IN THE ANDHRA PRADESH HIGH COURT 

V. S. Raju for the appellant in both the appeals. 

Ravi S. for respondents Nos. 1 to 4 in both the appeals. 

None appeared for respondent No. 5. 

JUDGMENT 

KRISHNA SARAN SHRIVASTAV J. - Due to commonality of law and similarity of facts, both these appeals are being disposed of by this common order. 

The appellant, T. G. Veera Prasad, and the appellant, Tungabhadra Machinery and Tools Limited (for short, "TMTL"), possessed 40,000 equity shares and 50,000 equity shares, respectively in Sree Rayalaseema Alkalies and Allied Chemicals Ltd. (for short "the company"). The second respondent was its managing director at the relevant time. On February 1, 1998, he had floated a private limited company, namely, Brilliant Investments Private Limited (for short "Brilliant"), the third respondent, with his wife and children controlling 99 per cent. of its share capital. On June 21, 1998, 50,00,000 shares of one TGL group of which the appellants are also members, were transferred to the third respondent including 40,000 shares of the appellant, T. G. Veera Prasad, and 50,000 shares of TMTL. 

The appellant, T. G. Veera Prasad, filed a petition in C.P. No. 2/111/SRB of 1991 alleging that all the shares belonging to the TGL group together with blank transfer forms were entrusted to the second respondent for the purpose of pledging them, if so required, with the financial institutions and banks, only for raising finances, but the second respondent committed breach of trust and misappropriated them surreptitiously by transferring the said shares to the third respondent without payment of any consideration to the original shareholders. The third respondent had no funds to purchase the shares in question. The company without making proper investigation regarding the genuineness of the transaction and without sufficient cause omitted the names of the members of the company and entered the name of the transferee in the register of the members of the company. 

Making similar allegations, the appellant, TMTL, had also filed C.P. No. 3/111/SRB of 1991. It has been further alleged that the annual general meeting of the company was to be held on June 24, 1988, and the transfer was effected just three days in advance and, therefore, the shares could not be transferred as the company was to announce book closure. During book closure, the company could not have effected the registration. Being a listed company, the shares should have been dealt with through the stock exchange and there is violation of section 13 of the Securities Contracts (Regulation) Act, 1956. It does not appear that in the share transfer committee's resolution, the interested director had taken part. The appellant, TMTL, had not given any authority to the appellant, T. G. Veera Prasad to dispose of these impugned shares and the alleged resolution of the appellant, TMTL, dated June 15, 1988, is a fabricated document as no meeting of the board was held on that day. One Bhupendra R. Shah, who was the commercial director of the appellant, TMTL, had signed the balance-sheet of the appellant, TMTL, up to 1991, wherein the investments in these shares were shown to be held in the name of the appellant, TMTL, and, therefore, the copy of the alleged resolution dated June 15, 1988, signed by him only as a true copy, is a concocted document. The letter dated June 18, 1988, regarding the payment of consideration signed by Bhupendra R. Shah is a fabricated document. The provisions of section 108 (1A) of the Companies Act have been violated. 

Respondents Nos. 1 to 3 through separate counters denied the allegations. The company pleaded that the transfer instruments were proper and were accompanied by share certificates and, therefore, the share transfer committee approved the registration of shares. The second respondent has not taken part in these proceedings. The company had registered the transfers with sufficient cause and, therefore, the appellants cannot invoke the provisions of section 111 of the Companies Act particularly after a period of three years from the date of registration. The company being a listed company was not competent to refuse registration of transfer as none of the grounds under which a listed company Could refuse registration under section 22A(3) of the Securities Contracts (Regulation) Act, 1956, was. satisfied. The second respondent adopting the counter of the company further denied the allegation that the impugned shares were entrusted to him to be kept only for the purpose of pledging them for raising funds in the hour of need. He also pleaded that the shares of the TGL group were transferred in favour of the third respondent, that is, Brilliant, as quid pro quo for the shares of the company transferred by the second respondent in favour of the TGL group. The third respondent, that is Brilliant, pleaded that it is not a necessary party to the proceedings. On June 17, 1988, the appellant, T. G. Veera Prasad, as its director had executed transfer forms in respect of the impugned shares of the appellant, TMTL. On June 13, 1988, and on June 19, 1988, he had executed the transfer deeds in respect of the shares held by him for consideration. The shares were handed over to the third respondent, Brilliant, which has forwarded the same to the first respondent-company for registration. On June 6, 1988, TMTL had written a letter to the third respondent, Brilliant, to pay the sale proceeds of Rs. 1,50,000 to the first respondent-company to be credited/adjusted against the first respondent-company and on the basis of that letter, the amount was paid to the first respondent-company. The appellant, T. G. Veera Prasad, had instructed the third respondent, Brilliant, for payment of consideration for his shares to the first respondent-company. 

