Vimla Yadav, - (1.) IN this order I am considering Company Petition No. 102 of 2005 filed by Praveen Bhargava and Ms. Manjari Bhargava against M/s. Calcutta Phototype Co. Ltd. and Ors. alleging certain acts of oppression and mismanagement under Sections 397 and 398 of the Companies Act, 1956 (hereinafter referred to as 'the act').
(2.) The undisputed facts of the case are: M/s Calcutta Phototype Company Limited and Ors. the Respondent No. 1 company, having its registered office at 6, Jawahar Lal Nehru Road, Kolkata on 6.1.1949. Subsequently its name was changed to The Calcutta Phototype Limited pursuant to Section 23(1) of the Companies Act, 1956. The main object of the company was to take over as a going concern the business of inter alia, printers, stationers as general merchants, contractors, agents, importers, exporters actors, warehouseman, ship owners and carries by land and sea, etc. The company is a closely held company as majority of its shareholders come from the same family and have utmost trust, the confidence and good faith between the family members. In view of the trust, faith and confidence documents and agreement are executed and admitted on oral assurance. The shareholding of the respondent No. 1 company at the time of incorporation was Rs. 5 lac wherein the petitioner group was holding majority share calculating at 66.66% and the respondent No. 2 to 5 were holding 33.33%. Shri U.K. Chaudhary, Counsel for the petitioners pointed out that the petitioner No. 1 Shri Parveen Bhargava son of late Shri P.N. Bhargava, Resident of 6, J.L. Nehru Road, Kolkata who is director as well as shareholder of the respondent No. 1 company holding 1245 equity share of Rs. 100/- each had executed a deed of assignment of shares in favour of respondent No. 2 namely Smt. Ruchi Bhargava (wife of Shri Vijay Bhargava, elder brother of the petitioner No. 1 thereby assigning the voting rights and other rights and entitlements in respect of his shareholding in favour of respondent No. 2 as the petitioner No. 1 was not able to devote sufficient time to look after the day to day affairs of the company and only on the persistent request of the respondent No. 2 expressing he interest to run the affairs of the company in a more efficient manner the petitioner No. 1 assigned his shares. He had utmost trust, the confidence and the good faith between the family members, in view of such trust, faith and confidence, documents and agreements were executed and admitted on oral assurance. It was further pointed out that the petitioner No. 2 Ms. Manjari Bhargava daughter of petitioner No. 1, is also a shareholder in the company holding 680 equity shares of Rs. 100/- each before execution of assignment deed dated 16.12.1997 executed by her father in favour of respondent No. 2. The petitioner No. 2 was holding the aforesaid shares as a minor under the guardianship of her father. It was, however, observed that the company's performance was deteriorating day by day so much that company's net worth got fully eroded as on 31.3.2004. The petitioner No. 1 sometimes in the year 2004 wrote to respondent No. 2 to return the shares to him. At this point, the petitioner No. 1 came to know that the respondent No. 2 fraudulently got the shares of the petitioners transferred in her name with malafide intention of taking control of the company. The petitioner No. 2 after attaining majority has come to know that the deed of assignment dated 16.12.1997 was executed when the petitioner No. 2 was a minor and her father has assigned the voting right only on the persistent request of the respondent No. 2 to run the affairs of the company efficiently. It was pointed out that a careful perusal of assignment deed (at page 87) would make it clear that the consideration amount was left blank as the consideration was to be paid on actual transfer of shares and execution of the transfer deeds. It clearly demonstrated, it was argued, that the blank space was filled up later on by the respondent No. 2 with malafide intention to get the shares transferred in her favour fraudulently. The petitioner No. 1 could not have chosen to remain a director in the company after selling the shares and also furnishing his guarantee to the bank. The purpose behind execution of deed was not to transfer the ownership rights of shares but only the right attached thereto. Moreover, the respondent No. 2 has evidently not paid any amount to the petitioner in respect of execution of assignment deed and, therefore, the execution of assignment deed being without consideration cannot have any legal effect. The transfer of shares held by the petitioners in favour of respondent No. 2 is illegal being without consideration and having been obtained by misrepresentation. It was pointed out that for sale of shares, either there is execution of transfer deed or an agreement to sell. As sale, except a spot delivery sale is prohibited by law under the Securities Contract Regulations Act, no agreement to sale could have been signed. Hence, deed of assignment was executed.
