IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 09.02.2010 CORAM THE HONOURABLE MRS.JUSTICE CHITRA VENKATARAMAN Civil Miscellaneous Appeal (NPD)No.2304 of 2004 1. M/s. N.S.Nemura Consultancy India P. Ltd., No.96, Dr.Lakshmanasami Salai, K.K.Nagar, Chennai – 600 0078. 2. A.Panneerselvam ..Appellants Vs. A.Devarajan ..Respondent PETITION under Section 10-F of the Companies Act, 1956 against the order dated 15.07.2004 in C.P.No.16 of 2003 passed by the Company Law Board, Southern Region Bench, Chennai. For Appellants : Mr.R.Venkatavaradan For Respondent : Mr.A.K.Mylsamy J U D G M E N T The respondents in the Company Petition before the Company Law Board are the appellants herein challenging the order passed under Section 111 of the Companies Act, 1956. The respondent herein sought for rectification of the register of members of the company by deleting the name of the second appellant herein as owner of 101 equity shares of the company and entering the respondent's name as the holder of the impugned shares. 2. The appellants have raised the following questions of law: (a) Whether the Company Law Board was right in holding that the petition is not barred by limitation when the petitioner had not given any explanation regarding limitation and had expressly pleaded that the provisions of Limitation Act do not apply to the proceedings before the Company Law Board? https://hcservices.ecourts.gov.in/hcservices/ (b) Whether the Company Law Board was right in presuming that the petitioner had knowledge in 2003 about the transfer of shares from the date when he has inspected the records of the company at the Registrar of Companies when the records were available at the Registrar of Companies even in the year 1997 for inspection? (c) Whether the Company Law Board was right in exercising its jurisdiction under Section 111 of the Companies Act, 1956 by ignoring the decisions relied on by the counsel for the appellants to show that when the matter admittedly involves forgery, fraud, lack of title, etc the Civil Court alone will have jurisdiction? (d) Whether the Company Law Board was right in making a presumption against the appellants to their disadvantage for not producing the minutes of the meeting of the board, register of members and share transfer when these documents were not admittedly in dispute before the Company Law Board? (e) Whether the Company Law Board was right in directing rectification of register of members after factually holding that the respondent had transferred the shares in favour of the 2nd appellant herein? (f) Whether the Company Law Board was right in directing the issue of duplicate share certificate in favour of the respondent after coming to a conclusion that the share certificates and transfer deeds have been taken away by the respondent herein? (g) Whether the Company Law Board had the jurisdiction to grant reliefs that are not prayed for in the petition? 3. The facts leading to the filing of the Company Petition before the Company Law Board are as follows: The respondent herein and one Amalraj were subscribers to the Memorandum and Articles of Association of the company, by name M/s.N.S.Nemura Consultancy India Private Limited, the first appellant herein, subscribing to equal number of shares, namely, 101 shares. It is seen from the averments in the petition as well as in the counter before the Company Law Board that the respondent herein resigned his post as Director on and from 30th December, 1995 as evident from the letter dated 30th December, 1995. The respondent herein issued a certificate under the caption 'whomsoever it may concern' that the company's account settled on 30th December 1995 was https://hcservices.ecourts.gov.in/hcservices/ accepted by the respondent herein; he had also received his profit due to him from the business transacted upto 30th December, 1995 and he would not involve himself in the name of the company in any other transaction. The Managing Director of the company lodged a complaint with K.K.Nagar Police Station, Chennai on 04.1.1996 alleging that on 3rd January, 1996 at about 8.00 p.m., the respondent trespassed into the company along with several persons, threatened the first appellant and other employees and removed all the documents. In the circumstances, the Managing Director sought for protection to his life and to the property after taking necessary action against the respondent. Thereafter, there was no progress or further investigation made by the appellants herein. While the matter stood thus, the respondent herein sent a notice on 12.4.2003 stating that without the consent and knowledge of the respondent, the shares held by him had been transferred in favour of one Paneerselvam, the second appellant herein. It was stated that he was under the bona fide impression that he was the owner of the 101 equity shares bearing Ledger Folio Number 002. The inspection on 31.3.2002 of the annual return filed with Registrar of companies, Madras dated 19.9.1997 revealed that the equity shares held by the respondent in the company had been transferred in favour of the second appellant Paneerselvam without the knowledge of the respondent. In the circumstances, the respondent called upon the appellants herein to rectify the register by re-entering the name of the respondent in the register. The claim was, however, refuted by the appellants in the reply dated 2nd May, 2003. 4. In the above circumstances, the respondent herein filed a Company Petition before the Company Law Board alleging that the letter dated 30th December 1995 was only as regards the respondent coming out of the company's directorship and the receipt of the money was only towards profit sharing. In the circumstances, there was no transfer effected of the shares held by the respondent herein. The respondent contended that he came to know about the transfer of 101 equity shares stood in his name to the name of the second appellant only on 31.3.2002 on an inspection of the Annual Return filed by the company with the Registrar of Companies. The respondent stated that he neither executed any transfer deed nor received any consideration for the shares transferred in favour of the second appellant. 