The Company Law Board held that the applications filed by the appellants are not barred by limitation. It narrated the arguments of learned counsel for the parties to the applications and observed that the company has filed the resolution of the board of the appellant, TMTL, dated June 15, 1998, authorising the appellant, T. G. Veera Prasad, to dispose of its impugned shares, that the appellants have also filed copy of the resolution of the board meeting of the appellant, TMTL, that the genuineness of the letter dated June 18, 1988, for adjustment of consideration has been questioned, that the respondents have filed two affidavits in which the deponents have proved the signatures of the appellant, T. G. Veera Prasad, on transfer instrument, that the entrustment of the shares to be used only for raising money is alleged to be oral, that there were contradictions in the replies filed by the respondents regarding the mode and nature of payment and that the capacity of the third respondent, Brilliant, to invest the amounts in question has also to be examined. The Company Law Board held that these are the complicated questions of fact which can be decided only by recording oral evidence and this exercise cannot be done in summary proceedings and, therefore, dismissed both the applications. The Company Law Board observed that the appellants may file civil suits, if so advised. 

Feeling aggrieved by the impugned order of dismissal of the applications, T. G. Veera Prasad has preferred Appeal No. 5 of 1995 while TMTL has preferred Appeal No. 6 of 1995. 

At the outset, it is to be remarked that arguments on the question of limitation have not been advanced by learned counsel of the parties to the appeals and, therefore, I am not concerned with the plea of limitation raised by the respondents before the Company Law Board, and decided in favour of the appellants. 

Before I proceed further, it would be beneficial to reproduce the relevant passages extracted from the case of Ammonia Supplies Corporation Private Ltd. v. Modern Plastic Containers Pvt. Ltd. [1998] 94 Comp Cas 310; AIR 1998 SC 3153 (page 326 of Comp Cas) : 

"... in order to qualify for rectification, every procedure as prescribed under the Companies Act before recording the name in the register of the company has to be stated to have been complied with by the applicant at least that part as required by the Act and assertion of what is not complied with under the Act and Rules by the person or authority of the respondent-company before the applicant can claim rectification of such register. The court has to examine on the facts of each case, whether an application is for rectification or something else. So the field or peripheral jurisdiction of the court under it would be what comes under rectification, not projected claims under the garb of rectification. So far as exercising of power for rectification within its field there could be no doubt that the court as referred to under section 155 read with co section 2 (11) and section 10, it is the company court alone which has the exclusive jurisdiction ... 

The 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 is not done and what ought not to have been done but 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 applicant, and to this extent any matter or dispute between person raised in such court it may generally decide any matter which is necessary or expedient to decide in connection with the rectification. 

