The Company Law Board lacks the authority to direct the actual issuance of shares under Section 111(4)(b) of the Companies Act, 1956. Its power is limited to examining a question of title, not establishing or enforcing rights to shares.

G.S. Patel, J.

I : Summary of the Dispute

1. When considering a petition under Section 111(4)(b) of the Companies Act, 1956, does the Company Law Board have the power and authority in law to direct the actual issue of the shares in question? According to Mr. Chinoy, learned senior counsel for the appellants, while the Company Law Board can examine a question of title, it cannot go into the issue of establishing of a right to the shares in question. That must be done in a civil proceeding. The Company Law Board cannot order the issue of shares; if title is not established, it cannot examine the process of obtaining a title. An adjudication of an entitlement to the shares is not within the compass of Section 111 of the Companies Act. A person has a right to be on the register only when there is a valid transfer deed and a share certificate, i.e., where his entitlement to the shares is already established and proved, and where there is then a refusal to enter the name of the petitioner on the register of members. There cannot be a combined application for specific performance and rectification. The right to get shares has to be separately enforced, de hors proceedings under Section 111 of the Companies Act. When that right had been established an application can then be made for rectification.

2. This is the issue to be decided in this company appeal, one that was admitted on 18th March 2013. The appeal is directed against an order dated 14th January 2013. By that order, the Company Law Board directed original respondent Nos. 2 to 4 (the present appellants) to issue the original 7.5 lakh share certificates of Rs. 10/- each in the original 1st respondent company (the 1st appellant here) duly stamped and sealed to the petitioner (the present 1st respondent). Those respondents (the present appellants) were directed to rectify the register of members by inserting the name of the original petitioner and to inform the competent authorities.

3. By the Companies (Amendment) Act 1988 (effective 31st May 1991; “the 1988 Amendment”), Section 111 of the Companies Act was extensively amended. Clause 16 of the Companies (Amendment) Act sets out the purpose of this amendment. The amended Section 111 assimilated the provisions of the earlier Section 111 and Section 155 and conferred the powers of the Court under the unamended Section 155 on the Company Law Board. Sections 155 and 156 of the unamended Act were altogether omitted by the 1988 Amendment. Clause 16 of the 1988 Amendment said that the purpose of the amendment was to recast existing Section 111 by incorporating in it the provisions of Section 155. This conferred power on the High Court to order rectification of the register of members. The purpose and intent the amendment was to provide sufficient protection to investors against an unlawful refusal to register a transfer of shares. Therefore, the amended section also requires the companies to give reasons before refusing any such transfer. Rights were conferred on the aggrieved investor to apply for relief to the Company Law Board (instead of the High Court), on specified grounds.

4. Section 111 of the Companies Act, as amended, reads thus:

“111. POWER TO REFUSE REGISTRATION AND APPEAL AGAINST REFUSAL

(1) If a company refuses, whether in pursuance of any power of the company under its articles or otherwise, to register the transfer of, or the transmission by operation of law of the right to, any shares or interest of a member in, or debentures of the company, it shall, within two months from the date on which the instrument of transfer, or the intimation of such transmission, as the case may be, was delivered to the company, send notice of the refusal to the transferee and the transferor or to the person giving intimation of such transmission, as the case may be, giving reasons for such refusal.

(2) The transferor or transferee, or the person who gave intimation of the transmission by operation of law, as the case may be, may ap