5. The contention of the respondent herein was countered by the appellants herein in the counter filed before the Company Law Board, contending that the allegations were wild and false. The appellants took the contention that the respondent had alleged in his notice that the signature had been forged and the shares had been transferred. However, in the petition, the respondent alleged that no transfer deed had been signed by him and that 101 equity shares had been transferred to the second appellant taking advantage of the control of the company. Thus the appellants alleged that while on the one hand the respondent pleaded ignorance about the execution of https://hcservices.ecourts.gov.in/hcservices/ the transfer deed, there was no explanation as to how he came to know to allege that the signature had been forged. Hence, this single instance would go to show that the respondent had been guilty of taking away the share certificates, transfer deeds and other documents forcibly from the first appellant's premises as early as 1996. In the above circumstances, the appellants submitted that the respondent approached the Company Law Board without any cause of action for seeking the relief of rectification under Section 111 of the Companies Act and as there is no question of any rectification of the register, the claim itself was barred by limitation. 6. The respondent herein reiterated his contention in the rejoinder that he had not executed any transfer deed and in the absence of duly executed transfer deed, he could only presume that the company had effected the same on the basis of the forged deed. 7. After hearing both parties, the Company Law Board passed an order granting the relief to the respondent. As to the plea of limitation taken by the appellants herein, the Company Law Board pointed out that the shares were purportedly transferred on 30.1.1997, about which the respondent claimed no knowledge till the records were inspected by him in March 2002. Thus with the knowledge on the transfer of shares gained in the year 2002 on the inspection of the records of the company with the Registrar of Companies, the respondent rightly invoked the jurisdiction of the Company Law Board on 21.7.2003 within three years and hence, the petition was not barred by limitation. In this regard, the Company Law Board followed the decision in the case of Jagjit Rai Maini V. Punjab Machinery Works (P) Ltd. reported in (1995) 4 Comp LJ 110) and thus rejected the plea of the appellants on the question of limitation. 8. As regards the merits of the case, the Company Law Board pointed out that even though the share transfer was stated to have been effected on 30.12.1995, the transfer was registered on 31.1.1997. The first appellant had not chosen to produce before the Company Law Board the original minutes of the meeting of the Board of Directors approving the transfer of the impugned shares or the register of members or share transferred in the custody of the appellants herein. The Company Law Board further pointed out that the share certificates and transfer deeds were not in the custody of the company, since 03.1.1996, in which case, it was not known how the company could register the transfer on 30.1.1997 without the custody of the share certificates and transfer deeds. 9. Learned counsel appearing for the appellants, taking serious exception to the point of limitation held against them, made his submission on the aspect of forgery and submitted that having regard to the jurisdiction of the Company Law Board under Section 111 of the Companies Act to decide on the peripheral matters only and in the light of the serious allegation of fraud, the proper course to be https://hcservices.ecourts.gov.in/hcservices/ adopted was to direct the parties to work out their remedies before the Civil Court. The order passed by the Company Law Board, hence, has to be set aside by this Court. Learned counsel further pointed out that if the case of the respondent is that the share transfer documents had been forged, the Company Law Board should have directed the respondent herein to substantiate such an allegation before the Civil Forum. 10. In support of his contention, learned counsel placed reliance on the decisions reported in (1983) 54 Comp Cas 301 (Del) (Anil Gupta V. Delhi Cloth and General Mills Co. Ltd.); (1995) 4 Comp LJ 110 (P&H) (Jagjit Rai Maini and others V. Punjab Machinery Works (P) Ltd. and others); (1997) 4 Comp LJ 455 (CLB) (C.Mathew V. Cochin Stock Exchange Ltd.); (1998) 7 Supreme Court Cases 105 (Ammonia Supplies Corporation (P) Ltd. V. Modern Plastic Containers Pvt. Ltd. and others); (1999) 2 Comp LJ 205 (Bom) (National Insurance Company Limited V. Glaxo India Limited); (2000) 1 Comp LJ 110 (CLB) (A.Akhilandam and Smt.A.Nagalakshmi V. The Great Eastern Shipping Company Limited and (2008) 2 Comp LJ 314 (Ker) (Duroflex Ltd. V. Tommy Mathew and Duroflex Ltd. V. Johnny Mathew). 11. He laid emphasis on the decision of the Apex Court reported in (1998) 7 Supreme Court Cases 105 (Ammonia Supplies Corporation (P) Ltd. V. Modern Plastic Containers Pvt. Ltd. and others), particularly to paragraph 28, wherein the Apex Court pointed out that the word 'rectification' connotes something what ought to have been done but by error not done and what ought not to have been done but was done requiring correction. If the error is something to be rectified on the available material on a scrutiny of documents, then certainly the Company Law Board has jurisdiction. He pointed out that the burden is on the respondent. In the circumstances, he submits that the order passed by the Company Law Board is liable to be set aside. 12. Heard the learned counsel appearing for the appellants and the learned counsel appearing for the respondent. 