Both under the 1913 Act and the 1960 Act a procedure is prescribed for admitting a person as member by purchase or transfer of shares of that company. With reference to the 1913 Act under section 29, a certificate of shares or stock shall be prima facie evidence of the title of the number of the shares or stock therein. Section 30 defines 'a member' to be one who agrees to become a member of a company and whose name is entered in its register. Section 31 is to keep a register of its members. Section 34 deals with transfer of shares and application for the registration of the transfer of shares is to be made, either by the transferor or the transferee. Where such application is made by the transferor for registration of his share a registered notice is to be sent to the transferee. Section 34 (3) restricts to register a transfer of share until the instrument of transfer duly stamped and executed by the transferor and transferee has been delivered to the company. Thus, before the name of any transferee is registered these procedures have to be shown to have been followed, which is an obligation of any such applicant under the Act. This shows an application is to be made either by the transferor or transferee for registering the name of the transferee as members or shareholders of the company by placing before the company duly stamped and signed document both by the transferor and transferee. Similar is the position under section 155 of the Indian Companies Act, 1960, before power is exercised for rectification essential ingredients are to exist. Section 108 gives mandate to a company not to register transfer of shares, unless proper instrument of transfer duly stamped and executed by or on behalf of the transferor and by or on behalf of the transferee has been delivered to the company along with certificates relating to the shares. 

All the above indicates the limitation and the peripheral jurisdiction within which the court has to act. In spite of its exclusiveness it cannot take within its lap outside this scope of rectification. This is indicated even by section 155 itself : 
 
"Section 155. Power of court to rectify register of members. - (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, a member; 

the person aggrieved, or any member of the company, or the company, may apply to the court for rectification of the register'. 

Sub-section (1)(a) of section 155 refers to a case where the name of any person without sufficient cause entered or omitted in the register of members of a company. The word 'sufficient cause' is to be tested in relation to the Act and the rules. Without sufficient cause entered or omitted to be entered means done or omitted to do in contradiction of the Act and the rules or what ought to have been done under the Act and the rules but is not done. Reading of this sub-clause spells out the limitation under which the court has to exercise Its jurisdiction. It cannot be doubted in spite of exclusiveness to decide all matters pertaining to the rectification it has to act within the said four corners and adjudication of such matter cannot be doubted to be summary in nature. So, whenever a question is raised the court has to adjudicate on the facts and circumstances of each case. If it truly is rectification all matters raised in that connection should be decided by the court under section 155 and if it finds adjudication of any matter not falling under it, it may direct a party to get his right adjudicated by the civil court. Unless jurisdiction is expressly or implicitly barred under a statute, for violation or redress of any such right, civil court would have jurisdiction. There is nothing under the Companies Act expressly barring the jurisdiction of the civil court, but the jurisdiction of the 'court' as defined under the Act exercising its powers under various sections where it has been invested with exclusive jurisdiction, the jurisdiction of the civil court is impliedly barred. We have already held above the jurisdiction of the 'court' under section 155, to the extent it is exclusive, the jurisdiction of civil court is impliedly barred. For what is not covered as aforesaid the civil court would have jurisdiction . . . So we conclude the principle of law as decided by the High Court that jurisdiction of the court under section 155 is summary in nature cannot be faulted." 

By the Companies (Amendment) Act, 1988, section 155 of the Act has been omitted from the Act with effect from May 31, 1991, and now under section 111 of the Companies Act, the power to rectify the register of members of a company has been vested in the Company Law Board. 

The position of law thus emerges from the case of Ammonia Supplies Corporation Private Ltd. v. Modern Plastic Containers Pvt. Ltd. [1998] 94 Comp Cas 310 (SC) is that under section 111 of the Companies Act, 1956, the proceeding is summary in nature. The Company Law Board has to examine on the facts of each case whether, it is an application for rectification or something else. In order to qualify for rectification, every procedure as prescribed under the Companies Act, before recording the name in the register of company, has to be complied with. Without sufficient cause, the name of any person entered in the register of company can neither be entered in the register of members of the company nor can be omitted therefrom. The Company Law Board should decide all matters pertaining to rectification but has to act within the provisions of the Act and the rules. The Company Law Board should decide all matters in that connection under section 111 of the Companies Act and if it is found that the matter in question does not fall under it, then only, it may direct a party to get its right adjudicated by the civil court. 

