COMPANY LAW BOARD (WESTERN REGION BENCH)

Company Petition

8 of 111 of CLB of WR of 2001

ASHA PURANDARE - Complainant(s)

Versus

INTEGRATED CONTROLS (P ) LTD - Opp.Party(s)

BEFORE: A K Banerji, C R Das

Mahesh Athwale, Prasanna Durade

08 May 2002

ORDER

C. R. Das, Member

[1] Mrs. Asha Purandare (as the petitioner) has filed a petition under Section 111 of the Companies Act, 1956 ('the Act') against Integrated Controls (P.) Ltd. (as the respondent-company) for refusal to transfer 6950 shares of Rs. 100 each in her name. The petitioner in her petition has prayed, inter alia, for the following reliefs :

(a) The respondent-company may be directed to transfer 6950 equity shares in the name of the petitioner;

(b) To issue the share certificates which have been with held by the respondent-company; and

(c) To recognise membership rights of the petitioner henceforth for all purposes.

[2] The facts of the case are as under :

It is stated in the petition that Shri Kishor Karrnarkar (respondent No. 4 referred to in the petition) who was the subscriber and first director of the respondent-company was holding 6950 equity shares of Rs. 100 each. As per Article 10(ii) of the Articles of Association of the respondent-company, the person proposing to transfer any shares, shall give a notice in writing (transfer notice) to the company stating that he desires to transfer the same and the said transfer notice shall not be revocable except with the sanction of the directors. In accordance with the said articles, Shri Kishor Karrnarkar (respondent No. 4) lodged a transfer notice dated 13-2-2001 with the company clearly indicating his intention that he intends to transfer all the 6950 equity shares of Rs. 100 each, which stand registered in his name, in the name of the petitioner, namely, Mrs. Asha Purandare. The said notice of respondent No. 4 was received by the respondent-company on 16-2-2001. The respondent-company vide its letter dated 10-3-2001 informed the respondent No. 4 that the details of equity shares held by him and the description of shares which he gave in his transfer notice dated 13-2-2001 were not matching and, hence, he was requested to intimate the respondent-company about his correct holding. The respondent No. 4 vide his letter dated 20-3-2001 informed the respondent-company that he holds 6950 equity shares of Rs. 100 each and as per Article 10 of the Articles of Association, he intends to transfer all the 6950 shares to the petitioner. The respondent-company also received letters dated 29-3-2001 from two directors, namely, Shri C.D. Paranjpe and G.M. Patwardhan (respondent Nos. 2 and 3 in the present petition) showing their willingness to buy the holding of respondent No. 4 at the price of Rs. 1 per share being the fair market price. The respondent-company vide its letter dated 30-3-2001 rejected the transfer of said 6950 equity shares in favour of the petitioner by returning the transfer deeds to the petitioner and withholding the share certificate with the company. The respondent-company rejected the transfer on the following grounds :

(a) The transfer notice dated 13-2-2001 given by respondent No. 4 to company does not constitute a valid transfer notice as the same had material discrepancy and typographical errors.

(b) The details and description, given by the respondent No. 4 in his transfer notice dated 13-2-2001 is in respect of 6700 equity shares, while respondent No. 4 holds 6950 equity shares of Rs. 100 each.

(c) The respondent-company was not in a position to note as to the exact holding of respondent No. 4 and what shares he desired to transfer.

(d) The transfer has been rejected by the respondent-company as per the provisions of Article 10 of the Articles of Association of the company.

[3] Both the respondent-company and the petitioner filed their respective reply and rejoinder.

[4] The case was listed for hearing on 21-11-2001 and was adjourned at the request of respondent-company who vide its letter dated 21-11-2001 intimated that since their advocate has to go out of station, hence, he will not be available for the proposed hearing on 21-11-2001.

[5] The case was again listed for final hearing on 4-4-2002. Shri Mahesh Athavale, practising company secretary, appearing on behalf of the petitioner, while reiterating the submissions made in the petition of the petitioner, submitted that the respondent-company has wrongfully refused to register the transfer of 6950 equity shares of Rs. 100 each from respondent No. 4 to the petitioner. He further submitted that respondent No. 4 had complied with the procedure as laid down by Article 10 of the Articles of Association of the respondent-company and, hence, the respondent No. 1 company was duty bound to register the transfer. Shri Mahesh Athavale further submitted that the transfer notice of 13-2-2001 given by respondent No. 4 contained a list of distinctive number of the shares to be transferred in the name of the petitioner, which contained a minor error of omission of details of 250 shares to be transferred. This error was, in any case, corrected by further letter dated 20-3-2001. He submitted that it was a typographical error in the notice dated 13-2-2001 and that too a trifle matter to invalidate the transfer notice. The intentions of respondent No. 4 were made very clear in the said notice dated 13-2-2001 by stating that he intends to transfer all the 6950 equity shares of Rs. 100 each. He emphasised on the word 'all'. He further added that even without the details of shares, the notice would have been valid, which is in accordance with Article 10 of Articles of Association. The rights of the petitioner and respondent No. 4 were denied to them on minor grounds of some technical discrepancy. Such technical and minor issues cannot encroach upon the natural and legal rights of the members of the company. Shri Mahesh Athavale while arguing the case submitted that technicalities of law arc not more important than rights created by law. Principles of equity, fair play and justice cannot be denied on the ground of technical and typographical errors. In support of his contentions, Shri Mahesh Athavale cited the following decided cases :

* Rangilal Choudhury v. Dahu Sao 1961-SC2-GJX-0218-(SC). In this case, it was held by the Hon'ble Judges that defects of unsubstantial character cannot lead to rejection of election nomination paper.