13. Before going into the rival contentions of the parties herein, it is necessary to refer to the decision of the Apex Court reported in (1998) 7 Supreme Court Cases 105 (Ammonia Supplies Corporation (P) Ltd. V. Modern Plastic Containers Pvt. Ltd. And others) where the Apex Court considered the scope of Section 155 of the Companies Act (prior to the amendment Act 1988). Referring to the Scope of Section 155 of the Companies Act, the Supreme Court pointed out that the Court has the discretion to find out as to whether the dispute raised is really for rectification or is of such a nature that unless decided first, it would not come within the purview of rectification. It pointed out that "the word "rectification" itself connotes some error which has crept in requiring correction. Error would only mean everything as required https://hcservices.ecourts.gov.in/hcservices/ under the law has been done yet by some mistake the name is either omitted or wrongly recorded in the Register of the company." 14. Dealing with the qualification for rectification, the Supreme Court pointed out that it must be shown that every procedure prescribed under the Act has been complied with for registering the name in the register of the company and that the person seeking rectification must show what had not been complied with under the Act. The limitation and the peripheral jurisdiction of the Court under Section 155 of the Act is dealt with in paragraph 25 of the judgment. Hence, the provisions in Section 111 of the Act is available if and only when there is an allegation, be it from the transferor or the transferee, that the name of the person concerned is entered in the register of Members by the company without sufficient cause or after having executed the same, it is omitted to be entered in the register without sufficient cause. The procedure for registering the transfer of share under Section 108 of the Companies Act, hence, has to be complied with mandatorily. In the absence of a proper instrument of transfer duly stamped and executed by or on behalf of the transferor and by or on behalf of the transferee and delivered to the company along with the certificates relating to the shares, any change made in the register, the registration calls for rectification under Section 111 of the Companies Act, there being non-compliance of the mandatory provisions of Section 108 of the Companies Act. 15. In the decision reported in (1977) 2 SCR 190 (Mannalal Khetan and Ors. Vs.Kedar Nath Khetan and Ors.), the Supreme Court emphasized as to the mandatory character of Section 108(1) requiring that the company shall not register a transfer which does not comply with the provisions of the Act. The Supreme Court pointed out that the mandatory character is strengthened by the negative words used in Section 108 (1) of the Act. 16. In the context of the above said decision, the decision of the Supreme Court reported in (1998) 7 Supreme Court Cases 105 (Ammonia Supplies Corporation (P) Ltd. V. Modern Plastic Containers Pvt. Ltd. And others) assumes significance. The Supreme Court, in the said decision, referring to the word 'rectification', held as follows: "28. Question for scrutiny before us is the peripheral field within which the court could exercise its jurisdiction for rectification. As aforesaid, the very word "rectification" connotes something what ought to have been done but by error not done and what ought not to have been done was done requiring correction. Rectification in other words is the failure on the part of the company to comply with the directions under the Act. To show this error the burden is on the https://hcservices.ecourts.gov.in/hcservices/ applicant, and to this extent any matter or dispute between persons raised in such court it may generally decide any matter which is necessary or expedient to decide in connection with the rectification." 17. The case of the respondent herein is that on the day when he came out of the Board, the respondent gave a letter as well as "no claim" declaration. A reading of the same shows that all that the respondent had received was only a profit amount due from the company for the transactions upto 30th December, 1995. Much emphasis was placed on this letter by the appellants, particularly to the two lines, which are as follows: " There is no other transaction I will involve myself in the name of the Company viz. N S NEMURA CONSULTANCY INDIA PVT. LTD. MADRAS. " 18. I do not think that by reading these two lines one can reach a definite conclusion that the respondent had divested himself of all his rights as a shareholder of the company by giving up the shares that he held. A reading of this letter dated 30th December, 1995 gives a definite understanding of the fact that he had received his share of profit from the company. The resignation of the respondent from the post as Director and the declaration of the respondent herein as evidenced from the letter dated 30th December, 1995 can only mean that his dis-association with the company was only from the Board and not as a normal shareholder. Even in the complaint given by the appellants herein, there is hardly anything to state or affirm that the respondent had no interest whatsoever in the company. Hence, the reference as to the respondent taking the profit cannot be read as relatable to as receipt of the consideration on the sale of shares. Except the registration of the shares long thereafterwards, namely, after one year of the registration of the complaint, admittedly, nothing had surfaced on the complaint made on 4.1.1996. Leaving aside this, one has to see the discussion of the Company Law Board as regards the conduct of the appellants herein. Admittedly, the company had not produced before the Company Law Board either the original minutes of the meeting of the Board of Directors approving the transfer of shares or the document of transfer or registration of such transfer, which should