Decided on December 11,1995



- (1.) IN this order, we are dealing with two applications--one filed by Shri T. G. Veera Prasad and the other by Tungabhadra Machinery Tools Limited (hereinafter referred to as "TMTL"), under Section 111 of the Companies Act, 1956 (hereinafter referred to as "the Act"), seeking rectification of the register of members of Sri Rayalaseema Alkalies and Allied Chemicals Limited (hereinafter referred to as "the company"), in respect of 40,000 equity shares in the case of T. G. Veera Prasad and 50,000 equity shares in the case of TMTL. As the facts and circumstances in these applications are similar, we are disposing of these two applications by this common order.
(2.) According to the applicants, the company was promoted by the reputed industrial house of the TGL group. The applicants are part of this group. For the project set up by this company, the cost was originally estimated at Rs. 22.71 crores and was later revised to Rs. 27.10 crores. While approving the revised cost, the term-lending institutions stipulated that the promoters' contribution should be Rs. 341 lakhs. Accordingly, the TGL group, its family and its concerns contributed about Rs. 200 lakhs towards equity contribution. The applicant in C, P. No. 2/111/SRB/91 and other concerns belonging to this group contributed Rs. 43 lakhs for 4,30,000 equity shares. All the share certificates belonging to the family of the TGL group together with blank transfer forms were entrusted to the second respondent in both the applications--herein, for the purpose of, if necessary, to pledge the shares with financial institutions, banks for raising finance. However, belying the confidence reposed on him, the second respondent floated a private limited company, viz., the third respondent in both the applications herein-Brilliant Investments Private Limited--(hereinafter referred to as "Brilliant") with his wife and children controlling 99 per cent, of the share capital of the third respondent on February 1, 1988, and transferred nearly 15 lakhs shares belonging to the TGL group to this company on a single day, i.e., June 21, 1988. Out of these shares, 40,000 shares belong to T. G. Veera Prasad and 50,000 shares belong to TMTL. It is alleged in the applications that the third respondent company whose share capital was only Rs. 200 could not have acquired 14.75 lakhs shares on June 21, 1988, and it did not have any resources to buy the shares. The second respondent, since he was in possession of all the share certificates and blank transfer forms, surreptitiously got these shares transferred to the third respondent without payment of any consideration to the original shareholders. Even the company, when shares amounting to nearly 20 per cent, of the share capital of the company were transferred on a single day, never bothered to look into the bona fides of the transaction. Therefore, the transfer of these impugned shares is illegal and void. It is also stated in the applications that some of the members of the TGL group had filed petitions before the High Court of Andhra Pradesh against similar transfer of their shares to Brilliant by respondent No. 2, under Section 155 of the Act for rectification and later on when a compromise was arrived at, these petitions were withdrawn. The impugned shares were purported to have been transferred at the rate of Rs. 3 per share but no consideration was actually paid to the applicants. It is further stated that the applicants came to know of the impugned transfers only when some of the affected members of the company filed petitions before the High Court of Andhra Pradesh, as stated earlier.
(3.) THE company, in its reply stated, that the transfers were considered in the meeting of the committee of directors held on June 21, 1988, in which the said second respondent and other directors were present and as the transfer instruments were proper and were accompanied by share certificates the committee approved the registration of transfers and since the second respondent was an interested party, he did not take part in the proceedings. THErefore, it is stated that the company had registered the transfers with sufficient cause and, therefore, the applicants cannot invoke the provisions of Section 111 of the Act and that too after a period of three years from the date of registration. Thus the applications are not maintainable due to delay and laches on the part of the applicants. Even though the number of shares was large, the company being a listed company, could not refuse the 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 (hereinafter referred to as "the SCR Act"), was satisfied. Accordingly, the company has prayed that the applications be dismissed.;

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