* Gore Lal Shakya v. Maharaj Singh Yadav 1993-SC2-GJX-0583-(SC) -In this case, it was held by the Hon'ble Judges that typographical errors cannot invalidate the election petition.

[6] Mr. Prasanna Darade, advocate appearing on behalf of the respondent Nos. 1 to 3 to petition, submitted that the respondent-company as per article 10 of the Articles of Association has rightly rejected to register the transfer of 6950 equity shares in the name of the petitioner, mainly on the grounds (i) the transfer notice dated 13-2-2001 did not contain the correct information of the shares to be transferred. The details and description given in the transfer notice dated 13-2-2001 amounted to only in respect of 6700 equity shares, whereas respondent No. 4 was holding 6950 equity shares, (ii) the respondent-company was not in a position to note as to the exact holding of respondent No. 4 and which shares he desired to transfer. Mr. Prasanna laid the emphasis that the transfer notice dated 13-2-2001 does not constitute a valid transfer notice as the same had material discrepancy and typographical errors.

[7] We have gone through the reply and rejoinder filed by the respondent-company and the petitioner, the submissions made by Shri Mahesh Athavale, practising company secretary and authorised representative appearing on behalf of the petitioner and also the submissions made by Shri Prasanna Darade, the counsel appearing on behalf of respondent Nos. 1 to 3 and note that the transfer notice dated 13-2-2001 given by Shri Kishor Karmarkar, respondent No. 4, clearly indicates his intention that he intends to transfer all the 6950 equity shares of Rs. 100 each in the name of the petitioner. We also note that there is a typographical error in mentioning one number of share certificate consisting of 250 shares. It is also observed that the transfer notice dated 13-2-2001, which is in accordance with Article 10 of the Articles of Association, clearly indicated that the respondent No. 4 intended to transfer all his shares which includes 250 shares also.

Moreover, article 10 of the Articles of Association does not require the detailed particulars of the shares, which are intended for transfer. We feel that this is a minor omission which could have been waived by the company after verifying its record and this minor typographical omission does not make the transfer notice dated 13-2-2001 invalid as per Article 10 of the Articles of Association of the respondent-company.

[8] The point to be considered, therefore, is whether the reason given by respondent-company in its letter dated 30-3-2001 refusing to register the transfer was with or without sufficient cause. In the case of Estate Investment Co. (P.) Ltd. v. Siltap Chemicals Ltd., 1999 96 CompCas 217, while interpreting the term 'sufficient cause' it was held as follows :

''... The term 'sufficient cause' as used in the proviso to Sub-section (2) has, therefore, to be seen with reference to the grounds under which a register can be rectified after registration. Under these circumstances, only when a company refuses to register the transfer of shares on the grounds that transfer is in violation of the provisions of the Securities and Exchange Board of India Act or Regulations thereunder, the provisions of the Sick Industrial Companies (Special Provisions) Act or any other law for the time being in force, such refusal could be considered to be with sufficient cause. Refusal on any other ground in respect of a public company cannot be considered to be sufficient cause for such refusal.'' (p. 232)

In view of the settled legal position as stated above, the reason for refusal by the company to register the transfer of shares in the name of the petitioners does not fall within the meaning of 'sufficient cause'.

[9] Taking into consideration the facts and circumstances of the case and reply filed by the respondent-company and rejoinder by the petitioner and also the submissions made by both the authorised representatives of the respondent-company and the petitioner, and also the fact that the plea of the respondent is not tenable, because since it is a private limited company, the provision of Table A in Schedule I to the Act has been made applicable to this company. They are applicable to private companies except so far as have been impliedly or expressly modified by what is contained in the articles. Article 10(iii) has specifically provided that within 30 days after being served with a transfer notice, the directors shall give notice to the proposing transferor in writing naming the person to whom the proposing transferor shall be bound upon payment of the fair value to transfer the shares. Accordingly, the respondent No. 4 has given notice to the respondent-company pursuant to the said provisions of Article 10(ii) of the Articles of Association of the respondent-company. We are, therefore, convinced that the company should register the transfer of impugned shares in favour of the petitioner. Accordingly, we hereby direct the respondent-company to transfer the impugned shares in favour of the petitioner within 30 days of lodging of the executed instrument of transfer by the petitioner, as the original share certificate-is lying with the respondent-company, which has not been returned to the petitioner along with the transfer deed. The petition is disposed of accordingly.

No order as to costs.

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