SATYANARAYANA RATHI Vs. ANNAMALAIAR TEXTILES PVT LTD

JUDGEMENT

(1.) THIS is an appeal filed under Section 111(2) and (3) of the Companies Act, 1956 (hereinafter referred to as "the Act"), in the matter of Annamalaiar Textiles Private Limited (hereinafter referred to as "the company") and eight others, being directors of the company to register 13,011 equity shares of the company comprised in share certificates as per details set out in the appeal in the name of the appellant by deleting the names of the second, third and ninth respondents. Respondents Nos. 10 and 11 holding together 1,686 shares of the company have been impleaded at their instance as parties to the proceedings.

(2.) According to the appellant, he is carrying on the business of cotton dealer and supplier in the name of different firms and supplying cotton to various mills. The appellant supplied cotton from time to time to the companies, Seetha Venkatesh Mills Limited, Sri Murugan Mills Private Limited and Arunachaleswarar Mills, which are in the control of respondents Nos. 2, 3, 6, 7 and 8, on the security, among other things, of the impugned shares held in the names of respondents Nos. 2, 3 and 9 who had delivered the share certificates together with the transfer deeds to secure the dues. In spite of repeated demands as well as lawyer's notices these entities failed to settle the outstanding amount, due to the appellant's firms. Consequently, the appellant forwarded the impugned shares together with the transfer deeds to the company in August, 1994, for effecting the transfer in his favour. However, the company had failed to effect the transfer in favour of the appellant on the ground that the transfer of shares was ultra vires the articles of association of the company. The company had neither effected the transfer nor returned the original share certificates. Hence, the appeal.

(3.) SHRI V. S. Subramaniam, senior counsel for the appellant, while reiterating the averments made in the memorandum of appeal submitted that the impugned shares representing the controlling interest account for 52 per cent, of paid-up capital of the company, He drew our attention to the letter dated June 11, 1994 (annexure A-4), of respondents Nos. 2, 3 and 9 stating categorically that in the event of not clearing the dues of the appellant within 45 days, the appellant is at full liberty to get the impugned shares transferred in such manner as the appellant may deem fit and further ensured the smooth transfer of shares. Consequent upon failure on the part of the company to clear the dues the appellant had forwarded the share certificates in respect of the impugned shares together with the transfer deeds to the company by letter dated August 2, 1994 (annexure A-6), for effecting the transfer. The company by letter dated September 8, 1994 (annexure A-8), assured the appellant that the transfer forms and share certificates would be placed at the meeting of the board for necessary action. However, the company, contrary to its assurance, conveyed the refusal of its board of directors at its meeting held on September 30, 1994, to register the transfer of the impugned shares by letter dated August 1, 1994 (annexure A-10), as the same was ultra vires the articles of association of the company. According to Article 15, no share shall be transferred to an outsider if any member of the company is willing to purchase the same at the fair price which shall be determined by the directors. Article 16 prescribes the procedure which shall be adopted in the case of any member proposing to transfer shares. Though the appellant in exercise of his right as a pledgee opted for transfer of the impugned shares for a consideration of Rs. 1,95,06,500 paying the requisite stamp duty, the company neither effected the transfer nor returned the transfer deeds. Respondents Nos. 2, 3 and 9 and directors of the company deliberately failed to follow articles 15 and 16. The dues are neither settled by the company. These acts reveal the mala fide intention of the company. When the matter relating to the transfer of shares was considered in the board meeting held on September 30, 1994, among other directors, respondents Nos. 2, 3, 6 to 8 being the husband, wife and sons attended the meeting and refused the transfer, which is not bona fide. In the circumstances, SHRI Subramaniam submitted that the company may either be directed to transfer the impugned shares in favour of the appellant or ensure compliance with Article 16 by respondents Nos. 2, 3 and 9, safeguarding the interest of the appellant.