BEFORE THE COMPANY LAW BOARD - SOUTHERN REGION BENCH 

A. P. Peter Gunasekaran for the applicant. 

Vidya Sankar for the respondent. 

ORDER 

K. K. BALU (Member). - This is an application filed under section 186 of the Companies Act, 1956 (hereinafter referred to as "the Act"), seeking directions of this Bench against A. K. M. N. Cylinders (P.) Limited (hereinafter referred to as "the company") to call for a general meeting of the company to transact the following business : 

(a) Retirement and re-election of directors of the company; 

(b) Production of minutes book, members' register, balance-sheet, profit and loss account and auditors' report for the years ending March 31, 1995, and March 31, 1996, for inspection. 

The brief facts of this case as stated in the application are that the applicant is one of the signatories to the memorandum of association and articles of association of the company holding 304 equity shares which amount to more than one-tenth of the paid up shares in the company. 

The applicant and one B. Mohandas on one part and N. Ravindran, present managing director of the company on the other part entered into an unregistered agreement regarding transfer of shares of the company in favour of N. Ravindran, which subsequently became infructuous on account of breach of the agreement as well as lapse of time. 

On May 2, 1996, the applicant and 21 other shareholders of the company holding 1,261 fully paid equity shares made a written requisition to the company to convene an extraordinary general meeting to transact the business specified supra. The company did not accede to the request of the applicant on the plea that the applicant and certain other requisitionists are not shareholders of the company. Meantime, on November 7, 1996, the applicant demanded duplicate share certificates, as he had lost or misplaced the original certificates. But the company did not issue the duplicate share certificates. Thereafter, the applicant along with five other members sent on January 11, 1997, a valid requisition to the company calling for an extraordinary general meeting in accordance with the provisions of the Act. But the company never convened the meeting in terms of the requisition dated January 11, 1997. It has, therefore, become "impracticable" for the applicant to call for an extraordinary general meeting of the company. Hence, this application. 

According to the company, the applicant is neither a shareholder nor director of the company. The applicant does not possess the requisite qualification shares, as prescribed under section 186 of the Act. The applicant was originally holding 304 equity shares in the company. Pursuant to a memorandum of understanding dated November 16, 1995, the applicant and B. Mohandas agreed to sell their entire shareholding in the company to N. Ravindran and or his nominees. Accordingly, N. Ravindran paid an aggregate amount of Rs. 8,60,900 to the applicant group and Rs.2,50,000 to the Shri Mohandas group. On receipt of the consideration, the applicant group including the applicant executed the instruments of transfer in respect of 419 shares and lodged them together with the share certificates with the company under cover of letter dated November 18, 1995. Pursuant to the board resolution dated January 19, 1996, transfer of the said shares was registered in the books of the company in favour of N. Ravindran and group. The memorandum of understanding is yet to be performed by the applicant group in respect of 87 shares and return the excess payment of Rs. 63,723 received by the applicant group in terms of the agreement. The applicant, therefore, ceased to hold any share with effect from January 19, 1996, and automatically vacated the office of director in accordance with the articles of association of the company. This fact was recorded at the meeting of the board of directors of the company held on July 5, 1996. The company filed Form No. 32 with the Registrar of Companies, Chennai, regarding vacation of the office of director by the applicant on August 13, 1996. The applicant cannot invoke section 186 challenging the transfer of 304 shares in favour of N. Ravindran. The applicant having ceased to be a shareholder and director of the company has no locus standi for requisitioning a meeting. The petition is not, therefore maintainable and is liable to be dismissed in limine. Nor is the applicant entitled for duplicate share certificates. 

