The legitimacy of share transfers and directorship must comply with the company's Articles of Association, and findings lacking evidence can be deemed legally erroneous.

Judgment :

Ravi Krishan Kapur, J.

1. This is an appeal under section 10F of the COMPANIES ACT , 1956 directed against an order dated 5 June, 2009 passed by the Company Law Board (CLB).

2. The brief facts culminating in the filing of this appeal are as follows:

a) In or about 1973, the Ministry of Defence had recommended the names of the following individuals for running a retail outlet at Haldia:

i) Rakhal Chandra Paul,

ii) Beni Madhab Das,

iii) Niranjan Ghosh,

iv) Sukumar Ray,

v) Provakar Das Gupta,

vi) Nilmani Sarkar and

vii) Major Nityananda Ray.

b) Pursuant to the above, on 21 January, 1974, the respondent no.1 namely Veteran Company Private Limited (the company) was incorporated by the above 7 ex-servicemen. At the time of incorporation, the Articles of Association of the company, inter alia, provided as follows:

“Article 6 – Subject to the provisions of these Articles the shares shall be under the control of the Board who may allot or otherwise dispose of the same to such persons on such terms and conditions at such times either at par or at a premium and for such consideration as the Board thinks fit, subject to the provision that no such share of the company be allotted to any person unless he is a person, who is an ex-military/retired personnel from military service under the Ministry of Defence, Government of India.”

“Article 37: No transfer shall be made to a minor or person of unsound mind and to any person unless he is a person who is an Ex-Military/Retired Military personnel from Military service under the Ministry of Defence, Govt. of India.”

“Article 41 – The executor or administrator of a deceased member (not being one of several joint holders) shall be the only person recognised by the company as having any title to this share registered in the name of such member, and in the case of the death of any one or more of the joint holders of any registered share. The survivor shall be only person recognised by the company as having any title to or interest in such share but nothing herein contained shall be taken to release the estate of a deceased joint holder from any liability on this share held by him jointly with any other person. Before recognising any executor or administrator the Board may require him to obtain a Grant of Probate or Letters of Administration or other legal representation, as the case may be from a competent Court in India and having effect in Calcutta. Provided nevertheless shall be lawful for the Board to dispense with the production of probate or Letters of Administration or such other legal representation upon such terms as to indemnify or otherwise as the Board, in its absolute discretion, may consider adequate.”

“Article 78 – Director must hold at least one ordinary share.

Amended Article 37- No transfer of shares shall be made to a minor or a person of unsound mind or to any outsiders, excepting the next generation and kith and kins only of the existing directors and in case of the admission of ex-military/retired personnel from the military services under the Ministry of Defence, Govt. of India, subject to such approval of the Board of Directors and necessary permission of the Director General Resettlement, Ministry of Defence, Government of India at New Delhi. ”

c) Sometimes in 1984, one of the shareholders, Major Nityananda Ray died intestate. Despite his demise, none of his legal heirs applied for transmission of the shares held by him.

d) On 6 February, 1998, Nilmani Sarkar informed the company that he had transferred his entire shareholding aggregating 243 shares to one Amal Kirshna Das. Such transfer was in violation of Article 37 of the Articles of Association. Amal Krishna Das was neither a membe