(3.) THE counsel for the petitioners argued that the Deed of Assignment dated 16.12.1997 is liable to be annulled as also the transfer of shares of petitioners in favour of respondent No. 2 are to be cancelled and restored in favour of the petitioners for the following reasons: a. No consideration has been paid pursuant to the Assignment of shares. A careful perusal of the assignment deed, it was argued, would reveal that the consideration of Rs. 1,92,500/- was inserted subsequently by way of interpolation by the respondent No. 2. Had the intention of petitioner No. 1 been to transfer the shares in favour of respondent No2, the petitioner No. 1 would not have agreed to sell the said shares at a price much below the book value of the shares at that point of time. This fact is verifiable from the certificate of the. Chartered Accountant at page 100 of the petition wherein the value of the shares of the Respondent No. 1 company as on 31.3.1997 was Rs. 1036.52 per shares. It was argued that the whole argument of the respondents that the consideration has been paid has no merit and the same is liable to be ignored. Further, the petitioner No. 1 could not have chosen to remain a director in the company after selling the shares. Thus, it is clear that the purpose behind execution of deed was not to transfer the ownership rights of shares but only the interest therein. In fact, no consideration was to be paid and it was to be paid if shares are eventually sold and/or transferred. On the ratio that in case no consideration is paid the transfer is void, the judgment of the Apex Court in the matter of John Tinson and Co., Pvt. Ltd. v. Surjeet Malhan AIR 1977 SC 1411 was relied upon wherein the Hon'ble Supreme Court has clearly stated that if a transfer is without consideration, then the agreement for transfer of shares is void (para 6 of the judgment refers). THErefore, it was argued that the present case when the value of the shares was more than 1000 per share, the same could not have been transferred at mere paltry sum of 100 per share. THErefore, the above consideration was no consideration in the eyes of law and in view of the judgment of the Hon'ble Supreme Court. THErefore the alleged transfer is liable to be set aside on this ground alone. In this regard, it is pertinent to mention here that the witness of the assignment deed namely, Mrs. Neelima Bhargava and Mr. Vijay Bhargava have also confirmed that there was no consideration paid. In this regard, the respondent have also argued if an affidavit in a proceeding has been filed in such case the witness who have signed the affidavit are required to depose. It was pointed out that the proceedings before this Hon'ble Board are in the nature of summary proceedings. Further, if the respondents had desired for cross examination then it was incumbent upon them to move an appropriate application for cross examination which the respondents have not done; therefore, it does not lie in the mouth of the respondents to argue regarding cross examination of the witnesses. THErefore, the above argument is liable to be ignored and rejected, b. It was argued that the deed of assignment was actually executed in view of inability of the petitioner No. 1 to participate in the affairs of the respondent No. 1 company and also because the respondent No. 2 being the wife of the elder brother of the petitioner No. 1 and requesting persistently to assign the voting rights so that the affairs of the respondent No. 1 company may be conducted more efficiently. In this regard, my attention was drawn to the letter dated 2.3.2002 and 3.11.1998 wherein the petitioner had clearly stated that he is not willing to undertake the day to day responsibility of the company and, therefore, he was assigning the shares in favour of respondent No. 2. c. Further, it was argued that the execution of assignment deed was primarily because of misrepresentation caused by the respondent No. 2 who promised that she would run the affairs of the company more efficiently and honestly and thereafter the petitioners realized that the effort was only to procure ownership rights of the shares thereby taking control of the company and then siphon off funds which was evident from the subsequent performance of the respondent No. 1 company. In this regard, my attention was drawn to the Balance Sheet of the respondent No. 1 company for the year 2004-2005 at page 122 of the petition which clearly showed huge losses on account of mismanagement and non-performance by the respondent No. 2. Further, it was argued that the respondent No. 1 company has been declared a sick company and reference has been registered by the Hon'ble Board for Industrial and Financial Reconstruction. Further, the company's financial conditions has been deteriorating and the company is facing debts to the tune of Rs. 40 lakhs towards banks and institutions and another Rs. 45 lakhs towards other creditors. d. It was argued that since the petitioners have not received any consideration for the alleged assignment of rights n respect of shares and the petitioners are filing affidavits of the witnesses who signed the deed of assignment as a witness to the