The requisition (document No. 1 annexed to the application) submitted by the applicant and 21 other sharehoders for convening an extraordinary general meeting was invalid and did not comply with the provisions of the Act. The requisition dated January 11, 1997 (document No. 6 annexed to the application), submitted by the applicant and five other members was not in conformity with section 169 (4), as the requisitionists save M. Palaniyandi and M. Sundar Raj were not shareholders of the company. Moreover, Shri Palaniyandi was holding 30 shares and Shri Sundar Raj 20 shares which did not constitute 10 per cent. of paid up capital of the company. The subjects for which the meeting was requisitioned were invalid, infructuous and incapable of being considered in an extraordinary general meeting. The directors of the company were elected at the annual general meeting held on September 3, 1996, and they are not liable for retirement until the next annual general meeting. The accounts for the years ended March 31, 1995, and March 31, 1996, were duly considered and adopted at the annual general meeting of the company held in the year 1995, and on September 30, 1995, respectively. The annual return made up to September 30, 1996, was filed with the Registrar of Companies, Chennai on November 29, 1996. The general body cannot reconsider the accounts which had already been passed. Further, copies of the accounts can be secured by any shareholder upon payment of the prescribed fee and no meeting is required for the said purpose. The applicant can, however, exercise his right under section 169 (7) of the Act to convene an extraordinary general meeting, but not under section 136 of the Act. 
 
The applicant in his rejoinder has stated that the instruments of transfer (annexure R-3) signed by the applicant in respect of 304 shares were entrusted to an auditor at Thiruchirapalli, but never delivered to the company with share certificates in accordance with sub-section (1) of section 108 the share certificate numbers furnished in the covering letter dated November 18, 1995 (annexure R-2) are entirely different from the numbers stated in annexure R-3. The applicant had not executed the instruments of transfer (annexure R-3). In the light of annexure R-2, annexure R-3 could never be executed as on November 18, 1995, and is hit by clause (a) of sub-section (IA) of section 108 of the Act. The transfer instruments are forged and cannot defeat the title of the applicant, being a true owner. The applicant is, therefore, a valid shareholder in the company. Though the annual general meeting was convened on June 30, 1996, the company had filed the annual return only on November 29, 1996. The shares were said to be transferred on January 19, 1996, but Form No. 32 regarding cessation of the directorship was filed after a delay of six months, The company failed to produce the share certificates before this Bench. The company had resorted to various malpractices in collusion with N. Ravindran and violated mandatory provisions of the Act as well as the articles of the association of the company. 

During the hearing, A. P. Peter Gunasekaran, counsel for the applicant, while reiterating the submissions made in the pleadings, has submitted that the memorandum of understanding dated November 16, 1995 (annexure R-1), became infructuous on account of breach of the agreement and lapse of time. In the light of section 108 (1)(a), annexure R-3 presented before the competent authority on November 28, 1995, with the signature of the applicant is bad in law. Annexure R-3 could not have been sent to the company on November 18, 1995, along with annexure R-2, as contended by the company. The share certificates furnished in the transfer instruments (annexure R-3) are forged and the signature of the applicant therein has been denied. The alleged transfer of shares is in violation of articles 5 to 10 of the articles of the company. The alleged transfer of 304 shares in favour of N. Ravindran is illegal and not binding upon the applicant. The applicant continues to be a member of the company and entitled to invoke the provisions of section 186 of the Act. 
  
Counsel for the applicant further submitted that the letter of requisition submitted by the applicant and 21 others (document No. 1 annexed to the application) was duly signed by the applicant and B. Mohandas for themselves and on behalf of other requisitionists. It satisfied the requirements of section 169 of the Act. The company had also ignored the letter of requisition dated January 11, 1997, submitted by the applicant and five other members, (document No. 6 annexed to the application). Both the letters of requisition were not considered by the company making it impracticable to convene the meeting. 

In support of his above averments, counsel for the applicant has relied upon the following decisions : 

(a) CWT v. Sumitra Devi Jalan [1974] 96 ITR 35; [1975] Tax LR 436 (Cal) (headnote of Tax LR) : 

"Mere delivery of shares along with blank transfer deeds does not by itself make the transferee the owner of the shares. It only gives a legal and equitable right enabling the transferee to vest himself with the shares without the risk of his right being repudiated by any other person deriving title from the registered owner". 