It has been urged on behalf of the respondents that allegations against the second respondent have been made that he had misused the alleged blank transfer forms duly signed by the concerned shareholders and, therefore, the appellants may take action against the second respondent and on account of his alleged misconduct it cannot be said that the company had not entered in the register of members of the company the name of the third respondent, Brilliant, without sufficient cause. 

True that allegations regarding misuse of blank transfer forms halve been made against the second respondent but it is equally true that there are other allegations made in both the applications which, if proved, may establish that the names of the appellants were omitted without sufficient cause. Similarly, if it is proved that the blank transfer forms have been actually misused by the second respondent, it would definitely have an effect on the validity of the transfer of shares and consequently may affect the decision of the company of making necessary entries in the register of its members. Under these circumstances, I am unable to accept the contention of learned counsel for the respondents that the applications deserve to be dismissed merely on the ground that allegations against the second respondent have been made by the appellants. 

Whether the third respondent, Brilliant, had capacity to pay the consideration at the relevant time or not is a question which can be prima facie decided on perusal of its balance-sheet of the relevant year. Whether the appellant, T. G. Veera Prasad, was duly authorised by the appellant, TMTL, to dispose of the impugned shares or not could also be decided on the basis of the resolutions of the appellant, TMTL. Whether the authority letters for the alleged adjustment bear the signature of the appellants or not could be verified by the Company Law Board, at least prima facie, by comparing the disputed signatures with the admitted signatures. Similarly, whether the appellants owed monies to the company or not is also a question of fact which can be verified from a perusal of the record of the first respondent-company. Whether during the book closure period, the first respondent-company could have effected the registration and whether it being a listed company the shares should have been dealt with through stock exchange or not are also the questions which can be considered and decided by the Company Law Board. What value is to be attached to the affidavit of B. R. Shah of August 30, 1998, also appears to be a thing to be decided by the Company Law Board on the basis of his signing the balance-sheet of the appellant, TMTL, up to 1991. 

As noted above, the Company Law Board has reproduced the arguments of learned counsel of the parties to the applications, referred to certain documents and then recorded a finding that complicated questions of fact in both the applications cannot be decided merely on the basis of the affidavits and oral evidence would be required to be recorded for adjudication of the rival claims. The Company Law Board has not recorded a finding whether proper procedure prescribed under the Companies Act and the rules has been complied with or not before recording the name of the third respondent, Brilliant, in the register of members of the company. In my opinion, the Company Law Board should have for itself seen whether on the basis of the material on record and on perusal of the affidavits and circumstantial evidence, it can be concluded that without sufficient cause the name of the third respondent, Brilliant, has been entered in the register of members of the company after omitting the names of the appellants or not. 

The Company Law Board in the concluding paragraph of its order has observed that in many cases the Company Law Board had proceeded to decide the case finally on the basis of the affidavits and the documents. Under section 10E of the Companies Act, the Company Law Board is empowered to summon witnesses. The Company Law Board has not recorded a finding as to whether the case comes within the purview of section 111 of the Companies Act, 1956, or not. The Company Law Board, under the aforementioned circumstances of the case, is directed to decide whether the cases come within the scope of rectification or not, keeping in view the above observations made by me and in particular in the light of the law laid down by the apex court in the case of Ammonia Supplies Corporation Private Ltd. v. Modern Plastic Containers Pvt. Ltd. [1998] 94 Comp Cas 310 after giving reasonable opportunity to the parties to the appeals and after perusing the relevant records. In case the Company Law Board comes to the conclusion that the cases come under section 111 of the Companies Act, then, it should treat the affidavits on record as examination in chief of the deponents and such deponents may be summoned for the purpose of cross-examination. The assistance of a hand-writing expert may also be taken to decide whether the signatures on the documents in question are genuine or not. Because the matter is pending since 1991, it is appropriate to direct the Company Law Board to decide the matter expeditiously. The appeals are thus partly allowed and the cases are remanded to the Company Law Board for decision afresh according to law. Costs as incurred.