of the Company with the shares held by them.

It is open to Respondents 3 to 6 to take such action as is open to them in law regarding the amount of Rs. 55,000/- received by Lakshmishappa, towards the alleged transfer of shares by Lakshmishappa which is held as invalid and null and void.

The other reliefs sought for in the petitions and the grounds urged in support thereof, have a bearing on the relief sought for in the Company Petition No. 48 of 1987 filed by these very appellants, as such the same are left open to be urged in Company Petition No. 48 of 1987. Therefore, it is open to the appellants to urge them in Company Petition No. 48 of 1987.

In the facts and circumstances of the case, parties are directed to bear their own costs throughout.