(b) Vasudev Ramchandra Shelat v. Pranlal Jayanand Thakar [1975] 45 Comp Cas 43 (SC) (headnote) : 

"Where there are special restrictions on the transfer of shares imposed by the articles of association of a company, the defect or difficulty is inherent in the character of such shares. In such cases, the donee or purchaser of shares cannot get more than what the transferor possessed. Therefore, in such cases, it is possible to hold that even the right and title to obtain shares, which is a right separable from the legal right and title to function as a shareholder, is incomplete because of a defect in the nature of shares held due to some special restrictions on their transferability under the articles of association of the company concerned". 

(c) Smt. Kaushalya Devi v. National Insulated Cable Company of India Ltd. [1977] Tax LR 1928, 1936 (Delhi) : 

"It is an essential condition for registering a transfer of shares that a duly stamped instrument of transfer executed by or on behalf of transferor satisfying the requirements of section 108 of the Companies Act, 1956, should be delivered to the company accompanied by the certificate relating to the shares or letter of allotment. The heading of section 108 says the 'transfer not to be registered except on production of instrument of transfer'. The word 'shall not register' used in the body of the section indicates that the provision is mandatory. It is unlawful to register a transfer unless the requirements of section 108 are complied with. Unless a proper instrument of the transfer duly stamped and executed by or on behalf of the transferor is lodged with the company, the company cannot effect or register the transfer. The execution by or on behalf of the transferor is a condition precedent to give jurisdiction to the company to consider the transfer of the shares. In the absence of the transfer deed executed by the holder of the shares the company could not register a transfer. If the transfer deeds are forged or fabricated and the company has acted on it, then the shareholder cannot suffer. The consequences of loss through wrong registration of transfer or registration on the authority of a stranger or a fictitious person, must fall on the company". 

(d) Amrit Kaur Puri v. Kapurthata Hour, Oil and General Mills Co. P. Ltd. [1984] 56 Comp Cas 194 (P & H) (headnote) : 

"Where the articles of association of a private limited company restrict the transfer of shares by a shareholder to a person Who is not a shareholder, by providing that the shares can be so transferred only if an existing shareholder is not willing to purchase the same at a price, to be fixed, according to the procedure prescribed in the articles, and in case of dispute about the price also a procedure is provided and the articles further provide that the transferor shall send a notice to the company that he wants to transfer the share, if he intends to transfer the same to the name of a person other than a shareholder, and that, if the directors within the space of six months of receipt of the notice find a shareholder willing to purchase the share, they shall give notice to the proposing transferor in that regard, the transferor shall be bound upon payment of the price so fixed to transfer the shares to the purchasing member, then, if any transfer of shares is effected without notice or a valid notice to the holder thereof such transfer would be illegal and invalid, rectification of which would have to be ordered by the court". 

(e) Mannalal Khetan v. Kedar Nath Khetan [1977] 47 Comp Cas 185; AIR 1977 SC 536 : 

"The provisions contained in section 108 are mandatory." 

(f) CIT v. Bharat Nidhi Ltd. [1982] 52 Comp Cas 80, 84 (Delhi) : 

"An agreement to transfer shares in a company accompanied with the actual instrument of transfer which has not been completed so far as the transferor could complete it does not amount to a transfer deed sufficient to cause the title to pass. By itself it would be nothing more than an enforceable agreement to convey and until the transfer endorsement is signed the shares would be unascertained goods and would not be in a deliverable state". 

R. Vidya Sankar, counsel for the company, while reiterating the submissions made in the counter-statement has urged that the requirements of section 186 were not fulfilled. According to him, the applicant is neither a shareholder nor director of the company as on the date of a placation. The applicant originally holding 304 equity shares of Rs. 1,000 each in the company had sold them by virtue of the memorandum of understanding dated November 16, 1995 (annexure R-1), received the consideration executed the instruments of transfer (annexure R-3) and delivered them along with share certificates. The board of directors of the company had registered the transfer on January 19, 1996, in favour of Shri Ravindran. The applicant has no locus standi to file this application. He further submitted that the instruments of transfer (annexure R-3) were executed only on January 10, 1996, after the date' of presentation before the competent authority, i.e., on November 28,:1995, satisfying the requirements of section 108 (1)(a) of the Act. Annexure R-2, the letter dated November 18, 1995, does not indicate that the instruments of transfer and share certificates were enclosed to the said letter. Annexure R-3 duly completed and executed on January 10, 1996, was sent along with annexure R-2 dated November 18, 1995, after January 10, 1996. The plea of forgery of annexure R-3 raised in the rejoinder is an afterthought. Annexures R-4 to R-6 and R-12 establish that the applicant ceased to be a shareholder as well as director. Form No. 52 (annexure R-6) and annual return (annexure R-12) being public documents strengthen the company's plea. In this regard he cited the case Mrs. Rashmi Seth v. Chemon (India) (P) Ltd. [1992] 3 Comp LJ 89; [1995] 82 Comp Cas 563 (CLB) to state that the facts stated in the annual return are prima facie evidence of correct and complete facts. 