effect that no consideration was actually paid. e. It was contended that the transfer of shares is illegal if it is done without completing the formalities of proper transfer form and if the intention would have been to transfer the shares the same could have been done by filing the share transfer form and not by Deed of Assignment. It has been argued by the Respondents that assignment of deed is a transfer and Section 108 does not bar any other method of transfer. In this regard, it has been stated that in case a person dies then succession takes place which has been affirmed even by the Hon'ble Supreme Court. It was pointed out that the provisions of Section 108 of the Companies Act, 1956 regarding transfer of shares are mandatory in nature and all the compliances are to be strictly followed before any shares are to be transferred in the company. Reliance was placed on the judgment of the Apex Court in the matter of Manna Lal Khaitan AIR 1997 SC 536 is relevant to Court wherein the Apex Court has clearly held that provisions of 108 regarding transfer are mandatory in nature and any transfer in violation of Section 108 will be void. In case of death of a person, the same are not transfer of shares but transmission of shares, which is a totally independent and separate right. Further, the transfer of shares by the existing shareholders to other shareholders also is required to be followed Transfer in a particular manner as held by the Hon'ble Calcutta High Court in the matter of Bhubneshwar Singh and Anr. v. Kanthal India Ltd. and Ors. 1986 59 CC 46 wherein it has been held 'that the only way in which the shares could be transferred wherein transferor has consented to such transfer and waived their preemptive rights. Such consent or waiver had to be given by each individual shareholder and could not be inferred from the presence of any shareholder as representing a group at a Board Meeting or even by his implied assent". THErefore, there is no legal and valid transfer in the eyes of law and the same is liable to be ignored. f. THE transfer is otherwise also invalid under the Securities Contract Regulation Act, as sale, except a Spot delivery. Sale is prohibited by law under the Securities Contract Regulation Act, no agreement to sale could have been signed. Hence, the deed of assignment was executed to transfer rights in shares, pending execution of transfer deed and payments of consideration for spot delivery of shares. Deed of assignment is executed for transfer of rights and not goods. As shares are goods under the Sale of Goods Act, the same cannot be sold by deed of assignment and requires sale agreement between the parties. Hence, deed of assignment is not a sale agreement or an agreement to sell, and if so treated it will be void under the provisions of Securities Contract Regulation Act. g. It was argued by the respondents that the witnesses who has signed the assignment deed at pg.90 of the petition have not deposed and as per the various decisions of the Hon'ble Supreme Court if an affidavit is filed and no cross examination is done, the affidavit is nullity. It is submitted that the above argument have no merit as the petitioners have already established from the various reasons mentioned above and also the various reasons provided at page 13 of petition that the assignment deed does not amount to transfer of shares. Further, if the respondents desired to cross-examine the witnesses who have signed the assignment deed, then it was incumbent upon the respondents to more appropriate application before this Hon'ble Board for cross-examination of the witnesses. However, no steps were taken by the respondents and it does not lie in the mount of the respondents to argue the same at this stage when they themselves failed to take steps in this regard. THErefore, there is no merit in the above argument and the same is liable to be ignored and rejected, h. It was also argued by the respondents that the company has received an affidavit and form 1 from the petitioner dated 6.1.1998 for declaration in terms of Rule 3(1) and Section 187C(1) of the Companies Act, 1956. THE said documents were handed over by the counsel or the respondent No. 2 at the time of hearing. THEreafter, the requirements in terms of the Section 187C for Form Ii and Form III were also completed by the company. THE above argument further strengthens the argument of the petitioner that the said shares were only assigned in favour of the respondent No. 2. It is pertinent to note, that if we assume the arguments of the respondents that the said shares were legally and validly transferred in favour of the respondent No. 2, then in such a case their was no need to file Form I, II and III in terms of Section 187c, because the filing of form I, II and III is only required when there is only a beneficial interest in the company. THErefore, it was argued, it is clear the compliance of Section 187C was followed by the company and there was only a beneficial interest of the respondent No. 2. in the shares of the petitioner and no transfer as alleged by the respondent No. 2. THErefore, the alleged transfer is liable to be set aside on this ground alone.;