have been in the custody of the appellants herein. It is not denied by the appellants herein that where any transfer takes place as regards the shares held by the shareholders, it should get reflected in the statutory books to be maintained, apart from the meeting of the Board of Directors approving the transfer. It is also not denied by the appellants that the transfer deeds are in the custody of the company. However, nothing had been produced before the Court to substantiate the explanation from the appellants that they are all part of the record, which had been removed by the respondent. https://hcservices.ecourts.gov.in/hcservices/ 19. A reading of the complaint made by the appellants shows that there was only a general allegation as regards the removal of documents belonging to the company by the respondent. If really the appellants had a complaint about the removal of the transfer deeds, nothing prevented them from taking up the cause against the respondent immediately thereon. 20. In the circumstances, the findings of the Company Law Board are unexceptional, it being based on the admitted fact as regards non-production of the resolution as well as the documents. 21. Learned counsel for the appellants pointed out that going by the assertion of the respondent that he never executed any share transfer deed and the allegation of fraud, the proper course for the Company Law Board would be to direct the parties to exhaust their remedies before the Civil forum. I do not find such a course need be adopted herein, since, even on a prima facie view, to accept the case of the appellants, the basic documents which are to be placed before the Board for accepting such a plea are admittedly not forthcoming from the appellants herein. It is no doubt true that the respondent herein had done nothing since 1997 to 2002 to check the status of his shares with the first appellant company, but by that aspect alone, one cannot presume that there had been a transfer of shares by the respondent to the appellants and that he had executed a transfer deed. 22. The case of the respondent herein is that on his checking of the registers in the year 2002, he came to know that the name had been transferred in favour of the second respondent Paneerselvam without his knowledge. Hence, on the transfer of shares, the respondent sought for rectification of the register of shares. The consistent case of the respondent is that he continued to be the owner of the shares and that on finding the registers of the company in the Registrar of Companies some time in 2002 carrying the name of the second appellant as against his name, he called upon the appellants herein to rectify the register. 23. A reading of the petition filed before the Company Law Board shows that the case of the respondent was that he neither executed the transfer deed nor received any consideration. Leaving aside the receipt of consideration, if there had been a transfer deed as had been claimed by the respondent, then the transfer deed at least or the registers pertaining to the transfer should have been produced before the Company Law Board. It is not that the burden of proof has been shifted on the appellants without merit. Taking note of the contention of the appellants that there had been a transfer effected by the respondent on receipt of consideration and that the provision of Section 108 of the Companies Act duly complied with as regards the transfer of shares, in the absence of any documents produced, rightly the Company Law Board came to the conclusion that https://hcservices.ecourts.gov.in/hcservices/ the rectification was rightly called for in the case and the company was to issue duplicate share certificate in respect of the impugned shares in favour of the respondent herein. Hence, even applying the decision of the Apex Court, particularly, the case reported in (1998) 7 Supreme Court Cases 105 (Ammonia Supplies Corporation (P) Ltd. V. Modern Plastic Containers Pvt. Ltd. And others), in the absence of any material to support the case of the appellants on valid transfer in terms of Section 108 of the Act and when the basic documents were not placed before the Board by the appellants, rightly the Company Law Board granted the relief, a course which could not be faulted by this Court. 24. As regards the plea of limitation, in paragraph 57 of the order, the Company Law Board dealt with the said contention only to point out that the respondent acquired knowledge of the transfer of shares only in the year 2002 and the Company Petition was filed on 21.7.2003 within a period of three years of acquiring knowledge. In the above circumstances, applying Section 137 of the Limitation Act, the Tribunal answered the question in favour of the respondent. 25. The Company Law Board pointed out that in the absence of evidence as to the compliance of Section 108 of the Act, in the absence of share certificate and transfer deeds, the company could not register the transfer on 30.1.1997. To accept otherwise, would amount to putting a seal of approval as to the contravention of the mandatory provisions of the Act. The case of the appellants is not one falling under the second provisio to Section 108 of the Act, viz., transmission by operation of law. Section 108(1) of the Act does not speak of any execution by the company, the transfer has to be by a shareholder through an instrument of transfer duly stamped and executed by or on behalf of the transferor or the transferee and delivered to the company. In the absence of anything shown that there was a transfer in terms of Section 108 of the Act, rightly, the Company Law Board allowed the petition. In these circumstances, I do not find any substantial question of law to interfere with the findings of the Company Law Board. 26. In the light of the said fact that the respondent had the knowledge as to the transfer only in the year 2002 and the Company Petition thus preferred within a period of three years, the view of