The applicant having ceased to be a shareholder and director of the company has no remedy to call for an extraordinary general meeting under section 186 of the Act, but necessarily seek rectification of the register of members under section 111 of the Act as held in the case of Ved Prakash v. Iron Traders (Private) Ltd. [1961] 31 Comp Cas 122 (Punj) and approach the competent court for the alleged forgery of the instruments of transfer. Moreover, in a petition, under section 186 for an order directing the holding of a general meeting the court will 'not go to the extent of rectifying the register of members as, decided in Shrimati fain v. Delhi Flour Mills Company Ltd. [1974] 44 Com Cas 228 (Delhi). 

The letter of requisition (Document No, 1 annexed to the application) does not comply with the requirements of section 169 (2) of the Act. Shri Mohandas, one of the requisitionists had signed the requisition as a nominee for other members but not for himself. The other letter of requisition dated January 11, 1997 (document No. 6 annexed to the application) became infructuous. Moreover, the purpose for which the meeting was requisitioned was accomplished as borne out by annexures R-10 and R-11. He has further submitted relying upon the decision in Shri Ram v. Edward Ganj Public Welfare Association Ltd. [1977] 47 Comp Cas 283 (Punj) that the application would be incompetent, for want of any allegation in the application that it was for any reason impracticable for the company to call, hold or conduct a meeting. He has also elaborated the principles to be applied in the case of any application under section 186, as enunciated in Shrimati Jain v. Delhi Flour Mills Company Ltd. [1974] 44 Comp Cas 228 (Delhi). It is in these circumstances, counsel for the company has submitted that the application is liable to be dismissed. 

I have considered the pleadings and arguments of both the counsel. The question for consideration is whether the application meets the requirements of section 186 of the Act or not. 

Section 186 provides that if for any reason it is "impracticable" to call a statutory meeting or an extraordinary general meeting according to the provisions of the Act or articles, the Company Law Board, may, either on its own motion or on the application of any director of the company, or any member thereof who would be entitled to vote at the meeting, may direct the calling of a meeting and give necessary directions therefor. It is, therefore, clear that any director or any member of the company who would be entitled to vote at the meeting can file an application under section 186. Secondly, it should be "impracticable" to call an extraordinary general meeting of the company. Unless these two conditions are satisfied, no application will lie under section 186 of the Act. 
 
While it is the contention of the applicant that he is a member of the company holding 304 equity shares, it is stoutly denied by the company on the plea that the applicant sold his entire shareholding to N. Ravindran and that the transfer of the said shares was duly registered by the company in the name of N. Ravindran. Thus, title in respect of 304 equity shares is in dispute and consequently the applicant does not fulfil the eligibility criteria as provided in section 186. 
 
Though arguments were advanced on the question of title to the shares, in an application under section 186 for an order directing the holding of a general meeting the Bench will neither determine title to 304 shares nor go to the extent of rectifying the register of members as held in the case of Shrimati Jain v. Delhi Flour Mills Company Ltd. [1974] 44 Comp Cas 228 (Delhi). The application is, therefore, not maintainable. 

The applicant is at liberty to establish his title in respect of 304 shares in accordance with law. 

In view of the foregoing, without going into the merits of the case the application is dismissed. There is, therefore, no need to go into the case law cited by counsel for the applicant. 

No order as to costs.