REMANIKA SILKS PVT LTD Vs. J C AUGUSTINE

JUDGEMENT

(1.) THIS is a petition filed under Section 111 of the Companies Act, 1956 (hereinafter referred to as "the Act") by M/s. Remanika Silks (P.) Ltd. (hereinafter referred to as "the company") and two others, being director and member of the company for declaration that the transfer of 3,72,000 shares, bearing distinctive numbers 10,001 to 15,000, 2,80,001 to 6,42,500 and 7,92,501 to 7,97,000 in favour of the respondents is illegal and for removal of the names of the respondents from the share register of the company for the reasons stated in the petition.

(2.) The brief facts as stated in the petition and reiterated by C. M. Devan, counsel for the petitioners, in his oral submissions are that the first petitioner-company is a private limited company incorporated under the Act with authorised share capital of Rs. 1,00,00,000 consisting of 10,00,000 equity shares of Rs. 10 each. The company is engaged in the business of purchasing and selling silk sarees and other textiles. The company on its incorporation took over a partnership firm "Remanika Silks" including all assets and liabilities thereof. The second petitioner had extended financial assistance to the aforesaid partnership-firm carried on by respondents Nos. 1 and 2 and as on March 31, 1993, the partnership-firm owed a sum of Rs. 18,66,000 to the second petitioner, as borne out from the extract of the ledger account of Remanika Silks. The balance-sheet of M/s. Remanika Silks as on March 31, 1993, reinforces the amount due and payable to the second petitioner. The ledger account of Remanika Silks for the period from April 1, 1993 to March 31, 1994, discloses that a sum of Rs. 75,000 was due to the second petitioner by the said partnership-firm. On taking over of the assets and liabilities of the aforesaid partnership by the company the second petitioner was allotted shares of the company. The minutes of the board meeting held on October 25, 1993, will show that the shares were allotted to persons who had already subscribed for shares of the company. Accordingly, at the board meeting held on November 29, 1993, 6,67,000 shares were allotted to petitioners Nos. 2 and 3 out of the total shares of 7,77,000. The shareholding pattern at the time of incorporation of the company was as under :

(3.) PURSUANT to the board resolution dated March 8, 1994, the second peti tioner under the honest belief had left with the first respondent signed blank transfer forms for the purpose of reallotment of shares. The first respondent had illegally and without authority transferred many of the shares belonging to petitioners Nos. 2 and 3 in favour of the respondents. The transfers effected by virtue of mere blank transfer forms are illegal and ineffective. Moreover, the transfer is not supported by consideration. This factor came to light only when the second petitioner was appointed as managing director of the company in the place of the first respondent at the extraordinary general meeting of the company held on January 30, 1997. The share money originally contributed by the second petitioner was appropriated by the company towards the overdrawings of the second petitioner, the fact of which is denied by the second petitioner and the capital account of the second petitioner was debited by the impugned transfer without his knowledge and consent, so as to make it appear that shares allotted to the petitioners at the time of incorporation were without consideration. As the share moneys were allegedly due from petitioners Nos. 2 and 3, the company, exercising the power of paramount lien over the impugned shares forfeited them, in violation of articles 29 to 31 of Schedule I, Table A of the Act. The company did not follow the procedure prescribed under articles 15 to 23 regarding the transfer of shares.