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High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE SWAMIDURAI
Kothari Industrial Corporation Limited - Appellant
Versus
Lazor Detergents Private Limited and Others - Respondents
Appeal against Orders No. 245 to 1251 of 1993
Decided On : 07 April 1994
COMPANIES ACT - RECTIFICATION OF REGISTER OF MEMBERS - TRANSFER OF SHARES - STAMP ACT - SECTION 22A OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 - APPLICABILITY - FREE TRANSFERABILITY OF LISTED SECURITIES - DISCRETION OF THE COMPANY TO REFUSE REGISTRATION - GROUNDS - PROCEDURE - LIMITATION - JURISDICTION OF THE COMPANY LAW BOARD - EQUITABLE CONSIDERATIONS - LACHES.
Fact of the Case:
The appellant company, Kothari Industrial Corporation Limited, filed company petitions before the Company Law Board seeking deletion of the names of 11 respondent companies from the register of members on the ground that the instruments of transfer were defective under three categories: (i) some of the instruments were defective in as much as stamps though affixed were not cancelled; (ii) in some of the instruments even though stamps had been affixed and had been duly fully cancelled, it was alleged to have been done by the staff of the second-respondent Kothari Oriental Finance Ltd.; and (iii) in some of the instruments, stamps were partly cancelled by the staff of the second-respondent, Kothari Orient Finance Ltd. The Company Law Board, after hearing the parties, passed an order directing rectification of the register of members by removing the names of the 11 respondent companies in respect of the names of the respondents in the first and third categories (Lists A and C) wherein stamps were not cancelled in the instruments though they had been affixed which is the first category (List A) and wherein stamps were partly cancelled by the staff of the second-respondent, the Kothari Oriental Finance Ltd. which falls under the second category (List C) within ten days of the receipt of the order. The Company Law Board also directed that the registers of members were directed to be rectified by removing the names of the 11 respondent companies in respect of the names of the respondents in the first and third categories (Lists A and C) wherein stamps were not cancelled in the instruments though they had been affixed which is the first category (List A) and wherein stamps were partly cancelled by the staff of the second-respondent, the Kothari Oriental Finance Ltd. which falls under the second category (List C) within ten days of the receipt of the order.
Finding of the Court:
The court held that section 22A of the Securities Contracts (Regulation) Act, 1956 (SCRA) overrides the provisions of section 111 of the Companies Act and that the question as to whether the party is entitled to the relief of rectification of share register on the ground that the instrument was not duly signed should be decided only based on the provisions contained in section 22A of the SCRA. The court further held that the appellant company was not entitled to the relief of rectification of register of its shares both in the light of section 22A of the SCRA and based on the principles of equity, justice and fairness. The court also held that the appellant company's conduct and that of Mr. Saxena, the one man committee, appeared to be mala fide and that reliance upon section 108 of the Companies Act appeared to be only a clear after-thought which was done only to protect the present management at the cost of the respondent companies.
Issues: 1. Whether section 22A of the Securities Contracts (Regulation) Act, 1956 (SCRA) overrides the provisions of section 111 of the Companies Act. 2. Whether the appellant company is entitled to the relief of rectification of register of its shares both in the light of section 22A of the SCRA and based on the principles of equity, justice and fairness.
Ratio Decidendi: 1. Section 22A of the Securities Contracts (Regulation) Act, 1956 (SCRA) overrides the provisions of section 111 of the Companies Act. 2. The appellant company is not entitled to the relief of rectification of register of its shares both in the light of section 22A of the SCRA and based on the principles of equity, justice and fairness.
Final Decision: The appeals preferred by the appellant-company namely, C. M. A. Nos. 1245 to 1251 of 1993 challenging the decision of the Company Law Board refusing to rectify the register in respect of the shares falling under list B are dismissed. The appellant-company Kothari Industrial Corporation Limited shall proceed to finalise and allot rights PCDs and additional rights PCDs to the extent of the entitlement of the 11 respondent companies pursuant to their applications in terms of the letter of offer dated October 15, 1993, within two weeks from today. The other directions of the Company Law Board shall stand vacated.
SWAMIDURAI J.
These appeals are filed against the common order dated October 20, 1993, passed by the Company Law Board, Southern Region Bench at Madras, in C.P. Nos. 1 to 11/111/SRB of 1993. The first set of appeals, namely, C.M.A. Nos. 1245 to 1251 of 1993, have been filed by Kothari Industrial Corporation Limited being partly aggrieved by the decision of the Company Law Board. The appeals filed by the Kothari Industrial Corporation Limited are against (a) direction of the Company Law Board to the company to allot the debentures/shares to the first-respondent in respect of shares covered in lists A and C of annexure I of the order even though the Company Law Board had ordered rectification in respect of the said shares by removing the name of the first-respondent in respect of those shares, and (b) the direction of the Company Law Board to the company to continue to have the name of the first-respondent in its register of members and not in ordering rectification in respect of the shares covered by list "B" of the annexure to the Company Law Board order. The second set of appeals, namely, C.M.As. Nos. 1412 to 1422 of 1993, have been filed by the 11 investment companies who are also partly aggrieved by the common order of the Company Law Board. All these appeals are directed against a common order of the Company Law Board, common arguments were made and, therefore, I propose to pass a common judgment in all these appeals. For the sake of convenience, Kothari Industrial Corporation Limited who have filed the first set of appeals, will be referred to as the appellants and the 11 investment companies, who have filed the second set of appeals and who are also the respondents before the Company Law Board, will be referred to as the 11 respondent companies.
The facts leading to the filing of the appeals are briefly stated as follows :The 11 respondent companies are distinct corporate entities and they have acquired shares in the appellant-company. They lodged the shares with the appellant-company for registration during the months of June, 1991, June, 1992, and September, 1992, with necessary transfer documents. The total number of shares that are allotted for registration are 4, 77, 560 by the 11 respondent companies. All the shares were duly transferred in favour of the 11 respondent companies during July, 1991, June, 1992 and October, 1992. The number of shares acquired by each of the 11 respondent companies, which were duly transferred in their favour are furnished below :
Sl. Name of the company Number of shares
No. transferred
1. Mikantra Trading P. Ltd. 61, 030
2. Maxwell Dyes and Chemicals P. Ltd. 42, 920
3. Swadee Chemicals P. Ltd. 61, 170
4. Lazor Detergents P. Ltd. 64, 430
5. Saki Agencies P. Ltd. 26, 710
6. Alkelite Intermediates P. Ltd. 44, 680
7. Skylab Detergents P. Ltd. 37, 750
8. Navketan Commercials Ltd. 40, 700
9. Shruti Traders Ltd. 43, 590
10. Prolab Synthetic and Detergents P. Ltd. 22, 480
11. Oscar Chemicals P. Ltd. 32, 100
4, 77, 560
Subsequent to the transfer, all the 11 respondent companies have been receiving dividends and had been duly recognised as members of the appellant-company.
On January 25, 1993, the appellant-company proceeded to institute 11 company petitions before the Company Law Board seeking deletion of the names of the 11 respondent companies from the register of members on the ground that it was subsequently found and discovered, just prior to the filing of the petition that the instruments of transfer were defective under three categories in respect of all the shares as follows :Category 1.--That some of the instruments were defective in as much as stamps though affixed were not cancelled.
Category 2.--That in some of the instruments even though stamps had been affixed and had been duly fully cancelled, it was alleged to have been done by the staff of the second-respondent Kothari Oriental Finance Ltd.
Category 3.--In some of the instruments, stamps were partly cancelled by the staff of the second
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