K MD FAROOQ AHMED Vs. FORTRAN CIRKIT ELECTRONICS P LTD

JUDGEMENT

(1.) THIS is an application under Section 111 of the Companies Act, 1956. (hereinafter referred to as "the Act"), seeking rectification of the register of members of Fortran Cirkit Electronics Private Limited, the first respondent (hereinafter referred to as "the company"). Originally, the petitioner had sought for removal of his name from the register of members and entry of the name of the second petitioner in view of the transfer of shares effected by petitioner No. 1 in favour of petitioner No. 2. Later, he made an amendment to the prayer on the ground that the impugned shares had been later forfeited by the company and resold to respondent No. 7 and as such he has sought for entry of his name first in the register by removing the name of respondent No. 7 and later entry of petitioner No. 2.

(2.) The facts of the case are, that, 10,090 equity shares in the company were issued as fully paid shares to the petitioner who was one of the promoters of the company as well as subscriber to the memorandum and articles of association. These shares were issued on various dates during the period from September 27, 1984, to July 31, 1986. At the time of incorporation of the company, the petitioner was a non-resident Indian and he returned to India permanently on August 17, 1986, after obtaining transfer of residence with effect from September 19, 1986. The share certificates were authorised to be issued in various board meetings and respondent No. 3 who is the present managing director of the company was authorised to sign the share certificates. These shares were pledged by petitioner No. 1 as security with respondent No. 2 for availing of various credit facilities and presently the share certificates are with respondent No. 2. The petitioners and the then directors of the company entered into an agreement with petitioner No. 2 for sale of all the shares in the company, and consequently petitioner No. 1 transferred the shares at face value to petitioner No. 2 some time in November, 1987. The necessary transfer documents were executed on May 15, 1993, and were lodged with the company. However, the other directors who were parties to the agreement did not transfer their shares. While the transfer deeds were with the company, the company had issued notice to petitioner No. 1 on July 12, 1993, calling upon him to pay the consideration amount of Rs. 10,09,000 being the face value of the impugned shares, alleging that no money was paid on the shares at the time of allotment even though they were issued as fully paid. To substantiate non-payment towards shares, the company had relied on two stamped receipts alleged to have been executed by petitioner No. 1 on January 31, 1987, for Rs. 8.5 lakhs and Rs. 1.59 lakhs. According to the petitioner, the stamped receipts (vouchers) were not genuine and the shares were issued to him as fully paid in consideration of the various sums of money the petitioner had spent for the benefit of the company. He had also relied on various statutory documents filed with the Registrar of Companies in this regard. Therefore, according to the petitioner, not only is the forfeiture wrong and invalid but also the failure to enter the name of petitioner No. 2 is wrong and invalid and as such he has sought for rectification of the register of members.

(3.) ACCORDING to respondent No. 2, the impugned shares are held by them as security for the due repayment of the seed capital and soft loans availed of, by the company. There is no record to show that, before exercising the right of transfer, the first petitioner had complied with the provisions of Section 82 of the Act, and clauses (5) and (6) of the articles of association of the company. The first petitioner did not obtain the approval in writing from respondent No. 2 and other financial institutions before the transfer of the impugned shares in favour of the second petitioner. By virtue of Section 84 of the Act, shares having been allotted to the first petitioner and duly registered, the second respondent cannot enquire into the validity or otherwise of the allotment. The company ought not to have forfeited and resold the impugned shares without obtaining the permission of the second respondent.