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1985 Supreme(Ori) 426
IN THE HIGH COURT OF ORISSA
P.C. Misra, J.
PRAFULLA KUMAR ROUT - APPELLANT
Versus
ORIENT ENGINEERING WORKS P. LTD. AND OTHERS - RESPONDENT
Company Act Case No. 4 of 1984
Decided On : 01-03-1985
Asok Mohanty, Bimal Pr. Das and Sashi Das, for the Appellant; Jagannath Das, I.C. Das, R. Ch. Mohanty and R.K. Mohanty, for the Respondent
A shareholder who has transferred all his shares in a company loses his locus standi to maintain an application under Sections 397 and 398 of the Companies Act, 1956, seeking the appointment of a special officer or administrator to take custody of the company's assets and affairs.
Headnote:
COMPANY LAW - SHARE TRANSFER - VALIDITY - LOCUS STANDI - TRANSFER OF SHARES - EVIDENCE - BURDEN OF PROOF - ARTICLES OF ASSOCIATION - VIOLATION - STAMPING OF INSTRUMENT OF TRANSFER - CANCELLATION OF ADHESIVE STAMPS - INTERPRETATION OF STATUTORY PROVISIONS.
Fact of the Case:
Petitioner, a shareholder and executive director of the company, filed an application under Sections 237, 397, 398, and 402 of the Companies Act, 1956, seeking the appointment of a special officer or administrator to take custody of the company's assets and affairs. The petitioner alleged mismanagement, irregular maintenance of accounts, and non-audit of the company's accounts since 1980. The opposite parties, including the managing director, denied the allegations and claimed that the petitioner had resigned from the directorship and transferred all his shares in the company.
Finding of the Court:
The court found that the petitioner had transferred all his shares in the company to the managing director, opposite party No. 2, as evidenced by the share transfer form (exhibit 3) and the letter of resignation (exhibit 4). The court held that the petitioner's signatures on these documents were genuine and that he was bound by their contents. The court also found that the transfer of shares was duly accepted and given effect to by the board of directors and that the necessary entries were made in the share register.
Issues: 1. Whether the petitioner had locus standi to maintain the application, given the alleged transfer of his shares in the company. 2. Whether the transfer of shares was valid and complied with the requirements of the Companies Act and the company's articles of association. 3. Whether the instrument of transfer was properly stamped and cancelled.
Ratio Decidendi: 1. Locus Standi: The court held that the petitioner lacked locus standi to maintain the application because he was no longer a shareholder of the company at the time of filing the application. The court relied on the presumption of membership based on the register of members and the absence of any application by the petitioner for rectification of the register under Section 155 of the Companies Act. 2. Validity of Share Transfer: The court found that the transfer of shares was valid and complied with the requirements of Section 108 of the Companies Act. The court held that the affixing of stamps on the instrument of transfer prior to its execution was not required, as per Section 108(1A)(b) of the Act. The court also found that the notice requirement under Section 110 of the Act was not applicable since the petitioner had not made any application for the transfer of shares. 3. Stamping and Cancellation: The court held that the adhesive stamps affixed to the instrument of transfer were properly cancelled by putting "cross" ("X") marks in ink over them. The court relied on Section 12 of the Indian Stamp Act, 1899, which provides for the mode of cancellation of adhesive stamps.
Final Decision: The court dismissed the petitioner's application, holding that he lacked locus standi and that the transfer of shares was valid and complied with the relevant legal provisions.
JUDGMENT :
P.C. Misra, J. - This is an application under Sections 237: 397: 398 read with Section 402 of the Companies Act of 1956 (for short, hereafter " the Act "), praying for appointment of a special officer or administrator to take custody of the books, papers, documents and assets of M/s. Orient Engineering Works (P.) Ltd. (hereafter called " the company ") and also to take over the affairs and management of the company. A further prayer has also been made for directing an investigation to be made into the dealings of the funds, assets and affairs of the company by opposite parties Nos. 2 to 6 and for other consequential reliefs.
2. The petitioner claims to have become a shareholder of the company in the year 1975-76 and after acquiring 460 equity shares of Rs. 100 each became a full time executive director in the year 1979 with a remuneration of Rs. 1,500 subject to an enhancement of Rs. 250 per year. Opposite party No. 2, Trailokyanath Mohanty, is the managing director of the company. According to the petitioner, the company after its incorporation took various loans from the Orissa State Financial Corporation and from the State Bank of India which were to be operated by the managing director and/or the petitioner. The company engages itself in manufacturing various agricultural equipments and in the interest of the company, the petitioner went to Japan, Philippines, Malaysia, Singapore, Hong Kong and Taiwan in December, 1980, and came back in January, 1981. After his return, the petitioner alleges that he is being treated indifferently by opposite party No. 2, instead of allowing him to implement his knowledge and ideas acquired during the visit to the foreign countries. He has further alleged that opposite party No. 3, who is the son-in-law of the managing director-opposite party No. 2, and opposite party No. 4, who is the wife of opposite party No. 2, started interfering in all the affairs of the company and opposite party No. 3 was appointed as a full-time manager of the company. Various acts of mismanagement have been alleged and it has been stated that both opposite parties Nos. 2 and 3 are maintaining the accounts of the company in an irregular manner and there has been no audit of the company since 1980. They have also withdrawn a huge amount of money of the company under false vouchers and it is alleged that the general body meeting of the company has not been conducted since September, 1980. When the petitioner went to the office of the Registrar of Companies for verification of the records of the company, he found that Form No. 32 has been filed under the signature of the managing director on March 11, 1983, wherein it has been shown that the petitioner has resigned from the directorship which, according to the petitioner, is not a fact. The petitioner alleges that all these acts are being done to defraud the petitioner and the company for which the present application has been filed.
3. A preliminary counter-affidavit has been filed on behalf of opposite parties Nos. 1, 2, 4 and 5 denying all the allegations made in the application. It has been stated in the counter-affidavit that the petitioner not being a member or a shareholder of the company on the date of filing of the application has no locus standi to maintain the same.
4. I need not make a mention of all the objections taken in the counter-affidavit as by order dated December 14, 1984, an inquiry was directed on the preliminary issue as to whether the petitioner has the locus standi to maintain this application. In the counter-affidavit, it has been alleged that the petitioner has transferred all his shares in the company and has voluntarily resigned from the directorship of the company more than a year back and thus he was not a shareholder of the company on the date of presentation of this application on March 23, 1984. Both the parties were allowed to lead evidence, both oral and documentary, on this preliminary issue. Admittedly, the petitioner was
